Estate agents — Commission — Whether agents entitled to commission at the rate of 1 1/2% of sale price on the sale of 200 acres of land for residential development at £32,571,500 — If not, and if entitled to be remunerated on a quantum meruit basis, what would be the appropriate amount — Appeal from decision of Waller J, who held that agents were entitled on a quantum meruit basis to be paid £15,000 — Appeal dismissed
agents had acted for many years in negotiating sales of land on behalf of the
trustees of the Portsmouth Settled Estates, respondents to the present appeal —
On September 14 1984 the appellants submitted to the respondents detailed
proposals covering the basis of their remuneration from 1984 onwards — The
proposals included a fee of £30,000 for work leading to the grant of planning
permission and payment of commission for the negotiation of land sales at 1
1/2% on the sale price, less any figure of £30,000 charged earlier for
obtaining planning permission — The proposals were apparently acceptable to the
Portsmouth trustees, as it was common ground that they were paid £30,000 for
work up to and including the grant of planning permission — It was also common
ground that they were entitled to commission of £150,000, being 1 1/2% of the
sale price of land sold by the trustees to Sainsbury for £10m — The present
dispute arose, however, on the appellants’ claim for commission at that rate on
the sale price of some 200 acres of land sold for residential development to a
company called Grainger Trustees plc for the sum of £32,571,500 — Commission at
1 1/2% on that sum amounted to £564,450
crucial importance for the decision in the present case was the very special
relationship which existed between the Portsmouth trustees and Grainger — The
relationship was not the normal one between vendor and purchaser — They were
not opposing parties in that sense — As a result of both a family and a
business connection, there subsisted a relationship of complete trust and confidence
between the parties — It was thus by no means an ‘arm’s length’ sale — The
actual decision of the Portsmouth trustees to sell to Grainger was made without
any intervention by the appellants — The only question was whether they took
part in negotiating the selling price — The evidence was that the appellants
were instructed to talk to Jones Lang Wootton about the value of the land but
not to put forward or accept any offer — The appellants’ remit was strictly
limited — At their meeting with Grainger’s agents no ‘negotiations’ took place
in the sense contemplated by the appellants’ proposals of September 14 1984 —
In fact the selling price was subsequently agreed not between the respective
agents but between the principals — In the light of this evidence the court
agreed with Waller J in rejecting the appellants’ claim to commission on the
basis set out in the proposals of September 14 1984 for negotiating a sale
first instance had decided that the appellants were entitled to a quantum
meruit payment of £15,000 — The appellants attacked this figure as demonstrably
too small and even suggested that they should receive by way of quantum meruit
approximately the same amount as commission at 1 1/2% on the sale price, namely
£564,000 — The Court of Appeal held, however, that they had no material to
justify them in interfering with the judge’s figure of £15,000 — As they agreed
with the judge on all aspects of the case, the appeal was dismissed
The following
cases are referred to in this report.
Luxor (Eastbourne)
Ltd v Cooper [1941] AC 108; [1941] 1 All ER
33, HL
Rolfe (F
P) & Co v George [1969] EGD 330; (1969)
210 EG 455, CA
Way v Latilla [1937] 3 All ER 759
This was an
appeal by the plaintiffs, Debenham Tewson & Chinnocks, from the decision of
Waller J on the plaintiffs’ claim for commission in respect of the sale by the
trustees of the Portsmouth Settled Estates to Grainger Trustees plc of some 200
acres of land for residential development. Waller J’s decision is reported at
[1989] 2 EGLR 26 and [1989] 44 EG 90.
Stanley
Burnton QC and J Mervyn Roberts (instructed by Bower Cotton & Bower)
appeared on behalf of the appellants; Charles Flint (instructed by Frere
Cholmeley) represented the respondent trustees, Richard John Rimington and
Richard Quinn Dunn.
Giving
judgment, LLOYD LJ said: For many years the plaintiffs, Debenham Tewson
& Chinnocks, have acted for the trustees of the Portsmouth Settled Estates.
In 1970 they negotiated the sale of 185 acres to Basingstoke Borough Council.
In 1974 they negotiated the sale of a further 170 acres to the same purchasers.
