BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Contract; contents; terms implied ad hoc.
Facts: The State Government of Victoria entered into an agreement with BP Refinery (Westernport) for the development of an oil refinery on a site within the Shire of Hastings. The Shire of Hastings also entered into an agreement with BP Refinery (Westernport) granting that company the right to pay lower than normal municipal rates on the refinery site (a preferential rating agreement). The reduced rates were intended to reduce the costs of the new development. Sometime later BP Refinery (Westernport) underwent a restructure and as a result the refinery site was transferred to a subsidiary company called BP Australia. The Shire of Hastings charged BP Australia the full municipal rates on the site. The Shire of Hastings argued that, although not expressly agreed, it was an implied term of the contract that the preferential rating agreement would come to an end if BP Refinery (Westernport) ceased to occupy the site itself.
Issue: Was a term implied ad hoc into the preferential rating agreement that the lower rates would be payable only while BP Refinery (Westernport) itself occupied the refinery site?
Decision: A majority of the Privy Council held that no such term was implied ad hoc into the contract.
Reason: For a term to be implied ad hoc into a contract the following conditions (which may overlap) must be satisfied on the facts of the case:
(1) The suggested term must be reasonable and equitable;
(2) it must be necessary to give business efficacy to the contract, meaning 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, and;
(5) it must not contradict any express term of the contract.
The Privy Council found that the suggested term was not needed to give business efficacy to the contract; nor was it fair and equitable; nor could it be inferred from the circumstances that the parties obviously intended to include any such term. In fact, it was more likely, from the known circumstances, that a term with the opposite effect would have been intended. The 'officious bystander' test is used to decide whether it was obvious that the suggested term was intended by the parties to be included in the contract. The court asks what the parties would have replied if an officious bystander had asked them at the time of their agreement whether the suggested term was part of their agreement. Only if it can be inferred from the circumstances that the parties would have replied 'of course' will it be obvious that the suggested term was intended to be included in the contract.