IMPLIED TERMS WHAT IS THE SUPREME COURT TELLING US?

1. IMPLIED TERMS WHAT IS THE SUPREME COURT TELLING US? 20 November 2017 CLARE AMBROSE 20 Essex Street

2. WHAT IS AN IMPLIED TERM? • A term not expressly stated • A distinct legal concept

3. THE TRADITIONAL APPROACH English approach very restrictive – Terms only implied • by law e.g. Sale of Goods Act 1979 or confidentiality in arbitration • if necessary for the contract to work and/or as a matter of presumed objective intention

4. The TEST FOR IMPLYING A TERM • The Moorcock (1889) – to give such business efficacy as must have been intended • “so obvious that it goes without saying” Reigate v Union [1918] • “the officious bystander” Shirlaw v Southern Foundries [1939] • Liverpool City Council v Irwin [1977] – test of NECESSITY having regard to the circumstances (HL rejected Lord Denning’s reasonableness)

5. Lord HOFFMANN AG Belize v Belize Telecom [2009] Questions of implication arises when contract does not expressly provide for something. The usual inference is that nothing happens: loss lies where it falls. The Court has no power to improve the parties’ contract or introduce terms to make a contract more reasonable.

6. MORE CONTROVERSIALLY ... Implication of terms is an exercise in construction, not in making an addition to the contract. In implying terms the court is concerned only to discover what the contract means against relevant background - ICS v West Bromwich BS [1998]. Tests such as “necessary for business efficacy”, “go without saying” carry dangers if treated as additional to the basic process of construction.

7. MiXED RECEPTION? • The Reborn [2009] – Lord Clarke MR • confirms that test is still, “Is the proposed term necessary to make the contract work?” • Implication is a “more ambitious undertaking” than interpretation – Bingham MR • Singapore Courts expressed reservation • Some academic criticism

8. LORD NEUBERGERMarks & Spencer v BNP Paribas [2015] “So obvious that it goes without saying” is an alternative ground to “necessary for business efficacy” but both normally go together. Test of business efficacy involves a value judgment e.g. whether contract would otherwise lack commercial coherence.

9. MORE CONTROVERSIALLY... Lord Neuberger disagrees with Lord Hoffman on implication as part of construction He says it is necessary first to construe contract, then decide whether to imply terms Lord Sumption agrees and in lecture says Lord Hoffmann was wrong because: - he “abolishes” implication as a distinct legal concept - his approach is implication on grounds of reasonableness

10. COntextv language PURPOSIVE v LITERALISTIC

11. IN PRACTICE, DOES THE DIVIDE MATTER? Lord Carnwath – implication & construction “two sides of the same coin” Lord Clarke – it depends what you mean by construction?

12. CURRENT STATE OF PLAY • Test of “necessary for contract to work”remains central • Wood v Capita Insurance Services [2017] UKSC 24 • Iterative testing approach favoured over rigid sequential exercise • ICS v West Bromwich and Rainy Sky endorsed but role of business common sense reined in • Trump v Scottish Ministers [2016] UKSC Implication and interpretation all part of overall process • No winner (or loser) in apparent conflict between Lord Hoffmann’s global test of the contract’s meaning in context and Lords Neuberger & Sumption’s emphasis on language of words used

13. Difficulties in PRACTICE • Admissibility of evidence • market practice (Crema v Cenkos[2011]) • the parties’ own views – e.g. presumed intention • subsequent conduct/ pre-contractual negotiations • Europa Plus v Anthracite Investments [2016] EWHC 437 (Comm) – summary of law

14. Clare Ambrose 20 Essex St London WC2R 3AL Email: cambrose@20essexst.com www.20essexst.com