Implied Terms in the Supreme Court: Barton v Morris and another in place of Gwyn-Jones

1. INTRODUCTION

Barton v Morris and another in place of Gwyn-Jones[1] is the most recent iteration of the Supreme Court addressing the law on implied terms. Interestingly, however, and in a break from recent authority on the subject,[2] Barton turns (for the most part) on implication by law, as opposed to in fact. In this note I will break down the reasoning of the Court and argue that it is a welcome decision. The discussion is structured as follows. Section II will provide an outline of the necessary facts, and section III will provide an overview of Lady Rose’s majority judgment. The aims of section IV are two-fold: first, I will describe the reasoning of the dissidents (Lord Leggatt and Lord Burrows), and second, subject this reasoning to criticism. Section V, the concluding section, will bring together the criticisms of the dissents and the positives of the majority judgment to spell out precisely why we should welcome Barton.

I should emphasise at the beginning, however, that this case concerned not only a contractual claim (thus giving rise to discussion of implied terms), but also a claim in unjust enrichment. I will not be touching on the latter claim here.

2. THE FACTS

For our purposes, the facts can be simply stated. An oral contract was made between Mr Barton and Foxpace Ltd, the express terms of which, as determined by the trial judge, were that if Mr Barton introduced Foxpace to a buyer who bought a certain property belonging to Foxpace (“Nash House”) for more than £6.5m, Foxpace would pay Mr Barton £1.2m. He did introduce Foxpace to such a buyer, Western Acton Ltd., and documents for sale worth £6.55m were drawn up. Later, however, it was discovered that Nash House fell within a safeguarded area for the purpose of HS2 construction – this naturally reduced its value. In this light, it was sold to the same buyer for £6m + VAT. Now, the oral contract made no provision regarding what would happen if a sale was made for less than £6.5m, but Mr Barton brought a claim for reasonable remuneration for his services based on an implied term to this effect; Foxpace, on the other hand, argued that there was no obligation to pay anything to in this situation.[3]

To this bare-bones statement of facts, a few additions for context must be made. First, Mr Barton was not by profession an estate-agent or similar. Second, the reason why he sought £1.2m in exchange for selling Nash House was that previously, he himself had tried on two occasions to purchase it and paid initial deposits to that end, but for various reasons was unable to go through with the purchase. These initial deposits, forefeited to Foxpace, amounted to £1.2m – he wished to recover this wasted expenditure, and was given an opportunity to do so on the terms described above.

3. LADY ROSE’S MAJORITY JUDGMENT

Lady Rose (with whom Lord Briggs and Lord Stephens agreed) held that there was no contractual claim for reasonable remuneration since a term to that effect could not be implied.[4] As Her Ladyship noted, a claim for remuneration based on express terms was obviously bound to fail, because the express terms of the contract as found by the trial judge simply did not mention the situation that had materialised: sale for less than £6.5m.[5] The alternatives, then, are implication of a term in fact or by law.

Her Ladyship started analysis of whether a term could be implied in fact with the conventional ‘officious bystander’ and ‘business efficacy’ tests but cited with approval Lord Hoffmann’s judgment in Attorney General of Belize v Belize Telecom where His Lordship held that these two formulations are not substantively different but rather are alternative ways of expressing the crucial question: what the contract, seen as a whole against the relevant background, would reasonably be understood to mean.[6] Applying these principles to the facts, a reasonable remuneration term could not be implied for at least three reasons. First, the ‘business efficacy’ test requires that the least onerous term must be implied in order to give the parties’ contract such efficacy – this meant that while a term could be implied to the effect that D will not deliberately reduce the price at which Nash House would be sold, it is not necessary to go further and imply a reasonable remuneration term.[7] Second, the context of the transaction indicated against implication of such a term – the fee payable if the house was sold for £6.5m was much more than reasonable remuneration for the task C performed, and the transaction could be characterised as a risk carrying with it the possibility of a large sum of money if C succeeded, but nothing if he did not.[8] In other words, it was not an obviously ‘uncommercial’ bargain; it was a gamble. Third, there was nothing to suggest that if an ‘officious bystander’ asked the parties whether reasonable remuneration for sale less than £6.5m should be paid to C, they would say ‘of course’ – there is no evidence of the intention the parties would have in this regard, and given the context of the contract, it is unlikely a common, obvious, answer would be given to the question posed.

