Favermead Ltd v FPD Savills Ltd

This is an application by Favermead Limited for an injunction restraining the respondents, who are three firms of estate agents and whom for convenience I will refer to as the “joint sole agents”, from presenting a winding up petition based on an alleged debt of £1,175,000 contained in a statutory demand dated 16^th November 2004. The statutory demand in terms specifies the basis of the debt as being an agent’s commission which became due and payable in June 2004 following the sale of a property at 18-19 Kensington Palace Gardens by a company called Corfiducia Anstalt to Laken Properties Limited for the sum of $105 million. Laken Properties Limited is, according to the evidence, a company either associated with or controlled by Mr. and Mrs. Lakshmi Mittal and the property has been acquired as their home.

The applicant was originally the owner of that property. It is a company which, according to its accounts, is involved in property trading, development and investment and I have been referred to various parts of those accounts which indicate that at the relevant time it had approximately nine employees and a considerable turnover. It is controlled by the Khalili family trust and Dr. or Professor Khalili is its principal director.

In April 2001 the joint selling agents were retained by Favermead in order to dispose of the property in Kensington Palace Gardens which is held under a lease from the Crown. The correspondence indicates that Savills, who were originally approached with a view to their being sole agents, proffered their standard terms and conditions under which they would have become entitled to a fee or commission in the event that unconditional contracts for the sale of the property were exchanged during the period in which they had sole selling rights, even if the purchaser who exchanged contracts had not been found by them but by another agent or other person, including the vendor. Those terms were, however, not proceeded with and on 3^rd April 2001 Professor Khalili, on behalf of Favermead, set out the terms of the proposed agency. So far as material, that letter expressly provides that the standard terms of business that I have just referred to were not to form part of the agreement, and then sets out what it is common ground are the material terms of the agency in this form:

“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 £1 million. I am not bound to pay fees to you under any other circumstances. The content of this letter is our sole agreement”.

On 21^st June the property was transferred by Favermead to a company called Laneprime Limited, which is one of its wholly owned subsidiaries, and it is not suggested by either party that that effected the operation of the April agreement in any material way. However, on 17^th September 2001 Laneprime agreed to sell the property on to Corfiducia which is a Liechtenstein company and which, on the evidence, is controlled by or associated with the family of Mr. Bernie Ecclestone, who is well known in relation to his interest in Formula 1 motor racing. The sale price was £50 million, together with an agreement that an overage payment would become due in certain circumstances, and on 8^th October 2001 the sale by Laneprime to Corfiducia was completed and the overage agreement entered into. This entitled Laneprime to 50% of the profit made on any resale of the property by Corfiducia which took place within five years subject to certain deductions in respect of costs and agents’ fees.

It seems to be accepted that at the time of the sale to Corfiducia there was no attempt made to inform the joint selling agents of the transfer, and the evidence from the respondents is that they did not know anything about that sale until an article appeared in a newspaper on 16^th November 2001 indicating that the property had been sold to Mr. Ecclestone. That led to discussions between Professor Khalili and Mr. Jonathan Hewlett of Savills, which resulted in an agreement between them under which Dr. Khalili, on behalf of Favermead, in a letter of 19^th November 2001 confirmed that they remained instructed to “continue to search and find a suitable purchaser for the above property”. The letter goes on to say:

“Whilst writing I confirm that you agree to keep in place our agency agreement as per your letter dated 3^rd April 2001 although I understand this fee is now to be shared by three agents”.

In his evidence as part of this application Mr. Hewlett, in relation to the change of arrangements as of November, refers to the Savills’ letter of 19^th November and to the change of ownership but does not indicate or allege that those arrangements materially altered the terms of the April agreement other than to substitute in the letter agreement which bore the reference to the purchase of the property from Favermead, a necessary reference to a sale on by Corfiducia. The November 2001 agreement clearly envisaged, and this is common ground before me for the purpose of today, that there would be no commission payable under the April agreement as continued in relation to the sale which had taken place to Corfiducia. That is because the sale was treated as what is described as “a technical sale” on which commission was not due. The agents agreed that they would look to the ultimate sale on by Corfiducia for the purposes of receiving any commission which might become payable.

What subsequently happened, on Savills’ evidence, was that through a sub-agency of Knight Frank Rutley, Mr. and Mrs. Mittal were informed that the property was for sale and arrangements were made for Mr. Mittal and his son to inspect the property on 4^th March 2004. The evidence is that the joint selling agents were permitted to accompany the Mittals on that inspection. Thereafter there was no further contact with Mr. and Mrs. Mittal but, as I have already indicated, in June 2004 the property was sold to the Mittals’ company, contracts having been exchanged on 31^st March that year. The evidence also shows that a sum in excess of US $3 million was paid by Corfiducia to a Mr. Ashok Tandon as a fee for having introduced, or perhaps caused the sale to the Mittals of the property.

