Is an implied term just the correct interpretation?

When it comes to contract law the position is that the terms of a contract are to be interpreted to establish what the parties intended to mean. If the contract is silent in one area then it is open to the parties to argue that the term should be implied into the contract.

Traditionally, there is a high threshold before a term can be implied into a contract. One aspect of test is whether the term sought to be implied is necessary for business efficacy.

Interpretation on the other hand, has a lower threshold as the parties are free to submit what the meaning of the contract should be at any point.

A 2009 Privy Council case from Belize has approached the question from a different angle. Instead of considering whether a term should be implied in isolation, the Privy Council essentially equated implying a term into the contract as the true interpretation of the contract. Lord Hoffmann delivered the judgment and stated at [19]:

The proposition that the implication of a term is an exercise in the construction of the instrument as a whole is not only a matter of logic (since the court has no power to alter what the instrument means) but also well supported by authority.

The Privy Council goes on to note that traditional tests, such as business efficacy, distort the real exercise; which should be to ascertain what the parties intended and not a separate discussion on whether the term is necessity or not.

Following this decision the traditional tests used to imply a term into a contract may be no more than helpful guides to ascertain whether the inclusion of a term is the true interpretation of the contract; rather than hurdles.

The simplicity and logic of the Privy Council’s reasoning has real appeal and has been adopted by courts in New Zealand and internationally.

The case is Attorney-General of Belize v Belize Telecom Limited [2009] UKPC 10

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