The rest is silence – Supreme Court declines to imply term for reasonable remuneration

10 minutes de lecture
28 février 2023
Balados

Speakers(s):

David Lowe, Andrew Smith

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:

  1. 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.
  2. 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.
  3. 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.

 

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Sujet(s) similaire(s)   Commercial Disputes and Litigation, Litige commercial, Droit commercial , Dispute Resolution, ThinkHouse

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