Estate agents — Duties — Protection of vendor’s interest — Breach of contract — Negligence — Property on market at £1.5m — Further property in same mews on market at £1.95m — Whether estate agent in breach of contract — Whether estate agent negligently determining asking price — Whether estate agent owing duty of care to pass on information relevant to principal’s instructions — Whether principal would have obtained higher price — Whether loss of a chance to obtain higher price
In June 2001, the defendant instructed the claimant estate agent to find a buyer for his property, 1 Horbury Mews. On 22 August, contracts were exchanged for the sale of no 1 at the asking price of £1.5m. Meanwhile, the owner of 4 Horbury Mews had used a different estate agent to market his property at an asking price of £1.95m. On 13 August, the claimant discovered the asking price for no 4, but did not inform the defendant. On 23 August, an offer of £1.8m was received for no 4, which was later accepted. On the same date, the defendant became aware of the asking price for no 4 and became concerned about the difference in the asking and sale prices in respect of the two properties. In due course, the claimant issued proceedings, claiming commission of 2.5% plus VAT in the sum of £44,062.50. The defendant counterclaimed, alleging that the claimant had been in breach of contract and/or negligent in failing to pass on information concerning the marketing of no 4, and that he had been denied the opportunity of obtaining a higher price
Held: The claimant was entitled to its claim for commission, which was admitted; the defendant was awarded damages on his counterclaim for loss of an opportunity to obtain a higher price. There is an implied term in a contract of agency, and a concurrent duty in tort, that an estate agent should exercise the skill and care of a reasonably competent member of his profession. The claimant had not been negligent in setting the asking price at £1.5m. However, it did have a duty to exercise reasonable care when marketing a property, and if in the course of so doing it became aware of any significant event in the market that might influence its principal’s instructions, it was obliged to inform and advise the principal. The claimant had breached this duty by failing to pass on the information, known to it on 13 August, that no 4 was being marketed at £1.95m. The defendant had been denied an opportunity to sell no 1 at a higher price; there had been a 66% chance of a sale at £1.7m by 31 May 2002, and this valued his loss at £120,000. Against that sum, it was necessary to deduct £56,625, to take account of the defendant’s use of the £1.5m for the nine months between August 2001 and May 2002 at a 5% return, and the sum of £3,000 plus VAT for additional estate agent’s commission on the higher sale price.
The following cases are referred to in this report.
Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602; [1995] 4 All ER 907, CA
Davies v Taylor (No 1) [1974] AC 207; [1972] 3 WLR 801; [1972] 3 All ER 836, HL
This was the trial of a counterclaim by the defendant, Michael John Knatchbull, for breach of contract and negligence, in proceedings by the claimant, John D Wood & Co (Residential & Agricultural) Ltd, for estate agent’s commission.
Anthony Radevsky (instructed by Reynolds Porter Chamberlain) appeared for the claimant; Richard Furniss (instructed by Moorhead James) represented the defendant.
Giving judgment, Judge Heppel QC said:
Introduction
On 29 June 2001, the Hon Michael John Knatchbull instructed Mr Nicholas Mahoney, of John D Wood & Co (Residential & Agricultural) Ltd, as agent in respect of the sale of 1 Horbury Mews, Notting Hill, London W11. The property was marketed at £1.5m. On 22 August 2001, contracts were exchanged with Halinda Holdings Ltd, in reality Mr Levantiz, at the asking price. The claimant sues for its commission of 2.5% plus VAT, the sum of £44,062.50, upon which contractual interest has accrued.
The defendant admits this liability, but seeks to set off that sum against his counterclaim. For reasons that I gave, and do not now repeat, at the start of the trial, I gave leave for the defence and counterclaim to be amended. Put shortly, the defendant alleges in his pleading that the claimant was:
(i) in breach of contract and/or negligent in its advice regarding the asking price; and
(ii) in like breach in failing to pass on information concerning the marketing of what is said to have been a similar property at 4 Horbury Mews.
The defendant alleges that he would not have sold for this sum had these breaches not occurred, and that he has thereby been deprived of the chance to obtain a higher price. As he bears the burden of proof, it was agreed between counsel that the defendant should go first.
History
Much of the evidence of the turn of events is uncontroversial, but it is necessary to set it out in some detail. The defendant bought this property in 1996, when the claimant was acting for the then vendor. The property was on offer at £625,000, but Mr Mahoney was able to generate interest from several potential purchasers. Sealed bids were required, and Mr Knatchbull was successful at £705,000. He says that he spent £50,000 on refurbishment and redecorating. I accept this evidence.
