Estate agent — Commission agreement providing for early payment rate with higher rate applying after specified period — Whether higher rate unfair — Whether higher rate relating to price payable or default provision — Regulation 6(2) of Unfair Terms in Consumer Contracts Regulations 1991 — Appeal dismissed
The defendants retained the claimant estate agent to sell a flat in Leytonstone. Under the agreement, commission was calculated at an early payment rate of 1.5% plus VAT provided that the full sum payable was received by the claimant within 10 working days of the completion date. After that date, the commission would rise to the standard rate of 3% plus VAT, and interest would be incurred on any outstanding sums at a rate of 3% above base rate.
The claimant introduced a purchaser, and, in July 2002, a sale was completed at a price of £166,000. The defendants’ solicitor, the Part 20 defendant, made a payment to the claimant, but this was £387 less than the full 1.5% commission. In November 2002, the claimant sought commission at the 3% standard rate. The defendants failed to pay, and the claimant brought proceedings. The defendants contended that the provision for the payment of a 3% commission rate was unfair, and was not binding upon them by virtue of the Unfair Terms in Consumer Contracts Regulations 1991. The claimant argued that the terms relating to the payment of commission could not be criticised by virtue of regulation 6(2) of the 1991 Regulations, which provided: “In so far as it is in plain intelligible language, the assessment of fairness of a term shall not relate… (b) to the adequacy of the price or remuneration, as against the good or services supplied in the exchange.” The defendants also brought Part 20 proceedings against their solicitor.
The judge held that regulation 6(2) did not apply because the defendants’ complaint did not involve an assessment of the adequacy of the price as against the services supplied. He took the view that the 1.5% commission rate represented the agreed price, and concluded that the 3% rate was unfair under regulation 5(1). The claimant appealed.
Held: The appeal was dismissed.
The 1991 Regulations were not intended to control prices, nor to interfere with the parties’ freedom of contract as to the essential features of the bargain. That said, regulation 6(2) had to be given a restrictive interpretation. Although it was not for the court to rewrite the parties’ bargain with regard to the fairness or adequacy of the price itself, regulation 6(2) might not shield terms in respect of price escalation or default provisions from scrutiny under the fairness requirements in regulation 5(1). Much would depend upon the individual contract. When regulation 6(2) was inapplicable and regulation 5(1) had been engaged, it did not necessarily follow that a term would be adjudged unfair.
In the present case, the applicability of regulation 6(2) depended upon whether the agreement provided for: (i) a 3% commission rate (price), with the defendants having the option, but no obligation, to pay 1.5%; or (ii) an obligation upon the defendants to pay a price of 1.5%, with a default provision, exercisable at the claimant’s option, to insist upon payment of 3%. If it were the former, regulation 6(2) would apply and the appeal would have to be allowed. However, both parties had clearly contemplated an agreed operative price of 1.5%, with a default provision of 3%. Accordingly, the judge had correctly held that regulation 6(2) was inapplicable: Director General of Fair Trading v First National Bank plc [2001] UKHL 52; [2002] 1 AC 481 applied.
Anthony Haycroft (instructed by Cartwright Cunningham Hazelgrove & Co, of Woodford Green) appeared for the claimant; Jeremy Child (instructed by Darlingtons) appeared for the Part 20 defendant.
Sally Dobson, barrister
