The recent Supreme Court case of Wells v Devani [2019] UKSC 4 considered oral contracts and offers guidance for ensuring key terms are binding and how the court will deal with interpretation.

Facts

A property owner, Wells, was referred to an estate agent, Devani, to assist with the sale of flats. During an initial call Devani discussed that the commission would be 2% (plus vat) but did not discuss the trigger event for payment of this.  Devani submitted their terms of business only after the sale had been agreed and so relied on the earlier telephone conversation to claim that commission was due. Wells argued that the trigger event for the payment of commission was not stated on the telephone call and therefore the terms were too uncertain to create a binding contract.

Decision

The Supreme Court held that there was a binding contract between the parties as the parties had intended the call to create a legal relationship.  The court considered the standard test of what a reasonable person in the position of the parties would have understood the words and conduct to mean. Lord Kitchin stated:

“the courts are reluctant to find an agreement is too vague or uncertain to be enforced where it is found that the parties had the intention of being contractually bound and have acted on their agreement.”

Here the parties had clearly conducted themselves in a way which would be expected of an estate agent and a property owner. The estate agent located and introduced a prospective purchaser. The property owner then sold the properties to that same prospective purchaser.

Lord Kitchin also referred to Lord Neuberger’s decision in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72 that a court will only imply a term into an existing contract if it is necessary for business efficacy or it would be so obvious that “it goes without saying”. Lord Kitchin considered it unnecessary to imply terms into the contract in this case as the oral contract was already binding on the parties but added that it would be acceptable to imply a term between a property owner and estate agent that commission will be payable on completion of the sale of the property to a person introduced by the agent ([2019] UKSC 4 at 34).

Practical points

The case restates the position that the starting point for contractual interpretation will be considering the reasonable persons view rather than seeking to get the court to imply a term in the contract.   Both the words and conduct of a party will be considered together so terms can be clearly made through the conduct of a party.  If necessary however the court will consider if any terms should be applied to give business efficacy to a contract.

The facts of the case remind us of the importance of agreeing terms in writing before the contract is concluded. The claimant was only forced to rely on an oral contract because the written terms had been sent to the respondent after the sale had been agreed. It is important to ensure that there is a clear contractual trail to avoid misunderstandings and disputes.