08 June 2016

Implied Terms in a Contract

Implied Terms in a Contract

It has long been a feature of English law that a Court can imply terms into a contract. Since 2009 there has been some uncertainty about the test to be applied to allow a court to take such action. Some commentators have interpreted the law so that a term can be implied provided it is reasonable to do so. This approach would normally be adopted to avoid any perceived anomalies that led to an injustice despite what the parties themselves wrote.

Recently however, the Supreme Court expressly rejected this approach and made it very clear that the test is:

Is the proposed term to be implied reasonable and equitable;

Is the term required either because it is so obvious that it goes without saying or required to give effect to the intentions of the parties (that is to give business efficacy to the contract);

Can the term be clearly expressed;

Does it contradict any express term (in which case it cannot be implied into the contract).

The Court also emphasised that creative judicial intervention in the terms of a contract is to be resisted. In another case, it was pointed out that “it is not the function of a court...to relieve a party from the consequences of his imprudence or poor advice”

The outcome of this is that the court will not intervene quickly to imply terms even if the result of not doing so would be particularly disadvantageous from a commercial perspective to one or other of the parties to the contract.

The lesson from what is now the leading authority on the issue of implied terms is that you only get what you write. Given the reluctance (now) of the courts to intervene, there is not any assurance that businesses can rely on the courts to produce what one or other party consider to be a common sense commercial outcome if it wasn’t expressly clear in the first place.

If you are a business and need legal advice with contracts of employment, contact Alex Lee on alee@bussmurton.co.uk or 01892 502 362.

Alex Lee

Alex Lee