David Lowe
Partner
Head of Commercial Contracts
Co-Chair of ThinkHouse
Podcast
Published28 February 2023
The rest is silence – Supreme Court declines to imply term for reasonable remuneration
10
minute read
Party A agrees to pay Party B a large fee if B introduces a purchaser who buys A's property for £6.5 million. If B introduces a purchaser who pays less, is B entitled to a fee? That was the question the Supreme Court grappled with recently in Barton & Ors v Morris & Anor [2023] UKSC 3. In the process, it gave useful guidance on when a court will imply terms into a contract, and the scope of the doctrine of unjust enrichment.
Commercial lawyer David Lowe and commercial litigator Andrew Smith explore the key points of the case and the subsequent decision in this podcast.
A more detailed insight into this case, as well as a full transcript of this podcast, can be found below.
Listen to the podcast
Background facts
Foxpace Ltd was selling a property known as Nash House. Foxpace entered into an oral agreement with a Mr Barton to the effect that, if Mr Barton introduced a purchaser who then bought Nash House for £6.5 million, Foxpace would pay Mr Barton £1.2 million. It should be noted that Mr Barton was not an estate agent, and this £1.2 million fee represented deposits and other sums which Mr Barton had lost on two previous unsuccessful attempts to buy Nash House himself.
Ultimately, Mr Barton did introduce a purchaser for Nash House, but due to genuine issues identified in the due diligence for purchase, the sale completed at the lower sum of £6 million. The question arose what sum, if any, Mr Barton was entitled to for introducing the purchaser.
Lower court decisions
In the High Court, the judge concluded that Mr Barton was not entitled to any fee – the contract was silent on what would happen if Nash House sold for less than £6.5 million and so there was no contractual obligation on Foxpace to pay anything. The judge determined that if the parties had intended for any sum to be payable in other circumstances, they could have provided for it. The judge also declined to award any sum on the basis of unjust enrichment, as to do so would undermine the parties' agreement.
The Court of Appeal allowed Mr Barton's appeal. It concluded that allowing the unjust enrichment claim would not undermine the parties' agreement because the agreement was silent as to the effect of a lower sale price. Accordingly, they awarded Mr Barton a reasonable sum (£435,000) for the introduction. Two of the judges also thought the same result could be reached by implying a term for reasonable remuneration into the parties' agreement (an argument that Mr Barton had not pursued in the High Court).
Supreme Court
Giving the leading judgment in the Supreme Court, Lady Rose identified three means by which Mr Barton could be entitled to a fee:
An express term?
The only express obligation in the parties' oral agreement (as found by the judge) was for Foxpace to pay a specified sum on the occurrence of a specified event. Mr Barton was under no obligation to make an introduction at all, and Foxpace was under no express obligation to pay Mr Barton for an introduction that resulted in a sale price of less than £6.5 million. In the absence of an express term entitling Mr Barton to a fee for a lower sale price, the court turned to consider whether such a term should be implied.
An implied term?
A term can be implied into a contract either as a matter of fact – because it is necessary to give effect to the parties' unexpressed intention; or as matter of law – because the contract is one of a type into which statute or common law implies a term.
Implied by fact
Lady Rose stressed that the court will only imply a term as a matter of fact where it is necessary. It is not enough that the court thinks the parties may reasonably have agreed to a particular term – the court must be satisfied it is what the contract actually meant from the outset.
In this case, the majority in the Supreme Court was not satisfied that could be said. Since the parties had not referred in their contract to what would have happened if Nash House sold for less than £6.5 million, the court could not be confident they would have agreed what should happen in those circumstances. Therefore, it was not possible to imply a term that Mr Barton would be entitled to reasonable remuneration in the event of a sale at a lower price.
Implied by law
The Supreme Court considered two alternative routes to implying a term as a matter of law. First, s.15 of the Supply of Goods and Services Act 1982 provides that, where a contract for the supply of services does not determine the consideration, there is an implied term that the customer will pay the supplier a reasonable charge. The majority held that neither this provision, nor any common law equivalent, applied here as it could not be said there was a contract for the supply of a service because Mr Barton was not obliged to make an introduction at all; and the contract was not silent as to remuneration.
Secondly, the court considered whether a term for reasonable remuneration could be implied as an incident of the type of contract concerned. Mr Barton sought to rely on a series of cases in which the courts have awarded estate agents a reasonable sum for their services. However, the court found these estate agent cases didn't assist Mr Barton:
- Mr Barton was not an estate agent. He was not in the business of making introductions and the seller did not ask him to. There was no orthodox vendor and estate agent relationship of the sort which would lead a seller to expect to pay Mr Barton a fee other than as expressly agreed.
