Kintsugi to Midas Touch: implied terms in Devani v Wells

Frederick Cheng

NB: Kintsugi is a method of repairing ceramic by mending broken pottery with precious metal.

Subject: Contract

Case: Devani v Wells [2019] UKSC 4; [2019] 2 W.L.R. 617, [2019] 2 WLUK 163

KeywordsDevani v Wells, Implied Terms

Many of us will recall Lord Hope and Lord Steyn’s remarks in Jackson1 both for its tart-tongued directness and for its potency to alter our perception of the constitution. In the field of contract law, Lord Kitchin JSC’s remarks on implied terms in Devani v Wells2 carry those same traits. 

Mr. Devani (D) was an estate agent. He was informed3 that the defendant, Mr. Wells (W), was facing difficulty selling a block of flats that he had jointly developed4. D then called W and informed him that his commission terms would be 2% plus VAT5. D then contacted a Housing Trust, who met with W and agreed to purchase the remaining flats for £2.1m6. On completion of the sale, D claimed his commission. W, however, refused to pay7.

Two issues8 are relevant to the litigation, although we need only concern ourselves with the first since it is where the key controversy lies. 

First, the Supreme Court held that there was a binding contract despite the lack of express identification because it was “naturally understood”9 from the telephone conversation that the payment would be due on completion and made from the proceeds of the sale. In other words, the telephone conversation represented an agreement between the parties that D would be paid a commission if he was able to find a purchaser for W’s remaining flats. 

Naturally, there was no longer a need to imply a term into the agreement between D and W. Despite this, Lord Kitchin emphasised that had it been necessary, the Court would “have no hesitation in holding that an implied term of the agreement that the payment would fall due on the completion of the purchase of the property by a person whom Devani had introduced”10. He went on, in direct opposition to Lewison LJ’s decision in the Court of Appeal11, to deny “that there is any general rule that it is not possible to imply a term into an agreement to render it sufficiently certain or complete to constitute a binding contract.”12

At first glance, the principles the Court relied on are orthodox: Lord Kitchin seemed to understand that implying a term was an exercise in necessity13. That being said, the Court not only explicitly voiced a willingness to imply a term in order to save an incomplete oral agreement from being unenforceable, but admitted that they are generally “reluctant” to find an agreement that is too vague or uncertain to be enforced when they find that parties had the intention of being contractually bound and have acted on their agreement14.

A tension exists between these two strands of logic. For implication to be a true exercise of necessity, Belize suggests that there be a starting presumption that where an instrument or an agreement does not expressly provide for a term, nothing is to happen because if the parties had intended something to happen, the instrument would have said so15. This presumption also carries the inherent need for a binding contract to exist. However, Wells v Devani tells us that an implication exercise is capable of transforming an incomplete oral bargain into a complete contract because they are unwilling to leave agreements that parties have acted on unenforceable. 

First, they have restricted (or perhaps, disregarded) this starting presumption that requires us to look at the express terms of the provision. Instead, the Courts have provided space for an approach that accords weight to the conduct of the parties. Is this correct? The more doctrinal of us might sympathise with Lewison LJ’s reasoning that we cannot simply imply a term to complete a contract. After all, we traditionally understand implied terms in fact to fill the gaps in existing contracts. This must surely be valid – but are all contracts concerned exclusively with oral or written terms? Lord Briggs observes that “in relation to contracts of a simple, frequently used type… the conduct of parties at the time the contract is made tells you as much, or even more about the essential terms of the bargain than do the words themselves”16. This appears pragmatic but extremely hazardous. Contract Law distinguishes between what is done and what is said because at its very core, implication works to fill a silence which is by nature “inherently ambiguous”17, to construct a common intention that otherwise does not exist. The problem is that more often than not, an implication exercise will not actually fulfil its objective because silence rarely admits one reasonable, objective meaning18. We can only understand the £1.50 broom as being the subject matter of the sale in Lord Brigg’s example19 because he tells us explicitly that the person holding the broom out to the householder is (1) pre-offering the broom and (2) that the person is a broom salesman. He imputes knowledge that into the hypothetical householder that in real life, we simply will not have. Putting ourselves in the shoes of the non-omniscient householder, we will realise that if someone rings our doorbell, holds out a broom and says “one pound 50”, we would not be able to, from conduct alone, understand a sale of the broom at the price of £1.50 as being a term of the contract. It is only when we ask “what is this for” and interpreting the person’s subsequent answer before we are able to realise that the person standing before us is a salesman selling a broom and not an independent contractor seeking to hire out his cleaning services. Communication ultimately, separates implication from speculation. 

