Legal notes: Reading between the lines

A Supreme Court decision on estate agent’s commission demonstrates the approach of the courts to upholding contracts. Allyson Colby explains the ruling. Key points A sketchy oral agreement, interpreted in context and taking the parties’ behaviour into account, was legally binding Hypothetical uncertainties should not obstruct the enforceability of a contract in circumstances where no such issues arise If necessary, the court can imply terms that are so obvious that they go without saying to rescue an offer or contract that would otherwise be incomplete Contractual disputes often arise where parties agree to enter into an ongoing relationship, or on some future action, but fail to address something fundamental. Does the incompleteness of their bargain mean that there is no contract at all? Or can the court repair the parties’ omission? Wells v Devani [2019] UKSC 4; [2019] PLSCS 33 concerned the sale of seven flats in a development in Hackney. Local agents acting for the developer had been unable to find buyers for them. But, after being appointed on the telephone, a new agent arranged a sale to a housing association within a week. The agent sent his terms of business to the developer on hearing that an offer had been made and accepted – and submitted an invoice for his commission (in the sum of £42,000 plus VAT) on completion of the transaction. The percentage of commission had been agreed on the telephone. But the parties did not discuss how the developer’s liability to pay commission would be triggered. Did their omission mean that the parties had not entered into a contract at all? Judicial disagreement The Court of Appeal ruled, by a majority, that there was no contract, citing Scancarriers A/S v Aotearoa International Ltd [1985] 2 Lloyd’s Rep 419 in support of its decision. The parties had intended to be legally bound. But their agreement was incomplete, and it was impossible to imply a term that would turn it into an enforceable contract because the courts cannot make a contract for parties and impose it on them. In addition, the contractual term that the agent was suggesting (that commission would become payable when the buyer completed the purchase) would be inconsistent with the written terms of business that he had belatedly supplied (which stated that commission would become payable on exchange of contracts). The Supreme Court has overturned the decision. Lord Kitchin, who spoke for the court, accepted that, in some cases, the parties’ words and conduct may have been so vague and lacking in specificity that the court cannot identify the terms agreed, or attribute any contractual intention to the parties. But, where the parties intended to be contractually bound and have acted on their agreement, the court will be reluctant to find that an agreement is too vague or uncertain to be enforced. The parties had not discussed the event that would trigger liability to pay the commission. But the Supreme Court rejected the notion that this meant that the bargain was incomplete. Their Lordships had no doubt that if, as in this case, there is no express term and the bargain is, in substance, “find me a purchaser”, then a reasonable person, construing their words and conduct in context, would understand that the parties intended the commission to be payable on completion out of the proceeds of sale. It was true that the agent’s written terms of engagement provided for something different, but they were not relevant because the agent had supplied them belatedly. Implied term So there was no need to imply a term into the parties’ agreement. But, if that were not the case, could the court imply a term into the parties’ agreement to render it sufficiently certain to constitute a binding contract? Where the conditions set out in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72; [2016] EGLR 8 are satisfied, the Supreme Court had no doubt that it could. The court ruled that there is no general rule that prevents the court from implying a term into an agreement to turn it into a legally binding contract, distinguishing Scancarriers on the ground that the decision did not support the far-reaching proposition identified by the Court of Appeal and must be seen in the context of the particular facts of that case. Lord Kitchin went further, saying that the court can, where necessary, imply something so obvious that it goes without saying into anything – including something that constitutes only an offer, so that, if the offer is accepted, the contract is made on the terms of the words used and what those words imply. Section 18 Section 18 of the Estate Agents Act 1979 requires agents to provide certain information to clients before contracting with them, so that they know what their liabilities will be. Agents who fail to do so must ask the court for permission to recover their commission and, if the court allows them to do so, it can reduce the amount payable to compensate the client for the prejudice suffered. Did the agent’s failure to comply with section 18 discharge the developer’s liability to pay him? The judge at first instance accepted that the failure was culpable, but decided to allow the agent to enforce the agreement after reducing his commission by one-third. And, without under-rating the importance of complying with section 18, neither the Court of Appeal, nor the Supreme Court, were prepared to interfere with that decision. Conclusions The Supreme Court has made it clear that it is only in rare cases, where the words used by the parties (considered broadly and untechnically and with regard to all their implications) fail to evince any definite meaning on which the court can safely act, that the court will rule that there was no contract at all. Furthermore, if a contract plainly creates a liability for payment in the events that have happened, a perception that uncertainty might have arisen on different hypothetical facts should not prevent the recognition of contractual rights where no such issues arise. Allyson Colby is a property law consultant