The Court of Appeal has handed down judgment in the case of Philip Barton v Timothy Gwyn-Jones and others1, allowing a claim for a success fee payable to an agent in respect of a property sale, notwithstanding that the agent did not achieve the sale price that it was agreed would trigger payment of the success fee.
Background to the appeal
The claim concerned the sale of a property "Nash House" (the "Property"), in relation to which its owner (and the Fourth Respondent) Foxpace Limited ("Foxpace") agreed to pay Mr Barton (the Appellant) £1.2 million in the event that the Property was sold for £6.5 million to a purchaser introduced by Mr Barton (the "Success Fee"). The contract did not specify what was to happen in the event that the Property sold for less than that amount.
The Property was eventually sold to a purchaser introduced by Mr Barton, but the purchase price was only £6 million. Foxpace argued that this meant that the success fee had not been triggered and that no lesser amounts were payable. However, Foxpace did offer to pay Mr Barton £400,000 as a "goodwill gesture", which he rejected. Mr Barton subsequently commenced proceedings.
First instance decision
At first instance, the judge held that no success fee was payable to Mr Barton.
The judge held that the claim in contract failed simply because the Property sold for £6 million which was less than the agreed amount which would trigger payment of the Success Fee.
In the alternative, Mr Barton argued that he was entitled to compensation for unjust enrichment. The judge, applying the principles in Macdonald Dickens & Macklin (a firm) v Costello & Others2, also rejected this claim on the basis that a claim for unjust enrichment should not be allowed to undermine the contractual arrangements between parties – which, on his view, it would.
Despite having rejected the claim for unjust enrichment, the judge did consider the value of the benefit conferred and, by reference to other agreements for introduction fees entered into by Foxpace in relation to prior failed transactions concerning the Property, held that an appropriate valuation of the services would be 7.5% of the purchase price (£435,000).
Grounds of appeal
The decision was appealed on four grounds, namely:
- the judge was wrong to conclude that the contractual terms excluded a claim to a reasonable sum for the benefit conferred on Foxpace if the Property sold for less than £6.5 million; ("Appeal Ground 1")
- that the judge was wrong to hold that Mr Barton's claim in unjust enrichment was barred by the general principle in the Costello case; ("Appeal Ground 2")
- in the event that the claim was barred by the principle in the Costello case, the principle should not apply on the facts of this case; ("Appeal Ground 3")
- the court erred in its valuation of the benefit of Mr Barton's services to Foxpace and the correct value was at least £800,000, or at any rate more than 7.25% of the purchase price. ("Appeal Ground 4")
Court of Appeal's decision
Lady Justice Asplin gave the leading judgment on behalf of the Court of Appeal which unanimously upheld the appeal.
Appeal Ground 1
In relation to Appeal Ground 1, the Court of Appeal found that the agreement could not be interpreted as an "if, and only if" agreement, on the basis there was no indication that the parties had considered or turned their minds to what would happen in circumstances where the Property was sold for an amount other than £6.5 million. Asplin LJ held that:
"In my judgment, there is nothing in the terms of the Agreement, objectively construed, which means that Mr Barton should receive nothing at all unless the £6.5 million purchase price was achieved".
Appeal Ground 2
In light of the finding in relation to Appeal Ground 1, it was necessary to consider the impact of the principle established in the Costello case.
Although Asplin LJ agreed with the first instance judge that (as established in Costello) unjust enrichment should not be used to "alter or undermine the express allocation of risk and obligations arising from a contract", she held that, on these facts:
" it seems to me that that principle does not apply in this case".
In contrast to the Costello case, the present agreement was entirely silent as to what would happen if the sale of the Property completed for less than £6.5 million. Although Mr Barton took the risk that there would be no sale at all (in which case he would not be paid), he also took the risk that the purchase price would be less than £6.5 million (in which case he would not be entitled to the Success Fee), but that did not preclude him from seeking remuneration on the basis of unjust enrichment.
In light of the finding in relation to Appeal Ground 2, it was unnecessary for the Court of Appeal to consider Appeal Ground 3.
Appeal Ground 4
As regards the approach to be taken to value the benefit provided by Mr Barton, the Court of Appeal agreed with the approach taken by the first instance judge and held that Mr Barton was entitled to a sum of £435,000, being 7.25% of the price paid for the Property.
This case provides a very clear demonstration of the importance of properly documenting oral and other informal (but contractually binding) agreements and ensuring that clear and precise contractual drafting is used when "papering" those terms.
In particular, this case highlights the value of asking the "what will happen if…" question before the contract is agreed. Whilst it is of course not always possible for contractual drafting to cater for every possible eventuality, when drafting contractual terms it is worth considering what may happen in certain foreseeable situations and exploring how (if at all) the contract would operate in those scenarios, and what the outcome would be.
By not expressly providing for what was to happen in circumstances where the Property sold for less than £6.5 million, the parties left it open to the court to determine whether any fee was payable to Mr Barton and the amount of that fee.
It is therefore always advisable, when drafting contracts, to consider the practical implications of contractual provisions and (where appropriate) set out in the contract, by reference to indicative examples, what is being agreed in practical terms. This will provide guidance to the parties (and ultimately to a judge) if the true meaning of the contractual terms ever becomes the subject of a commercial dispute.