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JUDGMENT
Wells (Respondent) v Devani (Appellant)
before
Lord Wilson
Lord Sumption
Lord Carnwath
Lord Briggs
Lord Kitchin
JUDGMENT GIVEN ON
13 February 2019
Heard on 11 October 2018
Appellant Respondent
Andrew Warnock QC Andrew Butler QC
David Giles Edward Blakeney
Laura Giachardi
(Instructed under the Bar
Council’s Direct Access
Rules)
(Instructed by Wedlake
Bell LLP)
Page 2
LORD KITCHIN: (with whom Lord Wilson, Lord Sumption and Lord
Carnwath agree)
1. In this case an estate agent claims that commission became payable to him
by the vendor of a number flats on the completion of the sale of those flats to a
purchaser which he had introduced to the vendor. It gives rise to two issues. The
first, raised on appeal by the agent, concerns the agreement between the agent and
the vendor and whether it was complete and enforceable by the agent despite there
being no express identification of the event which would trigger the obligation to
pay the commission. The second, raised on a cross-appeal by the vendor, concerns
the application of section 18 of the Estate Agents Act 1979 and whether, by reason
of the agent’s failure to comply with the requirements imposed by the Act, the trial
judge ought to have dismissed the claim or discharged the vendor’s liability to pay
the commission.
The facts
2. In 2007, the defendant, Mr Wells, a retired stockbroker’s office
administrator, completed the development of a block of flats in Hackney under the
terms of a joint venture agreement with Mr White, a builder. By the beginning of
2008 six of the flats had been sold, one was under offer and seven were still on the
market. They were being marketed by a local agency, Shaw & Co, under a contract
for a sole agency and a commission of 1.75%, or 3% if the properties were sold
through another agent.
3. In late January 2008, Mr Wells mentioned to Mr Nicholson, a neighbour in
Andorra, where they both lived, that he was having difficulty selling the remaining
flats. Mr Nicholson told Mr Wells that he knew of a property investment company
in London that might be interested in purchasing the flats and Mr Wells responded
that he would be happy for Mr Nicholson to make some enquiries.
4. On 29 January 2008, Mr Nicholson sent an email to the claimant, Mr Devani,
who was trading as an estate agent in Kilburn, informing him of the flats and that
seven remained unsold. He also gave him Mr Wells’ and Mr White’s telephone
numbers and explained that Mr Wells would be coming to London very soon.
5. Later that day Mr Devani acknowledged receipt of Mr Nicholson’s email,
thanked him and told him that the information he had been given might well be of
interest. He also made a telephone call to Mr Wells in Andorra. The parties at trial
Page 3
gave strikingly different accounts about what was said in the course of this telephone
conversation. It was Mr Devani’s evidence that he told Mr Wells that he was an
estate agent and that his commission terms would be 2% plus VAT. Mr Wells
maintained that Mr Devani made no mention of any commission and gave the
impression he was an investor looking to buy on his own account.
6. The judge, HH Judge Moloney QC, preferred the evidence of Mr Devani. He
found that Mr Devani thought throughout that he was acting as an agent, that he did
not describe himself as a buyer or say anything intended to create the impression
that he was, and that Mr Wells asked him about fees and he replied that his standard
terms were 2% plus VAT. He also found that since February 2008 Mr Wells and Mr
White had sought to take advantage of the absence of a written agreement with Mr
Devani to deprive him and Shaw & Co of their commissions, and that they had
tailored much of their evidence to reinforce their case.
7. Shortly after this telephone conversation, Mr Devani made contact with
Newlon Housing Trust which expressed some interest in purchasing the remaining
flats. A meeting at the flats was arranged and attended by a representative of
Newlon, Mr Wells and Mr White. On 5 February 2008, Newlon agreed to purchase
the flats for £2.1m. Mr Wells thereupon telephoned Mr Devani to inform him of the
sale and later that day Mr Devani sent to Mr Wells an email in which he expressed
delight that Newlon had agreed to purchase the flats and continued:
“As per our terms of business our fees are 2% + VAT and I
look forward to receiving you[r] solicitors details so that we
can invoice them directly as per your instruction.”
8. He attached to that email the terms of business which provided in relevant
part:
“I am required by section 18 of the Estate Agents Act 1979, as
amended to set out our terms of business prior to you formerly
[sic] instructing our company.
A commission of 2% + VAT (Multiple Agency) of the eventual
sale price of the property.
The commission will be due on exchange of contracts with a
purchaser, but payable from the proceeds of sale by your
conveyance, with your written authority.”
Page 4
9. The transaction proceeded to completion and Mr Devani then claimed his
commission. Mr Wells refused to pay and so Mr Devani issued these proceedings in
the Central London County Court.
The trial
10. Apart from the factual issues which the judge resolved in Mr Devani’s favour,
Mr Wells disputed Mr Devani’s entitlement to any commission on two grounds
which are material to this appeal. Mr Wells contended first, that he had never entered
into a binding contract to engage Mr Devani as his agent because the terms of any
agreement between them were too uncertain; and secondly, that Mr Devani’s failure
to comply with section 18 of the Estate Agents Act 1979 rendered any agreement
unenforceable or that any sum payable to Mr Devani by Mr Wells should be
discharged or reduced in light of the prejudice Mr Wells had suffered.
11. The judge dealt with the first ground in concise terms. He accepted that Mr
Devani only submitted his written terms to Mr Wells after he had introduced Newlon
and that his claim therefore depended on what had been agreed on 29 January 2008.
