The Claimant, an estate agent, considers that it was cut out of its entitlement to commission on the sale of a property in London in the buoyant market of the summer of 2007. By these proceedings it seeks compensation for that loss.

On 1 August 2007 the Defendant signed an agreement with the Claimant which was described as a sole agency agreement. On the same day the Claimant introduced three potential purchasers to the property, one of whom made an offer at the asking price that same day. On the next day, however, the Defendant met another potential purchaser who made a higher bid. That bid proceeded to a contract within a fortnight, and to completion during September. Another agency was involved in that process at least to some extent, and the Defendant paid commission to that other agency. The Claimant alleges that this involved a breach of the agency agreement between it and the Defendant, and it sued for damages for loss of the commission that it claimed it would have earned under its agreement. The claim came to trial before Mr Recorder Widdup, who dismissed it. Lord Justice Moore-Bick granted permission to appeal, in part because of the general interest of points which arise under the legislation regulating estate agency activities.

As in the county court, before us the Claimant was represented by Mr Duncan Henderson and the Defendant by Mr Oliver Assersohn. We have a transcript of the hearing, at which oral evidence was given by Mr Morris, the principal of the Claimant, by Mr Digby, and by no other witness.

The material parts of the contract between the Claimant and the Defendant were as follows:

The first issue on the appeal concerns the meaning and effect of this contract. Was it a breach of the contract for Mr Digby to sell to a purchaser if another agent was instrumental in that sale and the Claimant was not? The appellant accepts that it is not inconsistent with the sole agency agreement for the client to sell to a purchaser who he himself finds without the involvement of any other agent.

One could have a contract under which the client could not sell independently or, to put it differently but with much the same economic effect, under which the agent is entitled to commission even if the sale is to a purchaser found by the client himself without any agent being involved. Such a contract is sometimes referred to as a sole selling agency, or as giving sole selling rights, as distinct from a sole agency. The appellant contended that if another agency is in any way involved in the eventual sale, that is inconsistent with the sole agency agreement entered into in this case, and involves a breach of contract on the part of the client. The respondent, on the other hand, argued that there is nothing in this agreement which precludes the client from using another agent. Mr Assersohn accepted that, on that basis, the word “sole” which appears in the agreement on a number of occasions, in the context of sole agency, adds nothing and can and should be ignored. The recorder decided this point in favour of the respondent.

If that issue is decided in favour of the appellant, the next question is whether the restriction on the use of another agent was breached. The recorder did not decide this point, as he held that there was no such restriction. The pleadings and the transcript show that it was not argued for the Defendant that, if there were such a restriction, it had not been broken.

The next question is what, if any, loss the Claimant had suffered, which depends on the assessment of what would have happened but for the Defendant’s breach of contract. The recorder said nothing on this subject.

Then we come to the issues of more general interest. The Estate Agents Act 1979, section 18, requires an agent to give prospective clients information about (among other things) the remuneration and other payments which may come to be payable by the client to the agent. Pursuant to that section regulations have been made which supplement that obligation to give information: the Estate Agents (Provision of Information) Regulations 1991, SI 1991/859. Section 18 certainly applied to the Claimant in its dealings with the Defendant. There is an issue as to the application of the regulations, and whether the obligation in the regulations was satisfied or not.

If the agent did fail to comply with section 18 or the regulations, the contract is not enforceable except on application to the court, which has discretions in the matter laid down by section 18(6). If the case gets that far, as the recorder considered that it did, issues arise as to the recorder’s exercise of the discretion whether or not to allow the contract to be enforced, and if so on what terms.

I can set out the main material facts quite briefly. I do not at this stage go into the level of detail that would be relevant to the assessment of the Claimant’s loss, if any, nor into all the facts that might be relevant to the court’s discretion under section 18(6).

Mr Morris used to work for another estate agency in Kensington. He had met Mr Digby while he worked there. He set up the Claimant in May 2007 in Mayfair. When he met Mr Digby, the latter was already thinking about selling his property 151 Brompton Road London SW5. Once Mr Morris had set up the Claimant he approached Mr Digby and invited him to give him the opportunity to sell the property for him, representing, no doubt, that he knew of several people who might be interested as purchasers. Mr Digby agreed, and signed the agreement which I have set out above on 1 August 2007. By the end of that day Mr Morris had sent Mr Digby details of three possible buyers, offering between £2.6M and £2.85M, the latter being the asking price. All three had been to see the property that day. Mr Morris also prepared a sales memorandum recording an agreement to sell for £2.85M to Henco Holding Ltd.

On 2 August Mr Digby met the eventual purchaser, Mr Murray. Exactly how they met is not entirely clear. What is clear is that Mr Murray offered to buy the property for £2.95M, and that at some point that day Mr Digby brought Marsh & Parsons in, apparently at Mr Murray’s suggestion or request. Marsh & Parsons prepared a memorandum of sale on that day recording a sale to Mr Murray at £2.95M, which they sent to the solicitors for Mr Digby and to the purchaser’s solicitors.

For present purposes that is sufficient, with the fact that Mr Murray did exchange contracts with Mr Digby by mid-August, and completed the purchase in September, and Mr Digby paid Marsh & Parsons a commission.

One forensic answer to this question would be that, if they were not, why did Mr Digby pay them a commission? He said that, with hindsight, maybe he did not need to pay them. The evidence as to the order of events is not altogether clear. It does seem that they became involved at the suggestion of Mr Murray, but that Mr Tonkin of Marsh & Parsons came to see Mr Digby as soon as he was contacted, and that one of his tasks was to examine the Claimant’s sole agency agreement, no doubt to see whether Mr Digby was at risk of becoming liable to both agents if he accepted Mr Murray’s suggestion of using Marsh & Parsons.

The recorder said at paragraph 21(iv) of his judgment that Marsh & Parsons only came onto the scene after Mr Digby had met Mr Murray and had agreed terms subject to contract and survey. On that basis, it might have been arguable that there was no breach of the sole agency agreement because the sale was to a buyer found by the client without the involvement of any agency. The question would still have been pertinent as to why, if so, Marsh & Parsons were involved at all and why they received a commission.

However, it seems to me that it was not open to the recorder to decide against the Claimant on this ground, because this was not a point taken by the Defendant in his Defence or at trial. The Particulars of Claim alleged that Mr Murray had been introduced through Marsh & Parsons. The Defence asserted that Marsh & Parsons had a role in the sale, and denied the allegation of breach not because Mr Murray was found independently but because the contract “did not contain any term preventing the Defendant from instructing Marsh & Parsons”: see paragraphs 6 and 11. It is also plain from the transcript of the hearing that the closing submissions on both sides were put on the basis that if there was such a term, the Defendant was in breach. No point was taken that Mr Murray was found independently.

Accordingly, this aspect of the basis on which the recorder decided the case against the Claimant was not, in my view, open on the pleadings. If the contract did not allow Mr Digby to use another agent, he did break the contract.

I have taken the factual point out of order. Logically it should come after an assessment of the terms of the contract. However, it was sensible to take it first both because it is a fact-based point (if it had been open for decision at all) and because it is part of the basis on which the recorder decided the case. Having said what I have about it, I turn back to the first and basic issue: what were the terms of this contract in this respect?

As set out above, it can be seen that the text of the agreement uses the phrase sole agency repeatedly: it comes six times. It is there in the description of the document: “this is a sole agency agreement”. It is there in the next heading “Sole Agency Fees”, which are to be 2% plus VAT. It is there in a box dealing with settlement of fees. It is there in the next heading, “Sole Agency”, and twice in the text under that heading, which deals with the circumstances in which the client is liable to pay remuneration to the agent. There it is used in the phrase “where the Agent acts on the Client’s behalf as Sole Agent”, and in the phrase “during the period of the Agent’s Sole Agency”. The duration of that period can be gathered from other provisions in the agreement: there is an initial period of 6 weeks, and the agreement can be terminated by 14 days’ notice to expire on or at any time after the end of the initial period.

It is true that there is no express provision which says that the Client must not instruct any other agent to sell the property during the period of the sole agency agreement. Apart from a point taken on the terms of the regulations, the absence of any such express prohibition is the basis for the argument on behalf of Mr Digby that, despite the use of the phrase “sole agency”, this is in fact no different from any other agency agreement under which the client can instruct as many agents as he likes, on a non-exclusive basis.

