Cases involving RTA (Business Consultants) in 2018 and 2017
Cases involving Tony Reeves in 2018 (scroll down for 2017)
TRANSCRIPT OF PROCEEDINGS
IN THE COUNTY COURT AT EDMONTON
59 Fore Street
Before DISTRICT JUDGE LETHEM
IN THE MATTER OF
RTA (BUSINESS CONSULTANTS) LTD (Claimant)
- v -
FERMAN AKSU (Defendant)
MR GIBSON appeared on behalf of the Claimant
MR REEVES appeared on behalf of the Defendant
17th AUGUST 2018, 12.15-12.38
Transcribed from the official recording by AUSCRIPT LIMITED
Central Court, 25 Southampton Buildings, London WC2A 1AL
1. If ever there was a case that demonstrates the truth, that the most perplexing legal problems may appear in the small claims track, as well as in more sizeable cases, it is this one. I have to decide a point upon which no authoritative guidance has been given in relation to Money Laundering Regulations. I also have to consider issues arising in relation to penalty clauses.
2. The decision arises against a background whereby the defendant was the owner [redacted] and operator of a business situated in H. For various reasons, there came a time when she was minded to sell the property and, as I understand it, unsolicited, the claimants met and discussed with her the option of using them to sell the property. It is accepted that they sought from the defendant a registration fee. The defendant indicated that she was unable or unwilling to pay that registration fee. The fee was waived and, ultimately, the defendant entered into a contract dated the 5th of September 2017.
3. Now, the contract contains two provisions which are relevant to my consideration. At clause 11, the contract provided for the purposes of this judgment:
"I accept that I will be deemed to have prevented you from selling my business or property if I:
(a) fail to pay any agreed registration money by the agreed payment date;
(b) fail to allow interested parties during the currency - to view, during the currency of this agreement;
(c) should make any representations to any interested party that should deter them from progressing negotiations further and
(d) should refuse or fail to make available to you any information that you deem necessary to assist you with the sale, including but not limited to copies of my/our trading accounts, a copy of the lease and/or copy of the energy performance certificate and identify documents for Money Laundering Regulations;
(e) refuse to sell my business and/or property at a price that I have instructed you to set on my behalf. If I provide a cheque for the registration fee, upon which I have subsequently countermanded payment of, for which my bank has failed to honour payment.
(g) if I have failed to provide you with the required identity papers that satisfy the Money Laundering Regulations 2007 within 28 days from the date of this agreement.
4. Clause 12 provides that non-withstanding the foregoing provisions:
I agree that I shall have the option to cancel this agreement within the initial 12-month irrevocable agency period referred to in clause 2. If I exercise this option, or if I prevent you from selling the property and/or business, as defined in clause 11 above, during the period, I will compensate you for your loss of opportunity to earn a commission. As it's impossible to ascertain at this stage what such loss would be, I agree to pay to you, in compensation for your loss or opportunity to earn your commission, a sum which will be equal to one half of the commission as detailed in clause 3 as being agreed liquidated damages."
And the amount referred to in clause 3 was the sum of £20,000.
5. Subsequently, the claimant wrote to the defendants seeking information in compliance with the Money Laundering Regulations and I will come back to those, shortly. Suffice it to say that it is accepted that the letters were sent and probably received at the premises of the fish bar. However the defendant never saw those because she had had an unfortunate falling out with her father and was no longer resident at the premises. In the event she did not provide the information requested. As a consequence of the failure to provide the information required by the Money Laundering Regulations, the claimants invoked clause 11 of the agreement, raised an invoice for £10,000 and now sue upon that invoice.
6. Mr Reeves, who has represented the defendant argues two points before me, today. The first is in the alternative, either that there was no contract between the claimant and defendant because the Money Laundering Regulations prevents such a contract from
being in existence. Alternatively, if such a contract did exist, then it was an illegal contract and could not be performed.
7. The second, entirely discrete argument before me is that the sum of £10,000 set out in clause 12 of the agreement, is a penalty clause within the terms set out in the decision in Cavendish Square Holding BV v Talal L Makdessi. And I turn then to consider those two positions addressing, first, the Money Laundering Regulations. In this respect, it is right that I identify that the regulations I'm referring to are the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 because as Mr Reeves pointed out, the contract, in fact, relates to, erroneously to the earlier regulations.
