Luxor v Cooper - 1941

1322 words (5 pages) Case Summary

28th Oct 2021 Case Summary Reference this In-house law team

Jurisdiction / Tag(s): UK Law

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Legal Case Summary

Luxor (Eastbourne) v Cooper [1941] A.C. 108

Introduction

Luxor v Cooper assessed the agents right to remuneration where they have conducted work on behalf of the principal and there is either no formal contract or the contract is silent as to the level of remuneration to be paid.¹ It asks whether there is an implied term that the agent who has undertaken work under the agreement should be remunerated for that work. It also assesses the level of remuneration that should be paid for work completed under an agreement where the main contract is not proceeded with.

Issues Raised

The primary issue raised is whether there is an implied term in the contract that the agent should receive remuneration where the principal chooses not to proceed with the contract. The law of restitution operates where the principal derives a benefit from the contract and prevents the principal from receiving unjust enrichment under a contract where the agent’s fee is not stipulated.² Under the law of restitution, the agent is entitled to be paid a reasonable sum for the work completed, which is referred to as a quantum meruit payment.³ This figure is to be calculated at the point the principal receives the benefit and thus will not incorporate future profits the principal receives.⁴

The issue arises where the principal has not received a benefit from the contract however, the agent has undertaken the work to his detriment.⁵ Whilst the general consensus determines that restitutionary quantum merit will be payable where the contract has been “frustrated, avoided or has become unenforceable”.⁶

The Facts

The plaintiff had an agreement to provide prospective purchasers for the sale of two cinemas on behalf of the defendants for which he was due to receive £10,000 commission. Having provided prospective purchasers, the defendants refused to complete the contract on the basis that the agreement was made with unauthorised persons of the company and hence it was ultra vires (beyond the director’s and the company’s powers). The Court considered that whilst it was possible for the agreement to be ratified, this was prevented by the fact that all the directors had a personal interest in the transaction, nullifying any attempt at ratification.⁷

Decision

The Court concluded that there was no agreement of agency as the agent had not been asked to find the purchaser for the cinema albeit that he was promised a reward if he did. This argument relates to the agent approaching the principal as opposed to the principal requesting the services of the agent. Moreover, the agreement was stated to be subject to contract, removing the right to commission where the contract did not proceed. The House of Lords concluded that there could be no implied term on the basis that it imposed a negative commitment, in which it would not be possible to define precise terms. The Court assessed the quantum merit argument but concluded that this is not available where the principal employs an agent and subsequently revokes the agreement on the basis that the agent is only due to be paid on completion thereby finding that there was no implied term for remuneration until the contract had been completed. This was irrespective of the contract not being pursued by the principal.

Impacts

The Luxor decision appears to undermine the principles of agency and enables contracts to be avoided without remuneration for work completed by the agent. In this instance there is no unjust enrichment as the principal did not benefit from the agents work. Nonetheless, in Alpha Trading Ltd. v Dunnshaw-Patten Ltd the Court of Appeal identified that there was an implied term that an agent would be paid should the principal not proceed with the case.⁸ As the Court of Appeal does not have the authority to overrule a House of Lords decision it is important to understand the distinction between Luxor and Alpha Trading Ltd. Alpha Trading involved a similar agency agreement to Luxor. It was entered into at the same time as the introduction of a third party to the principal. The sale related to concrete of which the third party purchaser was to pay $49.50 per metric ton for a total of 10,000 metric tons. The agent was to receive $1.50 dollars per metric ton sold to the purchaser. The purchaser had proceeded with their side of the transaction and the buyer refused to complete. The Luxor decision was deemed to be in contrast to the House of Lords decision in French and Co Ltd v Leeston Shipping Co Ltd, an earlier case that had been found in favour of the agent.⁹ The grounds for departing from Luxor was that the principle of the case was not deemed sufficiently wide as to apply to all agency cases.¹⁰ This reasoning is quite vague and does not outline the precise distinction between the cases. The Court in Alpha Trading Ltd highlighted that the application of the officious bystander test meant that it was not possible to look at the contractual arrangement entered into and conclude that the principal or the agent had intended for the agent to not be paid for their part in arranging the contract.

In this context, it appears evident that the Luxor case can be distinguished from the majority of agency situations. As such, there is an implied term that the agent will be paid for the work that they undertake arranging the contract for the principal, where the principal for whatever reason chooses not to complete that contract. It appears that the ultra vires position of the directors may have impacted the Court’s assessment in the Luxor Case thus rendering the decision to be one relating to special circumstances., Given the relatively week distinction between the Luxor case and Alpha Trading, final clarity on the legal position of the agent will only arise when another failed implied agency payment comes to court and is escalated to the Supreme Court.

The overall view in the majority of cases is that the agent is entitled to remuneration for work done under the completion of the contract.¹¹ The level of compensation that they are entitled to is based only on one of quantum merit unless there is more specific provision under the contract.¹² In this context, the agent will be protected where there is a formal contract in place as the precise terms of what was agreed will be will be contained within.