RTA (Business Consultants) Ltd v Bracewell

Estate agent – Commission – Illegality – Money Laundering Regulations 2007 – Claimant seeking to recover commission said to be due under agreement for sale of defendant’s property and business – Whether agreement unenforceable for illegality under regulation 33 of 2007 Regulations on grounds that claimant carrying on estate agency work without registration as estate agent – Whether defendant a “consumer” protected by Cancellation of Contracts made in a Consumer’s Home or Place of Work etc Regulations 2008 or Unfair Terms in Consumer Contracts Regulations 1999 – Claim and counterclaim dismissed The defendant owned a property in Glasgow from which he ran a café/restaurant and public house with a small gift shop. In 2010, he engaged the claimant, a firm of business transfer agents, to sell the property and business for him on the terms of a written agreement dated February 2010. The agreement gave sole selling rights to the claimant for a period of 12 months and provided for payment of a registration fee and a commission of £40,000 plus VAT in the event of a sale or other disposal. In the end, the defendant himself arranged to let the property and business to a friend at a rent of £40,000 pa. The claimant brought proceedings against the defendant for £47,000 representing its commission under the agreement plus VAT; alternatively, for £7,050 as the unpaid balance of the registration fee. The defendant counterclaimed for the return of £3,000, plus VAT, already paid on account of the registration fee. He contended that the agreement was unenforceable on the grounds of illegality under regulation 33 of the Money Laundering Regulations 2007, since it involved a person not registered as an estate agent, namely the claimant, carrying on “estate agency work” within the meaning of section 1(1) of the Estate Agents Act 1979. The claimant accepted that it should have been, but was not, registered with the Office of Fair Trading at the time of making the agreement. However, it contended that the failure to register did not render the agreement unenforceable on the grounds of illegality since the requirement to register was a comparatively trivial administrative regulation, non-compliance with which did not involve any dishonesty or “turpitude”. The defendant advanced further arguments based on the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008 and the Unfair Terms in Consumer Contracts Regulations 1999. He also alleged that the agreement had been induced by misrepresentation on the part the claimant. Held: The claim was dismissed. (1) Whether breach of a statutory provision would render a particular contract illegal was a matter of construction of the statutory provision in question. The court should be cautious in concluding that breach of a statutory provision should result in a contract being illegal, but, if that was its consequence on a proper construction, then the court had to give effect to that conclusion. On the proper construction of regulation 33 of the 2007 Regulations, the effect of a breach by someone carrying on business in the undertaking of “estate agency work” was that any contract made for the purposes of providing “estate agency work” was illegal. The 2007 Regulations were made to implement in part Directive 2005/60/EC on money laundering. Regulation 33 had the effect that a person who was required to be registered, but who was not registered, was prohibited from carrying on the business or profession in question for more than six months beginning on the date on which the supervisory authority established the register. In order to carry on the business of providing “estate agency work”, it was necessary for an “estate agent” to enter into contracts with those wishing to sell property, and perhaps also with those wishing to buy property. Without such contracts there was no business. It followed that regulation 33, on its face, sought to prevent unregistered persons from acting as estate agents, and that could be achieved only by prohibiting such persons from entering into contracts to provide services of estate agency work. It was not for the court to consider whether the sanction of rendering illegal the contracts of unregistered estate agents was disproportionate. Proportionality was a matter for parliament in deciding how to implement the directive. Seeking to prevent the use of the financial system for the purposes of money laundering or financing terrorism was a matter in which there was a manifest public interest. There was also a public interest in seeking to ensure that businesses potentially handling significant amounts of money complied with their own obligations under the 2007 Regulations by subjecting them to supervision by relevant authorities. A prohibition on carrying on business unless registered provided a more powerful incentive than a civil penalty or a fine. It followed that the agreement was unenforceable and the claim was dismissed. The defendant’s counterclaim was also dismissed so far as it relied on an alleged breach of an implied term of the agreement: St John Shipping Corporation v Joseph Rank Ltd [1957] 1 QB 267 and Les Laboratoires Servier v Apotex Inc [2014] UKSC 55; [2014] 3 WLR 1257 applied. Furthermore, the defendant’s allegations of misrepresentation were not made out on the evidence. Per curiam: Had the agreement not been unenforceable by reason of regulation 33 of the 2007 Regulations, the defendant could not have escaped his obligations by relying on the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008 or the Unfair Terms in Consumer Contracts Regulations 1999. The better view was that the defendant was not a “consumer” within the meaning of those regulations since he was not acting for purposes outside his trade or profession. In seeking to sell his business to realise a capital asset, he was not acting for purposes outside his trade but was seeking to achieve one of the purposes of having a trade, namely to realise its capital value at an appropriate time. Mark Spackman (instructed by JCP Solicitors, of Swansea) appeared for the claimant; William Hibbert (instructed by Smithfield Partners Ltd) appeared for the defendant. Sally Dobson, barrister Click to read transcript: RTA (Business Consultants) Ltd v Bracewell