On 7 September 2021, we published an article in relation to the Full Court of the Federal Court’s decision in Hardingham v RP Data Pty Limited [2021] FCAFC 148.
The case was a dispute over whether an agreement permitted non-parties to sub-license use of photographs, in circumstances where there was no express term outlining same. Accordingly, the case required a review of whether the right to sub-license was an implied term of the agreement.
Although the Full Court determined that no such term was implied, this decision was recently overturned on appeal to the High Court of Australia in Realestate.com.au Pty Ltd v Hardingham; RP Data Pty Limited v Hardingham [2022] HCA 39.
The decision of the High Court provides valuable insight into the rules governing the ascertainment of contract terms, both express and implied.
Mr Hardingham is a photographer by trade. He takes promotional photographs and prepares floor plans of real estate to assist in the marketing of properties for sale. Mr Hardingham then licenses use of the photographs and floor plans (though his company Real Estate Marketing Australia Pty Ltd (REMA)) to real estate agents.
Mr Hardingham receives a request from an agent when his services are required, usually by telephone or a brief email providing details of the job. In that sense, there is rarely any extensive written contract setting out detailed terms of an agreement between REMA and the agent.
In this case, it was uncontentious that REMA provided the real estate agent with a licence to use the photographs in the agent’s marketing campaign. This extended to allowing the agent to upload the photographs to realestate.com.au, being a real estate listings site operated by Realestate.com.au Pty Ltd (REA).
However, by uploading the photographs to realestate.com.au, the agent was required to agree to REA’s terms and conditions of use (REA T&Cs). The REA T&Cs required the agent to license to REA use of all photographs uploaded, and permitted REA to further sub-license the photographs as it wished. Ultimately, REA did sub-license Mr Hardingham’s photographs to RP Data Pty Limited (RP Data), which operates a real estate marketing service that relies on the input of various information, including photographs. Photographs uploaded by RP Data would remain available to real estate agents as a historical record. In this case, Mr Hardingham was aware of both the REA T&Cs and the relationship between REA and RP Data.
However, Mr Hardingham took issue with the sub-licensing of his photographs by REA to RP Data. He argued that the terms of his agreement with the agent did not extend to permitting REA (not being a party to the agreement) to sub-license his photographs to RP Data, and that such use by RP Data constituted an infringement of his copyright.
The Federal Court of Australia disagreed, finding that in order for the agent to use the photographs for their agreed intended purpose (the marketing campaign), it was necessary that the agent be permitted to upload those photographs to realestate.com.au. To achieve this, the agent was required to agree to REA’s T&Cs (permitting REA to sub-license to RP Data). Therefore, because all parties understood that the photographs would be uploaded to realestate.com.au, it was an implied term that REA was entitled to sub-license the same to RP Data.
Mr Hardingham successfully appealed to the Full Court of the Federal Court of Australia, in which it was determined that a term permitting REA to sub-license to RP Data was not implied.
REA then appealed to the High Court of Australia.
The High Court determined that the agreement between REMA and the agent included an implied term allowing REA and RP Data to use the photographs beyond the initial marketing campaign.
Chief Justice Kiefel and Justice Gageler explained the conditions necessary to imply a term as follows1:
Their honours then discussed the importance of the context in which the agreement was formed. Mr Hardingham, REMA and the agents operated in an industry in which properties for sale were regularly marketed online, overwhelmingly via realestate.com.au. All parties were well aware of the REA T&Cs and that photographs uploaded to realestate.com.au would appear on RP Data’s platform shortly after. The mutual understanding of this industry practice frames each party’s conduct in determining the express (and implied) terms of any agreement. Accordingly, as both Mr Hardingham and REMA were aware that the photographs were to be uploaded to RP Data’s platform (as was the usual course), their silence and failure to object evidenced an acceptance that this was necessary to achieve the intended purpose of the agreement (the marketing of the property for sale)2.
Justice Gordon explained that the express rights of parties under a contract are to be interpreted objectively.
However, when considering an “informal contract” (as was the case here), the terms must be objectively ascertained through what was said, what was not said, from what was done, and from what the parties reasonably knew or ought reasonably to have known.3
Mr Hardingham and REMA’s knowledge of the intended use of the photographs, including by REA and RP Data, would lead a reasonable observer to conclude that there was a common understanding that the licence granted to the agent extended beyond the initial marketing campaign.4
In Justice Edelman and Justice Steward’s decision, they outlined the order in which the terms of a contract must be ascertained.
Firstly, a term may be expressed in words, whether written or oral.5 Express terms may then be interpreted to find their real meaning, including by implication if the language used is imperfect or ambiguous.
Only once all express terms have been identified, should steps be taken to identify any implied terms.6
An implied term is said to exist within the contract, rather than “implied into” the contract.7 Identifying an implied term is an “exercise in construction”, rather than an attempt to rectify the contract.8
When determining whether an implied term exists, regard should be had to those elements listed above, but with a degree of flexibility depending on all the circumstances of the case.9 This is to ensure that “the ultimate question” is answered, “what would have been intended by a reasonable person in the position of the contracting parties?”10 The degree of flexibility afforded may well differ for an informal contract, as compared to a written contract.
Applying these concepts to the case, their honours could not identify any words communicated by the parties in relation to the sub-licence, so as to ascertain an express term.11 Turning their minds to the circumstances of the matter, from which an implied term may be inferred, their honours determined that a reasonable person would have known that:12
Accordingly, the “natural and obvious implication” was that RP Data was permitted to use the photographs on its platform.
Disputes over whether an implied term exists are often complex and expensive. Informal contracts are commonplace and where important matters are left unsaid, then parties may attempt to argue that a specific term is implied. To do so, one must traverse those elements outlined above. The degree of flexibility afforded to those elements may depend on whether the parties have attempted to record the entire agreement in writing, or have merely relied on conduct alone. The High Court’s decision provides useful guidance to both business people and lawyers on the rules for ascertaining implied terms. Critically, a failure to raise an objection in circumstances where both parties understood usual industry practices damaged Mr Hardingham and REMA’s case. Therefore, if you are aware of a particular issue or concern, it is best to raise it as an express term, rather than seeking to rely on an implication in the future.
If you require advice with respect to contracts, licensing or copyright issues, do not hesitate to contact Iain Freeman or Andrew Sutton.
[1] RP Data Pty Limited v Hardingham [2022] HCA 39 at [18]
[2] Ibid at [27-31]
[3] Ibid at [48]
[4] Ibid at [69]
[5] Ibid at [102]
[6] Ibid at [109]
[7] Ibid at [112]
[8] Ibid at [115]
[9] Ibid [114]
[10] Ibid [115]
[11] Ibid at [131]
[12] Ibid at [132]
