Express and Implied Terms

Contents of a contract: Take a step back and think about how

everything fits within the plan……

Contract terms
• Express
• Implied
Matters • Exclusions
affecting • Construction
formation
• Privity
• Formalities
Elements • Capacity
• Agreement
• Consideration
• Certainty
• Intention
IMPORTANCE OF TERMS OF CONTRACT
Once it is established there is a contract, the next most important
task is to identify the terms of that contract.
Why is identification of the terms of a contract so important?
Where do we find the terms of a contract? Almost any communication
between parties is potentially a term.
How does the court determine which of the many communications
between the parties form the terms of the contract?
– Eg: significance of signed document to parties
– Eg: Incorporation of terms by notice
– Eg: Incorporation of terms by course of dealings
NOTE: The parol evidence rule restricts the use of extrinsic evidence to
identify terms of a contract that is wholly in writing
Express Terms
 Identifying Express Terms
• Contractual disputes often concern
what was actually agreed by the
parties or what they believe was the
basis of their contract
• In ascertaining the terms of a contract, Promissory (terms) Non promissory
courts distinguish between promissory • Intended to be • Puffs
binding • Opinions
and non-promissory statements. The • Intended to be relied • Mere representation
classification of statements affects the on
• Breach gives rise to
available remedies. rights (to sue /
• Categories: puffs, opinions, mere terminate)
representations and terms
Terms v Puffs
 Puffs and Terms
• Sales puffs are typical advertising talk meant to promote a sale
• Puffs exaggerate the qualities of the subject and are not intended to be taken literally and
seriously (eg ‘best views in town’)
Terms v Opinions
 Opinions

• Opinions are generally an expression of a personal belief and are not of a promissory
nature
• Unless opinion becomes a term of a contract, no legal consequence if untrue
• Becomes more problematic where the opinion is a professional opinion (e.g. legal opinion,
independent experts report etc)
__
Terms v Mere Representations
When is a representation simply a representation – and when is it a
term?
 Distinguishing ‘terms’ from ‘representations’
• Categorisation of statements as either terms or representations is important for
determining type of action and remedies available where statement proves false
• Breach of contract (term) entitles a party to contractual damages, in some cases,
equity may grant specific performance or issue an injunction
• False representations may give rights under laws of misrepresentation, misleading
or deceptive conduct and possibly estoppel
 Factors relevant to determining whether a representation is a term
• Whether a statement amounts to a term is an objective test: the court assesses whether a
reasonable person placed in the parties’ position would have considered the statement
made to be promissory in nature.
• Courts must ascertain whether there is objectively an intention to assume contractual
liability for the accuracy of a statement; secret thoughts are irrelevant: Hospital Products
Ltd v United States Surgical Corporation (1984) 156 CLR 41
• The following factors are explained in Ellul and Ellul v Oakes (1972) 3 SASR 377
– words and language used in the statement;
– the relative knowledge and expertise of the person making the statement;
– the importance and timing of the statement;
– agreements which are reduced to writing.
Words and Language Used
 Look at the language
• Statements beginning with “I promise that...”, “I guarantee...”, “I warrant...” , etc. are
inherently promissory;
• Statements commencing “I would think that”, “In my opinion, it seems that ...”, “I hope
to ...”, “I would estimate...” are arguably not promissory in their meaning: J J Savage &
Sons v Blakney (1970) 119 CLR 435
 JJ Savage & Sons v Blakney (1970) 119 CLR 435
• Facts: Blakney, the respondent, considered buying a motor boat from JJ Savage & Sons, the
appellant. The appellant recommended one particular engine, of which the “estimated speed” was
stated to be fifteen miles per hour. Blakney then placed a formal order for a boat. The contractual
document that was later executed did not refer to the capacity of the boat to attain any particular
speed. In fact, the engine’s maximum speed was 12 miles per hour. The respondent sued the
appellant for breach of condition, or warranty, or breach of a collateral warranty. The Full Court of
the Supreme Court of Victoria held that the representation was a collateral warranty by the maker
that the boat would attain an approximate speed of fifteen miles per hour. JJ Savage appealed to
the High Court.
• Issue: Was there a promise (a term) by the appellant that the boat would in fact attain the stated
speed?
• Held: Appeal allowed. The appellant’s statement was not promissory. The word “estimate” was
merely an expression of opinion.
Special Expertise
 Special Expertise

