Post Office Trial: Common Issues trial transcript: Day 12

This is the unperfected transcript of the 12th day of the Common Issues trial in the Bates and others v Post Office group litigation.

It was extremely painful to sit through, and anyone who can read the transcript in one sitting deserves a banana.

It is the first day of closing submissions from the claimants' QC Patrick Green, and should be read alongside Mr Green's written closing submission, which you can read on Scrib'd via this link or embedded on this blog here.

This is the menu for the other transcripts and the Common Issues Trial Menu which has links to my write-ups and more documents:
Common Issues trial menu
Day 1 transcript - Wed 7 November - Opening arguments
Day 2 transcript - Thu 8 November - Claimants: Alan Bates, Pam Stubbs part 1
Day 3 transcript - Mon 12 November - Pam Stubbs part 2, Mohammad Sabir
Day 4 transcript - Tue 13 November - Naushad Abdulla, Liz Stockdale
Day 5 transcript - Wed 14 November - Louise Dar
Day 6 transcript - Thu 15 November - Post Office: Nick Beal, Paul Williams
Day 7 transcript - Mon 19 November - Sarah Rimmer, John Breeden, AvdB part 1
Day 8 transcript - Tue 20 November - AvdB part 2
Day 9 transcript - Wed 21 November - AvdB part 3, Timothy Dance, Helen Dickinson, Michael Shields part 1
Day 10 transcript - Thu 22 November - Michael Shields part 2, Elaine Ridge, David Longbottom, Michael Webb
Day 11 transcript - Mon 26 November - Michael Haworth, Andrew Carpenter, Brian Trotter
Day 13 transcript - Tue 4 December - Claimants' closing argument: Patrick Green QC - part 2
Day 14 transcript - Wed 5 December - Post Office closing argument: David Cavender QC - part 1
Day 15 transcript - Thu 6 December - Post Office closing argument: David Cavender QC - part 2

Day 12 transcript follows:
                                        Monday, 3 December 2018

   (10.30 am)

                 Closing submissions by MR GREEN

   MR JUSTICE FRASER:  Good morning.  Mr Green.

   MR GREEN:  May it please your Lordship.  Apologies for the

       late delivery of the paper version, I should have

       explained.  There are two errors, amongst doubtless some

       other syntax errors in our closing, but two material

       ones which we have noticed.

           I think both of them were me rather than anyone else

       and I apologise to the court for them.  The first is in

       the section on the defendant's evidence at page 3.

   MR JUSTICE FRASER:  Page 3 of the first part?

   MR GREEN:  Yes, {A/6/7}.  And at paragraphs 8.6 and 8.7

       I have referred to Mr Haworth when I meant Mr Carpenter.

       So at 8.6 "Mr Haworth's reference to an interview at

       Sandsacre".

   MR JUSTICE FRASER:  Should be Mr Carpenter.

   MR GREEN:  Should be Mr Carpenter.  And at 8.7(b)

       Mr Haworth -- I did the same thing again.

           Then the other one we have noticed, and probably

       other infelicities we haven't, but at page 89 {A/6/93}

       in the same fact section of our submissions at

       paragraph 206.1.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  It's 19 April 2012, not 2004.  It was 19/4/12,

       not 19 April 2004.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  My Lord, subject to those corrections, I was

       proposing to take your Lordship immediately to start

       with Yam Seng, if I may, and the law.  Your Lordship

       will have seen that we briefly mentioned in our opening

       submissions what we thought was the correct sequencing

       of issues in terms of the actual way your Lordship

       should decide them, and we don't depart from that

       because that is contractual orthodoxy, ie starting with

       express terms then considering whether there should be

       any implied terms, broadly in that order.  But in this

       case it's quite difficult to separate out the matters

       which inform those two exercises hermetically but we

       will be drawing your Lordship's attention to particular

       aspects of the evidence which should inform one and

       perhaps not the other.

           That said, in our closing, the approach we have

       adopted is to say however your Lordship construes the

       express terms, the relationship that was expected by the

       parties, by which I obviously mean shorthand for

       notional reasonable parties in the position of these

       parties, was one which is quintessentially consistent

       with these being relational contracts.

           So just stepping back, before one gets into the

       precise terms which we will address carefully as well,

       stepping back from it, this relationship in its

       character and structure was, we respectfully submit,

       quintessentially consistent with those relationships

       typified by relational contracts.

           My Lord, can I immediately disavow one point which

       my learned friend made when he opened on the law which

       is we don't say that the mere attaching of a label,

       "relational contract", means that that imports various

       terms.  We respectfully adopt I think a point

       your Lordship made to my learned friend which is that

       "relational contract" is now a reasonably well

       understand tag or legal description of a type of

       contract into which such terms are likely to be implied

       but the precise scope of those terms is dependent on

       context.

           My Lord, can I make that good by reasonably close

       analysis of what is said in Yam Seng {A1.1/43/1}.

       Your Lordship is already familiar with it, and I will

       obviously be guided by your Lordship if I am going into

       too much detail on it, but I think it may be quite

       important to look --it's in the original authorities

       bundle that my learned friend opened with at tab 2.

           My Lord, if I am trespassing on points in relation

       to Yam Seng that your Lordship is already more than

       familiar with, I don't want to waste time.

   MR JUSTICE FRASER:  Can you just tell me the way these

       bundles of authorities work with the original one.

       There's parties' authorities for closings, authorities

       new to trial bundle.

   MR GREEN:  Yes.

   MR JUSTICE FRASER:  And then there is the bundles we already

       have.

   MR GREEN:  Yes.  So the parties agreed authorities for

       closings between themselves that were already on Opus

       and to have hard copies available to your Lordship.

       Those are the two white files.

   MR JUSTICE FRASER:  Volume 1 --

   MR GREEN:  Volume 1 and volume 2.

   MR JUSTICE FRASER:  Which go up to about 40 odd.

   MR GREEN:  Precisely.  Those volumes do not include the

       authorities referred to by my learned friend, or the

       ones that he had a hard copy of for opening, because we

       didn't want to give your Lordship another copy of

       authorities you had already written on.

   MR JUSTICE FRASER:  That was my reaction to the message

       I got from one of your juniors, which is that certain

       hard copies I had already marked up and I would like to

       keep using the same version.

   MR GREEN:  Exactly.  So we have excluded those from the

       agreed one.

   MR JUSTICE FRASER:  But the thing -- the reason I was a bit

       confused is some of these were in fact used in opening.

   MR GREEN:  Were mentioned in opening, my Lord, yes, but they

       weren't in the hard copy bundle my learned friend had

       provided --

   MR JUSTICE FRASER:  I see.

   MR GREEN:  -- as ones that would be referred to.

   MR JUSTICE FRASER:  I see.  When I saw the heading I thought

       they were new ones and I thought you had found 45

       authorities between you that you hadn't mentioned first

       time around.  Then when I looked at them I realised some

       of them you had, and then I thought maybe you had just

       forgotten you had, but obviously you hadn't.

           So these are the hard copies that both of you are

       going to use this week, is that right?

   MR GREEN:  My Lord, and the original one that my learned

       friend had, because it has Yam Seng and Wood and M&S.

       And then there are some additional new authorities which

       are in a separate new authorities bundle as well.

   MR JUSTICE FRASER:  Headed "Authorities New to Trial

       Bundle".

   MR GREEN:  Exactly.

   MR JUSTICE FRASER:  And that is the one that includes Amey v

       Birmingham City Council.

   MR GREEN:  Indeed.  So those are the ones the parties

       thought after opening appropriate to add.

   MR JUSTICE FRASER:  What you mean, after opening they

       thought them appropriate to add?

   MR GREEN:  Those authorities were not ones I think we had in

       mind during opening.  For example, your Lordship

       mentioned Birmingham v Amey during my learned friend's

       submissions in opening.

   MR JUSTICE FRASER:  Yes, because it is a recent

       Court of Appeal that mentions the existence of

       relational contracts.

   MR GREEN:  Precisely.  And because of that, any authority

       that the parties have identified since the trial

       opened --

   MR JUSTICE FRASER:  Is in here.  But not to be relied on

       this week in the sense of taking me to them, or are you

       going to do that as well?

   MR GREEN:  We will take you to some of them.

   MR JUSTICE FRASER:  If you are doing that, why aren't they

       in the other file as well?

   MR GREEN:  My Lord, I think it is because how what

       your Lordship wanted was understood, and if we have

       misunderstood it, I apologise.

   MR JUSTICE FRASER:  Anyway, we are going to Yam Seng which

       is in tab 2 of the bundle Mr Cavender provided for

       opening.

   MR GREEN:  Precisely.  My Lord, we respectfully say a fairly

       close reading of Yam Seng is important because it is

       important to identify with precision what

       Mr Justice Leggatt, as he then was, was saying in

       Yam Seng.  Secondly, to place that in the context of the

       law on implied terms generally.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  And thirdly, to look at this case and place it

       appropriately in that context.  Your Lordship will know

       that the section on implied duty of good faith begins at

       paragraph 119, which is Opus reference {A1.1/43/28} on

       page 1348 of the report.

           My Lord, if I may, can I just identify what the

       architecture of this part of the decision is and then

       deal with the relevant parts of it.

           So Mr Justice Leggatt addresses at 120 the subject

       of whether English law does or should recognise

       a general duty to perform contracts in good faith and

       hasn't had a particular decision where it was fully

       argued cited to him.

           Then he deals with general view of commentators,

       121, and then he looks at Walford v Miles at 122 and

       Professor McKendrick's commentary on traditional English

       hostility.

           And then at 124 he says, and we say importantly:

           "In refusing however if indeed it does refuse ..."

           Which is at large:

           "... to recognise any such general obligation of

       good faith this jurisdiction would appear to be swimming

       against the tide."

           Then Mr Justice Leggatt then deals with the EU

       context in paragraph 124 {A1.1/43/29}.  He then deals

       with the civil law/common law divide at 125, pointing

       out the United States has had the Uniform Commercial

       Code I think since 1951.  So it's not a civil common law

       divide at all.  And the approach of the United States

       obviously takes a snapshot of our common law at the

       moment of independence and develops the common law in

       the United States from that point.

           Then he deals with the Canadian and Australian

       authorities at 126 and 127, down I think all the way to

       129 {A1.1/43/30}, finishing 130 with a Scottish case,

       Scottish law recognition of the broad principle of good

       faith and fair dealing.  So that is the overview.

           My Lord, the only point by way of background -- we

       have uploaded, if it is of any interest, on to Opus, the

       UNIDROIT, the UN article in relation to international

       commercial contracts.  It is a matter really of general

       international commercial law background.  It is at

       {A2/62/1} on Opus, if we can bring that up.  It is one

       line, effectively, and it is -- if you go to page 2 of

       that.  Sorry, page 3.

   MR JUSTICE FRASER:  {A2/62/3}.

   MR GREEN:  {A2/62/3}.  This is the short point that

       Article 1.7 provides not only for good faith and fair

       dealing in international trade but also precludes the

       exclusion or limitation of the duty.

           My Lord, I give that by way of background, not

       because that is the situation in English law --

   MR JUSTICE FRASER:  You are just saying it is a concept that

       is widely recognised across the world including

       internationally.

   MR GREEN:  My Lord, yes.

   MR JUSTICE FRASER:  Which I don't think is controversial.

   MR GREEN:  I am grateful.  The more -- the finer issues are

       the analysis of then what follows at 131 onward which

       are points of particular importance {A1.1/43/30}.  131

       we say is one of the most important paragraphs in

       the judgment.

   MR JUSTICE FRASER:  131.  Because it says it is not in all

       commercial contracts but it is in some.

   MR GREEN:  Precisely, and because of the last sentence

       because --

   MR JUSTICE FRASER:  It is:

           "... the presumed intention of the parties."

   MR GREEN:  Yes.  And what is particularly significant,

       my Lord is -- Mr Justice Leggatt says:

           "Nevertheless, there seems to me to be no

       difficulty, following the established methodology of

       English law for the implication of terms in fact [not

       implication of terms in law], in implying such a duty in

       any ordinary commercial contract based on the presumed

       intention of the parties."

           The significance we say of that is that it is for

       your Lordship to make findings of fact on the basis of

       the evidence your Lordship has heard as to what is to be

       taken to be the presumed intention of the parties

       objectively, as your Lordship is well aware.

           It is on that footing specifically that

       Mr Justice Leggatt is contemplating the implication of

       these terms.  This becomes more significant when one

       starts to look at the implication of terms on different

       bases such as in the Geys case where he was suing his

       employer and Baroness Hale identifies the different

       bases upon which terms come to be implied.

           If we look at 132 --

   MR JUSTICE FRASER:  Just give me the Opus reference for

       Geys, if you would.

   MR GREEN:  The Opus reference for Geys is here.  It's in

       your Lordship's bundle V1/31 and the Opus reference is

       at {A1.1/42/1}.

   MR JUSTICE FRASER:  When you said "V", and pointed, is that

       what we are calling that?

   MR GREEN:  Yes, it's what in my notes I call the two

       volumes --

   MR JUSTICE FRASER:  That is fine.  As long as I know what

       that means.  (Pause)  Yes.

   MR GREEN:  Then at -- my Lord, I will just foreshadow what

       the submission will be so your Lordship can see where

       I am going, because I am going through Yam Seng in order

       largely but it is probably right that I foreshadow what

       the point is.  Our submission will be, and I will make

       it good, is that whatever approach you take to implied

       terms, whether you look at it as an implication in fact

       based on presumed intention, or whether you look at it

       on the basis of obviousness and necessity, or whether

       you look at it as Baroness Hale describes in Geys, on

       the basis of the terms which the law will imply in

       particular relationships, all roads lead to Rome.

   MR JUSTICE FRASER:  But in a way that should be -- you

       should get the same answer.

   MR GREEN:  You do.

   MR JUSTICE FRASER:  Whichever order -- well, whatever the

       answer is, one should arrive at the same answer in

       whichever order the test or tests are applied, because

       otherwise if that were not the case, you could in law

       have two different sets of contractual relationships

       depending on the order in which you analysed it, so it

       shouldn't make any difference.

   MR GREEN:  My Lord, yes.  We say that that analysis is

       correct because all of those approaches will generally

       lead to the same result.  But the fact that however you

       answer the question you are driven to the same answer,

       we say reinforces the correctness of that answer through

       those three different prisms.

   MR JUSTICE FRASER:  I can see that.  Because if you say if

       you take three different routes you get the same answer

       by the three different routes, then fair enough.  If

       there were three different routes and you got to

       a different result if you adopted one of the routes,

       that would be rather curious in law, wouldn't it?

       Because that would be deciding there was a difference in

       the meaning of the terms in law --

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  -- depending on whether you decided

       whether it was a relational contract at the end or

       whether you considered it at the beginning.

   MR GREEN:  Yes.

   MR JUSTICE FRASER:  Because it is the nature of the

       relationship, isn't it, that matters?

   MR GREEN:  Your Lordship is absolutely right, which is why

       we say that although these tests may be looked at from

       different standpoints, they are really one exercise.

   MR JUSTICE FRASER:  The exercise being construing the

       contract.

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  But there is other authority that says

       that is a unitary exercise anyway.

   MR GREEN:  Precisely, although aspects of the Belize

       decision which Mr Justice Leggatt refers to at 132 have

       been slightly qualified, possibly. {A1.1/43/30}

   MR JUSTICE FRASER:  One has to look at Marks & Spencer, not

       Belize --

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  -- now.  But that didn't exist in 2013

       which is why he doesn't mention it.

   MR GREEN:  Absolutely.  But what we say about 132 is that

       the reference to Belize at 132 is not one of three legs

       of a stool upon which this decision rests, such that if

       Belize is wrong, the decision is wrong.  What we say is

       that Mr Justice Leggatt is simply observing that

       the approach that he is identifying is at least

       consistent with the decision in Belize but not dependent

       upon it.

   MR JUSTICE FRASER:  On the basis that Belize I think is of

       considerably higher authority than a Commercial Court

       first instance decision it would have to be consistent

       with it, wouldn't it?

   MR GREEN:  My Lord, yes.  The only thing is when we look at

       observations in relation to Belize in subsequent

       Supreme Court authority, to the extent my learned friend

       may -- I will take your Lordship through it, I'm just

       foreshadowing what the point is.  But to the extent

       there is any suggestion that Belize may be slightly

       overstating the simplicity of the exercise, we say it

       doesn't have any material, it doesn't unpick the chain

       of reasoning in Yam Seng.

   MR JUSTICE FRASER:  Understood.

   MR GREEN:  Then at 133 onward, in our submission what

       Mr Justice Leggatt is doing is he is adopting an

       absolutely vanilla and contractually orthodox approach

       to the construction of contracts made against

       a background of unstated shared understandings which

       inform their meaning.  Because that is the background,

       that is part of the wide background against which

       contracts can be construed.  And then Mr Justice Leggatt

       stresses in the second sentence of 133 the orthodoxy of

       the breadth of that background based on well-known

       statements in ICS and so forth which are for these

       purposes uncontroversial.

           He identifies the shared values and norms at 134,

       third line {A1.1/43/2}, and in the last sentence of 134

       says:

           "Many such norms are naturally taken for granted by

       the parties when making any contract without being spelt

       out in a document recording their agreement."

           We say uncontroversial.

           And then we get into the passage which I think my

       learned friend dealt with in his opening where the

       concepts of honesty and good faith fall to be carefully

       treated and identified with precision, because we

       respectfully say that is an important part of (a) what

       Mr Justice Leggatt was saying, (b), insofar as anyone

       cares about it, what Chitty says --

   MR JUSTICE FRASER:  Chitty is somewhat at odds with this

       current state of the authorities, in my judgment.

       Whether that is because the editor who wrote that

       passage has some academic hostility to the concept or

       otherwise, I do not know.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  Textbooks are all very interesting, but

       in terms of priority it is judgments that make the

       difference.

   MR GREEN:  My Lord, I will just tell you what we say about

       Chitty.

   MR JUSTICE FRASER:  You can take me to Chitty, it might be

       entertaining, but you don't need to do that yet.  But

       you were talking about concepts of honesty and good

       faith, I think --

   MR GREEN:  Yes.

   MR JUSTICE FRASER:  -- fall to be carefully treated, but you

       didn't tell me how they fall to be carefully treated.

   MR GREEN:  That is what I am coming to.  I think there are

       two points.  One is they are not the same thing.

   MR JUSTICE FRASER:  They obviously aren't, because if they

       were --

   MR GREEN:  You wouldn't need --

   MR JUSTICE FRASER:  Also Yam Seng wouldn't make any sense

       because the judge says -- he actually says in terms in

       one particular sentence: all contracts require you to be

       honest, you just can't put it in because the very act of

       saying to someone "I want a contractual requirement that

       you are honest" is going to make them think that

       actually you are probably not going to be honest.

   MR GREEN:  Precisely.  So, my Lord, all I want to make

       absolutely clear is -- and your Lordship has the point

       in relation to the distinction in Yam Seng.

   MR JUSTICE FRASER:  But there is more between the parties in

       this case -- there is no argument that each party

       requires the other one to be honest.

   MR GREEN:  Precisely.  That is uncontroversial as far as

       I understand.

   MR JUSTICE FRASER:  For example, at the interview for any

       subpostmaster it would take an unexpected and

       interesting turn if the subpostmaster or postmistress

       expressed surprise to the interviewer if they told them

       they were expected to be honest.

   MR GREEN:  Yes, exactly.

   MR JUSTICE FRASER:  And vice versa.

   MR GREEN:  My Lord, the only wrinkle on that point which

       I wasn't going to deal with at this stage, but

       your Lordship will remember there is the NFSP wrinkle on

       not making changes dishonestly to the contract.  This is

       their pleaded case, it may be surprising, whatever it

       is, but this is still the pleaded case, even post

       Mr Beal's evidence, that the Post Office is not entitled

       dishonestly to exercise its power to vary.  That is how

       they have chosen to put it.  They've not said not in

       good faith, which would be commercially unacceptable,

       they have pinned their colours to the mast --

   MR JUSTICE FRASER:  That is because the concept of good

       faith is in issue anyway.  It would not be possible for

       them to plead a similar provision based on a requirement

       to act in good faith because it is in issue between

       parties as to whether these contracts have that as

       a requirement or not.

   MR GREEN:  Indeed.  But they have made a specific concession

       in relation to the power to vary that where the

       agreement -- where the change is not made with the

       involvement or agreement of NFSP ... I need to be

       precise, actually.  They are not allowed to exercise

       their power to vary dishonestly.  And given that honesty

       is supposed to run in every contract, that is a very

       surprising position to adopt.

           So, my Lord, I mention it because what appears to be

       thought to be uncontroversial in Yam Seng, and people

       generally might regard as uncontroversial, is not --

   MR JUSTICE FRASER:  Mr Cavender made clear on the first day

       how he was approaching the concept of honesty/relational

       contracts/good faith.  But so far as your case is

       concerned, you are drawing a distinction between honesty

       which you say applies anyway to all commercial

       contracts.

