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40 Cards in this Set

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Implied Terms - Introduction
Can courts include non-express terms?

Boundaries for implication of terms:

• Terms implied by fact
• Terms implied as a matter of law
• Terms implied by custom

Boundaries are continuously shifting

Statutory entitlements = implied terms
Terms Implied by Fact
Courts try to give effect to intention of parties

May remedy an omission to avoid the contract being frustrated

To do so is to give the contract “business efficacy”

Aim – to ascertain presumed intention of parties

Two formulations of the test:

1. “Business Efficacy” - The Moorcock [1889] UK and Butler v. McAlpine [1904];

2. “Officious bystander” test - Shirlaw v. Southern Foundries (1926) UK, Tradax (Ireland) Ltd v. Irish Grain Board [1984].
The Moorcock [1889] UK
• Test is “An implication which the law draws the object of giving efficacy to the transaction and preventing such a failure of consideration as cannot have been within the contemplation of either of the parties”
• Def agreed to allow plaintiff unload his ship at his wharf for a fee
• Both parties knew the ship would be grounded at low tide
• Ship was being unloaded, tied went out, ship was damaged
• Plaintiff sued for breach of contract – jetty safe to use/reasonable care to ensure safety of the berth
• Def claimed this was not an express term
• Cof Appeal HELD Def liable – implied term existed

Bowen L.J. laid down the relevant test as follows:

I believe if one were to take all the cases ... of implied warranties or covenants in law, it will be found that in all of them the law is raising an implication from the presumed intention of the parties, with the object of giving the transaction such efficacy as both parties must have intended that in all effects it should have.
Sweeney v. Duggan [1997] IRELAND
• Employee of quarrying company injured at work
• Def – Managing Director and sole shareholder
• Quarry became bankrupt – could not satisfy damages awarded
• Plaintiff sued def directly – claimed he owed him a duty of care to ensure company procured employment liability insurance or warn employees they were not insured
• Plaintiff claimed there was a term in contract placing burden on def
• Implied from dangerous nature of the business
• HELD SC REFUSED to imply such a term
• Contract worked effectively without term
Murphy Buckley & Keogh v. Pye (Ireland) [1971]
• Estate agents hired to sell factory
• Sold to purchaser who had not been introduced to plaintiffs
• Sued – deprived of their commission
• Claiming an implied term to the effect that the defs would not themselves sell the premises so as to depreive the plaintiffs of their commission
• SC HELD – refused to imply term
• Not necessary for the efficacy of the contract
Shirlaw v. Southern Foundries (1926) UK
Classic formulation of officious bystander test.

– . .. that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making their bargain, an officious bystander were to suggest some express provision for it in the agreement, they would testily suppress him with a common 'Oh, of course!'
Tradax (Ireland) Ltd v. Irish Grain Board [1984]
• Plaintiff agreed to buy barley from def
• Price was to be met with a letter of credit
• Parties left important details out
• After some shipments, def repudiated contract
• Def claimed an implied term of the contract was that the plaintiffs were required to furnish a letter of credit
• SC REFUSED to imply such a term
• No evidence of a joint intention
Officious Bystander Test
Shirlaw v. Southern Foundries (1926) UK

– if an officious bystander was to suggest an express provision, both parties would comment “Oh, of course!”


Officious bystander test not satisfied in 4 circumstances:

1. If one of the parties would not have agreed to the term

Test – whether parties would definitely not maybe have included the term

2. If one of the parties is unaware of the term which is sought to be implied

Spring v. National Amalgamated Stevedores and Dockers Society [1956]:

