BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
7 Rolls Buildings London EC4A 1NL |
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B e f o r e :
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The Burke Partnership (a firm) |
Claimant |
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- and - |
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The Body Shop International Limited |
Defendant |
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David Cavender KC (instructed by Womble Bond Dickinson LLP) for the Defendant
Hearing dates: 23 and 24 May 2023
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Crown Copyright ©
DAVID MOHYUDDIN KC:
Introduction
Proceedings
(i) ordered that the claim remain as a Part 8 claim;
(ii) gave permission to TBSI to bring a counterclaim;
(iii) directed that TBSI should set out, in a statement of facts, the facts and matters on which it relies at trial as part of the admissible factual background relevant to the construction of the Agreements and the implication of the terms for which it contends and that TBP should respond to that statement, setting out which facts it admits or denies or is unable to admit or deny and setting out any other facts on which it relies;
(iv) directed that the parties disclose any documents on which they rely and any known adverse documents;
(v) refused permission for expert evidence and instead laid down a timetable for an exchange of factual evidence;
(vi) gave directions for trial including for the exchange of skeleton arguments.
Parties
Agreements
"FRANCHISE AGREEMENT for the supply and sale of Body Shop Products"
"AGREED that the Company GRANTS and the Operator takes an exclusive licence or franchise to sell its Products as the Operators' [sic] business in accordance with the Method in the Territory from the Operators' [sic] Premises under the Trade Name subject to the conditions endorsed hereon and to the Special Conditions annexed so far as the conditions are not inconsistent with the Special Conditions and the Surety (if any) joins in in the manner hereinafter appearing"
"'The Company' means Nunglen Limited [i.e. TBSI]
'The Operator' means the person firm or body corporate named in the Particulars
'The Method' means the plan or system developed by the Company for conducting the business of the preparation and sale of cosmetics body oils perfumes and similar products whereof full particulars are set out in the Schedule
'The Products' means the products necessary for the method as the Company shall from time to time specify in its price lists
'The Trade Name' means the trade name 'The Body Shop'
'The Territory' means the Territory specified in the Particulars
'The Business' means the business which the Operator is licenced to carry on under the terms of this Agreement
'The Commencement Date' means the date specified in the Particulars
'The Franchise Fee' means the sum stated in the Particulars and no additional fee shall be payable if the business is condected [sic] from more than one premises in the Territory
'The Operating Fee' means the sum stated in the Particulars commencing immediately upon the signing of this Agreement unless otherwise stated in the Particulars payable monthly in arrears by Bankers Order on the First day of every month for the continuation of this Agreement such sum to be increased on the First day of January in each year by such sum as shall be equal to the percentage by which the Index of Retail Prices as published by the Department of Employment shall have increased such increase to be certified by the Company's Accountant and to be final and binding on all parties. Such Operating fee shall continue to be paid during the continuation of the Agreement whether extended by further agreement of the parties or otherwise but no additional fees shall be payable if the business if conducted from more than one premises in the Territory"
"THE Company hereby grants and gives unto the Operator during the continuance of this Agreement the exclusive franchise or licence to operate in the Territory a retail business for the sale of the Products under the Trade Name in accordance with the Method on the terms and conditions herein contained"
"(a) This Agreement shall come into force on the Commencement Date and shall continue in force for a period of Five Years thereafter (subject nevertheless to prior determination in accordance with the Clause 11 hereof) provided that the Operator shall be entitled to terminate this Agreement on any anniversary of the Commencement Date by giving to the Company at least one month's prior written notice of termination and any such termination shall be without prejudice to the rights of either party hereto in respect of any antecedent breaches of the terms of this Agreement PROVIDED ALWAYS in the event of the Company's industrial property rights being declared invalid the Operator may give one months [sic] prior written notice of termination
(b) The Operator shall be entitled to extend the term of this Agreement on the same terms and conditions as are herein provided including the provisions of this Clause for a further period of Five Years from the expiration of the term of this Agreement by giving to the Company a written notice at least three months before the expiration of the term of this Agreement requiring such extension and subject to the Operator having complied with its obligations hereunder in all respect this Agreement shall be extended for a further period of five years from the expiration of the current term"
