Estate agents’ commission — Entitlement to commission for letting a property — Whether commission was payable under the terms of the contract although the agents claiming commission were not the effective cause of the letting — The terms accepted were that ‘we confirm that we are pleased to offer a full scale letting fee to your company should you introduce a tenant by whom you are unable to be retained and with whom we have not been in previous communication and who subsequently completes a lease’ — Appeal by defendant lessors from decision of Judge Tibber in favour of the plaintiff agents’ claim for commission — The facts were that the agents (present respondents) were the first to introduce the company which eventually completed the lease, but there was a period during which the company in question ceased for various reasons to be looking for a property — During this period contact between the respondents and the company was interrupted — When the company’s interest in finding a property revived, an introduction was made to the property by a different firm of agents and through a different officer of the company — The trial judge found as a fact that the effective cause of the letting was the introduction by the second firm of agents — This finding, however, did not, in the judge’s opinion, disentitle the respondent agents to commission — The judge held that the question of the effective cause was in this case irrelevant owing to the express terms of the instructions — The words ‘should you introduce a tenant . . . who subsequently completes a lease’ were the very negation of causation and were indeed evidently framed precisely to obviate arguments as to who was the effective cause — On this view the respondent agents satisfied all the terms of the instructions — They introduced a tenant by whom they were not retained, with whom the appellants had not been in previous communication and who subsequently completed the lease — On appeal it was submitted by the appellant lessors that the authorities on estate agents’ commission established that entitlement was always subject to an implied term that the agents must be at least an effective cause, if not the effective cause, of the transaction — Held by the Court of Appeal, affirming the trial judge’s decision, that the express language of the instructions was inconsistent with the implication of a term imposing an additional requirement that the estate agent must be at least an effective cause of the lease being granted — Some doubt expressed by the court as to whether it was true as a general proposition that the implied term, when relevant, referred to ‘an’ rather than ‘the’ effective cause — A suggestion made in the course of argument that the court would be less ready to imply such a term in the case of a vendor or lessor who was a commercial developer (such as the present appellants) than in the case of a private individual was mentioned by the court but does not appear to be part of the ratio decidendi — Appeal dismissed
The following
cases are referred to in this report.
Lordsgate
Properties Ltd v Balcombe [1985] 1 EGLR 20;
(1985) 274 EG 493
Luxor
(Eastbourne) Ltd v Cooper [1941] AC 108;
[1941] 1 All ER 33, HL
Millar
Son & Co v Radford (1903) 19 TLR 575
This was an
appeal by Fairview Estates (Investments) Ltd, the defendants, from a decision
of Judge Tibber, sitting as a judge of the High Court, in favour of the
plaintiffs, present respondents, Brian Cooper & Co, a firm of estate
agents. The respondents had claimed to have earned commission by the
introduction of a company, Metier Management Systems Ltd, as the lessees of an
office building, Fairview House, at Station Road, Hayes, Middlesex. The
decision of Judge Tibber was reported at [1986] 1 EGLR 34; (1986) 278 EG 1094.
John Chadwick
QC and Miss Elizabeth Gloster (instructed by Lovell, White & King) appeared
on behalf of the appellants; Tom Morison QC and Stephen Suttle (instructed by H
Davis & Co) represented the respondents.
Giving the
first judgment at the invitation of Sir John Donaldson MR, WOOLF LJ said: This
appeal arises out of yet another dispute over the entitlement of an estate
agent to commission. The dispute arises because although the respondent estate
agent was responsible for introducing the tenant who eventually entered into a
lease, the estate agent was not an effective cause of the letting.
On March 21
1986 judgment was given by His Honour Judge Tibber, sitting as a deputy High
Court judge, in favour of the estate agent in the sum of £73,831.64, of which
£58,190 was commission and the balance was interest.
Neither the
appellant landlord nor the respondent seeks to go behind the judge’s findings
of fact and in order to resolve the issue raised by the appeal it is possible
to deal with the facts very shortly.
