Scottish Court of Session Decisions

At advising, on 30th December 1993, the opinion of the court was delivered by the Lord President (Hope).

OPINION OF the Court —This is a reclaiming motion by the pursuers in an action of declarator and count, reckoning and payment. The pursuers seek to establish in terms of the declarator sought in the first conclusion that there was a contract between them and the defenders, whereby they acted as aviation consultants for the defenders in relation to the obtaining of contracts for engine overhaul and similar work from Pakistan International Airways. They maintain that they are entitled to reasonable remuneration for the work which they did under that contract by way of commission on all contracts obtained by the defenders from Pakistan International Airways assessed at the rates of commission set out in the first conclusion. The other conclusions of the summons are ancillary to the first conclusion. They depend upon there having been a contract between the parties by which the pursuers are entitled to remuneration on the basis described.

When the case came before the Lord Ordinary on the procedure roll he held that on the pursuers' pleadings the alleged contract never got beyond the stage of negotiation about the rate of remuneration to which they were to be entitled. He considered that, as this was a vital matter, there was no consensus in idem between the parties and that the pursuers' claim for declarator must fail. He sustained the defenders' first plea-in-law and dismissed the action. The pursuers submit that the Lord Ordinary was not well-founded on the view which he took of their pleadings and that a proof before answer should be allowed.

The contract which the pursuers aver existed in this case was one by which they undertook to expend time, work and their expertise, contacts and skill in introducing the defenders to Pakistan International Airways in order to enable them to obtain contracts for the repair work. This was to be a contract for services, and the remuneration for it was to be by way of commission on the labour and material charges on the contracts obtained. They aver that work proceeded under the contract although the defenders had still not yet agreed the rate of commission which the pursuers were to be paid. The pursuers were still pressing for agreement on this matter when the defenders sent a facsimile message to them in which they purported to decline the pursuers' offer to work on their behalf. The pursuers' case is that by that stage there was already a contract between the parties under which they had provided services to the defenders. They contend that, in the absence of an express agreement on the rate of remuneration, it was an implied term of the contract that they would be entitled to reasonable remuneration for acting on the defenders' behalf. But the Lord

Ordinary was not satisfied with this approach, as it is clear from the pursuers' averments that there was from the start a dispute between the parties as to what the rate of remuneration was to be. In his view this was not a dispute about some trivial sum but was a matter of considerable importance to the implementation of the alleged contract. He held that it was not possible in these circumstances for the pursuers to fall back on an implied term, since the parties were actively negotiating as to what constituted a reasonable rate of remuneration. So it could not be said that they had entered into a firm contract with an implied term that the remuneration was to be left to be fixed, perhaps by the court, at a later stage.

Counsel for the pursuers submitted that it was trite law that an action should not be dismissed unless it was clear that the pursuer would necessarily fail despite proof of the whole matters disclosed by his averments. That test, he said, could not be satisfied in this case. On a fair construction of the averments the pursuers were engaged by the defenders under a contract to act as their brokers with a view to securing aircraft repair contracts from Pakistan International Airways, and the fact that they failed to reach agreement on the rate of remuneration did not mean that no enforceable contract had been entered into. He submitted that the existence of a contract could be instructed by actings as well as by communings between the parties and that, on a proper analysis of the pursuers' pleadings, the parties here had entered into a contract by which the pursuers were to provide the services and were to be paid for them at rates of commission to be agreed or, if there was no agreement, settled according to the ordinary principles of law. This was clearly a case where the pursuers were to be entitled to some remuneration for what they had done under the contract, and in such cases the rate of remuneration, failing express agreement, was to be settled by reference to what is customary or, if there is no custom, by reference to what is reasonable. The fact that work was done in this case supported the pursuers' argument that the parties intended that the contract should be implemented, despite the absence of agreement for the time being on the rate at which the pursuers were to be remunerated.

For the defenders, counsel stressed that the pursuers' case was perilled on there having been a contract between the parties. He recognised that a party might have a remedy quantum lucratus on the principle of recompense if he had performed services for another's benefit without the intention of doing this gratuitously. But the pursuers did not make any such case in their pleadings, which rested expressly and solely on the proposition that there was a contract. In such a case the principle of recompense had no application, and the pursuers' case thus depended upon proof that a binding contract had been entered into. But the contract which they alleged was one by which the pursuers were to provide services on payment of a price. Payment of the price was to be the only counterpart which the defenders were to be bound to perform, and it was therefore essential for agreement on this matter to be reached before there could be a concluded contract. In any event where, as in this case, the parties were proceeding on the basis that the rate of remuneration was to be the subject of express agreement, their agreement on this matter was to be assumed to be essential to their bargain. It could not be left to custom or to what might be thought to be a reasonable rate. The pursuers, by acting as they did, had demonstrated that they were prepared to take the risk that a contract might not, after all, be entered into. The only proper conclusion in these circumstances was that there was no contract.

