Estate Agents Act 1979 — Whether a petition to wind up a company can be presented where a statutory demand includes a bona fide disputed item — Whether section 18 of the Estate Agents Act 1979 satisfied
the applicant, Fiesta Girl of London Ltd, wished to develop a property at
199-201 Seven Sisters Road, London N4 — In order to prelet the development, the
applicant employed Hornsey Agencies to seek a tenant; by a letter dated March
29 1989 Hornsey Agencies confirmed that their commission would be £10,000 plus
VAT ‘In the event of our introducing a purchaser to you who exchanges contracts
. . .’ — Following a change in the asking rent, Hornsey Agencies reconfirmed
their commission in a letter dated April 18 1989 as 10% of the first year’s
rent plus VAT for achieving the same event — At a meeting in February 1990
between a director of the applicant company and Mr Georgiou, a partner of
Hornsey Agencies, when it was realised that the asking rent would have to be
reduced, Mr Georgiou wrote on a business card ‘. . . our fee ten per cent on a
year’s rent but, for you not
the respondents
completion of a lease of the property in June 1991, the respondents sent to the
applicant an invoice for 10% commission on the first year’s rent plus VAT,
totalling £13,432.50 — Upon the failure of the applicant to pay the commission,
and the service of a statutory demand on August 22 1991 under the provisions of
the Insolvency Act 1986, the applicant applied by motion to restrain the
respondents from petitioning for the winding-up of the applicant company — The
grounds for the application were that section 18 of the Estate Agents Act 1979
had not been complied with — The respondent admitted liability to pay a
commission of £7,000 plus VAT but disputed the balance and contended that where
there was a bona fide dispute as to part of a sum demanded, a petition to wind
up could not be presented founded on a statutory demand in such circumstances
in a statutory demand is bona fide disputed does not mean that a petition to
wind up, relying on neglect to pay the undisputed balance, cannot be presented
— Section 18 of the 1979 Act does not require the provisions of any agreement
to be in writing — At the February 1990 meeting the terms for the payment of
commission were changed and on the applicant’s own account the commission was
to be £7,000 plus VAT — Therefore, it was not open for the applicant to say
that there had not been compliance with the 1979 Act
The following
cases are referred to in this report.
Cardiff
Preserved Coal and Coke Co v Norton (1867)
LR2 Ch App 405
Company,
A, Re [1984] BCLC 322
Debtor,
A, In re (No 10 of 1988) [1989] 1 WLR 405
Debtor A,
Re (No 1 of 1987) [1989] 1 WLR 271
(No
008122 of 1989), Re, ex parte Trans Continental Insurance Service Ltd [1990] BCLC 697
This was an
application by motion by Fiesta Girl of London Ltd to restrain the presentation
of a petition by the respondents, Network Agencies, for the winding up of the
applicant company.
Shane Dougall
(instructed by Nicos & Co) appeared for the applicant; Martin Jones
(instructed by Whatley Lane Georgallis & Co) represented the respondents.
Giving
judgment, MR EVANS-LOMBE QC said: This is a motion by Fiesta Girl of
London Ltd (‘the company’) to restrain the presentation of a petition against
the company by Network Agencies (‘Network’).
The company
was a property development company and of that company a Mr Spyrou was managing
director at all material times. In March 1989 the company proposed to develop a
property belonging to it at 199-201 Seven Sisters Road, London N4 (‘the
property’). The company wished to prelet that property and for that purpose
engaged two firms of agents, Stickley & Kent and Hornsey Agencies, to place
the property on the market for letting on a long lease. A partner in the
business being conducted under the name of Hornsey Agencies was a Mr Georgiou,
another partner in that firm was a Mr Chrisostomou and there was a third
partner whose name is irrelevant for the purposes of this judgment.
Mr Georgiou
had been a friend of Mr Spyrou for, it seems, some 15 years before the relevant
events. In August 1990 Mr Georgiou retired, leaving the remaining two partners,
Mr Chrisostomou and another, to continue the business under a new name, Network
Agencies, which is its present name. It appears now to be accepted, on behalf
of the company, that what I will refer to as the Network partnership succeeded
to the previous partnership’s rights under any contract with the company.
