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Topic 8- Contractual Terms Implied Terms (Implied Terms as a Matter of…
Topic 8- Contractual Terms
Implied Terms
Introduction
If term is not expressed in a bargain, courts may intervene and decide that the terms or obligations may be read into the contract
Other terms may be imported from the context of the contract
Where the terms of the contract are not specifically expressed by parties they may be implied either
a) As a matter of fact
b) As a matter of law
NOTE: ONLY TWO WAYS COURT CAN IMPLY TERMS INTO CONTRACT
Cannot imply terms into contract merely because it would be reasonable or fair under circumstances
Tradax Ireland v Irish Gran Board
The courts 'have no role in acting as contract makers, or as counsellors, to advise or direct what agreement ought to have been made by two people
Marks and Spencer v BNP Paribas Securities Trust Company (Jersey) Co
UK SC confirmed that implied terms may arise from express terms and surrounding circumstances and will do so because of business necessity and obviousness, the officious bystander and business efficacy tests
SC REJECTED- that implied terms are to be found through a process of interpretation
Lord Neuberger: It is only after the process of construing the express words is complete that the issue of an implied term falls to be considered. Until one has decided what the parties have expressly agreed, it is difficult to see how one can set about deciding whether a term should be implied and if so what term
Implied Terms as a Matter of Fact
Matter of fact
Court attempts to identify what both parties would have considered (but not necessarily expressed) as essential terms of their contract
Courts will try to identify what the presumed intentions of the parties were
Courts have devised and utilized certain tests over the years
Officious Bystander Test
Officiious Bystander Test operates on basis that the terms, which are clearly intended by the paries, are
so obvious that they do not need to be stated in the contract
Shirlaw v Souther Foundaries
:
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 if while the parties were making their bargain, an offcious bystander were to suggest some express provision for it in agreement, they would estily suppress him with a common 'Oh of course!'
Terms will not be implied where it conflicts with any terms expressed in the contract
Carna Foods v Eagle Star Insurance
SC: 'ne can imply a term into a contract only when the implied term gives effect to the true intentions of all the parties to the contract who might be affected by such implied term
Terms Obvious to both parties concerned
Courts are looking for the mutual and shared intentions of the parties and not the reasonable man
Horan v O'Reilly and Others
: Lottery syndicate
included 4 individuals
P alleging he was the 5th member of the syndicate
Parties agreed that they would pay 1.50 each for the two weekly lottery draws and that one of the members, Mr O'Brien, would collect the money and buy the tickets
Mr O'Brien 'managed' the syndicate
Winnings to be shared equally
In past Mr O'B had permited P to fall in arrears by covering arrears himself
Issue: Winning ticket purchased with €6 rather than €7,50, as P had not contributed that week
Qu- Whehter 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 behalf in absence of some notice of termination
Held: SC: although informal arrangement 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 P
Court concluded
Re express terms: Variation, would have to be agreed by 4 appeallants
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
Clear no such agreement made
Implied- I am stisfied tht it would not be obvious to the innocent bystander that such obligation was imposed on Mr O'Brien on behalf of other syndicate members
Flynn v Breccia:
Complex Commercial dispute
Ps sought to imply a term
Court of Appeal held the officious bystander test requires the court to be satisfied of two things
That reasonable people in the position of the parties would all have agreed to the term
That they would without doubt have accepted the term proposed by the officious bystander
Business Efficacy Test
The courts will not imply a term into contract on basis simply because it is reasonable or would make better sense
It must be established the term was necessary to to give business efficacy to the contract
The courts will only imply such terms into a contract where they can do so with degree of precision
Karim Aga Kahn v Firestone
: Such a term as is sought to be implied has been omitted from he contract and is
necessary in order to give he contract efficacy
and to prevent the failure of the contract
Requirement of necessity- to give efficacy to the agreement
Re Commercial contracts: Presumed the parties intended their agreement should be workable and effective:
The Moorcock
: P and D agreed that the P's steamship would dock at D's wharf
Ship damaged due to shallow, uneven ridge of seabed that lay adjacent to wharf
Held: That in order o give business efficacy to the transaction, a term had to be implied the jetty was safe for mooring boats
Dakota Packaging v Wyeth Medica Ireland
HC implied a term into a supply contract which required D to supply P with 12 month's notice of any intention to transfer their packaging requirements elsewhere
HC hed that the Dwas obliged during this time to take a proportion of orders from the P
OVERTURNED BY SC ON APPEAL: arrangement between the P and D was contract of supply for individual orders
No basis, for the sake of business efficacy- to imply 12 month notice period into the contract and a term that during this notice period the D was required to take a certain proportion of orders from P
Step too far
SC observed: '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 D supposed to order through the P?
