Battle of the Supermarkets: To Imply or Not to Imply

Following on from the recent case of Marks & Spencer v BNP Paribas [2015] UKSC 72, the issue of implying a term into a lease has been revisited, this time by the Chancery Division of the High Court.

Caselaw

In Iceland Foods Ltd v Aldi Stores Ltd [2016] EWHC 1134 (Ch) the court was concerned with the two aforementioned  supermarkets, which occupied adjoining buildings at their respective sites in Cambridge. The buildings in question have car parks on two sides. On this particular site both Supermarket’s leased their respective buildings, in the case of Iceland, Aldi was the landlord by way of a sub-lease.

Aldi had indicated its intention to extend its building, including its front entrance, which would have resulted in erecting hoarding and scaffolding around the entrance to Iceland to effect such work. Iceland sought to stop this work, seeking to utilise a purported bar within the lease, which on Iceland’s case was either already present within the lease on its true construction, or alternatively should be implied.

Iceland’s lease made provision for Aldi to observe the head lease, and it was initially tentatively asserted that a combination of the landlord’s covenant to observe the covenants in Aldi’s lease and a prohibition on erecting new buildings meant that the latter clause was incorporated into the Iceland lease so that Iceland could enforce it and stop the building works, however this point was not actively pursued.

Iceland’s case initially relied on the assertion that in light of repeated references to the ‘blue land’ i.e. the area of the plan attached to the lease edged in blue indicating the outline of the Aldi store, such reference indicated a unit whose entrance was not to be moved and the parties to the lease must therefore have assumed that the blue land would remain consistent forever and could not therefore be extended. Thus Iceland sought to argue that on the true construction of the lease, Aldi was prevented from carrying out such works.

Perhaps unsurprisingly Mann J did not agree with that interpretation, instead determining that the purpose of outlining the area in question in blue was simply to describe the land in question in respect of which rights would be created ‘it did not, by some process of construction, import an indication that that unit was always to be the same.’

In the alternative Iceland sought to imply a term into the lease restricting the proposed increase of the Aldi building’s footprint. Mann J cited the aforementioned Marks & Spencer case as the most recent authority on the point and set out the principles as set down by Lord Neuberger therein.

Having considered the necessary test Mann J stated ‘I bear in mind all those principles. In my view [Counsel for Iceland]’s proposed implication fails all the tests.’

Accordingly Iceland’s case that the extension be prohibited failed on both pleaded grounds.

Guidance

The instant case reiterated parts of the Judgment of Lord Neuberger in Marks v Spencer, within which Lord Neuberger added six comments to previous guidance, which may be of assistance when navigating the terrain of seeking to imply terms within a lease.

In Equitable Life Assurance Society v Hyman [2002] 1 AC 408 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.
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.
It is questionable whether Lord Simon’s first comment, 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.
As Lord Hoffman, I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1998, 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 that only one of those two requirements would be satisfied.
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.
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 may only be implied if, without the term, the contract would lack commercial or practical coherence.