The question of whether a term should be implied into a contract arises when an agreement does not expressly provide for what is to happen when some event occurs. However, Wells v Devani [2016] EWCA Civ 1106; [2016] PLSCS 308 reminds us that it is not legitimate, under the guise of implying terms, for the court to make a contract for parties, since this would put the cart before the horse.
The first question must always be whether there is a legally binding contract at all. And, until that has been decided, the court cannot properly decide what extra terms, if any, should be implied into their agreement, as being both necessary and reasonable to make their bargain work.
The case concerned the sale of seven flats in a development in Hackney. The developer had been unable to find buyers for them until an estate agent, introduced by a mutual acquaintance, contacted a housing association. The association made an offer for the flats and, following completion of the transaction, the estate agent raised an invoice for his commission in the sum of £42,000 plus VAT.
The sum claimed was in line with the parties’ discussions. But it seems that they had never actually discussed or agreed what would trigger the developer’s liability to pay commission. In addition, immediately after their discussions, the agent concentrated on finding a buyer for the flats, which he did very quickly, and did not send his terms of business to the developer, as is required by section 18 of the Estate Agents Act 1979, until after the housing association’s offer was made and accepted.
The Court of Appeal noted that there are many different forms of commission agreement – and ruled that agreement on the event that will trigger the agent’s entitlement to be paid is essential to the formation of a legally binding contract for the payment of commission. This is because it determines what an agent must do in order to be paid. And, if there was no contract, then section 18 was irrelevant.
The bargain here was incomplete because the parties had not agreed the trigger event. The trigger could not be fixed by reference to the standard of reasonableness and this was not a case in which the law provides a default rule. As a result, there was no contract into which terms could be implied – and it was impossible for the court to conclude a contract for the parties by implying even the most favourable term for the party against whom the purported contract was to be enforced. Furthermore, such a term (which was that commission would become payable when the buyer completed the purchase – ie on the last possible date the parties could reasonably have agreed) would be inconsistent with the written terms that the estate agent had belatedly supplied (which stated that commission was payable on exchange of contracts).
Allyson Colby is a property law consultant