He also recognised that Mr Devani did not reach any express agreement with Mr
Wells as to the precise event which would entitle Mr Devani to his commission.
Nevertheless, he held that, in the absence of any such express agreement, the law
would imply the minimum term necessary to give business efficacy to the parties’
intentions. Here, the judge continued, the least onerous term for Mr Wells, and the
one which nobody would have disputed had it been suggested by a bystander, was
that payment of the specified commission was due on the completion of the purchase
of the properties by any party which Mr Devani had introduced to Mr Wells.
Accordingly, he held that there was at the material time an oral contract between Mr
Devani and Mr Wells entitling Mr Devani to a payment of 2% plus VAT if Mr
Devani effected an introduction between Mr Wells and a prospective purchaser of
the flats and that such introduction led to their sale.
12. The judge turned next to the submissions founded upon section 18 of the
1979 Act. He found that Mr Devani had failed to comply with his obligations under
the Act in that he did not expressly inform Mr Wells before their agreement of the
circumstances under which he would be entitled to commission, and he did not
provide Mr Wells with that information in writing until 5 February 2008. He also
found that these failures were culpable but that having regard to the degree of that
culpability and the prejudice Mr Wells had suffered, it would be just to permit Mr
Devani to enforce the agreement but to compensate Mr Wells for that prejudice by
reducing the fee he was required to pay by one-third.
Page 5
The appeal to the Court of Appeal
13. The Court of Appeal ([2017] QB 959), by a majority, allowed Mr Wells’
appeal on the issue of whether there was ever a binding contract. Lewison LJ
considered the judge’s approach could not be justified. His reasoning ran as follows.
First, a court can imply terms into a contract, but this assumes there is a concluded
contract into which the terms can be implied. It is not legitimate, under the guise of
implying terms, to make a contract for the parties. This is to put the cart before the
horse. Secondly, the trigger event giving rise to an estate agent’s entitlement to
commission is of critical importance and a variety of events can be specified. The
identification of the trigger event is therefore essential to the formation of legally
binding relations. Thirdly, it follows that, unless the parties specify that event, their
bargain is incomplete, and it is wrong in principle to turn an incomplete bargain into
a legally binding contract by adding expressly agreed terms and implied terms
together. In his view, that is what the judge did in this case. What was more, it was
not possible or permissible to support the judge’s conclusion in any other way.
14. McCombe LJ agreed that the appeal should be allowed, essentially for the
reasons given by Lewison LJ. He did not disagree with the judge’s finding that the
parties intended to reach and did reach an agreement. For him the question was
whether what they had agreed amounted to a binding contract. In his view, it did
not, for an agreement which did not specify the event which triggered the entitlement
to commission was not complete.
15. Arden LJ, dissenting, considered that the bargain between the parties was
initially a unilateral contract but that it became a bilateral contract at the latest when
Newlon, having been introduced to Mr Wells by Mr Devani, completed the purchase
of the flats. As a matter of interpretation of the whole contract, the commission
became payable on completion. She acknowledged that the judge had arrived at his
conclusion by implying a term, but this was of no matter because the outcome was
the same.
16. As for section 18 of the 1979 Act, the Court of Appeal decided unanimously
that Mr Wells’ appeal in relation to this issue should be dismissed. Lewison LJ, with
whom McCombe and Arden LJJ agreed, made some criticisms of the way the judge
had dealt with the relevant elements of culpability and prejudice but concluded that
he could not say the judge’s overall value judgment was wrong. The Court of Appeal
also dismissed Mr Devani’s cross-appeal against the reduction in his fee.
Page 6
Was there a binding contract?
17. The question whether there was a binding contract between Mr Devani and
Mr Wells required a consideration of what was communicated between them by
their words and their conduct and whether, objectively assessed, that led to the
conclusion that they intended to create a legally binding relationship and that they
had agreed all the terms that the law requires as essential for that purpose. Lord
Clarke explained the relevant principles in this way in RTS Flexible Systems Ltd v
Molkerei Alois Müller GmbH [2010] UKSC 14; [2010] 1 WLR 753, para 45:
“The general principles are not in doubt. Whether there is a
binding contract between the parties and, if so, upon what terms
depends upon what they have agreed. It depends not upon their
subjective state of mind, but upon a consideration of what was
communicated between them by words or conduct, and
whether that leads objectively to a conclusion that they
intended to create legal relations and had agreed upon all the
terms which they regarded or the law requires as essential for
the formation of legally binding relations. Even if certain terms
of economic or other significance have not been finalised, an
objective appraisal of their words and conduct may lead to the
conclusion that they did not intend agreement of such terms to
be a precondition to a concluded and legally binding
agreement.”
18. It may be the case that the words and conduct relied upon are so vague and
lacking in specificity that the court is unable to identify the terms on which the
parties have reached agreement or to attribute to the parties any contractual
intention. But the courts are reluctant to find an agreement is too vague or uncertain
to be enforced where it is found that the parties had the intention of being
contractually bound and have acted on their agreement. As Lord Wright said in G
Scammel & Nephew Ltd v HC and JG Ouston [1941] AC 251, 268:
“The object of the court is to do justice between the parties, and
the court will do its best, if satisfied that there was an
ascertainable and determinate intention to contract, to give
effect to that intention, looking at substance and not mere form.
It will not be deterred by mere difficulties of interpretation.
