Financial Aspects
Cases
HR European Ventures LLP & Ors v Cedar Capital Partners LLC
[2014] UKSC 45
LORD NEUBERGER,
“The decided cases
There is a number of 19th century cases not involving bribes or secret commissions, where an agent or other fiduciary makes an unauthorised profit by taking advantage of an opportunity which came to his attention as a result of his agency and judges have reached the conclusion that the Rule applied. Examples include Carter v Palmer (1842) 8 Cl & F 657, where a barrister who purchased his client’s bills at a discount was held by Lord Cottenham to have acquired them for his client. The Privy Council in Bowes v City of Toronto (1858) 11 Moo PC 463 concluded that the mayor of a city who bought discounted debentures issued by the city was in the same position as an agent vis-à-vis the city, and was to be treated as holding the debentures on trust for the city. Bagnall v Carlton (1877) 6 Ch D 371 involved complex facts, but, pared to a minimum, agents for a prospective company who made secret profits out of a contract made by the company were held to be “trustees for the company” of those profits (per James, Baggallay and Cotton LJJ).
In the Privy Council case of Cook v Deeks [1916] 1 AC 554, a company formed by the directors of a construction company was held to have entered into a contract on behalf of the construction company as the directors only knew of the contractual opportunity by virtue of their directorships. In Phipps v Boardman [1964] 1 WLR 993 (affirmed [1965] Ch 992, and [1967] 2 AC 46), where agents of certain trustees purchased shares, in circumstances where they only had that opportunity because they were agents, Wilberforce J held that the shares were held beneficially for the trust. More recently, in Bhullar v Bhullar [2003] 2 BCLC 241, the Court of Appeal reached the same conclusion on similar facts to those in Cook (save that the asset acquired was a property rather than a contract). Jonathan Parker LJ said this at para 28:
“[W]here a fiduciary has exploited a commercial opportunity for his own benefit, the relevant question, in my judgment, is not whether the party to whom the duty is owed (the company, in the instant case) had some kind of beneficial interest in the opportunity: in my judgment that would be too formalistic and restrictive an approach. Rather, the question is simply whether the fiduciary’s exploitation of the opportunity is such as to attract the application of the rule.”
Turning now to cases concerned with bribes and secret commissions, the effect of the reasoning of Lord Lyndhurst LC in Fawcett v Whitehouse (1829) 1 Russ & M 132 was that an agent, who was negotiating on behalf of a prospective lessee and who accepted a “loan” from the lessor, held the loan on trust for his principal, the lessee. In Barker v Harrison (1846) 2 Coll 546, a vendor’s agent had secretly negotiated a sub-sale of part of the property from the purchaser at an advantageous price, and Sir James Knight-Bruce V-C held that that asset was held on trust for the vendor. In In re Western of Canada Oil, Lands and Works Co, Carling, Hespeler, and Walsh’s Cases (1875) 1 Ch D 115, the Court of Appeal (James and Mellish LJJ, Bramwell B and Brett J) held that shares transferred by a person to individuals to induce them to become directors of a company and to agree that the company would buy land from the person, were held by the individuals on trust for the company. In In re Morvah Consols Tin Mining Co, McKay’s Case (1875) 2 Ch D 1, the Court of Appeal (Mellish and James LJJ and Brett J) decided that where a company bought a mine, shares in the vendor which were promised to the company’s secretary were held by him for the company beneficially. The Court of Appeal (Sir George Jessel MR and James and Baggallay LJJ) in In re Caerphilly Colliery Co, Pearson’s Case (1877) 5 Ch D 336 concluded that a company director, who received shares from the promoters and then acted for the company in its purchase of a colliery from the promoters, held the shares on trust for the company. In Eden v Ridsdale Railway Lamp and Lighting Co Ltd (1889) 23 QBD 368, a company was held by the Court of Appeal (Lord Esher MR and Lindley and Lopes LJJ) to be entitled as against a director to shares which he had secretly received from a person with whom the company was negotiating. There are a number of other 19th century decisions to this effect, but it is unnecessary to cite them.
