Implied contract claim

In Standish (“Standish”) and RBS (“RBS”) [2018], the High Court ruled that an alleged overarching agreement between the parties could not arise by implication.

THE FACTS

Standish were shareholders in a company which suffered financial difficulties, who were subsequently referred to RBS’s restructuring group, and subject to a process whereby the majority of its shares were transferred to an RBS subsidiary.

THE CASE

Standish claimed that RBS, and the chairman appointed by it, conspired to maximize their return through unlawful means. They based this claim on the existence of an implied overarching “Customer Agreement” between Standish and RBS, additional to the existing written agreements already agreed between the parties, and that therefore an implied duty to act in good faith existed. Standish as a result claimed that RBS had breached its duty of good faith in its management of the struggling company.

RBS argued that the shareholders failed to establish the existence of an implied Customer Agreement, and applied to strike out the claim on the basis that it had no reasonable prospect of success.

THE CUSTOMER AGREEMENT AND THE DUTY OF GOOD FAITH

As mentioned Standish sought to argue that there was an overarching Customer Agreement between RBS and the company, that contained implied terms for RBS to act in good faith. They referred to the bank’s policy to “Treat Customers Fairly” as pointing to the incorporation of a duty to act in good faith. However, the court dismissed this argument on the basis that there was no obvious reason for implying the existence of an overarching agreement between the parties without express terms. This is because as the parties were already dealing through established agreements, there was no need to imply another agreement to further govern the relationship between the parties. Standish failed to illustrate how and when the Customer Agreement would have been established and how the parties’ conduct would have been different if that contract had been in place. Furthermore, the Court could not see how the bank’s internal “Treat Customers Fairly” principles could be implied into what was an unregulated loan.

CONCLUSION

Ultimately,the claim was struck out by the Court,concluding that the alleged Customer Agreement was an artificial construct, divorced from the commercial realities of the dealings between the parties. This case highlights the difficulty of implying a contract and any subsequent duties that may arise. A contract may arise by implication only when it was necessary in order to give business efficacy to a transaction- an agreement or term may be implied only if without it, the contract would lack commercial or practical coherence. However, a contract will only be implied in very limited circumstances, and cannot exist simply by implication alone where parties are already dealing with one another on the basis of another agreement.

For more information on or any guidance or advice in drafting your commercial contracts, Cleveland & Co external in-house counsel, your specialist outsourced legal team are here to help.

 

 

 

 

 

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