Difficulty is not synonymous with ambiguity so long as any
definite meaning can be extracted. But the test of intention is to
be found in the words used. If these words, considered however
broadly and untechnically and with due regard to all the just
implications, fail to evince any definite meaning on which the
Page 7
court can safely act, the court has no choice but to say that there
is no contract. Such a position is not often found.”
19. As I have explained, the judge had no doubt that the parties did intend to
create legal relations and that they understood that Mr Devani’s terms were that he
would be entitled to a commission of 2% plus VAT. Mr Devani then introduced Mr
Wells to a prospective purchaser, Newlon, and that introduction led directly to the
completed sale. It is true that, as the judge found, there was no discussion of the
precise event which would give rise to the payment of that commission but, absent
a provision to the contrary, I have no doubt it would naturally be understood that
payment would become due on completion and made from the proceeds of sale.
Indeed, it seems to me that is the only sensible interpretation of what they said to
each other in the course of their telephone conversation on 29 January 2008 and the
circumstances in which that conversation took place. In short, Mr Devani and Mr
Wells agreed that if Mr Devani found a purchaser for the flats he would be paid his
commission. He found Newlon and it became the purchaser on completion of the
transaction. At that point, Mr Devani became entitled to his commission and it was
payable from the proceeds of sale.
20. This interpretation of the parties’ words and conduct is in my view amply
supported by authority. For example, in Fowler v Bratt [1950] KB 96, the plaintiff,
a house agent, was instructed by the defendant to find a purchaser of his house and
agreed to pay a commission on the price. Subsequently the defendant decided not to
go through with the sale and the plaintiff brought proceedings for his commission.
The Court of Appeal held that, in order to earn his commission, the plaintiff had at
least to find a purchaser who was bound in law to buy, and that he had done. The
case is of particular relevance to this appeal in light of this passage in the judgment
of Denning LJ (at pp 104-105):
“I confess that I approach claims by estate agents from the point
of view, which I am sure is the common understanding of men,
namely, that, in the absence of express terms to the contrary,
the commission of the agents is to be paid out of the proceeds
of sale. If the sale does not go through, the presumption is that
no commission is payable. But in point of law if an agent
succeeds in finding a person who actually enters into a binding
and enforceable contract to purchase, and if that contract
afterwards goes off by the vendor’s default, the vendor is liable
to pay commission.”
21. Midgley Estates v Hand [1952] 2 QB 432 concerned an agreement between
the plaintiff estate agents and the defendant vendor that the agents’ commission
would be payable as soon as a purchaser had signed “a legally binding contract”
Page 8
within a certain period of time. The agents did introduce such a purchaser who
signed the contract and paid a deposit but was unable to complete. The agents
thereupon sought payment of their commission. The Court of Appeal held that the
terms of the agreement were clear and the court would give effect to them, and they
displaced the prima facie position. Jenkins LJ, with whom Somervell and Morris
LJJ agreed, described that prima facie position in these terms (at pp 435 to 436):
“The question depends on the construction of each particular
contract, but prima facie the intention of the parties to a
transaction of this type is likely to be that the commission
stipulated for should only be payable in the event of an actual
sale resulting. The vendor puts his property into the hands of
an agent for sale and, generally speaking, contemplates that if
a completed sale results, and not otherwise, he will be liable for
the commission, which he will then pay out of the purchase
price. That is, broadly speaking, the intention which, as a
matter of probability, the court should be disposed to impute to
the parties. It follows that general or ambiguous expressions,
purporting, for instance, to make the commission payable in the
event of an agent ‘finding a purchaser’, or in the event of the
agent ‘selling the property’, have been construed as meaning
that the commission is only payable in the event of an actual
and completed sale resulting, or, at least, in the event of an
agent succeeding in introducing a purchaser who is able and
willing to purchase the property. That is the broad general
principle in the light of which the question of construction
should be approached; but this does not mean that the contract,
if its terms are clear, should not have effect in accordance with
those terms, even if they involve the result that the agent’s
commission is earned and becomes payable although the sale
in respect of which it is claimed, for some reason or another,
turns out to be abortive.”
22. In Dennis Reed Ltd v Goody [1950] 2 QB 277, two home owners instructed
the plaintiff agents to “find a person ready, willing and able” to purchase their
property and agreed to pay the agents a commission upon them introducing such a
person. The agents found a prospective purchaser but he withdrew before an
enforceable agreement for sale had been made. The agents nevertheless claimed they
were entitled to their full commission. The Court of Appeal agreed with the trial
judge that they were not. Denning LJ explained (at p 284) that when an owner puts
his house into the hands of an estate agent, the ordinary understanding is that the
agent is only entitled to a commission if he succeeds in effecting a sale; but if he
does not, he is entitled to nothing. A little later, he said this about the relationship
between owner and agent:
Page 9
“All the familiar expressions ‘please find a purchaser’, ‘find
someone to buy my house’, ‘sell my house for me’, and so on
mean the same thing: they mean that the agent is employed on
the usual terms; but none of them gives any precise guide as to
what is the event on which the agent is to be paid. The common
understanding of men is, however, that the agent’s commission
is payable out of the purchase price. The services rendered by
the agent may be merely an introduction. He is entitled to
commission if his introduction is the efficient cause in bringing
about the sale: Nightingale v Parsons [1914] 2 KB 621. But
that does not mean that commission is payable at the moment
of the introduction: it is only payable on completion of the sale.
The house owner wants to find a man who will actually buy his
house and pay for it.”
