Estafnous v London & Leeds Business Centres Ltd [2011] EWCA Civ 1157

Case No A3/2009/1424[2011] EWCA Civ 1157
IN THE COURT OF APPEAL (CIVIL DIVISION)
[2009] EWHC 1308 (Ch)
ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION
Christopher Nugee QC
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 14/10/2011
Before
THE RIGHT HONOURABLE LORD JUSTICE LONGMORETHE RIGHT HONOURABLE LORD JUSTICE RIMERTHE HONOURABLE MR JUSTICE WARREN
Between
MAKRAM BARSOUM ESTAFNOUSAppellantLONDON & LEEDS BUSINESS CENTRES LIMITEDRespondent
(Transcript of the Handed Down Judgment ofWordWave International LimitedA Merrill Communications Company165 Fleet Street, London EC4A 2DYTel No: 020 7404 1400, Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Philip Newman (instructed on a direct access basis) for AppellantBen Shaw (instructed by Davenport Lyons) for RespondentHearing Hearing date: 6 th October 2011
Judgment

Introduction

[1]This appeal concerns the construction of a commission agreement dated 30 March 2001 entered into between the Appellant (“Mr Estafnous”) and the Respondent (“LLBC”), the question being whether the obligation on LLBC to pay commission to Mr Estafnous was triggered by the transaction which actually took place. The Judge (Christopher Nugee QC, sitting as a Deputy Judge of the Chancery Division) held that it did not. The Judge gave Mr Estafnous permission to appeal on this point of construction. The Court dismissed the appeal at the hearing on 6 October 2011. This judgment contains my reasons for doing so.

