Glentree Estates Ltd & Ors v Favermead Ltd

An estate agent earns commission only where the agency agreement, properly construed or supplemented by implication, entitles it to payment. In a selling agency agreement, an implied or construed requirement that the agent be the effective cause of the sale is strongly favoured, particularly where it avoids double commission, unless the contract or circumstances clearly negative it. The agent bears the burden of proving effective causation. A later agency arrangement may replace the original arrangement and waive commission on an earlier sale where that is the proper construction of the parties’ agreement. The use of words such as “introduces an applicant who subsequently purchases” does not, without more, exclude the effective-cause requirement.

The claimants, three estate agents, sought commission from Favermead in connection with two successive sales of a Kensington property. They claimed a reduced commission on Favermead’s sale to Corfiducia and a further commission on Corfiducia’s later sale to Laken, a company associated with the Mittal family. The issues were whether commission arose on the first sale, whether it was waived by a later arrangement, whether the claimants had to be the effective cause of the second sale, and whether they satisfied that requirement.

The court also considered alternative defences concerning sub-agency and an alleged minimum sale price.

1. First sale. The agreement of 3 April 2001 entitled the claimants to the reduced commission when Laneprime, Favermead’s subsidiary, entered into the binding contract selling the property to Corfiducia. “Purchaser” meant a person who entered into a binding contract to purchase, not merely a person first identified through Favermead’s own efforts (para [27]).
2. Waiver and replacement agreement. The arrangement recorded on 19 November 2001 was a fresh agency agreement dealing with the changed ownership of the property. Properly construed, the parties treated the original agreement as amended so that commission could arise on a later sale by Corfiducia. The two commission provisions were alternatives, not cumulative. The claimants therefore waived any claim arising from the first sale. The court preferred the construction analysis applying the principles stated in the ICS case [1998] 1 WLR 896 (paras [28]–[30]).
3. Effective cause. The material undertaking was to pay a fee if a claimant introduced an applicant who subsequently purchased from Corfiducia. The agreement was subject to a requirement that the agent be the effective cause of the purchase. That requirement could arise by implication or construction. It was strongly supported in selling agency contracts, especially by the need to avoid double commission, unless the contractual wording or factual background clearly displaced it. The principles summarised in Foxtons Limited v Pelkey Bicknell & another [2008] EWCA Civ 419 were applied (paras [31]–[46]).
4. The claimants bore the burden of proving that they were the effective cause of the sale to Laken. Their earlier involvement, including the March 2004 viewing, did not establish that they caused the eventual transaction. The Mittals already knew the property, the claimants were not agents of Corfiducia, and subsequent negotiations were conducted through other persons. The claim for the second commission therefore failed (paras [47]–[59]).
5. Had the claim otherwise succeeded, the suggested defences based on sub-agency and a minimum price of £70 million would have failed on the evidence. The action was dismissed (para [60]–[61]).

The judgment records that an application by Favermead to restrain presentation of a winding-up petition had succeeded before Patten J on 2 March 2005. The present action was then determined at first instance by the High Court (Chancery Division).