Scottish Court of Session Decisions

[1] The pursuers are estate agents. On 1 May 1996 the defenders approached the pursuers in connection with the sale of a property known as "The Doghouse" in Drymen. The contract, which was in writing, provided that the pursuers should have "sole selling rights" in relation to the property, so long as the contract subsisted. The contract could be terminated by two weeks notice. After the conclusion of the contract, the pursuers carried out certain steps with a view to selling the property, but without success. The defenders became dissatisfied and on 28 April 1997 the first defender wrote to the pursuers giving the necessary two weeks notice to terminate their engagement. That notice was acknowledged by the pursuers. Thereafter the defenders instructed another estate agency to undertake the sale and on those instructions the second agency, Clyde Property Estate Agency, placed an advertisement for the property in the Herald newspaper of 7 May 1997. Clyde's advertisement came to the notice of Mr. and Mrs. Renfrew who became interested in the property and sought particulars of it. It so happens that the pursuers' office and the office of Clyde are both in Drymen Road, Bearsden and not far apart. By accident, Mr. Renfrew went into the pursuers' office and obtained particulars of the property from them. Subsequently, Mr. and Mrs. Renfrew visited the property and eventually entered into a contract to purchase it at a price of £225,000. In this action, the pursuers claim payment of commission alleged to be due on the sale of the property in terms of their contract with the defenders. The action was raised in the Sheriff Court at Dumbarton and eventually went to proof before the sheriff who, by an interlocutor dated 8 April 1999, assoilzied the defenders from the crave of the writ. The pursuers appealed to the sheriff principal, who refused the appeal by an interlocutor dated 27 April 2000. The pursuers now appeal to this court.

[2] When the action was before the sheriff, the pursuers' principal contention was that what they had done by providing particulars to Mr. Renfrew was sufficient to amount to an "introduction" of Mr. and Mrs. Renfrew to the defenders, in the sense of the contract and that they were entitled to payment of commission on that ground. The sheriff examined the evidence with great care and rejected that contention. It was repeated before the sheriff principal but the sheriff principal, again having considered the evidence with care, rejected it. The pursuers did not seek to reopen that contention before us. The argument which they did present was that, in terms of the contract, they were entitled to payment of commission even though they could not be regarded as having done anything, by way of introduction or otherwise, to bring about the eventual sale. There were some slight references to this second contention in the proceedings before the sheriff but it was not part of the pursuers' principal submissions at that stage. It was, however, fully argued before the sheriff principal and it was the only contention advanced in the appeal. The pursuers' counsel indicated that this question, which is purely one of construction of the contract, was regarded as one of principle and of importance to estate agents generally, and that this justified an appeal, notwithstanding that the sum sued for is only £1,982.82.

[3] Before referring to the particular terms of the contract in this case, it is convenient to refer to the Estate Agents (Provision of Information) Regulations 1991. These regulations were made under section 18 of the Estate Agents Act 1979, in terms of which the Secretary of State is empowered to prescribe information to be given by an estate agent to his client as respects, inter alia, services which the agent is offering to any prospective purchaser. Regulation 5 is in the following terms:

Similar provision is made by paragraphs (b) and (c) in regard to the other two terms previously mentioned and the paragraph continues:

[4] There is also provision as to the prominence which is to be given to the explanation in any document. The Schedule is headed "Explanation of certain terms" and provides:

[5] In Michael Harwood trading as R.S.B.S. Group v. Smith and Another [1998] 1 E.G.L.R. 5 at page 6, Hobhouse L.J. said:

[6] We are happy to adopt that as an accurate expression of the mischief to which the Act and regulations were directed.

[7] The contract in the present case was dated 29 May 1996. By it, the defenders granted to the pursuers sole selling rights, as defined at the foot of page 2 of the contract. There was provision for the steps which were to be taken by the pursuers, such as the preparation of particulars and insertion of advertisements, and there was also provision for payment for advertisements and for a fee of three quarters of one per cent of the selling price achieved, subject to a minimum charge. The contract included, on the second page, a statement in the form prescribed by the regulations above quoted, in the case of a "sole selling rights" contract. The issue in the present case concerns the interpretation of the second sub-paragraph of that provision, which is applicable in this case because missives between the defenders and Mr. and Mrs. Renfrew were concluded after the date of termination of the pursuers' engagement by the defenders.