   MR GREEN:  Yes.

   MR JUSTICE FRASER:  And a requirement of good faith which is

       different and in some situations potentially a lower

       hurdle.

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  Is that right?

   MR GREEN:  Indeed.  My Lord, the only observation we make in

       relation to honesty is simply to say the requirement of

       honesty in all contracts is not obviously consistent

       with what has been pleaded and is still pleaded --

   MR JUSTICE FRASER:  That may or may not -- that is a bit of

       a forensic point on the pleading really.  In terms of

       the characterisation of these contracts, you say -- and

       I don't currently understand this to be in issue and

       I am sure it isn't but, if it is, Mr Cavender will sort

       it out on Wednesday -- both parties or all parties

       obviously were expecting to conduct themselves honestly.

   MR GREEN:  Indeed.  That is what we say and we say that is

       clear.  Then the second point your Lordship made to me

       is that we also go further and say that the obligations

       of good faith, fair dealing, transparency and mutual

       trust and confidence in issue 1 are to be implied in

       this case.

   MR JUSTICE FRASER:  Because it is a relational contract,

       because they are relational --

   MR GREEN:  Because they are relational, precisely.

   MR JUSTICE FRASER:  Because there is more than one --

   MR GREEN:  They are relational contracts --

   MR JUSTICE FRASER:  -- type of form --

   MR GREEN:  Exactly.

   MR JUSTICE FRASER:  And that, you say, arises as a result of

       the particular type or characterisation of these

       particular contracts to run branch post offices for the

       Post Office.

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  I understand that.

   MR GREEN:  On the basis of all the evidence your Lordship

       has heard.

   MR JUSTICE FRASER:  I understand that.  However, to knock

       you off your course slightly early, probably, but it

       still needs to be dealt with, if you turn back to

       Lord Bingham in Interfoto who is quoted at

       paragraph 121, he is dealing with the late 1980s

       approach to this, paragraph 121 {A1.1/43/28}.  He

       says -- he is summarising what could be said to be the

       traditional approach of English contract law, that is

       there is no such legal principle.  But in his final

       paragraph or passage at G, Mr Green, he says:

           "English law has characteristically committed itself

       to no such overriding principle but has developed

       piecemeal solutions in response to demonstrated problems

       of unfairness."

           So what he says is there is no such overriding

       principle.  But the way English law does it, it develops

       a rather patchwork quilt type approach if there is

       a demonstrated problem of unfairness.

           Now, taking the second part of that sentence for the

       purposes of argument, if that is correct, how does

       English law go about analysing whether there is such

       a demonstrated problem of unfairness such that it

       decides it needs to adopt a piecemeal solution?  Because

       one of -- to adopt some imagery Mr Cavender used when he

       told me I was looking at privilege from the wrong end of

       the telescope, if you look at this from two ends of the

       telescope, one of them is from the beginning of the

       telescope the Yam Seng: look at the relationship as

       a whole, is it a relational contract for this host of

       reasons?  And, if it is, that characterises the type of

       relationship the parties have.

           Lord Justice Bingham is saying if there is

       a demonstrated problem of unfairness, then English law

       might develop or would develop a piecemeal solution,

       which seems to be rather from the other end of the

       telescope.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  So what factors does the court take into

       account, or should it, if it wants to analyse the

       situation as whether or not there is a demonstrated

       problem of unfairness?

   MR GREEN:  My Lord, what we respectfully say is the factor

       that seems -- you can find by analogy across the piece,

       and I will show your Lordship how that works in adjacent

       situations, is a stark asymmetry of bargaining power

       between the parties and a stark asymmetry of power

       within the terms of the contract.  So that is the

       unfairness perspective.  But we would respectfully say

       that in fact what has happened with Yam Seng has not

       sprung directly from that analysis because it can also

       apply in contracts where the parties are on a relatively

       equal footing --

   MR JUSTICE FRASER:  I know, and it is obvious that Yam Seng

       is different to what Lord Justice Bingham said.  That is

       why I am asking you the question.  You are saying

       a piecemeal solution would be suitable or called for if

       there is a demonstrated problem of unfairness and in

       that case you say the unfairness is the asymmetry of

       bargaining power.

   MR GREEN:  And it is the asymmetry of bargaining power

       coupled with the fact that the architecture of the

       contractual relationship is such that the contracts are

       replete with discretion and control in the hands of the

       defendant including the making of decisions as between

       the defendant and the claimants, or subpostmasters

       generally, within the course of the relationship.

   MR JUSTICE FRASER:  What sort of decisions?

   MR GREEN:  For example, whether to agree a disputed

       transaction correction.  For example, Mr Bates.  In his

       conditions of employment, my Lord, he was specifically

       required to have a National Lottery terminal in

       a prominent position in his branch.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  In his COA.  Not in the SPMC somewhere, in his

       specific conditions of appointment that he thought were

       his contract.  He builds up, doubles the sales.  He

       relies on that income in his business plan in committing

       to the relationship, he builds up the sales hugely, and

       about, I can't remember, it was a year down the line or

       so, Post Office say "Yes, we are taking the Lottery and

       putting it in another less profitable post office".

           In a context where the defendant prays in aid this

       is a business-to-business relationship, that is

       an example of the perhaps surprising level of control in

       relation even to what products and services someone is

       allowed to offer when they have entered into the entire

       relationship on the viability of the post office in

       reliance on having income from that source.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  So I give that as a practical example which is

       perhaps different to some of these other examples we

       have been canvassing more extensively in evidence.

   MR JUSTICE FRASER:  But putting factual examples to one

       side, you are saying it is the imbalance -- the

       unfairness of bargaining power, the asymmetry of how the

       relationship would or could operate, and the discretion

       and control in the hands of the Post Office --

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  -- in terms of that.

   MR GREEN:  Indeed.  And, of course, your Lordship will

       appreciate that from whatever angle you look, the

       authorities are replete with support for that approach.

   MR JUSTICE FRASER:  For your approach?

   MR GREEN:  Indeed.  Because if you look at -- even if you

       look at the old cases on an account, if you look at --

   MR JUSTICE FRASER:  Very, very old cases.

   MR GREEN:  Very, very old cases on account.  The commanding

       position of, in that case, the agent driving up the

       bill, it is that asymmetry of position.  The lack of

       information, because there is also the asymmetry of

       information point which I would add to the list.  It is

       the commanding position of the agent and the lack of

       full and proper information of in that case the

       principal, who was in the weaker position, which led to

       the account being unconscionable for the court to allow

       the person in the commanding position to take advantage

       of what was said to be an account.  So that is that

       case.

           Autoclenz, which I lost in the Supreme Court.  The

       imbalance in the position of the parties who were not

       employees.  I'm not sure that has been fully taken

       on board by my learned friend, they are workers but not

       employees.  The imbalance in the relationship between

       the parties is what Lord Clarke finds to be the key

       factor allowing the court to look particularly carefully

       at what the true agreement really is.  So that is in

       that situation.

           You have then got the cases to which

       Mr Justice Leggatt is referring in 145 at {A1.1/43/33}.

   MR JUSTICE FRASER:  You are now going on to the relational

       side of it?

   MR GREEN:  No, I am not, my Lord.  I am still on the point.

   MR JUSTICE FRASER:  So where are we going?  145?

   MR GREEN:  {A1.1/43/33}, paragraph 145 at H.

   MR JUSTICE FRASER:  That is within the framework of your

       primary case on it being relational.

   MR GREEN:  It is.  But I am just giving this example as

       where imbalance in power has been addressed by implied

       terms, because that is your Lordship's question.

   MR JUSTICE FRASER:  No, it isn't actually, it's a slightly

       different point.  Well, it might be a markedly different

       point.

           What I was exploring was if the court doesn't adopt

       the Yam Seng relational approach but adopts the

       traditionally English hostile approach to general

       concepts and concentrates on a piecemeal solution in

       response to a particular problem, how do you identify in

       the first place whether that particular problem arises,

       or, sorry, is present or not?  Because unless you know

       there is a problem then you cannot go on to consider

       a piecemeal solution.

   MR GREEN:  Absolutely.  The point I was seeking to make,

       perhaps not sufficiently clearly, is that obviously

       we -- I have given the accounting example, disparity of

       power, as an indicator of a problem which requires

       addressing, piecemeal addressing.  Autoclenz, a common

       law response, piecemeal addressing.  And then if you

       look at --

   MR JUSTICE FRASER:  In Autoclenz you say it was the

       imbalance of the relationship between the parties, it's

       the principle I get from that.  And as well as that, we

       have also got the asymmetry of how the relationship was

       to operate.

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  And the extent of discretion and control

       in the hands of one of the contracting parties.

   MR GREEN:  Exactly.  And just by way of example of the

       extent of discretion and control the courts have

       responded to the unfairness that, unchecked, that would

       allow with a piecemeal solution that Mr Justice Leggatt,

       albeit for narrative purposes, almost, refers to at 145.

       Because what he is dealing with, if your Lordship looks

       halfway down 145, the sentence "Moreover":

           "Moreover such a concept is, I believe, already

       reflected in several lines of authority that are

       well-established.  One example is a body of cases

       already mentioned in which duties of cooperation in the

       performance have been implied."

           And then another consists of authorities which show

       that a power conferred by a contract on one party to

       make decisions which affects them both must be exercised

       honestly and in good faith for the purpose for which it

       was conferred, and must not be exercised arbitrarily,

       capriciously or unreasonably.

           So that is actually a piecemeal solution to

       unfairness that would result if that imbalance of power

       were able to find expression unchecked in the operation

       of the contract.

           My Lord, that reference to that line of authority

       pre-dates the Braganza authority which your Lordship

       will find in V2 at 38.

   MR JUSTICE FRASER:  Are we going there now?

   MR GREEN:  I can just tell your Lordship what the point is

       {A1.1/59/1}.  If your Lordship looks at page 9 of that

       authority {A1.159/9}, paragraph 18 -- or perhaps one

       should start at 17 to give it context.  Your Lordship

       will remember the case, it was a widow whose husband had

       disappeared at sea.

   MR JUSTICE FRASER:  Who might have committed suicide.

   MR GREEN:  Yes:

           "This case raises two interlinked questions of

       principle, one general and one particular.  The

       particular issue is the proper approach of a contractual

       fact-finder who is considering whether a person may have

       committed suicide.  Does the fact-finder have to bear in

       mind the need for cogent evidence before forming the

       opinion that a person has committed suicide?  The

       general issue is what it means to say that the decision

       of a contractual fact-finder must be a reasonable one.

       There are many statements in the reported cases to the

       effect that the principles are well settled and well

       understood, but this case illustrates that all is not as

       clear or as well understood as it might be.  Then he

       deals with the contractual terms which give one party:

           "... the power to exercise a discretion or to form

       an opinion as to relevant facts are extremely common."

           My Lord, pausing there.  What Baroness Hale is

       dealing with at this point is this general category of

       discretion, or discretionary decision-making, either, in

       the hands of one party over the other.  It is not

       limited to decisions on particular facts at this point.

           "It is not ..."

           Quite rightly, and, my Lord, I don't want any of our

       submissions to be understood as contradicting this:

           "It is not for the courts to rewrite the parties'

       bargain for them, still less to substitute themselves

       for the contractually agreed decision-maker."

           That is not what is being contended:

           "Nevertheless, the party who is charged with making

       decisions which affect the rights of both parties to the

       contracts has a clear conflict of interest.  That

       conflict is heightened where there is a significant

       imbalance of power between the contracting parties as

       there often will be in an employment contract.  The

       courts have therefore sought to ensure that such

       contractual powers are not abused.  They have done so by

       implying a term as to the manner in which such powers

       may be exercised, a term which may vary according to the

       terms of the contract and the context in which the

       decision-making power is given."

           As your Lordship knows, the decision goes on to find

       that there is in fact an implied term governing the --

       your Lordship will see it on page 1 in the headnote,

       an implied term governing the exercise of the

       contractual power.

           As summarised in the headnote:

           "Where contractual terms gave one party to

       a contract the power to exercise a discretion or form an

       opinion as to relevant facts, it is not for the court

       make that decision for them."

           Uncontroversial.

           "But where the decision would affect the rights and

       obligations of both parties there was a conflict of

       interest and the court would seek to ensure power was

       not abused by implying the term in appropriate cases

       that the power should be exercised not only in good

       faith but also without being arbitrary, capricious or

       irrational in the sense in which that term was used when

       reviewing the decisions of public authorities and, that

       it followed that such a decision could be impugned not

       only where it was one that no reasonable decision-maker

       could have reached but also where the decision-making

       process had failed to exclude extraneous considerations

       or take into account all obviously relevant ones."

           So, my Lord, it is obviously importing effectively

       a public law test but the premise for its import is

       twofold: firstly, an implied terms approach to which --

       which we see in ordinary commercial contracts, to which

       Mr Justice Leggatt has referred at 145H generally,

       nothing controversial about that.

   MR JUSTICE FRASER:  Are we going back to Yam Seng now?

   MR GREEN:  I'm still in Braganza, just to make the point

       good.  But then we see it, how does that find expression

       in a situation such as this where the imbalance between

       the parties makes the conflict of interest particularly

       acute?

           So it is that point which wherever you look across

       the spectrum of the common law you find piecemeal

       solutions being developed adjacently.  So we

       respectfully say that if you look from the Interfoto

       perspective of piecemeal solutions, the terms for which

       the claimants are contending in this case would be

       directly specific piecemeal solutions on the basis of

       the specific provisions and nature of this contract in

       any event.  So your Lordship would arrive at the same

       answer by identifying I think probably the right order,

       which I think may have been what your Lordship was

       asking me, in terms of how one actually identifies

       whether there is this type of unfairness to which

       Lord Justice Bingham, as he then was, was referring.

           It may be to look at the position of the parties

       themselves to see whether they are on equal footing,

       then to look at the contractual terms and see what

       contractual discretion, power and control does the

       contract afford, one party over another.  Then to look

       at what controls would it be assumed the parties --

       honest and reasonable parties in the position of the

       contracting parties, would assume prior to contracting,

       would govern the exercise of those powers of control.

           So, for example, how would a contracting

       subpostmaster anticipate that a disputed shortfall would

       be resolved?  Would it be by ignoring a plainly relevant

       factor or would it be by taking it into account, the

       Braganza approach?  Would it be by making a manifestly

       unreasonable decision, or would it be by making one that

       fell within the wide bounds of Wednesbury

       reasonableness?

   MR JUSTICE FRASER:  It is not how would a contracting

       subpostmaster anticipate a disputed shortfall to be

       resolved --

   MR GREEN:  It is both parties.

   MR JUSTICE FRASER:  Exactly.  It is what would be the

       presumed intention of both parties about how that would

       happen.

   MR GREEN:  Indeed.  My Lord, we respectfully say it would be

       uncontroversial that a reasonable person, reasonable

       party in the position of the Post Office, would agree.

   MR JUSTICE FRASER:  It is highly controversial.

   MR GREEN:  My Lord, not when you get their witnesses in

       the witness box and ask them, and not when you read

       their induction booklet.

   MR JUSTICE FRASER:  That is all subjective intention.

   MR GREEN:  My Lord, yes, up to a point.

   MR JUSTICE FRASER:  I can't remember which witness it was,

       I think it was Mr Beal, said that the provision in the

       NTC that deals with losses was intended to have exactly

       the same effect as the provision in the SPMC.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  If that is right, it is drafted

       remarkably differently.  But that is subjective

       intention anyway, so it's not particularly notable or

       relevant.

   MR GREEN:  The only thing I think that -- there are two

       points which the evidence about what people understood

       goes to.  Three points.  The first point is subjective

       intention is not the right test which is

       uncontroversial --

   MR JUSTICE FRASER:  You will only ever get subjective

       intention out of a witness.

   MR GREEN:  Of course, precisely.  So that is all you get

       from a witness.  But what you can tell is as to the

       clarity, the alleged clarity of the terms, if none of

       Post Office's witnesses, some of whom appear to have

       been, at least from the witness statements' perspective,

       people actually explaining on the ground on branch

       transfer day what these things meant.  None of them even

       understood those things, and even people charged with

       policy don't understand them.  That may inform the

       court's view as to how clear they would be likely to be

       to subpostmasters and inform the court's view as to

       where we are on the Wood spectrum on clarity of

       drafting.

           So that is quite an important point because as

       your Lordship may have noticed, my learned friend rather

       finesses the Wood spectrum.  Can I deal with that point

       really quickly because it is a short point albeit in the

       course of rather wider submissions.

           It's in my learned friend's closing at page 24 which

       is {A/8/28}.

   MR JUSTICE FRASER:  Which paragraph?

   MR GREEN:  Paragraph 62, internal page 24.  Mine has printed

       out differently.

   MR JUSTICE FRASER:  So has mine.

   MR GREEN:  So it's {A/8/27}.  Paragraph 62.  My Lord, we

       respectfully suggest that the Post Office's attempt to

       suggest that their contractual documents are at the

       clear, sophisticated, negotiated and prepared with the

       assistance of skilled professionals end of the spectrum

       for the purposes of a Wood analysis is wholly flawed and

       wrong on the evidence your Lordship has heard.  That is

       obviously a matter for the court.  But the point that

       I wish to draw your Lordship's attention to is the

       finessing of the wording within Wood in paragraph 62, so

       halfway between the two hole-punches.  Does

       your Lordship see the underlined words? {A/8/28}

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  It is:

           "... and because they have been negotiated and

       prepared ..."

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  "... with the assistance of skilled

       professionals."

           That is the Herbert Smith, Linklaters point.

           Then your Lordship looks at 63 --

   MR JUSTICE FRASER:  I saw this in opening, it is the:

           "... carefully negotiated and/or professionally

       drafted ..."

           Because the situation insofar as negotiation is

       concerned is rather different in this case than it is in

       that one.

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  But it was undoubtedly professionally

       drafted.

   MR GREEN:  Indeed.  It was drafted by professional people.

   MR JUSTICE FRASER:  That is what professionally drafted

       means.

   MR GREEN:  My Lord, yes.  We respectfully --

   MR JUSTICE FRASER:  You are saying professional people

       instructed by the Post Office to draft for the

       Post Office rather than somebody instructed to act for

       a subpostmaster.

   MR GREEN:  We do.  So it wasn't negotiated --

   MR JUSTICE FRASER:  To which Mr Cavender would say it was

       negotiated with the National Federation of

       Subpostmasters who are effectively either a trade union

       or an independent body whose purpose is to represent

       subpostmasters.

   MR GREEN:  Yes.  I'm not sure the SPMC can necessarily --

   MR JUSTICE FRASER:  No, the SPMC may not, but the SPMC was

       drafted in somewhat clearer terms than the NTC, at least

       so far as losses is concerned.

   MR GREEN:  Indeed.  The short point we make is that what is

       being envisaged conjunctively by that phrase in Wood --

   MR JUSTICE FRASER:  Parties both professionally represented,

       yes, and you say that is different to this.

   MR GREEN:  Yes.  That's point one.  And the second point is

       this is looking at -- the quality of the drafting and

       its clarity is also a factor in making a proper

       appraisal of where you are in this spectrum for the

       purposes of looking at how sufficient and clear and

       decisive the language of the express terms is.  We say

       that was not very clear either.

   MR JUSTICE FRASER:  What do you say is not very clear?

   MR GREEN:  The way that the contractual -- the contracts

       were presented and their content.

   MR JUSTICE FRASER:  They are two different points.

   MR GREEN:  They are two different points.  We say both of

       them were unhelpful.  Your Lordship has our point on

       presentation which is a separate one.

   MR JUSTICE FRASER:  That is a completely separate --

   MR GREEN:  In relation to the contractual terms, the precise

       terms of which I will deal with later, if I may, we are

       going to respectfully say that actually what they are

       addressing is not actually that clear, partly because

       the SPMC was drafted prior to Horizon coming in.  It is

       dealing with cash and stock at the branch.

   MR JUSTICE FRASER:  Correct.

   MR GREEN:  As is plain from the heading.

   MR JUSTICE FRASER:  But it does that in two different

       places.

   MR GREEN:  It does.

   MR JUSTICE FRASER:  It deals with cash and stock

       specifically and then it also deals with losses

       specifically.

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  But within the context of a paper-based

       system.

   MR GREEN:  Precisely.  And if one looks at the heading, that

       is the heading of the whole section, and no change to

       that express wording was made when Horizon was

       introduced, so that is the context of that.

   MR JUSTICE FRASER:  But if subjectively the Post Office, as

       they say, only ever intended and expected to hold

       subpostmasters post-Horizon to losses which had arisen

       as a result of their fault or carelessness, they would

       not have needed to make any changes.

   MR GREEN:  My Lord, we say precisely.  Yes.  We say the fact

       no change was made is not insignificant.  But the short

       point is that the precise way the wording and contract

       is structured had not had in mind the way Horizon

       in fact operated.

   MR JUSTICE FRASER:  Understood.

   MR GREEN:  So that is the point in relation to that.