Inducements and other benefits offered to directors and trustees have been treated similarly. In Sugden v Crossland (1856) 2 Sm & G 192, Sir William Page Wood V-C held that a sum of money paid to a trustee to persuade him to retire in favour of the payee was to be “treated as a part of the trust fund”. Similarly, in Nant-y-glo and Blaina Ironworks Co v Grave (1878) 12 Ch D 738, shares in a company given by a promoter to the defendant to induce him to become a director were held by Sir James Bacon V-C to belong to the company. In Williams v Barton [1927] 2 Ch 9, Russell J decided that a trustee, who recommended that his co-trustees use stockbrokers who gave him a commission, held the commission on trust for the trust.
The common law courts were meanwhile taking the same view. In Morison v Thompson (1874) LR 9 QBD 480, Cockburn CJ, with whom Blackburn and Archibald JJ agreed, held that a purchaser’s agent who had secretly agreed to accept a commission from the vendor of a ship, held the commission for the benefit of his principal, the purchaser, in common law just as he would have done in equity – see at p 484, where Cockburn CJ referred to the earlier decision of Lord Ellenborough CJ to the same effect in Diplock v Blackburn (1811) 3 Camp 43. In Whaley Bridge Calico Printing Co v Green (1879) 5 QBD 109, Bowen J (albeit relying on equity at least in part) held that a contract between the vendor and a director of the purchaser, for a secret commission to be paid out of the purchase money, was to be treated as having been entered into for the benefit of the purchaser without proof of fraud.
It is fair to say that in the majority of the cases identified in the previous five paragraphs it does not appear to have been in dispute that, if the recipient of the benefit had received it in breach of his fiduciary duty to the plaintiff, then he held it on trust for the plaintiff. In other words, it appears to have been tacitly accepted that the Rule applied, so that the plaintiff was entitled not merely to an equitable account in respect of the benefit, but to the beneficial ownership of the benefit.
However, many of those cases contain observations which specifically support the contention that the Rule applies to all benefits which are received by an agent in breach of his fiduciary duty. In Sugden at p 194, Sir William Page Wood V-C said that “it is a well-settled principle that if a trustee make a profit of his trusteeship, it shall enure to the benefit of his cestuique trusts”. And in McKay’s Case at p 5, Mellish LJ said that it was “quite clear that, according to the principles of a Court of Equity, all the benefit which the agent of the purchaser receives under such circumstances from the vendor must be treated as received for the benefit of the purchaser”. In Carling’s Case at p 124, James LJ said the arrangement amounted to a “a simple bribe or present to the directors, constituting a breach of trust on their part” and that “the company would be entitled to get back from their unfaithful trustees what the unfaithful trustees had acquired by reason of their breach of trust”. In Pearson’s Case Sir George Jessel MR said at pp 340-341 that the director as agent could not “retain that present as against the actual purchasers” and “must be deemed to have obtained [the benefit] under circumstances which made him liable, at the option of the cestuis que trust, to account either for the value … or … for the thing itself …”. In Eden, Lord Esher said at p 371 that if an agent “put[s] himself in a position which the law does not allow [him] to assume … he commit[s] a wrong against his principal”, and “[i]f that which the agent has received is money he must hand it over to his principal, if it is not money, but something else, the principal may insist on having it”. Lindley and Lopes LJJ each said that they were “of the same opinion” as Lord Esher, and Lindley LJ observed at p 372 that it would be “contrary to all principles of law and equity to allow the plaintiff to retain the gift”.
It is also worth noting that in Morison at pp 485-486, Cockburn CJ quoted with approval from two contemporary textbooks. First, he cited Story on Agency, para 211, where it was said that it could be “laid down as a general principle, that, in all cases when a person is … an agent for other persons, all profits and advantages made by him in the business, beyond his ordinary compensation, are to be for the benefit of his employers.” Secondly, he referred to Paley on Principal and Agent, p 51, which stated that “not only interest, but every other sort of profit or advantage, clandestinely derived by an agent from dealing or speculating with his principal’s effects, is the property of the latter, and must be accounted for”.
