The Maltese Falcon: Commercial Court reaffirms that where a contract expressly allocates risk, implied terms will not remedy the outcome

In Pleon Ltd v Leonis Yachting Ltd ("The Maltese Falcon") [2025] EWHC 3144 (Comm), the Commercial Court allowed an appeal on a point of law under section 69 of the Arbitration Act 1996 and reaffirmed that where contractual terms reflect the parties agreed allocation of risk, a term will not be implied on the grounds of business efficacy.

Background

The dispute arose from the sale of the Maltese Falcon (the “Yacht”) by Pleon (the “Seller”) to Leonis (the “Buyer”). Under the sale agreement, the Buyer was afforded a sea trial and extensive inspection rights, including access to documentation relating to the Yacht’s construction, maintenance, repairs, and improvements. The Buyer also had the option to conduct a condition survey and to require any identified defects to be remedied.

On 7th April, 2022, the Buyer accepted delivery of the Yacht without requesting that any defects be rectified.

Alongside the sale agreement, the parties entered into a separate agreement (the “Access Agreement”), whereby the Buyer granted the Seller the right to use the Yacht from 20th April to 20th June, 2022 with no ‘hire’ charge. Clause 3.3 of the Access Agreement required the Yacht to be in full working order and seaworthy. 

While the Seller was exercising its access rights, the Yacht’s starboard generator suffered a breakdown. As a result, the Seller’s use of the Yacht ended prematurely on 9th May, 2022 and it sought to claim damages from the Buyer under the Access Agreement.

Central legal issue

The key issue for determination was whether the Access Agreement should be interpreted as containing an implied term that the Buyer’s obligations were conditional on the Yacht’s hull and machinery having been properly maintained at the point of delivery under the sale agreement.

The arbitration award

The arbitral tribunal was divided on the point: the majority (Ms Sarra Kay and Mr Mark Hamsher) considered the sale agreement and the Access Agreement together and concluded that an implied term was necessary. In their view, without such a term, the Access Agreement “would lack commercial and practical coherence.”

The majority reasoned that it would have been the obvious intention of the parties that the Buyer's obligations under clause 3.3 of the Access Agreement were conditional on the Yacht having been properly maintained at the point of delivery under the sale agreement, particularly since it was practically impossible to deliver the Yacht under the Access Agreement in a condition other than that which she had been delivered to the Buyer under the sale agreement, given the short intervening period between such dates.

The minority (Sir Bernard Eder) disagreed, finding that the proposed implied term would contradict the express wording of the Access Agreement, which imposed an unconditional obligation on the Buyer to provide a seaworthy Yacht. Mr Eder noted that the Access Agreement worked perfectly well without any implied term, and therefore it was not warranted to introduce such a term.

The Seller subsequently appealed the arbitration award.

The Commercial Court appeal

The Commercial Court (Knowles J) allowed the appeal and held that “in the present case there is no lack of business efficacy and there is no room for the implied term”.

In reaching its decision, the court observed that under the sale agreement the Buyer had been granted comprehensive inspection and survey rights and had the option to require defects to be remedied before accepting delivery. By choosing not to do so, the risk of unseaworthiness passed to the Buyer upon delivery under the sale contract.

When the Buyer later granted access to the Seller, it undertook a further and separate obligation to provide a seaworthy Yacht under the terms of the Access Agreement. The court placed particular emphasis on clause 3.3, noting that the obligation to provide a seaworthy Yacht was stated in clear and unqualified terms. There was no reference to prior maintenance, fault, or conditional responsibility.

The court concluded, therefore, that the allocation of risk was clear from the express terms of the Access Agreement, and there was no contractual gap requiring the implication of an additional term.

In its judgment, the court also noted that determining whether a term is obvious, and should therefore be implied in an agreement, is ultimately a question of law and not a finding of fact.

Conclusion and contractual guidance

This judgment reaffirms that a term will only be implied where it is strictly necessary to make a contract work, and not to render an agreement reasonable, fair, or commercially desirable.

As contractual certainty remains a cornerstone of English commercial law, courts will only imply terms in exceptional circumstances and will not do so simply to rebalance risk or mitigate an unfavourable outcome. Therefore, where parties have expressly allocated risk, that allocation will be enforced as written.

From a contracting perspective, the case highlights the need for careful and consistent drafting across all transaction documents. Parties should ensure that obligations and risk allocations in ancillary agreements align clearly with those in the primary contract. If obligations are intended to be conditional or qualified, those qualifications must be stated expressly and cannot be left to implication.

If Members have any questions in relation to the above issues they are invited to contact the Club for further information.