• a statement made by one party (who has expert knowledge on the subject matter) to another
party (who does not have such expertise) is more likely to be promissory;
• the same statement made by a party (who does not have expertise) to the other party (who
does) is more likely to be merely representational
 Oscar Chess Ltd v Williams [1957] 1 WLR 370
• Facts: The defendant, Williams, wished to purchase a new car from the plaintiff car dealer, Oscar
Chess. The defendant offered to trade in his used car which was purchased by his mother in 1954 as
part payment for the new car. The registration book of the car (which could be fraudulently altered
before the defendant’s mother bought the car) showed that the car was first registered in 1948,
which the defendant had described as such to the plaintiff. The car dealer relied on the statement
that it was a 1948 model and valued it at £290. In fact, it was an older 1939 model which would
have been worth only £175. The dealer claimed for the difference in value arguing that it was a
term of the contract that the car was a 1948 model.
• Issue: Was the statement of the defendant to the car dealer a term of the contract?
• Held: The statement by the defendant was not a term as the defendant had no personal knowledge
of the age of the car. The defendant made it sufficiently clear that he was simply passing on
information obtained from the registration book. A reasonable bystander would not infer an
intention to be bound by that statement.
 Dick Bentley Productions v Harold Smith (Motors) [1965] 2 All ER 65
• Facts: Dick Bentley Productions wished to purchase a Bentley car and approached a car dealer,
Harold Smith. Bentley told Smith that he (Bentley) was looking for a “well vetted Bentley car”. Smith
replied that he was “in a position to find out the history of cars”. Smith showed Bentley a car and
told Bentley that the car’s mileage was 20,000 miles which was incorrect. Bentley’s claim for
damages for breach of warranty succeeded at first instance, and Smith appealed.
• Issue: Was the statement of the car dealer, Harold Smith, a term of the contract?
• Held: Appeal dismissed. The statement was a warranty (a promissory term) as it was made by
Smith, a car dealer, who was in a position to know or find out the history of the car.
Importance of the Statement
 Importance of the Statement

“A statement which the circumstances show was highly significant or important to the
transaction is more likely to be regarded as a promise than a statement of lesser
significance” Van den Esschert v Chappell [1960] WAR 114

But note from JJ Savage - not all important statements are terms of the contract
Timing of the Statement
 Timing of the Statement
The timing of the statement;
• a statement that is proximate in time to the point of contract formation is more likely to be
promissory than one made well beforehand;
• significance of “timing” is relative to the size and nature of the transaction
Van den Esschert v Chappel [1960] WAR 114 – statement was made immediately prior to signing
the contract of sale. There was no time for independent enquiry to determine whether there
were any white ants in the house 。 This can be contrasted with Routledge v McKay [1954] 1
WLR 615 where there was an interval of about seven days between the statement made by the
seller and the time when the parties entered into the contract. In Routledge, the statement was
not held as a term.
Written Statement
 The Statement is in Writing
• When parties have translated their negotiations into a written document and have signed
the document, the court is likely to assume that the purpose of the written document is to
record and consolidate the parties’ mutually agreed obligations. 
• In Equuscorp v Glengallan Investments (2004) 218 CLR 471, the respondent submitted that
the oral statements were binding despite the parties subsequently executing a loan
agreement. The High Court rejected the respondent’s submission particularly since the oral
statements were inconsistent with the terms in the formal written contract. The Court held
that the written contract overrode the prior oral statements. 
• Failure to include statement in written contract is some indication that not intended to be a
term: Hospital Products International Pty Ltd v United States Surgical Corporation (1984)
156 CLR 41
Other Relevant Circumstances
 Any other relevant circumstances:
• None of the factors discussed so far is necessarily decisive – and judges often
disagree between themselves as to whether a statement is promissory;
• Ultimately, an assessment must be made on the facts of each case as to whether
the statement would reasonably be considered a contractual promise by a person
placed in the situation of the parties.
• Court looks to whether a person in the circumstances of the parties would
reasonably have considered the statement to be a contractual promise.
Parol Evidence Rule
 Parol Evidence Rule
• “[W]here a contract is reduced into writing, where the contract appears in the writing to be entire,
it is presumed that the writing contains all the terms of it an evidence will not be admitted of any
previous or contemporaneous agreement which would have the effect of adding to or varying it in
any way” Innes J Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) 252 at 262.
• Rationale of the rule is to preserve “finality in written instruments meant to be final”: Codelfa
Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337
• The parole evidence rule has two limbs: first limb, it prevents extrinsic evidence being given to add
to, vary or contradict the terms of a contract as they appear in a written document; second limb, it
limits the evidence that might be given to explain the meaning of terms of written contract.
• “Extrinsic” evidence includes anything that exists/occurs apart from the document that appears to
be the complete written record of agreement, including:
– oral statements;
– written statements (e.g. letters and earlier draft agreements); and
– other conduct.
 First Limb – How do you know if a contract is wholly in writing?
• The rule however applies only when the contract is wholly in writing; thus, it is inapplicable if the
contract consists of both oral and written terms. In Mastertons Homes Pty Ltd v Palm Assets Pty Ltd,
(2009) 261 ALR 382, 401–403, Campbell JA laid out the following principles to determine if a contract is
wholly in writing:
– When there is a document that on its face appears to be a complete contract, that provides evidentiary basis
for inferring that the document contains the whole of the express contractual terms that bind the parties;
– However, despite (1) above, it is open to the parties to prove that the parties have agreed orally on terms
additional to those contained in writing;
– The parol evidence rule applies only to contracts that are wholly in writing and thus has no scope to operate
until it has first been ascertained that the contract is wholly in writing;
– When a contract is partly written and partly oral, the terms of the contract are to be ascertained from the
whole of the circumstances as a matter of fact;
– In determining what are the terms of a contract that is partly written and partly oral, surrounding
circumstances may be used to help find the terms of the contract; and
– A quite separate type of contractual arrangement to a contract that is partly written and partly oral is where
there is a contract wholly in writing and an oral collateral contract.
 Second limb-What evidence can you use

