Construction Contracts – terms implied by common law
Construction contracts contain more than just the express contractual terms agreed between the parties.
Contractual terms are also implied into the contract by statute and by common law (ie court rulings) – an issue not always taken into account by the parties.
Recent years have seen a number of important court rulings on the issue of implied terms, and when a term will be implied into a construction contract.
The general principle
A term will not necessarily be implied into every contract: the court’s current approach is that a term will not be implied into a contract simply to make the contract reasonable, or to deal with inconsistencies. Even where unambiguous words within a contract create a commercially absurd outcome, the court will not imply terms into it to change such an outcome. In a 2004 case, for instance, an arbitrator would not imply a payment term into the contract which would have cost the contractor millions1.
However, the court will imply a term in circumstances where it is so obvious that it goes without saying that it should be implied, or in order to give ‘business efficacy’ to the contract.
Terms implied by common law
Terms that may be implied into a construction contract include:
• A duty to cooperate: the employer must do what is necessary to ensure completion of the contract, by reference to the express contract terms;
• A duty to give up possession of the site within a reasonable time: this only applies in certain types of contract (eg. not maintenance or refurbishment);
• An obligation not to hinder/prevent the contractor: the contractor must not be prevented from performing its obligations under the contract in a regular and ordinary manner;
• An obligation to exercise a discretion honestly, in good faith: the discretion must however be exercised for its proper purpose, and not arbitrarily or capriciously
Note that these terms can be excluded either expressly, or by any admissible surrounding circumstances.
What does this mean?
The fact that terms can be implied by common law is a salutary reminder of the need for careful negotiation and drafting before a construction contract is executed. However, the range of implied terms which are capable of being implied are limited, and the court will not imply a term outside these limits – even if the outcome is a commercial disaster.
The parties should always be mindful of the terms capable of being implied by both common law and statute, and to consider whether any should (or can) be expressly excluded. Contractual terms, including exclusion terms, must be clear and unambiguous to minimise the risk of a dispute arising later. Take specialist legal advice as early as possible.
How can we help?
If you have any concerns about the terms capable of being implied into a construction contract, the experienced commercial solicitors at Herrington Carmichael will provide specialist advice and representation. If you are considering a new construction or other commercial contract, contact us for advice on the terms. We have years of experience advising on all types of commercial contracts and can advise on your contract – and the terms which will be implied into the contract.
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