I will explain later the point arising from the regulations, when I come to discuss them, and will explain then why that point is of no assistance to Mr Digby: see paragraph [47] below. Leaving that aside, for the moment, I would reject the argument based on the absence of an express prohibition. Under the agreement the Claimant was to act on Mr Digby’s behalf as sole agent, and was to do so for a period of at least 6 weeks. What else can that phrase mean, other than that the agent was to have that period of exclusivity? If the client was free to instruct another agent the very next day (as Mr Digby did) it would be unreal to describe the Claimant as acting for Mr Digby “as Sole Agent” at all, or as having any period of Sole Agency. Accordingly it seems to me plain that the agreement bound Mr Digby to use only the Claimant as his selling agent during the initial period. He could sell to a purchaser whom he found without the use of any agent, but he could not, without being in breach of the contract, sell to any purchaser if another agent was instrumental in that sale.

We were shown a number of observations about estate agency contracts in several decided cases. The meaning and effect of each contract depends on its own terms, and it is questionable how useful observations by judges in other cases are. However, I note that Judge White, sitting as a deputy High Court Judge, in Brodie Marshall & Co v Sharer [1988] 1 EGLR 21 at 22L-M spoke of three basic types of agency: the conventional agent who may be one of several agents instructed by the vendor, the sole agent “who insists on the sole right to sell but not to the exclusion of the vendor” and the sole selling agent, already mentioned. In Property Choice Ltd v Fronda Ltd [1991] 2 EGLR 249 at 250E Nicholls LJ (with whom Stuart-Smith LJ agreed) said:

For what they are worth, those observations are consistent with the reading that I would give to the contract in the present case. Nicholls LJ’s comments also point out, incidentally, that the consequence of a breach of exclusivity may be either a liability to pay commission on a sale even though not procured by the sole agent, or a liability in damages for breach of the contract. That depends on the terms of the contract. Despite what Rix LJ says at paragraph [118] below, it seems to me that in this passage Nicholls LJ set out his own proposition, not a submission made by Counsel. He started to describe those submissions (which he rejected) in the following paragraph, which begins: “Mr Whitaker submitted that in the present case Property Choice were expressly appointed as sole agents”. Moreover, despite what Rix LJ says in that paragraph, it seems to me that Property Choice v Fronda was a sole selling agency case, not a sole agency case, as was Nicholas Prestige Homes v Neal, to which Rix LJ refers in paragraph [119], though it is true that in each case the contract was described (confusingly) as a sole agency agreement.

We were also referred to the judgment of Christopher Clarke J in MSM Consulting v United Republic of Tanzania [2009] EWHC 121 (QB), where the agent was a purchaser’s agent, not a seller’s agent, and where at paragraph 164 the judge, having referred to the regulations and the Schedule, commented that:

How clear those terms or phrases are was not an issue before the judge in that case. I do not find his characterisation of the phrases in this passage to be of assistance in deciding the issues that are before us. I would be surprised if the judge, if faced with the arguments put to us, would have had any difficulty in concluding that, under a contract which speaks of the agent acting on the client’s behalf as sole agent during a specified period, it is not open to the client to instruct another agent during that period.

Accordingly, I would hold that the contract did not allow Mr Digby to use another agent to procure a sale to a purchaser during the period of exclusivity, and that Mr Digby was therefore in breach of contract because he did sell to a purchaser not introduced by the Claimant, and he did not (and now cannot) claim that Mr Murray became the purchaser without the intervention of Marsh & Parsons. Lord Justice Rix and Lord Justice Toulson disagree with me on this, in part because they consider that the construction of the contract is affected by the terms of the Act and the regulations. That is a point which I cannot accept. My reasons for this are given later, at paragraphs [47] to [50] below.

The recorder did not find it necessary to decide what loss, if any, had been suffered by the Claimant, if there had been a breach of contract which the agent was entitled to enforce. In the light of the majority view in this court it is unnecessary to resolve this point now. On my view as to breach of contract the point would arise, and I will explain the view that I take, though without coming to a firm conclusion, as would otherwise have been necessary.

The principle is not in doubt. The Claimant must show on the balance of probabilities that it has suffered loss as a result of the Defendant selling through another agent. This involves a consideration of a number of different possibilities. Some of these depend on what the Claimant or the Defendant would or might have done in the absence of a sale through another agent. Those are to be assessed on the balance of probabilities. Other relevant aspects may involve what third parties would have done, namely potential purchasers in the market. As to these it is sufficient for the Claimant to show that there was a real or substantial chance, as opposed to a speculative one, of a third party acting in such a way that the Claimant would have introduced a successful purchaser to the Defendant. To the extent that such a chance is demonstrated, the court has to evaluate the chance of which the Claimant has been deprived, as part of its normal processes of quantifying loss: see Allied Maples Group Ltd v Simmons & Simmons [1995] 1 W.L.R. 1602.

Under the contract the Claimant would be entitled to commission if an unconditional contract for the sale of the property was exchanged (a) with a purchaser who was introduced by the Claimant during the exclusivity period, six weeks from 1 August 2007, or (b) with a purchaser with whom the Claimant had had negotiations about the property during that period, or (c) with a purchaser who was first introduced by the Claimant and who went on to buy the property privately or through another agent, if the purchase was reintroduced less than six months after the end of the agreement. The exchange of contracts with any such purchaser could take place at any time. On the other hand, the Claimant would not have earned commission if Mr Digby had decided not to sell at all, so that he refused any offers made to him, or if he sold to a purchaser whom he found without the intervention of any estate agent.

So far as the facts are concerned, the judge accepted Mr Morris’ evidence that the market was hot at that time and that high quality properties were in great demand. The recorder referred to Mr Morris as having said that one of his three original interested purchasers offered £3 million on or about 10 August, which Mr Morris passed on by telephone to Mr Digby, but the confirmatory email which he says he sent to Mr Digby about this (a copy of which is in the bundle) was not received. Mr Digby said that if he had received it he would have wanted to meet the bidder, and that he would have been delighted if the Claimant had negotiated a sale at £3 million. The recorder accepted Mr Digby’s evidence that he wanted to sell, not because he was in any financial difficulty but because he recognised that it was a good time to sell and to realise one of his property assets.

The recorder commented on the relative lack of contact between Mr Morris and Mr Digby after 2 August. He also remarked on Mr Morris’ not having pursued the £3 million offer with Mr Digby more promptly. He said at paragraph 26 that the documents “do not show that Mr Morris was doing his utmost to secure a sale to one of the purchasers on his books”.

I take first the probabilities as regards the Defendant’s conduct assuming, of course, no breach of contract. On the balance of probability, if he had accepted that he could only sell through the Claimant for the initial six week period, it seems to me that he would not have been put off from selling the property. He may have been alert to any chance of selling privately, without any agent being involved, but he would not have withdrawn the property from the market, nor would he have refused to deal with purchasers introduced by the Claimant. He wanted to sell this property, and he saw, rightly, that it was a good moment to sell. It is of course possible that a purchaser would have come to him without the intervention of any estate agent. If that had happened, the Claimant would not have earned commission, but there would have been no breach of contract.

Would the Claimant have been able to introduce to him a purchaser whose offer he would have accepted? That depends partly on the third parties – the state of the market – and partly on what the Claimant would have done. As for the Claimant, he had a number of possible interested purchasers, three of whom he introduced on the very first day of marketing, all of whom made bids, though only one at the asking price. Thereafter the Claimant acted with less diligence, but it is necessary to assess what he would have done if Mr Murray’s bid of £2.95 million had not intervened. On balance it seems to me probable that, if the other bid had not come along, and the Claimant had remained in sole charge of agent-led sales, he would have continued with the degree of application and diligence that he showed to start with.

Then there is the question of the class of third parties, namely the possible purchasers out there in the market. It may be right to ignore the actual purchaser, since the involvement of Marsh & Parsons was associated with him, in some way which is not altogether clear. Maybe he would not have bought the property if he had had to deal through the Claimant. But what he did is consistent with the level of keen and active interest shown by those whom the Claimant had been able to introduce. I would accept Mr Henderson’s proposition that there was a substantial chance that the Claimant would have been able to secure an offer of at least £2.85 million which would have progressed swiftly to the exchange of contracts.

It would have been important that the transaction should proceed quickly, since the lively market may not have remained so buoyant for long after August 2007. In my judgment it is probable that a third party would have been found who would have been able and willing to proceed quickly, so that the price achieved would not have been adversely affected by a change in the market.

The commission on a sale at £2.85 million would have been £57,000 plus VAT. The VAT element can be ignored for this purpose, since it is not a loss to the Claimant. However, Mr Henderson submitted that his client’s loss should be taken as not much (if anything) less than £57,000.