The employment
of what was then Hornsey Agencies is set out in three documents which are in
exhibit AC1 to the affidavit of Mr Chrisostomou, sworn on October 23 1991. The
first document appears to be an internal memorandum of the firm dated March 12
1989. It defines the property, shows that it is to be let at no premium,
defines the nature of the lease being sought to be obtained and finally it
defines the commission payable as:
Ten per cent
on one year’s rent — £10,000.
The next
document is a letter dated March 29 1989 written to Mr Spyrou and signed by Mr
Chrisostomou. That letter refers to 201 Seven Sisters Road, saying:
. . . it is
to be offered at a rent of £15 per square foot with a review every four years,
no premium and a 20 year lease.
The material
passage is the last paragraph:
We are
obliged under the Estate Agents Act 1979 to confirm our terms in writing. In
the event of our introducing a purchaser to you who exchanges contracts on the
purchase of your property our fees will be calculated at £10,000 plus fifteen
per cent VAT as was agreed during our conversation. We require our commission
to be paid in full within ten days of legal completion of the sale. Kindly
confirm your instructions are with your solicitors.
That was
succeeded in the bundle by a letter of April 18 1989, again signed by Mr
Chrisostomou and addressed to Mr Spyrou, referring to the property. There
appears to have been a change in the rent being sought because the first
paragraph reads:
The property
was to be offered at a rent of £20 per square foot for the ground floor, £16
per square foot for the first floor, £14 per square foot for the second and
third floors.
Then the final
paragraph reads:
We are
obliged under the Estate Agents Act 1979 to confirm our terms in writing. In
the event of our introducing a purchaser to you who exchanges contracts on
purchase of your property our fees will be calculated at ten per cent of one
year’s rent plus fifteen per cent VAT as was agreed during our conversation . .
.
There then
follows the same stipulation as to when the commission is to be paid.
Mr Spyrou at
para 10 of his first affidavit denies that the company ever received this
letter of April 18. At para 6 of that affidavit Mr Spyrou says:
My
understanding of our original agreement was that Hornsey Agencies would be
entitled to a commission of £10,000 plus VAT if they achieved the rental we
were seeking. However, now that I have studied their letter
— in that he
refers to the letter of March 29 —
in more
detail it appears to be saying that Hornsey Agencies is entitled to £10,000
plus VAT if it introduces a purchaser for the property who exchanges contracts
to purchase.
He then goes
on to suggest that the engagement of Hornsey Agencies in the terms of the
documents which I have set out constituted a breach of section 18 of the Estate
Agents Act 1979.
It seems that
the property did not find a tenant and it was decided, on the recommendation of
Mr Chrisostomou, that the rent should be reduced. In para 7 of Mr Spyrou’s
affidavit the events are described in this way:
In any event
it was clear that the rental was going to be a lot less than that which the
company was seeking. On one of his visits to our offices in about early 1990 Mr
Chrisostomou was advised that we were dropping our asking rental of £126,000. I
said to him that in view of that we would no longer be willing to pay Hornsey
£10,000 commission. He accepted that and said ‘we will sort something out’. I
took that to mean that he was in agreement with my suggestion and then
contacted Mr Chris Georgiou, who was the principle (sic) of the firm. I had
known him for about 15 years . . .
Pausing there,
it seems that the parties, Mr Spyrou and Mr Chrisostomou, were certainly clear
about what the terms for agency commission were to be, notwithstanding that
which Mr Spyrou says in his para 6. Namely, it seems that Mr Spyrou understood
that the commission was to be £10,000 provided that the overall rental of
£126,000 was reached. On Mr Spyrou’s description of the facts Mr Chrisostomou
did not demur that that was the arrangement.
It seems that
in February 1990 there was a meeting at the Frosa restaurant, attended by Mr Spyrou
and Mr Georgiou. It may be that Mr Spyrou was accompanied by somebody else at
the restaurant. This meeting is described in Mr Spyrou’s affidavit at para 7,
which continues as follows:
In or about
February 1990 we had lunch together at the new Frosa restaurant in Seven
Sisters Road. We discussed Hornsey Agencies’ commission and I reiterated the
company’s stance; namely that in view of the reduced rental we would only be
prepared to pay a commission of £7,000 plus VAT. Mr Georgiou agreed to that
suggestion whereupon he produced his business card and wrote the following upon
it. ‘To God Father, our fee ten per cent on a year’s rent but, for you not less
than £7,000 plus VAT.’ He then signed
it.