8. Now, regulation 28 sets out the obligations of due diligence placed upon parties to which the regulations apply and it's accepted, for these purposes, that the claimants were such a person. Regulation 30 is entitled, "Timing of verification," and reads as follows:
30.—(1) This regulation applies when a relevant person is required to take any measures under regulation 27, 28 or 29.
(2) Subject to paragraph (3) or (4), a relevant person must comply with the requirement to verify the identity of the customer, any person purporting to act on behalf of the customer and any beneficial owner of the customer before the establishment of a business relationship or the carrying out of the transaction.
(3) Provided that the verification is completed as soon as practicable after contact is first established, the verification of the customer, any person purporting to act on behalf of the customer and the customer’s beneficial owner, may be completed during the establishment of a business relationship if—
(a) this is necessary not to interrupt the normal conduct of business; and
(b) there is little risk of money laundering and terrorist financing.
Regulation 31 provides:
31.—(1) Where, in relation to any customer, a relevant person is unable to apply customer due diligence measures as required by regulation 28, that person—
(a) must not carry out any transaction through a bank account with the customer or on behalf of the customer;
(b) must not establish a business relationship or carry out a transaction with the customer otherwise than through a bank account;
(c) must terminate any existing business relationship with the customer;
9. It is argued by Mr Reeves, on behalf of the defendant, that those requirements are binding upon the claimants and that the effect of the provisions are that the claimant cannot enter into a business relationship until such time as the requirements have been complied with. As such, it seems to me, that he's arguing that due diligence in accordance with regulation 28, is a precondition to the establishment of a contract.
10. The alternative view and a view which I am told was taken in a decision of the High Court in RTA Business Consultants Limited v Bracewell reported at  EWHC 630 is that the contract was rendered unlawful. It existed but was rendered unlawful and unenforceable by virtue of the regulations. It has to be said that the Bracewell decision relates not directly to the matter that I have to decide, because at the time of the Bracewell decision, RTA had not registered for the purposes of the relevant regulations. Mr Gibson has argued on behalf of the claimants that this interpretation is incorrect. That the contract remains enforceable, notwithstanding that the Money Laundering Regulations had not been complied with.
11. Now, it seems to me, that the approach of the Money Laundering Regulations is to prevent there being a business relationship between parties until such time as the relevant information has been provided. And it seems to me that regulation 30(2) makes that very clear, where it says, " a relevant person must comply with the
requirement to verify the identity of the customer, any person purporting to act on behalf of the customer and any beneficial owner of the customer before the establishment of a business relationship or the carrying out of the transaction." And there is only one minor derogation from that, contained in regulation 3, namely if it is necessary not to interrupt the conduct of the business and if it is necessary that “there is little risk of money laundering”. I attach some significance to use of the word ‘necessary’, this does not mean ‘desirable’ or ‘convenient’. These regulations are drawn in restrictive terms, no doubt to provide a tight and inflexible framework so as to ensure that there is a proper application of due diligence.
12. Now, I have to say, that it has not been argued before me that regulation 30(3) is engaged. I have a witness statement from the claimant, from a Mr O'Reilly of the claimant, which has not sought to address those points at all. I therefore take the view that there is no evidence, whatsoever, that the exception provided for in regulation 30(3) is relied upon.
13. Further support for my interpretation of the regulation is provided in regulation 31 which is entitled, "Requirement to cease transactions," and requires the relevant person to terminate any business relationship if they cannot apply due diligence measures. This suggests that one simply cannot have an effective contract if one does not or cannot apply the due diligence measures. It would be strange if one could say that certain aspects of a contract survived while others did not. There is nothing in the regulations to suggest that there could be any division of the contact. It is all or nothing. No due diligence, no business relationship. Mr Gibson has not been able to satisfactorily explain what the status of the contract is if there is no due diligence. If, as the claimant suggests, the contract remains enforceable one wonders what that effective sanction is if there is no ‘due diligence’.
14. Now, it was suggested to me by Mr Gibson that the provision of 31(1)(c) – “must terminate any existing business relationship with the customer;” - must operate to negate the argument that the regulations are a precondition to the existence of a business relationship. How, he asks, can one terminate a business relationship if none exists? In short the very assumption behind regulation 31(c) is the ability to form a business relationship before due diligence is applied. This, I understand, was argued before the
Luton County Court in a case, RTA Business Consultants v Taylor. I've seen the judgment of the district judge. I am told that it went on appeal to Her Honour Judge Bloom but I have seen no transcript or report of that decision. Thus I am free to conduct my own analysis.
