Implied terms in English law


Implied terms in law refers to the practice of setting down default rules for contracts, 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, custom 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.
Another example is that under the Unfair Contract Terms Act 1977, liability 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 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.

Implication by statute

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 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:

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

Remoteness

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 from the original purpose, as explained by Lord Reid:
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