Implied terms – Lord Hoffmann’s analysis is Belize Telecom qualified – scope for implying terms in a comprehensive written agreement is limited
A written lease between the parties gave the tenant the option of premature termination on a certain date.
Rent was to be paid quarterly in advance.
A condition for the exercise of the option was that the rent payments were to be up to date.
As matters turned out, the tenant terminated shortly after paying its quarterly payment of rent in advance.
It sought to recover a portion of the advance payment for that period for which it would have no enjoyment of the premises.
Tenants’ argument for an implied term succeeded at first instance but not in the Court of Appeal and not in the Supreme Court.
Lord Neuberger relied principally on the approach set out by Sir Thomas Bingham in Phillips Electronique Grand Public SA v British Sky Broadcasting Ltd as follows:
“The Courts’ usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the Law imposes strict constraints on the exercise of this extraordinary power …
[It is] difficult to infer with confidence what the parties must have intended when they entered into a lengthy and carefully drafted contract but have omitted to make provision for the matter in issue [because] it may well be doubtful whether the omission was the result of the parties’ oversight or of their deliberate decision [or indeed the parties might suspect that] they are unlikely to agree on what is to happen in a certain eventuality and may well choose to leave the matter uncovered in their contract in the hope that the eventuality will not occur …
The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the Court comes to the task of implication with the benefit of hindsight, and it is tempting for the Court then to fashion a term which will reflect the merits of the situation as they then appear. Tempting but wrong … [I]t is not enough to show that had the parties foreseen the eventuality which in fact occurred they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred.”
Lord Hoffmann’s statement in Belize Telekom that deciding on implied terms was an exercise in construction was superficially wrong – construction decides what terms mean that are there – implication, on terms that are not there.
The test was put in a nutshell by Lord Sumption during argument as follows: “a term can only be implied if, without the term, a contract would lack commercial or practical coherence.”
The tenant’s argument was weakened by the fact that the common law in England is that rent paid in advance (as opposed to rent paid in arrears where the position is regulated by Statute) is not apportionable in respect of time.
While a strong argument that rent paid in advance should be apportionable in respect of time, can be made, this cannot affect the context in which the argument for an implied term had to be considered in this case.
Lord Carnwarth was unwilling to criticize Lord Hoffman in Belize Telekom.
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