A strict interpretation


Author: Sophia Purkis, Leigh Callaway


Sophia Purkis, Partner, Fladgate LLP (spurkis@fladgate.com)

Leigh Callaway, Senior Associate, Fladgate LLP (lcallaway@fladgate.com)

This article was previously published in New Law Journal on 21 September 2018.


 

Bou Simon v BGC Brokers LP: a salient reminder of the strict approach the court will take when deciding whether to imply a term into a contract.

Hindsight is a wonderful thing – but irrelevant for interpreting contracts, say Sophia Purkis & Leigh Callaway

The express written provisions of a contract are not, or at least are not always, the be-all and end-all when determining the terms governing the relationship between contracting parties. Often consideration can and should be given to the specific circumstances of a contract, including pre-contractual representations and/or post-contractual variations. Moreover, it is a well-established tenet of English contract law that terms can be implied into a contract, whether on the basis of usage, custom, the parties’ previous course of dealings, statute, or in order to reflect the intention of the parties at the time the contract was made.

It is in respect of this last category that the recent Court of Appeal decision in Bou Simon v BGC Brokers LP [2018] EWCA 1525 (Civ), [2018] All ER (D) 59 (Aug) is of particular interest. The decision provides a salient reminder of the strict approach the court will take when deciding whether to imply a term into a contract.

Background

BGC was an inter-dealer brokerage firm specialising in facilitating transactions involving financial instruments. Mr Bou-Simon was employed by BGC as a broker from 1 February 2012 with the intention of the parties being that that he would become a partner in BGC. The parties entered into an agreement (Agreement) pursuant to which BGC lent Mr Bou-Simon £336,000 (Loan) which according to the Agreement would be repayable by Mr Bou-Simon from his partnership distributions and immediately on demand if a material impairment of Mr Bou-Simon’s creditworthiness occurred. The Agreement did not contain any other express term for repayment.

Mr Bou-Simon left BGC before becoming a partner. BGC sought repayment of the Loan and claimed the Agreement contained an implied term that the Loan was repayable if Mr Bou-Simon left employment within a four-year period after the Loan was made. Mr Bou-Simon resigned within that period and, therefore, BGC claimed that the outstanding sum plus interest was due. The implied term as pleaded was that: ‘the Loan [£336,000] would become repayable in full where the Maker [Mr Bou-Simon] failed to serve the full term of the Initial Period.’ The trial judge found that such a term should be implied. The Court of Appeal disagreed.

The test

The test for implying terms into a contract has been developed by a long line of English jurisprudence. Traditionally the following two tests – which were expanded upon and clarified further by the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd and Another [2015] UKSC 72, [2015] All ER (D) 24 (Dec) [1] – are most commonly applied when determining whether a term should be implied into a contract:

  1. The ‘business efficacy’ test – the proposed term will be implied if it is necessary to give business efficacy to the contract.
  2. The ‘officious bystander’ test – the proposed term is so obvious that ‘it goes without saying’.

It was on the basis of the second test that the judge at first instance founded his judgment, holding that, had an officious bystander inquired of the parties at the time the contract was made what would happen if the monies were paid but Mr Bou-Simon did not become a partner and left BGC, they would have replied: Well, then, the money must be repaid on leaving.

Decision

The Court of Appeal did not agree. In her leading judgment Lady Justice Asplin found that the trial judge had: ‘succumbed to the temptation … [of implying] a term in order to reflect the merits of the situation as they now appear’. She held that ‘it is not appropriate to apply hindsight and seek to imply a term in a commercial contract merely because it appears fair or because one considers that the parties would have agreed to it had it been suggested to them’. It was not necessary for the repayment term to be implied in order to give business efficacy to the Agreement nor was such a term so obvious that it went without saying – the Agreement did not lack commercial or practical coherence without it.

Obiter it was noted that previous drafts of the Agreement did in fact include an express term similar to that which the judge at first instance had implied. However, Mr Bou-Simon had indicated that he did not agree to the inclusion of the term, which was subsequently thereafter deleted from the drafts. Although the Court of Appeal did not need to consider the deleted terms, it did express views obiter which are of interest.

Asplin LJ felt that deleted clauses are only relevant if consideration of those clauses were necessary to construe the express terms. Lord Justice Singh, however, felt that a wider approach may be appropriate, taking the view that deletions may be informative irrespective of whether they were admissible for the purposes of considering express terms, and finding force in the argument that the consideration of deleted words may negate the implication of a term in the form of deleted words. However, a full determination of such matters was not one for the court at this time.

In short, therefore you can’t imply a term just because, with the benefit of hindsight, it either makes sense to or is the ‘fair’ thing to do.


Sophia Purkis is a Partner at Fladgate LLP and committee member of the London Solicitors Litigation Association.
Leigh Callaway is a Senior Associate at Fladgate LLP and former President and committee member of the Junior London Solicitors Litigation Association.

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