Scottish Court of Session Decisions

The factual background

"In respect of the period from 1 January 2003 to 31 December 2004".

Clause 3.1 applied where the tenant had failed to perform its obligations under the lease or the amortised payment agreements, and required the defenders to perform the obligation in question "on demand". Clause 3.3 applied where certain events occurred, including the winding up of the tenant: if such an event occurred, the landlord was entitled to put an end to the lease and to require the defenders to accept a lease of the premises, on similar terms, for the unexpired period of the original lease, together with an agreement on similar terms to the amortised payment agreements. Clause 3.4 stated:

"The Guarantor shall be deemed to be released from its obligations under these presents on 1 January 2005 save in respect of any antecedent breach of the Guarantee occurring prior to 1 January 2005".

The relevant provisions of the guarantee are set out fully below.

1. Whether the reference in clause 3.4 of the guarantee to "any antecedent breach of the Guarantee" should be construed as meaning "any antecedent breach by the Tenant for which the Guarantor is liable in terms of the Guarantee", or (expressing the same idea in fewer words) "any antecedent breach of the Lease or of the Amortised Payment Agreements". If so, it is accepted that the pursuers' claim that the tenant was, prior to 1 January 2005, in breach of its repairing obligation under the lease is relevant for inquiry into the facts. If not, it is accepted that the pursuers' claim under the guarantee in respect of the cost of repairs must fail, unless they can demonstrate that a breach of the guarantee occurred prior to 1 January 2005.

2. If the first issue is decided against the pursuers, the issue which then arises is whether the pursuers' averments that a breach of the guarantee occurred prior to 1 January 2005 are relevant for inquiry. That issue turns on the question whether the sending of the schedule of dilapidations to the defenders during 2004 amounted to a "demand" within the meaning of clause 3.1 of the guarantee. If so, it is accepted that the defenders did not comply with the demand. If not, it is accepted that the pursuers' claim under the guarantee in respect of the cost of repairs must fail.

3. Whether it was an implied term of the guarantee that the defenders would not cause Callpoint Europe to oppose any petition for their winding up when they knew or ought reasonably to have known that the opposition was unjustified either in law or in fact. If so, it appears to be accepted that the pursuers' averments that the defenders acted in breach of that implied term are relevant for inquiry. If not, it is accepted that the pursuers' claim for damages must fail.

The lease

"To repair, maintain and renew:

3.7 At all times throughout the Period of this Lease at the Tenant's expense well and substantially to repair and maintain and when necessary where beyond repair and maintenance, renew, rebuild, and reinstate and generally in all respects keep in good and substantial condition the Premises .....".

There were in addition more specific obligations relating to the repair of plant, equipment and services (clauses 3.5.1 and 3.5.2) and to decoration (clauses 3.8 and 3.9). These were followed by obligations relating to the enforcement of the repairing obligations:

"To permit entry by the Landlord and others:

3.12 To permit the Landlord and its agents at all reasonable times with or without workmen on giving reasonable notice (except in emergency) to the Tenant to enter upon the Premises generally to inspect and examine the same to view the state of repair and condition thereof and to take a schedule of the Landlord's fixtures and of any wants of compliance by the Tenant with its obligations hereunder and to exercise the rights reserved to or conferred upon the Landlord by These Presents .....

To comply with notices to repair:

3.13 Well and substantially to make good all wants of compliance by the Tenant with its obligations hereunder of which notice in writing is given to the Tenant by the Landlord and that within such period which shall be specified in the notice being reasonable but shall not be less than two calendar months after the giving or leaving of such notice (or sooner if requisite in the case of emergency). If the Tenant fails to comply with any such notice it shall be lawful (but not obligatory) for the Landlord (without prejudice to the rights of irritancy hereinafter contained) to enter upon the Premises to make good the same at the cost of the Tenant which cost shall be repaid by the Tenant to the Landlord on demand together with all Solicitors' and Surveyor's charges and other expenses which may be incurred by the Landlord in connection therewith together with interest thereon at the Prescribed Rate in each case from the date of payment by the Landlord".

