Implied terms in English law

Last updated

In English law, implied terms are default rules for contracts on points where the terms which contracting parties expressly choose are silent, or mandatory rules which operate to override terms that the parties may have themselves chosen. The purpose of implied terms is often to supplement a contractual agreement in the interest of making the deal effective for the purpose of business, to achieve fairness between the parties or to relieve hardship.

Contents

Terms may be implied into contract through statutes, custom or by the courts. When implied by statute, Parliament may well make certain terms compulsory. The examples are numerous. For instance, the National Minimum Wage Act 1998, provides that in any contract for work, the worker must be paid according to a minimum wage set by Parliament (£10.42 per hour for workers aged 23 or over as of April 2023). [1] [ needs update ]

Another example is that under the Unfair Contract Terms Act 1977, liability can only be excluded when reasonable [2] in contracts among businesses. When terms are implied by courts, the general rule is that they can be excluded by express provision in any agreement. The courts have developed an apparent distinction between terms implied "in fact" and those implied "in law". Terms implied "in fact" are said to arise when they are "strictly necessary" to give effect to the "reasonable expectations of the parties". Terms implied "in law" are confined to particular categories of contract, particularly employment contracts or contracts between landlords and tenants, as necessary incidents of the relationship. For instance, in every employment contract, there is an implied term of mutual trust and confidence, supporting the notion that workplace relations depend on partnership.

There is also an ongoing debate whether the rules of remoteness and frustration or common mistake are best characterised as implied terms. Remoteness places a limit on the compensatory award given for breach of contract, so if unlikely losses result or losses are not something that one would generally expect compensation for, compensation is not payable. Recent judicial support for its status as an "internal" rule and as an implied term derives from the judgment of Lord Hoffmann in The Achilleas . Frustration is a rule which brings contracts to an end in the event of some unforeseen event subsequent to the agreement which would make performance of obligations radically different from that envisaged, for instance because a car for sale is destroyed before it is delivered. Common mistake, as a doctrine, following The Great Peace , analogous to frustration, can similarly be said to imply a term that a contract will be extinguished if entered into on the false pretence that performance would be possible.

Implication by statute

Statute can imply terms into contracts. Consumer protection law (such as the Consumer Rights Act 2015) implies terms into contracts for the supply of goods to consumers that the supplied goods are fit for purpose, durable, and of satisfactory quality. Other examples include:

Implication by custom

Terms can be implied into contracts according to the custom of the market in which the contracting parties are operating. The general rule, according to Ungoed Thomas J in Cunliffe-Owen v Teather & Greenwood , [6] is that the custom must be:

certain, notorious, reasonable, recognised as legally binding and consistent with the express terms

One of the older cases illustrating this is Hutton v Warren. [7] Mr Warren, a landlord, leased his farm to Mr Hutton. The tenant complained that it was the countryside's custom that landlords would keep the land arable and give a reasonable allowance for seeds and labour in return for leaving manure to be purchased. Parke B held there was such a custom and that

in commercial transactions, extrinsic evidence of custome and usage is admissible to annex incidents to written contracts matters with respect to which they are silent.

Like all terms implied by courts, customs can be excluded by express terms or if they are inconsistent with a contract's nature. [8] Lord Devlin in Kum v Wah Tat Bank Ltd. [9] summed up the policy of the law:

Universality, as a requirement of custom, raises not a question of law but a question of fact. There must be proof in the first place that the custom is generally accepted by those who habitually do business in the trade or market concerned. Moreover, the custom must be so generally known that an outsider who makes reasonable enquiries could not fail to be made aware of it. The size of the market or the extent of the trade affected is neither here nor there.

