The fundamental issue in most commission disputes with real estate agents is whether the agent’s own efforts were the effective cause of the sale.
A seller seeking to avoid payment of a commission will frequently assert that the eventual sale occurred without the agent being the effective cause of the sale, and point to the efforts of others to deny the first agent its commission.
This situation arose in Freedom Development Group Pty Limited v D’Ettorre Properties Pty Limited T/as D’Ettorre Real Estate  NSWCA 81.
The Seller appealed a judgment under which the trial judge ordered that the commission was payable.
The Seller-Freedom held call options over two adjoining properties at Randwick.
Freedom entered a non-exclusive agency agreement with D’Ettorre Properties Pty Limited (DRE; the agent) on 8 November 2019 in relation to the sale of the properties.
The agency agreement contained a clause that entitled the agent to commission if “the purchaser is effectively introduced by [DRE]”.
Introduction of first buyer by Agent
In November 2019, the sole director of DRE Mr D’Ettorre, introduced Mr Criola and later Mr Ben Ingham to the properties.
Criola was a “spotter” and business associate of Ben Ingham.
After reaching an agreement on price, Criola nominated the purchasing entity to be a company, IFM Wansey Road Pty Ltd (IFM). Ben Ingham was the sole director of IFM.
Although the parties later agreed to an increase in price to $10.33m to cover Freedom’s costs in extending the option periods in the call options, binding contracts for sale and nomination deeds were not exchanged. On 15 January 2020, Mr D’Ettorre and Mr Fernon (the second appellant), a director of Freedom, spoke via phone and it was alleged that Mr Fernon represented that he had a Chinese buyer who will pay $11.3m (the first representation), to which Mr D’Ettorre replied that he would see if IFM would match that.
Negotiations with IFM fell through. When Mr D’Ettorre could not find a buyer who would pay $11.3m, he gave up looking for a buyer for the properties.
Second Agent introduces buyer
On 11 February 2020, a second agent, Mr Ippolito, became involved. He informed Mr Fernon that he might have a prospective purchaser and on 17 February 2020, he conveyed an offer of $10.35m from Mr John Ingham, which was accepted by Mr Fernon .
On 28 February 2020, binding sale contracts and nomination deeds were exchanged between Freedom and Wansey Road Randwick Pty Ltd (WRR) as trustee for the Wansey Rd Randwick Trust (the Trust). John Ingham and Ben Ingham were directors of WRR. Ben Ingham also personally guaranteed WRR’s obligations under the nomination deeds.
On learning of the sale of the properties, Mr D’Ettorre contacted Mr Fernon seeking the identity of the purchaser. Eventually, Mr Fernon told Mr D’Ettorre that “the buyer is Johnny” (the second representation).
Proceedings by DRE
DRE commenced proceedings in the District Court asserting that it was entitled to a commission of $154,000 under its agency agreement with the seller because it had effectively introduced the actual purchaser. Although IFM did not buy the properties, DRE claimed that the ultimate sale was due to Mr D’Ettorre’s introduction of Ben Ingham. Alternatively, DRE sought damages under the Australian Consumer Law (ACL) against Freedom and Mr Fernon on the basis that the first and/or second representations of Mr Fernon were misleading or deceptive in contravention of s 18 of the ACL.
The primary judge had found that DRE was entitled to the commission as it had effectively introduced the actual purchaser. The primary judge also found that Mr Fernon’s second representation was misleading or deceptive. The first representation was found not to have been pressed by DRE.
Judgment was entered against both Freedom and Mr Fernon in the amount of the commission of $154,275, plus interest and costs.
On appeal, there were 3 key points:
- the proper construction of the commission clause;
- whether the agent had established that it effectively introduced the actual purchaser; and
- whether the agent had established that either of the representations was a basis for the Seller and Mr Fernon’s liability to the agent in damages under the ACL.
The Court allowed the appeal and the Seller avoided payment of commission.
As to issue (1)
- For there to be an “effective introduction” of “the purchaser” entitling the agent to commission there must be a sufficient causal nexus between the introduction of the purchaser and the ultimate sale of the property. The agent was required to do more than merely acquaint the purchaser and the vendor. What is a sufficient connection is a question of fact in each case. In analysing what actually occurred, the conclusion by the trial judge that the ultimate sale was brought about by the acts of the agent was unsupportable. The agent did not effectively introduce the actual purchaser to the properties or to the Seller. It played no part in influencing the actual purchaser to enter into binding contracts for sale and nomination deeds. Her Honour erred in finding that the agent was entitled to commission.
As to issue (2)
- A causal nexus cannot be inferred from the agent’s introduction of Ben Ingham to the properties in November 2019 and the ultimate sale in February 2020 to a company in its capacity as a trustee, nominated by John Ingham, merely because Ben Ingham was a director of the actual purchaser or gave a guarantee in the nomination deeds. Ben Ingham’s distinct positions as a director and guarantor of the actual purchaser were not commensurate with him having an ownership interest directly or indirectly in the actual purchaser, and there was no evidence that Ben Ingham was a beneficiary of the Trust.
As to issue (3)
- Accepting that the first representation was a statement of present fact, it had a tendency to lead the agent salesman into error in believing that the prospective purchaser would need to substantially increase the price offered to secure the properties. The agent’s pleaded case on reliance and causation rose no higher than its contractual claim which had been rejected. Causation was not made out on the pleaded case. The second representation as to the identity of the actual purchaser was necessarily qualified and incomplete given Mr Fernon’s statement that this was all he wanted to say as he did not want to jeopardise the settlement. Viewed in context, the second representation did not have the tendency to lead Mr D’Ettorre into error. He was an experienced real estate agent who understood that the identity of the purchaser was being kept confidential until settlement. Nor did DRE advance any submission on reliance or identify a causal connection between the second representation and the pleaded loss or damage suffered by DRE, which again rose no higher than its contractual case which had been rejected.
The Seller succeeded on appeal in resisting the commission claim.
This was a costly exercise for the agent DRE who, having won at first instance, lost on appeal and was ordered to pay the Seller’s costs on the trial and appeal.
The decision is another illustration of the principles of what is an “effective cause of sale” for an agent to recover a commission. There must be a sufficient causal nexus and more than a mere introduction – the agent must be actively involved in bringing the contract into existence.
Each dispute of this nature will be different and getting the facts clear and taking good legal advice before commencing a claim for a commission or indeed denying one can save significant time and costs.
If you are seeking legal counsel for dispute mediation and settlement, contact our expert commercial property team.
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