In the realm of the construction business, contracts are the bedrock upon which projects are built. These contracts, however, may not always explicitly state every single understanding between the parties involved. This is where implied terms come into play.
Implied terms are not expressly written in the contract but are considered part of the agreement due to the circumstances, the parties’ conduct, or the nature of the construction industry.
What are Implied Terms?
Implied terms are terms that are not explicitly written in a contract but are considered to be part of the agreement. These terms may be derived from common law principles, industry standards, or the parties’ previous dealings.
The Legal Test for Implied Terms
The key test for determining whether a term should be implied in a contract is the “business efficacy test.” This test asks whether the term is necessary to give the contract business efficacy or, in other words, to make the contract work as intended.
The test is fact-driven and requires evidence to support the inference that the parties intended the term to be implied. As the BC Court of Appeal in Metro Paving and Roadbuilding Ltd. v. Fortitude Structures Inc., 2020 BCCA 126 stated in paragraph 114: “the implication of a term into a contract is always a question of the objective intentions of the parties and is by necessity a fact-driven exercise requiring evidence to support the inference that the parties intended the term to be implied.”
Implied Terms in Construction Contracts
In construction, terms are often implied by custom or trade usage. These terms are so widely accepted in the industry that they are considered part of every contract, even if they are not expressly written.
The proof that the parties to a contract agreed to an implied term is logically inconsistent with calling the term implied rather than explicit.
In the Court of Appeal’s decision of Colony Construction Corporation v. Scott Steel Erectors Ltd., 2024 BCCA 306 （published in Aug/2024）, Justice Fenlon confirmed at paragraph 21 that “the whole point of an implied term is to recognize a term necessary to the efficacy of the contract that the parties must have intended, but did not express. If there is evidence of an actual agreement that they mistakenly failed to include in the contract, other remedies exist to address that situation, and it is not necessary to imply a term.”
Examples of Implied Terms in Construction Contracts
Some examples of implied terms in construction contracts include:
Duty of good faith: The parties are expected to act in good faith in their dealings. This is consistent with recent developments in the Supreme Court of Canada’s reasoning in the trilogy cases of Bhasin, CM Callow, and Wastech.
Duty to cooperate: The parties are expected to cooperate to facilitate the project’s completion.
Duty to perform work in a workmanlike manner: The contractor is expected to perform the work in a competent and workmanlike manner.
Duty to use fit and proper materials: The contractor is expected to use materials that are fit for their intended purpose.
Duty to complete the project within a reasonable time: The contractor is expected to complete the project within a reasonable time frame.
Invalid Implied Terms
It is important to note that not all implied terms are valid. A term will not be implied if it contradicts an express term of the contract, is illegal or is contrary to public policy.
How the Courts Interpret Implied Terms
When interpreting implied terms, the courts will consider the following factors:
The express terms of the contract: The implied terms must be consistent with the express terms of the contract.
The surrounding circumstances: The courts will consider the circumstances surrounding the formation of the contract, such as the parties’ previous dealings and the industry standards.
The parties’ conduct: The courts will consider the parties’ conduct before and after the contract was formed, such as whether they acted in a way consistent with the implied term.
Examples of Implied Terms in a Construction Contract
In Colony Construction Corporation v. Scott Steel Erectors Inc., the court considered the following implied terms:
That materials would be of proper quality, and that the materials and work, when completed, would be fit for their intended purpose (the quality implied term).
Each party to the Joint Venture Agreement would execute its work competently and workmanlikely within a reasonable time (the timeliness implied term).
That Colony would complete the design portion of its work in a manner that was equitable as between the parties and not favour itself to the detriment of Scott (the design implied term).
In this case, the arbitrator objectively accepted these valid implied terms.
Roles of Implied Terms in Construction Contracts
Implied terms play a crucial role in construction contracts by filling in the gaps and ensuring that the parties’ intentions are upheld.
Understanding the differences between implied and explicit terms can help property owners, contractors, and subcontractors avoid disputes and ensure the successful completion of their construction projects.
One solution to avoid having to interpret implied terms is to write them explicitly into the contract. As shown clearly in the Colony Construction Corporation v. Scott Steel Erectors Inc. example, the implied terms that the court would recognize are objectively neutral to the parties and aimed at a smooth and efficient completion of the contract project. Contracting parties would not disagree on neutral terms that help to complete their project successfully.
Vancouver Construction Lawyer Advising Clients On Construction Disputes
If you have questions about terms in construction contracts, whether implied or explicit, contact Roland Luo. We can help you understand your rights and obligations and ensure the success of your construction project.
Located in downtown Vancouver, Roland Luo proudly represents clients throughout British Columbia, Canada, and the United States. To schedule a confidential consultation, contact us online or by phone at 604-800-4628.