It seems to me that Mr Henderson is right in this submission, subject to the one qualification that Mr Digby might have found a buyer himself without any agent becoming involved. It is extremely difficult to quantify that chance. I do not regard it as high, because the Claimant had produced a buyer on day 1 with whom it seems that the Defendant was, at that stage, willing to proceed, at £2.85 million. It seems to me that the probability is that this offer, or another – possibly even higher – would have proceeded quickly to contract, Mr Digby being content with that, and that there would have been little opportunity in terms of time or otherwise for a private buyer to intervene. If there had been a private buyer, it would remain possible that the Claimant would have got its buyer to improve on the previous offer, since the Defendant had to report such an offer to the Claimant. However, since that did not happen as regards the actual offer from Mr Murray – or not effectively – I ignore that aspect of the possibilities.

On my view that there was a breach of contract, I would regard the correct amount of damages as being a proportion of £57,000, the proportion being such as to allow for the possibility of a direct sale by Mr Digby to a purchaser whom he found without the use of any other agent. In the event, it is unnecessary to determine what the level of that discount should be.

That, however, would assume that enforcement of the contract is not subject to the intervention of the court, there having been no breach of the Act or the regulations. I turn now to that aspect of the case.

I must first set out section 18 of the Act, apart from subsections (3) and (7) which are not necessary for present purposes:

Subsection (3) deals with the case where an agency contract is varied. Subsection (7) provides, among other things, that a reference to the enforcement of a contract includes withholding money in pursuance of a lien for money alleged to be due under the contract.

In exercise of his powers under section 18(4) and of all other relevant powers, the Secretary of State made the Estate Agents (Provision of Information) Regulations 1991, of which regulation 5 and paragraph (b) in the Schedule are particularly relevant, as follows:

By virtue of regulations 3 and 4 information required by section 18(2) must be given to the client in writing, and at the time when communication commences between the estate agent and the client or as soon as is reasonably practicable thereafter, provided it is a time before the client is committed to any liability towards the estate agent.

Because the agency agreement uses the phrase sole agency, it had to comply with regulation 5. The agreement does incorporate most of the text in paragraph (b) of the Schedule to the regulations, but it omits the words “or with a purchaser introduced by another agent during that period”. That is said by the Defendant to be a failure to comply with the obligation under section 18(1) so that the contract is only enforceable on the basis of an application to the court under section 18(6). This is the next issue.

The Claimant’s response is that the text in the regulation is only appropriate if the terms of the contract do in fact provide for a liability on the client to pay commission if a sale is arranged through another agent, whereas this contract does not make any such provision. Instead, such a sale would be a breach of the agreement, and would give rise to a liability in damages. It would be misleading to explain the terms of the contract on the basis that they impose liability to pay commission in that event when they do not do so. Accordingly it is said, the proviso to regulation 5(1) allows, and indeed requires, that the content of the explanation be altered “so as accurately to describe the liability of the client to pay remuneration” in accordance with the provisions of the contract. Mr Henderson then argues that a liability to pay damages for breach of contract is not fairly to be described as a liability to pay “remuneration” under the contract, and therefore it does not have to be explained, either under the proviso to regulation 5 or under section 18(1) and (2).

Before I deal with that issue, I must mention at this point an argument addressed to us by Mr Assersohn, which Rix LJ and Toulson LJ accept, that an estate agency agreement should be construed with the benefit of and in the light of the Act and the regulations, and that a sole agency agreement must use the whole of the text in paragraph (b) of the Schedule to the regulations, either as the substantive text of the contract or as an explanation. I cannot accept that argument. It is inconsistent with the proviso to regulation 5(1) which shows that there is a choice of relevant provisions, and that, if necessary, the explanation must be modified to fit the actual case.

In G and S Properties v Francis [2002] SLT 934 the Inner House of the Court of Session had to consider an agreement for sole selling rights in which the whole of the relevant text (in paragraph (a) of the Schedule to the regulations) had been used, so there was no issue of breach of the regulation. The question was as to the construction of the agreement. Lord Coulsfield dealt at paragraph 17 with an argument that the proper reading of the text should be influenced by the fact that it came from the regulation. He said this:

A somewhat similar point was made by May LJ in Foxtons v Thesleff [2005] EWCA Civ 514, [2005] 2 EGLR 29, (with whom Rix LJ and Jacob LJ agreed) where the issue was what was meant by “purchaser”. At paragraphs 25 and 26 he said this:

For those reasons I reject the argument that the terms of the regulations can affect the proper construction of the agreement. It is necessary to construe the agreement first, without regard to the regulations, and then to consider whether, and if so how, the regulations apply to it.

We were shown useful observations of the Court of Appeal about how section 18, the regulations and the prescribed explanations should be read, in Harwood v Smith [1998] 1 EGLR 5. The agreement in that case was a sole selling agency, and the issue was whether the agent was entitled to commission on a sale effected shortly after the end of the agent’s period of exclusivity, to a purchaser who had had no dealings with the agent. The value of what was said is in its relevance to the court’s approach to the section and the regulations. Hobhouse LJ said this, at [1998] 1 EGLR 6H:

Later, at page 7J he said this:

In turn at page 7M, speaking of the use of the relevant words in the prescribed explanation, he said:

Mummery LJ, agreeing, said this about regulation 5:

The issue is this. On the basis that the use of another agent does not give the Claimant a right to commission on a sale procured by the other agent, but rather a right to claim damages for breach of contract, depriving the sole agent of the opportunity to earn commission on a sale procured by himself, does the client have to be told of the possible liability to pay damages in that situation, either by virtue of section 18 itself or because the alteration of the statutory text permitted or required by the proviso to regulation 5(1) must include a reference to this possible liability?

If the Claimant is right, and a liability to pay damages does not have to be disclosed because it is not within the scope of “remuneration”, the result is anomalous. If the agent chooses one form of sole agency agreement, giving him the right to commission at the stipulated rate even on a sale introduced by another agent (as provided for in the prescribed explanation in paragraph (b) of the Schedule to the regulations) then the inclusion of the full statutory explanatory text puts the client on clear notice of the consequences of using another agent. If, however, the agent chooses a different form of contract, with no right to commission in that event but only a right to claim damages for breach of contract, the client has no express warning of that potential liability. The amount of the liability may be less than the full rate of commission, but it might not be much less, and in the present case the Claimant’s claim for damages was particularised (as the first of several possibilities) at the full commission rate on a sale at £3M, since he claimed that he would have been able to introduce a purchaser at that price. If there did not need to be a warning to the client of this possible liability then it could be said that the section and the regulations would have failed in a significant respect to achieve the purpose identified by Hobhouse LJ in the passage quoted at paragraph [51] above.

It is, however, a question of statutory construction, and I therefore turn to the relevant materials.

Section 18 obliges the agent to give his prospective client the information specified in subsection (2) and any further information which is prescribed. Subsection (2) deals first with “remuneration … for carrying out estate agency work”, at paragraphs (a) and (b), and secondly with “any payments which do not form part of the agent’s remuneration for carrying out estate agency work [or a deposit] but which under the agency contract will or may in certain circumstances be payable by the client to the agent or any other person”, at paragraphs (c) and (d). As regards remuneration, the agent must tell the client the circumstances in which the client will become liable to pay it, and what the remuneration will be or, if it is not yet ascertainable, how it will be calculated. Despite what Rix LJ says at paragraph [125], it seems to me that the word “remuneration” was used as a general word which would include commission but also sums which might be described in some other way. An example of amounts which are not commission but have been said to fall within the definition of remuneration can be seen from Solicitors Estate Agency (Glasgow) Ltd v MacIver [1990] SCLR 595 and [1993] SLT 23, to which I refer further below, at paragraph [82]. As regards the conventional commission provision it is easy enough to see how these obligations can be satisfied. The client must be told what the event is on which the agent becomes entitled to commission, and either what the amount will be or (much more normally) that it will be, for example, a given percentage of the sale price.

As regards other payments, covered by paragraph (c), the agent must tell the client what the payments are, and in what circumstances they will become payable and, under paragraph (d), must give particulars of the amount of any such payment or, if the amount is not ascertainable at the time, an estimate of the amount and particulars of how it will be calculated.

We were not shown any provision in the Act other than section 18 which casts any light on the scope of “remuneration” or of the other payments to which paragraphs (c) and (d) apply. There is no relevant definition. Subsection 18(6) gives the court power to reduce or discharge “any sum payable by the client under the contract”, if it decides that the contract should be enforced despite a failure to comply with the section. It would certainly be odd if that did not extend to an amount claimed by way of damages, but “any sum” is plainly as wide as it could be, and is not necessarily limited to sums which are either “remuneration” within section 18(2)(a) and (b) or “other payments” within section 18(2)(c) and (d).

We were told of various discussions about changing the regulations, and some relevant papers were included in our bundle of authorities. I have not looked at any of those. As Mr Assersohn submitted, the question we have to decide turns on the text of the Act and the regulations alone.

