Ukraine v The Law Debenture Trust Corporation Plc (Rev 1) [2018] EWCA Civ 2026

“The right to effectuate State internal and foreign borrowings shall belong to the State in the person of the member of the Cabinet of Ministers of Ukraine, responsible for the forming and realization of State financial and budgetary policy or the person performing the duties thereof (hereinafter – Minister of Finances of Ukraine) on behalf of the Cabinet of Ministers of Ukraine. The Cabinet of Ministers shall determine the conditions for the effectuation of the State borrowing, including the type, currency, and interest rate of the State borrowing.”

“For the purpose of fulfilment of Law of Ukraine “On 2013 State Budget of Ukraine”, the Cabinet of Ministers of Ukraine resolves: 1. To carry out external state borrowings by way of issue of the notes of 2013 external state borrowing (the “Notes”). 2. To approve the Terms and Conditions of issue of the Notes of 2013 external state borrowing attached hereto. 3. For the Ministry of Finance: to carry out the issue of the Notes pursuant to the Terms and Conditions approved hereby; during the preparation of the Draft of the State Budget of Ukraine for the respective year, to envisage funds for the repayment and service of the Notes.” to carry out the issue of the Notes pursuant to the Terms and Conditions approved hereby; during the preparation of the Draft of the State Budget of Ukraine for the respective year, to envisage funds for the repayment and service of the Notes.”

“Breach of Budget Law limit Ukraine was unable to borrow more from external sources (such as Russia) than the limits that were specified in its then-current Budget Law. Under Ukraine’s Constitution, only the Verkhovna Rada [Parliament] has constitutional power and authority over the budgetary process in the form of the adoption of the budget law for a particular year. The Budget Code establishes a framework of laws including the Constitution that define this process. The annual Budget Law includes a fixed limit on the level of external borrowings that Ukraine may make that year, and only the Verkhovna Rada can amend such limit, and Ukraine has no power to borrow beyond it. Its CMU accordingly could not authorise any borrowing beyond the limit, nor could it issue debt beyond the limits. The Eurobonds exceeded the limit in the 2013 Budget Law. The Verkhovna Rada sought to increase it, but the approval was insufficient, and came only after the purported approval of the proposed borrowing by the CMU and the purported entry into of the relevant contractual documents, and was not of retrospective effect. As a result Ukraine had no capacity to enter into the Eurobonds.”

“Breach of Constitutional principles in passing the Decree Ukraine’s Constitution imposes further, separate restrictions on the means by which Ukraine may agree to assume such obligations. Approval is a matter for the CMU which is restricted not only by the Budget Law limits: it only has power to approve such borrowings in accordance with certain constitutional and administrative law principles and rules of conduct, including its own Procedural Rules. It must act rationally (or “sensibly” as it is put in the Ukrainian rules) and after taking into account relevant matters (there is a rough parallel with English administrative law principles rendering decisions ultra vires and void). In the present case, Professor Butler says there was a “flagrant” breach of those requirements in at least two respects: (a) Before approving the proposed borrowing, in breach of a mandatory requirement, the Ministers of the CMU attending the critical meeting on 18 December 2013 were not provided with an obligatory “Expert Opinion” regarding the draft Decree No.904. The Expert Opinion when prepared identified the very breach of the 2013 Budget Law limits referred to above, but the CMU never came to know of the fundamental legal defect affecting the borrowing they had purported to approve. (b) Additionally, the CMU was not aware of and did not consider all of the material terms of the proposed borrowing, as came to be reflected in the contractual documents for the Eurobonds. The Eurobonds documents included provisions, never identified for the CMU, imposed by Russia, that were unusual and extraordinarily oppressive to Ukraine in their combined effect. Under Ukrainian law, the CMU was not permitted to delegate its power to the Minister for him to exercise in this way; it was the CMU’s responsibility in law, and it abdicated its responsibility.” (a) Before approving the proposed borrowing, in breach of a mandatory requirement, the Ministers of the CMU attending the critical meeting on 18 December 2013 were not provided with an obligatory “Expert Opinion” regarding the draft Decree No.904. The Expert Opinion when prepared identified the very breach of the 2013 Budget Law limits referred to above, but the CMU never came to know of the fundamental legal defect affecting the borrowing they had purported to approve. (b) Additionally, the CMU was not aware of and did not consider all of the material terms of the proposed borrowing, as came to be reflected in the contractual documents for the Eurobonds. The Eurobonds documents included provisions, never identified for the CMU, imposed by Russia, that were unusual and extraordinarily oppressive to Ukraine in their combined effect. Under Ukrainian law, the CMU was not permitted to delegate its power to the Minister for him to exercise in this way; it was the CMU’s responsibility in law, and it abdicated its responsibility.”

