England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE SLOUGH COUNTY COURT
(HIS HONOUR JUDGE HARRIS QC)

		Royal Courts of Justice Strand, London, WC2A 2LL
		8th February 2012

Lord Justice Lloyd:

1. This appeal is brought by the defendant to the proceedings below against an order by HHJ Harris QC, made at the trial of the action by which, having dismissed the claimants' primary claim for £30,000 under a contract, he awarded them £6,000 on a quantum meruit basis. The defendant argues that the claimants' claim lay in contract alone and that the judge's quantum meruit award was, as it were, a consolation prize to which the claimants are not entitled. Permission to appeal was granted by Tomlinson LJ on the papers.
2. The situation from which the relationship between the parties arose was a little unusual. The defendant, Mr Hopper, had inherited 35 acres of land near Henley, part of a property called Sheephouse Farm. Mr Schwarzenbach owned adjoining land. The defendant was willing to sell his land so long as he got a high enough price. Mr Schwarzenbach was interested in buying it. He had offered the defendant first £2.5 million and later £2 million. Mr Hopper wanted a great deal more.
3. He had not instructed any surveyor or other professional to advise him about the land, so far as appears. That was the position when the claimants were introduced to the defendant by a mutual acquaintance in Henley.
4. The claimants were in business as "property consultants". The claimants and the defendant met at a restaurant run by their mutual acquaintance on 6 October 2009. They came to an agreement, either then or at a following meeting a week later, but this was not recorded in or followed up by any document and the parties were at odds at the trial as to the terms of their agreement.
5. The claimants' pleaded case is set out in paragraph 6 of the Amended Particulars of Claim. According to this, the claimants were retained as sales agents in respect of the property and would market it privately and would provide services to the defendant in attempting to encourage Mr Schwarzenbach to make an acceptable offer, resulting in a sale. If the defendant sold, either to Mr Schwarzenbach or to anyone else, at a better price, that is to say a better price than the £2 million already offered, then if the claimants had provided assistance to the defendant in causing the purchaser to make this higher offer, the claimants would be entitled to a commission of 1% of the sale price.
6. The defendant's pleaded case at paragraph 5 of the Amended Defence is that the deal was that if the claimants could secure a sale of the property at a price exceeding £2 million, whether to Mr Schwarzenbach or to anyone else, he would pay them 1% of the excess over £2 million.
7. The judge held at paragraph 21 of his judgment that the commission was to be 1% of the whole price. That was his decision as to the one significant point in dispute on the terms of the contract. Thus, although in practice Mr Schwarzenbach was always the most likely prospect, the claimants' terms of engagement allowed them to market the property privately to any potential buyer and if they procured a sale at a price exceeding £2 million then they would get 1% of the sale price. Critically, it had to be their efforts that led to, or at least affected, the agreement of the higher price.
8. In due course Mr Schwarzenbach did make an increased offer of £3 million and the property was sold to him at that price, but the judge held that this was not affected by anything done by the claimants. To explain how that came about and also how the basis of the judge's quantum meruit award came about, I must continue the story in summary from the meetings at the restaurant.
9. On 14 October 2009 the claimants went to see the land. The first claimant contacted the local council to discuss what possibilities there might be of development. She was told that there could not be any commercial development except for equestrian use. She passed this information on to the defendant.
10. On 1 November 2009, the second claimant learned from a friend that there might be a lot of gravel in the property. The first claimant told the defendant this and, according to her evidence, he was interested and pleased with this, thinking that it might give Mr Schwarzenbach a serious incentive to increase his offer to avoid the risk of finding himself with a gravel pit operation as a neighbour. The defendant's evidence as to this was less positive, but he did say that he agreed to the claimants pursuing the question of the gravel.
11. The claimants then contacted another acquaintance who knew someone who had access to geological survey data. Their acquaintance, Mr Folley, would speak to this surveyor and would then get back to the second claimant.
12. On the evening of 17 November 2009, the surveyor sent to Mr Folley an email reporting an estimated 700,000 tonnes of gravel in 25 acres of the land which would be very promising, although planning permission, he said, could be a problem.
13. Mr Folley said that he passed this on to the second claimant by telephone in the morning of 18 November. She said in her evidence that she had given this information to the defendant on 17 November, but the judge held that this cannot have taken place before 19 November, since Mr Folley did not have the information himself until late on the 17^th and there was no record of any phone call having been made by either of the two claimants to the defendant on the 18^th.
14. In the meantime, on 18 November, Mr Schwarzenbach had increased his offer to £3 million and the defendant had agreed to this, albeit of course subject to contract. The defendant did not tell the second claimant of this when she rang him on or soon after 19 November to pass on the information that they had obtained about the gravel.
15. In paragraph 12 of the Amended Defence, the defendant set out his version of what happened at that point. His response to being told that there were 700,000 tonnes of gravel on the property was said to be as follows:

