Barton and others v Morris and another in place of Gwyn Jones [2023] UKSC 3
Key Takeaways:
- The UK Supreme Court has found that an introducer of business was not entitled to any remuneration for a valuable introduction outside of circumstances expressly provided for in the contract.
- This judgment highlights the risks of trying to rely on claims of implied terms or unjust enrichment in English law and the very limited scope of claims for unjust enrichment where a contact exists.
- It is important to specify how an agreement will apply in all eventualities that are likely to arise during the course of a commercial arrangement (and not just in the case of the outcome the parties are hoping for).
Summary
In a recent decision the UK Supreme Court had to consider whether an introducer of a business opportunity to a company was entitled to a "reasonable fee" for doing so. The Court found that where the parties had agreed that the introducer of a potential purchaser of a property would be entitled to receive £1.2million if the purchaser bought the property for at least £6.5million, the introducer was not entitled to receive anything in the event that the property sold for less than that sum. In doing so, the Supreme Court rejected arguments that the introducer should receive a reasonable fee based upon either an implied contractual term or a claim for unjust enrichment.
The Facts
The Claimant had previously made two attempts to put together a consortium to purchase a property from the Defendant company. On both occasions the Claimant has paid sums to the Defendant by way of deposits but was unable to make subsequent payments and the transactions had fallen through. As a result, the Claimant was around £1.2million out of pocket on the two failed transactions.
Subsequently, the Claimant introduced the Defendant to another company as a potential purchaser of the same property. An oral agreement was reached between the Claimant and the Defendant that if this purchaser bought the property for £6.5million or more the Defendant would pay the Claimant the sum of £1.2million. The property was later sold to the purchaser for £6million.
When the Defendant company went into liquidation sometime later the Claimant submitted a proof of debt for £1.2million. The proof of debt was rejected by the liquidators.
Procedural History
At first instance the Judge found that as the parties had not agreed what would happen if the purchase price was below the sum of £6.5million, under the agreement the Defendant was not obliged to pay the Claimant anything as that price had not been reached. The Claimant had also claimed that he was entitled to receive a reasonable fee for the introduction he had made, as the Defendant would be "unjustly enriched" if it were entitled to retain the benefit of the introduction without paying something in return. The Judge rejected this claim too on the basis that to grant such a claim would be to undermine the contractual terms agreed by the parties. However, the Judge did assess that in the event that he was wrong on the issue of liability a reasonable fee for the introduction would be £435,000.
The Court of Appeal overturned the first instance decision finding that, as the contract was silent as to what would happen if the purchase price was below £6.5million it did not rule out a claim in unjust enrichment. The Court of Appeal found that the Defendant would be unjustly enriched if it took the benefit of the introduction without paying a reasonable fee to the Claimant. Accordingly, the Court of Appeal found that the Claimant was entitled to receive the sum which the Judge had found to be a reasonable fee at first instance, namely £435,000.
Decision
The Supreme Court allowed the Defendant’s appeal finding that the Claimant was not entitled to receive any fee.
Briefly, the Supreme Court responded to the Claimant’s arguments as follows:
Term Implied in Fact: business efficacy
There was no need to imply a term into the contract entitling the Claimant to a reasonable fee in order to give it business efficacy: the parties had agreed that the Claimant would receive £1.2million if the property sold for £6.5million and the contract could therefore function on its own terms. It would have been possible to imply a term that the Defendant could not manipulate the price paid for the property in order to avoid paying any fee to the Claimant but there was no suggestion that had happened in this case and accordingly no need to imply such a term. It was not possible to say what, if any, fee the parties would have agreed had they turned their mind to the position if the property had sold for less than £6.5million and therefore it was not possible to imply a term in this regard.
Term Implied in Law: type of contract
The Court also rejected the argument that the contract was the type of contract that required the implication of a terms as matter of law, such as an estate agent contract1: although the arrangement in question related to the sale of a property, the Claimant was not an estate agent by profession and the introduction in this case was a one-off accordingly the Claimant did not have any standard fees or other terms and the sum of £1.2million was not calculated on a basis akin to those of an estate agent’s fees: instead, it was based on the sum which the Claimant had already spent attempting to purchase the property. Accordingly, the Claimant had taken the risk that if the purchaser did not pay £6.5million he would not be able to recover his expenditure.
Unjust Enrichment: failure of basis
The Claimant had alleged a claim for unjust enrichment as a result of "failure of basis", the basis in this case being a shared assumption that the property would be sold for £6.5million. However, it was held that it must have been contemplated by the parties that the property may be sold for less than that amount. Accordingly, it could not be said that there was a basis in this case which had failed. Further it was held that an obligation to pay the Claimant a commission in the event that the price of £6.5million was not achieved would be at odds with the parties’ oral agreement and therefore a claim for unjust enrichment was excluded.
The Dissenting Opinions
Lord Leggatt and Lord Burrows dissented from the decision of the majority. Both of the dissenting opinions found that there was an implied term of the contract under which the Claimant was entitled to reasonable remuneration for the valuable introduction which he had made. Mr Justice Burrows found that if there had not been such an implied term the Claimant would still have had a claim based on unjust enrichment due to failure of basis, whereas Mr Justice Leggatt found that such a claim would be excluded by the existence of a binding contract.
Analysis
This case illustrates the high level of continuing uncertainty as to the scope of both implied terms and the law of unjust enrichment in circumstances where there is a relevant contract. The decisions at each level of appeal not only reached different results but they were also on different bases and even at Supreme Court level there were dissenting opinions which disagreed with the majority on the question of an implied term and with one another on the issue of unjust enrichment.
Somewhat surprisingly the implication of this decision, although the Supreme Court does not say so expressly, appears to be that the Claimant would have actually been better off if no binding contract had been concluded between the parties, as in that case the Claimant would have at least been able to make a claim for unjust enrichment. Of course, this does not mean that parties should avoid entering into contracts in relation to such matters but illustrates that a poorly thought through or drafted contract can, in certain circumstances at least, be worse than no contract at all.
In those circumstances, parties would be well advised not to seek to rely on implied terms to address lacunae in their contracts. Although it is unusual for contracts for such large sums to be made entirely orally, as in this case, it is far from unheard of and a short, written agreement could have had precisely the same issues as the contract in this case.
While it is often not possible to draft a contract which expressly provides for every eventuality, it is always worth standing back and considering what events or issues are most likely to arise during the course of the agreement – particularly if the arrangement is a “one off” rather than part of an ongoing course of business dealings. In our view the circumstances in this case, the property being sold for slightly less than had been contemplated, were entirely foreseeable and it would have been beneficial for both parties to seek to address that possibility at the outset.
Footnotes:
1) The Court also held that contract in this case did not fall within Section 15 of the Supply of Goods and Services Act 1982 such that a term requiring reasonable payment for the Claimant’s services could be implied by statute.
