J N Hipwell & Son v Szurek

Where a written lease contains an obvious gap which prevents commercial or practical coherence, the court may imply a term on grounds of necessity to give the contract business efficacy. The test is necessity, not mere reasonableness, assessed at the date of contracting. The court must first construe the express terms and consider whether the parties deliberately omitted the proposed term. An entire agreement clause does not prevent implication of a term necessary to make the contract workable, although it ordinarily excludes collateral warranties and non-fraudulent misrepresentation claims.

The Respondent leased premises from the Appellant for use as a café and function space. After a fire and further electrical incident, she closed the business and claimed losses, alleging that the Appellant had breached an implied obligation concerning the safety, maintenance and certification of the electrical installation. The county court found an implied obligation, awarded business-loss damages and dismissed the Appellant’s counterclaim for rent.

The Appellant challenged the implication of the term, the effect of the lease’s entire agreement and non-reliance provisions, the treatment of disclosure and mitigation, and the procedural use of an uncited authority. The Respondent advanced alternative arguments based on misrepresentation, collateral contract, rectification, waiver and fraud. The central issue was whether the lease could be supplemented by an implied term despite those express provisions.

1. Appeal dismissed. The county court’s order awarding the Respondent £22,725.50, with interest and costs to be assessed, and dismissing the counterclaim, was substantially correct.
2. The implication of a term is a matter of necessity, not mere reasonableness. The court must first construe the express contract, consider whether the parties deliberately omitted the proposed term, and assess the position at the date of contracting. The term must be necessary to give the contract commercial or practical coherence, while the implication jurisdiction remains one of strict restraint. This approach was drawn from Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and anr [2016] AC 742.
3. The lease imposed extensive repair obligations on the tenant but made no express provision, beyond insurance and access provisions, for the exterior of the premises or its plumbing and electrical installations. The tenant’s repairing covenant did not reasonably include those matters. The landlord’s evidence and the lease’s reference to access to repair and maintain service media confirmed an objective gap.
4. The necessary term was that the electrical installation serving the premises, including the relevant wires, ducts, cables, conduits and other channels, was safely installed and covered by a current Electrical Safety Certificate. The parties’ shared understanding supported the implication, but did not itself create the obligation.
5. The entire agreement provisions ordinarily have full effect and exclude contractual reliance on collateral warranties and non-fraudulent representations. They did not prevent implication of a term necessary to give the lease business efficacy. The alternative misrepresentation case could not succeed absent fraud, and the court declined to make a new finding of fraud on appeal.
6. The disclosure default was serious, but the Appellant could have sought specific disclosure and proceeded to cross-examine on the late-produced accounts. There was no demonstrated procedural unfairness. The mitigation challenge also failed: in the circumstances, the Respondent’s decision not to continue trading or undertake uncertain repairs was not unreasonable.
7. The remaining arguments concerning section 3 of the Misrepresentation Act 1967, collateral contract, rectification and waiver were not determinative. The statutory argument lacked the necessary factual findings; the rectification and collateral-contract arguments were left for another day; and the alleged waiver was not established.

• Court of Appeal (Civil Division): On appeal from the Northampton County Court, the appeal was dismissed. The court upheld the substantive result, but reached it by implying a term on grounds of business efficacy.
• Northampton County Court: HHJ Hampton found an implied obligation concerning the safety, inspection and certification of the electrical installation, held that the Appellant was in repudiatory breach, awarded the Respondent business-loss damages, and dismissed the counterclaim.