Estate agency

Citation

Waterson, G. and Lee, R. (2001), "Estate agency", Property Management, Vol. 19 No. 4. https://doi.org/10.1108/pm.2001.11319dab.003

Estate agency

Estate agency

R v. Director General of Fair Trading ex parte Benhams Ltd [2001] 02 EG 146

This is an interesting case which clarifies the interpretation of certain provisions of the Estate Agents Act 1979, the Provision of Information Order and the Undesirable Practices Order 1991. In this case, two employees of the estate agency firm Benthams were dismissed because their employer had strong grounds to believe that they had been involved in acts which he considered amounted to breaches of the Estate Agents (Undesirable Practices No. 2) Order/1991 and the

Estate Agents (Provision of Information) Regulations 1991. The behaviour in question arose as the result of a sale of property in North London handled by the two employees of the firm in September 1998. There were at least four expressions of interest in the property at prices ranging from £1.1 million to £1.2 million but a sale for £950,000 was arranged to a particular buyer who had immediately sold the property on at a substantial profit. Upon investigation of events by the employer one of the negotiators admitted to having received £5,000 in connection with the sale and subsequent resale. The vendor of the property had had no knowledge of any financial arrangements between the purchaser and the two agents or any other services provided to the purchaser. Their employer had felt that their acts involved bribery and exclusion of other prospective purchasers and reported the matter to the Director General of Fair Trading.

In June 1999 the Director General of Fair Trading reported that no event had taken place that required him to take action under the Estate Agents Act 1979 to make a prohibition order or issue a warning. The Director General also refused a further request to reconsider his decision.

The applicants sought a judicial review of these decisions. The issue for the Court was therefore the circumstances in which the Director General of Fair Trading must consider exercising his powers under the Estate Agents Act 1979.

The applicant argued that the respondent should have invoked his powers under s. 3(1)(c) and s. 3(1)(d) of the Act. This section provides as follows:

(1) The power of the Director General of Fair Trading … to make an order under this section with respect to any person shall not be exercisable unless the Director is satisfied that the person …

(c) has failed to comply with any obligation imposed on him under any of sections 15 and 18 to 21 below; or

(d) has engaged in practice which in relation to estate agency work has been declared undesirable by an order made by the Secretary of State.

The applicant claimed that there were three grounds for the Director General's exercise of his power.

1. 1.

   Under s. 3(1)(c) the two employees had failed to give prescribed information to the vendors before they were committed to liability to the applicants in accordance with s.18(1)(a) of the Act and para 2(1)(a) of the Provision of Information Regulations.

2. 2.

   Under s. 3(1)(d) they had engaged in a practice that had been declared undesirable under the Undesirable Practices Order in that they had failed to forward promptly to the vendors an accurate list of services for which application had been made and not rejected prior to exchange of contracts in accordance with Article 2(b) and para. 2 of Schedule 2 to the Order.

3. 3.

   Under s. 3(1)(d) of the Act they had engaged in a practice that had been declared undesirable, by misrepresenting the details of the purchaser's offer contrary to Article 2(c) and paras 1 (a) and 2 of Schedule 3 to the Undesirable Practices Order.

In relation to the provision of information point, the Director General of Fair Trading argued that there had been no breach of the regulations. The "services" provided by the two estate agents to the vendor fell outside the scope of the regulations as they were not the kind of services ordinarily made available to prospective purchasers in connection with the acquisition of an interest in land as required by the definition of "services" laid down in regulation 3. Silber J. agreed on the basis that if the applicant was right about the nature of the service provided by the two employees to the purchaser this must have resulted in them putting their duties to the purchaser in conflict with, and over and above, their duties to the vendor who was the firm's client. Thus such a service could not fall within the definition of "services ordinarily made available to a prospective purchaser". Furthermore, the applicant clearly did not see these services as "usual" because he dismissed them and reported the matter to the Director General of Fair Trading. Thus the applicants failed on this issue.

Mr Justice Silber went on to consider the time at which any information about services should have been given to the vendor (assuming that the services fell within the definition of "services ordinarily offered"…). He agreed with the interpretation of the legislation by the Director General of Fair Trading that the timing of giving any additional information must be the same under the 1979 Act as under the regulations. s. 18(1) makes direct reference to "any additional information which may be prescribed under sub-section (4) below". The Provision of Information Regulations must be subject to that as they are made under s. 18(4) of the Act. Silber pointed out that the obligation to convey information referred to in Regulation 3 only covers the period before the client is committed to any liability to the estate agent and thus on the facts of this case any agreement between the two estate agents and the purchaser must have come too late to be covered by the provision of information requirements. Furthermore, the onus of proof that the "information trigger" had been activated fell on the applicants because they had access to the relevant information on this issue. Thus the applicants failed also on this issue.

