Posted: 11/04/2023
Sales agents and brokers may often achieve a significant return for a modest work output, but they also invest time and effort facilitating introductions and negotiations that do not proceed to fruition. Wasted work is a fact of life for those operating on commission.
Of course, it is open to commission agents to agree terms stipulating precisely when and how commission is earned, thereby resolving ambiguity, and reducing the risk of fruitless endeavors. In this regard, the story behind Barton and others v Morris and another [2023] UKSC 3, [2023] All ER (D) 58 (Jan), a recent decision of the Supreme Court, is a paradigm of how things ought not to be done.
The facts are beautifully simple. By exchanges of contracts dated 5 December 2012 and 7 June 2013, Mr Barton made two failed attempts to purchase for himself the commercial property Nash House in London, resulting in him suffering losses totaling £1.2m. Then, in July 2013, Mr Barton took a different approach. He and the property owner Foxpace orally agreed that if Mr Barton introduced another purchaser who would buy Nash House for £6.5m, then Foxpace would pay Mr Barton £1.2m commission, thus enabling Mr Barton to recoup his loss. In early August 2013, in his new brokering guise, Mr Barton introduced a buyer, Western, who was initially willing to buy the property for £6.5m. However, the price was reduced to £6m after the parties discovered that the site was affected by the planned HS2 rail link. Western exchanged contracts on 10 September 2013 and the £6m sale completed.
Mr Barton assisted with the Western negotiations, even after the reduction in price, and claimed to be entitled to £1.2m. Foxpace denied this and instead offered him £400,000 as a goodwill gesture, which he declined. In the ensuing court proceedings, Mr Barton alleged that Foxpace had been unjustly enriched at his expense.
There being no written contract, Judge Pearce had to rely on witness evidence to determine what the parties had agreed some five years prior to the High Court hearing in June 2018. The judge identified the factual disputes as being narrow in ambit but ‘deep in emotion’. Although all the witnesses were found to be unreliable, he nonetheless concluded that an oral contract had been made. However, the parties had simply not applied their minds to what would happen if the buyer introduced by Mr Barton completed the purchase for a price other than £6.5m ([2018] EWHC 2426 (Ch)).
Judge Pearce denied the claim in the law of unjust enrichment on the basis that it would interfere with the contractual allocation of risk between the parties. The Court of Appeal, however, was willing to award Mr Barton a reasonable remuneration, quantified at £435,000, either on the basis of unjust enrichment or by way of a term implied into the contract ([2019] EWCA Civ 1999). Consequently, in November 2019, Mr Barton was awarded a mere £35,000 more than the offer he declined six years previous. Furthermore, the judgment was against a company in liquidation.
A majority of the Supreme Court has now overturned that decision and dismissed the claim on both grounds.
To characterise this scant contract, Lady Rose, with whom Lords Briggs and Stephens agreed, relied on Cutter v Powell [1775-1802] All ER Rep 159, in which the master of a ship bound from Jamaica to Liverpool promised to pay Mr Cutter thirty guineas ‘provided he proceeds, continues and does his duty as second mate’ for the journey. As Cutter died mid-voyage, his estate received nothing, and was not entitled to a reasonable remuneration in respect of Cutter’s service. The contract was interpreted as an all-or-nothing wager in which Cutter had bet on his own performance and stood to receive almost four times the normal wage if he succeeded.
The Barton–Foxpace contract was to be interpreted similarly. If Western had bought Nash House for £6.5m, Mr Barton would have received almost three times a normal commission. The idea of him also being entitled to a reasonable remuneration for selling the property at some other price was described as ‘strange’, as there was no benefit to Foxpace in agreeing this. Accordingly, Mr Barton was only entitled to be paid if the agreed trigger event for the £1.2m payment occurred.
All five judges found that the stringent tests for implying a term into the contract based on the particular facts were not satisfied. There was no term that could satisfy Lord Justice Mackinnon’s famous officious bystander test from Southern Foundries (1926) Ltd v Shirlaw [1940] AC 701, as no amount of remuneration was so obvious that it went without saying.
It was also unnecessary to imply a term for reasonable remuneration in order for the contract to make business sense. While Judge Pearce had described as ‘bizarre’ the fact that a tiny price reduction could deprive Mr Barton of his entire commission, the leading decision of The Moorcock (1889) 14 PD 64 confirms that the proper implication to resolve such mischief is the least onerous term. An implied term merely requiring Foxpace not to play a dirty trick to manipulate Mr Barton out of his commission would have been enough. In any event, there was no evidence of trickery.
The Supreme Court also considered whether Mr Barton ought to be entitled to a reasonable remuneration by reason of a term implied into the contract by law as an incident of a defined legal relationship. Such terms arise out of commercial usage and public policy and automatically apply by default unless expressly excluded by the parties. Obvious examples, now consolidated into statute, include the implied terms as to title and satisfactory quality relating to sales of goods.
