Implied terms, no pay – Barton v Morris [2023] UKSC 3 V1/3

The recent Supreme Court judgment in?Barton?is an extremely useful reminder of the principles and consequences of silence in contracts and the potential impact of implied terms. Its lucidity makes it relevant not only to practitioners, but to anyone operating a business or engaging in commercial activity.

The key takeaway is that the Court will not step in to help a party to a contract where the consequences of the agreement have not been fully thought through.?

Background facts

The claimant, Barton, was seeking to purchase a high value property in northwest London owned by Foxpace Limited (Foxpace) in December 2012. Barton attempted the purchase twice, with both transactions failing for want of completion monies. The total sum Barton had expended on the failed transactions was ￡1.2 million.?

Morris, Foxpace’s solicitor, along with other individuals acting for Foxpace, discussed with Barton the potential for the latter to introduce a buyer for the property.?

It was agreed, orally, that Foxpace would pay Barton ￡1.2 million (i.e Barton’s loss) if he introduced a buyer for the property and it sold to that buyer for ￡6.5 million.??

By August 2013, Barton found a potential buyer – Western UK (Acton) Limited (Western). Documents were drafted for Western’s purchase of the property. However, it was later identified that the property could potentially be affected by the construction of HS2. A reduced price of ￡6 million was agreed between Western and Foxpace. Barton was not paid a fee, on the basis that the ￡6.5 million threshold was not reached. Interestingly, however, Barton was offered by Foxpace a payment of ￡400,000 as a “goodwill gesture” which was rejected.?

Barton commenced an action in contract or alternatively in equity for unjust enrichment.?

The action

Barton’s claim in contract was in essence that the oral contract was binding, and that the evidence (contemporary correspondence) demonstrated that the ￡1.2 million would be due when Western completed the purchase.?

If there was no contract, then Foxpace was obliged to pay Barton in any event because Foxpace is unjustly enriching itself at Barton’s expense (i.e by not paying for services performed).?

The High Court held that Barton’s claim failed (it is to be noted that the High Court was not the first instance forum, but on appeal from a decision of Foxpace’s liquidator).?The judgment can be found?here.?

The High Court held that the contemporary documentation cited by Barton was in fact silent on the issue of whether Barton would be paid anything if the sale was completed for less than ￡6.5 million, and it was “more probable than not that the only purchase price mentioned in the discussions between [Foxpace’s representative] and [Barton] was ￡6.5 million, there being no reference to a figure lower or higher than this.”

Accordingly, there was a binding oral contract, but Barton’s claim necessarily failed because there was no contractual term on which a payment of ￡1.2 million (or less) that could be enforced.?

Interestingly (and doubtless a considerably costly omission), the argument that there was an implied term in the contract capable of enforcement was not advanced.??

In respect of unjust enrichment, the High Court was bound to follow?Costello v McDonald?[2011] EWCA Civ 930?in which it was held that a claim for unjust enrichment cannot be used to undermine a contractual bargain – Barton on the terms of the oral contract accepted the risk he may not be paid.?

Barton appealed, which the Court of Appeal allowed. The judgment can be found?here. This was because the parties had expressly not dealt with the risk of failure, the?Costello?principle could not be applied (because there was no bargain to subvert, given the contractual silence). Accordingly, a claim for unjust enrichment could be brought and awarded – the value of that claim a reasonable value of the services (the High Court judge had determined that a reasonable value would be ￡435,000). In the alternative, the same position could be reached by implying a term into the oral contract that Barton was to be paid a reasonable fee.

Supreme Court’s decision

In a three to two majority, the Supreme Court allowed Foxpace’s appeal.?

Lady Rose gave the lead judgment. The Supreme Court has taken an infrequent opportunity to revisit the fundamental law of terms in contracts, and to an extent looked at Barton’s claim afresh.??

