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Express Agreements versus Implied Terms

Two recent Court of Appeal cases serve as reminders of the potential pitfalls of seeking to rely on implied terms.

The cases both highlight the importance of the express terms of an agreement and the limitations on implying terms into it.

Wells v Devani [2016] EWCA Civ 1106

Facts of the case

In 2007, Mr Wells developed a block of 14 flats in Hackney but by January 2008 seven of the properties remained on the market. Mr Wells' neighbour introduced him to Mr Devani, an estate agent, on the basis that he knew of a potential buyer who may be interested in purchasing the properties.

Mr Wells and Mr Devani had a telephone conversation in which Mr Devani confirmed that his commission for the transaction would be 2% plus VAT.  However, it was never specified what the trigger event was, upon which payment became due. The sale of the properties to the buyer introduced by Mr Devani eventually completed and he claimed commission of £42,000 plus VAT.

The judge at first instance accepted that the parties did not discuss or reach express agreement as to the precise event on which commission became due. However, finding in Mr Devani’s favour, he considered, in the absence of an express agreement, the law would imply the minimum term(s) necessary to give business efficiency to the parties' intentions.

Mr Wells appealed on the basis that the judge was wrong to hold that a binding oral contract had been made.

Decision and analysis

The Court of Appeal held that the express identification of the trigger event upon which commission became due to Mr Devani was something which the law required as essential for the formation of a legally binding contract. As such there was no legally binding contract between the parties.

Lord Justice Lewison stated "it is wrong in principle to turn an incomplete bargain into a legally binding contract by adding expressly agreed terms and implied terms together".

The case evidences that a lack of certainty as to whether there is an express agreement between parties cannot be remedied by simply implying the missing terms. While this case relates to the commission due to an estate agent, there is no reason to suggest that this would not apply to other commission based contracts.

Irish Bank Resolution Corp Ltd (In Special Liquidation) v Camden Market Holdings Corp [2017] EWCA Civ7

Facts of the case

The Irish Bank Resolution Corporation Limited (IBRC) under a Facilities Agreement provided a loan of £195 million to members of the Camden Market Group (CMG) to purchase and develop properties at Camden market. The IBRC was placed into special liquidation in February 2013 by an order of the Irish Finance Minister and the liquidators were instructed to sell off IBRC's 'loan book'.

The facilities agreement with CMG was subsequently marketed for sale with other distressed debts. CMG brought a claim against IBRC, claiming, amongst other things,  breach of an implied term in the Facilities Agreement that IBRC should not do anything to hinder the group's marketing of the developed properties "by marketing the 'sale' of the loans under the Facilities Agreement in competition".

CMG were concerned that a company may seek to purchase the loan and call in the debt in an attempt to acquire the properties for significantly below their market value.

IBRC sought summary Judgment on the basis that the alleged implied terms contradicted the terms of clause 26 which expressly permitted it to market the loans for sale and to provide information about them to any potential buyer.

The court at first instance refused IBRC's application for summary judgment.

Decision and analysis

On appeal, Lord Justice Beaton considered the following ways in which implied terms could be held in contradiction with an express agreement:

  • Linguistically Inconsistent – It was held that there could be scenarios in which the marketing of the loans by IBRC was not in competition with the marketing of the properties by CMG. If the court had decided there was no way in which IBRC could market a loan without affecting the 'best price' for CMG then the implied term would have been deemed linguistically inconsistent.
  • Substantively Inconsistent - Clause 26 provided the express right for IBRC to disclose information about the project to other potential counter parties without CMG's consent. The implied term was deemed to be substantially inconsistent with Clause 26 because it sought to circumvent this express contractual right.

An implied term has to be both linguistically and substantively consistent in order to fill a gap in an express agreement. The Court of Appeal overturned the Court of First Instance's decision, entering judgment against CMG on the basis that, while the pleaded implied term was not linguistically inconsistent, it was substantively inconsistent to that of the express terms in clause 26 of the Facilities Agreement.  

Key Considerations

The key legal principles in respect of implied terms arising from the judgments are as follows:

  • In order to imply terms into an agreement, there firstly needs to be an express, legally binding agreement between the parties.
  • An implied term must not contradict an express term, linguistically or substantively, in order to be valid.

These two points are quite aptly summarised in Lord Neuberger's judgment in the case of Marks and Spencer PLC v BNP Paribas [2015] UKSC 72. He states "it is a cardinal rule that no term can be implied into a contract if it contradicts an express term, it would seem logically to follow that, until the express terms of a contract have been construed, it is, at least normally, not sensibly possible to decide whether a further term should be implied".

It should be noted that both of these decisions were decided on appeal, highlighting the difficulty with the legal interpretation of implied terms even at a judicial level and how a conclusive express agreement can avoid any uncertainty. 

Contributor: Oliver Bell

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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