“(1) The capacity of a corporation to enter into any legal transaction is governed both by the constitution of the corporation and by the law of the country which governs the transaction in question. (2) All matters concerning the constitution of a corporation are governed by the law of the place of incorporation”

“However, as a matter of principle, the court considers that the Trustee’s submissions are correct. Whether considering the nature of a state on the international plane, or the nature of a state for the purposes of entering into a loan contract governed by English law, the position is the same. Once a state is recognised as such, as a matter of international law it has unlimited capacity to borrow, and such capacity is recognised under English law. A state’s capacity to borrow “rests in its sovereignty” (to use the phrase in the Lotus at p.19). The state’s internal laws as to borrowing, dispositive though they may be in other contexts, cannot operate by way of a limit on the state’s capacity, so as to enable the state, as is contended for in the present case, to treat the obligation to repay as void by reason of breach of such laws.”

“In a monarchy all the public rights and interests of the nation are vested in, and represented by, the monarch. In a republic they are the property of the state. When a foreign monarch sues in the Courts of this country it is not as the representative of his nation, but as the individual possessor of the rights which are the subject of the suit. Why should a republic be precluded from asserting in its own name, similar rights vested in it?”

“The right of a foreign state which has been recognised by Her Majesty, whether it be a monarchy or a republic, to sue in the Courts of this country for public property belonging to the state, has not been, and cannot be, denied.”

“The sovereign, in a monarchical form of government, may, as between himself and his subjects, be a trustee for the latter, more or less limited in his powers over the property which he seeks to recover. But in the Courts of Her Majesty, as in diplomatic intercourse with the government of Her Majesty, it is the sovereign, and not the state, or the subjects of the sovereign, that is recognised. From him, and as representing him individually, and not his state or kingdom, is an ambassador received. In him individually, and not in a representative capacity, is the public property assumed by all other states, and by the Courts of other states, to be vested. In a republic, on the other hand, the sovereign power, and with it the public property, is held to remain and to reside in the state itself, and not in any officer of the state. It is from the state that an ambassador is accredited, and it is with the state that the diplomatic intercourse is conducted.”

“English Courts have long since recognized as juristic persons corporations established by foreign law in virtue of the fact of their creation and continuance under and by that law. Such recognition is said to be by the comity of nations. Thus in Henriques v. Dutch West India Co. the Dutch company were permitted to sue in the King’s Bench on evidence being given “of the proper instruments whereby by the law of Holland they were effectually created a corporation there.”

“In conclusion, it appears that although analogies with corporations might usefully be drawn in particular respects, a foreign State in English law is not a foreign corporation, or an English corporation, either sole or aggregate, or a “quasi-corporation”, or even an English legal person of whatever kind.”

“This seems to me an express authority that at common law it is an incident to a corporation to use its common seal for the purpose of binding itself, and to deal with its property as a natural person might deal with his own. And further, that an attempt to forbid this on the part of the King, even by express negative words, does not bind at law. Nor am I aware of any authority in conflict with this case. If there are conditions contained in the charter that the corporation shall not do particular things, and these things are nevertheless done, it gives ground for a proceeding by sci. fa. in the name of the Crown to repeal the letters patent creating the corporation: see Eastern Archipelago Co. v. Reg. But if the Crown take no such steps, it does not, as I conceive, lie in the mouth either of the corporation, or of the person who has contracted with it, to say that the contract into which they have entered was void as beyond the capacity of the corporation. I am aware of no decision by which a corporation at common law has been permitted to do so. I take it that the true rule of law is, that a corporation at common law has, as an incident given by law, the same power to contract, and subject to the same restrictions, that a natural person has.”

