Implied terms in English law

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In English law, implied terms are default rules for contracts on points where the terms which contracting parties expressly choose are silent, or mandatory rules which operate to override terms that the parties may have themselves chosen. The purpose of implied terms is often to supplement a contractual agreement in the interest of making the deal effective for the purpose of business, to achieve fairness between the parties or to relieve hardship.

Terms may be implied into contract through statutes, custom or by the courts. When implied by statute, Parliament may well make certain terms compulsory. The examples are numerous. For instance, the National Minimum Wage Act 1998 provides that in a contract between a worker and their employer, the worker must be paid according to a minimum wage set by the government in annual regulations (£11.44 per hour for workers aged 23 or over as of April 2024^[update]).^[1]

Another example is that under the Unfair Contract Terms Act 1977, liability can only be excluded when reasonable^[2] in contracts among businesses. When terms are implied by courts, the general rule is that they can be excluded by express provision in any agreement. The courts have developed an apparent distinction between terms implied "in fact" and those implied "in law". Terms implied "in fact" are said to arise when they are "strictly necessary" to give effect to the "reasonable expectations of the parties". Terms implied "in law" are confined to particular categories of contract, particularly employment contracts or contracts between landlords and tenants, as necessary incidents of the relationship. For instance, in every employment contract, there is an implied term of mutual trust and confidence, supporting the notion that workplace relations depend on partnership.

There is also an ongoing debate whether the rules of remoteness and frustration or common mistake are best characterised as implied terms. Remoteness places a limit on the compensatory award given for breach of contract, so if unlikely losses result or losses are not something that one would generally expect compensation for, compensation is not payable. Recent (2008) judicial support for its status as an "internal" rule and as an implied term derives from the judgment of Lord Hoffmann in The Achilleas. Frustration is a rule which brings contracts to an end in the event of some unforeseen event subsequent to the agreement which would make performance of obligations radically different from that envisaged, for instance because a car for sale is destroyed before it is delivered. Common mistake, as a doctrine, following The Great Peace, analogous to frustration, can similarly be said to imply a term that a contract will be extinguished if entered into on the false pretence that performance would be possible.