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Supreme Court Rules on Property Agent Commission Dispute

Supreme Court Rules on Property Agent Commission Dispute
The Supreme Court recently ruled on an Appeal where a property vendor refused to pay an estate agent the commission owed. The case highlights the importance of a clear agreement in accordance with the Estate Agents Act 1979 and the legal recourse available.

The case dealt with two main issues:
i. the status of an agreement between an estate agent and its client and whether such agreement was complete and enforceable by the estate agent despite there being no express identification of the event which would trigger the obligation to pay commission
ii. the effect of Section 18 of the Estate Agents Act 1979

The background of the case

Mr Divani, an estate agent from Kilburn, claimed that commission became payable to him by Mr Wells, the vendor, of a number of flats on the completion of the sale of those flats to a purchaser which he had introduced to the vendor.

By the beginning of 2008, 6 flats had been sold, one was under offer and 7 were still on the market. The flats comprised a development in Hackney.

Mr Wells lived in Andorra and he mentioned to a neighbour that he was having difficulty selling the remaining flats. That neighbour told Mr Wells that he knew of a property investment company in London that might be interested. The neighbour then emailed Mr Divani, and the dispute revolved around the communication between Mr Divani and Mr Wells that came about as a result.

The Trial

At the initial trial in Central London County Court, His Honour Judge Moloney QC preferred the evidence of Mr Divani. He recognised Mr Divani did not reach any express agreement with Mr Wells as to the precise event which would entitle Mr Divani to his commission. Nevertheless, he held that, in the absence of any such express agreement, the law would imply the minimum term necessary to give business efficacy to the parties' intentions. This was that there would be payment of a specified commission on completion.

The Judge also found that Section 18 of the Estate Agents Act 1979 had not been complied with, but held it would be just to permit Mr Divani to enforce the agreement. However, he also held that Mr Wells should be compensated by a reduction in the fee that he was required to pay by one third.

The Court of Appeal

Mr Wells appealed successfully to the Court of Appeal. It allowed the Appeal on the basis that while a Court can imply terms into a contract, this assumes there is already a concluded contract into which terms can be implied. It held it is not legitimate under the guise of implying terms, to make a contract for the parties.

The Court further reasoned that the trigger event giving rise to an estate agent's entitlement is critical and has to be clearly specified. Finally, unless that event is specified, the bargain is incomplete.

As for Section 18 of the Estate Agents Act 1979, the Court of Appeal decided unanimously that Mr Wells' Appeal should be dismissed. They felt they could not say the Judge's overall value judgement was wrong.

The Supreme Court

The Supreme Court considered whether there was a binding contract. Lord Kitchin, in the leading judgement, stated that the trial judge had no doubt that the parties did intend to create legal relations and that they understood Mr Divani's terms would be a commission of 2% plus VAT. He accepted that there was no discussion of the precise event which would give rise to payment of that commission but had no doubt it would naturally be understood that payment would become due on completion and made from the proceeds of sale.

Lord Kitchin went through the various authorities, Fowler v Spratt [1950] KB96, Medley Estate v Hand [1952] 2QB432 and endorsed those decisions.

Lord Kitchin did not believe there was any need to imply a term in to the agreement, but had it been necessary, he would have done so. He found the approach adopted by the trial judge was entirely consistent.

The Court of Appeal had reached a complete contrary review which was basically that it was not possible to turn an incomplete bargain into a legally binding contract by adding expressly agreed terms and implied terms together. The Court of Appeal had relied on a case known as Scancarriers.

Lord Kitchin found that Scancarriers was an unusual case. Lord Kitchin found that the Scancarriers judgment did not support the far reaching proposition which Lewison LJ had made in the Court of Appeal. He concluded that, with regards to the implied term, the parties intended to create legal relations and acted on that basis and it was permissible to imply a term into the agreement between them where it was necessary to do so to give business efficacy. Each case must be considered in its own light.

The other point in the Appeal which was the application of the Estate Agents Act 1979 was also dealt with. Mr Divani had failed to comply with his Section 18 obligation because he did not provide Mr Wells with all the information required and the Supreme Court found that although Mr Divani had not complied, his culpability was not so great as to justify dismissal of his claim for commission.

Conclusion

​ The case is an excellent example of the circumstances in which it is permissible to imply a term into a contract to give it business efficacy. The fact that the case went on Appeal to the Court of Appeal and then the Supreme Court with differing results shows how fine the legal arguments can be in implied term cases.

​​More information

Our experienced Property Litigation Team are able to advise on complex disputes involving the Estate Agents Act 1979 as well as other specialist litigation matters. Stephen Eccles, Head of Department is recommended by Legal 500 UK as having "an excellent track record in resolving complex cases". Andrew Butler QC was Counsel for the appellant and is regularly instructed by Pinney Talfourd.

Please contact Stephen to discuss your property dispute for expert, tailored advice.

 
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