Next comes whether a term could be implied by law. Briefly put, an implied term by law is a contractual term implied into the parties’ agreement, not because they intended for it to be implied, but because the contract is of a kind in which the law requires that term to be included. This requirement can be imposed either by the common law, or, more often, by statute. In the present case, Mr Barton relied on s 15 of the Supply of Goods Act 1982 (“the Act”), which provides:

“(1) 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.”[9]

The provision arguably applied to Mr Barton’s situation because him introducing a buyer to Foxpace was a service for which although a remuneration had been agreed to if the purchase price exceeded £6.5m, there was no agreement as to remuneration if the price was less than that. This means that the consideration for the service not being determined by contract, s 15 had bite and a reasonable charge was required to be paid by virtue of it. This line of argument too was rejected by Lady Rose.[10] Section 15 only applied to a “relevant contract” as defined in s 12(1) of the Act as a contract under which the supplier agreed to carry out a service, whereas C did not come into any obligation to introduce D to a buyer in the present case, the contract being unilateral in nature.[11] As will be analysed in further detail in the next section, the upshot is that the oral contract between C and D was not a “relevant contract” for the purposes of s 15(1). Nor, Her Ladyship considered, was consideration undetermined – there was agreement as to the sum payable to C if the purchase price was more than £6.5m and so remuneration was determined by the contract, the fact that no remuneration was agreed for a sale at less than that price was inherent in the nature of the deal the parties were entering into, contextually understood.

Finally, then, C argued that even if s 15(1) of the Act does not apply directly, a term could be implied by law by virtue of the common law test of “necessity”. As Baroness Hale held Geys v Societe Generale, these are terms implied into a particular class of contract that are necessary to such contracts.[12] In making this argument, C relied on cases involving estate-agents where courts have held that in circumstances where the remuneration of an estate-agent who introduces a buyer to the seller and the sale goes through, a term is implied to the effect that the estate-agent will be entitled to a reasonable sum for his services.[13] As with the other arguments, this too did not command much sympathy from Lady Rose. First, the class of contracts to which the cases cited could apply were estate-agent contracts; C was not an estate-agent and it was not his day job to find buyers for others’ property, which means that the contract did not fall into the class of contracts into which the reasonable price term could be implied.[14] It might be argued against this that Mr Barton not being an estate-agent by profession is irrelevant because to Foxpace, he was acting as an estate-agent nevertheless. This is incorrect: when an estate-agent enters into a contract with a seller, he does come under an obligation to take such steps as he can to find a buyer. Mr Barton came under no such obligation, and if he did not take any steps at all to find a buyer for Foxpace, the latter would have no contractual claim against Mr Barton, unlike if he had been an estate-agent. The nature of the contract, in other words, was different than if Mr Barton had been an estate-agent. Moreover, the case Mr Barton most strongly relied on itself took the fact that the concerned person was by profession an estate-agent to be crucial in implying a reasonable price term into the contract.[15] Mr Barton not being an estate-agent by profession, this crucial factor goes against him.

Second, the trial judge, whose findings of fact cannot be altered by an appellate court, assessed the reasonable sum for Mr Barton’s services to be £435,000. The conditional fee agreed was £1.2m - in other words, more than twice of what was reasonable. This again suggests that C willingly took a risk of not being paid anything, which in the circumstances materialised.[16] In the end, therefore, none of the bases for implying a term convinced the majority and the contractual claim failed.

For completeness it should be noted that the unjust enrichment claim too was unsuccessful.[17]

4. THE DISSENTS

In order to appreciate the majority judgment in Barton, we must consider the dissents and their weaknesses. Lord Leggatt and Lord Burrows both agreed with the majority that a term could not be implied in fact, but, for somewhat different reasons from one another, held that a reasonable remuneration term could be implied by law.