23. All of this reasoning remains as principled and cogent today as it was when
expressed and I respectfully endorse it. The case before us is another in which the
parties meant by their words and actions that the agent was engaged on the usual
terms, that is to say that a commission became payable not upon the introduction by
Mr Devani of a prospective purchaser to Mr Wells, nor upon the exchange of
contracts, but rather upon completion of the sale and then from its proceeds, for it
was at that time that Newlon actually bought and paid for the property and so became
its purchaser. It is true that Mr Devani’s written terms of engagement made express
provision for payment but neither party has suggested they are relevant to the issue
before us for they were not supplied until 5 February 2008.
24. In this connection I must also address the decision of House of Lords in Luxor
(Eastbourne) Ltd v Cooper [1941] AC 108, for it is one upon which Lewison LJ
placed particular reliance. An agent, Mr Cooper, sued two companies, Luxor
(Eastbourne) Ltd and Regal (Hastings) Ltd, for breach of an agency agreement. The
terms of their bargain were that if a party introduced by Mr Cooper were to buy
certain property owned by the companies they would pay him a substantial
commission. Under the terms of their agreement, the commission would become
due “on completion of the sale”. Mr Cooper contended that he had introduced
prospective purchasers who were ready and willing to buy the property. No sale took
place, however, because the owners changed their plans. It necessarily followed
from the express terms of their agreement that no commission was payable but Mr
Cooper argued that he was nevertheless entitled to damages for breach of an implied
term that the vendor companies would do “nothing to prevent the satisfactory
completion of the transaction” and so deprive him of his commission (at p 115). The
House of Lords held that no such term could be implied. In the course of his speech
Viscount Simon LC observed that there was considerable difficulty in formulating
general propositions on the subject of estate agents’ commissions for their contracts
did not follow a single pattern and the primary necessity in each case was to ascertain
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with precision the express terms of the contract in issue, and then to consider
whether they necessitated the addition, by implication, of other terms. He continued
(at pp 120, 121):
“It may be useful to point out that contracts under which an
agent may be occupied in endeavouring to dispose of the
property of a principal fall into several obvious classes. There
is the class in which the agent is promised a commission by his
principal if he succeeds in introducing to his principal a person
who makes an adequate offer, usually an offer of not less than
the stipulated amount. If that is all that is needed in order to
earn his reward, it is obvious that he is entitled to be paid when
this has been done, whether his principal accepts the offer and
carries through the bargain or not. No implied term is needed
to secure this result. There is another class of case in which the
property is put into the hands of the agent to dispose of for the
owner, and the agent accepts the employment and, it may be,
expends money and time in endeavouring to carry it out. Such
a form of contract may well imply the term that the principal
will not withdraw the authority he has given after the agent has
incurred substantial outlay, or, at any rate, after he has
succeeded in finding a possible purchaser. Each case turns on
its own facts and the phrase ‘finding a purchaser’ is itself not
without ambiguity. … But there is a third class of case (to
which the present instance belongs) where, by the express
language of the contract, the agent is promised his commission
only upon completion of the transaction which he is
endeavouring to bring about between the offeror and his
principal. As I have already said, there seems to me to be no
room for the suggested implied term in such a case. The agent
is promised a reward in return for an event, and the event has
not happened. He runs the risk of disappointment, but if he is
not willing to run the risk he should introduce into the express
terms of the contract the clause which protects him.”
25. Lord Russell, with whom Lord Thankerton agreed, said this (at pp 124 to
125):
“A few preliminary observations occur to me. (1) Commission
contracts are subject to no peculiar rules or principles of their
own; the law which governs them is the law which governs all
contracts and all questions of agency. (2) No general rule can
be laid down by which the rights of the agent or the liability of
the principal under commission contracts are to be determined.
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In each case these must depend upon the exact terms of the
contract in question, and upon the true construction of those
terms. And (3) contracts by which owners of property, desiring
to dispose of it, put it in the hands of agents on commission
terms, are not (in default of specific provisions) contracts of
employment in the ordinary meaning of those words. No
obligation is imposed on the agent to do anything. The
contracts are merely promises binding on the principal to pay a
sum of money upon the happening of a specified event, which
involves the rendering of some service by the agent.”
26. Lewison LJ thought that it was apparent from these passages that the event
giving rise to an estate agent’s entitlement to commission was of critical importance
and that a variety of events could be specified. In his view it followed that, unless
the parties specified that event, their bargain was incomplete. I agree with Lewison
LJ that the event giving rise to the entitlement to commission may be of critical
importance but I respectfully disagree that this means that unless this event is
expressly identified the bargain is necessarily incomplete. It may be an express term
of the bargain that the commission is payable upon the introduction of a prospective
purchaser who expresses a willingness to buy at the asking price, or it may be an
express term that it is payable upon exchange of contracts. But if, as here, there is
no such express term and the bargain is, in substance, “find me a purchaser” and the
agent introduces a prospective purchaser to whom the property is sold, then a
reasonable person would understand that the parties intended the commission to be
payable on completion and from the proceeds of sale. I do not understand there to
be anything in the speeches of Viscount Simon LC or Lord Russell which
undermines this conclusion and I note in this regard that this decision preceded and
was cited in each of the decisions of the Court of Appeal to which I have referred at
paras 20 to 22 above.
Implied term
27. For these reasons I do not think the judge needed to imply a term into the
agreement between Mr Devani and Mr Wells. However, had it been necessary and
for the reasons which follow, I would have had no hesitation in holding that it was
an implied term of the agreement that payment would fall due on completion of the
purchase of the property by a person whom Mr Devani had introduced.
