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Supreme Court Seeks to Uphold Intended Contracts

on Wednesday, 15 May 2019.

In a recent case, the Supreme Court has indicated that, where possible, it would seek to uphold a contract that parties had intended to take effect.

The Case - Wells v Devani

Wells had developed some flats. Seven remained unsold. After an introduction, Devani, an estate agent, telephoned Wells and the two had a conversation about the flats. Devani told Wells how his commission was calculated. However, the parties did not discuss which stage the commission would be triggered. Devani also did not provide any terms and conditions until after Wells had accepted the buyer's offer. The terms and conditions said that commission was payable on exchange of contracts.

The sales completed, but Wells did not pay the commission. Devani sued for his commission.

How Was This Interpreted by the High Court and Court of Appeal?

The High Court ruled that the parties had discussed the amount of commission, but not the trigger event. It said the law would imply a term to give business efficacy to the parties' intentions.

The Court of Appeal overturned the High Court's decision and said there was no enforceable contract for the payment of the commission, as the parties had failed to agree an essential term (the payment trigger) - so there was no room for an implied term to apply.

The Supreme Court Ruling

The Supreme Court said it was clear that the parties had intended to create a binding legal relationship. The court contrasted two situations. One is where the words and conduct are so vague that the court is unable to identify the terms of the agreement; the other is that a court would be reluctant to find an agreement is too vague where the parties had the intention of being contractually bound.

Here, the Supreme Court looked at the common law and concluded that, once a property vendor agrees to pay commission to an estate agent, and the agent does find a purchaser, it is inherent in that agreement that commission is payable from the proceeds of sale no later than the completion date.

It was therefore unnecessary to imply a term into the contract. However, if it was necessary, the Supreme Court would have had no hesitation in finding an implied term existed to make payment on completion. It added that, contrary to what the Court of Appeal had said, there was no general rule that it was not possible to turn an incomplete bargain into an agreement by implying a term into it to create a binding contract. Where the parties intended to create legal relations, it was possible to imply a term into an agreement to give it business efficacy, or to imply a term that was so obvious that it went without saying.

Comment

This case shows a direction of travel from the highest court in the land - in that the courts should look to enforce a contract and ensure it is legally binding, where the parties had intended to create legal relations.

However, the parties could have avoided the uncertainty and swing in rulings, as well as the cost and hassle, by agreeing appropriate wording and ensuring that the terms and conditions had been provided in time.


If you would like help with drafting contracts or discussing your processes to ensure that your terms and conditions apply, please contact Paul Gershlick in our Commercial Law team on 01923 919 320.

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