The facts

[2]So far as material to the issue of construction, the facts can be shortly summarised:[3]Mr Estafnous is an estate agent and the director of a company called Swiss Deal Limited which, at the material time, had its offices in a building known as Regent House Business Centre, 24-25 Nutford Place, London W1 ("Regent House").[4]Regent House was held on a long lease from the Portman Estate and a company known as Drillray Properties Limited ("Drillray") was registered at HM Land Registry as proprietor of the leasehold interest. In 2001, there were some 64 years unexpired of the lease.[5]Drillray was itself a subsidiary company and in 2001 the corporate structure was as follows. Three shareholders, namely Robert Kidd, David Serr and Linda Serr (or Linda Plant as she at some stage became), held the issued shares in Regent Street Estates Limited which in turn held the one issued share in LLBC. LLBC held the issued shares in Drillray. Drillray as already mentioned was the registered proprietor of the leasehold interest in Regent House, but in fact held that interest on trust for LLBC pursuant to a deed dated 22 September 2000.[6]Mr Estafnous approached Mr Kidd and asked if he could sell Regent House to one of his clients; Mr Kidd's reaction was that everything is always for sale at the right price. This approach had taken place by 12 January 2001. On that date, Mr Kidd (as director of LLBC) wrote to Mr Estafnous giving some brief details of Regent House, indicating that "we would only be prepared to consider a sale of our long leasehold interest at a figure of £22 million", and saying that he would not give further details without heads of agreement and satisfactory evidence of "your client's funds".[7]Sometime before 20 March 2001 – nothing turns on how long before, or indeed on how the introduction took place – a Mr Charnesh Kapoor had been introduced to Mr Estafnous as a person interested in buying Regent House. By 20 March 2001, he had made an offer of £19 million for the purchase although he had not by that date been told the identity of the owner of Regent House.[8]On 21 March 2001, Mr Estafnous wrote to Mr Gouldman of his solicitors, England Palmer, referring to the offer of £19m and expressing his confidence that he would get the acceptance of it on Friday 23 March. He gave Mr Kidd's contact details; he said that LLBC would confirm their acceptance of the sale for £19m and their acceptance to pay him £2m on completion; and he asked Mr Gouldman to prepare a contract for the payment of the £2m commission. He said that, as soon as that contract was signed, he would “pass all the details about my client [Mr Kapoor]." He stressed the urgency of the matter as the offer was only valid for 7 days.[9]On 23 March 2001, England Palmer wrote to Lawrence Graham, who were LLBC's solicitors. They said:
"Our client is able to introduce to your client a party who is willing to purchase the above property at a price of 19 million pounds, subject to contract, and your client is apparently willing to sell the property at this price. In consideration of the introduction to the interested Buyer, your client has agreed to pay our client the sum of 2 million pounds upon completion of the sale."
[10]On 28 March, Mr Gouldman drafted and sent to Mr Fielding of Lawrence Graham a form of agreement; Mr Fielding returned this on 29 March with some manuscript amendments (asking Mr Gouldman to incorporate these in a clean version for signature) and the comment "I think that in the context of my undertaking given yesterday, we have taken matters almost as far as we can without my actually knowing with which firm of lawyers I should be corresponding, or, for that matter, my clients receiving a formal subject to contract offer from an identified purchaser." [Nothing turns for present purposes on the terms of that undertaking.] This comment confirms that at that date Mr Kidd did not know either Mr Kapoor's name or those of his solicitors.[11]Mr Gouldman presumably drew up a clean version, and the agreement (“the Agreement”)was then executed. It is dated 30 March 2001. It is made between LLBC and Mr Estafnous.It was signed by Mr Kidd expressly on behalf of LLBC as a director, and by Mr Estafnous. It is quite short and reads as follows:
"WHEREAS (A) LLBC has agreed, subject to contract, to sell the property situate and known as 24-25 Nutford Place, 136-138 George Street and 112-130 Edgware Road, London W1 at a price of 19 million pounds, subject to the existing occupancies thereof, at a price of 19 million pounds sterling to a party (the intending Buyer) who is to be introduced to LLBC to Mr Estafnous. (B) LLBC and Mr Estafnous wish to agree certain financial arrangements in connection with the introduction of the Intending Buyer to LLBC as set out herein. NOW IT IS HEREBY AGREED as follows:- 1. In consideration of the introduction of the Intending Buyer to LLBC and upon the Intending Buyer (or any other party related to or associated with the Intending Buyer) completing a purchase of the Property LLBC will forthwith upon such completion pay to Mr Estafnous or as he may direct the sum of 2 million pounds sterling. 2. Further in consideration of the introduction of the intending Buyer LLBC hereby agrees as follows:- (i) To instruct as its solicitors acting on the sale of the Property the firm of Lawrence Graham and to give that firm unconditional and irrevocable instructions to give an undertaking in the form attached (the Undertaking). (ii) In the event that Lawrence Graham for any reason cease to act on the sale of the property, to notify Mr Estafnous thereof forthwith and to procure that such Solicitors issue an undertaking to Mr Estafnous’ Solicitors in respect of the payment of 2 million pounds sterling in terms mutatis mutandis identical to the Undertaking. 3. LLBC hereby acknowledges, agrees and undertakes that on completion of the sale of the property to the Intending Buyer or any party related to or associated with that party LLBC will pay Mr Estafnous the sum of 2 million pounds sterling notwithstanding any variations in the stated purchase price."
[12]Mr Kidd and Mr Kapoor, or Lawrence Graham (LLBC’s solicitors) and Gordons (Mr Kapoor’s solicitors), were put in touch with each other by Mr Estafnous. After this, matters proceeded slowly. On 30 May, Lawrence Graham wrote to Gordons saying that "Having given further consideration to the matter our client has come to the view that the only way in which he are [sic] prepared to progress the sale is if it is structured as a sale of the owning company."[13]Lawrence Graham also mentioned that their client had had discussions with "your client's agent" about a redemption penalty which would be incurred on the current loan facility which their client required to be compensated for, and asked for details of any conditions that Mr Kapoor would be seeking to impose.[14]Gordons replied promptly on 31 May 2001 saying "Our client is prepared to consider the transaction as one of sale and purchase of the shares in the owning company but is not prepared to commit to the same until we have fully investigated the owning company ..."[15]After that, it appears that, by the end of August 2001, Mr Kapoor had, for one reason or another, gone cool on the deal. However, sometime after the end of May 2002, Mr Kapoor re-emerged as interested in acquiring Regent House.[16]Negotiations followed between Mr Kapoor and Mr Kidd. The details were not before the Judge, but a letter dated 28 May 2002 from Manches (acting for Mr Kapoor and his companies) shows that their instructions at that stage were that their clients would purchase LLBC at a total price of £16m. The letter included the statement that "The object is for our clients to acquire 24/25 Nutford Place, London W1H 5YN. We understand that there are other properties currently owned by the Company which will be transferred out of the company before the transaction can be completed."[17]The negotiations ultimately resulted in a share sale agreement dated 14 November 2002 (“the Share SaleAgreement”) under which a company called Abbey Road Properties Limited ("Abbey Road") acquired the shares in a company called IMCO (192002) Limited (and not shares in LLBC itself). Abbey Road is a company associated with Mr Kapoor. IMCO (192002) Ltd was by then the ultimate holding company of LLBC. This was as a result of a corporate reorganisation carried out in October 2002 for the purposes of the sale. Regent House itself remained in the beneficial ownership of LLBC and LLBC was, as just stated, ultimately held by IMCO (192002); the result of the Share Sale Agreement was therefore that a company (Abbey Road) associated with Mr Kapoor became the ultimate holding company of LLBC.[18]The Judge set out in summary form the steps in the corporate reorganisation. I do not need to repeat what he said. All that I would note is that the ownership of Regent House remained where it always was, namely with legal title in Drillray and beneficial ownership in LLBC.[19]Mr Philip Newman, who appears on behalf of Mr Estafnous, accepts that on what he calls a literal meaning of the Agreement, the obligation on LLBC to pay £2 million to Mr Estafnous was not triggered by the Share Sale Agreement. He could hardly contend otherwise. The Agreement is not a badly drafted document; it is not ambiguous in any way.[20]On the contrary, its language is clear and unambiguous. In the first place, recital (A) records accurately the state of affairs on the ground, namely that a sale of Regent House – not of shares in a company – had been agreed, subject to contract. Next, the relevant operative parts of the Agreement reflect the transaction which the parties expected and intended would take place. Each of clauses 1, 2 and 3 identifies the subject matter of the sale and purchase as Regent House. In clause 1, the Intending Buyer is identified as a person introduced to LLBC, thus underlining the identification of LLBC as the seller. In clause 3, it is recognised that the actual purchaser might not be the Intending Buyer but a party related to or associated with the Intending Buyer. There is no similar provision to suggest that the Agreement is intended to deal with a sale by some party other than LLBC or of property other than Regent House itself.[21]Mr Newman submits that what he calls a looser interpretation of the Agreement should be adopted. The Agreement, read in its context, should be construed as subsuming the Share Sale Agreement within the concept of a sale of Regent House; and this is so even though the sale of the shares in IMCO (192002) Ltd to Abbey Road was not a sale of anything by LLBC itself nor of the property of any company of which LLBC was the holding company. The result of the submission, if it is correct, is that LLBC is obliged to pay commission on the sale of shares in its own holding company.[22]In support of that submission, Mr Newman asks us to look at the situation from the point of view of Mr Estafnous. Following the making of the Agreement, he did what it was intended he should do, namely introduce a purchaser, Mr Kapoor. As a result of that introduction, Mr Kapoor was able, in the event, to enter into an acquisition as a result of which he (or rather one of his companies) obtained effective control and ownership of Regent House. The “deal” originally reached was for the sale and purchase of Regent House itself. It should make no difference to Mr Estafnous’ right to commission that the parties chose to restructure the deal as a share sale in order to effect a large stamp duty saving.[23]The purpose of Share Sale Agreement was, Mr Newman says, to transfer effective ownership of Regent House to Mr Kapoor or his companies which was precisely the reason for his effecting the introduction which he did. In relation to purpose, he prays in aid what was said by

