Implied terms in English law
Encyclopedia
Implied terms in English law refers to the practice of setting down default rules for contract
s, when terms that contracting parties expressly choose run out, or setting down mandatory rules which operate to override terms that the parties may have themselves chosen. The purpose of implied terms is often to supplement a contractual agreement in the interest of making the deal effective for the purpose of business, to achieve fairness between the parties or to relieve hardship.
Terms may be implied into contract through statutes or by the courts. When implied by statute, Parliament may well make certain terms compulsory. The examples are numerous. For instance, the National Minimum Wage Act 1998
, provides that in any contract for work, the worker must be paid according to a minimum wage set by Parliament (currently £6.08 per hour for workers aged 21 or over). Another example is that under the Unfair Contract Terms Act 1977
, provisions of the Sale of Goods Act 1979
, such as that goods for sale must be of satisfactory quality, become compulsory in contracts with consumers, or can only be excluded when reasonable in contracts among businesses. When terms are implied by courts, the general rule is that they can be excluded by express provision in any agreement. The courts have developed an apparent distinction between terms implied "in fact" and those implied "in law". Terms implied "in fact" are said to arise when they are "strictly necessary" to give effect to the "reasonable expectations of the parties". Terms implied "in law" are confined to particular categories of contract, particularly employment contracts or contracts between landlords and tenants, as necessary incidents of the relationship. For instance, in every employment contract, there is an implied term of mutual trust and confidence
, supporting the notion that workplace relations depend on partnership.
There is also an ongoing debate as to whether the rules of remoteness
and frustration
or common mistake are best characterised as implied terms. Remoteness places a limit on the compensatory award given for breach of contract, so if unlikely losses result or losses are not something that one would generally expect compensation for, compensation is not payable. Recent judicial support for its status as an "internal" rule and as an implied term derives from the judgment of Lord Hoffmann in The Achilleas. Frustration is a rule which brings contracts to an end in the event of some unforeseen event subsequent to the agreement which would make performance of obligations radically different from that envisaged, for instance because a car for sale is destroyed before it is delivered. Common mistake, as a doctrine, following The Great Peace, analogous to frustration, can similarly be said to imply a term that a contract will be extinguished if entered into on the false pretence that performance would be possible.
One of the older cases illustrating this is Hutton v Warren. Mr Warren, a landlord, leased his farm to Mr Hutton. The tenant complained that it was the countryside's custom that landlords would keep the land arable and give a reasonable allowance for seeds and labour in return for leaving manure to be purchased. Parke B held there was such a custom and that
Like all terms implied by courts, customs can be excluded by express terms or not if they are inconsistent with a contract's nature. Lord Devlin in Kum v Wah Tat Bank Ltd summed up the policy of the law well.
Such an idea has been rejected in later cases, with the ideas of Krell v Henry and Davis Contractors v Fareham UDC being preferred. This is that a contract should be found frustrated where the principal purpose for contracting becomes radically different to the original purpose, as explained by Lord Reid
:
English contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
s, when terms that contracting parties expressly choose run out, or setting down mandatory rules which operate to override terms that the parties may have themselves chosen. The purpose of implied terms is often to supplement a contractual agreement in the interest of making the deal effective for the purpose of business, to achieve fairness between the parties or to relieve hardship.
Terms may be implied into contract through statutes or by the courts. When implied by statute, Parliament may well make certain terms compulsory. The examples are numerous. For instance, the National Minimum Wage Act 1998
National Minimum Wage Act 1998
The National Minimum Wage Act 1998 creates a minimum wage across the United Kingdom, currently £6.08 per hour for workers aged 21 years and older, £4.98 per hour for workers aged 18–20...
, provides that in any contract for work, the worker must be paid according to a minimum wage set by Parliament (currently £6.08 per hour for workers aged 21 or over). Another example is that under the Unfair Contract Terms Act 1977
Unfair Contract Terms Act 1977
The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...
, provisions of the Sale of Goods Act 1979
Sale of Goods Act 1979
The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulates English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidates the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and...