The defendant’s principal residence is in Kent, where he has farming interests. He has business interests in London. Some time after 1996, he remarried, and, in 1999, he considered selling 1 Horbury |page:34| Mews. He approached Mr Mahoney to act as his agent. In the event, Mr Knatchbull decided not to proceed. The couple reconsidered the matter and, in August 2000, again contacted Mr Mahoney, who advised that the property should be marketed at £1.25m, but who thought that, in the then conditions, a better price might be reached. He advised that if time were available, the market could be tested at £1.35m: see Mr Mahoney’s letter of 15 August 2000. Again, Mr Knatchbull did not proceed.
In June 2001, the defendant thought that the market was booming and decided to sell. On 27 June, Mr Mahoney viewed the property together with his sales negotiator, Mr Hugo Hedlam. There was a difference in recollection as to precisely what was said at that visit. I am satisfied that Mr Mahoney suggested an asking price of between £1.5m and £1.6m. Mr Knatchbull says that Mr Mahoney told him that the property was difficult to value because it was unusual, and the only direct comparables were in the mews itself. Mr Mahoney said that he thought the property was difficult to value because all the houses in the mews were different, and that the only test would be on the open market. I am satisfied that both gentlemen were honest witnesses, doing their best to tell the truth. I am satisfied that Mr Mahoney said that valuation was difficult and the test would be on the open market, but I am equally satisfied that he made reference to other houses in the mews as being comparable. There are 12 such houses in this fashionable area of Notting Hill. I cannot, and do not, accept that Mr Mahoney dismissed the other houses as potential comparables on the basis that each was different.
In his letter to Mr Knatchbull of 28 June, written while instructions were being negotiated, Mr Mahoney recommended an asking price of £1.5m and observed that if two or more people could be got together, a price “well in excess of this figure might be achieved”.
There was a subsequent telephone conversation, and, in a formal letter dated 29 June 2001, the claimant confirmed written instructions to offer the property at an asking price of £1.5m. The claimant’s standard contract terms were signed by the defendant on 3 July, his having made amendments, apparently agreed, upon which nothing in this action turns. The claimant had plans drawn, photographs taken, and a brochure was produced. I accept Mr Mahoney’s evidence that steps were immediately taken to match the property with 290 applicants on the claimant’s database, and that 500 glossy brochures were printed, containing photographs, floor plans and measurements. These brochures were sent to the applicants on 17 July. Details of the property were displayed at the claimant’s various offices and on its website. It was advertised in The Sunday Times on 29 July and in the August editions of London Property News and The Hill.
Among the persons who viewed was Ms Kroch. She made no offer for no 1, but bid for no 4. Likewise, a gentleman, who ultimately purchased no 4, viewed no 1 but made no offer. There were some 27 viewings of the property conducted by the claimant.
On 18 July, Mr Levantiz, through his agent, Gerald Kay, offered £1.4m. Mr Knatchbull rejected this, as he did an offer of £1.45m made on the same day. Ms Suzie Williamson, of the claimant, told Mr Kay that it was too early for the defendant to consider offers below the asking price because the property was so new on the market.
On 19 July, Mrs Knatchbull went into hospital. The defendant told the claimant that he did not want to be contacted for the next few days — anticipating the birth of their first child, which, in fact, occurred on 20 July. On that same day, Mr Kay wrote to Mr Hedlam, observing that:
Your client feels it is too early for him to consider any offers as the property is so new to the market etc.
He wanted the opportunity, on behalf of his client, to negotiate further. This letter obviously reflected Mr Knatchbull’s instructions to the claimant. Mr Mahoney wrote to the defendant on 20 July, informing him that the property would be advertised in The Sunday Times on 29 July. No further news was communicated to Mr Knatchbull for a few days. At some stage (and the dates were never clarified in the evidence), Mr Mahoney went on holiday to Ireland.
On 25 July, Mr Kay notified Mr Hedlam that Mr Levantiz would increase his offer to £1.5m, acceptance of which was confirmed by Ms Williamson on 26 July. She prepared a memorandum in accordance with the RICS/ISVA code of practice, expressed to be subject to contract. The memorandum indicated that the property would continue on the market, but that interested parties would be told that it was under offer. Any further offer received would be relayed to the defendant. There were a few further viewings. However, Mr Levantiz was the only party to make an offer.