"THE Company will not during the continuance of this Agreement operate or licence or permit any other person with its Agreement to operate within the Territory any business using the Method under the Trade Name involving the sale by retail or otherwise of all or any of the Products"
"DURING the continuance of this Agreement the Operator will
(iii) Conduct the Business in an orderly and businesslike manner and in compliance with all such policies and operating standards contemplated by the Method and generally maintain the standards of quality of the Method "
"THE Company shall be entitled to terminate this Agreement and all licences and permissions given hereunder by not less than twenty eight days [sic] notice in writing in any of the following events
(i) If the Operator shall fail to pay to the Company within seven days of the due date any sums due and owing to the Company hereunder or shall fail in any material respect to perform any of its obligations hereunder or shall commit any other material breach within twenty eight days of notice from the Company requiring such payment or remedy
(ii) If the Operator if a limited company shall go into liquidation either voluntary or compulsory save for the purpose of reconstruction or amalgamation or otherwise if not a company be adjudged bankrupt or if a receiver shall be appointed in respect of the whole or any part of its or their assets or if the Operator shall make an assignment for the benefit of its or their creditors generally"
"14 THE Company may from time to time improve the Method or any part thereof PROVIDED such improvements or developments to the Methods shall be as from time to time mutually agreed by the Company and the Operator such agreement not to be unreasonably withheld and the Method so changed or amended from time to time shall be for all purposes the Method referred to in this Agreement
15 ANY improvements to the Method either by the Company or the Operator shall be deemed to be included and be incorporated in the Method under this Agreement"
"(i) This Agreement and all rights hereunder may be assigned or transferred by the Company and shall enure for the benefit of the Company's successors in title provided that if the Company ceases to carry on or be concerned or interested in the business in such circumstances where all or any of the obligations on the part of the Company herein contained are not assigned or transferred to or accepted by a third party then the Company shall forthwith disclose to the Operator full details of the formula and materials used in the manufacture of the products
(ii) This Agreement and all rights and licences granted to the Operator hereunder may be assigned transferred mortgaged charged or sub-licenced with the consent of the Company such consent not to be unreasonably withheld or delayed
(iii) This Agreement and the said Schedule hereto and any special conditions therein contained is the entire agreement between the parties hereto as to the subject matter hereof and no amendment hereto shall be effective unless in writing and signed by or on behalf of each of the parties"
Extensions of the Norwich Agreement
"RE: NORWICH
Further to my letter to you yesterday and our subsequent telephone conversation this morning I can confirm that this Company recognises the current partners in the Burke Partnership namely HC Burke, EJ Burke, RH Woolterton, SJ Way and JD Burke as the Operator in the Franchise Agreement for the above territory dated 10th April 1981 in substitution for Mr and Mrs H Burke.
As confirmed to you in my letter of 2nd February 1996 the current franchise term is for a period of five years from 20th March 1996.
Since only Henry Burke signed the original Franchise Agreement could you please arrange for the enclosed copy of this letter to be signed by all the current partners of the Burke Partnership in recognition of the fact that the Operator has changed and that they are jointly and severally liable for the obligations of the operator under the Franchise Agreement. Once the duplicate of this letter has been signed could you please return it to me."
"Re: Franchise Agreement Dated 10th April 1981
Whereas The Body Shop International plc ('BSI') entered into a Franchise Agreement with Mr. and Mrs. H. Burke on the 10th April 1981, which such Agreement is now held by H.C. Burke, E.J. Burke, R.H. Hall, S.J. Way and J.D. Burke as the Operator specified therein. The Franchise Agreement specified the Territory as 'Norwich' and the exact boundaries of such Territory have never been mutually agreed.
BSI and the Operator now wish to acknowledge their agreement as to the extent of the Territory specified in the Agreement as 'Norwich'. BSI and the Operator now acknowledge that the Territory comprises the postal code areas of NR1, NR2, NR3, NR4, NR5, NR6, NR7, NR8, NR9, NR10, NR11, NR12, NR13, NR14, NR15, NR18, NR26, NR27 and NR28 shown for identification only edged red on the plan annexed hereto."
"Norwich Franchise Agreement
We are in receipt of your letter of 1 December 2005 and can confirm that the term of the Franchise Agreement dated 20 March 1981 (as amended by the letters dated 3 December 1996 and 5 August 1998) between The Body Shop International plc and the Operator (as defined above) is extended for a further period of 5 years from 20 March 2006."
"Norwich Franchise Agreement
Please extend the term of the above agreement by a further period of five years in accordance with Clause 3 (b) of our agreement dated 20th March 1981.
