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Petitioner: DEVANI VS Respondent: WELLS
Court Name: Supreme Court of United Kingdom Judge(s): Lord Briggs, Lord Kitchin, Lord Wilson, Lord Carnwath, Lord Sumption Title: DEVANI vs WELLS Case No.: On appeal from: [2016] EWCA Civ 1106 Date of Judgment:2019-02-13 Reported As: 2019 SCMR 711 Result: Order accordingly
JUDGMENT
JUDGMENT LORD KITCHIN: (with whom Lord W ilson, 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 impos ed 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 mentio ned 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 migh t 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
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telephone numbers and explained that Mr W ells 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 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 conversatio n, Mr Devani made contact with Newlon Housing Trust which expressed some interest in purchasing the remai ning 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 receivin g 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% + V AT (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 ." 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 beca use 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 W ells had suf fered. 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 submiss ions 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
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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 culpab ility 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. 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 U. 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 LI, 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 introduce d 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 U, 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. 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 Molkerel Alois Mailer GmbH [2010] UKSC 14; [2010] 1 WLR 753, para 45: "The general principles are not in doubt. Whether there is a binding contract betw een 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
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where it is found that the parties had the intention of being contractually bound and have acted on their agreement. As Lord W right 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 lust implications, fail to evince any definite meaning on which the 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 purchas er 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 supp orted by authority . For example, in Fowler v Bratt [1950] KB 96, the plaintif f, a house agent, was instructed by the defendant to find a purchaser of his house and agreed to pay a commiss ion on the price. Subsequently the defendant decided not to go through with the sale and the plaintif f brought proceedings for his commission. The Court of Appeal held that, in order to earn his commission, the plaintif f 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 contrar y, the commission of the agents is to be paid out of the proceeds of sale. If the sale does not go through, the presu mption 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 plaintif f estate agents and the defendant vendor that the agents' comm ission would be payable as soon as a purchaser had signed "a legally binding contract" 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 constructio n 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
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actual and completed sale resulting, or, at least, in the event of an agent succee ding 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 appro ached; 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 plaintif f,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 Li 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 effectin g 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: "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 pride. The services rendered by the agent may be merely an introduction. He is entitled to commission if Iris 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 paya ble 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 introduc ed 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 np 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 considerab le difficulty in formulating general propo sitions 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 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,
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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. 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…
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