Real estate agents: a pyrrhic victory in long running fight for commissions?

Real estate agents: a pyrrhic victory in long running fight for commissions?

CA & CA Ballan Pty Ltd v Oliver Hume (Australia) Pty Ltd

[2017] VSCA 11 is an important case for real estate agents, and all other agents operating under the Estate Agents Act 1980 (the “Act”).

The case concerns a real estate agent’s right to recover commissions from their vendor, in circumstances where the written authority that is in place with the vendor is substantially but not entirely consistent with requirements for the content of written authorities in s 49A of the Act.

The legislation

The Act requires an estate agent to hold a written authority which, amongst other things, includes a rebate statement in the form approved by the Director of Consumer Affairs and also states the dollar amount of the estimated commission for each property being sold.

Further, the Act makes it an offence for an estate agent to obtain or seek to obtain any commission in the absence of a fully compliant authority.

What is the case about?

The legal stoush in this case arose when Oliver Hume attempted to recover commissions from a developer, CA & CA Ballan Pty Ltd (“Ballan”).

In response, Ballan relied on defects in the written authority with Oliver Hume to withhold the commissions.

The written authority in question, which was in the standard REIV format, purported to apply to a number of different lots in an “off the plan” apartment complex.  That is, the written authority, was a “multi property” authority, of the kind commonly used by large scale developers with real estate agents in Victoria.

The defects in the written authority that were relied upon by Ballan were twofold.

First, the rebate statement in the written authority was a redacted version of the wording in the standard REIV format, which ironically given the authoritative nature and widespread use of that format, was not in the form approved by the Director and hence not compliant with the Act.

Second, while the written authority identified all the lots to which the authority applied, it did not specify a dollar amount for the commissions that Oliver Hume could expect to receive based on the estimated selling price of each lot.  Instead, it simply stated a single selling price.

Oliver Hume brought proceedings against Ballan to recover their commissions.  As the proceeding progressed, Oliver Hume attempted to change their claim to include a new legal argument relating to rectification of the written authority.

At law, parties who have a common intention to include terms in a written contract, but fail to do so, may approach the Court for rectification of the contract.  If a Court finds that there was a common intention to include agreed terms but did not do so, the Court may treat the omitted terms as having been included in the contract from its inception.

Oliver Hume argued that both parties intended the written authority to be in a form that complied with the Act, and further, spelt out the precise wording of each term relating to rebates and estimated selling commissions, that the parties had intended to include.  Consequently, Oliver Hume argued, the rectified written authority would be compliant with the Act, and Ballan could not withhold its commissions.

Oliver Hume attempted to amend its claim before the Court accordingly.

Ballan resisted the introduction of the new legal argument of rectification.

Ballan argued that the rectification argument was fanciful and should not be allowed as part of the proceeding.   Ballan argued that the content of written authorities required by S 49A of the Act was mandatory, and was for the important purpose of ensuring disclosure of commissions and that commissions could not be recovered without adequate prior disclosure.  According to its argument, the Court should not relieve the parties of the consequences of their own non-compliance.  The intended purpose of the statute would be defeated if parties were allowed to substantially comply with the Act, only to effectively rectify the written authorities at a later time.

Finally, even if rectification was available, on the facts, the parties did not intend for precise terms alleged by Oliver Hume to form part of the written authority.  Hence, there was no common intention, and no rectification could be ordered by the Court.  At best, the parties intended that the authority should comply with the legislation, which was a mistake about the legal consequence of a contract not rather than a failure to include agreed terms in the written authority.

What did a judge decide initially?

At first instance, a judge of the Supreme Court permitted Oliver Hume to claim rectification.

Court of Appeal’s thoughts

 In this instalment of the case, Ballan asked the Court of Appeal to overturn the judges finding, and deny the rectification argument to Oliver Hume at trial.

The Court of Appeal upheld the judges initial finding, arguing that the rectification argument was not so fanciful that it should be disallowed.

In reaching this view, the Court analysed whether there was a legal argument that rectification was permissible in a case involving non-compliance with the Act.

The Court of Appeal started by acknowledging the important role that disclosure of commissions plays under the Act:

It may be accepted that the statute places prime importance on disclosure by agents before they may claim commission.  The required disclosures are explicitly stated in the legislation . .            Contravention may lead to harsh results but that is a consequence of the legislation that must be accepted.  In this regard, the identity, sophistication and capability of vendors to look out            for themselves, does not lessen the statutory disclosure obligations imposed on agents”.

