The implications for property agent remuneration of Barton v Morris [2023] UKSC 3

This recent decision of the UK Supreme Court raises an issue of real importance for professionals whose income relies on the payment of commissions. Where it has been expressly agreed that an agent should receive a specific fee for achieving a particular outcome, in what circumstances might they still be entitled to some remuneration where that outcome does not materialise but where they have still provided a valuable service?

In the way that complex cases often result from simple facts, the facts of this case concerning the sale of property, described by Lord Burrows as “beautifully simple”, have given rise to a real divergence of judicial opinion. Ultimately the introducer walked away from the Supreme Court empty-handed, losing out on what the trial judge determined would have been a reasonable fee for his efforts of £435,000, despite the majority of the judges at different levels (5 out of 9) concluding that he was entitled to be paid, albeit for differing reasons.

Those “beautifully simple” facts were as follows. Foxpace owned was looking to sell the property Nash House. Mr Barton was a property dealer and developer. He had made two failed attempts to buy Nash House, forfeiting some £1.2 million in deposits and wasted fees in the process. With a view to recouping his losses, he identified a potential purchaser  – Western UK (Acton) Limited – which he proposed to introduce to Foxpace in return for an introduction fee. Their fee agreement was oral and its express terms as found by the trial judge were limited in nature: if Mr Barton introduced a purchaser who bought Nash House for £6.5 million he would receive an introduction fee of £1.2 million (a commission which it was agreed was unusually high for such a service). There had been no discussion as to what the position might be if a sale completed to Western for a lower sum, the trial judge having found that the parties simply hadn’t turned their mind to that possibility. In the event, whilst Western did offer to pay the £6.5 million purchase price, concerns about the potential impact of HS2 led to a price reduction and the sale completed at just £6 million. Though Foxpace therefore took the benefit of the introduction and achieved a sale, they refused to pay the £1.2 million commission sought by Mr Barton, instead offering a £400,000 “goodwill gesture” which he refused before proceedings ensued.

There was plainly no express agreement that Mr Barton should receive the £1.2 million where a sale completed other than at or above £6.5 million, or that he should receive any payment for a sale below that level. However, did silence on the issue make it all-or-nothing for Mr Barton, or was this really just a one-way bet where he stood to earn a bonus fee if a sale at £6.5 million did proceed but could still earn a substantial fee even if Western ultimately purchased for a lower amount?

The Supreme Court had to determine whether it was permissible and appropriate to imply into the parties’ agreement a term that Mr Barton should nevertheless receive a reasonable remuneration for his services if the property sold below £6.5 million and, if not, whether Mr Barton could succeed on a claim for unjust enrichment (where he had found success with the Court of Appeal) on the basis that Foxpace had derived substantial benefit from Mr Barton’s services. The majority rejected Mr Barton’s case on both grounds, with the leading judgment given by Lady Rose.

• Implied terms

As to the two routes by which a contractual term could be implied, there was a consensus that on the facts of this case there was no basis for implying a term that Mr Barton should receive a reasonable fee on the grounds that such a term would give effect to the unexpressed intention of the parties or was necessary to give the contract business efficacy. Certainly it was not so obvious as to go without saying that the parties must have intended that result (the “it goes without saying” test of Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72). Furthermore, when implying a term to give business efficacy, a court must imply the least onerous term necessary to achieve that. Therefore, whilst it was true that Foxpace could have deliberately evaded the expressly agreed trigger for payment of the substantial commission by just a small reduction in the purchase price, the majority concluded that preventing this mischief required nothing more than the implication of a term that Foxpace could not play a “dirty trick” by agreeing a reduction in the price the purchaser would have readily paid. To go any further than that and imply a term entitling the agent to a reasonable fee in other circumstances was impermissible.

