1. Why express terms are so important?

In Australian contract law, express terms are paramount. Written contracts are favoured as they serve as primary evidence of the parties’ intentions.

While Australian contract law does recognise the existence of implied terms in certain circumstances, the emphasis remains on express terms. Implied terms are generally viewed as supplements rather than substitutes for express terms, highlighting their limited role in situations where express terms are lacking.

Moreover, courts impose stringent limitations on the application of implied terms. In contrast to the respect given to implied terms based on trade customs in Chinese contract law, Australian contract law adopts a more cautious and rigorous approach. For instance, the courts set exceptionally high standards for the terms implied by business efficacy. That is, the term must be so necessary and obvious for the commercial efficacy of the contract that it “goes without saying.” This elevated standard reflects the courts’ cautious stance on implied terms and their preference for relying on express terms whenever possible.

2. The flowchart used to construe your contract

Below is a rough procedure when the court construes your contract. See how important the express terms are in this procedure.

First Step: Examine Express Terms

The court begins by looking at the express terms explicitly agreed upon in the contract.

If these terms clearly address the dispute, they are enforced.

Second Step: Search for Implied Terms

If the issue isn’t covered by express terms, the court searches for implied terms, which are terms understood to be part of the contract based on custom, practice, or statutory necessity.

An implied term must be:

1. necessary to give business efficacy to the contract;
2. obvious enough that it goes without saying;
3. reasonable and equitable;
4. capable of clear expression;
5. not contradictory to express terms.

If a relevant implied term is so identified, it is applied to the issue at hand.

Third Step: Interpret the Contract as a Whole

Absence of relevant implied terms leads to holistic contract interpretation. This includes considering the entire contract to discern the parties’ intentions and the purpose of the agreement. Contextual and extrinsic evidence are relevant:

1. Contextual Evidence: looks at the circumstances around the contract’s creation and the broader context.
2. Extrinsic Evidence: may include negotiations prior to the contract, subsequent actions by the parties, and other external factors.

The court constructs an interpretation that aligns with the true intent of the parties and the contract’s purpose, ensuring fairness and equity.

3. Wrap up

s illustrated in the flowchart for construing a contract, express terms serve as the foundational cornerstone upon which the entire contractual edifice is built. Implied terms and interpretative techniques are typically invoked as a last resort, utilised only when express terms are absent or ambiguous.

Thus, while implied terms and interpretative techniques may supplement in limited circumstances, it is the clarity and precision of express terms that wield the greatest influence.