Disputes Matter – Autumn/Winter 2019


Ensuring effective dispute resolution
Gwendoline Davies, Walker Morris’ Head of Commercial Dispute Resolution, explains that businesses should think carefully […]
Gwendoline Davies, Walker Morris’ Head of Commercial Dispute Resolution, explains that businesses should think carefully about what dispute resolution options work best for them; and should ensure that their choices are properly catered for in contractual arrangements.
ADR options
Alternative Dispute Resolution (ADR) encompasses a range of dispute resolution options which are available outside litigation (court proceedings). ADR options can include simple negotiation between parties, mediation, expert determination, arbitration and so on.
Each type of ADR process has different advantages and disadvantages, which can mean that different options will work for different businesses. In addition, flexibility to factor in commercial considerations and practical remedies (over and above what a court could allow or order), means that, in many cases, attempting or exhausting ADR prior to pursuing court proceedings is preferable.
Furthermore, promoting – or even in some circumstances, requiring – the use of ADR is one of the key ways in which the courts are trying to reduce the costs of litigation.
As such, any business involved in litigation or intending to litigate should explore all options for an out-of-court resolution in the early stages of a dispute and should respond promptly and constructively to any settlement approaches made by the other party [1].
Dispute resolution clauses
However, for many businesses, the even more proactive approach of including a dispute resolution clause [2] within contractual arrangements can be desirable.
An effective dispute resolution clause requires the parties to follow a pre-agreed route to resolution if and when a dispute arises. That can prevent any potential secondary dispute about whether and how the primary issue should be resolved; it can minimise the scope for any tactical game-playing (thereby helping to preserve commercial relationships); and it can ensure that the time and costs of dealing with formal litigation are only incurred as a last resort.
Why is Ohpen Operations v Invesco of interest?
This recent case [3] distils some essential principles for businesses and their legal representatives seeking to enforce dispute resolution clauses, and highlights the importance of careful drafting.
Ohpen Operations confirms that, when considering whether to enforce a dispute resolution clause (by means of an order staying court proceedings) the court must take into account the following:
- The provision must create an enforceable obligation requiring the parties to engage in ADR.
- The obligation to engage in ADR must be clearly expressed as a condition precedent to litigation [4]. Whilst the term “condition precedent” need not necessarily be used, the words must be clear that the right to commence proceedings is subject to the failure of the ADR procedure
- The ADR process to be followed does not have to be formal, but it must be sufficiently clear and certain, without requiring any further agreement between the parties. That means that all steps in the procedure, including machinery for the appointment of any mediator/expert etc, must be comprehensively specified.
- The court has an overall discretion when it comes to the enforcement of dispute resolution clauses by way of stay of proceedings.
- There is a strong policy in favour of enforcing dispute resolution clauses and encouraging parties to resolve disputes prior to/outside litigation.
- In exercising its discretion, therefore, the court will undertake a contractual interpretation exercise and will take into account the public policy interest in upholding parties’ commercial agreements and furthering the overriding objective [5].
What practical advice arises?
So, how can you best cater for your business’ dispute resolution requirements?
- Investigate or seek a full explanation from your lawyers as to the various different ADR options and their characteristics and costs.
- In relation to individual contractual arrangements, review existing and precedent contracts to check whether they contain appropriate and enforceable dispute resolution clauses.
- When it comes to negotiating new contracts, try to think ahead as to the particular dispute resolution method that might work best for your business. Consider whether a dispute resolution clause, to pre-emptively dictate how any dispute will be resolved, will be preferable; and if so on what terms.
- Where a dispute resolution clause is required, it should be precise and clearly drafted. If appropriate, it should comprehensively set out each parties’ obligations during the intended ADR process and confirm the parties’ unequivocal commitment that the ADR process must be exhausted before litigation (or arbitration) is pursued.
