H. Excluding implied terms

To what extent can terms which would otherwise be implied into a contract be excluded by the contract's express terms?

Excluding non-statutorily implied terms

Terms which would otherwise be implied into an agreement by reference to custom or usage or a course of dealing may all be excluded by an appropriately worded clause (Exxonmobil Sales and Supply Corporation v Texaco Ltd. [2003] EWHC 1964 (Comm) (01 August 2003)). The same is true of terms implied at common law (characteristic terms) (Liverpool City Council v Irwin). Obiter dicta suggests that terms implied in fact may also be excluded by express terms (Axa Sun Life Services plc v Campbell Martin Ltd and others [2011] EWCA Civ 133).

Can the entire agreement clause be relied on?

In a dispute situation, where one party argues for the implication of a particular term, the other party will look to see if the contract can be said to exclude it. Often the entire agreement clause is pressed into service. From the case law it seems:

• Implied terms are not excluded where an entire agreement statement is silent on their inclusion/exclusion (Harrison & others v Shepherd Homes Ltd & others [2011] EWHC 1811 and Axa Sun Life).

• If an entire agreement statement uses clear words to exclude implied terms ("This instrument contains the entire agreement of the parties [...] and there is no other promise, representation, warranty, usage or course of dealing affecting it"; "this Agreement shall supersede any prior promises, agreements, representations, undertakings or implications"), this will probably exclude terms which would otherwise be implied into the contract as a result of matters that are "extrinsic" to the written agreement (extrinsic implied terms) (Axa Sun Life; Exxonmobil; Harrison v Shepherd Homes). The phrase "extrinsic implied terms" was used by Stanley Burnton LJ in Axa Sun Life; he did not expand on what the term meant, but the ordinary reading of the phrase suggests that it means terms which require extrinsic facts to be proved, such as trade custom or usage, or a course of dealing. It will be a matter of construction in each case as to which extrinsic implied terms are affected: the first example given above refers only to terms implied by usage or a course of dealing, and was held only to exclude those categories of implied terms.

• A general exclusion of implied terms will not be effective to exclude what Stanley Burnton LJ described as "intrinsic" implied terms, such as terms implied for business efficacy (Axa Sun Life). The rationale for this is that terms implied for business efficacy form part of the agreement itself. A similar approach was taken in Exxonmobil: "It seems to me arguable that where it is necessary to imply a term in order to make the express terms work such an implied term may not be excluded by the entire agreement clause because it could be said that such a term is to he found in the document or documents forming part of the contract". However, in Axa Sun Life, Stanley Burnton LJ did comment "The Agreement might have included, but does not include, an express specific exclusion of such [intrinsic] implied terms".

• It it is not clear whether a term implied by common law would be seen as an extrinsic term (capable of exclusion by a general reference to implied terms in an entire agreement clause) or an extrinsic one.

Drafting an express exclusion

When drafting an agreement, parties need to consider whether they wish to attempt to exclude terms implied by custom or usage, a course of dealing, common law or in fact. This is a difficult decision as in most cases the parties will not know what these implied terms will be and whether they will work for or against them. This is particularly the case with regard to terms implied in fact. If exclusion is sought then it should be done in a dedicated clause, rather than in the entire agreement clause, and clear wording will be required, particularly with regard to the exclusion of "intrinsic" terms/ terms implied in fact.

Excluding terms implied by statute

Where a statute implies terms into an agreement, that statute may expressly state that the relevant term can or cannot be excluded or varied.

For example, section 16 of the Supply of Goods and Services Act 1982 provides that duties, rights or liabilities arising under it can, subject to the Unfair Contract Terms Act 1977, be negatived or varied by express agreement, or by the course of dealing between the parties, or by such usage as binds both parties to the contract. To effectively negative or vary an implied term, the express agreement must be inconsistent with it (section 16(2)).

Where the statute is silent, this does not necessarily mean that the term may be excluded. For example, the Commercial Agents Regulations expressly provide that certain terms they imply cannot be contracted out of and are silent as to the position with regard to other terms. Despite this, in the absence of case law, it is uncertain whether these provisions can be contracted out of and practitioners tend to treat them as mandatory.

Conflicting express and implied terms

Generally the courts will not imply a term based on usage or custom, a course of dealing, common law or the intention of the parties where the term would contradict an express term of the contract or the "tenor of the contract as a whole" (Tamplin (FA) Steamship Co Ltd v Anglo-Mexican Petroleum Products Co Ltd [1916] 2 AC 397 and London Export Corp v Jubilee Coffee Roasting Co [1958] 1 W.L.R. 661). However, the courts have, in some cases, implied a term in apparent contradiction to an express agreement. This may occur, for example, where the express term confers a discretion on a party and the implied term restricts the exercise of that discretion.

Alternatively, a court may decide that a course of dealing evidences an intention to waive an obligation under the express terms of an agreement. For example, in Marex Financial Ltd v Fluxo-Cane Overseas Ltd & Anor [2010] EWHC 2690, the court found that, despite an express term providing that notices via email were invalid, the parties' consistent communication via email meant that this express term could not be relied on.

Where statutorily implied terms conflict with the express terms of a contract, the statute will normally provide whether the statutory term takes precedence over any contrary agreement.