Continuing at
para 8 Mr Spyrou says:
I should
explain that the reference to God Father is a reference to myself. It is
a term of friendship and respect. I have been concerned in the garment industry
in the Hornsey area for approximately 25 years and I am pleased to say that I
have developed considerable respect in the business community as being a man of
honour. As a result of that discussion my clear understanding was that Mr
Georgiou, on behalf of his firm, had agreed that his commission would be
reduced to £7,000 plus VAT.
In his
evidence Mr Chrisostomou deals with this at para 11 of his second affidavit of
October 23. Mr Chrisostomou in fact swore two affidavits, the second obviously
intended to be a replacement of the first and its description of these events
differs to some extent from the description which appears in the first
affidavit. I read from the first affidavit at para 11(b), where he says:
I have
discussed with Mr Chris Georgiou the circumstances relating to the card given
by him to Mr Costa Spyrou. I am informed that there was no pre-arranged meeting.
He was at the Frosa restaurant with an overseas guest when Mr Costa Spyrou
entered the restaurant. The restaurant is local to our area and we are frequent
visitors to the same. I am informed by him that he was approached by Mr Costa
Spyrou, who after initial introductions started to talk to him about our fees
for the sale of the property. I am informed that the atmosphere was jovial and
Mr Georgiou indicated that he would think about our fees but that whatever the
respondent decided it would not be less than £7,000. Mr Costa Spyrou then asked
him to put something in writing. As a result he wrote a brief note on the back
of one of his business cards to indicate he would consider the matter but no
matter what, he concluded, it would not be less than a minimum £7,000 plus VAT.
Mr Georgiou is adamant that he did not make any final decision or enter any
agreement with the applicant over the fees. I believe the card reads the way it
does because that is how it happened. Otherwise Mr Georgiou would simply have written
‘for you £7,000 plus fifteen per cent VAT’ and not ‘for you not less than
£7,000 plus fifteen per cent’.
In his second
affidavit he deals with these events at para 11(a), where he says:
I have
discussed with Mr Chris Georgiou circumstances relating to the card given to Mr
Costa Spyrou. I am informed that there was no pre-arranged meeting, he was at
the Frosa restaurant with an overseas guest when Mr Costa Spyrou entered the
restaurant. The restaurant is local to our area and we are frequently visitors to
the same. I am informed by him that he was approached by Mr Costa Spyrou who
after initial introductions started to talk to him about our fees for the sale
of the property. I am informed that the atmosphere was jovial and Mr Georgiou
indicated that he would think about our fees but that whatever the respondent
decided it would not be less than £7,000. Mr Costa Spyrou then asked him to put
something in writing. As a result he wrote a brief note on the back of one of
his business cards having taken advice. Notwithstanding that Mr Georgiou
represented to me that he was not intending to make any final decision or enter
into an agreement with the applicant over fees I am satisfied that the course
that meeting took was such as to bind the partnership to any terms then agreed.
It is plain that from the face of the business card Mr Georgiou had set out the
terms of our agency. These terms are a variation on the original terms agreed
in so far as a minimum of £7,000 plus VAT commission is set out as payable.
Otherwise the fee remained ten per cent on a year’s rent, as already agreed.
It seems that
in August 1990, according to Mr Chrisostomou — though this is not admitted —
there was a further attempt by Mr Spyrou in a conversation between him and Mr
Chrisostomou to renegotiate the fees downwards. On July 10 1991 Mr Chrisostomou
signed a letter on Network Agencies’ paper addressed to Mr Spyrou and headed:
RE LETTING OF
THE PROPERTY.
I am advised
by Treasury Solicitors dealing with this matter that the lease has been
completed with effect from 27th June. I am also advised by Nicos & Co,
solicitors, that you will be arranging settlement of the completion account for
the above property. Please find enclosed a statement of account.
Assuring you
of our best attention at all times.
Accompanying
that letter was an account which actually carried the date of June 20, showing
a claim for commission at 10% of the first year’s rent of £114,432 together
with 17 1/2% VAT, the total sum being £13,432.50p.
There appears
then to have been a letter of August 5 from solicitors instructed by Network.