- Best practice if a business wants the dispute resolution clause to be enforceable is to make each step in the dispute resolution process mandatory and to ensure that at no point does a provision within a dispute resolution clause amount to an ‘agreement to agree’. Dispute resolution clauses should make provision for appointment of any particular facilitator and/or incorporate procedures of any external ADR bodies which are intended to apply. They should also address matters such as clarification of the issues in dispute, confidentiality, any time-limits and the consequences of any failures to comply with the clause.
- In relation to every dispute or potential dispute, take each on its own individual facts and merits. On a case-by-case basis, check whether there is an applicable contract requirement relating to ADR. If there is, assess its validity. With that in mind, consider what is the most appropriate option to resolve the particular dispute. Consider whether any/what more information is required before you can formulate an overall strategy and begin to engage in any ADR.
- If you ever do decide to go straight for litigation, be prepared to explain to the court why that approach was reasonable and be prepared, nevertheless, to potentially have to accept cost sanctions if you have not followed an appropriate ADR procedure.
What happened in the particular case?
In Ohpen Operations a dispute (the primary dispute) arose as a result of delays to the development and implementation of an online platform. The contract between the parties was terminated and a secondary dispute arose as to how the primary dispute should be resolved.
The contract contained a dispute resolution clause which prescribed different mandatory ADR/mediation processes for disputes which arose at different phases of the project. The claimant commenced court proceedings having not complied, arguing that the clause did not apply outside the prescribed phases of the project or following termination of the contract.
In deciding whether to enforce the dispute resolution clause by means of a stay of proceedings, the High Court decided that the terms of the clause were mandatory, clear and, although the term “condition precedent” was not used, the right to commence proceedings was subject to the failure of the specified ADR process. As a matter of contractual interpretation and construction, whilst the parties had consciously decided to apply different procedures in relation to different stages of the project, a plain and natural reading of the dispute resolution clause overall led to the conclusion that it encompassed all project disputes, whether arising before or after termination. The dispute resolution clause was therefore valid and would be enforced by an order for a stay of the litigation.
An additional interesting point to note in this particular case is that, despite its overall conclusions, the court nevertheless exercised its discretion to further order that the parties close pleadings (that is, that the claimant having filed particulars of claim, the defendant must also file any defence/counterclaim) before the ADR process in the dispute resolution clause could proceed. The court’s reasoning was that clarifying the issues in this way would help the parties to reach a resolution. However it is arguable that this decision is incongruous with both the terms and intention of the particular dispute resolution clause, and with the fact that many ADR processes are adopted precisely to avoid the time and cost of preparing pleadings and so that the parties can take into account commercial, and not just legal, arguments. This aspect of the case, alongside the fact that time and costs were incurred in litigating a secondary dispute at all, emphasise how important it is to clearly and precisely draft your dispute resolution clause.
[1] a failure to promptly and properly engage in settlement attempts can lead to costs penalties in subsequent litigation
[2] sometimes also referred to as tiered dispute resolution clauses or escalation clauses
[3] [2019] EWHC 2246
[4] or as a condition precedent to arbitration. Arbitration is a confidential alternative to litigation as a formal means of resolving disputes, whereby an independent arbitrator makes an award, acting in a judicial fashion, which is final and binding on the parties. (Challenges to awards can only be made within certain timescales and for certain, prescribed reasons.) Parties can choose the applicable law and jurisdiction to govern the arbitration and international conventions are in place which facilitate the cross-border enforcement of arbitration awards. Arbitration is particularly well suited to cross-border disputes. It is not, however, necessarily quicker or cheaper than litigation.
[5] Civil Procedure Rule 1.1 (1), that is, dealing with cases justly and at proportionate cost

Damages for breach of contract and loss of profit… without a contract: Clarifying collateral warranties
Commercial Dispute Resolution partners Malcolm Simpson and Nick Lees highlight points of interest arising from […]
Commercial Dispute Resolution partners Malcolm Simpson and Nick Lees highlight points of interest arising from a recent rare case on collateral warranties. New York Laser Clinic v Naturastudios demonstrates how damages for breach of contract may be obtained – including damages for loss of expected profit – even where the defendant is not party to a contract.
