A New South Wales real estate agent recently lost out on a commission of over $150,000 after the NSW Court of Appeal found there was no “causal connection” between his alleged introduction of a potential buyer to a property and its eventual sale. Attwood Marshall Lawyers Commercial Litigation Senior Associate Georgia Taylor and Property and Commercial Special Counsel Barry van Heerden take a closer look at the case.
The court case involved two real estate agents warring over a sizeable $154,275 commission and who was entitled to it. The factual matrix raised important questions about the terms of non-exclusive agency agreements and when agents are entitled to claim their commission.
The dispute stemmed from Freedom Development Group Pty Limited’s (Freedom) sale of two adjoining properties located in Randwick, an affluent suburb in Sydney, NSW.
Freedom had a non-exclusive agency agreement with D’Ettorre Properties Pty Limited T/as D’Ettorre Real Estate (D’Ettorre). That agreement contained a clause entitling the agency to commission if “the purchaser is effectively introduced by the agent” within a certain time.
The properties eventually sold and D’Ettorre put its hand out for commission. However, Freedom refused. D’Ettorre then sued Freedom in the District Court of New South Wales seeking payment.
The trial judge initially awarded D’Ettorre its commission, but on appeal that award was overturned on the basis that D’Ettorre could not prove to the court a clear causal link between its initial introduction of a potential purchaser and the eventual sale of the property.
While every case will turn on the facts, we wanted to highlight to agents the importance of this judgment – particularly around the requirement to have a clear and comprehensive agency agreement, including specific conditions that trigger an agent’s entitlement to commission.
The case: Freedom Development Group Pty Limited v D’Ettorre Properties Pty Limited T/as D’Ettorre Real Estate
In essence, the court had to decide whether the eventual purchaser of the subject properties owned by Freedom had been introduced to Freedom by D’Ettorre or an intervening second agent, Mr Ippolito.
At the heart of the dispute was D’Ettorre’s connection to Ben Ingham, who was one of the directors of the company that did eventually buy the properties: Wansey Road Randwick Pty Ltd (WRR).
The series of events went as follows:
- 8 November 2019: Freedom appoints D’Ettorre as its agents for the sale of the Randwick properties;
- 11 November 2019: Mr Dominic D’Ettorre (the controller of D’Ettoree) introduces Rino Criola, a business associate of Mr Ben Ingham, to the properties;
- 27 November 2019: Mr Ingham expresses an interest and Mr D’Ettorre negotiates a sale price of $10.2 million;
- 6 December 2019: Freedom accepts Mr Ingham’s offer and a nomination deed is exchanged two weeks later, with the nominated purchaser listed as IFM Wansey Road Pty Ltd (a company of which Mr Ingham was the sole director);
- 14 January 2020: The purchase price is increased to $10.33 million;
- 29 January 2020: Negotiations between Freedom and IFM (Mr Ingham’s company) fail after Freedom decides to further increase the purchasing price to $11.3 million because of interest from a Chinese buyer. D’Ettorre cannot find another buyer for Freedom’s increased asking price and says he “gave up looking”;
- 14 February 2020: A second agent, Mr Ippolito, introduces Mr Ingham’s nephew, John Ingham, as a prospective buyer;
- 18 February 2020: Freedom accepts John’s offer of $10.35 million after Mr Ippolito agrees to a reduced commission of $90,000;
- 21 February 2020: Nomination deeds are drafted identifying the purchaser as WRR (a company controlled by John) and listing Mr Ingham (D’Ettoree’s buyer) as the guarantor,
- 28 February 2020: Binding contracts for sale of the properties and nomination deeds are exchanged and those contracts subsequently completed.
After finding out that Mr Ingham was a co-director of WRR alongside John, Mr D’Ettorre argued that he was entitled to the commission because he had been the one who first showed Mr Ingham the properties.
The District Court judge had to determine the proper construction of the commission clause being that “the purchaser is effectively introduced by the agent” and ended up siding with D’Ettorre, awarding it $154,275 in claimed commission plus interest and costs.
However, the New South Wales Court of Appeal overturned the decision, dismissing D’Ettorre’s claim and ordered it to pay Freedom’s costs of the proceedings.
In the mix of the determination of the proper constructions and interpretation of the commission clause, D’Ettorre also alleged that Freedom breached the Australian Consumer Law and sought damages for misleading and deceptive conduct. That claim also failed.
The appeal decision
The question for the appeals judges was:
- whether the words “effectively introduced” in the non-exclusive agency agreement between D’Ettorre and Freedom referred to a causal connection between the agent’s efforts and the sale (as argued by Freedom), or
- whether the words required no more than “acquainting the purchaser and the vendor in relation to the property” (as argued by D’Ettorre).
The appellate judges ruled in favour of the former.
They found that the sale was independent of Mr D’Ettorre’s initial introduction to Freedom of Ben Ingham, as there was no “continuing effect”. Just because Ben Ingham was a director of WRR, it didn’t mean he had an ownership interest in the properties, according to the ruling.
“Merely acquainting a director of a company with the property was an insufficient causal nexus to the ultimate sale in February 2020”, the appellate judges said.
“The ultimate sale was a new and independent transaction following Mr Ippolito’s introduction of John Ingham to the properties.”
How “sufficient” does the connection between the introduction and the eventual sale need to be to satisfy your entitlement to commission? That will depend on the facts of the case.
In every case, the court will make a determination on the relevant facts and circumstances, to determine whether the sale was procured and completed because of the agent’s involvement.
As a real estate agent, you want to avoid commission disputes at all costs. Here are a few tips:
- Think about exclusive agency agreements: An exclusive agency agreement means that you will be entitled to a commission even if the property is sold by the seller or another agent, so long as the sale occurs within the agreed-upon timeframe.
- Clarify “effective introduction” clauses: If you don’t have exclusivity and know that your client is also working with another agent, include clauses in your agency agreement setting out what constitutes an effective introduction. This step is vital in preventing future disputes over your eligibility for a commission.
- Document introduced buyers: Include a provision in your agency agreement that will trigger if the buyer decides to switch agents, allowing you to provide details of potential buyers you believe you have introduced to the seller. This will assist in substantiating your claim for commission.
- Warranty in sale contracts: Strengthen your position by adding a special condition to the sale contracts, confirming that the buyer was introduced to the property by you, the named agent. This additional layer of protection can prove invaluable in the event of a dispute.
Real estate agents can minimize the risk of commission disputes and ensure a smoother transaction process by adopting proactive measures like these.
Attwood Marshall Lawyers – helping you understand your rights and resolve disputes effectively
We have dedicated commercial litigation lawyers who understand the complexities of property and commercial law and the wide range of issues that can arise when buying and selling real estate and businesses. If you find yourself in a situation where you may be entitled to compensation, or there is a dispute over an agreement, our team can investigate your matter and provide helpful, practical advice on the options available to you.
For initial advice about your dispute, please call our Commercial Litigation Department Manager, Amanda Heather, on direct line 07 5506 8245, email firstname.lastname@example.org or free call 1800 621 071.
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