Savills Take Commission Dispute To Court Of Appeal: A salutary lesson for every business which uses standard terms

It is very common for businesses to provide their services on standard terms of business.  We’re all familiar with the tick box required to proceed with an online purchase but very few of us actually read the terms and conditions that box confirms we are agreeing to.  Offline and in B2B transactions, you will often find that a written proposal or offer refers to a set of standard terms and states that the customer will be bound by those terms if they accept the offer.

Dealing on standard terms can be a safe and efficient way of ensuring that your goods or services are supplied in accordance with a written contract which protect your interests.  They provide standardisation and offer the business a degree of certainty each contract doesn’t have to be individually negotiated.  This approach, however, also contains plenty of pitfalls for the unwary.  As well as statutory and common law prohibitions on the type of terms which can and cannot be included – for example, the ability to limit your liability can be severely restricted when you are dealing on your own standard terms – any failure to properly incorporate those terms as part of the overall contract can mean they do not apply at all, or even that you inadvertently end up having contracted on the other party’s terms.

The international estate agency Savills found itself in the Court of Appeal last month (Savills (UK) Ltd v Blacker & Anor (Rev 1) [2017] EWCA Civ 68 (16 February 2017)), arguing that a commission of more than £120,000 was due to it.  Savills appealed after their claim had been rejected in the Central London County Court on the basis that the clause in their standard terms which provided for a sale fee had been overridden by their proposal letter which had accompanied those terms.

The claim arose after Savills were engaged to advise on the sale of the Mill Ride Estate, a large property near Ascot in Berkshire.  Savills had valued the estate between £2.5 million to £10 million and it was eventually sold for just under £7 million.  The sellers then disputed Savills’ right to a commission arguing that Savills’ covering letter (which was in the form of a report) referred to a sale once planning consent had been granted.  The report did not envisage a sale being made before planning consent was obtained.  But when the property was sold, no planning consent was in place.  The letter had effectively incorporated Savills’ standard terms which meant that the contract comprised both the letter and those terms.  A clause in the standard terms stated that in the event of any conflict between the standard terms and the letter, the terms of the covering letter would prevail.  At the initial hearing in the County Court, the Judge had decided that such a conflict did exist due to the report only envisaging a sale with planning permission.  In his judgement, that meant the commission provisions in the standard terms had been overridden by the report and therefore no commission was payable in the circumstances.

The Court of Appeal decided that Savills were entitled to their commission.  In his judgement, Lord Justice Patten considered how the court should properly construe a contract.  He reviewed the leading authorities in this area and noted that the starting point in understanding what any contract means is the ordinary meaning of its words.  The Supreme Court has previously stated that the clearer the natural meaning of the words, the more difficult it is for any court to justify departing from that meaning.  Patten LJ decided that the ordinary meaning of the language used by Savills in this case did not create a contractual requirement that the estate only be sold after planning permission had been obtained. 

In reaching this conclusion, he reaffirmed some of the principles which the courts apply today when interpreting contracts.  He reiterated that deciding what the contract meant was a matter of law and was for the Court to determine.  The Court will not take into account evidence as to what the parties thought the contract meant, because the test is an objective one – the contract should have the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.  Any evidence from the parties’ previous contract negotiations and their subjective view of the contract’s meaning is simply inadmissible. 

Furthermore, while the words of the contract should be given their natural and ordinary meaning, if the result of doing so would lead to a conclusion that simply does not make business common sense, the court is entitled to reach a different conclusion which does achieve that end.  That said, the Supreme Court has made it clear in the most recent leading authority in this area (Arnold v Britton & Ors [2015] UKSC 36 (10 June 2015)) that this common sense test should be approached with caution.  It should not be invoked retrospectively.  The test must be applied at the date the contract was actually entered into.  Just because a contract has worked out badly, or even disastrously, for one of the parties is not a reason for departing from the natural language.  And he cited with approval Lord Neuberger’s comment that just because a term might appear to be a very imprudent one for one of the parties to have agreed, the Courts should be cautious in rejecting the natural meaning of that term.  Judges should avoid re-writing a term in an attempt to assist an unwise party or to penalise an astute party.

Savills came close to losing out on a hefty commission payment and it will have cost them a considerable amount to fight this case to the Court of Appeal.  Businesses do not want to fall back on the courts to decide whether their contracts are enforceable unless they have no other option.  One way of ensuring this need not happen is to have very clear and controlled processes in place which ensure that your standard terms are properly and effectively incorporated whenever you use them.  It is no good having a carefully crafted set of terms if you fail to make them part of your contract.