Auctions — Auctioneers’ claim to commission — Two firms instructed at different times and two commissions eventually paid — After auction sales for which the defendant owner of a house had given instructions to one firm had proved abortive, the defendant gave instructions to a second firm, the plaintiffs, without withdrawing instructions from the first firm — The terms arranged with the plaintiffs included a provision that a commission of 2% (reduced from 2.5%) on the purchase price would be payable if a sale of the property, whether arranged by the auctioneers or not, was effected after the acceptance of instructions and before the auction or within 28 days after the auction — It was also provided that if the property was withdrawn between the date of instructions and the auction date a withdrawal fee of £200 and expenses would be payable — In the event the plaintiffs did not put the property in a January auction as planned, but undertook to put it in a sale on February 3 — However, on January 15 the property was sold by the firm who were originally instructed and who still held instructions to sell — The latter firm claimed and were paid their agreed commission of 1.5% on the sale — The plaintiffs also claimed that commission was payable in accordance with their instructions, as mentioned above, and, on the claim being disputed, brought proceedings against the defendant in the county court — The county court judge rejected the claim to commission but held that there had been a ‘constructive withdrawal’ of the property from the February 3 auction — He therefore awarded the plaintiffs the withdrawal fee of £200 and expenses — The plaintiffs appealed — On appeal the defendant’s counsel did not attempt to support the judge’s conclusion that there had been a withdrawal, but put forward other grounds for resisting the commission claim — His suggestions that the terms of the contract had been subsequently varied so as to exclude a sale otherwise than by auction, or that contractual relations had been terminated by the failure to get the property into the January sale, were rejected by the court as unsupported by evidence — They also rejected, after considering various authorities, the argument that the provision for commission to be paid whether the sale was by the auctioneers or not amounted to a penalty clause which should be struck down — The clause in question had been in use for years without challenge and was to be found as a precedent in the Encyclopaedia of Forms and Precedents — Plaintiffs’ appeal allowed and defendant’s cross-appeal dismissed
The following
cases are referred to in this report.
Bernard
Thorpe & Partners v Snook [1983] EGD 77;
(1982) 266 EG 440, [1983] 1 EGLR 37
Export
Credits Guarantee Department v Universal Oil
Products Co [1983] 1 WLR 399; [1983] 2 All ER 205; [1983] 2 Lloyd’s Rep
152, HL
Meacock
(John) & Co v Abrahams Loescher (Third
Party) [1956] 1 WLR 1463; [1956] 3 All ER 660, CA
This was an
appeal by the plaintiffs, Barnard Marcus & Co, from the decision of Judge
Edwards at West London County Court, rejecting the plaintiffs’ claim against
the defendant, Mohammad Sharif Ashraf, for commission on the sale of the
defendant’s house at 84 West Hill, Putney, London SW 15, but awarding the
plaintiffs a withdrawal fee. There was a cross-appeal by the defendant (respondent).
Jeffrey Burke
QC and Colin Wynter (instructed by L B Marks & Co) appeared on behalf of
the plaintiffs; R Paul Stewart (instructed by Corsellis Church Rackham)
represented the defendant.
Giving the
first judgment at the invitation of Glidewell LJ, TAYLOR LJ said: This appeal
arises from an auctioneers’ claim for commission. The defendant, Mohammad
Ashraf, was the owner of a house at 84 West Hill, Putney. He wished to sell it,
and in July 1985 he put it up for auction through a firm of estate agents and auctioneers
named Edwin Evans. Although a sale was agreed the purchaser failed to complete.
Further attempts to sell were unsuccessful. At an auction on December 3 1985
the property failed to reach the reserved price.
By now the
defendant was very anxious to effect a sale as he had completed the purchase of
another property. Edwin Evans had no imminent plans for a further auction, so
without withdrawing instructions from them, the defendant, through his
solicitors, approached the plaintiffs, also a firm of auctioneers and estate
agents. They agreed on December 5 1985 to use their best endeavours to enter
the property in an auction fixed for January 22-23 1986, but they required the
defendant to sign their terms of business that very day. The defendant was leaving
for a trip abroad, so his wife attended the plaintiffs’ office and signed on
his behalf. The defendant had previously had discussions with the plaintiffs,
earlier in 1985, with a view possibly to putting the property in their hands.
