In a landmark judgment the Supreme Court has reaffirmed the traditional requirement that a term which has not been expressly agreed will only be implied where it is necessary to give the contract “business efficacy”. In Marks and Spencer plc v BNP Paribas Services Trust Company (Jersey) Limited [2015] UKSC 72 it proposed a reformulation: a term can only be implied “if, without the term, the contract would lack commercial or practical coherence”. It remains to be seen whether that will reduce or increase the costs wasted in contract claims arguing about the implication of terms.

A contract’s terms are not always limited to those that have been specifically agreed (“express” terms). English law will, in some circumstances, add “implied” terms to what has been specifically agreed. Sometimes this is done by statutory provision, a well-known example being the term implied by the Sale of Goods Act that goods sold will be of “satisfactory quality”.

Recognising the undesirable uncertainty introduced by implication of terms, English Courts have since the late 19th Century imposed limitations upon the power to imply terms. One of the key limitations was summarised by the Privy Council in 1977 using phraseology coined in the early part of the 20th Century: "it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it". However, in 2009 the Privy Council in AG for Belize v Belize Telecom [2009] UK PC 10 appeared to dispense with this requirement: “[the] only… question… is… what the instrument, read as a whole against the relevant background, would reasonably be understood to mean”.

The Supreme Court has now reaffirmed the traditional approach, describing the Belize Telecom approach "as a characteristically inspired discussion rather than authoritative guidance on the law". The Belize Telecom judgment should not be understood "as suggesting that reasonableness is a sufficient ground for implying a term". "A term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term".

The Marks and Spencer decision illustrates the difference. Rent was payable quarterly in advance. The tenant exercised a break option, which was only effective if rent was paid in full. Rent was paid and the disputed payment covered both the period up to termination and two months after that. The tenant claimed repayment of the rent paid in respect of the two-month period after termination. The Supreme Court decided that however reasonable it might have been to have contracted on the basis that the advance rent would be apportioned in the manner claimed, that had not been expressly agreed and it was not necessary to imply such a term in order for the contract to work perfectly satisfactorily (if arguably harshly). Accordingly, no such term was implied.