The cases summarised in paras 13-17 above and the observations set out in paras 19-20 above are all consistent with the notion that the Rule should apply to bribes or secret commissions paid to an agent, so that the agent holds them on trust for his principal, rather than simply having an equitable duty to account to his principal. It is true that in many of those cases there was apparently no argument as to whether the benefit obtained by the fiduciary was actually held on trust for the principal. However, in some of the cases there was a dispute on the nature of the relief; in any event, the fact that it was assumed time and again by eminent barristers and judges must carry great weight.
However, there is one decision of the House of Lords which appears to go the other way, and several decisions of the Court of Appeal which do go the other way, in that they hold that, while a principal has a claim for equitable compensation in respect of a bribe or secret commission received by his agent, he has no proprietary interest in it.
The House of Lords decision is Tyrrell v Bank of London (1862) 10 HL Cas 26. The facts of the case are somewhat complex and the reasoning of the opinions of Lord Westbury LC, Lord Cranworth and Lord Chelmsford is not always entirely easy to follow. The decision has been carefully and interestingly analysed by Professor Watts, “Tyrrell v Bank of London – an Inside Look at an Inside Job” (2013) 129 LQR 527. In very brief terms, a solicitor retained to act for a company in the course of formation secretly arranged to benefit from his prospective client’s anticipated acquisition of a building called the “Hall of Commerce” by obtaining from the owner a 50% beneficial interest in a parcel of land consisting of the Hall and some adjoining land. After the client had purchased the Hall from the owner, it discovered that the solicitor had secretly profited from the transaction and sued him. Sir John Romilly MR held that the solicitor had held on trust for the client both (i) his interest in (and therefore his subsequent share of the proceeds of sale of) the Hall, and (ii) with “very considerable hesitation”, his interest in the adjoining land – (1859) 27 Beav 273, especially at p 300. On appeal, the House of Lords held that, while the Master of the Rolls was right about (i), he was wrong about (ii): although the client had an equitable claim for the value of the solicitor’s interest in the adjoining land, it had no proprietary interest in that land.
Lord Westbury LC made it clear at pp 39-40 that the fact that the client had not been formed by the time that the solicitor acquired his interest in the land did not prevent the claim succeeding as the client had been “conceived, and was in the process of formation”. He also made it clear at p 44 that, in respect of the profit which the solicitor made from his share of the Hall (which he described as “the subject matter of the transaction”, and, later at p 45, “that particular property included in the [client’s] contract”), the solicitor “must be converted into a trustee for the [client]”. However, he was clear that no such trust could arise in relation to the adjoining land, which was outside “the limit of the agency”, and so “there [was] no privity, nor any obligation”, although the solicitor “must account for the value of that property” – p 46. Lord Cranworth agreed, making it clear that the financial consequences for the solicitor were no different from those that followed from the Master of the Rolls’ order, although he had “thought that possibly we might arrive at the conclusion that the decree was, not only in substance, but also in form, perfectly correct” – p 49. Lord Chelmsford agreed, and discussed bribes at pp 59-60, holding that the principal had no right to a bribe received by his agent.
Although there have been suggestions that, with the exception of Lord Chelmsford’s obiter dicta about bribes, the decision of the House of Lords in Tyrrell was not inconsistent with the respondents’ case on this appeal, it appears clear that it was. If, as the House held, the solicitor was liable to account to the client for the profit which he had made on the adjoining land, that can only have been because it was a benefit which he had received in breach of his fiduciary duty; and, once that is established, then, on the respondents’ case, the Rule would apply, and that profit would be held on trust for the client (or, more accurately, his share of the adjoining land would be held on trust), as in Fawcett, Sugden, Carter, Bowes and Barker, all of which had been decided before Tyrrell, and of which only Fawcett was cited to the House.
We turn to the Court of Appeal authorities which are inconsistent with the notion that the Rule applies to bribes or secret commissions. In Metropolitan Bank v Heiron (1880) 5 Ex D 319, the Court of Appeal held that a claim brought by a company against a director was time-barred: the claim was to recover a bribe paid by a third party to induce the director to influence the company to negotiate a favourable settlement with the third party. It was unsuccessfully argued by the bank that its claim was proprietary. Brett LJ said at p 324 “[n]either at law nor in equity could this sum … be treated as the money of the company”, but he apparently considered that, once the company had obtained judgment for the money there could be a trust. Cotton LJ expressed the same view. James LJ simply thought that there was an equitable debt and applied the Limitation Acts by analogy. This approach was followed in Lister & Co v Stubbs (1890) 45 Ch D 1, where an agent of a company had accepted a bribe from one of its clients, and an interlocutory injunction was refused on the ground that the relationship between the company and its agent was that of creditor and debtor not beneficiary and trustee. Cotton LJ said at p 12 that “the money which [the agent] has received … cannot … be treated as being the money of the [company]”. Lindley LJ agreed and said at p 15 that the notion that there was a trust “startle[d]” him, not least because it would give the company the right to the money in the event of the agent’s bankruptcy. Bowen LJ agreed.
