Oral agreements: When silence may speak volumes

By James Lewis, a partner in the London office of Fieldfisher

On 25 January 2023, the UK Supreme Court handed down its judgment in Barton & Others v Morris and another in place of Gwyn Jones (deceased) [2023] UKSC 3. The case concerned the correct interpretation of the terms of an oral agreement on the payment of an introduction fee where a property was sold for particular price.

While the facts appeared simple, the Supreme Court was split 3-2 in its decision, demonstrating that, sometimes, the fewer the agreed terms, the more argument there can be.

Summary of the case

Foxpace Ltd owned Nash House and wanted to sell it. Foxpace and Mr Barton reached an oral agreement that it would pay him £1.2m if he introduced a buyer for Nash House who bought it for £6.5m. The high level of the fee took into account the costs and expenses incurred by Mr Barton in two previously unsuccessful attempts to arrange a purchaser for the property.

Mr Barton introduced a buyer called Western UK (Acton) Ltd and sale documents were prepared on the basis of a purchase price of £6.55m. However, an issue arose because of the location of Nash House in relation to the route of the HS2 rail link, and the price was renegotiated down to just £6m.

When Mr Barton claimed his introduction fee, Foxpace stated that the purchase price was less than £6.5m and therefore there was no contractual obligation to pay anything. Foxpace offered a goodwill payment of £400,000 but Mr Barton rejected it.

The trial judge in the High Court agreed with Foxpace that no fee was payable. However, in case he was wrong, the judge assessed that a reasonable fee for Mr Barton’s services was £435,000.

The Court of Appeal reversed the High Court’s decision, ruling that Mr Barton was entitled to a fee of £435,000, either on the basis of an implied term that this was a reasonable fee, or on the basis of damages for Foxpace being unjustly enriched.

The decision

The Supreme Court overturned the Court of Appeal and found again for Foxpace, although the decision was only via a 3-2 majority.

The justices agreed on the extent of the express terms of the contract, i.e. there was a term stating that a £1.2m fee would be payable to Mr Barton if the purchase price was at least £6.5m, and there were no terms dealing with the situation where the purchase price was less than £6.5m.

However, they disagreed on how to interpret the silence, and therefore how to deal with Mr Barton’s arguments for implied terms and unjust enrichment.

Implied terms

The majority considered there was no reason to imply a term into the contract that Mr Barton would be paid a reasonable fee where the purchase price was less than £6.5m.

The reasoning was that, if the parties had wished this option to be included, they could and would have agreed a term dealing with this, but they did not.

The express terms were not uncommercial, no additional term was required to make the contract work or was so “obviously” part of the deal, and no term should be implied under law or due to the type of contract.

The deal was clear, and to imply this term would contradict the deliberately chosen express terms. It was not the role of the court to alter the bargain as struck, which included the risk that Mr Barton could be paid nothing.

The minority reached the opposite conclusion, and it appears they did so because their analysis of the silence proceeded from a different starting point.

They considered that the contractual silence (about the fee position where the purchase price was below £6.5m) did not preclude terms being implied into the contract.

Allowing this freedom, the minority felt that it was appropriate that a term be implied into the contract that Foxpace pay Mr Barton a reasonable fee, on the basis that it was either implied by law (sections 12 and 15 of the Supply of Goods and Services Act 1982) or implied under common law given the type of contract (provision of introduction services).

Unjust enrichment

The court (split 4-1 on this issue) again grappled with whether silence ruled in or ruled out a legal right.

The majority accepted that Foxpace had been enriched, at Mr Barton’s expense, but did not find it unjust. The parties had defined the circumstances where a payment would be due, but this did not include the situation where Nash House sold for less than £6.5m, which therefore excluded this as a basis for any payment obligation.

However, Lord Burrows (dissenting) considered that a restitutionary claim for a reasonable fee was open to Mr Barton because the contractual silence did not exclude such a claim. The argument which went in favour of Mr Barton in the Court of Appeal now went against him.

Key drafting points

The Supreme Court’s majority decision is broadly in line with the prevailing approach to interpretation, namely that the court should be slow to ‘fill in the gaps’ or otherwise interfere with a contract as drafted.

It also confirms that the law of unjust enrichment cannot be relied upon to try to get around the terms of a valid contract. However, it also highlights that, where the terms of a contract are so sparse that much is left to assumption, this opens the door to argument about the interpretation of what was intended.

Lady Rose, who wrote the leading judgment, noted that the justices agreed about the fundamental legal principles, but disagreed about the terms and intention of the contract to which the principles were to be applied.

The majority found that the express term – that Mr Barton receive his £1.2m fee if the property was sold for at least £6.5m – was the final statement on potential remuneration. However, given the views of the Court of Appeal and two Supreme Court justices, this was not an obvious conclusion.

This case was unusual because oral contracts are relatively uncommon given the desire of parties to record (and more importantly be able to prove) the terms on which they agree to deal.

However, what is common to both oral and written contracts is the need for parties to consider carefully whether the express terms cover all possible scenarios, in order to avoid blind spots which can lead to disputes.

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