   MR JUSTICE FRASER:  But we are moving a little bit off the

       point.

   MR GREEN:  Yes, because I went to Wood just briefly to

       highlight --

   MR JUSTICE FRASER:  We went to Braganza because of me and

       then we went to Wood.

   MR GREEN:  So can I come back to Yam Seng.

   MR JUSTICE FRASER:  Can I put Braganza away?

   MR GREEN:  My Lord, yes.

   MR JUSTICE FRASER:  Back to Yam Seng.

   MR GREEN:  Yes {A1.1/43/1}.  So just tracing it through we

       then get, if we go back to this section that goes from

       134 onwards, at 135 {A1.1/43/31} Mr Justice Leggatt

       takes the general norm of the expectation of honesty.

       Can I call it bare honesty just for clarity.  And he

       then says that that has been recognised effectively at

       the highest level authority in the House of Lords, and

       refers to Lord Bingham:

           "... will assume the honesty and good faith of the

       other; absent such an assumption they would not deal."

           My Lord, we respectfully say it is not hugely

       important but it is significant that Lord Bingham by

       that date in 2003, his language in that judgment is not

       as antipathetic as at least one construction of what he

       was saying in Interfoto.

   MR JUSTICE FRASER:  So this is HIH Casualty you are talking

       about now.

   MR GREEN:  Indeed, my Lord, just in passing, because that is

       what Mr Justice Leggatt has in mind.

   MR JUSTICE FRASER:  So, sorry, you are saying by the time he

       has become Lord Bingham, in HIH Casualty he is not

       actually using particularly different wording, is that

       what you're saying?

   MR GREEN:  No, I am saying he is using different wording.

       The point is that in Interfoto he didn't hear argument

       specifically on the universal application of good faith

       principle.  You can see that because no cases were cited

       to him.  If you look at Interfoto you can see the

       reason, for example, he didn't mention the US principle

       of good faith was because the sort of survey that was

       undertaken in Yam Seng, because it was focusing on the

       relevance of good faith as a term implied in more than

       one case, if I can put it neutrally, that survey was

       simply not carried out by Lord Justice Bingham because

       that is not what he was focusing on in that authority.

       It was part of his reasoning but more by way of assumed

       background and a contradistinction with civil law

       generally.

   MR JUSTICE FRASER:  Which case are you talking about now?

   MR GREEN:  In Interfoto.

   MR JUSTICE FRASER:  By the time we get to HIH Casualty it is

       a slightly wider issue.

   MR GREEN:  Things have moved on.

   MR JUSTICE FRASER:  They have moved on, but it is

       approaching -- it is considering a wider issue.

   MR GREEN:  Precisely.  And specifically a wider issue

       specifically about honesty and good faith.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  At that point.  Wider, exactly.

           So what one can say with confidence, because it is

       the same judge, is that such antipathy, if it was

       antipathy in Interfoto, was at least much more muted, if

       there at all, by the time we get to HIH.

   MR JUSTICE FRASER:  But regardless of the position pre-HIH,

       it is safe to conclude that from 2003 onwards this court

       is bound by findings that parties entering into

       a commercial contract will assume the honesty and good

       faith of the other absent an assumption that they

       wouldn't.

   MR GREEN:  There is one footnote, my Lord, which I should

       fairly identify to your Lordship.  That there is

       an unresolved question which I hadn't prepared to take

       your Lordship through, but it is right I just say it for

       precision.  There is an unresolved question as to the

       extent to which parties in English law can exclude

       an expectation of honest dealing.

   MR JUSTICE FRASER:  I know.

   MR GREEN:  I am sorry.

   MR JUSTICE FRASER:  But in this case --

   MR GREEN:  Subject to that tiny footnote --

   MR JUSTICE FRASER:  -- that doesn't arise at all --

   MR GREEN:  It doesn't arise.

   MR JUSTICE FRASER:  No.  And in fact all of the -- I think

       it can safely be said -- well, it depends what you mean

       by common assumption.  Because when subpostmaster X

       contracts with the Post Office, the Post Office will

       undoubtedly hope that subpostmaster X will behave

       honestly.  They will, however, have direct relevant

       experience not of subpostmaster X but of subpostmasters

       and postmistresses A, B, C and D over a period of years,

       who may have gone to prison and hence were not acting

       honestly.  Because they know that although they want all

       their subpostmasters to act honestly, from time to time

       they don't.

   MR GREEN:  My Lord, yes, but that I think is a different

       point.

   MR JUSTICE FRASER:  What I mean is when one says a common

       assumption, which is the phrase --

   MR GREEN:  Sorry, it's probably not the right --

   MR JUSTICE FRASER:  The reason I use "common assumption" is

       that is what Lord Hoffmann says, he uses the expression

       "common assumption" in HIH.  But here it is not

       necessarily the same as two commercial parties entering

       into a contract for a particular thing where they will,

       because they are prepared to go into business with each

       other, be assuming the other one is going to act

       honestly.

   MR GREEN:  Yes.  My Lord, there is a distinction, I think it

       is in Director General of Fair Trading v First National

       Bank, I'm not sure we have it in the bundle,

       a distinction between contractual expectations on the

       one hand and an unwelcome contingency.  Because a

       contract may make provision for unwelcome contingencies

       but they are not the broad thrust of the parties'

       contractual expectations.

           It may be that that helps to inform what is meant by

       common assumption, in the sense that the assumption post

       interview is, yes, this person seems like an honest

       person.  That is not to exclude the possibility that the

       assumption may turn out to be wrong, but they

       specifically interview to get a feel for whether the

       person is likely to be a good honest subpostmaster.

           So, my Lord, I think we would say that actually the

       common assumption in every individual case is that they

       will be, but it doesn't preclude the possibility that

       the common assumption will turn out to be wrong in

       a small number of cases.  My Lord, although the

       prosecution case in this group action are stayed, that

       aspect, I should just footnote that obviously the

       claimants don't accept that the fact that one has

       in fact been convicted is the same as having actually

       in fact acted dishonestly.  Your Lordship has that

       point.

   MR JUSTICE FRASER:  That is a very important but separate

       issue.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  But in --

   MR GREEN:  Your Lordship's point is still a good --

   MR JUSTICE FRASER:  -- these circumstances it cannot be

       ignored because it is a direct relevant feature of this

       action, isn't it?

   MR GREEN:  Indeed.  Indeed.

   MR JUSTICE FRASER:  Of the cohort, one person has been

       convicted, is that right?

   MR GREEN:  My Lord, I think of the entire -- I think there

       are I'm not sure how many of the CCRC cases.  We can

       find your Lordship the answer.

   MR JUSTICE FRASER:  It doesn't matter.

   MR GREEN:  It's a tiny --

   MR JUSTICE FRASER:  It is not a hidden feature.

   MR GREEN:  No.

   MR JUSTICE FRASER:  I had to give the Civil Evidence Act

       warning to two of the witnesses.

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  But it does fall to be addressed when

       one is dealing with a phrase that is common assumption.

       But the difference probably is the difference between

       a common assumption and a contractual expectation

       actually.

   MR GREEN:  I think that may be right.  It's a difference

       which -- it's a distinction with a difference in this

       case in circumstances where it may not have been

       a distinction with a difference in the case

       Lord Hoffmann was considering.

   MR JUSTICE FRASER:  Exactly.  But you say good faith is

       wider than that.

   MR GREEN:  Indeed it is.

           My Lord, the other point, just going -- just to

       reinforce the expectation assumption point, is: is

       Post Office, as a result of the presumed intention of

       the parties based on expectations, is Post Office

       entitled to expect honesty of subpostmasters

       contractually?  The answer is yes.  That is why in the

       event that they are disappointed, it is breach of

       contract.  Even regardless of any other terms that make

       provision for that.

           So we respectfully say that would actually reinforce

       the point, that distinction with a difference in this

       case between expectation and assumption.

   MR JUSTICE FRASER:  So we are back at 136, yes?

   MR GREEN:  Indeed.  {A1.1/43/31}

           If we move now to 137, this is I think maybe why

       Chitty has gone slightly adrift.  It says:

           "As a matter of construction, it is hard to envisage

       any contract which would not reasonably be understood as

       requiring honesty in its performance.  The same

       conclusion is reached if the traditional tests for the

       implication of a term are used."

           My Lord, that is why I teed up at the beginning the

       three prisms, effectively, all leading to one answer,

       which I think -- your Lordship already has that point.

       But this is where Mr Justice Leggatt himself looks

       through two of those three prisms.  So he deals with the

       presumed intention, perspective, based on contractual

       expectations, totally orthodox.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  Then he says, okay, let me look through

       a separate prism as a control, and he looks through the

       prism at paragraph 137 and says:

           "The same conclusion is reached if the traditional

       tests for the implication of a term are used.  In

       particular the requirement that parties will behave

       honestly is so obvious that it goes without saying.

       Such a requirement is also necessary to give business

       efficacy to commercial transactions."

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  So just pausing there, the solidity of the

       reasoning in Yam Seng up to this point is reinforced by,

       we respectfully say rightly, and it may be that this

       analysis hasn't necessarily been stated, this latent

       common analysis has not been stated out loud, or maybe

       it has by people saying it is really one analysis of

       construing the contract.  But we respectfully say

       your Lordship is right to identify the point that these

       tests essentially converge and it would be bizarre if

       they didn't.

           So the strength of the Yam Seng judgment up to this

       point, and this informs how one should read the

       paragraphs that follow, is that Mr Justice Leggatt there

       specifically reminds himself of the traditional prism of

       necessity and obviousness at that point.  And therefore

       what comes after that, as well as what has gone before,

       needs to be seen through the prism of Mr Justice Leggatt

       being acutely aware of those tests and their rigour.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  Just to foreshadow a point I will make good in

       a moment, when we trace through Marks & Spencer and

       Al Nehyan we see this point made absolutely good

       post-Marks & Spencer going back to this point.

           Then 138 is important because this is the second

       layer above honesty.  We don't really -- Chitty just

       simply does not acknowledge the care of this judgment

       properly.

   MR JUSTICE FRASER:  I am sure Mr Cavender will spend some

       time with Chitty because I know he relies on it, but for

       the moment let's just concentrate on the authorities.

   MR GREEN:  I am grateful, my Lord.

           At this point Mr Justice Leggatt says:

           "In addition to honesty, they are other standards of

       commercial dealing which are so generally accepted that

       contracting parties would reasonably be understood to

       take them as read without explicitly stating them in

       their contractual document.  A key aspect of good faith,

       as I see it, is the observance of such standards.  Put

       the other way round, not all bad faith conduct would

       necessarily be described as dishonest."

           Then he gives two examples at the end of 138 and in

       139 which he pulls together in 140.  {A1.1/43/32}

   MR JUSTICE FRASER:  The one at the end of 138 he actually

       uses as a counter-example because he goes on to say he

       is putting it the other way round and not all bad faith

       conduct is dishonest.

   MR GREEN:  Precisely.  So what emerges is that good faith is

       something more than honesty, bare honesty.  Good faith

       means that you will not engage in conduct which is

       contrary to objective standards of impropriety, or

       propriety, commercial acceptability and conscionability.

   MR JUSTICE FRASER:  Even though it is not dishonest.

   MR GREEN:  Even though it is not dishonest.

   MR JUSTICE FRASER:  So really it is honesty and dishonesty

       as two descriptive terms --

   MR GREEN:  Top and bottom.

   MR JUSTICE FRASER:  -- which are antonyms to one another.

       Good faith and bad faith are also antonyms but they

       don't mean exactly what honesty and dishonesty mean.

   MR GREEN:  Precisely.  And good faith and bad faith describe

       the undistributed middle between honesty and dishonesty.

   MR JUSTICE FRASER:  If you're going to see them on a scale

       that might be right, or you could draw a Venn diagram,

       but they're --

   MR GREEN:  The meaning is clear.

   MR JUSTICE FRASER:  Well, it is an essential -- the

       essential simple question boils down to this, doesn't

       it: is good faith something other than simply being

       honest?

   MR GREEN:  And the answer is yes.

   MR JUSTICE FRASER:  You say the answer is yes.  Chitty and

       Mr Cavender say no, they effectively say they are the

       same thing.  There are grounds for both approaches and

       one of the things I am going to have to decide is who is

       right about that.

   MR GREEN:  My Lord, we say on the authorities there is only

       one answer --

   MR JUSTICE FRASER:  I know you do.  But if you are right and

       good faith can't be fully described as --

   MR GREEN:  Within honesty alone.

   MR JUSTICE FRASER:  Well, not just within but being one and

       the same as being honest, how would you define it?

   MR GREEN:  It is defined as observing objective standards

       of --

   MR JUSTICE FRASER:  That doesn't tell me what those

       standards are, though.  Go on: observing objective

       standards ...

   MR GREEN:  Of propriety, conscionability and commercially

       acceptable conduct.

   MR JUSTICE FRASER:  And commercially acceptable conduct.

   MR GREEN:  Those find expression elsewhere as including

       fidelity to the parties' bargain, transparency and fair

       dealing.  That is why later on Mr Justice Leggatt tags

       on "and fair dealing" to explain good faith, which I am

       coming to.

   MR JUSTICE FRASER:  I think one of the authorities, and

       I don't think it is this one but I might be wrong, uses

       the concept of a reasonable businessperson.

   MR GREEN:  Yes.  That is the objective element of the

       standard, that it's commercially acceptable --

   MR JUSTICE FRASER:  To a reasonable businessperson.

   MR GREEN:  Exactly, to a reasonable businessperson.

       Reasonable and honest in fact is the phrase.  Not that

       there is any difference but ...

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  My Lord, is that a convenient moment?  Because

       I am about to go into the next section.

   MR JUSTICE FRASER:  Yes, it is.  Have we finished with

       Yam Seng?

   MR GREEN:  Not quite.

   MR JUSTICE FRASER:  So you mean we are going to the next

       section of Yam Seng.  Is it the Al Nehyan that uses

       reasonable -- that says reasonable businessperson?

   MR GREEN:  I think it is.  Can I check over --

   MR JUSTICE FRASER:  No, don't check over the --

   MR GREEN:  I have it all set out.

   MR JUSTICE FRASER:  You don't need to check.  I am just

       thinking aloud.

   MR GREEN:  I think we have identified it in our appendix,

       my Lord, in those first -- in that first section.

   MR JUSTICE FRASER:  I'm sure you have.

           All right, we will come back at 12 o'clock.  We will

       have a short break for the shorthand writers.  If

       everyone can be back for 12 o'clock I would be very

       grateful.

   (11.51 am)

                         (A short break)

   (12.02 pm)

   MR JUSTICE FRASER:  Mr Green.

   MR GREEN:  My Lord, just to finish off on Yam Seng before

       following through to those cases.  I think the answer to

       your Lordship's questions was actually Bristol

       Groundschool first and then Al Nehyan but I will take

       you to those in a moment.

           The point at 140 in Yam Seng {A1.1/43/32} is that

       Mr Justice Leggatt is not spiriting an implied term of

       good faith and its content out the air.  He specifically

       makes reference to the aspects of good faith which he

       has identified as being consistent with the way in which

       express contractual duties of good faith have been

       construed.

   MR JUSTICE FRASER:  Where are we looking now?

   MR GREEN:  This is at paragraph 140.

   MR JUSTICE FRASER:  What are those two aspects, though, that

       he is talking about?

   MR GREEN:  They are the ones above, my Lord.  So I slightly

       skipped over that.  The last line of -- I mentioned just

       before the break that the last line of, well,

       paragraph 138, including the epithets at the end of 138,

       and 139 is fidelity to the parties' bargain.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  Are aspects of good faith.

   MR JUSTICE FRASER:  So the second one is fidelity to the

       bargain.

   MR GREEN:  Indeed.  And so the two aspects he is picking up

       at 140, he says those are aspects:

           "... I have identified which are consistent with the

       way in which express contractual duties have been

       interpreted in recent cases."

           So having identified that, he then at 141 -- that is

       totally solid and uncontroversial.  He then looks at

       what good faith requires, again totally uncontroversial.

       What good faith requires is sensitive to context.  It

       includes the core value of honesty:

           "In any situation it is dishonest to deceive ..."

           And then he deals in the rest of 141 with how

       honesty itself, the requirements of honesty itself can

       go further.  So that is like all those cases in

       Spencer Bower on actionable misrepresentation, about

       continuing representations not being corrected being

       false, and also the second limb of Derry v Peek type of

       deceit where -- Nelsonian blindness, effectively, where

       you don't look for fear of what you would find if you

       did.  That is on honesty.

           Then 142, he focuses on the relevant background

       expectations extending further than the content of

       honesty.  So our respectful submission is that honesty

       has an objective meaning but its content may be wider or

       narrower in particular circumstances.

           So what honesty -- and this is a distinction made

       later on as well.  The fulfilment of a standard of

       honesty may vary but the concept itself is objective.

       But what he is going on to deal with at 142 is the false

       dichotomy, which we can see is false, between

       partnership, trusteeship and fiduciary relationships at

       one end of the spectrum and relationships at the other

       end of the spectrum as if there is nothing in between

       them.

           What he says at 142 is that the relevant background

       expectations may extend further to an expectation that

       the parties will share information relevant to the

       performance of the contract.  Because that was

       a particular point that arose in Yam Seng on the

       updating -- on the foreshadowing of what was going to be

       available to sell and how that information had changed.

       But we see at 143 that point was not specifically argued

       in that way in Yam Seng, so at 143 he says he doesn't

       need to deal with that particular --

   MR JUSTICE FRASER:  Have we gone on to 143 now?

   MR GREEN:  We haven't, I'm just foreshadowing it.

   MR JUSTICE FRASER:  We are on 142.

   MR GREEN:  We are on 142 {A1.1/43/32}.  And there, four

       lines down on the right, he says:

           "English law has traditionally drawn a sharp

       distinction between certain relationships, such as

       partnership, trusteeship and other fiduciary

       relationships, on the one hand, in which the parties owe

       onerous obligations of disclosure to each other, and

       other contractual relationships in which no duty of

       disclosure is supposed to operate.  Arguably at least

       that dichotomy is too simplistic."

           We say it is beyond arguably because otherwise

       you can't make sense of all the intermediate cases that

       we have seen where there are duties of positive

       co-operation, effectively, between the parties to which

       in fact Mr Justice Leggatt has already referred and

       refers to elsewhere.  So we say arguably he is

       understating what the cases show because there is clear

       central category and we see it again in the Geys case of

       what other relationships give rise to.  So that

       dichotomy is too simplistic and it is basically wrong,

       we say.

           It is right to distinguish from where a peculiarly

       fiduciary obligation arises from where it doesn't.  That

       is a sharp dichotomy.  But we say that is not the right

       analysis for the purposes of these terms.

           He then says:

           "Whilst it seems unlikely that any duty to disclose

       information in performance of the contract would be

       implied where a contract involves a simple exchange,

       many contracts do not fit this model and involve

       a longer term relationship between the parties to which

       they make a substantial commitment."

           Can I just pause there, my Lord.  One of the

       background factors to which we respectfully say the

       court should have regard is the context in which the

       common law has developed.  If one looks historically

       back, and this is -- there will be exceptions which

       prove the rule, we say, but broadly speaking, if one

       looks at the genesis of the common law say up to

       50 years ago or even more recently than that, long-term

       relationship contracts --

   MR JUSTICE FRASER:  Are you saying "relationship"

       deliberately?

   MR GREEN:  Long-term -- I am putting it neutrally at the

       moment.  Long-term contractual relationships that went

       on for 30 years, facilities management agreements or

       PFI-type agreements, were rare.

   MR JUSTICE FRASER:  There was no PFI 50 years ago.

   MR GREEN:  Precisely.  But relationships of that type, which

       were essentially framework agreements within which many,

       many individual transactions will be conducted

       underneath, were relatively rare, other than those which

       the law recognised in some of these categories.

           So the law historically catered broadly for those

       relationships on a piecemeal basis.  But what we have

       had in the last perhaps 30 or 40 years is we have had

       a very considerable expansion in long-term framework

       agreements, tendering regulations.  That overall weather

       system on the law and commercial practice has led to the

       need for the common law to respond to those types of

       contracts.  And we respectfully say it is only

       a background matter but it does tend to explain how the

       law has developed since the 1980s in this respect.  And

       how, if there were previously a dichotomy say at the

       start of 20th century, that dichotomy, whether it once

       existed or not, is clearly now out-of-date.  So that is

       just by way of an additional background submission to

       the point that a dichotomy is now, on any view, wrong.

           At the bottom he is referring to the:

           "... longer-term relationship between the parties to

       which they make a substantial commitment."

           This part of the judgment is obviously going to be

       incredibly familiar to your Lordship as probably the

       rest of it is as well.  But:

           "Such 'relational' contracts, as they are sometimes

       called, may require a high degree of communication,

       co-operation and predictable performance based on mutual

       trust and confidence and involve expectations of loyalty

       which are not legislated for in the express terms of the

       contract but are implicit in the parties' understanding

       and necessary to give business efficacy to the

       arrangements.  Examples of such relational contracts

       might include some joint venture agreement, franchise

       agreements and long-term distributorship agreements."

