An implied term in a contract used to be defined as something that only a fool would ask about. Well, thanks to Lord Hoffman, it’s not quite that simple anymore
It must be marvellous to be a teenager because they already know absolutely everything about everything. And if you are so foolish as to try to impart information to them, you can expect to be met with an irritable “Oh, of course!” Most of us will be familiar with the exchange.
It was precisely this irritable “Oh, of course!” to which Lord Justice MacKinnon referred to in his description of the “officious bystander test” to determine whether an implied term should be incorporated into a contract. Even in the context of construction law, gaping holes are frequently left in contracts. With that sobering thought in mind, let’s look at the test which determines whether a term should be implied.
The original position was established way back in 1927. You were to imagine that an officious bystander were listening to your negotiations at the time you entered into your contract. If the bystander had asked you and your contracting party whether you both intended a particular term to apply, would you both be expected to “testily suppress him with a common: ’Oh, of course!’?” Bear in mind it was 1927 and that was probably as “testy” as they got. If the answer was “yes”, the term would be implied.
This is a test surprisingly lacking in legal technicalities, you might think, and perhaps not entirely befitting our lofty courts of justice, but there you have it. There was a parallel test, generally thought to amount to much the same, of asking whether the term is “necessary to give business efficacy to the contract”, handily interpreted as “one that goes without saying”.
Well, that was how it was, but it’s all changed now. Lord Hoffman, in the Privy Council decision in the case of the Attorney General of Belize vs Belize Telecom, has sent the officious bystander off to mind his own affairs and replaced the test for implied terms. He decided that, for a term to be implied, it need no longer be so obviously intended that anyone asking if it were supposed to apply would be taken for an idiot. Far from it.
“If all this sounds alarming, Lord Hoffman heaves the bell with his second warning (not new, but just as scary), that an implied term is ’not necessarily what the parties to the document would have intended’”
Lord Hoffman stated that it does not now matter if the contracting parties might even have had a little trouble getting their heads around the concept had it been presented to them at the time of contracting. They might even have asked for the point to be clarified further before they formed a view on it. He explained that a term might have been omitted simply because the parties had not thought through all the possible contingencies that might arise. That should not now prevent the term being implied.
Subsequent case law clarifies that the term still needs to be “necessarily implied” in that the court cannot dream up further terms on a whimsical fancy, but nonetheless you may find unexpected and possibly unwelcome additions creeping into your contracts.
And if that sounds alarming, Lord Hoffman heaves the bell with his second warning (not new, but just as scary), that an implied term is “not necessarily what the parties to the document would have intended”. In other words the courts will imply terms objectively on the basis of the facts, not on evidence of the subjective intent of the parties.
Though not a UK case, the Belize precedent has been cited in subsequent UK decisions. Some say it was rejected by the Court of Appeal in Mediterranean Salvage vs Seamar, but I would question that view. The latter did provide that if a point is not covered expressly, the “usual conclusion” would be that nothing was intended.
However Lord Hoffman did not suggest that terms are “usually” implied just because a point is uncovered. Indeed, the judges in Mediterranean Salvage seemed broadly to accept Lord Hoffman’s approach, albeit with more emphasis on the necessity of the term. They rejected the implied term in their own case primarily because it was inconsistent with an express contractual term, which is a whole different ball game.
So what does it all mean to us in the construction world? It means those drafting contracts may err on the side of caution and draft to cover expressly various contingencies which may otherwise never have been considered. And in construction, as we know, those contingencies can be limitless.
“But,” I hear you cry, “does this mean our already lengthy and complex construction contracts could become even more lengthy and complex?”
Melinda Parisotti is an in-house barrister at Wren Managers