We shall be obliged if you will confirm this in writing at your earliest opportunity."
"Norwich Franchise Agreement
We are in receipt of your letter of 1st December 2010 and can confirm that the term of the Franchise Agreement dated 20th March 1981 (as amended by the letters dated 3rd December 1996 and 5th August 1998) between The Body Shop International plc and the Operator (as defined above) is extended for a further period of 5 years from 20th March 2011."
"Franchise Agreement between The Body Shop International plc ('we'; 'us'; the 'Company') and The Burke Partnership ('you'; the 'Franchisee') dated 20th March 1981 (the 'Agreement')
I refer to your letter of 2nd December 2015. I am pleased to confirm the extension of the term of the Agreement by a period of five years pursuant to clause 3(b) thereof."
"Norwich Franchise Agreement
Please extend the term of the above agreement by a further period of five years in accordance with Clause 3 (b) of our agreement dated 20th March 1981.
We shall be obliged if you will confirm this in writing at your earliest opportunity."
"Norwich Franchise Agreement of 20th March 1981 ('Agreement') NOTICE OF TERMINATION
The agreement was entered into between the parties, The Body Shop International Limited, originally Nunglen Limited, (the 'Company'), and The Burke Partnership, originally Mr and Mrs H. Burke, (the 'Partnership'), over forty years ago. It has been renewed over the years by the Partnership providing the Company with notice that it wished to renew for periods of five years. Earlier this year, the parties agreed to extend the current term for a period of three months, until 20th June 2021, in order to consider the terms of a new Franchise Agreement and/or a 'buy-back' of the Franchise business.
The Company considers that the Agreement is no longer fit for purpose, as it no longer properly reflects the System of operating The Body Shop business, as it has been developed over decades, and can no longer serve as a contractual basis for trading under The Body Shop brand.
The Company had hoped that the parties could mutually agree terms of a new Franchise Agreement, but it was made it clear [sic] that the Partnership was not prepared to change any terms relating to the Territory, nor to the fact that the current terms enabled the Agreement to be renewed, on unilateral notice from the Partnership, for periods of five years. The difference in expectation between the parties also means that there is little prospect of an agreement on the value of the Franchise business and so no possibility of a buyback.
There is no contractual provision in the Agreement for the Company to be able to serve notice on the Partnership (other than those set out in clause 11), nor to be able to refuse to accept the renewal provided that the relevant notice was provided. Therefore, the term of the Agreement has been rendered indefinite, subject to termination under English law principles, on reasonable notice. Taking into consideration the long association between the Company and the Partnership, the Company believes that an appropriate and fair period of notice would be three years.
We hereby give you three year's [sic] notice of termination of the Agreement, with the effective date of termination therefore being the 10th June 2024."
Extensions of the Cambridge Agreement
"RE: CAMBRIDGE
Further to my letter to you yesterday and our subsequent telephone conversation this morning I can confirm that this Company recognises the current partners in the Burke Partnership namely HC Burke, EJ Burke, RH Woolterton, SJ Way and JD Burke as the Operator in the Franchise Agreement for the above territory dated 30th September 1982 in substitution for Mr and Mrs H Burke.
In specific response to your letter of 28th October 1996 I confirm that the Franchise Agreement is renewed for a further period of five years from 28th January 1997.
Since only Henry and Jane Burke signed the original Franchise Agreement could you please arrange for the enclosed copy of this letter to be signed by all the current partners of the Burke Partnership in recognition of the fact that the Operator has changed and that they are jointly and severally liable for the obligations of the Operator under the Franchise Agreement. Once the duplicate of this letter has been signed could you please return it to me."
"Re: Franchise Agreement Dated 30th September 1982
Whereas The Body Shop International plc ('BSI') entered into a Franchise Agreement with H.C. and E.J. Burke on the 30th September 1982, which such Agreement is now held by H.C. Burke, E.J. Burke, R.H. Hall, S.J. Way and J.D. Burke as the Operator specified therein. The Franchise Agreement specified the Territory as 'Cambridge' and the exact boundaries of such Territory have never been mutually agreed.
BSI and the Operator now wish to acknowledge their agreement as to the extent of the Territory specified in the Agreement as 'Cambridge'. BSI and the Operator now acknowledge that the Territory comprises the postal code areas of CB1, CB2, CB3, CB4, CB5 and CB10 (Sector 10) shown for identification only edged red on the plan annexed hereto."
