Introduction

The case of SPI North Ltd v Swiss Post International (UK) Ltd & Anor ([2019] EWHC 2004 (Ch)) dealt with complex contractual disputes revolving around the implication of terms in a long-term commercial agreement. The High Court of Justice (Chancery Division) adjudicated on the remaining parts of six applications initially listed before HHJ Klein in June 2018. This commentary explores the background, key issues, judicial reasoning, and the implications of the judgment for future contractual relationships, particularly focusing on the concept of implied terms in relational contracts.

Summary of the Judgment

The claimant, SPI North Limited, entered into a "Premium Partner Agreement" (PPA) with the first defendant, Swiss Post International (UK) Ltd, aimed at promoting Swiss Post postal services across Northern England, Scotland, and Wales. Disputes arose following the formation of Asendia UK Limited, a joint venture between Swiss Post and La Poste, which allegedly led to breaches of the PPA by the first defendant. The claimant sought to imply additional terms into the PPA to prevent the first defendant from undermining the agreement and competing directly or indirectly with the claimant.

The court had to determine whether certain terms should be implied into the contract based on business efficacy, necessity, and the nature of the contractual relationship. The judgment addressed the validity of these implied terms, analyzed the existing contractual obligations, and considered the implications of the contractual relationship being classified as a "relational contract."

Analysis

Precedents Cited

The judgment extensively referenced several key cases that influence the interpretation and implication of terms in contracts:

• Swain v Hillman [2001] 1 All ER 91: Established the distinction between a "real prospect of success" versus a "fanciful" claim, pivotal in determining the viability of implied terms.
• Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72: Outlined the principles for implying terms into contracts based on business efficacy and necessity.
• Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC 111 (QB): Discussed the emergence of an implied duty of good faith in relational contracts.
• Philips Electronique Grand Public SA v British Sky Broadcasting Limited [1995] EMLR 472: Highlighted the challenges in implying terms to protect against unforeseen contractual breaches.
• Additional references included Easyair Ltd v Opal Telecom Ltd, Morgan Crucible v Hill Samuel, and various others pertinent to the doctrine of implied terms and good faith.

These precedents collectively informed the court's approach to determining whether the proposed implied terms were justifiable and legally sound within the context of the existing contractual framework.

Legal Reasoning

The court applied the criteria for implying terms as established in Marks & Spencer and further clarified in subsequent cases. The primary considerations included:

• Reasonableness and Equity: The implied terms must be fair and equitable within the contractual relationship.
• Business Efficacy or Obviousness: Terms should be implied if they are essential for the contract to function as intended or if they are so obvious that they go without saying.
• Clarity: The implied terms must be clearly expressible and not vague.
• Non-Contradiction: They must not contradict any express terms of the contract.

In this case, the claimant argued for implied terms to prevent the defendant from engaging in activities that would undermine the PPA, including not to compete or assist others in competing with the claimant's performance under the agreement. The court evaluated these claims against the contractual terms and the nature of the relationship, ultimately finding that while some aspects of the implied terms were justifiable, others lacked the necessary clarity and necessity to be upheld.

Impact

This judgment underscores the cautious approach courts must adopt when considering the implication of terms in contracts, especially relational contracts that involve long-term and collaborative relationships. The decision highlights the importance of clarity in contractual terms and demonstrates that while relational contracts may warrant additional implied obligations like good faith, such terms must be unequivocally necessary and clearly defined. Future cases will likely reference this judgment when deliberating on the boundaries of implied contractual terms and the extent to which relational dynamics influence contractual obligations.

Complex Concepts Simplified

Implied Terms

Implied terms are provisions that are not explicitly stated in a contract but are inferred by the courts to ensure the contract functions effectively. These can arise either from the necessity to make the contract work (business efficacy) or from what is so obvious that it is taken for granted (obviousness).

Relational Contracts

Relational contracts are agreements characterized by a long-term relationship between the parties, requiring high levels of cooperation, trust, and mutual benefit. Such contracts often imply terms of good faith to sustain the relationship.

Duty of Good Faith

The Duty of Good Faith in contractual relationships is an implied obligation requiring parties to act honestly and fairly towards each other, meeting mutual expectations and not undermining the contractual bargain.

Prevention Principle

The Prevention Principle implies that neither party should act in a way that prevents the other from fulfilling their contractual obligations. This ensures that the contract's purpose is not thwarted by either party's actions.

Business Efficacy

Business Efficacy refers to the necessity of implied terms to ensure that a contract can operate as intended by the parties. Without such terms, the contract might be unworkable or ineffective.

Conclusion

The judgment in SPI North Ltd v Swiss Post International (UK) Ltd & Anor provides a nuanced examination of when and how courts should imply terms into contracts, particularly within the framework of relational contracts. By balancing the need for contractual clarity with the realities of long-term business relationships, the court reaffirmed the strict criteria necessary for the implication of terms. This decision not only reaffirms existing legal principles but also sets clear boundaries for future cases, ensuring that implied terms are only inserted when absolutely warranted by the contractual context and business necessity.

The case serves as a critical reference for legal practitioners and businesses, emphasizing the importance of explicit contractual provisions and the careful consideration required when seeking to imply additional obligations. It highlights the judiciary's role in maintaining the integrity of contractual agreements while accommodating the evolving nature of commercial relationships.