In early 2015 CS Lawyers acted for one of its clients in the Local Court of NSW defending a claim made by this client’s former agent claiming for commission they are “entitled to”.

Background of the matter and key issues

• The plaintiffs are real estate agents who entered into a standard form RESI agreement with our clients in January 2014 concerning the sale of the property located in a northwestern suburb in Sydney. The agreement provided for a period of exclusivity from 8 February to 8 May 2014. The plaintiffs estimated a selling price of between $1.6 and $1.8 million.
• The agency agreement was brought to an end at the end of May 2014. Thereafter the defendants retained a second agent to sell the property. The new agent arranged for 6 open homes between 31 May and 17 June 2014 before an auction was held on 21 June 2014.
• There is no evidence of the final purchasers making any offer prior to 21 June 2014.
• The highest and best offer made at the auction was that of the final purchasers at $1.610 million against a vendor’s bid of $1.60 million and a reserve of $1.75 million. The property was then passed in.
• Immediately following the auction the new agent continued to negotiate with the potential purchaser. Immediately after the auction he was able to get them up to $1.625 million. For the rest of the day he continued to negotiate with the purchasers over the phone.
• The following day there were further attempts by the new agent to effect a sale at $1.65 million. At 5pm that day the purchasers signed the contract at $1.65 million and paid the deposit. A certificate under s 66W of the Conveyancing Act was provided that evening.
• In the contract we prepared for our clients, we inserted a Special Condition 16 to protect our clients’ interest:
  “16.The purchasers warrant that they have not been introduced to the property or to the vendors by any real estate agent other than the Vendor’s agent named herein and shall indemnify the vendors against all claims for commission by agents claiming to have been introduced the Purchasers to the property.”

Key legal issues

• There is essentially one issue in the proceedings, namely whether the plaintiffs effectively introduced the purchaser to the defendants during either the Exclusive Agency Period or during the Continuing Agency Period.

What is “effective introduction”

• Whilst the plaintiffs plead that they “introduced” the property to the purchasers, that is a misstatement of the entitlement under clause 3(ii) of the Agency Agreement. The clause gives a right to commission where the Principal (ie the defendants) enter into a contract with a purchaser (ie the purchasers) effectively introduced to the Principal or the Property during the Exclusive Agency Agreement by the Agent.
• The meaning of the phrase “effectively introduce” is fairly well settled according to the authorities. It is immediately to be contrasted with cases that involve mere fact of introduction. The following propositions are to be found in the authorities:
  a)The agent must establish the necessary causal relationship between its actions and a particular sale, in this case that the sale effected on 22 June 2014 was brought about through its agency.
  b)”Effective cause” means more than simply ’cause’. The inquiry is whether the actions of the agent really brought about the relation of buyer and seller and it is seldom conclusive that there were other events which could each be described as a cause of the ensuing sale .
• The starting point in the consideration of whether or not there was an effective introduction lies in the fact that the Purchasers did not offer anything prior to the auction because they regarded the property as being out of their range.
• The plaintiffs assert, and each of the other parties deny, that any offer was made by the purchasers at the price ultimately agreed.
• After going through large amount of evidence finally we concluded that the Plaintiff couldn’t provide sufficient evidence to prove that they have effectively introduced the purchasers to the property and the defendants.
• The conclusion is: no offer was made by the Purchasers during either the Exclusive Agency Period (which ended on 8 May 2014) or the Continuing Agency Period (which ended on 27 May 2014) it must follow that there was no effective introduction to the property.
• But even if such an offer was made, that would not mean that the sale in June was effectively caused by anything that the plaintiff’s did. Furthermore, the sale was not effectively caused during either of the contractual periods, the Exclusive Agency Period or the Extended Agency Period.
• What caused this sale was the work of the new agent between the property being passed in at auction on the 21st of June and the execution of the contract by the Purchasers the following evening. But for that involvement there would not have been any sale.

The Indemnity in the Contract as a double guarantee for our clients

• In the event that the plaintiffs are successful in their claim for commission, the defendant’s cross-claim against the Purchasers as cross-defendants is engaged. It is a claim based on a straightforward contract of indemnity. An indemnity is a promise by the promisor that he or she will keep the promisee harmless against loss as a result of entering into a transaction with a third party.
• This extends not only to the quantum of any commission payable but also to the costs of meeting and defending that claim.

Conclusion

• After lengthy negotiations with the plaintiff, the plaintiff still refused to accept our position and commenced proceedings in the Local Court of NSW.
• Our client had to defend.
• Finally the other side was forced to settle the case a few minutes before the hearing was due to start.
• We won the case for our client with costs order against the other side.