We report a Supreme Court ruling in a commercial contract case because of its wider contractual implications in our areas of practice. The Supreme Court has unanimously reversed a Court of Appeal decision in ruling that an agreement between an estate agent and seller was complete and enforceable despite not expressly identifying the event that would trigger the obligation to pay commission to the agent.

The facts of the case – Wells v Devani 13thFebruary 2019 – are probably quite typical where business is agreed over the phone or in meetings. Wells had developed a block of flats, half of which seven remained unsold. He spoke to an estate agent, Devani, and the two had a conversation about the flats. Devani told Wells how his commission was calculated but did not mention the event which would trigger its payment.Devani subsequently found a buyer for the flats. After Wells had accepted the buyer’s offer, Devani sent him his terms of business which stated that his commission was payable on exchange of contracts. When the sale was completed, Wells refused to pay the commission.The critical question was whether, in the course of the initial telephone conversation, Wells and Devani reached an agreement that was a legally binding contract.

Under the law of contract, a contract is created at the moment the parties reach agreement on all essential terms, without which there is no binding obligation. In determining whether the parties have reached agreement on all essential terms, the governing criterion is whether an honest and reasonable businessman would have concluded from the parties’ communications and conduct that they had agreed all the terms they considered to be a precondition to creating legal relations.

The Supreme Court ruled that the parties had clearly demonstrated an intention to creation legal relations, and that the only sensible interpretation was that commission would naturally be understood to have become payable on completion. The failure to expressly agree a commission trigger event did not, therefore, make the understandings between the parties so uncertain as to prevent the formation of an enforceable contract.