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Substantive inconsistency between express and implied terms

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The Court of Appeal has considered the question of when a proposed implied term should be considered “inconsistent” with an express term of a contract, contrasting direct linguistic inconsistency and substantive inconsistency. The express contractual right of the lender, Irish Bank Resolution Corporation Limited (IBRC), to market its loans could not be circumscribed by an alleged implied term that it would not interfere with the borrower’s ability to obtain the best price for the properties on which the loan was secured. The alleged implied term was substantively (though not linguistically) inconsistent with the express terms of the facility agreement, and therefore bound to fail as a matter of law: Irish Bank Resolution Corp Ltd (In Special Liquidation) v Camden Market Holdings Corp & 7 ors [2017] EWCA Civ 7.

In 2005, members of the Camden Market Group (CMG) entered into a facilities agreement with IBRC’s predecessor, the Anglo Irish Bank, who provided financing of approximately GBP 195 million to enable CMG to purchase and develop property at Camden Market. The facilities agreement was restated and amended in 2008 (the Restated Facilities Agreement).

The loan facilities were due to be repaid in February 2013, and CMG intended to do so through sale of the properties, rather through refinancing. However, in March 2012, planning permission for a part of the development was refused. CMG believed that permission would still be granted if changes were made to the application, but in light of the delay, sought and obtained a 12-month extension to give it additional time repay the facilities. The extension was formalised by way of a 2012 supplemental deed (the 2012 Supplemental Deed), which incorporated the Restated Facilities Agreement.

In February 2013, the IBRC was placed in special statutory liquidation by an order of the Irish Minister of Finance. IBRC’s liquidators were instructed to sell off all of IBRC’s loan book, and they began marketing its loans, including the CMG loan facilities.

Simultaneously, CMG was marketing the properties it had developed using the loan facilities for sale to prospective purchasers. CMG argued that IBRC’s marketing of CMG’s facilities alongside distressed debt gave rise to an implication that CMG’s facilities were in default (which they were not). This had dissuaded potential purchasers from offering the best price for the properties, as they took the view that they could acquire the loan at a discount from IBRC and then enforce the security against CMG, rather than purchasing the properties outright at full price from CMG.

CMG claimed there was an implied term in the 2012 Supplemental Deed that IBRC would not do “anything” to hinder CMG’s marketing of the properties under development to achieve the best price, including by marketing the sale of the loans under the Restated Facilities Agreement in competition with CMG.

IBRC applied for summary judgment on the ground that CMG’s claim had no real prospect of success, as it was contrary to an express term in the Restated Facilities Agreement which permitted IBRC to assign the loans (with the consent of the parent CMG entity) and disclose “any information” about CMG and the loans it considered appropriate to a potential purchaser. At first instance, summary judgment was refused, and IBRC appealed.

Nature of inconsistency

The Court of Appeal allowed the appeal and granted summary judgment.

It is a “cardinal rule” that an implied term must not contradict any express terms of the contract. Lord Justice Beatson (who delivered the leading judgment) analysed the nature of an “inconsistency” between contractual terms, observing that there could be two types: “direct linguistic inconsistency” and “substantive inconsistency”.

His Honour found that the proposed implied term was not linguistically inconsistent with the express terms. On a narrow construction, the proposed implied term did not prevent IBRC from marketing the loans at all: it would only prevent IBRC from marketing the loans in competition with the CMG’s marketing of the properties.

However, was the proposed implied term in substance inconsistent with the express terms of the Restated Facility Agreement? Substantive inconsistency is in issue, where, for example, parties have entered into express obligations with respect to a subject matter, but it is argued that a further term should be implied in relation to the same subject matter.

Lord Justice Beatson found that there was such a substantive inconsistency between the pleaded implied term in the 2012 Supplemental Deed, and the express term of the Restated Facilities Agreement. Notwithstanding the business purpose of the 2012 Supplemental Deed, it had been entered into between commercial parties, against the backdrop of and with the incorporation of the earlier detailed Restated Facilities Agreement.

IBRC’s “express and unrestricted power” to market the loans by disclosing information to potential purchasers could not, as a matter of law, be circumscribed by an implied term. The Restated Facilities Agreement did contain express restrictions on IBRC’s power to market loans (as disclosure of information was limited to potential purchasers). To imply the additional pleaded term in such circumstances would be a significant restriction on IBRC’s power to deal with its assets, and would “cut across IBRC’s entitlement to provide information [to potential purchasers] … in a way which is redolent of uncertainty”. The Court clearly disapproved of the lack of clarity which would arise from implication of the proposed term – as it would be “impossible” for IBRC to know the extent of the prohibited conduct, which would depend on market perceptions (as to whether to loans were being marketed in competition to the properties) outside the control of IBRC.


Where a contract is lengthy and carefully drafted between commercial entities, the courts will be reluctant to imply a further term, even where there is no express conflict. The question of “inconsistency” is not one to be looked at in isolation, or with a narrow approach: rather the Court focuses on the extent to which the parties have otherwise provided for the relevant subject matter in their existing written contractual documents.

In this case, although the commercial purpose in the parties entering the 2012 Supplemental Deed was to enhance the borrower’s ability to achieve the best price for the underlying property assets, it was clear that the express words of the prior facility agreement prevailed when it came to the question of any restrictions on the marketing of the loans.

Further information

This case summary is part of the Allen & Overy Litigation and Dispute Resolution Review, a monthly publication. For more information please contact Amy Edwards, or tel +44 20 3088 3710.