Favermead Ltd v FPD Savills Ltd

An agency agreement providing for commission on a completed transaction may contain an implied requirement that the agent was an effective cause of the transaction. Whether that term is implied depends on the language of the agreement read in its factual and commercial context. References to introducing a purchaser do not, without more, exclude the implication. The nature of the vendor’s business and the agent’s changed role may be relevant, but neither necessarily determines the issue. Where there is a real and substantial dispute about commission liability, the court may restrain presentation of a winding-up petition pending determination of the dispute.

Favermead applied for an injunction restraining three estate-agent firms from presenting a winding-up petition based on a statutory demand for £1,175,000 in commission. The commission was claimed following the sale of a property to a company associated with Mr and Mrs Mittal.

The parties’ agency arrangements provided for payment if the agents introduced an applicant who subsequently purchased the property. The property had later been transferred and sold on, and the agents’ role had continued under a November 2001 agreement. Favermead contended that commission was payable only if the agents were the effective cause of the onward sale. The central issue was whether that term was properly implied.

1. Application granted. The court granted an injunction restraining presentation of the winding-up petition because there was a real and substantial dispute about liability for the agents’ commission.
2. The general approach was illustrated by Sadher v Whittaker. A contract providing that commission was payable should a sale be effected had been construed as requiring a sale effected by or through the agent. That decision turned on its particular wording and supplied no wider rule applicable without regard to context.
3. The court materially relied on Brian Cooper & Company v Fairview Estates Investments Limited, [1987] 1 EGLR 18. That decision accepted that an effective-cause term may ordinarily be implied into an agency agreement, but recognised that the implication may be unnecessary where the agreement and commercial context show that the agent’s function is merely to introduce a purchaser or tenant.
4. The correct modern approach was to examine the contractual language against the relevant factual background. The references in the April 2001 agreement to introducing an applicant and that applicant purchasing the property did not, by themselves, exclude an effective-cause requirement.
5. Favermead’s status as a property company and developer might ultimately be relevant, as might the fact that the agents were no longer agents of the onward vendor after the transfer to Corfiducia. However, the evidence did not permit those matters to be conclusively resolved on the application. The mere fact that Favermead had ceased to own the property was insufficient, by itself, to negative the possible implied term.
6. If an effective-cause term existed, the question whether the agents were in fact the effective cause required determination in the ordinary way at trial.