In the recent Supreme Court decision of Barton v Morris [2023] UKSC 3, the Court has explored the scope of implied terms in a contractual relationship and their interplay with claims for unjust enrichment.
The Issue in Dispute
Foxpace Limited (“Foxpace”), the defendant seller of a property, orally agreed to pay the claimant, Mr Barton, a fee of £1.2 million (the “Introduction Fee”) if he introduced a buyer to Foxpace and the property sold for £6.5 million. Western UK (Acton) Limited (“Western”), introduced by Mr Barton, initially agreed to purchase the property for £6.55 million but after issues came to light, negotiated a reduced purchase price of £6 million, which Foxpace claimed did not trigger the obligation to pay the Introduction Fee. The Supreme Court was asked to determine a simple question: was Foxpace liable to pay reasonable remuneration to Mr Barton in these circumstances?
The Previous Decisions
High Court
At first instance, the High Court found that there was a binding oral agreement. However, since the agreement did not make provision for what would happen if the property was sold to Western for less than £6.5 million, there was no contractual obligation on Foxpace to pay anything to Mr Barton. Further, Mr Barton was precluded from bringing a claim in unjust enrichment, because it would undermine the contractual terms agreed between the parties.
Court of Appeal
An appeal by Mr Barton was unanimously allowed by the Court of Appeal. They held that the silence of the contract as to what would happen if the sale to Western was for less than £6.5 million, meant that it did not preclude a claim in unjust enrichment. Foxpace would be unjustly enriched if it took the benefit of the introduction to Western, without paying Mr Barton a reasonable fee in the sum of £435,000. In the alternative, it was an implied term of the contract that a reasonable fee would be paid if Western purchased the property for less than £6.5 million.
The Majority Decision of the Supreme Court
Foxpace appealed the decision of the Court of Appeal. By a 3-2 majority the Supreme Court allowed the appeal on the following basis:-
Express Terms of the Contract
The express terms of an oral contract are to be divined from the evidence and are a question of fact. It was not an express term of the agreement that Mr Barton would be paid a fee if the property was sold to Western for less than £6.5 million.
Implied Term of the Contract
The Court considered whether a term should be implied into the contract to give ‘business efficacy’ to the contract i.e. because it is necessary and/or because any such term would be so obvious ‘it goes without saying’ in line with the ‘officious bystander’ test, per the principles set out in the leading case of Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72.
Contradiction of Express Terms
The Supreme Court found that an implied term that Mr Barton would be a paid a reasonable fee if Western bought the property for less than £6.5 million could not be implied into the contract. It would contradict the express terms of the contract under which Foxpace was obliged to pay Mr Barton £1.2 million if the property sold for at least £6.5 million. It did not matter that the parties had not used the words “if, and only if” in their negotiations, the effect of the contract was that Mr Barton was only entitled to payment if the agreed trigger for payment occurred, namely a sale price of £6.5 million.
Business Efficacy
Pursuant to the express terms of the contract, a small reduction in the sale price, could result in Mr Barton being entirely deprived of the fee. Whilst it might be necessary to imply a term that Foxpace would not “play a dirty trick” by agreeing a reduced price to avoid liability to pay the £1.2 million referral fee, it was not necessary to go further and imply a term that Mr Barton is entitled to a reasonable fee if the sale completed for less than £6.5 million.
A contract cannot be rendered ‘bizarre’ or ‘uncommercial’ simply because a party contracts for a higher-than-normal payment on the fulfilment of a condition and is prepared to take the commensurate risk of a lower payment if that condition is not fulfilled. In fact, Lady Rose found that it would have been “strange” and uncommercial if Foxpace had agreed terms based on a “one-way bet” for Mr Barton. There would have been no benefit for Foxpace if Mr Barton should receive a reasonable fee regardless of the sale price.
Statute
The Supreme Court rejected Mr Barton’s submission that an implied term for Mr Barton to be paid a reasonable fee for his service, could be implied by statute pursuant to s.15 of the Supply of Goods and Services Act 1982. It had no application as consideration was determined by the contract. It was also doubtful whether the contract constituted a ‘relevant contract’ for the purposes of the Act as it was a unilateral contract pursuant to which Mr Barton’s making of the introduction brought the contract into existence.
Implied Term Incident of Kind of Contract
It was also found that the term sought to be implied by Mr Barton, could not be implied as an ‘incident of this kind of contract’. Mr Barton sought to rely on various estate agency cases. However, the Supreme Court held that he could not rely on these authorities, not least of all, because factually, Mr Barton was not an estate agent and any fee that he was to receive was for a one-off introduction. It could not be compared to the efforts an estate agent may take and the costs they may incur to make an introduction.
Lady Rose offered a salient warning on the implication of terms in contracts, noting that “it is difficult to infer with confidence what the parties must have intended when they have entered into a lengthy and carefully drafted contract but have omitted to make provision for the matter in issue”. Whilst the contract between Foxpace and Mr Barton could not be said to be carefully drafted, caution needed to be exercised given the circumstances of the case. The fact that the parties did not refer to the possibility of a sale price being less than £6.5 million, did not automatically mean that they would have agreed what should happen in that event.
Unjust Enrichment
The issue for the Court was whether Foxpace’s enrichment arising from the introduction of Western, by Mr Barton, was unjust unless Mr Barton was paid a reasonable fee. Mr Barton contended that Foxpace would have unjustly enriched where there had been a ‘failure of basis’ as there was a common assumption that Western would purchase the property for £6.5 million. The parties did not consider a lower sale price and when the property sold for less than £6.5 million, the parties’ shared assumption and the basis of their agreement failed.
Lady Rose noted that it would be surprising to conclude that the parties did not at all envisage the possibility of the property selling for less than £6.5 million. The fact that neither of the parties raised the possibility suggests that they were assuming the sale would be for at least £6.5 million, not that they had simply not contemplated the eventuality. The most that could be said was that the parties did not discuss this issue and did not provide for it in the contract.
Any claim in unjust enrichment would ultimately fail given that the parties had agreed the circumstances in which Foxpace was obliged to pay Mr Barton and in doing so, necessarily excluded any obligation in the absence of those circumstances. The “silence” of the contract as to what obligations arise on the sale of the property for less than £6.5 million, excluded not only any implied contractual term (as set out above) but also a claim in unjust enrichment.
The Dissenting Judgments
The dissenting judgments of Lord Leggat and Lord Burrows are interesting as they fit much more closely with commercial reality.
The contract was silent on what would happen if the property was sold for less than £6.5 million. As an incidence of the type of contract, unless expressly agreed otherwise, a term should be implied at common law providing for Mr Barton to receive reasonable remuneration in circumstances where the property was sold for less than £6.5 million. As there was no contrary agreement, they found that Mr Barton would have been entitled to receive reasonable payment. Lord Burrows went further and considered that there was an unjust failure of basis, which would have enabled the same result to be achieved in the law of unjust enrichment.
Comment
The majority decision in this case, may strike some as being somewhat unfair. Whilst the conclusion will no doubt be the subject of debate (and the 3-2 majority of the Supreme Court only serves to demonstrate that these are issues ripe for further deliberation), the decision does fundamentally underline the traditional approach of the Court and its reluctance to interfere with the terms of a party’s bargain.
If you require any further information or advice please get in touch with Nick Scott on nxs@blasermills.co.uk or Jade Salton-Brooks on jkb@blasermills.co.uk.