Sale of property – Estate agent – Entitlement to commission – Claimant acting for defendants in sale of property – Dispute arising as to payment of commission – Whether claimant expressly agreeing to find cash buyer – Whether defendants entitled to indemnity for misrepresentation – Whether claimant’s entitlement to commission on exchange of unconditional contracts unfair – Claim allowed
The claimant company was an estate agency instructed by the defendants as sole agent to find prospective purchasers for their property at an asking price of £2.5 million. The defendants signed the claimant’s standard form setting out its terms and conditions and agreed to pay the stated commission rate.
The claimant introduced an individual (L) to the property and the defendants accepted his offer subject to contract. Following exchange of contracts, the claimant submitted an invoice for its commission. However, completion did not in fact take place as L was unable or unwilling to raise the necessary funds. The property was subsequently sold to a developer but the claimant was not involved in achieving that sale. The defendants refused to pay the commission and the claimant commenced proceedings to recover the amount of the commission together with interest. The defendants alleged that it had been an express term of the contract that the purchaser introduced by the claimant had to be a cash buyer with sufficient funds available to purchase the property. They contended that the claimant had indicated that L had money to invest which statement they had relied upon when entering into the contract.
The questions raised were whether: (i) the claimant had expressly agreed with the defendants that it would introduce a cash buyer; (ii) the claimant had stated that L had money to invest so that the defendants were entitled to an indemnity for misrepresentation; and (iii) the provision for payment of commission on exchange of unconditional contracts had been unfair.
Held: The claim was allowed.
(1) Given the asking price of £2.5 million, it was improbable that the claimant would have expressly agreed to introduce only a cash buyer. It appeared unlikely that someone with assets sufficient to fund a purchase at the level of the asking price would simply have that amount lying in a bank account. Moreover, the suggested stipulation did not appear to be one which a mere estate agent could perform. An estate agent was not in a position to insist upon full and frank disclosure of assets on the part of a prospective purchaser. The best the estate agent could do would be to enquire of the prospective purchaser as to his or her asset position, and pass on what the estate agent was told. It was doubtful how useful that would be when the acid test of ability to purchase appeared to be whether the prospective purchaser was prepared to enter into an unconditional contract to buy. Accordingly, the court was not satisfied that the alleged express term was actually agreed between the parties. It was thus immaterial whether, had it been agreed, it had been breached in the circumstances of the present case.
(2) On the evidence, the court was not satisfied that anyone on behalf of the claimant had actually said to the defendants that L had money or capital to invest. Even if that had been said, it meant no more than that L was interested in purchasing property as an investment. Moreover, on the evidence, it did not appear that the defendants had relied upon whatever they contended had been said about L in deciding to enter into the contract because they did not know, at the time they decided to accept the highest bid, who the highest bidder was.
In any event, no cause of action in misrepresentation arose against a third party who made a representation which was false and thereby induced the representee to enter into a contract with a third party. A cause of action under the Misrepresentation Act 1967 could only arise as against the other party to the contract into which the representee was induced to enter. A stranger to a contract could be liable for making a misrepresentation inducing the contract, but only if he had acted fraudulently, or, in a case in which a duty of care of the type recognised in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 was held to exist, for negligence.
Moreover, the remedy sought in respect of the alleged misrepresentation, an indemnity against the liability of the defendants to the claimant, was not one which the law could contemplate. The necessity for the remedy only arose on the hypothesis that the defendants were in fact liable to the claimant, in which case there was no justification for the granting of an indemnity. If the defendants had a proper reason for not paying the sum claimed by the claimant in the present action, the necessity for an indemnity did not arise.
(3) The main subject matter of the claimant’s standard form contract, for purposes of reg. 6(1)(a) of the Unfair Terms in Consumer Contracts Regulations 1999, was that which the claimant, not contractually bound to do anything at all, had to see happen in order to be entitled to any remuneration, namely a purchaser introduced who exchanged unconditional contracts to purchase the property. Consequently it was not necessary to consider further the question of fairness of the provision that the claimant’s remuneration should be payable on exchange of unconditional contracts.
Andrew Davis (instructed by Foxtons legal department) appeared for the claimant; Sarah Lippold (instructed by Healys LLP) appeared for the defendants.