He found it hard to disagree with the proposition that the pursuers were entitled to be paid for their services quantum meruit, but he submitted that this was not the basis on which they were seeking to be paid in this action.

There is no doubt that parties must achieve consensus in idemupon all the essential matters before there can be said to be a contract between them. As Lord Dunedin said in May & Butcher Ltd. v. The King [1934] 2 KB 17 (Note) at p. 21, for there to be a good contract there must be a concluded bargain, and a concluded contract is one which settles everything which is necessary to be settled between the parties. But it does not always follow that there is no contract where something which affects the parties' contractual relationship has not yet been agreed. It may be clear from the terms of the bargain that the parties were content that agreement on this matter should be deferred for the time being, because they have agreed upon all that was necessary for there to be a binding contract between them. R. & J. Dempster v. Motherwell Bridge & Engineering Co. 1964 SC 308 is an example of such a case where, although the parties had not agreed on the price which was to be mutually settled at a later date, it was held that there was a concluded contract by which the defenders were obliged to place orders with the pursuers for the steel which the pursuers had agreed to supply. The law on this matter was reviewed recently in Neilson v. Stewart 1991 SC (HL) 22 and was summarised by Lord Jauncey of Tullichettle at p. 39 where he said:

"The fact that in the usual case a particular term will be considered essential to the existence of a concluded agreement does not prevent parties from contracting in a peculiar case that it shall not be essential."

The question whether the parties have so contracted must be answered by reference to what they agreed, and it will be for the party who seeks to show that this was the basis of the contract to set out in his averments the stipulations or actings from which this can be inferred.

But there is an important difference between cases where nothing has been done by either party to implement the alleged contract and cases where a party to the alleged contract has already provided the goods or services for which he seeks payment. It is likely to be more difficult in the former case to enforce the contract if there is no agreement about the remuneration which is to be paid, because in the ordinary case the price is one of the essential matters upon which agreement is required. Where goods or services have been provided, however, the usual rule is that there is an obligation to pay for them unless they have been provided gratuitously. So it is easier in these cases, if there is no agreement about the price or remuneration, for an obligation to pay a reasonable sum to be implied.

Gloag on Contract (2nd edn.), at p. 291 states:

"There can be no doubt of the general rule that the receipt of goods or services under a contract implies an obligation to pay for them."

In a later passage at p. 328 he states that when goods have been supplied, or services rendered, without any express provision as to the terms, it may often be unnecessary to decide whether a claim for payment should be rested on implied contract or on the principle of recompense. With regard to an action on implied contract, which is the alternative which the pursuer has selected in this case, he states that this involves a claim for payment quantum meruit, measured by the ordinary rate of payment for the particular goods and services. McBryde on Contract, para. 6–45 is to the same effect. He states that when there is a contract for services but no agreement on the amount

of remuneration, the entitlement is to payment quantum meruit,and that if there is no customary rate which can be established the court will fix a reasonable rate.

In our opinion these observations are consistent with the authorities. In Kennedy v. Glass (1890) 17 R. 1085 at p. 1087 Lord Adam said that it was a well-known principle that if one man uses another for the purpose and with the effect of doing business, the ordinary rule is that the person employed is entitled to some remuneration. The pursuer attempted to prove that there was an agreement between him and the defender that he was entitled to be paid the sum sued for. He failed to prove the agreement, but it was held that he was entitled to be paid for his services quantum meruit. In Wilkie v. Scottish Aviation Ltd. 1956 SC 198 a chartered surveyor claimed payment of a fee calculated according to a scale of professional charges, remuneration on the basis of which he averred was customary and was accordingly an implied condition of the contract. A proof before answer was allowed on his averments about custom, although it was noted that no relevant case of quantum meruit had been averred. Lord President Clyde said at p. 203 that it was well settled that, in the absence of express agreement as to the basis of remuneration for his services, there is no presumption that a professional man does his work for nothing. The same principle can be applied to any case where a person provides services to another in the course of a business.

The distinction between a case where the alleged contract has yet to be performed to any extent by either party on the one hand and the case where goods or services have been rendered under the contract was noted in British Bank for Foreign Trade Ltd. v. Novinex Ltd. [1949] 1 K.B. 623. In that case, to which the Lord Ordinary was not referred, it was held that, since the contract was executed on one side by reason of the fact that the plaintiffs had put the defendants in direct touch with a company from whom they obtained business, there was necessarily implied from the conduct of the parties a contract that, in default of agreement, a reasonable sum was to be paid for commission. It was argued for the defendants, under reference to Lord Dunedin's observations in May & Butcher Ltd. v. The King, that the parties never reached agreement on the remuneration which was to be paid and accordingly that there was no contract. They submitted that there was no difference on this issue between an executory and an executed contract, that is, between a contract which has yet to be and one which has been performed. In the Court of Appeal, however, the following passage in the opinion of Denning J., as he then was, was cited with approval by Cohen L.J. at pp. 629–630:

