The High Court considers implied terms in informal contracts

The High Court of Australia recently handed down its judgment in the matter of Realestate.com.au Pty Ltd v Hardingham, RP Data Pty Limited v Hardingham [2022] HCA 39, which revisited the law around implied terms in informal contracts.

Background

Mr Hardingham is a professional photographer and sole director of Real Estate Marketing Australia Pty Ltd (REMA) (together, the Applicants). REMA entered into informal verbal agreements with real estate agencies to supply photographs and floor plans of residential properties for the purpose of marketing the sale of lease of those properties. It was understood by the Applicants that the agents would upload the photos and floor plans to realestate.com.au, a real estate listings site operated by Realestate.com.au Pty Ltd (REA).

When uploading content to realestate.com.au, the agents were required to agree to REA’s terms and conditions of use (REA Terms). The REA Terms required the agents to licence to REA the use of content uploaded and further permitted REA to sub-licence the content as it desired. REA granted a licence to RP Data Pty Limited (RP Data), which operates a data and analytics property platform that includes information on property sales and rentals, including images for particular properties. RP Data then reproduced some of the Applicants’ photos and floor plans for use on its platform.

The Applicants sued RP Data in the Federal Court for copyright infringement. RP Data joined REA to the proceeding as a respondent. The trial judge found there was an implied term in the agreements between REMA and the agents which authorised the agents to sub-licence the works to REA in accordance with the REA Terms. This included an authorisation for REA to grant a further sub-licence to RP Data. The decision was reversed on appeal to the Full Court of the Federal Court. REA and RP Data then appealed to the High Court.

High Court decision

The High Court found in favour of REA and RP Data – there was no copyright infringement since their use of the copyright works was authorised due to an implied licence in the agreement between REMA and the agencies. Particularly, this implied licence permitted the agencies to supply the copyright works to REA in accordance with the REA Terms. The REA Terms also authorised REA to grant a sub-licence to RP Data to use the works.

The High Court confirmed that the rights and liabilities of parties under a contract – whether in writing or not – are to be determined objectively according to the “outward manifestations” of the parties’ intentions (rather than their subjective intentions). In this case, as there were no formal written agreements in place, the terms needed to be ascertained by reference to the parties’ words and conduct. The ultimate question was “what reasonable people with knowledge of the background circumstances then known to the parties would be taken by their words and conduct to have agreed”.

This decision provides useful guidance when assessing the terms of an informal contract and in turn, recognising implied terms by adopting the following two-step approach:

1. 1. Identifying the express terms of a contract

The express terms must be identified before the test for implied terms is applied, which can be determined through communications that occurred between the relevant parties.

As there was a lack of words expressed by the parties concerning a licence, the High Court concluded that there was no express term in the contract between the Applicants and the agencies concerning a licence to use the photos and floor plans.

1. 2. Identifying the implied terms

The identification of an implied term occurs by inference from all of the circumstances. The term must be reasonable and equitable, capable of clear expression, non-contradictory of the express terms of the contract, give business efficacy to the contract, and it must be so obvious that “it goes without saying”. For informal contracts, flexibility is particularly important and the general focus will be upon reasonableness, equity and business efficacy.

In this case, the High Court found that:

“[a] reasonable person in the position of the parties would have known that one of the very purposes of the Applicants providing the photos and floor plans to the agencies was so that the agencies could provide them to REA. In doing so, the agencies had no real choice than to accept the REA Terms, which included the requirement that the agencies provide a licence to REA to use the photos and floor plans indefinitely and provide these to third parties (such as RP Data) by way of a sub-licence”.

Therefore, the “natural and obvious implication” in the agreements between REMA and the agencies was that the agencies were licenced to use the photographs and floor plans in accordance with the terms of the agreements the agencies had with REA.

Key takeaways

• Best practice is to document agreements in writing, and clearly set out the terms of any intellectual property licences. To minimise risk, businesses should consult an experienced intellectual property lawyer to prepare such licences.
• When licensing works for commercial purposes, copyright owners should be aware of how their works will be used. If the works are for use in relation to any websites or databases, be aware of any applicable terms and conditions. To avoid the risk of a licence being implied, copyright owners should include explicit restrictions preventing particular uses in written agreements with licensees.
• Businesses should ensure that their proposed use of any copyright works is authorised by the copyright owner, whether the business has entered a licence agreement with the copyright owner itself or another party (like REA).

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Authored by:
Savannah Hardingham, Partner
Eshani Kandanearatchy, Lawyer