On the 3rd of September 2020, NSW’s Court of Appeal handed down a decision in relation to an agent’s entitlement to commission. It revisited what “the effective cause of the sale” of a property means, in the context of a non-exclusive agency agreement. The Court of Appeal essentially confirmed the view it took in 2005 when it was called upon to decide the same issue. A summary of the recent case follows. I trust you will find it interesting, if not useful.
Over the period from 2012 to 2015, the vendors engaged various real estate agents to sell their property. They entered into a written agreement with the first agent (Agent 1) in 2015. Agent 1 was engaged on a non-exclusive basis. The agreement conferred a right on the Agent 1 to be paid commission if Agent 1 was “the effective cause of the sale” and if a purchaser “has been effectively introduced” by them.
In December 2017, the eventual purchaser contacted Agent 1 who showed her the property. The purchaser made an initial offer on the property which was rejected. The purchaser increased the offer and it was accepted by the vendors, in principle. On 25 December 2017, the vendors withdrew the acceptance – the price was too low.
On 27 December 2017, the purchaser attempted to contact Agent 1 to arrange a meeting with the vendors. Agent 1 was overseas, not to return for a few weeks. The purchaser then contacted another agent, Agent 2, to look at other properties. Agent 2 had also entered into a non-exclusive agency agreement with the vendors for the sale of the property. The vendors received a call from Agent 2 on 28 December 2017. Agent 2 told the vendors that she had received a call from the purchaser who had told her that “she does not want to deal with [Agent 1] anymore” and that “…you want more than $5 million”. The vendors replied, “we have not changed our position, we will not accept less than $5 million”.
Late in the evening of 28 December 2017, the vendors emailed Agent 2. The vendors advised Agent 2 that the vendors were “indeed willing sellers” but that until they received her call, they “had resolved to take [the property] off the market”. The vendors stated that they were willing to accept a price of $5 million with a further $125,000 for certain machinery and they were “not interested in any counter-offer”. Agent 2 forwarded the vendor’s email to the purchaser’s and 30 December 2017 the purchasers made an offer which was accepted by the vendor.
The Agency Agreement
As for when any commission might be earned, clauses 1.2 and 3.1 and 5.3 of the agency agreement provides that:
1.2 “Introduced” – A person shall be deemed to have been “introduced” to the Principal or the Property by the Licensee if the fact that the Property is available for sale is made known to that person by or through the Licensee and, without limiting the generality of this paragraph, a person shall be deemed to have been introduced to the Property by the Licensee if that person becomes aware that the Property is available for sale as a result of reading any advertisement, notice or placard referring to the availability of the Property for sale, published or erected by or in the name of the Licensee.
3.1 Remuneration – The Licensee shall be entitled to the remuneration set out in Item C of the Particulars (“the Remuneration”) in the following circumstances (where the Licensee is the effective cause of the sale):
(a) If a person has been effectively introduced to the Principal or the Property by the Licensee during the Agency Period, (including another person who is introduced to the Principal or the Property by such person), and that person, either during the Agency Period or thereafter, enters into a contract to purchase the property or an interest in the property (which Includes by way of exercise of an option; and includes whether it be alone or jointly with another or others), or
The upshot of this and the 2005 decision, is that for the agent to establish an entitlement to commission pursuant to the agency agreement, the agent must prove that his or her efforts were an effective cause of the sale. The determination of whether such efforts were an effective cause of the sale is ultimately a question of fact, and not subject to any specific rules.
In this case the Court made the following pertinent comments:
“It is simply insufficient [for an agent] to rely on the introduction alone” as giving an entitlement to commission.
“this Court can be confident that [Agent 1] could not have taken the steps that Agent 2 did in late December 2017 to secure a sale because he was in another country and was effectively uncontactable”.
“…Agent 2’s “crucial” intervention was able to resuscitate the transaction, namely by clarifying [the vendors’] position and that they were genuine sellers”.
“In this case the agent rendered himself unable to sell the property by departing overseas and becoming effectively uncontactable. The seller began to look elsewhere. …and…Agent 2 was able to effect the sale whereas Agent 1 was not”.