Meanwhile, Mr Soper’s property, no 4, came on the market, on joint instructions to Marsh & Parsons and Hamptons International, at £1.95m. “For sale” signs were not permitted in this part of Kensington and Chelsea, and the defendant was unaware that this property had come onto the market. It transpired that Ms Kroch offered £1.65m for no 4 on 16 July, and increased her offer to £1.7m on 18 July. Both offers were rejected.
On 13 August, Ms Williamson received a note from Marsh & Parsons congratulating the claimant on its sale of no 1, but asking if the claimant wished to send its applicants to no 4 — a sub-agency. On this day, therefore, the claimant, through Ms Williamson, became aware that the asking price for no 4 was £1.95m. She says that she thought the asking price was very high. She did not pass this information onto Mr Knatchbull, to Mr Mahoney, nor to Mr Hedlam, who says that he became aware on 22 August. On 23 August, the vendor received an offer of £1.8m for no 4, which, in due course, he accepted.
It is common ground that, on that same day, Mr Knatchbull saw no 4 advertised in the London Agents Listing. He immediately telephoned Ms Williamson, who told him that she knew about the house. She was plainly concerned at this turn of events, and went immediately to view no 4. She said that it was a lighter property, and had a better view at the back than no 1. Mr Knatchbull had been a visitor to that house. He plainly did not accept that there should have been a £450,000 difference in the asking price and a potential £300,000 difference in the sale price. It is quite plain that the defendant’s reaction to this intelligence was both immediate and angry.
Correspondence followed, in which the claimant sought to explain and justify its advice on the price for no 1 and the differences between no 1 and no 4. In a letter dated 28 September, Mr Mahoney wrote:
Our feeling at the time was that it [no 4] was overpriced and would have no bearing on the sale of no 1. It did not therefore occur to us to mention it to you. I assure you that there was no attempt whatsoever to hide this fact from you and in any event it would not have altered our valuation or advice.
Mr Knatchbull’s further request for an explanation of why this information was not passed onto him failed to generate a specific response.
Relationship between vendor and agent
The claimant company is a well-known London estate agent, of which Mr Mahoney had been a director of many years’ standing. Ms Williamson had been an office manager for 18 years. Mr Hedlam was an experienced negotiator. The claimant’s standard contractual terms were varied to some extent by agreement, but nothing turns on the written document.
The duties owed by the agent are based upon the contract of engagement, but, when that is silent, terms may have to be implied. Estate agents owe a duty in tort. In my judgment, it is an implied term of a contract of agency and a concurrent duty in tort that an estate agent should exercise the skill and care of a reasonably competent member of his profession.
However, the relationship between vendor and agent is a discrete one, and individual circumstances may come into play. A vendor will, no doubt, want the best price to be obtained, but much may turn on how quickly he needs to sell, the perceived market trends, and any number of other factors. There is a potential for tensions in the relationship; to an agent wanting his commission, a sale at 10% less than the asking price is better than no sale at all. A vendor might not be able to afford |page:35| such reduction. Ultimately, of course, the vendor is, as principal, in charge.
Defendant’s pleaded case
Paragraph 3 of the amended defence and counterclaim reads:
There were implied terms of the retainer (a) that the claimant would advise the defendant on the asking price using the skill and care of the competent estate agent (b) that the claimant would thereafter bring to the defendant’s notice any fact or matter which might alter the appropriate asking price and/or the price achievable on sale. The claimant owed the same duty to the defendant at common law.
The defendant goes on to plead, under para 8(a):
In breach of the duties set out in paragraph 3(a) above, the claimant advised the defendant at all material times including the period prior to the property being placed on the market and the period during which it was on the market that an appropriate asking price for the property was £1.5 million when in fact the value of the property was £1.8 million.
9. On dates unknown to the defendant between 4th July 2001 and 22nd August 2001, it was known to the claimant that a neighbouring property at 4 Horbury Mews the neighbouring property was on offer at an asking price of £1.95 million and that an offer of £1.8 million had been made in respect of the neighbouring property. The neighbouring property is similar to but slightly smaller than the property. The asking price of £1.95 million and the offer of £1.8 million in respect of the neighbouring property were facts which might alter the appropriate asking price and/or the price achievable on the sale of the property. In breach of the retainer and/or negligently at no time prior to the sale of the property on 22nd August 2001 did the claimant inform the defendant that the neighbouring property was on the market at an asking price of £1.95 million and that an offer of £1.8 million had been made in respect of the neighbouring property.