• Limits evidence being given by parties to explain the meaning of the terms of a
written contract (ie: prevents extrinsic evidence being given as to the parties’
subjective intention)
• Scope: evidence of surrounding circumstances to the written contract is admissible
to assist in interpretation of the contract if the language is ambiguous or susceptible
of more than one meaning Codelfa Construction Ltd v State Rail Authority NSW
(1982); Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002)
 Exceptions to the rule
• Prove the contract is only partly written – ie that while it’s partly written, it’s also partly
oral
• Prove that the representation gave rise to a collateral contract Hoyt’s Ltd v Spencer
(1919)
Collateral contract- promises made in addition to, but independent of, the main contract,
entry into which constitutes consideration for the collateral contract. The requirement of a
contractual promise for a collateral contract is seen in Crown Melbourne v Cosmopolitan Hotel
(Vic) (2016) 260 CLR 1 
• Collateral Contract must involve a promise (not just a mere representation); and
• The promise must be made to induce entry into the main contract; and
• Terms of Collateral Contract must not be inconsistent with the terms of the main contract.
• Prove an estoppel Whittet v State Bank of NSW (1991) (SC NSW); Saleh v Romanous
[2010] NSWCA 274
Incorporation of Terms

Incorporation by signature
Incorporation by notice
Incorporation by a course of dealings
Incorporation by Signature
 Incorporation by signature
• When a document containing contractual terms is signed, in absence of fraud or misrepresentation,
the party signing it is bound regardless of whether the document was read or not. L’Estrange v F
Graucob [1934] 2 KB 394; Reaffirmed by the HCA in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004)
219 CLR 165
– “[T]o sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a
reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of
the document or is willing to take the chance of being bound by those contents ... whatever they might be.”
• Justification: by signing a document, the person is indicating agreement to the terms contained in it.
It is that person’s responsibility to ensure that he is satisfied that those terms reflect the agreement
made.
• Exceptions:
Where document signed does not reasonably appear to be contractual
• D J Hill and Co Pty Ltd v Walter H Wright Pty Ltd [1971] VR 749
Where signatory's consent has been vitiated:
• Curtis v Chemical Cleaning and Dying Co [1951] 1 KB 805 (induced to sign by fraud or misrepresentation)
• Petelin v Cullen (1975) 132 CLR 355: non est factum (mistake as to nature of document) (Cited in Toll)
 L’Estrange v F Graucob [1934] 2 KB 394
•  Facts: The plaintiff, L’Estrange, purchased a cigarette vending machine from the defendant.
The plaintiff signed a form which was headed “Sales Agreement” which contained printed
terms of sale. When the machine was delivered it did not work. The plaintiff brought an
action for damages for breach of an implied warranty under the Sale of Goods Act. The
defendant relied on an entire agreement clause stated in the form which excluded implied
warranties.
• Issue: Did the clause excluding implied warranties form part of the contract? Was there
misrepresentation?
• Held: The order form was a contractual document which was signed by the plaintiff, and
there was no misrepresentation. The exclusion clause formed part of the contract and was
effective to deny the buyer’s claim for damages for breach of the implied warranty.
 Toll (FGCT) v Alphapharm (2004) 219 CLR 165
• Facts: The appellant, Toll, was a carrier. The respondent, Alphapharm, was a sub-distributor of an influenza
vaccine. Alphapharm agreed with Richard Thomson that Thomson would manage the collection, storage and
approval of the vaccine.
• Thomson then entered into a contract with Toll to collect and store the vaccine. Thomson received some
documents from Toll including a credit application and a rate schedule of Toll charges for its services. In the
credit application form, at the space immediately before the place for signing it was provided: “Please read
‘Conditions of Contract’ overleaf prior to signing.” Clause 6 of the conditions stated that in no circumstances
would the carrier be responsible to the customer for loss and damage in relation to the goods. Mr Gardiner-
Garden, who was authorised by Richard Thomson, signed the cover without reading the conditions.
• The vaccine was not approved due to unproper collection, stroage and delivery. Alphapharm sued Toll for
damages for breach of duty, and argued that clause 6 (the exclusion clause) was not part of the contract.
• Issue: Was Alphapharm bound by the terms of the contract including the exclusion clause through the
signature of its representative (Mr Gardiner-Garden signing for Richard Thomson)?
• Held: Appeal allowed. Alphapharm was bound by the terms of the contract through the signature of Mr
Gardiner-Garden.