When parties consider doing business, a multitude of enquiries, discussions and negotiations take place before any deal is done. Marketing campaigns, promotional offers and other communications are often undertaken prior to the contemplation of any particular enquiries, leads or potential contracts. At this pre-contract stage, various representations are made, many of which could give rise to liability. As well as the laws of misrepresentation and negligence/negligent misstatement, the law of collateral warranties can come into play.
To avoid inadvertently leaving itself open to challenge amid this legal minefield, it is important for any business to understand the potential bases of a claim.
In an earlier briefing Walker Morris provided information and advice on misrepresentation/misstatement claims per se. In this article we focus on another cause of action of which businesses should be aware: collateral warranties.
Why is the New York Laser Clinic case of interest?
New York Laser Clinic Ltd v Naturastudios Ltd [1] is of interest because it is a relatively rare example of a collateral warranty claim coming before the courts. This is a potentially valuable cause of action which can be pursued where a claimant has no completed contract with, and no other legal recourse against, a defendant who has made promises which have caused the claimant loss.
The case not only clarifies the circumstances in which a collateral warranty claim may succeed, but it also confirms that it can result in an award to the claimant of damages for breach of contract – even including damages for loss of expected profit.
What legal and practical points arise?
A collateral warranty is a promise made, with contractual force, which leads to a contract being entered into (albeit the contract need not necessarily be entered into between the promisor and the promisee). If a collateral warranty that is relied upon turns out to be false, the promisee may have a cause of action against the promisor.
Sometimes a collateral warranty will be given by one party to a contract to another. However, a collateral warranty may arise in a “tripartite” scenario – for example where a warranty is given by one person, which induces a party to enter into a contract with someone else. A common example might be (as in this case) where a marketer or manufacturer makes promises about a product, which induce a person to enter into a contract to buy that product with a hire purchase provider.
This case confirms that the requirements for an actionable “tripartite” collateral warranty are:
- The promise was given to a third party in advance of the main contract being entered into
- The promise was not mere “puff” and was intended to have contractual force
(As to whether a promise is intended to have contractual force, that is an objective test to be applied in all the circumstances of the case. It should be clear to the promisor that the promisee will rely on the promise by entering into, or causing someone else to enter into a contract with the promisor, and the promise must be given to that end. Unlike in usual commercial contract claims, there is no presumption of intention to create legal relations, and the burden of proving intent lies on the claimant.)
- In reliance upon the promise, the third party caused another party to enter into the main contract
- The promise was inaccurate
- The third party suffered financial loss as a result
- There are no relevant, applicable exclusion clauses
- It is not necessary that the promisor knew that the promise was false or was negligent or deliberately acting in a fraudulent manner.
Once an actionable collateral warranty has been made out:
- If the promise was about the quality or performance of the thing to be supplied, the claimant can elect to recover the higher of damages calculated by reference to losses incurred by entering the contract (wasted expenditure), or loss of expected profits.
- If the promise was merely that reasonable care was taken in relation to the statement relied upon/estimate of future performance, damages will be recoverable only by reference to losses incurred by entering the contract (wasted expenditure).
- The difference, in financial terms, between the two bases of calculation of loss can be significant. (In this case, the former basis resulted in damages of some £3.8 million; the latter only some £400,000.) Proper categorisation of a promise underlying a collateral warranty claim is therefore essential.
- In many cases where a collateral warranty claim can be established, so too can a claim for, say, negligent misstatement. (That was the case here.) Where more than one type of claim is available, claimants should assess which is likely to be more valuable.
WM comment and advice
There are a number of best-practice tips arising from the pre-contractual marketing minefield which are likely to benefit businesses generally:
- Take care to ensure that marketing material and all forms of pre-contract communications are accurate…
- …and that they are checked and kept accurate and up-to-date on an ongoing basis.
