Glentree Estates Ltd & Anor v Favermead Ltd

Houses in Kensington Palace Gardens are expensive. No. 18-19 is no exception. It was bought in 1995 by a company owned and controlled by Professor Khalili, an expert in, and collector of, Middle Eastern and Oriental art. That company sold the house in September 2001 to a Liechtenstein trustee for the family of Mr Bernie Ecclestone of Formula 1 racing car fame for £50 million together with a share of profit on any re-sale. That Liechtenstein trustee in March 2004 sold the house to a company owned and controlled by Mr and Mrs Lakshmi Mittal, the Indian entrepreneurs, for US$105 million. The claimant estate agents say that they acted pursuant to instructions contained in agreements made with one of Professor Khalili’s companies, Favermead Ltd (“Favermead”), in relation to both transactions and that they are entitled to a commission of £200,000 plus VAT in relation to the first sale and a commission of £1 million plus VAT in relation to the second sale. Sir Edward Evans-Lombe sitting as a judge of the Chancery Division has dismissed the claims of the estate agents who now appeal to this court with the permission of Lady Justice Arden.

The original agreement made between Mr Hewlett of Savills, who were the lead agents to the claimants, and Favermead was contained in a letter of 3^rd April 2001 written by Professor Khalili on Favermead headed paper in the following terms:-

“18/19 Kensington Palace Gardens, London W8

Thank you for your letter of 19^th March 2001 setting out the fee structure regarding the sale of the above property.

I agree that I have appointed FPD Savills, Glentree Estates and Beauchamp Estates to act as my joint sole agents in respect of the above property with FPD Savills acting as the main co-ordinating agent.

I confirm that I will pay a fixed fee of £1m (excluding VAT), on completion of the sale of the property. The matter of the sub-division of the fee is a matter solely for agreement between the three agents.

The Terms of Business for Sales which accompanied your letter to me does not form part of our Agreement.

I will pay the agreed fee on the basis that one of you introduces an applicant, who subsequently purchases the property from us.

If I procure a purchaser through my own endeavours, then you will be entitled to a reduced fee of 20% of the £1m.

I am not bound to pay fees to you under any other circumstances.

The content of this letter is our sole agreement and shall remain fully confidential.”

Mr Bernie Ecclestone and the Liechtenstein trustee (whom I shall now call “Corfiducia”) were in fact introduced to Professor Khalili and Favermead by other agents but two months after the sale to Corfiducia, Favermead confirmed by fax dated 16^th November 2001 to Mr Hewlett that the property was still for sale at the asking price of £85 million. On 19^th November 2001 Mr Hewlett met Professor Khalili and the agreement reached at that meeting was recorded in a letter of the same date from Mr Hewlett to Professor Khalili:-

“Further to our meeting this morning I write to confirm the outcome of our various discussions.

I understand from you that we are still instructed to continue to search and find a suitable purchaser for the above property. You informed me that Lovell White Durrant will be the solicitors should a purchaser be found.

Whilst writing I confirm that you have agreed to keep in place our agency agreement as per your letter 3^rd April 2001 though I understand that this fee is now to be shared by the three agents mentioned in the letter and a new fourth party. I am very grateful to you for this, as you have personally agreed to settle our fee should a buyer be found. This agreement also covers our fees should the clients of Clyde and Co purchase the house. I am sure that both Beauchamp Estates and Glentree will also be delighted to have this warranty from yourself.

In addition we discussed the offer received from Clyde and Co on the above property. You have stated to me that I should go back to them offering them a seven-day exclusive at £75 million subject to contract for the house and the contents. This price would be agreed on the following basis; £65 million for the house and £10 million for the extra contents non negotiable.”

(The reference to Clyde and Co refers to an offer made by that firm of solicitors on behalf a client to purchase the property for £60 million which did not in the event proceed). This arrangement with Professor Khalili caused the claimants to circulate other agents including, by letter of 30^th January 2002, Knight Frank.

Favermead contend that the agreement made on 19^th November 2001 and reflected in the letter was that the claimants would waive any claim for commission arising from the sale to Corfiducia in exchange for the opportunity to continue as agents on the original terms so as potentially to earn commission on any re-sale to a fresh purchaser.

There matters seem to have rested until, over 2 years later, Mr Abrahmsohn of the first claimant in a letter of 4^th February 2004 drew the attention of Mrs Mittal to the property, on sale for about £85 million and, on 26^th February, a Mr Roddy Craggs of Knight Frank asked Mr Hewlett if the property could be viewed by him and an associate of his, Mr Jaideep Singh from Knight Frank’s Indian department, to see if it might be suitable for the Mittals. The viewing took place on the next day. On 4^th March a further viewing took place with Mr Mittal and his son, Aditya, in attendance. At the end of that view, Mr Mittal asked if the owner would accept £65 million but Mr Hewlett said that any offer would have to be over £70 million.