15. It seems to me that Mr Gibson's approach cannot be sustained. The argument that he proposed was that there must be a business relationship for it to be terminated and, therefore, the operation of the regulation was not to prevent a business relationship but to prevent the continuation of the business relationship. As I suggested to Mr Gibson, during the course of submissions, it seems to me that that interpretation would create an impossible tension between 31(b) – “must not establish a business relationship” - and 31(c) - “must terminate any existing business relationship with the customer;”. 31(b) prevents the very establishment of a business relationship, how then could 31(c) operate if no business relationship was established? 31(b), it seems to me, is designed for a situation where the obligation to apply due diligence under regulation 28 becomes engaged, at a time when there is no existing business relationship between the parties.
16. On the other hand, 31(c) applies to a different situation namely where the obligation of due diligence arises in relation to an ongoing business relationship. By way of example, consider a situation where the parties have been trading for many, many years, then the ownership of one the parties changes hands and regulation 28 becomes engaged. Then 31(c) is talking about a continuing relationship which must be brought to an end in accordance with 31(c). This, to my mind, emphasises and underlines the approach of the legislation which is to prevent there being any business relationship after regulation 28 is engaged, until such time as due diligence has been carried out.
17. In those circumstances, I prefer the interpretation that, in truth, the application of due diligence is a pre-condition to there being an effective contract between the parties and, in those circumstances, because due diligence did not take place in this case, there is no contract between the parties. If I am wrong in that interpretation, then I would adopt the approach in the Bracewell decision and say that one cannot contract to conduct an illegal contract and that therefore the contract would be unenforceable and void because of its
illegality. A matter proposed by Mr. Reeves but not argued at length before me. If this is the case then the claimant cannot rely on the penalty clause and the claim must fail.
18. That, effectively, disposes of the case but it's right that I should go on and consider the alternative point which was that relating to the penalty issue. Now, the way in which Mr Reeves has approached the matter is to say that the payment of the £10,000 must be out of all proportion to the obligations contained in the agreement. There is no dispute that the obligation is a secondary provision and hence the relevant passages of Cavendish are engaged.
19. Mr Reeves asked me to take into account the circumstances in which the contracts were negotiated. He points out that the claimant company are, according to the credit reference report, a significant company whereas the defendant was a small business person. He points out that the contract was largely upon the written terms of the defendant, no doubt culled from legal advice and from experience. He also argues that there is no evidence as to how or as to why the claimants set the clause at £10,000. He suggests that this is a broad-brush approach. Whilst he accepts that the burden of proof is upon him, he says that there should be some evidence from the defendants to explain the £10,000 figure. He points out that the various circumstances which the claimants seem to think it is legitimate to protect and which are set out in clause 11, cover a broad spectrum, from failure to pay a registration fee which would prevent any performance of the contract, to changing one's mind about a sale price which could occur at the last minute and after the claimant had carried out a considerable amount of work. He further makes the point that the defendant did not have proper advice. He makes the point that this is a standard clause and, therefore, argues that the clause is out of all proportion.
20. Mr Gibson, on behalf of the claimants, has pointed out that the defendant had the poser to refuse the contact, as indeed she did in relation to the registration fee. He says that the notion of approaching this issue as a pre-estimate of loss, is gainsaid by paragraph 31 of the Cavendish decision. That in those circumstances, one has to look at the overall situation and whether the impugned provision is (in partly), a detriment, out of all proportion to any legitimate interest. He points out that that legitimate interest
includes the fact that much work may have been done at the time that the default occurs. In short the clause applies to a multiplicity of situations including that where the claimant will have done all the work and yet only received half of the consideration. Mr Gibson thus argues that there should be no sliding scale but that one is entitled to approach the matter on a broad-brush basis.
21. Had I had to decide the case, on this point, I would have decided that the claimants are entitled to place in their contract, a clause which covers a breadth of default and that, to a certain extent, the Beavis aspects of the Cavendish decision would support that interpretation. Whilst I accept that the £10,000 may be out of all proportion to somebody who failed to pay the registration fee, it seems to me that it is not out of all proportion to somebody who changes their mind at the last minute.
22. In this respect, I remind myself of paragraph 32 of the Cavendish decision which is drawn, it seems to me, in broad terms, and that the clause has to be out of all proportion to any legitimate interest of the innocent party, in enforcing the primary obligation. And it seems to me that the claimant would have a legitimate interest in enforcing the obligation, particularly if they had done a considerable amount of work. I would, therefore, have found for the claimant on the penalty issue.
