In Irish Bank Resolution Corp Ltd (in Special Liquidation) v Camden Market Holdings Corp [2017] EWCA Civ 7, 19 the Court of Appeal has re-iterated that the starting point in considering the existence of an implied term is the express terms of the contact. Any pleaded implied term must not contradict any express term.

1   Background

The case centred on a loan of some £195 million advanced by Irish Bank Resolution Corporation Limited (in special liquidation) (IBRC) to Camden Market Holdings Corporation (Camden) for the purpose of purchasing and developing properties at Camden Market. Specifically, the loan was required to finance the development of parts of Stables Market, Camden, for the acquisition of the land at Camden Lock Village and to assist with the costs of obtaining planning permission.

The facilities agreement expressly permitted IBRC to assign or transfer any of its rights to another bank or financial institution with the consent of Camden. It also allowed IBRC to disclose any information about Camden to any such assignee or transferee as long as the person to whom the information was to be disclosed first entered into a confidentiality undertaking.

IBRC entered into special liquidation on 7 February 2013 and the liquidator began marketing all its loans, including the loan to Camden. Some of the loans made by IBRC were “distressed” debts but the loan to Camden was not. Camden was concerned that marketing the facilities agreement as part of a package which also contained distressed debt would create uncertainty and rumour within the market. There was also evidence that potential purchasers of the property developed by Camden were telling Camden that they would acquire the loan from IBRC, instead of the property, and then seek to enforce the security and obtain the properties for less than market value - a strategy used by “vulture funds”. It was against this background that, on 14 October 2013, Camden issued proceedings, claiming, among other things, that there was an implied term of the contract that IBRC would not do anything to hinder Camden’s marketing of the properties to achieve the best price by marketing the sale of the loan under the facilities agreement in competition with Camden.

On 6 February 2014, IBRC issued an application for summary judgment or strike out of the claim. At first instance, IBRC’s application was refused and the Judge found that it was arguable that the implied term did exist and was consistent with the express terms of the facilities agreement such that the matter should go to full trial. IBRC appealed and again sought summary judgment or strike out.

2   The Court’s Decision

The Court of Appeal took the starting point as the Marks & Spencer v BNP Paribas case in that in most disputes about whether a term should be implied, it is necessary to first interpret the express terms. The court also cited Lord Neuberger’s statement in Marks & Spencer that it was a “cardinal rule” that an implied term must not contradict any express term.

The court held that there are two ways in which an implied term may be inconsistent with an express term:

1.    Direct linguistic inconsistency: in this case, there was no such inconsistency. The express term was that IBRC was free to market the loan by disclosing information to potential purchasers and the implied term was that there should be no marketing of the loan by IBRC in competition with Camden’s marketing of the property. There could be situations in which the marketing of the loan by IBRC was not in competition of the marketing of the properties by Camden and where the disclosure of information could be done in such a way as not to hinder Camden from achieving the best price; and

2.    Substantive inconsistency: in this case, there was a substantive inconsistency between the express term and the implied term. The implied term would amount to a significant restriction on IBRC’s ability to deal with its assets and its entitlement to disclose information to prospective assignees and transferee. The Judge at first instance had failed to take into account that the power of IBRC to disclose information to potential purchasers could not, as a matter of law, be circumscribed by an implied qualification.

The Court of Appeal allowed IBRC’s appeal and entered summary judgment against Camden. It was held that the argument for the implied term was bad in law and that Camden’s claim had no real prospect of success.

The court held that where the contract is lengthy and carefully drafted, courts will be very reluctant to imply a further term even if it does not actually conflict with the express terms. The fact that the agreement worked without the implied term was a significant impediment to implying a term that dealt with subject matter expressly addressed in the agreement.

3   Practice Points:

  • This case is of particular interest because the Court discussed how an implied term may be linguistically consistent with an express term of the contract, but still be inconsistent in substance with those express terms.  
  • Practitioners should ensure, particularly where contracts are lengthy and carefully drafted, that they specifically include any express terms required, rather than relying on implied terms that may be substantially inconsistent with the express terms (even if they are linguistically consistent).