Marks And Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anor

Implication of a contractual term is an exercise in interpretation. The question is whether the instrument, read as a whole against the admissible background, would reasonably be understood to contain the term. The court must maintain a high degree of loyalty to the express agreement. A repayment term is not implied merely because rent paid before a break date relates partly to a later period, or because repayment would be fair or convenient. A break premium is not automatically the whole compensation agreed between the parties. Distinct service-charge arrangements do not dictate the treatment of rent. Where the lease and its background show that the parties left the loss of rent for the broken period where it fell, the claim for repayment fails.

Marks and Spencer operated a break clause in four substantially identical commercial leases. It had paid the quarterly rent and the break premium, so the leases terminated on the first break date. It sought repayment of rent, insurance, car parking and service-charge sums attributable to the period after termination but before the end of the quarter.

Mr Justice Morgan rejected claims based on the express lease terms, restitution and total failure of consideration, but implied terms requiring repayment and gave judgment for Marks and Spencer: [2013] EWHC 1279 (Ch). BNP Paribas appealed. The central issue was whether the leases, properly interpreted against their relevant background, contained an implied term requiring repayment of rent or related charges for the broken period.

The appeal was allowed. Lady Justice Arden gave the leading judgment, with Lord Justice Jackson and Lord Justice Fulford agreeing.

1. The parties accepted the test in A.G. of Belize v Belize Telecom Ltd [2009] 1 WLR 1988. Implication of a term is an exercise in interpretation. The court asks whether the agreement, read as a whole against the admissible background, would reasonably be understood to have the meaning produced by the proposed term. The court must show loyalty to the express agreement. Where there is no express term, the starting inference is that nothing is to happen. A term must have been intended as part of the contract; it is insufficient that reasonable parties might have adopted it if it had been suggested.
2. Necessity is contract-specific. The fact that an agreement can operate without a term is not by itself decisive, but the party seeking implication must show that the term is necessary to achieve the parties’ objective. The judge had applied the correct legal test, but reached the wrong conclusion.
3. The lease made no provision for repayment of rent paid in advance after exercise of the break clause. The possibility of such overpayment was apparent when the lease was made. Clauses 8.5 and 8.7 showed that the parties dealt expressly with consequences of termination but did not provide for repayment. The background authorities, including Ellis v Rowbotham and Capital & City Holdings Ltd v Dean Warburg, made implication less likely.
4. The words providing for rent to be paid proportionately for part of a year applied to a broken period within the original term, not to quarterly rent paid when termination on the break date remained uncertain. York v Casey [1998] 2 EGLR 25 concerned apportionment on expiry by effluxion of time and did not assist. The judge’s same-position and full-compensation conclusions were rejected. The parties had proceeded on the basis that the loss lay where it fell.
5. Service charges were distinguishable because their contractual machinery concerned expenditure and credits for services. There was no equivalent basis for implying repayment of rent. Nor was there a basis for repayment of the car parking fee or insurance charges. The question whether forfeiture could be distinguished was left undecided. The formal order was that the appeal be allowed.

1. Court of Appeal (Civil Division) — On 14 May 2014 the appeal was allowed, reversing the implied-term decision below.
2. Chancery Division — Mr Justice Morgan implied terms requiring repayment of rent and related sums for the broken period, while rejecting the other bases of claim: [2013] EWHC 1279 (Ch).