Contractual Certainty – The danger of a void

By James Gould on

When drawing up a contract, it is vital to achieve certainty in the terms. If there are gaps or the terms are not clear, this can cause major issues for the parties to the contract. The issue of contractual certainty has been highlighted again in a recent decision of the Court of Appeal.

Background

The case of Wells v Devani [2016] EWCA CIV 1106, concerned a dispute over an estate agent’s contract. Mr Wells was attempting to sell 14 flats in Hackney but had encountered difficulties in doing so. He mentioned his difficulties to his neighbour, Mr Nicholson, who put him in contact with an estate agent: Mr Devani.

Mr Wells and Mr Devani spoke on the telephone several times, during which Mr Devani offered to act as Mr Wells’ estate agent. During these telephone conversations, Mr Devani informed Mr Wells about his rate of commission but did not mention when the commission would fall due. Mr Devani subsequently arranged a viewing for the flats and an offer was received from a local Housing Association. Mr Wells accepted this offer. Following the acceptance, Mr Devani emailed Mr Wells with his full terms and conditions which stated that his commission of 2% plus VAT was payable on exchange of contracts. Once the sales completed, Mr Wells refused to pay Mr Devani’s commission.

At First Instance

The fundamental question put before the Court was, in light of the fact that Mr Devani had failed to inform Mr Wells when his commission would become payable, had a binding contract had formed between Mr Wells and Mr Devani?

Mr Wells argued that there was no binding agreement because a material term of the contract (the point where Mr Devani’s commission fell due) had never been agreed by the parties. Therefore, the contract was incomplete and not legally binding.

Mr Devani argued that the Court should imply a term into the contract that his commission would fall due and payable at a commercially appropriate point in the dealings. The alternative was, Mr Devani argued, that the Court should interpret the initial telephone conversations between him and Mr Wells as creating an appropriate express term as to the time of payment.

The Court found in favour found Mr Devani. The Judge held that a contract where Mr Wells was liable to pay commission to Mr Devani had been formed. He rejected Mr Devani’s alternative argument, but he was willing to imply a term into the contract to cure it. The Judge did, however, impose a penalty on Mr Devani by reducing his fees by a third due to his failure to comply with the obligations imposed upon him by the Estate Agents Act 1979. Mr Wells and Mr Devani were both dissatisfied by this outcome and appealed to the Court of Appeal.

The Court of Appeal

The Court of Appeal upheld Mr Wells’ appeal and dismissed Mr Devani’s cross appeal.

It found that a term in a contract between an estate agent and a customer relating to the time for the payment of the estate agent’s commission was a material term of the contract. Unless all material terms of the contract are agreed, the contract is not concluded and is not binding upon the parties. The Court of Appeal considered that while it may be appropriate for a Court, on occasion, to imply a term into a completed contract to assist in its operation (where the facts justified doing so), it would not be appropriate for a Court to imply a term into a contract in order to complete it. Fundamentally, it was not open to the Court to impose an otherwise unenforceable or incomplete contract upon the parties.

For this reason, the Court of Appeal found that the High Court Judge had been wrong to imply a term into the agreement in respect of the time of the payment in Mr Devani’s commission. Because of this, the contract between Mr Wells and Devani was incomplete and therefore unenforceable at law. An interesting aside is that the Court of Appeal was, in fact, split. While the majority allowed Mr Wells’ appeal, Lady Justice Arden dissented.

Summary

This case, once again, brings several factors into focus. Firstly, it reinforces the fundamental importance of parties thoroughly exploring and agreeing all fundamental terms of a contract. If that is not done, then a contract runs a very real risk of being considered void and unenforceable. Specifically, it clarifies that the trigger event for payment of commission is a material term for estate agents’ contracts. Finally, the dissention of Arden LJ shows just how fact-dependent these cases can be should they proceed to litigation. This further highlights the significant risk that the parties are incurring should they fail to properly bottom out a contract.

Are you involved in a contractual dispute? If so, the experienced commercial litigation team at Levi Solicitors can assist you.

contractual certainty