Implied terms in employment contracts

The following terms may be implied into contracts of employment: [10]

Employees' duties
Employers' duties

An employer is also under an implied duty not to terminate a sick employee's contract of employment on the grounds of sickness (this relates to the loss of, or loss of access to, private health insurance benefits). See the 2018 Employment Appeal Tribunal case of Awan v ICTS UK Ltd. [11] [12]

Mutual duty

Implied terms in software licencing

It may be necessary to imply terms into a software licence if the party who developed the software and the party who has purchased or uses it have not agreed all relevant terms. Nine propositions were set out by Lightman J in the case of Robin Ray v Classic FM (1998), which build on the law governing the implication of terms set out by the Privy Council in BP Refinery (Westernport) Pty Ltd v The President Councillors and Ratepayers of the Shire of Hastings (1977). These propositions allow that the software developer retains copyright unless there is an express or implied term to the contrary, which may be stated in the contract, and that commissioning the software does not in itself allow the customer to acquire copyright. In Clearsprings Management Limited v Businesslinx (2006) the court found it necessary to imply that the purchaser had "a non-exclusive personal licence under the copyright in the ... system with no right to sub-licence", and that the software developer, who had designed the system around the purchaser's operating procedures, was subject to a restriction on its use of information about the purchaser's operating procedures outside its role in developing the software. [14]

Implication in fact

Implication in law

Remoteness

Frustration

Historically, the test for frustration was deemed to be one of implied terms. Judge Blackburn in Taylor v Caldwell [15] deemed a contract for the hire of a music hall frustrated – where it had been destroyed – on the grounds that there was an implied term it would continue to exist.

Such an idea has been rejected in later cases, with the ideas of Krell v Henry [16] and Davis Contractors v Fareham UDC [17] being preferred. This is that a contract should be found frustrated where the principal purpose for contracting becomes radically different from the original purpose, as explained by Lord Reid:

The question is whether the contract which they did make is, on its true construction, wide enough to apply to the new situation: if it is not, then it is at an end. [18]

Common mistake

See also

Related Research Articles

<span class="mw-page-title-main">United Kingdom labour law</span> Rights of workers, unions, and duties of employers in the UK

United Kingdom labour law regulates the relations between workers, employers and trade unions. People at work in the UK have a minimum set of employment rights, from Acts of Parliament, Regulations, common law and equity. This includes the right to a minimum wage of £11.44 for over-23-year-olds from April 2023 under the National Minimum Wage Act 1998. The Working Time Regulations 1998 give the right to 28 days paid holidays, breaks from work, and attempt to limit long working hours. The Employment Rights Act 1996 gives the right to leave for child care, and the right to request flexible working patterns. The Pensions Act 2008 gives the right to be automatically enrolled in a basic occupational pension, whose funds must be protected according to the Pensions Act 1995. Workers must be able to vote for trustees of their occupational pensions under the Pensions Act 2004. In some enterprises, such as universities or NHS foundation trusts, staff can vote for the directors of the organisation. In enterprises with over 50 staff, workers must be negotiated with, with a view to agreement on any contract or workplace organisation changes, major economic developments or difficulties. The UK Corporate Governance Code recommends worker involvement in voting for a listed company's board of directors but does not yet follow international standards in protecting the right to vote in law. Collective bargaining, between democratically organised trade unions and the enterprise's management, has been seen as a "single channel" for individual workers to counteract the employer's abuse of power when it dismisses staff or fix the terms of work. Collective agreements are ultimately backed up by a trade union's right to strike: a fundamental requirement of democratic society in international law. Under the Trade Union and Labour Relations (Consolidation) Act 1992 strike action is protected when it is "in contemplation or furtherance of a trade dispute".

In employment law, constructive dismissal, also called constructive discharge or constructive termination, occurs when an employee resigns as a result of the employer creating a hostile work environment. Since the resignation was not truly voluntary, it is, in effect, a termination. For example, when an employer places extraordinary and unreasonable work demands on an employee to obtain their resignation, this can constitute a constructive dismissal.

<span class="mw-page-title-main">Exclusion clause</span>

Exclusion clauses and limitation clauses are terms in a contract which seek to restrict the rights of the parties to the contract.

<span class="mw-page-title-main">Australian contract law</span>

The law of contract in Australia is similar to other Anglo-American common law jurisdictions.

