Tue, 06 Jun 2023
The Supreme Court’s decision in Barton v Morris [2023] UKSC 3 has provided welcome clarity for when the court will imply terms into a contract, particularly in service contracts where the parties may not have agreed express terms for every eventuality. The Court also considered what role, if any, the law of unjust enrichment plays where the parties are in a contractual relationship.
Law on Implied Terms
Whilst it is a “cardinal rule” that an implied term must not contradict any express terms of the contract, there are several mechanisms through which a term will be implied into a contract:
1. Statute: For example, see sections 12-15 of the Sale of Goods Act 1979 and sections 9-18 of the Consumer Right Act 2015.
2. Custom/Usage: Generally, for practice to amount such a recognised usage, it must be “notorious, certain and reasonable” (see Cunliffe-Owen v Teather & Greenwood [1967] 1 WLR 1421).
3. Implied by Fact: Such term is implied to give effect to what is deemed by the court to be the unexpressed intention of the parties. Terms implied by fact are generally implied using two tests (although Lord Hoffman noted in Att-Gen of Belize v Belize Telecom [2009] UKPC 10 that there really was only one question, which is what the contract would “reasonably be understood to mean” [25]):
a. The ‘business efficacy test’: Whether the implied term is necessary to give the contract business efficacy (i.e. whether the contract would make business sense without the implied term).
b. The ‘officious bystander test’: Had an officious bystander been present at the time of contracting and suggested such an express provision for their agreement, the parties would have responded with a common, “Oh, of course!”
4. Implied by Law: Such term is implied because of the nature of the contract, rather than the supposed intentions of the parties. For example, see Liverpool City Council v Irwin [1976] QB 319, where the court implied a contractual duty on a landlord to keep the common parts of a tower block in good repair. This was not a term peculiar to this specific landlord/tenant relationship but was to be implied as a general incident of all contracts of this type.
Facts in ‘Barton’
An oral contract was made between Mr Barton, who was a property dealer and developer, and Foxpace Ltd (“Foxpace”), which was the owner of a property in London called “Nash House”. Mr Barton had previously attempted to purchase Nash House himself on two separate occasions, although both purchases fell through and he suffered losses of £1.2 million in forfeited deposits and fees. Shortly after the failure of the second sale of Nash House, Foxpace’s sole director orally agreed with Mr Barton that if he were to secure a third-party purchase of Nash House for £6.5 million or more, Foxpace would pay Mr Barton £1.2 million (a sum approximately equal to his losses on the two failed sales). Mr Barton was initially able to secure a third-party purchase of Nash House for £6.5 million, although upon learning that the property fell within an area safeguarded for the purpose of construction of the HS2 rail line, the purchasers and Foxpace agreed a reduction in sale price to £6 million.
There was no suggestion that Foxpace had acted in bad faith and deliberately reduced the sale price to evade paying Mr Barton the agreed £1.2 million; Foxpace had simply acted commercially to achieve a sale. In consequence, Foxpace refused to pay Mr Barton the £1.2 million and argued that they were not legally obliged to make any payment because the parties had not agreed any express terms for Mr Barton’s remuneration in the event he was able to secure a sale at a price less than £6.5 million.
Judgments before reaching the Supreme Court
At first instance, the High Court found that there was a binding oral agreement between the parties. However, since the contract made no provision for what would happen if the property was sold for anything less than £6.5 million, there was no contractual obligation on Foxpace to pay anything to Mr Barton. Further, Mr Barton’s alternative claim in unjust enrichment failed as such claim would undermine the contractual terms and interfere with the allocation of risk as agreed between the parties (see MacDonald Dickens & Macklin v Costello [2012] QB 244).
The Court of Appeal unanimously allowed Mr Barton’s appeal, finding that he was entitled to be paid the sum which the High Court considered was the reasonable value of his services (£435,000). Asplin and Males LJJ rejected the judge’s reasoning that awarding a remedy based on unjust enrichment would undermine the contractual allocation of risk negotiated by the parties. The contract simply said nothing about what was to happen in the event of a sale at less than £6.5 million. Therefore, there was no contractual allocation of risk which prohibited a remedy in unjust enrichment. Meanwhile, Davis LJ considered that this was not a case where the law of unjust enrichment applied, and that the better legal analysis was that reasonable remuneration was payable as a matter of quantum meruit pursuant to an implied term.