He had been told at that time the terms upon which such a contract could be
concluded, but nothing further occurred.
The document
the defendant’s wife signed is in the form of a letter from the vendor to the
plaintiffs. After the name of the defendant and the name of the property it
reads as follows, so far as relevant:
I hereby
instruct your firm to submit my . . . interest in the above-mentioned property
for sale by way of public auction, subject to the following: 1. Your commission
will amount to 2.5% of the purchase price (minimum commission £150.00) plus
VAT, and will be payable by me if a sale of the property, whether arranged by
the Auctioneers or not, is effected after the acceptance of instructions and
before the Auction, or within 28 days after the Auction.
Clause 2
provided for contribution towards the auction expenses and I need not read it
in full. Clause 3 reads:
If the
property is withdrawn from the market between the date of these instructions
and the Auction itself, then a withdrawal fee of £200.00 may be charged plus
VAT in addition to the expenses as set out in 2 above.
There then
follow a number of other clauses. The only one which needs to be mentioned is
clause 15, which provides for the date of the auction, which was left blank.
That clause ends with this phrase: ‘. . . but [I] will allow you to change such
date and venue at your discretion.’
The only
alteration to the printed form was the substitution in longhand of 2% for 2.5%
in clause 1. That reduction was negotiated by the defendant’s solicitors, and in
particular by a Miss Mustafa of that firm. It was confirmed in a letter of
December 6 1985 in the following terms:
Further to
our telephone conversation yesterday when you kindly agreed to use your best
endeavours to place the above property in your auction sale fixed for January
22 and 23 1986, we now enclose herewith Special Conditions of Sale. We trust
you will be inspecting the premises which are presently vacant for the purposes
of assessing a reserve price and to take photographs.
The letter then
went on to speak of details of sales particulars and the request was made that
a board should be put up outside the premises.
The letter
concluded with these two paragraphs:
We also
confirm our telephone conversation when you kindly agreed that your commission
fees will be reduced to 2% of the sale price in the event of the above property
being sold at auction.
We look
forward to hearing from you in due course but should you require any further
information, would you kindly contact Miss Mustafa of instructing solicitors.
In the event
the plaintiffs failed to put the property in the January auction, but wrote on
December 10 1985 to the defendant’s solicitors as follows:
Thank you for
your letter of December 6 regarding the above property, the contents of which
we have noted. We write to inform you that we are unable to place this property
into the January Auction Sale but will place the same in the following sale
which is on February 3 and is only ten days later, we trust this meets with
your approval.
The letter
then went on to deal with an acknowledgement of the special conditions of sale
being received and a reference to the ‘For Sale’ board and concluded in this
way:
The
commission will amount to 2% of the sale price plus VAT in the event of a
successful sale. Our mutual client has already been to our office and signed
our terms of business and we enclose herewith a copy of the same for your
information.
During the
first few days of January the plaintiffs sought details from the defendant’s solicitors
for their catalogue and asked for the keys to the property. However, on January
15 1986 the property was sold for £116,000 by Edwin Evans to a Mr Desaur. On
learning of this the plaintiffs rendered an account to the defendant on January
17, claiming commission at 2% plus VAT on ‘sale of the above property prior to
auction in the sum of £116,000.00’. In addition they claimed sums in respect of
printing and advertising which they had in fact incurred and which are not in
dispute. The defendant was of course also faced with an account from Edwin
Evans. They claimed their agreed commission of 1.5% on the sale price. They
also claimed, and were paid, half the like commission on the abortive sale they
had arranged in early 1985. The purchase by Mr Desaur was completed on February
12 1986.
To round off
this history — which gives a revealing insight into the economics of
auctioneering — I should mention that Mr Desaur himself put the property back
within a short time into the hands of the plaintiffs to sell. They sold it for
£140,000 and no doubt recovered a commission from Mr Desaur.
