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The implication of contractual terms: hindsight is not always a wonderful thing

Robert Bou-Simon v BGC Brokers LP

Mr Bou-Simon entered into a Loan Agreement with his prospective employer, BGC Brokers LP. The Agreement provided amongst other things that: (i) Mr Bou-Simon would repay the loan in full from partnership distributions made to him by BGC Holdings LP (of which it was envisaged he would become a partner); and (ii) if Mr Bou-Simon ceased to be a partner, BGC would write off any unpaid loan amounts due from him only if he had served an initial four year period of employment.

In the event, Mr Bou-Simon did not become a partner of BGC Holdings LP because the necessary documentation was not executed. Nevertheless, the loan (£336,000) was paid to him pursuant to the terms of the Agreement.

When Mr Bou-Simon subsequently resigned from BGC - within the four year period - BGC sought to recover outstanding sums due under the loan and contended that the money was due as a result of an implied term that the loan would become repayable in full where Mr Bou-Simon failed to serve the full four year term.

At first instance, the Judge found for BGC on the basis that, without the implied term, the Agreement would “lack commercial or practical coherence, as the claimant firm would otherwise be parting with the gross sum of almost three quarters of a million pounds in circumstances in which the Defendant might cease employment without having made any significant contribution to its business at all.” In other words, Mr Bou-Simon “would be able to pocket the money and leave as soon as he pleased after joining.

The Court of Appeal, however, disagreed. Following an analysis of the case law regarding the implication of terms – including the judgment of Lord Neuberger in Marks and Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd - the term would not fall to be implied. In particular, the Court of Appeal found that the first instance judge had erred in implying a term in order to reflect the merits of the situation as they now appeared, instead of approaching the matter from the perspective of the reasonable reader of the Agreement knowing all its provisions and the surrounding circumstances at the time the Agreement was made. In all the circumstances, the Agreement bore many of the hallmarks of a limited recourse loan (given that the loan balance was to be paid off from Mr Bou-Simon’s partnership distributions) and the implied term was neither so obvious that it would go without saying nor necessary for business efficacy in the sense that the Agreement would lack commercial or practical coherence without it.

The implication of contractual terms: hindsight is not always a wonderful thing

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