D. Precedent value of cases

The interpretation of express terms in a written document is a question of law (Pioneer Shipping Ltd v BTP Tioxide Ltd (The Nema) [1982] AC 724). In contrast, the meaning of an oral contract is a question of fact (Maggs (trading as BM Builders) v Marsh [2006] EWCA Civ 1058).

However, each decision on the meaning of a contract depends on its particular language and context. Cases on interpretation of one-off contracts therefore have limited value as precedents (Surrey Heath Borough Council v Lovell Construction Ltd (1990) 48 Build LR 113). This even applies to the long-established approach to excluding liability for negligence (Canada Steamship Lines Ltd v The King [1952] AC 192 (PC)). Even this is only a guideline and not binding in every case (Mir Steel UK Ltd v Morris [2012] EWCA Civ 1397).

In contrast, a decision on the interpretation of a provision in a standard form contract used repeatedly in similar transactions will be treated as authoritative in the interests of certainty (AIB Group (UK) Ltd v Martin [2001] UKHL 63).

And, occasionally, the lower courts have found themselves bound by authority on what were, arguably, questions of interpretation. For example, in limitation clauses:

• “Indirect or consequential loss” has a very restrictive definition, as explained in Legal FAQs: The meaning of direct loss and consequential loss in different scenarios: Direct and consequential loss judicially defined and Watford Electronics Ltd v Sanderson CFL Ltd [2001] EWCA Civ 317.

• Express language is needed to exclude conditions implied by the Sale of Goods Act 1979 (Dalmare SpA v Union Maritime Ltd [2012] EWHC 3537 (Comm)).

• An "entire agreement" clause which merely states that the contract supersedes prior representations will not exclude liability for misrepresentation (Axa Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133).

2. Implied terms

Implied terms are terms that have not been expressly agreed by the parties but are implied into the contract by the court. The court may imply a term into a contract on the basis of:

• Usage or custom.

• The parties' previous course of dealings.

• The intention of the parties, a term implied "in fact".

• Common law, sometimes referred to as "characteristic terms", where the implied term is a necessary part of a particular type of contract (for example, an employment contract).

• Statute.

A. Usage or custom

A contract may be deemed to incorporate any terms which are customary to a particular trade or the place in which it is made. To be binding, the usage must be:

• Notorious, certain, reasonable and not contrary to law (Yates v Pym (1816) 6 Taunt 446).

• Something more than a mere trade practice (Cunliffe-Owen v Teather and Greenwood [1967] 1 WLR 1421).

The rationale for incorporating a usage or custom is that the courts are spelling out what both parties know to be part of the bargain between them. However, a party can still be bound by a usage of which it is unaware. In the case of Sutton v Tatham (1839) 10 Ad. & El. 27 a person who instructed a broker to sell shares on his behalf was bound by the stock exchange usage applicable to the transaction, despite being unaware of it.

Even where a practice is insufficiently notorious to establish an implied term, the courts may take it into account as part of the factual matrix against which they construe the terms of the contract, including for the purposes of deciding whether to imply a term "in fact" (Thomas Crema v Cenkos Securities plc [2010] EWCA Civ 1444).