"The Defendant said that he needed to know the net value of the gravel. The First Claimant [this is on the premise that the conversation was with the first claimant but with whomever it was] said that there was no hurry as they had weeks or months to approach Mr Schwarzenbach. The Defendant replied that he needed to know now."

16. In order to satisfy that requirement of the defendant, the second claimant set up a meeting to take place at the same restaurant on 26 November, which was to be, and was, attended by the second claimant, the defendant, and Mr Folley. It was not until that meeting that the defendant told the second claimant, and at the same time Mr Folley, of the offer of £3 million from Mr Schwarzenbach. Mr Folley told him that the gravel would be worth, in net terms, £1.4 million, but that it would take a considerable time to extract. He may have referred to the difficulties as regards planning permission.
17. The defendant tried to persuade Mr Folley to offer more than £3 million for the land, including the gravel, but Mr Folley made it clear that he was only interested in paying for gravel as and when it was extracted and said that the defendant would be better off sticking to Mr Schwarzenbach's offer of £3 million.
18. The second claimant asked the defendant about the claimants' commission on that occasion, and he said:

"Don't worry. Of course you will be paid."

19. Later, in the early part of 2010, by which time the sale had gone through but nothing more had been done on the part of the claimants, for obvious reasons, the defendant offered the claimants £5,000 between them in cash, which they rejected. These proceedings followed.
20. The judge found himself unable to place much reliance on the evidence of either the first claimant or the defendant, for reasons which he explained. He had some reservations about the evidence of the second claimant as well, but was able to accept it for the most part. He also had evidence from Mr Schwarzenbach's estate manager, Mr McGregor, who conducted the dealings with the defendant on behalf on behalf of Mr Schwarzenbach. He said that he knew about the gravel and was not interested in it, or worried about it, because the grant of planning permission to extract it was most improbable. Thus, for all that the second claimant managed to get some information for the defendant about the land, which could have been of some relevance and interest and which the defendant did not already know, and which, once he knew of its possibility, he wanted to know more, this had no impact on the dealings between the defendant and Mr Schwarzenbach because, at the most basic level, the defendant was not told of this information until after the increased offer had been made and had been accepted. That is why the contractual claim to £30,000 was dismissed.
21. The claimants had pleaded an alternative claim based on quantum meruit "for their services (provided to the Defendant at the Defendant's request and on the basis that the claimants would be paid for such services)": see paragraph 7 of the Amended Particulars of Claim. This was said to lead to an entitlement either to 1% of the sale price or to such reasonable rate of remuneration as the court considered fit.
22. In paragraph 10 of the Particulars of Claim, they pleaded the investigation as to the gravel resources and, as I say, what followed was dealt with appropriately in evidence.
23. The defendant's response to the quantum meruit claim in the defence was that if any relevant services were provided, that not being admitted, this was on the basis that the claimants would be paid if, and only if, their actions brought about a sale at a higher price.
24. The argument for the defendant on the appeal is that all that the claimants did was done under and in pursuance of the contract, and that, given that it did not earn the claimants the commission under the contract, it could not entitle them to anything else. As against that, for the claimants it is contended that the investigation of the gravel factor and arranging the meeting with Mr Folley was distinct from what would or could have been done under the contract and was done at the defendant's request and should therefore be paid for in any event, even though not pursuant to any entitlement under the contract and even though the principal issue under the contract of the 1% commission did not arise because they were not the effective cause of the sale at the increased price.
25. We were shown Debenham, Tewson & Chinnocks v Rimington [1990] 2 EGLR 21. Both parties rely on that case. The defendant relied on it for the proposition that, if the contract provides for commission on negotiating a sale, there is no scope for a quantum meruit award in place of the commission, a proposition which is not in dispute.
26. Conversely, it was relied on by the claimants to show that other work done by the claimants at the request of the defendant, distinct from that which was done under the contract, can and should lead to a quantum meruit award. The claimants' submission is that the present is also a case of extra work done at the defendant's request going beyond the scope of the contract.
27. The basis of the judge's award is stated fairly succinctly at paragraphs 25 and 26 of his judgment. After he had explained the failure of the primary case, the judge went on as follows:

