Essay question: 'The tests for implying a term in fact—business efficacy and the officious bystander—purport to give effect to the parties' presumed intention, but in reality they license judicial law-making.' Discuss.
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Model answer
The proposition invites scrutiny of the doctrinal justification for implication in fact. English law insists that terms implied in fact rest on the parties' presumed common intention: the court fills a gap the parties overlooked, supplying what they would have agreed had they turned their minds to it. Yet critics argue that this is a fiction—that judges are not discovering pre-existing intention but imposing their own view of what is fair or sensible. This essay argues that while the intention-based model remains doctrinally orthodox (especially after Marks and Spencer plc v BNP Paribas [2015] UKSC 72), the practical operation of the tests reveals an irreducible element of judicial creativity, constrained but not eliminated by the rhetoric of necessity.
The orthodox position: intention not judicial discretion
The business efficacy test originates in The Moorcock (1889) 14 PD 64. Bowen LJ held that the court may imply a term 'to give [the contract] such business efficacy as the parties must have intended'. The officious bystander test, articulated by MacKinnon LJ in Shirlaw v Southern Foundries [1939] 2 KB 206, asks whether the term is so obvious that both parties, if asked during negotiations, would respond, 'Oh, of course!' Both tests purport to be backward-looking and intention-seeking: the inquiry is what the parties (objectively) must have agreed, not what the court thinks reasonable.
In Marks and Spencer, Lord Neuberger synthesised the tests and re-affirmed their intentionalist foundations. He insisted that implication is exceptional, invoked only when a term is (i) necessary to give business efficacy or so obvious it goes without saying, (ii) clear and precise, (iii) consistent with the express terms, and (iv) capable of objective formulation [at [21]]. The burden lies on the party asserting the term, and the court should not improve the contract or make it fairer. The judgment reads as a retrenchment, confining implication narrowly and resisting the conflation with interpretation suggested in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10.
On this view, implication in fact is not judicial law-making. It is an exercise in contractual construction, albeit one step removed from the express text. The court applies objective criteria—necessity, obviousness—and defers to the parties' autonomy. If the contract as drafted is workable, no term is implied; if silent on a matter the parties must have intended to cover, the court supplies the missing piece. The tests thus serve as disciplining devices, cabining discretion.
The critique: intention as fiction
Yet the realist critique (associated with scholars such as Hugh Collins and Catherine Mitchell) contends that the intention-based account is fictitious. Real parties often have not thought about the gap at all; there is no 'presumed intention' to discover. What the court calls 'obvious' or 'necessary' reflects the judge's assessment of commercial reasonableness, policy and fairness—in other words, judicial law-making under another name.
Several points support this critique:
First, the tests are question-begging. To say a term is necessary for business efficacy presupposes a view about what 'efficacy' means—how the contract ought to work. That judgment is normative. In Liverpool City Council v Irwin [1977] AC 239, the House of Lords implied a term requiring the landlord to take reasonable care of common parts. Was that necessary? The tenancies had subsisted for years without it. Lord Wilberforce acknowledged that the term was necessary not to make the individual contract work, but to reflect the nature of the relationship—a subtle but significant shift towards normativity.
Second, the officious bystander test assumes rational, fully informed parties who would instantly agree on a 'missing' term. But real contractors are boundedly rational, have divergent interests, and might well have haggled over the term had it been raised. The 'Oh, of course!' standard imagines an idealised negotiation. In Marks and Spencer itself, the landlord and tenant had sharply opposed interests in whether rent should be repayable on early termination; it is implausible to say both 'must have intended' a repayment term. The Supreme Court's refusal to imply the term may reflect not absence of presumed intention but a policy judgment that long leases allocate risk as they stand.
Third, the requirement that the implied term be clear and precise is difficult to reconcile with the idea that it is merely filling an obvious gap. If the term were truly obvious, one might expect some evidence of it in negotiations or conduct. The insistence on precision suggests the court is drafting, not discovering.
Fourth, implication in practice shades into implication in law, which is openly normative. The boundary between the two is unstable. In Malik v BCCI [1998] AC 20, the House of Lords held that an employment contract contains an implied term of mutual trust and confidence. Though framed as implied in law, the term originated in case-by-case implication. Once a term is implied repeatedly across a category of contract, it becomes a default rule—a judicial standard, not a reflection of individual intention.
A middle path: constrained creativity
Neither the pure intentionalist account nor the pure realist critique is wholly satisfying. A better view recognises that implication in fact involves constrained judicial creativity. The tests impose real discipline: courts cannot imply terms merely because they seem fair or would improve the deal. The insistence on necessity (not reasonableness) and consistency with express terms reflects respect for party autonomy. The detailed contract in Mediterranean Salvage & Towage Ltd v Seamar Trading & Commerce Inc (The Reborn) [2009] EWCA Civ 531, for example, defeated implication precisely because the parties had thought through the allocation of risk.
Yet within those constraints, the court exercises judgment. Determining what is 'necessary' or 'obvious' is an evaluative task. The court considers commercial context, the nature of the relationship, the consequences of leaving the gap unfilled, and background norms of fair dealing. These are not mechanical inquiries; they require practical reasoning. In that sense, the court is constructing the contract, not just interpreting it.
The fiction of 'presumed intention' serves a legitimating function: it signals that the court is serving the parties' autonomy, not imposing external standards. The rhetoric matters because it channels judicial discretion and reminds judges that their role is supplementary, not revisionary. As Lord Hoffmann observed in Belize Telecom, implication is part of the broader task of construction—but Marks and Spencer made clear that it is a distinct and stricter part, invoked only when the express terms truly leave a gap.
Conclusion
The tests for implication in fact are intention-based in aspiration but normative in operation. They rest on an idealised model of rational contractors and objective necessity, yet their application inevitably involves judicial assessment of what the contract ought to contain. That does not mean implication is arbitrary judicial law-making: the necessity and obviousness standards impose real limits, and deference to detailed express terms is genuine. But neither is implication a purely mechanical discovery of pre-existing intention. It is better understood as a form of default-rule reasoning, constrained by text and context, that allocates risk and obligation when the parties' actual agreement is incomplete. The rhetoric of intention preserves doctrinal coherence and respects autonomy; the reality is that courts, carefully and within limits, help complete contracts when the parties have not. Recognising that dual character—fictive yet functional—offers the most honest account of the doctrine.