Berezovsky & Anor v Edmiston & Company Ltd

Where a broker is entitled to reasonable remuneration, a commission rate discussed and agreed for an anticipated transaction is a strong indicator of what is reasonable. If the sale completes at a materially lower price, the court must consider both broker and client interests. A lower sale price does not, without good reason, justify increasing the rate. Factors already known when the rate was fixed, and assertions made after the sale, provide no proper basis for adjustment. Where a sub-broker is entitled to a share of commission, the principal broker may be required to account for the corresponding share of interest received on late payment.

Boris Berezovsky and Petersham Holdings Limited sold the yacht Darius to the Al Futtaim family for €240 million. They had appointed Edmiston & Company Limited as a non-exclusive selling broker. Field J held that Edmiston were the effective cause of the sale and awarded €7.2 million commission, assessed at 3%: [2010] EWHC 1883 (Comm).

The appellants accepted liability but appealed the commission and interest awards. They argued that a 2.5% rate agreed for an anticipated net price of €300 million should govern the lower-priced sale, and that interest should be payable only on the 30% of commission retained by Edmiston. The respondent resisted both arguments and pursued a cross-appeal.

Jackson LJ gave the leading judgment. Tomlinson LJ agreed and added that the 2.5% rate could not properly be treated as a concessionary rate once Edmiston’s indication had been accepted. It was a compromise reached in light of the factors then known. Laws LJ agreed.

1. Commission agreement. The judge below had found an oral agreement that Edmiston would accept 2.5% if a net sale price of €300 million was achieved. The actual sale at €240 million fell outside that agreement, so the appellants were liable to pay a reasonable commission under the earlier brokerage agreement.
2. Reasonable remuneration. In assessing a reasonable sum, the court must pay close attention to statements made by the parties at the material time: Way v Latilla [1937] 3 All ER 759 and Allan v Leo Lines Ltd [1957] 1 Lloyd's Rep 127. The agreed 2.5% rate was therefore the proper starting point and a strong indication of reasonableness.
3. No adjustment justified. The lower price did not logically justify an increased rate. The judge’s reasoning focused only on the broker’s return and failed to account for the seller’s disappointment. The first five factors identified below had already been known when the rate was agreed; the remaining factors were post-sale assertions and shed no light on the reasonable rate at the relevant time. No principled reason existed to move above or below 2.5%. The commission was reduced to €6 million.
4. Officious bystander test. The test formulated in Shirlaw v Southern Foundries (1926) Limited [1939] 2 KB 206 could not imply a term fixing a higher rate for a lower sale price. A hypothetical question on that issue would have provoked disagreement rather than common assent.
5. Interest. Edmiston’s sub-brokerage agreement with MWA required it to account for 70% of commission received. It was implicit that Edmiston would also account for 70% of interest received on late-paid commission. The appellants’ interest argument therefore failed.

The appeal was allowed on the commission issue, the interest appeal was dismissed, and Edmiston’s cross-appeal was dismissed. Costs were left for concise written submissions.

• Court of Appeal (Civil Division) allowed the appellants’ appeal on commission, reducing the award to €6 million; dismissed the appeal on interest and Edmiston’s cross-appeal: [2011] EWCA Civ 431.
• High Court, Queen’s Bench Division, Commercial Court (Field J) held that Edmiston were the effective cause of the sale and awarded €7.2 million commission, assessed at 3%: [2010] EWHC 1883 (Comm).