Implying a term in fact: necessity or obviousness, not fairness (M&S v BNP Paribas)
Under a detailed written licence negotiated by solicitors, Pennant Media Ltd pays Carrick Studios Ltd an annual fee of £60,000 in advance each January for exclusive use of a recording studio in England. Clause 14 allows Pennant to end the licence on one month's written notice at any time. The licence says nothing about refunding any part of the annual fee if Pennant ends the licence part-way through a year. Pennant gives notice ending the licence on 31 March and claims a refund for April to December, arguing that a term to that effect must be implied because it would be fair.
Which of the following best describes the approach a court will take to Pennant's argument?
Choose one answer to see the reasoning.
Worked answer
Correct answer D: The term will be implied only if it is necessary to give the licence business efficacy or is so obvious that it goes without saying.
THE RULE TO REMEMBER
A term is implied in fact only if necessary for business efficacy or so obvious it goes without saying; that it is fair, or that the parties would have agreed it if asked, is insufficient.
Implying a term in fact: necessity or obviousness, not fairness (M&S v BNP Paribas)
In Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd the Supreme Court confirmed the strict test for implying a term in fact into a commercial contract. Lord Neuberger said a term should not be implied into a detailed commercial contract merely because it appears fair, or merely because the parties would have agreed it if it had been suggested to them; those are necessary but not sufficient grounds. The term must be necessary for business efficacy, or so obvious that it goes without saying, and these can be alternatives. Necessity is best expressed as asking whether, without the term, the contract would lack commercial or practical coherence. The licence here is detailed and professionally drafted, and it works coherently without a refund term. Pennant's argument that a refund would be fair does not meet the test.
Why A is wrong: The Supreme Court rejected implication on grounds of fairness or reasonableness alone.
Why B is wrong: Lord Neuberger said that a term is not implied merely because the parties would have agreed it if it had been suggested to them.
Why C is wrong: The Sale of Goods Act 1979 governs contracts for the sale of goods, not a licence to use a studio, and has no such refund rule.
Why E is wrong: Pennant is asking for a term implied in fact into this licence; there is no rule of law implying fee apportionment into every licence.
A little more practice done.
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