, such as that goods for sale must be of satisfactory quality, become compulsory in contracts with consumers, or can only be excluded when reasonable in contracts among businesses. When terms are implied by courts, the general rule is that they can be excluded by express provision in any agreement. The courts have developed an apparent distinction between terms implied "in fact" and those implied "in law". Terms implied "in fact" are said to arise when they are "strictly necessary" to give effect to the "reasonable expectations of the parties". Terms implied "in law" are confined to particular categories of contract, particularly employment contracts or contracts between landlords and tenants, as necessary incidents of the relationship. For instance, in every employment contract, there is an implied term of mutual trust and confidence
Mutual trust and confidence
Mutual trust and confidence is a phrase used in English law, particularly with reference to contracts in UK labour law, to refer to the obligations owed in an employment relationship between the employer and the worker....
, supporting the notion that workplace relations depend on partnership.
There is also an ongoing debate as to whether the rules of remoteness
Remoteness
Remoteness in English law is a set of rules in both tort and contract, which limits the amount of compensatory damages for a wrong.In negligence, the test of causation not only requires that the defendant was the cause in fact, but also requires that the loss or damage sustained by the claimant was...
and frustration
Frustration
This article concerns the field of psychology. The term frustration does, however, also concern physics. In this context, the term is treated in a different article, geometric frustration....
or common mistake are best characterised as implied terms. Remoteness places a limit on the compensatory award given for breach of contract, so if unlikely losses result or losses are not something that one would generally expect compensation for, compensation is not payable. Recent judicial support for its status as an "internal" rule and as an implied term derives from the judgment of Lord Hoffmann in The Achilleas. Frustration is a rule which brings contracts to an end in the event of some unforeseen event subsequent to the agreement which would make performance of obligations radically different from that envisaged, for instance because a car for sale is destroyed before it is delivered. Common mistake, as a doctrine, following The Great Peace, analogous to frustration, can similarly be said to imply a term that a contract will be extinguished if entered into on the false pretence that performance would be possible.
Implication by statute
- Sale of Goods Act 1979Sale of Goods Act 1979The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulates English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidates the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and...
, ss 12-15 and s 55 "may (subject to the Unfair Contract Terms Act 1977) be negatived or varied by express agreement or by the course of dealing between the parties, or by such usage as binds both parties to the contract." - Unfair Contract Terms Act 1977Unfair Contract Terms Act 1977The Unfair Contract Terms Act 1977 is an Act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of...
s 6 makes s 12 non-excludable and ss 13-15 non-excludable in consumer sales.
- Supply of Goods and Services Act 1982Supply of Goods and Services Act 1982The Supply of Goods and Services Act 1982 is an Act of the Parliament of the United Kingdom that requires traders to provide services to a proper standard of workmanship...
, ss 13-15
Implication by custom
Terms can be implied into contracts according to the custom of the market in which the contracting parties are operating. The general rule, according to Ungoed Thomas J in Cunliffe-Owen v Teather & Greenwood is that the custom must be,
certain, notorious, reasonable, recognised as legally binding and consistent with the express terms
One of the older cases illustrating this is Hutton v Warren. Mr Warren, a landlord, leased his farm to Mr Hutton. The tenant complained that it was the countryside's custom that landlords would keep the land arable and give a reasonable allowance for seeds and labour in return for leaving manure to be purchased. Parke B held there was such a custom and that
in commercial transactions, extrinsic evidence of custome and usage is admissible to annex incidents to written contracts matters with respect to which they are silent.
Like all terms implied by courts, customs can be excluded by express terms or not if they are inconsistent with a contract's nature. Lord Devlin in Kum v Wah Tat Bank Ltd summed up the policy of the law well.
Universality, as a requirement of custom, raises not a question of law but a question of fact. There must be proof in the first place that the custom is generally accepted by those who habitually do business in the trade or market concerned. Moreover, the custom must be so generally known that an outsider who makes reasonable enquiries could not fail to be made aware of it. The size of the market or the extent of the trade affected is neither here nor there.
Implication in fact
- The MoorcockThe MoorcockThe Moorcock 14 PD 64 is a leading English contract law case, which introduced the concept of implied terms. It has been superseded by more modern approach to implied terms in recent cases such as Equitable Life Assurance Society v Hyman and Attorney General of Belize v Belize Telecom...