The guarantee

"2. GUARANTEE

2.1 The Landlord has leased the Property to the Tenant by virtue of the Lease and the Amortised Payment Agreements

2.2 The Guarantor has agreed to guarantee the due, punctual and full performance by the Tenant of the whole obligations of the Tenant under the Lease and the Amortised Payment Agreements on the terms and conditions as hereinafter provided

3. TENANT'S AND GUARANTOR'S OBLIGATIONS

In respect of the period from 1 January 2003 to 31 December 2004:

3.1 Whereas the Tenant is obliged at all times during the period of the Lease and the Amortised Payment Agreements to pay the rent and all other sums provided for in the Lease and the Amortised Payment Agreements on the days and in the manner specified and to observe, perform and implement the obligations and conditions contained in the Lease and the Amortised Payment Agreements and on the part of the Tenant to be observed, performed and implemented then if the Tenant shall make any default in the payment of the said rent or any other sum in the manner aforesaid or default in observing and performing the said obligations and conditions or any of them then and in any such case the Guarantor will pay, perform and implement or in any other case make good to the Landlord, on demand, on a full indemnity basis anything whatsoever which ought to be paid or observed or implemented or performed as aforesaid including without prejudice to the generality of the foregoing all interest, charges, losses, damages, costs and expenses due to or sustained by the Landlord through the default of the Tenant in respect of the beforementioned matters.

......

3.3 If the Tenant should go into liquidation or receivership or have an administrator or an administrative receiver appointed and the liquidator or receiver or administrator or administrative receiver as the case may be shall disclaim the Lease or the Amortised Payment Agreements or refuse or fail to perform the obligations of the Tenant thereunder or if the Tenant shall be wound up or cease to exist (or if the Tenant for the time being shall be an individual and shall become bankrupt and the trustee in bankruptcy shall disclaim the Lease or the Amortised Payment Agreements or refuse or fail to perform the obligations of the Tenant thereunder) or if the Landlord irritates the Lease or terminates the Amortised Payment Agreements and if the Landlord shall within three months after such disclaimer, irritancy or other event putting an end to the effect of the Lease or the Amortised Payment Agreements as aforesaid so far as concerns the Tenant by notice in writing require the Guarantor to accept a lease of the leased premises for a period commensurate with the remainder of the term of the Lease and the Amortised Payment Agreements which if there had been no disclaimer or if the Lease and the Amortised Payment Agreements had continued to have effect as aforesaid would have remained of the period thereof then unexpired at the same rent but subject to the review of rent on the same date or dates as provided for in the Lease and the Amortised Payment Agreements and subject to the same obligations and conditions as are provided for and contained in the Lease and the Amortised Payment Agreements including without prejudice to the generality of the foregoing provisions for review of rent to be carried out on the same day or dates as they would be due on in terms of the Lease, the said new lease and the Amortised Payment Agreements and the rights and liabilities thereunder to take effect as from the date of the said disclaimer or of the Lease or the Amortised Payment Agreements ceasing to have effect as aforesaid, then and in such case the Guarantor shall accept such new lease accordingly .....declaring that the acceptance by the Guarantor of a new lease shall under no circumstances be deemed, implied or construed to be a waiver of the rights of the Landlord to enforce its rights against the Guarantor in respect of any liability encumbent on the Guarantor in respect of any matter arising during the period prior to the date of entry under the new lease.

3.4 The Guarantor shall be deemed to be released from its obligations under these presents on 1 January 2005 save in respect of any antecedent breach of the Guarantee occurring prior to 1 January 2005".

