An estate agent has won a marathon case which will allow him to claim commission after terms were set out in an informal – disputed – phone call.
The Supreme Court has overturned an earlier decision of the Court of Appeal in the case of Wells v Devani.
The landmark judgement has implications for other agents who are pursuing claims for payment where terms may have been concluded informally. One law firm says such claims by agents are common – and ‘numerous’.
The Wells v Devani case dates back to what had or had not been agreed on January 29, 2008.
In the courts it revolved around whether an oral estate agency contract was binding or complete, and where the two parties had not expressly agreed the specific commission.
The Court of Appeal ruled that the contract was insufficiently complete – but the Supreme Court has now ruled that the agent is entitled to commission.
This is even though the agent did not comply with his obligations under part of the Estate Agents Act 1979, and even though the contract was handled over the telephone – with even that single telephone conversation being disputed.
In the case the seller, Edward Wells, had developed some flats but had difficulty selling all of them through agent Shaw & Co.
By the beginning of 2008 six flats were sold, one was under offer and the remaining seven were still on the market.
An acquaintance introduced Mr Wells to Mehul Devani, an estate agent in Kilburn, north London.
During a phone conversation, Mr Wells asked Mr Devani what he charged, and, Mr Devani claimed, was told 2% plus VAT.
Mr Wells disputed this, maintaining that Mr Devani made no mention of any commission and gave the impression he was an investor who might himself be interested in the flats.
Mr Devani, however, went on to introduce a buyer who met Mr Wells and agreed to buy all the unsold flats.
Mr Devani then submitted an invoice for payment – 2% plus VAT as a multiple agency fee – to Mr Wells who refused to pay it.
At the first court case, the judge rejected Mr Wells’ argument that the terms of the agreement were too uncertain and said that commission should be payable.
The Court of Appeal overturned that by a majority. The dissenting judge said that Mr Devani had agreed to find a purchaser, even if those exact words had not been used.
The Supreme Court has now ruled that both the initial judge and the dissenting judge at the Court of Appeal were correct.
The parties had plainly intended that Mr Devani would find a purchaser for the flats.
The Supreme Court concluded that a binding contract had been entered into during the telephone conversation, as both parties had understood that Mr Devani’s terms were that he would be entitled to a commission of 2% plus VAT if he introduced a buyer to Mr Wells.
The Supreme Court also upheld the trial judge’s finding that Mr Devani’s commission should be reduced by one third by reason of his failure to comply with the Estate Agency Act 1979 by not providing his terms of business before liability arose.
However, although Mr Devani failed to comply with his obligation under the Estate Agents Act 1979, Section 18, because he did not expressly tell Mr Wells of the event which would trigger his entitlement to commission, the Supreme Court said Mr Devani did not deserve his application to be dismissed.
Lawyers at 1 Chancery Lane welcomed the Supreme Court decision, saying it “gives welcome clarification to the law concerning contractual certainty. It also provides a useful reminder that at common law, contracts may be formed not just by reason of words spoken but also by conduct.”
Among the other lawyers dissecting this week’s ruling is Douglas Rhodes, property litigation partner at Trowers & Hamlin.
Yesterday he said: “It is very common for estate agents to claim commission following informal discussions between agent and principal and we continue to see numerous claims of this nature.
“This case is unlikely to stem the flow of claims and, if anything, may encourage estate agents to take a more cavalier attitude towards their statutory obligations to provide details of their terms of business under the Estate Agency Act 1979.
“A single disputed telephone conversation may be considered to be a low bar for concluding an estate agency contract, particularly given the high level of statutory regulation of estate agents.
“However, Lord Kitchin’s leading judgment ruled that if, as here, “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”.
The judgement is here:
Ouch, did that commission just get very very expensive for the vendor?
2% plus vat + interest at the prevailing bank rate plus err lots of legal costs!
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Right they reduced the fee down 1/3 , as the agent wasnt very switched on not getting terms signed or agreed by email at least.
Wow , dont see common sense being used regarding estate agents in court very often. win for both sides i think.
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It’s quite simple. There was an offer, there was sufficient consideration of that offer, then there was acceptance of that offer. This creates a binding contract whether oral, written or implied.
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Consideration in contract law isn’t a thought process, but the giving of the service/goods in return for the £ fee.
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Estoppel to the nth degree here
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Estoppel…I hear the ghost of Lord Denning chortling in approval of the verdict…
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A good decision! Having read the Judgment, it looks probable that the vendors will now face a further claim by Shaws, so it’s going to get even more expensive!!
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So all the Money Laundering regs just got kicked in to touch then?
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Straightforward law of contract – there was an offer, consideration and acceptance. That is why we don’t need to panic if a client does not send us the contract back signed and dated; as long we positively market the property and he does not stop us from doing so, estoppel comes in. All our stat regs are in addition to that, so if the agent did nor comply with some or any of them he is open to disciplinary action from TPO or his redress scheme, HMRC trading standards etc. Interesting case though and am a bit surprised at the decision because of the vagueness of the evidence.
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There isn’t any estoppel here, it is simply a verbal contract. The same as when you go to the news agent and buy a Mars bar or when you go to a barbers for a haircut.
Service or product in return for agreed payment.
The case surrounded breach of that contract not estoppel.
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Great news for every agent who ha a multiple agency agreement if “another agent is instructed”. Where the internet listers have in perpetuity commitments to their vendors it makes any subsequent agreement with an agent a multiple agency.
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But if you do not comply with the cancellations regs 2013, then the vendor does not have to pay, or in some cases can claim back all the commission charged…(which numerous agents do not comply with)
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This is a great point.
However it is Consumer protection regs.
Edward Wells was operating as a business and therefore isn’t a consumer but a business.
I’m sure the lawyers would have explored that Avenue had he been a private individual.
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valid points Paul…
my reply was in relation to the other posts more so, then the article, but as you rightly said, its consumer legislation.
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