The alternative basis for implying a term is where a term is implied by law – whether by statute or by the courts at common law – into particular kinds of contracts (for example, sale of goods, landlord and tenant etc). As the Court explained, the rationale for this is that, as contract law developed in the eighteenth and nineteenth centuries in response to increased trade, the courts recognised that its decisions had to accord with how parties were actually doing business, and that this meant taking account not only of terms expressly agreed but also of a number of “unwritten usages and norms of commerce” in particular areas. Accordingly, over time, many such usages and norms were transposed into rules of law. That is not to say that contracting parties are necessarily bound by these norms or “default rules”: where they might apply they may be expressly excluded. The Supreme Court therefore had to consider whether a term could be implied by law to assist Mr Barton in these particular circumstances.

First, as to whether a term requiring payment of a reasonable fee could attach by way of statutory interpolation, the majority rejected the argument (not raised before the Court of Appeal) that this was provided for by section 15 of the Supply of Goods and Services Act 1982 (as amended by the Consumer Rights Act 2015 section 100(5)). They found that the relevant provision only entitled a party to a reasonable charge where the consideration for the service was not expressly provided for in the contract, whereas here there was an express provision for payment and only in circumstances where the property sold for £6.5 million or above. They also cast doubt on whether the section applied to a unilateral contract as was the case here; where Mr Barton was not contractually obliged to provide the service of making an introduction to Foxpace but where the parties had agreed that he would be remunerated (in specific circumstances) if he did.

The majority then turned to review the body of case law relating to estate agent cases in order to consider whether a term providing for reasonable remuneration ought to be implied as an incident of this particular kind of contract. Those cases, it was noted, had arisen from the combination of factors that the disputed commissions could be substantial whereas the contractual arrangements were often very informal. In this context the courts have had to ascertain the contractual obligations by reference to what has been described as “the common understanding of men”. This had previously led the Court to conclude that, where an agent had been engaged to find a buyer for an agreed fee but where the trigger event for payment had not been specified, a reasonable person would understand that commission would be due on completion of a sale to a purchaser introduced by the agent and should be payable from the proceeds of sale and that a term should be implied accordingly (Devani v Wells [2019] UKSC 4).

As to the implication of a term providing for the payment of a reasonable fee for finding a buyer, the Court considered the estate agent case of Firth v Hylane Ltd [1959] EWCA Civ J0211-3 (vLex). In that case the parties had agreed a very high commission of £1,000 if the agent achieved a sale of property in auction for not less than £35,000. The property did not sell at auction but the agent continued to assist in finding a buyer leading to a sale price being realised of £31,000. The Court of Appeal on that occasion recognised that the promised commission of £1,000 was a special sum including something in the nature of a bonus but found that it did not follow that the agent should receive nothing if they engineered a sale below £35,000: that would be completely contrary to the normal expectations in such an employment.

Whilst the majority considered that Hylane could be authority for the proposition that an estate agent should be entitled to a reasonable fee where the sale fell short of the price which expressly triggered payment, they considered it important that the contemplated method of sale in that case was by way of auction. The significance of the figure of £35,000 was that that was the level at which the agent could, without further instruction, bind their principal to a sale at auction: it expressly prevented the agent from selling at a lower price but did not preclude remuneration if the seller in fact went on to consent to accept a lower sum. In the present case, by contrast, the majority observed that there was no question of Mr Barton acting as Foxpace’s agent in the sense of having authority to bind it to a sale at any price.

As to whether ultimately Mr Barton could rely more generally on the estate agent cases to establish that, as a matter of law, it was an incident of his contract with Foxpace that he was entitled at least to a reasonable commission for successfully introducing Western, the majority determined that he could not. First, Mr Barton was not an estate agent. His role had always been one of investor in trying to put together, for his own benefit, a consortium which would finance the purchase of the property. This was a one-off and so there was no scale of fees which he usually adopted. Secondly, the expressly agreed fee was an exceptionally high one where, as against that potential reward of £1.2 million (which sum Foxpace had been quite at liberty to keep as a result of the previous abortive purchases) was the risk that Mr Barton might receive nothing. Thirdly, the fee of £1.2 million was attributable to nothing other than Mr Barton effecting the introduction, and Mr Barton’s focus was on Foxpace reimbursing him the £1.2 million previously forfeited. Accordingly the circumstances stood in stark contrast to the typical arrangements in estate agents cases which frequently involve much wasted effort and cost by the agent.