Lord Briggs’ speech more generally, encourages us to think about the extent to which we should be allowed to extract information from conduct in the absence of communication. In the law of offer and acceptance, the general proposition that acceptance must be communicated20 is, as we know, subject to qualifications. Nissan UK Ltd v Nissan Motor Manufacturing (UK) Ltd21 for example, tells us that if “parties are ‘toing and froing’ with offer and counter-offer and one maintains his proposals to the last, receiving no [verbal] comeback, it is natural to infer that subsequent conduct… denotes acceptance of that proposal”22. That being said, the situations in which acceptance was made out in the absence of communication are buttressed by a factual history of prior communication between the parties in the offer or negotiation stages which offered the Courts with enough certainty to make that inference. We should therefore appreciate that although we may infer acceptance from conduct, we are only able to do if communication exists elsewhere in the contract’s formation.  

Second, the Court has expanded the role of implication from operating as a gap filler of an existing contract to a ‘Midas Touch’ that transforms an agreement into a complete contract. In other words, the Court can now “imply something that is so obvious that is goes without saying into anything, including something the law regards as no more than an offer”23. In doing so, the Court inadvertently discards the presumption that implication is contingent on the existence of a contract, and consequently, Lord Neuberger’s unequivocal statement “that implication falls to be considered only after the process of [interpretation] is complete”24. Implication thus becomes far more potent. Even if the Courts continue to use the language of necessity, the fact that implication is no longer bound by a pre-requisite need to engage in interpretation empties “necessity” of its content. Whether this is a step in the right direction is up for debate. As a question of taxonomy, the now amorphous nature of implication may encourage us to re-examine the usefulness of drawing bright-line distinctions between interpretation and implication. More pertinently, it may well foreshadow a schism in the way “necessity” manifests itself when implication is used in a pre-contractual versus a contractual negotiation. As a question of contractual doctrine, future decisions may compel us to re-examine our conception of “party intention” and how it may affect the balance between the freedom of contract and the Court’s need to give effect to wider considerations like business efficacy and reasonableness. 

References
  1. R (Jackson) v Attorney-General[2005] UKHL 56, [102]-[104]
  2. [2019] UKSC 4
  3. Ibid at [4]-[5] 
  4. Ibid at [3]
  5. Ibid at [6]
  6. Ibid at [7]
  7. Ibid at [9]
  8. Ibid at [1]
  9. Ibid at [19]
  10. Ibid at [27]
  11. Ibid at [30]
  12. Wells v Devani (n 3) [33]
  13. Ibid at [29]
  14. Ibid at [18]
  15. Attorney General of Belize v Belize Telecom Ltd[2009] UKPC 10; [2009] 1 WLR 1988 at [17]
  16. Wells v Devani (n 3) [59]
  17. P. Davies, “Recent Developments in the Law of Implied Terms” [2010] LMCLQ 140 at 145
  18. Janet O’Sullivan, “Silence is golden: implied terms in the Supreme Court [2016] CLJ 199 at 202
  19. Wells v Devani(n 3) [59]
  20. Brinkibon Ltd v Stahag Stahl GmbH [1983] 2 AC 34
  21. Court of Appeal, December 1994, unreported. 
  22. Ibid, per Nourse LJ. 
  23. Wells v Devani(n 3) at [33]
  24. Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd and another[2015] UKSC 72 at [28] per Lord Neuberger.