Mr Barton introduced a buyer for Foxpace’s property under an oral agreement entitling him to £1.2 million if the property sold for £6.5 million. It sold for £6 million. The Supreme Court (3-2) held the contract precluded any payment, and unjust enrichment could not override the contractual allocation of risk.
Background
Mr Philip Barton, a property dealer and developer, had been involved in two unsuccessful attempts to purchase Nash House from Foxpace Limited, losing approximately £1.2 million in forfeited deposits and expenses. He subsequently entered into an oral agreement with Foxpace whereby he would introduce a prospective purchaser to Foxpace in exchange for a payment of £1.2 million if Nash House was sold to that purchaser for £6.5 million. Mr Barton introduced Western UK (Acton) Limited, who initially offered £6.5 million. However, the discovery that Nash House fell within an area safeguarded for the HS2 rail link led Western to renegotiate the price down to £6 million, at which price the sale completed. Foxpace refused to pay Mr Barton any sum. The dispute arose in the context of Foxpace’s insolvency, with Mr Barton appealing against the rejection of his proof of debt.
Procedural History
HHJ Pearce, sitting as a High Court Judge, found that the oral agreement was a binding unilateral contract under which Foxpace would pay £1.2 million only if Nash House sold for £6.5 million to a purchaser introduced by Mr Barton. Since the sale was for £6 million, no contractual payment was due. The judge also rejected the unjust enrichment claim, holding it would undermine the contractual allocation of risk. However, in case he was wrong, the judge assessed a reasonable fee at £435,000. The Court of Appeal unanimously reversed the decision, with Asplin LJ and Males LJ holding that unjust enrichment succeeded because the contract was silent on a sale below £6.5 million, while Davis LJ preferred to analyse the case as involving an implied contractual term for reasonable remuneration.
The Issue(s)
Three principal issues arose: (1) whether a term could be implied into the contract entitling Mr Barton to a reasonable fee if Nash House sold for less than £6.5 million; (2) whether Foxpace was unjustly enriched by retaining the benefit of Mr Barton’s introduction without paying him; and (3) whether the existence of the express contractual terms precluded any claim in unjust enrichment.
The Court’s Reasoning
Majority Judgment (Lady Rose, with Lord Briggs and Lord Stephens)
Lady Rose held that the contract claim failed on all bases. On express terms, the judge had found that Foxpace was only obligated to pay if Nash House sold for at least £6.5 million. As to a term implied in fact, Lady Rose applied the test from Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72 and concluded that implying a term for reasonable remuneration would contradict the express terms:
Whether or not the words ‘if, and only if’ were used by the parties in their negotiations, the effect of the contract as found by the judge was indeed that Mr Barton was only entitled to be paid if the event that they agreed would be the trigger for that payment occurred. To imply a term that Foxpace is liable to pay a commission in any other circumstance goes directly against what the judge found the parties had agreed.
Lady Rose acknowledged that a term preventing Foxpace from deliberately reducing the price to avoid the commission might be implied (following Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] QB 290), but emphasised that the least onerous term necessary should be implied, and the judge had absolved Foxpace of any price manipulation.
As to a term implied by law, Lady Rose considered the estate agent cases including Firth v Hylane Ltd [1959] EGD 212 and Devani v Wells [2019] UKSC 4, but distinguished them because Mr Barton was not an estate agent, had no scale of fees, and the £1.2 million fee bore no relationship to a normal commission. She drew an analogy with Cutter v Powell (1795) 6 Term Rep 320:
What would be strange, in my judgment, would be for Foxpace to agree to what would become a one-way bet for Mr Barton; that he should receive a fee of almost three times the reasonable fee if the sale price were £6.5 million or more and still receive the full reasonable fee of £435,000 if the sale price were something less than that.
On unjust enrichment, Lady Rose held that the ‘silence’ of the contract did not leave a gap for unjust enrichment to fill. The express stipulation of the circumstances triggering payment necessarily excluded payment in all other circumstances:
When parties stipulate in their contract 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; both any obligation to pay under the contract and any obligation to pay to avoid an enrichment they have received from the counterparty from being unjust.
