The Great Estates Group Ltd v Digby

An estate agent who uses the term “sole agency” must explain its intention and effect clearly. The statutory duty cannot be avoided by claiming damages for lost commission instead of contractual commission. For the purposes of Estate Agents Act 1979, section 18, “remuneration” may include damages assessed by reference to commission which the agent was prevented from earning.

A non-compliant agency contract is enforceable only by court order. The court must consider the prejudice caused to the client and the agent’s culpability. A client may establish prejudice by showing that proper information might well have caused the client to act differently; proof that the client would certainly have done so is unnecessary.

The claimant estate agent entered into an agreement described as a sole agency agreement for the sale of the defendant’s property. The defendant subsequently sold through the involvement of another estate agent and paid that agent commission. The claimant sought damages representing commission which it said it would otherwise have earned.

Mr Recorder Widdup dismissed the claim in Reading County Court. The principal questions on appeal were whether the agreement prohibited the use of another agent, whether the claimant had complied with section 18 of the Estate Agents Act 1979 and regulation 5 of the Estate Agents (Provision of Information) Regulations 1991, and whether the contract should be enforced despite any non-compliance.

1. Appeal dismissed by a majority. Rix and Toulson LJJ held that the claimant could not enforce its claim. Lloyd LJ dissented on the construction and statutory issues but agreed that, if the statutory requirements had been breached, the recorder’s refusal to enforce was justified.

2. Per Rix LJ, the expression “remuneration” in section 18 of the Estate Agents Act 1979 was broad enough to include damages in lieu of commission. Such damages compensate an agent for commission which the client’s breach prevented it from earning. A narrower interpretation would create a loophole in consumer-protection legislation: an agent could omit the prescribed warning about another agent’s introduction yet seek substantially the same sum as damages.

3. Regulation 5(1) of the Estate Agents (Provision of Information) Regulations 1991 required an agent using “sole agency” to explain the term’s intention and effect. The standard scheduled explanation could be modified where the contract differed, but the substituted explanation had to describe the client’s liability accurately. The claimant neither included the scheduled wording concerning a purchaser introduced by another agent nor warned of liability for damages in lieu of commission. It therefore failed to comply with the statutory scheme.

4. Toulson LJ considered that the consumer-protection purpose supported a purposive construction. He was inclined to construe the contract consistently with the statutory scheme, so that its “Sole Agency” clause stated the client’s liabilities exhaustively and did not prohibit the sale. Rix LJ preferred to leave the contractual issue open. It did not affect the result because, even on the claimant’s construction, statutory non-compliance made the contract enforceable only by court order.

5. Under section 18(6), the court considers the prejudice caused to the client and the agent’s culpability when deciding whether to dismiss an enforcement application. The client need not prove that proper disclosure would certainly have altered the client’s conduct. A finding that the client might well have avoided the risk of dual liability was sufficient. The substantial prejudice justified refusing enforcement.

1. Court of Appeal (Civil Division): By a majority, dismissed the claimant’s appeal and upheld the refusal to enforce its claim. Permission to appeal to the Supreme Court and an application for a stay were refused: [2011] EWCA Civ 1120 .

2. Reading County Court: Mr Recorder Widdup dismissed the estate agent’s claim by an order dated 30 September 2010.