[8] As we have mentioned, the principal issue before the sheriff was whether the pursuers were entitled to payment of commission on the ground that they had, for the purposes of the contract, introduced the purchasers to the defenders. The sheriff did, however, hear some argument about the contractual position and in his note he observed:

[9] The sheriff principal refers to what was said by the sheriff and remarks that he suspected that the sheriff dealt with this point on the basis of minimal submissions. The sheriff principal then refers to the case of Harwood supra and certain other authorities and to the provisions of the Act and regulations. Having considered submissions made to him, the sheriff principal concludes that the wording of sub-paragraph (b) is entirely ambiguous and he proceeds to refer to the principle of construction contra proferentem. He acknowledges that the wording has statutory authority and that no previous authority had been cited to him in which the contra proferentem principle had been applied to statutory words, but points out that the pursuers had opted for "sole selling rights" and thus inserted the definition into the contract as one of its terms; in that way they became the proferentes. Applying the contra proferentem rule, therefore, the sheriff principal read the contractual provision in the same sense as the sheriff had done and refused the appeal.

[10] In his submissions, counsel for the appellants began by submitting that there were three basic forms of estate agency contract, namely the three forms indicated in the Schedule to the regulations, and that these were forms of contract which had been known and familiar before either the Act or the regulations. By way of illustration, he referred to Luxor v. Cooper 1941 A.C. 108, Brodie, Marshall & Co (Hotel Division) Ltd. v. Sharer [1988] 1 E.G.L.R. 21 and Property Choice Limited v. Fronda [1991] 2 E.G.L.R. 249. The interpretation favoured by the sheriff and the sheriff principal involved introducing a gloss on the wording in the contract, and in the regulations, by introducing the words "by us" as a qualification to the word "introduced". On that point he made four submissions. Firstly, if the draftsman had meant that meaning to be given to the phrase, he could easily have said so. The wording of the clause as it stood involved a change of voice from the passive "who was introduced to you" to the active "with whom we had negotiations" and that was an indication that in the earlier phrase it was the fact that the introduction had occurred which mattered, not who effected it. Secondly, he pointed out that in every other case mentioned in the Schedule there was a qualification attached to any reference to introduction to indicate who must do the introducing; there was no qualification in this clause. Thirdly, the Act and the regulations had not been designed to change the law but simply to describe the existing law and make matters more clear to the lay client. Fourthly, it was important to bear in mind what the purpose of the second part of the definition was, namely, to prevent avoidance of the agent's claim for commission. It would be easy for a seller to terminate the estate agent's contract, if, for example, he received an approach from a private buyer, and so avoid liability. That would destroy the utility of the sole selling rights contract and would elide the distinction between that contract and a sole agency contract. The contracts represented different levels of commitment on the part of the client to the estate agent and that difference was, in ordinary practice, reflected in different levels of commission. More generally, counsel submitted that the construction of this contractual provision should be approached in the same way as statutory construction, that is to say by trying to determine the intention of the draftsman rather than to determine, on a contractual approach, the intention of the parties. There was no point in the latter approach in this situation, in which there was no choice as to the wording to be used. Even if the matter was approached as a matter of contractual interpretation, at least three of the four points previously made applied. It was important to avoid an unreasonable business result: counsel referred to L. Schulerac v. Wickman 1974 AC 235 and to the speech of Lord Reid at 251, and to The Antaios 1985 A.C. 191.

[11] Turning to the decision in Michael Harwood supra, counsel submitted that although the decision in that case appeared to favour the construction put forward on behalf of the defenders, there were material distinctions. There had been a concession that the word "introduction" was satisfied even by a chance meeting of eventual purchaser and seller without the intervention of a third party: counsel would not repeat that concession, which he submitted was erroneous. That error significantly affected the construction of the relevant phrase. Counsel further submitted that, although in many instances it was desirable that courts in Scotland and England should follow the same approach to contractual provisions regularly used in both jurisdictions, uniformity was not an end in itself. Further, he submitted that the court in Michael Harwood had tended to follow an exclusively contractual approach to the construction of the phrase, which did not give due weight to the effect of the statute. Finally, counsel submitted that where the relevant wording was prescribed by statute, there was no place for the application of the principle of interpretation contra proferentem, and he referred to Stair Institutions IV.42.21, Erskine Institute III.iii.87 and Gloag Contract second edition p. 400.