Lady Rose rejected the argument that there was a failure of basis, finding that the judge had not found a shared assumption that the sale would be for £6.5 million, and that the case was essentially an impermissible appeal to perceived fairness.
Dissent of Lord Leggatt
Lord Leggatt disagreed fundamentally on the effect of the contract’s silence. He emphasised the distinction between terms implied in law (default rules applying to contracts of a particular type) and terms implied in fact (ad hoc gap fillers for particular contracts). He relied on section 15 of the Supply of Goods and Services Act 1982 and the common law rule that, where services are supplied in a commercial context, a reasonable charge is payable unless expressly excluded. Lord Leggatt held that the express agreement to pay £1.2 million on a sale at £6.5 million did not negative the default obligation to pay a reasonable sum upon a sale at a lower price:
There is no inconsistency between, on the one hand, the inference that, if the property was sold for less than £6.5 million, the promise to pay Mr Barton the sum of £1.2 million would not apply and, on the other hand, the default obligation to pay a reasonable sum in the event of such a sale.
Lord Leggatt also stressed the significance of this being an oral contract, where the parties’ subjective understanding was admissible, and the judge had found that neither party contemplated what would happen if the sale was for less than £6.5 million. He rejected the ‘wager theory’ as commercially unrealistic and agreed with the trial judge that it would be ‘bizarre’ for Mr Barton to have knowingly entered into an arrangement where a small reduction in price would forfeit all remuneration. However, Lord Leggatt agreed with the appellants that there was no room for unjust enrichment where a subsisting contract governed the subject matter.
Dissent of Lord Burrows
Lord Burrows agreed with Lord Leggatt’s conclusion but provided distinct reasoning. He held that neither interpretation nor a term implied in fact could support Mr Barton’s claim, but that a term implied by law at common law — analogous to section 15 of the 1982 Act — required Foxpace to pay reasonable remuneration for a successful introduction under a commission or introduction contract. He relied on Firth v Hylane Ltd as best explained by such an implied term. Importantly, Lord Burrows distinguished between an ‘if, but only if’ contract in the weak sense (the £1.2 million was only payable at £6.5 million) and the strong sense (no remuneration at all was payable for a sale below £6.5 million), and held the contract was only ‘if, but only if’ in the weak sense. Lord Burrows also addressed unjust enrichment as an alternative, identifying failure of basis as the relevant unjust factor:
Mr Barton rendered the beneficial services to Foxpace on the basis, objectively shared with Foxpace, that he would be paid £1.2m for those services if Nash House was sold to Western for £6.5m. That basis failed … when the sale to Western was for a price lower than £6.5m so that Mr Barton was not entitled to, and was not paid, the promised £1.2m.
Practical Significance
This decision is of considerable importance for the law at the intersection of contract and unjust enrichment. The majority confirmed that where parties have stipulated the circumstances triggering a payment obligation, the absence of provision for other circumstances means no payment is due — either under the contract or via unjust enrichment. The principle from MacDonald Dickens & Macklin v Costello [2012] QB 244 that unjust enrichment cannot be used to subvert contractual allocations of risk was upheld and extended. The case also clarifies the limited scope for implying terms (whether in fact or in law) into contracts that are silent on particular contingencies, particularly where the claimant is not an estate agent acting in the ordinary course of business. The dissenting judgments, however, provide a detailed and persuasive alternative framework emphasising terms implied by law as default rules in commercial contracts for the supply of services, which may influence future development in this area.
Verdict: The Supreme Court allowed the appeal by a majority of 3 to 2 (Lady Rose, Lord Briggs, and Lord Stephens; Lord Leggatt and Lord Burrows dissenting). The order of the Court of Appeal dated 21 November 2019 was set aside. Mr Barton was not entitled to any payment from Foxpace, either in contract or in unjust enrichment, for his introduction of the purchaser of Nash House.