- Beware providing ‘estimates’ of costs, facts or figures as a negotiating tactic unless these can be confidently backed-up with reliable evidence/calculations.
- Educate sales staff and negotiators as to the dangers of misrepresenting facts or projections.
- If you think you may have suffered loss having relied on a false promise, act quickly. Different causes of action have different characteristics and requirements, so take specialist legal advice immediately to ensure that you do not prejudice your rights to claim any particular remedies.
- Any potential claimant must ensure that its claim is calculated and formulated correctly. Ask your legal advisor to consider which type or types of claim should found your action to ensure the most advantageous recovery.
For further advice or assistance on misrepresentation, collateral warranties and other associated actions, please do not hesitate to contact Malcolm Simpson, Nick Lees or any member of Walker Morris’ Commercial Dispute Resolution Team.
[1] [2019] EWHC 2892

Good faith? Good question: Premier League cases provide premier legal guidance to date
Two recent High Court cases involving Premier League football clubs have recently considered the concept […]
Two recent High Court cases involving Premier League football clubs have recently considered the concept of a duty of good faith within commercial contract law. Commercial Dispute Resolution specialist Jack Heward explain what players in the business arena need to know about this developing area.
The general rule…
English law does not generally recognise a duty to act in good faith when forming or performing contracts (albeit the concept is a familiar one in many civil law jurisdictions).
…and some significant exceptions
In the 2013 case of Yam Seng Pte Ltd v International Trade Corp Ltd [1], Mr Justice Legatt (as he then was) held, in the High Court, that a duty of good faith may be implied into certain types of commercial contracts.
In the 2018 case of Al Nehayan v Kent [2] (in one of his final judgments before becoming Lord Justice and being elevated to the Court of Appeal) Legatt reiterated that a duty of good faith may be implied into ‘relational’ contracts.
What are ‘relational’ contracts?
These are “a category of contract in which the parties are committed to collaborating with each other, typically on a long term basis, in ways which respect the spirit and objectives of their venture but which they have not tried to specify, and which it may be impossible to specify, exhaustively in a written contract. Such ‘relational’ contracts involve trust and confidence… that the other party will act with integrity and in a spirit of cooperation” [3].
Relational contracts therefore typically include joint venture agreements, franchise agreements, long-term distributorships, contracts entered into informally between close friends, and the like.
Where are we now?
One of the problems arising from Yam Seng and Al Nehayan is that commercial parties cannot now be certain as to whether a duty to act in good faith will be implied into their contractual arrangement[s]. Another is the lack of certainty as to what a duty of good faith actually entails, and therefore what it might require of a contracting party and/or what restrictions it might place on a party’s ability to act in its own commercial interests.
The recent Premier League cases of UTB v Sheffield United [4] and New Balance Athletics v Liverpool [5] have addressed these issues.
In relation to whether a duty to act in good faith will be implied…
Fancourt J in Sheffield United declined to decide whether a duty of good faith could be implied into a contractual obligation simply on the basis of whether the contract could be categorised as relational. Instead, he held that the starting point was the law on implication of terms as per Supreme Court authority in M&S v BNP Paribas [6]. That case established that in order for any term to be implied, it must be necessary to give business efficacy to the contract. That is a high bar which asks whether, without the term, the contract simply does not work. Fancourt J decided that, as a result, the relevant question was actually whether a reasonable reader of the contract at the time it was made and with knowledge of the surrounding circumstances would consider it so obvious as to go without saying that the parties had to act in good faith in all their contractual dealings with each other, or whether implication of such an obligation was necessary to give business effect to the contract.
In this particular case, relevant surrounding circumstances included the facts that the contract in question was detailed and had been professionally drafted; that the contract specified in some places that there were obligations of good faith (suggesting that the parties did not intend good faith to apply to obligations elsewhere); and that the contract did not wholly operate in a collaborative direction (rather, some of the share provisions of the contract acknowledged that, over time, the parties may have diverging interests). A duty of good faith was not, therefore, implied.