"25. However the case is also pleaded as a claim for quantum meruit for their services. The defendant on several occasions told the claimants they would get their money, and was happy to have them go on working for him in case anything useful cropped up. He in the end volunteered that he accepted that they had done useful work for him and that he should pay them. They did do some work; Mr Hopper conceded that they did. He valued their investigative work, as he called it, at £5,000. No details have been provided by the claimants of the hours they actually put in, or of any expenses apart from some drinks at the La Bodega restaurant incurred. There was no evidence about the appropriate hourly rates for amateur or even ex-professional property consultants, and neither claimant gave any idea of their normal charges for non-commissioned work. The first claimant had not, I imagine, ever done any at the material time. But if £5,000 were taken as an appropriate figure and the £100 an hour was thought an appropriate remuneration, that represents 50 hours or six full days of work.

26. The evidential position here is less than wholly satisfactory but the defendant cannot complain if something like his own valuation is taken. I suspect, however, from his nature that he is likely to have erred somewhat on the side of parsimony; I therefore propose to award £6,000 to the claimants on the basis of a quantum meruit."

28. For the defendant, Mr Jonathan Miller criticises this on the basis that it proceeds on the footing of the defendant's statements made after the work had been done, and on the footing of his tender of £5,000 attributable, if to anything, to their investigations about the gravel. In turn, it can be said that those investigations were undertaken while the contract was on foot and therefore in the hope of earning and in order to earn the 1% commission. In fact it did not secure that result, both because of the timing of the supply of the information by the claimants to the defendant and because in any event Mr Schwarzenbach would not have been influenced by any statement made by the defendant about the gravel. It is said that a voluntary offer of compensation, albeit not made without prejudice, should not be treated as an admission.
29. One thing that can be said in favour of the claimants is that, even though the defendant had secured the higher offer from Mr Schwarzenbach on 18 November to which he had agreed, he did not then tell them of that agreement, nor tell them to discontinue their activities. To the contrary, on being told, after the agreement on price, of what they had found out from their contact with Mr Folley, he asked for information about the net value of the gravel and agreed to and attended a further meeting at the restaurant on 26 November. That cannot have been done with a view to securing an enhanced price from Mr Schwarzenbach.
30. From the defendant's point of view, the point of the meeting with Mr Folley was to find out more about the gravel, its significance and value, and to see if Mr Folley would offer a higher price. It cannot realistically have been with a view to putting further pressure on Mr Schwarzenbach, since the price of £3 million had already been agreed with him.
31. From the claimants' point of view, not knowing of the defendant's agreement with Mr Schwarzenbach, the point of the meeting must have been in order to explain the possibility of putting pressure on Mr Schwarzenbach. The defendant's case, in paragraph 12 of the Amended Defence which I have quoted, shows that the claimants thought the position with Mr Schwarzenbach was still wide open, and they were not disabused of that, although it was plainly no longer the case. In that respect they proceeded on a false basis because the defendant did not tell them of his agreement with Mr Schwarzenbach.
32. It is clear that Mr Schwarzenbach was always by far and away the best prospect, and that he was so regarded both by the claimants and by the defendant. It is a matter of speculation what the claimants would have done if told on 19 November, in response to the second claimant's telephone call about Mr Folley, that the defendant and Mr Schwarzenbach had agreed on £3 million as the price. If they had gone ahead as they did, at least it would have been with their eyes open, and they might have sought reassurance as to commission or remuneration in some other form, as the second claimant did at the meeting on 26 November once she knew about the higher offer.
33. Thus, although the claimants must have supposed that all they did up to 26 November was done under the contract and therefore at their own risk if it did not influence the eventual sale price, in fact what they did at the last stage from 19 November onwards was done under a fundamental misapprehension.
34. Accordingly, and bearing in mind the way that the matter is put in paragraph 12 of the Amended Defence, it seems to me that arranging and attending the meeting on 26 November was not in reality done under the contract. Rather, when the defendant asked the second claimant to arrange the meeting, or agreed to them arranging that meeting on 26 November, and attended that meeting, that was something done at his express request, which went beyond the scope of the contract. That is a proper basis for an award on a quantum meruit basis.