• Unjust enrichment

Mr Barton’s claim in unjust enrichment, which had succeeded before the Court of Appeal, was rejected by the majority of the Supreme Court.

The Court had to establish whether Foxpace had been enriched, whether that was at Mr Barton’s expense, whether the enrichment was unjust and whether Foxpace had any defences available. It was accepted by Foxpace that the only issue which Mr Barton had failed to establish was that Foxpace’s enrichment had been unjust. Mr Barton’s case was that there was a failure of ‘basis’, namely that there was a shared assumption that Western would buy Nash House for £6.5 million. When a sale at that price failed to materialise, that shared assumption (and hence the basis of their agreement) failed.

The majority rejected that argument, finding that the fact that the agreement did not expressly address what would happen if the property sold for below £6.5 million did not mean that the ‘basis’ on which Mr Barton introduced Western was that the sale would be at £6.5 million, such that a sale below that would amount to a failure of that basis sufficient to found an unjust enrichment claim. Furthermore, the Court rejected the unjust enrichment claim on the basis that the parties’ silence in their agreement as to what should happen if a sale proceeded at below £6.5 million meant that the risk remained with Mr Barton that he would earn no fee in those circumstances. There was therefore nothing unjust if that risk materialise, Lady Rose concluding that ,“Unjust enrichment mends no-one’s bargain.”.

• Dissenting judgments

Lady Rose summarised that the divergence of the Court’s views did not reflect any fundamental disagreement about the underlying legal principles in issue, observing that the real difference concerned whether the express provision in this case as to remuneration was a complete statement as to the circumstances in which Mr Barton was to receive a specified reward for a sale only at £6.5 million or merely a partial statement, leaving room for the implication of a term providing for some unspecified reward for a sale on less favourable terms.

Lord Leggatt considered that section 15 of the Supply of Goods and Services Act 1982 did operate on these facts so as to imply a term for reasonable payment whilst Lord Burrows was prepared to imply a term as being necessary to the type of contract in question by reference to the estate agency cases. Both considered that a contract may expressly determine the consideration for the service in some circumstances that may arise but not in others, in which case an implied term as to reasonable remuneration will operate to fill the gap. They concluded that whilst it was reasonable to infer that reference to £1.2 million being payable on a sale price of £6.5 million must mean that the full £1.2 million would not be payable on a sale agreed at a lower price, it did not follow that no fee should be payable in such circumstances: the implication of such a term was not negatived by the express agreement as to remuneration and the terms were not inconsistent.

Comment

Whilst at first blush the Supreme Court’s decision might give rise to concern amongst property agents as to the risk of losing out on fees where the sale achieved falls short of the target price, it is important to note that this was not a typical arrangement. Mr Barton was not an estate agent and was not engaged to bring about a sale but merely to effect an introduction. In a conventional estate agent/vendor arrangement Lady Rose expressly recognised that the naming of a specific sale price for the property is not generally to be treated as an ‘if, and only if’ trigger for the obligation to pay commission. In that context, the common understanding would be that the agent was not providing their services gratuitously.

Property agents should strive to ensure that their contract makes express provision for remuneration across a range of potential outcomes, particularly where the agreed remuneration involves a bonus element for achieving a particular price, so as to avoid costly disputes over the implication of terms. However, the Supreme Court’s finding against the agent on this particular occasion turned on unusual facts and overall the decision reaffirms the position established in earlier estate agency cases that ordinarily agents will be protected by the implication of a term entitling them to reasonable remuneration where their efforts result in a sale.