“The powers of bodies corporate incorporated by charter are the same as those of an individual and are not limited by any provisions in the charter.”

“160. Beginning with the Trustee’s case as to usual authority, the court does not agree with the Trustee so far as it contends that a Finance Minister always has usual authority as regards state borrowing by reason of his or her office. This depends on the role of the Finance minister in the particular state and the particular borrowing. 161. However, there is, in the court’s view, a clear answer so far as this borrowing by Ukraine was concerned. The Minister of Finance plainly had usual authority to enter into the transaction on behalf of Ukraine. The fact that the Minister of Finance was the signatory of all 31 previous debt issuances by Ukraine in which the Trustee had acted between 2000 and 2013 establishes such authority beyond doubt. As regards the Trustee, the Minister of Finance of Ukraine was a person whose position gave him usual authority to sign such issuances within the case law: Bowstead & Reynolds on Agency at §8-015”

“Where an agent is acting within the usual authority of a person in his position, the third party will normally not be expected to inquire as to the details of his authority unless the transaction is abnormal or there are other circumstances giving rise to suspicion. If there are suspicious circumstances or abnormalities, then the third party should ‘make such enquiries as ought reasonably to be made’ to ensure that the authority is sufficient to bind the principal.”

“If the agent be held out as having only a limited authority to do on behalf of his principal acts of a particular class, then the principal is not bound by an act done outside that authority, even though it be an act of that particular class, because, the authority being thus limited, the party prejudiced has notice, and should ascertain whether or not the act is authorised.”

“Donegal’s argument seems to be that the ostensible authority of Mr Kasonde derives from his usual authority as Minister of Finance, but this does not seem to me to answer an objection that his usual authority was restricted by the Constitution. This is not a case like Robertson v Minister of Pensions [1949] 1 KB 227, which Donegal cited in their submissions, where Denning J could say at (page 232) of a subject’s dealings with a government department, “He does not know, and cannot be expected to know, of the limits of its authority”

“(iv) Given the exercise that Mr Pasichnyk of the CMU Secretariat carried out by which he became aware that the borrowings would exceed the budget limit, the suggestion that the Trustee could have known of the breach is very weak. Such knowledge could not have come from the Prospectus, which only gave the figures up to the end of September 2013. (v) It is not contended that the Trustee could have known of the breaches of constitutional principles in passing Decree No. 904, and it obviously could not.”

“Although, as Ukraine says, for the reasons given by Professor Butler, the Cabinet of Ministers of Ukraine had no actual authority to hold out the Minister of Finance as Ukraine’s representative in the transaction, it did have usual authority to do so as the state’s cabinet. The same approach was taken as regards the Minister of Justice of Mongolia in the Hong Kong and South China Ltd case [2004] 2 Lloyd’s Rep 198, paras 123-126 at [125] – [126].”

“Donegal’s argument seems to be that the ostensible authority of Mr Kasonde derives from his usual authority as Minister of Finance, but this does not seem to me to answer an objection that his usual authority was restricted by the Constitution.”

“In order that a person may be held to have ratified an act done without his authority, it is necessary that, at the time of the ratification, he should have full knowledge of all the material circumstances in which the act was done, unless he intended to ratify the act and take the risk whatever the circumstances may have been. But knowledge of the legal effect may be imputed to him, and it is not necessary that he should have notice of collateral circumstances affecting the nature of the act.”

“If a principal knows the essentials of what happened as between the agent and the third party (in this case, that the agent entered into a quota share treaty on behalf of the principal with the third party), I find it difficult to see as a matter of justice and principle why that should not be sufficient knowledge for the purposes of ratification of the agent’s conduct vis-à-vis the third party. In most cases the principal will know or be in a position to find out very quickly whether the agent acted without authority, and that may account for the absence of direct authority on that issue.”