The first issue: the construction of clause 3.4

"Words used as a medium of communication do not have a 'meaning' of their own. They do not have a 'meaning' independently of the person who utters them or the person who hears them"

("My Kingdom for a Horse: the Meaning of Words" (2005) 121 L.Q.R. 577). The point can be illustrated by the examples used by Lord Hoffmann in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] A.C. 749 at pages 774-775:

"I propose to begin by examining the way we interpret utterances in everyday life. It is a matter of constant experience that people can convey their meaning unambiguously although they have used the wrong words. We start with an assumption that people will use words and grammar in a conventional way but quite often it becomes obvious that, for one reason or another, they are not doing so and we adjust our interpretation of what they are saying accordingly. We do so in order to make sense of their utterance: so that the different parts of the sentence fit together in a coherent way and also to enable the sentence to fit the background of facts which plays an indispensable part in the way we interpret what anyone is saying. No one, for example, has any difficulty in understanding Mrs Malaprop. When she says 'She is as obstinate as an allegory on the banks of the Nile', we reject the conventional or literal meaning of allegory as making nonsense of the sentence and substitute 'alligator' by using our background knowledge of the things likely to be found on the banks of the Nile and choosing one which sounds rather like 'allegory'.

Mrs Malaprop's problem was an imperfect understanding of the conventional meanings of English words. But the reason for the mistake does not really matter. We use the same process of adjustment when people have made mistakes about names or descriptions or days or times because they have forgotten or become mixed up. If one meets an acquaintance and he says 'And how is Mary?' it may be obvious that he is referring to one's wife, even if she is in fact called Jane. One may even, to avoid embarrassment, answer 'Very well, thank you' without drawing attention to his mistake. The message has been unambiguously received and understood.

......

It is of course true that the law is not concerned with the speaker's subjective intentions. But the notion that the law's concern is therefore with the 'meaning of his words' conceals an important ambiguity. The ambiguity lies in a failure to distinguish between the meanings of words and the question of what would be understood as the meaning of a person who uses words. The meaning of words, as they would appear in a dictionary, and the effect of their syntactical arrangement, as it would appear in a grammar, is part of the material which we use to understand a speaker's utterance. But it is only a part; another part is our knowledge of the background against which the utterance was made. It is that background which enables us, not only to choose the intended meaning when a word has more than one dictionary meaning but also, in the ways I have explained, to understand a speaker's meaning, often without ambiguity, when he has used the wrong words."

"(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

.....

(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd.

(5) The 'rule' that words should be given their 'natural and ordinary meaning' reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in The Antaios Compania Naviera S.A. v Salen Rederierna A.B. [1985] A.C. 191, 201:

'....if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense'".

Following that approach, Lord Hoffmann rejected (at page 914) the view which the Court of Appeal had adopted, under reference to Through the Looking-Glass, that the interpretation adopted at first instance was "not an available meaning of the words":

"Finally, on this part of the case, I must make some comments upon the judgment of the Court of Appeal. Leggatt L.J. said that his construction was 'the natural and ordinary meaning of the words used'. I do not think that the concept of natural and ordinary meaning is very helpful when, on any view, the words have not been used in a natural and ordinary way. In a case like this, the court is inevitably engaged in chosing between competing unnatural meanings. Secondly, Leggatt L.J. said that the judge's construction was not an 'available meaning' of the words. If this means that judges cannot, short of rectification, decide that the parties must have made mistakes of meaning or syntax, I respectfully think he was wrong. The proposition is not, I would suggest, borne out by his citation from Alice Through the Looking-Glass. Alice and Humpty-Dumpty were agreed that the word 'glory' did not mean 'a nice knock-down argument'. Anyone with a dictionary could see that. Humpty-Dumpty's point was that 'a nice knock-down argument' was what he meant by using the word 'glory'. He very fairly acknowledged that Alice, as a reasonable young woman, could not have realised this until he told her, but once he had told her, or if, without being expressly told, she could have inferred it from the background, she would have had no difficulty in understanding what he meant."

"I think that in some cases the notion of words having a natural meaning is not a very helpful one. Because the meaning of words is so sensitive to syntax and content, the natural meaning of words in one sentence may be quite unnatural in another".

