Watersheds v Simms

Whether a term should be implied into a commission agreement depends on the express language, read against the relevant factual background. An implied requirement that the agent was an effective cause of the transaction is not automatic. It will not be implied where it is inconsistent with the contract’s terms or commercial structure.

A long-term retainer providing a fee on a disposal during the engagement period may entitle the service provider to payment even where the client excludes it from the sale process. Termination provisions, including continuing fee rights and information obligations, may reinforce that construction.

Watersheds agreed to provide financial advice to Christopher Simms in two phases: raising finance for a waste business and later project-managing its disposal. The agreement lasted seven years and provided for a percentage fee on a disposal during that period.

The business was sold during the engagement period, but Watersheds did no work on the sale and was not an effective cause of it. The Master considered Watersheds’ construction preferable but ordered a trial because the defendant’s implied-term argument was not bound to fail. Watersheds appealed against that decision. The central issue was whether the contract contained an implied term that Watersheds had to be at least an effective cause of the sale before a fee became payable.

1. Appeal allowed. Judgment was entered for Watersheds, with the amount due to be determined at a disposal hearing.
2. The court applied the established principle that the implication of a term in a commission agreement depends on the precise express terms and the relevant factual background. An effective-cause requirement is not an automatic incident of every agency or commission arrangement.
3. The agreement was not directly analogous to an ordinary estate agent’s contract. It created a seven-year retainer involving the development of a business and its eventual disposal. The parties contemplated that Watersheds and the client would work together, but the contract did not require Watersheds to identify or introduce the eventual purchaser.
4. The fee clause deliberately distinguished between a disposal to a purchaser introduced by Watersheds and any disposal completed during the engagement period. The latter provision contained no requirement that Watersheds had introduced the purchaser or had caused the sale. Importing an effective-cause requirement would therefore be inconsistent with the express structure of the agreement.
5. The termination provisions supported that conclusion. They preserved rights to fees which would otherwise have accrued during the engagement or relevant phase, required the client to provide information about possible fees, and protected Watersheds where the client chose to exclude it from the process without formally terminating the agreement.
6. The risk of double commission did not justify the implication. Although the client was not prohibited from using another service provider, the agreement contemplated that Watersheds would remain entitled to its contractual fee if the client chose to use someone else, or no one, during the engagement period.

• High Court (Queen’s Bench Division): Master Foster declined to enter summary judgment for either side and ordered a trial. On appeal, Burnett J allowed Watersheds’ appeal and entered judgment for the claimant.