Estate agents’ commission: “Effective cause” agents...589 Estate agents’ commission: “Effective…

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  • 589

    Estate agents commission: Effective cause explained (2)

    General guidelines Henk Delport BA LLB LLD Professor of Mercantile Law, Nelson Mandela Metropolitan University

    5 PRIVATE DEALS AND COMPETING AGENT SITUATIONS

    In practice the question whether an estate agent is the effective cause of a trans-action frequently arises in two situations, namely:

    (a) where an estate agent introduces a buyer to a seller but the two parties even-tually negotiate privately, that is, without the intervention of the estate agent and without any of the parties assuming liability for payment of commission (referred to below as the private deal situation); and

    (b) where one estate agent introduces a prospective buyer to a property but the latter eventually buys it through the intervention of another estate agent (re-ferred to below as the competing agent situation, the first estate agent be-ing the introducing agent and the second the closing agent).

    In each of these situations more than one factor can usually be identified as a causative factor in bringing about the sale and, as already explained, it is then a question of fact whether or not a particular factor can be said to be the effective cause of the transaction. Judgments based on a specific set of facts are, of course, not binding authority for the future, but an analysis of the case law nevertheless makes it possible to formulate certain general rules or guidelines to be applied in an effective cause inquiry. These rules or guidelines are now examined in more detail.

    6 EFFECTIVE CAUSE: GENERAL GUIDELINES

    6 1 The nature and effect of the estate agents efforts must be considered, not the amount thereof

    A commission agent is paid by results and not by good intentions or even hard work.1 Accordingly, an estate agent may be held to be the effective cause of a transaction regardless of the amount of work he put into earning it.2 An estate agent frequently stands to earn a considerable commission for relatively little ef-fort;3 on the other hand he runs the risk of receiving nothing whatsoever for

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    See 2010 THRHR 414 for Part 1. 1 Aida Real Estate Ltd v Lipschitz 1971 3 SA 871 (W) 875H. 2 874C. 3 Silke De Villiers and Macintosh The law of agency in South Africa (1981) 389; Gluckman

    v Landau & Co 1944 TPD 261 275; Basil Elk Estates (Pty) Ltd v Curzon 1990 2 SA 1 (T) 7FG.

  • 590 2010 (73) THRHR

    such energy or money as he may have expended in attempting to secure the de-sired result.4 If he fails to prove that his endeavours constituted the causa causans of the sale, the fact that he incurred considerable expenses and devoted a lot of time and effort, does not avail him.5

    Although the amount of an estate agents efforts is not a relevant considera-tion, the nature and effect of those efforts are important matters to take into ac-count. One simple phone-call or the leaving of a card may constitute the effec-tive cause of a sale;6 similarly, conveying an important piece of information about a property to a buyer (such as that a wall between two rooms can be knocked down in order to accommodate a snooker table) could be the decisive factor.7

    6 2 The introduction of the purchaser is a very important factor, albeit not necessarily decisive

    In Aida Real Estate Ltd v Lipschitz8 the plaintiff (an estate agency firm) had shown a house to C and his wife on three occasions in November 1968. C liked the house very much but some obstacle stood in the way of concluding the sale. In January of the following year C informed the plaintiff that he was no longer interested in purchasing the property. However, some three months later C con-tacted the seller (defendant) personally and concluded a sale, without the inter-vention of the plaintiff. It was common cause that the plaintiffs contribution to-wards the sale was confined to the initial introduction of C in November 1968. What happened thereafter occurred without the plaintiffs assistance, even with-out its knowledge. Nevertheless, the court held that despite the break in the nego-tiations the initial introduction remained the overriding factor inducing the sale; hence the plaintiff was entitled to commission.