Consistently with that approach, whereas Lord Mustill based his conclusion in that case solely on an analysis of the provisions of the contract, Lord Hoffmann reinforced the same conclusion by reference to such external matters as the history of reinsurance clauses and the regulatory regime for insurers. That contextual approach appears to me to have been followed in the subsequent decisions of the House of Lords. I refer in particular to Mannai Investments, the Investors Compensation Scheme case itself (in which the other members of the majority in the House of Lords concurred in Lord Hoffmann's speech), Bank of Credit and Commerce International SA v Ali [2002] 1 A.C. 251 and Hombourg Houtimport BV v Agrosin Private Ltd (The Starsin) [2004] 1 A.C. 715.

"The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other".

"Dummodo constet de persona - provided it be evident who is the person meant. A legacy is valid, although there may be an error in the name or designation of the legatee, if from the whole deed or circumstances connected with it, it is sufficiently plain who is the person meant ....

Falsa demonstratio non nocet - An erroneous description does not injure. Where the description is merely expository, an error in it will not vitiate, if there be no doubt as to the identity of the person or thing intended to be specified. Thus if a testator left a bequest 'to my nephew William, son of my brother John', and the testator had a nephew William, but his brother John had no children, the bequest would still be a valid bequest to the testator's nephew, for the person intended to be benefited was quite certain, while the erroneous description of him as the son of a certain brother, being merely description, would be innocuous. Or, if the bequest was to my nephew William, 'residing in Queen Street' whereas the residence of the legatee was in George Street, this again being merely erroneous description, would not void the legacy. Again, where the false description is of the thing bequeathed, the same rule holds. A bequest of 'my diamond ring, which is locked up in my desk' is a good bequest of the ring, although not found as described; and a conveyance of 'my house in Queen Street occupied by AB', would be a good conveyance, although the house was not occupied, and had never been occupied by the tenant named ....

Falsa demonstratione legatum non perimi - A legacy is not rendered void by a false description. 'For instance, if the testator were to say, I give as a legacy Stichus, born my slave, the legacy is effectual, although the slave had not been a born slave, but bought, if it is clear as to the slave meant. And so if the slave be pointed out thus: 'Stichus, my slave, whom I purchased from Seius', the legacy is effectual, although he had been bought from some other person, provided there be no doubt as to the slave intended to be given'. Just. Inst. B.2, T.20 § 30. See also what has been said under the preceding maxim".

"Where it is apparent from the language of a will that the testator has not accurately or completely expressed his meaning by the words he has used, and it is also apparent what are the words that have been omitted, the necessary words may be supplied by construction in order to effectuate the intention as collected from the context".

"It is nonetheless important, in attributing a purpose to a commercial transaction, to be sure that it is the purpose of both parties and not just one. If the purpose of the transaction is seen through the eyes of one party only an unbalanced view of the transaction may result. Many contracts represent a compromise between what one party wishes to obtain and the other is willing to give".

"I take it to be clear in principle that the court should not interpolate words into a written instrument, of whatever nature, unless it is clear both that words have been omitted and what those omitted words were ....In the present case there is agreed to be an omission. It is also plain, in my opinion, for the reasons which Mr Gee gave, what words were omitted and how they came to be omitted. I would accordingly construe the clause as if the words 'acting as aforesaid and for the purpose of all the foregoing provisions of this clause the carrier' appeared in place of the square brackets I have inserted".

Lord Millett did not consider it essential that the court be certain of the precise words which were missing, observing (at para.194) that it was impossible to identify the particular precedent from which the clause had been taken, but that all the relevant precedents contained a similar provision in identical or nearly identical words. His Lordship said (at para.192):

"It is not necessary that the court should be certain precisely what words have been omitted; it is sufficient that it knows their gist. The process is one of construction, not rectification; this is evident from the fact that the Court of Chancery not infrequently supplied omissions in wills at a time when it had no jurisdiction to rectify them".

In Scots law, also, it appears to me that it is sufficient to know the substance of the missing words. I also observe that the process in Scots law is equally one of construction, not rectification: Lord Millett's observation about the Court of Chancery is also true of the Court of Session, as the discussion in McLaren on Wills and Succession (at paras 654 ff, "of supplying words necessary to complete the sense") demonstrates.

"I think it would be wrong to apply too literally Lord Bingham's reference to the need for clarity both as to the omission of words and 'what those relevant words were'. As Lord Millett said, it is sufficient if the court is able to ascertain 'the gist' of what has been omitted".

