The ruling serves as a helpful reminder that parties must enter into well-drafted contracts in proper legal form.

By Daniel Smith

In Philip Barton v. Timothy Gwyn-Jones & Others [2019] EWCA Civ 1999, the Court of Appeal recently allowed a claim for a success fee payable to an agent for finding a buyer for a property, even though the contract only specified a success fee if the agent achieved an agreed higher price.

The Court of Appeal identified a liability in unjust enrichment based on quantum meruit for the value of the agent’s services, bypassing the need to identify (or imply) a contractual term, and instead basing the liability on the commercial factual background.

The case demonstrates that, without an agreed allocation of risk of a particular event, the courts may be willing to fill in the gaps. Contracting parties should ensure their drafting caters for all eventualities (always consider: what if something else happens?), and parties in dispute should consider whether this decision allows them to go outside the contract to claim a remedy when the contract doesn’t answer the “what if …?” question.

The Court’s decision is a helpful reminder of the importance of entering into well-drafted contracts, reduced into what the Court described as “proper legal form” (instead of vague oral agreements), which define the parties’ responsibilities and anticipate all scenarios that may later arise. Absent proper legal form, the Court may well intervene to determine liability based on the contracting parties’ intention.

The Facts

Foxpace, the owner of a property known as Nash House, entered into an oral agreement with Mr. Barton, under which Foxpace agreed to pay Mr. Barton £1.2 million if Nash House was sold for £6.5 million to a purchaser introduced by Mr. Barton. Mr. Barton introduced a purchaser, but Foxpace sold the property for only £6 million. Foxpace refused to pay Mr Barton £1.2 million and suggested a payment of £400,000 as a “goodwill gesture”, which Mr Barton refused to accept.  The first instance court rejected Mr. Barton’s claim, and he appealed to the Court of Appeal.

The Judgment

  1. Reasonable sum payable: The Court of Appeal found that the agreement could not be interpreted as an “if, and only if” agreement, as there was no indication that the parties had considered circumstances other than the property being sold at £6.5 million. Objectively construed, one could not conclude from the terms of the agreement that the parties intended that Mr. Barton should not be paid a fee unless the property was sold for £6.5 million. Per Males LJ, “such an agreement would indeed have been bizarre”, not only because Mr. Barton would have knowingly entered into a contract in which he would not be entitled to any payment had the property been sold for less than £6.5 million, but also that “Foxpace would have been better off if the property was sold to a purchaser introduced by Mr Barton for any price less than £6.5 million but in excess of £5.3 million”.
  2. Unjust enrichment under Costello: The first instance decision had rejected the claim, based on the principle in Costello v. MacDonald & Co [2011] EWCA Civ. 930 CA (Eng) that unjust enrichment cannot be used to undermine the contractual allocation of risk negotiated by the parties, for purposes of safeguarding party autonomy and certainty. The Court of Appeal held that the circumstances in this case were different to those in Costello, because the parties had not decided on the allocation of risk in circumstances in which the purchase price was lower than £6.5 million, and for this reason, Mr. Barton was entitled to a remedy in unjust enrichment.
  3. Remuneration: Mr. Barton was entitled to a sum of £435,000, i.e., 7.25% of the price paid for Nash House. To determine the amount of remuneration payable, the Court of Appeal based its conclusion on the remuneration payable under the agreements that Foxpace had reached with other agents in relation to the sale of the property. This remuneration was considered to be the only reliable evidence of objective market value of such services.

This post was prepared with the assistance of Amaryllis Bernitsa in the London office of Latham & Watkins.