Date: Wed, 26 Mar 2008 14:17

From: Jason Neyers

Subject: Implication of terms

I post on behalf of Martin Hogg:

Group members may be interested in a recent decision of the Outer House of the Court of Session on the implication of terms, Spiersbridge Property Developments Ltd v Muir Construction Ltd [2008] CSOH 44.

The decision is interesting in what the Lord Ordinary (Glennie) says about the application to the facts of the case of the necessity test for the implication of a contract term. Of the case before him, in which it was not clear to which of three related contracts an implied term ought to be added, he said (at para 15 of his judgment):

Both parties are here agreed that it is necessary to imply a term somewhere in the tripartite relationship between the pursuer, the defender and the bank. Otherwise the building contract will not work as the parties to it must have intended it to do, since there would be no mechanism for the repayment by the pursuer of any excess paid to it under the bond. Once this is accepted, the test of necessity is met. It cannot be right then to ask whether, in relation to each of the three contracts, it is necessary to imply a term to achieve repayment. That would be a reductio ad absurdum. By that test, it would not be necessary to imply a term into the bond contract because the desired result could be achieved by an implication in the building contract. And it would not be necessary to imply a term into the building contract because the result could be achieved by an implication in the bond contract. Adopting this approach, it would be impossible to imply into either contract a term which both parties accept had to be applied into one of them. Accordingly, I take the necessity test as being satisfied by the fact that it is necessary to imply a term into one of the contracts between the parties. The question then becomes one of evaluating which implication best gives the business efficacy to the transaction as a whole which the parties to it must have intended.

Martin Hogg
School of Law
University of Edinburgh

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