Wells v Devani [2019] UKSC 4

An estate agent orally agreed commission terms with a vendor but never specified the triggering event for payment. The Supreme Court held a binding contract existed, with payment due on completion, and upheld partial enforcement despite breach of section 18 of the Estate Agents Act 1979.

Facts

Mr Wells, having completed a development of flats in Hackney, was struggling to sell seven remaining units. Through a mutual acquaintance, Mr Nicholson, he was put in contact with Mr Devani, an estate agent trading in Kilburn. In a telephone conversation on 29 January 2008, Mr Devani informed Mr Wells that his commission would be 2% plus VAT. The parties did not expressly discuss the event that would trigger the obligation to pay commission. Mr Devani then introduced Newlon Housing Trust, which agreed to purchase the flats for £2.1m. Only after the sale was agreed did Mr Devani send written terms of business, purportedly in compliance with section 18 of the Estate Agents Act 1979. Mr Wells refused to pay the commission, and Mr Devani issued proceedings.

HH Judge Moloney QC at first instance preferred Mr Devani’s evidence, found a binding oral contract existed, and that commission was payable on completion by way of an implied term. He also found Mr Devani had breached section 18 of the 1979 Act, and reduced the commission by one-third. The Court of Appeal (Lewison and McCombe LJJ; Arden LJ dissenting) allowed Mr Wells’s appeal on contract formation, holding that without an express trigger event the bargain was incomplete.

Issues

Two issues arose before the Supreme Court:

• Whether a binding and enforceable contract existed between Mr Devani and Mr Wells despite the absence of any express identification of the event triggering the obligation to pay commission.
• Whether Mr Devani’s failure to comply with section 18 of the Estate Agents Act 1979 required the trial judge to dismiss the claim, or to reduce or discharge the commission further than he did.

Arguments

Mr Wells argued that without express specification of the triggering event, the agreement was too uncertain to amount to a binding contract, and that it was impermissible to combine express and implied terms to create a contract where none existed. He further submitted that Mr Devani’s section 18 breaches were sufficiently culpable to warrant dismissal of the claim, and that the Court of Appeal, having identified errors in the judge’s reasoning, should have undertaken the evaluation afresh.

Mr Devani contended that, properly construed, the parties had agreed all essential terms, with payment naturally falling due on completion from the proceeds of sale. Alternatively, such a term could properly be implied to give the agreement business efficacy.

Judgment

Contract formation (Lord Kitchin)

Lord Kitchin, with whom Lord Wilson, Lord Sumption and Lord Carnwath agreed, applied the principles set out by Lord Clarke in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH [2010] UKSC 14. The question was what had been communicated between the parties by words and conduct, objectively assessed. The judge had found that the parties intended to create legal relations and that commission of 2% plus VAT was agreed. Lord Kitchin held that, absent a contrary provision, it would naturally be understood that payment would be due on completion and from the proceeds of sale. This was “the only sensible interpretation” of the telephone conversation in context.

This interpretation was supported by longstanding authority, including Fowler v Bratt [1950] KB 96, Midgley Estates v Hand [1952] 2 QB 432, and Dennis Reed Ltd v Goody [1950] 2 QB 277, from which a prima facie understanding emerged that estate agents’ commission is payable out of the proceeds of sale upon completion. Lord Kitchin distinguished Luxor (Eastbourne) Ltd v Cooper [1941] AC 108, observing that while the triggering event is important, this does not mean the bargain is necessarily incomplete where the event is not expressly specified.

Implied term

Although the judge had not needed to imply a term, Lord Kitchin held that, if necessary, a term that payment fell due on completion would have been properly implied, consistent with Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72. He rejected Lewison LJ’s reading of Scancarriers A/S v Aotearoa International Ltd [1985] 2 Lloyd’s Rep 419 as establishing a general rule that terms cannot be implied to render an otherwise incomplete bargain enforceable. Where parties intended to be bound and have acted on their agreement, a term may be implied where necessary for business efficacy or as obvious. James v Smith [1931] 2 KB 317 provided an analogous example.

Lord Briggs’s observations

Lord Briggs emphasised that interpretation of contracts is not confined to express words; the context and conduct of the parties may reveal essential terms. Using the analogy of the door-to-door broom seller, he observed that much of the bargain here was agreed by conduct in context. He would have found a sufficiently certain contract formed by construction of words and conduct.

Section 18 of the Estate Agents Act 1979

Mr Devani had indisputably breached section 18 by failing to provide the required information in writing at the outset. Under section 18(5)-(6), the contract was unenforceable save by court order, which the court must dismiss only if it was just to do so having regard to prejudice and culpability. The judge had assessed culpability and prejudice, allowed enforcement, and reduced the fee by one-third.

Lord Kitchin rejected Mr Wells’s argument that culpability was so grave as to require dismissal. While section 18 served a consumer protection purpose, Mr Devani’s breach arose in circumstances of urgency and a short period, with no other impropriety. The Court of Appeal had identified minor errors in the judge’s reasoning but correctly declined to interfere with his overall value judgment. Lord Kitchin held that where identified errors are minor and could not have affected the outcome, an appellate court is not required to re-perform the evaluation.

Implications

The decision clarifies that an estate agent’s contract may be binding and enforceable even where the parties have not expressly stipulated the event triggering commission. Where the parties clearly intended legal relations and agreed the rate of commission, a court may construe the agreement as providing for payment on completion from the proceeds of sale, consistent with the “common understanding of men” articulated in earlier authorities such as Dennis Reed v Goody and Fowler v Bratt.

More broadly, the judgment confirms that interpretation of contracts is not confined to express words but extends to context and the parties’ conduct. It also restates that terms may be implied, where necessary for business efficacy or obviousness, even where this is needed to render the contract sufficiently certain – provided the parties intended to create legal relations. The suggestion in Scancarriers that express and implied terms cannot be combined to create an otherwise incomplete bargain was confined to its facts.

On section 18 of the 1979 Act, the judgment confirms the structured approach: dismissal is required only where just having regard to prejudice and culpability; reduction under section 18(6)(b) is a matter of discretion directed to compensating prejudice, with culpability playing no role at that stage. Appellate courts should exercise restraint before disturbing a trial judge’s value judgment, particularly where identified errors are minor and would not have affected the outcome.

The decision is significant for estate agents, vendors, and consumer protection. It underlines the binding nature of informal oral commission agreements but also highlights the importance of complying with statutory disclosure obligations designed to protect consumers entering such arrangements.

Verdict: The Supreme Court allowed Mr Devani’s appeal on the contract formation issue, holding that there was a binding and enforceable contract between the parties under which commission of 2% plus VAT was payable on completion of the sale. The Court dismissed Mr Wells’s cross-appeal on the section 18 issue, upholding the trial judge’s order permitting enforcement of the contract subject to a one-third reduction in the commission payable.

Source: Wells v Devani [2019] UKSC 4