A L Barnes Ltd. v Time Talk (UK) Ltd.

A contractual claim for reasonable remuneration is not unenforceable merely because its performance involved a separate dishonest arrangement by which an agent breached fiduciary duty. The illegality defence applies where the contract itself has an illegal purpose or was intended to be performed unlawfully. It does not apply where the claimant can establish a lawful claim for work done without relying on the improper arrangement.

In costs, the court should identify the successful party before segregating particular issues or categories of costs. In commercial litigation, the party entitled to receive money will ordinarily be the successful party. Its costs may nevertheless be substantially reduced where it failed on a significant issue that occupied most of the trial.

Time Talk engaged Barnes to fit out mobile telephone outlets. No price was agreed, so Barnes claimed reasonable remuneration for work done. Time Talk counterclaimed for project-management sums which Barnes had received and passed to the project manager under a dishonest arrangement involving a Time Talk director.

The judge found that Barnes' director had dishonestly assisted breaches of fiduciary duty. He allowed Barnes' quantum meruit claim, excluding project-management fees, allowed Time Talk's counterclaim, and entered judgment for Barnes on the balance. He also ordered Barnes to pay 50% of Time Talk's general costs.

Time Talk appealed, contending that the dishonest arrangement made the whole claim unenforceable for illegality. Barnes cross-appealed on costs. The central issues were whether the arrangement tainted Barnes' contractual quantum meruit claim and whether the costs order involved an error of principle.

1. The defendants' appeal was dismissed and the claimants' cross-appeal was allowed. Lord Justice Longmore gave the reasons, with which Lord Justice Clarke and Lord Justice Ward agreed.

2. The claim for reasonable remuneration was enforceable. The contracts were for the supply and fitting out of stores in return for a reasonable payment. They were neither contracts to commit a crime nor contracts made for an illegal purpose or with an intention of unlawful performance. The separate arrangement under which project-management fees were paid involved breaches of fiduciary duty, but it was not an integral part of the contracts between the parties' principals.

3. Taylor v Bhail [1996] CLC 377 did not govern the case. That decision concerned an indivisible corrupt bargain to defraud insurers. Although an illegal contract cannot normally be enforced indirectly by claiming quantum meruit, Barnes' claim was itself contractual and did not depend on an illegal agreement. The judge had correctly excluded all project-management fees from the reasonable remuneration.

4. The earlier Court of Appeal decision in Dyson v Time Group [2001] EWCA Civ 1845 was binding. It had rejected the contention that a secret-commission arrangement prevented recovery of the remaining quantum meruit balance. That was independently sufficient to defeat Time Talk's appeal.

5. On costs, the judge erred in principle by first excluding the expert costs and then deciding who had succeeded. In commercial litigation, the primary indication of success is which party must pay money to the other. Barnes had recovered more than Time Talk had offered and was the successful party. The judge was nevertheless entitled to reflect Barnes' failure on the dishonesty issue, which occupied much of the hearing. Barnes was therefore awarded 25% of its costs on the claim and counterclaim, rather than a full recovery.

• Court of Appeal (Civil Division): The defendants' appeal was dismissed and the claimants' cross-appeal on costs was allowed: [2003] EWCA Civ 402.
• High Court, Queen's Bench Division (Leeds District Registry), His Honour Judge Langan: Allowed the contractual quantum meruit claim excluding project-management fees, allowed the defendants' counterclaim for project-management sums, and made a costs order requiring the claimants to pay 50% of the defendants' general costs.