The Supreme Court has recently given guidance in Barton & Ors v Morris & Anor [2023] UKSC 3 on where a contract ends and unjust enrichment begins.
The facts are deceptively simple. An agreement provided for payment of commission of £1.2 million on sale of a property for £6.5 million or more. The property was sold for £6 million. The introducer argued that they should receive an amount of commission.
By a majority of three to two, the Supreme Court held that no commission was payable. They refused to imply a term, either in law or in fact, and held that there was no claim in unjust enrichment:
"When parties stipulate in their contract the circumstances that must occur in order to impose a legal obligation on one party to pay, they necessarily exclude any obligation to pay in the absence of those circumstances... This excludes not only an implied contractual term but a claim in unjust enrichment" (para 96)
Dissenting, Lord Leggatt would have implied a term in law, reasoning that the contract left a gap as to what should happen in the event of a sale below £6 million that could be filled by an implied term. Silence in the contract should be interpreted against a backdrop of the payment obligation that would otherwise have been implied. He agreed that unjust enrichment was inapplicable in relation to 'the subject matter of a contract'.
Lord Burrows, also dissenting, would have allowed a claim in unjust enrichment if there had been no implied term. He identified the unjust factor as 'failure of basis' and stressed that here there was a unilateral contract. That is, there was no obligation to provide the services and they had been provided on the basis that the sale would be above £6.5 million – a failure to satisfy this objective basis constituted a failure of basis that was an unjust factor. This was not ousted by the contract: silence in the contract was not an allocation of risk but allowed the default rule to apply.
The difference in opinion reflects opposing philosophies. The majority see the contract as a complete allocation of the risk of payment and non-payment: a commercial arrangement subject to no assumptions. The minority start with the background of the requirement for reasonable remuneration in the absence of agreement and conclude that where the clause was silent, that background obligation – embodied in a term implied by law – should still apply. This is perhaps a less strictly commercial approach.
Unjust enrichment will only apply outside the scope of 'the subject matter of the contract' or 'the circumstances' described by the contract. Unjust enrichment clearly does apply in certain situations involving contracts, such as contracts that are avoided or terminated. Locating the precise limits of unjust enrichment may continue to pose problems, especially where there is a unilateral contract that does not explicitly refer to what actually happens.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
