Louise Clark analyses what a Supreme Court ruling dismissing a claim to an introduction payment, or “finder’s fee”, has to say about unilateral contracts for services.
Key points
- A contract does what it says and only what it says unless terms can be implied by law or because they “go without saying”
- Unjust enrichment does not mend a bad bargain
The Supreme Court has decided in Barton and others v Morris and others [2023] UKSC 3; [2023] PLSCS 17 that, where a unilateral contract provides for payment of a fee in specified circumstances and those circumstances do not arise, no fee is payable.
The background
The case concerned the sale of Nash House, a property in Northolt, London, owned by the fourth respondent, Foxpace Ltd. Philip Barton, the first respondent, had tried but failed to buy the property twice, incurring costs and expenses in lost deposits of £1.2m. Foxpace and Barton made an oral agreement whereby Foxpace would pay Barton £1.2m if he introduced a purchaser who bought the property for £6.5m. There was no provision for what would happen if the sale was for less than £6.5m.
Barton introduced a buyer at £6.55m, but because it came to light that the property fell within an area safeguarded for the construction of the HS2 rail link, the agreed price was reduced to £6m plus VAT. Foxpace argued that it was not obliged to pay Barton anything. Barton claimed the reasonable value of his services. He lost at first instance but the Court of Appeal decided he was entitled to a reasonable fee of £435,000 otherwise Foxpace would be unjustly enriched.
Contractual claim
A claimant who performs a service for a defendant and expects to be paid for it can establish a legal entitlement in two ways: through a contractual relationship which defines if and when the defendant is bound to pay for the service; or, if there is no contract, through an assertion that, if the defendant does not pay, then it will have been unjustly enriched at the claimant’s expense.
Foxpace could have been contractually bound to Barton by an express term in the contract that he should be paid a fee in the event which had actually happened; by a term that should be implied into the contract in order to give effect to an unexpressed intention of the parties; or by a term implied by law.
At first instance the judge found that there was a unilateral contract – Barton was under no obligation to make an introduction of a potential buyer – but if he introduced a buyer who purchased the property for £6.5m, Foxpace was obliged to pay him £1.2m. Foxpace was not contractually obliged to pay anything in any other circumstances.
A term will only be implied if it satisfies the test of business efficacy or the “it goes without saying” test (Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72; [2016] EGLR 8). It is insufficient for the court to consider that an implied term expresses what it would have been reasonable for the parties to agree to: it must be what the contract actually means.
The Supreme Court disagreed with the Court of Appeal that a term could be implied that Barton would be paid a reasonable fee if the purchaser bought the property for less than £6.5m because it contradicted the express terms of the contract. It would have been strange for Foxpace to agree to pay Barton a fee of almost three times the reasonable fee if the sale price was £6.5m or more but still pay the reasonable fee if the sale price was less than that. Since the parties did not refer to the possibility of the sale being less than £6.5m it was not possible to say what they would have agreed in that event.
The most obvious term implied by law is that in relation to contracts for a service where, if consideration is not determined by the contract, a term is implied that a reasonable charge will be paid. Such provisions were not relevant here since the consideration was determined by the contract and Barton was under no obligation to perform the service.
Barton’s claim was not the same as cases where the courts have implied an entitlement to commission in informal contracts between sellers of property and estate agents when the property is sold to a purchaser introduced by the estate agent. Barton was not an estate agent and this was a one-off contract. The fee was substantially more than a reasonable fee for the introduction and calculated by reference to sums forfeited by Barton in earlier transactions.
Unjust enrichment
The questions to be answered when faced with a claim in unjust enrichment are:
(i) Has the defendant been enriched?
(ii) Was the enrichment at the claimant’s expense?
(iii) Was the enrichment unjust?
(iv) Are there any defences available to the defendant? (Dargamo Holdings Ltd v Avonwick Holdings Ltd [2021] EWCA Civ 1149)
It was agreed that the answers to (i) and (ii) were yes and to (iv) no, so the only issue was whether Foxpace’s enrichment was unjust.
The Supreme Court decided that a claim in unjust enrichment should not be allowed to alter or undermine the express allocation of risk and obligations arising under the contract (MacDonald and others v Costello and another [2011] EWCA Civ 930; [2011] 3 EGLR 87). The benefit to Foxpace of a sale to a purchaser introduced by Barton for no reward to him was not unjust as it was an outcome provided for by the agreement. Unjust enrichment mends no-one’s bargain.
The decision
A majority of the Supreme Court overturned the Court of Appeal decision for the reasons set out above. Lords Leggatt and Burrows would have dismissed the appeal on the basis that Barton was entitled to a reasonable remuneration.
Louise Clark is a property law consultant and mediator
