The Court considered whether, on exercising a break clause in a lease, the tenant was entitled to recover rent paid in advance.
Held: The appeal failed. The Court of Appeal had imposed what was established law. The test for whether a clause might be implied in a contract is: ‘that it is necessary for business efficacy or that it is so obvious that it went without saying.’
Lord Neuberger reviewed the authorities in the incorporation of implied terms. The policy of the common law is not to imply such terms lightly, and that is why the principles have been formulated in terms of necessity or business efficacy or ‘it goes without saying.’ and ‘I would add six comments on the summary given by Lord Simon in BP Refinery as extended by Sir Thomas Bingham in Philips and exemplified in The APJ Priti. First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was ‘not critically dependent on proof of an actual intention of the parties’ when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon’s first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, para 27, although Lord Simon’s requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is ‘vital to formulate the question to be posed by [him] with the utmost care’, to quote from Lewison, The Interpretation of Contracts 5th ed (2011), para 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of ‘absolute necessity’, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is, as suggested by Lord Sumption in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.’
Neither the common law nor statute apportions rent in advance on a time basis.
Judges:
Lord Neuberger, President, Lord Clarke, Lord Sumption, Lord Carnwath, Lord Hodge
Citations:
[2015] UKSC 72, [2015] 3 WLR 1843, [2015] WLR(D) 501, [2016] AC 742, 163 Con LR 1, UKSC 2014/0158
Links:
Bailii, Bailii Summary, WLRD, SC, SC Summary
Jurisdiction:
England and Wales
Citing:
At ChD – Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and Another ChD 16-May-2013
The lease contains a tenant’s break clause which allows the tenant, subject to its compliance with certain conditions, to terminate the lease on a specified date. Rent is payable by instalments quarterly in advance on the usual quarter days. The . .
At CA – Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and Another CA 14-May-2014
The court considered the operation of a break clause within a lease, and in particular ‘ Can the court imply a term which enables the lessee to get back that part of the advance payment of rent which relates to a period (‘the broken period’) after . .
Cited – Societe Generale, London Branch v Geys SC 19-Dec-2012
The claimant’s employment by the bank had been terminated. The parties disputed the sums due, and the date of the termination of the contract. The court was asked ‘Does a repudiation of a contract of employment by the employer which takes the form . .
Cited – The Moorcock CA 1889
Unless restricted by something else, an employer ought to find work to enable a workman to perform his part of the bargain, namely, to do his work. A term will be implied into a contract only to the extent required to give the contract efficacy: ‘if . .
Cited – Reigate v Union Manufacturing Co (Ramsbottom) Ltd CA 1918
Scrutton LJ said that ‘[a] term can only be implied if it is necessary in the business sense to give efficacy to the contract’. He added that a term would only be implied if ‘it is such a term that it can confidently be said that if at the time the . .
Cited – Shirlaw v Southern Foundries (1926) Ltd CA 1939
The court warned against the over-ready application of any principle to justify the implication of terms into a contract. McKinnon LJ set out his ‘officious bystander’ test: ‘If I may quote from an essay which I wrote some years ago, I then said: . .
Cited – Trollope and Colls Limited v North West Metropolitan Regional Hospital Board HL 1973
The court was requested to imply a term into a building contract.
Held: The term could not be implied, since at least four alternatives might also be implied.
Lord Pearson said: ‘[T]he court does not make a contract for the parties. The . .
Cited – Liverpool City Council v Irwin HL 31-Mar-1976
The House found it to be an implied term of a tenancy agreement that the lessor was to be responsible for repairing and lighting the common parts of the building of which the premises formed part. In analysing the different types of contract case in . .
Cited – BP Refinery (Westernport) Pty Ltd v The Shire of Hastings PC 1977
(Victoria) The Board set out the necessary conditions for a clause to be implied into a contract.
Held: Lord Simon of Glaisdale said: ‘Their Lordships do not think it necessary to review exhaustively the authorities on the implication of a . .
