Introduction
There are several means of interpretation of the intention of the parties. Regardless the fact that there is a concept of freedom of expression belonging to the parties to agreement, sometimes the parties forget to include certain provisions and clauses. In this respect, the court is requested to consider the express and implied terms of the agreement for resolution conflict between the parties. This paper dwells on the consideration of tests developed by the case law for identification of the implied terms. At the same time, the notion of the implied terms is the controversial concept which is subject of close deliberation of legal experts today that can not come to the consensus regarding the role of implied terms in agreement.
Overview of the Implied Terms Based on Case Law
The contract law presumes that there is an evident division between the interpretation and the implied terms. With regard to the interpretation, one should understand that the court is vested with the functions to identify and consider the express terms in the agreement. In contrast, the implied terms to the agreement cover the provisions based on which the court may deliver the opinion as to whether these terms constitute the part and parcel of the agreement. In fact, the parties may not define that the implied terms have the features of the express terms with the purpose to achieve particular commercial goal. Accordingly, the implied terms are used for the filling of the gaps within different provisions of the contract, which have not been agreed by the parties. In addition, the implied terms suggest that they may establish the particular limitation over the realization and the usage of the express and other existing terms. It is a widely accepted practice that the terms of the agreement should be interpreted based on the principle of good faith principle.
There are different tests developed by the case law for the interpretation of the implied terms. For example, in case Jackson v. Dear & anor [2012], the judiciaries have decided over the extent of the usage of the traditional tests for the understanding the notion of the implied terms in the agreement. Besides, the court ordered that the decision found in the Privy Council case should have the supranational power over the existing traditional tests in order to define the proper intention of the parties in the contractual relations. With that, one should take into account the judgment in case Shirlaw v. Southern Foundaries [1926], where the judge states that the implied term refers to the clear and obvious provision of the agreement. Therefore, the reasonable persons should have the opportunity to understand the nature of the intention of the parties and the message contained in the implied term. Consequently, in case BP Refinery (Westernport) Pty Ltd v. Shire of Hastings [1977] the court has developed the next pillars of the test that should be used by the other judicial institutions or parties for the interpretation of the implied terms:
Implication of the term should be quite reasonable and equitable;
The contract should be a subject of the business efficacy in order to maintain the effectiveness of the contract regardless of the existence of the implied terms;
Any person should have the opportunity to understand the nature of the term without the additional efforts that may assist during this process;
The implied term should be not in violation or contradiction with any other provision of the agreement of the express nature.
In addition to the abovementioned test, the experts believe that the main purpose to the implied provision to the commercial agreement is to obtain the understanding of the real intention of the parties. Under this statement one should have the understanding about the final goals and objectives pursued by the parties during the performance of the duties under the agreement. Simultaneously, the court may incorporate the implied term into the agreement in order to fill the gaps between the provisions of the agreement that has appeared as the result of the drafting process. In this regard, the court may come to the conclusion as to whether this gap should be filled or not based on the understanding the intention of the parties existing during the drafting. For the construction of the position of the parties and the following intentions, the judiciaries should take the attitude of the reasonable person with the usage of the relevant background knowledge which was available for the parties at time of the entrance into the contractual relations.
Given the extensive nature of the application and interpretation of the express and implied terms, the existing tests may be classified into two major groups:
Business efficacy test
Officious bystander test.
The first rule implies that the contract should be given the nature of the business efficacy so that the judiciaries can get the intention of the parties for the achievement of particular business result. This test was developed by the court in case The Moorcock [1889]. In contrast, the bystander test presumes that the intention and position of any party should be considered from the opinion of the reasonable person. The bystander test was developed by the reasoning of the judges in case Shirlaw v. Southern Foundaries [1926]. Given the existence of two different approaches for the understanding the positions of the parties and the nature of the implied terms in the contractual agreement, there is no consensus about the supremacy of the test. Besides, the judgment in case BP Refinery (Westernport) Pty Ltd v. Shire of Hastings [1977] adds to the understanding that the tests have the supplementary role to each other. However, in the next case Equitable Life Assurance Society v. Hyman [2002] the court decided that it is highly important to take into account the reasonable expectations of the parties regarding the outcomes of the commercial agreements. Moreover, in the Belize case, the judge has examined the process of the implication of the terms of the agreement. In particular, Lord Hoffman dwelled on the application of the different tests for the understanding the intentions of the parties during the commercial relations. Accordingly, the judge ordered that the implication of the terms takes place in case the provisions of the agreement do not cover the cases under which the relations between the parties should be governed in particular dimension. In this respect, one should presume that particular event may appear while the relations of the parties based on this fact have not been stipulated under the text of the agreement. With that, the parties should rely on the implied terms from the positions of the reasonable person in order to define the meaning incorporated in the text. Therefore, the court will have the power to imply the term of the contract and the conditions which takes place for the placement of the event in question.
