LAWS6991 Chap.8 Implied Terms and Exclusion Clauses
Implied Terms and Exclusion Clauses
This chapter covers terms the parties did not write and clauses that limit liability. Terms may be implied in law for a class of contract, as considered in Liverpool v Irwin; in fact, if they satisfy all five BP Refinery conditions; or by statute, as under the Sale of Goods Act 1923 (NSW) and the Australian Consumer Law.
The duty to cooperate and the unsettled duty of good faith, recognised in New South Wales in Burger King, follow. Exclusion clauses are incorporated, construed under Darlington Futures, and applied to the loss.
What this chapter covers
- 01
Purpose of implied terms
- 02
Terms implied in law
- 03
BP Refinery conditions
- 04
Terms implied by statute
- 05
Duty to cooperate
- 06
Good faith in performance
- 07
Construing exclusion clauses
- 08
Contra proferentem and negligence
Worked example · free
A limitation clause in a courier contract
- 1Incorporation: the jeweller signed the contract, so under L'Estrange and Toll the clause is part of it.
- 1Construction: under Darlington Futures the clause is given its ordinary and natural meaning against the whole contract, applying contra proferentem only if it is ambiguous.
- 1Loss of a consignment, however caused, naturally covers theft following the driver's carelessness, so there is no ambiguity to resolve against the courier.
- 1Liability is capped at $500, so the jeweller recovers $500 of its $12,000 loss, leaving $11,500 unrecovered under the contract.
Key terms
- Implied term
- A term the court treats as part of a contract although the parties did not express it.
- Business efficacy
- The requirement that an implied term be necessary for the contract to work commercially.
- Duty to cooperate
- The obligation to do what is reasonably necessary to let the other party have the benefit of the contract.
- Exclusion clause
- A term that excludes or limits liability for breach of contract or for negligence.
- Contra proferentem
- The rule that an ambiguous term is construed against the party relying on it.
- Proferens
- The party who seeks to rely on an exclusion clause.
Implied Terms and Exclusion Clauses FAQ
What is the test for implying a term in fact?
BP Refinery requires the term to be reasonable and equitable, necessary for business efficacy, so obvious it goes without saying, capable of clear expression, and consistent with the express terms. Every condition must be met.
Why are courts slow to imply terms?
Mason J in Codelfa explained that what parties agreed often represents the limit of their willingness to agree, that detailed contracts suggest the gap was not overlooked, and that it is hard to know what term they would have chosen.
Is there a duty of good faith in Australian contract law?
The High Court has not settled the question, and Royal Botanic Gardens left it open. New South Wales recognises a duty as a control on discretionary powers, as in Burger King, meaning honest conduct, for proper ends, and not arbitrary.
Can a contract exclude the consumer guarantees?
No. Section 64 of the Australian Consumer Law prevents the consumer guarantees for goods and services from being excluded by contract, although the Sale of Goods Act 1923 (NSW) lets express terms prevail over its implied terms under section 57.
How do courts read an exclusion clause?
By giving the words their ordinary and natural meaning, read against the whole contract, its nature and its object. Contra proferentem applies only if the clause is ambiguous, as the High Court explained in Darlington Futures.
Does an exclusion clause cover negligence?
Only if its words, fairly read, reach the loss. Davis v Pearce Parking Station tested whether a clause garaging cars at the owner's risk covered an attendant who left the key in a car that was stolen.
Exam move
Learn implied terms as three separate tests, one for each source, and never argue fairness as the reason for implication. Memorise the BP Refinery conditions in order and practise applying each to a gap in a short contract. For good faith, be ready to state the unsettled position and the New South Wales approach in two sentences.
For exclusion clauses, use the order incorporation, construction, application, and finish with any statutory override. Ask Sia to give you exclusion clauses with different wording and check your construction.
Working through Implied Terms and Exclusion Clauses in LAWS6991? Sia is AskSia’s AI Law tutor — ask any LAWS6991 Implied Terms and Exclusion Clauses question and get a clear, step-by-step explanation grounded in how LAWS6991 is taught and assessed. Read this chapter free, then take your hardest questions to Sia.
