Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another

A fact-specific term may be implied into a contract only where it is necessary for business efficacy or so obvious that it goes without saying. The proposed term must be clear and consistent with the express terms. Fairness, reasonableness or the parties’ likely agreement is insufficient. The express terms should normally be construed before implication is considered.

Rent payable in advance is not apportionable under the common law or the Apportionment Act 1870. A professionally drafted commercial lease will not ordinarily imply a right to repayment following an effective break. The established rule may be displaced by express words or, exceptionally, where the contract would otherwise lack commercial or practical coherence.

Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another concerned four commercial sub-underleases. The tenant exercised a break clause after paying the full quarter’s rent in advance and a separate break payment. It sought repayment of the rent attributable to the period after termination, relying on an implied term.

Morgan J upheld the claim in [2013] EWHC 1279 (Ch). The Court of Appeal allowed the landlords’ appeal in [2014] EWCA Civ 603. The central issue before the Supreme Court was whether business efficacy or obviousness required the lease to contain an implied obligation to repay the post-break proportion of the basic rent. Related issues concerned the car park licence fee, insurance rent and service charge.

1. Disposition. The Supreme Court unanimously dismissed the tenant’s appeal. Lord Neuberger gave the leading judgment, with which Lord Sumption and Lord Hodge agreed. Lord Carnwath and Lord Clarke agreed that the appeal should be dismissed for Lord Neuberger’s reasons concerning the parties’ dispute.

2. Implied terms. A term implied into a particular contract must satisfy a stringent test. It must be necessary to give the contract business efficacy, meaning that the contract would otherwise lack commercial or practical coherence, or it must be so obvious that it goes without saying. The term must also be capable of clear expression and must not contradict an express term. Fairness and the likelihood that reasonable parties would have accepted the term are necessary considerations, but are not sufficient: per Lord Neuberger at paras 15–31.

3. The traditional requirements were not diluted by Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988. Lord Neuberger held that construing express words and implying additional words are distinct processes governed by different rules. Express terms should normally be construed before implication is considered. The observations in Belize Telecom, paras 17–27, should henceforth be treated as an inspired discussion rather than authoritative guidance. Lord Carnwath disagreed with that characterisation and regarded the decision as an authoritative synthesis, while accepting the same restrictive necessity test. Lord Clarke considered that interpretation and implication could both be described as construction in a broad sense, but agreed that necessity remained critical.

4. Apportionment. Section 2 of the Apportionment Act 1870 does not apply to rent payable in advance. Ellis v Rowbotham [1900] 1 QB 740 was approved. Neither statute nor the common law apportions such rent according to time. The lease was therefore negotiated against a longstanding and clear legal background under which the landlord could retain the whole advance payment.

5. Application. The proposed repayment term was fair and had commercial force, but it was not necessary. The detailed, professionally drafted lease dealt expressly with payments associated with the break right. The resulting anomaly did not make the contract unworkable or absurd. Express words would have been required to displace the established rule, save in a very exceptional case. The same conclusion applied to the car park licence fee and, on the arguments advanced, the annual insurance rent. The service charge was different because the lease expressly provided a credit mechanism which continued to operate after termination.

1. United Kingdom Supreme Court: The tenant’s appeal was dismissed unanimously in [2015] UKSC 72. The Court of Appeal’s order remained in force.

2. Court of Appeal: The landlords’ appeal was allowed in [2014] EWCA Civ 603. Arden LJ gave the reasons, with Jackson and Fulford LJJ agreeing.

3. High Court, Chancery Division: Morgan J held that the tenant was entitled to repayment of the apportioned rent in [2013] EWHC 1279 (Ch).