Supreme Court upholds estate agent contract formed over telephone

In its judgment, which overturned that of the Court of Appeal, the Supreme Court said there was "no doubt" that the parties intended to create a legal relationship. It was also clear that the vendor, Mr Wells, understood that the agent, Mr Devani, charged a commission of 2% plus VAT for his services.

"The case before us is another in which the parties meant by their words and actions that the agent was engaged on the usual terms, that is to say that a commission became payable not upon the introduction by Mr Devani of a prospective purchaser to Mr Wells, nor upon the exchange of contracts, but rather upon completion of the sale and then from its proceeds, for it was at that time that Newlon [the purchaser] actually bought and paid for the property and so became its purchaser," said Lord Kitchin, giving the judgment of the court.

He added that, in the circumstances of the case, there was no need to imply a payment term into the agreement between Devani and Well. However, the court would have had "no hesitation in holding that it was an implied term of the agreement that payment would fall due on completion of the purchase of the property by a person whom Mr Devani had introduced", had it been necessary for it to do so, he said.

Commercial litigation expert Jessica Goosman of Pinsent Masons, the law firm behind Out-Law.com, said that the judgment "sees the court considering the basic principles of contract formation, certainty and implied terms, and demonstrates that the court will consider the individual facts of each case before making a decision".

"The decision provides useful guidance: first, that the courts will generally only seek to imply a contract term where it is necessary to give a contract business efficacy; and second, that the courts are generally reluctant to find an agreement is too vague or uncertain to be enforced where it is found that the parties intended to be contractually bound and have acted on their agreement. This judgment reinforces that approach," she said.

Wells had developed a block of flats in Hackney, London, but was having trouble selling them all. A mutual acquaintance put him in touch with Devani, and the parties communicated over the phone. Devani arranged a meeting between Wells and a prospective buyer, who purchased the eight remaining flats for £2.1 million. He invoiced Wells for his fee, which Wells did not pay.

Devani claimed that, in the course of the phone conversation, he told Wells that he was an estate agent, and that Wells agreed to his terms of commission. Wells disputed Devani's account, claiming that Devani did not say that he was an estate agent. He claimed that Devani either said that he was an investor wishing to buy on his own account, or that he allowed Wells to believe that he was an investor. He said that that he could not have entered into a binding agreement with Devani, as there was no certainty over when any commission should be paid.

The trial judge, while recognising that Devani did not reach any express agreement with Wells about the precise trigger for his commission, found that there was a binding contract. He found that, in the absence of express agreement on the trigger, the law would "imply the minimum term necessary to give business efficacy to the parties' intentions", which was payment when the purchase was completed.

This was the point on which the Court of Appeal disagreed. Lord Justice Lewison said that in a commission-based agency contract, the identification of the trigger event was "essential to the formation of legally binding relations". The Supreme Court disagreed, finding that the Court of Appeal had put too much emphasis on this point.

Lord Kitchin said that while he agreed that the event giving rise to the entitlement to commission "may be of critical importance", this did not mean that "unless this event is expressly identified the bargain is necessarily incomplete".

"It may be an express term of the bargain that the commission is payable upon the introduction of a prospective purchaser who expresses a willingness to buy at the asking price, or it may be an express term that it is payable upon exchange of contracts. But if, as here, there is no such express term and the bargain is, in substance, 'find me a purchaser' and the agent introduces a prospective purchaser to whom the property is sold, then a reasonable person would understand that the parties intended the commission to be payable on completion and from the proceeds of sale," he said.

The Supreme Court judge said that, had he been unable to reach this conclusion using the principles of contractual interpretation, he would have been willing to imply the term into the contract, as the trial judge had done.

"[W]here, as here, the parties intended to create legal relations and have acted on that basis, I believe that it may be permissible top imply a term into the agreement between them where it is necessary to do so to give the agreement business efficacy or the term would be so obvious that 'it goes without saying', and where, without that term, the agreement would be regarded as incomplete or too uncertain to be enforceable," he said.

The Supreme Court also dismissed a cross-appeal by Wells, based on Devani's breach of certain procedural requirements set out in the 1979 Estate Agents Act, including the requirement to put his terms in writing. It ruled that the trial judge had been correct to grant relief to Devani, as Wells had not been prejudiced by the breach.