A short time later rumours began to circulate that the property had been sold without any further involvement either of the claimants or of Knight Frank. Mr Jaideep Singh made inquiries of Aditya Mittal who told him that contracts had been exchanged. That occurred on 31^st March 2004. The purchaser was Laken Properties Ltd (“Laken”). The judge proceeded on the basis (but expressly made no findings (para 59)) that a friend of the Mittals, Mr Ashok Tandon, appeared on the scene and was introduced to a Mr Macdonald on behalf of Corfiducia, the vendor. Mr Tandon was shortly to marry Mr Mittal’s niece and was shown round the property by Mr Macdonald and Mr Ecclestone. In the course of subsequent negotiations, Mr Mullens (to whom Mr Tandon seems to have been introduced by Mr Ecclestone as having authority to negotiate on behalf of Corfiducia) offered to pay Mr Tandon a commission of 3% of the purchase price if completion resulted. After completion Corfiducia paid US3,150,000 to Mr Tandon.

Savills considered the claimants were entitled to a fee of £1 million and served a statutory demand on Favermead for that sum. Favermead then issued proceedings to restrain the claimants from presenting a winding up petition. That application was granted by Patten J on 2^nd March 2005. These proceedings were begun on 4^th October 2007.

The judge listed 7 issues for decision:-

He answered those issues:-

Favermead now accept that the claimants did acquire a right to £200,000 on the sale to Corfiducia. Professor Khalili did not accept that at the time and apparently persuaded Mr Hewlett of Savills that it was not a “real sale” because Corfiducia was intending to re-sell at a profit and that Professor Khalili or one of his companies would (as I have mentioned) share in such profit made on re-sale. This was to be achieved by an “overage agreement”. Mr Hewlett did not ask too many questions about this but seems to have accepted either that commission would not be payable on what he called a “technical sale” in his witness statement or, at least, that he would not press any claim that there might be to the promised commission since he was now to have the opportunity, once again, of an introduction which would lead to the acquisition of a £1 million commission.

Mr Wardell QC argued that, although the intended re-sale could not mean that there was no “real sale” or that there was only a “technical sale” which would give rise to no right to commission, nevertheless the later arrangement recorded in Mr Hewlett’s letter to Favermead of 19^th November 2001 meant that the right to the earlier commission had been waived. The judge said that, after 19^th November 2001, the phrase in the 3^rd April 2001 agreement that the agreed fee would be paid if one of the claimants “introduces an applicant, who subsequently purchases the property from us” had to be treated as amended to read “… purchases the property from Corfiducia”. He then said that the fees were alternative not cumulative and that it was counterintuitive for an agent to expect to receive commission twice on successive dispositions of the same property by his principal. He concluded that the claimants must either expressly or by implication “be taken to have accepted” that the second arrangement involved a waiver of commission on the sale to Corfiducia.

Mr Jonathan Gaunt QC, who appeared for the claimants on this appeal, pointed out that there was no reason why an agent should not earn commission on successive dispositions because there were two separate transactions. Whereas an agent should only expect one commission on one sale, there was no reason why such an agent should not have commission on each of two separate sales. He also submitted that, if (as appeared to be the case) neither Professor Khalili nor Mr Hewitt thought that there was any right to commission, Mr Hewitt could not have waived any such non-existent right.

There may be some force in Mr Gaunt’s criticisms of the way in which the judge expressed himself. Nevertheless it seems to me that the judge’s instincts were right. It may be that Mr Hewlett did not give much thought to the matter at the time but he was presented with an opportunity, once again, to earn a commission of £1 million for an introduction which he had not, on any view, achieved on the first occasion. It was, to my mind, inherent in the new arrangement that any right there may have been to commission first time round was absorbed into the new arrangement or, to put the matter a little more legally, he gave up any right he already had (which appeared at the time to be a matter of some controversy if it existed at all) to a comparatively small sum of money for the chance of earning a good deal more. To this extent therefore I agree with the judge. Once the second agreement was made the original rights and obligations were exchanged for a new set of rights and obligations and there was thus no longer any right in the claimants to recover £200,000 in respect of the sale to Corfiducia. So, like the judge, I would answer questions 2 and 3, Yes and No respectively and dismiss the claimants’ first claim.

The judge rightly formulated this issue as being whether it was a term of the (second) agreement that the claimants had to be the effective cause of the sale by Corfiducia to Laken but I prefer to formulate the question more generally since it is unlikely that the second agreement contained such a term if the first agreement did not and the starting point for consideration of this question should, in my view, be the first agreement. That agreement formed the basis of the second agreement save for the phrase “who subsequently purchases the property from us” which has to be read, in the second agreement, as “who subsequently purchases the property from Corfiducia”.

