Yet again, the question of the proper test for when to imply a term into a contract remains unresolved in New Zealand.

Since Attorney-General of Belize v Belize Telecom Ltd, the classic five-point test in BP Refinery (Westernport) Ltd v Shire of Hastings, has been in doubt. The BP Refinery test requires that the term sought to be implied must be:

  • reasonable and equitable;
  • necessary to give business efficacy to the contract;
  • so obvious that it goes without saying;
  • capable of clear expression; and
  • must not contradict any express terms of the contract. 

The Supreme Court left the relevance of the five-point test open in Mobil Oil NZ Ltd v Development Auckland Ltd, and now, the Court of Appeal appears to have done the same in Ward Equipment Ltd v Preston [2017] NZCA 444. There, the judgment of French and Winkelmann JJ (given by Winkelmann J), determined that the issue is best left for another day, and that in any event, “[a]pplying the traditional and stricter test for implication of terms would inevitably lead to the same outcome”.

In a separate judgment, although Kos P agreed with the conclusions drawn by French and Winkelmann JJ, his Honour did not believe that the correct approach to implication needs to be viewed as uncertain in New Zealand.

In his view, in the case of implication, the starting point is Belize Telecom, which remains authoritative in New Zealand. However, Kos P goes on to note that BP Refinery’s “familiar and useful” five-points – which are “best viewed as guidelines” – remain applicable, particularly “where the construction advanced by a litigant involves a sufficiently substantial change to the express contractual words as to trigger the implication of a term”.

Where does this leave us, and why does it matter? Although Belize Telecom is part of New Zealand law, according to Kos P, it has not instigated a revolution and the traditional test for implication of a term remains applicable. As such, the onus for those seeking to imply a term that was omitted when drafting a contract, for whatever reason, is likely to be more difficult as both thresholds (BP Refinery and Belize) would need to be taken into account. Winkelmann J suggests in Ward Equipment, the Belize Telecom test may be stricter than the traditional test in BP Refinery - so while you may meet the threshold for one, you may not be able to overcome the other.