W A Ellis Services Ltd v Wood and another

Sale of properties — Estate agents being paid by solicitors out of purchase price — Debenture holder instructing solicitors not to pay — Company owning properties going into liquidation — Whether implied term of contract that money to be paid out of purchase price — Whether breach of trust — Whether unlawful interference with contract — Judgment for debenture holderFrom 1986 onwards, the plaintiff estate agents arranged the sale of certain properties of a company known as G Ltd, which had been involved in a joint venture to develop flats at 76-78 Cadogan Place, London SW7. The day-to-day running of the company was conducted by the first defendant, W. Three flats were sold and on completion of the transactions, the solicitors deducted the plaintiffs’ fees from the purchase money and remitted them directly to the plaintiffs. The financial position of G Ltd was deteriorating rapidly and the second defendant, P, took control of the company and W’s interest ceased. The plaintiffs discussed the selling of the remaining properties and wrote to P stating that their commission would be 3%. P did not reply to those letters or in any other way indicate that he did not accept this rate of commission. There was no mention in the correspondence as to whether or not the previously practised arrangement of the plaintiffs’ fees being discharged directly by G’s solicitors out of the purchase money was to continue. In January 1991, P lent £1.4m to the company to enable it to continue trading and the loan was secured by a debenture. In 1991, a buyer was found for the remaining flats and the plaintiffs were actively involved in the sale and in liaising with P as to price. On exchange of contracts, they rendered their invoice to the solicitors for £36,225 which was calculated at a rate of 3% plus VAT. Thereafter, the plaintiffs agreed, on objection by P, to reduce their commission to 2%. P then instructed the solicitors not to pay the commission direct to the plaintiffs and the purchase money was paid to P. He then exercised his debenture and the money was put into an account controlled by P. G went into liquidation so that it was in breach of contract for the commission and it was common ground that there was no possibility of any money being recovered from it. As there was no contract between P and the plaintiffs, their claim was based in tort and that a trust had been created. The action brought against the first defendant, W, was settled. Held Judgment for the defendant. 1. There appeared to be no case directly in print on what was an apparently fundamental question as to whether it was normally to be implied into an estate agent’s contract that the fees were recoverable directly out of the purchase money received. The court should be cautious in implying terms into estate agents’ contracts: see Luxor (Eastbourne) Ltd v Cooper [1941] AC 108. 2. The implication of such a term was not necessary to give the contract business efficacy. In the normal course of events, there was a straightforward contractual undertaking that a sum of money would be paid on the happening of a certain event, but it was not necessary to provide any particular way in which the debt should be discharged. 3. In general, therefore, if an agent wished for such a term to be part of his contract, that should be expressly agreed. In the instant case, there was the self-evidence argument that a convenient administrative practice, ie that a solicitor received the purchaser’s cheque and then dealt with disbursements before passing the money to his client, did not create a contractual obligation. Andrew Lydiard (instructed by Bailey Shaw & Gillett) appeared for the plaintiff estate agents; Richard Fawls (instructed by Harkavys) appeared for the defendant, P.