Grant v Australian Knitting Mills
Mr Grant bought woollen underwear from a shop.
The underwear was made by Australian Knitting Mills (AKM).
After wearing it, Mr Grant developed serious skin irritation.
The cause was chemicals left in the wool during manufacture.
Mr Grant sued the manufacturer.
court:he manufacturer breached section 14. Goods must be safe and suitable for their normal use.
implied terms by custom
There must be evidence of a local or trade custom and the contract must be silent on the issue
Hutton v Warren
Hutton was a tenant farmer on land owned by Warren.
Warren gave Hutton notice to leave, but told him to keep farming the land until the end of the season.
Hutton worked the land and planted crops.
Before the crops were ready to be harvested, Hutton had to leave.
Warren refused to pay him for the work and money he had put into the land.
Could the court imply a term that it was normal in farming contracts for a tenant to be paid for labour and expenses when a lease ends early?
yes because there was a well-established farming custom that:
If a tenant is made to leave before harvest, they are paid for the work and money they put into the crops.
The lease was silent about this issue.
So the court used custom to fill the gap.
The Moorcock
A shipowner was allowed to dock his ship at the defendants’ wharf.
Everyone knew that at low tide, the ship would rest on the riverbed.
The wharf owners did not own the riverbed and did not check if it was safe.
The ship hit a rock and was damaged.
decision: the contract should have a term saying that the wharf owners would take reasonable care to make sure the dock was safe otherwise there would be no sense commercially of this contract.
this term is necessary to be implied in order for the contract to work and have some sense
Liverpool City Council v Irwin
Liverpool City Council owned a block of flats. The council failed to:
Clean the building, Repair lifts, staircases and common areas
The flats became unpleasant and unsafe. Tenants stopped paying rent.
The council sued them.
The tenants argued:
The council had breached its duty to allow them to live there peacefully (“quiet enjoyment”).
decision: there must be a term “The landlord must take reasonable care to keep common areas in reasonable repair” because it is necessary because of security and landlord duty. As a result court implies it automatically
the modern approach courts use to interpret contracts, called the “contextual approach
courts interpret a contract by looking at the words in their real-world context, using the background knowledge available to the parties, rather than reading the words literally in isolation. The aim is to find what a reasonable person would think the contract means, even if the wording is imperfect or contains mistakes.
Arnold v Britton
People had long leases in a caravan park.The leases said the tenants must pay a service charge, which increased by 10% every year. This clause was written in the 1970s, when inflation was very high.
Over time, the increase became extreme — by the end of the lease it would reach around £500,000 per year.
The tenants argued this was unfair and could not have been what the parties intended.
legal issue: Could the court ignore the literal wording of the clause and replace it with something more reasonable?
The decision :No. The words were clear.The clause was not ambiguous
The fact that the result was harsh or bad did not allow the court to change it
The court’s job is to interpret contracts, not rewrite them.
Even if the deal turns out to be a bad bargain, it must be enforced.
Chartbrook Ltd v Persimmon Homes
C sold land to P so P could build and sell houses.
The deal said P would pay:
a base price for the land, and
an extra payment linked to the homes built and sold.
Because of badly drafted wording, the formula for the extra payment produced a much lower figure than what both sides obviously intended. Chartbrook was paid far less than expected.
legal question: Should the court stick rigidly to the words, even though they produce a crazy and unfair result?
Decision:No. The court corrected the mistake. A reasonable person reading the contract, in its commercial context, would realise that the formula could not be what the parties meant.
So the court interpreted the clause in a way that:
made commercial sense, and
reflected what both sides obviously intended.
Why this case matters
It shows that modern contract interpretation is unitary:
Courts look at words and context together, not separately.
If the wording is clearly mistaken, courts can correct it to give effect to the parties’ real agreement — but only when the mistake is obvious.
Wood v Capita Insurance Services
Capita bought a company from Wood.
The contract contained an indemnity clause saying Wood would pay for losses caused by claims against the company.
After the sale, Capita discovered mis-selling problems and reported itself to the financial regulator, which then fined Capita. Capita asked Wood to pay the fine under the indemnity clause.
The Supreme Court said no.
Looking at the wording, context, and commercial purpose together, the court held that “claims against the company” meant claims brought by third parties, not voluntary self-referrals.
Therefore, the indemnity did not cover the fine, and Wood was not liable.
final words on interpretation
The contract means what is written, not what people privately discussed before signing.
So emails, drafts, or bargaining history are normally ignored.
But the rule is softening
Courts are now more open to background material, especially in commercial cases.
Courts can look at:
Earlier contracts between the same parties
Drafts and deleted words (they can show what was considered and rejected)
Courts cannot use:
What the parties did after the contract was made
Because that shows how they behaved later, not what the contract meant when it was signed.
implied terms
Terms that are not written in the contract, but which the court adds to make the contract work properly or reflect what the parties really meant.
This is only done:When necessary,Not automatically
Sometimes implied terms are used:
To complete a deal when something obvious was left out
Or to protect the public interest (e.g. safety, fairness)
But this is exceptional.
implied terms from statute
terms that the law automatically puts into contracts to:
Protect weaker parties (usually consumers)
Ensure fairness
Stop businesses from abusing their power
They apply even if the contract says nothing about them.
Niblett Ltd v Confectioners Materials Co Ltd
N bought tins of condensed milk from CM. The tins had a brand name printed on them that infringed Nestlé’s .
Because of that, the tins could not legally be sold. Niblett sued CM for damages.
Court: CM breached section 12 of the Sale of Goods Act that says that you must have the legal right to sell them.
