A recent case has shown that parties who fail to document their rights and responsibilities carefully cannot expect the courts to rectify incomplete drafting, according to a corporate lawyer.

“It is possible for courts to imply terms into a contract in order to give effect to the parties’ intentions” says Philip Round, a partner at George Green’s Wolverhampton office. “as a Court of Appeal case has demonstrated, however, they will only do so if the implied term is consistent with the express terms.”

Mr Round continues, “the case of Irish Bank Resolution Corporation Ltd (in special liquidation) v Camden Market Holdings Corporation concerned facilities advanced by Irish Bank to Camden to finance certain developments. The facility agreement expressly permitted the bank to assign the benefit of the agreement, with Camden’s consent, to another bank and to discuss information about Camden and the facility to potential assignees subject to confidentiality undertakings.  When the bank entered into liquidation and commenced marketing the facility agreement for assignment as part of a package of distressed debt, Camden sought to prevent it from doing so. It was concerned that the marketing as part of a distressed debt package would give the wrong impression to third parties that the Camden debt was distressed, and undermine Camden’s own efforts to sell the properties at full market value.”

According to Mr Round, Camden sought to argue that the loan agreement incorporated an expectation that in marketing the facility for sale, the bank would not do anything which hindered Camden’s marketing of the premises. “The court examined the case law on the implication of terms and noted the cardinal rule that an implied term must not contradict an express term.  In this case, the implied term was inconsistent with the substance of the contract as it would significantly restrict the bank’s ability to market the debt.  The Court of Appeal accordingly entered summary judgement against Camden.”

Mr Round concludes, “where parties have negotiated a detailed formal contract which remains silent on a particular point, courts will be reluctant to imply a term, particularly where the contract works without it. Parties should not therefore take short cuts in formalising agreements on the assumption that courts will automatically give effect to their intentions regardless of whether the terms are fully documented.”