The essence of Mr Henderson’s argument is that the sums with which section 18(2) are concerned are all liabilities in debt, not liabilities in damages. They are liquidated sums payable under the contract as to which it is possible to say in advance, in a clear and simple way, in what circumstances they will become payable, and either what their amount will be or how they are to be calculated. Although a liability in damages arises under the contract (so that damages could be within the scope of section 18(6)(b) as a sum payable under the contract), I do not consider that it can be supposed that the section requires the agent to give the client particulars either of the circumstances in which the client may become liable to pay damages to the agent, or of how those damages are to be calculated. Moreover the phrase in paragraph (a) is not just “remuneration”, but “remuneration for carrying out estate agency work”. In my judgment that is not a phrase which can sensibly be thought to describe a liability to the agent in damages for the client’s breach of the contract, even if it arises by reason of having prevented the agent from earning remuneration for carrying out estate agency work.

If that is right, so Mr Henderson argued, then the proviso to paragraph 5(1) of the regulation is to be construed consistently with that. The obligation to alter the prescribed explanation “so as accurately to describe the liability of the client to pay remuneration” does not require the agent to explain the circumstances in which the client may become liable to pay damages, because that liability is not a liability to pay remuneration.

For his part Mr Assersohn pointed to the anomalous distinction that would arise between the disclosure which has to be made to the client if the statutory explanation is adopted in full, with the contract therefore giving the agent the right to commission on a sale introduced by another agent, and the position under the model adopted by the Claimant (and, it may be, by many other estate agents, if the form is derived from one supplied by the National Association of Estate Agents, as Mr Morris said) under which the agent has, in that event, a right to claim damages for breach of contract, which may be put as being equal or at least close to the amount that would have been due by way of commission on the statutory model. He relied on the purpose of the section as identified by Hobhouse LJ in a passage quoted above. He therefore argued that the section should be read in such a way as to avoid giving rise to this anomalous distinction and so that it achieves its identified purpose better rather than (as on the Claimant’s argument) subject to a significant and anomalous lacuna.

By a Respondent’s Notice, Mr Digby took a number of additional points, one of which was that, even if the liability did not have to be explained under section 18(2)(a) and (b), it did under section 18(2)(c) and (d). It is necessary to consider those paragraphs in any event, as part of the process of statutory interpretation, but Mr Henderson submitted that the alternative paragraphs had not been part of the Defendant’s case when the evidence was being given, and that it would therefore be wrong to allow it to be raised afterwards. In fact the recorder asked for written submissions from Counsel on these paragraphs after he had reserved judgment, as he says at paragraph 38. In those submissions Mr Henderson made the same point, as well as seeking to meet the argument on its merits. The recorder did not rule on the preliminary point, perhaps because he accepted Mr Henderson’s submission on the merits of the point. He considered that damages for breach of contract were neither remuneration within section 18(2)(a) and (b) nor any other payment under the contract within section 18(2)(c). Puzzlingly, he went on at paragraph 40 to hold that there was a failure to comply with the requirements of section 18, but only as regards subsection (2)(d) by the failure to include the words “or with a purchaser instructed by another agent during that period”. If that is a breach at all, it is a breach of the regulation and therefore (under the section) by reference to section 18(1)(b) and (4)(a), not of section 18(2) at all.

Before us, Mr Assersohn’s position was that a liability to pay damages was within “remuneration” under section 18(2)(a) and (b) or, if not, it was within the category of “other payments” under the contract dealt within section 18(2)(c) and (d). He can rely on the proposition that, unless a sum due by way of damages is a “sum payable by the client under the contract”, it could not be reduced or discharged under section 18(6), which would be surprising to say the least. So it seems to me that he gets over the hurdle of showing that it is due or payable “under the contract”. But there is no such easy answer to Mr Henderson’s other points. How can an amount due by way of damages for breach of contract be said to fall within the phrase “remuneration for carrying out estate agency work”? If it is not, can the damages which might become due sensibly be regarded as within the category of a “payment which under the estate agency contract will or may in certain circumstances be payable by the client to the agent or any other person”? In either case, can it be supposed that the legislator intended that the agent should give the client particulars of the circumstances in which damages for breach of contract may become payable, and of the manner in which the damages would be quantified, or an estimate of the amount, as required by section 18(2)(d)? The issues that can arise are illustrated by my discussion of how the damages would be calculated in the present case, at paragraphs [29] to [38] above. With respect, what Rix LJ suggests might be said on this at paragraph [130] does not seem to me to comply at all clearly with the obligation to give particulars of the manner in which the amount of the damages would be calculated. Rhetorically, Mr Henderson asked whether an estate agent was to supply the client with a copy of the relevant part of McGregor on Damages. More generally, if the agent is required to explain to the client that he may become liable to the agent for damages for breach of contract in this respect, presumably the section also obliges the agent to explain any other respect in which the client may be liable to the agent in damages for breach of contract.

I recognise the force of the argument from anomaly presented by Mr Assersohn. I can see that on Mr Henderson’s contention the Act and the regulations do not, in this respect, give the client as much protection, in respect of advance warning of liabilities, as might be thought appropriate or as may have been intended. My Lords consider that the Act and the regulations can properly be read so as not to give rise to this anomaly. Despite their reasoning, and the submissions made to us on the point, when I consider a sum of damages which the agent may be able to claim against the client for breach of contract, representing the loss of the commission of which the agent is deprived of the ability to earn by the client’s use of another agent, I am unable to construe section 18(2) as requiring the agent to give information to his prospective client about the possible liability of the client to pay such damages. I cannot regard it as “remuneration for carrying out estate agency work”. Although in a general sense it might be said to be a payment, not being part of the remuneration or a deposit, which may in certain circumstances be payable by the client to the agent, I cannot hold that it is within section 18(2)(c) or (d) because I regard the sums there referred to as being amounts which are or will be liquidated amounts, such that they will either be known in advance or it will be reasonably easy to explain how the amount will be calculated. A sum payable by way of damages does not have those characteristics. Accordingly, in my judgment the Claimant did not fail to comply with the provisions of section 18(1) in respect of the information required to be given by section 18(2).

The next question is whether there was a failure to comply with the regulations. For reasons already given, I do not accept that the omission of the last part of the statutory explanation set out in paragraph (b) of the Schedule to the regulations was itself a breach of the regulations. It would have been misleading to include that text. In practice, to include the words would have made it a different contract. The question is whether there is a breach by reason of the failure to include some other text warning the client of the possible liability for damages for breach of contract.

In the course of argument some attention was given to the opening words of regulation 5(1): “he shall explain the intention and effect of those terms”. The obligation to explain is not, however, general or free-standing. It is a requirement to give the explanation “in the manner described respectively below, that is to say” by means of the prescribed explanations, subject to the proviso at the end of regulation 5(1).

It seems to me that the necessary analysis brings us back to the proviso. That requires that the content of the explanation “shall be altered so as accurately to describe the liability of the client to pay remuneration in accordance with” the provisions of the contract. Therefore the issue is whether the exclusion of the words at the end of the prescribed explanation, without any substituted words, does accurately describe the liability of the client to pay remuneration under the contract. It seems to me that remuneration must have the same meaning here as it does in section 18. If, therefore, a liability to pay damages is not part of the remuneration under section 18(2)(a), it is also not part of it for the purposes of regulation 5(1). It follows that the proviso does not require a statement that the client may be liable to pay the agent damages for breach of contract.

For that reason I would hold that there was no failure to comply with the section or the regulations. It is open to an agent to omit the phrase about entitlement to commission on a sale introduced by another agent, so as to leave the legal and economic consequences of a breach of the sole agency to a claim in damages. If that is the course adopted, there is no obligation under the section or the regulation to include any text warning the client about the possible liability to pay damages, and how those damages might be assessed.

The Act and the regulations are plainly intended to provide protection to the particular class of consumers consisting of potential clients of estate agents, as Lord Neuberger mentioned in paragraph 25 of his judgment in Foxtons v Pelkey Bicknell [2008] EWCA Civ 419. He said:

At any rate, the purpose may have been to endeavour to ensure that the client knew the risk he faced of having to pay commission to two agents, and therefore did not incur that risk unwittingly. The position of paying commission to one agent and damages for loss of the chance to earn commission to another is also a risk of which, it might be thought, the prospective client should be warned.

I recognise that the conclusion to which I have come may be regarded as leaving an unsatisfactory loophole in that consumer protection system. My Lords conclude that there is no such loophole. It may nevertheless be worthwhile considering whether one or both of the Act and the regulations should be amended. If the regulations are to be reconsidered, it may also be appropriate to review the prescribed texts more generally. The point was made to us that the text in paragraph (b) of the Schedule is odd in at least one respect, because the words which were omitted in the present case imply that the client can instruct another agent, in which case it seems curious to call it a sole agency. Of course, the economic effect of giving the “sole” agent a right to commission on the other agent’s sale is what really matters.

