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Implied Terms
Terms implied by Law By Statute By precedent Two primary issues when new implied term
adopted: The term must be applicable to a definable class
of contractual relationship The term must be suitable – the courts have
applied the criteria of ‘necessity’
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Implied Terms
By Law - Definable class of contract egs: employment contracts bailment contracts insurance contracts contracts for the sale of goods contracts for work and materials. leases
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Implied Terms
By Law – Necessity Liverpool City Council v Irwin – [such facilities
as lifts and stairways] are essentials of the tenancy without which life in the dwellings, as a tenant, is not possible. – Term implied that landlord responsible for maintaining them.
Helicopter Sales v Rotor-Work - term implied by law into contracts for work and materials was excluded from this contract.
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Implied Terms Implied in Fact – Formal Contracts
Term must be reasonable and equitable Term 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 Term must not contradict any express term
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Implied Terms
Implied in Fact – Formal Contracts Reasonable and equitable
Not enough that a term is reasonable. If a term would impose a significant detriment on
one party and benefit the other, then it would not be deemed equitable to imply the term - BP v Shire of Hastings
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Implied Terms Implied in Fact – Formal Contracts
Business efficacy Leading Aust case - Codelfa v SRA of NSW
The courts will be slow to imply a term The more detailed and comprehensive the express
contract the less grounds to imply terms. The fact that an assumption was a matter of common
contemplation between the parties is not enough to justify the implication of a term.
Where the contract is a ‘contract of adhesion’ it will be more difficult to imply a term.
The court can not add a clause just because it thinks it would be reasonable or fair or prudent.
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Implied Terms Implied in Fact – Formal Contracts Obviousness
Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious it goes without saying; so that, if, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’ – Shirlaw v Southern Foundries
This is not a case in which an obvious provision was overlooked by the parties and omitted from the contract. Rather, it was a case in which the parties made a common assumption which masked the need to explore what provisions should be made to cover the event which occurred. – Codelfa (Mason J)
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Implied Terms
Implied in Fact – Formal Contracts Clarity
In ordinary circumstances negotiation about the matter might have yielded any one of a number of alternative provisions, each being regarded as a reasonable solution. - Codelfa (Mason J)
Consistency – BP Refinery
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Implied Terms Implied in Fact – Informal Contracts
In a case where it is apparent that the parties have not attempted to spell out the full terms of their contract, the court should imply a term by reference to the imputed intention of the parties if, but only if, it can be seen that the implication of the particular term is necessary for the reasonable or effective operation of a contract of that nature in the circumstances of the case. – Hawkins v Clayton (Deane J)
Obviousness also a criteria? - Byrne v Australian Airlines
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Implied Terms Implied by Custom
The existence of a custom or usage is a question of fact. custom must be so well known and acquiesced in that
everyone making a contract in that situation can reasonably be presumed to have imported that term into their contract
Can not be inconsistent or contrary to any express terms A person may be bound by the custom even if he or she had
no knowledge of it. Con-Stan Industries of Australia v Norwich
Winterthur Insurance Custom must be notorious, uniform, reasonable and certain –
Nelson v Dahl
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Duty of Good Faith
Developing area of law Controversial Precise content is uncertain and unsettled Classification or categorisation is uncertain
and unsettled Highlights tensions in the law of contract
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Duty of Good Faith Focus on the way parties perform the contract Focus on how a party exercises its powers under
the contract Not focussed on procedural unfairness in
formation of a contract (cf unconscionability) Not focussed on substantive unfairness in the
terms of a contract
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Duty of Good Faith
Nature and origins? ‘already inherent in contract doctrine, rules and
principles’ Principle of construction of contracts Implied term
Implied by law Implied in fact
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Duty of Good Faith
Cooperation It is a general rule applicable to every contract
that each party agrees, by implication, to do all such things as are necessary on his part to enable the other party to have the benefit of the contract
‘loyalty to the promise itself
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Duty of Good Faith
Fairness Exercise of contractual power should be
undertaken honestly and reasonably
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Duty of Good Faith not to take advantage of a party’s own wrong not to hinder or prevent the fulfillment of the other
party’s purpose to do all such things as are necessary to allow the
other party to have the benefit of the contract not to prevent the other party from performing the
contract to act honestly to have regard to the legitimate interests of the
other party
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Duty of Good Faith Renard Construction v Minister for Public Works Right to terminate conditional upon serving notice
to Renard ‘show cause’ notice ‘to the satisfaction of the principal’ Notice given and responded to Termination of agreement Decision made based on misinformation
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Duty of Good Faith
Renard Construction v Minister for Public Works
There was an implied duty to act in good faith
That duty was breached because the power to terminate was not exercised in a reasonable way
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Duty of Good Faith Burger King v Hungry Jack’s Contract required HJ to open 4 new restaurants a
year Subject to operational, financial and legal
approval from BK BK decided to operate directly in Aust. Withheld approvals Freeze on 3rd party franchisees HJ unable to meet the 4 new restaurant
requirement BK terminated the agreement
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Duty of Good Faith
Burger King v Hungry Jack’s Acting in pursuit of extraneous purposes can
be a breach of duty of good faith BK had ulterior motive Breached the duty when withheld approval Breached the duty when froze new franchises Breached the duty when terminating.
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Duty of Good Faith Limitations A party is precluded from cynical resort to the
black letter. But no party is fixed with the duty to subordinate self-interest entirely which is the lot of the fiduciary…The duty is not a duty to prefer the interests of the other contracting party. It is, rather, a duty to recognise and to have due regard to the legitimate interests of both the parites in the enjoyment of the fruits of the contract as delineated by its terms.