Implied Terms In Australian Contract Law: A Reappraisal After University Of Western Australia V Gray

Implied terms are found in most, if not all, contracts. Parties do not, and cannot, expressly provide for all events that may arise in the course of their dealings with each other. There are gaps which courts are ‘asked to fill...by implying a term in favour of one or other of the parties.u0027 In Anglo-Australian contract law, terms are said to be implied on two bases — either as individual terms introduced on ‘an ad-hoc (factual) basis to make a particular contract work’ or as pre-established terms which have become more generalised ‘incidents of particular classes of contract’. Whether a term is to be implied-in-fact or implied-in-law, the prior question that arises for judicial determination is what test should be applied to make the implication sought. Current orthodoxy proposes a test based generally on necessity, but says that the test of necessity required for implied-in-fact terms is grounded in notions of business efficacy, and that this differs from the type of necessity required for implied-in-law terms which is said, somewhat unhelpfully, to be based on ‘wider considerations.’ In our view, the distinction is a questionable one which simply leads to confusion. It should be discarded in favour of a more coherent approach that fi ts with the fundamental idea of contract as an expression of the parties’ objectively determined intention. This end may now be a real possibility in light of the recent decisions of the Full Federal Court of Australia in University of Western Australia v Gray and of the Privy Council in Attorney-General of Belize v Belize Telecom Ltd. In this paper we examine first the decision in Gray in some detail, noting the reasoning of both the Full Court and of French J, as he then was, at first instance. We then examine the notion of a test of necessity as the basis for the implication of terms, including at this point an analysis of the decision in Belize. This leads into a concluding section where we argue that there is no basis for trying to maintain any distinction of substance between terms implied-in-law and terms implied-in-fact, since all judicially implied terms are properly understood as justifi able only on the basis of the test expressly announced by Lord Hoffmann in Belize in the context of a case dealing with what would traditionally be regarded as a term implied-in-fact.