I respectfully agree with that view.

"In respect of the period from 1 January 2003 to 31 December 2004".

Clause 3.1, read short, then provides:

"....if the Tenant shall make any default in the payment of the ....rent or any other sum....or....in.....performing the said obligations (viz 'the obligations .....contained in the Lease and the Amortised Payment Agreements') ...then ....the Guarantor will pay, perform ....on demand".

Stopping at that point, the argument for the pursuers was premised on the proposition that what had to occur by the deadline of 31 December 2004 was merely a default by the tenant: the opening words of clause 3 were construed, in effect, as meaning:

"In respect of the Tenant's obligations during the period from 1 January 2003 to 31 December 2004".

It was common ground, however, that clause 3.1 requires two events to occur before the guarantor comes under an obligation: first, a default by the tenant, and secondly, a demand on the guarantor. The opening words might therefore be construed as meaning that the obligation is to arise in the event that both conditions are satisfied at any time during the period from 1 January 2003 to 31 December 2004.

"....if the Tenant shall be wound up....and if the Landlord shall...by notice in writing require a Guarantor to accept a lease....then....the Guarantor shall accept such new lease .....".

Like clause 3.1, clause 3.3 requires two events to occur before the guarantor comes under an obligation: first, the winding up of the tenant (or one of the other specified events), and secondly, the service of written notice on the guarantor. Although it might perhaps be argued that the opening words of clause 3, in their application to clause 3.3, required only the winding up to occur by 31 December 2004, counsel for the pursuers accepted that both events had to occur by that date: in other words, that the opening words meant that the obligation imposed by clause 3.3 was to arise in the event that both conditions were satisfied at any time during the period from 1 January 2003 to 31 December 2004. If that is so, then one would expect the same words to have the same meaning, mutatis mutandis, in their application to clause 3.1; a meaning which might be expressed as:

"In the event that the conditions precedent to the Guarantor's liability are satisfied at any time during the period from 1 January 2003 to 31 December 2004".

"The Guarantor shall be deemed to be released from its obligations under [clause 3.1 and clause 3.3] on 1 January 2005 save in respect of any antecedent breach of [clause 3.1 or clause 3.3]......"

Such a provision might be said to be superfluous; but the guarantee is replete with superfluities (e.g. "due, punctual and full", "observe, perform and implement", "obligations and conditions", "losses, damages, costs and expenses"), as counsel for the pursuers acknowledged, reflecting a lawyer's caution, or possibly the use of a style which has gathered verbiage over the years. The provision is not however nonsensical. There would be an antecedent breach of clause 3.1 if the tenant had defaulted on a quarterly payment (the last such payment prior to the end of 2004 being due on 28 November), or if the premises were not in the state of repair required by the lease, and a demand had been served on the guarantor before the end of the year (the guarantor being in "breach" under clause 3.1 if he failed to make the payment or to carry out the necessary repairs "on demand"). There would be an antecedent breach of clause 3.3 if notice had been served on the guarantor, requiring it to accept a new lease, and it had not done so.

"The Guarantor shall be deemed to be released from its obligations under [clause 3.3] on 1 January 2005 save in respect of any antecedent breach by the Tenant for which the Guarantor is liable.....",

since the obligation of the guarantor to accept a new lease under clause 3.3 does not arise in consequence of a breach of the lease by the tenant, but rather in consequence of the occurrence of one of the specified events. Counsel for the pursuers acknowledged this point, and argued that clause 3.4 therefore had no application to clause 3.3; but the difficulty with that argument is that clause 3.4 is expressly concerned with the guarantor's "obligations under these presents", which include the obligation imposed by clause 3.3.

"The Guarantor shall be deemed to be released from its obligations under [clause 3.1] on 1 January 2005 save in respect of any antecedent breach by the Tenant for which the Guarantor is liable .....".