"The principle to be deduced from the cases is that, if there is an essential term which has yet to be agreed and there is no express or implied provision for its solution, the result in point of law is that there is no binding contract. In seeing whether there is an implied provision for its solution, however, there is a difference between an arrangement which is wholly executory on both sides, and one which has been executed on one side or the other. In the ordinary way, if there is an arrangement to supply goods at a price ‘to be agreed’, or to perform services on terms ‘to be agreed’, then although, while the matter is still executory, there may be no binding contract, nevertheless, if it is executed on one side, that is, if the one does his part without having come to an agreement as to the price or the terms, then the law will say that there is necessarily implied, from the conduct of the parties, a contract that, in default of agreement, a reasonable sum is to be paid."

These comments are consistent with the Scottish authorities and in our opinion they are in point in the present case.

The pursuers seek to prove that the contract which they say existed in this case has been performed by them since they provided services under it and that it was performed also to some extent by the defenders who were seeking to obtain these services. They aver that, following a meeting between the parties' representatives on 23rd May 1990, there was a contract between them although it was agreed that the rate of remuneration was to be for further negotiation. They then proceeded to perform the agreed services on the defenders' behalf and they aver that the defenders, who were aware of the effort which the pursuers were making, actively sought and obtained their advice. They aver that the work which they were doing for the defenders was proceeding while the parties were negotiating about the rate of remuneration which was to be paid. It is said that there were further discussions on or about 6th or 7th June 1990 when the pursuers were told by the defenders that they were to be paid commission and were asked to proceed with their lobbying in Pakistan on the defenders' behalf. It is said that it was essential in the obtaining of business with Pakistan International Airways for the defenders to be introduced correctly and for the lobbying on their behalf to be done by persons of correct standing and to be effectively directed. The pursuers aver that following this assurance that they would be paid commission for their services they instructed the lobbyists to proceed, and that shortly afterwards on 24th June 1990 Pakistan International Airways sent out tender documents to the defenders and other interested parties who had been selected by them as suitable. The defenders are said to have asked for further advice in relation to the submission of the tender, in response to which the pursuers offered them advice. On these averments this appears to be a clear case for the rule to be applied that a party who has provided services is entitled to remuneration for them, in the absence of a contractual rate for payment, at a reasonable rate according to the implied term.

The Lord Ordinary rejected the pursuers' argument that, in the absence of an agreement to fix the rate of remuneration, they were entitled to rely upon an implied term as the basis for their claim. He did so because it appears from the pursuers' averments that the parties were from the start actively negotiating as to what was a reasonable rate of remuneration. In his view there would have been no need for the proposals and counter-proposals during the course of these negotiations if they were intending to enter into a contract with an implied term to this effect. Thus the parties' attempts to reach agreement on the point excluded the possibility of a term to that effect being implied into the contract and, as there was no concluded agreement on the point, there was no contract in reliance upon which the pursuers could enforce a right to payment.

In our opinion, however, this approach does not take sufficient account of the fact that the pursuers' case is that they have already rendered the services for which they claim payment. They seek to rely on the implied term because there was no agreed rate of commission for these services in circumstances in which it cannot be presumed that they were provided gratuitously. The fact that the parties were in negotiation about this matter is not inconsistent with the pursuers' reliance upon the implied term as there was no agreement. The purpose of the implied term is to provide a basis for payment where there is no agreed rate for

this in circumstances where, according to the ordinary rule, the person who has provided goods or services is entitled to be paid something for what he has done. The reason why the contract made no express provision for payment is not important. What matters is that goods or services were provided which ought to be paid for. In such circumstances a claim may be based either on recompense or implied contract, and where the work was done under a contract as is averred in this case, the appropriate claim is on implied contract on the principle of quantum meruit.

The defenders submitted that the pursuers' claim was not truly a claim for payment quantum meruit, as they sought payment of commission only at the rates which the defenders themselves had proposed during the negotiations. But it is reasonably clear from the pursuers' averments, and from the terms of their first conclusion, that what they are seeking under the implied term is reasonable remuneration for acting on the defenders' behalf. They refer to the defenders' proposed rates as the measure of what is reasonable. A claim for payment quantum meruit may be measured by the ordinary or market rate of payment for the goods or services, but the circumstances may be such that there is no ordinary or market rate. In that case the best one can do is to seek to show by other evidence what is reasonable. We are not able to say at this stage that the rate of commission which the defenders were proposing is incapable of providing an appropriate measure of what is reasonable for the value of services for which the pursuers are seeking to be paid.

For these reasons we consider that the pursuers are entitled to a proof before answer of their averments. We shall allow this reclaiming motion, recall the interlocutor of the Lord Ordinary and allow a proof before answer.