Glentree Estates Ltd and others v Favermead Ltd

Estate agents – Sole agency contract – Sale to party introduced to respondent vendor prior to appellants’ appointment as sole agents – Respondent retaining appellants to seek purchaser for resale – Whether appellants entitled to commission on first sale or resale – Whether waiving entitlement in connection with first sale – Claim dismissed in respect of both sales – Appeal allowed in partThe respondent, a company owned and controlled by K, owned a property in Kensington, London. In April 2001, it appointed the appellants, three estate agents, as joint sole agents to sell the property. The appointment was set out in a letter, by which K agreed to pay a fixed fee of £1m plus VAT for the appellants’ services in the event that one of them “introduces an applicant, who subsequently purchases the property” and a reduced fee of 20% of that sum “if I procure a purchaser through my own endeavours”.K subsequently found a purchaser, E, through his own efforts, resulting in a contract for a sale for £50m by a subsidiary of the respondent to C, a company owned by a trust of which E’s wife and children were the beneficiaries. The sale was completed in October 2001 together with an overage agreement under which the parties would have equal shares in any profit over the £50m purchase price and after the deduction of certain expenses, on a resale of the property within five years. At a meeting in November 2001, the outcome of which was recorded in a letter, K agreed to continue the appellants’ agency agreement to find a suitable purchaser for such a resale. The appellants subsequently arranged a viewing for a prospective purchaser, M, and informed K of M’s interest, but played no further part thereafter. In June 2004, the property was resold to L Ltd, a company owned by M, for US $105m (around £57m).The appellants claimed commission fees on both sales in the respective sums of £200,000 and £1m, plus VAT. Dismissing the claim, the judge held that: (i) although the first sale to C had triggered the right to a 20% commission, the appellants had agreed to waive their entitlement to that sum on entering into a new agency contract in respect of the proposed resale; (ii) it was an implied term of the new agency contract that the appellants had to be the effective cause of the resale if they were to qualify for their commission; and (iii) the appellants had not proved that they had been the effective cause: see [2010] EWHC 1120 (Ch); [2010] 21 EG 91 (CS). The appellants appealed.Held: The appeal was allowed in part.(1) The appellants were not entitled to the £200,000 commission on the first sale. They had waived their right to that commission as part of the later arrangement to act on the proposed resale. It was inherent in the new arrangement that the appellants relinquished any right to the reduced commission on the first sale in return for the chance of earning the much larger sum of £1m on a resale. Once the second agreement was made, the original rights and obligations were exchanged for a new set of rights and obligations and the appellants were no longer entitled to recover £200,000 in respect of the first sale.(2) The appellants were, however, entitled to £1m commission on the resale. The first agency agreement formed the basis of the second agreement and, accordingly, the appellants were entitled to a fixed fee of £1m if they introduced an applicant who subsequently purchased the property from C. The second agreement did not include an implied term that the appellants had to be the effective cause of the sale in order to achieve their commission. Although the authorities favoured implying such a term or construing the express terms to that effect, such a construction did not universally apply if the contract pointed in the opposite direction. It was notable that the original deal, on which the second agreement was based, was favourable to the appellants and entitled them to a commission not only if they introduced a purchaser but also, albeit at a reduced rate, if they effected no introduction. It would produce bizarre results if the second agreement were construed so as to entitle the appellants to a reduced commission if they effected no introduction but no commission if they did effect an introduction, but this was not the effective cause of the sale. That militated against implying a requirement for the appellants to be the effective cause; accordingly, neither the first nor the second agreement required the appellants to be the effective cause of the sale and an introduction to the purchaser would suffice: John D Wood Co v Dantata [1987] 2 EGLR 23; (1987) 283 EG 314 and Foxtons Ltd v Bicknell [2008] EWCA Civ 419; [2008] 2 EGLR 23; [2008] 24 EG 142 distinguished; The County Homesearch Co (Thames & Chilterms) Ltd v Cowham [2008] EWCA Civ 26; [2008] 1 EGLR 24; [2008] 15 EG 178 and Brian Cooper & Co v Fairview Estates (Investments) Ltd [1987] 1 ELGR 18; (1987) 282 EG 1131 considered.Further matters supporting that conclusion were that: (i) the contract between the appellants and the respondent was not a standard form of contract but was made expressly for the purposes of a sale of a rather special property, such that its terms displaced the normal construction; (ii) although C had originally set out to purchase the property as a home for E’s family, and the implication of an “effective cause” requirement was readily made in a residential consumer contract, a weaker presumption arose where, as here, all the relevant parties were companies and had access to sophisticated advice if they needed it; and (iii) under the second agreement, the respondent was no longer the owner of the property and could not determine the price at which the resale took place, such that there was little that the appellants could have been expected to achieve in respect of the resale price or the other terms of the resale contract.Jonathan Gaunt QC and Robert Deacon (instructed by CKFT Solicitors) appeared for the appellants; John Wardell QC (instructed by Davenport Lyons) appeared for the respondent.Sally Dobson, barrister