Reading between the lines – implied terms in commercial agreements

The Supreme Court’s recent decision in Wells v Devani [2019] UKSC 4, 2019 WL 00570778 is not specifically about construction law, but is nevertheless worthy of attention. Two issues were decided. The second related to compliance with estate agents’ statutory obligations, and is not of general relevance. The first, though, hinged on whether a contractual arrangement can be considered complete in the absence of express detail on every relevant obligation: can contractual terms be enforceable and binding by virtue of being implied or simply understood as inherent to an agreement without the need for them to be expressly documented? The Supreme Court concluded that in some circumstances they can.

In the case, the parties disagreed as to whether commission claimed as due by the agent was payable at all in the absence of express agreement about the trigger for the commission to become payable. Lord Kitchin’s judgment was that it is so established in the ordinary course of such arrangements that the agent’s side of the bargain are satisfied when a relevant sale completes, that “a reasonable person would understand that the parties intended the commission to be payable on completion and from the proceeds of the sale”. That decision was made without the need “to imply a term into the agreement”, i.e. it is so obviously a component of the bargain that it transcends any requirement that it is an express term.

Lord Kitchin provided a summary of when and why terms could and should be understood as part of or implied into an arrangement:

“… there will be cases where an agreement is so vague and uncertain that it cannot be enforced… [or] the parties have not addressed certain matters which are so fundamental that their agreement is incomplete…

but… it is possible to imply something that is so obvious that it goes without saying... and where, without that term, the agreement would be regarded as incomplete or too uncertain to be enforceable.”

Lord Briggs added that “a sufficiently certain and complete contract had been concluded… as a matter of construction of their words and conduct in their context rather than just by the implication of terms”.

In terms of general application, clearly the best practice is to avoid any such uncertainty by ensuring that any term or trigger is expressly stated, without ambiguity and in sufficient detail that neither party can be in any doubt as to what has been agreed. In the event of uncertainty, it is possible that terms may be construed into a bargain which may be prejudicial to or contrary to the expectations of at least one party to that bargain. It remains to be seen when and how this decision will be followed.
 

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