Implied terms 

A contract may contain terms the parties never expressed. Implication is not a licence to improve a bargain; it is a limited exercise, and the threshold is deliberately high.

Terms implied in fact

These are implied into a particular contract because the parties must have intended them. For a formal contract in writing, BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266¹ sets the established criteria requiring that the term be:

• reasonable and equitable;
• necessary to give business efficacy to the contract, so that it would not work without it;
• so obvious that it goes without saying;
• capable of clear expression; and
• not contradictory of any express term.

All must be satisfied. The requirement of necessity does most of the work — it is not enough that the term would be sensible, or that the contract would work better with it.

For informal or partly oral contracts, the courts apply the criteria less rigidly, asking more broadly what the parties would reasonably have intended.

Terms implied in law

These attach to a class of contract rather than to the intentions of particular parties — for example the duty of an employer to provide a safe system of work, or of a landlord in respect of certain premises. The question is whether the term is a necessary incident of that kind of relationship, which involves considerations of policy as well as necessity. Once recognised, such a term applies to every contract of that class unless excluded.

Terms implied by custom or trade usage

A term may be implied where a custom is so well known and acquiesced in that everyone contracting in that situation can reasonably be presumed to have imported it. The custom must be proved by evidence, and it cannot contradict an express term.

Terms implied by statute

In practice this is the most significant category. The consumer guarantees in Australian consumer legislation apply to supplies of goods and services to consumers — acceptable quality, fitness for disclosed purpose, correspondence with description, due care and skill — and cannot be excluded, restricted or modified. Sale of goods legislation implies analogous conditions and warranties in non-consumer supplies.

Statutory terms often override the general law analysis entirely, so identify them first.

Good faith

Australian law has not settled a universal implied duty of good faith in the performance of contracts. Intermediate appellate courts have implied such a duty in some commercial settings, and the High Court has not conclusively resolved the question. Treat it as an open and contested area, and be careful about stating it as settled.

Applying this in a problem question

1. Check for statutory implied terms first, especially consumer guarantees.
2. If implying in fact, work through each criterion, and take necessity seriously.
3. Consider whether the contract belongs to a class with terms implied in law.
4. For custom, ask what evidence establishes it.
5. Confirm the implied term does not contradict an express one.

Where the authority sits

A mix of common law criteria and statute. The statutory guarantees are the most commonly decisive, and they are legislation — cite the Act and the section.