5. Admissible background

In Marks and Spencer the Supreme Court comments that implying terms, like the interpretation of a contract, involves considering the surrounding circumstances known to both parties at the time of the contract.

In the context of interpretation, the relevant background to a contract is: "the knowledge that would reasonably be available to the audience to whom the instrument is addressed", which can include "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man" (Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] UKHL 28).

In the context of implied terms, admissible background has been held to include:

• Non-complex legal principles. In Spencer v Secretary of State for Defence [2012] EWHC 120 (Ch)Vos J considered what legal principles might properly be regarded as being reasonably available to the reasonable observer. Whilst a complex tax scheme that the parties might have been advised upon by an experienced tax silk would not fall into that category, the principle that "the adding of property to that comprised in a tenancy … effects a surrender of the original tenancy and a re-grant of a new tenancy" was well established, free from doubt and admissible as background. This was despite the fact that neither party (both advised by lawyers) was aware of this principle.

• Relevant case law. In Marks And Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd & Anor [2014] EWCA Civ 603 Arden LJ took into account case law which had been decided when the parties entered into their agreement. However, she held that an obscurely and meagrely reported case was not one of which the parties ought to have been aware and which would have formed part of the admissible background.

• Evidence of market practice falling short of trade usage. In Crema v Cenkos Aikens LJ found, based on a review of the authorities, that "market practice", which does not amount to evidence of an alleged "trade usage or custom" is admissible background when determining whether there is an implied term.

6. Certainty

An implied term may be of little assistance if an agreement lacks certainty. For example, if a contract imposes an obligation on a party to do something, but does not specify how the obligation is to be performed, an implied term that performance should be reasonable will not give sufficient certainty unless there are objective criteria by which the concept of reasonable performance can be assessed, such as standard industry practice (Durham Tees Valley Airport Ltd v Bmibaby Ltd and Another [2010] EWCA Civ 485). The decision at first instance in this case was reversed by the Court of Appeal, which decided that, on the facts, the relevant obligation was sufficiently certain without recourse to an implied term. The Court of Appeal decision confirms that the courts are reluctant to use uncertainty as a basis for denying legal effect to what are obviously intended to be enforceable commercial agreements. On the other hand, implied terms are often general in concept, and may not assist the court in determining key performance criteria if these have not been set out expressly in the agreement.