A party who agrees to payment for services on the occurrence of a specified event which does not happen, should not assume that the courts will step in to help – this is the lesson from the Supreme Court decision in Barton & Ors v Morris & Anor [2023] UKSC 3.
The general principle is that parties are free to contract on any terms and allocate the risks within their contract as they think fit, and the courts will look to uphold that bargain. The courts can require a party to pay a reasonable amount for services if it considers that it has been “unjustly enriched” at the expense of the other party, but this case shows that it will not be unjust if the parties agreed there would only be payment on occurrence of a specified event which does not happen.
Background facts
In this case, Mr Barton had tried twice to buy Nash House for himself from Foxpace Limited, but in both cases the sale fell through after exchange of contracts. This left him out of pocket by about £1.2m. He sought to recoup this loss by getting Foxpace to agree to pay him an introductory fee of £1.2m if he introduced to them a buyer for Nash House for £6.5m.
He went on to introduce Western UK (Acton) Limited (Western), who made an offer of £6.5m, but during the conveyancing process it came to light that Nash House fell within an area safeguarded for the purpose of the construction of the HS2 rail link. Western wanted to make the contract conditional on the HS2 project not affecting the site, but Foxpace was not prepared to agree to that. They agreed instead that Western would buy the property unconditionally for £6m. Foxpace then refused to pay Mr Barton any fee, saying that nothing was payable in the event that the sale was for less than £6.5m.
High Court
Before the first instance judge, Mr Barton tried to argue that it was an express term of the oral contract that £1.2m was payable to him regardless of the purchase price. This was rejected by the judge, who accepted Foxpace’s evidence that the agreement was that it was liable to pay Mr Barton the sum of £1.2m in the event that Nash House was sold to a purchaser introduced by Mr Barton for the sum of £6.5m. Since the property was sold for £6m, this meant that Mr Barton’s claim for breach of contract failed.
Mr Barton’s alternative claim was for unjust enrichment - that Foxpace should pay him something because it had been "unjustly enriched" at his expense. For a claim in unjust enrichment to succeed, the defendant must have been enriched, at the claimant’s expense, the enrichment must be unjust, and there must be no defences available to the defendant. In this case the issue was whether it was unjust for Foxpace to have been enriched by the introduction without paying Mr Barton a fee.
The judge held that it was not unjust, because the agreement was that Mr Barton would be paid £1.2m if the property sold for £6.5m, meaning there would be no payment if the property sold below that figure. He said that it was a general rule that parties’ mutual obligations should be limited to those which they have defined and allocated in the course of negotiating the contract, and that the court should uphold those contractual arrangements.
Court of Appeal
Mr Barton appealed to the Court of Appeal, who allowed his appeal. They said the fact that the contract was silent on the allocation of risk where the purchase price would be less than £6.5m did not preclude an unjust enrichment claim. If the parties had wished to exclude any claim for remuneration other than in relation to a sale at £6.5m, they should have made it clear that payment was received if and only if the specific event occurred.
The Court of Appeal also said that it would also have allowed an implied term for reasonable remuneration. For a term to be implied into a contract, it must not be inconsistent with an express term of the contract, and it must be objectively either so obvious a term as to go without saying, or necessary to give business efficacy to the contract, in that the contract would lack commercial or practical coherence without it (Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72). The Court of Appeal said that an implied term that Mr Barton would be paid a reasonable fee if Western bought Nash House for less than £6.5m would not contradict the express terms of the agreement, and it was both so obvious a term that it went without saying, and that it was necessary to give the agreement business efficacy because the agreement lacked commercial coherence without it.
Supreme Court
By a majority of 3-2, the Supreme Court allowed Foxpace’s appeal, ruling that Mr Barton was not entitled to any fees.
Not implied for obviousness or business efficacy
The court should not just consider what implied term would have been reasonable for the parties to agree to – it must be satisfied that that is what the contract actually meant. Here, the judge had found that the agreement was that Mr Barton was only entitled to be paid if the event that they agreed would be the trigger for that payment occurred – namely, a sale for £6.5m to a purchaser introduced by Mr Barton. To imply a term that Foxpace was liable to pay a commission in any other circumstance went directly against what the judge found the parties had agreed. Therefore it was not obvious that Foxpace would have unhesitatingly agreed to pay him a reasonable fee in that event, or that such a term was necessary to give business efficacy to the contract between them.
Dirty tricks?
The Supreme Court could envisage implying a term to prevent Foxpace playing a "dirty trick" by agreeing a reduced price with the purchaser to avoid paying Mr Barton, but that is not what happened here – it was clear that the reduction in price was genuinely the result of the HS2 problem.
Not implied under statute or common law
Mr Barton sought to argue in the alternative that a term for payment was implied under section 15 Supply of Goods and Services Act 1982 (as amended by Consumer Rights Act 2015 section 100(5)) or by the common law - that where the consideration for the supply of service is not determined by the contract, there is an implied term that the party contracting with the supplier will pay a reasonable charge. However this was not successful because the consideration for the contract was determined by the contract (the Supreme Court was also doubtful that s15 applied to a unilateral contract like this one, where the contract only comes into existence by the making of the introduction which is at the option of Mr Barton).
Not implied under estate agent caselaw
Mr Barton tried to argue that a term for payment was implied on the basis of estate agent case law which has established a "common understanding" among people that estate agents would be entitled to fee for a successful introduction of a purchaser. However this argument failed because Mr Barton was not an estate agent, he did not make the introduction in the course of running a business of making such introductions, and although the agreement was in a commercial context in which people do not tend to act for free, he took the risk that if he did not find a buyer at £6.5m, he would not be able to recover the sums he had forfeited in the course of the two earlier transactions.
Not unjust enrichment
Mr Barton argued that the enrichment was unjust because the agreement was based on the common assumption that Western would buy Nash House for £6.5m, and when this did not happen, the shared assumption and hence the basis of the agreement failed.
The Supreme Court disagreed. They said that the failure of parties to deal with a potential eventuality does not mean it was not contemplated by them, and in this case it would be surprising if they had not considered a lower sale price, as Mr Barton’s own attempts to buy the property had been for less than £6.5m, as had been other unsuccessful attempts to buy it.
In any event, when parties stipulate in their contract for services the circumstances that must occur in order to impose a legal obligation on one party to pay, they necessarily exclude any obligation to pay in the absence of those circumstances. The “silence” of the contract as to what obligations arise on the happening of the particular event means that no obligations arise, and this excludes not only an implied contractual term but a claim in unjust enrichment.
Claims for unjust enrichment can be made in estate agent cases, because the naming of a specific price for the property is not generally to be treated as the "if, and only if" trigger for the obligation to pay the commission. This was not a typical estate agent case, however, and there was no reason to construe the contract as meaning anything other than the agreement that £1.2m would be payable only if Nash House sold to Western for at least £6.5m.
Conclusion
The practical points to take from this case are:
- Put any agreements in writing.
- Be clear at the agreement stage of what will happen, not only if it all goes to plan, but if it does not go to plan...
- That the Court of Appeal and two members of the Supreme Court disagreed with the majority shows that this was a close call. Close calls can generally be avoided by properly worded written contracts.
Catherine Penny