On my conclusions, the question of enforcing the contract, or not, under section 18(6) does not arise. However, the conclusions of Rix and Toulson LJJ as to breach of contract mean that this question does arise and I will therefore explain the point and the conclusion that I would have reached on it.

The section poses two questions for the court.

First, the court can dismiss the application, but it is to do so only if it considers that it would be just to dismiss it having regard to two things: first the prejudice caused to the client by the agent’s failure to comply with the relevant obligation, and secondly the degree of culpability for the failure.

Secondly, if the court does not dismiss the application, it may allow it in full, or it may order that any sum payable by the client under the contract shall be reduced or discharged so as to compensate the client for prejudice suffered as a result of the agent’s failure to comply with his obligation.

Thus, on the preliminary question of dismissal, it is relevant to have regard to both prejudice to the client and culpability of the agent. On the second question, compensation for prejudice to the client is what may lead to a reduction or extinction (discharge) of the liability that would otherwise have been enforced.

The recorder had held that the omission of the last phrase from the prescribed explanatory text was a breach of section 18. In relation to enforcement, he said that the Claimant was solely culpable for the omission, at paragraph 44, and that the degree of culpability in omitting the information required by the Act was high or at least significant (see paragraph 47). He also held, at paragraph 45, that Mr Digby had suffered prejudice because “had the contract been worded differently it would have alerted him to the risk that he might take in proceeding to a sale which involved” Marsh & Parsons. Later in the same paragraph he said that Mr Digby “might well not have taken the risk” of being liable to both the Claimant and Marsh & Parsons. He characterised that as real prejudice to the client, and on that basis, having regard both to culpability and to prejudice, he held that it would be unjust to allow the Claimant to enforce the contract. That, no doubt, comes to the same as holding (in accordance with the language of the section) that it would be just to dismiss the application to enforce the contract.

Plainly the Claimant was responsible for the omission of the statutory words. It does not seem to me that it necessarily follows that the omission was culpable. There was some rather inconclusive evidence, referred to by the recorder at paragraph 42, as to the provenance of the text used by the Claimant. It may be that the Claimant had not done enough to prove that its failure to comply with the requirements of the Act or the regulations was not culpable. However, it seems to me that the fact that the agent is responsible for the omission (as it almost always would be) does not by itself prove that the failure was culpable. Otherwise, this would be an example of absolute liability. On the other hand, in practical terms it will be for the agent to put forward a case for saying that he is not culpable, or not seriously so, since the client may well not be aware of the relevant facts.

Mr Morris said he had used a precedent supplied by the National Association of Estate Agents, but could not recall whether it had included the words at the end of the statutory explanation of sole agency, or not. He could not recall whether he had consulted a solicitor on the point. In those circumstances he had barely begun to explain in any satisfactory way how the omission arose. Mr Henderson submitted that, in the absence of any evidence to show that the omission was negligent, reckless or deliberate, it was not open to the recorder to find that it was culpable at all. I cannot accept that. If the agent cannot explain how the fault arose, it may well be open to the court to draw inferences unfavourable to the agent.

Mr Henderson also submitted that it was not sufficient for the recorder to conclude that, if there had been a warning in the text of the agreement about the risk of liability both to the Claimant and to another agent, Mr Digby might well not have run the risk of a dual liability. I reject that submission. It cannot be necessary for the client to prove that he would have acted otherwise but for the failure to comply with the Act or the regulations. That he might well have so acted, as the recorder found, is sufficient to show prejudice.

The Scottish case already mentioned, Solicitors Estate Agency (Glasgow) Ltd v MacIver [1990] SCLR 595 and [1993] SLT 25, provides an illustration, with some useful observations, of how section 18(6) may work. In that case the agent charged the client for the cost of newspaper advertisements, as well as for commission, but did not disclose that the newspaper allowed the agency a discount on the advertising charges, which the agency did not pass on to the client. At first instance the sheriff held that this was a breach of section 18(2)(d) because the agent did not give accurate particulars of the manner in which payments due in respect of the advertisements would be calculated. At that stage it was not argued that there was also a breach of section 18(2)(a). However on appeal to the sheriff principal, and in turn to the Inner House of the Court of Session, it was argued for the client, and accepted by the agent, that there was also a breach of section 18(2)(a) on the basis that the discount retained by the agent was remuneration within that paragraph. In that way, one course of conduct was found to give rise to breaches of two different parts of the section. The Court of Session pointed out, however, that since the same conduct was at issue, whether it was to be regarded as a breach of one provision or of two made no difference in terms of culpability or of prejudice. (I express no view as to whether the failure to disclose the withholding of the discount did infringe section 18(2)(a); that is unnecessary for present purposes. It is not obvious to me that it is included within the “circumstances in which the client will become liable to pay remuneration to the agent for carrying out estate agency work”.)

In that case the sheriff held that there was a breach of section 18(2)(d), and that the failure to supply the information was not a simple oversight on the part of the agent. The agent was not aware of the obligations under section 18, so he did not know that he was in breach, but he did know that he was not telling clients about the discount allowed by the newspaper, and it was his policy and practice not to disclose this, but to charge the gross amount to the client. He knew, therefore, that he was making a profit on that aspect of his charging to clients. The sheriff held, inevitably as it seems to me, that there was a “not insignificant” degree of culpability on the part of the agent: see the sheriff’s note reported, with that of the sheriff principal, at [1990] SCLR 596, at page 607E.

The sheriff went on to consider prejudice, which he described as some injury, detriment or damage caused to a person by some action in which his rights have been disregarded. He held that the client had suffered some prejudice, but not to a significant extent. The client had agreed in terms to some of the advertisements placed, and to the charge made for them. He took the view that despite the significant culpability and some prejudice, it would not be just to dismiss the application to enforce. Moving then to the question under section 18(6)(b), and leaving culpability aside as irrelevant, he held that the contract should be enforced, but with a reduction of the amount payable in respect of those advertisements for which the client had not agreed the specific price, so as to give the client the benefit of the discount and some additional compensation as well.

The sheriff principal held that the agent’s conduct amounted to a breach of section 18(2)(a) as well as of paragraph (d), that this, albeit inadvertent, error by the sheriff entitled him to exercise the discretion under section 18(6) afresh, and that because the agent’s conduct had constituted two breaches of the section, it was to be regarded as significantly more culpable than the sheriff had done, so much so as to justify dismissing the application, even though he agreed that only minor prejudice had been suffered. The Inner House allowed the agent’s appeal, on the basis that to regard the same conduct as a breach of one or of two parts of section 18(2) made no difference to its seriousness, since the sheriff had clearly taken the relevant conduct into account on its merits, so to speak, in his assessment and in the exercise of his discretion. Therefore the sheriff principal had not been entitled to interfere with the sheriff’s exercise of his discretion.

Turning back to the application of section 18(6) in the present case, on the assumption (contrary to my view) that the agent’s failure to draw the client’s attention to the risk of his being liable to pay damages to the agent if he broke the sole agency agreement by using another agent did amount to a failure to comply with section 18(1), it seems to me that the recorder directed himself properly as to prejudice, but not as to the culpability of the agent. It would be possible to draw an adverse inference, from the inadequacy of Mr Morris’ explanations, as to the degree of culpability, but it is not clear what conclusion the recorder drew on that point. If the point arose, I would hold that the agent was to some extent culpable – largely because of his inadequate explanation of how his document got into the form in which it stood, and what precautions he took as regards compliance with his statutory obligations, of which he was aware. I would agree with the recorder that the client had suffered prejudice. I would hold that the degree of culpability was not sufficient to justify dismissing the application to enforce altogether, under section 18(6)(a), but that the degree of prejudice might justify either dismissing the claim under section 18(6)(a) or reducing or discharging the sum payable by way of damages under section 18(6)(b).

Logically it is necessary to decide first whether it is just to dismiss the claim on the ground of prejudice, since only if it is not dismissed does the question of reducing or discharging the amount by way of compensation under section 18(6)(b) arise. In some cases it may be clear that the prejudice is not enough to justify either dismissing the claim or discharging the liability altogether. In such a case the question is whether and if so by how much should it be reduced under section 18(6)(b).

In the present case, however, the prejudice is said to be having incurred a liability for commission (or at any rate, having paid commission, even if not liable) to a second agent, Marsh & Parsons, because there was no warning of potential double liability. The amount of that prejudice is substantial, since the amount paid to Marsh & Parsons is said to have been £60,000. (Commission at 2% on the sale to Mr Murray would have been £59,000.) On those figures, it could readily be regarded as requiring that the client be compensated by the extinction of the liability to the sole agent. In that case, it makes no real difference whether the prejudice bars the agent’s claim at the outset, under section 18(6)(a), or discharges it under section 18(2)(b).