Mr Barton’s arguments in the Supreme Court
At the Supreme Court, Mr Barton argued:
1. That there was an express term that that the £1.2 million would be paid irrespective of purchase price as the contact did not stipulate that the monies would be paid “if, and only if” he achieved a sale price of £6.5 million;
2. A term for reasonable remuneration could be implied in fact using either the business efficacy or officious bystander tests;
3. A term could be implied by statute, relying on section 15 of the Supply of Goods and Services Act 1982;
4. A term could be implied in law, relying on the ‘estate agent cases’ which provide that an estate agent may claim for reasonable commission where he introduces a party for the purchase of a property, notwithstanding that there are no express terms as to remuneration, and;
5. That Foxpace was unjustly enriched by Mr Barton’s services.
Supreme Court
Majority
Lady Rose (with whom Lord Briggs and Lord Stephens agreed) allowed Foxpace’s appeal and found there to be no obligation, either in contract or unjust enrichment, for Foxpace to pay anything to Mr Barton. The majority allowed the appeal on the following grounds:
1. Express Terms: The majority gave short shrift to this argument, affirming that express terms are a question of fact and to be divined from the evidence. On the facts as found at first instance, there was no express term that Mr Barton would receive any remuneration if the property sold for less than £6.5 million.
Lady Rose further rejected Mr Barton’s argument that there was nonetheless an obligation on Foxpace to pay the £1.2 million as the parties hadn’t agreed that such sum would be paid “if, and only if” he found a purchaser for £6.5 million. Lady Rose correctly pointed out that such reasoning was defective. It is irrelevant whether the words “if, and only if” were used; the effect of the contract was that Mr Barton was only entitled to the £1.2 million on a specific occurrence. It is not possible to re-write the parties’ agreement beyond this.
2. Implied Term by Fact: Lady Rose considered that an implied term as to reasonable remuneration would contradict the express terms. Implying a term for reasonable remuneration was not necessary to give the contract business efficacy and it was not clear that, if an officious bystander had suggested such term, the parties would have obviously both agreed. The parties were commercially savvy, and it is entirely reasonable to see the contract’s silence as to remuneration being deliberate. Indeed, Her Ladyship reasoned that it is not a bizarre or uncommercial bargain for a party to contract for an unusually high payment on the fulfilment of a condition, although with the commensurate risk of getting nothing if the condition is not fulfilled.
Further, and in response to concerns that Foxpace could have reduced the sale price to £6,499,999 in order to escape paying the £1.2 million to Mr Barton, Her Ladyship considered that the court could simply imply a term that Foxpace would act in good faith. There was no need to go further than is necessary and imply a term as to reasonable remuneration.
3. Statute: Lady Rose gave this argument short shrift and found that section 15 of the Supply of Goods and Services Act 1982 did not apply as the parties’ contract was not a “relevant contract” within the meaning of the Act. Further, the parties had already agreed inconsistent express terms, so there was no scope for the Act to apply (see further discussion below).
4. Term implied by Law: Lady Rose rejected the argument that the ‘estate agent cases’ were applicable here. Firstly, Mr Barton was not an estate agent and, secondly, this arrangement was nothing like the usual estate agent-client relationship. Mr Barton’s £1.2 million fee was not related to any effort or costs incurred by him in finding a buyer. His position was also very different from that of estate agents, who rely on recovering fees from successful introductions to finance their business.
5. Unjust enrichment: Mr Barton’s argument that there was a ‘failure of basis’ in that the parties had a common assumption that the third-party purchaser would purchase the property for £6.5 million (and so did not consider a lower sale price) was flatly rejected by Lady Rose. Her Ladyship considered that it would be surprising to conclude that the parties had simply not envisaged the likely scenario of the property selling for less than £6.5 million. Lady Rose cautioned that the mere failure to make provision for some eventuality cannot be taken to mean that the parties simply never contemplated it. In the premises, there was no failure of basis.
Lady Rose also rejected the unjust enrichment argument on the ground that the parties were in a contractual relationship and had agreed the allocation of risk between themselves (mostly burdened by Mr Barton). As Lady Rose curtly summarised, “unjust enrichment mends no-one’s bargain” [107].
Minority (Lords Leggatt and Burrows)
Lord Leggatt found there to be no claim in unjust enrichment where there is a valid, subsisting contract between the parties. However, His Lordship would have dismissed the appeal on the ground that a term was implied by statute pursuant to section 15 of the Supply of Goods and Services Act 1982, or that a term could be implied by law as a general incident of estate agent contracts. His Lordship considered that there would be no inconsistency between an express term to pay £1.2 million in a specific circumstance and an implied term to pay a reasonable sum if this occurrence did not materialise.