As explained earlier, it is common ground that the guarantor does not come under an obligation under clause 3.1 merely by virtue of a breach by the tenant. For the guarantor to be under an obligation on 1 January 2005, from which it could be released, there would have to have occurred both a breach by the tenant and a demand on the guarantor. The proviso ("save....") is presumably intended to preserve an obligation which existed on 31 December 2004. Accordingly, even if construed as the pursuers would wish, clause 3.4 would not achieve the result which they desire: namely, to enable them to serve a demand on the guarantor after 1 January 2005 in respect of a breach by the tenant which occurred prior to that date, thereby triggering (for the first time) an obligation on the part of the guarantor. The difficulty for the pursuers, in other words, arises not only from the words "antecedent breach of the Guarantee", but also from the earlier reference to the guarantor's being "released from its obligations under these presents".

"If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other. The court is not privy to the negotiation of the agreement - evidence of such negotiations is inadmissible - and has no way of knowing whether a clause which appears to have an onerous effect was a quid quo pro for some other concession. Or one of the parties may simply have made a bad bargain".

"Almost all the old intellectual baggage of 'legal' interpretation has been discarded".

I note what was said by Arden L.J. in Egan v Static Control Components (Europe) Ltd [2004] 2 Lloyd's Rep.429, rejecting (at para.37) a submission that a guarantee should be construed contra proferentem:

"There is no reason of public policy why guarantees should not in general be construed in accordance with the principles enunciated in Prenn v Simmonds [1971] 1 W.L.R. 1381 and the ICS case."

"We act on behalf of Credential Bath Street Limited who is the current landlord under the Lease between Credential Charing Cross Ltd and Pertemps Callpoint Limited dated 14 June 2001 and recorded in the Books of Council and Session on 17 July 2001 in respect of the premises at 349 Bath Street, Glasgow under which you are guarantor.

We refer to clause 3.13 of the above lease and enclose the interim schedule of dilapidations prepared by CB Richard Ellis Limited detailing additional services works that are to be carried out within two months of the date of this notice.

Please acknowledge safe receipt".

The letter to Callpoint Limited was identical terms. The letter to the tenant omitted the words "under which you are guarantor", at the end of the first paragraph, but was otherwise identical.

"The following works require to be carried out by the tenant to make good defects and wants of repair to the premises, all in the terms of the aforementioned documentation".

"Prepared on behalf of:

Pertemps Group Ltd [i.e. the defenders]

c/o John Chivers Commercial".

The body of the document states:

"1.1.1 We were instructed by John Chivers Commercial to prepare a formal response to the Interim Schedule of Dilapidations prepared by CB Richard Ellis .....

......

1.4.1 Our response has been prepared under the terms of the lease between Credential Charing Cross Ltd, whose interest is now vested with Credential Bath Street Ltd (the landlord) and Pertemps Callpoint Ltd, whose interest is now vested with Callpoint Europe (the tenant) ....."

"The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene."

Like Lord Hoffmann (at page 780), Lord Steyn considered that the correct test for the validity of a notice was that posed by Goulding J. in Carradine Properties Ltd v Aslam [1976] 1 W.L.R. 442 at page 444:

"Is the notice quite clear to a reasonable tenant reading it? Is it plain that he cannot be misled by it?"

Lord Clyde also cited that dictum (at page 782), and continued:

"Delta Vale Properties Ltd v Mills [1990] 1 W.L.R. 445 concerned a vendor's notice to complete ....but I see no reason why any different principle of construction should apply. Slade L.J. observed at page 454:

'In my judgment, notices to complete ....if they are to be valid, must be sufficiently clear and unambiguous to leave a reasonable recipient in no reasonable doubt as to how and when they are intended to operate.'

The standard of reference is that of the reasonable man exercising his common sense in the context and in the circumstances of the particular case. It is not an absolute clarity or an absolute absence of any possible ambiguity which is desiderated.....

The text is an objective one. In circumstances where an estoppel might arise the actual understanding of the recipient may be relevant, but in general the actual understanding of the parties is beside the point."

The third issue: the implication of a term

"that the defender would not, by any voluntary act, impede the rights which the pursuer would have had under the Guarantee but for the defender's act".