3. If implying the term would destroy the contract

4. If implying the term would have far reaching and unwanted consequences

MR -v- TR (Roche -v- Roche) (2006)
Spring v. National Amalgamated Stevedores and Dockers Society [1956]
• Defendant and another union agreed rules to transfer workers from one union to another
• Plaintiff unaware of agreement
• Plaintiff breached rules and def tried to expel from union
• Plaintiff sued for breach of contract – WON
MR v. TR (Roche v. Roche) [2006] IRELAND:
• Plaintiff sought release of 3 frozen embryos
• 6 embryos resulted from IVF -3 implanted – 3 frozen
• Husband had signed express consent form
• Marriage broke down
• Plaintiff argued agreement contained husband’s express or implied consent to the implantation of the remaining embryos
• Def testified they never spoke about left over embryos
• Never entered into the parties minds
• SC HELD in absence of consent forms indicating what was to happen – no agreement
• Used “officious bystander” test – no presumed intention to implantation
Terms Implied as a matter of law
Even where parties do not intend for a term to be included in their contract, it may be implied by law.

Does not have to correspond under common intention of both parties

Often against one party’s intention
Terms Implied by the Courts
Implied through case law

Often arises in cases of social policy consideration

E.g. public housing

Liverpool CC v. Irwin [1997] UK:
Liverpool CC v. Irwin [1997] UK:
• Plaintiff’s Council’s tower-block in bits
• Tenant withheld rent in protest
• Council sought possession
• Tenant counter-claimed for breach of implied term to maintain premises
• Tenancy agreement was silent on Council’s maintenance of buildings
• HELD term implied
• Lord Denning - argued that a contractual term can be implied when it is ‘reasonable’.
Siney v. Dublin Corporation [1980] IRELAND
• Similar to Liverpool
• Corporation let new unfinished flat to plaintiff – poor ventilation caused damp damage to plaintiff’s possessions
• SC HELD implied term existed – statutory obligation
• Protected by the Housing Act 1966
Mahmud & Malik v. BCCI [1998] UK
• Collapse of bank
• Financial irregularities and illegal business practices
• Plaintiffs sued for damages for their loss in not being able to secure employment elsewhere
• “Stigma” damages
• HELD bank was under an implied obligation to its employees not to conduct a dishonest or corrupt business
Cronin v. Eircom Ltd [2007]
Mahmud was endorsed in Ireland – Cronin v. Eircom Ltd [2007]
Terms Implied Under Statute
Statute-law may require the implication of unexpressed terms into contracts

Many statutes codify obligations imposed by common law

Sale of Goods Act 1893 and Sale of Goods and Supply of Services Act 1980 are most important.

Section 12: implies a seller has a right to sell goods and implied warranty that the buyer will have the right to enjoy quiet and unencumbered possession of the goods – into every contract.

Section 13 of 1893: implies a condition that goods must match their description

S 14 (mirrors common law): goods must be fit for their purpose and of merchantable quality

S. 15 of 1893 – implies 3 conditions where a sale is made by sample:

i. Bulk must correspond sample
ii. Buyer must have reasonable opportunity to inspect and compare bulk
iii. Goods must be free of defect

S. 39 of 1980: implies a term into a contract for services that the seller has the necessary skill and material used will be sound
Terms Implied Under Bunreacht na hÉireann 1937
For example, fair procedures: Tierney v. An Post [2000]
Tierney v. An Post [2000]
• After internal hearing was held – plaintiff’s employment was terminated
• Appealed to SC
• SC HELD in favour of applicant – he had the right to natural justice and a right to fair procedure.
Terms Implied by Custom
McDermotts non-exhaustive list of requirements for a custom to be implied:

i. Custom must be so notorious – the parties must have intended it form part of the bargain
ii. Custom must be certain
iii. Must be reasonable
iv. Until the courts take judicial notice of a custom it must be proved by clear and convincing evidence
v. Must not be inconsistent with the express contract - O’Reilly v. Irish Press [1937]:
Horan v O'Reilly and
Others [2008] IESC 65
. This case involved a dispute over a lottery syndicate. The syndicate
most definitely included four individuals. The plaintiff was alleging that he was the fifth member of the syndicate. The parties agreed that they would each pay €1.50 each for the two weekly lottery draws and that one of the members, a Mr O'Brien, would collect the money and buy the tickets. Mr O'Brien 'managed' the syndicate. The winnings were to be shared equally between the participants. Mr O'Brien permitted the plaintiff to fall into arrears of payment by carrying the arrears himself The winning ticket was purchased with €6.00 and not €7.50, because the plaintiff had not contributed that particular week. The defendants argued that the terms of the agreement were that each would contribute equally on the basis that the winnings would be shared equally.