The defendant
disputed the plaintiffs’ claim for 2% commission, amounting in effect to
£2,668. The plaintiffs issued proceedings in the West London County Court. The
case came before His Honour the late Judge Edwards on April 29 1987. He
rejected the defendant’s argument that clause 1 of the terms of business,
signed on the defendant’s behalf, governed only the January auction, and the
suggestion that the letters of December 6 and 10 between the plaintiffs’ and
defendant’s solicitors created a new contract. He also rejected the argument
that clause 1 amounted to a penalty clause.
However, he
held in the defendant’s favour on the basis of clause 3, that the property had
been withdrawn between the date of the instructions to the plaintiffs and the
auction. He put the matter in this way:
There is
evidence that what Barnard Marcus got was news from the new purchaser of the
property that the property had been sold. Mr Chopping for Barnard Marcus sought
and obtained confirmation from the defendant’s solicitors. Can this course of
events be called a withdrawal, in which case the minor liabilities ensue, or
must it be a sale as per clause 1?
Ordinary commission payable in the event of auctioneer selling property
— main purpose of commission. I am not bound to look for a construction of
clause 1 adverse to the plaintiffs’ customers when clause 3 is there to hit the
eye as well. What happened here is that there was a sale but also a constructive
withdrawal. The defendant had done this a number of days before auction date.
I find that
there was a withdrawal and giving priority to clause 3 over clause 1, I find
that the plaintiffs’ claim for a commission fails. I must say I am happy to be
able to do this. To my mind it is a sensible construction. Mr Ashraf having put
the plaintiffs to some effort on his behalf is liable to them for the sums
contained in clauses 2 and 3.
In other words
the learned judge found that the defendant’s solicitors (who had confirmed to
the plaintiffs before January 17 that the property had been sold) in effect had
constructively withdrawn the property from the auction due on February 3.
Accordingly he awarded the plaintiffs £200 under clause 3, expenses under
clause 2 but no commission under clause 1. It is against that decision that the
plaintiffs appeal to this court.
Clearly the
learned judge took the view that a vendor ought not to have to pay two
commissions in respect of only one sale. However, the basis upon which he
decided the case is one which cannot be right. Mr Stewart, appearing on behalf
of the defendant, realistically made no attempt to support it. The defendant
did not withdraw the property from the market: on the contrary he sold it on
the market. That sale was an event specifically provided for in the plaintiffs’
terms of business as entitling the plaintiffs to a commission. There was no
conflict between clauses 1 and 3. Each provided for a different situation.
There was here no withdrawal, constructive or otherwise. There was a sale at a
time and in circumstances covered by clause 1.
While making
the concession that the judgment cannot be upheld on the judge’s grounds, Mr
Stewart seeks to argue two points which are canvassed in his cross-notice.
First he argued that the terms of the contract were not those contained in the
plaintiffs’ terms of business and signed by the defendant’s wife. He submits
that those terms were varied by discussion between the defendant’s solicitor,
Miss Mustafa, and Mr Chopping on behalf of the plaintiffs.
In her letter
of December 6 Miss Mustafa confirmed that discussion by stating that commission
of 2% would be paid ‘in the event of the above property being sold at auction’.
Mr Stewart concedes that she may have misunderstood Mr Chopping, but once she
wrote that letter he contends it was up to Mr Chopping to correct any mistake
she had made as to the effect and tenor of that conversation.
In his letter
of December 10 Mr Chopping said:
The
commission will amount to 2% of the sale price plus VAT in the event of a
successful sale.
Mr Stewart
argues he ought to have made clear that ‘successful sale’ was not confined to a
sale at an auction but included all sales within clause 1 of the signed terms
of business.
In my judgment
the very next sentence of Mr Chopping’s letter did just that. He wrote:
Our mutual
client has already been to our office and signed our terms of business and we
enclose herewith a copy of the same for your information.
That sentence,
directed to a solicitor, made it abundantly clear that the terms of business
which had been signed and which were the common form of contract entered into
by these plaintiffs applied, save for the reduction of 2.5% to 2% which had
been orally negotiated.