Lister was cited with approval by Lindley LJ in In re North Australian Territory Co, Archer’s case [1892] 1 Ch 322, 338, and it was followed in relation to a bribe paid to an agent by Sir Richard Henn Collins MR (with whom Stirling and Mathew LJJ agreed) in Powell & Thomas v Evan Jones & Co [1905] 1 KB 11, 22, where the principal was held entitled to an account for the bribe, but not to a declaration that the bribe was held on trust. The same view was taken in the Court of Appeal in Attorney General’s Reference (No 1 of 1985) [1986] QB 491, 504-505, where Lord Lane CJ quoted from the judgments of Cotton and Lindley LJJ in what he described as “a powerful Court of Appeal in Lister”, and followed the reasoning. In Regal (Hastings), the decision in Lister was referred to by Lord Wright at p 156, as supporting the notion that “the relationship in such a case is that of debtor and creditor, not trustee and cestui que trust”. However, that was an obiter observation, and it gets no support from the other members of the committee.
More recently, in 1993, in Attorney General for Hong Kong v Reid, the Privy Council concluded that bribes received by a corrupt policeman were held on trust for his principal, and so they could be traced into properties which he had acquired in New Zealand. In his judgment on behalf of the Board, Lord Templeman disapproved the reasoning in Heiron, and the reasoning and outcome in Lister, and he thought his conclusion inconsistent with only one of the opinions, that of Lord Chelmsford, in Tyrrell. In Daraydan Holdings Ltd v Solland International Ltd [2005] Ch 119, paras 75ff, Lawrence Collins J indicated that he would follow Reid rather than Lister, as did Toulson J in Fyffes Group Ltd v Templeman [2000] 2 Lloyds Rep 643, 668-672. But in Sinclair Investments Ltd v Versailles Trade Finance Ltd [2012] Ch 453, in a judgment given by Lord Neuberger MR, the Court of Appeal decided that it should follow Heiron and Lister, and indeed Tyrrell, for a number of reasons set out in paras 77ff, although it accepted that this Court might follow the approach in Reid. In this case, Simon J considered that he was bound by Sinclair, whereas the Court of Appeal concluded that they could and should distinguish it.
Legal principle and academic articles
Conclusions
The considerations of practicality and principle discussed in paras 33-44 above appear to support the respondents’ case, namely that a bribe or secret commission accepted by an agent is held on trust for his principal. The position is perhaps rather less clear when one examines the decided cases, whose effect we have summarised in paras 13-28 above. However, to put it at its lowest, the authorities do not preclude us adopting the respondents’ case in that they do not represent a clear and consistent line of authority to the contrary effect. Indeed, we consider that, taken as a whole, the authorities favour the respondents’ case.
First, if one concentrates on the issue of bribes or secret commissions paid to an agent or other fiduciary, the cases, with the exception of Tyrrell, were consistently in favour of such payments being held on trust for the principal or other beneficiary until the decision in Heiron which was then followed in Lister. Those two decisions are problematical for a number of reasons. First, relevant authority was not cited. None of the earlier cases referred to in paras 13, 14 or 16 above were put before the court in Heiron (where the argument seems to have been on a very different basis) or in Lister. Secondly, all the judges in those two cases had given earlier judgments which were inconsistent with their reasoning in the later ones. Brett LJ (who sat in Heiron) had been party to the decision in McKay’s and Carling’s Cases; Cotton LJ (who sat in Heiron and Lister) had been party to Bagnall (which was arguably indistinguishable), James LJ (who sat in Heiron) was party to Pearson’s and McKay’s Cases, as well as Bagnall; Lindley LJ (who sat in Lister) had been party to Eden; and Bowen LJ (who sat in Lister) had decided Whaley Bridge. Thirdly, the notion, adopted by Cotton and Brett LJJ that a trust might arise once the court had given judgment for the equitable claim seems to be based on some sort of remedial constructive trust which is a concept not referred to in earlier cases, and which has authoritatively been said not to be part of English law – see per Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, 714-716. Fourthly, the decisions in Heiron and Lister are difficult to reconcile with many cases not concerned with bribes or secret commissions paid to agents, such as those set out in paras 12, 13 and 15 above. If the reasoning in Heiron and Lister is correct, then either those other cases were wrongly decided or the law is close to incoherent in this area.