Under section 18(6)(b) prejudice to the Defendant is all that is relevant, and the issue is by how much (if at all) the client should be compensated for the prejudice. The recorder said, as already noted, that Mr Digby might well not have taken the risk of being liable to the Claimant and paying commission to Marsh & Parsons as well, if the contract had included the whole of the statutory explanation. In that case it would have been apparent, at least to Marsh & Parsons and presumably therefore also to Mr Digby himself, at any rate after talking to Marsh & Parsons, that he risked being liable both to the Claimant and to Marsh & Parsons by way of commission.

The correct question, however, is what would the effect have been on him if the contract had made it clear, not that he would have to pay a second commission, but that he would be liable to pay damages to the Claimant if he sold through a different agent. It seems to me that the recorder would be likely to have expressed the same view if the question had been put in that way. Either way, the Defendant faced a liability to pay two agents. The amount of damages might not be clear, but the risk might well have been sufficient to put Mr Digby off getting into a position in which he might have to pay both agents.

If, contrary to my view, the Act required the Claimant to include, in effect, a warning to the client that to sell through another agent might lead to a liability to pay damages to the sole agent, then it seems to me that Mr Digby would have incurred substantial prejudice as a result of the absence of the warning and the failure to comply with the Act.

On that basis then, albeit for somewhat different reasoning, I would not differ from the recorder’s conclusion that it would be just to dismiss the claim, because of the prejudice suffered by Mr Digby from the breach of the Act (even if not on grounds of culpability) under section 18(6)(a). Alternatively the equivalent result might properly be reached by allowing the claim to be enforced under section 18(6)(a) but by discharging the whole of the amount of damages otherwise due under section 18(6)(b), in order to compensate the Defendant for the prejudice suffered.

On my own conclusion, the correct order would be to allow the appeal, to set aside the recorder’s order, and to substitute an award of damages for breach of contract, which would be a proportion of £57,000 representing an appropriate discount as discussed at paragraphs [38] and [39] above.

As it is, however, because of the views of Rix LJ and Toulson LJ as to breach of contract and compliance with the Act and the regulations, and because of the views which we all share as to enforcement in that event, the appeal will be dismissed.

I have had the benefit of reading in draft the judgments of Lloyd LJ and Rix LJ. I agree with Rix LJ that the appeal should be dismissed, although I recognise the strength of the arguments which have led Lloyd LJ to the opposite conclusion.

In company with Rix LJ, I do not find the question of the proper construction of the agreement as simple as does Lloyd LJ.

Rix LJ would take into account, among other things, the statutory scheme. Lloyd LJ would not. There are in my view two reasons why the statute may be relevant to the construction of the contract.

The first reason (which I recognise was not raised in the course of the argument) is that if the contract is capable of being read in two ways, one of which would involve a contravention of a statute and the other would not, that may be a powerful reason for reading the contract in the sense which is compliant with the statute, even if it is the less natural construction. (This is to put in modern terms the approach expressed in the maxim ut magis valeat quam pereat).

The second reason (which was raised in argument but only briefly) is that the modern approach to the interpretation of contracts is to take into account any relevant background knowledge which would have been reasonably available to the parties apart from evidence of pre-contractual negotiations: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 and Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101.

I can see the logic of the argument that members of the general public, like Mr Digby, are unlikely to have been familiar with the statutory scheme. But it seems to me unjust that an estate agent who would be well familiar with the scheme, designed for the protection of the client, should be able to rely on the client’s likely ignorance of it as a reason for preventing the client from asking the court to take it into account as part of the background or “matrix” of surrounding circumstances, if relevant. That leads me to the question of its relevance.

The purpose of the statutory scheme was stated succinctly by Hobhouse LJ in the passage of his judgment in Harwood v Smith which Lloyd LJ has set out at paragraph [51], namely to ensure that the client would know precisely what his liabilities were to the agent and, in particular, that expressions such as “sole agency” should be clearly defined.

The words of the contract under the heading “Sole Agency” (set out by Lloyd LJ at paragraph [4]) follow the wording of paragraph (b) of the Schedule to the Regulations (set out by Lloyd LJ at paragraph [43]) with two variations – an inclusion and an omission. First, the contractual version includes a right to payment “If a purchaser first introduced by the Agent goes on to buy the property (whether or not through another agent) in circumstances where that purchaser was reintroduced less than six months after the date this agreement ended”. Those words do not appear in the Schedule. Secondly, the contractual version omits the words in the Schedule stating that the client will be liable to pay remuneration to the agent if he enters into a contract of sale “with a purchaser introduced by another agent during that period”.

It seems to me that it is at least a possible construction of the contract that the words under the descriptive heading “Sole Agency” were intended to set out the content of the liabilities thereby owed by the client to the claimant, supplemented by the obligation under the paragraph headed “Offers” to provide details of all offers received by the client. As Rix LJ has observed, that clause is wide enough to include offers received through another agent and would potentially enable the agent to have negotiations with the offeror.

I recognise that on this construction the agent does not have any form of exclusivity, whereas the word “sole” implies some form of exclusivity (albeit that its ambit is ambiguous – hence the statutory requirement for explanation of the term). All I am suggesting at this point is that it is nevertheless a possible construction viewed against the statutory background. Before going any further, I turn to the construction of the Act and Regulations.

If the estate agents are right, they have found a loophole in the scheme which enables them to defeat its core purpose as summarised by Hobhouse LJ in Harwood v Smith. The contract, on their construction, did not explain the client’s liabilities arising from the use of the expression “sole agency”. According to their argument, by omitting the final words of the Schedule, which would put the client on notice that he would be liable to pay remuneration to the agent if he agreed to sell the property to a buyer introduced by another agent during the period of the agreement, an agent is able in the same circumstances to claim the same or much the same in monetary terms, not as commission but as damages for loss of commission, without informing the client of his potential liability. So in the present case the agents’ pleaded claim was for the equivalent of commission at the contractual rate on the probable sale price of the property but for Marsh & Parsons’ intervention, which was claimed to have been the price actually paid by Mr Morris or something close to it.

I respectfully agree with Rix LJ’s comments about the loophole and the effects if the agents’ argument is correct. Like him, I would adopt a purposive approach to the legislation. “Purposive approach” is a broad phrase. How far a court should go in a particular case in rejecting a narrow syntactical interpretation in order to give effect to the perceived purpose of a legislative scheme may depend not only on the language used but also on the subject matter. In this case the subject matter is customer protection. I would not accept the agents’ argument if there is a plausible alternative way of interpreting the legislation.

The provisions which give rise to the dispute over interpretation are section 18(2) of the Act and paragraph 5(1) of the Regulations. I take them in reverse order.

Paragraph 5(1) is set out in paragraph [43] of the judgment of Lloyd LJ. On the agents’ construction of the contract, Mr Henderson accepted that it did not contain an explanation of the effect of the term “sole agency”. He submitted that it did not have to do so, because the requirement expressed in the opening words of the paragraph (that if that term is used the agent shall explain its intention and effect) is limited by the words which follow (“in the manner described … below …” and the proviso at the end of the paragraph). Lloyd LJ accepts that argument (paragraph [69]), but I am not persuaded by it although I see its linguistic attraction.

The mischief at which the scheme was aimed was the uncertainty caused to clients by the use of unexplained terms such as “sole agency”. The opening words of paragraph 5(1) address that problem directly: the agent is required to explain the intention and effect of such terms. In that context, I would not construe the rest of the paragraph (from “in the manner described below” down to the proviso) as intended to cut down the scope of that obligation or to permit the agents, in the present case, to dispense with an explanation of the term “sole agency” used by them. Rather, I would construe the remainder of the paragraph as words of further particularisation. In short, I would interpret the paragraph as meaning that if any of the specified terms are used by the agent, he must explain their intention and effect and, in particular, he must provide the specified information. I regard that interpretation as permissible and indeed necessary in order to give effect to the underlying purpose of the scheme.

If I am right in that view, it does not matter to the outcome of this case whether, on the agents’ construction of the contract, they were also in breach of section 18(2). However, I would agree that the word remuneration in section 18(2)(a) should in the present context be given the interpretation favoured by Rix LJ for the reasons which he has given. Alternatively, if the meaning of remuneration is confined to a contractual debt and does not include damages for loss of commission, I would regard the liability as falling within section 18(2)(c), because damages for loss of commission would be a payment not forming part of the agents’ remuneration but which under the contract would be payable by the client in circumstances where he agreed to sell the property to a buyer introduced by another agent during the period of the contract. I also agree with Rix LJ’s comments about section 18(2)(b), and the same would apply equally to section 18(2)(d), if the liability were properly to be regarded as falling within section 18(2)(c) rather than section 18(2)(a).

