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Marcan Shipping (London) Ltd v Polish Steamship Co
Case: Marcan Shipping (London) Ltd v Polish Steamship Co: The Manifest Lipkowy (1989) CA
Core Issue: Can an implied term be added to a collateral contract to prevent a principal from actions that would deprive a broker of their commission?
Facts:
  • Main Contract: Defendants (Polish Steamship Co) sold a vessel; Plaintiffs (Marcan Shipping) acted as brokers. The sale agreement stipulated commission deduction from the purchase price upon payment. The agreement included a buyer's right to cancel for late delivery.
  • Collateral Contract: A separate agreement guaranteed the plaintiffs a commission of US$262,305, deducted from the purchase price.
  • Breach: The ship's late delivery led to the buyers canceling the main contract.
  • Plaintiff's Claim: Plaintiffs argued an implied term existed within the collateral contract preventing the defendants from actions (like failing to complete the sale) that would deprive the plaintiffs of their commission.
Judgment: The Court of Appeal held that no such implied term existed.
Key Legal Principles Discussed:
  • Implied Terms: The court emphasized the stringent standards for implying terms into contracts. Simply because a term might seem fair or reasonable doesn't justify implication.
  • The "Officious Bystander" Test: Lord Justice May criticized the reliance on the "officious bystander" test (whether a reasonable person would consider the term obvious). He noted that the test is subjective and prone to bias depending on whose perspective is considered.
  • Necessity Test: The court favored a stricter "necessity" test. An implied term is only justified if it's:
    • Necessary in a business sense to give efficacy to the contract: The term must be crucial for the contract to function as intended.
    • Obviously intended by the parties: The term must be so clearly implied that it's practically unavoidable.
  • Broker's Risk: The court acknowledged that in brokerage agreements, the broker inherently bears the risk that the main contract might fail, thus resulting in no commission. The court found no justification for shifting this risk to the seller.
Ratio Decidendi: Implied terms are only justified when absolutely necessary for the contract's functionality, and not merely because they seem fair or desirable. In brokerage agreements, the broker assumes the risk of the main contract's failure.
Study Points:
  1. Distinguish between implied and express terms. What are the different tests used to determine whether a term is implied? Compare the "officious bystander" and "necessity" tests. Why did the court prefer the latter in this case?
  2. Analyze the broker's inherent risk. Why is it considered fair that the broker carries the risk of the main contract's failure? How could this risk be mitigated contractually?
  3. Consider alternative contract drafting. How could the contract have been written to protect the plaintiff's commission in case of a contract failure? What clauses could have been included to allocate risk differently?
  4. Apply the legal principles to similar scenarios. Could the same principles apply in other types of agency or brokerage agreements? What are the key factors to consider when determining the implication of terms?
This study guide should provide a comprehensive understanding of the case and its legal significance. Remember to consult the original case report for complete detail and nuances.





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