Obvious contractual terms: Supreme Court guidance

The Supreme Court has issued the latest in its line of judgments concerning the interpretation of contracts. The case of Wells v Devani [2019] UK SC 4 concerned the court's ability to imply a term into a contract.

Facts

The dispute arose out of the sale of flats in Hackney, which had been developed by a joint venture owned by Mr Wells and a builder. Mr Wells had sold half of the fourteen flats in the development, but had been unable to sell the remaining seven.

A neighbour introduced Mr Wells to Mr Devani, an estate agent based in London. Mr Devani and Mr Wells spoke by telephone. The parties discussed fees and Mr Devani replied that his standard terms were 2% plus VAT. The circumstances in which the 2% would be payable were not discussed.

Issue

The central question was whether in the course of the conversation Mr Wells and Mr Devani reached an agreement that was a legally binding contract despite there being no express identification of the trigger event for payment of the commission.

The High Court held that there was a contract between the parties on the basis of an implied term necessary to give business efficacy to the parties’ intentions. The implied term was that the commission would be due "on the introduction of a buyer who actually completes the purchase".

The Court of Appeal held by a majority decision that there was no legally binding contract. The provision relating to the timing of payment of commission was a material term and the court could not imply a term to complete a contract which was incomplete.

The Supreme Court unanimously reversed the Court of Appeal decision.

Was there a binding contract?

The Supreme Court determined that there was a binding contract. The fact that there was no discussion of the precise event which would give rise to the payment of the commission did not prevent a contract from having been made.

However, even if it had been necessary to imply a term, this would have been possible since a court can imply terms into a contract where:

• The parties intend to be bound and to create legal relations.
• The term is necessary to give an agreement business efficacy.
• Where the terms are so obvious that it goes without saying, and where without such terms the agreement would be regarded as incomplete or uncertain to be enforceable.

In this case it would be naturally understood that the payment of the commission would become due on completion of the purchase by a person who Mr Devani had introduced.

Comment

The case illustrates that in certain circumstances, provided that the parties intend to be bound and to create legal relations, a term may be implied where it is so obvious that it goes without saying. The case also illustrates that the sensible course of action is to record all contractual terms in writing at the outset.

In the course of negotiations, it is also helpful to record all conversations in writing and expressly confirm that all issues are "subject to contract".