In the spring
of 1982 the defendant company (‘Fairview’) was in the process of completing the
development of a new office building, Fairview House, Station Road, Hayes,
Middlesex. On March 22 1982 Mr McCulloch, Fairview’s senior development
surveyor, wrote to the plaintiff estate agents (‘Cooper’). He enclosed
brochures of Fairview House, indicating that the property was scheduled for
completion in approximately nine months’ time and went on to say:
We confirm
that we are pleased to offer a full scale letting fee to your company should
you introduce a tenant by whom you are unable to be retained, and with whom we
have not been in previous communication and who subsequently completes a lease.
At that time
Mr Spencer, one of the partners of Cooper, had been approached by a company,
Metier Management Systems Ltd (‘Metier’), to assist them in finding
accommodation and, as Mr Spencer thought that Fairview House would meet
Metier’s requirements, on April 5 1982 he sent a copy of the brochure to Mr
Ross of Metier. On the same day Mr Spencer had a series of conversations with
Mr McCulloch and then wrote a letter dated April 15 1982 in which he confirmed
his introduction to Fairview of Metier, stated that that company hoped to
arrange to inspect the building, confirmed that he was not retained by Metier
and went on to say:
. . . in the
event that the company do complete a lease on the building I would wish to take
advantage of your offer of full scale commission.
In April 1982
Fairview House was inspected by two employees of Metier, Mr Clark and Mr Ross,
who were not very senior in the hierarchy of Metier. Later Mr Spencer discussed
with a more senior employee of Metier, Mr Hood, a number of properties
including Fairview House.
On December 2
1982 Mr McCulloch telephoned Mr Spencer and suggested that he should get in
touch with Metier again and see whether they were interested in the property
and offered him double scale commission. As a result of that offer, on the same
day Mr Spencer wrote to Mr Hood of Metier about Fairview House and also wrote
to Mr McCulloch confirming his ‘generous offer of double scale commission in
the event that the company do proceed to a lease’.
However, by
that time Metier were no longer interested in taking new premises and so, on
December 21 1982, Mr Hood replied to Mr Spencer making this clear and telling
him that as and when the situation changed he would contact him again. There
were subsequent conversations between Metier and Mr Spencer, but for
practical purposes thereafter Mr Spencer’s contact with Metier was at an end.
On March 2
1983, after Fairview House had been completed, Mr McCulloch again wrote to Mr
Spencer and sent new letting brochures in respect of the building, informing Mr
Spencer of the new terms for the letting and concluding by saying:
I confirm
that, should your company introduce a tenant by whom you are unable to be
retained, and with whom we have not been in previous communication, then,
should your applicants enter into a lease, we are pleased to pay a double scale
letting commission.
In August
1983, as a result of a visit by a senior executive of Metier from the States,
Metier once more became interested in finding new accommodation. The search for
accommodation was conducted by members of Metier’s staff who were wholly
unaware of the previous role of Mr Spencer. Metier engaged their own estate
agents, Phillips Roth, to act on their behalf. The result of the new initiative
was that in October 1983, without Mr Spencer or anyone else from Cooper being
involved in any way, Metier entered into a lease of Fairview House. Mr
McCulloch then, as a ‘matter of courtesy’, contacted Mr Spencer and told him of
the letting. Mr Spencer was pleased to learn the news and responded by sending
in his account for his commission at the double scale rate in accordance with
the December 1982 and March 1983 letters. Fairview denied liability and
proceedings followed.
Before this
court and before the learned judge there was no dispute that if Fairview are
liable to Cooper, they are liable for double commission and interest on the
amount claimed. The judge found that Mr Spencer’s introduction had by the time
they entered into the lease been forgotten by Metier and ‘that Mr Spencer’s
introduction did not operate on its mind in coming to sign a lease’. He held:
‘if effective cause of the letting is a relevant consideration in this case I
have come to the conclusion that that effective cause was not Mr Spencer but
was probably Mr Ross’ of Phillips Roth. However, on the basis that it was not
necessary for Cooper to establish that they were an effective cause of the
letting the judge went on to find in favour of Cooper.