The first thing that strikes one about the original deal is how favourable it is to the claimants. They are to be the joint sole agents so they are not to be competing with anyone else. They are to receive a fixed fee of £1 million on the basis that one of them introduces an applicant who subsequently purchases the property from Favermead. If the matter had rested there, it might well have been that on the true construction of the agreement such introduction would have to be the (or perhaps an) effective cause of the purchase. The authorities are strongly in favour of either the implication of such a term or a construction of the express terms to that effect, see Millar Son & Co v Radford (1903) 19 TLR 575, John D. Wood Co v Dantata [1987] 2 EGLR 23 (where Nourse LJ considered (page 25K-L) that the phrase “introduction of a purchaser” meant “the introduction of the person who ultimately purchases, not to the property but to the purchase … to the transaction that takes place”) and Foxton Ltd v Bicknell [2008] EWCA Civ 419, [2008] 2 EGLR 233 paras 22-23 and 36. The rationale usually offered for this construction of commission contracts is that it is only if they are construed in this way that the principal can avoid (or at least minimise) the risk of paying two commissions, see County Homesearch Co. (Thames & Chilterns) Ltd v Cowham [2008] EWCA Civ 26; [2008] 1 WLR 909. Another justification is that an agent is usually expected to do more work to earn his commission than merely to effect an introduction, e.g. to participate in what may be either cursory or lengthy negotiations with the purchaser.

This construction is not, however, universally applicable if the contract points in an opposite direction. Thus in Brian Cooper & Co v Fairview Estates (Investments) Ltd [1987] 1EGLR 18, the vendor was a large-scale property company which was offering a number of flats in a big building on lease to prospective purchasers but, since it had its own employees who would expect to do all the negotiations, there was no reason for the agent to do more than effect an introduction, see Woolf LJ at 19 J-M. Similarly in the County Homesearch case, where the principal was the prospective buyer instructing his agent to find a property (rather than sell it), there was much less work that the agent could be expected to do and there was, moreover, a “deemed introduction” clause. In both these cases the courts refused to construe the contracts as requiring the agent to be the effective cause of the relevant transaction.

What is particularly striking in the present case is that Favermead does not merely agree to pay commission on the introduction of an applicant

“who subsequently purchases the property from us”

but also agrees to pay commission (albeit at a reduced rate)

“if I [the vendor] procure a purchaser through my own endeavours.”

If, therefore, what one may call the traditional approach to construction of commission contracts is correct, one would have a situation in which if the claimants introduce a purchaser and are the effective cause of the transaction they obtain commission, if they effect no introduction at all they still obtain (a reduced) commission but if they do introduce someone who does purchase but they are not the effective cause of the transaction, they get no commission at all. Mr Gaunt described that as “bizarre” and I can only say that I agree with him. That to my mind militates strongly against any implication or construction that, in order to get commission, they must be the effective cause of the transaction. An introduction to someone who does purchase will suffice.

The judge came to the opposite conclusion because he thought that the cases (particularly Foxton) which required the introduction to be the effective cause of the transaction for which commission was claimed were too strong and the contrary indications in the contract were too weak to allow any other conclusion. He distinguished the Cooper case on the basis that the principal in that case had all the necessary staff and expertise to convert any introduction into an agreed lease and he relied on the fact that Corfiducia at any rate initially, set out to purchase the property as a home for the Ecclestone family and must be treated as a residential consumer. As to the first point, all the cases recognise that the natural construction can be displaced by the express terms of the contract. The present contract is not a standard form of contract but made expressly for the purposes of the sale of a rather special property and in my view its terms do displace the normal construction. The second point derives from the first proposition in para 20 of Foxton where Lord Neuberger said that the implication that the introduction had to be the effective cause of the transaction was very readily made “especially in a residential consumer contract”. That is, of course, true but must be a somewhat weaker presumption when all the relevant parties are companies (no doubt created for business and/or tax purposes) and have access to sophisticated advice if they need it.

Ironically if one looks at the second agreement in isolation from the first agreement, the indications that it is not necessary for the introduction to be the effective cause of the transaction are even stronger, because the claimants’ principal Favermead is no longer the owner of the property but merely a person having an interest in the proceeds of re-sale by reason of the overage agreement. Favermead cannot determine the price at which the re-sale takes place as shown in a somewhat dramatic fashion by the fact that on 4^th March 2004 Mr Hewlett was saying to the Mittals that only an offer of over £70 million would be acceptable, when contracts were exchanged on 31^st March (just 4 weeks later) for what we were told was the dollar equivalent of £57 million. In these circumstances there was not much that the claimants could ever have been expected to achieve in relation to the re-sale price or the other terms of the re-sale contract and the transaction is by no means typical of transactions made by “residential consumers”.

