Marks and Spencer plc v BNP Paribas Securities Services Trus...

Facts

• Marks and Spencer plc leased property from BNP Paribas Securities Services Trust Company (Jersey) Ltd under a lease agreement including a break clause allowing for early termination upon meeting specified conditions.
• Marks and Spencer exercised the break clause and sought a refund of advance rent paid for the period after termination.
• The lease did not contain an explicit term entitling Marks and Spencer to a rent refund following termination.
• Marks and Spencer argued that a term for refund of rent should be implied into the contract.
• The Supreme Court rejected the implication of such a term, finding it was not essential for the contract’s operation nor so obvious as to be assumed by both parties.

Issues

1. Whether a term can be implied into a contract to require refund of rent paid in advance after termination by break clause, where the contract contains no express provision.
2. What criteria govern the implication of terms into commercial contracts.

Decision

• The Supreme Court held that a term could not be implied into the lease to require a refund of rent unless its necessity or obviousness was established.
• The Court affirmed that reasonableness alone is insufficient to justify the implication of a term.
• It was confirmed that implied terms must either be necessary for the contract to function (business efficacy test) or so obvious that it 'goes without saying' (officious bystander test).
• The Court concluded that while a refund term might be reasonable, it was neither essential nor obvious in this case, and therefore could not be implied.

Legal Principles

• The business efficacy test permits the implication of a term only if it is essential for the contract’s practical effect and performance.
• The officious bystander test allows for implication if both parties would have agreed to the term's inclusion as obvious during contract formation.
• Reasonableness may inform contract interpretation but does not by itself permit implication of a term.
• Courts exercise restraint in altering written agreements and do not imply terms based solely on perceived fairness or reasonableness.
• The principles reaffirm a strict approach to implication, stressing the importance of clear and precise contractual drafting.

Conclusion

The Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd confirmed that only terms that are necessary for contractual operation or obviously intended by both parties may be implied, rejecting reasonableness alone as a basis. This strengthens judicial restraint and emphasizes the need for careful contractual drafting.