Another example is s 15(1) of the Supply of Goods and Services Act 1982 (SGSA 1982):
‘Where, under a relevant contract for the supply of a service, the consideration for the service is not determined by the contract, left to be determined in a manner agreed by the contract or determined by the course of dealing between the parties, there is an implied term that the party contracting with the supplier will pay a reasonable charge.’
A ‘relevant contract for the supply of a service’ is defined in s 12(1) to mean ‘(a contract under which a person (“the supplier”) agrees to carry out a service’.
Four of the justices considered the contract was not one in which Mr Barton ‘agrees to carry out a service’. Rather, it was common ground that Foxpace had made a unilateral offer to the effect that a £6.5m sale to a buyer introduced by Mr Barton would result in him receiving £1.2m, and Mr Barton was free to ignore that offer. If he wished to accept, however, he could only do so by performing the contract.
The leading majority also took the view that the consideration for Mr Barton’s services was determined by the contract, having characterised that contract as an all-or-nothing wager. They also refused to allow Mr Barton to benefit from the line of estate agent cases in which a term for reasonable remuneration was implied, including the decision of Firth v Hylane Ltd (1959) 173 EG 393 with strikingly similar facts, as Mr Barton was not an estate agent.
Lords Leggatt and Burrows dissented. Lord Leggatt was willing to interpret s 12(1), SGSA 1982 as extending to the Barton–Foxpace contract. Lord Burrows was not willing to do so but nonetheless would have implied a term analogous to s 15(1), SGSA 1982 as it is a long-settled principle of English law that where a contract for work does not fix the scale of remuneration, the law imposes an obligation to pay a reasonable sum. Both judges would therefore have allowed Mr Barton a reasonable remuneration, there being no express term to the contrary.
The dissenting justices also observed that the wager theory was inconsistent with the trial judge’s finding that the parties had simply not considered any outcome other than a sale for £6.5m, and that finding formed part of the agreed statement of facts. Furthermore, Cutter v Powell was a world away from the present case. It was decided by a court that overlooked the shortage of seamen in the West Indies at the material time and, furthermore, preceded the advent of the Law Reform (Frustrated Contracts) Act 1943.
Lord Leggatt observed that the facts of Firth v Hylane ‘bear a striking analogy with those of the present case’. Although Firth v Hylane concerned an estate agent, he would have treated the decision as authority for a term implied by law obliging the property seller to pay a reasonable charge to an introducer for bringing about a sale, applying in so far as such term is not partly negated by an express agreement as to remuneration.
The Supreme Court was at least unanimous in finding there was no room for a claim in unjust enrichment. The court was notably influenced by The Trident Beauty [1994] 1 All ER 470, in which the House of Lords held there could be no claim in unjust enrichment to recover unearned hire paid in advance under a charterparty when the charter contained express provision dealing with the repayment of overpaid hire.
Similarly, the verdict across the Supreme Court was that there already exists a complete corpus of law for deciding what rights and obligations parties have in relation to their contract, and that is the law of contract. The existence of a contract precludes a claim in unjust enrichment. It would be inappropriate if parties could introduce separate rights of action from other areas of law to redistribute the allocation of benefits and losses provided for by their contract.
Of course, without a contractual allocation of risk, there would at least have been room to award a quantum meruit remuneration in unjust enrichment, achieving a comparable outcome to the implied term identified by the dissenting judges. Indeed, Lord Burrows would have allowed the claim in unjust enrichment if he had not identified a term implied by law.
There is much to be said for that analysis. As all the Supreme Court judges characterised Foxpace’s offer as unilateral, and Mr Barton’s performance was insufficient to amount to an acceptance of Foxpace’s offer of £1.2m commission, in the absence of such an implied term, it is clearly arguable that there never was a contract. The majority decision is intriguing in its creation of a wager, thereby denying both the claim in unjust enrichment and the claim in contract.
Litigation is an unpredictable sport, the vagaries of which are only exacerbated by parties who agree valuable commercial bargains on purely oral terms. Between the High Court, Court of Appeal and Supreme Court, a total of five out of nine judges would have awarded Mr Barton £435,000. Five of the eight that considered whether to imply a term for reasonable remuneration would have done so. Nonetheless, the claimant ultimately failed to recover.
A cynic might suppose the Supreme Court felt that Mr Barton was not to be encouraged. More plausibly, the decision is a deterrent against the use of oral contracts and the practice of introducing alleged rights of action in unjust enrichment to buttress a contractual litigation. As Lady Rose made abundantly clear, ‘unjust enrichment mends no-one’s bargain’.
This article was first published in the New Law Journal on 24 March 2023.
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