Implied terms in commercial contracts – the latest word

In Marks & Spencer v BNP Paribas [2015] 3 WLR 1843, the Supreme Court considered again the circumstances in which a term may be implied into a commercial contract. Reaffirming the dictum in P Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, the court held that: “for a term to be implied, the following conditions (which may overlap) must be 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”.

In this case, the tenant in a commercial lease had exercised an early termination clause having paid rent in advance in accordance with the payment terms of the lease. It sought to recover a proportion of those advance payments.

The crucial point was whether the term ought to be incorporated in the interests of business efficacy or whether the term itself was so obvious that it went without saying. In relation to those considerations, the court held that the implication of a term was not critically dependent on proof of an actual intention of the parties when negotiating the contract but was concerned with what notional reasonable people, in the position of the parties at the time at which they had been contracting, would have agreed. Further, it was a necessary but not sufficient condition for implying a term that it appeared fair or that the court considered that the parties would have agreed it if it had been suggested to them.

On the facts, the tenant had a powerful case for contending that it was necessary for business efficacy that a rent apportionment term should be implied into the lease. However, that implication was not necessary to make the lease work or to avoid absurdity. Accordingly, its claim failed.

The full text of the decision can be found here.