An estate agent and a vendor agreed by telephone that the agent would be paid 2% plus VAT if he found a purchaser for unsold flats, but they never stated when that commission would become payable. The Supreme Court held that their words and conduct still made a binding contract: on the usual understanding, commission became due on completion of the sale and was payable from the proceeds. The agent’s failure to give the information required by the Estate Agents Act 1979 did not defeat the claim, but the trial judge’s one-third reduction of the fee was left in place.
The telephone call and the sale
Mr Wells was trying to sell the remaining seven flats in a development. An estate agency was already marketing the property under a sole-agency agreement.
Law Teacher writing support
Writing a law essay?
We choose a writer who is an expert in your area of law and qualified to at least the academic level you select. Most of our writers hold a master’s degree or PhD, have teaching experience, or both.
Send us your question and, if you wish, any marking criteria. We’ll write an essay to your instructions.
A neighbour put Mr Wells in touch with Mr Devani. Mr Devani said he identified himself as an estate agent on the telephone and quoted a fee of 2% plus VAT. Mr Wells maintained that he thought Mr Devani was an investor and that no fee was discussed.
The trial judge accepted Mr Devani’s account of the call.
Mr Devani then contacted Newlon Housing Trust. On 5 February 2008 Newlon agreed to buy the remaining flats for £2.1 million. Mr Wells told Mr Devani, who emailed confirming a fee of 2% plus VAT and attached written terms. Those terms said that commission was due on exchange of contracts but payable from the proceeds of sale. The sale later completed. Mr Devani claimed his commission and Mr Wells refused to pay.
The trial and the Court of Appeal
Mr Wells argued, first, that there was no binding contract because the parties had never identified the event that would make commission payable. Secondly, he relied on section 18 of the Estate Agents Act 1979: Mr Devani had not given him the required information about his liability for remuneration before the agreement, or in writing until 5 February 2008.
The judge accepted that the claim depended on what was said on 29 January, not on terms sent after Newlon had been introduced. Although the trigger for payment had not been stated, he held that the law would imply the least onerous term needed to make the arrangement work: commission was payable on completion of a sale to a purchaser introduced by Mr Devani. He therefore found an oral contract for 2% plus VAT if an introduction led to a sale.
The judge allowed enforcement under section 18 but reduced the fee by one third to £32,900 including VAT. Had written terms been supplied in time, Mr Wells could have consulted his partner and solicitor about his possible liability to the existing agent.
The Court of Appeal, by a majority, held that there was never a binding contract. Lewison LJ, with whom McCombe LJ agreed, said that a court may imply terms only into a contract that already exists. It cannot, by implication, make the contract for the parties. In his view the event which earns an estate agent’s commission is essential, and different events may be chosen. Unless the parties specify it, the bargain is incomplete. Arden LJ dissented. She considered that the arrangement became a bilateral contract by the time Newlon completed, and that, properly interpreted, commission was payable on completion.
Why the Supreme Court found a contract
Lord Kitchin, with whom Lord Wilson, Lord Sumption and Lord Carnwath agreed, approached the question objectively. What matters is what the parties communicated by words and conduct, not their private intentions, and whether that shows an intention to create legal relations and agreement on the terms the law treats as essential. The courts are reluctant to treat an agreement as too vague to enforce where the parties meant to be bound and have acted on it.
Here the judge had found that the parties intended legal relations and understood the fee to be 2% plus VAT. Mr Devani introduced Newlon, and that introduction led directly to a completed sale. Although they never discussed the precise trigger, Lord Kitchin held that, unless they agreed otherwise, payment would naturally be understood as falling due on completion and as payable from the proceeds of sale. In short, if Mr Devani found a purchaser he would be paid; Newlon became the purchaser on completion, and the commission was then payable from the proceeds. It was not payable merely because a prospective purchaser had been introduced, nor on exchange of contracts. The later written terms, which mentioned exchange, were irrelevant to this issue: they were not supplied until 5 February, and neither party suggested that they governed the question.
On that interpretation, no term needed to be implied. Lord Kitchin added that, had implication been necessary, he would have implied a term that payment fell due on completion of a purchase by someone Mr Devani had introduced. A term is implied only where it is necessary to make the contract work commercially, or is so obvious that it goes without saying. It is not enough that the term would be reasonable. Leaving Mr Wells with no obligation to pay would have been wholly inconsistent with the relationship. Lord Kitchin also rejected any general rule that a term can never be implied in order to make an incomplete or uncertain agreement enforceable. Each case depends on its own facts. The authority relied on by the Court of Appeal concerned a telex which was only a quotation and was never intended to create legal relations; it did not establish so broad a prohibition.
Lord Briggs added that context and conduct can supply the terms of a familiar transaction. What would have happened had a buyer later repudiated was beside the point: this buyer had paid the full purchase price.
The Estate Agents Act 1979
Section 18 required Mr Devani, before Mr Wells entered a contract for estate agency work, to give particulars of the circumstances in which remuneration would become payable, together with any further information required by regulations. The relevant regulations required that information to be given in writing when communication began, or as soon as reasonably practicable afterwards, and before the client was committed to any liability. Mr Devani did not, at the outset or as soon as reasonably practicable, expressly identify the event that would trigger commission, and he supplied none of the information in writing until 5 February. The contract was therefore unenforceable unless the court ordered otherwise.
The agent must apply for that order. The court must dismiss the application only if it is just to do so, looking at the prejudice caused to the client and the agent’s culpability together. If it does not dismiss the application, it may reduce or discharge the sum payable so as to compensate the client for prejudice. At that second stage, culpability and any wider question of justice are not part of the test.
Lord Kitchin held that the judge had assessed the agent’s fault as well as the prejudice to the client. Minor errors that could not have affected the decision gave the appellate court no reason to undertake that assessment afresh.
Verdict: The Court unanimously allowed Mr Devani’s appeal and dismissed Mr Wells’ cross-appeal. It restored the award of £32,900 including VAT, reflecting the trial judge’s one-third reduction.
Source: Wells v Devani [2019] UKSC 4