In argument, however, counsel for the pursuers departed from that contention. The implied term, in the form in which it was finally advanced by the pursuers' counsel, was as follows:

"that the defender would not cause Callpoint Europe to oppose any motion for its winding up when it knew or ought reasonably to have known that the opposition was unjustified either in law or in fact (or in both)".

The pursuers maintain that, but for the defenders' breach of that implied term, they would have obtained a winding up order before 1 January 2005 and would have enforced the step-in obligation. In response, the defenders maintain that such a term cannot be implied, and that the winding up petition was in any event opposed on the advice of responsible senior counsel and solicitors and for proper reasons, and on the instructions of the sole director of Callpoint Europe acting in that capacity. The issue which the parties seek to have determined at present is whether the term in question can be implied into the guarantee.

"The critical question is whether a relevant restriction may be implied in [the provision in question]. It is certainly not a case in which a term can be implied by law in the sense of incidents impliedly annexed to particular forms of contracts. Such standardised implied terms operate as general default rules: see Scally v Southern Health and Social Services Board [1992] 1 A.C.294. If a term is to be implied, it could only be a term implied from the language of [the provision in question] read in its particular commercial setting. Such implied terms operate as ad hoc gap fillers. In Luxor (Eastbourne) Ltd v Cooper [1941] A.C.108, 137 Lord Wright explained this distinction as follows:

'The expression "implied term" is used in different senses. Sometimes it denotes some term which does not depend on the actual intention of the parties but on a rule of law, such as the terms, warranties or conditions which, if not expressly excluded, the law imports, as for instance under the Sale of Goods Act and the Marine Insurance Act ....But a case like the present is different because what it is sought to imply is based on an intention imputed to the parties from their actual circumstances'.

It is only an individualised term of the second kind which can arguably arise in the present case. Such a term may be imputed to parties: it is not critically dependent on proof of an actual intention of the parties. The process 'is one of construction of the agreement as a whole in its commercial setting': Banque Bruxelles Lambert S.A. v Eagle Star Insurance Co Ltd [1997] A.C. 191, 212E, per Lord Hoffmann. This principle is sparingly and cautiously used and may never be employed to imply a term in conflict with the express terms of the text. The legal test for the implication of such a term is a standard of strict necessity ....

The enquiry is entirely constructional in nature: proceeding from the express terms of [the provision in question], viewed against its objective setting, the question is whether the implication is strictly necessary."

"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 themselves have expressed their contract. The implication of contract terms involves a different and altogether more ambitious undertaking: the interpolation of terms to deal with matters for 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.

There are of course contracts into which terms are routinely and unquestioningly implied. If a surgeon undertakes to operate on a patient a term will be implied into the contract that he exercise reasonable care and skill in doing so. It is inconceivable that any patient would in any imaginable circumstance commit his bodily well-being to the ministrations of a surgeon who did not undertake that obligation, or that a surgeon could hope to remain in practice without professing to discharge it. Again, quite apart from statute, the courts would not ordinarily hesitate to imply into a contract for the sale of unseen goods that they should be of merchantable quality and answer to their description and conform with sample. It is hard to imagine trade conducted, in the absence of express agreement, on any other terms.

But the difficulties increase the further one moves away from these paradigm examples. In the first case, it is probably unlikely that any terms will have been expressly agreed, except perhaps the nature of the operation, the fee, and the time and the place of operation. In the second case, the need for implication usually arises where the contract terms have not been spelled out in detail or by reference to written conditions. It is much more difficult to infer with confidence what the parties must have intended when they have entered into a lengthy and carefully-drafted contract but have omitted to make provision for the matter in issue. Given the rules which restrict evidence of the parties' intention when negotiating a contract, it may well be doubtful whether the omission was the result of the parties' oversight or of their deliberate decision; if the parties appreciate that they are unlikely to agree on what is to happen in a certain not impossible eventuality, they may well choose to leave the matter uncovered in their contract in the hope that the eventuality will not occur."

