Effective cause of sale examined by the courts
In the recent NSW Court of Appeal decision of Outerbridge trading as Century 21 Plateau Lifestyle Real Estate v Hall  NSWCA 205, the Court of Appeal was required to determine whether an agent was entitled to commission on the sale of a $5 million property.
BackgroundCentury 21 Plateau Lifestyle (Century 21) was engaged by Brian Hall and Marlene Bentino (the sellers) under a non-exclusive appointment of sale (the appointment) to sell a prestige 55 acre property (which included a working macadamia plantation) in Northern New South Wales (the property). Century 21's estimated sales price noted on the appointment was stated to be $5,000,000.
In December 2017, Century 21 received an enquiry in relation to the property from a Ms Weis, who was the eventual buyer of the property. On 20 December 2017, Ms Weis and Century 21 attended the property for an inspection. On 21 December 2017, Ms Weis made an offer to the sellers (communicated via Century 21) of $4.5 million, and the sellers counter-offered $4.8 million.
On 22 December 2017, Ms Weis counter-offered $4.7 million, which included additional farm equipment and the 2018 macadamia nut crop. The sellers verbally accepted this offer on the same day. However, they later withdrew their acceptance of the offer on 25 December 2017 prior to contracts being exchanged and advised Century 21 that the price was too low.
On 27 December 2017, Ms Weis contacted Century 21 to arrange a meeting with the sellers to ascertain whether there was a "way forward." She was advised that the sales agent was overseas and she was offered a meeting when he returned a few weeks later. Ms Weis considered at that stage that the transaction was at an end.
Ms Weis contacted another sales agent (Unique Estates) the same day to inspect other properties. Unique Estates was also engaged under a non-exclusive agreement to sell the property. A day later, on 28 December 2017, Unique Estates contacted the sellers to discuss Ms Weis' interest in the property. The male seller advised Unique Estates that they would not accept "less than $5million." Further discussions took place between the parties and, late in the evening of 28 December 2017, the male seller emailed Unique Estates confirming that they were prepared to accept $5 million, with a further $125,000 for certain machinery. He stated that they were "not interested in any counter-offer."
Ms Weis subsequently agreed to pay $5 million for the property, less $12,000 for the cost of repairs to a pond at the property, the assignment of the management rights for the macadamia farm and the sale of other machinery for $125,000.
On 11 January 2018, the parties exchanged a contract of sale for the property for $4,913,000. The parties also entered into an agreement for the sale of the plant and equipment for $200,000. The combined purchase price was therefore $5,113,000, which was $413,000 more than the sale price verbally agreed by the parties on 22 December 2017 when Century 21 was conducting the sale negotiations.
Prior to completion of the sale, Unique Estates went into liquidation. The sale was completed on 15 March 2018 without the sellers receiving the deposit of $491,300. The sellers subsequently received compensation for the lost deposit and interest (less the sales commission) from the Compensation Fund established under Part 10 of the Property Stock and Agents Act 2002 (NSW).
The decision at first instanceIn May 2018, Century 21 commenced proceedings in the District Court against the sellers seeking to recover the commission said to be owning to them under clause 3.1 of the appointment. Clause 3.1 stated, inter alia, that the sales agent was to be entitled to the remuneration in the sum of 2.2% of the final sale price:
"... in the following circumstances (where [the Agent] is the effective cause of the sale): ... if a person has been effectively introduced to [the Sellers] or the Property by [the Agent] during the Agency Period ... and that person, either during the Agency Period or thereafter, enters into a contract to purchase the Property ..."
Century 21 claimed that they were either "the" or "an" effective cause of sale.
His Honour concluded that Century 21 had played a "very significant causal role in Ms Weis purchasing the property". However, he said that notwithstanding this, it was not the effective cause of sale. The intervention of Unique Estates, who clarified what the sellers were prepared to accept and that they were serious about selling the property was, he believed, "crucial".
On that basis, he concluded that Century 21 was not the effective cause of sale of the property and was therefore not entitled to the commission on the sale of the property. Century 21's claim against the sellers was therefore dismissed and costs were awarded to the sellers.
The AppealCentury 21 appealed the District Court's decision to the Court of Appeal, Supreme Court of NSW. After carefully examining the evidence, the Court considered that while the actions of Century 21 were not insignificant in the course of the sale, it was Unique Estates who ultimately brought about the sale of the property by clarifying to Ms Weis the sellers' position, and clarifying to the sellers that Ms Weis was a genuine buyer. The Court found that the work of Unique Estates ultimately led to Ms Weis making a higher offer that was within the desired sale price of the sellers.
The Court of Appeal rejected Century 21's contention that in circumstances where they introduced a person to the property who eventually purchased it, they should be deemed the effective cause of sale. The Court considered that the test of whether someone was an effective cause of sale requires a consideration and evaluation of all circumstances which may have had some causal relationship to the sale. The Court found that it was not possible to simply consider the amount of work put in by each agent involved in the sale in order to determine who was the effective cause of sale.
It was also found that being the effective cause of sale requires more than a mere introduction of the eventual buyer of the property - the eventual purchaser must be effectively introduced, and the agent who effectively introduces the eventual buyer must play a role in the negotiations to conclude the sale.
In this instance, while Century 21 did spend more time communicating with Ms Weis and introducing her to the property, Unique Estates had a crucial role in the sale in that they "resuscitated" the transaction after Ms Weis believed it was at an end with Century 21. The Court found that it was not a simple scenario where Century 21 introduced a buyer to the property, generated interest and secured an offer, and Unique Estates had simply completed the sale. The Court held that without the work of Unique Estates, it is likely that Ms Weis would not have pursued the sale through Century 21 and she most likely would not have purchased the property.
The Court ultimately found that despite the work of Century 21 in introducing Ms Weis to the property, it was Unique Estates who subsequently secured a sale that would not have occurred otherwise. On that basis, Century 21's appeal was dismissed and they were ordered to pay the sellers' costs.
ConclusionWhether an agent has been the effective cause of sale will depend upon the specific facts and circumstances of each case. It is critical of course for agents to have a valid appointment in order to claim commission, but they must also keep comprehensive electronic or written records of all dealings with sellers and buyers in order to evidence their role in the sale of the property and how their input brought about the execution of a contract of sale.
 Ibid .
 Ibid .
15 Nov 2019
3 min read
Are your property transactions safe from cybercrime?
The property market is the perfect playground for cybercriminals - large sums of money are constantly being transferred between parties with the majority of communications sent via email.
15 Nov 2019
5 min read
Be careful what you do with confidential information
The recent settlement of a claim between a real estate agency and a former employee serves as a timely reminder to real estate professionals that utilising a former employer's confidential client information can be very costly.