28. In Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey)
Ltd [2015] UKSC 72; [2016] AC 742, the Supreme Court made clear that there has
been no dilution of the conditions which have to be satisfied before a term will be
implied and the fact that it may be reasonable to imply a term is not sufficient. Lord
Neuberger of Abbotsbury PSC, with whom Lord Sumption and Lord Hodge JJSC
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agreed without qualification, explained (at paras 26 to 31) that (i) construing the
words the parties have used in their contract and (ii) implying terms into the contract,
involve determining the scope and meaning of the contract; but construing the words
used and implying additional words are different processes governed by different
rules. In most cases, it is only after the process of construing the express words of
an agreement is complete that the issue of whether a term is to be implied falls to be
considered. Importantly for present purposes, Lord Neuberger also made clear (at
paras 23 and 24) that a term will only be implied where it is necessary to give the
contract business efficacy or it would be so obvious that “it goes without saying”.
29. The approach adopted by the trial judge was entirely consistent with these
principles. He found it was necessary to imply a term to give the contract
commercial efficacy. Mr Wells was having difficulty selling his flats. An approach
was made to Mr Devani and a short while later he telephoned Mr Wells. In the course
of their conversation, Mr Devani explained that his terms were 2% plus VAT. Both
parties proceeded on that basis. Mr Devani introduced a purchaser, Newlon, which
agreed to buy the flats and a short while later completion of the sale took place. In
these circumstances I think the judge’s approach cannot be faulted for if, contrary
to my view, the agreement, on its proper interpretation, did not provide for payment
of the commission on completion then a term to that effect must be implied to make
the contract work and to give it practical and commercial coherence. In carrying out
this exercise of implication the court would be reading into the contract that which
its nature implicitly requires. Put another way, to leave Mr Wells without any
obligation to pay Mr Devani would be completely inconsistent with the nature of
their relationship. In my judgment, the obligation to make payment of the
commission on completion would be what was required to give the agreement
business efficacy, and would not go beyond what was necessary for that purpose.
Scancarriers
30. How then did the majority in the Court of Appeal come to a contrary
conclusion? I have outlined the steps in the reasoning of Lewison LJ earlier in this
judgment. They have at their heart the proposition that, unless the parties themselves
specify the event which will trigger the agent’s entitlement to commission, their
bargain is incomplete; and that it is not possible to turn an incomplete bargain into
a legally binding contract by adding expressly agreed terms and implied terms
together. Lewison LJ relied in support of his reasoning upon the decision of the
Judicial Committee of the Privy Council in Scancarriers A/S v Aotearoa
International Ltd [1985] 2 Lloyd’s Rep 419. Lord Roskill, giving the judgment of
the Board, said this (at p 422):
“… the first question must always be whether any legally
binding contract has been made, for until that issue is decided
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a court cannot properly decide what extra terms, if any, must
be implied into what is ex hypothesi a legally binding bargain,
as being both necessary and reasonable to make that bargain
work. It is not correct in principle, in order to determine
whether there is a legally binding bargain, to add to those terms
which alone the parties have expressed further implied terms
upon which they have not expressly agreed and then by adding
the express terms and the implied terms together thereby create
what would not otherwise be a legally binding bargain.”
31. Scancarriers was an unusual case. The appellants, Scancarriers, a liner
company, had surplus capacity in their vessels sailing from Australasia to Europe.
The respondents, Aotearoa, wished to transport waste paper from New Zealand,
where they were based, to India at economic freight rates. They met and discussed
the possibility of the appellants transporting the respondents’ waste paper by
introducing a new service to Dubai which could be serviced by a short deviation
from the normal route to Europe through the Suez Canal. Onward carriage to India
would be provided by transhipment from Dubai. The next day the appellants sent a
telex to the respondents offering what was described as a “promotional rate” which
would be held for the next six months for the shipping of waste paper stowed in a
specified way. The question to which the appeal gave rise was whether the telex,
construed against the background of the discussions, gave rise to a binding legal
obligation on the appellants towards the respondents. The trial judge in New Zealand
held it did not, but the Court of Appeal reversed his decision. The Privy Council had
no difficulty finding that the Court of Appeal had fallen into error. As Lord Roskill
pointed out, the telex contained no reference to the number of shipments, nor to the
dates of any suggested shipments, nor to the intervals between any such shipments.
Instead, the Court of Appeal had added implied terms to the few express terms and
in that way created a contractual relationship which the parties had not expressed
for themselves. This was plainly not permissible. Lord Roskill went on to explain
that the suggestion that, following receipt of the telex, the respondents came under
any contractual obligation to the appellants involved reading into the telex
provisions which were not to be found in its language. The telex was no more than
a quote and the parties never intended its transmission would create a legal
relationship.
32. Lewison LJ also referred to the decision of the Court of Appeal in Little v
Courage Ltd (1995) 70 P & CR 469. In that case Millett LJ, with whom the other
members of the court apparently agreed, cited Lord Roskill’s judgment in
Scancarriers as support for the proposition that it is in general impossible to imply
terms (that is to say terms which impose legal obligations) into a unilateral contract
for this would be to impose, by implication, a contractual obligation on a person
who ex hypothesi is not yet a party to any contract and therefore not yet subject to
any contractual obligations at all.
Page 14
33. In my judgment Scancarriers does not support the far-reaching proposition
which Lewison LJ identified and I think the passage in Lord Roskill’s judgment
upon which he relied must be seen in the context of the particular facts of that case.
