Terms can be implied to reflect the presumed intention of the parties, or for reasons of
public policy. The different bases for implying terms are considered below.
Terms Implied to Give Effect to Presumed Intention of
Parties
Term implied on the basis of business efficacy
Business efficacy means that the parties require that term in order that the contract
will work (The Moorcock).
The following rules for implying a term on the basis of business efficacy were
summarised by the Privy Council in BP Refiner v Shire of Hastings and later approved
by the High Court in Codelfa v State.
The term must be reasonable and equitable;
Implication must be necessary to give business efficacy to the contract so that
no term will be implied if the contract is effective without it;
Term must be so obvious that it goes without saying;
Term must be capable of clear expression; and
Term must not contradict any express term of the contract.
Terms implied from previous consistent course of dealings
In the circumstances of the case, is it reasonable to hold that the parties entered into
the contract on the basis, and with the knowledge, that their agreement would be on
the terms set out in previous contracts entered into (Henry Kendall & Sons v William
Lillico & Sons).
The relevant term or terms must have been part of earlier agreements between the
parties and the must be evidence of an earlier consistent course of dealings between
the parties. Relevant in this assessment are
the number of dealings between the parties; and
the consistency of dealings between the parties.
The greater the number of prior dealings, the greater the likelihood of incorporating
the term (cf Hollier v Rambler Motors with McCuthbert v David MacBrayne).
Consistency of contractual dealings is also important as the argument for
incorporation is less compelling if the terms are incorporated into earlier contracts on
some occasions but not others (McCuthbert v David MacBrayne Ltd).
Terms implied from custom or usage
The parties to a contract are presumed to contract with reference to whatever customs
that prevail in the trade or locality in question. In Con-Stan Industries of Aust Pty Ltd
v Norwich Winterthur Insurance the High Court set out a number of rules that must be
satisfied before a term will be implied on the grounds of custom or trade usage:
1. The existence of a custom or usage that will justify the implication of a term
into a contract is a question of fact. In making the determination, the focus
must be on the custom or usage in the particular trade or profession under
construction.
2. There must be evidence that custom or usage relied upon is so well known and
acquiesced in that everyone making a contract in that situation can reasonably
be presumed to have imported that term into the contract, however, the custom
need not be universally accepted. Firstly, there must be sufficient evidence
that a custom of the kind alleged in the fact exists. Thus custom must be
sufficiently widespread and consistent that it can be articulated with some
Implied condition that the seler has title to the goods bing sold, or will have
title at the time property in the goods is to pass: s15(a)
Implied warranty that the buyer will have quiet possession of the goods:
s15(b)
Implied warranty that the goods are free from any charge or encumbrance:
s15(c)
In a contract for the sale of goods by description, an implied condition that the
goods correspond with the description (and if the sale is by sample, as well as
by description, it is not sufficient that the bulk of the goods corresponds with
the sample if the goods do not also correspond with the description): s16
Where they buyer, expressly or by implication, makes known to the seller that
particular purpose for which the goods are required, so as to show that the
buyer relies on the sellers skill or judgment, and the goods are of a description
that it is in the course of the sellers business to supply, an implied condition
that the goods are reasonably fit for the purpose: s17(a)
When goods are bought by description from a seller who deals in goods of that
description, an implied condition that the goods are of merchantable quality:
s17 (c)
In a contract for sale by sample, implied condition that the bulk corresponds
with the sample in quality, that the buyer will have a reasonable opportunity of
comparing the bulk with the sample, and that the goods are free from any
defect, rendering them unmerchantable, which would not be apparent on
reasonable examination of the sample: s18
Clear words are required to exclude implied terms (Wallis v Pratt and Haynes).
Trade Practices Act 1974 (Cth)
The Trade Practices Act will only operate where the supplier is a corporation and the
acquirer is a consumer within the statutory definition (ss4 and 4b) or if the transaction
falls within one of the categories of extended application of the legislation for
example, if the tranaction occurred as part of the supplier engaging in trade or
commerce internationally, interstate or between a state and territory (s6(2)(c)).
Terms implied by the Trade Practices Act are not limited to contract for the sale of
goods but also extend to their supply. Supply is defined to include sale, exchange,
lease, hire or hire purhcaes (s4).
The Trade Practices Act implies in a contract for supply of service, a warranty that the
service will be rendered with due care and skill and that any materials supplied will be
reasonably fit for the purpose for which they are supplied. A further warranty will be
implied that the services and materials supplied in connection with them will be
reasonably fit for the purpose for which those services are required or of such a
nature and quality that they might reasonably be expected to achieve the result
(s74(2)).