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Implied terms cannot cure incomplete contracts: Wells v Devani [2016] EWCA Civ 1106

In November, the Court of Appeal by majority held that the implication of terms could not turn an incomplete estate agency agreement into a binding contract.

The Decision Below

HHJ Moloney QC found that a contract had been formed during a telephone conversation in which an estate agent (Mr Devani) had informed a developer (Mr Wells) that his standard terms were 2% plus VAT. Shortly afterwards, Mr Devani contacted a potential buyer and an offer to buy was made and accepted by Mr Wells. Only later did Mr Devani provide his terms of business. HHJ Moloney QC found that, although the event which gave rise to a right to commission had not been specified, a term could be implied that payment would be due “on the introduction of a person who actually completed the purchase”, this being the least onerous term necessary to give business efficacy to the parties’ intentions.

The Court of Appeal’s Decision

The Court of Appeal, by majority, overturned HHJ Moloney QC’s decision.

Lewison and McCombe LJJ noted that the event giving rise to an estate agent’s right to commission is of critical importance and that a variety of such events exist. They held that, if the event is not specified with sufficient clarity, the contract is not complete. This cannot be remedied by the implication of terms into a contract which does not exist.

Dissenting, Arden LJ found that terms cannot be implied into unilateral contracts, in which contractual obligations have not arisen, but that once Mr Devani had introduced a purchaser and Mr Wells had agreed to sell to that purchaser, the agreement became a binding bilateral contract. She considered that there was no objection to implying a term once this had happened. She said that it was the judge’s task to interpret the contract as he had found it to be and that in doing so he was not limited to the express words used.

Comment             

Despite the Supreme Court’s confirmation in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742 that construction and implication are separate processes, the line between them can be unclear. It is important to consider carefully the timing of potential contractual formation and to be conscious of the distinction between implying terms into concluded contracts and interpreting agreed terms.

John Ditchburn / 21st Dec 2016


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