I recognise that there will be cases where an agreement is so vague and uncertain
that it cannot be enforced. So too, there will be cases where the parties have not
addressed certain matters which are so fundamental that their agreement is
incomplete. Further, an agreement may be so deficient in one or other of these
respects that nothing can be done to render it enforceable. But I do not accept that
there is any general rule that it is not possible to imply a term into an agreement to
render it sufficiently certain or complete to constitute a binding contract. Indeed, it
seems to me that it is possible to imply something that is so obvious that it goes
without saying into anything, including something the law regards as no more than
an offer. If the offer is accepted, the contract is made on the terms of the words used
and what those words imply. Moreover, where it is apparent the parties intended to
be bound and to create legal relations, it may be permissible to imply a term to give
the contract such business efficacy as the parties must have intended. For example,
an agreement may be enforceable despite calling for some further agreement
between the parties, say as to price, for it may be appropriate to imply a term that,
in default of agreement, a reasonable price must be paid.
34. Similarly, I see no reason in principle why a term cannot be implied into an
agreement between a property owner and an estate agent that the agreed commission
will be payable on completion of the sale of the property to a person introduced by
the agent. Indeed, a very similar term was implied in James v Smith [1931] 2 KB
317. The defendant, the owner of a hotel, wrote a letter to the plaintiff, an estate
agent, saying that it would sell the property at a specified price and would pay a
commission if the property was sold at that price. The plaintiff introduced a
purchaser who signed a contract but was unable to complete. The plaintiff
nevertheless claimed that he was entitled to his commission. The Court of Appeal,
reversing the trial judge, found he was not. Bankes LJ reasoned that it was necessary
to imply a term to make the contract complete, that term being that the commission
would be payable upon the introduction of a purchaser who agreed to purchase the
property and was able to complete; in other words, a purchaser who was not a man
of straw or without means. Scrutton and Atkin LJJ agreed. Scrutton LJ construed
the wording of the agreement and identified the minimum obligation on the plaintiff.
Atkin LJ approached the case in much the same way as Bankes LJ. He too thought
the obligation on the plaintiff had to be implied, and it was to introduce a purchaser
who was able to complete at the time he signed the contract.
35. Accordingly, where, as here, the parties intended to create legal relations and
have acted on that basis, I believe that it may be permissible to imply a term into the
agreement between them where it is necessary to do so to give the agreement
business efficacy or the term would be so obvious that “it goes without saying”, and
where, without that term, the agreement would be regarded as incomplete or too
Page 15
uncertain to be enforceable. Each case must be considered in light of its own
particular circumstances. In this case the judge carried out the assessment the law
requires, and he found it necessary to imply a term to give the contract business
efficacy. Further, it cannot be said that, with that term, the agreement is too vague
or uncertain to be enforceable. Accordingly, had I not arrived at the same conclusion
by a process of interpretation, I would have upheld the judge for the reasons he gave.
36. Finally, I must address Little v Courage. It is not clear from Millett LJ’s
judgment whether he thought that Lord Roskill’s dictum in Scancarriers was only
applicable to unilateral contracts. If he did not and considered it of general and
unqualified application, as Lewison LJ appears to have done, then I respectfully
disagree with him for the reasons I have given. As for its application to unilateral
contracts, there is obvious force in Millett LJ’s reasoning. It cannot be right to
impose by implication an obligation on a person who is not yet a party to the
agreement. But here too, I think the reasoning needs some qualification because, as
I have said, it is permissible to imply into an offer anything which is so obvious that
it goes without saying. Nor, so it seems to me, is there any reason why a term
imposing an obligation on the promisee cannot be implied if and when the contract
becomes bilateral in the course of its performance.
The Estate Agents Act 1979
37. Section 18(1) of the 1979 Act provides that before any person (“the client”)
enters into a contract with another (“the agent”) under which the agent will engage
in estate agency work on behalf of the client, the agent must give the client certain
information. That information is of two kinds.
38. First, by section 18(2), the agent is required to give, among other things,
particulars of the circumstances in which the client will become liable to pay
remuneration to the agent for carrying out estate agency work.
39. Secondly, by section 18(1)(b), the agent is required to give such additional
information as the Secretary of State may prescribe by regulations made under
section 18(4), and to do so in the time and manner those regulations require. The
Estate Agents (Provision of Information) Regulations 1991 (SI 1991/859) were
made pursuant to this provision.
40. Regulation 3(1) provides, so far as relevant:
“The time when an estate agent shall give the information
specified in section 18(2) of the Act … is the time when
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communication commences between the estate agent and the
client or as soon as is reasonably practicable thereafter
provided it is a time before the client is committed to any
liability towards the estate agent.”
41. Regulation 4 says that the information must be provided in writing.
42. Section 18 continues:
“(5) If any person –
(a) fails to comply with the obligation under
subsection (1) above with respect to a contract, or with
any provision of regulations under subsection (4) above
relating to that obligation, or
(b) …,
the contract … shall not be enforceable by him except pursuant
to an order of the court under subsection (6) below.
(6) If, in a case where subsection (5) above applies in
relation to a contract …, the agent concerned makes an
application to the court for the enforcement of the contract …
–
(a) the court shall dismiss the application if, but only
if, it considers it just to do so having regard to prejudice
caused to the client by the agent’s failure to comply with
his obligation and the degree of culpability for the
failure; and
(b) where the court does not dismiss the application,
it may nevertheless order that any sum payable by the
client under the contract … shall be reduced or
discharged so as to compensate the client for prejudice
suffered as a result of the agent’s failure to comply with
his obligation.”