           Just unpacking what Mr Justice Leggatt has said

       there, your Lordship will note that he is in fact

       identifying that both the implication by fact and his

       second approach that we saw in paragraph 137, both tests

       are satisfied.  He is actually stating both tests in the

       same sentence.

   MR JUSTICE FRASER:  Whereabouts is he doing that?

   MR GREEN:  So he says -- he refers to what is not legislated

       for in the express terms at the foot of page 1352

       {A1.1/43/32}, and then he says in the last six words:

           "... but are implicit in the parties'

       understanding ..."

           So that is the fact based expectations analysis.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  "... and necessary to give business efficacy to

       the arrangements."

   MR JUSTICE FRASER:  So those first two conventional routes.

   MR GREEN:  He has done both.  And that is picking up what he

       said at 137 {A1.1/43/31} which is:

           "The same conclusion is reached if the traditional

       tests for the implication of a term are used."

           Then I don't need to trouble you with 143, that

       deals with how the case is argued and what he thought

       was arguably entitled to the estimates.

           At 144 he highlights the point that the test of good

       faith is objective in that it doesn't depend on one

       party's perception and so forth.  {A1.1/43/33}

           And then five lines down in the middle:

           "The standard is thus similar to that described by

       Lord Nicholls of Birkenhead in a different context in

       his seminal speech in Royal Brunei Airlines ... This

       follows from the fact that the content of the duty of

       good faith is established by a process of construction

       which in English law is based on an objective

       principle."

           Pausing there.  There is another sort of big global

       point which arises both here and in relation to

       Marks & Spencer, which is that the precise principles

       both of contractual construction and in relation to the

       implication of terms in English law show an antipathy to

       the court restriking the parties' bargain afterwards in

       the light of perhaps changed circumstances or something

       of that type.

   MR JUSTICE FRASER:  That is Arnold v Britton.

   MR GREEN:  Precisely.  But that is nothing to the point

       where what in fact is being done is analysing with care

       what on the facts, and it is for your Lordship to find

       the facts on the evidence, the parties -- the presumed

       intention of the parties objectively is.  And

       proceeding --

   MR JUSTICE FRASER:  That is why you can construe a contract

       without having any evidence at all.

   MR GREEN:  My Lord, it is.  The only difficulty in reality

       is your Lordship is also required to have regard to the

       commercial and practical implications, and where you are

       engaged in the Marks & Spencer analysis which I am going

       to come to in a moment, you have to look at commercial

       and practical coherence.  And where there are important

       aspects of commercial common sense on the one hand or

       commercial and practical coherence on the other, which

       can only be understood by the court understanding

       for example how accounting on Horizon worked,

       your Lordship has to have that evidence to be able to

       reach, firstly, an informed view of what the commercial

       implications of rival interpretations would be when you

       are looking at construction and, secondly, to be able to

       make an informed value judgment as in the sixth

       proposition in Marks & Spencer at paragraph 21 which

       I will come to.

           So your Lordship is absolutely right that if how

       the -- if the commercial implications of a particular

       construction are uncontroversial, your Lordship doesn't

       need any evidence.  But to resolve the common issues in

       this case your Lordship, we respectfully say, does need

       evidence, even on the issues of contractual

       construction, in order to be able to form a view about

       what the commercial implications of rival

       interpretations would be on construction in any event,

       what the presumed intention of the parties would be --

   MR JUSTICE FRASER:  How does evidence help on presumed

       intention of the parties?

   MR GREEN:  Because the --

   MR JUSTICE FRASER:  Otherwise you are not presuming it, are

       you?  You are finding their intention?

   MR GREEN:  My Lord, I think the answer is that

       your Lordship's decision on what the presumed intention

       of the parties is is not a prisoner to the subjective

       understandings of witnesses who have given evidence.

   MR JUSTICE FRASER:  That is rather my point.

   MR GREEN:  But the idea that your Lordship will make the

       decision disregarding factual matters which inform what

       a reasonable person in the position of the parties would

       expect we say appears wholly unrealistic.  So it's a --

       it's rather like, my Lord, in the field of

       discrimination law, you may not be able to identify

       an actual comparator but you can identify a hypothetical

       comparator, and you can give evidence about people who

       are not that hypothetical comparator so that

       an employment tribunal can say, well, we heard evidence

       from Mr So-and-So who was not a comparator, we heard

       evidence about Mrs So-and-So who wasn't a comparator

       either.  From that evidence, we are able to say that in

       our judgment the hypothetical comparator would have

       these following characteristics.

           So for your Lordship to reach an informed judgment

       on that, some aspects of the factual matrix will be

       important, we say, and I will come to which later, if

       I may.

           Just returning to 144 {A1.1/43/33}, the objectivity,

       the content of the duty of faith being established by

       the process of construction, which in English law is

       based on an objective principle.

           Then it follows:

           "The court is not concerned ..."

           This is on your Lordship's point.

           "... with the subjective intentions of the parties

       but with their presumed intention, which is ascertained

       by attributing to them the purposes and values which

       reasonable people in their situation would have had."

           So, my Lord, at its very lowest, identifying the

       situation that the parties were in is necessarily

       anterior to identifying what reasonable people in that

       situation would expect or have as their presumed

       intention.

           Then at 145 there is quite an important point to

       make on this just in defence of Lord Justice Steyn, as

       he then was, because I think this passage has been

       misunderstood.  It arises in Yam Seng in

       Mr Justice Leggatt's judgment at 145.  He says:

           "Understood in the way I have described, there is in

       my view nothing novel or foreign to English law in

       recognising an implied duty of good faith in the

       performance of contracts."

           He is not there saying in every contract, he is

       saying in the performance of contracts at all.

           Then he goes on to say, and this is the important

       bit.  I just want to be clear what our submission is:

           "It is consonant with ..."

           So he not saying dependent upon:

           " ... the theme identified by Lord Justice Steyn as

       running through our law of contract that reasonable

       expectations must be protected."

           Then he cites First Energy and the LQR article.

           Pausing there.  My Lord, what we respectfully submit

       Lord Justice Steyn meant by the word "reasonable

       expectations" was not that the court should

       ex post facto impose back on the parties a reasonable

       bargain -- a bargain that the court thinks is reasonable

       but wasn't the one that the parties struck.  That is

       absolutely not what he was saying.  What he was doing

       was he was confining the expectations that should be

       protected to those of notional reasonable people in the

       position of the parties, in shorthand, we respectfully

       submit.  Because we will see later there are some

       observations as to the extent to which that has been

       understood incorrectly.

           So two points on that.  One is Mr Justice Leggatt's

       decision was not dependent upon that understanding but

       merely consonant with it, and we say the reference there

       to what he was saying is correct on contractual

       orthodoxy for that reason.

           Then after the LQR article:

           "Moreover such a concept is I believe already

       reflected in several lines of authority that are

       well-established."

           Then:

           "... duties of co-operation in the performance of

       contracts have been implied."

           And I will come to Ukraine on that point in

       a moment.

           "Another consists of the authorities which show that

       a power conferred by a contract on one party to make

       decisions ..."

           That is the point in commercial contracts generally,

       and in Braganza as I have already shown your Lordship.

       I don't need to spend time on that.

           Bottom of that paragraph just above J, a further

       example is where the consent of one party shouldn't be

       unreasonably withheld.

           Then the last two lines:

           "Yet another example I would suggest is the line of

       authorities of which the Interfoto Picture Library case

       is one which hold that an onerous or unusual contract

       term on which a party seeks to rely must be fairly

       brought to the notice of the other party if it is to be

       enforced."

           He then makes his six observations in relation to

       the good faith.  {A1.1/43/34} One:

           "... dependent on context and is established through

       a process of construction of the contract ..."

           This is consistent with the case by case approach

       favoured by the common law.  So totally orthodox.

           "Second, as the basis of the ... presumed intention

       of the parties and the meaning of their contract, its

       recognition is not an illegitimate restriction on the

       freedom of parties to pursue their own interests."

           And he says there:

           "The essence of contracting is that the parties bind

       themselves in order to co-operate to their mutual

       benefit."

           My Lord, we say it is of significance in this case

       that the implied term as to co-operation, necessary

       co-operation, which is accepted by Post Office, is

       relevant and important.  We make two points as to that

       parenthetically.  The first is that the Ukraine case,

       the judgment of Lady Justice Gloster, the Ukraine case

       shows that implication of Stirling Maitland and

       necessary co-operation terms are not automatic.  So that

       means that accepting the need for those terms is

       a recognition of a lacuna in the express terms of the

       contract.

   MR JUSTICE FRASER:  By definition the acceptance of any

       implied terms.

   MR GREEN:  Precisely.  But Ukraine puts it beyond doubt

       because Ukraine says they are not routinely to be

       implied.  So there is an even clearer threshold to that

       point, we respectfully say.

           And the second point is that by the concession -- by

       the concession of the necessary co-operation term,

       Post Office itself recognises, if this were

       controversial, which I don't think it should be, that

       an important essential feature of the relationship was

       at least to some extent co-operation.

           So even on the basis of the uncertain concession as

       to necessary co-operation, because we don't know how far

       that goes, this is a case even on the defendant's case

       where the essence of contracting is the parties bind

       themselves in order to co-operate for their mutual

       benefit, and that is at least to some extent implicitly

       recognised in the concession made by the defendant:

           "The obligations which they undertake include those

       implicit in their agreements as well as those which they

       have made explicit."

           Third, the parties can always modify the scope of

       the duty by express terms, in principle at least.  And

       that is the footnote on honesty, my Lord, which

       I mentioned earlier.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  Which is 149.

           Fourth, and this is the tag on of the phrase, the

       three words "and fair dealing" which I mentioned

       earlier:

           "I see no objection ... and some advantage in

       describing the duty as one of good faith and fair

       dealing.  I see no objection as the duty does not

       involve the court imposing its view of what is

       substantively fair on the parties.  What constitutes

       fair dealing is defined by the contract and by those

       standards of conduct to which, objectively, the parties

       must reasonably have assumed compliance without the need

       to state them.  The advantage of including reference to

       fair dealing is that it draws attention to the fact that

       the standard is objective and distinguishes the relevant

       concept of good faith from other senses in which the

       expression 'good faith' is used."

           So, my Lord, that is the point that helps to explain

       what was in 138 as to the reach of good faith.  So

       Mr Justice Leggatt gives the examples of improper,

       commercially unacceptable and unconscionable, and then

       he gives the fidelity to the parties' bargain, and that

       is the reason I mentioned the addition of the words "and

       fair dealing" because it helps to identify that it is

       not an outcome-based analysis, the court is not imposing

       outcomes on the parties, the court is imposing standards

       of conduct which ought to be uncontroversial in the

       parties' dealings with each other in the performance of

       the contract.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  At 151:

           "Insofar as English law may be less willing than

       some other legal systems to interpret the duty of good

       faith as requiring openness of the kind described by

       Bingham LJ in the Interfoto Picture Library case as

       'playing fair', 'coming clean' or 'putting one's cards

       face upwards on the table', this should be seen as

       a difference of opinion which may reflect different

       cultural norms about what constitutes good faith and

       fair dealing in some contractual contexts rather

       than a refusal to recognise that good faith and fair

       dealing are required."

           All we would say, your Lordship already has our

       respectful submission that by the time Lord Bingham is

       in the House of Lords and it's 2003, the position going

       forward from there is clear.  But I think all we would

       say is that on a one-time -- a simple exchange contract,

       a contract of sale or exchange or something like that,

       it is clearly a different situation to these longer term

       relationships which were in issue and being considered

       in Yam Seng, and therefore the antipathy that English

       law might have in requiring openness of some sort across

       the whole piece, we say, if you read the judgment as

       a whole, is actually put in context by looking at

       different cultural norms and what constitutes good

       faith.

           So there is in a sense a reference back to

       contrasting English law with other systems, where in

       other systems, for example civil law systems or in

       international commercial sales, even in a one-off sale

       case there is, as we saw in Article 1.7, there is an

       obligation of good faith and fair dealing which you

       can't contract out of.

           I think all Mr Justice Leggatt is saying here is

       that that may be a difference, an English law difference

       across the whole piece reflecting different cultural

       norms, but it is doesn't have any bearing on the precise

       type of contract which Yam Seng was considering.

           Finally, sixth:

           "The fear that recognising a duty of good faith

       would generate excessive uncertainty is unjustified.

       There is nothing unduly vague or unworkable about the

       concept.  Its application involves no more uncertainty

       than is inherent in the process of contractual

       interpretation."

           My Lord, we say two things about that.  Firstly, it

       is obviously right.  But secondly, it does have

       a bearing on the defendant's approach to implied terms

       more generally.

           Your Lordship will note at 154 Mr Justice Leggatt

       says:

           "I have emphasised in this discussion the extent to

       which the content of the duty to perform a contract in

       good faith is dependent on context.  It was Mr Salter's

       submission that the relevant content of the duty in this

       case was captured by two more specific terms which

       Yam Seng contends are to be implied into the agreement.

       I therefore turn to consider these."

           Your Lordship will have seen that in our closing

       submissions we have made the observation that -- and

       I will deal with this probably tomorrow, but in relation

       to the issue of the utility of the Common Issues trial,

       which we addressed in our opening submissions at ...

   MR JUSTICE FRASER:  Page 3.

   MR GREEN:  Page 3 {A/1/7} and then in more detail at page 65

       {A/1/69}.  My Lord, those ensuing pages trace the

       defendant's position that it admits terms at a very high

       level of generality, and then says we're not prepared to

       engage on the content or incidence of those terms

       because you have to look at the practical consequences

       on the facts of every individual case.

           We respectfully say there has never been a GLO

       involving implied terms where that is the right

       approach, ever, because it makes a GLO pointless,

       because you have to try out the facts of every single

       case without even being able to do the normal exercise

       of triage on particular issues.  So that they are here

       (indicates), and they say you can't tell what that means

       unless you look at 557 cases.

           What we would respectfully say, and that is why we

       included the words "or incidence of implied terms" in

       the common issue, it may be more accurate to say

       "content" which is the word Mr Justice Leggatt uses in

       paragraph 154.  But to gain reasonable or optimal

       utility from the common issues trial, we will invite the

       court to make findings on the implied obligations which

       we have set out under the heading "Implied Terms" to

       identify --

   MR JUSTICE FRASER:  Your case as I understand it on those is

       that they are component parts of the contracts being

       relational.

   MR GREEN:  Precisely.  They are either component parts or

       they would be implied even if they weren't.  We're

       agnostic as to the route --

   MR JUSTICE FRASER:  That might be two different ways of

       saying the same thing.  But that is why you have used

       the slightly curious phrase "incidence" of implied

       terms.

   MR GREEN:  Yes.  And it may be that "incidence" is

       infelicitous as a word, but the concept is perfectly

       clear from 154 in Yam Seng because the content of the

       obligation which is capable of being an implied term in

       itself is able to find expression in two more specific

       implied terms.  And indeed when it suits the defendant,

       whether it is in the Court of Appeal making a concession

       in Lalji or whether it is -- and we have covered these

       in our written submissions -- or whether it is with

       Mr Bates trying to get access to his branch after

       everyone -- after relationships have gone south, they

       are perfectly capable of formulating specific implied

       terms when it suits them.  They say in Mr Bates' case

       there is a specific implied term for you to allow

       reasonable access.

           So when it suits them it's absolutely fine, but in

       the face of repeated RFI's and an order from this court,

       no particularity beyond this lofty, high level

       concession which they say is an end of the inquiry by

       the court.

           So the only point I wished to make in relation to

       that on Yam Seng was this point at 154 which we have

       hitherto regarded as totally uncontroversial but it does

       appear to remain in controversy in this case.

           My Lord, can I now turn to the follow on cases just

       to trace through.  It may be helpful to have the

       appendix handy.

   MR JUSTICE FRASER:  Which appendix?

   MR GREEN:  Our authorities appendix that your Lordship asked

       for.  Just on the inside cover your Lordship will see

       how the authorities appendix is laid out.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  There is a reference to the relevant annex to our

       original opening submissions {A/7/1}.  So Annex I is

       an annex to the opening submissions where we dealt with

       those principles in more depth than we had in the

       opening itself.  There is then the relevant -- the key

       authorities on those areas, there is obviously the Opus

       reference, and then there is the page of this document

       on which your Lordship will find the case.

           So if we go to relational contracts at page

       {A/7/13}, your Lordship will see our summary of

       Bristol Groundschool there.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  In relation to honesty and breach, two of the

       legal propositions identified in paragraph 196 of

       Bristol Groundschool, we summarise them there.  That

       paragraph is at {A1.1/52/1} and your Lordship will find

       Bristol Groundschool in volume 1 at tab 34.  V1 at

       tab 34.  Right at the back.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  I think the essential part that we need to look

       at is on page 86 {A1.1/52/86}.  Obviously the finding in

       (i), the relational contract, it did contain an implied

       duty of good faith.  (ii), reference back to Yam Seng.

       And then it's interesting that regard was at least had

       to the reaction of an individual witness at (iii).

       Obviously, my Lord, that was looking at breach, but at

       least in terms of the standard identifying context of

       what reasonable parties, reasonable notional parties

       might expect, the duty was recognised by the witness

       there.

           Then there is reference to the YSP case which is

       cited earlier on:

           "... good faith extends beyond but at the very least

       includes the requirement of honesty."

           I think that is simply repeating at first instance

       the point that Mr Justice Leggatt himself made.

           Then (v):

           "The relevant test is that of conduct that would be

       regarded as 'commercially unacceptable' by reasonable

       and honest people in the particular context involved."

           So, my Lord, that goes back to Royal Brunei

       Airlines, which was the point that I identified to

       your Lordship in Mr Justice Leggatt's judgment at 144.

       It is Lord Nicholls' well-known speech in that case that

       is referred to in Yam Seng at paragraph 144.  That is

       1353D to E on {A1.1/43/33}, should your Lordship need to

       go back to that.

   MR JUSTICE FRASER:  What was the Yam Seng paragraph again?

   MR GREEN:  Paragraph 144.

   MR JUSTICE FRASER:  Thank you.

   MR GREEN:  So that is the short point on

       Bristol Groundschool.  Could I take your Lordship now

       forward to Al Nehyan.  I think it's probably convenient

       to do that next.

   MR JUSTICE FRASER:  That is in the opening authorities.

   MR GREEN:  It's in the opening authorities at tab 8.

       {A1.1/72/1} and {A1.1/72/48} is the page we want to go

       to.  That is paragraph 175.  This is the specific point

       your Lordship I think asked about.  It is at the top

       hole-punch.  I will put this in context in the case in

       a moment, but I will just show your Lordship the

       specific point.  At the top hole-punch:

           "In my view ..."

           Half way across.

   MR JUSTICE FRASER:  "This summary is also consistent ..." is

       that the bit?

   MR GREEN:  Exactly.  That part:

           "This summary is also consistent with the English

       law as it has so far developed with the caveat that

       the obligation of fair dealing is not a demanding one

       and does no more than require a party to refrain from

       conduct which, in the relevant context, would be

       regarded as commercially unacceptable by reasonable and

       honest people."

           So this is Lord Justice Leggatt in

       the Court of Appeal.  He is referring --

   MR CAVENDER:  No, it's not, it's at first instance when he

       had been promoted.

   MR JUSTICE FRASER:  It is Lord Justice Leggatt in the at

       first instance --

   MR GREEN:  Sorry, at first instance after he has been

       promoted.

   MR JUSTICE FRASER:  After he has been promoted.

   MR GREEN:  Indeed.  In the Commercial Court --

   MR JUSTICE FRASER:  An interesting case in terms of legal

       precedence.  It is persuasive not binding.

   MR GREEN:  It is not binding on your Lordship.

   MR JUSTICE FRASER:  It is persuasive.  But is it more

       persuasive than it would have been if he had still been

       Mr Justice Leggatt?

   MR GREEN:  Legally maybe not.

   MR JUSTICE FRASER:  It might not matter.  It's persuasive

       anyway.

   MR GREEN:  It's persuasive anyway.  My Lord, what --

   MR JUSTICE FRASER:  I don't think Willis v Joyce deals with

       the situation where somebody has been promoted but they

       are still dealing with outstanding business at first

       instance.  But it doesn't matter.

   MR GREEN:  The key point is that he is referring back to

       Bristol Groundschool, which of course was referring back

       in turn to Yam Seng.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  And also to Astor Management, which is yet

       another case in this line of cases.  We haven't taken

       your Lordship to that case as well.

   MR JUSTICE FRASER:  To which one?

   MR GREEN:  To Astor Management.

   MR JUSTICE FRASER:  No, I don't think you need to.

