Lawbite: Forming an oral agreement

• United Kingdom

• Real estate litigation

13-05-2019

Wells v Devani [2019] UKSC 4

Earlier this year the Supreme Court unanimously decided that the claimant, Devani, an estate agent and the defendant, Wells, a property developer had entered into a binding oral contract.

The parties were introduced by a mutual acquaintance who was aware that Wells was having difficulty selling 7 out of 14 flats in his development in Hackney.

The Court favoured Devani’s accounts of the initial telephone conversation between the parties during which, he claimed, he informed Wells that he was an estate agent and notified Wells of his commission rate. 

Following this call Devani made contact with a housing trust which expressed an interest in the properties and a meeting was arranged between them and Wells.  A sale was agreed the following day and Wells updated Devani on the good news.  At this point Devani passed his formal terms and conditions to Wells.

When Wells refused to pay Devani’s commission, submitted following the sale, Devani started proceedings for the recovery of the commission.  Wells claimed that he was not obliged to pay anything to Wells as no agreement had been concluded between them but even if there had been an agreement it would be unenforceable or the sums payable should be reduced as Devani had failed to comply with his obligations under s 18 of the Estate Agents Act 1979 which requires certain procedural requirements to be complied with.

The matter turned on the initial telephone call. The Court concluded that a binding agreement was reached during that call by which it was agreed that if Devani found a purchaser for the flats he would be paid his commission.  Further, Lord Kitchin noted that in cases such as the present one, there was no need to imply a term into the agreement as to when payment would be triggered as it would naturally have been understood that payment would be due at the point of completion of the transaction.

The Court further dismissed Devani’s appeal on the s18 Estate Agents Act issue.  The Supreme Court upheld the Court of Appeal’s decision to grant Devani relief but reduce his fee by a third.

Key points

• Whilst some contracts can only be created by satisfying strict requirements (such as those disposing of land) many do not.  The case offers a further reminder that contracts may be formed not just by the words spoken but also by the conduct of the parties.  As Lord Briggs stated in his judgment sometimes the context in which the words are used and the conduct of the parties tell as much, if not more, about the bargain reached than the words themselves.
• The Court will not allow parties to try to avoid their contractual obligations by relying on the imprecise nature of words.  However, if the words and conduct are vague it may be much more difficult to piece together the terms of any agreement reached and the Courts will be far more reluctant in those circumstances to conclude that a binding agreement had been reached.