Unjust Enrichment payment awarded in a fixed price contract

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Barton v Gwyn-Jones [2-19] EWCA 1999. Court of Appeal

Facts

Mr Gwyn-Jones was the director of Foxpace Limited which owned Nash House.  The company repeatedly tried to sell the property and failed.  Eventually Foxpace asked Mr Barton to find a buyer.  The parties agreed a contract for a fee of £1.2m to be paid if the property was sold for £6.5m.  Mr Barton found a buyer, but the price agreed was only £6m.  Mr Barton therefore did not get his introduction fee, even though he had procured a buyer who paid a large price.  By reducing the value of the property somewhat, Foxpace had incidentally avoided payment of a larger contract debt.

Gwyn-Jones as sole director then put Foxpace into liquidation, and he managed the process initially himself, rejecting Mr Barton’s claim for £1,200,000.00 and valuing it instead at £1.00!  Barton therefore sued Gwyn-Jones to get a new liquidator appointed and to have his entitlement valued either at £1.2m pursuant to contract; or alternatively at some other figure as compensation for unjust enrichment.

Court of Appeal Held

  1. There was no contractual obligation to pay £1.2m where the condition upon which it was payable had not been realised, because the price achieved was £6m not £6.5m.
  2. The alternative ground of unjust enrichment was a legitimate basis of claim against Foxpace in the liquidation and the basis of calculation was to allow recovery of the benefit unjustly gained rather than compensation for loss. The proper approach was to look at the value of the benefit received at the expense of the claimant and to ask is what was the price a reasonable person in the beneficiary’s position would have had to pay for such services taking into account any conditions which increased or decreased the value to any reasonable person.
  3. After discussion the Court came up with a formula of 7.25% of the actual purchase price of £6m, which gave rise to a compensatory payment of £435,000.

Comment

  1. At first glance this seems a strange decision; the parties had agreed a straightforward commercial transaction whereby the agent undertook to find a buyer for £6.5m and if he did so, then he got an agreed fee of £1.2m. If not, then no payment right arose under the contract.
  2. This is in accordance with the long-standing principle of freedom of contract under which the parties are free to make a good deal or a bad deal and to insist upon having it enforced. The defendant argued strongly for this and indeed there would have been no basis for the claimant to be paid a higher figure if it had in fact obtained a buyer for, say, £7m.
  3. However the Court of Appeal judges observed that the contract said that although the contract did not provide for Mr Barton to get £1.2m if the property was sold for less than £6.5m, the contract also said nothing either way about whether Barton would be entitled to payment of something less if he introduced a purchaser who purchased the property for a lesser sum. In those circumstances, the risk of receiving nothing if the purchaser paid less than £6.5m had not been allocated by the contract to Barton and therefore the way was open for him to claim on equitable grounds for an unjust enrichment compensatory payment from the company. To do otherwise would in the words of the Court of Appeal be “a clear injustice”.
  4. The defendant’s main problem was this was an oral contract. It is almost certain that a properly drafted written contract drawn up by lawyers would have been far clearer in prescribing the circumstances in which the fee was earned.
  5. In dissenting judgment, Lord Justice Davis said that while he agreed with the payment, the justification was not unjust enrichment. The Judge remarked that he considered it was implicit in the agreement that Barton would be reasonably remunerated for successfully introducing a purchaser even for a lesser price, and the £435,000 should be paid as a “quantum meruit” or fair amount Again the Judge was clearly influenced by considerations of justice and fairness.

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