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The Court of Appeal confirms that you cannot imply a contractual term just because in hindsight it seems fair to do so

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In the recent ruling of Robert Bou-Simon v BGC Brokers LP [2018] EWCA 1525 (Civ) the Court of Appeal was tasked with ruling over whether the initial trial judge had been correct to imply a contractual term into a loan agreement between the Appellant, Mr Bou-Simon, and the Defendant, BGC Brokers LP. The Court of Appeal overruled the decision and held that a contractual term cannot be implied into a contract a later stage just because it would seem fair to do so.

Background

Mr Bou-Simon entered into a loan agreement with BGC Brokers LP (“BGC”) before starting new employment with BGC. Upon agreeing on the new employment, it was intended by both parties that Mr Bou-Simon would become a partner of BGC and the agreement stated that Mr Bou-Simon was eligible to receive a loan payment of £336,000. The loan amount was paid to Mr Bou-Simon on 21 February 2012.

The Agreement also provided a repayment provision that stated that the loan would be repayable in full by Mr Bou-Simon if there was a significant diminishing of his reliability. An earlier draft of the agreement included a provision stating that the loan would be immediately repayable in full by Mr Bou-Simon if he ceased to be a partner before the expiry of the four-year ‘initial period’ but this was subsequently deleted in future drafts. Mr Bou-Simon resigned from BGC on 3 June 2013.

First Instance Ruling

BGC bought proceedings against Mr Bou-Simon to recover the full loan arguing that there was an implied term into the agreement that the loan was repayable in full where Mr Bou-Simon failed to serve the full term of the ‘initial period’. Mr Bou-Simon argued that there had not been an express nor an implied term to this effect and the Loan was never intended to be repaid.

The trial judge ruled that there was an implied term that the loan was repayable in full by Mr Bou-Simon as he has ceased to be a partner before the expiry of the four year ‘initial period’ as, without this implied term, Mr Bou-Simon could have kept the loan money and left BGC within four years without making contribution to the business, and this would lack commercial sense.

Appeal Decision

The Court of Appeal considered the application by the trial judge of the test laid down in Marks & Spencer Plc v BNP Paribas [2016] AC 742 as to whether a reasonable person reading the contract at the time it was entered into would consider that the term was so obvious that it should be implied.

The Court of Appeal overturned the decision on the basis that the trial judge had incorrectly ruled that there was an implied term as he had not considered the obvious intentions of the parties at the time the agreement was formed.

What this means for you

This ruling serves as a reminder that there is a strict approach applied by the Courts when they are asked to imply a term into a contract. The ruling also shows that it is very much necessary to establish the express terms of the contract in question, before considering whether a term should be implied, and rather than looking at the contract in hindsight, the intentions at the time the contract was formed should be the main consideration.

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Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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