the Judge at [59] of his judgment:

“It is true that this gave Mr Kapoor control of the building. There is also no doubt that this was the purpose of the transaction, as shown by Manches' letter of 28 May 2002 which said that "the object is for our clients to acquire 24/25 Nutford Place" (paragraph 36 above). ”
[24]He went on, however, I note, to say:
“But in law the purchase of shares in a company that owns land is self-evidently a different transaction from the purchase of land.”
[25]I do not doubt that the purpose was as Mr Newman describes it and as the Judge stated it. But what the parties intended to achieve by a transaction in mid-2002 is of no relevance, and is moreover inadmissible, to the construction of the Agreement, made over a year earlier.[26]The general approach to the construction of documents is now well established. We do not need to cite yet again from the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-3 with its emphasis on context of establishing what the parties meant by the language they have used. That case is not a licence for the courts to rewrite contracts. Indeed, as Lord Hoffmann himself said in BCCI v Ali [2002] 1 AC 251 at 269, the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage. Interpreted in that way, there can be no doubt, I consider, that the Agreement has the literal meaning identified to which Mr Newman refers.[27]Mr Newman, recognising the difficulties facing him in giving the words of the Agreement a meaning different from the words interpreted in accordance with conventional usage was constrained to accept that his case turned on whether or not it was possible to imply terms into the Agreement in order to arrive at the result for which he contends.[28]It is to Lord Hoffmann, again, that one can turn in relation to the implication of terms. In A-G of Belize v Belize Telecom Ltd [2009] UKPC 10, [2009] 1 WLR 1988 at paragraphs [16] to [28], he emphasised that the object of the task of interpretation including the implication of terms is to discover what the instrument means. The implication of the term is not an addition to the instrument. It only spells out what the instrument means. The question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean. Nonetheless (see at [16] –[18]):
“16. Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed…. 17. The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so. Otherwise, the express provisions of the instrument are to continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls. 18. In some cases, however, the reasonable addressee would understand the instrument to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The instrument may not have expressly said so, but this is what it must mean. In such a case, it is said that the court implies a term as to what will happen if the event in question occurs. But the implication of the term is not an addition to the instrument. It only spells out what the instrument means.”
[29]In my judgment, there is no room in the present case for the implication of any term which would have the result for which Mr Newman contends. This is one of those cases where those involved did not think about what was to happen in certain circumstances, namely if the property sale were restructured as a share sale. It is not surprising that they did not do so because the individuals concerned – Mr Estafnous for himself and Mr Kidd on behalf of LLBC – made the Agreement against the background of a deal which had already been struck, subject to contract, and it was in relation to that deal or a deal of that sort that commission was to be payable.[30]We have been referred to a number of authorities concerning estate agents commissions. I do not find them of assistance in deciding the present case; every case must be decided on the wording of the particular agreement and in the context of the particular facts. There is, however, a similarity with Harris & Gillow v Kelly (1953) 162 EG 622 and I am happy to reach a decision which is at least consistent with the decision of McNair J in that case. Otherwise, I need only express my agreement with the Judge in his analysis of the authorities.

Conclusion

[31]On the true construction of the Agreement, and in the events which have happened, Mr Estafnous is not entitled to recover from LLBC the sum of £2 million specified in the Agreement; nor, if this is a different point, is any term to be implied into the Agreement to entitle him to recover.[32]I agree.[33]I also agree.