Sometimes Contracts Mean Just What They Say

We often come across cases where contracts do not mean exactly what they appear to say. Sometimes this is because the court implies a term into the contract to deal with a point which is not covered expressly. Sometimes a statutory provision affects the meaning, perhaps because the law has intervened to protect the interests of one of the parties. But in a recent case, the Court of Appeal held that a contract meant exactly what its words said and the result was that an estate agent lost a £2 million commission (plus legal fees).

The case concerned a building in central London where the agent, Mr Estafnous, had his offices. The owner agreed to pay the agent the commission in return for introducing a buyer. A contract provided for the commission to be paid on completion of the sale of the property to the intending buyer or any related or associated party. However, during negotiations it was agreed that the buyer would purchase the shares of the company which owned the property, rather than the property itself. As a result, the seller refused to pay the commission.

The agent accepted that, on a literal interpretation, the obligation to pay the commission was not triggered by the share sale. However, he argued that the commission agreement should be construed more loosely. He had introduced a buyer who had obtained effective control and ownership of the building and, he said, it should make no difference to his right to commission that the deal was structured as a share sale in order to effect a large stamp duty land tax saving.

The court accepted that the purpose of the company purchase was to acquire control of the building, but considered that to be of no relevance and inadmissible to the construction of the commission agreement.

Previous cases have established that the court has no power to improve on the document which it is called upon to construe. It cannot introduce terms to make it fairer or more reasonable. The court's task is to discover what the document means, which is not always what the parties intended; it is the meaning which the document would convey to a reasonable person having all the background knowledge...