As for the domestic cases subsequent to Lister, they are all explicable on the basis that it was either conceded or decided that the reasoning in the Court of Appeal in Lister was binding. Further, even after Lister, cases were being decided in which it seems to have been accepted or decided by Chancery Judges that where an agent or other fiduciary had a duty to account for a benefit obtained in breach of his fiduciary duty, the principal was entitled to a proprietary interest in the benefit – examples include Wilberforce J in Phipps, Lord Templeman in Reid, and Lawrence Collins J in Daraydan Holdings Ltd.
Were it not for the decision in Tyrrell, we consider that it would be plainly appropriate for this Court to conclude that the courts took a wrong turn in Heiron and Lister, and to restate the law as being as the respondents contend. Although the fact that the House of Lords decided Tyrrell in the way they did gives us pause for thought, we consider that it would be right to uphold the respondents’ argument and disapprove the decision in Tyrrell. In the first place, Tyrrell is inconsistent with a wealth of cases decided before and after it was decided. Secondly, although Fawcett was cited in argument at p 38, it was not considered in any of the three opinions in Tyrrell; indeed, no previous decision was referred to in the opinions, and, although the opinions were expressed with a confidence familiar to those who read 19th century judgments, they contained no reasoning, merely assertion. Thirdly, the decision in Tyrrell may be explicable by reference to the fact that the solicitor was not actually acting for the client at the time when he acquired his interest in the adjoining land – hence the reference in Lord Westbury’s opinion to “the limit of the agency” and the absence of “privity [or] obligation” as mentioned in para 24 above. In other words, it may be that their Lordships thought that the principal should not have a proprietary interest in circumstances where the benefit received by the agent was obtained before the agency began and did not relate to the property the subject of the agency.
Quite apart from these three points, we consider that, the many decisions and the practical and policy considerations which favour the wider application of the Rule and are discussed above justify our disapproving Tyrrell. In our judgment, therefore, the decision in Tyrrell should not stand in the way of the conclusion that the law took a wrong turn in Heiron and Lister, and that those decisions, and any subsequent decisions (Powell & Thomas, Attorney-General’s Reference (No 1 of 1985) and Sinclair), at least in so far as they relied on or followed Heiron and Lister, should be treated as overruled.
In this case, the Court of Appeal rightly regarded themselves as bound by Sinclair, but they managed to distinguish it. Accordingly, the appeal is dismissed.”
Jacob Adler v Anahall Advisory and Consultancy Services Limited
[2009] EWCA Civ 586
Toulson L.J.
“On this issue we were referred to a number of authorities in addition to those cited by the judge in his judgment, including Luxor (Eastbourne) Limited v Cooper [1941] AC 108, Alpha Trading Limited v Dunnshaw-Patten Limited [1981] 1 QB 290 and Marcan Shipping (London) Limited v Polish Steamship Co (The “Manifest Lipkowy”) [1989] 2 Ll Rep 138.
The authorities establish two general principles. The first principle is that the test for implying a term into a contract is not whether the suggested term would be reasonable but whether it is necessary in order to give effect to the parties’ obvious but unspoken intentions or for the contract to be able to work as the parties must be taken to have intended (or, put more shortly, to give business efficacy to the contract).
The second principle is that in applying this test it is essential to concentrate on the particular words and particular circumstances of the individual contract. This point was emphasised in Luxor (Eastbourne) Limited v Cooper and has been repeated in later authorities including CEL Group Limited v Nedlloyd Lines.