23. As it is, I have decided the matter on the money laundering issue and, in the circumstances, the claim is dismissed.
We hereby certify that the above is an accurate and complete record of the proceedings or part thereof.
District Judge C. Lethem | Edmonton County Court, The Court House, 59 Fore Street, Edmonton, London. N18 2TN | Phone 020 8884 6500
RTA v Cizek Grimsby County Court 16th March 2018
Below is the relevant extract from the written Judgment of DDJ Nix:
“9. Sole selling agreement - The claimant’s witness, Mr O’Reilly, says at paragraph 15 of his witness statements:
“the defendant bizarrely suggests that the contract is not one that provides sole selling rights. Clause 2 specifically
states that the defendant is providing to us sole selling rights and under a sole selling rights contract the agent
does not have to be the effective cause of the sale.” He refers to the authority of Fleurets v Dashwood.
10. In oral evidence the defendant herself indicated that in terms of the contract being a sole selling agreement, she
“understood it to be such”, but of course the issue for me is not what she thought but how I interpret the contract.
11. There is certainly a heading between paragraphs 2 and paragraph 3 of “sole selling rights” and paragraph 2 states that the vendor “give you sole selling rights for an irrevocable (6 month) period. I agree that these sole selling rights shall remain in force after that date until terminated by me”. Paragraph 6 states: “ I further acknowledge that if I instruct… another agent to sell my business and property on a sole agency, joint sole agency or a sole selling rights basis I may have a liability to pay fees to more than one agent”.
12. Notwithstanding the references to “sole selling rights” and inclusion of wording at paragraph 3a and b which was mandated in the Estate Agents (Provision etc) Regulations 1991, my determination is that this is not a sole selling rights agreement. The agreement read as a whole does not support it being a sole selling rights agreement, irrespective of the uses of that phrase - see below. As the contract is ambiguous, contra proferentem will apply and the court will not find there to be a sole selling rights agreement. (1) There is no express clause stating that no other agent can be instructed. (2) There is recognition in paragraph 6 of the possibility of a vendor instructing another agent and the possibility that the vendor may have a liability to pay fees to more than one agent, (which does not sit well with a sole selling rights agreement). The defendant’s solicitor made a similar point about 3a. (2) Paragraph 7 refers to termination having the effect of the claimant having no entitlement to commission even if it had introduced a purchaser but the purchase occurs through another agent more than 6 months from termination, which conflicts with the wording of 3b - which (3b) is presumably included because of the author of the contract terms’ awareness of the need to include this wording if sole selling rights is to be referred to due to the 1991 Regulations. (3) In the event of cancellation (per paragraph 11) paragraph 6 says if 3b is engaged there is a liability to still pay commission 2 years after “cancellation”.
13. As I have found that this is not a sole selling rights contract, I do find that there should be implied into the contract a term that for the commission to be payable, the claimant must show that it was the or an effective cause of the sale e.g. by introducing the purchaser. Foxtons v Bicknell considered and also Fleurets v Dashwood. I consider such an implication to be needed to give business efficacy to the contract. There is no evidence here that the claimant was the or an effective cause of the sale – in July 2017 the defendant (with no assistance from and no introduction by the claimant) sold the property, to the Plums, purchasers who had showed interest in around April 2017. They had not been referred to the defendant by the claimant. The claimant had had no role in bringing about the sale. Accordingly the claimant’s claim for commission in circumstances where this was not a sole selling rights agreement and the claimant was not the or an effective cause of the eventual sale must fail"
Cases involving Anthony Reeves in 2017
NOTE OF JUDGMENT
RTA (Business Consultants) Ltd v. Ms Kondje Selim
Case No. C78YM641
Heard in Cambridge County Court on 8 March 2017
The case was heard before District Judge Raggett.
RTA were represented by Counsel (Mr Chapito from LPC Law)
Ms Selim was represented by Anthony Reeves (Consultant Chartered Legal Executive) from Summerfield Browne Solicitors.
