UK: Court Of Appeal Grants Award For Unjust Enrichment Where Contract Did Not Set Out Full Terms For Payment

The Court of Appeal has granted an award for unjust enrichment where a claimant was contractually entitled to receive an introduction fee if a property was sold for a specified price and the property had been sold for less than that price: Philip Barton v Timothy Gwyn-Jones [2019] EWCA Civ 1999.

The court rejected the defendant’s argument that the contractual arrangements between the parties were a bar to the appellant’s claim for unjust enrichment. While the court accepted that the law of unjust enrichment will not step in to provide a remedy where the relevant risk has been allocated by contract, that principle did not apply on the facts here. Given that the agreement (which had been reached orally) was silent as to what should happen in a situation where the property was sold for less than the specified price, there had been no contractual allocation of risk. Accordingly, the claim for unjust enrichment would not circumvent the contractual terms agreed by the parties.

This decision is an example of the court stepping in to award remuneration to prevent unjust enrichment in circumstances where the parties have not agreed comprehensive terms for payment. Whether a court will do this is highly dependent on the circumstances of each case. This highlights the importance of setting out contractual arrangements as clearly and fully as possible, in order to minimise the risk of uncertainty or dispute.

Ben Phillips, an associate in our dispute resolution team, considers the decision further below.

Background

The claimant, Mr Barton, entered into an oral agreement with Foxpace Limited, which was aiming to sell a property in London. Foxpace agreed to pay Mr Barton £1.2 million if the property was sold for £6.5 million to a purchaser introduced to Foxpace by Mr Barton. The parties did not discuss whether any payment would be due to Mr Barton if the property was sold for less than £6.5 million.

Mr Barton introduced a potential purchaser to Foxpace, who ultimately purchased the property for £6 million. Foxpace then refused to pay the £1.2 million claimed by Mr Barton.

In the High Court, Mr Barton claimed compensation from Foxpace on two alternative grounds. The first ground was that, under the terms of his agreement with Foxpace, he was to receive the £1.2 million payment, irrespective of the price for which the property was sold. The High Court (HHJ Pearce) rejected this argument and held that, under the express terms of the agreement, the payment of £1.2 million was only to be made in the event that the property was sold for £6.5 million.

In the alternative, Mr Barton argued that Foxpace had been unjustly enriched at Mr Barton’s expense and therefore owed him compensation. The High Court found that Foxpace had been enriched at Mr Barton’s expense. However, applying the decision in MacDonald Dickens & Macklin v Costello [2011] EWCA Civ 930, it held that granting compensation on this basis would amount to an unacceptable interference with the contractual terms agreed between Mr Barton and Foxpace. The High Court therefore decided that Mr Barton was not entitled to compensation on the basis of unjust enrichment.

Mr Barton appealed the decision in relation to unjust enrichment.

Decision

The Court of Appeal allowed Mr Barton’s appeal. Asplin LJ gave the leading judgment and Males and Davis LJJ gave concurring judgments.

Was a claim for unjust enrichment excluded by the contractual terms or the principle in Costello?

To determine this issue, it was first necessary to construe the terms of the agreement. The Court of Appeal noted that, in this case, the agreement was oral and its terms were determined by HHJ Pearce as a question of fact. Permission to appeal in relation to those findings was refused.

Foxpace’s submissions about the construction of the agreement would require the court to ignore the judge’s findings. The judge expressly rejected the submission that the agreement was that Mr Barton would receive remuneration “if, and only if” the property was sold for £6.5 million, saying that such an agreement would be “bizarre”.

In the Court of Appeal’s judgment, there was nothing in the terms of the agreement, objectively construed, which meant that Mr Barton should receive nothing at all unless the £6.5 million purchase price was achieved.

The Court of Appeal went on to consider whether such a claim was excluded, nevertheless, by the principle in the Costello case, referred to above. In Costello, the claimant builders had entered into a contract with a company for the construction of houses on land owned by the shareholders and directors of the company personally. The company failed to pay sums owed to the claimants. The claimants sought an award against the shareholders and directors of the company on the basis of unjust enrichment, but the Court of Appeal held that this would circumvent the contractual allocation of risk between the parties, who had expressly agreed for the contract to be with the company rather than its shareholders or directors.

In the present case, the Court of Appeal disagreed with the High Court’s view that, under the principle in Costello, Mr Barton’s unjust enrichment claim would undermine the contractual terms agreed with Foxpace. Whilst a successful unjust enrichment claim in Costello would have cut across terms that had been expressly agreed between the parties to that case, the agreement between Mr Barton and Foxpace was silent as to what would happen in circumstances where the property was sold for under £6.5 million. HHJ Pearce found that the parties had not given any thought to such circumstances. It followed that Mr Barton’s claim for unjust enrichment would not undermine the contractual allocation of risk negotiated by the parties, meaning the principle in Costello did not apply. The court therefore found that Foxpace had been unjustly enriched at Mr Barton’s expense and that Mr Barton was entitled to payment.

Value of award

The Court of Appeal noted that, as was clear from the Supreme Court’s decision in Benedetti v Sawiris [2014] AC 938, awards granted for unjust enrichment should reflect the objective market value of the benefit received at the claimant’s expense, rather than representing compensation for the claimant’s loss. The award was to be calculated by considering the price that a reasonable person in the recipient’s position would have to pay the claimant to receive the relevant service (which in this case was Mr Barton’s work in introducing potential purchasers to Foxpace).

HHJ Pearce did not have to decide this issue because of his conclusion that the claim in unjust enrichment failed. However, he set out what his approach would have been to the valuation, placing little weight on the agreed figure of £1.2m (which was to be received if the property was sold for £6.5 million) and doing his best to arrive at the value of the services provided by considering agreements that Foxpace had entered into with other introducing agents in regard to the same property, and finding the midpoint between the introducing fees that had been charged by those agents. In that way, he had arrived at a figure of £435,000.

The Court of Appeal found that the judge was entitled to adopt this approach. In particular, it agreed with the judge that the figure of £1.2 million was not relevant to this calculation, as the parties had arrived at the £1.2 million figure due to the particular factual context of the matter and not as a result of considering the value of Mr Barton’s service. Nor was it relevant to consider the figure the parties might have reached had they negotiated what should happen if the property was sold for less than £6.5 million. Such an approach would be “pure speculation”.

Quantum meruit pursuant to implied term

The Court of Appeal indicated that Mr Barton’s claim for unjust enrichment could have been formulated as a claim for quantum meruit, or reasonable remuneration, on the basis of an implied term that Mr Barton would be reasonably remunerated for his introducing work, irrespective of the price for which the property was sold.

In his concurring judgment, Davis LJ said his own view was that quantum meruit pursuant to an implied term, rather than a claim for unjust enrichment, would have been the correct way of conceptualising the claim. As he put it, claims for unjust enrichment ordinarily operate outside any subsisting contract and focus on the benefit received by the defendant, whereas claims for quantum meruit pursuant to an implied term operate within a contractual setting, such as the agreement between Mr Barton and Foxpace. The members of the court agreed, however, that on the facts of this case (though not necessarily in all cases) a quantum meruit claim would not have led to a significantly different award being granted to Mr Barton.

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