35. In Debenham, Tewson & Chinnocks v Rimington, what earned the agents their quantum meruit award in that case was their attendance at a meeting with the buyers' valuers, not in order to negotiate a price but to discuss value, which would then inform or potentially influence the negotiations between the principals. That was something which was within the scope of the contract under which the agents were acting but was not provided for in terms of remuneration.
36. For the claimants, Mr James Stuart argued that this was the basis of the judge's quantum meruit award, that it was comprised well within the ambit of the quantum meruit claim as it had been pleaded, and that the judge's reasoning was entirely sound and justified. He contended that, although the judge referred to investigative work done before 18 November, the point of that had been to obtain the information that was passed on to the defendant after 18 November in relation to which the defendant asked the claimants to give him further help by finding out the net value of the gravel and for that purpose, to set up the meeting of 26 November.
37. He argued that the judge's evaluation of the award was by reference to the value of the information obtained and supplied to the defendant, not by reference to time spent. It was legitimate, he submitted, to take into account the defendant's own valuation of the benefit in the form of his later cash offer.
38. So, he submitted, the judge's award could only, but it did only, reflect the value of the services provided to the defendant after 18 November at his request, being something which could not in the particular circumstances be attributed to the contract, or treated as done at the claimants' risk.
39. For the defendant, Mr Miller argued that everything done by the claimants was done under the contract and that it was of no ultimate value, and that the only thing that was done after 18 November was a very limited amount of activity, still at the claimants' risk, and of very limited, if any, real value.
40. In reply, he sought to downplay the reference to the defendant's request in paragraph 12 of the Amended Defence to his need to know the value of the gravel, a submission which I find less than convincing. He also made the point that this very limited amount of activity produced at most only a very limited benefit indeed for the defendant. As to that, it may be a fair comment in the end, but it is something that the defendant was interested in finding out and he said that he did not just want it, but he needed to know it, and needed to know it immediately. He further argued that it was not unjust for this modest amount of activity to be treated as having been undertaken by the claimants at their own risk.
41. He showed us a reported decision, Stephen Donald Architects Ltd v King [2003] EWHC 1867 (TCC) at paragraph 80, but that was a very different case of work done in anticipation of a contract. I find no help in that case in resolving the narrow issue in this appeal.
42. I prefer Mr Stuart's submissions on behalf of the claimants. Although up to 18 November all that was done by the claimants was consciously at their own risk, the position changed on that date. In the telephone conversation which I assume took place on 19 November the defendant was interested in the information that was supplied and wanted to know more about the value of the gravel. He asked the claimants to find out more and, accordingly, the second claimant set up the meeting for that purpose. Although the claimants thought that this was still pursuant to the contract, in fact it was not, as the defendant knew. It follows that this was work done outside the scope of the contract for which no price or remuneration had been fixed under the contract. In those circumstances it is proper for the court to determine the appropriate award on a quantum meruit basis.
43. The judge explained his approach in principle and as regards the amount in his judgment succinctly, and without unnecessary elaboration. I accept Mr Stuart's submission that, although he referred to a calculation by reference to time and to hourly rates, in fact he evaluated the benefit to the defendant in the round and was justified in doing so.
44. There is no appeal on quantum and Mr Miller's criticism of the judge's reasoning on quantum does not succeed in demonstrating that the award was wrong in principle. Accordingly, I find the judge's award of £6,000, which is one-fifth of what the claimants could have earned under the contract, fully justifiable in the rather unusual circumstances of the case, and I would dismiss the appeal.
45. As a postscript, I should mention that it seems that the claimants were blissfully unaware of their need, carrying out estate agency work, to comply with s.18 of the Estate Agents Act 1979 and the regulations made under that section. If they had so complied, there would not have been a dispute as to the terms of the contract. As their commission claim failed in any event, it is unnecessary to consider the effect of their non-compliance with the Act and the Regulations, a point in any event not taken on behalf of the defendant.

Lord Justice Aikens:

46. I agree that this appeal should be dismissed for the reasons given by Lloyd LJ.

Sir John Thomas:

47. I also agree.

ORDER: Appeal dismissed