In with the old and out with the new

The Supreme Court recently considered the rules on implying terms into contracts. As arguments about implied terms are such a common feature of contractual disputes, the judgment is likely to be of interest to all commercial parties. The key points are:

A term should only be implied into a contract where this is (1) necessary to give business efficacy to the contract or (2) so obvious that it goes without saying.

  • These are alternative tests: it is not necessary to satisfy both of them. However, it will be a rare case where one test is satisfied and the other is not.
  • It is not sufficient to show that the proposed implied term is fair or reasonable, or that the parties would have agreed to the implied term if it had been suggested to them.
  • The question of whether a term should be implied should be determined as at the date of the contract. Hindsight should not be applied.
  • No term can be implied into a contract if it contradicts an express term.
  • Terms are less likely to be implied in lengthy and detailed contracts, which have been entered into by sophisticated parties with the benefit of legal advice.

This is a marked departure from the approach taken by the Privy Council in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988. Lord Hoffmann’s judgment in that case should no longer be regarded as authoritative.

 

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