“170. The Trustee’s alternative case is that Ukraine ratified the agreements. This question is also governed by English law as the putative proper law of the contract. The Trustee relies primarily on the making of interest payments, the terms of the Moratorium Law, and references to the Notes in official, public documents as outstanding debt obligations of Ukraine. 171. Ukraine does not dispute as a matter of fact the matters relied on by the Trustee. However, it contends that as a result of Russian aggression in Crimea and eastern Ukraine, Ukrainian officials were not able to give free or adequate consideration to the Eurobonds. Further, from 17 December 2015 onwards, Ukraine had already reserved all its rights. For these and other reasons, Ukraine contends that the legal requirements are not met and that the Trustee cannot establish ratification under English law. It further submits that this issue is unsuitable for summary determination. 172. The court agrees with this submission. In order to assess the Trustee’s case it would be necessary to conduct a “mini-trial” examining the various acts and statements relied upon by the Trustee. That would be a major exercise and is neither permissible nor possible on a summary judgment application. 173. Further, Ukraine’s case is that it was unable freely to consider the legal position as regards the bonds because of the military steps being taken by Russia in Crimea and eastern Ukraine. There can be no question of dealing with ratification on a summary basis against that background. If the Trustee is not able to rule out lack of authority as a matter of law, it cannot rely on ratification at this stage in the proceedings.”

“41. There is a number of rules of English law which may result in an English court being unable to decide a disputed issue on its merits. Some of them, such as state immunity, confer immunity from jurisdiction. Some, such as the act of state doctrine, confer immunity from liability on certain persons in respect of certain acts. Some, such as the rule against the enforcement of foreign penal, revenue or public laws, or the much-criticised rule against the determination by an English court of title to foreign land (now circumscribed by statute and by the Brussels Regulation and the Lugano Convention) are probably best regarded as depending on the territorial limits of the competence of the English courts or of the competence which they will recognise in foreign states. Properly speaking, the term non-justiciability refers to something different. It refers to a case where an issue is said to be inherently unsuitable for judicial determination by reason only of its subject matter. Such cases generally fall into one of two categories. 42. The first category comprises cases where the issue in question is beyond the constitutional competence assigned to the courts under our conception of the separation of powers. Cases in this category are rare, and rightly so, for they may result in a denial of justice which could only exceptionally be justified either at common law or under article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms. The paradigm cases are the non-justiciability of certain transactions of foreign states and of proceedings in Parliament. The first is based in part on the constitutional limits of the court's competence as against that of the executive in matters directly affecting the United Kingdom's relations with foreign states. So far as it was based on the separation of powers, Buttes Gas and Oil Co v Hammer (No. 3) [1982] AC 888, 935–937 is the leading case in this category, although the boundaries of the category of “transactions” of states which will engage the doctrine now are a good deal less clear today than they seemed to be 40 years ago. The second is based on the constitutional limits of the court's competence as against that of Parliament: Prebble v Television New Zealand Ltd [1995] 1 AC 321. The distinctive feature of all these cases is that once the forbidden area is identified, the court may not adjudicate on the matters within it, even if it is necessary to do so in order to decide some other issue which is itself unquestionably justiciable. Where the non-justiciable issue inhibits the defence of a claim, this may make it necessary to strike out an otherwise justiciable claim on the ground that it cannot fairly be tried: Hamilton v Al Fayed [2001] 1 AC 395. 43. The basis of the second category of non-justiciable cases is quite different. It comprises claims or defences which are based neither on private legal rights or obligations, nor on reviewable matters of public law. Examples include domestic disputes; transactions not intended by the participants to affect their legal relations; and issues of international law which engage no private right of the claimant or reviewable question of public law. Some issues might well be non-justiciable in this sense if the court were asked to decide them in the abstract. But they must nevertheless be resolved if their resolution is necessary in order to decide some other issue which is in itself justiciable. The best-known examples are in the domain of public law. Thus, when the court declines to adjudicate on the international acts of foreign sovereign states or to review the exercise of the Crown's prerogative in the conduct of foreign affairs, it normally refuses on the ground that no legal right of the citizen is engaged whether in public or private law: R (Campaign for Nuclear Disarmament) v Prime Minister [2002] EWHC 2777 (Admin); R (Al-Haq) v Secretary of State for Foreign and Commonwealth Affairs [2009] EWHC 1910 (Admin). As Cranston J put it in the latter case, at para 60, there is no “domestic foothold”

“This is Court of Appeal authority for the proposition that the exertion of pressure by "lawful means" does not prevent the operation of the doctrine of economic duress. Whilst the particular examples in earlier cases, to which reference is made in the passage quoted above, do not take the matter much further, Steyn LJ refers to "the critical enquiry" as being "not whether the conduct is lawful but whether it is morally or socially unacceptable". He said in terms that that was the enquiry in which the court was engaged, although the Court should not set its sights too high and it might be a relatively rare care in which "lawful act duress" could be established, particularly in a commercial context.”

