Implied Terms
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
certainty. Secondly, the custom must5 be so widespread that it is well known
to the people within the trade or profession.
3. A term will not be implied on the basis of custom or usage where it is contrary
to the express term of the agreement. As term implied must on custom and
usage must reflect the presumed intention of the parties, if the parties
expressly exclude such a term, or insert a term inconsistent with it, the term
cannot be regarded as reflecting their intention.
4. A person may be bound to custom notwithstanding the fact that he or she had
no knowledge of it. Unless the parties have agreed to the contrary, a term is
implied provided the elements of the second limb above are met.
A term implied to complete agreement
The judiciary attempts to uphold agreements if at all possible. As a means of
upholding contracts where not all the terms have been finalized, in an appropriate case
the courts may be prepared to imply a term (Hillas &Y Co v Arcos).
Terms Implied Irrespective of Parties’ Intention
Term Implied as a Legal Incident of a Particular Class of Contract
A term may be implied as a matter of law in contracts of a particular class (Liverpool
City Council v Irwin).
Some examples are:
 Contract for the provision of goods and services: goods or services will be
reasonable fit for the purpose supplied or rendered (Samuels v Davis).
 Contracts for the provision of professional services: reasonable care will be
taken by professional in provided services (Greaves Y Co v Baynham).
 Contracts of employment: duty to proved a safe work place (McLean v
Tedman).
 Building contracts: the completed house will be fit for habitation and the work
done will be carried out in a proper and workman like fashion (Perry v Haron
Developments).
General Duty of Co-operation
There is an implied term a general duty of cooperation of all contracts that each party
agrees to do all things necessary to enable to other party to have the benefit of the
contract (Butt v McDonald).
Some examples include:
 A term may be implied to give effect to the presumed intention of the parties
(Curro v Beyond Productions).
 Duty to comply with reasonable requests
 There is a duty to do all things necessary to enable the agreement to be
completed (Adelaide Petroleum v Poseidon).
 Where a contract requires concurrent performance it may be implied that
rights are to be exercised in good faith and there is a duty to cooperate
(Service Station Association v Berg Bennet & Associates).
 There is a duty to exercise contractual powers reasonably (Renard
Constructions v Minister for Public Works).
Implication of duties of good faith, fair dealing and reasonableness
It has been suggested that the courts may be prepared to imply a duty for the parties to
act in good faith in performing a contract (Renard Constructions v Minister for Public
Works).
Some examples include:
 The preparedness of the courts to imply a reasonable price where the contract
is silent
 Statutory implication of reasonable price in a contract for the sale of goods
 Duty on a prospective buyer to act reasonably as well as honestly in
determining whether finance is satisfactory in a contract to purchase
Term Implied by Statute
Sale of Goods Act 1896 (Qld)
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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 seller’s 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)).