In certain circumstances, the law will read into a contract a term which, though not articulated in the contract, was tacitly agreed on by the parties
If all the parties to a contract were, in fact, in agreement in regard to a term which does not appear in the written contract, or which was not articulated in the verbal contract, the law will regard that term as being part of the contract, and thus binding on the parties.
Is your accountant obliged to make you aware, on an on-going basis, of government grants for which your business may qualify?
In 1982, a businessman appointed a leading firm of chartered accountants to act as his accountants.
In 1988, an employee of that firm alerted the businessman to the possibility that he might qualify for certain incentive grants offered by the State. The businessman applied for the benefit and was successful. A subsequent application was similarly successful.
No further applications were made until 1995, despite the fact that the businessman's activities in the interim may have qualified for similar incentive payments from the State.
In 1995, the relationship between the businessman and his accountants ended in acrimony and litigation.
The businessman sued the accountants for damages, alleging that the latter's failure to alert him to the possibility of applying for State incentive payments had cost him some R3.6 million between 1989 and 1995. The businessman alleged that it was a tacit (that is to say, unexpressed) term of the agreement between them that the firm would, on an on-going basis, alert him to State incentive benefits for which he might be eligible.
The accounting firm denied that their agreement contained any such tacit term.
When the matter came before the Supreme Court of Appeal (reported as Botha v Coopers & Lybrand) the court applied the accepted criteria for determining whether a contract includes a tacit term, and quoted from an earlier Appellate Division decision in which the court had ruled that
- "a tacit term can only be read into a contract where the court is convinced that there was, in fact, an intention that the term in question formed part of the contract and that all the parties to the contract had such an intention."
In other words, it is not sufficient that only one, or some, of the parties to the contract believed that a particular, unarticulated term formed part of the contract. All the parties to the contract must have shared that belief before such a term can be said to be implicit in the contract.
The court also endorsed the so-called "officious bystander" test to determine whether or not a contract includes a tacit term.
This test essentially asks what the parties, at the time of negotiating the contract, would have replied if a hypothetical bystander had asked them - what will happen in such and such a case, which is not expressly covered in your agreement?. If the court is of the view that both parties to the contract would have given the same answer, then the term can be said to have been implicit in the contract.
The court went on to say that a term will be implied into the contract only if the parties would have given a prompt and unanimous response to that hypothetical question. If one of the parties would have replied, saying that he wanted time to think it over, or that he first wanted to clarify some uncertain aspects, then the term cannot be implied into the contract.
On the facts of this particular case, the court concluded that the agreement between the businessman and the accountants did not include a tacit term that the latter would advise him, on an on-going basis, of State incentive grants for which he might qualify.
The moral of the story
This judgement illustrates how important it is for the parties to a contract to ensure that all the terms of their agreement are expressed and reduced to writing.
It is highly undesirable that the parties to a contract should have to incur the expense of protracted litigation and a full-scale trial to resolve what could so easily have been put beyond doubt at the outset, simply by raising the issue at the negotiation stage, and agreeing whether or not it was to form part of the agreement.
The judgement also illustrates that there is no obligation on a professional adviser to give advice on issues that go outside the scope of the (express or tacit) terms of the mandate given by the client.