According to Fancourt J’s reasoning, the ‘relational contract’ question is merely a facet of the M&S implied terms test, rather than a test in itself. This may represent something of a ‘rowing back’ from the hitherto-apparent position that if you could categorise a contract as relational, then you could imply a term of good faith.
As to what a duty of good faith actually entails…
In New Balance v Liverpool Teare J tackled the question of what the implied duty of good faith means in practice. He decided that the duty of good faith (or fair dealing) can be broken “not only by dishonesty, but also by conduct which lacks fidelity to the parties’ bargain” (para 44). In assessing fidelity to the parties’ bargain, it is necessary to consider the nature of the bargain, the terms of the contract and the overall context. Teare J concluded that, ultimately, if reasonable and honest people would regard the challenged conduct as commercially unacceptable, then there is a breach of good faith.
Practical advice
The law on the existence and extent of an implied duty of good faith has been in a state of considerable flux for several years now. As such contracting parties – especially those whose arrangements might be categorised as ‘relational’ – may prefer to state expressly and in full the precise nature of their contractual obligations to one another. Note, in particular:
- Where contracts are negotiated between commercial parties and comprehensively expressed in writing, especially where the parties are legally represented, the courts will be reluctant to interfere.
- In accordance with the general law on implying terms the courts will not generally imply a duty of good faith into any contract where that would contradict express terms.
• Parties may wish to consider including contractual wording which specifically excludes any implied duty of good faith. (If so, this should be raised sensitively in negotiations, so as not to convey any unintended negative message.) - Where contracting parties intend and expect one another to act in good faith, they should state that expressly.
- Parties should also state the scope of any good faith obligation: whether it involves more than acting honestly and with integrity; whether it involves any specific duties (such as to consult, to co-operate, or to disclose information); and whether it restricts a party acting in any particular way.
- Parties should state whether any good faith obligation applies to the contract as a whole, or to a particular clause/clauses.
Please contact Jack Heward or any member of the Commercial Dispute Resolution Team for further information or advice.
[1] [2013] EWHC 111 (QB)
[2] [2018] EWHC 333 (Comm)
[3] Ibid. para 167
[4] [2019] EWHC 2322 (Ch)
[5] [2019] EWHC 2837 (Comm)
[6] [ 2015] UKSC 72 and see our earlier briefings: Without the benefit of hindsight: Interpreting and implying terms for further information; and Formation of contract and implying terms: New Supreme Court ‘spin’

My contract doesn’t say what it should – what can I do?
Louise Norbury-Robinson, Commercial Dispute Resolution specialist, comments on a Court of Appeal case that has […]
Louise Norbury-Robinson, Commercial Dispute Resolution specialist, comments on a Court of Appeal case that has clarified the law on rectification, and offers ‘prevention’ and ‘cure’ advice in connection with contractual mistakes.
Why is FSHC Group v Glas Trust Corp of interest?
At the outset of any commercial arrangement, parties are keen to get on with doing business together. That can mean that contracts can be prepared and completed too hastily or without due care and attention. Mistakes can arise – whether that be as a result of a last minute rush to complete, misunderstanding, miscommunication, drafting error or oversight, or the like – even in cases where arrangements are meticulously documented in formal, written contracts. That can result in a contract not accurately representing a party’s intentions which, in turn, can produce unfavourable commercial consequences.
The law of rectification may enable a contract to be retrospectively corrected by the court. However, the law of rectification is complex and, until recently, has been unclear and difficult to apply.
In FSHC Group Holdings Ltd v Glas Trust Corporation Ltd [1] the Court of Appeal undertook a detailed analysis of the law of rectification, and formulated a new test for the establishment of a claim.
What are the key takeaways?
- Rectification allows the retrospective correction of a written contractual document which does not reflect the terms of the true contract at the time it was made.
- The failure to correctly record the parties’ agreement must be as a consequence either of a mistake common to both parties whereby the written agreement does not record the terms as both intended (known as ‘common mistake’), or where one party is mistaken as to the failure to incorporate the true agreement in the documents and the other party is aware of the mistake and fails to draw attention to it (known as ‘unilateral mistake’).
