The main issue in the case was whether to imply into Marks and Spencer’s lease a term obliging the landlord, BNP, to refund the rent and other sums that Marks and Spencer had paid which were referable to the period after the date on which it had exercised the break clause under its lease.

The High Court allowed the term to be implied, but the Court of Appeal reversed this and held that the lease would not reasonably be understood to include a term that Marks and Spencer was entitled to a refund ([2014] EWCA Civ 603; see News brief “Implied terms: a matter of necessity”).

The resolution of this issue required the court to reconsider the principles for implying a term into a contract. Many thought that this had been settled by a unanimous decision of the Privy Council in Attorney General of Belize v Belize Telecom Ltd, in which Lord Hoffmann gave the leading judgment ([2009] UKPC 10; see News brief “Implied terms in contract: only one question to ask”).

In Geys v Société Générale, the Supreme Court said that a term could be implied into a contract in the light of its express terms, commercial common sense and the facts known to the parties at the time the contract was made ([2012] UKSC 63; www.practicallaw.com/4-523-7830). With those factors in mind as the starting point, a lawyer must then consider whether a term should be implied.

Although there was no dispute in Marks and Spencer as to the authority of Belize Telecom and the fact that it identifies the principles to be applied when considering whether a term can be implied into a contract, the parties differed on how to interpret and apply those principles. The court revisited the traditional “pre-Belize” tests for implying terms, and concluded that there is a clear, consistent and principled approach that still applies.

While he expressed reservations about reformulating the established principles, Lord Neuberger did make some comments that modified these principles to some extent, which said, in summary, that for a term to be implied into a contract:

In addition, implying a term should not be considered by reference to the actual intention of the parties when negotiating a contract, but rather by reference to the notions of reasonable people in the position of the parties at the time when they were contracting.

One of the issues discussed by the court was the fact that Belize Telecom had been interpreted by some judges and academics as having changed the law on implied terms by diluting the traditional test of necessity from absolute necessity, where the contract will not operate without the term, to reasonable necessity, where the contract will not operate as it must reasonably have been intended by the parties to operate. In Marks and Spencer the court unanimously disagreed with this interpretation, and the test for implying a term into a contract remains highly restrictive.

Having set out the tests for implying a term, the court also considered the process. Lord Hoffmann suggested in Belize Telecom that the process of implying a term is part of the exercise of the interpretation or construction of the contract and should be carried out at the same time.

However, the majority of the court in this case disagreed with Lord Hoffmann on the basis that it should necessarily be a sequential process in most cases: first interpreting the express words of the contract and then considering whether a further term should be implied (see box “Tips for practitioners”). Lord Neuberger concluded that Lord Hoffmann’s comments in Belize Telecom on the process of implying a term should no longer be authoritative guidance on the law on implied terms.

While the court found that there was considerable force in some of Marks and Spencer’s arguments that it was necessary for business efficacy that a term should be implied into the lease, BNP managed to tip the scales in its favour. It persuaded the court that the proposed implied term would not sit easily with the express terms of the lease. The detailed provisions of the break clause showed that the parties had considered the specific question of the payments to be made between them on the exercise of the break. It was inappropriate for the court to step in and fill what was no more than an arguable gap.

Some might consider that this decision produced a harsh or uncommercial result, which brings to mind the Supreme Court decision in Arnold v Britton, which involved the interpretation of the service charge provisions in a lease ([2015] UKSC 36; www.practicallaw.com/9-616-5783).

The court held that the ultimate aim when construing a contract is to discern the intention of the parties from the language used in the contract, even though this may produce an uncommercial result. Perhaps this is a clear signal that the courts are placing greater weight on the words of a contract and are reluctant to come to the rescue of parties, such as Marks and Spencer, that face unfavourable or uncommercial contract terms (see News brief “Contract interpretation: the end of the more liberal trend?”).