Mr Freedman QC in his skeleton argument pithily and accurately summarised the circumstances in which Ananhall approached Mr Adler as follows:
“This case is not analogous to that of the introduction agent [such as an estate agent] who earns his commission by having opportunities to provide to others. This is a case of a dealer who had run out of time and the opportunity to make use of his lockout period.”………….
Mr Adler was asked to step in at short notice. During the period between 23 and 31 March 2005 he was able to take some steps to assess the potential profitability of the purchase. He visited the premises and asked local surveyors to research rents of comparable properties. Importantly, however, he was being asked to take over the purchase before knowing the HSE’s response to Mr Pollard’s proposal that it should agree to waive the break clauses in its leases. As already noted, Mr Pollard received the HSE’s initial response to his proposals through Donaldsons‘ letter dated 31 March 2005, but he did not see fit to pass it on to Mr Adler. With no explicit indication from the HSE as to its position, Mr Adler had to gamble on a matter critical to the yield value of the property.
In such uncertain circumstances it is no wonder that the operative words of Mr Adler’s letter dated 31 August 2005 were not:
“In consideration of your introduction of this property we will pay you 1% of the amount of the purchase price on completion of the transaction…”
but:
“If we complete this transaction we understand that a 1% of purchase price fee will be payable to yourselves…”
In short, the promise of payment was expressly conditional on Mr Adler or his company completing the transaction and his letter offered no assurance that this would necessarily happen. In those circumstances I see no room for implying a term which would have entitled Ananhall to payment of commission if Mr Adler or his company did not complete the transaction. But out of respect for the judge and courtesy to Mr Booth, I should address specifically the arguments advanced by Mr Booth in support of the conclusion of the judge.
Mr Booth submitted that where an intermediary has acted for A in brokering a purchase agreement with B, in return for a commission, there is an important difference between implying a term which would require A to enter into a contract with B and implying a term which would stop A from breaching a contract made with B. His reasoning was based on obiter dicta of Lord Wright in Luxor (Eastbourne) Limited v Cooper which were applied by the Court of Appeal in Alpha Trading Limited v Dunnshaw-Patten Limited. In Luxor (Eastbourne) Limited v Cooper a commission agent introduced a willing purchaser for property at a price which the vendor had instructed the agent to obtain; but the vendor had a change of mind and no contract of sale was made. It was held that there was no implied term of the commission agreement which required the vendor to accept the purchaser’s offer.
Mr Booth relied on the following passages of the speech of Lord Wright:
“…if the negotiations between the vendor and the purchaser have been duly concluded and a binding executory agreement has been achieved, different considerations may arise. The vendor is then no longer free to dispose of his property. Though the sale is not completed the property in equity has passed from him to the purchaser. If he refuses to complete he will be guilty of a breach of agreement vis-a-vis the purchaser. I think, as at present advised, that it ought then to be held that he is also in breach of his contract with the commission agent, that is, of some term which can properly be implied. But that question and possibly some other questions do not arise in this case and may be reserved.” (page 142)
and:
“It may well be, as I have already stated, that as soon as a binding executory contract is effected between the employer and the purchaser, a different state of things arises. The property is transferred in equity and the seller can be specifically ordered to complete. The agent may then fairly claim that he is entitled to his commission or at least to substantial damages and a term of that nature may , I think, as at present advised be implied in the contract. It cannot have been contemplated that when a binding contract with the purchaser has been made on the agent’s mediation, the principal can as between himself and the agent break that contract without breaking his contract with the agent.” (pages 149-150)
These passages have to be read in the context of the general principles set out by Lord Wright earlier in his speech about the power of the court to imply terms in contracts. He said:
“It is agreed on all sides that the presumption is against the adding to contracts of terms which the parties have not expressed. The general presumption is that the parties have expressed every material term which they intended should govern their agreement, whether oral or in writing. But it is well recognised that there may be cases where obviously some term must be implied if the intention of the parties is not to be defeated, some term of which it can be predicated that “it goes without saying”, some term not expressed but necessary to give to the transaction such business efficacy as the parties must have intended. This does not mean that the court can embark on a reconstruction of the agreement on equitable principles, or on a view of what the parties should, in the opinion of the court, reasonably have contemplated. The implication must arise inevitably to give effect to the intention of the parties.” (page 137)
Lord Wright’s rationale for his suggested implied term where an executory contract has been made between a principal and a third party was that it could not have been contemplated that in such circumstances the principal might break that contract without breaking his contract with the agent. But whether that could or could not have been contemplated in a particular case must depend on the language of the contract and the circumstances in which it was made.