I return to the construction of the contract. I would be inclined to hold that the construction to which I have referred in paragraph [103] as a possible construction is the proper construction, because it is consistent with the agents’ obligations under the statutory scheme, whereas the agents’ construction would be inconsistent with the scheme; and on that basis there was no breach of contract by Mr Digby. However, I agree with Rix LJ that it makes no difference to the result in the present case. For if the agents’ construction of the contract is right, and if (as I agree with Rix LJ) the contract on that construction did not comply with the statutory scheme, we all agree that the judge was entitled to refuse to enforce the contract.

I am most grateful to Lord Justice Lloyd for setting out the material in this appeal, but I have the misfortune to have a different view of its outcome.

The important factual finding which I take from the judgment of Lloyd LJ is that Mr Murray, the purchaser of Mr Digby’s property, was introduced through Marsh & Parsons, consistently with which Mr Digby paid to that firm a commission. I agree that the finding of the judge that Mr Murray came on the scene without the intervention of Marsh & Parsons was not open to him on the pleadings.

In these circumstances, two principal issues arise as to liability. One is the proper construction of the sole agency contract: was Mr Digby in breach of that contract? The other is the true interpretation of the statutory provisions. However, it is not clear to me that the two points are not to some extent inter-related.

As to the first of these issues, I find the answer of greater difficulty than Lloyd LJ. It is true that the contract constantly refers to itself in terms of sole agency, but what does that mean? It might seem, as Lloyd LJ has concluded, that it means that the client (the principal) is not allowed to instruct any other agent (and thus is not allowed to sell the property through any other agent) during the agreed period of sole agency. That the answer is not as straightforward as it might seem, however, is demonstrated by a number of factors. The first is that the expression “sole agency” is nowhere in the contract defined in such terms. The second is that there is a clause in the contract headed “Sole Agency” which is where prima facie one would expect to find the meaning of the term set out. That term, however, does not state the obligation in the terms of exclusivity, but rather in the terms of the client’s obligation to pay the sole agency fees (see also the “Settlement of Fees” clause which states that “Commission fees are payable as a result of the circumstances outlined herein”). Thirdly, the terms of the “Sole Agency” clause are themselves influenced by the statutory requirements, the effect of which is to place an obligation on the agent to inform his client as to what the expression “sole agency” means. Thus there is a statutory background to the expectation that the “Sole Agency” clause is that part of the contract which will tell the client what the expression means. Fourthly, that statutory background has been enacted for the very reason that clients of estate agents need assistance in explaining to them what the ramifications of their contracts with such agents are. Fifthly, the contract itself contemplates (in its “Offers” clause) that, even under a “Sole Agency” contract, offers may come forward through “enquiries or discussions which are not made via the Agent”. It is understandable that such enquiries or discussions might derive simply from the client’s personal contacts, rather than through the intervention of another agent, but the clause in question is not limited to the former and would clearly embrace the latter. Sixthly, the obligation on the client to “promptly inform” the agent of all such enquiries or discussions is clearly to enable the agent to ensure that he plays a role in any ensuing negotiations. Seventhly, it is no doubt for this reason that in the “Sole Agency” clause it is provided that the agent will earn its commission not only if it has “introduced” the purchaser, but also if “the Agent had negotiations about the Property” with the purchaser during the agreed period.

Eighthly, in Harwood v. Smith [1998] 1 EGLR 5 Hobhouse LJ said this at 6H:

That seems to me to recognise that there is no obvious meaning to the expression “sole agency”.

In this connection, the citation from the judgment of Nicholls LJ in Property Choice Ltd v. Fronda [1991] 2 EGLR 249 which appears at para 23 above is not obviously, nor I think really, part of the reasoning or observations of Nicholls LJ but his setting forth of a submission on behalf of the vendor which is then developed in the following paragraph of that judgment (“Mr Whittaker submitted…”). Thus the cited paragraph begins: “The first point taken on this appeal is this.” Mr Whittaker then built in his submission on the distinction drawn in the previous paragraph, in order to say that the contract was one of sole agency (as indeed it was so described within it) and not of sole selling agency. As it happens, the contract in that case sought to explain the meaning of “sole agents” in the following way, not found in the present case, for it stated: “Until the expiration of such notice the vendor will not consent to sell the property to anyone not introduced by Property Choice. If this is contravened Property Choice will be entitled to the same commission in the same circumstances as if we had effected an introduction”. (That, Nicholls LJ thought, turned the contract into a sole selling agency.) Therefore that contract stated that any sale deriving from consent within the agreed period would attract the agreed commission. That is not what our contract says. In Property Choice the trial judge regarded the last sentence quoted as an invalid penalty but awarded the agent damages: however this court was content to allow the vendor’s appeal on the ground that, in circumstances where the agreed sale with a private buyer never proceeded to contract, no commission would have been earned in any circumstances.

In these circumstances, I would be troubled about concluding this first issue without also considering the effect of the statutory provisions. It is noticeable that in the modern period covered by the 1991 Regulations, it is common for a sole agency contract expressly to provide that remuneration is payable to a sole agent if inter alia contracts are exchanged with “a purchaser introduced by another agent during that period” (see Foxtons Ltd v. Pelkey Bicknell [2008] EWCA Civ 419), [2008] All ER (D) 328 (Apr)) see at para 4), or else to state, for instance, that “During the Agency Period the Vendor will not market the property for sale privately or instruct any other agent to market or sell the property” (see Nicholas Prestige Homes v. Neal [2010] EWCA Civ 1552, at paras 8 and 26).

I am aware of judicial observations (see at paras [48] and [49] above) which might suggest that a contract such as that in this appeal has to be construed entirely independently of its statutory background. However, I find such a conclusion hard to adopt. On the one hand the agent knows or must be presumed to know of the statutory provisions. On the other hand, the client probably does not know of them, but, whether that is so or not, the statutory provisions have been enacted precisely because Parliament has concluded that the ordinary client cannot reasonably be expected to determine for himself the significance and effect of such terms as “sole agency” unless assisted by the agent with the provision of sufficient and accurate information. Moreover, the fact that the “Sole Agency” clause in our contract says what it does is because the language is taken directly (even if incompletely) from the scheduled explanation of the prima facie effect of a “sole agency” term. In such circumstances it seems to me rather difficult to construe such a contract in affected ignorance of the statutory background to it. To put the matter in conventional language, it might be the case that, even if the expression “sole agency” has to involve some requirement of exclusivity, it should not readily be understood to entitle an agent either to charge a commission or to seek damages in lieu of a commission unless the contract specifically so provides.

Perhaps ultimately this is not so much a question of the construction of contracts as a question of damages for their breach: see Transfield Shipping Inc v. Mercator Shipping Inc [2009] AC 61. Be that as it may, I would prefer to leave this issue open. Even if it has to be decided in favour of the submissions on behalf of the agent, the matter will in my judgment ultimately turn on the next issue which arises under the statutory provisions of the 1979 Act and the 1991 Regulations.

The statutory provisions are set out above. It is to be noticed that the 1991 Regulations require an agent who uses terms such as “sole agency” to “explain the intention and effect of those terms to his client in the manner described” in the Schedule to the Regulations. In the case of “sole agency” the prescribed intention and effect is as follows:

Since the sole agency contract in this case omitted the last phrase of that explanation (“or with a purchaser introduced by another agent during that period”), the issue arises whether in those circumstances the contract is enforceable only subject to the provisions of section 18(5) and (6) of the 1979 Act. As explained by Lloyd LJ above, that issue depends on whether “remuneration” applies only to commission or also to a liability to pay damages. It is submitted on behalf of the agent in this case that if “remuneration” applies only to commission, then there is no obligation to explain about any liability in damages for breach of a sole agency provision. However, as also explained by my Lord, such a result would be anomalous and the regulatory protection would be defective. For the client would be unprotected in the very circumstances in which the agent declines to explain to his client what prima facie, subject to the proviso to regulation 5, he is obliged by this consumer protection legislation to explain. Thus, an agent could avail itself of a statutory loophole or lacuna in order to evade the purpose of the legislation. Does that loophole exist?

Section 18 refers to “remuneration for carrying out estate agency work”, to “payments which do not form part of the agent’s remuneration” and to “any sum payable under the contract”. The Schedule to the Regulations refers to “remuneration” and “other costs or charges agreed”. The argument for the agent is that these expressions do not readily encompass damages payable for breach of contract rather than sums payable under the terms of the contract. It is suggested that any explanation of how the incident or quantification of such damages would be an improbable or impossible task.

