Oh, of course! An Implied Term

Implied Terms have been around for hundreds of years, yet still provide issues for contracting parties from time to time. The Supreme Court, in the recent case of Barton & Ors v Morris & Anr [2023] UKSC 3, has considered the law in this area which should serve as an important reminder to all contracting parties.

It is seldom beneficial to refrain from including express contractual terms and seeking to rely on implied terms later. Parties who choose to do business with one another almost always want the certainty that express terms provide; however, it can be all too easy to overlook a desired term. The law will sometimes imply terms into contractual agreements, but this does not mean that the existence and scope of an implied term will be easily agreed between the contracting parties, and the Court has seen a substantial number of cases where reliance upon an implied term has been in dispute.

Background

Foxpace Limited, the Fourth Defendant to the claim, wished to sell a substantial property in Northolt that was within its ownership. After several failed attempts to sell the property, Mr Barton introduced a potential buyer to Foxpace Limited, Western (UK) Acton Limited. Western (UK) Acton ultimately purchased the property from Foxpace Limited.

There was no written agreement setting out the terms of the introduction upon which the parties could rely, but it was orally agreed that Foxpace Limited would pay Mr Barton an introduction fee of £1.2m if the property was purchased by Western for £6.5m or more. Due to the property falling into an HS2 catchment area, Western (UK) Acton and Foxpace Limited re-negotiated down the price for the property to only £6m. Foxpace Limited therefore made no payment to Mr Barton, on the basis that the property was sold for less than £6.5m. Mr Barton issued proceedings, claiming that there was an implied term in the parties’ agreement that he would receive a ‘reasonable fee’ if the property price achieved was less than £6.5m.

At first instance, the High Court agreed with Foxpace Limited that there was no implied term that any amount would be payable to Mr Barton as a ‘reasonable fee’ for the services provided if the property price were to fall below £6.5m. However, the Court of Appeal unanimously disagreed and ordered the payment of a reasonable fee (£435,000) to be paid to Mr Barton for the services provided. This matter then came before the Supreme Court on a further appeal.

Decision & Consideration

By a simple majority, the Supreme Court allowed the appeal and overturned the decision of the Court of Appeal that Mr Barton was entitled to a reasonable fee for his services – that was not the deal struck between the parties.

The judgment reminds us of the applicable rules on implying a term into a contract. The threshold is a high one. The two well-known tests are helpfully summarised in the judgment:

1. The ‘business efficacy’ test: this provides that a term will only be implied into a contract if it is necessary to give business efficacy to a contract. The Supreme Court said that it is not enough that a proposed term would have been reasonable for the parties to agree, it can only be implied if it was ‘necessary’ in order for the contract to be performed; and
2. The ‘officious bystander’ test: the basis of this test is an interfering party suggesting to the parties at the time of contract whether a particular term should be included in the contract as an express term. Such a term would be implied if the contracting parties were to respond with a simple ‘Oh, of course!’. In short, this test provides that terms will be implied into a contract if they are so obvious that they need not be said.

In the present case, no term was implied that Mr Barton would be entitled to a reasonable fee in the event that the property was sold for less than £6.5m. The Court found that there is no fee to which the parties would have agreed that is so obvious that it goes without saying, and nor was such a term ‘necessary’ to give business efficacy to the agreement made.

Comment

There will be many that will sympathise with the position of Mr Barton. After all, he performed a service for which he was seeking remuneration yet received nothing. However, it must be remembered that a term will not simply be implied into a contract because it would have been reasonable for the parties to agree to such a term. The law goes further and requires necessity. The simple lesson for contracting parties is to always use express terms wherever possible. If you are providing a service,  never assume that a fee will be understood, inferred or reasonable and, therefore, does not require express stipulation in a written contract. Certainty is an important factor for contracting parties and implied terms do not provide certainty.