…
12. If the claimant had informed the defendant about the neighbouring property at any time prior to 22nd August 2001, the defendant would not have sold the property for £1.5 million. He would instead have advertised the property at a higher price and would only have accepted an offer of a higher price.
12(a) Further and for the avoidance of doubt, had the claimant informed the defendant at any time that the true value of the property is £1.8 million the defendant would not have advertised the property for less than £1.8 million and would not have sold the property for £1.5 million.
13. As a result of the claimant’s breach of retainer and/or negligence, the defendant has lost his opportunity to achieve a price higher than £1.5 million for the property.
Asking price: A valuation?
The fixing of the asking price is the centrepiece of the marketing exercise, and, as such, is a matter upon which the agent, if requested, must give competent advice. Advice as to asking price must be distinguished from a valuation. In valuing a property, for example for probate purposes, an agent is entitled to charge a fee, and his liability for negligence may extend beyond his immediate client to a third party. The asking price may not mirror the price at which the property might be valued. A vendor might insist upon testing the market with an initial asking price higher than a valuation figure. An agent might suggest he do so.
In his letter of 28 June 2001, Mr Mahoney wrote:
I must emphasise that this letter is advice prior to sale and should not be construed as a valuation for any purposes.
But that letter was preceded by an e-mail earlier that day to Mr Knatchbull from Ms Lucy Jane Hutchings, of the claimant’s office. She said:
Please find attached a letter which indicates an idea of the value of your house.
In my judgment, in giving advice as to the asking price, the agent owes a duty to give reasonably competent advice, because a failure to do so may cause a client loss. If the asking price is pitched too high, money may be wasted on prolonged advertising, or the tide of opportunity may be lost. Whether the client elects to take that advice is, of course, another matter, but he is entitled to take a decision that is properly informed.
Now, here it is plain that Mr Knatchbull sought advice and took it. Having, during his visit to the property, floated an asking price of between £1.5m and £1.6m, after due consideration Mr Mahoney advised £1.5m, and, at that price, the property was marketed.
The possibility of two competitors overbidding was mentioned. However, in the light of that advice, Mr Knatchbull rejected the first two offers and accepted the third. He did not seek, and was not given, any further advice by Mr Mahoney, or by anyone else at the claimant’s office. Mr Mahoney did not, for example, advise that £1.5m was a realistic price, but that Mr Knatchbull might test the market by pitching higher. In the circumstances, I find that the claimant well knew that the defendant was placing himself in its hands and that he relied upon its advice as to the asking price. The claimant did not advise testing the market at a higher price, nor did Mr Knatchbull request it to. Although the advice was not a valuation so-called, it was, in this situation, very near to one. Short of competition driving the price higher, the asking price was the top price, and it was important to get it right.
Was the advice negligent?
Each party instructed an expert. The defendant called Mr Michael Duncan, a senior partner of WA Ellis. Although not formally qualified, he is a man of vast experience. He was an impressive witness. Mr Richard Ford MA FRICS, of Knight Frank, was called for the claimant. He, too, is greatly experienced and, as a witness, equally impressive. I am satisfied that each expert was doing his best to assist the court. Each expert advised upon four matters ordered to be considered by the master, viz:
(1) What was the value of 1 Horbury Mews in August 2001?
(2) Was £1.5m a reasonable asking price?
(3) Is 4 Horbury Mews a reasonably comparable property?
(4) On learning the asking price of 4 Horbury Mews, should a reasonable estate agent acting for the vendor of no 1 inform him?
Questions 1 to 3 are interrelated.
Time was taken in court over the issue of comparable property; particulars of property in Horbury Mews and outside were provided, and each expert has commented. Two questions fall for consideration. What was the value of no 1 at the material time? In advising an asking price of £1.5m, was the claimant negligent?
