Conway and another v Prince Eze

Sale of land – Agency – Breach of contract – Damages – Claimants exchanging contracts for sale of property to defendant – Defendant failing to complete – Claimants seeking damages for breach of contract – Whether third party acting as agent of defendant – Whether claimants entitled to difference between agreed purchase price and reduced price on sale to another purchaser – Whether claimants entitled to cost of bridging finance – Claim allowed in part The parties exchanged contracts for the sale by the claimants to the defendant of their property at 86, Uphill Road, London, NW7 for a price of £5 million. The defendant later decided not to proceed with the purchase and failed to comply with a notice to complete. The claimants claimed damages for breach of contract; the alleged losses included the difference between the price agreed with the defendant and the reduced price of £4.2 million achieved on the subsequent sale of the property to another purchaser, as well as costs incurred by the claimants in respect of bridging finance to enable them to proceed with their purchase of another property. The claimants acknowledged that they had to give credit for the deposit of £500,000 that was paid by the defendant upon exchange of contracts. The defendant resisted the claim on the principal basis that the contract was concluded following the claimants’ promise to pay a bribe or secret commission to his agent (O) which rendered the contract void or at least voidable and unenforceable by them. He counterclaimed a declaration to that effect and the repayment of his deposit. Alternatively, if the contract was enforceable by the claimants, the defendant challenged the amount of damages claimed. Held: The claim was allowed in part. (1) The relationship between O and the defendant did not engage the law on secret commissions and bribes. The rationale of that law directed attention to the state of affairs as it actually was, as distinct from how the claimants believed it to be. Initially, O was acting on his own behalf, though pretending to act for a confidential principal. When he was negotiating to purchase the property, he was not doing so on behalf of the defendant or anyone else. There had been occasions when O did business by agreeing to source a property for a client. But this was not such a case. He was in substance a salesman acting on his own behalf and for his own commercial interest and was paid commission totalling £150,000 for having done so. Nothing in the initial conversation entitled the defendant to assume that O would not get paid by the vendors. There was nothing untoward or particularly unusual in an introducing agent receiving commission from both parties to a transaction. O had not even acted as agent for the defendant in sourcing the property. His authority was ministerial for the purpose of facilitating the progress of the contract that the defendant had signed and wanted brought to fruition. The claimants had already agreed in principle to pay a fee to O. As a matter of fact, there was nothing objectively wrong in them so agreeing. The defendant had used O to facilitate the transaction; he did not regard him as a trusted adviser and had asked someone else to oversee matters and give him any necessary advice. There was no inherent reason why O should not be paid by either side or by both parties to the transaction: Haringey London Borough Council v Ahmed [2017] EWCA Civ 1861; [2017] PLSCS 208 followed. (2) If the court had reached a different conclusion, it would have regarded O’s arrangement with the claimants as an agreement to pay a secret commission. Once the promise of payment was made, the law would not enquire into the motive. It did not matter that the promised payment was not made, because the promise, having been accepted by the agent, was treated as having the same effect in depriving the principal of his agent’s disinterested services. It was irrelevant whether in fact O was in any way influenced by the promise of payment; the defendant was (ex hypothesi) deprived of his disinterested services simply by virtue of the fact that he had acquired an undisclosed interest in the transaction. (3) The defendant had broken his contract to buy the claimants’ property and was liable to pay damages. Damages were compensatory and intended to place the innocent party in the same position that it would have been in if the contract had been performed, so far as an award of money was capable of achieving that result. Damages would only be awarded for a loss that could properly be said to have been caused by the breach of contract. Even losses that had been caused by the breach of contract would not be reflected in damages if they were too remote. A claimant had a duty to act reasonably to mitigate its loss. It was very common that persons selling their home would need to look to the proceeds of sale to pay the purchase price of a new property and would need recourse to bridging finance if their own sale fell through. Such an eventuality ought to have been within the contemplation of the parties as a not-unlikely consequence of failure by the defendant to complete the purchase. (4) The claimants had exchanged contracts for a sale to another buyer for £4.2 million, with an agreed completion date fifteen months later. The delay in completion meant that the claimants incurred further costs. They had to pay for their bridging finance for longer which reduced the value of the price paid in real terms. Although it had not been unreasonable to defer completion in that way, on the evidence, the claimants could have completed a sale at the same price to another buyer by the end of October 2016. Therefore, damages would be limited in respect of bridging finance. Matthew Collings QC and Timothy Becker (instructed by Kennedys LLP) appeared for the claimants; David Mumford QC and Edward Granger (instructed by Watson Farley & Williams LLP) appeared for the defendant. Eileen O’Grady, barrister Click here to read transcript: Conway and another v Prince Eze