(1889) 14 PD 64 - Shirlaw v Southern Foundries Ltd [1939] 2 KB 206, 207
- BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1978) ALJR 20, 26
- Equitable Life Assurance Society v HymanEquitable Life Assurance Society v HymanEquitable Life Assurance Society v Hyman [2000] is an English contract law case, concerning implied terms.-Facts:Equitable Life issued ‘with profits’ life assurance policies, which are a way of saving for retirement. If policy holders took benefits as a taxable annuity Equitable Life Assurance...
[2002] 1 AC 408 - Paragon Finance plc v Nash [2001] EWCA Civ 1466
Implication in law
- Liverpool City Council v IrwinLiverpool City Council v IrwinLiverpool City Council v Irwin [1976] is a leading English contract law case, concerning the basis on which courts may imply terms into contracts.-Facts:...
[1976] UKHL 1 - Shell UK Ltd v Lostock Garage Ltd [1976] WLR 1187
- Scally v Southern Health and Social Services BoardScally v Southern Health and Social Services BoardScally v Southern Health and Social Services Board [1992] 1 AC 294 is an English contract law case, relevant for pensions and UK labour law, concerning implied terms.-Facts:...
[1992] 1 AC 294, - Johnstone v Bloomsbury Health AuthorityJohnstone v Bloomsbury Health AuthorityJohnstone v Bloomsbury Health Authority [1991] 2 All ER 293 is an English contract law case, concerning implied terms and unfair terms under the Unfair Contract Terms Act 1977.-Facts:...
[1991] 2 All ER 293 - Mahmud and Malik v Bank of Credit and Commerce International SA [1998] AC 20
- Crossley v Faithful & Gould Holdings LtdCrossley v Faithful & Gould Holdings LtdCrossley v Faithful & Gould Holdings Ltd [2004] is an English contract law case, concerning implied terms.-Facts:Mr Crossley was a director of Faithful & Gould Ltd. He suffered a nervous breakdown. Under the firm’s disability insurance scheme, so long as he was an employee he was entitled to...
[2004] EWCA Civ 293
Remoteness
- The Achilleas or Transfield Shipping Inc v Mercator Shipping IncTransfield Shipping Inc v Mercator Shipping IncThe Achilleas or Transfield Shipping Inc v Mercator Shipping Inc [2008] is an English contract law case, concerning remoteness of damage.-Facts:...
[2008] UKHL 48
Frustration
Historically, the test for frustration was deemed to be one of implied terms. Judge Blackburn in Taylor v Caldwell deemed a contract for the hire of a music hall frustrated – where it had been destroyed – on the grounds that there was an implied term it would continue to exist.Such an idea has been rejected in later cases, with the ideas of Krell v Henry and Davis Contractors v Fareham UDC being preferred. This is that a contract should be found frustrated where the principal purpose for contracting becomes radically different to the original purpose, as explained by Lord Reid
Lord Reid
Lord Reid may refer to :* James Reid, Baron Reid, a Scottish Unionist politician and judge .* John Reid, Baron Reid of Cardowan, a Scottish Labour politician, cabinet minister and chairman of Celtic F.C....
:
The question is whether the contract which they did make is, on its true construction, wide enough to apply to the new situation: if it is not, then it is at an end.
Common mistake
- Great Peace Shipping Ltd v Tsavliris Salvage (International) LtdGreat Peace Shipping Ltd v Tsavliris Salvage (International) LtdGreat Peace Shipping Ltd v Tsavliris Salvage Ltd [2002] is an English contract law case, concerning the frustration of an agreement.-Facts:...
[2003] QB 679 - Bell v Lever Bros [1932] AC 161
- Associated Japanese Bank (International) Ltd v Credit du Nord [1989] 1 WLR 255
- Brennan v Bolt Burdon [2004] 3 WLR 1321
See also
- English contract lawEnglish contract lawEnglish contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
- Contractual terms in English lawContractual terms in English lawContractual terms in English law is a topic which deals with four main issues.*which terms are incorporated into the contract*how are the terms of the contract to be interpreted*whether terms are implied into the contract...
- expressum facit cessare tacitum or expressio unius est exclusio alterius