The recent UK Supreme Court decision in Wells v Devani [2019] UKSC 4 sits at odds with current Australian approaches to incomplete contracts.

Australian law provides that if an essential term has not been agreed then a contract cannot be enforced. However, if the parties have not included terms because they are content for them to be implied by a court, then the contract is already sufficiently certain and complete and the court can imply the missing elements, including for example, reasonable price (that can be implied for example through Sale of Goods legislation). The focus is always on identifying what the essential terms of the bargain are.

The Wells decision appears to relax requirements in the UK that parties expressly agree on essential terms and provides courts with more leeway in filling gaps existing at the time of formation to give effect to what the court determines is the likely intention.

While the Wells decision is a significant development in UK case law, in our view it is unlikely that Australian courts would adopt the approach taken as the High Court has never sought to move away from requirements of completeness and certainty for essential terms.

Background

Mr Wells wished to sell some properties. Mr Devani, an estate agent, told Mr Wells that he charged a commission on sales of 2% plus VAT. After finding a buyer for the properties, Mr Devani sent Mr Wells an email with further terms, including a request for his commission. Mr Wells refused to pay on the basis that timing of payment of commission had never been agreed and therefore the agreement was void.

The trial judge accepted that there was no express agreement as to the precise event which would trigger Mr Devani’s entitlement to his commission. However, the trial judge held that the law would imply the minimum term necessary to give business efficacy to the intentions of the parties, which was that the commission was payable on completion of the sale to a purchaser introduced by Mr Devani.

The majority of the Court of Appeal allowed Mr Wells’ appeal on the basis that:

  • the trigger for payment was essential to the formation of legally binding relations; and
  • the court could not imply or incorporate a term after the event to turn an incomplete bargain into a legally binding contract.

Decision of the UK supreme Court

The UK Supreme Court overturned the decision of the Court of Appeal and Lord Kitchin (with whom the other Law Lords agreed) held that:

  • the “only sensible interpretation” of the parties’ words and conduct was that payment of commission was due on completion; and
  • it would be naturally understood that the parties intended the commission to be payable on completion and from the proceeds of sale.

Lord Kitchin further held that even if the event which triggered the entitlement to commission was of “critical importance”, it did not need to be express, and a failure to expressly agree did not mean the contract was necessarily incomplete. The Court was entitled to interpret the agreement to incorporate the trigger for payment, and as a result, there was no need to imply such a term into the agreement.

However, Lord Kitchin refused to accept that there is “any general rule that it is not possible to imply a term into an agreement to render it sufficiently certain or complete to constitute a binding contract” , and stated there he would have had no hesitation in implying a term into the agreement had it been necessary to give the agreement efficacy.

In effect, Lord Kitchin expressed the view that terms can be implied into an offer or the formation of a contract in order to make it operate as construed to be appropriate.