Although the
language of the relevant term in the letters of March 22 1982 and March 2 1983
is not identical, the differences are of no significance. On the literal
interpretation of this language, Mr Chadwick accepts that the judge’s decision
was right. He, however, submits that the terms as to commission must be subject
to an implied term that Cooper were only entitled to the commission if they
were at least an effective cause, if not the effective cause, of the letting.
He submits that the combined effect of a series of cases starting in 1903 with
the case of Millar Son & Co v Radford (1903) 19 TLR 575 and
concluding with the case of Lordsgate Properties Ltd v Balcombe
(1985) 274 EG 493* makes it clear that, in the absence of clear language to the
contrary, the courts will always imply a term that commission is earned only if
the estate agent is an effective cause of the letting or sale which is the
subject of the claim.
*Editor’s
note: Also reported at [1985] 1 EGLR 20.
In support of
this submission he relied upon Article 59 in Bowstead on Agency, 15th
ed, p 229, which states:
Subject to
any special terms in the contract of agency, where remuneration of an agent is
a commission on a transaction to be brought about, he is not entitled to such
commission unless his services were the effective cause of the transaction
being brought about.
He also relies
upon a similar statement of principle which appears in Chitty on Contracts,
25th ed, at para 2312. Mr Chadwick submits that when the letter of March 22
1982 is examined, there is no special or express term excluding the implied
term. He submits, and I agree with this construction, that when the relevant
paragraph is read it is requiring the estate agent to ‘introduce a tenant’ and
then setting out three qualifications of that tenant which had to be fulfilled
before commission would be payable.
The first
qualification is that the tenant should not have retained Cooper; the intention
being that Fairview should not have to pay commission if Cooper was the
tenant’s agent, since in that situation the tenants should be responsible for
Cooper’s remuneration.
The second
qualification is that the tenant must be someone with whom Fairview ‘have not
been in previous communication’; the intention being to exclude the obligation
to pay commission where the person introduced by the agent has already been the
subject of a direct approach by Fairview or has made a direct approach to
Fairview or has already been introduced to Fairview by another agent.
The third qualification
is that the tenant must subsequently complete a lease and this requirement is
obviously inserted so that Fairview would be responsible for commission only if
a letting takes place.
Mr Chadwick
submits that when the paragraph is properly construed there is nothing
inconsistent with the implied term. So, as there was nothing in the
circumstances in which the offer to pay commission was made which was
inconsistent with the implied term, it should be a condition of Cooper’s
entitlement to commission that they were an effective cause of the subsequent
letting.
When the cases
to which I have already referred and the other cases upon which Mr Chadwick
relies are examined, and six of the decisions are decisions of this court, it
is clear that the court very readily infers an implied term either that the
agent is required to be an, or the, effective cause of the subsequent purchase.
This is not surprising when it is remembered that in the ordinary way, and in
particular in the case of agents retained by private individuals to sell their
homes, what the agent is being employed to do is to find a prospective
purchaser or a prospective tenant who actually purchases or takes a lease. From
the viewpoint of the vendor in such a case, the estate agent has not fulfilled
his engagement unless he is an effective cause of the sale or the tenancy. As
Viscount Simon LC in the leading case on estate agents’ commission, Luxor
(Eastbourne) Ltd v Cooper [1941] AC 108, at p 117, says of the role
of an estate agent:
He is commonly
described as ’employed’: but he is not ’employed’ in the sense in which a man
is employed to paint a picture or build a house, with the liability to pay
damages for delay or want of skill. The owner is offering to the agent a reward
if the agent’s activity helps to bring about an actual sale . . .