 Curtis v Chemical Cleaning & Dyeing Co [1951] 1 KB 805
• Facts: Curtis took a white satin wedding dress to the defendant’s shop for cleaning. The
defendant’s shop assistant handed Curtis a paper headed “Receipt” which she was asked to
sign. Curtis asked why her signature was required and was told that the defendant would
not accept liability for certain specified risks including likely damage to beads or sequins.
Curtis then signed the “Receipt”. In fact, the paper contained an exclusion clause which
excluded the defendant from liability from any kind of damage. The dress was stained and
Curtis sued for breach of contract.
• Issue: Was there misrepresentation from the statement of the defendant’s shop assistant?
• Held: The defendant cannot rely on the exclusion clause as the statement of the shop
assistant coupled by the failure to draw attention to the actual scope of the exclusion
clause amounted to a misrepresentation that the exclusion clause related only to beads
and sequins.
Incorporation by Notice
 Incorporation by notice : General Rules
In the absence of a signature, the incorporation of written terms into an otherwise oral contract
depends on:
– Whether notice was given before the contract was formed; and
– Whether reasonable steps were taken to bring the terms to the notice of the party to be
bound.
 Incorporation by notice continued
• Timing of Notice: Notice of terms must be given prior to or at the time of entry into the contract. If a
statement is included after the contract has been formed, it cannot be a term (no matter how promissory it
is). Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR197; Thornton v Shoe Lane Parking Ltd
[1971] 2 QB 163
• Knowledge of Terms: Party with actual knowledge that document delivered or sign displayed
before or at making of contract contains contractual terms is bound by those terms: Parker v
South Eastern Railway Co (1877) 2 CPD 416 (Cited in Toll & Shoe Lane) In the case of non-
contractual documents (eg tickets, vouchers, receipts, signs), reasonable notice is required for
their incorporation. Causer v Browne [1952] VLR 1; Thornton v Shoe Lane Parking Ltd [1971] 2 QB
163
• Reasonable Notice: the delivered/displayed terms are not in a document reasonably thought to be
“contractual” in nature, then the party seeking to incorporate them into the contract must take reasonable
steps to bring them to the notice of the other party. Thornton v Shoe Lane
• The more onerous and unusual a clause is, the greater degree of notice is required that it had
been fairly and reasonably brought to the other party’s attention. Interfoto Picture Library Ltd v
Stiletto [1989] QB 433; Baltic Shipping v Dillon (“The Mikhail Lermentov”) (1991) 22 NSWLR 1
 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163
• Facts: The plaintiff, Thornton, parked his car at the car park owned by the defendant. At the outside
of the car park, there was a notice stating the parking charges followed by the words “All Cars
Parked at Owner’s Risk”. As the plaintiff drove past a traffic light that turned green, a ticket came
out of the machine which Thornton took. The ticket showed the time when the car entered the car
park. The ticket also stated in small print: “This ticket is issued subject to the conditions of issue as
displayed on the premises.” Thornton drove into the garage and left his car there. When he
returned to collect his car there was an accident, and Thornton was severely injured. The trial judge
awarded Thornton £3 637 6s 11d. The car park company appealed.
• Issue: Could the car park company rely on their exception clause? Was the exception clause
incorporated into the contract?
• Held: Appeal dismissed. The plaintiff, Thornton, was not bound by the exemption clause as he did
not know that the ticket was issued subject to the exempting condition and the operator of the car
park had not done what was reasonable to give him notice of it before the contract was entered
into.
 Oceanic Sun Line Special Shipping Co Inc v Fay (1988) 165 CLR 197
• Facts: The plaintiff, Fay, booked for a cruise of the Greek Islands on a vessel owned by the
defendant, a Greek company. The booking was made in New South Wales and upon paying the fare,
the plaintiff was issued an “exchange order” which stated that it would be exchanged for a ticket
when the plaintiff boarded the vessel. The plaintiff arrived in Athens where he received his ticket. A
printed condition in the ticket stated that the courts in Greece had exclusive jurisdiction in any
action brought against the defendant. While on the cruise aboard the ship, the plaintiff was injured.
The plaintiff commenced proceedings at the Supreme Court of New South Wales. The defendant
applied for a stay of the action and relied on the clause in the ticket. The defendant’s application
was refused at the Supreme Court of New South Wales. The defendant appealed to the High Court.
• Issue: Could the defendant rely on the clause in the ticket? Was the term in the ticket brought to
