R v The Director General of Fair Trading ex parte Benhams Ltd

Introduction

1.The applicants, who are estate agents, seek to judicially review two decisions of the Director General of Fair Trading ("the respondent") contained in letters dated 30 June 1999 and 18 August 1999 in which he said that he would not exercise his powers under Section 3 and 4 of the Estate Agents Act 1979 ("the Act") in respect of complaints made by the applicants in respect of two of their former employees. The ability of the respondent to exercise his powers under those provisions depends upon him being satisfied that a so-called "triggering event" had occurred and that means that one of the specified incidents under Section 3(1) of the Act has occurred. The applicants contend that on the true construction of the relevant statutory provisions, such an event had occurred but the respondent disputes this construction. The issues before me relate to the construction of Section 3(1) of the Act and two statutory instruments made pursuant to the provisions in the Act.

2. The respondent had not investigated the facts which are alleged by the applicants to give rise to triggering events, and it is agreed that for the purposes of this application I should assume that the allegations are correct. There is a slight difference in the inferences that both parties draw from the facts and I will refer to the respondent's views when I set out the background facts which the applicants allege have triggered the respondent's duty to investigate. The respondent makes no admissions as to whether the material supplied by the applicant provides any evidential basis for the applicants' allegations to which I now turn.

The alleged wrongful acts

3. The applicants are estate agents and operate from three offices in North London. The application relates to the activities of Jeremy Gee, who had been a Director of the applicant until 8 February 1999 and of Paul Samuels who had been employed as a Senior Negotiator until the same date.

4. In 1998 the applicants were retained by the vendors of 22 Linfield Gardens, London, NW3 ("the property") to act as their estate agents in its sale. Both Gee and Samuels were thereafter involved in arranging the sale of the property. In about July 1998, there were at least four parties who had expressed an interest in acquiring the property for sums varying between £1.1 million and £1.2 million. On 30 September 1998 contracts were exchanged for the sale of the property at the price of £950,000 to Mr. Sohail Sarbuland or to a limited company or nominee purchaser controlled by him. On 2 October 1998, Mr. Gee on behalf of the applicants rendered an invoice to the vendors for the applicants' commission of 1% of the purchase price, namely £9,500 together with value added tax.

5. In November 1998, it came to the attention of Mr. Brown, who owns the entire issued share capital of the applicants, that the property was included in a residential auction sale scheduled to take place on 9 December 1998. The guide price for the property was stated to be £1 million to £1.2 million. It was, in fact, sold prior to the auction for £1.2 million and this would have meant that the purchaser of the property from the applicants' clients would have made a profit of £250,000 less expenses. It was the policy of the applicants to seek to exclude sub-sales and Mr. Brown was concerned that the property was being sold by way of a sub-sale at a substantial profit at a time prior to the completion of Mr. Sarbuland's purchase.

6. As a result of enquiries instigated, it transpired that after Mr. Sarbuland had exchanged contracts to purchase the property, there had been approximately 90 telephone calls from the applicants' landline to Mr. Mark Grieg and Mr. Rosh Pathman who were negotiators employed by Paramount Properties, who were the estate agents who had introduced Mr. Sarbuland to the applicants. The applicants contend that these agents had also acted for Mr Sarbuland. The applicants believed that there was no obvious need for any substantial contact with Paramount after exchange had occurred.

7. Mr. Brown was concerned at the time as to whether Mr. Gee or Mr. Samuels had improperly advised the vendors of the property or whether they had recommended the acceptance of an artificially low offer for the property for which either or both of them would receive some reward on a profitable sub-sale by the purchaser. Covert recordings were made of the telephone lines of Mr. Gee and Mr. Samuels at the applicants' office. On 2 February 1999, a conversation took place between Mr., Gee and Mr. Grieg of Paramount in which Mr. Grieg referred to an individual bringing in "your money today". The applicants understood that this related to an illegal payment being made by Mr. Sarbuland to Mr. Gee or Mr. Samuels in return for them or either of them having recommended Mr. Sarbuland's offer to the vendors with the result that Mr. Sarbuland made a subsequent profit. Mr. Grieg subsequently related the difficulties that he and Mr. Pathman were having in difficulty with their own fee and Mr. Grieg remarked that Mr.Pathman had enquired whether arrangements had been made "for Benhams" and he said "you can definitely have it tomorrow" to which Mr. Gee responded "alright, OK you just let us know". The applicants contend that when, during the conversation, Mr Greig also referred to being paid a fee "on the way out" and "putting you (i.e. Mr Sarbuland) in and getting you out of a deal", this related to a payment being received by Mr. Gee and or Mr. Samuels in return for their involvement in the sale and sub-sale of the property. The respondent does not accept that this is necessarily so.

8.Subsequently Mr. Gee and Mr. Samuels were summoned by Mr Brown to a meeting on the 8 February 1999 at which they were asked whether the commission of £9,500 already paid to the applicants was the entire fee and that no other commission had been paid or was to be paid to the applicants. Mr. Gee and Mr. Samuels answered that the applicants had been paid in full. While Mr. Gee repeatedly denied that he was to receive any payment in connection with the sale and sub-sale, Mr. Samuels said that he had received £5,000 for which he would "put his hands up". Both Mr. Gee and Mr. Samuels were summarily dismissed.

9. The vendors of the property had no knowledge of the financial arrangements made with Mr. Sarbuland and his agents or of any services that might have been performed by Mr. Gee and Mr. Samuels. The applicants have no explanation as to why the expressions of interest in the property in July 1998 for sums between £1.1 million and £1.2 million did not materialise. The applicants have been unable to find any computer file relating to the sale of the property or any file containing relevant correspondence and details of viewing. To the applicants, this was highly irregular and contrary to the established practice.

10. The work diaries of Mr. Samuels and Mr. Gee contain diary entries for both the 3 ^rd November 1998 and 5 ^th November 1998 which, according to the applicants, indicates a meeting or meetings at the property. According to the respondent they may only indicate a meeting or meetings at the property. While the applicants regard the 5 ^th November 1998 entry as indicating that Mr. Samuels was reviewing plans for the property, the respondent contends that it merely shows the possibility that this was occurring. The applicants assert that there was no reason for either Mr. Samuels or Mr. Gee to be conducting meetings at the property or reviewing plans for the property in connection with the sale to Mr. Sarbuland in early November 1998 as exchange had already taken place.

11. Further, the ultimate purchaser of the property – in other words the purchaser of the property upon Mr. Sarbuland's outward sale – was on the database of the applicants for their clients or interested purchasers.

12. There is a dispute between the parties as to the inferences that can to be drawn from the alleged facts. To the respondent, the applicants are alleging that an illegal payment had been made by Mr. Sarbuland to Mr. Samuels and/or Mr. Gee in turn for them having recommended Mr. Sarbuland's offer to the vendors not withstanding it may not have been the highest offer. The applicants, I believe, infer that Mr. Samuels and/or Mr. Gee agreed to and did assist Mr. Sarbuland in his purchase and onward sale of the property, that they were paid by him for so doing and that they made arrangements with him to that end prior to his exchanging contracts for the purchase of the property. The applicants contend that Mr. Sarbuland was a client of Mr. Gee and/or Mr. Samuels. The applicants also contend that these acts may have involved bribery and the exclusion of other prospective purchasers.

Dealings with the respondent

13. The applicants and estate agents employed by them are regulated by the respondent pursuant to the provisions of the Act. By a letter dated 25 February 1999, the applicants' solicitors notified the respondent that the applicants intended to make a full report to enable him to consider what action he should take if any. The applicants' solicitors subsequently dispatched a full report to the...