Red or Black? A case that highlights litigation risk
Commercial life is about managing and taking risks. When does a risk become a gamble?
The High Court's recent ruling in the case of Burgess v Kempson  EWHC 2216 (Ch) reminds us of the inherent uncertainties in trying to prove an oral agreement in the absence of supporting contemporaneous documents, and the consequent risk of embarking on significant litigation in such a situation.
The issue in the case centred around a 10 to 15 minute meeting that was said to have taken place between the parties approximately 10 years ago. The Defendant was the owner of land which had development potential and there had been some third party interest in it. The Claimant alleged that he was entitled to a share of the enhanced value of the land, and sought the sum of £7.5m. It was the Claimant's position that the parties had agreed he would be compensated for his advice.
Given the lack of any written contract, and the limited contemporaneous evidence available, the facts turned on the witness evidence of each party. The Judge prefaced his decision by referring to and quoting from the case of Gestmin v Credit Suisse  EWHC 3560 (Comm), in which Mr Justice Leggatt (as he then was) set out the problems posed by the need to rely upon witnesses' memories. Not only are such matters generally far in the past by the time the matter comes to trial, but the process of preparing for trial and the lengthy production of witness statements (often with professional assistance) in itself creates false memories of the events in question.
In terms of the outcome, the Court held that there was an oral contract that the Claimant would receive compensation but that it was an implied, if not an express term of the agreement, that the Claimant must be the effective cause of any offer made to the Defendant for the land. Whilst the Claimant proved to be the more reliable witness in the circumstances, he failed to establish he was the effective cause of the sale and prove he was entitled to receive payment.
In the alternative to his claim for breach of contract, the Claimant sought recovery for a "quantum meruit" payment based on unjust enrichment. The Judge referred to the recent Supreme Court case of Barton v Morris  UKSC 37, which referred to the relevant factors for such a claim, as had been set out in the earlier Court of Appeal case of Dargamo Holdings Ltd v Avonwick Holdings Ltd  EWCA Civ 1149. Namely, whether the defendant was enriched and if so, whether the enrichment was at the claimant's expense, whether the enrichment was unjust, and lastly, whether there are any relevant defences.
The Judge held that given his conclusion that an agreement had existed between the parties which implicitly acknowledged the risk of the Claimant working unsuccessfully to increase the price for the land there could be nothing unjust if that is what in fact happened, as was the case here. Accordingly, this claim also failed.
There is inherent risk in any litigation, particularly where this depends wholly or partly on the performance of live witnesses. However, where the central issue concerns the existence and terms of an oral agreement, an absence of supporting contemporaneous documents will convert litigation risk into litigation roulette.