the plaintiff’s attention before the contract was formed?
• Held: Appeal dismissed. The contract was formed in New South Wales. Thus, the exclusion clause
contained in the ticket which was issued in Greece was introduced too late, after the contract was
formed.
 Baltic Shipping v Dillon (“The Mikhail Lermentov”) (1991) 22 NSWLR 1
• Facts: The respondent (plaintiff at trial), Dillon, booked a cruise with the appellant/defendant, a
shipping company. The ticket that Dillon received contained terms and conditions limiting the
liability of the appellant for personal injury and personal effects. The ship sank on the tenth day of
the cruise causing the respondent to suffer physical injury, nervous shock and the loss of all her
belongings. The respondent claimed for damages. The appellant admitted liability but argued that
the provisions in the contract operated to limit its liability.
• Issue: Could the appellant rely on the clauses in the ticket? Were the clauses brought to the
attention of the respondent?
• Held: The appellant could not rely on the clause as the appellant could have done more to bring the
unusual provisions to the attention of the respondent. The respondent was not bound by the terms
and conditions on the ticket which were not drawn to her attention.
Incorporation by a Course of Dealings
 Incorporation by a Course of Dealings
• Where parties have had a history of dealings, contractual terms introduced in earlier
transactions may be incorporated into a subsequent contract even though the
requirements for the incorporation of terms have not been met in relation to that
subsequent contract. Balmain New Ferry Co Ltd v Robertson (1906) 4 CLR 379
• For a term to be incorporated by a course of dealings, the course of dealings must have
been regular and uniform. Chattis Nominees Pty Ltd v Norman Ross Homeworks Pty Ltd (in
liq) (1992) 28 NSWLR 338, 343
• The document in the previous transaction must be reasonably considered as a contractual
document. Rinaldi & Patroni v Precision Mouldings (1986) WAR 131 
• However, where document has appearance of mere receipt, actual knowledge is
required: DJ Hill and Co Pty Ltd v Walters H Wright Pty Ltd [1971] VR 749
 Balmain New Ferry v Robertson (1906) 4 CLR 379 
• Facts: Balmain New Ferry Company Ltd operates a ferry business from the City of Sydney to
Balmain. On the wharf were two turnstiles. Passengers entering or leaving the wharf paid one
penny to the officer at the turnstiles. There was a notice board near the turnstiles on which was
printed the words: “Notice. A fare of one penny must be paid on entering or leaving the wharf. No
exception will be made to this rule, whether the passenger has travelled by the ferry or not.” The
plaintiff, Robertson, having paid the fare was allowed into the wharf through a turnstile. However,
he missed his boat and tried to leave the wharf by another turnstile. When he refused to pay a
second penny the company’s officers tried to detain him. Robertson sued the company
• Issue: Were the terms on the notice board incorporated through a course of dealings between the
parties?
• Held: Robertson was bound by the term of the contract requiring the payment of one penny to
leave the wharf. Robertson was frequently a user of the wharf and paid his fare, therefore, he must
have known of the terms upon which the ferry company conducted its business.
Implied Terms
 Implied Terms
• There are some instances where the express terms of the contract do not deal with the
consequences of certain events affecting performance of the contract. In such cases, the
courts may be prepared to fill the gap in the express terms of the contract by way of implied
terms. This topic examines the different ways in which terms may be implied by the court
under the common law. It also considers key statutes which have the effect of implying
terms into contracts
• Common law recognises 3 types of implied term:
– Terms implied in fact: where on the facts of a particular case, a term is implied to give effect to
the ‘presumed intentions’ of the parties.
– Terms implied in law: where the common law has developed to imply particular terms to all
contracts of a certain class
– Terms implied by custom or usage : on the basis of entrenched norms relating to custom or
usage
• Statutes also imply terms in some types of contracts, eg Australian Consumer Law
 Implied Terms: Important Points
• Cannot contradict an express term (implied terms fill a gap only – they cannot
undermine what is expressed);
• Will not necessarily be defeated by an entire agreement clause (but if it says
“...implied terms are excluded...”, they might be defeated)
• Statutes which imply terms into certain types of contract may also provide that
they cannot be expressly excluded by agreement (ACL S64);
• Claims of an implied term are not impeded by the Parol Evidence Rule.
• categories of implied term are not mutually exclusive-argue a term should be
implied on the basis of one or more of the categories: Byrne v Australian Airlines