As to the first question, it must be acknowledged that the experts had been able to consider more information than Mr Mahoney had, or could have had, in late June 2001, not least the marketing history of other properties in the mews that has since come to light. It is, of course, important to bear in mind that valuing is a combination of art and science. Two equally experienced and conscientious valuers may produce a different figure. There may be room for a bracket or margin of error. As Jackson and Powell write in Professional Negligence (5th ed) para 9061:
The margin of error approach is not a principle of law. It is an evidential approach to assist in the resolution of questions of primary liability. By itself, evidence as to the conclusion reached by the valuer does not prove that the valuer failed to exercise reasonable care and skill in coming to that conclusion, unless the doctrine of res ipsa loquitur applies. The duty on the valuer is to exercise reasonable skill and care. If the valuer did so, then the fact that the result of the exercise of reasonable skill and care fell outside the “bracket” may be rebuttable evidence of negligence but does not of itself determine the true issue of primary liability. Many properties do not have a “true” value, and whilst the margin of error approach may be convenient shorthand, it should not be applied without adequate consideration of the basic principles of negligence liability. The extent of permissible error will be determined by the judge having regard to the evidence. Plainly it will be much easier to value a property if it itself has been recently sold in the open market or if a number of closely comparable properties have been recently sold than will be the case if the property is unique or has very unusual characteristics.
As one would expect, there is little difference between the methodology adopted by the experts. Each consulted his firm’s database, looking at sales of apparently comparable properties. Each |page:36| looked at evidence of sales in the mews. Each applied the judgment of years of experience. Each agreed that the calculation of rates per square foot, having taken the measurements of the internal areas of the property, was a useful check. Mr Duncan said:
My use of price per square foot is only part of the approach. You step back and see if it is appropriate.
Mr Ford said:
Price per square foot is a helpful back check.
Neither expert relies heavily upon the information of properties for sale or sold outside Horbury Mews. Mr Duncan said:
Horbury Mews is a market in itself and when there is available evidence then I would take that as a basis for valuation rather than casting a wider net.
Mr Ford said:
The most comparable of properties is in Horbury Mews. Each location has its own unique points. This is a special location. It is a nice mews.
These comments are consistent with my findings of the views expressed by Mr Mahoney when he inspected (supra). For my part, I have not ignored the evidence about property outside this mews, but prefer to concentrate upon the available evidence of property movements in the mews itself.
Number 9 Horbury Mews was put on the market in early 2001. It has three bedrooms, one bathroom, two reception rooms and a garage. Included in the calculation of a total area of 2,164 sq ft was an attic described in the particulars as “potential for additional floor”. If the attic space is deducted from the calculation, the area is reduced to 1,538 sq ft. This property was sold in early 2001 for £900,000, but, by May 2001, had been resold for £1.3m. In the circumstances, it is, in my view, safer to reject the £900,000 figure as a rogue price and concentrate upon the £1.3m. This equates to a value of £601 psf if the attic space were included, but £885 psf if the attic were excluded. I am satisfied that the proper approach is as Mr Duncan opines, to exclude the attic on the basis that it was not a properly usable floor area at the time of sale.
Number 7 Horbury Mews has been on the market now for more than a year. It has three bedrooms, two bathrooms, two reception rooms, no garage, but a small patio. It was marketed at £1.75m, giving a price psf of £883; that price was reduced to £1.65m, and £1.475m is now sought.
Neither expert has enjoyed the opportunity of an internal inspection of either no 1 or no 4. Each has looked at sales particulars, photographs and floor plans. I accept Mr Duncan’s evidence that nos 1 to 4 Horbury Mews are a continuous terrace. The first-floor sill heights and the parapet heights are the same. I am satisfied that the ceiling heights on the ground and first floor are identical, the mansard roof spaces may differ. Number 4 has three to four bedrooms, two receptions, two bathrooms, a garage, and a roof terrace. The reception and dining rooms are on the first floor, and there is bedroom accommodation on the second, through which access is gained to the roof terrace. Number 1 has four bedrooms, three bathrooms and three reception rooms. There is reception accommodation on the ground floor. There is studio accommodation on the second floor, through which access is gained to the terrace. Number 1 is slightly larger, by 340 sq ft. The sale of no 4 at £1.8m gives a price per square foot of £865, that of no 1 at £1.5m a price per square foot of £626.
Mr Duncan says that no 1 and no 4 are “largely comparable”. He therefore values no 1 at £1.8m. He insists that there is little margin for a bracket, and that, if there were one, his figure for no 1 is at the bottom of it. In contrast, Mr Ford concludes that no 4 is superior because of its location in the mews, its greater privacy and quiet, and the better disposition of accommodation, with the steeper mansard roof giving greater penetration to the top floor.
The photographs show no 1 overlooked to some extent by a hostel occupied by Italian students. Mr Knatchbull says that he was not inconvenienced by this when taking drinks on his terrace in the summer. The arrangement of accommodation might or might not be a factor. One purchaser might prefer the bedroom accommodation at the top, a hard-working professional man might enjoy having his studio on the top floor, with easy access to the roof terrace, and might not want his guests traipsing through his bedroom to get to it. The arguments are therefore finely balanced, and into the equation must be factored the marketing history of each.
