Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2014] EWCA Civ 603 - Five Lessons From Yesterday’s Decision

The Court of Appeal ruled yesterday there was no implied term that the landlord must repay a proportionate part of rent paid in advance if the lease expired mid-quarter following the service of a tenant’s break clause.

Arden L.J., giving the sole judgment, said that the parties’ bargain could work if the compensation to be received by the landlord for the break clause being exercised included the whole of the quarter’s rent paid in advance as well as the sizable break premium required by the lease.

The decision had been eagerly awaited as the first instance decision of Morgan J. in favour of the tenant had taken some by surprise.

There are a number of other key points in the judgment given by Arden L.J.:

  • The Court of Appeal has reasserted the orthodox view that a term can only be implied into a contract if it is necessary to achieve the parties’ express agreement, purposively construed against the admissible background (para 26). Lord Hoffman’s statement in A.G. of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 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?” does not dispense with the test of necessity.
  • Although Arden L.J. emphasized that, “there is little admissible evidence of communications between the parties beyond that contained in the lease” (para 27), this does not open the door to different leases being interpreted differently. In practice, most communications relevant to the issue are likely to be inadmissible pre-contract negotiations (see Chartbrook Ltd v Persimmon Homes Ltd[2009] UKHL 38).
  • The Court of Appeal endorsed the view (agreed by the parties) that the lessee was entitled to repayment of any advance service charges it had paid which had not been spent by the landlord before the break date (para 30). An interesting example of this situation was dealt with by Morgan J. last week in Friends Life Management Services Ltd v A & A Express Building Ltd [2014] EWHC 1463 (Ch).
  • The Court of Appeal interpreted the lease so as to give effect to the reasonable person’s expectations based on the decided caselaw at the date of the lease (which was unfavourable to the tenant’s position) (para 39). Similar reasoning can be seen in some of the speeches inTransfield Shipping Inc v Mercator Shipping Inc [2008] UKHL 48 and contract lawyers should be willing to use this sort of argument more often.
  • It will be remembered that Morgan J. had held that the lessee could have paid an apportioned part of the last quarter’s rent (thereby avoiding the need to seek repayment later on) so long as it paid the required break premium at the same time. The Court of Appeal did not decide the point but Arden L.J. said that this would “seem to be correct” (para 41). This may be of some comfort to lessees in a similar position wondering what they need to do to ensure that their break notice is effective. Nevertheless, it would be prudent in such a case to consider applying for a declaration well before the relevant quarter day.

For the full judgment, please click this link.