In the late 1970s and early 1980s they were concerned with bringing forward a
large parcel of agricultural land for development at Brighton Hill South,
subsequently known as Hatch Warren. On September 2 1983 they submitted a fee
note for their work in that connection over the period 1973 to 1983 amounting
to £9,563 calculated at an hourly rate. On September 14 1984 they submitted a
fee proposal for the future to cover their work from 1984 onwards. Since the
issues in the present appeal turn on the true construction of that letter, I
will read it in full. It is addressed to Mr R J Rimington, a trustee of the
Portsmouth Settled Estates, at his office address in London. It reads:
I undertook to
let you have a fee proposal covering our work from the beginning of 1984
onwards. The work will fall into three main categories: —
1. Negotiations leading up to the grant of
planning permission. This will include not only discussions with the planning
and highway authorities on design but also, in conjunction with your
solicitors, settling a Section 52 agreement covering phasing, infrastructure,
maintenance and hand over of open spaces, etc. (January, 1984 — early 1986).
2. Negotiations with developers for the sale of
successive areas of land. This will start as soon as planning permission has
been obtained and possibly a little earlier and will probably continue for
several years as development spreads across the site. It is possible (eg if a
change of Government is imminent) that we may sell the entire site in one
transaction but I have no doubt that the maximum realisation will be obtained
by gradually selling the land in phases as each phase becomes ‘ripe’ for
development.
3. Negotiations with the Inland Revenue on the
DLT and CGT assessments. Our DLT planning will start well before the land is
sold — we are already thinking about it — and we shall make certain
recommendations as soon as the form of the Section 52 agreement becomes
apparent.
Our fee for
work leading up to the grant of planning permission will be £30,000 and I would
like to submit an interim account of about £10,000 during 1985. Our fee for
land sales will be 1 1/2% of the sale price less the £30,000 charged earlier
for obtaining planning permission. There is now no ‘scale’ of fees for DLT and
CGT work and we usually charge on a quantum meruit basis. I hope this is
acceptable to you but do let me know if you have any queries.
The further
employment of Gordon Graham and Partners has already been dealt with and you
have authorised us to instruct Cyril Lea of W R Davidge and Partners to advise
on highway matters. Mr Lea has already started work and I have asked him for an
estimate of his fees but I am afraid that this has not yet been forthcoming.
As far as the
planning itself is concerned, we have now evolved a strategy for the
development of the entire site in conjunction with Ray Perry and Cyril Lea and
our next meeting with the planners is at the end of this month. I will let you
have a progress report shortly afterwards.
It is common
ground that the plaintiffs were entitled to £30,000, under para 1 of that
letter, for the work which they did up to and including the grant of planning
permission. This they have been paid. It is also common ground that they were
entitled to £150,000, being 1 1/2% of the sale price of a parcel of land sold
to Sainsbury for £10m. This they have also been paid.
The question
for decision is whether they are entitled to 1 1/2% of the sale price of some
200 acres of land sold for residential development to a company called Grainger
Trustees plc. The sale price to that company was £32,571,500 payable in cash
and shares. If the plaintiffs are right they are entitled to 1 1/2% of that
figure, amounting to a further £564,450. If they are wrong they are entitled to
a quantum meruit and no more.
The history of
the negotiations leading up to the sale to Grainger is fully set out in the
judgment of Waller J, who heard this case over a period of some days in July
1989, including four days of evidence. I do not repeat the background. I need
only emphasise, as the judge emphasised, the very special relationship which
existed between the trustees and Grainger. ‘Special relationship’ is not my
phrase. It is a phrase which the plaintiffs themselves used to describe the
relationship in their letter of March 13 1986, and it was accepted as an
accurate description of the relationship by Mr Burnton in the course of his
argument on behalf of the plaintiffs. This was not an ordinary sale at arm’s
length to a commercial developer for an immediate cash price. If that is what
the trustees had wanted, they could have accepted a much higher offer of some
£55m from Mountleigh Holdings plc. The trustees did not accept that offer for
reasons which seemed good to them at the time and which we were told they have
had no reason whatever to regret since. The trustees had other considerations
in mind. In particular, they were influenced by family considerations and an
understandable and indeed laudable desire to keep some control over the
residential development as it proceeded.
It was on
March 19 1985 that Lord Portsmouth met Mr Stephen Dickenson of Grainger in
London. There had been a connection between Lord Portsmouth’s family and the
Dickenson family for very many years. In addition, the trustees already held a
5% interest in Grainger and Mr Richard Rimington, one of the trustees, was a
director of that company. As a result there already existed, or was soon to
exist, a relationship of complete trust between the parties. Various joint
schemes were discussed, including a joint venture with an established firm of
builders. But Grainger had no experience of property development in the South
of England. Their experience lay in investment, mostly in Newcastle upon Tyne.
Accordingly, it was necessary for them to obtain outside expert advice.