"Cambridge Franchise Agreement
We are in receipt of your letter of 4 October 2016 and we can confirm that the term of the Franchise Agreement dated 30th September 1982 (as amended by the letters dated 3rd December 1996 and 5th August 1998) between The Body Shop International plc and the Operator (as defined above) is extended for a further period of 5 years from 28th January 2017."
"Cambridge Franchise Agreement
Please extend the term of the above agreement by a further period of five years in accordance with Clause 3 (b) of our agreement dated 28th January 1982.
We shall be obliged if you will confirm this in writing at your earliest opportunity."
"Cambridge Franchise Agreement of 28th January 1982 ('Agreement') NOTICE OF TERMINATION
Thank you for your letter dated 13th September 2021, seeking an extension of the Agreement.
However, further to our recent discussions regarding the franchise agreement for Norwich and the possibility of entering into a more up-to-date agreement or the potential of a 'buy-back' of the franchise for both Norwich and Cambridge, we do not agree to extend the Agreement.
As previously stated, the Company considers that the Agreement is out of date and no longer fit for purpose.
There is no contractual provision in the Agreement for the Company to be able to serve notice on the Partnership (other for breach of contract [sic]), nor to be able to refuse to accept the renewal provided that the relevant notice was provided. Therefore, the term of the Agreement has been rendered indefinite, subject to termination under English law principles, on reasonable notice. Taking into consideration the long association between the Company and the Partnership, the Company believes that an appropriate and fair period of notice would be three years.
We hereby give you three year's [sic] notice of termination of the Agreement, with the effective date of termination therefore being the 27th January 2025."
Issues between the Parties
Evidence
(i) Mr Bercovici, dated 5 May 2022. He is one of the current partners in TBP;
(ii) Ms Owen dated 21 June 2022. She is presently TBSI's UK and Ireland Retail Operations and Sustainability Manager;
(iii) Mr Davies, dated 8 March 2023. His working life since 1984 has been in franchising and he now operates his own business called Brand Mark Franchising which assists would-be franchisors;
(iv) Mr Bercovici, dated 23 March 2023.
"the background available to the Court to determine the issue of implied terms is likely to be improved if supplemented by an expert in franchise agreements with experience of the market when the Agreements were executed. This is because there is a hole in the evidence in terms of the corporate memory on either side going back to the early 1980's. Such experts do exist and he/she would, for example, be able to give factual evidence about the state of the franchise market back in the early 1980's and opinion evidence on matters such as bargaining position of the parties in the circumstances that then existed."
Construction before implication
" that does not mean that the exercise of implication should be properly classified as part of the exercise of interpretation, let alone that it should be carried out at the same time as interpretation. When one is implying a term or a phrase, one is not construing the words, as the words to be implied are ex hypothesi not there to be construed In most, possibly all, disputes about whether a term should be implied into a contract, it is only after the process of construing the express words is complete that the issue of an implied term falls to be considered. Until one has decided what the parties have expressly agreed, it is difficult to see how one can set about deciding whether a term should be implied and if so what term Further, given that it is a cardinal rule that no term can be implied into a contract if it contradicts an express term, it would seem logically to follow that, until the express terms of a contract have been construed, it is, at least normally, not sensibly possible to decide whether a further term should be implied. Having said that, I accept Lord Carnwath's point to the extent that in some cases it could conceivably be appropriate to reconsider the interpretation of the express terms of a contract once one has decided whether to imply a term, but, even if that is right, it does not alter the fact that the express terms of a contract must be interpreted before one can consider any question of interpretation."
Factual matrix
(i) franchising was in its infancy when the Norwich Agreement was entered into;
(ii) neither party had much if any experience of franchising;
(iii) neither party contemplated how the franchising arrangement might develop;
(iv) the partners in TBP (as then constituted) had retail experience but not in the sale of TBSI's products;
(v) TBSI was a relatively young company with a limited track record but with a commercially attractive proposition, having been going for about 5 years;
(vi) there had been no stores trading as "The Body Shop" in Norwich or Cambridge prior to TBP being granted the relevant franchises to operate them;
(vii) TBSI's attitude was not one motivated solely by income; its desire was to expand its brand and spread its message;
(viii) the name "The Body Shop" belonged to and was ultimately controlled by TBSI;
(ix) there was risk to both TBSI and TBP in entering into the Norwich Agreement: TBSI put its brand at risk; TBP bore the financial risk in setting up the Norwich store and then running it.