- Secondly, the agreed fee of £1.2 million was several times the reasonable fee for an introduction. This was a high risk, high reward arrangement, and implying a term for reasonable remuneration would have removed that risk.
- Connected to this, the sum was calculated by reference to the particular position Mr Barton was in – it was a chance for Mr Barton to recoup his losses on previous failed purchases, if he introduced a purchaser at the right price. This was not comparable to a normal estate agent and vendor relationship.
Accordingly, the majority found there was no scope for implying a term that Mr Barton would receive a reasonable fee for introducing a buyer at less than £6.5 million.
Unjust enrichment mends no-one's bargain
In the majority judgment, Mr Barton's unjust enrichment claim had to fail for similar reasons. The express terms of the contract made payment conditional on achieving a specified sale price. That necessarily excluded any obligation to pay in other circumstances – whether on the basis of an implied term or unjust enrichment.
Comment
Although, as Lord Burrows put it in his dissenting judgment, this case arises from "beautifully simple facts", it raised tricky questions about the intersection of contract law and unjust enrichment which were capable of dividing the Supreme Court. To many contract drafters, the outcome of the case might appear obvious but it was not obvious to the Court of Appeal and the dissenting Supreme Court judges. Lord Burrows and Lord Leggatt would both have allowed Mr Barton reasonable remuneration on the basis of an implied term, and Lord Burrows would have allowed it also on the basis of unjust enrichment. However, fundamentally the difference between the judges appears to be as to whether the parties' agreement was a complete or only partial statement of the circumstances in which Mr Barton would be paid.
So what can contracting parties take from this judgment?
Reduce it to writing - first, the case is complicated by the fact that the parties' agreement was oral. At first instance, the judge was not only required to determine whether a contract even existed, but also to divine its terms from evidence about what the parties had said, but never committed to writing. This is necessarily a somewhat artificial exercise. Had the parties expressed themselves in writing, interpreting their contract may have been considerably easier and less costly.
Put it all in writing and anticipate likely disputes - second, where the parties have in fact contemplated an eventuality and agreed on its consequences, ideally they should document it. As Lord Leggatt said in his dissenting judgment, "even the most comprehensive and carefully drafted written contract cannot anticipate and provide expressly in advance for every possible contingency". However, those contingencies that have been discussed should be documented to avoid dispute.
If the contract does not provide for a situation, the normal inference will be that nothing is to happen and the loss lies where it falls – but as the dissenting judgments show, that normal inference is open to debate. Therefore, where there is a payment mechanism and a lot turns on a specific threshold, then make clear the consequence of failing to reach the threshold. In this case, if the contract had said "and below £6.5 million there will be no commission payable" then there would have been no dispute.
If you have any questions or would like to know more about this judgment, contact Andrew Smith in our Dispute Resolution team or David Lowe in our Commercial team.
Welcome to the latest episode of Gowling WLG's Listen Up podcast where we look at a range of topics trending in the legal and commercial landscapes.
David Lowe: Hello everybody and welcome to our contract law podcast, where we look at developments in contract law and court cases to draw the lessons from and about contract law. And we do this from the perspective of somebody who drafts and negotiates contracts, but also from the perspective of someone who deals with disputes and litigation to try and give that rounded perspective.
I am David Lowe. I lead our Commercial Contracts team and I draft and negotiate contracts.
Andrew Smith: And I am Andrew Smith. I am a commercial litigation partner and I obviously look at disputes, but how to try and de-risk problems for clients.
David: So, Andrew, what have you got for us today?
Andrew: Well, today David I have Barton, which is a Supreme Court decision - so it is a judgment of the highest court in the land so has quite a lot of authority - and unusually it is about a relatively straightforward set of facts. So, let's go into those. Let's say you own a valuable property and I actually tried to buy it but it falls through and then I think "I can probably find a purchaser for this", so you and I enter into a contract. The deal is that in the event that I introduce a purchaser to you and that purchaser buys your property for £6.5 million, then you will pay me £1.2 million. That is the contract.
And so what the Supreme Court had to decide was what happens in this situation. So, the property is sold to the person that I introduced to you, but you were only able to sell it for £6 million because something was found in relation to the property which reduced its value. So, do I get any money as a result of it being sold for £6 million when the deal we did was that I would get £1.2 million if it was sold for £6.5 million. What do you think the answer to the question is?