After the
initial meeting between Lord Portsmouth and Mr Dickenson, matters moved very
swiftly. By May Grainger had engaged a Mr Peter Millburn to act as project
manager. It is common ground that he played a major part, along with the
plaintiffs, in negotiating with the local authorities and in securing planning
permission. There was a meeting on May 24 between the trustees and Grainger at
which Mr Millburn was present. On that occasion his position as project manager
on behalf of the parties was explained and accepted. Those features show that
the relationship was quite unlike an ordinary sale at arm’s length.
By the end of
1985, as the judge found, the trustees had made up their minds to sell to
Grainger. It is not suggested that the plaintiffs had by that stage played any
part at all in negotiating the sale. Indeed, they had been specifically
instructed the previous autumn not to market the land and not to discuss the
sale with any potential developers, and that remained the trustees’
instructions throughout. So if the sale to Grainger had gone ahead at the
beginning of 1986 there really would have been no question at all of the
plaintiffs’ being entitled to 1 1/2% of the sale price. But there remained the
important question of fixing the price at which the sale was to take place.
There was a
meeting between the trustees and the plaintiffs on February 27 1986 at which
the plaintiffs were instructed to discuss the valuation of the land with Jones
Lang Wootton, on behalf of Grainger. Since the terms of those instructions are
crucial to the decision of this appeal, I quote the minutes verbatim. The
trustees’ minute reads:
RJR
— that is, Mr
Rimington —
mentioned the
possible arrangement with Grainger and asked HJKB-O
— that is, Mr
H J K Bagnall-Oakeley of the plaintiffs —
if he would
contact Jones Lang Wootton and arrange a meeting to discuss the value of the
land (excluding the retail site) that would be basis for the negotiations. This
he agreed to do and report to the trustees at the next meeting to be held at
Debenhams offices on 25 March 1986 at 3 pm.
The
plaintiffs’ note of the same meeting reads as follows:
The Trustees
then instructed us to approach Jeremy Waters from Jones Lang Wootton in an
attempt to agree a purchase price for the whole of the residential land.
The
plaintiffs’ pleaded case is that by giving those instructions the trustees were
accepting the offer contained in the plaintiffs’ letter of September 14 1984
and repeated in their subsequent letter of September 12 1985. The anticipated
meeting took place on March 12 1988. According to the plaintiffs’ note of that
meeting, Mr J Waters [FRICS] of Jones Lang Wootton started by pointing out that
the parties were very closely related and had already agreed a deal, and that
therefore the discussions between the two firms of agents ‘were really a bit of
a formality’. ‘Whatever figures JLW and DTC come up with our respective
principles will do a horse deal.’ This
approach by Mr Waters was subsequently repudiated. But it at least shows his
appreciation of the special relationship which undoubtedly existed between the
trustees and Grainger. I repeat, Grainger were not ordinary arm’s length
purchasers.
In the event,
Jones Lang Wootton put forward a figure of £17.5m to £18 m at that meeting. The
plaintiffs put forward a figure which was half as much again. There the matter
rested for the time being. I need not recount the subsequent history at this
stage, which is, as I say, in any event, fully set out in the judge’s judgment.
For the point of construction which we have to decide can be decided in the
light of the facts which I have already stated.
Mr Burnton
submitted, first, that the trustees accepted the plaintiffs’ offer contained in
the plaintiffs’ letter of September 14 1984 by instructing them to meet with
Jones Lang Wootton; and, second, that what then took place at the meeting on
March 12 1988 was a negotiation within the meaning of para 2 of that letter, which
entitled the plaintiffs to their 1 1/2% even if they had taken no further part
in the negotiations at all.
I cannot
accept that conclusion. I have grave doubts about the first step of Mr
Burnton’s argument. If you had asked the trustees on February 27 whether, by
giving the plaintiffs the instructions which they had to discuss the value of
the land with Jones Lang Wootton, they were accepting the plaintiffs’ offer
contained in the letter of September 14 1984, and would thereafter be obliged
to pay 1 1/2% if the intended sale to Grainger went through, there is no doubt
at all, to my mind, what the trustees’ answer would have been. The relationship
which had developed between the trustees and Grainger by the beginning of 1986
was quite unlike the sort of case contemplated by the letter of September 1984.
So the trustees, if asked the hypothetical question which I have suggested,
would undoubtedly have answered, ‘of course not’. The same answer would, I
think, or should, at any rate, have been given by the plaintiffs.
