Court of Appeal rules that the High Court Judge set out the right test for the implication of contractual terms but did not apply the test correctly in the case of Bou-Simon v BGC Brokers [2018] EWCA Civ 1525.

When considering if a term should be implied into a contract the Court of Appeal ruled that the correct test to be applied is that cited within Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd[1].

The Court of Appeal ruled in this case that the High Court Judge had applied the right test but had wrongly interpreted the test. The Court of Appeal went into detail as to how the test within Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd ought to be interpreted and also considered the admissibility of deleted clauses within agreements during the negotiation stages.

Background

The case concerned a payment of £336,000 to Mr Bou-Simon by BGC Brokers.  BGC sought to recover the payment in reliance on an implied term that it was repayable if Mr Bou-Simon left the firm.  Mr Bou-Simon’s defence was that the payment was a “Golden Hello” and was never intended to be repaid.

Issues

  • The Court had to consider whether HHJ Curran QC sitting in the High Court was right to imply a term into the relevant agreement based on the test in Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd[2] by Lord Neuberger PSC “in light of the express terms, commercial common sense, and the facts known to both parties at the time the contract was made”.
  • The Court also considered whether the deletions from a previous draft agreement during the negotiation process were relevant.

Outcome

Lady Justice Alpin sitting as a Judge in the Court of Appeal made a number of key findings regarding the test for considering whether there is an implied term within an agreement:

  • The High Court had erred by falling into the temptation of following Bingham MR’s judgment in Philips Electronique[3] in deciding there was an implied term to reflect the merits of the case as they appeared at trial, rather than correctly considering the approach from the perspective of a reasonable reader of the agreement at the time the agreement was made.
  • The High Court was incorrect to apply hindsight and to seek to imply a term into a commercial contract merely because it appears to be fair or in the belief that the parties would have agreed to it if it had been suggested to them at the time the agreement was entered into.
  • The High Court had started from the wrong place by considering the implied term first rather than considering the express terms. By considering the implied term first the judge fit the express terms around the interpretation that the implied term existed.
  • There was, therefore, no implied term within the agreement that Mr Bou-Simon was to pay back the monies received as no reasonable reader, taking into account all of the express terms and surrounding circumstances at the time it was executed and applying commercial common sense, would have considered there to be such an implied term. The Court of Appeal went on to conclude that such a term was not necessary for business efficacy in the sense that the First Agreement would lack commercial or practical coherence without it.
  • Clauses deleted from the agreement during negotiations were considered because one of the clauses mirrored the implied term and its removal was requested by Mr Bou-Simon’s representatives. Lady Justice Alpin observed, obiter, that the deletions were not sufficiently similar to the implied term to be relevant and that as there were several possible reasons for their deletion the parties’ intention was not revealed by them.  She reiterated the warnings in previous cases that implication of terms required a consideration of the express terms from the perspective of the reasonable reader and not the parties.  Deleted clauses are therefore much less likely to be relevant than they would be in the exercise of construing an ambiguous clause, where the court is considering the intention of the parties.

Comment

Although this is not new law, the key takeaway from this case is that the benefit of hindsight will not assist in seeking to imply terms to a contract on the basis of fairness. The starting point for the consideration of whether terms may be implied is the express terms of the contract and the surrounding circumstances when the contract was entered into. Terms may be implied, applying commercial common sense, if the terms are so obvious they go without saying or they are necessary for business efficacy.

Lady Justice Alpin noted that the agreement would need extensive re-drafting to include the implied term, which was another factor in her deciding that the term should not be implied.

The case is a useful reminder that the task required of the court in considering an implied term (the perspective of the reasonable reader) is very different from the task of construing an ambiguous express term (the parties’ intention) and this means deleted clauses will rarely be relevant to whether there is an implied term unless the terms of the deleted clause closely mirror the purported implied term.