In its decision in Pernod Ricard NZ Ltd v Lion – Beer, Spirits & Wine (NZ) Limited  NZHC 2801, the High Court has revisited the legal principles relating to implied terms in contracts. The case involved an agreement under which Pernod, New Zealand's largest wholesale wine distributor, sold certain of its assets to Lion, New Zealand's leading beer distributor. A dispute arose in relation to the payment of excise duty by Pernod, which argued that despite the agreement for sale and purchase being silent on the point, Lion was liable to reimburse it for the amount of excise duty paid. In support of its claim, Pernod pleaded (among other things) an implied term.
Ultimately, Pernod succeeded in its claim based on an implied term. The Court referred to the legal test which requires that for a term to be implied, the term must: (1) be reasonable and equitable; (2) be necessary to give business efficacy to the contract; (3) be so obvious that "it goes without saying"; (4) be capable of clear expression; (5) not contradict any express term of the contract. Justice Allan also noted the decision of the Privy Council in Attorney-General of Belize v Belize Telecom Ltd  1 WLR 1988 (PC), in which Lord Hoffman stated that the key question is what the instrument, read as a whole against the relevant background, would reasonably be understood to mean. Lord Hoffman stated that the 5-point test is "best regarded, not as [a] series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means".
This decision confirms that the threshold for implying a term in a contract is high, particularly where the contract documents are complex, and that the need for commercial certainty is an important factor to consider. However, in this case there was significant evidence which showed that prior to signing the contract both Pernod and Lion envisaged that Lion would pay excise tax on finished goods. Moreover, the implication of the term proposed would avoid manifest commercial absurdity, and therefore the Court was justified in intervening in the contract.