Estafnous v London & Leeds Business Centres Ltd

Sale of property – Construction of agreement – Appellant agreeing to introduce purchaser to respondent – Respondent undertaking to pay commission on completion of purchase of property – Purchaser gaining control of building by purchasing shares in parent company – Appellant seeking commission fee — Whether appellant introducing purchaser – Whether agreement covering actual transaction – Whether agreement varied to include share purchase – Appeal dismissedThe appellant estate agent and company director was based in a building owned by the respondent company. He entered into a written agreement with the respondent to sell the property to one of his clients. Under that agreement, the respondent agreed to pay commission to the appellant when a buyer completed the purchase. The appellant argued that he had introduced the eventual buyer K, who acquired the property for £19m, so that £2m of commission was due. The respondent denied that the appellant was responsible for introducing K. In any event, it contended that the obligation to pay the commission had not been triggered because the property had not in effect been sold. Instead, under a corporate transaction, a company associated with K had acquired the shares in the respondent’s parent. The appellant argued that, on the true construction of the agreement, the transaction qualified as a purchase of the property. However, if he were wrong on that point, the appellant relied on the agreement having been varied so as to cover a sale of shares.The High Court held that, on the true construction of the commission agreement, the obligation on the respondent to pay commission to the appellant was not triggered by the transaction that took place. Under the agreement, commission became payable only on completion of the purchase of the property, and the normal meaning of a purchase (or sale) of a building was the purchase (or sale) of a legal estate in the land. K had not completed a purchase of land. The property remained vested in a company as the legal owner of the registered leasehold estate, holding on trust for the respondent. K had merely purchased shares that gave him control of the building: [2009] EWHC 1308 (Ch), [2009] PLSCS 203. The appellant appealed, contending that the agreement should be construed as subsuming the share sale agreement within the concept of a sale of the property, even though the sale of the shares was not a sale of anything by the respondent nor of any subsidiary.Held: The appeal was dismissed. The primary source for understanding what the parties to a contract meant was their language interpreted according to conventional usage. The object of interpretation, including the implication of terms, was to discover what the instrument in question meant. The implication of the term was not an addition to the instrument. It only spelt out the meaning of the instrument. The question for the court was whether such a provision would expressly spell out what the instrument would reasonably be understood to mean: Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896 and Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10; [2009] 1 WLR 1988 considered.In the instant case, any term that would have the result for which the appellant contended would not be implied. The parties had not considered what was to happen if the property sale were restructured as a share sale. The agreement had been made against the background of a deal that had already been struck, subject to contract, and it was in respect of such a deal that commission was to be paid. Each case had to be decided on the wording of the particular agreement and in the context of the particular facts. The judge had reached the right conclusion on his analysis of the authorities. Accordingly, the appellant was not entitled to recover £2m from the respondent specified in the agreement; nor should a term be implied into the agreement to entitle him to recover: Harris & Gillow v Kelly (1953) 162 EG 622 considered.Philip Newman (instructed under the Bar direct access scheme) appeared for the appellant; Benjamin Shaw (instructed by Davenport Lyons) appeared for the respondent.Eileen O’Grady, barrister