Number 4 went on the market on 21 June 2001. Ms Kroch inspected both on the same day, and probably revisited each. On 16 and 17 July, she made her unsuccessful bids for no 4. The vendor was prepared to hold out, and, by 13 August, Marsh & Parsons was asking the claimant for assistance. On 23 August, two months later, the vendor of no 4 got his £1.8m. Number 1 went on the market in early July 2001, preliminary sales particulars were issued on 9 July and the offer of £1.5m was received on 26 July, just over a fortnight later. Neither Ms Kroch nor the eventual purchaser of no 4 made any offer for no 1.
Ms Kroch is a delightful lady, but I think, and this is with no disrespect, a somewhat choosy lady. She was, of course, not put forward as an expert witness, and I do not regard her as such. She had up to £2.2m potentially available, and, over the past two years or so, has, to use her own words, “inspected zillions of properties”. She has yet to move. She was accompanied by an architect, who was making grandiose and expensive suggestions for alterations to each. She said she found no 1 somewhat dark, and preferred the layout of the accommodation in no 4. What prompted the eventual purchaser of no 4 to bid for that property and not for no 1 is not known. However, the conclusion I reach is that whatever it took for no 4 to be preferred to no 1 by these two bidders, no 4 was, for whatever reason, a superior property.
Now that this issue has been fully ventilated, the defendant does not seek to contend otherwise. His case is that no 4 was nicer: it was “nicer, but not by that much”. In answer to a question from me, Mr Ford did not seek to justify a differential £450,000 in the respective asking prices, although he did find justification for the £300,000 difference between the respective selling prices, or rather £250,000, because he thought that no 4 was oversold at £1.8m. In his view, the property was worth £1.75m.
Knight Frank was positive about the prospects for the second half of 2001. There was a downturn in the market following September 11, but, according to Mr Duncan, the market had started to pick up in November, and was back to its pre-September levels by February 2002. In my judgment, no 4 was fully exposed to the market over a two-month period. The agent sought the assistance of sub-agents; whether a sub-agent was, in fact, instrumental in effecting the sale is irrelevant. The value of no 4 in August 2001 was therefore £1.8m.
Given the concession, in my judgment properly and realistically made by the defendant, that it was the superior property, it follows that I must reject Mr Duncan’s opinion that the minimum value of no 1 at about that time was 1.8m. That said, applying the cross-check adopted by the experts, I cannot accept a differential of £300,000 and a value of £626 psf. Number 7 Horbury Mews is still unsold, having been marketed by Foxtons for over a year. It is now on the market at £1.475m, that is, only £25,000 less than the price achieved for no 1. Number 7 has three bedrooms, two bathrooms, two receptions, with an area of 1,169 sq ft. Mr Ford considered that a realistic price at the outset for no 7 would have been between £1.1m and £1.2m. Taking the mid-point of £1.15m, that price is equivalent to £689 psf. Applying that rate to no 1 produces a value of £1.65m. By coincidence, this figure is the mid-point between £1.5m and £1.8m. However, given that the price per square foot was well over £800 for no 4, and also for no 9, excluding the attic, and, further, that Mr Knatchbull spent £50,000 in refurbishing and redecorating, I find, on the balance of probabilities, that the value of 1 Horbury Mews in July and August 2001 was around £1.7m.
As to the second question, even if it had not been conceded by Mr Richard Furniss, for the defendant, that Mr Mahoney’s advice was not negligent, I would none the less have found, and do now find, that it was not. There are two interconnected reasons: first, Mr Mahoney did not have all the information now to hand; and, second, given that he did not, the material he worked on was not so precise as to deprive him of |page:37| the benefit of the margin of error of about 10%. In advising, in June 2001, that £1.5m was a realistic asking price, he did not fall below the standard of a reasonably competent estate agent.
A continuing duty?
As a matter of plain fact, the offer of £1.8m was not made until the day after the exchange of contracts for no 1, and, therefore, the averment in the defence and counterclaim, that the claimant was in breach of duty or negligent in failing to advise the defendant of that fact, cannot be sustained. Nor, for the reasons I have given, was Mr Mahoney in breach of duty in failing to advise that the value of no 1 was £1.8m.
