The Supreme Court has ruled in favour of an estate agent in its more than decade-old dispute with a developer over commission of £42,000 plus VAT in respect of the sale of a number of flats in Hackney.
The court unanimously overturned a ruling that the developer was not liable for commission because the parties had not agreed, during a 2008 telephone conversation, on what event actually triggered the payment of commission.
Lord Kitchin, giving the main ruling, said that the “only sensible interpretation” was that the parties had agreed that the agent should be entitled to commission.
By the start of 2008, the developer, Edward Wells, had sold six of the properties through a local agency and one was under offer. The remaining flats in the development were not selling. Things changed when another agent, Mehul Devani, introduced to Wells by a mutual acquaintance in late January 2008, contacted a housing association, the Newlon Housing Trust.
The association made an offer for all the flats that remained unsold and, following completion of the transaction, Devani sent the developer an invoice for commission in the sum of £42,000 plus VAT. Devani claimed the sum was in line with what the parties had agreed on the telephone, but the developer refused to pay.
“Commission entitling event”
In 2016, the Court of Appeal ruled, by a majority, that the developer was not liable to pay, Lewison LJ holding that agreement on the event that triggers an agent’s entitlement to commission is essential to the formation of a legally binding contract for the provision of estate agency services.
He ruled that, here, the bargain was incomplete because the parties had not agreed the “commission entitling event” during the telephone conversation they had in January 2008.
However, allowing the appeal today, Lord Kitchin said judge that the parties did intend to create legal relations and that they understood that Devani’s terms were that he would be entitled to a commission of 2% plus VAT.
He said: “It is true that, as the judge found, there was no discussion of the precise event which would give rise to the payment of that commission but, absent a provision to the contrary, I have no doubt it would naturally be understood that payment would become due on completion and made from the proceeds of sale.
“Indeed, it seems to me that is the only sensible interpretation of what they said to each other in the course of their telephone conversation on 29 January 2008 and the circumstances in which that conversation took place.
“In short, Mr Devani and Mr Wells agreed that if Mr Devani found a purchaser for the flats he would be paid his commission. He found Newlon and it became the purchaser on completion of the transaction. At that point, Mr Devani became entitled to his commission and it was payable from the proceeds of sale.”
He found that Devani had failed to comply with his obligations under section 18 of the Estate Agents Act 1979 by failing, at the outset, or as soon as reasonably practicable thereafter, to expressly inform Wells of the event which would trigger his entitlement to commission. However, he said that “Mr Devani’s culpability was not so great as to justify dismissal of his application”.
Interpretation of contracts
In a separate judgment, Lord Briggs gave additional remarks, because the court was departing from the earlier decision of Lewison LJ, “who has a pre-eminent standing in relation to the interpretation of contracts”.
Lord Briggs said: “Lawyers frequently speak of the interpretation of contracts (as a preliminary to the implication of terms) as if it is concerned exclusively with the words used expressly, either orally or in writing, by the parties. And so, very often, it is. But there are occasions, particularly in relation to contracts of a simple, frequently used type, such as contracts of sale, where the context in which the words are used, and the conduct of the parties at the time when the contract is made, tells you as much, or even more, about the essential terms of the bargain than do the words themselves.”
Matthew Cropp, partner at Wedlake Bell LLP, which acted for Wells, said the decision indicates that it may be “relatively easy” for agents to get relief under the Estate Agents Act, even if their default is serious.
He said: “In this case, the agent’s non-compliance with the information provision requirement under the Act was significant. The time of supply of information (after the occurrence of the event triggering the commission) was late. The decision, says the court, is not to underrate the importance of the statutory duty imposed by section 18 of the Act.
“The Act, it says, is intended to impose a more rigorous discipline on professional counterparties (ie agents) where the law would otherwise impose liability on a vendor/client arising from the briefest and most informal of exchanges. The decision suggests a degree of leniency extended to agents which some might think is at odds with the consumer protection ethos ascribed to the Act.”
To send feedback, e-mail jess.harrold@egi.co.uk or tweet @estatesgazette
