Entering into a Construction Contract - Scottish Construction Contracts - page 74

Court of Appeal case of Southern Foundries (1926) Ltd v. Shirlaw (1939). The test is
essentially whether an 'officious bystander', a fictitious person who was privy to the
discussions of the contracting parties, upon proposing the inclusion of a term would
be 'testily suppressed with a common “Oh of course” by the parties'. Put more simply,
is the term proposed by the 'officious bystander' so obvious that its intended inclusion
goes without saying? Would a reasonable person, given the background knowledge
available to the parties at the time, have understood the parties' intentions to be to
include such a term?
In either instance it is clear that the factual implication of a term must be reason-
able in the circumstances, see Morton .However,notalltermsthatarereasonablemay
be capable of being implied. The courts will not imply a term merely because to do
so would be fair. The terms of a contract can be harsh and unfair, but terms will be
implied only if they are necessary to make the contract work, see Mediterranean Sal-
vage and Towage Ltd v. Seamar Trading and Commerce Inc (2009), in which the Court
ofAppealnotedthatitisnotsuicientthataclauseismerelyreasonable;andalso
Leander Construction Ltd v. Mulalley and Company Ltd (2011) where the contract
operated 'perfectly satisfactorily' without the implied term argued for. he court must
consider whether the term in question would 'spell out in express words what the
instrument, read against the relevant background, would reasonably be understood to
mean' (Lord Hoffman, in Attorney General of Belize v. Belize Telecom Limited (2009)).
The Privy Council in Belize went further and confirmed that the conditions set out
in BP Refinery (Westernport) Pty Ltd v. Shire of Hastings (1977) noted above were a
'collection' of different ways of saying the same thing, i.e. that a proposed implied
term must spell out what the contract actually means. However, although the Belize
casehasbeenfollowedandisregardedastheleadingcaseontheissueofimplied
terms, the courts have stressed that the business efficacy test should still be applied
(see Mediterranean Salvage ).
In relation to the implication of a contract following expiry of letters of intent, the
test for implication is necessity (see he Trustees of Ampleforth Abbey Trust v. Turner
& Townsend Project Management Limited (2012) citing Tomlinson LJ in JD Cleverly
Limited and Cwmbran Motors Limited v. Family Finance Limited (2010)).
3.4.2 Course of dealings and custom and usage
Another route to inclusion of an implied term is where the parties have consistently
used certain terms in previous dealings. A court may imply a term if it can be shown
thatitwasthereasonableexpectationofthepartiesthataparticulartermwouldapply,
notwithstanding it is not expressly included, and on the basis that there is no express
term to the contrary in the relevant contract. Of course, there would need to be con-
sistent, regular trading over a period of time. his may be a difficult argument to win;
a limited course of dealing may not be sufficient for a court to decide that an impartial
observerwouldhaveconcludedthatthepartiesintendedparticulartermstoapply,see
Capes (Hatherden) Ltd v. Western Arable Services Ltd (2009).
Furthermore, a term may also be implied on the basis of custom and usage, par-
ticularly in a district or trade or other context, see Morton . Implication under this