<span class="mw-page-title-main">Unfair Contract Terms Act 1977</span> United Kingdom legislation

The Unfair Contract Terms Act 1977 is an act of Parliament of the United Kingdom which regulates contracts by restricting the operation and legality of some contract terms. It extends to nearly all forms of contract and one of its most important functions is limiting the applicability of disclaimers of liability. The terms extend to both actual contract terms and notices that are seen to constitute a contractual obligation.

<span class="mw-page-title-main">Sale of Goods Act 1979</span> United Kingdom legislation

The Sale of Goods Act 1979 is an Act of the Parliament of the United Kingdom which regulated English contract law and UK commercial law in respect of goods that are sold and bought. The Act consolidated the original Sale of Goods Act 1893 and subsequent legislation, which in turn had codified and consolidated the law. Since 1979, there have been numerous minor statutory amendments and additions to the 1979 act. It was replaced for some aspects of consumer contracts from 1 October 2015 by the Consumer Rights Act 2015 but remains the primary legislation underpinning business-to-business transactions involving selling or buying goods.

<span class="mw-page-title-main">Contractual term</span> Any provision forming part of a contract

A contractual term is "any provision forming part of a contract". Each term gives rise to a contractual obligation, the breach of which may give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as they are peripheral to the objectives of the contract.

<span class="mw-page-title-main">English contract law</span> Law of contracts in England and Wales

English contract law is the body of law that regulates legally binding agreements in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the Industrial Revolution, it shares a heritage with countries across the Commonwealth, from membership in the European Union, continuing membership in Unidroit, and to a lesser extent the United States. Any agreement that is enforceable in court is a contract. A contract is a voluntary obligation, contrasting to the duty to not violate others rights in tort or unjust enrichment. English law places a high value on ensuring people have truly consented to the deals that bind them in court, so long as they comply with statutory and human rights.

<span class="mw-page-title-main">Agreement in English law</span>

In English contract law, an agreement establishes the first stage in the existence of a contract. The three main elements of contractual formation are whether there is (1) offer and acceptance (agreement) (2) consideration (3) an intention to be legally bound.

<span class="mw-page-title-main">Contract</span> Legally binding document establishing rights and duties between parties

A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more parties. A contract typically involves the transfer of goods, services, money, or a promise to transfer any of those at a future date. The activities and intentions of the parties entering into a contract may be referred to as contracting. In the event of a breach of contract, the injured party may seek judicial remedies such as damages or equitable remedies such as specific performance or rescission. A binding agreement between actors in international law is known as a treaty.

Contractual terms in English law is a topic which deals with four main issues.

Interpreting contracts in English law is an area of English contract law, which concerns how the courts decide what an agreement means. It is settled law that the process is based on the objective view of a reasonable person, given the context in which the contracting parties made their agreement. This approach marks a break with previous a more rigid modes of interpretation before the 1970s, where courts paid closer attention to the formal expression of the parties' intentions and took more of a literal view of what they had said.

Frustration is an English contract law doctrine that acts as a device to set aside contracts where an unforeseen event either renders contractual obligations impossible, or radically changes the party's principal purpose for entering into the contract. Historically, there had been no way of setting aside an impossible contract after formation; it was not until 1863, and the case of Taylor v Caldwell, that the beginnings of the doctrine of frustration were established. Whilst the doctrine has seen expansion from its inception, it is still narrow in application; Lord Roskill stated that "the doctrine is not lightly to be invoked to relieve contracting parties of the normal consequences of imprudent commercial bargains."

<span class="mw-page-title-main">Supply of Goods (Implied Terms) Act 1973</span> United Kingdom legislation

The Supply of Goods Act 1973 was an act of the Parliament of the United Kingdom that provided implied terms in contracts for the supply of goods and for hire-purchase agreements, and limited the use of exclusion clauses. The result of a joint report by the England and Wales Law Commission and the Scottish Law Commission, First Report on Exemption Clauses, the Act was granted royal assent on 18 April 1973 and came into force a month later. It met with a mixed reaction from academics, who praised the additional protection it offered while at the same time questioning whether it was enough; several aspects of the Act's draftsmanship and implementation were also called into question. Much of the Act was repealed by the Sale of Goods Act 1979, which included many of the 1973 Act's provisions.