However, Mr
Morison, while not quarrelling in general with Mr Chadwick’s construction,
submits that in the case of a developer the court should be substantially less
ready to infer such an implied term. He points out a developer such as Fairview
has its own sales staff and what they require is not so much the agent’s
assistance to conclude a sale but the agent’s assistance in obtaining an
introduction, and it is for the introduction that the commercial developer will
be prepared to pay the commission. Mr Morison is unable to point to any
authority which precisely supports his submission but instead relies upon the
general approach laid down by the House of Lords in the Luxor case as to
the interpretation of clauses of this nature.
In particular
he refers to another passage in the speech of Viscount Simon at p 119 where he
says:
There is, I
think, considerable difficulty, and no little danger, in trying to formulate
general propositions on such a subject, for contracts with commission agents do
not follow a single pattern and the primary necessity in each instance is to
ascertain with precision what are the express terms of the particular contract
under discussion, and then to consider whether these express terms necessitate
the addition, by implication, of other terms . . . in contracts made with
commission agents there is no justification for introducing an implied term
unless it is necessary to do so for the purpose of giving to the contract the
business effect which both parties to it intended it should have.
He also refers
to passages in the speech of Lord Russell at p 124 and in Lord Wright’s speech
in particular at p 130.
Adopting the
approach laid down in these speeches in the House of Lords, but having, as I
must confess, changed my mind more than once in the course of the admirable
arguments which were presented on both sides in this court, I have ultimately
come firmly to the conclusion that Mr Morison’s submissions and the decision of
the learned judge are correct. I can see no necessity in this case to imply a
term. On the contrary, I regard the relevant language as being inconsistent
with implication of a term imposing an additional implied requirement that the
estate agent must be at least an effective cause of the lease being granted.
In a case
where there are no express qualifications to be fulfilled other than that a
purchaser should be introduced by the estate agent, then the need to imply a
term as to effective cause can be readily appreciated, since otherwise if the
vendor engages more than one agent there will be no way in which he can avoid
being faced with an obligation to meet the claims for commission of more than
one agent who each introduced the tenant. However, in this case there is virtually
no danger of this happening because of the words ‘with whom we have not been in
previous communication’. Furthermore, there is no danger of a requirement to
pay commission in the absence of a lease being completed. It is only in a very
rare case such as the one
and then disappears from the scene altogether that any problem will arise. In
such circumstances, the insertion of the implied term contended for by the
landlord will change the problem but not necessarily overcome it. If the other
estate agent, Phillips Roth, had not been retained by Metier, although they
were an effective cause of the letting, they would not be entitled to a
commission because undoubtedly Metier would have been in previous communication
with Fairview.
Difficulties
of a different sort could also occur if the time-lag between the introduction
and the completion of the lease were longer than that which occurred in this
case. In such a situation it might be necessary to consider whether there is a
different implied term, namely that the lease has to be entered into within a
reasonable time of the introduction. However, no such implied term was
contended for here.
It seems to me
that the present clause works perfectly satisfactorily from a
developer/landlord point of view. He obtains an introduction to somebody with
whom he has not communicated previously, the person enters into a lease and it
is then and only then that he becomes liable to pay a commission. An additional
requirement could be imposed (and it is not without interest to note, as the
Master of the Rolls pointed out in argument, Fairview now impose such a
requirement) that the agent should be an effective cause of the letting, but,
if this is required, this should be stated expressly.
It is only
necessary for me to add that Mr Chadwick submitted that, nowadays, when a term
is to be implied the appropriate term to imply is not that set out in the
passage from Bowstead which I have quoted but an implied term that the
agent is ‘an’, not ‘the’, effective cause of the letting. Mr Chadwick may be
right as to this in the case of some commission agreements, but I am not
satisfied that he is right as to all. It could also create problems where there
are two or more effective causes, each of which could be the subject of a claim
for commission.
I would
dismiss this appeal.
THE MASTER OF
THE ROLLS and RUSSELL LJ agreed and did not add anything.
The appeal
was dismissed with costs. A stay of execution for one month was granted on
condition that the sum awarded was brought into court. Leave to appeal to the
House of Lords was refused.