   MR GREEN:  Then there is referred back to Chief Justice

       Allsop's --

   MR JUSTICE FRASER:  That is the Australian one --

   MR GREEN:  The Australian case about those standards.  We

       respectfully say there really is no room given the

       consistent decisions which rely on prior authorities and

       consider them carefully as to the nature of this

       obligation.  There really is no room for regarding good

       faith as identical to honesty in all cases.  We

       respectfully say the defendants are wrong about that

       and, if that is what Chitty is saying, it is clearly

       wrong.

           My Lord, can I quickly put this part of the judgment

       in context, because it starts at paragraph 167.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  Which will be three pages earlier.  {A1.1/72/45}.

   MR JUSTICE FRASER:  It sort of starts, doesn't it, at

       paragraph 165?

   MR GREEN:  It does.  That is probably right.  In fact

       possibly at 164 arguably.  {A1.1/72/44}.  Because if we

       go back a page, it says:

           "It is also necessary to identify more precisely the

       nature of the trust and confidence which is a feature of

       fiduciary relationship."

           There is a sort of preface.

   MR JUSTICE FRASER:  But in that case there was a fiduciary

       relationship.  Here there is also alleged to be

       a fiduciary relationship.

   MR GREEN:  At least one.

   MR JUSTICE FRASER:  At least one.

   MR GREEN:  Yes, because the Post Office says we are an agent

       and from that spring various fiduciary obligations.

   MR JUSTICE FRASER:  But they also put it more starkly, not

       just as agent.

   MR GREEN:  But as fiduciaries for their cash and stock.

   MR JUSTICE FRASER:  Yes, which is undoubtedly correct.

   MR GREEN:  Undoubtedly right.  No quarrel from us on that.

       There is obviously a point about precision of fiduciary

       obligations.  Your Lordship will probably know about

       the -- we haven't put it in the bundle, but we can

       produce it.  In the Fishel case and University of

       Manchester, Mr Fishel, or maybe it was Professor Fishel,

       owed a general obligation of fidelity.  This related to

       what relief was available for breach.  What he had done

       was he had done tests in the university's labs for

       commercial parties whilst at the university.  The

       university could recover damages for common law breach

       of duty of fidelity for what he had done, but he had

       also used the students and the staff below him, who he

       was managing for and on behalf of the university, to do

       work as well, and on that they could recover an account

       of profits because there was a precise fiduciary duty

       that he owed in that respect but not in relation to use

       of his own time, because he was managing them for and on

       behalf of the university.

   MR JUSTICE FRASER:  And that duty included one not to profit

       from their activities.

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  Hence the relief that was available for

       the account of profits.  But here there are no real

       nuances about -- no similar nuances here about

       the nature of the fiduciary relationship.

   MR GREEN:  Only to be careful to identify what the precise

       agency was.  Because we have alleged -- I was going to

       get to this later but it has come up --

   MR JUSTICE FRASER:  I was assuming agency would be tomorrow,

       but I might be wrong.

   MR GREEN:  Your Lordship is right but just to foreshadow the

       point.  We have assumed a very precise sort of point

       four in Bowstead type of agency which is wholly

       consistent with Angela Van Den Bogerd's own evidence

       that this feature of reconciling accounts and so forth

       is something that Post Office was doing on our behalf.

       And, as soon as you say, this is an arm's length

       business-to-business relationship and this is something

       we are doing on your behalf, you are absolutely front

       and centre in that agency relationship, whether you

       disclaim it or allege a different agency for a different

       purpose going the other way.

           So all I would say, my Lord, is at the bare minimum

       this is a relationship that this contract created where

       there are fiduciary obligations which, uncontroversial,

       are on subpostmasters in relation to cash and stock.

           So that is not an irrelevant fact to the

       characterisation of the relationship as a whole.  That

       it is one in which there are at least certain fiduciary

       obligations owed by subpostmasters to Post Office in

       relation to cash and stock.  We say, in addition, there

       are some coming back our way as obligations to give us

       proper information about those transactions, which we

       say powerfully reinforce the submissions that we have

       made about it being a relational contract.  For reasons

       which will be obvious, because we looked at the false

       dichotomy and the relevance of that.

           But, my Lord, we were looking at 164 as a sort of

       preface to the --

   MR JUSTICE FRASER:  The best place to start really,

       I suppose.  It is either 164 or 165.

   MR GREEN:  Yes, precisely.  At 164 in the second line:

           "There are plainly many situations in which a party

       to a commercial transaction may legitimately repose

       trust and confidence in another without the other party

       owing any fiduciary duties."

           Totally true:

           "Thus In re Goldcorp Exchange ..."

   MR JUSTICE FRASER:  They weren't fiduciary --

   MR GREEN:  They were not fiduciaries.

   MR JUSTICE FRASER:  Not fiduciaries just because they were

       looking after the bullion.

   MR GREEN:  Precisely.  And Lord Mustill's -- that is

       a well-known passage.  Mere reliance on another party is

       just not enough to establish a fiduciary relationship.

       {A1.1/72/45}.  Then at 165:

           "Mutual trust and confidence between the parties

       dealing with one another can be of different kinds.  At

       a basic level any contracting party is entitled to rely

       on the other party to perform its contractual

       obligations without having to monitor performance or

       even if (as In re Goldcorp) it is unable to monitor

       performance the kind of trust and confidence

       characteristic of a fiduciary relationship is different.

       As discussed above, it is founded on the acceptance by

       one party of a role which requires exercising judgment

       and making discretionary decisions on behalf of another

       and constitutes trust and confidence in the loyalty of

       the decision-maker to put aside his or her own interests

       and act solely in the interests of the principal."

           My Lord, that is the mutual trust and confidence

       characteristic of the particular fiduciary relationship

       identified there.  Then at 166:

           "The nature of the relationship between Mr Kent and

       Sheikh Tahnoon in the present case did not give rise to

       any legitimate expectation on the part of Mr Kent that

       Sheikh Tahnoon would put aside his own self-interest and

       consider only what was in the best interests of the

       companies or Mr Kent in making decisions about whether

       to increase or liquidate his investment."

           So although they are participants in the joint

       venture, he didn't owe fiduciary duty at that stage.

           My Lord, pausing there, your Lordship will know of

       the authorities about fiduciary duties in a joint

       venture prior to any agreement, as a sort of separate

       category.  So this is not addressing that --

   MR JUSTICE FRASER:  But the analysis of the duty of good

       faith in this case proceeds on the basis that the Sheikh

       did not owe Mr Kent fiduciary duties.

   MR GREEN:  Precisely.  Your Lordship has the point already

       essentially.  Your Lordship is probably familiar with

       this passage at 167.

   MR JUSTICE FRASER:  I think we spent quite a long time

       looking at it this morning.  Well, the origin of it.

       Because it comes from Yam Seng.

   MR GREEN:  Precisely.  He refers at 168 to:

           "... the growing recognition that such duty may

       readily be implied in a relational contract."

           And refers to Bristol Groundschool.  {A1.1/72/46}.

   MR JUSTICE FRASER:  Actually really the first sentence means

       that, if it is a relational contract, the duty will be

       implied, doesn't it?  {A1.1/72/45}.  That is what

       a relational contract is.

   MR GREEN:  My Lord, I think that is right.  I think the

       effect of the words "may readily" in the third line on

       the right-hand side -- I think what that means is that

       they are very likely to be implied but, if you look

       carefully at a contract that might otherwise seem like

       a relational contract and the parties have made

       absolutely minute and clear negotiated provision for

       what is going to happen in every circumstance, in those

       cases which might otherwise -- there might otherwise be

       an implied term of good faith, there may not be.

       I think that is the significance of "may readily".  But

       I think your Lordship is right that the general position

       is clear and there seems to be a general recognition of

       that.

           Then D&G Cars is dealt with.  {A1.1/72/46}.

   MR JUSTICE FRASER:  Which always amuses me.  Instead of

       sending the car to the crusher, it was rebuilt and given

       different plates.

   MR GREEN:  My Lord, yes.  Essentially what they were looking

       at there was whether there was anything to prevent that.

       And it was a relational contract par excellence --

   MR JUSTICE FRASER:  But there wasn't anything in the terms

       which prevented them doing that.

   MR GREEN:  Nothing at all.

   MR JUSTICE FRASER:  No.

   MR GREEN:  No.  My Lord, part of what the court we

       respectfully submit is required to do is this exercise

       of standing back and not just looking at the literalist

       words in a contract, but looking at the nature of the

       relationship which the parties by the contract have

       created.  We respectfully say that is an important

       aspect of the analysis.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  And is a unifying theme when one looks at all of

       these cases where a relational contract has been held to

       be one in which those duties are implied.

           Then obviously an absolutely obvious

       contradistinction to the National Private Air Transport

       case, which was an extravagant attempt in a not

       obviously relational contract to try and leverage in

       a term that the party -- that really was winging it, no

       pun intended, to try and get that there, and it was

       unsuccessful.

           But what is significant in the observation there of

       Mr Justice Leggatt that:

           "The judge also rejected an attempt to cast general

       doubt on the approach suggested in Yam Seng ..."

           Which is halfway down 170.

           My Lord, there are a couple more cases I want to

       deal with briefly.  Probably I will be able to deal with

       them more briefly after lunch --

   MR JUSTICE FRASER:  That is fine.

   MR GREEN:  Is that a convenient moment?

   MR JUSTICE FRASER:  Whatever the timetabling issues or

       concerns that I had because there were 20 witnesses, you

       each have two days.  It seems a reasonable amount

       of time.

   MR GREEN:  I am grateful.

   MR JUSTICE FRASER:  We will come back at 2 o'clock.

   (1.00 pm)

                     (The short adjournment)

   (2.00 pm)

   MR JUSTICE FRASER:  Mr Green.

   MR GREEN:  May it please your Lordship, the next case

       I would like to take your Lordship to if I may is

       Carewatch which we have at ...

   MR JUSTICE FRASER:  Tab 3 of the opening bundle.

   MR GREEN:  At tab 3 of the opening bundle.  The only point

       briefly passing through Carewatch is the ... If

       your Lordship could turn to paragraph 109, which is ...

   MR JUSTICE FRASER:  No lacuna in the agreement.

   MR GREEN:  Exactly.  {A1.1/53/34}  And then just above it

       your Lordship will see there the reference by --

   MR JUSTICE FRASER:  As he then was.

   MR GREEN:  -- Mr Justice Henderson, as he then was, to the

       consideration having been given to Yam Seng.

           There he says:

           "I readily accept there will generally be an implied

       term --"

   MR JUSTICE FRASER:  Where are you looking?

   MR GREEN:  This is in the quote from Mr Justice Norris.

   MR JUSTICE FRASER:  In Hamsard.

   MR GREEN:  Precisely.  He says there:

           "'I readily accept that there will generally be

       an implied term not to do anything to frustrate the

       purpose of the contract.  But I do not accept there is

       to be routinely implied some positive obligation upon

       contracting party to subordinate its own commercial

       interests to those of the other contracting party.

       Boots was not obliged as a matter of 'good faith' to

       order from Hamsard goods that it did not want ... simply

       because if it had done so, the nascent joint venture

       would have been more profitable.'

           "Again, I respectfully agree."

           I think this is just a straw man but just to deal

       with it in passing.  There is no suggestion in Carewatch

       that the overall approach in Yam Seng is not right.

       What is said is you can't build in totally ridiculous

       consequences for an obligation of good faith.  So that

       is what we say is the effect of that decision.

   MR JUSTICE FRASER:  The effect of which decision?  The

       Norris one?

   MR GREEN:  The Norris decision with which

       Mr Justice Henderson, as he then was, is agreeing.

   MR JUSTICE FRASER:  The requirement is expressed at the top

       of the page, isn't it?

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  It was the part:

           "... so as to ensure they maximised the net profits

       generated under the agreement."

   MR GREEN:  And it put a rider on good faith which is

       actually all about outcome and not about -- that was the

       distinction I made earlier about the fair dealing point,

       so it's wholly consistent with that analysis that we get

       to that point.

           My Lord, then --

   MR JUSTICE FRASER:  Are we still on Carewatch?

   MR GREEN:  No.

   MR JUSTICE FRASER:  Because the paragraph at 110 is relevant

       as well, isn't it {A1.1/53/34}, inconsistency with

       express terms.

   MR GREEN:  The reason I wasn't going to take your Lordship

       to that in any detail is because we have done obviously

       a compare between my learned friend's opening and his

       closing, and the suggestion that it was contrary to

       express provisions has now gone.  So on that footing

       I wasn't going to take undue time over the point.  But

       it is obviously right, if one can identify express

       provisions with which such implied provisions are

       inconsistent, it is obviously a bar to their

       incorporation.

           I think that is uncontroversial but I'm not sure it

       is a point still taken against me.

           So then --

   MR JUSTICE FRASER:  You say it would be not inconsistent

       with express terms.

   MR GREEN:  Plainly not.

   MR JUSTICE FRASER:  Where are we going now?

   MR GREEN:  Then --

   MR JUSTICE FRASER:  Are we going to go and crush some cars,

       or not yet?

   MR GREEN:  I was going to not take your Lordship to it

       unless there is anything beyond --

   MR JUSTICE FRASER:  It's just next on your list in your

       appendix of authorities.  Are we going to go to

       Globe Motors then?

   MR GREEN:  We are going to go to Globe Motors next which is

       at {A1.1/1/56} and is in tab 7 of the original

       authorities.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  I would invite the court to look at page 619 of

       that, which is {A1.1/62/19}, to get a fair view of what

       the decision included.  Reference back to the Arnold v

       Britton type point of not reinventing the bargain.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  Which is uncontroversial.  And then if we come

       down to paragraph 64:

           "The principled starting point in a system which

       despite statutory control and inequality of bargaining

       power rests on the assumption that parties to a contract

       are free to determine for themselves what obligations

       they will accept is that it is largely for the parties

       to a long-term contract to insert into it clauses which

       deal with the particular problems encountered by those

       who enter into such contracts."

           Pausing there, my Lord.  Just by way of observation

       of the contractual documents in this case, it would be

       wrong to say that the contractual -- that documents

       having contractual effect do not in some respects make

       detailed provision for what is to happen.

   MR JUSTICE FRASER:  It would be wrong to say that they do

       not.  In other words, they do.

   MR GREEN:  Yes.  In some respects they do.  Sorry for the

       double negative.  However, whilst arguably summer

       sizzlers are covered in contractual documentation, what

       investigation is to be done in relation to an alleged

       shortfall is not catered for.

   MR JUSTICE FRASER:  A summer sizzler being a seasonal offer.

   MR GREEN:  Yes.  Do you remember we went through and traced

       it through to the weekly Focus document which is said to

       be of contractual effect and --

   MR JUSTICE FRASER:  This is the one about the foreign

       currency.

   MR GREEN:  Yes, exactly, and the number of foreign visitors

       to foreign countries.  So it may be that the short point

       is very, very detailed long tails of reach in some

       respects are apparently contractually provided for, but

       there remain significant -- one can clearly identify

       significant lacunae which have not been dealt with.

           So it is not a case where the parties have carefully

       negotiated between them those aspects of the

       relationship which are in issue and which these implied

       terms are said to relate to.  So it's into that lacuna

       that the implied terms which the court is now concerned

       with fall.

   MR JUSTICE FRASER:  Into what lacuna, sorry?

   MR GREEN:  The extent to which there isn't express provision

       for, for example, how shortfalls are to be investigated,

       if at all.  Those more detailed matters.  There is no

       provision whatsoever for them.  So putting this contract

       in contradistinction to the detailed situation where two

       parties have in fact made detailed provision for

       everything and there is no room for any implication.

   MR JUSTICE FRASER:  Yes, but this can't be that case because

       there are at least two implied terms --

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  -- that are admitted.  But the approach

       in this case to relational contracts is a slightly

       different one, isn't it, because it deals with --

       because it is a long-term contract, a degree of

       flexibility that might be required by definition, or by

       virtue of it being long-term --

   MR GREEN:  Of the length.  Precisely.

   MR JUSTICE FRASER:  So we haven't got there yet but I dare

       say we will in a minute, Total Gas v Arco, it is partly

       because it is a 14-year term --

   MR GREEN:  Exactly.  Exactly.

   MR JUSTICE FRASER:  -- and you can't legislate or agree in

       advance everything that might happen in such a lengthy

       relationship.

   MR GREEN:  Precisely.  My Lord is absolutely right.

           So the court is looking at a slightly different

       aspect of these long-term relationships in Globe Motors,

       and it is in that context that there is reference to

       what Lord Steyn said in paragraph 65 albeit to -- that's

       the flexible approach reference there.  But the second

       half of what he says at letter H:

           "But, as in the case of all contracts, loyalty to

       the contractual text viewed against its relevant

       contextual background is the first principle of

       construction."

           So it doesn't take us much further, save that at 67

       {A1.1/62/20} we are told that an aspect of the flexible

       approach is in fact the Yam Seng approach.  So they are

       not -- your Lordship is right to identify that there is

       a temporal flexibility which obviously looms large in

       the context of that case, but it is quite clear that

       the flexibility that Lord Justice Beatson has in mind is

       one that in the usual common law way, by analogy,

       includes the -- at least as a manifestation of the

       flexible approach, is the implication in appropriate

       contracts of a duty to co-operate or, in Yam Seng,

       a duty of good faith.

   MR JUSTICE FRASER:  There are two important points, aren't

       there?  The first is in paragraph 65, just underneath

       letter G {A1.1/62/19}, he uses the expression:

           "... contracts of a type that are sometimes called

       relational contracts."

           So as a concept at Court of Appeal level that

       description has been approved.

   MR GREEN:  Repeatedly.

   MR JUSTICE FRASER:  However, in the middle -- well, whether

       it is repeatedly or not, it is approved, and that is

       binding on me.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  If you go to paragraph 67 {A1.1/62/20},

       between letters D and E, after the reference to Yam Seng

       with the citation and the words "a duty of good faith"

       full stop, Lord Justice Beatson says:

           "Leggatt J had in mind contracts between those whose

       relationship is characterised as a fiduciary one and

       those involving a longer term relationship ..."

   MR GREEN:  Those are two separate categories.

   MR JUSTICE FRASER:  Well, I was going to say that sentence

       is capable of being read in two ways --

   MR GREEN:  Not if you look at Yam Seng --

   MR JUSTICE FRASER:  No, that is correct.  But if it is taken

       on its face as a summary of what Yam Seng is about, it

       could potentially be relational contracts are a subset

       of fiduciary contracts, because that is what the judge

       was talking about, if you look at that sentence.

   MR GREEN:  Yes.

   MR JUSTICE FRASER:  Or it could mean both fiduciary

       contracts and relational contracts.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  Now, it has to be, if you read Yam Seng,

       the second --

   MR GREEN:  The latter --

   MR JUSTICE FRASER:  Because the judge makes it clear it is

       not fiduciary contracts he is talking about.

   MR GREEN:  And that is the false dichotomy point.  So it has

       to be the latter.

   MR JUSTICE FRASER:  But you then get at letter F:

           "... the position will depend on the terms of the

       particular contract."

           He then says Mr Justice Henderson in Carewatch,

       Elisabeth Laing in Acer, demonstrated two contracts that

       weren't relational, doesn't he?

   MR GREEN:  My Lord, the only thing just hesitantly there,

       one way of describing a result in Carewatch is that the

       implied term pleaded --

   MR JUSTICE FRASER:  That is a way of interpreting it.  But

       Lord Justice Beatson says it is an example of

       a long-term contract "which did not qualify".  That can

       only be "did not qualify" as a relational contract.

   MR GREEN:  On one view, reading this paragraph as a whole,

       it may be what he is saying is "did not qualify" as

       a relational contract into which the court would be more

       willing to imply the term.  So reading, including the

       words at the top of 67, as imported into what

       Lord Justice Leggatt had in mind in Yam Seng.

   MR JUSTICE FRASER:  But Mr Green, that is completely

       circular.  The beginning of 67 is saying that

       a relational contract has a duty to co-operate or, to

       use the Yam Seng language, a duty of good faith.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  And that is what we spent a lot of time

       before lunch exploring.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  Just because Carewatch at first instance

       didn't have one, or just because another first instance

       case doesn't have one, it is the principles that are

       important, and then you have to apply each particular --

   MR GREEN:  Precisely.  Precisely.

   MR JUSTICE FRASER:  -- to the principles.  But Lord Justice

       Beatson in this paragraph says:

           "Two examples of long-term contracts which did not

       qualify ..."

           Were, firstly, Carewatch.  I know you have shown me

       the implied term that was contended for in Carewatch and

       said that is what he decided didn't.  But certainly the

       Court of Appeal don't consider Carewatch to be

       an example of a contract that was a relational contract.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  That is correct, isn't it?

   MR GREEN:  That is what he is -- it does appear to be the

       case.

   MR JUSTICE FRASER:  That is the ratio of this case.

   MR GREEN:  It seems to be, yes.

   MR JUSTICE FRASER:  All right.

   MR GREEN:  So it is not that -- I think one can fairly say

       it won't be every contract that is a relational

       contract.

