Glentree Estates Ltd & Anor v Favermead Ltd

In a commission agreement, an agent is not necessarily required to prove that its introduction was the effective cause of the transaction. That implication, although common in commission contracts, may be displaced by the contract’s particular terms. It is especially less compelling where the agreement provides for a reduced commission if the principal procures the purchaser itself, because requiring effective causation would create an anomalous gap between the contractual outcomes. The court must construe the agreement as a whole and in context. Where an agent is the first to introduce the purchaser and a purchase follows, the evidential burden may pass to the defendant to establish facts displacing the inference that the introduction caused the transaction. A separate agency relationship with another party does not affect the commission agreement unless that party was also acting for the principal.

Estate agents claimed commissions from Favermead Ltd under agreements concerning the sale and resale of a valuable residential property. The first agreement provided for a fixed fee if one of the agents introduced a purchaser who subsequently bought the property, with a reduced fee if the vendor procured a purchaser through its own endeavours.

The first sale generated a potential commission claim, but the parties later made a further arrangement under which the agents continued to seek a purchaser. The property was subsequently sold to a company associated with the Mittal family after viewings arranged with the involvement of the agents and Knight Frank. The High Court dismissed the claims. It held that the first commission had been waived and that the agents had failed to prove that they were the effective cause of the resale. The central issue on appeal was whether effective causation was a contractual requirement.

1. Appeal allowed. Judgment was entered for the claimants for £1 million plus VAT.
2. The November 2001 arrangement replaced the earlier contractual rights and obligations. Any right to the £200,000 commission arising from the sale to Corfiducia was absorbed into the new arrangement and waived. The claimants therefore could not recover that sum.
3. The court construed the commission agreement as a whole. The usual implication that an agent’s introduction must be the effective cause of the purchase was not universal. It could be displaced by the express terms and commercial context of the agreement.
4. Here, the contract provided for commission where an introduced applicant subsequently purchased and also provided for a reduced commission where the vendor procured a purchaser through its own endeavours. Requiring the introduction to be the effective cause would produce the anomalous result that an agent who introduced the eventual purchaser but did not cause the transaction would receive nothing, while an agent making no introduction would receive a reduced fee. The bespoke nature of the agreement, the corporate parties and the circumstances of the resale displaced the ordinary construction. An introduction to the person who purchased was sufficient.
5. It was unnecessary to determine whether the claimants were in fact the effective cause. Lord Justice Longmore nevertheless indicated that, on the evidence, the claimants’ communications, viewings and proximity to the exchange of contracts would have supported that conclusion. The evidential approach described in Chasen Ryder & Co v Hedges [1993] 1 EGLR 47 was relevant: proof of being the first to introduce the purchaser, followed by a purchase, may justify an inference which the defendant must displace by further evidence.
6. The claimants had not appointed Knight Frank as sub-agents for Favermead. Knight Frank had no direct relationship with Favermead and acted, at most, for the purchasers. The alleged sub-agency therefore did not forfeit the commission.

• Court of Appeal (Civil Division): The appeal from the Chancery Division was allowed to the extent of entering judgment for the claimants for £1 million plus VAT.
• High Court of Justice, Chancery Division: Sir Edward Evans-Lombe held that the first commission had been waived, that no recovery was available for it, and that the claimants had not proved they were the effective cause of the resale. The claims were dismissed.