In relation to the claim in contract, Lady Rose restated the basic position that in this context there are three routes in which Barton could be owed a fee:

An express term of the contract

Because the relevant contract in this case was oral, the parties’ statements necessarily devolve into a ‘he said, she said’ argument. Barton asserted that he understood that Foxpace was to pay him ￡1.2 million if any buyer completed the purchase, and Foxpace argued that ￡1.2 million was asserted by it to be payable “if, and only if” the property sold for ￡6.5 million. As above, the High Court essentially agreed with Foxpace, as the only documentary evidence available supported a ￡1.2 million fee if the property sold at ￡6.5 million. Lady Rose held that this was a unilateral contract – Barton would not be in breach if no purchaser for ￡6.5 million was introduced. Barton either hit the mark expressly agreed or he did not. If Barton was going to be in breach if he did not introduce a buyer at ￡6.5 million was, contrarily, suggestive of a different agreement.?

Accordingly, Lady Rose applied?Attorney General of Belize v Belize Telecom Ltd?[2009] UKPC 10, where, if a contract does not “expressly provide for what is to happen some event occurs. The most usual inference in such a case is that nothing is to happen.”?

An implied term

An implied term of a contract can go against this “most usual inference”.??There are two methods by which a term can be implied into a contract by a Court – in fact and in law.?

Regarding an implied term in fact, Lady Rose cited the leading decision in?Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd?[2015] UKSC 72?– the Supreme Court in that decision cited that there are two tests: that a provision was so obvious that it should be implied, and that a factual term will be implied to give the contract ‘business efficacy’ (i.e to make it function commercially). In?Belize, it was held that these are two ways of saying the same thing. The relevant point is that it must be clearly understandable that that is what the contract means, even if not stated expressly.?

Lady Rose held that it was not possible to imply any term in fact into the oral agreement. The test of implied terms in fact is not “what it would have been reasonable for the parties to agree to” but what is actually meant. Since there was an express term for payment, it is an extremely high bar to imply otherwise. There was no basis to suggest what the parties would have agreed in the event that the property was sold for less than ￡6.5 million nor was there a fact so obvious or necessary to imply it into the oral contract.?

In relation to an implied term in law, s. 15?Sale of Goods and Services Act 1982?states that in the event that a contract for services does not provide for consideration, it is an implied term that the service provider will be due a reasonable sum. Lady Rose dealt with this point quickly – the oral contract did provide for consideration, and therefore s. 15 could not apply.?

The law also implies a term where it is part of a type of contract (e.g a shipping contract, or hire purchase agreement). Barton relied on a series of cases for estate agents, where the estate agency contracts were silent on fees, but the Courts in those instances held that a reasonable fee was payable. Lady Rose held that these did not apply either, as Barton was not an estate agent. He entered into the agreement to recoup his losses, to which he had “no legal or moral entitlement” (especially because the fee agreed was not related to any costs Barton may have incurred – estate agents, however, expend costs and wasted efforts if transactions fail or if a seller finds a buyer a different way).???

Unjust enrichment

Lady Rose also criticised the Court of Appeal in determining that a claim for unjust enrichment could succeed in circumstances where an element of the consideration was not provided for. This is because where the parties have agreed to one method of payment, the other ways in which a party could be renumerated are excluded. A Court could not rescue a bad bargain. It cannot be unjust for one party to gain in circumstances where the other party agreed that they could lose (provided that there are no other legal reasons for invalidating the express term, such as fraud).?

Comment

In many ways, the Supreme Court’s judgment was a predictable culmination of a long running legal saga over relatively basic contractual principles. Lady Rose adeptly illustrates the risks of failing to think consequences through sufficiently, especially in a situation where the party performing services is not bearing substantial costs to gain a specific benefit. It highlights the importance of proper negotiation and a full appreciate of consequences at the outset – whether a party is assisted by a legal professional or not.?

The dissenting judgments, however, do indicate to an extent that the matter may not always be clear cut. Lord Leggatt, in dissent, argued that express terms surrounding consideration may expressly provide for payment in one situation and not in others. For that reason, he considered, implied terms “operate to fill the gap” unless excluded. It is a requirement of s. 16(1) Sale of Goods and Services Act 1982 that implied terms may only be excluded by express agreement. In Barton’s case, they were not.

The majority disagreed, and it is clear why: the contract in this case specified only a single service (the introduction of a buyer for ￡6.5 million). There is no gap to be filled (Lady Rose described the oral contract as a “complete statement” of the agreement between the parties). But, for example, the relevant contract was to introduce a buyer for any price – it is more understandable that term for a reasonable fee would have been implied by the majority.?