Jackson v Dear, High Court
Jackson and Dear entered into an agreement under which Jackson was to be appointed a director of a company and retained as a director of that company at each annual general meeting unless certain events happened. The agreement also contained a “further assurance” clause under which each party had to take appropriate actions to give effect to the terms of the agreement, including Jackson’s appointment and retainer as a director.
Jackson was dismissed as a director at an annual general meeting by a notice given under the company’s articles of association, which required such notice to be given by two or more other directors. Jackson issued proceedings and the High Court had to decide: (i) whether it was an implied term that Jackson would never be removed as a director except for in those specific events listed in the contract; and (ii) whether the further assurance provision obligated the other directors not to remove Jackson using the articles of association, and, as well as that, whether there was an obligation to actually amend the right of removal under the articles of association to protect Jackson’s position.
The High Court ruled that Dear was obligated under the agreement with Jackson not to take any steps to remove him unless one of the specific removal events set out in the agreement had occurred. In addition, the further assurance provision obliged Dear not to make use of the right set out in the articles of association for Jackson to be removed.
The English courts have given a number of reasons why a court can imply a term into a contract, and there has not always been consistency across these reasons. The different reasons that have been given include: (i) where the term would give “business efficacy” to the contract; (ii) where the term reflects the intentions of the parties despite those intentions not being set out expressly in the contract; (iii) to give effect to what the contract would reasonably be understood to mean; and (iv) where it is needed to actually make the contract work.
There is an overlap between these different reasons and the ruling of the High Court in this case shows that the courts are willing to reconcile and even combine the different tests; the High Court here considered the test where the implied term is needed to give effect to what the contract actually meant, but also the test where the implied term is needed for the contract to actually work at all, of which, the High Court ruled, the business efficacy test formed part. The High Court combined the various tests and then considered the further assurance clause to give what it considered to be the preferred meaning to the agreement.
Simon Weinberg, a solicitor at Matthew Arnold & Baldwin LLP, comments: “This case shows the protection that parties can rely upon if a contract is not clear on a certain provision; however, it does not take away any importance from having clear, unambiguous and comprehensive drafting in the agreement to start with to avoid a dispute happening in the first place.”