Outline of the facts
The Defendant, a co-director of a company, signed an agreement with RTA to sell a business property on behalf of a company but it also provided that she was personally liable. The company closed down and so RTA issued proceedings against Ms Selim. The Contract was signed on 2 April 2014. At the time of signing, a “registration fee” of £1,500 plus VAT became due and was paid.There was a dispute as to whether some handwritten additions to that contract were on the document when it was signed by Ms Selim. At the time of signing the Agreement, Ms Selim was running a busy shop. RTA claimed that this handwritten additional clause stating a minimum commission was on the document when it was signed, whereas the evidence of Ms Selim was that it was added afterwards.In June 2014, the defendant’s co-director instructed another agency. In April 2016, the property was sold for £305,000 by a purchaser introduced by that other agency. The Claimant claimed their fees/commission of £12,000 plus VAT as per the contract when the property was sold, which they regarded as a sole selling rights agreement. RTA had not introduced the purchaser. They limited their claim to £10,000 to keep the case in the small claims track.
Ms Selim’s Defence to the Claim was twofold. First, it was argued that there was a breach of the Estate Agents (Provision of Information) Regulations 1991 in that when she signed the Contract the handwritten addition to the contract was not there when she signed and that it had been added afterwards. Therefore, she had become liable for the registration fee of £1,500 before she was provided with all of the information about the fees of RTA. Secondly, it was argued that there was an implied term into the contract that RTA’s commission was only due if they were the effective cause of the transaction. As RTA did not introduce the purchaser, they were not the effective cause of the sale.
RTA had already indicated a month before the hearing that nobody from the company would be attending the hearing. With their witness not turning up, their lawyer was only able togo through the documents and make submissions. Mr Reeves argued from the start that as their witness had not attended very little weight should be placed on the written statement of Mr Norton. Mr Reeves had a number of question he wanted to put to Mr Norton about his evidence. Ms Selim had attended and was cross examined by RTA’s legal representative.
RTA made submissions that as the contract was a “sole selling rights agreement” there was no need to imply a term into the contract that they had to be the effective cause of the sale.Mr Reeves argued that it was not in fact clear that the Contract was a sole selling rights agreement because although Clause 2 of the contract described it as such, there was no express term which prevented Ms Selim from instructing another agent and some clauses actually referred to other agents. Therefore, with the possibilityof other agents being instructed there was the prospect of having two agents fees and so a clause should be implied term into the agreement that they must be the effective cause of the sale for reasons of business efficacy.
Mr Reeves also submitted that it might have been that the Claim should have been or was meant to have been brought as a breach of contract and not a claim for commission due. If it had been brought in this way, he argued that the claim would still fail because there was no breach and/or if there was a breach the damages claimed did not flow from the breach.
The Judge made the following findings of fact:
- She preferred the evidence of Ms Selim to that of the written statement of Mr Norton. The Judge stated that Ms Selim came across as a very credible and believable witness. She felt her answers when questioned rang true and that the written statement of Mr Norton gave little detail as to how the contract came to be signed. So on balance, she preferred the evidence of Ms Selim and therefore decided that the additional hand written term was not on the Contract when Ms Selim signed it.
- Having looked at the contract, she found that it was not a “sole selling rights agreement” and that there was an implied term into the contract that for the commission to be due RTA had to have been the effective cause of the sale.
- The Claim was not brought as a breach of contract and so she did comment further on this.
Having made the above findings of fact, the Judge applied the law to the facts.
Having found that the handwritten term was not on the Contract when Ms Selim signed the document, there had been a breach of Regulation 3 of the Estate Agents (Provision of Information) Regulations 1991. That being the case, the contract was only enforceable if the court ordered it was enforceable. The Judge decided that in all the circumstances the Contract should not be enforceable because there was no evidence of what RTA had actually done. The only evidence of what they had done was producing the sales particulars. She was satisfied by the evidence of Ms Selim that after signing the contract, RTA did not contact her until a week or so before the sale was about to take place to the buyer introduced by the other agent. RTA had stated they would provide Ms Selim with regular updates but there was no evidence of any correspondence with Selim in the period of nearly two years since the signing of the contract. The only documents produced by RTA of what they did was a list of people who they claimed had downloaded particulars but she found this list needed further explanation. In summary, she did not see any evidence of RTA having marketed the property and so it would not be right to Order that the Contract be enforced after there had been a breach of the Regulations.
In addition to refusing to allow the Contract to be enforced because of the breach of the 1991 Regulations, as RTA were not the effective clause of the sale, they were not entitled to their commission and so their claim would also fail on this basis as well. It was not in dispute that RTA did not introduce the buyer who bought the property.
The claim by RTA was dismissed. The Judge awarded Ms Selim £54 in respect of expenses for attending the hearing.