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Does Your Contract Cover Every Situation?

Contract Cover

In this day and age, it is almost impossible for a contract to document every situation that may occur during the duration the contract is on foot. To deal with this situation, the Courts have adopted rules whereby a term may be implied into a contract.

In recent decades, there have been significant developments in the law on implied terms. It is important to understand there are multiple ways in which a term may be implied into a contract, some of the categories of which are as follows:

  1. Terms implied in fact;
  2. Terms implied in law;
  3. Terms implied by custom;
  4. Terms implied by usage;
  5. Terms implied by course of dealing;
  6. Terms implied by construction.

Terms implied in fact

The leading case of terms implied in fact is BP Refinery (Western Port) Pty Ltd v Shire of Hastings. This case set forth the following rule when implying a term into a contract in fact:

  1. The term 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 a 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 expressed term of the contract.

In other words, in all the circumstances, did the parties to the contract mean to document the term, but for whatever reason failed to do so? Should the answer to this question be ‘yes’, and the five limbs to the rule be satisfied, a term will be implied into the contract in order to give business efficacy to that contract.

I have an ‘Entire Agreement’ clause in my contract – can a term still be implied?

A diligent party to a contract may note that their contract has an “entire agreement” clause. This clause is often understood as a clause which prevents anything outside of the pages which the written agreement is documented, to be included in the contract. This is not necessarily the case.

A term implied in fact that satisfies the rule in the BP Refinery case is not effected by an entire agreement clause because it is a notional term and not actually a term of the agreement. Therefore, such a clause may still be implied into an agreement notwithstanding that an entire agreement clause exists.

Terms implied in law and ‘Entire Agreement’ clauses

There are also terms that may be implied in law, included terms as contained in the Sales of Good Act and the Australian Consumer Law.

An ‘Entire Agreement’ clause can be effective in excluding some terms implied by legislation, but not all. It is an express provision of the Australian Consumer Law that the consumer guarantees cannot be excluded by a contract. In fact, an attempt to exclude the various consumer guarantees as contained in the Australian Consumer Law can, in and of itself, constitute the offence of misleading and deceptive conduct.

With the ever increasingly amount of legislation, it is important to understand that you have rights outside of the written terms of your particular contract that may be able to resolve a problem that may arise.

McNamara Law has over 70 years of legal experience in the greater Ipswich area and should you wish to discuss the flexibility of you contract please contact us on 13 58 28.