“All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any state, or in any other manner inconsistent with the Purposes of the United Nations.”

“The third rule has more than one component, but each component involves issues which are inappropriate for the courts of the United Kingdom to resolve because they involve a challenge to the lawfulness of the act of a foreign state which is of such a nature that a municipal judge cannot or ought not rule on it. Thus, the courts of this country will not interpret or question dealings between sovereign states; “Obvious examples are making war and peace, making treaties with foreign sovereigns, and annexations and cessions of territory”: per Lord Pearson in Nissan v Attorney General [1970] AC 179, 237. Nissan was a case concerned with Crown act of state, which is, of course, a different doctrine and is considered in Mohammed (Serdar) v Ministry of Defence; Rahmatullah v Ministry of Defence [2017] AC 649, 787, but the remark is none the less equally apposite to the foreign act of state doctrine. Similarly, the courts of this country will not, as a matter of judicial policy, determine the legality of acts of a foreign government in the conduct of foreign affairs. It is also part of this third rule that international treaties and conventions, which have not become incorporated into domestic law by the legislature, cannot be the source of domestic rights or duties and will not be interpreted by our courts. This third rule is justified on the ground that domestic courts should not normally determine issues which are only really appropriate for diplomatic or similar channels: see Shergill v Khaira [2015] AC 359, paras 40, 42.”

“144. There is no doubt as to the existence of the third rule in relation to property and property rights. Where the Doctrine applies, it serves to defeat what would otherwise be a perfectly valid private law claim, and, where it does not apply, the court is not required to make any finding which is binding on a foreign state. Accordingly, it seems to me that there is force in the argument that, bearing in mind the importance which both the common law and the Human Rights Convention attach to the right of access to the courts, judges should not be enthusiastic in declining to determine a claim under the third rule. On the other hand, even following the growth of judicial review and the enactment of the Human Rights Act 1998, judges should be wary of accepting an invitation to determine an issue which is, on analysis, not appropriate for judicial assessment. 145. I believe that this is reflected in observations of Lord Pearson in Nissan v Attorney General [1970] AC 179. Immediately after the passage quoted in para 123 above, he said, at p 237: “Apart from these obvious examples, an act of state must be something exceptional. Any ordinary governmental act is cognisable by an ordinary court of law (municipal not international): if a subject alleges that the governmental act was wrongful and claims damages or other relief in respect of it, his claim will be entertained and heard and determined by the court.”

“the court does not come to any decision as to the … rightness or wrongness, of the act complained of: the decision is that because it was an act of state the court has no jurisdiction to entertain a claim in respect of it.”

“This is a very unusual situation and strong evidence is required to prove that it exists in a particular case.” 146. In Yukos v Rosneft [2014] QB 458, para 66 Rix LJ suggested that “Lord Wilberforce's principle of ‘non-justiciability’ … has to a large extent subsumed [the act of state Doctrine] as the paradigm restatement of that principle”

“167. In my view, at least on the evidence available so far, and in agreement with Lord Mance and Lord Sumption JJSC, the acts complained of by Mr Belhaj and Mrs Boudchar [the claimants] do not fall within the third rule. There is no suggestion that there was some sort of formal or high-level agreement or treaty between any of the states involved which governed the co-operation between the executives of the various countries concerned. As already mentioned, the mere fact that officials of more than one country co-operate to carry out an operation does not mean that the third rule can be invoked if that operation is said to give rise to a claim in domestic law. It would be positively inimical to the rule of law if it were otherwise. 168. Having said that, even if the third rule otherwise applied, I would still hold that this was a case where, assuming that the claimants were detained, kidnapped and tortured as they allege, the public policy exception would apply. In that connection, Lord Sumption JSC's impressive analysis of the relevant international law is important in the present context because I consider that any treatment which amounts to a breach of jus cogens or peremptory norms would almost always fall within the public policy exception. However, as explained above, because the Doctrine is domestic in nature, and in agreement with Lord Mance and Lord Sumption JJSC, I do not consider that it is necessary for a claimant to establish that the treatment of which he complains crosses the international law hurdle before he can defeat a contention that the third rule applies.”