The applicant's next point was that the two employees had "engaged in a practice which, in relation to estate agency work has been declared undesirable by an order made by the Secretary of State" (S3(1)(d)). They had done this by:

(1) contrary to Article 2(b) and para 2 of Schedule 2 to the Undesirable Practices Order, failing promptly to supply an accurate list of services for which the application had been made and not rejected prior to exchange and

(2) by misrepresenting the details of … offer contrary to Article 2(c) of, and paras l(a) and 2 of Schedule 3 to, the Undesirable Practices Order.

In response, the Director General of Fair Trading argued that neither constituted a trigger offence. The "services" offered by the two employees fell outside the scope of the Undesirable Practices Order and they had not been engaged in "a practice" because more than one act is required to constitute "a practice". Silber J. agreed that the applicant failed on the provision of services point because the services offered by the two employees were not those "ordinarily" offered to a prospective purchaser and the same wording is used in the Undesirable Practice Order as is used in the Provision of Information Order.

With regard to what constitutes "a practice" Silber J. felt that it was necessary only to look at the Undesirable Practices Order itself. Section 3(1)(d) lists practices declared undesirable, including many which would require only a single act; for example, the making of any misrepresentation, the failure to forward … details of any offer. He went on to say "… I have come to the conclusion that I cannot accept the respondent's submissions, as I believe the words clearly mean that a single default by an estate agent would come within the words 'has engaged in a practice which, in relation to estate agency work, has been declared undesirable by an order made bv the Secretary of State"'. He went on to say that there were four other factors to support this conclusion: First, that although the word "practice" can mean a course of conduct it is also frequently used to mean a single act both in common parlance and in the Shorter Oxford English Dictionary. Second, except for s. 3(1)(a) all of the triggering events in s. 3(1) can occur by doing one act, thus the word "practice" must be construed in this light. Third, the Undesirable Practices Order seems to have been drafted so that a single act will suffice for the purposes of s. 3(1)(d), and this is indicative of the intention of Parliament. Fourth, the wording of s. 4 of the Act dealing with warning orders seems to support this because it refers, inter alia, to the consequences if a person were to "continue to engage in that practice".

Thus the application for review succeeded on only the one point, that under s. 3(1)(d) the two employees had "engaged in a practice which, in relation to estate agency work had been declared undesirable by an order made by the Secretary of State" by misrepresenting the details of the purchaser's offer, contrary to Article 2(c) of, and paras l(a) and 2 of Schedule 3 to the Undesirable Practices Order 1991. There was therefore a triggering event within s. 3(1)(d) of the Act which required the Director General of Fair Trading to consider exercising his powers.

Egan Lawson Ltd v. Standard Life Assurance Co [2001] 08 EG168 CA

It is difficult to see why this case ever reached the Court of Appeal. Two agents, Egan Lawson and Richard Ellis, each tried to interest a purchaser, Standard Life, in purchasing a property. Egan Lawson were first on the scene in August 1997, before the property was officially put on the market but nothing came of the introduction and they took no further part in the sale. In October, when the property officially came onto the market, Richard Ellis approached the same purchaser with the same property. After some work by the director of Richard Ellis, Standard Life made an offer lower than the asking price. The offer was accepted and completion took place in December 1997. Richard Ellis were paid their commission of 1 per cent of the purchase price. Egan Lawson claimed that as they had introduced Standard Life to the property they were the "effective cause" of the purchase and thus should be paid their commission. At first instance the Judge held that the applicant was the effective cause of the purchase and was entitled to 1 per cent commission. Standard Life appealed.

After a re-examination of the facts the Court of Appeal held that Egan Lawson could not be seen as the effective cause of sale. It was only the introduction by Richard Ellis that had produced the sale. It was the efforts of the director of that firm that had led the purchasers to make an acceptable offer. Egan Lawson had taken no part in the process since their failed attempt in August 1997. The sale arranged through Richard Ellis would have occurred even if Egan Lawson had never approached Standard Life at all. As Simon Brown L.J. observed, when two agents approach the same potential buyer with the same property they are, in effect, both asking the buyer to instruct them. It is entirely up to the purchaser which of them is to be instructed and upon what terms. The purchaser cannot be taken, in the absence of clear terms, to have agreed to pay a fee provided only that he purchases the property. The express agreement with Richard Ellis could not deprive the respondent of a commission if it had been earned, but in this case it was not earned.