[12] Counsel for the respondents submitted that the issue in this case had been determined by a unanimous court of appeal in Michael Harwood supra and that the case was indistinguishable. It must be borne in mind that the client would only see the particular contract into which he entered and that therefore he would not have the opportunity of referring to the wording applied in the other two forms of contract as a guide to understanding what the contract meant. The sheriff principal had been correct in saying that, although the wording was prescribed by statute, the agent had the option as to which form of contract to propose and, if he chose to propose this form, then he should be regarded as the proferens in relation to it. It had been submitted that the regulations were not intended to change the law but there was no real basis for that submission and clearly the regulations had been intended to clarify the law. Even if the defenders' submission was accepted the argument that the distinction between sole agency and sole selling rights would be elided was incorrect. As regards business efficacy or reasonableness, it was equally unreasonable that a client should require to pay the estate agent in circumstances in which the agent had played no part in bringing about a sale. The phrase "introduced to you...or with whom we had negotiations" was to be read as a whole, not disjunctively, and if it was so read the construction adopted by the Court of Appeal could clearly be seen to be correct.

[13] The decision in Michael Harwood supra is clearly of great importance for this case. We do not propose, however, to go through the facts and the reasoning of the court in detail. It is sufficient to say that it was a case involving a contract which included the same definition of sole selling rights as the present contract, and that it is clear that it was a case in which the parties to the eventual sale, as Hobhouse L.J. observed, simply found one another without the need for anybody to introduce them. However, in the court below, the judge had ruled that there was an introduction of the purchaser to the defendants during the specified period in the sense that the introduction was effected by the purchaser himself, and counsel for the defendants chose not to quarrel with that finding. It may also be observed that the case was not solely concerned with a claim for commission but that questions of a possible claim for damages also arose. The material parts of the reasoning which led to the decision seem to us to be found in the following passages. Hobhouse L.J. said:

[14] Hobhouse L.J. went on to say that that was a conclusion reached on the language of the provision itself. He also dealt with certain further arguments which do not, in our view, affect the central question of the construction of the contract terms. Pill L.J. gave an opinion to the same effect, although he expressed reservations about the question of what constituted an "introduction" and also noted that the court was being asked to construe the particular words of the clause in question without reference to the rest of the contract. Mummery L.J. also agreed and said, inter alia,

In the light of these passages, it seems to us that there is no doubt that the decision reached by the Court of Appeal was primarily and directly based on a construction of the wording of the sub-paragraph in question. Since, as was pointed out in argument, that paragraph is set out in regulations which are common to England and Scotland, we would be reluctant to differ from the construction arrived at by the Court of Appeal without clear reason. There is, however, at least one potentially significant difference between the argument presented to the Court of Appeal and the argument before us, which makes it necessary, in our view, for us to re-examine the question.

[15] That difference relates to the concession made in the Michael Harwood case in regard to what is meant by "an introduction". The effect of that concession is that the construction of the clause proposed by the estate agents in that case would have had the effect of entitling the agents to payment of commission where a sale was concluded after the expiry of the contract period with a purchaser who had simply met the seller by chance and had not been brought into contact with the purchaser by any agent. It seems to us that it is a concession which is very hard to justify. It is true that a person may be said to "introduce himself", but that seems to us to be a rather special use of the term. In our view, the ordinary meaning of the word "introduction", used without qualification, is something effected by or through an intermediary. There is no reasoning to justify a different meaning quoted in Michael Harwood supra. Further, in the first sub-paragraph of the definition of "sole selling rights", (that is the paragraph which applies when missives are concluded during the contract period), the wording is "even if the purchaser was not found by us but by another agent or by any other person, including yourself". It is therefore made clear that no "introduction" in any normal sense, that is, of one person being brought into contact with a second person by the agency of a third, is required for the purpose of that sub-paragraph. On the other hand, the second sub-paragraph plainly applies only where an "introduction" is effected or there are negotiations. In our view, therefore, counsel for the pursuers was correct in his submission that the concession made in Michael Harwood was not sound.