“(2) Affirmation” 254. It is convenient to consider affirmation first. The Trustee’s case is that the conduct of Ukraine subsequent to its entry into the transaction (including representations to the IMF in September 2016) would be interpreted by a reasonable observer as confirming its view that it was bound by the transaction, and would therefore as a matter of English law constitute affirmation of the transaction such that it cannot now purport to rescind it on grounds of duress. 255. Ukraine’s case is that it had no knowledge of its English law right to rescind on grounds of duress until March 2016. It says that following the transaction, Russia intensified the pressure. It says that there was no unequivocal manifestation of affirmation by Ukraine, and that from December 2015 Ukraine had expressly reserved its rights. 256. In the court’s view, the position is the same as that as regards ratification—see above. In agreement with Ukraine, affirmation is unsuitable for summary determination. In order to assess the Trustee’s case it would be necessary to conduct a “mini-trial” examining the various acts and statements relied upon by the Trustee, and Ukraine’s reservations. That would be a major exercise and is neither permissible nor possible on a summary judgment application. 257. Further, Ukraine’s case concerns military steps taken by Russia in Crimea and eastern Ukraine. There can be no question of dealing with affirmation on a summary basis against that background. If the Trustee is not able to rule out non-justiciability as a matter of law, it cannot rely on affirmation at this stage in the proceedings.”

“The court's conclusion is as follows: i) Ukraine correctly draws attention to the general principle that a term may be readily implied into a contract that a party will not seek to prevent performance. ii) Further, it can powerfully contend that military action by Russia in Crimea and eastern Ukraine has the economic effect of severely impeding the state's ability to meet its obligations under the Notes (it specifies the adverse effects on tax revenues). iii) Further, it is not in dispute that the Trustee acts on Russia's directions in this matter, and that Russia will be the beneficiary of repayment under the Notes so long as it retains them. iv) However, it is at this point that the legal nature of the transaction becomes decisive. For the reasons just given, the general principle that a term is necessarily implied in a contract that neither party will prevent the other party from performing it is inapt where the subject matter of the contract is transferable financial instruments such as the Notes because transferees or potential transferees have to be able to ascertain the nature of the obligation they are acquiring (or considering acquiring) from within the four corners of the relevant contracts. v) The fact that Russia may have intended to retain the Notes does not impinge on their transferability. The fact that Russia has not transferred the Notes is not legally relevant, because the question of the implication of terms has to be decided at the time of contracting, and not ex post (see the Marks and Spencer case at [21], supra). vi) The ambit of an implied term of this kind has to be defined by reference to the contract, and cannot be used to expand it: see James E McCabe Ltd v Scottish Courage Ltd [2006] EWHC 538 (Comm) at [17]: "… any implied term of co-operation or prevention from performance can only be given shape in the light of the express terms which set out the obligations of the parties …. A duty to co-operate in, or not to prevent, fulfilment of performance of a contract only has content by virtue of the express terms of the contract and the law can only enforce a duty of co-operation to the extent that it is necessary to make the contract workable. The court cannot, by implication of such a duty, exact a higher degree of co-operation than that which could be defined by reference to the necessities of the contract. The duty of co-operation or prevention/inhibition of performance is required to be determined, not by what might appear reasonable, but by the obligations imposed upon each party by the agreement itself." vii) In any case, on established principles as to implication, the proposed terms which Ukraine seeks to imply into the Trust Deed even in their minimal form would render the Notes unworkable and untradeable, and would thereby contradict their express terms. The Notes, in form and substance transferable, would effectively cease to be transferable. viii) The proposed terms are unnecessary to give business efficacy to the contract, which is effective without such terms, and are not capable of clear expression, and as pleaded (and even in the minimal form proposed in written submissions) are uncertain. ix) Additional to the above, the proposed terms relating to breaches of principles of international law are too uncertain to be incorporated by implication, and raise matters which for reasons set out above are non-justiciable. x) The legal test for the implication of terms is accordingly not satisfied, and references to the duty of good faith and/or the duty of cooperation do not alter that conclusion. xi) The court accepts the Trustee's submissions in these respects, and Ukraine's case to the contrary has no real prospect of success.”

