Cenkos Securities plc (“Cenkos”) was a stockbroker and corporate finance adviser which specialised in raising capital for small and mid-cap companies. Cenkos agreed that Thomas Crema (“Mr Crema”), a sub-broker, would be paid a fee for raising funds for a venture capital company (“GPV”). Mr Crema was successful in raising the requisite funds for GPV, however, GPV then refused to pay Cenkos any commission, in breach of the contract between itself and Cenkos. As such, Cenkos did not pay any commission to Mr Crema, which would have been due to Mr Crema under a separate contract between himself and Cenkos.

Mr Crema issued proceedings against Cenkos, claiming that it was an implied term of the contract between himself and Cenkos that he was entitled to be paid his commission, notwithstanding the fact that Cenkos had not received payment of any commission from GPV.

At first instance, the High Court, having heard expert evidence from two witnesses, held that although it was not a “settled trade custom” in the sense of an “invariable, certain and notorious usage” as to when a sub-broker in the City of London would be paid his commission, there was indeed a “usual market practice” that a sub-broker should not be paid until the broker receives payment from the client. The High Court ultimately held that Mr Crema was not due any monies from Cenkos, but for reasons which related to the interpretation of the other, express terms of the contract. However, the judge noted that his findings on market practice “strongly supported” his decision.

Court of Appeal

Mr Crema appealed, inter alia, on the grounds that it is impermissible under English law for a court to consider expert evidence on “usual market practice”, either for the purposes of construing the express terms of the contract, or to assist on the nature and scope of any implied terms, unless it was asserted that such practice was a “trade usage or custom”. The Court of Appeal (“CoA”) had to consider, therefore, the questions of when and how a court is able to imply a term into a contract, and whether a court can take into account market practice for the purposes of assessing whether there is an implied term in the contract.

Lord Justice Aikens (“LJ Aikens”), in his reasoning, explored the principles considered in the recent case of Attorney General of Belize v Belize Telecom Ltd (2009), in which the Privy Council had established several guidelines to be followed when considering whether a term could be implied into a written contract. These principles were, generally, that one should consider the objective meaning of the contract to a “reasonable addressee”, who has all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed. LJ Aikens reasoned that a court should, therefore, be able to receive independent expert evidence of what ‘market practice’ is, if it constitutes relevant background knowledge for the purposes of interpreting the terms of the contract. LJ Aikens continued that it has been “common practice” for the courts to hear evidence of market practice, which does not constitute “trade usage or custom”, in order to assist the court with a full understanding of the factual background to a written contract. LJ Aikens considered, therefore, that there should be no reason why such a principle should not apply to contracts which are partly or wholly oral in form, and/or in circumstances where a “settled trade usage or custom” does not exist:

“What the parties agreed, expressly or implicitly, can only be judged against the factual background they knew, which must include practices of any particular market in which they operate and in which the agreement was made.”

The CoA held that there was no implied term in the contract between Cenkos and Mr Crema to the effect that Mr Crema should be paid his commission, in the absence of Cenkos having received its commission from GPV. Whilst LJ Aikens was willing to deem relevant the expert evidence given in relation to what was market practice for when a sub-broker should be paid, the applicability of such expert evidence was ultimately limited by the fact that neither expert had ever encountered a situation where a broker had never been paid by its client. The experts’ views were therefore “entirely hypothetical”, and “not based on market experience” in this case.


English case law has established that, in order for a term to be implied into a contract, one should objectively interpret the intention of the parties to the contract, and in doing so, look at the surrounding factual matrix at the time the contract was entered into, to better inform that interpretation. Whether the surrounding factual matrix supports the implication of a term on the basis of ‘usage or custom’, has generally depended on whether such usage or custom is “notorious, certain and reasonable”, and also, is something more than “mere trade practice”. However, recent cases would appear to have eroded this principle somewhat, and seem to suggest that courts are now more willing to ‘lower the bar’ in this area, and consider market practice as part of the surrounding factual matrix for the purposes of determining the objective intention of the parties in respect of implying terms. Further, on the face of the judgment in this case, it would appear that this principle has now been extended to include terms implied into contracts which are partly or wholly oral in form.

It is unclear to what to what extent this principle will be followed by the courts going forward, and it is notable that there was some disagreement amongst the judges as to the relevance of ‘market practice’ to this case in any event. However, the judgment serves as a reminder that parties should always exercise caution when intending to draft or agree commercial contracts which contain features outside common market practice, and should express such intentions as explicitly as possible, preferably in written form, in such cases.