Implied terms: Irish Bank Resolution Corp Ltd (In Special Liquidation) v Camden Market Holdings Corp [2017] EWCA Civ 7

In what instances will an express contractual power be subject to an implied qualification?

The facts

A bank had entered into a facilities agreement with a group of companies under which it agreed to provide loans to allow the borrowers to purchase and develop properties. Obtaining planning permission took longer than anticipated and the parties entered into a supplemental deed, whereby the bank granted a 12-month extension to the agreement, to allow the borrowers further time to market and sell the properties before the agreement matured.

Clause 26 of the agreement expressly permitted the bank to assign any of its rights to another bank with the consent of the borrowers. It also empowered the bank to disclose any information about the borrowers to any person to whom it assigned any of its rights, provided that the assignee had given a confidentiality undertaking.

The bank was subsequently placed into liquidation and the liquidators began marketing the loans. The borrowers became concerned that potential purchasers were planning to acquire the loans, with a view to enforcing the security and obtaining the properties for less than their market value. They claimed that the agreement contained an implied term that the bank would not do anything to hinder the borrowers’ marketing of the properties to achieve the best price by marketing the sale of the loans.

The issue was whether the alleged implied term was inconsistent with clause 26 ofthe agreement.

The decision

The Court of Appeal confirmed that the starting point when considering the existence of an implied term is to look at the express terms of the contract. Any pleaded implied term must not contradict any express terms. Further, in cases where the contract was lengthy and carefully drafted, the courts would be very reluctant to imply a term even if it did not conflict with any express terms. Here, the fact that the agreement worked without the implied term was a significant impediment to the court implying a term which dealt with the subject matter of an express term (ie the bank’s freedom to assign the loans under clause 26).

The court differentiated between two ways in which an implied term may be inconsistent with an express term. It found that there was no direct linguistic inconsistency between the express term and the implied term in this case because there could be situations in which the marketing of the loans by the bank and disclosure of information could be made in a way which did not prevent the borrowers from achieving the best price.

However, the implied term was substantively inconsistent with clause 26. This was because the implied term would amount to a significant restriction on the bank’s power to deal with the loans and to its entitlement to disclose information to potential assignees. The court found that the judge at first instance had failed to apply the principle in Reda v Flag Ltd [2002] UKPC 38 that an express and unrestricted power cannot, in the ordinary way, be circumscribed by an implied qualification.

Since the borrowers’ case had no real prospect of success, summary judgment was entered for the bank.

Why is this important?

This case shows that a court will consider both the literal wording and the substantive effect of the express terms when deciding whether an implied term is inconsistent with the express terms of an agreement. If there is such an inconsistency, the implied term will not be incorporated.

Any practical tips?

Any qualifications, limitations or restrictions on contractual rights should be set out fully in the agreement. This is particularly important for detailed, long form
agreements where it will usually be difficult to imply terms.