1. Business efficacy and officious bystander tests

Traditionally the following two tests have been most commonly used when determining whether a term should be implied into a contract:

• Business efficacy test. The proposed term will be implied if it is necessary to give business efficacy to the contract (The Moorcock [1889] 14 PD 64).

• "Officious bystander" test. The proposed term will be implied if it is so obvious that, if an officious (interfering) bystander suggested to the parties that they include it in the contract, "they would testily suppress him with a common 'oh of course'" (Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206). In other words, the proposed term must be so obvious that it goes without saying.

2. Bp Refinery

In BP Refinery the Privy Council summarised the test established in earlier case law and suggested that any proposed implied term must meet the following conditions, which may overlap:

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 without it (the business efficacy test).

3. It must be so obvious that "it goes without saying" (the officious bystander test).

4. It must be capable of clear expression.

5. It must not contradict any express term of the contract.

However, in Marks and Spencer the Supreme Court held that:

• Test (1) from BP Refinery may be disregarded; if a term satisfies the other requirements, it will also be reasonable and equitable.

• Tests (2) and (3) from BP Refinery are alternatives; only one need be satisfied.

3. Philips Electronique

In Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] E.M.L.R. 472 the Court of Appeal made the following key comments:

• Because the implication of terms is potentially so intrusive (as the parties have made no such express provision), the law imposes strict constraints on it.

• It is difficult to infer with confidence what the parties to a lengthy and carefully drafted contract must have intended. An omission may be the result of the parties' oversight or their deliberate decision.

• It is tempting, but wrong, for a court, with the benefit of hindsight, to imply a term which reflects the merits of the situation as they then appear.

• The term to be implied must be either the only contractual solution or the one which would, without doubt, have been preferred.

4. Marks and Spencer

In Marks and Spencer, in addition to the two comments on BP Refinery noted above, the Supreme Court said the following:

• Reasonable people not actual parties. The implication of a term is not critically dependent on proof of an actual intention of the parties when negotiating the contract. What matters is not the hypothetical answer of the actual parties, but that of notional reasonable people in the position of the parties at the time at which they were contracting.

• The fairness of a term or the fact that the parties would agree to it is insufficient. A term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term.

• It is important to correctly formulate the question asked by the officious bystander. Lord Neuberger cites Lewison in Interpretation of Contracts, 5th ed (2011) para 6.09 on this point, without further discussion. The book criticises questions which suggest only one answer and comments that a question may produce a different answer if put in a more neutral or easy to understand way.

• Necessity for business efficacy involves a value judgment. The test is not one of “absolute necessity”, not least because the necessity is judged by reference to business efficacy. A more helpful way of putting the business efficacy requirement may be, as suggested by Lord Sumption, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.