Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 7
Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72.
The appeal concerned a tenant’s break clause in a commercial lease. The lease had been granted for a fixed term expiring on 2 February 2018, and the rent was payable in advance on the usual quarter days. The tenant exercised its right under the break clause to determine the lease on 24 January 2012, after it had paid the full quarter’s rent due on 25 December 2011. The issue before the Supreme Court was whether the tenant could recover from the landlords the apportioned rent in respect of the period after the break date - ie from 24 January to 24 March 2012.
The resolution of that issue required the Supreme Court to consider the principles by reference to which a term is to be implied into a contract. This is the first judgment of the Supreme Court to consider in detail the analysis of the law on implied terms set out by the Privy Council in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988.
The Supreme Court unanimously rejected the implied term for reimbursement on the grounds that such a term was not necessary to make the contract workable or internally coherent.
The Supreme Court made the following observations on the law of implied terms:
1. The judgment in Belize was an ‘inspired discussion rather than authoritative guidance on the law of implied terms’.
2. The process of implication is distinct from the process of construction. It is only after the question of construction has been considered that the question of implication can arise.
3. There is a clear, consistent and principled approach to the law of implied terms which requires that a term will only be implied where it is strictly necessary for business efficacy. There has been no dilution of the requirements which have to be satisfied before a term will be implied.
4. It is not enough that the parties would have agreed to it had it been suggested to them. That is a necessary but insufficient ground for implying a term.
5. As to the five tests set out by Lord Simon in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 52 ALJR 20, 26, these remain useful tests which are not to be applied too rigidly. For example, business efficacy and obviousness are alternative requirements.
6. The test is not one of absolute necessity but whether, without the term, the contract would lack commercial or practical coherence.
7. The settled law as at the date of execution will continue to inform the reasonable man’s view of the contract. The Supreme Court found that the settled law on apportionment upon forfeiture as at the date of the grant was equally applicable to apportionment upon the exercise of a break clause.
8. A term will not be implied where it ‘lies uneasily’ with the express terms in the contract (approving Bingham LJ in the earlier case The APJ Priti [1987] 2 Lloyd’s Rep 37, 42).
The Supreme Court also considered for the first time the decision in Ellis v Rowbotham [1900] 1 QB 740, in which the Court of Appeal held that the Apportionment Act 1870 did not apply to rent payable in advance. The Supreme Court confirmed:
1. The decision in Ellis was correct. Rent payable in advance was not apportionable under the Apportionment Act 1870.
2. Therefore, rent payable in advance could only ever be apportionable as a result of a clear and unambiguous clause in the contract.
3. Had the Supreme Court considered that the decision in Ellis was definitely incorrect then it would have been appropriate to overrule the decision despite its longevity. However, if the Supreme Court had been merely doubtful of the decision it would be appropriate to uphold the earlier decision given its longevity.
Finally, of great interest to practitioners in this field will be the Court’s treatment of the question whether a tenant with a break date that does not coincide with the end of a quarter may safely pay an apportioned rent, where there are no conditions precedent to be satisfied at the rent payment date. Although Lord Neuberger’s judgment supported apportionment, his judgment did not finally settle this question of construction; accordingly it will remain an issue to be determined in the future.
Guy Fetherstonhaugh QC and Kester Lees acted for the Appellant and Nicholas Dowding QC and Mark Sefton acted for the Respondents.
The full text of the judgment can be found: here
See our bullet point summary of the judgment here
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