It should go without saying

Implied terms are written into the contract by the Courts for various reasons and there is no rule that terms cannot be implied into standard form contracts. Indeed, even the most comprehensive building contract will contain implied terms - which is a point conveniently overlooked by many contract administrators who think that the whole contract is contained in the four corners of the documentation. In arbitration or litigation, the most difficult thing is to establish that there is a breach of an implied term; its presence is seldom challenged.

Terms can be implied into a contract by statute and custom and usage, but in the construction industry the most important implied terms are those implied by law and those implied from fact. A term in these two categories will only be implied if the five conditions laid down by the Privy Council in BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 are met - at the very least these conditions must be met if the term is to be implied by law under the so-called Moorcock (1889) 14 PD 64 principle.

This means that the following conditions (which may overlap) must be satisfied:

n The term must be reasonable and equitable.

n It must be necessary to give business efficacy to the contract. No term will be implied if the contract will work and is effective without it.

n It must be so obvious that 'if goes without saying'.

n The term must be capable of being clearly expressed.

n It must not contradict any express term in the contract.

The BP Refinery case arose out of a specially favourable rating agreement between the Council and BP when the Council unsuccessfully contended that the agreement was subject to an implied term that the exemption was in effect personal. What their lordships said, however, applies to terms implied in construction contracts as well.

Terms implied by law are regarded as being 'a legal incident of a particular case of contract' while those implied from fact are so implied to make the contract commercially effective. Into the latter category fall many commonly implied terms, such as the implied term relating to co-operation. It is usually expressed as being a term of a two-fold nature, as was the case in London Borough of Merton v Stanley Hugh Leach Ltd (1985) 32 BLR 51.

In that case, Leach agreed with Merton to construct 287 dwellings on JCT 63 terms. There was a dispute over late completion and Merton contended that the delay was almost entirely due to lack of diligence and care and lack of co-operation by Merton's architect. Merton successfully established that the contract was subject to implied terms that:

(i) Merton would not hinder or prevent Leach from carrying out its obligations in accordance with the terms of the contract or from executing the works in a regular and orderly manner; and

(ii) Merton would take all reasonable steps to enable Leach to discharge its obligations and to execute the works in a regular and orderly manner.

Leach v Merton has been followed time and time again and various refinements are possible. The best judgment on implied terms is, to my mind, that of Mr Justice Kaplan in the Hong Kong case of Jardine Engineering Co v Shimizu Corporation (1992) APCLR 353 where it was held that each of the several sub-contracts involve the subject to an implied term of co-operation of the Leach type. In practical terms, on the complex facts of the case, the effect was that the nominated sub-contractors were entitled to claim disruption and prolongation expenses even though the 'direct loss and/or expense' provisions were not stepped-down from the main contract.

However, the judge rightly rejected the argument that terms should be implied giving the sub-contractors rights to payment equivalent to the main contractor's rights for complying with architect's instructions issued under the main contract and giving them a right to be indemnified by the main contractor in these circumstances. These were not necessary in view of the major implied term and its breach which mean that the sub-contractors were entitled to reimbursement.

Mr Justice Kaplan upheld the contention that, on the agreed facts, the main contractor was in breach of contract by depriving the sub-contractors (however unintentionally) of their rights to have the time within which to execute and complete their sub-contract works in accordance with their sub-contracts. In so doing, he followed the well-known case of Wells v Army & Navy Co-operative Society (1902) 86 LT 764 where Lord Justice Vaughan Williams laid down a vital rule:

'[W]here you have a time clause and a penalty clause it is always implied... that the penalties are only to apply if the builder has, as far as the building owner and his conduct is concerned, that time accorded to him for the execution of the works which the contract contemplates that he should have.'

Many other terms may be implied, dependent on the circumstances. On the contractor's part, there is an implied term that he will perform the work in a proper and workmanlike manner and, if no time-frame is specified, that he will complete the work within a reasonable time. But in practice it is most common for the claim to be that the employer is in breach of such a term and every well-drawn pleading in litigation or arbitration over construction contracts contains claims based on breach of the usual implied terms.