Since the latter half of the twentieth century, English courts have considered the
question of implied terms more closely and in more detail than before. In a leading
case, BP Refinery (Westernport) Pty Ltd v. President, Councilors and Ratepayers of
the Shire of Hastings,
19 the court established five criteria to examine the question of
implied terms and held that “for a term to be implied, the following conditions
(which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it
must be necessary to give business efficacy to the contract, so that no term will be
implied if the contract is effective without it; (3) it must be so obvious that “it goes
without saying”; (4) it must be capable of clear expression; (5) it must not contradict
any express term of the contract.
3.2 Reasonable and Equitable
In relation to the first criterion above, it must be pointed out that in juxtaposition to
reasonableness, the notion of what is equitable attracts two connotations; both are
correlated but distinctively different. The notion of equity in the strict legal sense in
English law is the brand of law historically administered by the Chancery courts, the
decisions of which were premised on ecclesiastical principles derived from the
canon law. These decisions purportedly generated results that were fair and just
rather than simply according to the strict letter of the law. Thus, equity is, on the one
hand, a judicial institution, and on the other, a body of law synonymous with fairness
and justice in the literal sense.
20 In the first criterion mentioned above, it is submitted
that the term “equitable” is used in the literal sense; in other words, the connotation is
one of fairness.
In attempting to determine whether there is an implied duty on the part of the
shipowner in exercising his right under a lien clause in a charterparty to act
reasonably, it must be observed that in English law, reasonableness representing
the objective standard is an essential ingredient applicable across the board to any
contract; indeed, any legal transaction. As stated above, the “officious bystander”
test speaks to reasonableness in the context of what may be considered an implied
term in a contract. Be that as it may, the expression “reasonable and equitable” taken
together is fraught with potential contradiction when viewed from the vantage point
of the different parties to a contract. For instance, in the shipping industry, it is wellknown that the Baltic Dry Index (BDI) is closely connected to what the carrier
charges for transporting the goods by sea.
21 But fluctuation in BDI is unforeseen.
When it appears to be descending, one carrier may be willing to carry the goods with
“zero” interest but others may not be willing to accept a lower freight. One carrier
may consider “zero” interest to be “reasonable and equitable” but another may
19 [1977] 52 ALJR 20, 26.
20 Mukherjee (2002), p. 5.
21 Schinas et al. (2014), p. 318.
Shipowner’s Implied Obligations in a Charterparty Relating to. . .
317
question of implied terms more closely and in more detail than before. In a leading
case, BP Refinery (Westernport) Pty Ltd v. President, Councilors and Ratepayers of
the Shire of Hastings,
19 the court established five criteria to examine the question of
implied terms and held that “for a term to be implied, the following conditions
(which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it
must be necessary to give business efficacy to the contract, so that no term will be
implied if the contract is effective without it; (3) it must be so obvious that “it goes
without saying”; (4) it must be capable of clear expression; (5) it must not contradict
any express term of the contract.
3.2 Reasonable and Equitable
In relation to the first criterion above, it must be pointed out that in juxtaposition to
reasonableness, the notion of what is equitable attracts two connotations; both are
correlated but distinctively different. The notion of equity in the strict legal sense in
English law is the brand of law historically administered by the Chancery courts, the
decisions of which were premised on ecclesiastical principles derived from the
canon law. These decisions purportedly generated results that were fair and just
rather than simply according to the strict letter of the law. Thus, equity is, on the one
hand, a judicial institution, and on the other, a body of law synonymous with fairness
and justice in the literal sense.
20 In the first criterion mentioned above, it is submitted
that the term “equitable” is used in the literal sense; in other words, the connotation is
one of fairness.
In attempting to determine whether there is an implied duty on the part of the
shipowner in exercising his right under a lien clause in a charterparty to act
reasonably, it must be observed that in English law, reasonableness representing
the objective standard is an essential ingredient applicable across the board to any
contract; indeed, any legal transaction. As stated above, the “officious bystander”
test speaks to reasonableness in the context of what may be considered an implied
term in a contract. Be that as it may, the expression “reasonable and equitable” taken
together is fraught with potential contradiction when viewed from the vantage point
of the different parties to a contract. For instance, in the shipping industry, it is wellknown that the Baltic Dry Index (BDI) is closely connected to what the carrier
charges for transporting the goods by sea.
21 But fluctuation in BDI is unforeseen.
When it appears to be descending, one carrier may be willing to carry the goods with
“zero” interest but others may not be willing to accept a lower freight. One carrier
may consider “zero” interest to be “reasonable and equitable” but another may
19 [1977] 52 ALJR 20, 26.
20 Mukherjee (2002), p. 5.
21 Schinas et al. (2014), p. 318.
Shipowner’s Implied Obligations in a Charterparty Relating to. . .
317