The very
limited nature of the instructions which the plaintiffs received is apparent
not only from the minutes and the file note which I have read but also from the
evidence. One can start with Lord Portsmouth’s evidence at day 3. He was being
asked about the meeting in cross-examination:
MR
GRIFFITHS: But is not the object of having your agents and the agents on the
other side to meet together for them to argue through between them?
A. Yes.
Q. You would expect in that argument Debenhams
to approach it in the most favourable way from your point of view, would you
not? A. Yes.
Q. To put the most favourable points from your
point of view to Jones Lang Wootton? A.
Yes.
Q. And to try and get Jones Lang to come up to
their figure? A. Yes. As I say, to try
and arrive at a figure in these discussions which we could then use in our
direct negotiations with Grainger Trust.
Q. Of course, but nevertheless you knew
perfectly well that to get to that figure Jones Lang and Debenhams would be
negotiating with each other the comparables, and so on? A. Yes.
Q. And you knew perfectly well Debenhams would
do it in your best interests from a high figure and Jones Lang in Grainger
Trust’s best interests from a low figure?
A. Yes.
Q. Were you not asking them to start
negotiating with Jones Lang in those circumstances? A. No. I think we looked upon those talks as
just that, to try and arrive at some values at which we could then do the deal
between ourselves — as the basis for negotiations I think it is described as in
one of the minutes here.
Then there was
the evidence of Mr Oakeley, who was asked to deal with the same point at day 1.
He was referred to the minute which I have already read and was asked by Mr
Flint:
Q. . . . Do you accept that as a fair summary
of the instructions that you were given?
A. I think we were instructed to go a little further than just discuss
value, What our clients wanted us to do if it was possible was to agree terms,
because they wanted to sell to Grainger on terms which we could recommend as
being a proper price.
Q. But they did not give you any instructions
as to the terms that you might ask for, did they? A. No.
Q. You were to meet Jones Lang Wootton, who
were acting for Grainger? A. Yes.
Q. Grainger’s valuers? A. Yes.
Q. You were to discuss valuation —
correct? A. Yes.
Q. You were not authorised to put forward any
offer on behalf of the trustees? A. No.
Q. Nor were you authorised to accept any offer
from Jones Lang Wootton? A. That is
correct.
Q. Or to discuss anything other than the value
of the land? A. Yes, that is correct.
In the light
of that evidence I do not think that the trustees could be said to have
accepted the plaintiffs’ offer in their letter of September 14 1984 by giving
the plaintiffs the limited instructions which they did.
But even if
the trustees could be said to have accepted the plaintiffs’ offer, there
remains the second question, whether what took place on March 12 was a
negotiation within the meaning of para 2. I am quite clear that it was not. In
one sense, of course, every communication between opposing parties or their
agents could be said to be a negotiation. The word has no precisely defined
meaning, as was pointed out by this court in Hoddell v Smith
(1975) 240 EG 295, [1976] 2 EGLR 38. But, as I have already said, these parties
were not opposing parties in the ordinary sense. In any event a discussion as
to price, even if it could be called in the circumstances of the present case a
negotiation, as the judge was prepared to accept, was not a negotiation for the
sale of land within the meaning of the plaintiffs’ letter of September 14 1984.
It was a preliminary exchange of views, no more. This is borne out by
subsequent events. It is borne out by the plaintiffs’ letter of the following
day, in which they asked for instructions to agree a value at £25m. Those
instructions they never received. It is also borne out by the fact that the
price subsequently agreed on April 8 was agreed not between agents but between
principals; and it was at a figure of £28 m, not £25 m. Mr Burnton pointed out
that there was a representative of the plaintiffs present at that meeting. So
indeed there was. But he left the meeting before the principals started
discussing figures. So I would reject Mr Burnton’s second argument that what
took place on March 12 was a negotiation within the meaning of the plaintiffs’
letter, which thereby entitled them to claim their 1 1/2%.
But that is
not the end of the matter, because one then has to ask oneself whether anything
which happened thereafter made any difference. Mr Burnton accepts that there
were no further negotiations as such between the plaintiffs and Grainger or
their agents subsequent to March 12. But he relies on the receipt of an
apparently unsolicited offer from Tarmac at a rate of £250,000 an acre,
subsequently increased to £300,000 an acre on March 24 1986. He relies also on
various offers from Mountleigh, culminating in their final offer of £55m made
almost as the contract with Grainger was being signed. The plaintiffs’ part in
passing on or obtaining those offers features largely in their pleaded case.
Are they relevant?
