Implied terms and express provisions
IRISH BANK RESOLUTION CORPORATION v CAMDEN (CA) [2017]
The Court of Appeal (“CA”) was asked to consider the basis for implying terms into a contract in circumstances where the term sought potentially conflicted with or restricted an express term of an agreement.
Facts:
- Irish Bank Resolution Corporation (“the Bank”) had lent some money to Camden Market Holdings (“C”) for the purpose of acquiring and developing properties. The loan agreement (“Agreement”) expressly permitted the Bank to assign or transfer any of its rights to another bank (with C's consent) and to disclose information about C and the finance documents to any potential acquirer, subject to the recipient signing a confidentiality undertaking.
- The Bank went into liquidation and the liquidator began marketing the Agreement as part of a package which contained distressed debt. C was concerned that this would create the impression that its loan was experiencing financial or operational difficulties and that potential purchasers would be more interested in acquiring the loan than the properties, with a view to then enforcing the security and obtaining the properties at less than market value.
- C brought an action claiming that there was an implied term of the contract that the Bank would not do anything to hinder C's marketing of the premises and to achieve the best price by marketing the sale of the loan under the Agreement in competition with C.
- The Bank applied to the High Court (“HC”) to have the claim struck out, arguing that it had no real chance of success. The HC dismissed the application.
- The Bank appealed to the CA claiming that the implied term C was relying on contradicted the express terms of the Agreement.
Decision:
- The CA agreed with the Bank and emphasised that in most, possibly all, disputes about whether a term should be implied, it was necessary first to interpret the express terms. It referred to the statement in M&S v BNP Paribas (SC) [2015] that it was a ‘cardinal rule’ that an implied term must not contradict any express term.
- Here, the implied term would amount to a significant restriction on the Bank's power to deal with the loan and to its entitlement to disclose information to prospective assignees.
- The fact that the Agreement worked without the implied term was a significant impediment to implying a term that dealt with subject matter already expressly addressed.
Points to note:
- Where an express term of an agreement gives an express and unrestricted power to a party, that power will only very rarely be constrained by a term being implied.
- Once again the CA has endorsed the more traditional rules for the implication of terms being ‘terms necessary to give a contract business efficacy’ or ‘terms which are so obvious that they go without saying’ rather than the modified approach which featured prominently in the Attorney General v Belize Telecom case in 2009. The reformulated test in that decision was “would the proposed implied term spell out what the contract actually means?”. This approach now seems well and truly consigned to history albeit in the rather polite way that judges have a tendency to follow. The judgment in Belize Telecom was said to be “a characteristically inspired discussion rather than authoritative guidance on the law”!
- The CA was clearly influenced by the fact that the contract in question was a ‘lengthy and carefully drafted contract’. It is obviously more difficult for the Courts to imply terms in such a case since it will be assumed that the parties made a conscious decision not to address the point.