The question before the court was:
... whether the parties agreed to vary their original agreement to the intent that Mr. Horan would remain in the syndicate and entitled to a proportionate share in any winnings even though in arrear in payment for an indefinite period, and that Mr. O'Brien would continue to purchase tickets on his behalf in the absence of some notice of termination.

The Supreme Court concluded that although the informal arrangement was capable of having legal effect, there was no term (express or implied) that Mr O'Brien could vary the terms of the contract to cover the arrears by the plaintiff. The Court concluded:

The variation, in order to affect the right of the four appellants to share the winnings, would have to have been agreed by them. There is no evidence that it was. A variation would have needed to place an obligation on Mr O'Brien to purchase tickets on behalf of Mr Horan, even though he had not been paid. It is clear that no such agreement was made. At most, then it would have to be implied. I am satisfied that it would not be obvious to any innocent bystander that such an obligation was imposed on Mr O'Brien on behalf of the other syndicate members.
Karim Aga Khan v Firestone [1992] ILRM 31
Morris J. stated that " ... such a term as is sought to be implied has been omitted from the contract and is necessary in order to give the contract efficacy and to prevent the failure of the contract."
Business Efficacy Test
A term will be implied if it is necessary to give efficacy to the contract, i.e. where the parties did not express the term in the contract because it was so clear and obvious.

Both of the latter tests operate on the basis that, of necessity, the term must be implied into the contract in question in order to give efficacy to the agreement.

The courts will not imply a term into the contract on this basis simply because it is reasonable or would make better sense. It must be established that the term was necessary to give business efficacy to the contract and that it is specific.
Dakota Packaging v Wyeth Medica Ireland
[2005] 2 IR 54
The High Court had implied a term into a supply contract which required the defendant to supply the plaintiff with 12 months notice of any intention to transfer their packaging requirements elsewhere. Furthermore, the High Court held that the defendant was obliged during this time to take a proportion of orders from the plaintiff.

This decision was overturned on appeal by the Supreme Court. The arrangement between the plaintiff and the defendant was a contract of supply for individual orders. There was no basis- for the sake of business efficacy - to imply such a term into the arrangement.

The Supreme Court observed that "the courts will not lightly infer terms" particularly on the basis that it would be reasonable to do so especially in circumstances where that term was not defined with sufficient
precision - what proportion of orders was the defendant supposed to order through the plaintiff? Clark has commented on the High Court decision in this case as follows (p.164):

This decision is perhaps the most visible demonstration by an Irish judge of the extent to which the implied duties of co-operation may be imposed upon a commercial entity who, in the traditional way of things was able to organise business affairs by reference to commercial self-interest. It also emphasises the growing tendency for courts to view commercial relationships as being co-operative rather than antagonistic; the defendants in Dakota took the view that they had not long term contractual relationship, so the idea that this relationship had "gaps" or omissions, to be filled in via judicial activism should have arisen.
Baird Textiles Holdings Ltd v Marks and Spencer pic [2002] I All ER 737
This case involved an agreement whereby the plaintiff agreed to supply the defendant with garments "in quantities and at prices which in all the circumstances were reasonable." The Court of Appeal held that as there was no objective means of assessing what the quantities and prices were reasonable.
The Custom and Practice Test
Where contracts are concluded in a particular industry, terms may be implied in order to give effect to the custom and practice of that industry. For example, in the case of O'Connail v Gaelic Echo [I958] 92 ILTR I56, a term was implied into a journalist's contract of employment that he would receive holiday pay on the basis of evidence that holiday pay for journalists was customary in Dublin. The custom must be relatively obvious in the sense that anyone inquiring as to its existence would be notified as such.