Lord Burrows accepted the argument that there was an implied term in law, and also found that there would be a remedy in unjust enrichment. On the implied term point, His Lordship’s reasoning was that it is a necessary feature of the type of contract in question that the provider of the requested service is paid a reasonable remuneration for a successful introduction, and that can be so even if there is also an express provision for a particular sum to be paid if a particular sale price is reached. His Lordship would have also permitted a claim in unjust enrichment on the basis that the silence in the contract as to what would happen where the price did not reach £6.5 million did not mean that the loss should lie where it fell. His Lordship considered that the silence in the contract meant that any “default law” should apply; and here the default law was the law of unjust enrichment.
Discussion
The majority judgment is to be commended. First, in finding that none of the grounds for implying a term applied, the Court paid close attention to the terms of the oral agreement and the context in which it was agreed. Two experienced parties entered into an ‘all or nothing’ bargain by which Mr Barton could receive a disproportionate gain compared to the service he was providing, although ran the clear risk of receiving no remuneration should he fail to do so. There was no scope to imply a term as regards remuneration because the contract was not silent on this issue; Mr Barton’s remuneration was conditional, and inserting a term for reasonable remuneration would have done violence to the express terms that were agreed between the parties. Where parties stipulate in their contract that performance must occur in a particular manner in order to impose a legal obligation on the counterparty to pay, that necessarily excludes any obligation to pay where performance does not meet that threshold.
Second, the majority were correct to find that no term could be by statute. Section 15 of the Supply of Goods and Services Act 1982 makes clear that the implied term as to reasonable consideration only applies to a “relevant contract”, defined in section 12 as “a contract under which a person agrees to carry out a service”. The contract between the parties here was a unilateral contract; Mr Barton was not obliged to render services, so it is difficult to see that he meets the section 12 threshold of agreeing to carry out a service. There was no agreement to carry out a service, but merely the performance of the service itself. In other words, Mr Barton’s performance of finding a third-party purchaser brought the contract into existence, and not any form of agreement. With respect, Lord Leggett’s approach that section 15 applies to all service contracts where there is some gap as to the level of remuneration would make the reference to “relevant contracts” and the corresponding definition supplied in section 12 superfluous. Such approach runs counter to the clear language of the Act. Furthermore, section 15 only bites where “the consideration for the service is not determined by the contract”. However, the parties had expressly agreed on conditional consideration, so there was simply no room for section 15 to operate. Indeed, section 16 makes clear that that section 15 can be negatived by express agreement and so does not apply where an express term is “inconsistent”. Clearly, there was such an inconsistent express term here.
Third, the Court correctly identified that the ‘estate agent cases’ are of little assistance here. Most obviously, Mr Barton was not an estate agent and did not hold himself out as one. Therefore, the contract cannot fall into the class of contracts into which such term is implied as a general incident. There is some force in the argument that Mr Barton was acting as if he were an estate agent. However, this was not the nature of the parties’ bargain. When a ‘real’ estate-agent enters into a contract with a seller, he comes under an obligation to take such steps as he can to find a buyer. However, Mr Barton came under no such obligation. If he did not take any steps at all to find a buyer for Foxpace, the latter would have no contractual claim against Mr Barton. This comes back to the very nature of the parties’ bargain; it was not a strict contract for services but a unilateral offer for Mr Barton to potentially recover his existing losses.
Finally, on the unjust enrichment point, the reasoning of the majority is sound. Where there is a valid contract between parties, the law of unjust enrichment should have no place to rescue a bad bargain or offer some form of equitable relief through the back door. It is difficult to see what is unjust about a party validly entering into an ‘all or nothing’ deal and winning at the expense of their counterparty. Mr Barton did not have to accept Foxpace’s offer; he could have attempted to negotiate express terms for remuneration rather than accepting a unilateral offer on risky terms. There is no scope for unjust enrichment to re-negotiate the parties’ bargain.
Conclusion
There is sympathy to be had for Mr Barton. It feels intrinsically wrong that Foxpace were able to benefit from Mr Barton’s services and avoid remunerating him. This case therefore serves as a stark reminder for parties to incorporate express terms for a wide range of eventualities. In a binary case such as this where the supplier either succeeds in meeting the condition or not, parties should anticipate and discuss the simple issue of what happens if the condition is not met.
However, for those concerned that Barton v Morris may have opened the door for would-be defendants to defeat claims for quantum meruit, it is suggested that the scope of Barton is likely to be limited to its facts. The contract here was unilateral (so lost statutory protection) and was an unusual quasi-estate agent commission contract (so could not benefit from terms implied via law or even custom). It is suggested that the number of contracts that fall into this lacuna will be small, and that many services contracts that are silent as to remuneration will still be capable of fitting into one of the existing categories of implying terms.
