The proper test for implied terms in a contract was recently considered by the English High Court. An implied term is a term that has not been expressly agreed by the parties to a contract, but is implied by the courts in certain circumstances to clarify what the contract actually means.

In that case, the court had to interpret an agreement which provided for the appointment of the claimant, Mr. Jackson, as a director of a company at the company’s next AGM and for his re-appointment at all subsequent AGMs unless specific termination events occurred. Mr. Jackson was duly appointed as a director, but was removed in advance of the company’s 2011 AGM by his fellow directors pursuant to a power conferred on them by the company’s Articles of Association.

The English High Court was asked to decide whether it was an implied term of the agreement that Mr. Jackson would not be removed as a director of the company in circumstances where no termination event had occurred.

The court found that the directors were contractually obliged not to take any steps to remove Mr. Jackson as a director, unless and until the happening of a termination event. The judge considered that it may be necessary to imply a term into a contract in cases where the performance by the parties of their express obligations could result in consequences that would contradict what a reasonable person would understand the contract to mean. Implying a term in such circumstances is necessary “to spell out what the contract actually means”. The judge further stated that although “necessity continues… to be a condition for the implication of terms, necessity to give business efficacy is not the only relevant type of necessity”.

While the judgment is one of the English High Court and not directly binding in this jurisdiction, it may be of persuasive value should a similar issue arise before the Irish courts. 

Contributed by Mary Drennan.

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