Leiden Law Blog

UK Supreme Court: contractual terms are rarely implied into a contract

Posted on by Anne Hendrikx in Private Law , 1
UK Supreme Court: contractual terms are rarely implied into a contract

The facts

Marks & Spencer and BNP were parties to a very full and detailed Lease (para. 7). Marks & Spencer had an option to terminate the Lease on 24 January 2012 and exercised that option. The problem was that Marks & Spencer had paid the full quarter rent due on 25 December 2011 up to and including 24 March 2012. The principal issue between the parties is whether BNP ought to pay back a proportion of the rent paid by Marks & Spencer, apportioned in respect of the period from the date of termination (24 January 2012) up to and including 24 March 2012. There was no express provision to this effect in the Lease, so Marks & Spencer contended that such a term should be implied into the Lease. In overturning the decision at first instance, the Court of Appeal did not find grounds upon which to imply into the contract a term that rent should be refunded in circumstances where the Lease was terminated early. Marks and Spencer then appealed to the Supreme Court.

The test for implying terms

Gaps in a contract can be filled using implied terms. According to Cartwright (Contract law 2013, p. 202) this means "that the parties have not expressly included a particular term, but the courts are able to determine that the term should be implied into the contract to complete it". Under English law (BP Refinery (Westernport) v Shire of Hastings (1977) 52 ALJR 20, 26), a term can be implied into a contract if the following five conditions are satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract. The recent case of Marks and Spencer plc v BNP Paribas [2015] UKSC 72 considered the established test for implying terms into a contract.

The judgment

The Supreme Court dismissed the appeal by Marks & Spencer, just as the Court of Appeal. Lord Neuberger gave the lead judgment and added six observations to the classic statements regarding implied terms (para. 21). According to the recent case, the test for implication remains whether the term is necessary for the business efficacy of the contract in the sense that the contract would lack commercial or practical coherence without the implied term. Terms will not be implied just because it would be reasonable to do so. Lord Neuberger emphasised that implied terms do not depend on the parties' actual intention and that a term should not be implied into a detailed commercial contract.

Lord Neuberger set out how to approach The Belize Telecom case (Attorney General of Belize v Belize Telecom [2009] 1 WLR 1988), an earlier case concerning implied terms. First Lord Neuberger emphasised that "there has been no dilution of the requirements which have to be satisfied before a term will be implied" (para. 24). The second point concerned the suggestion in The Belize Telecom case that the process of implying a term is part of the process of interpretation. Lord Neuberger added that, in his view, interpretation should come before implication, because only after the process of construing the express words is complete, the issue of an implied term falls to be considered (para. 27-28). Lord Neuberger accepted that in some cases it could be appropriate to reconsider the interpretation of the express terms of a contract after a term had been implied.

The main argument against the implication of a term requiring that BNP would reimburse Marks & Spencer the rent paid for the period after the termination of the Lease was the established legal background. Rent payable in advance is not apportionable in time in common law. So no term could be implied into the Lease and the landlord BNP is entitled to retain the whole of the rent.

Comment

The ruling is notable, because the Supreme Court clarified the law on implied terms generally and the judgement re-emphasises the difficulty of contending that a term should be implied into a contract. When commercial parties have entered into a lengthy and carefully-drafted contract, just like the Lease in the present case, it will be even more difficult to imply a term.

1 Comment

imran kahn
Posted on January 22, 2017 at 04:12 by imran kahn

there are some conditions as mentioned in bp refierny v shire of hasting and in english law if these are satisfied a term can be implied in contract.                                                                    1.verification. if the maker of statement asks to other party to verify the tern can be implied in contract. ecay v godfrey 1947.                                2.importance.  a statement likely to be a term of contract where it is of such importance to the person to whom it is made that .couch v hill1947.                                                                                      3.special knowledge. if one party have special knowledge compere to others the term can be implied in contract.  oscar chess ltd v williams 1957.

Add a Comment

Name (required)

E-mail (required)

Please enter the word you see in the image below (required)

Your own avatar? Go to www.gravatar.com

Remember me
Notify me by e-mail about comments