Questions of implied terms and repudiatory breach of contract have been considered by the court in Rajiv Singh Arora and Sabina Arora v Reza Moshiri and Inner City Apartments Ltd [2021] EWCH 2230 (Ch).
In 2013 the claimants entered into an oral agreement (“the agreement”) with the first defendant, an estate agent (“the agent”), whereby the agent would introduce to them suitable undervalued properties which the claimants would purchase and, after a short period, resell – or flip on – at a profit.
The agreement provided for the agent to source the properties, oversee the purchase negotiations and manage the properties, and the claimants would fund them either through their own resources or mortgage finance. The agent would be paid 50% of any net profit made on sale after deduction of the expenses associated with the purchase, management and sale of the property. The agent was also obliged to give an account to the claimants of rent received, which was to be treated as reducing the expenses.
In 2018 the parties fell out. The claimants argued that by wrongfully failing to account to them for rent received the agent had committed repudiatory breaches of the agreement which they had accepted and brought the agreement to an end in March 2019: termination discharged their obligations under the agreement. The agent claimed that the agreement established a partnership which entitled him to a proprietary interest in the properties and an implied term that he was entitled to 50% of the net sale proceeds as soon as the claimants acquired a property.
To imply a term into a contract the term must satisfy the test of “business necessity” – Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72. The court found that there was a clear understanding that the agent was to obtain no proprietary interest in the properties. The agent’s obligations under the agreement were entire: his right to payment crystallised only after he had performed all his obligations under the agreement. There was no common business to establish a partnership. The parties were carrying on separate businesses: the claimants as property dealers; the agent as an estate agent and property manager.
In considering allegations of repudiatory breach of contract, the question is whether the breaches affect the very substance of the contract – Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26. An accurate and reliable account of rent received was an integral part of the service to be provided by the agent under the agreement. The agent was in breach by retaining rent received on the claimants’ behalf. The claimants had placed significant trust in the agent, which was misplaced, and so the breaches went to the very root of the contract. The claimants were entitled to terminate the agreement and were excused performance of their remaining obligations including the requirement to pay the agent 50% of net profits on sale of properties, introduced and acquired under the agreement, which they still owned.
Louise Clark is a property law consultant and mediator
