Summary
A contractual right to extend a fixed-term agreement may be exercisable repeatedly where the wording, read in context, gives effect to successive extensions. The court must apply the natural meaning of the words agreed and must not use commercial common sense retrospectively to improve an imprudent bargain.
Construction must be completed before implication of terms is considered. A term may be implied only where it is necessary to give the contract business efficacy or is so obvious that it goes without saying. An express duration, extension and termination regime will generally prevent implication of a further right to terminate on reasonable notice where that term would conflict with the agreement or is unnecessary for commercial coherence.
Factual background
The claimant operated three Body Shop franchise stores under two materially identical agreements made in 1981 and 1982. Each agreement provided for an initial five-year term and stated that the operator could extend the term for a further five years on the same terms and conditions, including the provisions of the clause.
The agreements had been extended repeatedly. The defendant later refused further extensions and served three years’ notice to terminate, contending that the agreements either allowed only one extension or had become terminable on reasonable notice. The issues were the proper construction of the extension clause and whether a termination term should be implied.
Held
- Construction. Clause 3(b) entitled the claimant to seek successive five-year extensions. The words requiring the extension to be on the same terms and conditions, including the provisions of the clause, naturally included the repeated extension mechanism. The right was conditional on timely notice and compliance with the agreements, so the agreements were not perpetual in the sense of being unconditional or unlimited.
- The court applied the objective contractual construction principles summarised in ABC Electrification Ltd v Network Rail Infrastructure Ltd [2020] EWCA Civ 1645. The clear natural meaning was not displaced by the fact that the bargain had later become commercially disadvantageous to the defendant. The court rejected retrospective reliance on commercial common sense and held that the defendant’s later view that the agreements were no longer fit for purpose did not alter the bargain.
- The defendant’s alternative analysis was unnecessary after the construction issue was decided. In any event, the court preferred the analysis that the parties had agreed successive five-year terms rather than that the arrangement was merely a contract at will.
- Implication. Construction had to be completed before implication was considered, following Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 71 and Duval v 11-13 Randolph Crescent Ltd [2020] UKSC 18. No term permitting termination on reasonable notice could be implied. The agreements already contained express provisions governing duration, extension and termination. The proposed term would conflict with those provisions, was unnecessary for business efficacy, and was not so obvious that it went without saying when the agreements were made.
- The declarations sought by the claimant were granted and the defendant’s counterclaim was dismissed.
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Key cases cited
15 authorities cited.
- Duval v 11-13 Randolph Crescent Ltd [2020] UKSC 18
- Nazir Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2
- Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2015] UKSC 72
- In Re Sigma Finance Corporation (in administrative receivership) and In Re The Insolvency Act 1986 [2009] UKSC 2
- BP Refinery (Westernport) Pty Ltd v The President Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266
- Wickman Machine Tool Sales Ltd v L Schuler AG (Schuler (L) AG v Wickman Machine Tool Sales Ltd) [1974] AC 235
- Yoo Design Services Ltd v Iliv Realty PTE Ltd [2021] EWCA Civ 560
- Abc Electrification Ltd v Network Rail Infrastructure Ltd [2020] EWCA Civ 1645
- Bou-Simon v BGC Brokers LP [2020] EWCA Civ 150
- Whitecap Leisure Ltd v John H. Rundle Ltd. [2008] EWCA Civ 429
- Colchester & East Essex Co-op Ltd v Kelvedon Labour Club & Institute Ltd [2003] EWCA Civ 1671
- Jani-King (GB) Ltd v Pula Enterprises Ltd & Ors [2007] EWHC 2433 (QB)
- Antaios Cia Naviera SA v Salen Rederierna AB (The Antaios) (Salen Rederierna AB v Antaios Cia Naviera SA) [1985] AC 191
- Martin-Baker Aircraft Co Ltd v Canadian Flight Equipment Ltd [1955] 2 QB 556
- Winter Garden Theatre (London) Ltd v Millennium Productions Ltd [1948] AC 173
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Cases citing this case
1 later case · 1 positive
Most senior citing decisions:
- Artcrafts International SpA v MOU Limited [2024] EWHC 1558 (KB) applied
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