[16] It is also, we think, necessary to say something at this stage about the proper approach to construction of the contract. We were not referred to any authority in which the contra proferentem rule had been applied in circumstances like those of the present case. The principle, as we understand it, is that where the terms of the contract are, in effect, dictated by one party and can only be accepted or rejected by the other, the contract should, where the meaning is doubtful, be read in the sense least advantageous to the party who drafted it. We find it difficult to see how that principle can be said to apply in the present circumstances, in which the contract terms were not drafted by the pursuers, but were derived from a source which carries some degree of approval by a government authority, presumably with consumer protection in mind. It is true that the purpose of the Act and the regulations is to require information to be given by the estate agent to the client. Neither the Act nor the regulations actually set out to control directly the content of estate agents' contracts, as is illustrated by the provisions of Regulation 5(2) and the proviso to Regulation 5(1). The element of official approval involved should not, therefore, be overemphasised. Nevertheless, there is some element of official approval, which suggests, at least, that, so far as the regulatory authorities are concerned, the wording is a sufficient explanation of the nature of the contractual rights created to satisfy any demands of consumer protection in this context. That situation is very far from the normal one in which the contra proferentem principle is applied and, in the absence of any directly relevant authority we would be reluctant to apply it here.

[17] On the other hand, we do not think that the so-called statutory approach to construction, suggested by counsel for the appellants, is appropriate. There are two reasons for that view. The first is, that the arguments put forward by counsel proceeded by comparing the different definitions of contractual terms set out in the Regulations and drawing inferences from those differences, while the particular client in a particular case will only see one form of contract and it is that form of contract which has to be construed. The second is that, as we have indicated, we do not think that the Regulations can be regarded as prescribing contract terms, since the only statutory authority is to make regulations requiring the provision of information. Further, although the proviso to Regulation 5(1) and Regulation 5(2) are not easy to understand, they do seem to imply that it is not compulsory to use any of the terms defined in the regulations when entering into a contract. It follows, in our opinion, that the only approach which can be taken in this somewhat unusual situation is to attempt to construe the relevant clause, in its context in the whole contract, on the ordinary contractual basis, that is by attempting to construe it as an agreement reached between equal parties.

[18] As we have said, the decision in Michael Harwood was reached as a matter of construction of the contract words. The points we have discussed do not touch on anything essential to the decision in that case. They might perhaps, however, place the central question of construction in a slightly different context, and that is why we have thought it necessary to reconsider that central question. On any view, the first sub-paragraph of the clause is quite clear. It says that if missives are concluded during the contract period, then the agent receives commission, however the sale was brought about. The second sub-paragraph unfortunately is not clear. In framing the second sub-paragraph, the parties might have set out to treat the position when missives are concluded after the end of the contract period in the same way as the first sub-paragraph deals with the situation where missives are concluded before the end of the period. That, however, is plainly not what is done. On the view which we take, the second sub-paragraph does not give the agents any right to remuneration when missives are concluded after the end of the contract period with a purchaser found by the seller himself (i.e. when there is no "introduction"). As a result, it is not possible to use the first sub-paragraph as an aid to discerning the intention of the parties in regard to the second sub-paragraph. Further, the rights conferred on the agent by the second sub-paragraph must be less than those conferred by the first sub-paragraph. The question then is, how much less?, and that can only be answered by considering the second sub-paragraph on its own terms. If the second sub-paragraph is looked at on its own, it is clear that the agents can only claim remuneration on the basis of "negotiation" if they have themselves carried out negotiations with the eventual purchaser. After some hesitation, we have come to the view that the reference to "introduction" should be read in the same way. The alternative would, we think, be that the word "introduction" must be taken to refer to an introduction by anyone, not merely one made by another agent (since the term is not expressly qualified or restricted). That would be difficult to apply and could have anomalous results, since the agent cannot claim fees where the purchaser finds a buyer himself but, on this construction, would be able to claim fees if the eventual purchaser was introduced by a friend or acquaintance. That does not seem to us to be a reasonable construction of the contract. If the first phrase of the second sub-paragraph had stood alone, it might well, we think, have had to be read in the sense proposed by the appellants, but, taking the provisions of the contract as a whole, we are not disposed to differ from the view taken by the Court of Appeal in Michael Harwood supra.

[19] In the result, we have come to the conclusion, perhaps for slightly different reasons, that the construction adopted by the Court of Appeal is correct and that the sheriff and the sheriff principal reached the correct result. The appeal will therefore be dismissed.