Wells v Devani

Estate agents – Commission – Entitlement – Respondent estate agent finding purchaser for appellants’ flats – Claim by respondent for commission on that sale – Whether judge entitled to find that oral contract for payment of commission reached in course of telephone conversation – Whether contract incomplete by reason of failure to define event triggering entitlement to commission – Appeal allowed In early 2008, the appellant was put in touch with the respondent estate agent in connection with the sale of flats in a development which the appellant had undertaken in Hackney, London. The appellant had been marketing the completed flats through a local estate agency, under a sole agency contract with a commission of 3%, reduced to 2% on prompt payment. Six of the flats had been sold and one was under offer, but the remaining seven were still on the market. After a telephone conversation between the appellant and the respondent, the latter contacted a housing association, which, after a viewing of the flats at which the appellant was present, agreed to purchase the eight unsold flats subject to contract. Thereafter, the respondent emailed the respondent setting out his terms of business, which specified a 2% of the sale price, plus VAT, in the case of a multiple agency and provided that the commission would fall due on exchange of contracts with a purchaser, but would be payable from the proceeds of sale. The sale of the flats was duly completed and the respondent claimed a commission of £42,000 plus VAT. The appellant disputed the respondent’s entitlement to a fee. In the county court, the judge found that the parties had made an oral contract for the payment of a commission. He found that a legally binding agreement had been reached in the course of the initial telephone conversation between the parties, notwithstanding that the event that was to trigger the entitlement to commission had not been defined at the time. The judge filled in that gap by implying a term to the effect that payment would be due on the introduction of a person who actually completed the purchase. The judge further found that, since the respondent had not provided the appellant with his written terms of business until after the making of the contract, he had failed to comply with his obligations under section 18 of the Estate Agents Act 1979 and his commission should accordingly be reduced by one-third. The appellant appealed against the finding that a commission was payable. The respondent cross-appealed against the reduction in his fee. Held (Arden LJ dissenting): The appeal was allowed. (1) The judge had erred in finding that the parties had made a binding oral contract. The parties had not discussed or agreed on the event that would entitle the respondent to commission. That being so, the oral agreement was not sufficiently complete to amount to a binding contract. The judge had erred in basing his decision on the implication of a term to fill in the gaps, rather than on the interpretation of what the parties had actually said to each other. While the court could imply terms into a contract, that assumed that there was in fact a concluded contract into which such terms could be implied. It was not legitimate, under the guise of implying terms, to make a contract for the parties: Scancarriers A/S v Aotearoa International Ltd [1985] 2 Lloyd’s Rep 419 and Little v Courage Ltd (1994) 70 P&CR 469 applied. The event giving rise to an estate agent’s entitlement to commission was a matter of critical importance and a variety of events could be specified; there was no general rule governing the matter. Accordingly, unless the parties themselves specified the event, their bargain was incomplete: Luxor (Eastbourne) Ltd v Cooper [1941] AC 108. It was wrong in principle to turn an incomplete bargain into a legally binding contract by adding expressly agreed terms and implied terms together. While an agreement could be complete even though it was not worked out in meticulous detail, the express identification of the trigger event on which commission became payable was something which the law required as essential for the formation of legally binding relations. The trigger event determined what the agent had to do in order to earn his commission. The trigger event could not be decided by reference to the standard of reasonableness and the law did not provide a default rule. It made no difference, in that regard, whether the contract was a “unilateral contract” in the sense of an offer that was capable of acceptance to as to produce a bilateral contract. The acceptance of an offer had to be in accordance with its terms and, if the offer did not specify what would amount to acceptance, it was not capable of acceptance so as to result in a binding bilateral contract. An offer would cease to be revocable when the offeror started to perform the requested act. If no act was requested, there was nothing to accept: Luxor (Eastbourne) Ltd applied. It did not assist the respondent to claim that he had made a contract on his standard terms of business, since the judge had in fact rejected that case. Accordingly, there was no concluded contract between the parties before the introduction of the housing association to the property or before it made its offer to purchase. It was not suggested that a contract had been made at any other time. (2) Per curiam (Arden LJ agreeing): Had there been a completed contract, the better view was that the respondent would not have complied with his statutory obligations in relation to it. Section 18 of the 1979 Act was intended to be a form of consumer protection, intended to ensure that the person instructing the estate agent knew precisely what his liabilities to the estate agent were before he was legally committed: Harwood v Smith [1998] 1 EGLR 5 applied. The respondent did not know the extent of his liabilities, not only because no terms had been communicated to him in writing, but also because the terms that had been orally agreed did not include the critical point that identified the triggering event for liability to pay commission. In those circumstances, the default position was that the contract was unenforceable. It was only enforceable if the court made an order to that effect, which would depend on whether it was just, within the meaning of section 18(6)(a) of the 1979 Act, having regard to the degree of prejudice caused to the instructing party and the degree of culpability on the part of the estate agent. Both prejudice and culpability had to be considered together and in the round. A failure to comply might be all the more culpable because of the prejudice that it had caused the client, whereas a failure that caused no prejudice might not be culpable at all: Great Estates Group Ltd v Digby [2011] EWCA Civ 1120; [2011] 3 EGLR 101. Relevant factors in the instant case were: (i) the speed at which events happened, which meant that the appellant did not know the extent of his liability until after the triggering event that crystallised it; (ii) the appellant’s uncertainty as to the nature of that triggering event; (iii) his possible exposure to a claim for 3% commission by his original estate agent under the sole agency agreement, although the court was also justified in taking into account the fact that no such claim had in fact been made within the relevant limitation period; and, in the respondent’s favour (iv) the fact that the respondent had done a good job in securing a quick offer for the flats at the asking price. In deciding whether it was just to dismiss the respondent’s claim to enforce the contract, the judge was making a value judgment based on a number of factors, measured against an imprecise standard, and an appeal court should be particularly wary of disturbing it. There were no grounds for doing so in the instant case. Having decided that it was not just to dismiss the respondent’s application, the judge was then exercising a true discretion under section 18(6)(b) as to whether to reduce the fee payable. At that stage, issues of culpability and justice fell away, and the discretion to reduce the fee was exercisable only for the purpose of compensating the client for prejudice. Nonetheless, “prejudice” was a far broader expression than financial loss. The judge in the instant case had been entitled to decide that the prejudice to the appellant justified his reduction to the respondent’s fee. Andrew Butler (instructed by Stitt & Co) appeared for the appellant; David Giles (instructed by direct access) appeared for the respondent. Sally Dobson, barrister Click here to read transcript: Wells v Devani