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About My Commission, Which We Didn't Discuss...

on Wednesday, 26 July 2017.

The importance of reaching a binding agreement on the terms of a contract was highlighted in the recent Court of Appeal case of Wells v Devani.

In this case implied terms did not help an estate agent seeking commission on the sale of a property

The Facts

The Claimant, Mr Devani, was an estate agent based in London. He pursued a claim against Mr Wells for commission following the sale of a number of flats in Hackney, which had been developed under a joint venture business partly owned by Mr Wells.

Mr Wells had sold half of the flats in the development through another estate agent, but had been unable to sell the remainder. Mr Devani was then introduced to Mr Wells. During a telephone conversation between them, Mr Devani offered to find a buyer for the remaining flats and informed Mr Wells that his standard commission was 2% plus VAT. However, they did not discuss the circumstances in which the commission would become due and payable.

Mr Devani introduced a buyer to Mr Wells. After the buyer exchanged contracts on the property purchase, Mr Devani sent Mr Wells his written terms of business. Because these were not provided to Mr Wells until after exchange of contracts, they were not binding upon him. Mr Devani therefore sought to rely on an oral contract based on the earlier telephone discussion with Mr Wells in order to claim his commission.

First Instance Decision

The judge at first instance agreed that an oral contract existed between Mr Devani and Mr Wells. He implied a term into that contract that payment of the commission was due upon the introduction of the buyer who completed the purchase. As a result of that implied term, the judge ordered Mr Wells to pay commission to Mr Devani, although the amount payable was reduced by one-third due to Mr Devani's failure to comply with his obligations under the Estate Agents Act 1979 to provide written details of the agreement to Mr Wells.

Mr Wells appealed this decision to the Court of Appeal and Mr Devani cross-appealed against the reduction in his commission.

Court of Appeal Decision

The Court of Appeal concluded by a majority of 2-1 that the oral contract between Mr Wells and Mr Devani was incomplete as the parties had failed to specify the event which would trigger Mr Devani's entitlement to commission. Given that a variety of events could have been specified as triggering the entitlement, the Court held it was essential that the trigger event was expressly agreed between the parties in order to form a legally binding contract. It had not been agreed and as this was such a critical term, it could not be decided by reference to the standard of reasonableness nor could it be cured by the implication of a term concerning the trigger event. As a result, Mr Devani was not entitled to recover his commission when the flats were sold to a buyer he had introduced. His cross-appeal relating to the reduction of his commission was therefore dismissed.

Best Practice

This case highlights the importance of ensuring that all essential terms are expressly agreed between the parties if they want to be certain they will be enforceable between them. The best approach is of course to set out the terms in a written contract before any services are carried out.

If you would like to discuss this article further, or its implications on your own or your clients interests, please contact Garry Kendall in our Commercial Litigation team on 0117 314 5369.

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