The question requires an examination of judicial practice in interpreting contractual obligation between the

parties. Due to the notion of freedom of contract, the court will usually interpret contract in a way that give
effect to the intention of the parties. However, practically, freedom of contract is problematic and might be
abused to exploit the weaker party. There is a need for an equilibrium between the idea of freedom of
contract and the commercial reality that there exist inequality of bargaining power between the party. This is
achieved by judges by way of an interpretative and pragmatic attitude. It is suggested that judges intervene
the intention of the parties only when it is necessary to do so. The statement is only accurate to a certain
extent.

!Freedom of Contract

Freedom of contract is right of group or individual to enter a legal binding contract without any interference
from third parties. It is the central doctrine of traditional law that developed in the 19th century. This doctrine
embraces two main concept according to Sir George Jessel in Printing and Numerical Registering Co v
Sampson1, one thing which more than another public policy requires it is that men of full age and competent
understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely
and voluntarily shall be held sacred and shall be enforced by courts of justice2. Based on the doctrine,
consensus ad idem or mutual assent between the contracting parties is the essential ingredient to form a
contract. Hence, the courts intervention in the process of determining and interpreting the terms of contract
through implied term is always being criticised as a contradiction to the doctrine and this will be discussed
below.

!Traditional Implication of Terms

One of the main sources of the implied terms is terms implied at common law. Generally, there are two type
of terms which implied at common law, terms implied in fact and terms implied in law. Terms implied of fact
are the terms that usually based on the intention of the parties under the contract. Traditionally, the courts
have employed a number of tests for implying a term into a contract and there are two main principal tests,
i.e. the officious bystander test and the business efficacy test. The terms are implied by the court to fill in
the gap between the parties of the contract. The main purpose of the tests is to help the courts decide the
intention of the parties and decide if the term should be implied into the particular contract.

!The business efficacy test was originated from The Moorock . Under this test, term will be implied when
3

necessary to give effect to the contract in the business sense. Under this test, the courts are willing to add a
term on the basis that without it the contract would not be able to work4 or an implication is necessary to give
the contract the effect that it originally desire.

!The officious bystander test is the classic test applied to determine whether a term can be implied into a

contract. The term is originated from the judgement of MacKinnon LJ in Southern Foundries Ltd v Shirlaw5.
Under this test, the courts would be asked for the implication of the terms is necessary to affect the contracts
actual purpose. On face the test is subjective, however the test is being criticised as the test inhibits the initial
intention of the parties and it was shown in Equitable Life Assurance Society v Hyman6. The notion that it
goes without saying demonstrates that this expression is another way of asking the reasonable person what
they would understand the contract to mean given the state of knowledge of the parties7. Thus, if the
contracting parties are unaware of term that is sought to be implied, the implied term would be held invalid.

!!
!Modern Implication of Terms
1

[1875] 19 Eq 462

Printing and Numerical Registering Co v Sampson [1875] 19 Eq 462

[1889] 14 PD 64

Jill Poole, Casebook on Contract Law ( 11st edn, OUP 2012)

[1940] AC 701

[2000] UKHL 39

P Richards, Law of Contract (11st edn, Pearson 2013)

Due to the controversy of the traditional tests, recently, a much broader approach to the implication of terms
was introduced by Lord Hoffman in Attorney General of Belize v Belize Telecom Ltd8. In the case, the
question raised to the court is whether such a provision would spell out in express words what the
instrument, read against the background, would understood to mean9. Lord Hoffman described that the list of
condition that stated by Lord Simon in BP Refinery (Westernport) Pty Ltd v The Shire of Hastings10. The
principle that traditionally used to govern or determine the implication of term now used as the guideline to
the court to answer the question: Is that what instrument, read as whole against the relevant background,
would reasonably be understood the mean. It is obvious that Lord Hoffmans approach do not herald any
fundamental change of attitude so as terms to be more easily implied.

