Barton v Morris – always ask ‘what if’ when drafting a contract

In its judgment in Barton v Morris [2023] UKSC 3, the Supreme Court has provided an essential review of the law on contractual implied terms and how the laws of contract and of unjust enrichment interact.

It is a stark reminder to contracting parties to consider their terms carefully – the courts will not readily interfere with the bargain struck, even if it might appear reasonable to do so.

The court will only imply a term into a contract if:
- that term is clearly what the parties intended; or
- if the contract is of a type into which the law implies certain terms and the parties have not excluded them.
There cannot be a claim for unjust enrichment where the benefit conferred is one dealt with by a contract.

What happened?

The case was about a contract between Mr Barton and Foxpace Limited (Foxpace) concerning a property Foxpace wanted to sell. If Mr Barton introduced to Foxpace a purchaser who went on to buy the property for £6.5 million or more, Foxpace would pay Mr Barton £1.2 million (equating to the sum he had lost in previous attempts to buy the property himself). Mr Barton introduced a purchaser who initially agreed a price of £6.5 million, however after discovering issues relating to HS2 on the land, reduced the final price to £6 million. As the sale price was lower than £6.5 million, Foxpace did not pay Mr Barton. Mr Barton therefore brought a claim to be paid something for the introduction.

There was no written agreement, so the High Court judge had to determine what the terms of the contract were as a question of fact. Having found that the only term was that described above, the judge found that Foxpace did not have to pay Mr Barton anything. The terms of the contract did not require it, and the claim for unjust enrichment failed because it would undermine the agreed contractual terms. Mr Barton appealed to the Court of Appeal, which unanimously overturned the decision and ordered Foxpace to pay Mr Barton a reasonable fee. Foxpace appealed to the Supreme Court.

The Supreme Court

In a 3:2 majority decision, the Supreme Court allowed the appeal and confirmed Foxpace did not have to pay Mr Barton anything. The majority found that there was no implied term, as a matter of either fact or law, that entitled Mr Barton to payment if he introduced a successful buyer but the property was sold for less than £6.5m. The alternative claim in unjust enrichment could not succeed because unjust enrichment is excluded where the benefit conferred is dealt with by a contract.

For the following analysis, it is helpful to keep in mind the court’s reminder that “a term can be implied either because as a matter of fact it falls to be included in this particular contract to give effect to the unexpressed intention of the parties or because the contract is one of a class into which the law implies a term – certainly if the parties have not expressly provided otherwise and sometimes, as provided for in statute, even where they have” (Lady Rose at [20]). Lord Steyn helpfully summed this up in Equitable Life Assurance Society v Hyman [2002] 1 AC 408 at [458-459]: implied terms in law are “general default rules”, implied terms in fact are “ad hoc gap fillers”.

No implied term in fact

The bar is high for finding as a matter of fact that a contract contains an implied term. This will only happen if the term to be implied is so obvious as to go without saying or necessary to give business efficacy to the contract. The Supreme Court noted that these alternative formulations are two ways of putting the same point, as explained by Lord Hoffman in Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10. In that case, Lord Hoffman also said that the usual inference where a contract is silent about what should happen in certain circumstances is that nothing should happen.

The majority judgment in Barton therefore reminds parties that “it is not enough for the court to consider that the implied term expresses what would have been reasonable for the parties to agree to. The court must be satisfied that it is what the contract actually means”. That could not be the finding here. The effect of the contract was that Mr Barton was entitled to be paid if the payment trigger event, a sale of the property for £6.5m to a party introduced by Mr Barton, were to occur. An implied term that Mr Barton be paid in any other circumstances would cut across the express term of the contract. Moreover, it was not possible to say with certainty what the parties might have agreed about a fee for Mr Barton for a lower purchase price, so it could not be said that such a term met the obviousness test. There was therefore no implied term in fact that Mr Barton should receive a fee for a lower sale price.

it is not enough for the court to consider that the implied term expresses what would have been reasonable for the parties to agree to. The court must be satisfied that it is what the contract actually means

No implied term in law

The second argument concerned whether a term was implied by law, either under statute or as an incident of the type of contract under consideration. As to statute, s.15 of the Supply of Goods and Services Act 1982 (“SGSA”) states that if consideration is not determined under a ‘relevant contract’, a term is implied that the contracting party will pay a reasonable charge to the supplier. However, this did not assist because the contract did determine consideration. Moreover, it was doubtful that the SGSA applied to this particular contract.