   MR JUSTICE FRASER:  No, but it cannot be --

   MR GREEN:  Every long term contract --

   MR JUSTICE FRASER:  It can't be because that's just one of

       the features.

   MR GREEN:  It plainly can't be.  Precisely.

   MR JUSTICE FRASER:  But then in paragraph 68, first

       sentence, we have the conclusion which is this case

       doesn't then go on to consider the potential for having

       such implied duties because in this case, namely,

       Globe Motors, it is about interpretation and

       construction and not implication.

   MR GREEN:  My Lord, yes, exactly.

   MR JUSTICE FRASER:  So what that case demonstrates is, yes,

       relational contracts exist, this is what they have in

       them.  Sometimes it has been argued that they exist but,

       because they are long-term, that isn't all there is to

       it, and here are two examples.  And we are not going to

       go much further because actually in this contract we are

       dealing with construction of terms, not implication of

       terms.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  But turning to this case, as in the

       instant Post Office case, you have got a range of

       features which you say are sufficient or necessary or

       their logical conclusion is it is a relational contract.

   MR GREEN:  Yes, no one of which is necessarily dispositive.

   MR JUSTICE FRASER:  And it is not just the fact it is

       long-term, it is all those other features.  Mr Cavender

       has a range of features which we will come on to on

       Wednesday which he says militate against, it but in all

       of that discussion, dispute, argument between

       the parties, relational contract is being used as

       a shorthand term for a duty of good faith and

       co-operation.

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  That is really it, isn't it?

   MR GREEN:  It is.  My Lord, yes.  The only point I was going

       to deal with very briefly --

   MR JUSTICE FRASER:  I'm not saying don't go on with it --

   MR GREEN:  No, no, but --

   MR JUSTICE FRASER:  But Globe is appellate authority that

       says there is such a thing.  And it doesn't say what

       Chitty would have everyone believe it says --

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  Or not "believe it says".  It doesn't

       say what Chitty says which is a duty of good faith means

       you have to be honest.

   MR GREEN:  Yes.  My Lord, parenthetically on Chitty,

       your Lordship will notice that footnote 464 I think it

       is in Chitty has cases in which duties of good faith,

       implied duties of good faith have been found.  Then it

       has the ones that my learned friend relies on listed,

       exactly the ones, and then after that it says "but see

       F, Yam Seng".

   MR JUSTICE FRASER:  I know.  But in a way --

   MR GREEN:  It is unhelpful, perhaps.

   MR JUSTICE FRASER:  At the end of Birmingham v Amey there is

       reference to relational contracts as a concept but it is

       an undeveloped field.

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  It is not completely undeveloped but --

   MR GREEN:  It's not crystallised --

   MR JUSTICE FRASER:  It basically started with an article

       from Professor McKendrick, but so far as judicial

       authority is concerned Yam Seng is really the starting

       point of it, isn't it?

   MR GREEN:  Yes.  I think, my Lord, the academic commentaries

       go back to Durkheim, Marks, Cohen --

   MR JUSTICE FRASER:  It has been --

   MR GREEN:  -- in Harvard Law Review 1933.  A gestation of

       academic --

   MR JUSTICE FRASER:  But also across the jurisdictions,

       because some jurisdictions have such a concept and some

       jurisdictions are hostile to it.

   MR GREEN:  Precisely.  Your Lordship is right.

   MR JUSTICE FRASER:  But it is really where we are now, isn't

       it?  And it might be, I don't know how Chitty is

       written.  It might be that whichever editors are

       responsible for those particular passages or that

       particular chapter are from one particular school of

       thought.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  But it does doesn't have the same

       authority this has.

   MR GREEN:  Plainly not.  Plainly no.

   MR JUSTICE FRASER:  But then, and the same thing happened in

       Birmingham, the Court of Appeal then say, effectively,

       this isn't really the place for a detailed exposition of

       what does and doesn't qualify.  Which sort of takes you

       back not quite to square one but --

   MR GREEN:  The only thing --

   MR JUSTICE FRASER:  It's like playing snakes and ladders.

   MR GREEN:  It is slightly.  But I think a snake for me, and

       I'm not sure it really is a snake but my learned friend

       would say it is --

   MR JUSTICE FRASER:  Alright, let's go there.

   MR GREEN:  The very end of 68, over the page {A1.1/62/21}.

       It's prefaced by the sentence on {A1.1/62/20}:

           "The second is that, as seen from the Carewatch Care

       Services case, an implication of a duty of good faith

       will only be possible where the language of the

       contract, viewed against its context, permits it."

   MR JUSTICE FRASER:  Yes, but that is because of the

       preceding sentence.

   MR GREEN:  Precisely.  Exactly.  So all -- your Lordship has

       the point already.

   MR JUSTICE FRASER:  You can only imply a term, and this

       applies in all sorts of different cases, insurance

       cases, everything.  You can only imply a term if it

       doesn't conflict with an express term because the

       mechanism of implying a term requires there to be a gap.

       So if there is no gap or if it is contrary to something

       you can't imply the term, and that is plain.

   MR GREEN:  Indeed.  So in the end, my Lord, in terms of

       getting back to where we started, a lot of the facets of

       the analysis on this are absolutely uncontroversial

       aspects of contract law.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  Then, my Lord, I was going to take you very

       quickly back to Bristol Groundschool.

   MR JUSTICE FRASER:  Have we now finished with Globe?

   MR GREEN:  We have finished with Globe.

       Bristol Groundschool is at {A1.1/52/1} and is in --

   MR JUSTICE FRASER:  V1 at tab 34, I think.

   MR GREEN:  Exactly.

   MR JUSTICE FRASER:  I don't want this to be misinterpreted,

       but Bristol Groundschool is a decision of a Deputy

       High Court Judge dealing with a situation where the

       conduct complained of was if not completely criminal,

       was verging and on the borderline of being criminal.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  At one point I think he says, Deputy

       Judge Richard Spearman QC, he doesn't want to make

       findings as though it were a criminal matter, but then

       at one point he actually deals with the expression --

       well, he says:

           "I am loathe to decide even to the civil standard,

       and following a decision not to invoke a claim to

       privilege against self-incrimination, whether any crime

       has been committed, but ..."

           And then he goes on to deal with that sort of

       behaviour.  So in a way --

   MR GREEN:  It is fairly extreme --

   MR JUSTICE FRASER:  It is an extreme case.

   MR GREEN:  It is.  The only observation I was going to make,

       I think from memory it's at 156 on page {A1.1/52/58}.

       It's a very short point.

   MR JUSTICE FRASER:  There is a period of notice and that is

       not antithetical to it being --

   MR GREEN:  Precisely.

   MR JUSTICE FRASER:  But some of the other cases have notice

       provisions in them as well.

   MR GREEN:  Precisely.  So all I was going to say is we

       respectfully submit it is wrong, which we think is

       an error into which my learned friend may have fallen,

       to conflate "term", the expectation of the relationship,

       with "termination provisions".

   MR JUSTICE FRASER:  That is an arguable point in both

       directions.  That is one I will have to decide because

       I know Mr Cavender relies on that.

   MR GREEN:  Indeed.  We respectfully say the fact that one

       finds these examples of relational contracts where the

       parties expect it to be a long-term relationship but

       they nonetheless have a potentially short-term duration

       if the termination provisions are operated.  It is no

       bar, it is one of the factors.  That is that.

           Then, my Lord, the next point is simply to go back

       to --

   MR JUSTICE FRASER:  I don't really need a Deputy District

       Judge's view on whether notice is or isn't given and

       degree of other factors.

   MR GREEN:  My Lord, yes.

           Then simply to take your Lordship back, if I may, to

       Al Nehyan for one further point, because it is the

       departure point for --

   MR JUSTICE FRASER:  And the reason that is an interesting

       case is that comes after some of the other authorities

       which have debated and considered what Yam Seng did or

       didn't say and it is by the same judge.

   MR GREEN:  Precisely.  So --

   MR JUSTICE FRASER:  We are going back into that, yes?

   MR GREEN:  Indeed.  The short point is this is

       post-Marks & Spencer, and if your Lordship looks at

       paragraph 174 {A1.1/72/47}:

           "In the circumstances the contract made between

       these parties seems to me to be a classic instance of

       a relational contract.  In my view, the implication of

       a duty of good faith in the contract is essential to

       give effect to the parties' reasonable expectations and

       satisfies the business necessity test which

       Lord Neuberger in Marks & Spencer ... at paragraphs 16

       to 31 reiterated as the relevant standard for the

       implication of a term into a contract."

           Just unpacking what is happening in that quite

       important section, the phrase "to give effect to the

       parties' reasonable expectations" -- your Lordship will

       remember that I highlighted that phrase in Yam Seng --

       was from Lord Justice Steyn and his LQR article, and

       there are areas where it is suggested that -- there are

       cases in which it is suggested that you try and make the

       expectations reasonable in results in the contract, and

       that is plainly wrong.

           What Lord Justice Steyn was saying is that you don't

       give effect to the parties' personal expectations.

       Because it is the notional, reasonable parties and their

       position, it is shorthand for the parties' reasonable

       expectations, ie what a reasonable person in the

       parties' situation is --

   MR JUSTICE FRASER:  In other words, it's objective, not

       subjective.  Just because someone expects it to be a

       relational contract doesn't mean it is.

   MR GREEN:  Exactly.  So that is what he is saying when he

       refers to giving effect to the parties' reasonable

       expectations.  Then he says:

           "... and satisfies the business necessity test which

       Lord Neuberger in Marks & Spencer reiterated."

           Then he goes on to say -- so he has done both

       prisms, he has done the expectations in fact and the

       implication post-Marks and Spencers.

           Then he goes on to say:

           "I would also reach the same conclusion by applying

       a test adumbrated by Lord Wilberforce in Liverpool City

       Council v Irwin for the implication of a term in law on

       that basis that the nature of the contract as

       a relational contract implicitly requires, in the

       absence of contrary indication, treating it as involving

       an obligation of good faith."

           So what Mr Justice Leggatt is saying there slightly

       crystallises the debate that has emerged from the cases

       so far in the sense that he puts it as: once you have

       identified a relational contract, in the absence of

       contraindication there is an implied term of good faith

       as a matter of law.

           So that is the third -- that is the Geys case which

       I am going to take your Lordship to now.  I said at the

       beginning there were the two prisms initially in

       Yam Seng, but whatever you look at you end up in

       the same all roads lead to Rome.

   MR JUSTICE FRASER:  I'm not sure that is the third one,

       though.  Because his second one, which you described as

       the second prism, was a traditional test for the

       implication of a term, namely, business efficacy.  And

       that is what he is doing here.

   MR GREEN:  Indeed.  My Lord, I think, with respect, when one

       looks at it in the context of the Geys case, which

       I will show you, I think he is doing all three.

   MR JUSTICE FRASER:  What, at the same time?

   MR GREEN:  Yes.  He does the first two together, and then

       the third one is the Liverpool City Council case.

       Because --

   MR JUSTICE FRASER:  So you are saying Marks & Spencer is

       presumed intention based on contractual expectation and

       the traditional test for an implication rolled up

       together.

   MR GREEN:  Marks & Spencer at paragraph 21, which I will

       show your Lordship, is actually the

       necessity/obviousness of giving the contract commercial

       and practical coherence.

   MR JUSTICE FRASER:  I know.  I am using your phrase from

       this morning when you were identifying what you said

       Yam Seng did and you said there were three different

       routes or prisms.

   MR GREEN:  Yes.  Precisely.

   MR JUSTICE FRASER:  And I was very careful to explore with

       you what your three were.

   MR GREEN:  Yes.  So the first one is the implication in fact

       based on the parties' presumed intentions.

   MR JUSTICE FRASER:  Well, you actually said contractual

       expectations.

   MR GREEN:  Precisely --

   MR JUSTICE FRASER:  Presumed intentions, yes.

   MR GREEN:  The second one is the obviousness or necessity

       test.

   MR JUSTICE FRASER:  Business efficacy.  Yes.

   MR GREEN:  Which is M&S at paragraph 21 in particular.

   MR JUSTICE FRASER:  Yes, but it wasn't at that point because

       there hadn't been an M&S.

   MR GREEN:  No, quite, but --

   MR JUSTICE FRASER:  And the third one is ...

   MR GREEN:  The third one is into certain types of legal

       relationship that the law recognises as a thing there

       will be an implied term as a matter of law.  And that is

       the second category -- there are two categories in Geys

       which I will show your Lordship now.

   MR JUSTICE FRASER:  Before we go there, though, I just want

       to be clear what you are saying about 174 here

       {A1.1/62/47} because I think you said that he rolled all

       three of them up together.

   MR GREEN:  No, he rolls the first two together in one

       sentence, and then --

   MR JUSTICE FRASER:  Okay, show me which sentence that is.

       You are saying --

   MR GREEN:  The second sentence --

   MR JUSTICE FRASER:  That's the one referring to

       Marks & Spencer.

   MR GREEN:  Yes, because what he says is the implication of

       a duty of good faith in the contract, one, is essential

       to give effect to the parties' reasonable expectations.

       That is their contractual expectations or presumed

       intention on the facts --

   MR JUSTICE FRASER:  Yes, that is the test of business

       necessity.

   MR GREEN:  Well, he -- on one view of the reading of

       Yam Seng, where he talks about shared norms as the basis

       for implication in fact, and then separately says:

           "I would reach the same conclusion if I looked at it

       through the traditional approach of necessity."

   MR JUSTICE FRASER:  No, I am talking about this paragraph.

       He says this satisfies the business necessity test in

       Marks & Spencer.

   MR GREEN:  My Lord, yes.  But I think --

   MR JUSTICE FRASER:  So I think what he is doing in that

       sentence is applying the business necessity test in

       Marks & Spencer.

   MR GREEN:  He is, but --

   MR JUSTICE FRASER:  I am glad we are agreed about that.  So

       then if you pause there, that is what he has done in

       the first sentence.  The next sentence he applies

       a different test which is Liverpool City Council v

       Irwin.

   MR GREEN:  That is absolutely true.

   MR JUSTICE FRASER:  And he says he'd reached the same

       conclusion applying that other test.

   MR GREEN:  Yes, that is the Geys --

   MR JUSTICE FRASER:  I know.  We will come on to Geys in

       a minute.  But so far as this is concerned, he at least

       believes -- you might think he doesn't think he is doing

       this but on the face of it he looks as if he is doing

       this -- he's applying two different tests and he's

       getting to the same result.

   MR GREEN:  He's definitely applying two.  I am respectfully

       submitting that he appears to be applying three.

   MR JUSTICE FRASER:  Let's concentrate on the two for the

       moment.

   MR GREEN:  Marks & Spencer, tick.  And implication because

       of the nature of the relationship in law, tick.  He's

       satisfied on both.

   MR JUSTICE FRASER:  So to use your prism numbering, which of

       those prisms is it?

   MR GREEN:  That is prism two and three, but I am

       respectfully submitting that actually what he is doing

       is -- can I show your Lordship where it is in Yam Seng?

   MR JUSTICE FRASER:  Just tell me where the third one is here

       and then we will go on to Yam Seng.

   MR GREEN:  If we look at paragraph 174, second line, he says

       {A1.1/62/47}:

           "... the implication of a duty of good faith in

       the contract ..."

           Can we put colon (a) --

   MR JUSTICE FRASER:  No, we can't, because that is not what

       he is doing.  Are you saying that is the beginning of

       a list which he completes partly in that sentence, and

       then when he says he is doing another test he is doing

       the same list?

   MR GREEN:  No.  Because in Yam Seng he says -- sorry,

       my Lord, I'm not explaining it very well --

   MR JUSTICE FRASER:  Let's go to Yam Seng.  It is really

       a minor point.  But when you said he had rolled them all

       up together, it did not appear to me that he had rolled

       them all up together because he says he is doing two

       separate things.  Let's look at Yam Seng.

   MR GREEN:  If your Lordship looks at 131 which is

       {A1.1/43/30}.

   MR JUSTICE FRASER:  Which paragraph of Yam Seng?

   MR GREEN:  Paragraph 131.

   MR JUSTICE FRASER:  Paragraph 131.

   MR GREEN:  It is the last sentence of paragraph 131 by

       letter G:

           "Nevertheless, there seems to me to be no

       difficulty, following the established methodology of

       English law for the implication of terms in fact, in

       implying such a duty in any ordinary commercial contract

       based on the presumed intention of the parties."

   MR JUSTICE FRASER:  Pause there and just tell me this: are

       you interpreting that as an exposition of the

       Marks & Spencer test, the Liverpool City Council test or

       some other test?

   MR GREEN:  Some other test.  That is prism one.

   MR JUSTICE FRASER:  Can we not go into your rather

       confusingly numbered prisms just yet.  Some other test.

       So not Liverpool City Council and not Marks & Spencer.

   MR GREEN:  It is -- it is a -- yes, not the main thrust of

       Marks & Spencer.  I will show your Lordship how it fits

       in when we look at Marks & Spencer.

           The reason I say that, my Lord, is because what he

       has carefully done in the run-up to 131 is to trace the

       presumed intention of the parties as a matter of fact,

       which is for the trial judge to assess, as a basis from

       which the court is entitled to conclude there are

       implied terms in a contract.

           When we then go to paragraph 137, {A1.1/43/31},

       third line down, he says:

           "The same conclusion is reached if the traditional

       tests for the implication of a term are used.  In

       particular, the requirement that parties will behave

       honestly is so obvious that it goes without saying."

           So what is new and not traditional, or is being

       regarded as not absolutely traditional although he has

       looked at previous instances of it, is identifying

       shared norms of behaviour as falling within the broad

       background that the court is entitled to have regard to

       in implying terms as a matter of fact.  And then he

       says -- so that is the run up to 137.  Then he very

       carefully says that he would reach the same conclusion

       if it was obvious or necessary as the test.

           So they may be 1(a) and 1(b), my Lord, but --

   MR JUSTICE FRASER:  Mr Green, you are the one who told me

       there are three of them.

   MR GREEN:  There are three.  I am coming --

   MR JUSTICE FRASER:  I know you say there are three.

   MR GREEN:  I am agnostic about whether it is 1(a) and 1(b)

       and 2, but it does seem that they are being treated at

       least for the purposes of clarity by Mr Justice Leggatt

       as different approaches and different tests, because he

       says the words:

           "The same conclusion is reached if the traditional

       tests for the implication of a term are used."

           So that is obvious and necessary, rather than these

       shared factual norms as a matter of evidence.  There may

       be a distinction at least in terms of the course of

       reasoning by which those results are reached, even if

       not in results.

           Then if we can go back to 174 in Al Nehyan

       {A1.1/72/47}.  Given the distinction he appeared to draw

       very clearly in 137 and 131, when one reads his

       paragraph, the second line of the paragraph, it appears

       he is saying:

           "In my view, the implication of a duty of good faith

       in the contract is essential to give effect to the

       parties' reasonable expectations ..."

           Which he has made findings about as a fact, so

       implied in fact as he says at 131:

           "... and satisfies the business necessity test ..."

           As he says in 137 in Yam Seng, which is precisely

       what that test is.

           And then the last five lines:

           "I would also reach the same conclusion by applying

       the test adumbrated by Lord Wilberforce in Liverpool

       City Council v Irwin."

           So on the face of it he seems to be saying,

       whichever of those three ways, or 1(a), 1(b) and 2,

       however you like to characterise it, whichever way you

       look at it you reach the same result.  Which goes back I

       think to your Lordship's point that it would be odd if

       you reached a different answer by a different test.

           So my Lord, I think I have already taken

       your Lordship to 175 in Al Nehyan {A1.1/72/48}, because

       that was the bit about refraining from conduct which

       would be regarded as commercially unacceptable by

       reasonable honest people.

           Can I take your Lordship now to the Geys case, to

       look at the origin of the third category -- not the

       origin but the most recent exposition at Supreme Court

       level.

   MR JUSTICE FRASER:  Where are we going now?

       Marks & Spencer?

   MR GREEN:  No, Geys v SocGen {A1.1/42/1}.  Which is V1/31.

       Thank you very much.

           I don't think it is controversial ... it's

       paragraph 55 on page 25 {A1.1/42/25}:

           "In this connection, it is important to distinguish

       between two different kinds of implied terms.  First,

       there are those terms which are implied into a

       particular contract because, on its proper construction,

       the parties must have intended to include them ..."

           I respectfully say 1(a) and 1(b).  And then:

           "Such terms are only implied where it is necessary

       to give business efficacy to the particular contract in

       question."

           Which is the 1(b) test.

           "Second, there are those terms which are implied

       into a class of contractual relationship such as that

       between landlord and tenant or between employer and

       employee, where the parties may have left a good deal

       unsaid, but the courts have implied the term as

       a necessary incident of the relationship concerned

       unless the parties have expressly excluded it."

           So, my Lord, that is Supreme Court authority

       supporting at least the framework within an implied term

       will be imposed as a matter of law on a relationship

       unless the parties have excluded it.  And that is

       exactly consonant with what Mr Justice Leggatt says

       where his approach starts to crystallise in Al Nehyan,

       which we were just looking at, where he puts in

       brackets -- he says "in a relational contract" and then

       make the proviso in the brackets thereafter.

