Adler v Ananhall Advisory & Consultancy Services Ltd (Rev. 1)

A term is implied only where necessary to give effect to the parties’ obvious but unspoken intentions or to make a contract work as intended. Reasonableness alone is insufficient. The inquiry is contract-specific and focuses on the language and circumstances. Where a commission agreement makes payment conditional on completion, an implied anti-avoidance term will not ordinarily arise merely because an intermediary introduced the transaction or because a binding executory sale contract was later made. A separate success fee for an instruction being “pulled” is not triggered by the purchaser’s non-completion where the agreement makes completion a condition of payment. Hypothetical bad faith cannot, without more, justify implying a term of general application.

Ananhall Advisory & Consultancy Services Ltd claimed from Jacob Adler a 1% commission and a further £75,000 under an introductory agreement concerning the proposed purchase of Grove House. Adler and Steelville Ltd brought a Part 20 claim alleging fraudulent misrepresentation concerning negotiations with the Health and Safety Executive about lease break clauses.

After a four-day trial, HHJ Steiger QC held that an implied term prevented Adler from willingly impeding the sale, awarded damages equivalent to the commission, and held that his conduct amounted to pulling the instructions for the purposes of the £75,000 payment. The judge rejected the misrepresentation claim. The appeal concerned whether those contractual terms could properly be implied or construed, and whether the misrepresentation findings should be disturbed.

The Court of Appeal, in a judgment given by Toulson LJ and agreed by Goldring and Arden LJJ, allowed the appeal in relation to both contractual payments but upheld the dismissal of the misrepresentation claim.

1. 1% commission. The meaning of completion in the agreement was completion in the ordinary conveyancing sense. The applicable test for implying a term was necessity, not mere reasonableness. The court had to examine the particular words and circumstances of the agreement. Those principles were reflected in Luxor (Eastbourne) Limited v Cooper [1941] AC 108 and later authorities, including CEL Group Limited v Nedlloyd Lines [2003] EWCA Civ 1716.
2. The agreement expressly made payment conditional on Adler or his company completing the transaction. He had been asked to take over the purchase at short notice, before the HSE’s position on the break clauses was known. In that context, neither the language nor the circumstances made it necessary to imply a term requiring him to complete or preventing him from impeding the sale. Lord Wright’s observations in Luxor concerning a possible implied term after a binding executory contract had to be read in context. They did not create an automatic entitlement to commission; the result remained dependent on the language and circumstances of the particular contract.
3. The court rejected reliance on hypothetical sharp practice. Although bad faith may attract a remedy suited to the facts, hypothetical examples should not distort the construction of an ordinary commercial agreement where bad faith was not alleged or found.
4. £75,000 payment. The instructions to negotiate removal of the HSE break clauses were also conditional on completion. Non-completion of the purchase was not, in the circumstances, a pulling of the instructions. The reference to a further £75,000, further to the 1% fee, reinforced that conclusion.
5. Misrepresentation. The trial judge had heard the evidence and had rejected the alleged oral misrepresentation. The 27 March letter could not properly be construed as representing that Ananhall had reasonable grounds to believe that the HSE would waive the break clauses in all its leases. The dismissal of the Part 20 claim therefore stood.

• Court of Appeal (Civil Division): by [2009] EWCA Civ 586, allowed the appeal on the contractual claims and upheld the dismissal of the misrepresentation claim.
• Manchester County Court: HHJ Steiger QC, following a four-day trial and judgment dated 5 August 2008, awarded damages equivalent to 1% commission, awarded £75,000 for pulling the instructions, and dismissed the misrepresentation claim.