As to whether there was a term implied as an incident of the type of contract, Mr Barton sought to rely on a series of cases showing that estate agents are entitled to reasonable remuneration. The Supreme Court decided that these cases were of limited assistance because Mr Barton was not an estate agent and the fee he might receive was not based on usual estate agent terms, or to be paid in respect of any effort or costs he might incur in finding the buyer. There was therefore no implied term in law that Mr Barton would receive any remuneration for an introduction that led to a sale for less than £6.5m.

Lord Leggatt and Lord Burrows both dissented on this point and would have held that there was a term implied by law. Lord Leggatt considered that the starting point for the analysis should be that the law implies a term (unless the parties agree otherwise) that a party providing a valuable service is entitled to a reasonable remuneration for it, in accordance with normal commercial expectations. In the view of Lords Leggatt and Burrows, the express term providing Mr Barton £1.2m for introducing a buyer who paid £6.5m did not exclude that normal commercial expectation.

For Lord Leggatt, this exemplified the difference between the approaches where a term is implied in fact versus in law. Where a term is to be implied in fact, it is necessary to overcome the assumption that the contract’s silence on the point means nothing is to happen. In contrast, where a term is implied in law, it is part of the contract unless it can be shown that it has been expressly excluded. The significance of contractual silence is therefore exceedingly different depending on the type of implied term under consideration.

No claim in unjust enrichment

The majority held that a claim for unjust enrichment was excluded because of the contract. The Court of Appeal had held that unjust enrichment would not undermine the contract as it was silent as to what would happen if the sale price was less than £6.5 million. However, the majority in the Supreme Court said that this was wrong. If parties have contractually agreed the circumstances in which there will be a legal obligation on one of them to pay, this of necessity excludes the possibility of an obligation to pay in any other circumstances. Just as with the implied term arguments, the parties’ express bargain meant there was no scope for the courts to order anything else. As Lady Rose’s majority judgment put it “Unjust enrichment mends no-one’s bargain.”

The Supreme Court recapped the points a court must consider for a claim in unjust enrichment. These are (i) has the defendant been enriched, (ii) was the enrichment at the claimant’s expense, (iii) was the enrichment unjust, and (iv) are there any defences available to the defendant? In this case, it was agreed that the argument only concerned question (iii), was Foxpace’s enrichment at Mr Barton’s expense unjust?

The failed basis argued for here was that Mr Barton and Foxton both expected the property to be sold for £6.5m, and that did not happen. However, the Supreme Court said a price of £6.5m was not the basis of the contract. First, whether there was any such shared understanding was a question of fact, and hence a matter for the trial judge who had made no such finding. And second, there were several previous attempts to sell the property, all priced at less than £6.5m, of which both parties were aware, so it was implausible they would have assumed a successful sale would definitely happen at that price.

Conclusion

Lord Leggatt may be right to suggest that “life is too short to negotiate contract terms designed to cover every contingency that may occur”. Nevertheless, this judgement is a warning to parties of the risks they run in not addressing matters fully. The courts are most unwilling to interfere with what the parties have agreed and will not do so simply because it might appear fair or reasonable. Dealing with an issue such as fees selectively may be taken to mean that this is all the parties wanted to happen on the subject. Further, if you have contracted for a particular benefit, the law of unjust enrichment is not available to change that agreement.

This article was co-authored by trainee Luke Silverman.