In this case, for reasons which I have stated, both the language and the circumstances of the introductory agreement militate against the making of any assumption that Ananhall could rely on Mr Adler to complete the transaction or would be entitled to payment of commission if he did not.”
Murphy, Buckley & Keogh Ltd. v. Pye (Ir.) Ltd.
[1971] 1 I.R. 65
Henchy J.
“The plaintiffs’ case for commission, therefore, stands or falls on the submission that once they had been appointed sole selling agents commission at the agreed rate became payable when the defendants themselves sold during the currency of the sole agency. In answer to this submission, the defendants relied primarily on the decision of McCardie J. in Bentall, Horsley and Baldry v.Vicary .5 The head-note of that case reads as follows:”The defendant, the owner of property, appointed the plaintiffs, who were estate agents, his sole agents for the sale of the property for a stipulated period, it being agreed that, if the plaintiffs introduced a purchaser, they should receive a commission of 5 per cent. on the purchase price. During the period of the agency the defendant negotiated personally and quite apart from the plaintiffs with a purchaser who had never had any communication with the plaintiffs and whom the plaintiffs did not know. The result of the negotiations was that the property was sold to this purchaser. The plaintiffs thereupon claimed from the defendant damages for breach of contract on the ground that, in selling the property direct to the purchaser, he had acted in breach of his contract with them and had thereby deprived them of their commission:Held, that the plaintiffs were not entitled to damages, as the contract contained no express prohibition against a sale by the defendant himself, and the implication of such a prohibition was not necessary to give business efficacy to the transaction. Held further, on the terms of the contract, that the plaintiffs could not recover commission at the agreed rate on the purchase price received by the defendant, as they had failed to introduce the purchaser, nor could they recover on a quantum meruit.”
The terms for the agency in that case were orally agreed and later confirmed in a letter from the agents to the principals as follows:”. . . we are to be appointed sole agents for the sale of the property for a period of six months to October 1st and that, if we introduce a purchaser, we are to receive a special commission of 5 per cent. on the price realised.” Commenting on the form of the contract, McCardie J. said at p. 258 of the report:”In the contract now before me I see nothing to prevent the business efficacy of the document by reason of the circumstance that the defendant was himself entitled to sell. If the plaintiffs had got a purchaser within the six months and before the defendant had himself sold, then they would have gained their full commission together with their right to advertisement expenses. It is to be noted that the contract contains no express words at all indicating a prohibition against a sale by the defendant himself. If the parties intended such a prohibition nothing would have been easier than to insert the appropriate words. It is also to be noted that the defendant does not say by the contract: ‘I give you the sole right to sell.’ He says only: ‘I appoint you sole agents for the sale’, which is, in my opinion, quite a different thing.”
It seems to me that these observations are fully applicable to the present case. In so far as I have been able to ascertain the terms of the contract from the conversations that led up to it, and from the correspondence and the conduct of the parties, there was nothing in the contract which gave the plaintiffs the sole right to sell; they were merely appointed sole agents to find a purchaser who would be ready to complete at a price acceptable to the defendants, and the defendants were to have the right to revoke the agency. It is clear that the contract precluded the defendants from selling through another agent during the currency of the plaintiffs’ agency; it is equally clear that the contract contained no express term which precluded the defendants themselves from selling. If I am correct in thinking that, in this respect, the contract in the present case is indistinguishable from that in the Bentall Case 6, then under authority of the latter case it is not possible to read into the contract in the present case an implied term precluding the defendants from selling.
