DECEMBER 10, 2015
SIDLEY UPDATE
UK Supreme Court Clarifies Test for Implying Terms Into a
Commercial Contract
The recent decision of the UK Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust
Company (Jersey) Limited and another [2015] UKSC 72 has clarified that English law will only allow a term to
be implied into a commercial contract where: (i) statute demands it; (ii) it is necessary to give business efficacy
to the contract; or (iii) the term is so obvious it goes without saying.
The case serves as an important marker for commercial parties in that, where they have failed to provide
properly for a particular eventuality in a contract, the English courts will be reluctant to remedy that omission
through implication of a term, even where that term would lead to a more commercial outcome.
Factual Background
The precise facts of the case are less important than the UK Supreme Court’s more general discussion of the test
for implication of a contractual term. In summary, the case concerned a lease between BNP Paribas (BNP) and
Marks and Spencer (M&S). The lease provided that a “basic rent” of £919,800 plus VAT was payable annually
and proportionately for any part of a year by equal quarterly installments payable in advance. M&S was able to
terminate the lease on six months’ notice provided, among other things, that there were no arrears of rent on the
termination date.
M&S gave notice to BNP terminating the lease on January 24, 2012, provided all of the contractual preconditions were met. M&S ensured no arrears of rent by making a quarterly rental payment in December 2011
for the period up to March 24, 2012 and fulfilled the other conditions for a valid termination shortly prior to the
termination date.
M&S later brought a claim that it should be entitled to a refund in respect of the period from January 24 to
March 24, 2012, given that the lease had terminated by that time. There was no express term in the lease
providing for this and so M&S contended that one should be implied.
The Test for Implying Terms
The requirements for implication of a term have traditionally been that the term must: (i) be reasonable and
equitable; (ii) be necessary to give business efficacy to the contract (so that no term will be implied if the contract
is effective without it) or so obvious that “it goes without saying”; (iii) be capable of clear expression; and (iv) not
contradict an express term of the contract. The obviousness test has often been described in terms of an officious
bystander: “If, while the parties were making their bargain, an officious bystander were to suggest some express
provision for it in their agreement, they would testily suppress him with a common ‘Oh, of course!’.” (Shirlaw v
Southern Foundries [1926] KB 206).
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SIDLEY UPDATE
Page 2
In the earlier judgment of Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 (Belize), it was
suggested 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?” This was taken by many to be a dilution of the
traditional test to allow implication of a term where reasonable parties would have included it if asked to do so at
the time of contracting.
The UK Supreme Court in M&S v BNP, however, has made clear that Belize did not dilute the test for implication
of a term. The traditional “business efficacy” and “officious bystander” tests remain central to the implication of
terms under English law.
Outcome in M&S v BNP
On the facts before it, the UK Supreme Court found unanimously that the term contended for by M&S could not
be implied. In making that determination, the judges took into account that the lease reflected carefully
considered drafting, which identified the rights of the parties and specifically addressed the question of what
payments were to be made between them. The lease was also entered into by two substantial and experienced
parties and was the product of negotiation between legal experts. In those circumstances, it would be
“inappropriate for the court to step in and fill in what is no more than an arguable lacuna.” The UK Supreme
Court also considered that, although the proposed implied term might promote fairness in the circumstances, it
would lie uneasily with the express provisions within the lease and, perhaps most importantly, the
well-established legal principle that rent payable in arrears or in advance cannot be apportioned on the basis of
time elapsed.
Practical Considerations
This judgment reinforces the position that English courts remain reluctant to imply terms into commercial
contracts. It will not suffice for the implied term to be fair or reasonable; it must be necessary to give the
contract business efficacy or be so obvious it goes without saying.
Parties must be careful to consider likely eventualities and provide for them expressly in their contracts. They
cannot rely on the courts to correct their omissions or to instill commercial fairness into a pre-negotiated
bargain where no express term was included.
If you have any questions regarding this Sidley Update, please contact the Sidley lawyer with whom you usually work, or
Simon Fawell
Partner
sfawell@sidley.com
+44 20 7360 2543
Iman Teemul
Associate
iteemul@sidley.com
+44 20 7360 3654
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