WELLS V DEVANI

Wells v Devani: the Supreme Court sweeps away problems in contract law

WELLS V DEVANI

[2019] UKSC 4

This important decision of the Supreme Court unanimously overturns the decision of the Court of Appeal and sets out valuable guidance on the fundamental issues of contractual interpretation and implication of terms in the formation of a contract – by Laura Giachardi

The Supreme Court held that it is possible to imply terms into anything, including an offer, overturning Lewison LJ’s decision (which followed the Privy Council case of Scancarriers) that a court can only imply terms into a concluded contract. Or in other words, that it should not imply terms into an agreement so as to enable it to be sufficiently complete to amount to a binding contract. Although heavily criticised by various commentators (see for example Paul S Davies, “Contract formation and implied terms” (2018) CLJ 77(1) 22), the Court of Appeal decision had been widely cited as being authority for this principle, appearing for example in four different sections of the most recent edition of Chitty. The Supreme Court’s decision therefore provides welcome clarification.

The factual background

In 2007 Mr Wells completed the development of a block of 16 flats in Hackney. In late January 2008 seven of these flats were still on the market. Mr Wells mentioned to his neighbour, a Mr Nicholson, that he was having difficulty selling these remaining flats. Mr Nicholson got in touch with Mr Devani, who was trading as an estate agent in Kilburn. Mr Devani made a telephone call to Mr Wells. In the course of that conversation he told Mr Wells that he was an estate agent and that his commission terms would be 2% plus VAT.

Shortly after this telephone conversation, Mr Devani arranged a meeting at the flats between Mr Wells and a potential buyer, Newlon.  On 5 February 2008, Newlon agreed to purchase the flats for £2.1m. Mr Wells thereupon telephoned Mr Devani to inform him of the sale and later that day Mr Devani sent to Mr Wells an email in which he expressed delight that Newlon had agreed to purchase the flats. He further attached to that email his standard terms of business.

The transaction proceeded to completion and Mr Devani claimed his commission. Mr Wells refused to pay.

The first issue: was there a binding contract?

There are a number of possible trigger events in estate agency contracts. Although most provide for payment on completion, some contracts provide for payment of commission on the introduction of a potential purchaser who expresses willingness to buy, or on the exchange of contracts.

At first instance, His Honour Judge Moloney held that the law would imply the minimum term necessary to give business efficacy to the parties’ intentions. The least onerous term for Mr Wells, and the one which nobody would have disputed had it been suggested by an officious bystander, was that payment of the 2% commission was due on the completion of the purchase of the properties by any party which Mr Devani had introduced to Mr Wells.

The majority of the Court of Appeal (with Arden LJ dissenting) overturned this decision. Lewison LJ held that the parties’ failure to specify the event which would trigger commission was fatal to Mr Devani’s claim, for the reasons set out above. A particular problem with this decision in this case was that it was not a case where, for example, the agent had merely introduced the vendor to a potential buyer but the sale had fallen through. Here the sale had completed and Mr Wells had received the purchase monies; Mr Devani had therefore done as much as any agent could do to earn his commission.

Arden LJ took a rather different approach and held that it was not necessary to imply a term, as interpreting the contract as a whole the payment of the commission was due on completion.

In the Supreme Court

Lord Kitchin (with whom Lords Wilson, Sumption and Carnwath agreed) agreed with the dissenting judgment of Arden LJ and held that the only sensible interpretation of what was said is that the 2% commission would become due upon completion and payable from the proceeds of sale.

He disagreed with Lewison LJ’s decision that the trigger event must be expressly identified. If, as here, there is no express term as to the trigger event and the bargain is, in substance, “find me a purchaser” and the agent does exactly that, then a reasonable person would understand that the parties intended the commission to be payable on completion and from the proceeds of sale. A more onerous or unusual term would have to be expressly agreed.

There was therefore no need to imply a term. However, his Lordship held that he would have had no hesitation in finding that there was an implied term had it been necessary to do so. There is no bar on implying terms into the formation of a contract. Indeed, he said that there is no problem implying something that is so obvious it goes without saying into anything, including into an offer.

Lord Briggs gave a separate judgment in which he highlighted the importance of the context. He used the illustration of a door to door broom salesman who holds up a broom and says “one pound fifty”. The householder nods and pays £1.50. Although the subject matter and time of payment were not agreed by any expressed words, there was an agreement by conduct and in the context that the subject matter was a broom and that payment was due immediately.

Here we have a context where one party is an estate agent and the other party is looking to sell some flats. It does not need to be expressly stated that the 2% refers to the price received by Mr Wells following the sale of the flats to a purchaser found by Mr Devani, that is obvious from the context.

Other issues

Mr Devani only sent Mr Wells his standard written terms and conditions after the sale to Newlon had been agreed. The timing of the provision of this information was in breach of section 18 of the Estates Agents Act 1979 (hereafter ‘section 18’), which requires estate agents to provide their clients with written information of the circumstances in which the client will become liable for their commission before the client is committed to any liability towards the agent.

His Honour Judge Moloney followed the statutory procedure and did a balancing exercise, concluding that Mr Devani’s fee should be reduced by one-third to reflect the prejudice occasioned to Mr Wells. The Court of Appeal did not agree with the weight the judge had placed on certain issues in performing the evaluative exercise but did not consider these errors to be so serious that they should interfere with his conclusion.

Mr Wells appealed this, and argued that, having found that there were errors the Court of Appeal should have made the decision afresh. The Supreme Court disagreed – if a trial judge has made a few minor errors which have not affected the overall evaluation then the appellate court should not set that decision aside and perform the evaluation itself. This must be right – the trial judge has had the benefit of hearing the evidence and drawing conclusions from that evidence that the appellate court will not have. It should only therefore be in rare circumstances that any evaluative exercise performed by the judge should be interfered with.

What to take from the decision

• There is no bar to implying terms that are obvious so as to give business efficacy to an agreement
• The contract, and what is said, should be interpreted bearing in mind the context
• Hypothetical facts should not prevent recovery in a situation where no such issue arises
• The appellate court will not interfere with a judge’s evaluation where he has made a few minor errors which have not affected his overall conclusion

13th Feb 2019

Laura Giachardi

Call 2009