That letter is not with the papers but there appears in the bundle a letter
from the company, dated August 13 and addressed to the solicitors instructed by
Network, which reads:
I have just
returned from my annual holiday and am surprised to have received your letter
of 5th August. I am appalled by its contents. Andreas of Network Agencies knew
perfectly well that I never refused payment and that I had left instructions
with my secretary for payment of the money to them as soon as she received the
correct invoice. This she told me twice on the phone and personally. Our
original agreement was a set fee of £7,000 plus VAT. Andreas is now trying to
renege on the deal and I find this attitude unprofessional. I enclose herewith
a cheque for £8,225 in full and final settlement.
Since Network
were not prepared to concede that their fee was the sum of £8,225 it seems that
that cheque was returned. On August 22, therefore, soon after the return of the
cheque, Network procured to be served on the company a statutory demand under
the provisions of the Insolvency Act 1986 for the sum of £13,432.50p. On
September 11, solicitors for the company wrote to Network’s solicitors in the
following terms:
Our client’s
agreement with Hornsey Agencies, as is evidenced by that firm’s letter of 29th
March 1989, sets out the terms on which that firm would earn commission of
£10,000 plus fifteen per cent VAT were far from clear. Hornsey Agencies would,
it seems, earn commission in the event of our introducing a purchaser to you
who exchanges contract on the purchase of the property. The circumstances under
which the commission was payable if Hornsey Agencies introduce a tenant are not
there stated in that letter.
— I think it
should read ‘are nowhere stated in that letter –‘
Accordingly
any contract by Hornsey Agencies for commission is by virtue of s18 of the
Estate Agents Act 1979 unenforceable without the leave of the court. Or, for
the record, our client had not seen a copy of the letter dated 19th April until
you faxed a copy of it to them on 10th September 1991. In any event our
client’s case is quite clear; namely that Mr Georgiou of Hornsey Agencies
orally agreed that the commission would be seven per cent and not ten per cent.
— pausing
there, that is subsequently agreed to have been a mistake. It should be
‘£7,000’ not ‘seven per cent’ —
However even
before one considers the merits of your client’s claim the question of the
parties to the contract has to be considered. On any viewing of the facts
Network Agencies are plainly not part of the original contract. Hornsey
Agencies are the only agent and, Hornsey Agencies, as a firm, still existing,
what right is your client purporting to exercise in pursuing this debt?
— pausing
again there, that contention is not now, as I understand it, pursued —
We reiterate
that your proposed course of action is misconceived as an abuse of the process
of the court. The underlying contention by your client must be that our client
is not paying the alleged debt because it is insolvent. That is imply untrue,
the alleged debt is disputed on grounds which are substantial. Before taking
legal advice our client tendered the original sum which it thought was due and
owing to Network. In the light of the above no money is in fact due and owing
to Network. However, we have instructions to place the sum of £8,225 in an
escrow interest bearing account to be opened by our respective firms. This sum
is to be held in that account pending any Queen’s Bench Division action which
you may feel appropriate in order to pursue your alleged debt in a proper
manner.
That deposit
was in fact made in November 1991. That was followed by a letter of September
12 from Network’s solicitors. The only passage of the letter to which I need
draw attention is where they say:
We invite you
to forward to us your client’s remittance for the sum of £9,412.03p forthwith
and without precondition.
That was on
the basis that the commission was to 7% and not £7,000. Then, on September 17
the solicitors for Network wrote to the company’s solicitors, this time
requiring them to forward the cheque for the accepted sum — the mistake having,
in the interim, been pointed out — of £8,225.
The motion in
this matter was issued in October 1991 and, as I have said, in about
mid-November 1991 the £8,225 appears to have been paid by the company to its
solicitors to be held to the company’s order.
The question
is whether Network is today entitled to present a petition to wind up the
company. It is first necessary, therefore, to look at the relevant provisions
of the Insolvency Act 1986 at section 122(1). That section provides, so far as
is material:
A company may
be wound up by the court if —
. . . (f)
the company is unable to pay its debts,
Then at
section 123(1):
A company is
deemed unable to pay its debts —
(a) If a creditor (by assignment or otherwise) to
whom the company is indebted in a sum exceeding £750 then due has served on the
company, by leaving it at the company’s registered office, a written demand (in
the prescribed form) requiring the company to pay the sum so due and the
company has for 3 weeks thereafter neglected to pay the sum or to secure or
compound for it to the reasonable satisfaction of the creditor, . . .