!Implied Terms by Law

The other type of terms implied in common law is the terms implied as a matter of law by the courts. Terms
may be implied where there is the situation of incomplete contract. The main difference between the terms
implied in fact and implied in law is a term implied in law does not have to reconcile the individual wishes of
the contracting parties, but the court need to consider the primary duties of the parties. Term implied by law
is always attached to standardised contractual relationship, for instance employer and employees and which
described as default rules by the US legal terminology. This implication of term can be illustrated through
Liverpool City Council v Irwin11. In the case, the House of Lord implied an obligation to the landlord to take
the essential care of the access in the building, although the term was silent as to the contractual obligation of
the landlord. However, a term would not be implied unless it is in all circumstances equitable and reasonable.

!Are Courts Tend To Be Too Interventionist?

It is argued that implied terms are necessary in order to rescue the incomplete contract. A complete
contract refers to one that provides a complete set of possible contingencies and explicit contract terms
dictating a performance response for each of these contingencies. Circumstances and external factors
may vary from time to time. Unforeseen contingencies may arise during the duration of the contract due
to the ever changing circumstances. The parties in a contract usually have only limited understandings
about how an unanticipated contingencies would affect each other. Disputes might be caused in the
future due to the ever changing scenarios. In case contractual disputes happen, and the courts do not
have he power to intervene the terms in the contract, the contract might be failed to function. Hence,
there is a need to fill in the consequent gap between obligations. Court interventions though implication
of terms may help to control these interactions because courts can serve as a neutral and legitimate
arbiter of the parties dispute.

!Besides, even though freedom of contract is essential in promoting economic efficacy, this might also

lead to exploitation. In practice, contracts are usually drawn up by only one party which is always
having the stronger bargaining power. Hence, the particular party may choose which terms to conclude
in the contract and decide on how risk is allocated. This imbalance of power makes the contract become
single-sided and usually only left relatively few rights and ability to negotiate to the weaker party. By
the time, the court plays an important role to ensure the fairness of contract by implied terms in it.

!It is submitted that the statement above, no doubt in certain extent, the courts would tend to be

interventionist during the process of implying the terms in contract where the intention of the parties in
the contract may not be their main concern. This may be contrary to the doctrine of Freedom Of
Contract. However, this is not always the case. In fact, the courts are reluctant to interfere any contract
and would only willing to imply the contractual terms when it is necessary.Karl Marx left a legacy that
intervention is essential as notion of freedom of contract and private property may be used to facilitate
economic oppression and exploit against the weaker class. Hence, the judges are pragmatic to intervene
through implying the term to achieve justice. Lastly, I would like to end my essay with quote from RB
Campbell Jr:
A world dominated by the pursuit of economic efficiency is often lacking grace and kindness, those
wonderful human qualities that society in its finer moment finds so attractive.

!
8

[2009] UKPC 10

Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10

10

[1978] 52 ALJR 20

11

[1977] AC 23

!Bibliography
!
Books

!McKendrick, E, Contract Law (9 edn Palgrave Macmillan Law Master, Palgrave Macmillan, Hampshire
2011)
!Elliot, C and Frances, Q, Contract Law (8 edn Pearson 2011)
!Jill Poole, Casebook on Contract Law ( 11st edn, OUP 2012)
!P Richards, Law of Contract (11st edn, Pearson 2013)
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!Table of statue and Cases
!Table of Statute
!Sales of Good Act 1979
!Table of Cases
!Printing and Numerical Registering Co v Sampson [1875] 19 Eq 462
!The Moorock [1889] 14 PD 64
!Southern Foundries Ltd v Shirlaw [1940] AC 701
!Equitable Life Assurance Society v Hyman [2000] UKHL 39
!Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10
!BP Refinery (Westernport) Pty Ltd v The Shire of Hastings [1978] 52 ALJR 20
!Liverpool City Council v Irwin [1977] AC 23
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