It is trite law that the agent’s duty is a continuing one extending until the principal’s instructions are completed or withdrawn. To take a clear case — if a vendor seeks advice as to whether to accept an offer, it is the agent’s duty to give it. Here, the court is concerned with the agent’s duty to advise with regard to possible changes in the market conditions. The rival contentions are:
That the claimant would thereafter bring to the defendant’s notice any fact or matter which might alter the appropriate asking price and/or the price achievable on sale [that is paragraph 3(b) of the defence and counterclaim] and that the claimant would exercise due care whilst marketing the property for sale and in case the claimant thereby became aware of any event in the market that would cause its previous advice as to the guide price be outside the range of reasonable and careful advice, it would give new advice accordingly to the defendant [that is paragraph 3 of the reply and defence to counterclaim].
Let me pause and consider the stark facts. At the time the claimant advised Mr Knatchbull that an appropriate asking price for no 1 was £1.5m, the house next door but two in the same terrace was on the market at £1.95m, £450,000, or around 30%, more. This state of affairs continued until the contracts for the sale of no 1 were exchanged, almost two months later. In my judgment, any vendor in the position of Mr Knatchbull would be interested and concerned by the fact. It would be a matter any reasonable vendor would want at least to discuss with his agent. Following such discussion, the vendor might be reassured. He might alter his instructions. The agent might reconsider his earlier advice. Even as formulated by the claimant, the agent has a duty not to ignore fresh information, but must consider it and exercise judgment upon it.
In my judgment, the defendant puts the duty too high. There are two reasons: first, the information must be such as would come to light during the exercise of due care while marketing the property; and, second, the agent is not bound to bring to the attention of his principal any scrap of information that might possibly bear on the situation. I would formulate the duty as follows:
That the agent has a duty to exercise reasonable care when marketing a property for sale and if in the course of so doing he becomes aware of any significant event in the market that might influence his principal’s instructions to inform the principal thereof and to advise him accordingly.
This sits comfortably with the RICS Manual of Estate Agency: Law and Practice, para E2.4.6:
The agent should report to the client as directed, but no less than once a month with a summary of the data re response to advertising, other marketing activities, number of viewings etc. The report should also include an opinion as to any change in the market conditions, with advice as to whether the market price should be adjusted to reflect the changed market. It is useful to provide comparable market evidence to support the agent’s opinion.
As to the differences in asking price, Mr Duncan said:
It seems to me to be reckless to make a judgment that pertinent information should not be passed on to the principal.
Mr Ford said:
I think many agents would have passed on the information. It would be prudent, but in many cases it would not have happened.
Then he said:
It would be bound to affect the perception of the lay vendor. I can understand why in a busy office this was not done.
(Judge’s emphasis.)
It is not necessary for me to canvass the evidence as to whether an estate agent exercising reasonable care should have learnt of the marketing of no 4 at £1.95m before 13 August. Suffice it to say that the claimant, through Ms Williamson, did know on that date. That information was significant. It may have affected the perception of Mr Knatchbull. It should have been conveyed immediately to the defendant and it was not. The explanation may well be that Mr Mahoney was away from the office — it was a busy holiday period — and that the chains of command and communication within the claimant’s office were disrupted. In failing to pass on this information to Mr Knatchbull before he exchanged contracts, the claimant was, in my judgment, in breach of its duty of care.
Mr Knatchbull’s likely response
I have no hesitation in coming to the conclusion that had Mr Knatchbull known of the asking price before 22 August, his sale to Mr Levantiz, at £1.5m, would probably not have occurred. In other words, the omission of the claimant to pass on the information caused Mr Knatchbull to continue with the sale at £1.5m, whereas had the omission not occurred, he would not have done. I am satisfied, on the balance of probability, that Mr Knatchbull would have given instructions to his agent to negotiate further with Mr Levantiz or, alternatively, to require the claimant to continue to market the property, bearing in mind that the £1.5m offer was achieved at the time when the property had been on the market for only just over a fortnight. Things had not progressed to the stage of the claimant instructing sub-agents. If this failed, Mr Knatchbull would have withdrawn the property, and may have waited. My reasons are as follows: first, Mr Knatchbull’s reaction to that news as soon as he came by it; and, second, he was in no hurry, for any personal family reasons, to sell — he had considered selling in 1999 and 2000, but had not done so. There was no reason for him not to adopt the same approach if he thought the price was inadequate. Third, there was no pressing financial reason to sell, the proceeds of sale having, in fact, been on deposit or with his stockbroker ever since.