It is
submitted, and I accept, that a company does not neglect to pay the amount
comprised in a statutory demand where a company is able to advance a bona fide
dispute on substantial grounds that the debt is not due: for that see Re A
Company [1984] BCLC 322, a decision of Mervyn Davies J.
Network
accepts, as the evidence of Mr Chrisostomou makes plain, that as to £5,207.50p
there is a bona fide dispute as to the amount shown on the statutory demand.
The first
question must therefore be, on the assumption that £8,225 is admitted to be due
or, alternatively, not bona fide contested — and I shall come to that issue
later — can this statutory demand be good so as Network can establish that the
company is insolvent within the meaning of the combination of sections 122(1)(f)
and 123(1)(a). I note in parenthesis that no other ground is relied on
for establishing the insolvency of the company save neglect to pay the sum
secured on the statutory demand.
In In re A
Debtor (No 10 of 1988) [1989] 1 WLR 405, a decision of Hoffmann J, the
judge, before moving on to consider the position in personal insolvency, deals
with the law applicable to statutory demands made upon companies. He deals with
it in the following words [at p 406E]:
The procedure
of statutory demand introduced by the Insolvency Act 1986 is modelled on that
which previously existed in relation to companies. By section 123(1)(a)
of the Insolvency Act 1986, which reproduces earlier provisions going back a
very long way, a company is deemed to be unable to pay its debts if a creditor
to whom the company is indebted has served on the company a written demand
requiring the company to pay the sum so due and the company has for three weeks
thereafter neglected to pay the sum.
In Cardiff
Preserved Coal and Coke Co v Norton (1867) LR2 Ch App 405 the
question arose of whether that provision would apply in a case where the demand
was for a sum in excess of the sum due. There the demand had been for £628 but the
actual debt was only £411. Lord Chelmsford LC said, at p 410, that in such a
case there was a debt due to the petitioner:
He made, it is
true, a demand upon the company for payment of more than was due, but, of
course, the amount due was known to the company, and was included in the
demand, and the company neglected to pay ‘such sum’ which means not the sum
demanded, but the sum due, which they might have paid, and so have prevented
the order being made.
On that basis
it has since been held that where it is clear that a definite sum is owing,
though less than the amount stated in the statutory demand, the statutory
presumption of insolvency will nonetheless apply if the company was in a
position to know exactly what it ought to pay: see In re A Company (No
003729 of 1982) [1984] 1 WLR 1090.
I have already
referred to that authority. The learned judge then proceeds to contrast that
situation with what he takes to be the situation in personal insolvency. Of
course this part of the judgment is not relevant to my considerations but it
may be that his conclusions on the personal insolvency side cannot stand having
regard to the decision of the Court of Appeal in Re A Debtor (No 1 of 1987)
[1989] 1 WLR 271, which decision was given shortly after that of Hoffmann J.
I would seek
on this point to refer to one other authority which was cited to me and that is
Re (No 008122 of 1989), ex parte Trans Continental Insurance Service Ltd
[1990] BCLC 697, a decision of Warner J. I would refer only to that part of his
judgment appearing at p 698h where the learned judge says:
For those
reasons, it seems to me that, although the bulk of the sums claimed by the
petitioner in the statutory demand and in the petition are, as is conceded,
bona fide disputed on substantial grounds, the case is one where, perhaps on
something closely approaching a technicality, counsel for the petitioner is
right in saying that the petitioner was entitled to present the petition and
would be entitled, if it wished to do so, to pursue it.
It seems that
this was a case where the issue was only one of costs and where a settlement
had been arrived at resulting in an agreed dismissal of the petition. None the
less the learned judge had established to his satisfaction that a small amount
of the otherwise substantial petitioning debt was admitted or was incontestably
due.
It follows on
these authorities that, in my judgment, the fact that part of a sum demanded in
a statutory demand is bona fide disputed does not mean that a petition to wind
up cannot be presented, relying on neglect to pay the undisputed balance.