           So two points emerge from that.  Firstly, that there

       is nothing -- there is nothing controversial about

       the idea of particular type of relationship having

       an implied term in law, nor that the developing law may

       recognise a relationship for those purposes.

           The second point is for the court to then look at

       what is the nature of the relationship itself.  If it is

       right whichever test you -- it's like cutting an onion

       vertically, that although the tests start off pointing

       out in different ways, the onion always comes back to

       the top at the end.  If it is right that all roads lead

       to Rome in that sense and you reach the same answer, it

       is plainly relevant to look at the nature of the

       relationship that is created by the contract.

           As to that, my Lord, that will form part of the

       background against which the contract is construed.  And

       just to foreshadow what the submission will be in

       relation to that, the closeness of this contractual

       relationship to employment is directly relevant to the

       way the contract is construed.

   MR JUSTICE FRASER:  There was some reference to an EAT

       decision in the 80s, was it, that you put to one of the

       witnesses?

   MR GREEN:  The decision was actually Autoclenz in

       the Supreme Court, the one I put on the screen and then

       couldn't quite find the place --

   MR JUSTICE FRASER:  What, the one you put to the witness?

   MR GREEN:  Yes -- no, Gogay.

   MR JUSTICE FRASER:  Yes, it wasn't Autoclenz.

   MR GREEN:  No, the Gogay point is that suspension is not

       a neutral act.

   MR JUSTICE FRASER:  No, it wasn't that.  I will track

       through it.

           I had understood you to put to one of the witnesses

       that there had been a decision of the EAT in relation to

       the employment status of subpostmasters but I might have

       misunderstood the way you put the question.

   MR GREEN:  No, my Lord, you are absolutely right.

   MR JUSTICE FRASER:  And that wasn't Autoclenz.

   MR GREEN:  No.  What had in fact happened was one of

       the witnesses had himself been involved in an employment

       tribunal, himself, about the employment status.

   MR JUSTICE FRASER:  That is what -- that is what my

       understanding was.  But I thought you said it was an EAT

       decision, not an employment tribunal decision.

   MR GREEN:  If I did I was mistaken.

   MR JUSTICE FRASER:  It is an employment tribunal.

   MR GREEN:  It was then called an industrial tribunal, I

       think, probably at that time.

   MR JUSTICE FRASER:  But it was in the 80s.

   MR GREEN:  I think it was in the 90s.  It might have been an

       employment tribunal rather than an industrial tribunal.

       But the short point --

   MR JUSTICE FRASER:  And that was a decision -- as

       I interpreted it, and I might be wrong, an individual

       subpostmaster or postmistress brought a claim in

       the tribunal seeking -- or part of which at least must

       have included seeking the same rights as though they

       were an employee.

   MR GREEN:  Exactly.

   MR JUSTICE FRASER:  Of what would have been Post Office

       Counters Limited at that point.

   MR GREEN:  My Lord, yes.

   MR JUSTICE FRASER:  And lost.

   MR GREEN:  And lost.

   MR JUSTICE FRASER:  But because of the particular features

       of an employment contract or an employment relationship,

       it led to a degree of sensitivity which the witness

       accepted.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  In this purpose in respect of personal

       service.  Is that right?

   MR GREEN:  That is absolutely correct.

   MR JUSTICE FRASER:  But that decision isn't in any of the

       authorities, I don't think.

   MR GREEN:  My Lord, no.

   MR JUSTICE FRASER:  Not that it binds me, and not that

       anyone is arguing they are an employee, but it is the

       background, isn't it, to at least part of the

       relationship discussion.

   MR GREEN:  Absolutely.  My Lord, in Carewatch at 107, which

       I possibly should have taken your Lordship to while we

       were in Carewatch.

   MR JUSTICE FRASER:  Remind me where that is again.

   MR GREEN:  Carewatch is {A1.1/53/1} which is in tab 3.

   MR JUSTICE FRASER:  Which paragraph are we going to now?

   MR GREEN:  Paragraph 107.  {A1.1/53/33}

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  This is referring to Jani-King:

           "The term which it was sought to imply into the

       franchise agreement in that case was that the franchisor

       would not act so as to destroy or seriously damage the

       relationship of trust and confidence between the

       parties.  The judge held that no analogy could be drawn

       with the implied term of trust and confidence in

       contracts of employment, saying:

           "'I am in no doubt that, as a matter of common

       sense, and on the authorities, the relationship is much

       closer to an ordinary commercial relationship, than one

       between employer and employee.'

           "I respectfully agree."

           And the significance of that is that that is

       an example of the court having regard to where on the

       spectrum the relationship is between employment at one

       end and ruthless international commercial contract at

       the other.  And we respectfully say it is obviously as

       a matter of common sense relevant, it sets the relevant

       context which is the point your Lordship put to me, but

       it is also clearly accepted as a relevant factor in this

       decision.  And we say that the degree of sensitivity to

       personal service and the rather unusual way in which it

       was handled, and all the other indicia of control and so

       forth, agreements procedure and contractual appeals

       procedure, holiday substitution allowance, if you work

       for 18 hours or more.  But there aren't many

       international commercial contracts where one party gives

       somebody working for the other party a holiday

       substitution allowance.

           So the proximity and the nature of the relationship

       being so close to an employment relationship is

       a significant factor informing the nature of the

       relationship for your Lordship's purposes.  And that is

       what chimes with --

   MR JUSTICE FRASER:  So that is one of the features upon

       which you rely.

   MR GREEN:  Exactly.

   MR JUSTICE FRASER:  What are the others?

   MR GREEN:  We set them out in our closing extensively.

       Obviously long-term, requiring a high degree of

       co-operation.  All of those features, which we have

       listed I think fairly carefully in our closing, all of

       those are features which, taken even some of them or

       certainly all together, put it beyond doubt that this is

       a relational contract par excellence.

   MR JUSTICE FRASER:  As Mr Justice Dove might say.

   MR GREEN:  Precisely.  So whether you look at it from

       a relationship in law perspective and what the law would

       imply, you still arrive at the same answer on the Geys

       approach for which there is Supreme Court authority.

           My Lord, can I now take your Lordship to

       Marks & Spencer, which has been sort of looming in the

       background, just to look at precisely what we say the

       relevant test is.  We summarise the points at page 19 of

       our appendix {A/7/23}.  And it's paragraph 21 on

       page 754 of Marks & Spencer {A1.1/61/1}.  At page 754 of

       the authority --

   MR JUSTICE FRASER:  This is tab 5, isn't it?

   MR GREEN:  It's tab 5 of the authorities bundle.  Page 13 on

       Opus {A1.1/61/13}.  This is the paragraph that sets out

       the six propositions which we have identified in our

       appendix.

           The first, Lord Steyn rightly observed that

       the implication of a term is not critically dependent on

       proof of an actual intention.  That is uncontroversial.

           Second, which is above H:

           "... 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."

           And then third:

           "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 or equitable."

           Then {A1.1/61/14}:

           "Fourthly, as Lord Hoffmann suggested in Belize

       although Lord Simon's requirements are otherwise

       cumulative, I would accept that business necessity and

       obviousness ... can be alternatives in the sense that

       only one of them needs to be satisfied ..."

           So, my Lord, that is case where an aspect of the

       test may be satisfied where another aspect might not be

       but there will still be an implied term.  So it may be

       that you will have cases where you would not get home on

       all ways of framing the test but there is still

       an implied term.  That is quite important.

           Then:

           "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."

           I think that is uncontroversial.

           "Sixthly ...

           And this is the one we particularly rely on, this is

       what the meaning of necessity actually is when a court

       is charged with considering whether to imply a term or

       not, and my learned friend's submissions could be

       capable of slightly overstating the extremity of that

       test.

           "Sixthly, necessity for business efficacy involves

       a value judgment."

           That is a value judgment for your Lordship.

   MR JUSTICE FRASER:  Where are you reading?

   MR GREEN:  This is sixthly, just above letter C:

           "... 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' ..."

           You can't sit back and go, "Well, it could work".

       That is not the test.

   MR JUSTICE FRASER:  The test is business efficacy.

   MR GREEN:  Precisely, and that is exactly what --

   MR JUSTICE FRASER:  It has always been that.

   MR GREEN:  Exactly, my Lord.  It may begin and end with

       business efficacy in reality, but:

           "It may well be that a more helpful way of putting

       [the] second requirement is ... that a term can only be

       implied if, without the term, the contract would lack

       commercial or practical coherence."

   MR JUSTICE FRASER:  Whatever that means.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  What does that mean?

   MR GREEN:  We respectfully say that commercial and practical

       coherence is the -- it relates to the fact that the

       provisions of the contract are coherent as a whole from

       both the commercial and practical perspective with the

       benefit of the implied term in a way they simply would

       not be without it.

   MR JUSTICE FRASER:  Coherence in the sense of

       understandable?

   MR GREEN:  Coherence in the sense of practical operation.

       It may be understandable if that is what is necessary.

   MR JUSTICE FRASER:  What is practical coherence in the sense

       of considering a contract?  What does that actually

       mean?  And don't say coherent from a practical point of

       view.

   MR GREEN:  No, that is why I am pausing before responding,

       because I don't think --

   MR JUSTICE FRASER:  You were tempted.

   MR GREEN:  What we would respectfully say it does invite the

       court to do -- it is consonant with the exercise to be

       done when one is construing a contract.  Although they

       are different exercises, the court -- in the exercise of

       construction, the court looks at the practical

       commercial impact of a particular construction of the

       contract and looks at what the commercial implications

       would in fact be of rival interpretations.  And that is

       one exercise distinct from this.

           But in this exercise the court is entitled to have

       regard to the commercial and practical realities of the

       relationship in reaching -- in making the value judgment

       that Lord Neuberger has specified just above letter C.

       We say that is the significance of those words, even if

       the definition of commercial practical coherence may be

       a bit protean.  We say the court is not just entitled

       to, but required to have regard to the commercial and

       practical realities of the relationship.

   MR JUSTICE FRASER:  Lord Neuberger is actually saying that

       that phrase might just be, as he puts it, a more helpful

       way of expressing the second requirement --

   MR GREEN:  Business efficacy.

   MR JUSTICE FRASER:  It is only more helpful if you

       understand what it means.  I don't mean you, I mean us.

       It is obviously expected to be the same as business

       efficacy.

   MR GREEN:  Yes.

   MR JUSTICE FRASER:  Which is a term that has been used for

       a long time --

   MR GREEN:  And is --

   MR JUSTICE FRASER:  -- everybody broadly thinks they

       understand what it means.

   MR GREEN:  To the extent there is a slightly -- to the

       extent it is helpful at all, we respectfully say it

       completely in parallel with the arguably increased focus

       on commercial -- reality of commercial implications in

       the construction exercise, there is a fair recognition

       in the use of that phrase by Lord Neuberger that the

       court is not just entitled to look at the commercial

       and practical consequences but actually probably

       required to.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  My Lord, probably as we have all understood

       business efficacy that may add little to the analysis,

       I think.  I think business efficacy has been understood

       commonly as including that.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  But we respectfully do say at the moment that is

       effectively the highest authority in relation to this

       point of necessity.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  And it is effectively making two points, really.

       One is it is a value judgment for your Lordship and,

       two, that has to be an informed value judgment in the

       light of effectively the commercial and practical

       consequences of implying or not implying the terms.

       That is really what Lord Neuberger is saying.  Whether

       that gives greater precision to the exercise than simply

       referring to business efficacy, I don't know, but he

       goes to some -- he takes some care to spell out that it

       is not absolute necessity and, rather in parallel with

       the approach to contractual construction which we now

       see, focuses on the commercial and practical

       implications.

   MR JUSTICE FRASER:  Yes.  Understood.

   MR GREEN:  My Lord at 755 at letter G on the same page --

       sorry, letter F {A1.1/61/14}, just below letter F, the

       second proviso is important because otherwise

       Lord Hoffmann's formulation may be interpreted as

       suggesting that reasonableness is a sufficient ground

       for implying a term.

   MR JUSTICE FRASER:  The second proviso being (ii) between

       letters E and F.

   MR GREEN:  Exactly.  In brackets:

           "For the same reason, it would be wrong to treat

       Lord Steyn's statement in Equitable Life ... that

       the term will be implied if it is 'essential to give

       effect to the reasonable expectations of the parties' as

       diluting the test of necessity."

           So, my Lord, that goes back to the point I made

       about what Mr Justice Leggatt meant in Yam Seng when he

       referred to Lord Justice Steyn and he made the reference

       to the -- it's at 145, for your Lordship's note, between

       F and G. {A1.1/43/33}

           In fact, Mr Justice Leggatt is referring to the

       First Energy case where Lord Justice Steyn said the same

       thing in the Court of Appeal as he then later said in

       the House of Lords, which is the reasonable expectations

       of the parties must be protected.

           But I think the better view is that all that

       Lord Justice Steyn, and then later Lord Steyn, in

       Equitable Life was saying was: you are giving effect to

       the presumed contractual expectations or intentions of

       the parties.  And "reasonable" introduces that

       objectivity that is present in the concept of the

       notional person in the situation of the parties.

           So we respectfully say that is the way in which it

       is properly to be understood, we say that is the way in

       which Mr Justice Leggatt, as he then was, understood it

       in Yam Seng, and that is the common thread that runs

       through this case.

           My Lord, then can I take your Lordship --

   MR JUSTICE FRASER:  Are we leaving Marks & Spencer?

   MR GREEN:  We are leaving Marks & Spencer unless I can help

       your Lordship further.

   MR JUSTICE FRASER:  All I would observe in Marks & Spencer

       is in paragraph 28 {A1.1/61/15}, it is made clear that

       before one can start setting about implication or

       considering implication of the term, first you have to

       construe the express terms.

   MR GREEN:  Absolutely.

   MR JUSTICE FRASER:  On the basis that whether something is a

       relational contract or not imports into it an implied

       term of a duty of co-operation, good faith, fair

       dealing, et cetera, is it the case that logically that

       has to happen at the end?

   MR GREEN:  My Lord, it happens -- so the sequencing that we

       identified in our opening, I think it is hopefully

       right, which is you have to construe the express terms

       first.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  And then at that stage broadly and in parallel

       consider the nature of the relationship --

   MR JUSTICE FRASER:  Broadly and in parallel.

   MR GREEN:  It's relational contract and implied terms next.

   MR JUSTICE FRASER:  Understood.

   MR GREEN:  To the extent they are distinct exercises which

       I think they are probably not.

   MR JUSTICE FRASER:  They might be.

   MR GREEN:  They can be seen to be, exactly.

   MR JUSTICE FRASER:  But they both come after express terms,

       obviously.

   MR GREEN:  They do.  And then my Lord, the things like

       onerous and unusual terms and Unfair Contract Terms Act

       will have to be looked at after the implication of terms

       because you can't judge the fairness of an express

       term --

   MR JUSTICE FRASER:  Until you know if it is --

   MR GREEN:  The whole picture.

   MR JUSTICE FRASER:  -- a relational contract.

   MR GREEN:  Precisely.  So that was what we sought to set out

       in the introduction to our opening at pages 4, 5 and 6.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  My Lord, I think your Lordship will understand

       why I started with relational contract in the sense that

       it looms large and, on our submission, the nature of the

       relationship and the other features are so clear that

       however you construe the express terms whose

       construction is in issue, you end up at the same place.

   MR JUSTICE FRASER:  Understood.  So are we done with

       relational contracts?

   MR GREEN:  We are done with relational contracts subject to

       two small points.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  One is the British Telecom case which is

       summarised in our appendix under ... (Pause)  It's in

       our appendix, my Lord, at page 23 {A/7/27}.  I actually

       had that page open but it said Telefonica.  I should

       have chosen BT.

   MR JUSTICE FRASER:  Yes, this is the exercise of discretion.

   MR GREEN:  Indeed.  Your Lordship will see it's a

       Supreme Court case.  The propositions there are not we

       think controversial:

           "... in the absence of very clear language to the

       contrary, contractual discretion must be exercised in

       good faith and not arbitrarily or capriciously."

           "Purpose: this will normally mean it must be

       exercised consistently with its contractual purpose."

           Those two -- I'm not minded to take your Lordship to

       the authority unless you particularly want to see it.

   MR JUSTICE FRASER:  No, I don't think you need to.

   MR GREEN:  Can I make one point on that, which is a point in

       relation to a question your Lordship asked me in

       relation to fashioning a remedy for unfairness this

       morning.  I responded by identifying, for example, the

       extent to which the contract was replete with provisions

       conferring discretion and control upon Post Office.

       Your Lordship will see that the fuller a contractual --

       the contractual architecture is with discretions of that

       sort, the more likely that more of the landscape of

       the contract will be governed by those sorts of implied

       terms, in any event, pre-Yam Seng.  Because these

       contractual -- these controls of discretions are broadly

       uncontroversial and unless -- in the absence of clear

       language to the contrary, are going to apply.  And that

       is Supreme Court authority.

           So, my Lord, we are not reaching for something in

       Yam Seng that is not going to be substantially catered

       for in any event across large parts of the contract.

           I just wanted to make that point by way of

       background.  Then if I can take your Lordship to the

       Hadley case.

   MR JUSTICE FRASER:  Is this the second of your two points?

   MR GREEN:  It is.

   MR JUSTICE FRASER:  We will do that and then have a short

       break.

   MR GREEN:  I am grateful.

   MR JUSTICE FRASER:  So Hadley.  Yes.

   MR GREEN:  Hadley is in the new bundle of authorities and it

       is at tab 3.  This is a decision of

       His Honour Judge Richard Seymour QC in the TCC in 2003.

       If your Lordship goes to paragraph 61 where the alleged

       implied terms section begins.  61 introduces that:

           "The alleged justifications of the implication of

       the terms pleaded was said to be implication was

       required as a matter of law or was necessary to give

       business efficacy."

           So two bases advanced.

           And then 63 --

   MR JUSTICE FRASER:  Is this where you got your phrase

       "incident" or is it coincidence?

   MR GREEN:  I think it is coincidence.  I think it is

       actually a phrase mentioned in another case I was

       looking at, and not this.  We found this later.

           But over the page -- at the foot of that page:

           "Rather, he seemed to rely upon an implication at

       common law --"

   MR JUSTICE FRASER:  Where are you looking?

   MR GREEN:  At the foot of 63:

           "In support of the submission the relevant terms

       fell to be implied at common law into the 1987 contract,

       he drew my attention to the decision of the

       Court of Appeal in Timeload v British Telecom 1995.  The

       circumstances are very particular.  At that time, BT was

       the sole provider of a directory enquiries service for

       telephone subscribers who wanted to access the service.

       The subscriber telephoned 192.  BT held a licence as

       a public telecommunications operator.  It was a term of

       that licence that it provide telephone services on

       request to anyone who sought them.  It was also a term

       of the licence that BT should not discriminate unduly

       against particular persons or classes of person.

       Claimant sought to operate a free telephone enquiry

       service ... It sought and was allocated the number

       0800192192 and entered into a contract on the standard

       terms of BT in relation to the use of a telephone line

       with that number.  Once the telephone service using that

       line had commenced operation, BT sought to terminate the

       contract by giving notice of one month which the

       contract provided."

           My Lord, we have relied on this in our appendix in

       relation to termination and in relation to relational

       contract.

   MR JUSTICE FRASER:  Whereabouts in your appendix?

   MR GREEN:  Page 57.  {A/7/61}

   MR JUSTICE FRASER:  Sorry, Timeload you have.  Not --

   MR GREEN:  No, Timeload.

   MR JUSTICE FRASER:  I see.  I thought you meant this case.

   MR GREEN:  No, I am sorry, in relation to Timeload.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  The history is briefly set out there.  Just below

       the top hole-punch:

           "The judge at first instance granted

       an interlocutory injunction.  The Court of Appeal

       dismissed the appeal against the grant of that

       injunction.  Mr Burr submitted the decision was

       authority for the proposition that it was to be implied

       as a matter of law in any contract, or at least any

       contract having the characteristics of the contract in

       Timeload, that it continued indefinitely until

       determined, which characteristic he intended shared with

       the 1987 contract, but notice of termination would not

       be given other than for good cause."

           So that is what use I think Andrew Burr was making

       of Timeload in this case.  And the Timeload decision is

       considered -- the leading judgment, which is

       Sir Thomas Bingham, Master of the Rolls' judgment in

       Timeload.

   MR JUSTICE FRASER:  As he then was.

   MR GREEN:  As he then was.  And the short point in relation

       to that, as your Lordship will see from what has been

       quoted in this judgment, is that Lord Justice Bingham

       over the page in the quote there says:

           "For my part --"

   MR JUSTICE FRASER:  Where are you reading now?

   MR GREEN:  The first new paragraph over the page from 64.

       My Lord, perhaps I should start at 64.

   MR JUSTICE FRASER:  You can probably just go to 68 insofar

       as you need anything in this judgment.

