Bou-Simon v BGC Brokers LP

When implying terms into a commercial contract, does the court look to what is fair or to the express terms agreed by the parties?

The background

Bou-Simon had been employed by BGC Brokers as a broker with the intention that he would become a partner.  He was paid £336,000 under the terms of a loan agreement which provided that the sum would be repaid from any partnership distributions made to Bou-Simon.  The agreement also provided that if Bou-Simon ceased to be a partner, any unpaid amounts would only be written off if he had served at least four years.  A previous draft of the agreement had contained further repayment terms that had been deleted during the negotiations.

Bou-Simon resigned within four years.  BGC claimed that the full amount of the loan became repayable pursuant to the express or implied terms of the agreement.

The decision

At first instance, the judge implied a term into the contract on the basis that any notional reasonable person would have regarded the agreement as providing for full repayment of the loan unless four years had been completed, and that without an implied term to such effect the contract would lack commercial or practical coherence.

The Court of Appeal concluded that the trial judge had implied the term to reflect the merits of the situation as it appeared to him at the time, rather than approaching the matter from the perspective of the reasonable reader of the agreement; knowing all of the provisions and the surrounding circumstances at the time that the agreement was made.

It was decided that it was not appropriate for the Court to apply hindsight and seek to imply a term in a commercial contract merely because it appeared to be fair or because the court considered that the parties would have agreed to such a term if it had been suggested to them.

Why is this important?

This case highlights the importance of considering the effects of the express terms and surrounding circumstances of an agreement when a contract is made, rather than attempting to rely upon implied terms.

Any practical tips?

When drafting agreements, make sure that the consequences of any breach or early termination are expressly set out to avoid the need to later rely upon uncertain implied terms, which may well be rejected by the court.