Andrew Butler is successful in Court of Appeal decision regarding Estate Agency contracts

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Andrew Butler has won in the Court of Appeal, in a case which exposed differences of judicial view about questions of contract formation, and addressed an important but problematic section of the Estate Agents Act 1979 (“EAA”).

The case, Wells v Devani [2016] EWCA Civ 1106, concerned an alleged contract of estate agency. The Respondent, Mr Devani, claimed to have been retained by Mr Wells to find a buyer for a residential development in Hackney. On Mr Devani’s evidence, there had been a telephone conversation in which it had been agreed that his fees would be “2% plus VAT”. There had been no discussion of the trigger event (i.e. offer, exchange or completion), and no written terms provided at that stage. Within a matter of days, Mr Devani had found a buyer who went on to complete at the asking price. Only after finding the buyer did Mr Devani provide Mr Wells with his written terms of business. Mr Wells refused to pay Mr Devani’s fees, and Mr Devani sued him.

s.18 EAA requires written terms to be provided before the contract is concluded. It further provides that, if no written terms are provided, then the contract can only be enforced with the Court’s permission. In deciding whether to give that permission, the Court is required have regard to the culpability of the agent, and the prejudice to the client. If it permits enforcement, it can also reduce the commission, having regard to prejudice (but not, at this stage, culpability).

At the trial, where Andrew did not appear, Mr Devani (i) persuaded the Judge that there was a contract; (ii) succeeded in getting permission to enforce the contract; but (iii) suffered a 33% reduction in his commission because of the failure to provide written terms. While the judge acknowledged that the parties’ telephone conversation left the contract incomplete, he was prepared to imply a term that the trigger event was the most onerous possible for Mr Devani, namely finding a buyer who completed the purchase (which Mr Devani had done). Permission to appeal was granted to Mr Wells on the question of whether, having regard to the non-provision of written terms, enforcement should have been permitted under s.18. Mr Devani cross-appealed, contending that, while the Judge was correct to permit enforcement, he was wrong to have made a reduction in the fee.

Andrew was instructed following the grant of permission and sought to enlarge the scope of the appeal so as to include a challenge to the finding that there was a contract. This was the sole ground on which Mr Wells eventually, and by a majority, succeeded.

Lewison LJ (with whom McCombe LJ agreed) held that, in the absence of specific agreement as to the trigger event, the contract was incomplete, and that it was impossible to use the process of implication to complete an incomplete contract. Dissenting, Arden LJ held that the process of identifying the trigger event was a matter of interpretation, not implication, and did not need to have been spelt out expressly. There was further disagreement as to whether the interpretation of the telephone conversation was a question of fact, or a question of law.

The decision also contains some useful dicta on the correct approach to s.18, highlighting:

  • the need to treat prejudice and culpability in the round, rather than sequentially;
  • the particular importance of compliance where, as here, performance was achieved in quick time;
  • the types of prejudice likely to be suffered by the client, including uncertainty, and (if another agent is retained on a sole agency basis) the risk of exposure to a double commission – having regard also to factors such as lapse of time and limitation;
  • the relevance of the quality of the job done by the agent.

The Court agreed unanimously that, while the Judge’s approach to s.18 was susceptible to criticism, it was not so erroneous as to justify the appeal court’s interference.

The decision is therefore of some importance on the difference between implication and interpretation, as well as on the nature of estate agency contracts, and the correct approach to the problematic s.18. A link to the decision can be found here.