Mr Stewart
also argues that the failure of the plaintiffs to get the property into the
January sale in effect brought contractual relations to an end unless they were
specifically renewed. He says the plaintiffs themselves accepted that view of
the facts in the letter of December 10 by saying, after pointing out that they
had been unable to get the property into the January sale and proposed to put
it in the February sale 10 days later, ‘we trust this meets with your
approval’.
In my judgment
that phrase was not an acknowledgement that contractual relations had come to
an end. It was a courteous phrase and it may have been meant as no more than a
reminder to the solicitors or the defendant himself that he had the option of
withdrawing the property at any time that he chose to do so. In any event the
course of dealing between that letter from Mr Chopping and the sale on January
15 makes it clear that the defendant was accepting the plaintiffs’ terms. The
arrangements for information to be provided for the catalogue and for the keys
to be provided went ahead, and on January 9 Miss Mustafa wrote a letter to the
plaintiffs indicating that all was going proceeding. In my judgment that can
only mean it was going ahead on the basis of the terms of business which the
defendant had signed, a copy of which had been sent to the solicitors and as to
which they had made no objection whatsoever.
Mr Stewart’s
second argument, which he presented valiantly and persuasively, is that clause
1 amounts to a penalty clause. This point was taken before the learned judge
although not fully developed. It had not been raised on the pleadings. Mr
Stewart contends that the provision for commission to be paid, whether the sale
was by the auctioneers or not, is a disguised form of penalty. It is designed,
he submits, to frighten the client off from selling the property otherwise than
through the plaintiffs. It is therefore in terrorem and should be
struck down.
He cited a
passage from Chitty on Contracts, 25th ed, vol 1 at paras 1724 and 1725,
where the learned author discusses the distinction between liquidated damages
and penalties. But the more relevant passage in my view is at para 1676 of the
same volume. The heading of the paragraph is as follows: ‘An agreed sum cannot
be a penalty unless payable upon breach.’
The passage goes on as follows: ‘A sum payable upon performance of the
claimant’s contractual obligation cannot be a penalty; nor, at common law, can
a sum which is payable upon an event other than a breach of contract be a
penalty.’
In Export
Credits Guarantee Department v Universal Oil Products Co [1983] 1
WLR 399, the House of Lords made it clear that a payment can be a penalty only
if it is payable on a breach of contract as opposed to being payable under the
contract. Mr Stewart grasps that nettle and seeks to argue that this sale by
the defendant, otherwise than at the plaintiffs’ auction, was a breach of
contract. He submits that apart from paying the auctioneer, the only obligation
on the client is to make the property available for the auction. If he sells
elsewhere he is therefore in breach of contract. Were that not so, he submits,
there is no way the client could be in breach of contract other than by failing
to pay.
In my judgment
the contract, so far from seeking to prevent the client from selling elsewhere
or withdrawing the property, made specific provision for those events. Such
permitted conduct cannot be regarded as a breach of contract, simply because
there would otherwise be no way of breaching it except for non-payment. As Mr
Burke pointed out, there are many contracts in which the only obligation on a
party is to pay.
Clause 1 was
not, as the learned judge seems to have considered, an unusual term in an
auctioneer’s contract. Similar terms have appeared regularly in such contracts
for many years and have stood the test not only of time but of scrutiny by this
court.
We were
referred to the decision in John Meacock & Co v Abrahams
(Loescher, Third Party) [1956] 1 WLR 1463. In that case a mortgagee, unable
to recover his loan, put up five houses, upon which it was secured, for sale
through the plaintiffs, a firm of auctioneers. The plaintiffs’ terms of
business were substantially the same as in the present case. The properties
were duly entered for auction by the plaintiffs, but the day before the auction
was due the mortgagor managed to redeem the mortgage and he sold the properties
himself to the sitting tenants. The plaintiffs claimed commission. Denning LJ
(as he then was) at p 1466 recited the relevant clause and went on as follows:
The object of
this clause is quite plain. It is to cover the case where a client instructs
auctioneers to sell a property for him by auction, and then, before the auction
actually takes place, the client sells the property himself. In such a case the
client must still pay full commission to the auctioneer, for the very good
reason that the auctioneers’ work in putting up the property, advertising it,
and so on, may well have been one of the causes why the client was able to sell
the house himself. The clause clearly covers a sale by the client before the
auction: and I think it would also cover a sale with his concurrence. But the
auctioneers seek here to extend it to a sale by a third person. It covers, they
say, a sale by the mortgagor without the consent of the second mortgagee.