The sale in June 2004 sparked off litigation between Favermead and its subsidiary and Corfiducia in relation to the overage agreement. Applications were made to this court for injunctive relief, but ultimately the injunction was discharged on the basis of evidence that the effective cause of the sale was Mr. Tandon’s involvement and not anything that would have triggered a liability under the overage agreement. I am not concerned with the details of that dispute. I mention it only because the evidence in relation to what Mr. Tandon is said to have done is relied upon by Mr. Warwick and his clients in this application as indicating that if it is a term of the April or the November 2001 agreements that the joint selling agents should have been the effective cause of the sale to the Mittal company then there is a considerable body of evidence which suggests that that was not in fact the case. That is not an issue which is capable of being resolved on this application and Miss Stokes quite properly concedes that if I come to the conclusion that the agency agreements did or, very arguably did, contain a term to that effect the question of whether her clients were the effective cause of the sale will require to be determined in a conventional way.

What, therefore, divides the parties on this application is whether or not such a term ought to be implied into those agreements. The applicant approaches the matter on the basis that the letter of agreement of 3^rd April did as a matter of implication or construction contain a term to the effect that no commission would be payable unless the joint selling agents had been “the” or “an” effective cause of the sale by Corfiducia. It is not necessary for the present purposes to choose between those two particular alternatives. For that Mr. Warwick relies on what he submits is the general rule or presumption that in the absence of special terms or other indications to the contrary, a contract of agency which provides for a commission to be payable on the completion of a transaction does not entitle the agent concerned to that commission unless his services were the effective cause of the transaction that was brought about.

Of much more interest and perhaps importance is the more recent decision of the Court of Appeal in the case of Brian Cooper & Company v. Fairview Estates Investments Limited. That was a case where the plaintiff agent sought payment of a commission on the basis that it had introduced purchasers of long leases in a development which Fairview Estates, the defendants, had carried out. The terms of the contract in question were that:

“We confirm that we are pleased to offer a full scale letting fee to your company should you introduce a tenant by whom you are unable to be retained and with whom we have not been in previous communication and who subsequently completes a lease”.

That was subsequently amended, I think not with any material effect, by a further letter confirming:

“Should your company introduce a tenant by whom you are unable to be retained and with whom we have not been in previous communication, then should your applicants enter into a lease we are pleased to pay a double scale letting commission”.

Both those letters have at least two features which are all but identical to the terms of the April agreement in this case. They both include a reference to the agents introducing a tenant and to that would-be tenant entering into a lease, as it was in that case, or in this case to the applicant purchasing the property. The developer’s counsel, Mr. Chadwick Q.C., as he then was, submitted to the court that the terms of that agreement had to be subject to an implied term that Coopers were only entitled to the commission if they were at least an effective cause, if not the effective cause, of the letting. He referred to several authorities in support of that proposition which I think I need not go into, and also to Article 59 of Bowstead to which I have already referred. The decision is reported in [1987] 1 EGLR 18 and at p.19E, giving the judgment of the Court of Appeal, Lord Justice Woolf refers to Mr. Chadwick’s arguments in these terms:

“Mr. Chadwick submits that when the letter of March 22 1982 is examined there is no special or expressed term excluding the implied term. He submits, and I agree with this construction, that when the relevant paragraph is read it is requiring the estate agent to introduce a tenant and then setting out three qualifications of that tenant which had to be fulfilled before commission would be payable”.

The developer’s approach was therefore that there being nothing inconsistent with the implied term it should be imported as a term of the agreement based on the presumptions set out in Bowstead on Agency. At p.19H Lord Justice Woolf dealt with those submissions in this way:

“When the cases to which I have already referred and the other cases upon which Mr. Chadwick relies are examined, in six of the decisions of this court it is clear that the court very readily infers an implied term either that the agent is required to be an or the effective cause of the subsequent purchase. This is not surprising when it is remembered that in the ordinary way and in particular in the case of agents retained by private individuals to sell their homes, what the agent is being employed to do is to find a prospective purchaser or a prospective tenant who actually purchases or takes a lease. From the viewpoint of the vendor in such a case the estate agent has not fulfilled his engagement until he is an effective cause of the sale or the tenancy”.

He then refers to a passage from Viscount Simon’s speech in Luxor (Eastbourne) Ltd v. Cooper. After that he goes on:

“However, Mr. Morrison, while not quarrelling in general with Mr. Chadwick’s construction, submits that in the case of a developer the court should be substantially less ready to infer such an implied term. He points out a developer such as Fairview has its own sales staff and what they require is not so much the agent’s assistance to conclude a sale but the agent’s assistance in obtaining an introduction and it is for the introduction that a commercial firm would be prepared to pay the commission”.