- Common mistake can arise in two scenarios: (1) ‘common agreement mistake’ – where a contract document fails to give effect to a prior concluded contract (for example, where a binding contract has been agreed orally or informally in correspondence, but then that is not accurately reflected in the subsequent formal written contract document); or (2) ‘common intention mistake’ – where the parties had a common intention in relation to a contractual provision which, by mistake, was not accurately recorded in the written contract.
- FSHC Group v Glas Trust Corp confirms:
- In common agreement mistake claims, an objective test applies. The rectification is required to give effect to a prior agreement, the terms of which can be objectively determined by reference to what the reasonable business person with knowledge of the facts at the time the contract was entered into would conclude.
- In common intention mistake claims, a subjective test applies. This type of mistake is concerned entirely with the parties’ intentions/states of mind at the time the contract was completed.
- To obtain rectification for common intention mistake a claimant must establish:
- The parties had a subjective common intention in respect of the provision now alleged to be incorrect;
- There was an outward expression of accord as to that subjective common intention;
- (The outward expression of accord need not be an express declaration of a shared understanding, but will arise somehow as a result of communication between the parties)
- The common intention was continuing at the time of completion; and
- By mistake, the document did not reflect the common intention.
- Rectification claims are (and, the Court of Appeal noted, should be) notoriously difficult, not least because convincing proof is required to counteract the very strong, primary evidence of the parties’ intention as displayed by the written contact itself. The Court of Appeal acknowledged that, for important policy reasons, appropriate respect should be afforded to the primacy of final, agreed, written terms of contract [2], and it is likely that the new subjective test for common intention mistake will represent an even higher bar for claimants to overcome than ever before.
- Finally, rectification is an equitable remedy. It is therefore discretionary and, when exercising its discretion, the court will also apply certain principles of fundamental justice, including the equitable maxim of ‘clean hands’ (that is, anyone looking to equity for a remedy must be free of wrong doing him/herself); and the doctrine of ‘laches’ (that is, delay can cause unfairness in itself and so an equitable claim may be barred if it is not brought within a timely manner).
Practical advice
Prevention: The best advice for contracting parties and their advisers is, of course, to take the greatest possible care to ensure that they read, and fully understand the implications of, all of the terms of any contract, and to ensure that the terms accurately reflect their intentions prior to signing and completing.
In addition, as a matter of good practice, parties and their advisers should routinely create and retain [3] records of contractual negotiations, the commercial context, and their requirements, intentions and understanding in relation to the deal that is being done. Such records may be relied upon in future to avoid, resolve or support any rectification claim.
Cure: For all practical purposes, however, what should you do if you discover a mistake in any of your contracts?
- Start with the wording in the contract itself. Is there actually a mistake, or is there is genuine uncertainty as to the meaning of the provision? A mistake may lead to a rectification claim, whereas uncertainty may give rise to a question of contractual interpretation. The latter may be more straightforward to resolve and, in some circumstances, commercial common sense may be taken into account and may assist [4].
- Is there any scope for settlement? It is rare for any contractual mistake or interpretation dispute to be clear cut. Even if the odds are against you, the chances are that any grey area and inevitable litigation risk can be exploited in negotiations to encourage a commercial compromise.
- In any event, it is good to talk. Disputes as to the meaning and effect of contractual provisions often arise by virtue of the fact that there is an ongoing business relationship between the parties. It can be in the interests of all concerned for the parties to behave in a reasonable and commercially sensible manner.
- If the wording in the contract is clear and represents a mistake in the drafting of the contract, check whether there are any clauses relating to amendment or variation of contractual terms, and consider the potential to amend the offending provision going forward. Alternatively, take specialist legal advice in relation to a claim for rectification.
- Another option which may, in some circumstances assist, is to ask whether the particular provision was entered into in reliance on any misrepresentations? If so, the contract could be set aside and financial compensation could be payable. Again, specialist advice will be required.