I therefore
turn to consider whether the balance of £8,225 is to be treated as a disputed
debt. I immediately note that the company offered to pay this sum by sending a
cheque for £8,225 to Network’s solicitors but with it attached the condition
that it could only be accepted in full and final settlement. It is said that
this sum is not due because Network and their predecessors, Hornsey, were in
breach of section 18 of the Estate Agents Act 1979. I must refer to that
section:
(1) Subject to subsection (2) below, before any
person (in this section referred to as ‘the client’) enters into a contract
with another (in this section referred to as ‘the agent’) under which the agent
will engage in estate agency work on behalf of the client, the agent shall give
the client —
(a) the information specified in subsection (2)
below; and
(b) any additional information which may be
prescribed under subsection (4) below.
(2) The following is the information to be given
under subsection (1)(a) above —
(a) particulars of the circumstances in which the
client will become liable to pay remuneration to the agent for carrying out
estate agency work;
(b) particulars of the amount of the agent’s
remuneration for carrying out estate agency work or, if that amount is not
ascertainable at the time the information is given, particulars of the manner
in which the remuneration will be calculated;
(c) particulars of any payments which do not
form part of the agent’s remuneration for carrying out estate agency work or a
contract or pre-contract deposit but which, under the contract referred to in
subsection (1) above, will or may in certain circumstances be payable by the
client to the agent or any other person and particulars of the circumstances in
which any such payments will become payable; and
(d) particulars of the amount of any payment
falling within paragraph (c) above or, if that amount is not ascertainable at
the time the information is given, an estimate of that amount together with
particulars of the manner in which it will be calculated.
Then the
consequences of failure to comply are set out in section 18(5).
If any person
—
(a) fails to comply with the obligation under
subsection (1) above with respect to a contract or with any provision of
regulations under subsection (4) above relating to that obligation, or
(b) fails to comply with the obligation under
subsection (3) above with respect to any variation of a contract or with any
provision of regulations under subsection (4) above relating to that
obligation, the contract or, as the case may be, the variation of it shall not
be enforceable by him except pursuant to an order of the court under subsection
(6) below.
No such
application for leave has been made in any court and no application is made in
this court if — which is not accepted by the company — the court there referred
to could constitute the Companies Court.
There seems to
be a bona fide dispute as to whether, when the original contract of agency was
entered into, the terms were properly made plain in compliance with the section
by the then branch of Hornsey Agencies to the company. Section 18(3), however,
reads as follows:
If, at any
time after the client and the agent have entered into such a contract as is
referred to in subsection (1) above, the parties are agreed that the terms of
the contract should be varied so far as they relate to the carrying out of
estate agency work or any payment falling within subsection (2)(c)
above, the agent shall give the client details of any changes which, at the
time the statement is given, fall to be made in the information which was given
to the client under subsection (1) above before the contract was entered into.
Both parties
agree that there was an attempt to vary the terms of the agency arrangement and
that that variation resulted from the meeting in February 1990.
Mr Spyrou’s
account of what took place appears at para 8 of his first affidavit, which I
have already read. The material passage is the last sentence of that paragraph
which reads:
As a result
of that discussion my clear understanding was that Mr Georgiou, on behalf of
his firm, had agreed that his commission would be reduced to £7,000 plus VAT.
I point out
that section 18 does not contain a requirement that the provisions of any
agreement as to the payment of commission by an agent to a client must be in
writing. It follows that if Mr Spyrou’s account of the facts is correct it was
plain to him as a result of the meeting in February 1990 what the terms as to
payment of commission should be and indeed based on that understanding his
company forwarded a cheque for £7,000 plus the relevant VAT to Network when
they required payment of their account for commission. Therefore, on the
company’s own case there was a compliance with section 18.
It follows, in
my judgment, that the company cannot say, in this court, that there has been a
failure to comply with the provisions of the Estate Agents Act so making the
debt, as to the sum of £8,225, irrecoverable from them, save with the leave of
the court referred to in section 18 of the Estate Agents Act 1979.
The matter can
perhaps be best illustrated in this way. If Mr Spyrou’s affidavit and para 8
formed part of an affidavit filed by him to resist an application for summary
judgment under Ord 14, it seems plain that judgment would be entered against
the company for the
the amount claimed.
It follows
that, in my judgment, there has been neglect to pay that part of the statutory
demand amounting to £8,225 and accordingly Network were, and are, entitled to
present a petition to wind up the company.
It follows
that, in my judgment, the relief sought in the motion must be refused.