A little
later, at p 1467, Denning LJ said:
It must be
remembered that it is a clause put in by the auctioneers for their own benefit,
in which they stipulate that, although they have not done all the work that was
contemplated, nevertheless they are to have full commission. For instance, in
this case they have not had to hold an auction at all. I can visualise cases
where they may have done nothing beyond accepting instructions. Suppose a
client gives them instructions one day and sells himself the next, before they
have done anything. Nevertheless they stipulate for full commission
irrespective of the amount of work they have done. Such a stipulation should, I
think, be given its natural meaning and not be extended so as to be given a
wide unnatural meaning.
In the result,
in that case, the Court of Appeal ruled that the auctioneer was not able to
recover commission, but that was because the sale was not by the auctioneers’
client but by a third party. It was common ground in the judgments of all three
members of the Court of Appeal that had the sale been by the client himself
there would have been commission recoverable. Indeed Morris LJ (as he then was)
was prepared to go further and find in the auctioneers’ favour even on the
facts of that case.
More recently
we were referred to the decision of Nolan J in the case of Bernard Thorpe
& Partners v Snook (1982) 266 EG 440, [1983] 1 EGLR 37. The case
concerned an auctioneers’ claim for commission on the sale of a farm effected
privately by a vendor within three months after the date of auction, the farm
having failed to reach the reserve price. The commission clause provided,
somewhat similarly to the clause in the present case, that if a sale of the
property, whether arranged by the auctioneers or not, was effected within three
months after the auction, commission on the price realised should be payable to
the auctioneers on the same scale as for a sale by auction.
Nolan J at p
443 said:
In his second
submission Mr Latham rightly said that clear and unequivocal language is
required to entitle the plaintiffs to commission in respect of a sale in which
they played no part. The language of the critical clause in the present case,
argues Mr Latham, does not satisfy that requirement. In order to do so it would
need the addition of some such words as ‘whether the auctioneer is an effective
cause of the introduction of the purchaser or not’. I am bound to say, however,
that the clause seems to me to state clearly and unequivocally that the
auctioneer is entitled to commission if a sale is effected within three months
even though it is not arranged by the auctioneer. It is not in dispute that a
sale has been effected for this purpose when contracts were exchanged. Subject
therefore to the third point for decision, those words in my judgment cover the
present case.
It does not
seem that there has ever been any argument raised as to whether a clause such
as appears in the terms of business of these plaintiffs could be regarded as a
penalty clause. In my judgment it is most unlikely that if there were any merit
in that point it would have escaped all those who have dealt with this clause
over the years, including those concerned in the cases just cited.
We have been
told that a similar clause is to be found in the Encyclopaedia of Forms and
Precedents, both in the 4th and 5th editions. In my judgment the clause is
effective; it is not a penalty clause. It may seem to a layman to be an
injustice and one has sympathy in the present case with the defendant, who
found himself in effect paying two and a half commissions before he was able to
sell this house, but in my judgment it is not possible to accede to the
arguments of Mr Stewart, persuasive though they were, either that the terms of
the contract as printed did not apply to the sale or that this was a penalty
clause.
Since it is
conceded that the learned judge reached his decision on a fallacious basis the
effect of this appeal must be that the cross-notice is rejected and the appeal
must be allowed.
GLIDEWELL LJ
agreed and did not add anything.
The appeal was allowed with costs in the Court of Appeal and below;
judgment for plaintiffs for £3,595.75; credit to be given for £416.75 already
paid.