Terms implied by statute

There are two reasons why it may be appropriate for Parliament to enact that certain provisions should be implied into all contracts of a particular type. One relates to efficiency. If it is virtually universal practice for certain terms to be used in particular contractual relationships, there is no need for the parties to state them specifically every time. In terms of economic analysis, there is a saving in «transaction costs». Rather than having to agree an appropriate wording on each occasion, the parties can rely on the statutory formulation as representing their obligations. In such a situation, however, there should be the possibility of the parties being able to agree to depart from the statutory wording, if they so wish.

The second reason why terms might need to be implied by statute is for the protection of one of the parties. It may be thought that a particular type of contractual relationship is likely to involve inequality of bargaining power, so that, unless protective provisions are implied, the weaker party may be forced into a very disadvantageous bargain. If this is the reason for the implication, then it may well be that the obligation to include the term should be absolute, without any possibility of its being excluded, or amended, in particular contracts.

Examples of both these bases for implying terms by statute can be found in the history of the implied terms as to quality under the Sale of Goods Acts. The original Sale of Goods Act (SGA) 1893 was intended to represent a codification of current commercial law and practice. Thus, the implied terms as to quality, contained in ss 13-15, were those which merchants of the time would have expected to appear in any contract for the sale of goods. This was an example of the first ground for implying terms, that is, business efficiency. In line with this approach, s 55 of the SGA 1893 allowed the parties to agree to different terms as to quality, or to exclude them altogether, if they so wished. By the time of the enactment of the revised version of the SGA in 1979, however, the atmosphere had changed. The provisions as to quality had come to be regarded as important elements in the law of consumer protection. Their role was therefore at least in part to provide protection for the weaker party in a sale of goods contract. As a result, the Unfair Contract Terms Act (UCTA) 1977 made it impossible in situations where the contract is made between a business and consumer for the business to exclude the implied terms. Even as between business parties, the exclusion will be subject to a test of «reasonableness». The terms implied by the Supply of Goods and Services Act 1982 also seem to be based on principles of protection, rather than the avoidance of transaction costs.

A further example of a term implied on the grounds of protection is to be found in the Equal Pay Act 1970. Section 3 implies into every employment contract an «equality clause» which has the effect of ensuring that as between men and women employed on «like work», there is equal treatment in relation to all terms of their contracts.

The implication of terms on this basis runs counter to the normal philosophy of classical English contract law, which is to make the intentions of the parties paramount. Here the clause is imposed on the parties, whether they like it or not. Even if they expressly agree that it is not to operate, the courts will still give effect to it. This is an area where there is clearly a tension between the «classical» and «modern» law.

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