In this case, the claimant sought to establish that a term should be implied into a lease. The Supreme Court therefore reviewed the test for implying terms into a contract, and in particular the position following the Privy Council decision in Attorney General of Belize v Belize Telecom (see Weekly Update 20/09). That case was widely seen as having lessened the burden of proving an implied term. Lord Neuberger (with whom Lord Sumption and Lord Hodge agreed) noted support for the principle that a term will only be implied if it satisfies the test of business necessity or obviousness (ie the term is so obvious that it goes without saying) and is fair and made the following further comments:
- There is no need to ascertain what the actual parties would have agreed – instead the test is what notional reasonable people in the position of the parties at the time of the contract would have agreed.
- A term should not be implied just because it is fair. A test of reasonableness adds nothing either.
- The need for business necessity or obviousness are alternative tests, but it would be rare for a case to satisfy only one of those tests.
- Business necessity means that a term can only be implied if, "without the term, the contract would lack commercial or practical coherence".
Lord Neuberger then referred to Belize, and Lord Hoffmann's summary 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?". He said that this should not be interpreted as meaning that reasonableness alone is a sufficient ground for implying a term: "It is necessary to emphasise that there has been no dilution of the requirements which have to be satisfied before a term will be implied, because it is apparent that Belize Telecom has been interpreted by both academic lawyers and judges as having changed the law". Furthermore, the suggestion that the process of implying a term is part of the exercise of interpretation is wrong: "construing the words used and implying additional words are different processes governed by different rules". So the court should first construe the express words used and then decide whether a term should be implied.
Lord Carnwath, agreed with Lord Neuberger that the appeal should be dismissed and that the judgment in Belize (in which the Board as a whole had agreed with Lord Hoffmann), should not be read as having watered down the traditional, highly restrictive, tests for implying a term. However, Lord Carnwath disagreed with Lord Neuberger that the express words must be construed before considering whether a term should be implied, and he preferred the position in Belize on that point. Furthermore, in relation to the tests of "business efficacy" and "officious bystander", Lord Carnwath preferred the view of Lord Hoffmann that "this list is best regarded, not as [a] series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means".