Consequently, the experts believe that the implied term of the commercial agreement should be quite obvious and apparent for any reasonable person. In particular, it is an usual practice when the drafters of the agreement did not take into account the complexity of the legal instrument and left some provisions behind the deliberate analysis. Besides, for the evaluation of the implied term, the person should take into account the context of the entire legal instrument, the applicable law, the conditions preceding the signature of the agreement, etc. In addition, the implication of the terms has the same force as the procedure for the identification the real meaning of the agreement grounded on the interpretation of the expressed terms of the contract. Accordingly, the implication should cover the different events for which the expressed terms of the agreement are not applicable. In this regard, the absence of the appropriate expressed term in the text of the agreement, the parties should address the language of the contract, its background. However, if the parties have not covered particular event in the agreement, it is necessary to rely on the other terms which are regarded by the court as the implied. Besides, the implied terms may not provide the person with the exact understanding of the resolution of the conflict or provide the instruction for the governance of the relations between the parties.
Conclusion
The overview of the cases presents the evidence that the intention of the parties may be included in the implied and expressed terms under the text of the agreement. Afterwards the adoption the decision in Belize case, such notions as the interpretation and implication of the terms in the contract law are quite similar so that these notions have been assimilated. According to the consideration of the judgments of the courts in the contract law regarding the implied terms, one may come to the conclusion that it is highly important to pay attention to the limits of the implied terms, background of the contract, etc. At the same time, the evaluation of the implied terms means that any one should consider the further effect of the identification of the implied terms over the development of the contractual relations between the parties to the agreement. In particular, the wrong interpretation of the implied terms may lead to the fact that certain provision of the agreement of the implied nature will become in the violation of the context of the legal instrument and the expressed terms. Therefore, the implied term should be regarded as the obligatory part of the agreement which included the business efficacy test. Moreover, if the parties should define the intention incorporated in the agreement, the implied term will assist in its understanding. Furthermore, one should bear in mind that the court does not have the power to imply the term because of the exclusive reason pertaining to the existence of the position of the reasonable person or fair attitude. In addition, the interpretation of the implied terms means that the court should interfere in the understanding the relations between the parties, the tensions, their duties, etc. The court intervention is regarded as the best available option for the parties for the adoption the decision regarding the fair treatment and good faith obligations between each other. Meanwhile, the commercial law usually involves significant sum of money so that it is quite reasonable to rely on the court interference as the instrument for the interpretation of the implied terms provided by the parties in the agreement. The several case law confirms that the court are reluctant in the implication of the terms into the agreement if the existing expressed terms can not assist in the interpretation of the context and background. In particular, any judicial institution may come to the conclusion about the absence of the implied terms in the agreement in favor of the expressed terms in the contract. In this regard, it is highly important to bear in mind that the implied term may not discriminate the power of any party to the agreement. This discrimination can not be exercised arbitrarily, capriciously or irrationally. Therefore, during the interpretation of the terms of the agreement, the court should pay attention to the interests of the parties within the established limits by the contract. Besides, it is highly important to underline that by virtue of the implied terms, the parties obtain the power to define the further development and governance of the relations in case any particular situation is not stipulated in the text of the agreement.
Works Cited
Attorney General of Belize v. Belize Telecom [2009] UKPC 10
Austen-Baker, Richard. "Implied Terms In English Contract Law: The Long Voyage Of The Moorcock". Common Law World Review 38.1 (2009): 56-80. Web.
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR
Equitable Life Assurance Society v Hyman [2000] UKHL 39
Goetz, Charles J., and Robert E. Scott. "The Limits Of Expanded Choice: An Analysis Of The Interactions Between Express And Implied Contract Terms". California Law Review 73.2 (1985): 261. Web.
Hooley, Richard. "Implied Terms After Belize Telecom". C.L.J. 73.02 (2014): 315-349. Web.
Jackson v Dear & Anor [2012] EWHC 2060 (Ch).
Marchetti, Carlo. "Ignoring The Parties' Silence: The Controversial Borders Of Implied Terms". Global Jurist 12.2 (2012): n. pag. Web.
Shirlaw v Southern Foundries [1939] 2 KB 206 Court of Appeal
The Moorcock (1889) 14 PD 64
Vey, Antoine. "Assessing The Content Of Contracts: Implied Terms From A Comparative Perspective". SSRN Electronic Journal n. pag. Web.