As it is, however, I am satisfied that, in the context of this particularly one-off case neither the agreement of April nor that of November 2001 required the claimants to be the effective cause of the transaction and I would therefore answer the judge’s fourth question in the negative.

In the light of the above conclusion, it is unnecessary to come to any view on this question. The circumstances in which Mr Tandon became involved with Corfiducia, whether he was acting for the Mittals to whom he was about to become related or for Corfiducia whom he evidently persuaded to pay to him 3% of the purchase price paid by the Mittals and how he persuaded Corfiducia to agree a price which apparently meant that nothing was due to Favermead under the overage agreement are all wrapped in mystery. Neither the Mittals nor Mr Tandon gave evidence; Mr Ecclestone who had been personally sued as a third party for allegedly warranting that he had had the authority of Corfiducia when he did not, did give evidence mainly to the effect that he did not have any authority from Corfiducia and had never said that he did. (The proceedings against him were either settled or withdrawn before the end of the trial). In these circumstances it is not surprising to find the judge saying in para 59:-

“I make no findings as to the role played by Mr Tandon after the 4^th March events. In particular, I do not find that he was thereafter acting as agent for Corfiducia and that he received the commission payment of 3% of the purchase price on the sale to the Mittals in that capacity.”

Mr Wardell for Favermead tried to persuade us that the judge should have made positive findings and, in particular findings that Mr Tandon did act for Corfiducia in relation to the sale to the Mittals, that the consequence was that his commission was an expense to be deducted from any profit on re-sale and that, since the overage agreement (particularly as a result of the deduction) never came into effect, Favermead had, in effect had to pay (at any rate half of) Mr Tandon’s commission and should not have to pay to the claimants a second commission in respect of the sale. It is asking a great deal of an appellate court to make all these findings when the judge expressly declined to do so and, for myself, I would decline to embark on any such exercise. The state of the evidence does not, in my judgment, permit it. Nor is it necessary because no one can suggest that Corfiducia were in any way the principal of the claimants. The claimants have only ever had one principal, namely Favermead and it is only the agreement which they had with Favermead which has to be construed.

The judge, however, concluded that the claimants had failed to discharge the burden of proving that they were the effective cause of the sale by Corfiducia to Laken. Although it is strictly unnecessary, for the purpose of disposing of this appeal, to express any view about this, I will add, in the light of the arguments we received, that I would not myself have come to that conclusion. On the basis that the only relevant facts about which there was satisfactory evidence were

In Chasen Ryder & Co v Hedges [1993] 1 EGLR 47, 48 G-H, Staughton LJ put the matter in this way:-

“The burden is on the plaintiff to show that his introduction in any case was the effective cause of the purchase. If, however, he shows that he was the first to introduce the purchaser, and that a purchase followed, and if no other facts are established, then it may well be that the judge will infer that the plaintiff was the effective cause. It can therefore be said that the evidential burden in such a case passes to the defendant, whether the other agent or the vendor, to prove more facts, which displace that inference.”

This statement of the evidential position seems not to have been cited to the judge. Indeed its relevance only becomes material once primary facts have been found but, if the judge had had the advantage of reading what Staughton LJ had said, he might have come to a different conclusion on the facts of this case. As it is, on my view of the matter, the claimants did not have to prove that they were the effective cause of the purchase and they must therefore be entitled, on the face of it, to commission of £1 million.

That is, of course, an unfortunate result for Favermead. It is perhaps a pity that Professor Khalili did not consider inserting a term into the November agreement to the effect that commission would only be payable if the overage agreement took effect. Mr Wardell did indeed contend that the effect of the 19^th November 2001 agreement was that the claimants had to introduce a purchaser who paid more than £70 million but there was no express term to that effect and there is no basis on which it could be implied.

Mr Wardell also contended that the claimant had appointed Knight Frank as sub-agents and, on the authority of John McCann & Co v Pow [1974] 1 WLR 1643, had therefore forfeited their right to any commission. The judge refused to find that Knight Frank were appointed sub-agents of the claimants at any relevant time and, with respect was clearly right so to refuse. It cannot be suggested that Knight Frank were themselves authorised by Favermead to show people round the property (they had no keys and had to apply to Savills for permission to view) or that they had any direct relationship with Favermead. Whether the judge was right to go further in paras 19 and 59 and say that Knight Frank were actually acting for the Mittals is a moot point. Quite possibly he was but it does not matter. On no view were they acting for Favermead.

In the event, however, I would decide that this appeal must be allowed to the extent of entering judgment for the claimants in the sum of £1 million plus VAT because the fourth question posed by the judge should be answered in the negative.

I agree.

I also agree.