In Zedra Trust Company v The Hut Group, the High Court found that a term could be implied into a share purchase agreement in relation to the provision of an auditors’ report.

Zedra had sold the entire issued capital of Cend to The Hut Group. The share purchase agreement contained a mechanism for the seller to require the buyer to instruct auditors (at the seller’s expense) to determine whether there had been over-provision for tax in the company’s accounts.

While the agreement did not expressly say the buyer must disclose the full auditors’ report, the court considered that it was both necessary and obvious to imply a term that the full report should be disclosed, rather than, as the buyer contented, the executive summary alone.

Following Marks & Spencer v BNP Paribas, a term may only be implied if it is either: (a) necessary for the contract to have business efficacy (such that it lacks practical and commercial coherence without it); or (b) so sufficiently obvious that it goes without saying.

The court found the contractual provision in question could not work effectively if Zedra was required to operate with only a partial view, dismissing the arrangement that would follow the buyer’s arguments as “frankly bizarre”.

The court also considered that fairness played a role in the implied term meeting the “obviousness” test given that if an agreement appears to operate unfairly, there is more scope for the court to accept that a term remedying the unfairness could be implied. However, it was noted that in this regard one should proceed with caution given that parties frequently do, in commercial dealings, agree terms which operate unfairly between them.