In relation to when terms will be implied by the courts, McDermott notes the five-point test laid down in BP Refinery ( Westernport) Pty Ltd Shire of Hastings (1977) 16 ALR 363, 376 10:

- it must be reasonable and equitable;
- it must be necessary to give business efficacy to the contract so that no term will be
- implied if the contract is effective without it;
- it must be so obvious it goes without saying;
- it must be capable of clear expression;
- it must not contradict any express term of the contract.
BP Refinery ( Westernport) Pty Ltd Shire of Hastings (1977) 16 ALR 363, 376 10:
In relation to when terms will be implied by the courts, McDermott notes the five-point test laid down:

- it must be reasonable and equitable;
- it must be necessary to give business efficacy to the contract so that no term will be
- implied if the contract is effective without it;
- it must be so obvious it goes without saying;
- it must be capable of clear expression;
- it must not contradict any express term of the contract.
O'Connail v Gaelic Echo [I958] 92 ILTR I56
A term was implied into a journalist's contract of employment that he would receive holiday pay on the basis of evidence that holiday pay for journalists was customary in Dublin. The custom must be relatively obvious in the sense that anyone inquiring as to its existence would be notified as such.
Meskell v CIE [1973] IR 121
The Supreme Court held that the defendant was prohibited from exercising his contractual rights in a way that undermined the plaintiff's constitutional right to freedom of association. Implied terms based on constitutional rights that have been waived will also be deemed to have been waived.
Glover v BLN [ 1973] IR 388
It was held that a contract that allowed an employer to dismiss employees for serious misconduct had to be read in light of an implied term that the employee was entitled to avail of fair procedures-----a term implied by reference to the constitutional principle of natural justice.
Construction of Contractual Terms
Constructing or interpreting the intentions of the parties from the terms of the contract can be a very difficult thing to achieve at times. The courts adopt an objective approach whereby they try to ascertain the actual intentions of the parties to the contract. Thus, much depends on what the parties said and the manner in which they conducted themselves and not what they meant to say or do. Laffoy J explained the courts approach as follows in UPM v BWG (1999):

The Court's task is to ascertain the intention of the parties and that intention must be ascertained from the language they have used considered in the light of the surrounding circumstances and the object of the contract. Moreover, in attempting to ascertain the presumed intention of the parties, the Court should adopt an objective, rather than a subjective approach, and should consider what would have been the mtentwn of reasonable persons in the position of the parties.

The intention of the parties is determined from the point in time when the parties entered into the contract - Bula Ltd. v Tara Mines (15 January 1999, unreported), Supreme Court.

Thus, two main approaches have been used to interpret contracts. The courts may interpret the words used strictly giving the words their literal meaning. This is known as the plain meaning rule. Alternatively, the courts interpret the words used considering the wider:actual background in which the negotiations took place. This is known as the factual matrix rule. The plain meaning rule is only used where the terms of the contract are sufficiently clear. It is only where the terms are ambiguous will the factual matrix approach be adopted- LAC Minerals v Chevron (6 August 1993, unreported), High Court.
UPM v BWG (1999)
Laffoy J:

The Court's task is to ascertain the intention of the parties and that intention must be ascertained from the language they have used considered in the light of the surrounding circumstances and the object of the contract. Moreover, in attempting to ascertain the presumed intention of the parties, the Court should adopt an objective, rather than a subjective approach, and should consider what would have been the mtentwn of reasonable persons in the position of the parties.
Bula Ltd. v Tara Mines (1999)
The intention of the parties is determined from the point in time when the parties entered into the contract - Bula Ltd. v Tara Mines (15 January 1999, unreported), Supreme Court.
Investors' Compensation Scheme v West Bromwich Building Society [1998]
Lord Hoffman identified the following rules to be used in the interpretation of contracts:

(1) 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.

(2) The background was famously referred to by Lord Wilbeforce as the 'matrix of fact', but this phrase is, if anything, an understated description of what the background may include . ..