Page 17
43. In this case, Mr Devani failed to comply with his section 18 obligation
because he did not provide to Mr Wells all of the information required by subsection
2 at the time and in the manner required by regulations 3 and 4. In particular, Mr
Devani did not at the outset or as soon as reasonably practicable thereafter expressly
inform Mr Wells of the event which would trigger his entitlement to commission;
nor did he provide any of that information in writing.
44. The judge was therefore required to apply section 18(6). Under paragraph (a),
the default position in such a case is that the contract is unenforceable. As Lewison
LJ explained, the contract will only become enforceable if the court makes an order
to that effect, and an agent in the position of Mr Devani, who has failed to comply
with his obligations, must make an application to the court for that purpose if he
wishes to recover any commission. Further, the court must dismiss the application
if, but only if, it considers it just to do so having regard to the prejudice caused to
the client by the agent’s failure to comply with his obligation and the degree of
culpability for that failure.
45. Lewison LJ held that, for the purposes of paragraph (a), prejudice and
culpability have to be considered together and in the round, and the ultimate question
is whether it is just to dismiss the estate agent’s claim to enforce the contract having
regard to the prejudice to the client as a result of the failure to comply and the degree
of the agent’s culpability. In my judgment, this is plainly the right approach.
46. If the court does not dismiss the application then, under paragraph (b), it has
a discretion whether to reduce or discharge the sum payable by the client under the
contract, to compensate the client for the prejudice he has suffered. It is to be noted
that, at this stage, culpability forms no part of the assessment; nor does any wider
consideration of justice.
47. The judge therefore proceeded to assess the degree of Mr Devani’s
culpability and the prejudice that Mr Wells had suffered. In relation to the former,
he thought that Mr Devani was culpable and the fact that the matter had proceeded
very rapidly was only partial mitigation.
48. As for prejudice, the judge thought that the failure to define the event
triggering the entitlement to commission was not prejudicial to Mr Wells because
the court had implied the term most favourable to him. On the other hand, the failure
to provide written terms was prejudicial because their provision would have led Mr
Wells to consult his partner and his solicitor before agreeing to them, and, in turn,
this would have led to a discussion of Shaw’s penalty clause. The judge was not
much impressed by the possibility of a claim by Shaw, however. He thought it was
a matter of speculation whether Mr Wells would be called upon to pay Shaw’s
Page 18
commission and that it was also a matter of speculation what the outcome of any
claim by Shaw would be. He also thought it relevant that Mr Devani had done a
good job and secured a sale of the properties, and that, so far, Mr Wells had evaded
paying any commission at all.
49. The judge expressed his final conclusion in these terms (at para 4.9):
“Doing the best I can, the just course balancing all the above
factors is:
a. to grant [Mr Devani] relief and permit him to
enforce his contract;
b. but to compensate [Mr Wells] for the prejudice
he has sustained as a result of [Mr Devani’s] breach of
statutory requirements by making an appropriately
substantial reduction to [Mr Devani’s] fee. That
reduction will be of one-third of the fee, so that his claim
is reduced to £32,900 inc VAT.”
50. On appeal, it was contended for Mr Wells that the judge had fallen into error
in various respects and, in particular, that he ought to have dismissed Mr Devani’s
application and so also his claim for commission.
51. In giving the leading judgment on this issue, Lewison LJ found no fault with
the judge’s approach to the task he was required to carry out as a matter of principle
but criticised aspects of his assessment. He found that the judge mischaracterised
the effect of speed, for this was an aggravating and not a mitigating factor; that there
was some force in Mr Wells’ argument that Mr Devani’s success in finding a buyer
was of little or no relevance; and that the judge did not take proper account of the
uncertainty to which Mr Wells was subjected, and was wrong to brush off the
possibility of a claim by Shaw and so his potential exposure to double liability.
52. Despite these criticisms, Lewison LJ did not think it appropriate to interfere
with the judge’s conclusion. His reasoning lies at the heart of this aspect of the
appeal to this court and merits recitation:
“74. In deciding whether it was just to dismiss Mr Devani’s
claim the judge was making a value judgment (an expression I
prefer to ‘exercising a discretion’). It is, moreover, a value
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judgment based on a number of factors, measured against an
imprecise standard. It is exactly the case in which an appeal
court should be particularly wary of disturbing the conclusion
of the trial judge. Although I have made some criticisms of the
way in which the judge approached the question, and although
I am far from sure that I would have reached the same
conclusion as the judge, I cannot go so far as to say that his
value judgment was wrong.”
53. Mr Butler QC, for Mr Wells, submits the Court of Appeal fell into error in
two respects. He argues, first, that Mr Devani’s culpability was so great as to justify
dismissal of his application, irrespective of the issue of prejudice.
