16 September 2020
Roelof Stols, Consultant
What constitutes “effective cause” in a sale of real property sale and an entitlement to commission? Is a mere introduction enough?
The New South Wales Court of Appeal handed down judgement early in September 2020 in an appeal where “effective cause” as established in the case law was under the magnifying glass. The court had to consider if a real estate agent on a non-exclusive mandate is entitled to recover commission where another agent gets the sale across the line to a purchaser that the initial agent introduced to the vendor or property. (see the decision in Outerbridge trading as Century 21 Plateau Lifestyle Real Estate v Hall  NSWCA 205)
In brief, the initial agent introduced the purchaser to the property and the vendors. An offer was made, and rejected, further negotiations ensued, but this sale disappeared. The purchaser believed the transaction came to nothing, there is no further to do and contacted the second agent to look at further properties. However, the second agent, who was also co-mandated by the vendor on a non-exclusive basis, resuscitated the sale for a higher purchase consideration and establishing and convincing the purchaser that the vendors were genuine sellers. The second agent was able to affect the sale whereas the first agent was not.
The Court had to determine if the first agent’s actions were an effective cause of the sale or the effective cause of the sale (my underlining). The Court reasoned that the determination of effective cause “requires an evaluation of all circumstances which may have had some causal relationship to the sale” (par 62 per Beech-Jones J referring to Berben & Anor v Hedditch & Anor (1982) NSW ConvR 55-081). These are questions of fact that must be determined, and no set of rules exists as general principles.
In this matter it appeared there was a difference in price expectations and genuine doubt by the buyer if the vendors were genuine sellers. Where the first agent failed to get the sale over the line the second agent affected the sale. Thus, not only an intervening act between the initial introduction and the eventual sale but a resuscitation following an extinguished prospect.
The take-away in the writer’s opinion is that the mere introduction of a purchaser to a property is usually or at least sometimes insufficient. Merely influencing the purchaser is not enough, the measure lies in the extent of the influence, on the sale that eventuated. Where a purchaser following an introduction for good reason concludes that no transaction will happen and a further agent resurrect the transaction between vendor and purchaser, that further agent may be deemed to be the effective cause.
To safeguard commission, be proactive in every step of the process and above all, complete the negotiations until the contract is exchanged.
PLEASE NOTE THAT THIS COMMENTARY DOES NOT CONSTITUTE LEGAL ADVICE NOR SHOULD IT BE RELIED UPON AS LEGAL ADVICE. Seek legal advice before acting on the content of the above.