"The implication of a term is to be compared, and at the same time contrasted, with rectification of the contract. In each case the problem is caused by a deficiency in the expression of the consensual agreement. A term which should have been included has been omitted. The difference is that with rectification the term which has been omitted and should have been included was actually agreed upon; with implication the term is one which it is presumed that the parties would have agreed upon had they turned their minds to it - it is not a term that they have actually agreed upon. Thus, in the case of the implied term the deficiency in the expression of the consensual agreement is caused by the failure of the parties to direct their minds to a particular eventuality and to make explicit provision for it. Rectification ensures that the contract gives effect to the parties' actual intention; the implication of a term is designed to give effect to the parties' presumed intention".

"In their [Lordships'] view, 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."

The requirement that the term must be capable of clear expression is illustrated by Shell UK Ltd v Lostock Garage Ltd [1976] 1 W.L.R. 1187, where the Court of Appeal rejected an implied term that a supplier of petrol under a solus agreement would not discriminate abnormally against the buyer. Ormrod L.J. said (at page 1201):

"The second obstacle is the difficulty in formulating the proposed terms, as demonstrated by the vagueness and ambiguity inherent in such words as 'discriminate' and 'abnormality'".

"The passage cited by Lord Shand from Bell's Principles (section 50) to the effect that 'If the debtor bound under a certain condition have impeded or prevented the event, it is held as accomplished. If the creditor has done all that he can to fulfil a condition which is incumbent on himself, it is held sufficient implement', expresses a doctrine, borrowed from the civil law, which has long been recognised in the law of Scotland, and I think it ought to be applied to the present case".

Lord Watson's approach in that passage was not based on the concept of an implied term. The dictum from Bell's Principles would not apply in the circumstances of the present case, since it could on any view be proper in some circumstances for the defenders to "impede or prevent" their subsidiary's liquidation, for example by enabling it to pay creditors or to oppose an unjustified petition for winding up.

"I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect".

That dictum has no application to the facts of the present case: the parties did not agree that the tenant was to be put into liquidation. Although clause 3.3 of the guarantee is conditional, this is not a case (unlike Nissho Iwai Petroleum Inc v Cargill International S.A. [1993] 1 Lloyd's Rep. 80, to which counsel for the pursuers also referred) in which it could be, or is, maintained that the parties impliedly agreed that neither party would do anything to prevent the fulfilment of the condition.

"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 will reflect the merits of the situation as they then appear. Tempting, but wrong. For, as Scrutton L.J. said in Reigate v Union Manufacturing Co (Ramsbottom) Limited [1918] 1 K.B. 592 at 605,

'A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, "What will happen in such a case", they would both have replied, "Of course, so and so will happen; we did not trouble to say that; it is too clear". Unless the Court comes to some such conclusion as that, it ought not to imply a term which the parties themselves have not expressed....'

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."

"4.3.9 An advocate may not accept instructions to act in circumstances where, in his professional opinion, the case is unstatable in law or where the case is only statable if facts known to him are misrepresented to, or concealed from, the court. If such circumstances arise after he has accepted instructions, he should decline to act further ...

.....

9.2.3 Pleadings. An advocate must have a proper basis on precognition or in the light of consultation with his client for stating a fact in any pleadings."

"that the defender would not cause Callpoint Europe to oppose any motion for its winding up when it knew or ought reasonably to have known that the opposition was unjustified either in law or in fact (or in both)".

"that the defenders will not cause Callpoint Europe to oppose any motion for their winding up when the defenders, or the solicitors or counsel acting on their behalf, know or ought reasonably to know that, on a balance of probabilities, the opposition is unlikely to be successful".

The fact that that is only one of the possible terms which might be devised demonstrates that the test of necessity is not met. In addition, such a term could not be said to be "so obvious that it goes without saying". Furthermore, such a term would not appear to me to be reasonable or equitable: it would be liable to prevent a winding up petition from being opposed in circumstances in which opposition would otherwise have been appropriate in professional and commercial terms; and it would be difficult to apply in practice, both by the defenders as a party to the contract, and by any court which required to enforce the term.

Conclusion