Construction of clause 3(b) of the Agreements: principles
"18. A simple distillation, so far as material for present purposes, can be set out uncontroversially as follows:
i) When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean [sic]. It does so by focussing on the meaning of the relevant words in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the contract, (iii) the overall purpose of the clause and the contract, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subject evidence of any party's intentions;
ii) The reliance placed in some cases on commercial common sense and surrounding circumstances should not be invoked to undervalue the importance of the provision which is to be construed. The exercise of interpreting a provision involves identifying what the parties meant through the eyes of a reasonable reader, and, save perhaps in a very unusual case, that meaning is most obviously to be gleaned from the language of the provision. Unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract. And, again, save perhaps in a very unusual case, the parties must have been specifically focussing on the issue covered by the provision when agreeing the wording of that provision;
iii) When it comes to considering the centrally relevant words to be interpreted, the clearer the natural meaning, the more difficult it is to justify departing from it. The less clear they are, or, to put it another way, the worse their drafting, the more ready the court can properly be to depart from their natural meaning. However, that does not justify the court embarking on an exercise of searching for, let alone constructing, drafting infelicities in order to facilitate a departure from the natural meaning;
iv) Commercial common sense is not to be invoked retrospectively. The mere fact that a contractual arrangement, interpreted according to its natural language, has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language. Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date the contract was made;
v) While commercial common sense is a very important factor to take into account when interpreting a contract, a court should be very slow to reject the natural meaning of a provision as correct simply because it appears to be a very imprudent term for one of the parties to have agreed, even ignoring the benefit of the wisdom of hindsight. The purpose of interpretation is to identify what the parties have agreed, not what the court things they should have agreed. Accordingly, when interpreting a contract a judge should avoid re-writing it in an attempt to assist an unwise party or to penalise an astute party;
vi) When interpreting a contractual provision, one can only take into account facts or circumstances which existed at the time the contract was made, and which were known or reasonably available to both parties.
19. Thus the court is concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean [sic]. The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. This is not a literalist exercise; the court must consider the contract as a whole and, depending on the nature, formality, and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. The interpretative exercise is a unitary one involving an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences investigated."
" the resolution of an issue of interpretation in a case like the present is an iterative process, involving 'checking each of the rival meanings against the other provisions of the document and investigating its commercial consequences' "
Construction of clause 3(b) of the Agreements: parties' competing cases
Construction of clause 3(b) of the Agreements: conclusion
(i) TBP is not entitled to renew the Agreements in perpetuity. Rather, there is a mechanism which must be followed (the giving of notice at least three months before the expiry of the current term) and TBP must have complied with its obligations under the Agreements in all respects. The Agreements themselves are not perpetual but rather last for a five-year term which TBP might seek to extend;
(ii) the phrase "including the provisions of this Clause" was included in clause 3(b) by TBSI's solicitor and must have been included for a reason. The phrase cannot be read as referring solely to clause 3(a) of the Agreements, as Mr Cavender contends. Rather, on their natural reading those words refer to either clause 3 as a whole or clause 3(b). I disagree that, in order to confer a repeated right to seek to extend, the Agreements would have to have included some wording making that express. The words "including the provisions of this Clause" make it clear that the right to seek to extend the term of the Agreements is repeated upon each successive extension. The natural meaning of those words is clear and even were it to be said to be commercially disadvantageous to TBSI that is not a reason to depart from that meaning. It may (and I express no view either way) now have turned out to have been imprudent for TBSI to enter into the Agreements but that is not a reason in this case to reject the natural meaning of the words used;
(iii) there was no purely commercial imperative for TBSI to enter into the Agreements. Its desire was to expand its brand and message. Neither TBSI nor TBP had contemplated the development of their arrangements when they entered into the Agreements. There is therefore nothing uncommercial from either party's perspective of TBP having the right to seek to extend each successive five-year term. Whilst it might now be said that a franchising agreement would not be subject to the possibility of repeated extensions, the position was different when these parties entered into the Agreements in 1981 and 1982 as can be seen from the factual matrix;
(iv) Mr Cavender's argument, that parties to commercial agreements would not intend them to run in perpetuity (and were the Agreements to be construed as such that would be uncommercial and unreasonable), falls down because the Agreements were not intended to run in perpetuity;
(v) TBSI was not left without any ability to bring the Agreements to an end. It had express rights under clause 11 to do so and was able to alter ("improve") the Method (see clauses 14 and 15) with which TBP was obliged to comply (see clause 7(iii)). Changes to the Method might provoke a further dispute but that does not mean that TBSI is not (subject to agreeing the changes with TBP) entitled to alter it or faces limitations in the scope of the changes it might make;
(vi) That the Agreements may no longer be "fit for purpose" (that being TBSI's purpose) is by the by and TBSI's reliance on that point illustrates that, despite having agreed several extensions, it has now decided that it no longer wishes to be bound by the Agreements. That, no doubt, is for commercial reasons. But that does not absolve it of the bargains it made with TBP when it entered into the Agreements on terms its own solicitor had drafted.