In Luxor (Eastbourne) Ltd. v. Cooper 7 it was held in the House of Lords, according to the head-note, that “where an agent is promised a commission only if he brings about the sale which he is endeavouring to effect there is no room for an implied term that the principal will not dispose of the property himself or through other channels or otherwise act so as to prevent the agent earning his commission.” Viscount Simon L.C., having stressed the dangers of formulating general propositions as to contracts with agents for commission which depend in each case on the precise terms of the contract under consideration, said at p. 120 of the report:”. . . in contracts made with commission agents there is no justification for introducing an implied term unless it is necessary to do so for the purpose of giving to the contract the business effect which both parties to it intended it should have.”
Viscount Simon then continued as follows: “It may be useful to point out that contracts under which an agent may be occupied in endeavouring to dispose of the property of a principal fall into several obvious classes. There is the class in which the agent is promised a commission by his principal if he succeeds in introducing to his principal a person who makes an adequate offer, usually an offer of not less than the stipulated amount. If that is all that is needed in order to earn his reward, it is obvious that he is entitled to be paid when this has been done, whether his principal accepts the offer and carries through the bargain or not. No implied term is needed to secure this result. There is another class of case in which the property is put into the hands of the agent to dispose of for the owner, and the agent accepts the employment and, it may be, expends money and time in endeavouring to carry it out. Such a form of contract may well imply the term that the principal will not withdraw the authority he has given after the agent has incurred substantial outlay, or, at any rate, after he has succeeded in finding a possible purchaser . . . But there is a third class of case (to which the present instance belongs) where, by the express language of the contract, the agent is promised his commission only upon completion of the transaction which he is endeavouring to bring about between the offeror and his principal. As I have already said, there seems to me to be no room for the suggested implied term in such a case. The agent is promised a reward in return for an event, and the event has not happened. He runs the risk of disappointment, but if he is not willing to run the risk he should introduce into the express terms of the contract the clause which protects him.”
It seems to me that the contract in the present case falls into the third category of cases outlined by Viscount Simon in that passage. The contract made between the plaintiffs and the defendants was one under which the owner of the property appointed an estate agent to be the owners’ sole agent for the purpose of finding a purchaser, and agreed that, if the agent through his activities was instrumental in bringing about an actual sale, the agent would be remunerated at a fixed percentage of the purchase money. In such a case it was held by McCardie J. in the Bentall Case 8 that there was no room for an implied term that the owner will not himself sell and thereby deprive the agent of commission; and that decision was expressly approved in the Court of Appeal in George Trollope & Sons v.Martyn Bros. 9 by Scrutton, Greer and Maugham L.JJ., and in the House of Lords in the Luxor Case 10 by Viscount Simon L.C. at p. 117 of the report and by Lord Wright at p. 145 of the report.
Counsel for the plaintiffs, faced with the decisions in the Bentall Case 11 and in the Luxor Case 10 and having to abandon the case for an implied term, sought to distinguish the present case by submitting that the contract gave the plaintiffs more extensive rights than those of a sole agent, in fact that it gave them the full right to sell so long as the agency lasted, subject to an exception in the case of the completion of pending negotiarions with American or Italian companies. The veil of secrecy with which the defendants concealed from the plaintiffs their negotiations with the eventual purchasers is pointed to as showing that the defendants knew that they were acting in breach of the contract.
I am unable to construe the contract as having given the plaintiffs anything more than a right to commission on the purchase money at an agreed rate on a sale to a purchaser who had been introduced by the plaintiffs during the currency of a sole agency which was terminable at the option of the defendants. In other words, there was no express term that the plaintiffs would have a sole and exclusive right to sell during the currency of the agency; and counsel for the plaintiffs has abandoned (quite rightly in my view) any claim that such a term arose by necessary implication.
In rejecting the plaintiffs’ claim that the contract gave them a sole and exclusive right to sell (subject to the exception as to pending negotiations with American and Italian firms) and therefore a right to commission if the defendants themselves sold, I would refer again to the plaintiffs’ letter of the 10th February, 1967, to the defendants in which the plaintiffs say: “The position could be revised at any stage and, of course, you reserve the right to withdraw your sole agency should the necessity occur.” By agreeing to that term and by not negotiating a stipulation that they would be paid commission if the defendants themselves sold, it must be held on the authorities that the plaintiffs gave their services on the assurance that their advertising and publicity expenses would be provided for, but that their right to commission would depend on their personal success in introducing an acceptable purchaser.”