Introduction
In the law of contract, the courts are sometimes asked to imply terms into an agreement that the parties have not expressly included. The case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72 is a very important modern authority from the Supreme Court on the topic of terms implied in fact. This case is significant because it clarified the legal test for implying terms, moving away from a more relaxed approach that had been suggested in an earlier case and confirming a return to a more traditional and strict test. This note will explain the facts of the case, the legal issue, the court’s decision, and its importance for contract law.
Facts and Legal Issue
The case concerned a commercial lease agreement between Marks and Spencer (M&S) as the tenant and BNP Paribas (BNP) as the landlord. The lease contained a break clause which allowed M&S to terminate the lease early, on 24 January 2012, provided there were no rent arrears on that date. The rent was payable in advance on the usual quarter days. M&S exercised the break clause, having already paid the full quarter's rent due on 25 December 2011, which covered the period up to 24 March 2012.
After successfully terminating the lease, M&S sought to recover the portion of the rent that related to the period after the break date (from 24 January to 24 March 2012). The lease did not contain any express term that would allow for this repayment. The legal issue for the Supreme Court was therefore whether a term should be implied into the lease to allow M&S to be refunded the "overpaid" rent.
The Decision of the Supreme Court
The Supreme Court unanimously decided that no such term could be implied into the lease. Lord Neuberger, giving the lead judgment, held that the traditional, strict tests for implying a term in fact had not been watered down. He reviewed the historical tests, including the ‘business efficacy’ test from The Moorcock (1889), which asks if the term is necessary to make the contract work, and the ‘officious bystander’ test from Shirlaw v Southern Foundries (1926) Ltd (1939), which asks if the term is so obvious that it goes without saying.
The Court addressed the confusion that had arisen from Lord Hoffmann’s judgment in Attorney General of Belize v Belize Telecom Ltd (2009). In that case, it was suggested that implying a term was simply part of the overall exercise of interpreting what the contract means. Lord Neuberger clarified that this interpretation of Belize was wrong. He stated that implying a term and interpreting a contract are two different processes. Interpretation is about working out the meaning of the words the parties have used, while implication is about dealing with a matter for which the parties have made no provision (McKendrick, 2023).
Lord Neuberger restated the law by providing a summary of six principles that apply when considering whether to imply a term. Crucially, he confirmed that a term will only be implied if it is necessary for business efficacy or is so obvious it goes without saying. He also added that a term should not be implied just because it seems fair or because the court thinks the parties would have agreed to it if it had been suggested to them. The test is a high one. Applying this to the facts, the Court found that the lease was a detailed and professionally drafted document. The absence of a clause for refunding rent did not make the contract unworkable, so it was not necessary to imply such a term.
Analysis and Significance
The importance of Marks and Spencer is that it provides certainty and clarity on the law of implied terms. By rejecting the idea that implying terms is just part of interpretation, the Supreme Court has re-established a more restrictive and difficult test (Davies, 2016). This decision makes it harder for parties to argue that a term should be added to their contract just because it would have been reasonable.
The judgment confirms that the courts will be reluctant to interfere with complex commercial contracts that have been negotiated between well-advised parties. The courts assume that if the parties had wanted to include a term for the repayment of rent, they would have done so. The decision therefore promotes certainty in commercial transactions, as parties can be more confident that the courts will not rewrite their bargain for them. While this might seem harsh on a party like M&S, it respects the freedom of the parties to make their own agreements. The case serves as a clear reminder that when drafting contracts, parties should try to cover all eventualities expressly, rather than relying on the courts to imply terms later.
References
Davies, P. S. (2016) 'Implying terms in law'. The Cambridge Law Journal, 75(2), pp. 211-214.
McKendrick, E. (2023) Contract Law. 15th edn. Palgrave Macmillan.
Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10.
Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72.
Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206.
The Moorcock (1889) 14 PD 64.