David: Well, the contract is 'if you bring me a £6.5 million purchaser, I will pay you £1.2 million'. If you fail to do that and bring me a lower value purchaser, I should pay you nothing is how I see it because I would have said something in the contract if I wanted to have something below that threshold.
Andrew: Well - and I don't often say this David - you are right. The majority of the Supreme Court, but by the slimmest of margins, essentially found, the way you have just stated. The minority and the entirety of the Court of Appeal whom they over-rule found differently and found that he should be entitled to a proportion effectively of the £1.2 million fee.
David: And I think an immediate reaction is "I am pleased of course the Supreme Court and I agree"…
Andrew: [laughs]
David: But it is interesting that it's only by the slimmest majority that actually - as I say what is a relatively simple set of facts - there can be so much debate amongst the most senior judges in the land and it only just went in the property owner's favour. It could so easily on another day gone the opposite way. And therefore, on one level as a contracts lawyer, I am pleased to hear the court ultimately determined 'the contract says what the contract says' and were sticking to it, but on the other hand, I am worried that on another day they might have said something slightly different and they would have added to the contract, which I, as a contracts drafter, would not welcome. I, as a contracts drafter, want the contract to say what the contract says full stop. I do not want somebody coming afterwards in the benefit of hindsight and going "yeah if they thought that, they would have said this" - that's not helpful.
Andrew: Yes, and I think the reason why there was so much disagreement within very senior judges was not because of a disagreement on the facts, it was really a disagreement on principles. And really to summarise those principles, it is really about a 'mind the gap' issue. If a contract states something but it does not cover every eventuality, was it the parties' unexpressed intention - which is how an implied term would be put into a contract (so obviously, an implied term is put into a contract by the Courts when it has not been expressed). And so do you fill the gap with an implied term or has effectively the gap, the silence, been deliberate because the contract expresses what is going to happen and if it is not covered it is not part of the contract? And I think this 'in principle' issue is part of the continuing trend, which is away from a purposive interpretation in a contract where the Courts have the maximum opportunity to find a just result and a slightly more old fashioned, and now more in vogue view, which is a contract does what it says on the tin. It is not for the Courts to fill in the gaps. It is not for the Courts to decide what the contract should have said in order to be reasonable, the Court is there merely to enforce what the parties have agreed. I think that is why this case is not complex in fact but complex in law, and is a part of something relatively deep on an almost philosophical level.
David: Yes, and I agree and I think for the perspective of a contract drafter, and also businesses generally, overall it is in the interests of all business if you have certainty that what the contract says is what is says because then we all can read a contract and know what it says. While, if you get to a situation where the Courts feel a need to fill in the gaps as you said with all kinds of stuff, then that introduces uncertainty into your written contract. So it is in the overall interests of business for Courts to be pretty narrow and stick to the letters on the page.
Andrew: Yes, so indeed if in the individual case it might be that it provides injustice in that individual case, but it is in the interests of justice because everybody knows where they stand. Which will actually mean fewer cases going through the Courts because there is less wriggle room, less room to manoeuvre, and less use of me and more use of you David, which I am sure you are very happy about.
David: Hurrah I am always very happy about that. I am not saying by the way that there is never a place for implied terms and actually if anyone is trying to argue that their contract has got some implied terms, this case is an excellent summary of all the different angles of how you might be able to imply terms and it brings it all together.
There's the estate agent's case Devani from 2019, which is again an estate agency contract where the estate agent said he would take 2% commission, but he did not say when or how or what the scope of that was and the Courts were relatively quick to imply that that meant 2% would be paid on completion from the completion monies. And I agree with that. They were filling what was unsaid and what the part, as you put it, the unexpressed intentions of the party and it was essential. If you have 2% commission you have got to then work out when is it paid? So, in that case I agree that the Courts are right to imply some terms. In the same way I think the dissenting judges who thought they needed to imply that Mr Barton got paid a commission if he got less than £6.5 million, I don't think was necessary - they were just feeling sorry for him and I don't think that has any place in contract law.
Andrew: No and that is an understandable perspective. I do think that the facts of this case, whilst as I have said they are quite simple, are quite unusual. Although a party has introduced somebody who buys a property, one of the things dealt with in the case was that the individual was not acting as an estate agent. This was a 'one-off transaction'. Some of the listeners might be wondering how somebody could get a commission of £1.2 million on the sale of a £6.5 million or as it turns out £6 million property, and the answer to that was that the person who introduced had been an attempted purchaser and had actually lost £1.2 million in the deal falling through and so, it was a one off transaction which I think weighed heavily on the judge's mind and for instance meant that those estate agency cases were regarded as not really relevant to the situation.