54. I recognise that section 18 and the regulations are, as Lewison LJ rightly said,
a form of consumer protection, and that their purpose is to ensure that a person
instructing an estate agent knows what his liabilities to the agent are before he
engages him. I also accept that there may be cases where the degree of culpability
is so great that it justifies dismissal of the agent’s application even if the client has
suffered no prejudice. But I am not persuaded that this is one of those cases. The
judge assessed the extent of Mr Devani’s culpability with care. He recognised that
Mr Devani could and should have provided his terms of business to Mr Wells at the
outset but also had regard to the fact that the job needed to be done urgently, that Mr
Wells was abroad, that events moved very quickly and that the effective period of
delay was less than one week. I would add that there was no finding that Mr Devani
acted improperly in any other way. The judge assessed all of these matters and the
issue of prejudice and decided to allow Mr Devani to pursue his claim but with a
significant fee reduction. It is true that Lewison LJ thought the judge ought to have
regarded the speed of events as an aggravating rather than a mitigating factor when
considering culpability, but he was also of the view that this was not an error which
justified any interference with the judge’s conclusion. I agree with him. In all these
circumstances, I am satisfied that Mr Devani’s culpability was not so great as to
justify dismissal of his application, and the judge made no material error in so
deciding.
55. The second argument advanced on behalf of Mr Wells is that once the Court
of Appeal had found that the judge had made errors in the course of his assessment
under section 18(6), it ought to have carried out the evaluation required by that
provision afresh, rather than declining to interfere. Had it done so, the argument
continued, it is apparent from para 74 of Lewison LJ’s judgment that it is likely the
court would have arrived at a different conclusion.
56. Attractively though this second argument has been presented, I cannot accept
it. It assumes, wrongly in my view, that if an appeal court finds that a trial judge has
Page 20
made any error, however insignificant, in the course of an evaluation of the kind
required by section 18(6) then it must set that evaluation aside and carry it out again.
In my judgment the law does not require such an inflexible approach. If, as here, it
is found that the trial judge has made one or more errors of a minor kind which
cannot have affected the decision to which he has come then in my view it is neither
necessary nor appropriate for the appellate court to set that decision aside and
embark on the evaluative exercise for itself.
57. For all of these reasons, I would allow Mr Devani’s appeal and dismiss Mr
Wells’ cross-appeal. I have also had an opportunity to read the judgment of Lord
Briggs and I agree with the further observations he makes.
LORD BRIGGS:
58. I agree with the order proposed to be made by Lord Kitchin, and with his
reasons for doing so. I add some observations of my own because we are departing
from a judgment of Lewison LJ, who has a pre-eminent standing in relation to the
interpretation of contracts.
59. Lawyers frequently speak of the interpretation of contracts (as a preliminary
to the implication of terms) as if it is concerned exclusively with the words used
expressly, either orally or in writing, by the parties. And so, very often, it is. But
there are occasions, particularly in relation to contracts of a simple, frequently used
type, such as contracts of sale, where the context in which the words are used, and
the conduct of the parties at the time when the contract is made, tells you as much,
or even more, about the essential terms of the bargain than do the words themselves.
Take for example, the simple case of the door to door seller of (say) brooms. He
rings the doorbell, proffers one of his brooms to the householder, and says “one
pound 50”. The householder takes the broom, nods and reaches for his wallet.
Plainly the parties have concluded a contract for the sale of the proffered broom, at
a price of £1.50, immediately payable. But the subject matter of the sale, and the
date of time at which payment is to be made, are not subject to terms expressed in
words. All the essential terms other than price have been agreed by conduct, in the
context of the encounter between the parties at the householder’s front door.
60. So it is with the contract in issue in the present case. All that was proved was
that there was a short telephone call initiated by Mr Devani, who introduced himself
as an estate agent, and Mr Wells, who Mr Devani knew wanted to sell the
outstanding flats. Mr Devani offered his services at an expressly stated commission
of 2% plus VAT. It was known to both of them that Mr Wells was looking for a
buyer or buyers so that he could sell the flats, and it was plain from the context, and
from the conduct of the parties towards each other, that Mr Devani was offering to
Page 21
find one or more buyers for those flats. The express reference by Mr Devani to the
2% commission was, in the context, clearly referable to the price receivable by Mr
Wells upon any sale or sales of those flats achieved to a person or persons introduced
by Mr Devani. Furthermore it was evident from the fact that nothing further was
said before the conversation ended that there was an agreement, intended to create
legal relations between them, for which purpose nothing further needed to be
negotiated.
61. The judge decided the case by reference to implied terms. But it follows from
what I have set out above that I would, like Lord Kitchin, have been prepared to find
that a sufficiently certain and complete contract had been concluded between them,
as a matter of construction of their words and conduct in their context rather than
just by the implication of terms, such that, by introducing a purchaser who did in
fact complete and pay the purchase price, Mr Devani had earned his agreed
commission.
62. Nor would I have been dissuaded by the analysis of the hypothetical question
whether, if the purchase contract had been made but then repudiated by the
purchaser, the commission would still have been payable. If a contract plainly
creates a liability for payment in the events that have happened, a perception that a
difficult issue or uncertainty as to liability might have arisen on other hypothetical
facts should not stand in the way of recognising contractual rights as enforceable
where, as here, no such issue arises. As Lewison LJ observed, estate agents may
wish to bargain for a variety of different events as triggering a liability to pay
commission. But it is difficult to imagine an estate agent’s contract which did not
make the client liable to pay after receipt in full of the purchase price, as occurred
here.
63. I do not mean by these observations about the common law in any way to
under-rate the importance of the statutory duty in section 18 of the Estate Agents
Act 1979 requiring estate agents to provide their clients with a written statement of
the circumstances in which the client will become liable for their commission, or the
judge’s assessment of the culpability of Mr Devani for failing to do so in good time.
It is precisely because the common law will recognise an enforceable liability to pay
as arising from the briefest and most informal exchange between the parties that
statute protects consumers by imposing a more rigorous discipline upon their
professional counterparties.