Is it obvious? It is necessary?

Any contract – whatever its subject, however long it is, whether paper-based, digital or verbal – can have terms added to by either legislation, custom or by case law. These additions are called implied terms.

This post summarises a recent Court of Appeal decision which clarified when/how the courts can add terms into an existing contract.

Principles for implying terms

English law recognises that sometimes the contract as written or agreed does not properly or completely reflect the deal that was agreed. Terms can be implied on the basis of surrounding facts or because it is a specific type of contract. But just because you think your contract is missing a term, does not mean the court will agree!

The court of Appeal in Yoo Design v Iliv Realty confirmed that:

A term will not be implied unless, on an objective assessment of the terms of the contract, it is necessary to give business efficacy to the contract and/or on the basis of the obviousness test.

These two tests are:

  1. business efficacy ie “if, without the term, the contract would lack commercial or practical coherencethis is a value judgment
  2. obviousness ie “when the implied term is so obvious that it goes without saying. It needs to be obvious not only that a term is to be implied, but precisely what that term (which must be capable of clear expression) is.

The court said it would be rare for any proposed term to satisfy only one of these tests. It also reiterated the general principles on which terms will/will not be implied:

  • the proposed term must be consistent will all express terms of the contract
  • the proposed term is not dependent on proof of the actual intention of the parties
  • the tests are assessed at the time the contract is made, not with the benefit of hindsight
  • the test is of necessity not reasonableness, so any proposed term should be fair but that is not enough by itself.

In this case, the proposed term did not meet the two basic tests – it was hard to define, and would have resulted in heated debate rather than acquiescence.

What should you do?

First, consider whether your contract makes provision for eveything that is important to you and all your assumptions, as well as being flexible for other eventualities. The recent pandemic has taught us to think a little wider and stop relying on our experience to date as representing the norm.

Second, do not assume that the law will come to your assistance to fill in the gaps. There may be statutes which help – depending on your jurisdiction – but the bar for implying an unwritten undiscussed term into a contract is a high one, and you may not succeed.

Case: Yoo Design Services Ltd v Iliv Realty PTE Ltd [2021] EWCA Civ 560

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