A Practical Guide To Implied Terms

• Published date: 26 November 2021
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning
• Law Firm: Fenwick Elliott LLP
• Author: Ms Catherine Simpson

An implied term is a contractual term which has not been recorded in the written provisions of a contract, because it has not been expressly agreed. Parties should be mindful of the terms capable of being implied, as well as whether or not they can be expressly excluded. Catherine Simpson looks at some common implied terms in construction contracts, relating to quality, fitness for purpose, skill and care, and good faith.

The parties to a contract will often not give much thought to the fact that terms can be implied, usually by common law or by statute.¹ Terms can also be implied by trade or industry custom and use, based on the conduct of the parties, or based on the intentions of the parties at the time the contract was entered into (although not if they are unreasonable or at odds with the express contract provisions).

Quality of goods and materials

Most construction contracts will contain an express term that the materials used are to be new and of satisfactory quality. However, where express wording has not been used, common law has found that a contractor will impliedly warrant that the materials supplied will be of good and proper quality. This will be the case unless it can be shown that the parties intended otherwise, which might be where, for example, the contractor is specifically directed to use a particular material and they have no control over its suitability.

There may be building standards or legislative requirements against which "quality" can be assessed, but generally it can be inferred that goods/materials will not be of satisfactory quality if they have been used for their normal or intended purpose and fail shortly after use. The implied obligation to use good and proper materials will be breached even if the contractor was unaware at the time of supply that they were inappropriate or defective. This is a key point to note for contractors, who will be unable to use, as a defence, the fact that they had no reasonable basis for knowing that the supplied materials were defective. In such circumstances, a contractor who is found liable would need to pursue their supplier.

There is similarly legislation which provides that contracts for the sale or supply of goods are subject to an implied term that they will be of satisfactory quality – see, for example, Sale of Goods Act 1979, section 14(2) and Supply of Goods and Services Act 1982, section 4(2). However, there are usually qualifications. Focusing on the sale of goods, an implied term...