Loss to the defendant
In keeping the defendant out of this information, the claimant deprived him of the opportunity to sell at a price higher than £1.5m. It is submitted by the defendant that this falls to be dealt with as a “loss of chance” case. Counsel for the claimant did not address submissions on this point. He confined himself to the proposition that there was no evidence that Mr Knatchbull could have sold the property at £1.8m or, indeed, for more than £1.5m.
In Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, Stuart-Smith LJ said, at p611A:
In many cases the plaintiff’s loss depends on a hypothetical action of a third party, either in addition to action by the plaintiff,… or independently of it. In such a case, does the plaintiff have to prove on a balance of probability,… that the third party would have acted so as to confer the benefit or avoid the risk to the plaintiff, or can the plaintiff succeed provided he shows that he had a substantial chance rather than a speculative one, the evaluation of the substantial chance being a question of quantification of damages?…
I have no doubt… the second alternative is correct.
At p1614C, he said:
in my judgment, the plaintiff must prove as a matter of causation that he has a real or substantial chance as opposed to a speculative one. If he succeeds in doing so, the evaluation of the chance is part of the assessment of the quantum of damage, the range lying somewhere between something that just qualifies as real or substantial on the one hand and mere certainty on the other. I do not think that it is helpful to seek to lay down in percentage terms what the lower and upper ends of the bracket should be.
Stuart-Smith and Hobhouse LJJ approved the approach of Lord Reid in Davies v Taylor (No 1) [1974] AC 207, at p213A: |page:38|
You can prove the past event happened, but you cannot prove that a future event will happen and I do not think the law is so foolish as to suppose you can. All you could do is to evaluate the chance. Sometimes it is virtually 100 per cent: sometimes virtually nil. But often it is somewhere in between.
On the evidence, the defendant would have had three opportunities. The first would have been to seek to renegotiate with Mr Levantiz, who had been sufficiently interested in the property to make two increases on his original offer. The second would have been to continue to advertise the property and/or to widen the market exposure by the claimant’s instructing sub-agents. The third would have been to take the property off the market and to enter it again when market conditions were favourable. These last two options would have involved a sale to a third party at large.
The chance of a sale at the increased figure to Mr Levantiz cannot, in my judgment, be dismissed as speculative, given the interest that he had hitherto shown, bearing in mind the short length of time the property had been on the market. Likewise, the chance of a sale at a higher figure before 11 September cannot be dismissed as speculative, given the prospect of more advertising and a wider market exposure. Having made my findings about Mr Knatchbull’s attitude to opportunities to market the property in 1999 and 2000, I am quite satisfied that, following the events of 11 September, the defendant would have withdrawn the property from the market and put it back on again when market conditions had recovered. The downturn in the market, according to Mr Duncan, whose evidence on the point I accept, was brief. The market started to improve by November 2001, and had recovered by February 2002. 1 am satisfied that the defendant would have been prepared to wait this six-month period and to take this as a benchmark. In the circumstances, it is not unreasonable to assume that had it not been achieved before 11 September, a sale would have been effected at £1.7m, or thereabouts, by 31 May 2002; that is to say, within three months of the market’s attaining its pre-11 September levels.
Thus, there are three scenarios that have to be factored into the evaluation of the defendant’s loss of a chance. In the context of this case, it is not, in my judgment, appropriate to evaluate each chance separately. I propose to adopt the overall approach by evaluating Mr Knatchbull’s prospects of obtaining £1.7m or thereabouts by 31 May 2002. I would assess his chance of achieving this price by that date as twice that of his not doing so, that is to say, 66%. In the circumstances, in monetary terms, taking into account contingencies, I value the loss of his chance at £120,000. It is accepted that Mr Knatchbull must give credit for his use of the £1.5m between the date upon which he received it and the notional sale date that I have taken. This is a period of about nine months. The return that Mr Knatchbull has made, or could have made, was neither canvassed in evidence nor addressed in submissions. In my judgment, it is necessary for me to adopt a cautious approach in fairness to the claimant. I propose, therefore, to take a return rate of 5%, producing £56,625. In addition, Mr Knatchbull would, in accordance with the agreement, have incurred a liability for the claimant’s fees at 2.5% on £120,000: this amounts to £3,000, plus VAT of £525.
I wish to hear submissions from counsel as to the precise form of the order on the defendant’s counterclaim and the consequential orders, given that the defendant submits to judgment on the claimant’s claim.
Claim and counterclaim allowed.