I see the strength of these textual arguments, which have ultimately carried decisive weight with Lloyd LJ. However, in my judgment, they are not sufficiently weighty to carry the day. I would seek to express my reasons as follows. The word “remuneration” is an odd word to use in this context where the commercial word “commission” is wholly standard. If “remuneration” is intended to mean “commission”, why does not the Act and the Regulation say so? It is not because the word has to do duty for payments and charges of other kinds, separate from commission, for such other payments “which do not form part of the agent’s remuneration” are separately addressed. If the agent’s submission were correct, there is an anomaly in the use of the word “remuneration” instead of the standard word, which every agent and consumer would understand in this context, of “commission”.

This point can be highlighted by observing how oddly the statutory word “remuneration” appears when written into the agent’s contract itself. The contract naturally enough refers to “Commission of 2%”. It is also referred to as “Commission fees”. However, when, in the “Sole Agency” clause, the contract adopts the statutory definition of that term (but omitting the last part) it switches to the word “remuneration”. It does so because that is the word in the Schedule to the Regulations. However, the natural word to use in such a context would have been “commission”. There is a mismatch here which needs explanation and suggests a cautious approach to interpretation. In the contract itself, the natural meaning prima facie to be given to “remuneration” is that of “commission” or “commission fees”. But what does it mean in the statutory provisions?

Secondly, the word “remuneration” is a general word which is capable of referring to damages in lieu of commission. It seems to me that that is a natural way of referring to damages which are to be quantified by reference to a commission which would otherwise have been earned. The situation is familiar in many commercial contexts. A shipowner charges hire for putting his vessel at the disposal of a charterer. In certain circumstances true hire will not have been earned but damages in lieu of hire will have been incurred, and it might naturally be said earned, where the vessel is rendered “off-hire” by reason of the charterer’s breach. It would, it seems to me, be a perfectly reasonable use of language to refer to this as the remuneration due to the shipowner for carrying out his services as such. For that reason also I see no difficulty in the compendious phrase “remuneration for carrying out estate agency work”. That is what remuneration is: it is a recompense for something done. But it does not have to be a contractual fee. Remuneration might be earned quantum meruit, rather than as a matter of a contractual fee. And in certain circumstances, where the contracting party has in breach of contract prevented the service provider from earning his fee, he will have to pay damages assessed by reference to that fee. This more general sense of remuneration is to my mind underlined in this context by the final phrase in the Schedule’s definition of “Sole Agency” in the words “with a purchaser introduced by another agent during that period”. Since the primary responsibility of the agent, and the essential thing which earns it its commission is the introduction of a willing purchaser, the word “remuneration” and even the phrase “remuneration for carrying out estate agency work” is clearly being used in a wide or extended sense when it is also earned by someone else’s work. Clearly it is the agreement to carry out the services of an estate agent, rather than any particular work itself, which entitles the agent to his “remuneration”.

Thirdly, and against this textual and linguistic background, I approach the purposive interpretation of these statutory provisions. If it were true that “remuneration” did not embrace damages in lieu of commission (and subject to the effect of section 18(b), discussed below), it would follow that a sole agent would have no obligation to inform his client of his liability to pay damages to the agent, very probably in the exact sum of the commission otherwise chargeable, if at any time the client sells to a purchaser introduced by another agent during the period of the sole agency. Moreover, this loophole would exist, even though: (i) there is a statutory obligation to inform the client of the circumstances in which the client will become liable to pay remuneration; (ii) there is prima facie a statutory obligation to explain “the intention and effect” of the term “sole agency” in the terms scheduled; (iii) those terms explain that remuneration is payable (inter alia) if at any time unconditional contracts for the sale of the property are exchanged with a purchaser introduced by another agent during that period; and (iv) the proviso which would permit the agent to provide a different explanation only occurs where (a) the contract is in different terms which would make the scheduled explanation misleading and (b) such other explanation is provided as would “accurately describe the liability of the client to pay remuneration” in accordance with those different contractual provisions. In other words the statute seeks to ensure that the client knows exactly what is involved in the concept of “sole agency”; there is a prima facie statutory definition of what is involved; and although there is ultimately freedom of contract for the agent and client to make their own contract, the explanation provided by the agent of his contract in any different terms must be at least as accurate and informative as the standard scheduled explanation. This whole scheme would break down if “remuneration” did not cover the situation where damages in lieu of commission was payable for breaching an obligation not to deal with another agent.

The scheduled information would also in such a case have the bizarre effect that the prima facie meaning of “sole agency” would grant to the agent a full right to commission even though the true circumstances were such that the agent had not been prevented from earning his commission at all (e.g. because the agent could not find a purchaser for the client). That would make such consumer protection legislation work in favour of agents (rather than in protection of consumers) by providing agents with the toughest of all terms as their prima facie, statutorily approved, template. For whatever “sole agency” means, it does not, unless of course separately stipulated (which it may often be), involve an obligation to pay commission even where the sole agent has done nothing to introduce a purchaser to the client with whom the client is willing to enter into an unconditional contract.

As for the submission that it would be too difficult to explain how damages in lieu of commission would work (see the obligation under section 18(2)(b)), I fail to see the force of it. All that need be said is that such damages would or might be payable, up to the amount of the commission which would otherwise be payable, in circumstances where the client, by at any time selling to a purchaser introduced by another agent during the relevant period, prevented the agent from earning its commission. It may be noted that such damages in lieu of commission are different from damages in general. Thus if a sole agency agreement means that the client is obliged not to instruct another agent during the sole agency period, there might be a breach causing perhaps nominal damages (or possibly damages arising out of wasted expenditure), but, if nothing proceeds from any introduction from the other agent during the sole agency period, then no question of damages in lieu of commission would arise.

In these circumstances, while I can see that there is room for confusion in these regrettably poorly drafted provisions, I would consider that to confine the general word “remuneration” to a contractually stipulated commission, rather than to construe it as embracing both commission and damages in lieu of commission, would be an unattractive interpretation which would undo a great deal of the purpose of the legislation.

Some, but not much, of this reasoning would be undermined if section 18(2)(c)’s reference to “payments which do not form part of the agent’s remuneration for carrying out estate agency work” itself embraced damages in lieu of commission. I see no reason in principle why such “payments” should be confined to stipulated and liquidated charges (i.e. to debts incurred under the contract), although I can see that they might well be. On the hypothesis, however, that “remuneration” does not embrace damages in lieu of commission, similar reasoning to that advanced above would suggest that such “payments” ought not to be confined to stipulated charges but should embrace damages. In any event the expression “remuneration for carrying out estate agency work” retains its somewhat unsatisfactory status: for it is difficult to know why there should be any payments or charges of any kind under an estate agency agreement save in some sense for the purpose of remunerating the agent “for carrying out estate agency work”. Even so, on the whole I am inclined to think that such “payments” are intended to be covered by the “costs or charges agreed”, referred to in the scheduled wording, in which case they could not refer to damages in lieu of commission. (I am not suggesting, however, that the Regulations can control the interpretation of the Act.)

On the basis that “remuneration” can and does cover damages in lieu of commission, the agent here was in breach of section 18(1)(a) and (2)(a) in failing to provide Mr Digby at least with adequate particulars of the circumstances in which he would become liable to pay remuneration, and was also in breach of section 18(1)(b) and 18(4)(a) of the Act and of Regulation 5(1) in failing to set out either the scheduled information or such other information as was required by the proviso to that regulation “so as accurately to describe the liability of the client to pay remuneration in accordance with [the] provisions” of his contract.

It seems to me that my conclusions about the meaning of “remuneration” are supported at least to some degree by the treatment of the advertising discount as “remuneration” within section 18(2)(a) in the Scottish case of Solicitors Estate Agency (Glasgow) Ltd v. MacIver [1990] SCLR 595 and [1993] SLT 25.

In these circumstances, the issue of enforcement under section 18(6) arises, as it did for the judge at trial. He concluded that the agent’s application to enforce should be dismissed. Lloyd LJ in his careful treatment of this topic (albeit it arises only as an obiter part of his judgment) agrees with the judge’s conclusion (even if not with all of his reasoning). In this respect, I agree with what Lloyd LJ has said. It is unnecessary to say more.

In sum, I would therefore dismiss the appeal.

the appeal be dismissed

the Respondent’s costs of this appeal be paid by the Appellant such costs to be the subject of detailed assessment on the standard basis if not agreed

the Appellant’s application for permission to appeal to the Supreme Court of the United Kingdom be refused

the Appellant’s application for a stay of paragraph 2 of this order and of paragraph 2 of the order of Mr Recorder Widdup dated 30 September 2010 pending an application to the Supreme Court of the United Kingdom for permission to appeal be refused