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Strike out: court rejects implied contract claim

Elizabeth Staves

The High Court in Standish v RBS  held that an alleged overarching agreement was unnecessary and therefore could not arise by implication. There was no breach of an implied duty of good faith and the claim was struck out as it was bound to fail.

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

The shareholders claimed that RBS, and its appointed chairman of the company, unlawfully conspired to maximise their shareholding. One of the alleged unlawful means was that RBS acted in breach of an implied duty of good faith.

The shareholders based their claim on an implied overarching “Customer Agreement” between the company and RBS, which was additional to a series of written contracts. That agreement, they alleged, contained an implied term that each party would act in good faith. RBS argued that the shareholders were unable to establish the existence of the Customer Agreement and applied to strike out the shareholders’ claim.

The court reaffirmed that contracts may arise by implication but only where “necessary” on the facts, “in order to give business reality to a transaction” (The Elli 2). A term can only be implied if, without it, “the contract would lack commercial or practical coherence” (Marks & Spencer v BNPP).

The court held that the alleged Customer Agreement failed the necessity test. It was “a completely artificial construct” and a “transparent device” attempting to circumvent the difficulty of implying a duty of good faith into the written contracts. The court agreed with RBS that the claim was bound to fail and it was struck out on this basis.

Comments published on Compact Contract do not necessarily reflect the views of Allen & Overy or its clients.

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