Deirdre Lindsay, a Solicitor in Gateley’s Residential Development Unit, looks at the case of Wells v Devani where the Supreme Court decided that fees discussed during a phone call were contractually binding.
This case involved a dispute between Mr Wells, a property developer, and Mr Devani, an estate agent, as to whether fees which had been discussed on a telephone call could be held to be contractually binding.
Mr Wells had asked Mr Devani on a call about his fees in relation to a proposed sale of Mr Wells’ flats in Hackney. Mr Devani advised that the rate of commission he charged was 2% plus VAT. Neither party discussed in what circumstances the payment of this commission would be triggered.
Mr Devani introduced Mr Wells to a prospective purchaser for his flats. It was at this stage that Mr Devani emailed his terms of business, which included details of when the commission became payable. Following completion of the sale of flats to the buyer, Mr Devani proceeded to claim his commission, which Mr Wells refused to pay.
Mr Wells disputed Mr Devani’s entitlement to the commission on the basis that they had not entered into a binding contract as the terms were too uncertain, and/or that Mr Devani had failed to comply with section 18 of the Estate Agents Act 1979 and so any payment due was unenforceable or should be reduced.
County Court and Court of Appeal Decisions
The judge at the County Court held that a binding contract between the parties had taken place. The judge decided that a term could be implied into the agreement in which the commission would be payable to the estate agent on completion of the sale of the property. He acknowledged that Mr Devani had not complied with his obligations under the Estate Agents Act 1979, as he did not expressly inform Mr Wells before their agreement of the circumstances under which he would be entitled to commission. The judge, therefore, reduced the fee Mr Wells was required to pay to Mr Devani by one third.
The County Court decision was overturned by the Court of Appeal, as the judges held that no legally binding contract was created. The Court of Appeal judges were of the view that while Mr Devani may have stated his commission rate over the telephone, the trigger mechanism for payment of that commission was a fundamental term of the agreement as a variety of events could have been specified. The judges held that identifying the trigger event was critical to the formation of legally binding relations. On the basis that the trigger event had not been specified and agreed between the parties, the judges held that the oral agreement could not be complete and therefore there was not a valid contract.
The estate agent then appealed to the Supreme Court.
Supreme Court Decision
The Supreme Court judges unanimously allowed Mr Devani’s appeal.
In the leading judgment, Lord Kitchin considered whether there was a binding contract. This required assessing whether the words and conduct of the parties could, when objectively assessed, show that there was an intention to create a legally binding relationship and that they had agreed all the terms the law required as essential for that purpose. Lord Kitchin was of the view that, given the particular circumstances of this case, the only sensible interpretation was that if Mr Devani found a buyer for Mr Wells’ flats, then the estate agent’s fees would be payable on completion from the proceeds of the sale.
Lord Kitchin did not think it necessary to imply a term into the agreement between the parties, but had it been necessary he would have had no hesitation in implying a term that commission would be payable on completion of the sale.
On considering the Estate Agents Act, non-compliance with the terms of the Act could render the contract unenforceable unless the court ordered otherwise. If the court did not dismiss the claim, it could reduce or discharge the sum payable by Mr Wells to compensate him for any prejudice (which the trial judge had done). The judges decided that the trial judge had been entitled to take that course.
To make sure you don’t get ‘called out’ at a later date when making agreements over the phone, make sure to explicitly agree all the key terms at the outset, write them down and provide the other party with a copy.