Cited – Arnold v Britton and Others SC 10-Jun-2015
Absurdity did not defeat a clear clause
A standard lease of plots on a caravan park, contained a provision which appeared to increase the rent by 10% in each year. The tenants argued that such a substantial increase could not have been intended.
Held: The tenants’ appeal failed . .
Cited – Atkins International HA v Islamic Republic of Iran Shipping Lines (The APJ Priti) CA 1987
The APJ Priti was chartered but on the voyage, was struck by a missile, towed to port, and discharged. The ships owners argued for a breach of warranty, saying that the nominated port was unsafe. The arbitrator had found that there was no warranty . .
Cited – Philips Electronique v British Sky Broadcasting Ltd CA 1995
There is a presumption against adding terms to a contract. The presumption is stronger where the contract is in writing and represents an apparently complete bargain between the parties. Sir Thomas Bingham MR set out Lord Simon’s formulation, and . .
Cited – Societe Generale, London Branch v Geys SC 19-Dec-2012
The claimant’s employment by the bank had been terminated. The parties disputed the sums due, and the date of the termination of the contract. The court was asked ‘Does a repudiation of a contract of employment by the employer which takes the form . .
Cited – Equitable Life Assurance Society v Hyman HL 20-Jul-2000
The directors of the Society had calculated the final bonuses to be allocated to policyholders in a manner which was found to be contrary to the terms of the policy. The language of the article conferring the power to declare such bonuses contained . .
Rephrased – Attorney General of Belize and others v Belize Telecom Ltd and Another PC 18-Mar-2009
(Belize) A company had been formed to manage telecommunications in Belize. The parties disputed the interpretation of its articles. Shares had been sold, but the company was structured so as to leave a degree of control with the government. It was . .
Cited – William Clun’s Case 1613
If a lease under which the rent is payable in arrear was forfeited or came to an end prematurely for some other reason, the landlord loses the right to recover the rent due on the rent day following that determination . .
Cited – Capron v Capron 1874
By a will made before the 1870 Act, but amended by a codicil after the Act commenced to the use of his wife with remainders over. After her death having inherited the property, the parties disputed the apportionment of the rents.
Held: The . .
Cited – Ellis v Rowbotham CA 1900
The plaintiff had let and the defendant had taken a tenancy of premises at a rent payable quarterly in advance. The tenancy agreement had provided that if rent should be in arrears for 14 days the plaintiff could regain possession by re-entry. A . .
Cited – Hildebrand v Lewis CA 1941
B had granted to L a sublease of premises where the rent was payable quarterly in advance. He fell into arrears with his rent and the landlord served on L a notice under the Law of Distress Amendment Act 1908 section 6 with the result that L became . .
Cited – Foo Jong Peng and others v Phua Kiah Mai and another 8-Oct-2012
Supreme Court of Singapore – Court of Appeal) The court refused to follow the reasoning in Belize at least in so far as ‘it suggest[ed] that the traditional ‘business efficacy’ and ‘officious bystander’ tests are not central to the implication of . .
Cited – Canas Property Co v K L Television Services CA 1970
The rent under the lease was payable in advance on the usual quarter days and the landlord forfeited the lease by serving a writ ‘for instance on 25 April’.
Held: At common law on the breach of a covenant by a lessee, a lessor is entitled to . .
Cited – William Hill (Football) Limited v Willen Key and Hardware Limited 1964
The tenant surrendered the lease, but the date of surrender fell between two rent days. He sought credit for the rent due for the remainder of that rent period, arguing that there was an implied term enabling him to recover the rent for the broken . .
Cited – Canas Property Co v K L Television Services CA 1970
The rent under the lease was payable in advance on the usual quarter days and the landlord forfeited the lease by serving a writ ‘for instance on 25 April’.
Held: At common law on the breach of a covenant by a lessee, a lessor is entitled to . .