"The courts' usual role in contractual interpretation is, by resolving ambiguities or reconciling apparent inconsistencies, to attribute the true meaning to the language in which the parties have themselves expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters which, ex hypothesi, the parties themselves have made no provision. It is because the implication of terms is so potentially intrusive that the law imposes strict constraints on the exercise of this extraordinary power . . . The question of whether a term should be implied, and if so what, almost inevitably arises after a crisis has been reached in the performance of the contract. So the court comes to the task of implication with the benefit of hindsight, and it is tempting for the court then to fashion a term which can reflect the merits of the situation as they then appear. Tempting, but wrong . . . And it is not enough to show that had the parties foreseen the eventuality which in fact occurred they would have wished to make provision for it, unless it can also be shown either that there was only one contractual solution or that one of several possible solutions would without doubt have been preferred."

“for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that it goes without saying; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”; but subject to the following six comments made by Lord Neuberger in Marks and Spencer plc at [21], viz: “First, in Equitable Life Assurance Society v Hyman [2002] 1 AC 408, 459, Lord Steyn rightly observed that the implication of a term was not critically dependent on proof of an actual intention of the parties when negotiating the contract. If one approaches the question by reference to what the parties would have agreed, one is not strictly concerned with the hypothetical answer of the actual parties, but with that of notional reasonable people in the position of the parties at the time at which they were contracting. Secondly, a term should not be implied into a detailed commercial contract merely because it appears fair or merely because one considers that the parties would have agreed it if it had been suggested to them. Those are necessary but not sufficient grounds for including a term. However, and thirdly, it is questionable whether Lord Simon’s first requirement, reasonableness and equitableness, will usually, if ever, add anything: if a term satisfies the other requirements, it is hard to think that it would not be reasonable and equitable. Fourthly, as Lord Hoffmann I think suggested in Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988, para 27, although Lord Simon’s requirements are otherwise cumulative, I would accept that business necessity and obviousness, his second and third requirements, can be alternatives in the sense that only one of them needs to be satisfied, although I suspect that in practice it would be a rare case where only one of those two requirements would be satisfied. Fifthly, if one approaches the issue by reference to the officious bystander, it is vital to formulate the question to be posed by [him] with the utmost care, to quote from Lewison, The Interpretation of Contracts 5th ed (2011), p 300, para 6.09. Sixthly, necessity for business efficacy involves a value judgment. It is rightly common ground on this appeal that the test is not one of absolute necessity, not least because the necessity is judged by reference to business efficacy. It may well be that a more helpful way of putting Lord Simon’s second requirement is, as suggested by Lord Sumption JSC in argument, that a term can only be implied if, without the term, the contract would lack commercial or practical coherence.”

“…... It is self-evident that any implied term of co-operation or prevention from performance can only be given shape in the light of the express terms which set out the obligations of the parties - see Mona Oil Equipment & Supply Co. Limited v Rhodesia Railways [1949] 2 AER 1014 at 1018, Luxor v Cooper [1941] AC 108 and Mackav v Dick (1881) 6 App Cas 251. A duty to co-operate in, or not to prevent, fulfilment of performance of a contract only has content by virtue of the express terms of the contract and the law can only enforce a duty of co-operation to the extent that it is necessary to make the contract workable. The court cannot, by implication of such a duty, exact a higher degree of co-operation than that which could be defined by reference to the necessities of the contract. The duty of co-operation or prevention/inhibition of performance is required to be determined, not by what might appear reasonable, but by the obligations imposed upon each party by the agreement itself”