Binding terms: Wells v Devani [2016] EWCA Civ 1106

In what circumstances will the Court imply a term to fill a gap in a contract?

The facts

Mr Wells had developed a block of flats. Mr Devani, an estate agent, told Mr Wells how his commission was calculated but did not refer to the event which would trigger payment.

Mr Devani found a buyer for the flats and, after Mr Wells had accepted the buyer’s offer, Mr Devani sent him his terms of business, which stated that the commission was payable on exchange of contracts. Mr Wells refused to pay the commission once the sale had completed.

The High Court found there was a contract between Mr Devani and Mr Wells. Although the parties had not discussed or agreed the event that would trigger payment, the Judge implied a term that the commission would be due "on the introduction of a buyer who actually completes the purchase". The Judge considered this the "minimum term necessary to give business efficacy to the parties’ intentions… the term least onerous to the client, and the one which nobody would dispute if an officious bystander were to suggest it". Mr Wells appealed.

The decision

The Court of Appeal overturned the decision and found that there was no legally binding contract (on a 2-1 majority decision).

The Court held (by reference to the House of Lords decision in Luxor v Cooper [1941] AC 108) that the trigger event for payment of the commission was an essential term of an estate agency agreement. This had to be agreed between the parties, otherwise the agreement was incomplete. As the Judge had found the trigger event had not been discussed, it could not have been agreed and the Court cannot decide the trigger event by reference to reasonableness.

Why is this important?

The Court will not imply a term into an incomplete contract. The starting point is whether there is a legally binding contract and then whether an implied term is reasonable and necessary. A trigger event for payment of a commission under an estate agency contract is an essential term, and such payment trigger may also be considered essential in other commission based arrangements.

Any practical tips?

Ensure that all essential terms are included within a legally binding agreement, particularly those concerning payment.