Terms implied in fact
 Terms implied in fact
• Terms are implied in fact to fill gaps in a contract, for example, terms which the parties
have omitted to include but which they would have done so if they had thought of
it. Implication in fact gives effect to the parties’ presumed intention.
• The test to satisfy an implication for a term in fact is set out in BP Refinery (Westernport) v
Shire of Hastings (1977) 180 CLR 266
 BP Refinery (Westernport) v Shire of Hastings (1977) 180 CLR 266
• Facts: BP Refinery (BP) and the Shire of Hastings were parties to a contract to establish an oil facility. As an incentive to
establish the refinery, the agreement provided that BP would receive discounted rates for a 40-year period, thus
enjoying lower taxes. A provision in the agreement gave BP the right to assign up to a 30 per cent stake in the oil
facility to an external company. When BP was taken over by BP Australia (a subsidiary), the Shire sought to tax the
assigned company at the normal higher tax rate. The Full Court held that there was an implied term that the
discounted rates only applied when BP was in occupation. BP appealed to the Privy Council.
• Issue: Was there an implied term that the discounted rates only applied when BP was in occupation?
• Held: Appeal allowed. The implied term relied upon by the Shire could not be implied in the agreement. Taking into
account the matrix of the facts, to imply such a term would be wholly unreasonable and inequitable. A group of
companies, such as the BP group, might wish to make changes in its corporate structure in view that the duration of
the agreement was for such a long period as forty years. Applying the officious bystander test, any such implied term
would have at once been rejected by BP during the negotiations. Further, as the agreement provided for determining
the rates on a rising scale according to capital expenditure, such an implied term would not only operate inequitably,
but would fail to give business efficacy to the agreement. … for a term to be implied, the following conditions (which
may overlap) must be satisfied:
• (1) it must be reasonable and equitable;
• (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is
effective without it;
• (3) it must be so obvious that “it goes without saying”;
• (4) it must be capable of clear expression;
• (5) it must not contradict any express term of the contract.
 Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales
(1982) 149 CLR 337
• Facts: Codelfa, a construction company, contracted with the State Rail Authority of New South Wales (the SRA) to
complete certain parts of a railway. It was agreed that construction work would proceed on the basis of three shifts
per day. The specified contract price was payable irrespective of the difficulty of the work, and Codelfa was to provide
all materials necessary for the completion of the project at its own expense. Codelfa was deemed by the contract to
have informed itself of everything that would affect the construction work. All works were to be completed within 130
weeks of the notice to proceed and Codelfa commenced working three shifts a day. Despite a statutory provision that
no injunction would be issued restraining the said building works, injunctions were granted against Codelfa restraining
them from working on the sites between 10 pm and 6 am. This significantly increased Codelfa’s costs. Codelfa claimed
that a term should be implied that the SRA would indemnify them for the additional costs, or alternatively, that the
contract is frustrated as a result of the injunction.
• Issue: Should a term be implied that the SRA would indemnify Codelfa for the additional costs of construction due to
the change to Codelfa’s working hours resulting from the injunction?
• Held: The term requested by Codelfa obliging the SRA to pay the additional construction costs could not be implied
because the proposed term did not satisfy the BP Refinery test. Although the term may be necessary for business
efficacy, it did not pass the obviousness test. This was not a case that the parties overlooked the provision suggested.
Instead the parties were acting under a common assumption that the statutory provision would protect them from
the grant of an injunction. Further, the term sought to be implied would contradict the express terms of the contract.
Terms implied by law
 Terms implied by law
• Terms implied by law apply to a particular class of contracts and to all contracts of that kind
regardless of the parties’ intentions. Courts imply the term based on public policy
considerations including justice and fairness that attaches to the legal incidents of such
contracts. The implied term(s) must be a necessity to avoid contract being rendered worthless.
Byrne v Australian Airlines (1995) 185 CLR 410
• Where the court is asked to imply a term as a legal incident of a particular legal
relationship, the test is whether, having regard to broader questions of policy, the term
