Contractual Interpretation: It goes without saying
Despite there being no express identification of the event that would trigger the obligation to pay commission in an oral contract between an estate agent and a seller, the Supreme Court decided that the contract was still enforceable. Further, the Court found that it did not need to imply a term to that effect, but it would have no hesitation in doing so had it been necessary.
In late 2008, Mr Wells was struggling to sell a number of flats in a development he had completed in Hackney. Mr Wells was put in contact with Mr Devani, who was trading as an estate agent in Kilburn, by his neighbour Mr Nicholson. During the course of the first telephone call, Mr Devani told Mr Wells that he was an estate agent and that his commission terms would be 2% + VAT.
Shortly after this telephone conversation, Mr Devani set up a meeting at the flats between Mr Wells and a potential buyer, Newlon Housing Trust. The sale went through and Mr Devani then claimed for his commission.
First Instance – a binding contract
At first instance, the judge held that there was an oral contact between Mr Devani and Mr Wells entitling Mr Devani to his commission of 2% + VAT if he found a buyer for the flats which led to a sale. The judge recognised that Mr Devani did not reach an express agreement with Mr Wells as to the precise event which would entitle Mr Devani to his commission. Nevertheless, he held that the law would imply the minimum term necessary to give business efficacy to the parties’ intentions.
Overturned by Court of Appeal
In 2017, the Court of Appeal concluded that there was no valid contract into which such a term could be implied. The Court of Appeal considered that the absence of an express identification of the trigger event was of critical importance and without it the entire contract was unenforceable.
The Supreme Court Decision
The Supreme Court disagreed with the Court of Appeal. Firstly, it held that the contract was enforceable as it stood. Notwithstanding the absence of an express term, the bargain was, in substance, “find me a purchaser.” Mr Devani did exactly that so it could be reasonably understood that his commission would be payable upon completion and from the proceeds of sale.
Secondly, the Supreme Court held that, even if it had not come to that view, it would have had “no hesitation” in implying such a term. It held that there is no problem implying a term into a contract in order to give it “business efficacy” or if the term would be so obvious that “it goes without saying” that it was intended to be part of the agreement.
What does this mean?
While this decision shows that the Court may be willing to step in when a contract is missing a key term, the importance of context was stressed. This was an estate agent’s contract and the interpretation of the parties’ words and conduct was supported by numerous authorities.
It should not therefore be assumed that the Court would be willing to intervene in all circumstances and in fact it is likely that the circumstances in which it is prepared to do so will be rare. As such, all key terms should be clearly agreed at the outset and contained within a written contract.
This paper is intended to be a brief note for clients and other interested parties. The information is believed to be correct at the date of publication but should not be relied upon as a substitute for professional advice. Please speak to a member of our team.