In the case of Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anr, the Supreme Court set out the tests for deciding whether an implied clause exists.
There are two types of implied clause:
- The first exists if the basis of the implied clause was a. known and agreed by both parties at the time the contract was executed; b. made commercial common sense if inacted and c. the express terms imply the existence of the implied clause
- The second exists where a statute imposes a certain condition into a contract when the contract is silent in relation to that matter.
In the case of the latter, whether an implied term exists is a fairly straightforward exercise i.e. does the statute impose a obligation; however in relation to the former this is a subjective exercise.
The supreme court reaffirmed the conditions which must be met for an implied clause to exist which is not dependant upon statute. These conditions were originally set in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings [1977] UKPC 13, 26 which stated the implied clause must:
- Be reasonable and equitable
- Be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it
- Be so obvious that ‘it goes without saying’
- Be capable of clear expression
- Not contradict any express term of the contract
In assessing these conditions Lord Neuberger in the Marks and Spencer case added some additional clarifying commentary
- The inclusion of an implied term was ‘not critically dependent on proof of an actual intention of the parties’; this leads us back to a reasonableness test i.e. would a reasonable person in a similar position have intended for the implied term to exist.
- An implied term should not exist just because it appears fair and reasonable, it must have been the intention of both parties for it to exist.
- Business necessity and a term so obvious it goes without saying are effectively one and the same. If it is obvious it will normally be necessary and if necessary, it will normally be obvious.
- The term business efficacy involves subjective assessment, to mitigate this it was suggested that rather than business efficacy being the test it should be that without the implied term the contract would lack commercial or practical coherence.
However, before the above tests are applied, the first thing you should is to determine whether or not the implied term contradicts any express term. An implied term cannot contradict an express term. The only way to do this is to fully understand your contract.