Cited – Capital and City Holdings Ltd v Dean Warburg Ltd CA 1988
There was no right of reimbursement under the 1870 Act of rent paid in advance even where the reddendum also included the words ‘proportionately for any part of a year’. . .
Cited – Re a Company 2007
There was no difference between forfeiture and termination under the break clause for the purpose of considering apportionment or otherwise of rent paid in advance. . .
Cited – Mediterranean Salvage and Towage Ltd v Seamar Trading and Commerce Inc (‘The Reborn’) CA 10-Jun-2009
The court confirmed that the necessity to give business efficacy to a contract was still required for the implication of a term into a contract. . .
Mentioned – Stena Line Ltd v Merchant Navy Ratings Pension Fund Trustees Ltd and Another ChD 27-Jul-2010
. .
Cited – Crema v Cenkos Securities Plc CA 16-Dec-2010
C sought payment of broker fees after assisting in raising funds for a venture capital company. The parties disputed the terms as to when payment was to be made.
Held: The appeal was allowed. The evidence did not allow the inference of the . .
Cited – Stena Line Ltd v Merchant Navy Ratings Pension Fund Trustees Ltd and Another CA 12-May-2011
The court heard a proposed arrangement for the remedying of a deficit in the pension scheme. . .
Cited – Dear and Another v Jackson CA 22-Feb-2013
The parties disputed the effect of agreements between them, and the management of companies in which they were involved. . .
Cited by:
Cited – Vizcaya Partners Ltd v Picard and Another PC 3-Feb-2016
No Contractual Obligation to Try Case in New York
(Gibraltar) The appellant had invested in a fraudulent Ponzi scheme run by Bernard Madoff. They were repaid sums before the fund collapsed, and the trustees now sought repayment by way of enforcement of an order obtained in New York.
Held: The . .
Cited – Regency Villas Title Ltd and Others v Diamond Resorts (Europe) Ltd and Another ChD 7-Dec-2015
Claim by time share owners for easements over neighbouring land. The easements were for various sporting rights and facilities.
Held: The Claimants were entitled to appropriate declaratory relief confirming that they have the rights they claim . .
Cited – Trump International Golf Club Scotland Ltd and Another v The Scottish Ministers (Scotland) SC 16-Dec-2015
The appellant challenged the grant of permission to the erection of wind turbines within sight of its golf course.
Held: The appeal failed. The challenge under section 36 was supported neither by the language or structure of the 1989 Act, and . .
Cited – Paymaster (Jamaica) Ltd and Another v Grace Kennedy Remittance Services Ltd PC 11-Dec-2017
(Court of Appeal of Jamaica) The parties disputed the ownership of copyight in certain computer software, and also an allegation of the misuse of confidential information. . .
Cited – Airtours Holidays Transport Ltd v Revenue and Customs SC 11-May-2016
The court was asked whether the appellant, Airtours Holidays Transport Ltd (formerly MyTravel Group plc), was entitled to recover, by way of input tax VAT charged by PricewaterhouseCoopers LLP in respect of services provided by PwC and paid for by . .
Cited – Lehman Brothers International (Europe) v Exotix Partners Llp ChD 9-Sep-2019
The parties had contracted to trade global depository notes issued by the Peruvian government. Each made mistakes as to their true value, thinking them scraps worth a few thousand dollars, whereas their true value was over $8m. On the defendant . .
Cited – Wells v Devani SC 13-Feb-2019
Mr W was selling apartments in a block of flats. Mr D, an estate agent, sought commission. W argued that D had not had signed his terms, and that therefore no contract existed. The court considered whether a contract had come into being when a major . .
Cited – Duval v 11-13 Randolph Crescent Ltd SC 6-May-2020
The Court was asked whether the landlord of a block of flats is entitled, without breach of covenant, to grant a licence to a lessee to carry out work which, but for the licence, would breach a covenant in the lease of his or her flat, where the . .
Lists of cited by and citing cases may be incomplete.
Landlord and Tenant, Contract
Updated: 05 October 2022; Ref: scu.556259