David: Yes I agree, I think the commercial context in this case is really important because it makes more sense about why there was a threshold above which he got loads of money and below which he got none, because obviously if he delivered a lower value purchase, the seller will be going "well I don't want to lose out. Happy to give you a massive load of money if I am no worse off, but I'm not going to pay a load of money if I am worse off" - so it made more sense of what was going on.
I think it is interesting. If the first instance judge had decided that the contractor said "Mr Barton you get paid a commission, which if you get £6.5 million purchase value is equivalent to £1.2 million". If they said it like that then sounds like it is a commission of X%, that would have been different and he would have got whatever the pro-rated commission was. But, the first instance judge did not say that is what the contract said.
Now we need to let our listeners into a secret here. We are talking as if this is a written contract that said "if £6.5 million then £1.2 million". It was not a written contract. It is an oral contract. So listeners, obviously the big message here is do not use oral contracts because you get into this total mess of arguing about who said what. For example, the deal's done in 2013 but the actual initial Court hearing was in 2018, so parties were coming to with memories five years old and, as the judge, what they hoped they had agreed at the time with no real recollection, so that is why there is a lot of debate about actually what this contract said because it was oral and ideally it should not have been oral.
I have to say my first reaction when I read it was I thought the first instance judge was really generous to think that there was a contract at all. Because, of course, all the witnesses had differing views of what the contract said and whether there was a contract at all. And if I was the judge - maybe I'm just getting old fashioned - but if I was the judge I would have said "no of you can tell me what this contract says, you have all failed to agree so why should I imply a contract at all? Why should I say there is a contract at all? (Just go away all of you). You should have written it down if you wanted one".
Andrew: But ironically, if he had found that there was no contract then it was more likely that the introducer would have got paid because if there is no contract, you can go for unjust enrichment, you can effectively say "well, there is no contract but I have done some work, I have given some value, I am entitled to be paid for it". And because the judge found as a matter of fact that there was a contract, that stopped that unjust enrichment argument. And so where I get to with this case is actually because of the particular facts of it, although it is a Supreme Court decision and therefore binding authority on every lower Court, I think that in the future, it could well be that this case will be distinguished on the facts, on the particular facts of the case, and although it is an important decision, it may not be a landmark decision upon which lots of other case sprang.
It seems to me also that the 'mind the gap' issue, filling the gap, because the parties entered into a very simple contract - of course contracts try to cover as many eventualities as you can - but if you do a deal which is that if I introduce a purchaser who buys it for £6.5 million I will get £1.2 million, it doesn't take much to then agree "but if it lower than £6.5 million what happens?" And so, I think in this instance, effectively the Court thought if that was the deal that must be the be all and end all of the deal and anything that we add to that would be effectively doing what we should not do, which is saying what the contract should have said rather than what it did say.
David: Yes, so key lessons? Don't have oral contracts because if this had been written down in the first place, it probably wouldn't have ended up in this dispute. If there is an oral contract then it is very sensible to write down as soon as possible after the contract is formed what you thought the contract said because that might be really helpful five years later when you are arguing in front of a judge. Rather than saying what you thought you remember, you have got a contemporaneous note. Even better, one that has been sent to the other side at the time - that is going to be helpful. But, if you are going to end up with a contract like this, if something is going to be a real big swing, that £6.5 million was all or nothing wasn't it. If you got £6.49 million you got nothing, you got £6.5 million you won the lottery and got £1.2 million.
Given the importance of that swing, it must be worth emphasising in your contract "yes we really mean that". I think the words the judges use is "if and only if", so it would have only taken three words probably - but I think as drafter we would have probably put a little bit more than that - but make it clear where there is a big difference that that is understood and agreed.
Andrew: And perhaps an express term that says that there are to be no implied terms in the contract because you can't have an implied term to the extent that it contradicts an express term, which was one of the points raised in the Supreme Court.
David: Yes absolutely, and of course traditional estate agents would normally have written terms that would make this all very clear, but of course Mr Barton wasn't an estate agent he was trying to do a deal to recover his money and that is why he fell into this really.
Great well thank you very much listeners. I hope you found that interesting, a useful insight into the thinking of the Courts. It is really interesting in this case that although the Supreme Court agreed with me, that actually two of the Supreme Court's judges didn't, the whole of the Court of Appeal didn't, and that is why if you have got a really important threshold in the contract it is really important to emphasise what happens if it is not met because on a different day of the week, you might have had a different mix of judges who might have come to a different view on this case. Thank you.
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