CHAPTER 8: IMPLIED TERMS-- 8.4 Terms Implied by The Courts 8.4.1 Business Efficacy Test 1.

The Moorcock Facts- The defendant wharefingers() agreed to allow plaintiff shipowner to discharge his vessel at the defendant's jetty. While the vessel was moored, the tide ebbed() and the vessel sustained damage due to settling on a ridge of hard ground below the mud. Issue- Is it implied that defendant should take reasonable care? Judgement- Yes, he is liable as he did not take reasonable care to ascertain the safety of the vessel's berth which is implied in the contract. Bowen LJ stated that, such business efficacy must have been intended at all events by both parties; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much as both parties contemplated that he should be responsible for in respect of those perils or chances. 2. The term sought to be implied is necessary to give business efficacy to the transactions, when: a) it enables the transaction to be efficient b) it produces the effect that was intended 8.4.2 Officious bystander test 1. Shirlaw v Southern Foundaries Facts- Southern Foundaries appointed Shirlaw, who was then a director, to be the managing director for a term of 10 years. The relevant article provided that "subject to the provisions of any contract between him and the company be subject to the same provisions as to... removal as the other directors of the company". Subsequently, the shares of Southern Foundaries were acquired by another company, Federated Foundaries. The existing articles of association of Southern Foundries were abrogated and new articles were adopted which, inter alia, empowered Federated Foundaries to remove any director of the company by an instrument subscribed by two directors and a secretary. Regarding the removal, Shirlaw contended that it was implied that Southern Foundaries would not, by any alteration of its articles, create a right to remove him from his position as director. Issue- Is there implied term which contended that Shirlaw should not be removed? Judgment- Yes, there is, thus Shirlaw should not be removed. MacKinnon LJ applied officious bystander test, and stated that if there was a third party reading the draft before the contract was signed, whether the company shall not remove Mr. Shirlaw from his directorship, and whether Shirlaw has no right to resign; the answer from Mr. Shilaw would certainly be 'of course'. If he was bound by this agreement, including the barring of his activities under clauses 11 and 12 when he ceased to be managing director, the company must not remove him at any moment from the Board and so disqualify him from that post. The answer from the company will also be 'of course', as they were presumed to be desirous of binding him to serve them for ten years. 2. Yong Ung Kai v Enting Facts- Defendant entered into a written agreement with the plaintiff for the sale of timber() on a certain land. In order to cut down the timber, a licence was required from the Forest Department. The written agreement did not refer to the necessity of obtaining a licence. The defendant tried his best to get a licence but was unsuccessful. Issue- Is the obtaining of licence implied in the contract?

Judgement- Yes, it is implied. The sale of the timber was to be subject to the necessary licence. It must have been in the minds of the parties that the agreement required the obtaining of a licence. 8.4.3 Combined test 1. Reigate v Union Manufacturing Company(Ramsbottom) Ltd and Elton Cop Dyeing Company Ltd, Scrutton LJ Statements- A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, it is such a term that if it can confidently be said that if at the time the contract was being negotiated someone had said to the parties, 'What will happen in such a case', they would both have replied 'Of course, so and so will happen; we did not trouble to say that; it is too clear!' 2. BP Refinery (Westernport) Pty Ltd v Shire of Hastings, Lord Simon of Glaisdale Statements- In [their Lordships'] view, for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract. 3. Sababumi (Sandakan) Sdn Bhd v Datuk Yap Pak Leong Facts- Sandakan Turd Club(the 'club') was granted a license to operate 3D and 4D lotteries. On November 26, 1987, the club entered into a written agreement with appellant. The material terms were as follows: (a) the appellant was to buy 100 acres of land and to construct a race course on the land at its own expense; (b) the club in turn agreed to sublease the land and the race course to the appellant for a period of 20 years; (c) the appellant was given the exclusive rights to conduct and manage all bettings on the races at the race course and to conduct and manage all 3D and 4D lottery operators throughout the state of Sabah; and (d) the appellant was to pay 20% of all its gross sales takings to the club on joint venture basis. In Sabah, gaming generally was prohibited under the Sabah Gaming Ordinance but the club was exempted from this prohibition. Later, this ordinance was repealed by Modification of Laws(Common Gaming Houses, Lotteries, Betting & Sweepstake Duties and Racing (Totalisation Board) (Extension to the States of Sabah and Sarawak) Order 1991 which contained a proviso that the exemption and licence granted earlier to the club remained in force. A new licence was thereafter issued to the club in January 1985. The appellant continued to carry on off-course betting activities after the 1995 licence was issued. However, the activities were stopped by the police. The appellant then filed an originating summons, seeking declarations that the 1995 licence was within the scope of agreement between the club and the appellant, and that the appellant had the exclusive right to conduct and manage all 3D and 4D lottery operations in and throughout the state of Sabah. Issue- whether 1995 licence was within the scope of the agreement by way of an implied term? Judgement- Peh Swee Chin FCJ held that the 1995 licence could in fact be implied into the agreement, as the essence of the intention of both parties was for the club to grant an exclusive right to the appellant to conduct betting or gaming activities on a long-term basis. Zakaria Yatim FCJ agreed that both tests were necessary. They intended to give joint venture agreement business efficacy for a period of 20 years. However, the dissenting judge, Lamin PCA held that the 1995 licence could not be implied into the agreement. There were material differences between the conditions of the original licence and the 1995 licence which were beyond the contemplation of the parties whent hey entered into the agreement. 4. Arab-Malaysian Merchant Bank Bhd & Ors v Court Square Pelita Sdn Bhd & Ors

Facts- plaintiff agreed provide first defendant with a term loan and a bridging loan to assist the first defendant to purchase lands and then to fully develop and construct a two-phase project, consisting of a trade centre and a complex. 2-5th defendants guaranteed the loan. Later, the trade centre was practically completed but the occupation certificate through no fault of first defendant, was not issued resulting in a halt in the sale of the office lots in the trade centre. This resulted in the first defendant failed to repay the loan. Defendant appealed that following terms should be implied into the loan agreement: a) the plaintiffs should extend the period of completion of the project so that neither party would suffer loss when the project was stalled through no fault of the defendants; and b) the first defendant should be given reasonable time to repay the loan when the buildings could not be sold through no fault of the defendants. Issue- whether such terms should be implied into the agreement? Judgement- No such terms could be implied. Ian Chin J referred to Sababumi's tests, and stated few inquiries. Regarding the first term, there are three questions; a) the extension could be of an indefinite period since the project could be stalled indefinitely; b) the first defendant's obligation to repay outstanding sum was to be suspended during that time; and c) the question of what qualifies as fault or no fault on the part of the first defendant and that would potentially be very contentious and might lead the plaintiffs to the litigation. Thus, plaintiffs would obviously reject rather than agreed to outright. These three questions had proved that such term failed the first test, which is the officious bystander test. Regarding both terms, they would failed the second test, which is the business efficacy test, as it could hardly be efficacious for the parties to be left in such a limbo as to suspend the obligations until the first defendant could sell the buildings. The longer the period the higher the holding costs wwould be and tehre would come a time when the whole project would not be economically viable because these costs resulting in a loss to both the plaintiffs and the first defendant. It could not, therefore, be business efficacy to provide such a suspension of obligation which would result in loss to both the plaintiffs and the first defendant.