PLS I - Week 9 Implied Terms 2024 PDF

Implied Terms Welcome to PLS I – Week 9 with Dr Lorna Gillies  Implied Terms: Introduction Our focus: What is an implied term? When will the law imply terms into a contract? (Why does the law imply terms into a contract?)  Categories of Implied Terms Impl...

Implied Terms Welcome to PLS I – Week 9 with Dr Lorna Gillies  Implied Terms: Introduction Our focus: What is an implied term? When will the law imply terms into a contract? (Why does the law imply terms into a contract?)  Categories of Implied Terms Implied by law by statute by common law by custom / usage affect similar contracts / types of contract Implied in fact affect individual contracts Implied Terms by Statute: Examples Working Time Regulations 1998 Commercial Agents (Council Directive) Regulations 1993 Sale of Goods Act 1979 / Consumer Rights Act 2015  Example – Can Implied Terms be Restricted? Sale of Goods Act 1979 – implied terms for business to business contracts for the sale of goods. Unfair Contract Terms Act 1977 – restricts the ability to contract out of these implied terms. Consumer Rights Act 2015, Part 1, implies terms for business to consumer contracts for the supply of goods, digital content or services. The 2015 Act restricts the ability to contract out of these implied terms.  Implied Terms in Sale of Goods Act/Consumer Rights Act 2015 Sale of Goods Act 1979 / Consumer Rights Act 2015 The seller will pass on a good title – s12 1979 Act / s17 2015 Act Goods sold by description will conform to that description – s13 1979 Act / s11 2015 Act Goods sold in the course of business will be of a satisfactory quality – s14 1979 Act / ss9-10 2015 Act Where goods sold by sample, bulk will be of similar quality – s15 1979 Act / ss13-14 2015  Implied Terms in Sale of Goods Act/Consumer Rights Act 2015 (2) Sale of Goods Act 1979 / Consumer Rights Act 2015 Can you contract out of the implied terms? If 1979 Act applies, s20 Unfair Contract Terms Act 1977 s12 – No ss13-15 – Only if fair and reasonable If 2015 Act applies, s31 – No  Implied Terms under Common Law Solicitor or Accountant – duty of care Employment – duty of mutual trust / confidence  Implied Terms by Custom William Morton & Co v Muir 1907 SC 1211 “ ……every reasonable man on the one part would desire for his own protection to stipulate for the condition and that no reasonable man on the other would refuse to accede it, then it is not unnatural that the condition should be taken for granted in all contracts of this class without the necessity of giving it formal expression.” at 1224 per Lord McLaren  Terms Implied in Fact Why? To make things work Re-draft a contract?  Overview Summary of Test of Implied Terms “For a term to be implied into the contract it would either have to be necessary for business efficacy or be so obvious that it went without saying.” Acotec v McLaughlin CSOH 134 per Lord Doherty at para 18. Cross referenced to Marks and Spencer v BNP Paribas Securities Services Trust Co (Jersey) Ltd AC 742, at paras 14-31. How we got there… see examples on next slides …  How we got there … Terms Implied in Fact: The Tests (1) Business Efficacy / Necessity The Moorcock (1889) 14 PD 64 “I believe if one were to take all the cases, and they are many, it will be found that in all of them the law is raising an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that in all events it should have” per Bowen LJ at 68 Marks and Spencer v BNP Paribas Securities Services Trust Co (Jersey) Ltd AC 742 – “implication of a term […] “not critically dependent on proof of an actual intention of the parties” […] one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting” per Lord Neuberger at para 21 McWhirter v Longmuir 1948 SC 577  Terms Implied in Fact: The Tests (2) Reasonableness / ‘the officious bystander’/goes without saying Southern Foundries (1926) Ltd v Shirlaw KB 206 “Prima facie that which in any contract is left to be implied and need not be expressed is something so obvious that it goes without saying; so that, if while the parties were making the bargain, an officious bystander were to express some express provision for it in the agreement, they would testily suppress him with a common “Oh of course!” per Mackinnon LJ Terms Implied in Fact: Case Example (1) Crawford v Bruce 1992 SLT 254 Shop premises leased for a period of 10 years Rent review every 3 years Landlord to increase rent from £3250 to £6500 Clause in lease (does not specify how amount is to be agreed) Tenant argues clause ‘unenforceable’ – due to uncertainty Landlord argues current market rent ‘implied’ Reasonable man in tenant’s position? “no reasonable man in the tenant’s position would have refused to accede to it” Terms Implied in Fact: Case Example (2) J&H Ritchie v Lloyd Ltd UKHL 9 Machinery purchased but after only two days developed a problem Seller investigates and then informs purchaser that the machinery has been repaired (refusing to provide details of problem). Purchaser rejects the goods Seller claims the goods are satisfactory quality (unable to reject). Implied term? Entitled to reject?  Terms Implied in Fact: Case Example (3) Aberdeen City Council v Stewart Milne Group Ltd UKSC 56 Applied both business efficacy / ‘officious bystander’ goes without saying tests Builder acquired from the Council some land for development The contract for the acquisition of the land included an uplift provision “In addition to the purchase price detailed in Clause 2 hereof, the Purchasers and the Sellers have agreed that the Sellers shall be entitled to a further payment (“the Profit Share”) upon the Purchasers purifying the suspensive conditions contained in Clause 4 hereof and issuing a notice to the Sellers intimating to the Sellers that the Purchasers wish to purchase the relevant part of the profit-share as defined in the Schedule to which the Sellers are entitled. The Sellers' entitlement to the relevant part of the profit-share will also be triggered by the Purchasers disposing either by selling or by granting a lease of the whole or part of the Subjects.” Issue: Stewart Milne sold land to another part of the Stewart Milne Group for under £500K. Open market value of land was about £5.5M. Implied term of open market value? Terms Implied in Fact: Case Example (4) Continued Aberdeen City Council v Stewart Milne Group Ltd UKSC 56 In other words, could it be said that the contract included a term providing that a transfer not ‘at arms length’ should be deemed to be one at market value for the purposes of the uplift? “If the officious bystander has been asked whether such a term should be implied, he or she would have said ‘of course’. Put another way, such a term is necessary to make the contract work or to give it business efficacy.” per Lord Clarke  Reminder of Test of Implied Terms “For a term to be implied into the contract it would either have to be necessary for business efficacy or be so obvious that it went without saying.” Acotec v McLaughlin CSOH 134 per Lord Doherty at para 18. Cross referenced to Marks and Spencer v BNP Paribas Securities Services Trust Co (Jersey) Ltd AC 742, at paras 14-31.