   MR GREEN:  Yes, my Lord.  It possibly goes a little bit

       further.  If we just look quickly at 64.  Halfway down

       in the quote you will see on the right-hand side:

           "He argued that the factual matrix was irrelevant

       since the standard form contract was applicable to many

       millions of customers.  The meaning of the contract did

       not vary depending on the particular circumstances.  No

       room for implications since the terms are to be implied

       into the contract only if they are necessary, not

       because they were thought to be reasonable.  In other

       words, Mr Hobbs propounded with great skill what could

       fairly and not pejoratively be described as

       an old-fashioned classical argument based upon a literal

       approach to the text of the contract.  That may prove to

       be a good argument."

           So it's an interlocutory decision against me.

           "It is certainly a view of the matter which has been

       accepted by judges on other occasions, albeit in the

       absence of full argument.  For my part, however, I share

       the judge's reservations.  It is relevant to bear in

       mind that BT is a public telecommunications operator

       licensed by the Secretary of State under

       the Telecommunications Act 1984 to provide a public

       telecommunications service."

           Indeed your Lordship will realise that BT was

       originally Post Office Telecommunications, it came out

       of the GPO.

   MR JUSTICE FRASER:  Indeed.  And it was a monopoly, but was

       no longer shared, but shared some characteristics

       because it had a dominant position.

   MR GREEN:  Exactly.  Your Lordship has seen that.  It's at

       the bottom of the quote:

           "Thus pure necessity is not the only ground on which

       a term can be implied and I can see strong grounds for

       the view that in the circumstances of this contract, BT

       should not be permitted to exercise a potentially

       drastic power of termination without demonstrable reason

       or cause for doing so."

   MR JUSTICE FRASER:  What principle are you taking from this

       case that you don't get from anywhere else?

   MR GREEN:  I am only illustrating a facet of how the

       background to the relationship between the parties

       should inform the exercises implied terms.

   MR JUSTICE FRASER:  I understand.

   MR GREEN:  I am not relying on the factual point that BT

       used to be part of Post Office, but I am relying on the

       fact that Post Office is actually more in a -- in

       an earlier part of the journey to privatisation and

       competition than BT was by this stage.  And the

       Post Office itself relies on the context of it having to

       provide these services nationwide.

   MR JUSTICE FRASER:  Understood.

   MR GREEN:  In that way.

   MR JUSTICE FRASER:  Have we finished with Hadley?  I'm not

       really sure you get very much out of Hadley, to be

       honest, because everything that Hadley says can be taken

       from other cases.

   MR GREEN:  My Lord, that is probably right.  I am happy just

       to rely on the underlying authority of Timeload which we

       have in the bundle.

   MR JUSTICE FRASER:  I think that might be better, but it is

       interlocutory anyway.

   MR GREEN:  It is.

   MR JUSTICE FRASER:  Although I think there is some authority

       that says the fact it is interlocutory doesn't much

       matter.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  Because the test there is only --

       because it is interlocutory, the test that the

       Court of Appeal was considering was whether there was

       a serious issue to be tried.

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  So it is rather different, isn't it?

   MR GREEN:  Indeed.  It is different, because it is only

       whether there is a serious issue to be tried on the

       point.  But it is interesting the terms in which

       Lord Justice Bingham, the Master of the Rolls, expressed

       it --

   MR JUSTICE FRASER:  But I think I will get that from reading

       Timeload, not from reading what Mr Burr said it did or

       didn't do in front of His Honour Judge Seymour.

   MR GREEN:  Indeed.  At paragraph 75, I am at risk of

       compounding what I have just done, which is referring to

       a case cited in another case, because Timeload there

       refers in turn to Interfoto which I think I should take

       the court to.

   MR JUSTICE FRASER:  I am anxious that our shorthand writers

       get a short break.

   MR GREEN:  My Lord, can I deal with that after the break.

   MR JUSTICE FRASER:  I think that is a good idea because at

       about 3.05 pm you said you had two very short points.

   MR GREEN:  They weren't so short.

   MR JUSTICE FRASER:  No.  Certainly this one wasn't.

           We will come back at 3.32 pm.  Thank you very much.

   (3.23 pm)

                         (A short break)

   (3.34 pm)

   MR GREEN:  My Lord, can I just take your Lordship to two

       authorities quickly in V1.  At tab 6, which is

       Interfoto, and then just back again quickly to Timeload

       which is at tab 9.  It's a short point.

   MR JUSTICE FRASER:  Tab 6 of the new authorities?

   MR GREEN:  Tab 6 of V1, thank you, Interfoto {A1.1/7/1}

   MR JUSTICE FRASER:  Interfoto.

   MR GREEN:  If your Lordship looks at the familiar passage at

       the foot of 439, letter F to H. {A1.1/7/7}

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  So this is Lord Justice Bingham, as he then was,

       the passage to which we referred previously:

           "English law has, characteristically, committed

       itself to no such overriding principle but has developed

       piecemeal solutions in response to demonstrated problems

       of unfairness.  Many examples could be given.  Thus

       equity has intervened to strike down unconscionable

       bargains.  Parliament has stepped in to regulate the

       imposition of exemption clauses ..."

           And so forth.  Then he in the final paragraph says:

           "The well-known cases on sufficiency of notice are

       in my view properly to be read in this context."

           Then he identifies the two levels at which they are

       really being decided:

           "At one level they are concerned with a question of

       pure contractual analysis, whether one party has done

       enough to give the other notice of the incorporation of

       a term in the contract.  At another level they are

       concerned with a somewhat different question, whether it

       would in all the circumstances be fair (or reasonable)

       to hold a party bound by any conditions or by

       a particular condition of an unusual and stringent

       nature."

           So that is broadly as far as he takes it at that

       stage but he is adverting to the footing, the dual

       footing, upon which the common law develops these

       solutions.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  My Lord, if your Lordship can turn forward to

       tab 9.  This is back to Timeload.

   MR JUSTICE FRASER:  Is that it for Interfoto?

   MR GREEN:  That is it for Interfoto.

   MR JUSTICE FRASER:  Timeload at tab 9.

   MR GREEN:  Which is {A1.1/9/1}.  And if we look at 468

       {A1.1/9/10} which was the part in Hadley that was being

       referred to.  If your Lordship -- about halfway down the

       page, your Lordship will see the word "expected" on the

       left-hand margin.

   MR JUSTICE FRASER:  On ...

   MR GREEN:  Page 468.  Just after "expected":

           "If, however, section 3(2) does not in its precise

       terms cover this case, I do not myself regard that as

       the end of the matter.  As I ventured to observe in

       Interfoto, the law of England, while so far eschewing

       any broad principle of good faith in the field of

       contract, has responded to demonstrated problems of

       unfairness by developing a number of piecemeal solutions

       directed to the particular problem before it.  It seems

       to me at least arguable that the common law could, if

       the letter of the statute does not apply, treat the

       clear intention of the legislature expressed in the

       statute as a platform for invalidating or restricting

       the operation of an oppressive clause in a situation of

       the present very special kind.  I say no more than that

       there is, I think, a question here which has attracted

       much attention in Commonwealth jurisdictions and on the

       Continent and may well deserve to be further explored

       here."

           So, my Lord, two points.  Obviously what it says is

       the first point, the flexibility of the common law in

       matters adjacent to which Parliament has made express

       provision to respond to unfairness, which is not really

       taking things that much beyond what he said in

       Interfoto.  But also, my Lord, in at least the genesis

       of the decisions of Lord Justice Bingham, Master of the

       Rolls, Lord Bingham, over the period to 2003 where we

       get to the hospitals case.  Your Lordship will see

       arguably a move to recognition of at least honesty by

       the time we get to 2003 being accepted as base level.

       There is consistency in the ability of the common law to

       respond to particular unfairness even if the statutory

       provisions of UCTA don't necessarily preclude reliance

       on the particular term as falling precisely within the

       statute.

           My Lord, how the common law responds to that is

       a matter really for your Lordship.  It may be that there

       is an aspect of the operation of the contract,

       for example, the requirement to accept as a debt a sum

       you disagree with.  Whether or not that falls -- we will

       come to that tomorrow because I am going to deal with

       agency and accounts tomorrow on the facts and the law.

       The law is shorter.  But there may be aspects of the

       contract which might support any decision your Lordship

       might otherwise make in any event in relation to implied

       terms or might contribute to the decision your Lordship

       might make into implied terms.

           So whilst fairness itself from M&S is in a general

       sense not relevant, it is not for the court to strike

       a fair bargain, there may be levels of oppressiveness in

       relation to the operation or exercise of rights in

       a contract against which the common law does respond.

       And that is plain from what Sir Thomas Bingham as the

       Master of the Rolls, as he then was, says in this case

       in terms of explaining what he said in Interfoto.

           So although Interfoto is relied on generally in this

       field as antipathetic to this sort of approach, we

       respectfully say when you look at it in context as he

       recites it then subsequently in Timeload, it is a little

       bit more subtle than that.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  So, my Lord, that is the point in relation to

       Timeload.  I was then going to take your Lordship, if

       I may -- and I am going to have hopefully all the

       authorities done this afternoon apart from the agency

       points and a couple of minor points.  The next case is

       at tab 33, which is Mid Essex Hospital Services.

       {A1.1/44/1}.  If your Lordship has our appendix handy,

       it is on page 29 of the appendix.  Your Lordship will

       see from the appendix that we have referred to

       paragraphs 82 and 83 in particular.

   MR JUSTICE FRASER:  Which page in the appendix?

   MR GREEN:  My Lord, sorry, page 29 in the appendix is

       Mid Essex Hospital Services and page {A1.1/44/21} is the

       correct Opus reference for the page upon which

       paragraphs 82 and 83 appear.  There is a reference at 82

       to cases cited above where the implied term was

       intrinsic, and perhaps I can just show your Lordship

       those in a moment just to provide context perhaps

       afterwards.  But 82:

           "The contract would not make sense without it.  It

       would have been absurd in any of those cases to read the

       contract as permitting the party in question to exercise

       its discretion in an arbitrary, irrational or capricious

       manner.  By reference to Baroness Hale's classification

       in Geys v Societe Generale that implied term falls into

       the first category."

           So this is Lord Justice Jackson, Lord Justice

       Lewison and Lord Justice Beatson referring to those

       categories we saw in the Geys case in Baroness Hale's

       judgment, and effectively not the -- it is not the

       characterisation of the relationship but it's the

       intrinsic requirement for implication there.

           So that is at least distinguishing between

       category one and category two again and not in any

       employment case, in a commercial case.  Albeit referring

       back to the cases, if we can just go back one page to

       {A1.1/44/20} just so your Lordship sees what the cases

       referred to were: Abu Dhabi v Product Star, Horkulak v

       Cantor Fitzgerald, Socimer International v Standard Bank

       and JML Direct v Freestat:

           "I must therefore review these and any other

       relevant authorities."

           Then there is a review of them.  Obviously the

       Product Star case is -- this is Lord Justice Leggatt

       with whom the other two members of the court agreed.

       The relevant principles are set out:

           "... proper consideration of the matter after making

       the necessary enquiries."

           Your Lordship will see there.  As well as:

           "... not exercising arbitrarily, capriciously or

       unreasonably."

           That is obviously shipping case, a charterparty

       case.  Then Horkulak is an employment case.  Four lines

       down:

           "It was an implied term, based on the common

       intention of the parties, that there would be a genuine

       and rational exercise of the discretion by the employer.

           "In Socimer a contract for sale of assets between

       banks entrusted the task of valuation to one party.  The

       Court of Appeal noted that the contract conferred on one

       party a power to make decisions which would have

       an effect on both parties.  Accordingly the contract was

       subject to an implied term. Rix LJ (with whom Lloyd and

       Laws LJJ agreed) noted that the decision-maker's

       discretion was limited as a matter of necessary

       implication.  He was obliged to act honestly.  Also

       there was a 'need for the absence of arbitrariness,

       capriciousness, perversity and irrationality'."

           And JML you have seen.  So what is interesting there

       is that, in this review of those authorities, there is

       no distinction being drawn between those commercial

       cases and Horkulak as an employment case for the purpose

       of what we respectfully would submit are totally

       uncontroversial implied terms which have the effect of

       governing the exercise of discretions and the exercise

       of those discretions and the terms which they govern

       becomes much more acutely in focus where a party is

       making a decision which may be in its own interests or

       against its own interests ie a distributive decision as

       between the two parties.

           And just looking at the Product Star at

       paragraph 78, we respectfully rely on the fact that

       Lord Justice Leggatt, that quote from

       Lord Justice Leggatt in Product Star, is not limited

       purely to "must not be exercised arbitrarily,

       capriciously or unreasonably" but notes that the content

       of that duty or an instant of it is that that entails

       a proper consideration of the matter after making any

       necessary inquiries.  So we respectfully rely on that in

       relation to what we say is the relevant content of these

       duties that either fall under Yam Seng or implied terms.

       So, my Lord, that was the point I wished to make in

       relation to Mid Essex.

           Then if I can take your Lordship to tab 16 in the

       same volume, which is Paragon Finance.  {A1.1/19/1}.

       This is Lord Justice Dyson in the Court of Appeal.  If

       we look at page {A1.1/19/26} of that report, please.

       This is where the Court of Appeal gives consideration to

       the -- in the context of an unfair contract terms

       analysis which I should rightly point out to

       your Lordship is the heading of this section.  At

       paragraph 73 just below the letter D:

           "The first question is whether the fixing of rates

       of interest under a discretion given by the contract was

       'contractual performance' within the meaning of

       section 3(2)(b).  Mr Broatch submits that it is.  He

       relies on two authorities.  The first is Timeload ..."

           Then it recites the facts, and at letter F:

           "But the licence agreement imposed clear performance

       obligations on BT.  Thus clause 1.1 obliged BT to

       provide various services ..."

           There set out:

           "In these circumstances it is not difficult to see

       why the court thought that it was at least arguable that

       a clause authorising termination of the obligation to

       provide those services for no good reason purported to

       permit a contractual performance different from that

       which the customer might reasonably expect."

           Pausing there, my Lord, it is right that I should

       just highlight to your Lordship that the only difference

       in an UCTA analysis is it is the subjective reasonable

       expectation of those parties that is in issue.  One

       slight difference to the contractual analysis generally.

       Then if your Lordship goes over the page to page

       {A1.1/19/27} at paragraph 75:

           "In my judgment, neither of these authorities

       assists Mr Broatch's submission.  In both cases the

       defendant telecommunications provider was contractually

       bound to provide a service.  The question was whether

       the withdrawal of the service in the particular

       circumstances of the case was such as to render the

       contract performance (ie the provision of that

       service) substantially different from that which it was

       reasonable for the other contracting party to expect."

           So that is the basis upon which those decisions were

       distinguished by Lord Justice Dyson in Paragon Finance.

           The outcome at -- if we look at paragraph 42 of

       Paragon Finance {A1.1/19/19} at page 703.  After

       a review of various other cases leading up to this

       conclusion, which I won't take your Lordship to, but the

       conclusion reached by Lord Justice Dyson there is:

           "I conclude that there was an implied term of both

       agreements that the claimant would not set rates of

       interest unreasonably in the limited sense that I have

       described.  Such an implied term is necessary in order

       to give effect to the reasonable expectations of the

       parties."

           My Lord, that is a question on implied terms rather

       than the UCTA analysis, and "the reasonable expectations

       of the parties", actually the same phrase means

       something different depending on whether you are in

       construction where it is shorthand for the test that

       your Lordship is well aware of, because I have mentioned

       it lots of times, and the slightly more subjective test

       of the actual subjective intentions of the parties for

       UCTA purposes insofar as those were reasonable.

           The limited sense in which Lord Justice Dyson found

       that they could not set rates unreasonably again is

       totally consonant, my Lord, with this distinction

       between fairness of outcome and fairness of dealing or

       decision-making.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  So there was no prohibition on setting a rate

       which was in itself capable of being criticised as

       unreasonable, it's the decision-making process by which

       the rate would be set which had to be reasonable.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  So that is the point in relation to

       Paragon Finance.  Then, my Lord, the next authority in

       relation to implied terms is Gogay at tab 17 in the same

       bundle, V1.  {A1.1/16/1}.  We have summarised the Gogay

       case in the annex on page 33.

   MR JUSTICE FRASER:  On page?

   MR GREEN:  Page 33 of the appendix.

   MR JUSTICE FRASER:  Of the appendix.

   MR GREEN:  Can I take your Lordship first to page

       {A1.1/16/7}.  At 53, having cleared a little bit of

       undergrowth from how it had been presented before in

       the paragraphs that precede it, this is

       Lady Justice Hale as she then was:

           "The implied term of confidence and trust.

           "It is now well settled there is a mutual obligation

       implied in every contract of employment, not without

       reasonable and proper cause, to conduct oneself in

       a manner likely to destroy or seriously damage the

       relationship of confidence and trust between employer

       and employee.  This requires an employer, in the words

       of Lord Nicholls of Birkenhead in Malik v BCCI:

           "'... not to engage in conduct likely to undermine

       the trust and confidence required if the employment

       relationship is to continue in the manner the employment

       contract implicitly envisages ... The conduct must

       of course impinge on the relationship in the sense that,

       looked at objectively, it is likely to destroy or

       seriously damage the degree of trust and confidence the

       employee is reasonably entitled to have in his employer.

           "Lord Steyn emphasised at page 471 that the

       obligation applies 'only where there is "no reasonable

       or proper cause" for the employer's conduct and then

       only if the conduct is calculated to destroy or

       seriously damage the relationship ...'"

           Your Lordship will have seen the facts; basically

       the knee-jerk suspension of a care assistant in

       a children's home who was suspended immediately after

       a child made comments that could have been construed as

       allegations of abuse, and there was a knee-jerk

       suspension.  And it is on the footing that that

       knee-jerk reaction without considering alternatives was

       in fact a breach of the implied term of trust and

       confidence that Ms Gogay recovered her damages for the

       psychiatric injury she suffered as a result.  That is

       found at paragraph 59, as your Lordship has probably

       seen already.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  My Lord, I have time, if your Lordship doesn't

       mind sitting for a few more minutes.

   MR JUSTICE FRASER:  No.  Where are we going next?

   MR GREEN:  But it may be more sensible to try to refine the

       introduction of the agency cases, because I am dealing

       with the agency facts tomorrow, overnight.  I am happy

       to do that.  I think I have time to cover -- tomorrow is

       essentially agency and accounts, a small amount of law,

       quite a lot of fact, much of which we have actually

       addressed, hopefully carefully and precisely, in our

       written closing submissions on what the evidence showed

       in relation to that.  So agency and accounts and the

       significance of those points, and then a response to the

       defendant's written closing submissions in relation to

       the relevance of evidence that the court has heard.

           My Lord, I will try to avoid remaking points

       that I made on 10 October as far as possible in

       responding to that.

   MR JUSTICE FRASER:  Was 10 October the strike-out?

   MR GREEN:  Indeed.  A response to those points, and then

       there are some particular points in relation to the lead

       claimants' evidence and some of the other Common Issues,

       which are very short points that I will make briefly

       orally over and above what we put in our written

       closing.

   MR JUSTICE FRASER:  Yes.

   MR GREEN:  So if that is a convenient moment, I think I can

       do that all tomorrow in good time.

   MR JUSTICE FRASER:  That is fine.  So nothing more now?

   MR GREEN:  Nothing more now.

   MR JUSTICE FRASER:  All right.  Thank you very much.

   MR GREEN:  My Lord, there was a housekeeping point I had

       forgotten.

   MR JUSTICE FRASER:  Let's deal with the housekeeping.

   MR GREEN:  It is only that accidentally two incorrect

       authorities found their way into the bundle.

   MR JUSTICE FRASER:  Only two?

   MR GREEN:  We have replacements but we wanted to check with

       your Lordship that we could provide those for --

   MR JUSTICE FRASER:  Why don't you hand them up now and tell

       me what they are.

   MR GREEN:  They are tabs 22 and 28 of volume 1.  They are

       Prudential and the AXA Sun Life case.

   MR JUSTICE FRASER:  So Prudential v Ayres which is in here

       now.

   MR GREEN:  Yes, the wrong decision I think.

   MR JUSTICE FRASER:  A single sheet, which is a note.  I can

       take that out?

   MR GREEN:  Indeed.

   MR JUSTICE FRASER:  Just a second.  Which tab is AXA under?

   MR GREEN:  22 and 26 are the two tabs.

   MR JUSTICE FRASER:  All right.

           So would you like a 10.30 am start, Mr Green?

   MR GREEN:  My Lord, yes.

   MR JUSTICE FRASER:  Thank you very much for that.  Actually

       my clerk will come and sort the papers out later.  There

       is no point in keeping you all waiting.  Thank you very

       much.  10.30 am tomorrow.

   (4.00 pm)

         The court adjourned until 10.30 am on Tuesday,

                         4 December 2018
Monday 3 December 2018

Common Issues trial transcript: Day 12