However, notwithstanding this, the Court of Appeal found that it was possible that rectification could apply to a deficient written authority in some circumstances.  Without saying that the current circumstance warranted rectification, the Court noted:

when considering whether rectification might be granted, one should not ignore the totality of the circumstances. In this regard, the operation of the statute (both civil and criminal aspects)      the objectives and purpose are clearly relevant. But so too the nature and extent of any contravention, the extent of the participation in any contravention by a vendor and the attributes of          the vendor may all be relevant to a greater or lesser extent”.

In particular, the significance and impact of the contraventions of the Act might need to be considered to determine the availability of rectification:

On one view, at least, the alleged contraventions are minor; for example, the failure to give a dollar amount for estimated commission when the percentage of estimated commission has             been specified. It would seem to be a simple matter for a developer (who is no doubt familiar with the calculation of costs and commission) to work out the dollar amount of commission for         each lot.

The Court of Appeal noted that Oliver Hume had not only argued that the parties intended their authority to comply with the legislation, but crucially, specified the precise wording which they alleged had been omitted from the written authority.  Hence, it was open for the Court to find that there had been a common mistake about the content of the written authority.

Finally, the refusal to allow Oliver Hume to argue for rectification of the authority, would have the unfair effect on Oliver Hume, as it would deny it commissions that they may, in the fullness of the proceeding, be entitled to receive.  In these circumstances, the Court held that Oliver Hume should, at the very least, be entitled to argue rectification before the Court.

What does this mean going forward?

The upshot of the case, is that the matter of written authorities that are not compliant with the Act, will be determined by the Court.

The Court of Appeal recognised that it may possible to intervene to rectify authorities with minor defects, but whether rectification is open to the Court will depend both upon the nature of the non-compliance in the context of the overall facts of the case, and whether the parties really did have a common intention to include specific compliant provisions in their written authority.

We note that rectification is generally not a remedy that is easily applied.

Even if the Court eventually finds that rectification is conceptually possible, it is another question entirely whether a common intention exists between parties, at the time they contracted, to include particular terms.  Those agreed terms may be difficult to define with precision.

Even if Oliver Hume does ultimately succeed with its rectification claim, this does not mean the Court will always rectify written authorities to render them compliant.  The facts of each case will vary, and the mere fact that a deficient written authority is being used in multi-storey apartment developments (such as in the case of Oliver Hume), is unlikely to be sufficient in itself to justify rectification.

In the present case, the defects in the written authority are (relatively speaking) extremely minor, and in the case of the rebate clause at least, in the form of poorly drafted clauses rather than clauses that are omitted altogether. Further, the parties were all sophisticated operators in their industry segment. While it is difficult to speculate about how the Court will approach the issue of rectification, the manner in which the written authority was drafted may have a bearing on the outcome.

In this case, the written authority contained a term relating to rebates.  It may be more difficult to argue that the parties had a common intention to include an alternative term relating to rebates, given that a non-compliant clause already exists.  Alternatively, the existence of a non-compliant clause may be evidence that the parties did indeed turn their minds to the question, but did not correctly express their intentions in writing.  The fact that the rebate clause took a standard form, is suggestive of an intention by the parties to adopt whatever standard form was compliant.  Such intention may lend itself to rectification of the clause consistent with the rebate statement issued by the Director of Consumer Affairs.  The fact that the parties are sophisticated, is likely to mean that the “consumer protection” purpose of the Act is less of a bar to rectification in this case.

It cannot be assumed that Oliver Hume is a lifeline for defective written authorities, or real estate agents that enter them.

In the meantime, real estate agents, and all other estate agents, need to ensure their authorities are compliant if they wish to avoid suffering the same fate as Oliver Hume.  While most developers are sufficiently savvy to realise they need good agents on side to sell their upcoming development projects, and may wish to avoid a reputation for sharp practice, circumstances may arise where it is in a developer’s interests to withhold commissions.  For example, where the developer does not generally operate in Victoria, or they have a particular axe to grind with an agent.

A pyrrhic victory for real estate agents?  Maybe. Watch this space.

Disclaimer

NextGen Legal’s communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.

By | 2017-08-29T21:45:06+11:00 March 31st, 2017|Conveyancing, Property Transactions & Leasing|