Lord Justice Woolf, having set out those contentions, then further down on the same page summarises his conclusions as follows:

“Adopting the approach laid down in these speeches in the House of Lords but having, I must confess, changed my mind more than once in the course of the admirable arguments which are presented on both sides in this court, I ultimately come firmly to the conclusion that Mr. Morrison’s submissions and the decision of the learned judge are correct. I can see no necessity in this case to imply a term. On the contrary, I regard the relevant language as being inconsistent with implication of a term imposing an additional and implied requirement that the estate agent must be at least an effective cause of the lease being granted. In a case where there are no express qualifications to be fulfilled, other than a purchaser should be introduced by the estate agent, then the need to imply a term as to effective cause can be readily appreciated since otherwise if the vendor engages more than one agent there will be no way in which it can be avoid being faced with an obligation to meet the claims of commission from more than one agent who each introduce a tenant. However, in this case there is virtually no danger of this happening because of the words ‘with whom we have not been in previous communication’. Furthermore, there is no danger of a requirement to pay commission in the absence of a lease being completed. It is only in a very rare case, such as the one under consideration, where an agent is responsible for the first introduction and then disappears from the scene altogether, that any problem will arise”.

Further on he says this:

“It seems to me that the present clause works perfectly satisfactorily from the developer/landlord point of view. He obtains an introduction to somebody from whom he has not communicated previously; the person enters into a lease, and it is then and only then he becomes liable to pay a commission. An additional requirement could be imposed, and it is not without interest to notice that the Master of the Rolls pointed out an argument that Fairview now impose such a requirement that the agents should be an effective cause of the letting. But if this is required this should be stated expressly”.

I read that decision as embodying an acceptance by the Court of Appeal of the general proposition put forward by counsel for the developer that in the absence of some factors which points in clear terms to the contrary it will be appropriate to imply into an agency contract a requirement that the agent should be the effective cause. The passages I have quoted I think reveal that Lord Justice Woolf was prepared to accept that submission based on Article 59 in Bowstead. What appears to have caused the court to have concluded that the implication was not justified in that particular case was the absence of any need by the developer for the agent to be the effective cause of the purchase having regard to its own ability to do that work itself, and also the additional qualifications that are referred to in the passage that I quoted. It is perfectly true, as Miss Stokes has very properly pointed out, that Lord Justice Woolf does indicate that the terms of the language used are such as to obviate or remove the necessity to imply the term as to effective cause which it is contended for. But that passage has, in my judgment, to be read subject to the other points that Lord Justice Woolf accepted and not treated as an indication that references in a contract to introductions or purchases by the introduced applicant are sufficient as a matter of language in themselves, short of any context, to remove the need for the implication of the term about effective cause. It seems to me that the modern approach, and the one that ought to be adopted in this case, is to look at the language against the relevant factual background and decide whether in that context the language which the parties have used does or does not require the implication of the relevant term.

So far as context is concerned, there are really I think two matters that the respondents have urged on me as negativing the possible implication of a term as to effective cause. First of all, it is said, as I have already mentioned, that Favermead is a property company and developer and like Fairview Estates in the Cooper case did not have a requirement that the joint selling agents should actually procure or be the effective cause of the sale rather than act merely as introducers. The difficulty I have about that is that although that may ultimately turn out to be the case there really is no evidence before me which enables me to form a firm or complete conclusion on that issue, or to determine, because the individuals concerned in their witness statements do not deal with this point, what effect, if any, it had on the parties who actually negotiated and agreed these arrangements.

The second point, which really goes more to what happened in November 2001, is that it is said that whatever may have been the position in relation to the April agreement when originally entered into, after November 2001 the joint selling agents were no longer agents of the vendor of the property, Corfiducia, and therefore could not be the effective cause of any onward sale. Their ability to perform as agents has therefore to be limited by and considered in the context of that change of circumstance. Again whilst respecting the argument, I am not satisfied that that is a matter that I can come to any clear conclusion on this morning. The limitations imposed on the agents in terms of their ability to procure a sale by the vendor is a problem whichever way one construes the agreement. Even on the respondents’ construction of the agreement no commission is payable if no sale takes place. It seems to me that whether or not the parties post November agreed that the joint selling agents would as a result of Corfiducia’s purchase limit their operations to the mere introduction of would-be purchasers or require them to be an effective cause in a particular purchase is a matter which will have to be considered by reference to all the available evidence at that time, including, so far as admissible, the evidence of the parties to the agreement in November 2001. I am certainly not persuaded that the mere fact that Favermead have ceased to be the owners and vendors of the property is sufficient in itself to negative the implication of the implied term.

In those circumstances I am inevitably forced to the conclusion, despite Miss Stokes’ persuasive arguments to the contrary, that this is a case where there is a real and substantial dispute about the liability for the agents’ commission and the proper course for me to take in those circumstances is to grant the injunction.