Lord Leggatt held that s 15(1) of the Act did apply to C and D’s oral contract for the reason outlined above. His Lordship considered that there is no reason why that provision should not apply to unilateral contracts. As His Lordship put it, “[i]f A supplies a valuable service to B at B’s request for which no fee is specified, the implication of a term that B will pay a reasonable charge for the work cannot rationally depend on whether a contract is concluded when A starts to carry out the work (a unilateral contract) or at an earlier stage before any work is carried out (a bilateral contract).”[18] This reasoning cannot be right. As noted above, in order for s 15(1) to apply, a contract has to be a “relevant contract” under s 12(1) of the Act, which requires the supplier to “agree to carry out a service”. In the case of unilateral contracts of the kind under consideration here, however, the supplier has a choice to carry out the service or to not do so. In other words, it is the fact of the service being carried out that brings the contract into existence, not any agreement to do so. There not being any ‘agreement to carry out a service’, s 15(1) cannot apply to unilateral contracts for this reason. At the time when the contract comes into being, there is no ‘agreement’ to carry out the service, the carrying out of the service has already begun. This is further reinforced by the terminology of s 15(1). The reference to a relevant contract in that provision indicates that it is not intended to apply to all contracts involving supply of services; that there will be some irrelevant contracts as well. However, on Lord Leggatt’s view, s 15(1) will apply to all contracts to supply services where remuneration has not been agreed on, making the reference to “relevant contracts” and the s 12(1) definition superfluous. This is not a novel point: Lord Burrows’ judgment, rather more expressly than that of the majority, recognised the force of this argument.[19]

Lord Leggatt also places some weight on the argument that the law regularly imposes contractual obligations on parties that they have not undertaken (requiring payment of damages for breach, for example), and implying a ‘reasonable-price’ term is no different from such other default rules. This argument is flawed because there is a distinction between primary and secondary obligations – the former, in the context of a contract, give rise to a right to performance, whereas the latter govern what happens when performance has not occurred.[20] All the ‘default rules’[21] referred to by Lord Leggatt as being analgous to the present case relate to secondary obligations in this sense. The price for services, which Lord Leggatt sought to imply, is by contrast a term imposing a primary obligation. As will be seen in further detail below, the rule in relation to primary obligations is clear: a court will not generally impose a term that has not been agreed to by the parties in the absence of statute. The fact that secondary obligations are imposed by default rules therefore does not assist Lord Leggatt’s conclusion.

Lord Burrows was prepared to assume that s 15(1) of the Act did not apply to the contract, but held that, regardless of this, a term could be implied by law under the rules of the common law. In so doing, His Lordship relied indirectly on s 15(1), holding that even if it does not govern the parties’ contract, it gives a “strong steer to courts that it is appropriate to imply terms as to reasonable remuneration into such a unilateral contract”.[22] This, in combination with the estate-agent cases, led Lord Burrows to the conclusion that a reasonable remuneration term could be implied by law at common law.[23] Both parts of this analysis are, however, susceptible to criticism.

First, for the reasons already outlined above, the estate-agent cases do not assist Mr Barton. Second, s 15(1) implies a term into the relevant contracts irrespective of the parties’ intentions, and in that sense it may override their (objective) intentions by introducing a term that would not otherwise have existed. This is directly contrary to the common law’s approach towards contractual construction, which recognises that unless required by statute or ‘necessity’, terms will not be implied by law because that involves the court interfering with the substance of the bargain.[24] It may be argued against this that the test of ‘necessity’ is only one of name, and in fact policy considerations affect whether a term is implied by law at common law.[25] Even if this is true, none of the relevant policy factors requires implication of the term that Mr Barton contended for. Peden notes such factors to be unequal bargaining position, ‘societal fairness’, and the parties’ relative abilities to bear loss, among others.[26] Mr Barton was not in an unequal bargaining position, there is nothing to suggest that he was incapable of bearing the loss (in fact, because of his previous transactions, he had already incurred the loss prior to the contract coming into existence), and because of the context-specific nature of the contract it is hard to see what considerations of ‘societal fairness’ are invoked. For these reasons, a statute applying to a different situation and doing something contrary to what the common law does (implying a reasonable price term) cannot “steer” the common law towards extending that term into contracts to which it does not apply under the statute.

