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Bridging the Gaps in Commercial Contracts

View profile for Mark Ridley
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A contract is an agreement which the law considers to be enforceable.  It can be made up of express terms (terms that are stated orally or in writing) and terms which may never have been stated but can be deemed to be implied.

A party to a contract may ask the court to imply terms in circumstances where the express parts of the contract appear to be silent on issues that are material.

The court may imply terms in several ways, but perhaps the most creative is by taking a view as to what the intentions of the parties would have been, at the beginning of the contact.

That is not necessarily to say what the parties actually intended, but what a reasonable person would have said, should have been intended.

For good reason, the courts are very reluctant to intercede with contracts – they are, after all, never parties to them - and many judges have formulated definitions to try and constrain the circumstances when terms are implied on this basis.  This has led to a number of different approaches, and the most traditional and intuitive approach has been to consider, from an objective point of view, what terms should have been intended, in order to ensure, as a minimum, that the contract would be workable.  Another way of describing this approach has been what should be implied to make the contract commercially, and practically coherent.

The recent case of Bou-Simon v BGC Brokers LP [2108] EWCA Civ 1525 has provided further clarification.  The facts surrounded a contract for the advancement of £336,000 from one party to another, and the contention that the contract provided for the sum to be repaid in full, if the receiving party terminated the contract within four years.  As matters transpired, the receiving party did terminate the contract within four years and the court was asked to determine whether the contention was correct.  The court decided that the express terms in the contract did not help, and at first instance, the High Court was persuaded to imply a term which did make the sum repayable.

On appeal, the Court of Appeal reversed the High Court’s decision.  It found the High Court had in error, implied a term in order to reflect the merits of the situation as they now appeared. The Court of Appeal clarified that the term should only be implied if considered necessary from the point of view of a reasonable reader at the time the agreement was reached. 

The difference is subtle, but the message is clear: hindsight – in this case the benefit of knowing what circumstances followed the making of the contract – were not relevant when deciding whether to imply a term, because those circumstances do not help to establish what a reasonable party to the agreement would have intended, before the circumstance arose.

The opportunity to imply terms gives hope when, for whatever reason, a contract does not spell out the provisions that it should.  That said, the opportunity is jealously guarded by the courts and limited in scope.  The best approach is to ensure the contract is comprehensively drafted in the first place.

Whether your business seeks advice on implied terms, or the drafting of contracts, BakerLaw has the expertise to assist. Please contact a member of the Dispute Resolution department for more information. 

 

This article is not a definitive statement of the law. It is designed as a free update on the law at the time of publishing. It is not a substitute for legal advice on specific facts and circumstances. BakerLaw LLP and/or the writer accepts no liability or responsibility for reliance on this article and recommends that you seek independent legal advice on your specific circumstances prior to taking any steps.

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