    Although an estate agents input in introducing a purchaser to a property is undoubtedly a significant factor to consider,9 it must be seen in context. No in-troduction is necessarily conclusive. There may well be other factors outweigh-ing the introduction and these factors could be the effective cause of the transac-tion.10 Moreover, an estate agents introduction of a prospective purchaser to a property or a seller may take various forms, and not every introduction has the same weight when it comes to an evaluation of the factors that contributed to a transaction. An introduction is not confined to arranging a meeting with the seller, showing the property to the buyer or explaining to him the propertys fea-tures.11 Giving a prospective buyer the sellers address or details of the location

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    4 Silke 389. 5 Basil Elk Estates (Pty) Ltd v Curzon 1990 2 SA 1 (T) 7. 6 7G; Aida Real Estate Ltd v Lipschitz 1971 3 SA 871 (W) 874C. 7 Munitz v Steers Trust Co (Pty) Ltd 1993 2 SA 369 (C). 8 1971 3 SA 871 (W). 9 See the dictum in Howard & Decker Witkoppen Agencies and Fourways Estates (Pty) Ltd v

    Desousa 1971 3 SA 937 (T) quoted in the text later. In Nach Investments (Pty) Ltd v Knight Frank South Africa (Pty) Ltd [2001] 3 All SA 295 (SCA) an estate agent was held to be the effective cause of the sale despite the absence of an introduction by the estate agent. The correctness of this can be questioned. It is submitted that, on the facts, the estate agent had in fact introduced the buyer in the sense that the word introduce is to be understood in commission cases.

    10 Aida 873H. 11 DC Wylde & Co v Sparg 1977 2 SA 75 (E).

  • ESTATE AGENTS COMMISSION EFFECTIVE CAUSE EXPLAINED 591

    of the property offered for sale also constitutes an introduction in estate agency law. However, this does not mean that merely telling a person that a property is for sale is sufficient to entitle an estate agent to payment of commission. If an es-tate agent has done no more than to furnish a prospective buyer with the sellers address or the location of the property, such introduction would entitle the estate agent to payment of commission only if a line of cause and effect can reasonably be traced from the introduction to the conclusion of the sale.12 As was stated in Doyle v Gibbon:13

    It is not sufficient for the commission agent to say to a person, such and such a house is for sale if in consequence of that representation nothing is done and on some subsequent occasion a sale takes place.

    According to Duncan14 one must look to the events that occurred after the origi-nal introduction to decide whether or not the estate agent who introduced the buyer is the effective cause of a sale; if there has been no third party interven-tion between the time of the original introduction and the sale, that introduction will be the most important single factor to take into account. This statement is perhaps too restrictively formulated since there could be other factors, independ-ent of third party intervention, which could be more important than the initial introduction as such. It is only if the introduction is in all the phases leading up to the conclusion of the sale the major positive force working towards the suc-cessful conclusion of the transaction15 that the estate agent would be regarded as the effective cause of the transaction.

    In situations where an estate agent does no more than to introduce the person who ultimately buys the property, and no other intervening factor occurs influ-encing the bringing about of the sale, the estate agents introduction plainly con-stitutes the only factor that triggered the sale. Take the case where an estate agent introduces a cash buyer to a seller, shows the property to the buyer and explains in detail all its features, price and possibilities. The buyer is hugely impressed but for reasons of his own he eventually decides to buy the property from the seller privately, at the sellers asking price, without any further intervention on the part of the estate agent. In this scenario it is safe to say that the estate agents efforts in introducing the buyer were the effective cause of the sale. However, contrast this with the situation where a person wishing to buy a four-bedroom house is merely given the address of a property by an estate agent, no more. It is left to the buyer to examine the property, meet the seller and negotiate the selling price. The property in fact comprises three bedrooms only but the buyer decides to buy having consulted an architect on how the house can be changed into a four-bedroom house and at what cost. On these facts it is clear that other inter-vening causes, and not the introduction, led to the sale.

    These two examples illustrate opposite ends of the spectrum and are relatively easy to deal with in practice. The real difficult cases lie somewhere in between, such as where an estate agents introduction impacted significantly on the buyers decision to buy, but so did another intervening factor independent of the ________________________

    12 Aida 874C. The Australian High Court has followed a similar approach: Moneywood Pty Ltd v Salamon Nominees Pty Ltd [2001] HCA 2.

    13 1919 TPD 220. 14 Real estate agency law in Queensland (1990) 199. 15 Aida 874FG.