- Finally, consider whether you were properly advised when the contract was completed. It may be possible that any losses could be recouped via a professional negligence claim.
For further advice or assistance, please do not hesitate to contact Louise Norbury-Robinson or any member of Walker Morris’ Commercial Dispute Resolution team.
[1] [2019] EWCA Civ 1361
[2] Ibid para 173
[3] probably for the life of the contract plus a period of 6 of 12 years thereafter (depending on whether the contract is made by deed), to take account of any applicable limitation period
[4] For further information and advice in relation to contractual interpretation, see our earlier briefings: Contractual interpretation: Literal meaning v commercial common sense and Overage and contractual interpretation: Another recent development dispute

Restitution: A remedy when a contract falls short?
Lynsey Oakdene and Claire Acklam, Director and Senior Associate in Walker Morris’ Commercial Dispute Resolution […]
Lynsey Oakdene and Claire Acklam, Director and Senior Associate in Walker Morris’ Commercial Dispute Resolution team, explain restitution – a remedy which can succeed when contractual arrangements fall short.
In the last edition of Disputes Matter, Gwendoline Davies explained the concept of quantum meruit, a principle of natural justice which, in the absence of any other (contractual, tortious or statutory) cause of action, may provide a claimant with a remedy based on what it deserves. Quantum meruit is a facet of the equitable law of restitution (or ‘unjust enrichment’). Two claims for restitution/unjust enrichment succeeded in the Court of Appeal and the High Court in late November 2019.
In times of economic uncertainty, heightened financial pressures on businesses can result in increased scope for disputes, and claims can be advanced in creative and wide-ranging ways. Against this backdrop, Lynsey Oakdene and Claire Acklam explain the law of restitution, and offer their practical advice.
What is restitution?
Restitution is a remedy which can operate alongside or distinct from contractual or tortious claims, and which can be available in a claim which arises either as a matter of law or in equity [1]. Restitution restores the claimant to the position it was in before the defendant had been unjustly enriched at its expense.
For a claim in restitution to succeed, the claimant must show that:
- The defendant has been enriched. This could be in terms of money, but can also be other benefits, whether direct or indirect, and includes saving from expense and discharging obligations;
- The enrichment was at the claimant’s expense; and
- The enrichment was unjust. There may be one or more of a number of reasons why enrichment may be unjust, including (non-exhaustively) mistake, duress, undue influence, failure to provide consideration for a benefit, illegality, and so on.
A restitution claim advanced on the basis of unjust enrichment focuses on the benefit received by the defendant.
A restitution claim advanced on the basis of quantum meruit focuses on the benefit which the claimant deserves to receive.
Why are these cases of interest?
The cases of Barton v Gwyn-Jones [2] and Quinn Infrastructure Services v Sullivan & Ors [3] are of interest because:
- they are examples of circumstances in which restitution can assist a claimant where other causes of action do not exist or would fail;
- they reinforce the importance for commercial parties of a properly and comprehensively drafted written contract;
- they highlight the conceptual differences between unjust enrichment and quantum meruit claims; and
- they are potentially indicative of a growing trend towards claimants advancing and litigating commercial disputes in increasingly inventive ways.
The latter generally occurs less frequently in times of economic prosperity. In uncertain times, therefore, it is prudent for potential commercial claimants and defendants alike to understand all available legal issues and options.
What practical advice arises?
Any restitution claim necessarily involves the court deciding what is just or fair. In considering whether a party has been unjustly enriched or whether a party deserves an award, the court can take into account factual and commercial considerations such as:
- Whether the enrichment or service provided was of a kind that would normally be provided freely.
- The nature of the benefit received by the defendant.
- The nature of the risks incurred by the claimant.
- Whether the defendant has behaved unconscionably in declining to pay. (This latter consideration is likely to be a strong indicator in favour of making a restitutionary award.)