(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. .

(4) The meaning which a document ... would convey to a reasonable man Is not the same thing as the meaning of its words. The meaning of the words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax.

(5) The "rule" that words should be given their "natural and ordinary meaning" reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had.
The Plain Meaning Rule
This rule essentially provides that if a term of the contract is clear, the courts cannot go beyond the literal meaning of the words in order to interpret the contract - LAC Minerals v Chevron (6 August 1993, unreported), High Court. In other words, if the words are clear, then one cannot have recourse to extrinsic evidence to interpret the contract - Marathon Petroleum v Bord Gais Eireann (18 February 1986, unreported), High Court. In interpreting the contract using the plain meaning rule the words must be looked at in the context of the contract as a whole - Laird Brothers v The City of Dublin Steam Packet Co. (1899) 34 ILTR 9.
The Factual Matrix Approach
Under this approach the words used are interpreted in a manner which is not divorced from the surrounding circumstances of the contract. In Prenn v Simmonds [1971] 1 WLR 1381; Lord Wilberforce observed that the courts must "inquire beyond the language and see what the circumstances were with reference to which words were used, and the object, appearing from those circumstances, which the person, using them had in view." The factual matrix approach was approved in the Irish case of LAC Minerals v Chevron (6 August 1993, unreported), High Court, where the test was applied to an agreement which contained a clause regarding pre-emption rights. One clause referred to the offer to remain open for 55 days, while another referred to 60 days. The conflict was resolved by outside evidence of the intentions of the parties.
Maxims of Construction
The courts have developed a number of maxims to assist them when interpreting contracts:

1. Commercial sense and unreasonable results - commercial contracts should be interpreted in a manner which makes good commercial sense - Antaios Compania Naviera SA v Sa/en Rederierna AB [1985] AC 191.

2. Purpose of the agreement- the courts can take into consideration the purpose of the agreement -- O'Neill v Beaumont Hospital Board [1990) ILRM 419.

3. Market Practice- the courts will consider parol evidence in establishing custom and practice when interpreting terms - Brady v Irish National Insurance Co Ltd. [1986] IR 698.

4. Documents forming part of the same transaction - the courts will consider other documents forming part of the same agreement - Jacobs v Batavia and General Plantations Trust [1924] 2 Ch 329.

5. Tailor made clauses - the general rule is that if a clause specifically drafted for the purposes of the agreement conflicts with a standard clause then the tailor-made clause will prevail - Tokn Grass Products Ltd v Sexton (3 October 1983, unreported), High Court.

6. The contra proferentem rule - where a term is ambiguous, the interpretation less favourable to the person seeking to rely on it will prevail - Brady v Irish National Insurance Co. Ltd. [1986] IR 698.
Incorporation in to the Contract
If a term has not been incorporated into a contract, then it may not be relied upon as a contractual term. Essentially, incorporation will be adjudged according to whether the document is signed or unsigned. If an exemption clause is included in the main document and a party signs it, that party is generally bound by the terms in that document. In circumstances where no document has been signed, the courts will inquire into whether or not the party seeking to rely on the exemption clause made reasonable attempts to bnng It to the attention of the other party.
Contracts Uberrimae Fides
These agreements are also known as contracts of the utmost good faith. In these contracts, the law as a matter of policy places an obligation on the shoulders of one party to declare all relevant and material information to the other side when entering into the contract. Fatlure to disclose such information (or remaining silent when one should speak up) can amount to an actionable misrepresentation.

Contracts of insurance are the most common form of this type. These contracts require full disclosure from the party seeking the insurance because, as Scrutton L.J. pointed out in Rozanes v Bowen [1928] Lloyds Rep 98, "the underwriter knows nothing and the man who comes to him to ask him to insure knows everything."
Rozanes v Bowen [1928]
Scrutton L.J. pointed out that, "the underwriter knows nothing and the man who comes to him to ask him to insure knows everything."