A counter-argument to this may proceed as follows: although it is true that the common law should not extend a s 15(1) type-term into unilateral contracts generally because it is not covered by the statute, in the present case because Mr Barton was virtually certain to perform the service of finding a buyer, the contract was closer to a bilateral contract than a unilateral control. That being the case, a s 15(1)-type term can, it may be argued, be implied without affecting the general position. This is not convincing. Whether a contract is unilateral or not does not depend on the likelihood of performance, it depends on whether there is an obligation to do so. Mr Barton was not obliged to find a buyer any more than Mrs Carlill was obliged to use the Carbolic smoke-ball,[27] and the contract was a purely unilateral one.

This is a situation in which statute should not influence the common law for good reason.

5. CONCLUSION

I will not try to sum up all that has been argued in this note. Rather, I seek to show the reasons why the majority judgment in Barton is to be welcomed. First, in holding that none of the grounds for implying a term could be successful, Lady Rose’s judgment paid acute attention to the context in which the oral contract was entered into and the substance of that contract as found by trial judge – both of these indicated that the parties had entered into a conditional arrangement wherein C took a risk in order to stand a chance to make a gain disproportionate to the service he was providing. Second, in holding that s 15(1) of the Act could not be extended to unilateral contracts of the kind under consideration in this case (contra Lord Leggatt), the judgment correctly interpreted that provision. Third, in not extending the estate-agent cases to cover the present case so as to include a reasonable remuneration term implied by law, the majority judgment again not only respected the arrangement actually entered into, but emphasised the strictness of the ‘necessity’ test and the fact that the class of cases in which a particular term has been held to be implied by law should be cautiously, if at all, extended. The majority judgment has thus made a positive, desirable contribution to the law of contract, and to the law on terms implied by law in particular.

[1] [2023] UKSC 3.

[2] See, for example, Marks & Spencer v BNP Paribas [2015] UKSC 72; Devani v Wells [2019] UKSC 4.

[3] Barton at [6]-[10].

[4] Ibid, [107].

[5] Ibid, [17].

[6] Ibid, [21]-[23].

[7] Ibid, [32].

[8] Ibid, [34]-[37]

[9] The Sale of Goods Act 1982, s 15

[10] Barton at [41].

[11] The Sale of Goods Act 1982, s 12(1)

[12] [2012] UKSC 63, [2013] 1 AC 723, [55]-[56].

[13] Luxor (Eastbourne) Ltd v Cooper [1941] AC 108; Prickett v Badger [1856] 1 CB (NS) 296; Devani v Wells, fn (2) above; Firth v Hylane [1959] EGD 212.

[14] Barton at [69].

[15] Morris LJ in Firth v Hylane, fn (13) above, holding “[q]uite naturally, Mr Firth, whose work in life is that of an estate-agent, would expect to be remunerated for his services” (emphasis added). That reasoning clearly cannot apply to Mr Barton.

[16] Barton at [71].

[17] Ibid, [106].

[18] Ibid, [104].

[19] Ibid, [213].

[20] R Stevens, ‘Damages and the Right to Performance: A Golden Victory or Not’ in Neyers, Bronaugh, and Pitel (eds.) Exploring Contract Law (Bloomsbury, 2009) at 172.

[21] Damages for breach and frustration, Barton at [129].

[22] Ibid [214].

[23] Ibid, [220].

[24] See, for example, Lord Wilberforce’s rejection in Liverpool v Irwin CC [1977] AC 239 of Lord Denning MR’s suggestion that the law can imply any term that it is reasonable for it to imply, emphasising the strict nature of the ‘necessity’ test.

[25] See generally, E Peden, ‘Policy Concerns Behind Implication of Terms in Law’ (2001) 117 LQR 459.

[26] Ibid, at 471, 473-4.

[27] Carlill v Carbolic Smoke Ball Co [1893] QB 256.