Estafnous v London & Leeds Business Centres Ltd

Sale of property – Construction of agreement – Claimant agreeing to introduce purchaser to defendant – Defendant undertaking to pay commission on completion of purchase of property – Purchaser gaining control of building by purchasing shares in parent company – Claimant seeking commission fee — Whether claimant introducing purchaser – Whether agreement covering actual transaction – Whether agreement varied to include share purchase – Claim dismissedThe claimant estate agent and company director was based in a building owned by the defendant company. He entered into a written agreement with the defendant to sell the property to one of his clients. Under that agreement, the defendant agreed to pay commission to the claimant when the intending buyer completed the purchase. The claimant subsequently argued that he had introduced the eventual buyer K, who acquired the property for £19m, so that £2m of commission was due. The defendant denied that the claimant was in fact 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 acquired had the shares in the defendant’s parent. The claimant argued that, on the true construction of the agreement, the transaction was sufficient to qualify as a purchase of the property. However, if he was wrong on that point, the claimant relied on the agreement having been varied so as to cover a sale of shares.The defendant contended that if the claimant had to rely on a variation of the agreement and that agreement as so varied prima facie entitled him to claim the commission sought, it would be unlawful because it involved the giving of financial assistance by the defendant, contrary to section 151 of the Companies Act 1985. Moreover, if the claimant were entitled to claim a commission fee from the defendant, it would be unlawful as involving the informal return of capital by the defendant to its shareholder, contrary to section 263 of the 1985 Act. Held: The claim was dismissed.The claimant had introduced K as an intending purchaser of the property. When the agreement was signed, the defendant did not know the identity of the proposed buyer. The obvious and natural meaning of the terms of the agreement was that the claimant would introduce a buyer to the defendant. Immediately after the agreement was signed, the claimant had passed K’s details to the defendant and had therefore introduced K to the defendant as required by the agreement. However, on its true construction, the agreement did not cover the transaction that happened. Under the agreement, commission became payable only on completion of the purchase of the property (a building), and the normal meaning of a purchase (or sale) of a building was the purchase (or sale) of a legal estate in the land. In the event, 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 defendant. K had merely purchased shares that gave him control of the building. That was undoubtedly the purpose of the transaction. In law, however, the purchase of shares in a company that owned land was a different transaction from the purchase of land. Furthermore, the defendant had not sold anything; it had been itself sold to K as part of the share transaction: Freedman v Union Group plc (1997) EGCS 28, Harris & Gillow v Kelly (1953) 162 EG 622 and Levers (t/a Paul & Co) v Dunsdon (1967) 206 EG 979 considered. The construction of a written contract, however much informed by commercial common sense, had to be based ultimately on the language used in the contract. It was not uncommon for parties to a contract to find that they had not provided for the events that took place. In the instant case, the defendant was not liable for the commission claimed. Finally, the correspondence between the parties did not suggest that the agreement had been varied. However, even if it had been so varied, the court would not have found that such a variation involved a breach of the 1985 Act provisions. Stephanie Tozer (instructed by Salfiti LLP) appeared for the claimant; Benjamin Shaw (instructed by McGrath LLP) appeared for the defendant. Eileen O’Grady, barrister