Factual and Procedural Background
This appeal concerns an order dated 16 May 2010 by Judge Hirst QC in the Commercial Court regarding the contractual basis on which the Appellant ("Plaintiff") was to be paid a fee by the Respondent ("Company A") for acting as a sub-broker in raising funds for a venture capital company ("Company B") during 2007-2008. Company A is a well-established stockbroker and corporate finance adviser based in The City. The Plaintiff, an experienced investment banker, was engaged as a sub-broker to find investors for Company B's bio-diesel project.
It was accepted that two contracts existed: one between Company A and Company B, and another between Company A and the Plaintiff. The Plaintiff's fee was agreed as 70% of Company A's commission, which was 7% of the £18 million raised for Company B. The Plaintiff introduced investors who contributed the full amount, but the dispute arose because Company B refused to pay Company A's commission despite receiving the funds, subsequently entering insolvent administration.
The Plaintiff claimed £882,000 plus interest from Company A. The six-day trial involved oral evidence from both parties and expert testimony on industry practice regarding payment timing of sub-brokers' commissions. The judge found the Plaintiff and a Company A representative honest but partially unreliable witnesses and accepted that market practice generally required a sub-broker to be paid only after the broker received payment from the client.
The judge concluded that the contract between the Plaintiff and Company A entitled the Plaintiff to a share of the commission only upon Company A's receipt of payment from Company B and rejected the Plaintiff's alternative claims of breach of implied terms or duty of care by Company A. The Plaintiff appealed with permission.
Legal Issues Presented
- What are the findings of the judge on the formation and terms of the contract between Company A and the Plaintiff?
- When and how does a court imply a term in a contract, whether wholly written or partly oral and partly written?
- Can a court take into account expert evidence on market practice for (a) construction of express terms or (b) implication of terms in a contract?
- In light of the above, can the judge's conclusions on the nature and terms of the contract be impugned?
- If the contract implies payment to the Plaintiff only after Company A is paid by Company B, are there other implied terms imposing duties on Company A, and were these breached?
- What are the consequences if Company A breached any implied terms?
Arguments of the Parties
Appellant's Arguments
- The contract was contained solely in the letter dated 11 March 2008 as modified by a telephone conversation on 13 March 2008; earlier communications were negotiations and irrelevant to contract terms.
- Expert evidence on usual market practice was inadmissible unless a trade usage or custom was alleged, which was not the case.
- The Plaintiff challenged the judge's finding that the contract was made on 25 October 2007 and that the Plaintiff was only entitled to payment once Company A had been paid by Company B.
- The Plaintiff argued that the wording of the letter and communications did not support an implied term conditioning payment on Company A receiving commission from Company B.
- Accepted the judge's findings on the alleged implied duties of Company A but contended they were breached.
Respondent's Arguments
- The contract was partly oral and partly written, originating on 25 October 2007 and modified until 13 March 2008.
- All communications from October 2007 to March 2008 were relevant to determine contract terms.
- Expert evidence on market practice was admissible and relevant for construction of express and implied terms.
- It was understood between parties that the Plaintiff would not be paid unless Company A was paid by Company B.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Attorney General of Belize v Belize Telecom Ltd [2009] 1 WLR 1988 |
Principles governing implication of terms into contracts and written instruments |
The court applied Lord Hoffmann's analysis on implied terms to partly oral and partly written contracts, emphasizing the meaning to a reasonable person with relevant background knowledge. |
| Mediterranean Salvage & Towage Ltd v Seamar Trading and Commerce Inc (The "REBORN") [2009] 2 Lloyd's Law Rep 639 |
Application of Belize principles to a wholly written charterparty contract |
Confirmed the approach to implication of terms in written contracts, supporting the court's methodology. |
| Prenn v Simmonds [1971] 1 WLR 1381 |
Admissibility of factual background evidence in contract construction |
The court accepted expert evidence on market practice as part of the factual matrix for interpreting contract terms. |
| American Airlines Inc v Hope [1972] 1 Lloyd's Rep 253 |
Use of expert evidence to explain commercial shorthand and market practice |
Supported the admissibility of expert evidence to interpret contract terms within the commercial context. |
| Kingscroft v Nissan Fire & Marine (No 2) [1999] Lloyd's Insurance and Reinsurance Law Reports 603 |
Role of expert witnesses in informing courts of commercial background relevant to contract construction |
Expert testimony was deemed appropriate to explain commercial background impacting contract interpretation. |
| Equitas Ltd v R&Q Reinsurance Co (UK) Ltd [2010] 2 All ER (Comm) 855 |
Use of expert evidence in construction of insurance contracts in London market |
Affirmed the practice of relying on expert evidence of market practice to interpret complex commercial contracts. |
| Lloyd's TSB v Clarke [2002] 2 All ER (Comm) 992 |
Admissibility of expert evidence on market-specific terminology |
Expert evidence on the meaning of financial market terms was admitted as relevant background for contract construction. |
| Maggs v Marsh [2006] Building Law Reports 395 |
Use of post-contractual evidence to interpret contract terms |
Referenced regarding the utility of evidence post-contract for testing parties' agreement. |
Court's Reasoning and Analysis
The court carefully analyzed the formation and terms of the contract between the Plaintiff and Company A, concluding that a contract existed from 25 October 2007, partly oral and partly in writing, with modifications until 13 March 2008. The judge's findings on this were supported by email exchanges, letters, and telephone conversations, though the court noted ambiguities in some communications.
The court applied the principles from Attorney General of Belize v Belize Telecom Ltd regarding the implication of terms, emphasizing that terms should only be implied when necessary to reflect what the contract must mean to a reasonable person with knowledge of the factual background.
Expert evidence on market practice was admitted as relevant background knowledge to assist in interpreting the contract's terms, both express and implied. However, the experts agreed that there was no established market practice addressing the precise issue of payment entitlement when the broker was unpaid by the client.
The judge had implied a term that the Plaintiff's entitlement to commission was conditional on Company A receiving its commission from Company B. On appeal, this implication was challenged as unsupported by express agreement, market practice, or necessity. The appellate court found that the contract did not necessarily imply such a term and that the default position—allowing the Plaintiff to enforce his independent contract regardless of Company A's payment status—was more consistent with the facts and legal principles.
The court also considered the alternative implied terms regarding Company A's duties to recover fees and not impede payment but found no convincing basis to imply these terms or find breach.
Holding and Implications
The court ALLOWED THE APPEAL.
It held that the contract between the Plaintiff and Company A did not include an implied term that the Plaintiff’s commission was payable only upon Company A’s receipt of commission from Company B. Consequently, the Plaintiff was entitled to enforce his commission claim independently of Company A’s receipt of payment from Company B.
The decision reversed the lower court’s finding that the Plaintiff’s entitlement was conditional on Company A being paid. No broader precedent was established beyond the facts of this case, and the ruling primarily affects the direct parties by affirming the Plaintiff’s right to payment notwithstanding Company B’s non-payment to Company A.