  • 592 2010 (73) THRHR

    estate agents efforts. For example, assume that the buyer in the first scenario above was not a cash buyer and that he was unable to secure adequate mortgage bond finance to meet the sellers asking price. Assume furthermore that the es-tate agent was unsuccessful in negotiating a reduced purchase price acceptable to both parties, and that a sale materialised only after the buyer succeeded in ob-taining additional finance from a family member. Can it now be said that the es-tate agents introduction constituted the major positive force working towards the successful conclusion of the transaction or were the buyers own efforts the effective cause of the sale?

    The answer lies in determining whether the intervening cause was suffi-ciently weighty to break the chain of causation between the agents endeavours and the eventual transaction.16 This depends on the facts of each case. The pres-sure put on a buyer by a spouse may sufficiently outweigh the impact of the es-tate agents introduction,17 as could a buyers improved financial position, aided by an unsuspected financial windfall.18 Obviously, the more weighty the estate agents introduction, the more weight would be required of the intervening cause to sever the chain of causation. Conversely, relatively little would be expected of an intervening cause to outweigh an introduction that was confined to merely telling a prospective buyer that a particular property was for sale.

    There is no reason to attach more weight to an estate agents introduction in a case where the seller has mandated one estate agent only to sell a property, as opposed to the situation where two or more estate agents had been engaged to find a buyer. In both instances the fact that the estate agent introduced the buyer does not per se mean that the estate agent is deemed to be the effective cause of the transaction. As explained above, commission will be earned only if upon a consideration of all the facts and circumstances it can be said that the introduc-tion constituted the main driving force that triggered the sale.19

    6 3 An estate agents mere attendance at negotiations between a buyer and seller does not make him or her the effective cause of a sale agreement concluded by them

    In Hooper v Bradbury20 the owner of a property (A) had discussed the sale of the property with a prospective purchaser (B). The owner later instructed an estate agent (C) to auction the property. The auction was unsuccessful but C subse-quently attended negotiations between A and B pertaining to a possible sale. This came to nothing, and A eventually sold to B without any further involvement by C. The Supreme Court of Queensland held that since C did not introduce the purchaser nor induce any offer, he was not the effective cause of the transaction. Merely attending negotiations between A and B did not constitute him the effec-tive cause of the sale.

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    16 Mano et Mano v Nationwide Airlines (Pty) Ltd 2007 2 SA 512 (SCA). 17 Machonochies Executrix v Bidewell-Edwards 1892 9 SC 204. 18 Basil Elk Estates (Pty) Ltd v Curzon 1990 2 SA 1 (T). 19 A different approach has been put forward in the UK and Australia, influenced by the view

    that if only one estate agent has been mandated to find a buyer, commission is earned if such estate agent is an efficient cause as opposed to the effective cause of the sale. See the discussion in Part 1 of this article.

    20 [1957] QWN 39.

  • ESTATE AGENTS COMMISSION EFFECTIVE CAUSE EXPLAINED 593

    6 4 In the competing agent situation the first introduction is important but

    not decisive

    In Webranchek v LK Jacobs & Co Ltd21 the Appellate Division made it clear that where a property is listed with several agents and they compete in trying to conclude a sale by the principal to a particular third party, it is not necessarily the agent who first introduces the purchaser who is entitled to remuneration but the agent who is the effective cause of the transaction being completed.22 The facts in Barnard & Parry v Strydom23 serve as a good example. Here estate agent A showed a house to a buyer who bought it some 48 hours later through estate agent B, who also had a mandate to find a buyer. The buyer testified that he re-garded the financial arrangements made for him by B as the decisive factor en-abling him to buy the house. The court held that B was the effective cause of the transaction, despite the fact that A had first introduced the buyer. The reasoning was as follows:

    Assuming that similar financial arrangements could easily have been made by agent A, if nevertheless it did not take such steps and if no sale would have come into existence had agent B not intervened, agent A would not have proved its case unless it showed that the actions of agent B resulted from As introduction of the property to the buyer.

    An estate agent who first stirs a prospective purchasers interest in a property has no proprietary right over that person, commission-wise, should he later buy.24 On the other hand, it cannot be denied that first impressions count a lot when it comes to buying a property. Purchasers frequently make up their minds about a property after inspecting it for the first time and then revisit it later only to con-firm their first impressions. Sometimes the first introduction all but convinces the prospective buyer to buy, while a second introduction by another estate agent merely entrenches that conviction. Accordingly,...