is a necessary incident of the particular class of legal relationship. The answer is likely
to affirmative if, unless such a term is implied, the enjoyment of rights conferred by the
contract would or could be rendered nugatory, worthless or be seriously undermined.
• The Court’s approach in Byrne on the implication of terms by law involving complex policy
considerations was also adopted in Commonwealth Bank of Australia v Barker (2014) 253 CLR
169
 Byrne v Australian Airlines (1995) 185 CLR 410
• Facts: The appellants, Byrne and Frew, were employed by the respondent, Australian
Airlines, as baggage handlers but were dismissed for pilfering. Byrne claimed his dismissal
breached an industry award providing that termination should not be harsh, unjust or
unreasonable. Byrne argued that the award term should be an implied term of his
employment contract.
• Issue: Was the award provision an implied term of the employment contract?
• Held: The award term could not be implied into the employment contract whether as a
term in fact, or a term by law, as it did not satisfy the business efficacy, and the necessity
tests respectively.
 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169
• Facts: Barker, an employee of the Commonwealth Bank of Australia, was informed by the Bank that his
position was made redundant. He subsequently entered a “redeployment period” during which the Bank
attempted to find a placement for him elsewhere within the organisation. As his access to his bank email
account had been cut off, Barker did not receive certain communications relating to redeployment
opportunities in a timely manner. Eventually, he was terminated and received the redundancy payment he
was entitled to under his employment contract. Barker sued the Bank claiming that the Bank breached an
implied term of mutual trust and confidence and that the Bank would not do anything likely to seriously
damage that relationship of trust and confidence without reason. Barker also alleged that the Bank failed to
conduct the termination or redundancy process in a bona fide manner and that this had cost him a chance
of redeployment. The Federal Court decided in favour of Barker. The Bank appealed to the High Court.
• Issue: Was there an implied term of mutual trust and confidence in the contract of employment between
Barker and the Bank?
• Held: Appeal allowed. The Court declined to imply a term of mutual trust and confidence into the contract
of employment between Barker and the Bank. The position in the United Kingdom on this issue is not
applicable to Australia. Further, the complex policy considerations encompassed in this term are more
appropriately determined by the legislature than the courts. Furthermore, there was no breach by the Bank
of an implied duty of co-operation between the Bank and its employee, Barker.
Terms implied by custom or usage
 Terms implied by custom or usage
• Terms may be implied into contracts by customs or usages that have been adopted and
practised in a particular trade, profession or industry. The requirements for this type of
implication are set out in Con-Stan Industries v Norwich Winterthur Insurance (Australia)
(1986) 160 CLR 226
 Con-Stan Industries v Norwich Winterthur Insurance (Australia) (1986) 160
CLR 226
• Facts: Con-Stan paid insurance premiums to an insurance broker who arranged insurance
for Con-Stan with an insurance company, Norwich. The broker went into liquidation before
passing the payment to Norwich. Norwich tried to recover the payment from Con-Stan.
Con-Stan sought to avoid paying the premiums and submitted that there was an implied
term based on custom or usage in the insurance industry that (a) a broker alone was liable
to an insurer for payment of the premiums or (b) payment of the premium to a broker
discharged the assured’s obligation to the insurer.
• Issue: Was there an implied term based on custom or usage in the insurance industry for
the terms sought by Con-Stan?
• Held: The term could not be implied as the customs alleged had not been proved to the
required standard in law.
 Con-Stan Industries v Norwich Winterthur Insurance (Australia) (1986) 160
CLR 226
• Four elements to establish an implied term by custom or usage:
– The existence of a custom or usage that will justify the implication of a term into a contract is a
question of fact.
– There must be evidence that the custom relied on 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.
– A term will not be implied into a contract on the basis of custom where it is contrary to the
express terms of the agreement.
– A person may be bound by a custom notwithstanding the fact that he had no knowledge of it .
Terms implied by statute
 Terms implied by statute: Consumer Guarantees in ACL
• Statutory standards
• Goods must be fit for any disclosed purpose and must match their description
• Services must be rendered with due care and skill. Any product resulting for services must be
fit for any purpose known to the supplier.

