How the Courts Decide Whether Terms Should Be Implied

Jackson v Dear1 provides a useful summary of the law on interpreting contracts as it applies to implied terms

After making reference to the key authorities on implying terms2, Mr Justice Briggs set out the principles3: Objective process (i) Interpretation is the “ascertainment of the meaning which the document would convey to a

reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”

(ii) The interpretation of the proposed term depends upon “an understanding of its context within the agreement as a whole.”

(iii) The role of the court is to interpret, i.e. ascertain the meaning, of the agreement not to seek to improve upon it, or put right any inadequacies of meaning.

Implied terms (iv) Both express and implied terms are required for interpretation: “Implication addresses

events for which the express language of the agreement makes no provision.” (v) The starting point is that where there is no express term, nothing has been agreed to

happen in relation to a specific event. Implied terms may be necessary to “spell out what the agreement means, where the only meaning consistent with the other provisions of the document, read against the relevant background, is that something is to happen.”

(vi) Terms can only be implied where they are necessary4 – although not simply necessary in the sense of required for business efficacy.5 Necessary also covers when the consequences of applying only the express terms “would contradict what a reasonable person would understand the contract to mean.”

Commercial common sense (vii) Common sense enables the court to choose between alternative interpretations but it is not

‘an overriding criterion’, nor does it “subject the parties to the individual judge's own notions of what might have been the most sensible solution to the parties' conundrum.”

He also noted additional principles of interpretation: 1 An implied term will not be identified if it conflicts with an express term 2 A contract will not have terms implied in relation to an area covered by express terms.

Conclusion The starting point is that the parties have expressed all material terms in writing. You will have an uphill struggle to persuade the courts to imply terms into your contract. The best course is to record every term of your agreement clearly.

The Author Sarah Fox of Enjoy Legal Learning wrote this note. She is a speaker and trainer who cuts through the complexities of construction law. She provides confidence to construction companies to read, use and understand their contracts. She is also author of the 500 Word Contract™. To find out how Sarah can help you love your terms and conditions, contact her on: 07767 342747 or by email: sarah@enjoylegallearning.co.uk

Footnotes

1 Jackson v Dear & Anor [2012] EWHC 2060 (Ch). 2 Investors Compensation Scheme Ltd v West Bromwich Building Society, Chartbrook Ltd v Persimmon Homes Ltd,

Rainy Sky S.A. v Kookmin Bank, Attorney General of Belize v Belize Telecom Ltd, Mediterranean Salvage & Towage v Seamar Trading & commerce Inc, and Groveholt Ltd v Hughes.

3 Paragraph 40. 4 He said “necessity still remains a touchstone for the implication of terms, even after the assimilation of implied

terms with interpretation in Belize.” 5 “Mediterranean Salvage was a case on surprisingly similar facts to those of The Moorcock itself, in which the

business efficacy test was originally laid down.”