There are, as
it seems to me, two conclusive answers to that line of argument. With one
exception, all the offers subsequently obtained were obtained contrary to the
trustees’ express instructions. Second, negotiations with Tarmac and Mountleigh
were in any event irrelevant, since they did not result in or produce a sale to
Tarmac or Mountleigh: see the test proposed by Megaw LJ in Hoddell v Smith,
quoting the language of Winn LJ from F P Rolfe & Co v George
(1969) 210 EG 455.
Negotiations
in para 2 of the plaintiffs’ letter do not include negotiations with a third
party. It would take much clearer language to entitle the plaintiffs to a scale
fee when those negotiations did not result in or produce a sale. It is said
that the negotiations with Tarmac and Mountleigh resulted in a higher price
being paid by Grainger. No doubt that is true. But it is wholly beside the
point. Para 2, read in the context of the letter as a whole, makes it quite
clear that the only negotiations which qualify are those which take place with
and produce a sale to the ultimate purchaser.
So I would
reject all Mr Burnton’s arguments under this head. The plaintiffs have failed,
to my mind, to make good their case that they are entitled to 1 1/2% of the
sale price.
So I turn
finally to the alternative argument, that they are entitled to a quantum
meruit. The judge was given very little help as to how he should arrive at
an appropriate figure for a quantum meruit. He rejected, rightly in my
view, the argument that the negotiations with Tarmac and Mountleigh entitled
the plaintiffs to a quantum meruit: see Luxor (Eastbourne) Ltd v Cooper
[1941] AC 108 per Lord Russell at p 125. If those negotiations had
resulted in a sale to Tarmac or Mountleigh, then of course the plaintiffs would
have been entitled to their 1 1/2% on the sale price, as the trustees have
always accepted. The terms which the plaintiffs proposed entitled them to the
big fish, if they could catch it. In the present case, they did not. So the
work which they did in connection with Tarmac and Mountleigh was work which
they undertook at their own risk, more especially as it was work which was
undertaken contrary to the trustees’ express instructions.
That means
that the only work qualifying for a quantum meruit was the plaintiffs’
attendance at the meeting on March 12 at the trustees’ request. The trustees’
case as to that was that the plaintiffs should be paid at an hourly rate, as
they had been paid for all the work which they did prior to 1983. The
plaintiffs put forward no case at all in relation to quantum meruit. In
that vacuum, the judge founded himself on the figure which Jones Lang Wootton
had charged for their part in the meeting on March 12, namely £20,000 if the
sale went ahead and £12,500 if it did not. On that basis the figure at which
the judge arrived was £15,000.
Mr Burnton
argues that £15,000 is demonstrably too little. It was as a result of the
plaintiffs’ intervention that Jones Lang Wootton were persuaded to go up from
£18m to £25m, and further that the sum eventually received by the trustees rose
to £32m. Mr Burnton argued that that ought all to be reflected in the
appropriate figure for a quantum meruit. Indeed, he went even further.
He went so far as to submit that since the amount of work done by the
plaintiffs was no less than the amount of work which they would have had to do
in order to earn their 1 1/2%, they should receive the full 1 1/2%, or £564,000
on a quantum meruit.
I found that
argument surprising, to say the least. Carried to its logical conclusion, it
would mean that the plaintiffs should be claiming not 1 1/2% on £32m but 1 1/2%
on £55m, the sum offered by Mountleigh, since it was no fault of the plaintiffs
that the trustees did not accept that offer. Mr Burnton cited the decision of
the House of Lords in Way v Latilla [1937] 3 All ER 759 in
support of his argument that the plaintiffs are entitled to 1 1/2% as a quantum
meruit, but I do not find that that case assists him.
In the absence
of anything else to go by, the judge did the best he could by taking the figure
of £15,000 for the reasons which he gave. We do not have anything more to go by
than he had. I do not see how, in those circumstances, this court would be
justified in interfering with his figure.
In case it be
thought that the plaintiffs have been hard done by, Mr Flint was anxious to
point out that they have been richly rewarded over the past for the services
which they have performed for the Portsmouth Estates. Indeed, it was at the
trustees’ express insistence that the plaintiffs were retained by Grainger to dispose
of some 57 acres of residential land immediately after the sale, as a result of
which they received a commission of £320,000.
I agree with
the judge’s conclusion on all aspects of this case and would dismiss the
appeal.
McCOWAN LJ and SIR JOHN MEGAW agreed and did not add anything.
The appeal
was dismissed with costs, to include costs of the respondents’ notice.
