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"…
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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