Estafnous v London & Leeds Business Centres Ltd

A commission agreement is construed by its language read in its relevant contractual context. The court cannot expand clear words to cover a materially different transaction merely because that transaction achieved the commercial purpose of the original proposal. Nor may it rewrite the agreement to make it fairer or more commercially effective.

A term is implied only where it spells out what the instrument, read against the relevant background, would reasonably be understood to mean. Where the parties failed to address a contingency, the usual consequence is that the express provisions continue to operate. An agreement for commission on a sale of property did not extend to a later sale of shares in the property owner’s holding company.

Mr Estafnous, an estate agent, entered into a commission agreement with London & Leeds Business Centres Ltd concerning the introduction of a purchaser for Regent House. The agreement provided for a £2 million payment if the intending buyer, or a related or associated party, completed a purchase of the property.

The transaction was later restructured. A company associated with the purchaser acquired shares in the ultimate holding company of London & Leeds Business Centres Ltd, leaving the property beneficially owned by the respondent. The deputy judge held that the agreement did not trigger payment and refused recovery: [2009] EWHC 1308 (Ch). The appeal concerned whether the agreement should be construed, or a term implied, so as to include the share sale.

1. Appeal dismissed. The commission agreement was clear and unambiguous. Its recitals and operative clauses concerned the sale and purchase of the property itself, with London & Leeds Business Centres Ltd identified as seller. The reference to a related or associated purchaser did not extend the agreement to a sale by another company or to shares in the respondent’s holding company.
2. The later commercial purpose of acquiring effective control of the property was irrelevant and inadmissible to the construction of an agreement made more than a year earlier. The court’s task was to interpret the language used in its contractual context, not to rewrite the contract to reflect a later restructuring or perceived commercial fairness. The approach in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 was not a licence to rewrite contracts, and the primary source of meaning remained the language interpreted according to conventional usage, as stated in BCCI v Ali [2002] 1 AC 251.
3. The alternative case based on implication of terms also failed. Following A-G of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988, implication merely spells out what the instrument reasonably means against its background; it is not an addition designed to improve the instrument. The parties had failed to provide for the contingency of restructuring a property sale as a share sale. There was no term which the agreement could reasonably be understood necessarily to contain.
4. The court found the authorities on estate-agent commissions generally unhelpful because each case turns on the wording of the particular agreement and its factual context. The decision was, however, consistent with Harris & Gillow v Kelly (1953) 162 EG 622. Mr Estafnous was not entitled to recover £2 million.

• Court of Appeal (Civil Division): appeal dismissed unanimously on 14 October 2011. The court dismissed the appeal from the deputy judge’s decision at [2009] EWHC 1308 (Ch) .
• High Court of Justice, Chancery Division: Christopher Nugee QC, sitting as a deputy judge, held that the commission obligation was not triggered by the share sale. Permission to appeal was granted on the construction point.