Oral commission agreement for sale of property silent on consideration for actual service provided – legal remedies

Barton and others (Respondents) v Morris and another in place of Gwyn-Jones (deceased) (Appellants) [2023] UKSC 3

The question

In an oral agreement in which a vendor expressly agreed to pay an individual a set introduction fee on the sale of a property sold at a certain price, did the vendor have to pay the introducer (and how much?) where the property sold for a lower sum than that expressly provided for in the contract?

The key takeaway

In the absence of price manipulation to avoid a contractual payment obligation, even if the terms of a contract provide for a bad bargain for one party when the factual scenario plays out, courts will be reluctant to imply a term on payment that contradicts the express terms agreed or oblige a party under the law of unjust enrichment to pay a fee.

The background

Foxpace wanted to sell one of its properties – Nash House. Mr Barton entered into an oral agreement with Foxpace regarding the sale of the property where, if Mr Barton introduced a buyer to Foxpace who then bought Nash House for £6.5m, Mr Barton would receive a commission of £1.2m for his efforts.

This figure reflected the amount Mr Barton had already expended in trying (unsuccessfully) to purchase the property himself. Nothing was said about what Mr Barton would be paid in the event the property sold for less than £6.5m.

Mr Barton found a buyer for the property. While the contract of sale initially was for £6.55m, the property sold for only £6m following the discovery that it was on land earmarked for HS2 construction work. Foxpace then fell into liquidation. Mr Barton brought a claim to challenge the decision to value his debt at £1 in the liquidation, and instead sought to prove the debt was worth £1.2m.

Mr Barton claimed that Foxpace was liable to him in contract, on the grounds that the contract expressly stipulated that he would be paid £1.2m if he introduced a buyer for Nash House to Foxpace (regardless of the purchase price). In the alternative, he brought a claim for unjust enrichment, on the grounds that Mr Barton had provided a service to Foxpace (ie the introduction of the buyer) which Foxpace knew it would have to pay for.

At first instance, the judge held that since the contract said nothing about the fee that Mr Barton would receive if the property sold for less than £6.5m, Foxpace did not have to pay Mr Barton anything for finding the buyer. In case this was wrong, the judge assessed the commercial value of the services provided by Mr Barton at £435,000.

The Court of Appeal disagreed, allowing Mr Barton’s appeal and ordering that he be paid a reasonable sum for his efforts (£435,000). Foxpace appealed.

The decision

The Supreme Court considered the ways in which Foxpace was obliged to pay something to Mr Barton. As well as considering the express terms of the contract and the claim of unjust enrichment, it also considered whether a term for payment could be implied into the agreement.

All the arguments were rejected, resulting in no order for payment to Mr Barton, on the following grounds:

• The oral agreement was silent on what Mr Barton would be paid if the property sold for less than £6.5m. Therefore, there was no express term requiring Foxpace to pay Mr Barton anything upon the sale of Nash House.
• A term requiring Foxpace to pay Mr Barton a specific sum in the event that Nash House sold for less than £6.5m could not be implied into the contract. This was because it was not necessary to imply this term to give the agreement business efficacy nor was it possible to determine what sum Foxpace would have agreed to pay Mr Barton in the situation where the property sold for less than the £6.5m agreed. Such an implied term would run contrary to the express term of the contract which restricted payment to the instance where the property sold for £6.5m.
• Section 15 of the Supply of Goods and Services Act 1982, provides that, where under a “relevant contract” for the supply of a service, the consideration for the service is not determined by the contract, there is an implied term that the party contracting with the supplier will pay a reasonable charge. The court found that this did not apply since the consideration for the introduction was in fact determined by the contract. It was also doubtful whether the agreement would be considered to be a “relevant contract” as it was not a services agreement but a “unilateral contract by which Mr Barton’s making of the introduction was what brought the contract into existence”.
• The unjust enrichment claim was based on a “failure of basis” argument, ie where the benefit incurred by a defendant is intended to be conditional and so the defendant must return the benefit if the condition is not fulfilled. The court rejected this argument finding that it was unlikely that the parties simply did not contemplate a lower sale price such that a sale for £6m constituted a failure of that basis for the purposes of founding a claim for unjust enrichment.

Why is this important?

In terms of its application of underlying legal principles, the court was emphatic in its finding that the claim for unjust enrichment could not conflict with an express term in the contract covering the same ground and events (although two judges provided dissenting judgments). Although narrow in scope, the express term provided a complete statement of the circumstances in which Mr Barton was promised some reward under the agreement. The court concluded: “unjust enrichment mends no-one’s bargain”.

Any practical tips?

For an agreement of this value, an oral agreement was inadvisable. However, the oral nature of this agreement was not the issue. It was the narrowness of the agreed terms for payment that provided such an unsatisfactory outcome for Mr Barton. To reduce uncertainty, ensure that the express terms of the contract (especially concerning payment and the services to be provided) address all relevant scenarios.

To bring a claim for unjust enrichment the defendant must have been enriched at the claimant’s expense – these two elements are often relatively straightforward to prove. The third element is that the defendant’s retention of the enrichment must be found to be unjust. In cases involving failure of basis, the failure must be total not partial, and the test is not whether the promisee has received a specific benefit, but rather whether the promisor has performed the duties in respect of which the payment is due.

As a general drafting consideration, be mindful that the courts will be reluctant to alter a contractual relationship by implying terms or provide for restitution for unjust enrichment. If risk has been allocated between the parties by the contract (even if this is by omission of a term), the courts will usually choose not to interfere.

Spring 2023