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In the recent High Court decision Realestate.com.au Pty Ltd v Hardingham [2022] HCA 39, the Court has reaffirmed the limitations of implied terms in agreements.

What happened?

James Hardingham, director of Real Estate Marketing Australia Pty Ltd (“REMA”), supplies floor plans and photographs of residential properties to real estate agencies for use in the marketing of those properties for sale or lease. One way in which the real estate agencies market the properties includes uploading the images and marketing to the realestate.com.au platform operated by Realestate.com.au Pty Ltd (“REA”). REA then provides the images to RP Data Pty Limited (“RP Data”), which operates as a subscription website (“RP Data Professional”) servicing real estate agencies. The images provided by REMA to the agencies appear on RP Data Professional after the completion of the sale or lease of a previously marketed property.

Mr Hardingham granted REMA a licence to use and to sub-licence the images, at first informally, and then, in April 2018, by way of a formal deed of licence.

Mr Hardingham and REMA claimed RP Data had infringed, and continued to infringe, copyright over the uploaded images as REMA had not granted a licence to the real estate agencies that would then allow those agencies to sub-license the images to REA.

Implied terms and copyright infringement

While there was no express oral agreement for the grant of a licence by REMA to the agencies which would allow a sub-licence, at first instance the primary judge, Thawley J, found Mr Hardingham and REMA knew that the agencies uploaded the images to the REA platform, and it was necessary for them to do so. With that understanding, Mr Hardingham and REMA argued while a sub-licence may have been granted, it was subject to a limitation. The limitation was that REMA’s images were to be used only for the purposes of marketing a property for sale or lease, once the marketing ceased, so did the licence.

Thawley J concluded that uploading the images to the REA platform was central to the marketing objectives sought by both parties. It was found that Mr Hardingham and REMA conducted themselves on the basis that the agencies had the right to upload the works to REA’s platform, they either knew or assumed that REA was permitted to make the works available after the marketing campaign had ceased, and they knew that there was an agreement between RP Data and REA. It was held that the objective circumstances were either:

• to be inferred from the conduct of the parties including their course of dealings; or
• to be implied into the agreements between them, in order to give business efficacy to those agreements.

It was therefore found that Mr Hardingham and REMA authorised the agencies to sub-licence the works to REA, authorising REA to grant a sub-licence to RP Data; consequently, copyright was not infringed.

Mr Hardingham and REMA appealed to the Full Court of the Federal Court which found contrary to the trial judge. The proceeding was then appealed to the High Court where it was held that a reasonable person would have concluded that Mr Hardingham and REMA permitted the real estate agencies to sub-licence the works to REA on REA’s usual terms to sub-licence to RP Data.

Defining inferred conduct

Where the parties have not expressly articulated the terms of a contract, those terms can be ascertained with regard to the parties’ words and conduct. The words and conduct of each party are understood by reference to what the words and conduct would have led a reasonable person in the position of the other party to believe.

REA had uploaded photographs and floor plans to RP Data Professionals since the platform came into existence in 2003. These photographs and floor plans remained on the RP Data Professional’s site even after the marketing of a property had ceased. The Court found this was consistent with the industry’s well known marketing practices.

The absence of any words and conduct from a party is also an indicator to the intentions of that contracting party. Mr Hardingham and REMA knew of the relationship between REA and RP Data, they made no objection to this relationship through express words or inferred conduct. Further, Mr Hardingham and REMA failed to object to the images becoming available on the RP Data Professional website. It was concluded these actions further demonstrated Mr Hardingham and REMA’s understanding, and acceptance of the advertising employed by the real estate industry.

The Court found there was no evidence in the dealings between Mr Hardingham and REMA which would lead a reasonable person to understand the parties were only granting a limited licence. Instead, a reasonable person would conclude Mr Hardingham and REMA granted a licence to the real estate agencies on regular terms of business, including sub-licensing to REA.

Defining implied terms

At common law, the Court will consider five factors to determine whether a term is implied. The five-step test arising out of BP Refinery (Westernport) Pty Ltd v Hastings Shire Council [1977] HCA 40 determines an implied term must be:

1. Reasonable and equitable;
2. Necessary to give business efficacy to the contract;
3. So obvious that ‘it goes without saying’;
4. Capable of clear expression; and
5. Not contradict any express term of the contract.

The Court emphasised to be implied, a term must be necessary to give business efficacy to the contract and it must be so obvious that it goes without saying. Where an implied term is ‘so obvious it goes without saying’, less importance is placed on justifying its business efficacy. A term will also be implied where the term is necessary for the operation of the contract.

In this scenario, the Court found Mr Hardingham, REMA, and the real estate agencies dealt with each other in the context of an industry where properties were marketed for lease or sale in a particular way. This way being, images and floorplans of the properties were available for viewing even after the advertised sale or lease ceased.

Applying the five step process above, the Court determined the implied term sub-licensing from REA to Data Professionals was reasonable and equitable given it was standard industry practice, it gave business efficacy to the contract as the marketing objectives were understood by both parties, as the marketing technique was historically and widely used, the inclusion of the sub-licence was so obvious it went without saying, the sub-licence was capable of clear expression, and there was no express term in the agreement contradicting the proposed sub-licence.

Through evaluation of words and conduct of the contracting parties and the implied terms within the agreement, the Court found no breach of copyright had occurred. This case clarifies the Court’s position when identifying implied terms contained in commercial agreements.

Key Takeaways

• Terms of a contract can be inferred from the conduct of the parties included in the course of their dealings. This conduct includes the absence of conduct and a party’s failure to object.
• Business efficacy is taken into consideration when evaluating implied terms.
• The courts will adopt the five-step test when identifying implied terms. An implied term must be: reasonable and equitable, necessary to give business efficacy, so obvious that it goes without saying, capable of clear expression and does not contradict any express terms of the contract.
• The words and conduct of a party are understood by reference to what a reasonable person in the same scenario would have interpreted the words and conduct of that party to mean.

If any of the above raised issues for you or if you are interested in learning more about the court’s definition of implied terms, please reach out to our Litigation and Dispute Resolution team in Sydney.