RTA (Business Consultants) Ltd v Bracewell

A contract made in breach of a statutory prohibition is unenforceable for illegality where that is the proper construction of the statute. The court must identify whether Parliament intended to prohibit the contract, while exercising caution before treating regulatory non-compliance as invalidating ordinary contractual rights. Under regulation 33 of the Money Laundering Regulations 2007, an unregistered estate agent was prohibited from carrying on estate agency business after the prescribed period. Contracts entered into for that business were therefore illegal and unenforceable. A person arranging the sale of a business acts for purposes connected with his trade or profession and is not a consumer for the purposes of the Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008.

RTA, a business transfer agent, entered into a sole agency agreement with the defendant concerning the sale of his property and cafe, restaurant and public-house business. RTA sought commission and the unpaid balance of a registration fee. The defendant counterclaimed for repayment of sums paid.

It was accepted that RTA was carrying out estate agency work but was not registered with the Office of Fair Trading under the Money Laundering Regulations 2007 when the agreement was made. The principal issue was whether that failure made the agreement illegal and unenforceable. Alternative issues concerned consumer cancellation rights, unfair terms, misrepresentation, negligence, an implied term of skill and care, and rescission.

1. Illegality. The agreement was illegal and unenforceable. Whether breach of a statutory provision invalidates a contract is a matter of statutory construction. The court must be cautious before inferring that Parliament intended to interfere with ordinary contractual rights, but must give effect to that intention where the statutory language and necessary inference require it.

2. Regulation 33 of the Money Laundering Regulations 2007 provided that an unregistered estate agent might not carry on the relevant business after the prescribed six-month period. Carrying on estate agency business necessarily required contracts with clients. The regulation therefore prohibited entering into contracts for the provision of estate agency work. The existence of civil penalties and criminal sanctions did not alter that construction. The statutory purpose included preventing the financial system being used for money laundering and securing supervision of businesses handling significant sums.

3. The alternative consumer argument failed. A person engaging an agent to sell a business is acting to realise the capital value of a business asset and for purposes connected with his trade or profession. He is not acting for purposes outside that trade or profession. The Cancellation of Contracts made in a Consumer’s Home or Place of Work etc. Regulations 2008 therefore did not apply.

4. Had it been necessary to decide the remaining issues, the alleged valuation statements would not have constituted actionable misrepresentations. An opinion ordinarily represents only that it is genuinely held, not that it has objectively justified grounds. A negligence allegation based on valuation would also require evidence that no reasonably competent person could have reached the valuation. The alleged rescission letter merely sought to discuss termination and did not terminate the agreement.

5. Both the claim and counterclaim were dismissed. The judge expressed the preliminary view that, because the agreement was unenforceable for illegality, the appropriate costs order would be no order.

First-instance judgment. No earlier appellate decision is stated in the judgment.