The recent decision of the UK Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another  UKSC 72 has clarified that English law will only allow a term to be implied into a commercial contract where: (i) statute demands it; (ii) it is necessary to give business efficacy to the contract; or (iii) the term is so obvious it goes without saying.
The case serves as an important marker for commercial parties in that, where they have failed to provide properly for a particular eventuality in a contract, the English courts will be reluctant to remedy that omission through implication of a term, even where that term would lead to a more commercial outcome.
The precise facts of the case are less important than the UK Supreme Court’s more general discussion of the test for implication of a contractual term. In summary, the case concerned a lease between BNP Paribas (BNP) and Marks and Spencer (M&S). The lease provided that a “basic rent” of £919,800 plus VAT was payable annually and proportionately for any part of a year by equal quarterly installments payable in advance. M&S was able to terminate the lease on six months’ notice provided, among other things, that there were no arrears of rent on the termination date.
M&S gave notice to BNP terminating the lease on January 24, 2012, provided all of the contractual pre-conditions were met. M&S ensured no arrears of rent by making a quarterly rental payment in December 2011 for the period up to March 24, 2012 and fulfilled the other conditions for a valid termination shortly prior to the termination date.
M&S later brought a claim that it should be entitled to a refund in respect of the period from January 24 to March 24, 2012, given that the lease had terminated by that time. There was no express term in the lease providing for this and so M&S contended that one should be implied.
The Test for Implying Terms
The requirements for implication of a term have traditionally been that the term must: (i) be reasonable and equitable; (ii) be necessary to give business efficacy to the contract (so that no term will be implied if the contract is effective without it) or so obvious that “it goes without saying”; (iii) be capable of clear expression; and (iv) not contradict an express term of the contract. The obviousness test has often been described in terms of an officious bystander: “If, while the parties were making their bargain, an officious bystander were to suggest some express provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’.” (Shirlaw v Southern Foundries  KB 206).
In the earlier judgment of Attorney General of Belize v Belize Telecom Ltd  1 WLR 1988 (Belize), it was suggested that “there is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?” This was taken by many to be a dilution of the traditional test to allow implication of a term where reasonable parties would have included it if asked to do so at the time of contracting.
The UK Supreme Court in M&S v BNP, however, has made clear that Belize did not dilute the test for implication of a term. The traditional “business efficacy” and “officious bystander” tests remain central to the implication of terms under English law.
Outcome in M&S v BNP
On the facts before it, the UK Supreme Court found unanimously that the term contended for by M&S could not be implied. In making that determination, the judges took into account that the lease reflected carefully considered drafting, which identified the rights of the parties and specifically addressed the question of what payments were to be made between them. The lease was also entered into by two substantial and experienced parties and was the product of negotiation between legal experts. In those circumstances, it would be “inappropriate for the court to step in and fill in what is no more than an arguable lacuna.” The UK Supreme Court also considered that, although the proposed implied term might promote fairness in the circumstances, it would lie uneasily with the express provisions within the lease and, perhaps most importantly, the well-established legal principle that rent payable in arrears or in advance cannot be apportioned on the basis of time elapsed.
This judgment reinforces the position that English courts remain reluctant to imply terms into commercial contracts. It will not suffice for the implied term to be fair or reasonable; it must be necessary to give the contract business efficacy or be so obvious it goes without saying.
Parties must be careful to consider likely eventualities and provide for them expressly in their contracts. They cannot rely on the courts to correct their omissions or to instill commercial fairness into a pre-negotiated bargain where no express term was included.