Although parties are essentially free to contract, they do so against a background of common law and statute which may restrict the effect of certain contractual provisions, or which may imply certain terms into a contract.  For example, certain terms are implied in contracts for the sale of goods by the Sale of Goods Act 1979, and by the Supply of Goods and Services Act 1982 for transfer of property in goods or the supply of services. The power to exclude these terms is now severely restricted by statute.  Terms in relation to interim payment and the right to adjudication will be implied into "construction contracts" as defined by the Housing Grants, Construction and Regeneration Act 1996 if the contract terms do not comply with the Act.

Certain clauses in a contract may attempt to exempt or limit legal liability. Some of these clauses, particularly those attempting to restrict liability for physical injury due to negligence, may be void or may be limited to satisfying the requirement of reasonableness by the Unfair Contract Terms Act 1977. A case of interest on this is Smith -v- Eric S Bush HL (1989).

Terms may be implied at common law in order to give effect to the presumed intention of the parties, where the contract does not deal with a matter expressly, The Moorcock (1889).   A term may also be implied where the contract creates a relationship in which such a term is usually implied Lister -v- Romford Cold Storage Co (1957).

In Davy Offshore -v- Emerald Field Contracting (1991) 55 BLR 1, His Honour Judge Thayne Forbes QC drew attention to the five basic ingredients for a term to be implied.

(1) it must be reasonable and equitable;

(2) it must be necessary to give business efficacy to the contract, so no term will be implied if the contract is effective without it;

(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.'

In the case of London Borough of Merton -v- Stanley High Leach (1985) 32 BLR 51 the following terms were implied:

In practice there is no longer any substantial distinction in relation to the suppliers implied obligations as to quality and fitness of materials - Staughton LJ in Trolex Products Ltd - v - Merrol Fire Protection Engineers Ltd (1991) CA.  The statutory obligations as to quality and fitness under Section 4 of the SGSA 1982 may be implied into the construction contract. This liability may only be excluded or restricted when the exclusion can be shown to be reasonable as required by Section 7(3) of UCTA 1977.

Section 7.3 states:

"As against a person dealing otherwise than as a consumer, that liability can be excluded or restricted by reference to such a term, but only in so far as the term satisfies the requirement of reasonableness."

Section 4(2) of SGSA 1982 implies a condition that the goods supplied under the contract are of merchantable quality, subject to Section 4(3).

Section 4(9) defines merchantable quality:

"Goods of any kind are of merchantable quality within the meaning of sub-section (2) above if they are as fit for the purpose or purposes for which goods of that kind are commonly supplied as it is reasonable to expect having regard to any description applied to them, the price (if relevant) and all the other relevant circumstances."

In addition under Section 4(5) there is an implied condition that the goods supplied under the contract are reasonably fit for their purpose whether or not that is a purpose for which goods are commonly supplied. The particular purpose for which the goods are being acquired must be made known by the Employer under Section 4(4). However, under Section 4(6) this does not apply where the circumstances show that the Employer does not rely, or that it is unreasonable for him to rely, on the skill or judgement of the Contractor.

Fitness for Purpose

The fitness for purpose requirement on the other hand relates to a specific purpose, and requires the additional ingredient of reliance by the Employer. A number of cases decided before SGSA 1982, serve nonetheless to demonstrate the distinction between the two implied terms and show when reliance is considered sufficient:

A third important term is implied by SGSA 1982 which relates to workmanship. This is a term that the supplier will carry out the service with reasonable care and skill - S13.

Section 12(3) of SGSA 1982 describes a contract for the supply of a service as a contract under which the supplier agrees to carry out a service, whether or not goods are also transferred or are to be transferred under the contract and whatever is the nature of the consideration for which the service is to be carried out. The implied term relating to workmanship will therefore equally apply to a labour only form of contract, which would be the case if the Employer supplies all the Materials to be incorporated into the Works,.

(i) A condition that the goods supplied are of merchantable quality;

(ii) A condition that the goods supplied are reasonably fit for the purpose for which they are being acquired, subject to the requirement of reliance;

(iii) A term that the supplier will carry out the service with reasonable skill and care.