Clarke on HC decision:
Decision is perhaps most visible demonstration by an Irish judge of the extent to which the implied duties of cooperation 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
Baird Textiles Holdings v Marks and Spencer
: involved an agreement whereby P agreed to supply D with garments 'in quantities and at prices which in all the circumstances were reasonable'
C of A held there was no objective means of assessing what quantities and prices were reasonable and therefore refused to uphold the term
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
BP Refinery Pty Shire of Hstings
Five point test to when terms will be implied
It must be reasonable and equitable
It must be necessary to give business efficacy to the contrac 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
: A term was implied into a journalist's contract of employment that he would receive holiday pay on basis of evidence that holiday pay for journalists was customary in Dublin
Custom must be relatively obvious
in sense that anyone inquiring to its existence would be notified as such
Implied Terms as a Matter of Law
Implied Terms under Common Law
In relation to terms being implied by the judiciary at Common law, there are two conditions
The contract must be of a defined type
The implication of the term must be necessary
The proposed term must not conflict with the express intentions of the P's parties
Liverpool City Co v Irwin
Facts: D tenants in P's apartments and lived on 9th floor in a tower block
Common staircase and lavatory, which overflowed regularly
Lifts always breaking down and rubbish shoots blocked
Issue: D refused to pay rent and P sued for eviction
D argued there was an implied term of the tenancy agreement that it would not be possible to live in the apartment without a staircase or lift, therefore there was an implied term that the staircase, corridors and lights all be kept in working order
Held: Court looked at unequal bargaining power
Conditions of tenancy were on a standard form of the P
All obligations on D and none on P
Wilberforce LJ said it was necessary to imply a term into the contract to make a one-sided contract truly bi-lateral
Implied Terms under Statute
Terms may frequently be implied into consumer contracts -SSGA 1980
Contracts of employment often subject to implied terms as result of legilsation
Anti-Discrimination Act
Employment Equality Act
Terms of Employment Act
Implied Terms under the Constitution
Irish Constitution takes precedence over all other sources of Irish law
Terms will be implied into relevant contracts to reflect such constitutional rights, where the courts deem this necessary
Glover v BLN:
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 eniled to avail of fair procedures
A term implied by reference to the consitutional principle of natural justice
Meskell v CIE
: SC held D was prohibited from exercising his contractual rights in a way that undermine P's constitutional right to freedom of association
Implied terms based on constitutional rights have been waived will also be deemed to have been waived
Construction of Contractual Terms
Rules of Construction
The Factual Matrix
Under this approach the words used are interpreted in a manner which is not divorced from the surrounding circumstances of the contract
LAC Minerals v Chevron
: HC approaved test- 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 circumstances, which the person, using them had in view'
Test applied to an agreement which contained clause regarding pre-emption rights
One clause referred to offer to remain open for 50 days, while another referred to 60
Conflict resolved by outside evidence of intentions of the parties
Flynn v Breccia:
C of A overturned interpretation of contract by HC due to reliance by HC on the intention of the parties
Subject intention= irrelevant
it was an OBJECTIVE approach
Reaffirmed: even when using factual matrix rule, the starting point of contractual interpretation being words actually used
Emo Oil Ltd v Sun Alliance and London Insurance Company
SC approved of principles of contractual interpretation outlined by Lord Hoffman in Investor's Compensation Scheme v West Bromwich Building Society
Interpretation is the ascertainment of the meaning which eh 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
The background includes absolutely anything that would have affected the way in which the language of the document would have been understood by a reasonable man
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 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 world reasonably have been understood to mean
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, particuarly 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 attrubute to teh parties an intention which they plainly could not have had
Arnold v Britton:
Majority UKSC: Stressed the focus should be on the terms of the contract rather than any immediate resort to commercial common sense and surrounding circumstances
the effect of which Lord Neubuerger criticized as undervaluing the importance of the language which is to be construed
Observing that;
unlike commercial common sense, and surrounding circumstances, the parties have control over the language they use in a contract
Stressed importance of grammar and syntax:
the worse their drafting, the more readily can the court depart from their natural meaning
Warned against using commercial common sense in hindsight
the fact the provision has turned out badly or even disastrously, is not to provide a reason for departing from the natural language
Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made
The Law Society of Ireland v The Motor Insurers' Bureau of Ireland:
Very important SC decision
Held; When interpreting one clause in a contract, the court should consider the agreement as a whole
Affirmed the factual matrix approach to interpretation generally
The Plain Meaning Rule
The rule essentially provides that if a term of the contract is clear, the courts cannot go beyond literal meaning of the words in order to interpret the contract
Marathon Petroleum v Bord Gais Eireann
: If words= clear= one cannot have recourse to extrinsic evidence to interpret contract
Laird Brothers v The City of Dublin Steam Packet Co:
In interpreting contract using plain meaning rule the words must be looked at in the context of the contract as the whole
Objective approach
Constructing or interpreting the intentions of the parties from the terms of the contract can be very difficult thing to acheive
Courts adopt an objective approach whereby tehy try to ascertain the actual intentions of the parties to the contract
Much depends on what the parties said and the manner in which they conducted themselves and not what hey meant to say or do
Keane J summaries SC's view in Igote Ltd v Badsey
: Where the parties are in disagreement as to what a particular provision of a contract means, the task of the court is to decided what the intention of the parties was, having regard to
the language used in the contract itself
the surrounding circumstances
Bula Ltd v Tara Mines
: Intention of the parties is to be determined from the point in time when the parties entered into the contract
Summary: Laffoy J in
UPM v BWG:
Courts 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 presumed intention of the parties, the Court should adopt an objective, rather than subjective approach
and should consider what would have been the intention of reasonable persons in the position of the parties
Maxims of Construction
Courts have developed a number of maxims to assist them when interpreting contracts
Commercial sense and unreasonable results
Commercial contracts should be interpreted in a manner which makes good commercial sense
Purpose of the agreement
The courts can take into consideration the purpose of the agreement
Market price
The courts will consider parol evidence in establishing custom and practice when interpreting terms
Documents forming part of the same transaction
the Courts will consider other documents forming part of the same agreement
Tailor made clauses
The General rule is that if a clause specifically drafted for purposes of the agreement conflicts with a standard clause then the tailor-made clause will prevail
Contra-preferendum rule- where a term is ambiguous, the interpretation less favourable to the person seeking to rely on it will prevail