Whilst restitution can step-in where there is no other cause of action or where, say, a contract falls short, relying on such a claim is rarely the ideal solution for any party. Case law has frequently confirmed that it is not the role of this area of law to create contracts for parties where they have failed to do so, and that there is no general right in English law to payment in the absence of a contract. As such, when it comes to restitution claims, there can be no guarantee of success.
By far the better course is for parties to understand the basics of commercial contract formation and, in particular, to be alive to the risks associated with informality and inadvertent contract formation [4]. They should also ensure that their business arrangements are properly and comprehensively recorded in formal written contracts.
Sometimes the mere process of recording an arrangement writing – never mind instructing a specialist solicitor – immediately prompts the necessary questions: have we covered everything; what if this or that happens; who should pay for what and when; etc. (It is easy to imagine, in Barton v Gwyn-Jones (see below), that had the parties tried at all to articulate their arrangement in writing, the question would immediately have arisen: what if we sell for some other amount?)
Proceeding to do business without a comprehensive written contract, and ultimately having to rely on a restitutionary remedy, can prove a false economy. A written contract will ideally govern the parties’ dealings with each in such a way as to avoid disputes arising in the first place; and if/when disputes do arise, clearly drafted contracts can contribute hugely to their swift, amicable and efficient resolution. However, it is of some comfort to know that where you do not have a contract, the law may still step in to assist you in some circumstances.
What happened in the particular cases?
In Barton v Gwyn-Jones the defendant had agreed to pay an introduction fee of £1.2 million if a property owned by it was sold for £6.5 million to a buyer introduced by the agent. The arrangement between the defendant and the agent was an informal, oral agreement, rather than a formal written contract. When the property sold to a buyer introduced by the agent for £6 million, the defendant refused to pay the (or any) introduction fee. The Court of Appeal held that, whilst unjust enrichment claims should not be permitted to undermine the express allocation of risk and obligations set out in a contract [5], here the was no such express allocation – the contract was not comprehensive. It was simply silent on what would happen if a sale completed at below £6.5 million. There was therefore nothing to preclude a restitution claim.
The agent had formulated its claim on the basis of unjust enrichment. In fact, the Court of Appeal considered that the correct formulation was quantum meruit. (The claim’s focus was that the agent deserved to be paid a fee at a reasonable level, as the property had been sold to a party introduced by it, albeit at a price that had not been catered for in the informal oral agreement). On the facts of this particular case that distinction didn’t matter because the restitutionary remedy would be the same calculated on either basis. The Court of Appeal noted, however, that that would not necessarily be the case on different facts.
In Quinn, a number of different parties and contractual arrangements were in play. Claims brought in contract and against the first, second and fourth defendants failed for various reasons, and it is the restitution claim against the third defendant that is of interest. A contract arose between the claimant and the third defendant as a result of conduct (namely, the provision of services and invoices by one party, and payment by another). There was no written contract to govern the arrangement between the parties. When, as part of the overall arrangements, the third defendant took payment from the claimant for BT software hosting services and did not account to the claimant for savings made on those services when lesser sums were actually paid to BT, there was no contractual provision on which the claimant could rely. The law of restitution stepped in, however, and a successful unjust enrichment claim saw the third defendant account to the claimant for hosting services savings in the sum of £76,000.
Further advice
For further advice or assistance in connection with your contractual arrangements, including whether you have any queries or concerns that a contract may not comprehensively or correctly represent your requirements; and whether or not any dispute is pending, please do not hesitate to contact Lynsey, Claire or any member of our specialist commercial dispute resolution team.
[1] At its broadest sense, equity in English law means ‘fairness’. The law of equity and equitable principles may, in some circumstances, be able to provide a fair solution where the common law or statute cannot
[2] [2019] EWCA Civ 1999
[3] [2019] EWHC 2863 (Comm)
[4] See our recent briefing for more detailed information and advice
[5] i.e. the Costello principle, Macdonald Dickens & Macklin v Costello [2011] EWCA Civ 930