• Mandatory – cannot be excluded, restricted, modified by contract

• Mandatory quality standards apply by force of statute not contract law. Regulator can take a
representative action to enforce statutory rights.

• Remedies established by statute

 What do the consumer guarantees cover?
Guarantee Goods Services Applies to Applies to the
the Supplier Manufacturer

Goods are of acceptable quality at the time they are

sold (s54)
Goods will be reasonably fit for any purpose the
consumer or supplier specified (s55)
The goods are accurately described (s56)

Goods will match any sample or demonstration

model and any description provided (s57)
Goods will satisfy any extra promises made about
them (express warranties) (s59)
UNLESS otherwise advised to the consumer, the
supplier has clear title to the goods (s51)
 What do the consumer guarantees cover?
Guarantee Goods Services Applies to the Applies to the
Supplier Manufacturer

Consumer will have undisturbed possession of the goods

and ability to use them (s52)
Goods are free from any hidden securities or charges and
will remain so (s53)
Spare parts and repair facilities will be available for a
reasonable time after purchase (s58)
Services will be performed with due care and skill (s60)
Services and any product resulting from the services will be
fit for the particular purpose (express or implied) (s61)
Services will be supplied within a reasonable time (where no
time is fixed or specified) (s62)
Implied term of good faith?
Why recognise a duty of good faith?
An implied term of “good faith”:
• would oblige parties to refrain from unco-operative or unfair
conduct in performance and enforcement of contractual
rights and responsibilities; and
• Could supplement an express contractual power vested in
one party to terminate the contract because of some default
caused by the other party (a good faith obligation would
oblige the party empowered to terminate not to do so if the
default was only trivial).
 An emerging area
The implied obligation of good faith is an emerging principle of the
common law in Australia:
• lower courts have favoured the principle and have applied it (Renard,
Hughes Aircraft; South Sydney District Rugby v News – note that there
are few examples where the duty has been implied AND found to be
breached);
• but the High Court has not determinatively ruled on it. (Royal Botanic
Gardens v South Sydney Council; CBA v Barker)
 What issues arise?
If a term of good faith is to be implied, the following issues may arise:
• is the term to be implied in fact (i.e. on an ad hoc case-by-case basis) or
implied by law (i.e. to contracts of a particular class)?
• is the obligation to act “in good faith” the same as or similar to the obligation
to act “reasonably”?
• what exactly does the good faith term require in the circumstances of the
case?
• can such an implied term be excluded by express agreement (e.g. by an
entire agreement clause, or by a written term which says “…the parties are
not bound by the principle of good faith…”)?
 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169

There is no implied term in contracts of employment in Australia imposing a mutual duty

of trust and confidence.
The decision of the House of Lords in Malik v Bank of Credit and Commerce International
SA should not be accepted by courts, as applicable, to employment contracts in Australia.
French CJ Bell & Keane JJ noted that the implied term was directed to the relationship
between employer and employee rather than the performance of the contract. It depends
upon a view of social conditions and desirable social policy that informs a transformative
approach to the contract of employment in law. It should not be accepted as applicable, by
the judicial branch of government, to employment contracts in Australia.". Their Honours
also held that the implied term was not an application of the duty to cooperate, nor was it a
restatement of the duty of fidelity
 What does this mean for an implied duty of good faith?
• An implied term of good faith has been seen as co-existing with the implied term of mutual
trust and confidence, to the point of them being identified as a single obligation: Russell v
Roman Catholic Church, Sydney (2008) 72 NSWLR 559
• While the implied term of mutual trust and confidence was unanimously rejected, the
majority identified them as separate obligations and left open the question of the implied
term of good faith. The joint judgement stated that their "conclusion should not be taken as
reflecting upon the question whether there is a general obligation to act in good faith in the
performance of contracts and the related question whether contractual powers and
discretions may be limited by good faith and rationality requirements".
• Kiefel J similarly left open the question of good faith, holding that "The question whether a
standard of good faith should be applied generally to contracts has not been resolved in
Australia. ... It is therefore neither necessary nor appropriate to discuss good faith further,
particularly having regard to the wider importance of the topic.“
• Issue is left open under Australian law.