Pleon Limited v Leonis Yachting Limited (“The Maltese Falcon”)

An implied term may qualify clear contractual words where that qualification is necessary to give the agreement business efficacy. The description of an obligation as “absolute” does not itself exclude qualification.

Whether implication is necessary remains a question of law, although the factual assessment of the contract and its commercial context receives appropriate weight. Where express terms allocate the relevant risk, the court should not imply a term merely because the allocation appears commercially harsh or because performance is practically difficult.

Pleon sold the yacht The Maltese Falcon to Leonis under an Agreement for Sale. A related Agreement for Access required Leonis, after delivery, to make the yacht available to Pleon in full working order and seaworthy.

The arbitral tribunal, by a majority, implied a term qualifying that obligation. It considered the short interval between the two deliveries and the practical impossibility of transformative maintenance. Sir Bernard Eder dissented. The appeal under section 69 of the Arbitration Act 1996 concerned whether the implied term was legally justified.

1. Appeal allowed. The implied term was not necessary and was not to be implied into the Agreement for Access.
2. The words requiring the yacht to be in full working order and seaworthy were clear, but clarity did not determine the implication issue. Even clear words may admit a qualification where the requirements for implication are satisfied.
3. The relevant question was whether the qualification was necessary for business efficacy. The contractual purpose of clause 3.3 was to allocate the risk of unseaworthiness. The express terms placed that risk on Leonis if it had purchased an unseaworthy yacht which remained so when access was provided.
4. There was therefore no lack of business efficacy or absurdity. The fact that the yacht’s condition might have resulted from Pleon’s earlier failure to maintain it did not alter the allocation. Pleon had not promised that the machinery had been properly maintained, while Leonis had expressly promised seaworthy use and access.
5. The implication of a term remained a question of law, despite the factual assessment involved and the weight due to the tribunal’s evaluation. A finding that a term was obvious was not, by itself, conclusive of the legal question.
6. The court reached reasons that were not identical to either the majority or dissenting reasons of the tribunal. The appropriate form of relief was to be considered with counsel.

1. High Court (Commercial Court): appeal on a point of law under section 69 of the Arbitration Act 1996, permitted by order dated 26 July 2024; appeal allowed.
2. Arbitration tribunal: majority implied a qualifying term into clause 3.3 of the Agreement for Access; Sir Bernard Eder dissented.