2.3 Terms implied by custom or trade usage

Over time, particular contractual clauses have become typical for certain types of trade. Some of these have reached such widespread acceptance that virtually anybody in that line of trade would assume all contracts done within that line of trade to contain those particular terms. The law recognises this fact and, thus, terms may be implied based on custom or trade usage. If codified, the common law principles regulating terms implied by custom or trade usage can be expressed in the following

Rule 3 is mainly based on the Court’s reasoning in the case of Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd.^[1] The main issue in this case was whether Norwich, an insurer, could recover outstanding premiums from Con-Stan, the assured, despite the fact that Con-Stan had already paid them to Norwich’s insurance broker, who, in default, had not passed them on to Norwich. Con-Stan, seeking to avoid paying the premiums a second time, argued that there was an implied term in the insurance contract that arose from custom or usage in the industry, that a broker is alone liable to an insurer for payment of the premium, and that the implied term was necessary to give business efficacy. In order to establish the custom or trade usage of such a contract, the High Court stated that it was necessary to find a clear course of conduct under which insurers do not look to the assured for payment of a premium.

The Court could not find evidence to support such a custom, and in fact there was a number of instances where insurers seek a second payment from an assured despite the latter having already paid their brokers.  Therefore, it was not possible to say that the custom relied on was so well known that everyone entering into such a contract would reasonably be presumed to have imported that term into the contract.  The Court also rejected the suggestion that the implied terms were necessary to give business efficacy as they were not so obvious that both parties would have agreed to its inclusion if their minds had been directed to it at the time of bargaining. It especially cannot be so obvious if the implied term is adverse to the interests of one party.