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Oral contract does not prevent agent from being paid in circumstances not catered for in contract

19 December 2019. Published by Tim Brown, Partner and Rosy Gibson, Associate

In a recent case, the Court of Appeal held that an oral contract for a specified introduction fee payable to an agent if a property sold at a particular price did not prevent the agent from being remunerated when that property was sold for a lesser sum (despite the contract being silent on the matter).(1) However, the sum awarded by the court was significantly lower than the introduction fee specified in the contract.

Facts

Foxpace Limited owned a commercial property, Nash House, which the applicant, Mr Barton, had unsuccessfully attempted to purchase in July 2013, leaving him £1.2 million out of pocket. Soon after, Foxpace and Barton entered into an oral agreement under which Foxpace agreed to pay Barton £1.2 million if Nash House was sold for £6.5 million to a purchaser introduced by Barton.

Barton introduced Foxpace to a purchaser but the property was sold for £6 million, the price having been reduced as a result of good faith negotiations in which Barton was involved. Having completed the sale at that reduced price, Foxpace refused to pay the £1.2 million Barton claimed he was owed.

High Court decision

In the first instance, the High Court found that Barton's contractual claim for the introduction fee of £1.2 million failed because the property in question was sold for £6 million rather than £6.5 million, contrary to the explicit terms of the oral contract.(2)

The judge also found that Barton's claim under unjust enrichment failed due to the Costello(3) principle (ie, a claim in unjust enrichment should not be allowed to undermine the contractual allocation of risk agreed between parties). Granting relief in these circumstances would amount to imposing an obligation on Foxpace to pay in circumstances different to those agreed in the contract, under which Barton had assumed the risk of Nash House being sold for anything less than £6.5 million.

However, the judge found that had it been been necessary, he would have decided that the value of the benefit to the vendor was 7.25% of the purchase price (ie, £435,000). He decided this by reference to other agreements for introduction fees entered into by Foxpace in relation to failed transactions for the sale of Nash House. He put little weight on the £1.2 million figure, finding that it was related to expenses lost in previous attempted transactions rather than services provided by Barton.

Court of Appeal decision

Partially allowing Barton's appeal, the Court of Appeal found as follows:
Because the first-instance judge had rejected Foxpace's arguments that a fee was payable if and only if Nash House was sold for £6.5 million (indeed, he had noted that it would have been ”bizarre” for Barton to have entered into a contract on those terms), the oral contract did not restrict payment exclusively to the happening of that specific event.

  • Barton had taken on the risk of there being no sale at all, in which circumstances he would not be paid. He had also taken on the risk of the purchase price being less than £6.5 million, in which circumstances he would not be paid the full £1.2 million fee. However, the contract was silent on the allocation of risk in all other circumstances.
  • As a result of this silence, nothing would preclude Barton from seeking remuneration on the basis of unjust enrichment. The court would not be undermining the Costello principle because the contract in question did not address the situation that had come to pass.
  • Barton was therefore entitled to recover the benefit that Foxpace had unjustly gained from being introduced to the purchaser and not paying for the service. The High Court's finding as to the objective market value of that service was accepted.

Comment

It is always commercially sound to explicitly agree (and record in writing) the consequences of all relevant circumstances, not least because remuneration awarded on the basis of unjust enrichment will be evaluated according to the objective market value for those services, which may be significantly less than what can be agreed under contract (as in this case).

This decision will give some comfort to commercial parties that have provided their services having agreed the contractual consequences of only the best case scenario. If those services provide meaningful value but fall short of that ideal outcome, it seems that only explicit agreement to the contrary will prevent the service provider from being paid.

(1)   Philip Barton v Timothy Gwyn-Jones [2019] EWCA Civ 1999.
(2)   [2018] EWHC 2426 (Ch).
(3)   Macdonald Dickens & Macklin (a firm) v Costello [2011] EWCA Civ 930.