" the subsequent extensions (after the expiry of the original 5-year term and a 5 year extension) have been extensions for periods of five years on the mistaken understanding of the legal rights of the parties under the Agreement. When the Claimant recently sought to extend the Agreements for further periods of 5 years that request was denied by The Body Shop. Accordingly, the proper analysis is that:
(1) the Agreements are currently operating at will for an undefined period, which contract is capable of being terminated on reasonable notice as set out in the Termination Notices; or
(2) the 3 year notice given by The Body Shop in its letters of 6 June 2021 (Norwich) and 27 September 2021 (Cambridge) is tantamount to the grant of a fixed term of 3 years which automatically expires at the end of that term - by effluxion of time."
Implication of terms: principles
"The law on implied terms
47. The implication of contractual terms involves a 'different and altogether more ambitious undertaking' than the exercise of contractual interpretation which identifies the true meaning of the language in which the parties have expressed themselves: the interpolation of terms to deal with matters for which, ex hypothesi, the parties have themselves made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of the 'extraordinary' power so to intervene (see Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72; [2016] AC 742 ('Marks & Spencer') at [29] (citing Sir Thomas Bingham MR in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472 at 481)).
48. Those constraints have been the subject of well-known scrutiny by the courts (see the classic statements in The Moorcock [1889] 14 PD 64 ('The Moorcock') at 68 per Bowen LJ; Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592 at 605 per Scrutton LJ and Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227 per Mackinnon LJ). The later Privy Council decision in BP Refinery (Westernport) Pty Ltd v The President Councillors and Ratepayers of the Shire of Hastings ('BP Refinery') (1977) 180 CLR 266 deserves particular mention. There Lord Simon (delivering the majority judgment) stated (at 283):
' for a term to be implied, the following conditions (which may overlap) must be satisfied: (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; (5) it must not contradict any express term of the contract'.
49. The leading authority from recent times is Marks & Spencer, where the Supreme Court approved the remarks of Lord Simon in BP Refinery, albeit subject to qualification and observation. Amongst other things, (at [21]) Lord Neuberger questioned whether a requirement that the term to be implied had to be 'reasonable and equitable' would 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. Lord Neuberger also commented that he suspected that, whilst the requirements of business efficacy and obviousness could be alternatives in the sense that only one need be satisfied, it would be a rare case where only one of those two requirements would be satisfied.
50. Since the analysis of Lord Neuberger in Marks & Spencer (at [15] to [31]) the Supreme Court and Privy Council have consistently made it clear that whether or not a term falls to be implied is to be judged by reference to the test of business efficacy and/or obviousness (see for example Hallman Holding Ltd v Webster [2016] UKPC 3 (at [14]); Airtours Holiday Transport Ltd v HMRC [2016] UKSC 21; [2016] 4 WLR 87; [2016] 4 All ER 1 (at [38]) and Impact Funding Solutions Ltd v AIG Europe Insurance Ltd [2016] UKSC 57; [2016] 3 WLR 1422; [2017] AC 73 (at [31]). In Ali v Petroleum Co of Trinidad and Tobago [2017] UKPC 2 at [7], Lord Hughes commented:
'It is enough to reiterate that the process of implying a term into the contract must not become the re-writing of the contract in a way which the court believes to be reasonable, or which the court prefers to the agreement which the parties have negotiated. A term is to be implied only if it is necessary to make the contract work, and this it may be if (i) it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, "Oh, of course") and/or (ii) it is necessary to give the contract business efficacy. Usually the outcome of either approach will be the same. The concept of necessity must not be watered down. Necessity is not established by showing that the contract would be improved by the addition. The fairness or equity of a suggested implied term is an essential but not a sufficient pre-condition for inclusion. And if there is an express term in the contract which is inconsistent with the proposed implied term, the latter cannot, by definition, meet these tests, since the parties have demonstrated that it is not their agreement.'
