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Contract - implied terms

NZ $35.00
incl GST
Seb Bisley 2017 Amy Ryburn 2017
Seb Bisley
Buddle Findlay
Wellington
Amy Ryburn
Buddle Findlay
Wellington

Authors: Seb Bisley, Amy Ryburn
Published: 26 April 2017
Pages: 28

Introduction

No matter how carefully drafted a contract may be, circumstances will arise within contractual relationships that are not expressly covered by the relevant contract. The parties may have reached agreement on the important terms of the contract, and decided to leave the remaining details to the Court if they arise, or (more frequently) have failed to turn their minds to some contingency. In either case, there is a gap in the terms of their contractual relationship.

For example, a contract for the sale of a second-hand car may not contain any warranty as to the quality of the car. A contract for the development of (say) a procurement system may not expressly address who owns the intellectual property in that system. A contract that an employer will meet an employee's university fees, but will forgive the debt after five years of employment, may not provide that the employer will not unreasonably bring the
employment relationship to an end during the five-year term.

What does it mean for the parties if the contract is silent? As Lord Hoffman observed in
Attorney General of Belize v Belize Telecom, the most usual inference where a contract is
silent as to the effect of a particular event is that nothing is to happen upon the occurrence
of that event.1 But, in some circumstances, the courts will imply a term to fill the gap. They
will order that, despite the contract being silent, something is to happen, that some
contractual right or remedy is engaged by the event.

As Lady Hale explained in Geys v Société Générale [2013] 1 AC 523 at [55], there are two kinds of implied term. The first, sometimes called a term implied “in fact”, is a term that is implied into the contract as a matter of construction of the contract.2 It is this category of implied term which, we think, has proved the most contentious and least predictable, and which continues to attract judicial and academic commentary and debate.

The second type of implied term arises where the law (either statutory or common) imposes a term into certain types of relationships. Common examples are non-residential leases, and contracts for the sale of goods. They are sometimes described as terms implied by law (although, as we will see, they share some significant similarities with terms implied in fact). That second kind of term is, in many text-books,3 broken down into two further categories: terms implied by custom (ie, by the common law) and terms implied by statute.

___________________________
1 Attorney-General of Belize v Belize Telecom [2009] 1 WLR 1988, at [[17].
2 The phrase "construction of the contract" is, here, intended to encompass both the process of construction described
by Lord Hoffman in Attorney-General of Belize v Belize Telecom [2009] 1 WLR 1988, and the re-formulation adopted by the majority of the English Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015 UKSC 72.
3 See, for example, Burrows, Finn and Todd, The Law of Contract in New Zealand (5th ed, Lexis Nexis, 2016) at 194.

Content outline

  • Terms implied by law
  • Terms implied in fact
  • Before Belize Telecom
  • Belize Telecom – a change in approach?
  • The Reception of Belize Telecom
  • Marks and Spencer – the UK supreme Court weighs In
  • Marks and Spencer considered in New Zealand
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