5.7 implied terms (ad hoc) (slides)-2 (1).pptx

Principles of Business Law TOPIC 5: TERMS OF A CONTRACT IMPLIED TERMS (AD HOC) Terms implied Ad hoc: the officious bystander test  Ad hoc implied terms are tailored to the particular contract in question.  There are several requirements that must be satisfied before the court will i...

Principles of Business Law TOPIC 5: TERMS OF A CONTRACT IMPLIED TERMS (AD HOC) Terms implied Ad hoc: the officious bystander test  Ad hoc implied terms are tailored to the particular contract in question.  There are several requirements that must be satisfied before the court will imply a term ad hoc at common law.  First, it is necessary to consider the Officious Bystander Test:  It must be obvious from the circumstances that the parties would have included such a term as part of their agreement had they turned their minds to the issue at the time of formation.  This is tested by asking: “What would the parties have replied if an officious bystander had asked them at the time of their agreement whether the suggested term was part of their contract?”  If the parties would have replied, ‘of course’ the necessary intention is established. Terms implied Ad hoc: additional requirements  BP Refinery sets out four additional requirements that must be met in addition to the officious bystander test.  The implied term must be:  necessary to give business efficacy;  reasonable and equitable;  capable of clear expression; and  consistent with the express terms of the contract. Terms implied ad hoc: BP Refinery v Hastings Shire Council FPBCL p 320-1 Facts  HSC entered into an agreement with BP Refinery granting the company the right to pay lower municipal rates.  BP underwent a restructure, and the refinery site was transferred from BP Refinery to a subsidiary (BP Australia).  HSC charged BP Australia the full municipal rates.  HSC argued it was an implied term of the agreement that it should come to an end should BP Refinery cease to occupy the site. Issue  Was it an implied (ad hoc) term of the contract that the lower rates would only be payable if BP Refinery itself occupied the refinery site? Terms implied ad hoc: BP Refinery v Hastings Shire Council (ctd) Decision  The contract did not contain such an implied term. Reason  The implied term must be  reasonable and equitable (not met); and  necessary to give business efficacy (not met); and  so obvious it goes without saying (officious bystander test) (not met); and  capable of clear expression (not considered); and  consistent with the express terms (not considered) Terms implied ad hoc: Moorhead v Brennan FPBCL p 391-2 Facts  M licensed her work to B.  The terms of the licence gave B the exclusive right to sub-license the work.  B wrote an introduction to the book, which M agreed to include in the Australian edition of the book.  M wanted B to grant a sub-licence to ‘The Women’s Press’ (TWP) an overseas publisher.  TWP had a policy of only publishing writing by women and asked that the introduction written by B (a male) be dropped.  B refused to remove the introduction. Terms implied ad hoc: Moorhead v Brennan (ctd) Issue  Did the contract include an implied term that prevented B from obstructing opportunities for M to receive royalties?  If so, had that term been breached? Decision  The term was an implied term of the contract.  B breached the implied term. Reason  All of the BP Refinery requirements were met  The only way M could benefit from commercial opportunities overseas was for B to grant a sub-licence (B had an exclusive licence over the copyright in the book). Terms implied ad hoc: Codelfa Constructions v SRA FPBCL p 334-5 Facts  CC agreed to build two tunnels for the SRA.  When contracting, the parties believed that it would be possible for the work to continue ‘around the clock’ (24 hours a day, 7 days a week).  Work costings and timings were determined on this basis.  A provision of the contract allowed for an extension of time but did not mention increased payment.  An injunction was granted which prevented work from 10:00pm-6:00am Mon-Sat and all-day Sunday.  CC argued that the contract contained an implied term entitling it to additional payment. Terms implied ad hoc: Codelfa Constructions v SRA (ctd) Issue  Did the contract contain an implied term that obliged SRA to make additional payment? Decision  The contract did not include such an implied term. Reason  SRA looked to CC to shoulder the commercial risks.  It was not obvious that SRA would have agreed to additional payment.