51. In summary, the relevant principles can be drawn together as follows:
i) A term will not be implied unless, on an objective assessment of the terms of the contract, it is necessary to give business efficacy to the contract and/or on the basis of the obviousness test;
ii) The business efficacy and the obviousness tests are alternative tests. However, it will be a rare (or unusual) case where one, but not the other, is satisfied;
iii) The business efficacy test will only be satisfied if, without the term, the contract would lack commercial or practical coherence. Its application involves a value judgment;
iv) The obviousness test will only be met when the implied term is so obvious that it goes without saying. It needs to be obvious not only that a term is to be implied, but precisely what that term (which must be capable of clear expression) is. It is vital to formulate the question to be posed by the officious bystander with the utmost care;
v) A term will not be implied if it is inconsistent with an express term of the contract;
vi) The implication of a term is not critically dependent on proof of an actual intention of the parties. If one is approaching 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;
vii) The question is to be assessed at the time that the contract was made: it is wrong to approach the question with the benefit of hindsight in the light of the particular issue that has in fact arisen. Nor is it enough to show that, had the parties foreseen the eventuality which in fact occurred, they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred;
viii) The equity of a suggested implied term is an essential but not sufficient pre-condition for inclusion. A term should not be implied into a detailed commercial contract merely because it appears fair or merely because the court considers the parties would have agreed it if it had been suggested to them. The test is one of necessity, not reasonableness. That is a stringent test."
(i) where a contract has no express provision for termination, the Court may be willing to imply a power to determine it on reasonable notice: Staffordshire AHA v South Staffordshire Waterworks Co. [1978] 1 WLR 1387;
(ii) where the contract is not for an unlimited time, but is for a fixed term, there is no room implying further terms as to the termination of the agreement: Kirklees Metropolitan BC v. Yorkshire Woollen District Transport Co Ltd (1978) 77 LGR 448 at 453-4 and Jani-King (GB) Ltd v. Pula Enterprises Ltd [2007] EWHC 2433 (QB) at [60] to [66];
(iii) even if a contract is expressed to endure for an unlimited time, that does not necessarily mean that it is terminable on reasonable notice: Harbinger UK Ltd v. GEI Information Services Ltd [2001] 1 All ER (Comm) 166, CA at [16] to [20];
(iv) where an agreement already contains express terms for termination and the parties have therefore given careful consideration to defining the circumstances in which the agreement should be terminated it will be especially difficult to imply further such terms: Jani-King at [64]; ServicePower Asia Pacific Pty Ltd v. ServicePower Business Solutions Ltd [2009] EWHC 179 (Ch) at [23] to [31]; and Colchester & East Essex Co-op Ltd v. Kelvedon Labour Club & Institute Ltd [2003] EWCA Civ 1671 at [8] to [12].
Implication: the parties' cases
(i) the Agreements are for fixed, five-year, extendable periods and they are not perpetual such that there is no scope for the implied term sought by TBSI which would make a nonsense of the fixed term commitment they had made to one another;
(ii) the Agreements provide for determination prior to the expiry of the fixed period with which the implied term sought by TBSI would be inconsistent;
(iii) the Agreements include express and detailed provisions as to duration, extension and termination which points away from the implication of a further term entitling TBSI to terminate on reasonable notice;
(iv) the Agreements do not lack commercial or practical coherence (given the terms which Mr McLoughlin set out in detail) and therefore the implied term is not necessary to give them business efficacy; and
(v) the term sought is not so obvious that it goes without saying.
Implication: conclusion
(i) there is already express provision for the determination of the Agreements, which do not continue in perpetuity (see paragraph 87(i) above), with which the term sought would conflict. It cannot therefore be implied;
(ii) the Agreements do not lack commercial or practical coherence in the absence of the desired term which is not necessary in order to give them business efficacy. The parties are committed to their respective obligations under the Agreements including TBSI's ability to amend the Method with which TBP is obliged to comply;
(iii) against the factual matrix existing at the time the Agreements were entered into, the term sought is not so obvious that it goes without saying; and
(iv) TBSI's case that the terms of the Agreements are now "hopelessly out of date" such that there must be implied a term enabling it to terminate on reasonable notice is not one that it could have advanced when the Agreements were entered into.
Disposition