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Dirty dogs don't get fed and dishonest contracts don't pay

legal matters

A case that reached the Court of Appeal in March this year, Barnes v Time Talk, dealt with issues relating to dishonesty and allegedly illegal contracts in a construction context. Where problems like these arise, an agreement may be unenforceable. The catchy phrase ex turpi causa non oritur actio may apply (translated by my dictionary as 'no right of action arises from a base cause', but by my learned roommate as 'a dirty dog gets no dinner here'). In an industry where 'unusual' arrangements sometimes surface, it is worth knowing how the courts might approach such issues.

Barnes carried out shopfitting work for Time Talk, under the supervision of a project manager and without agreeing any price in advance. The agreement was for a reasonable price to be paid.

When Time Talk's quantity surveyor looked at Barnes' claims it realised that sums had been included for the services of the project manager, although he was employed by, and paid by, Time Talk. In other words, Time Talk was being charged twice for the project manager. The trial judge concluded that this arrangement dated back to a three-way agreement between the project manager, a director of Barnes and a director of Time Talk.

The purpose and workings of the agreement are not entirely clear from the judgment. However, the judge accepted that the agreement put the director of Time Talk and the project manager in breach of their fiduciary duties to Time Talk, and that the director of Barnes had dishonestly assisted in that breach of trust.

The trial judge went on to decide that Barnes could recover payment for the works that it had carried out for Time Talk, but could not recover any part of the claim that included project management. Time Talk appealed, arguing that Barnes' whole claim should fail because the contract was tainted with illegality.

The court will not enforce a claim on a contract to commit a crime. In this case, the Court referred to Taylor v Bhail (1996), in which a school claimed from its insurers for a storm-damaged wall. The headmaster and the contractor agreed a price, which was passed on to insurers for payment.

The price included an additional £1,000, which the contractor had agreed to pay to the headmaster. The contractor sued for payment, arguing that the £1,000 could be severed from the rest of the agreement, and that it was entitled to be paid the balance as it had done the work. The Court of Appeal disagreed, deciding that the entire contract was an agreement to defraud the insurer and therefore unenforceable.

In that particular case, Millett LJ sent out a strong message, saying: 'Let it be clearly understood that if a builder or a garage or other supplier agrees to provide a false estimate for work in order to enable its customer to obtain payment from his insurer to which he is not entitled, then it will be unable to recover payment from its customer and the customer will be unable to claim on his insurer, even if he has paid for the work.'

Even if a contract is not an agreement to commit a crime, it can be rendered unenforceable if the parties know it is for an illegal purpose. An old example is Pearce v Brooks (1866), in which the claimant failed to recover the hire charges for a carriage from a prostitute, as he knew that she intended to use it in plying her trade.

The Court of Appeal in the Barnes case upheld the trial judge's decision - Barnes should be paid a reasonable amount for the works, but not for project management. The contract between Time Talk and Barnes was not unenforceable because it did not have an illegal purpose and was not intended to be performed in an illegal way. The agreement between the project manager and the two directors was not integral to the contract, which was simply a contract for reasonable payment for work done.

However, had there been an actual quote provided by Barnes that included project management fees, and had that been accepted by Time Talk, the unlawful double payment agreement would clearly have been part of the contract. The court would then have had to address whether the double payment agreement could be severed from the contract, or whether it made the entire contract unenforceable.

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