Supreme Court Refuses to Add Terms When Contract Was Silent
What happens when a commercial contract provides for one party to be remunerated in one situation, but not in another? Would the courts imply an additional right to remuneration?
The Supreme Court refused to do so in the case of Barton v Morris.
What Was the Case About?
In this case, there was an oral contract under which Foxpace agreed to pay a Mr Barton £1.2m if Foxpace's property was sold for £6.5m to a buyer introduced by Mr Barton. However, the parties did not specify what would happen if Mr Barton introduced a buyer and the property was sold for less than £6.5m. In the event, the property was sold for £6m, and Foxpace argued this meant that nothing was due to Mr Barton, but offered to pay him £400k as a goodwill offer. However, Mr Barton refused and started legal proceedings.
What Did the Courts Decide?
The High Court ruled in favour of Foxpace, and the Court of Appeal upheld Mr Barton's appeal and provided that he could claim for 'unjust enrichment'. Now, the Supreme Court, the highest court in the land, has ruled back in favour of Foxpace, although not all the judges said the same thing. The Supreme Court decided that the express terms of the contract precluded any implied terms, or a claim for unjust enrichment.
The Supreme Court pointed out that there were two ways someone could be paid for a service. Once was where the contractual relationship provided it. The other was based on unjust enrichment. Both claims needed to be looked at here.
Firstly, as to the terms of the contract, the Supreme Court refused to imply a term as to what would happen if the property sold for less than £6.5m. When the parties agree on the basis on which there is an obligation to pay, they are necessarily excluding an obligation to pay in the absence of those circumstances. A term could not be implied into the contract such that Mr Barton would be paid a reasonable fee for sales of less than £6.5m, as:
- It was not clear what fee the parties would have agreed.
- The obligation to a pay a reasonable fee was "not so obvious that it went without saying" - which is the test for implying a term.
- The payment of a reasonable fee was also not "necessary to give the agreement business efficacy" - again, the implied term test.
For unjust enrichment to succeed, the court must be satisfied that Foxpace had been enriched, at Mr Barton's expense, this was unjust, and there was no defence for Foxpace. In this case, Foxpace agreed that it had been enriched at Foxpace's expense and without a defence, but this was not unjust. The Supreme Court ruled that the silence in the contract as to what would happen if the property was sold for less than £6.5m meant that a claim in unjust enrichment was untenable.
What Does This Ruling Mean for You?
Courts are increasingly slow to interfere with contracting parties' bargains. Here, where there had been an agreement about how a party would be remunerated if one set of circumstances happened (a sale above £6.5m), but the agreement had been silent about another (sales less than £6.5m) - that did not mean that the courts would step in to reach an additional agreement that the parties had not expressly addressed. The courts had taken the silence to indicate that nothing was intended.
If the parties would have intended some remuneration in those other circumstances, they should have provided for it.
This is where the contract lawyer comes in and can add value. A client may often describe to VWV what they would like to see happen in a contract. Where we can add value as commercial lawyers is not only to implement that but also to ask important questions and probe into areas they may not have considered. Otherwise, where there is failure to provide for something in the contract, the court may not step in to assist.
Of course, there is also great uncertainty, cost and a drain on time in hoping the court may do this. Interestingly, despite the Supreme Court's ultimate findings, there had been different decisions at High Court, Court of Appeal and Supreme Court levels. There were also different opinions given in the final Supreme Court judgment, meaning that the result only just went in favour of Foxpace in the final court decision only on a three to two majority.
Another recommendation would be to have the contract in writing rather than rely on an oral contract, as this can create less uncertainty too.