<i>Scally v Southern Health and Social Services Board</i>

Scally v Southern Health and Social Services Board [1992] 1 AC 294 is an English contract law case, relevant for pensions and UK labour law, concerning implied terms.

An employment contract in English law is a specific kind of contract whereby one person performs work under the direction of another. The two main features of a contract is that work is exchanged for a wage, and that one party stands in a relationship of relative dependence, or inequality of bargaining power. On this basis, statute, and to some extent the common law, requires that compulsory rights are enforceable against the employer.

Unfair terms in English contract law are regulated under three major pieces of legislation, compliance with which is enforced by the Competition & Markets Authority (CMA). The Unfair Contract Terms Act 1977 is the first main Act, which covers some contracts that have exclusion and limitation clauses. For example, it will not extend to cover contracts which are mentioned in Schedule I, consumer contracts, and international supply contracts. The Consumer Rights Act 2015 replaced the Unfair Terms in Consumer Contracts Regulations 1999 and bolstered further requirements for consumer contracts. The Consumer Protection from Unfair Trading Regulations 2008 concerns certain sales practices.

Certainty in English law sets out rules for how judges will interpret, sever or put contracts, trusts and other voluntary obligations into effect.

<i>Reda v Flag Ltd</i>

Reda v Flag Ltd [2002] UKPC 38 is a case from Bermuda law, advised upon by the Privy Council, that is relevant for UK labour law and UK company law concerning the dismissal of a director.

<i>Commonwealth Bank of Australia v Barker</i> Judgement of the High Court of Australia

Commonwealth Bank of Australia v Barker is a leading Australian judgment of the High Court which unanimously and firmly rejected the proposition that contracts of employment in Australia should contain an implied term of mutual trust and confidence.

References

  1. Miller, F., How much has the UK minimum wage gone up?, The Times, updated 24 April 2023, accessed 2 July 2023
  2. See s 11 and Sch 2 UCTA 1977
  3. Sale of Goods Act 1979, section 12
  4. Court of Appeal of England and Wales, KG Bominflot v Petroplus Marketing, DMC’s CaseNotes, delivered 19 October 2010, accessed 14 July 2023
  5. Supply of Goods and Services Act 1982, Part II
  6. Cunliffe-Owen v Teather & Greenwood [1967] 1 WLR 1421
  7. (1836) 1 M&W 460
  8. e.g. Palgrave, Brown & Son Ltd v SS Turid (Owners) [1922] 1 AC 397, A charterparty provided that cargo at Yarmouth should be delivered ‘always afloat … taken from alongside the steamer at charterer’s risk and expense as customary.’ But when the vessel arrived with his timber he could not come closer than thirteen feet to the quay and was told the custom was for him to pay for stevedores to do the unloading. Viscount Birkenhead LC held the shipowners succeeded.
  9. [1971] 1 Lloyd’s Rep 439
  10. 1 2 Epoq Group Ltd., Implied Terms, accessed 6 April 2021
  11. Houlston B. and Kynman, R., The dangers of dismissing staff on permanent health insurance, Chartered Institute of Personnel and Development, published 22 March 2019, accessed 6 April 2021
  12. Employment Appeal Tribunal, Mr H Awan v ICTS UK Ltd., UKEAT/0087/18/RN, 23 November 2018, accessed 6 April 2021
  13. Martin Searle, Solicitors, Factsheet: Grievance Procedures Under The Acas Code, accessed 7 April 2021
  14. Pinsent Masons, Clearsprings v BusinessLinx, accessed 3 August 2023
  15. Taylor v Caldwell (1863) 3 B & S 826
  16. Krell v Henry [1903] 2 KB 740
  17. Davis Contractors v Fareham UDC [1956] AC 696
  18. [1956] AC 696, p. 721

Further reading