NOT JUST ANY SUPREME COURT DECISION - A M&S SUPREME COURT DECISION

Marks & Spencer -v- BNP Paribas Securities Services Trust Company (Jersey) Limited [2015] UKSC 72

Sally Anne Blackmore considers the Supreme Court Decision handed down yesterday:

Marks & Spencer’s appeal to the Supreme Court seeking repayment of rent paid in advance pursuant to a lease after the termination of the term by a break notice during the middle of a rental period has been dismissed. In dismissing the appeal, the Court upheld the apportionment rule in Ellis v Rowbotham and restated the matters to consider in deciding whether terms should be implied into contracts. It held that, save in a very clear case indeed, it will not be appropriate to imply into a detailed lease a term that a tenant should receive back an apportioned part of rent payable and paid in advance. 

Marks & Spencer held business premises from BNP Paribas pursuant to a sub-lease that was long and detailed and had been drafted by experienced professionals.  Rent was payable in advance on the usual quarter days and (by the relevant date) was £1,236,689 per annum + VAT.  The lease provided for two possible break dates (24 January 2012 and 26 January 2016); it would otherwise have ended in February 2018.  The break dates did not coincide with the quarter days.  In respect of the first break date (24 January 2012), it was provided that the break notice would not be effective if the rent was in arrear or if the tenant had failed to pay an amount of £919,800 plus VAT before the break date.  Precisely when before the break date this amount was paid was a matter for the tenant. 

On 7 July 2011, Marks and Spencer served a break notice to determine the lease on the first break date.  Just before 25 December 2011, it paid the rent for the coming quarter.  On or around 18 January 2012, it paid BNP Paribas £919,800 plus VAT so that the break notice served in the previous July was effective and the lease determined on 24 January 2012.

Marks and Spencer wished to recover an apportioned amount of the rent in advance they had paid on 25 December 2011 to represent the period from 25 January 2012 to 24 March 2012 when they had had no use of the premises.  They demanded payment and, when this was not forthcoming, commenced proceedings relying upon the assertion of an implied term. 

The Court considered the line of authorities on implied terms, in particular, BP Refinery (Westernport) Pty Ltd v President, Councillor and Ratepayers of the Shire of Hastings (1977) 52 ALJR 20 in which Lord Simon set out a five-stage test for the implication of a term viz: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; and (5) it must not contradict any express term of the contract. Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, in which Lord Hoffman suggested that the process of implying terms into a contract was part of the exercise of construction or interpretation of a contract, was also considered in detail.  The Court explained this decision and was concerned to make clear that it did not dilute the restrictive approach to the implication of terms into a contract.  Lord Hoffman’s observations should be treated as “characteristically inspired discussion rather than authoritative guidance on the law of implied terms”.       

Notwithstanding persuasive factors to the contrary on the facts of the case, the Supreme Court approved the traditional approach to implied terms, and held that BP applied, whilst in particular, although with some commentary.  In this case, where the clear effect of case law is that rent payable and paid in advance can be retained in advance, no term to the contrary could be implied save in very exceptional circumstances. Ellis v Rowbotham [1900] 1 QBD 740 was approved.

Sally Anne Blackmore