Estate agents’ commission: “Effective cause” explained (1) Henk Delport BA LLB LLD Professor of Mercantile Law, Nelson Mandela Metropolitan University
OPSOMMING Eiendomsagente-kommissie: “Effektiewe oorsaak” verduidelik Geskille betreffende die betaling van eiendomsagente-kommissie ontstaan dikwels, veral wanneer bepaal moet word of ’n eiendomsagent die effektiewe oorsaak van ’n transaksie is. In Engeland en Australië is daar beslissings wat daarop dui – in ieder geval waar ’n prinsipaal slegs een eiendomsagent aanstel – dat kommissie verdien word indien die eiendomsagent ’n effektiewe oorsaak van die transaksie is. Hiervolgens is kommissie betaalbaar indien die eiendomsagent se insette ’n aansienlike bydrae tot die transaksie gemaak het, ofskoon dit nie die belangrikste was nie. Die algemene reël in die Suid-Afrikaanse reg is egter dat kommissie nie verdien word indien ’n eiendomsagent ’n waardevolle bydrae tot ’n transaksie gelewer het, maar sy insette nie die effektiewe oorsaak daarvan was nie. Alhoewel die howe verskillende uitdrukkings in hierdie verband gebruik, is die kernvraag altyd dieselfde: was die eiendomsagent se bydrae tot die transaksie die beslissende faktor, ongeag ander faktore wat ook ’n rol gespeel het? Dit is ’n feitelike vraag, maar daar is tog sekere riglyne wat as hulpmiddel in hierdie verband kan dien. Byvoorbeeld, die eerste voorstelling van ’n eiendom aan ’n voornemende koper is ’n belangrike faktor, maar daar is nie ’n reël dat die agent wat eerste op die toneel verskyn outomaties die effektiewe oorsaak van die koop is nie. Eweneens is daar ook geen reël dat die eiendomsagent wat uiteindelik die koop beklink, noodwendig die effektiewe oorsaak is nie. Die koper se getuienis in hierdie verband is belangrik, maar nie deurslaggewend nie. Omdat dit nie altyd maklik is om te bewys dat ’n eiendomsagent se insette wel die effektiewe oorsaak van ’n bepaalde transaksie is nie, kan ooreengekom word dat kommissie verdien sal word al was die agent nie die effektiewe oorsaak nie. Sulke ooreenkomste is geldig maar moet duidelik bewoord wees alvorens ’n hof daaraan uitvoering sal gee.
1 INTRODUCTION Estate agents are in business to earn commission,1 something that is often easier said than done – even in a good market – given the level of competition in the estate agency industry.2 Undeniably, estate agents have every right to insist on ________________________
1 A person who sells or lets property on behalf of someone else is classified as a principal estate agent under the Estate Agency Affairs Act 112 of 1976 only if such person renders the services in question for gain: see the definition of “estate agent” in s 1 of the Act. This means an estate agent must receive some form of remuneration for the services rendered as an estate agent. The remuneration need not necessarily be a monetary reward but may embrace any other type of reward such as goods. In practice, however, an estate agent’s remuneration invariably consists of money, commonly referred to as commission. 2 According to the Estate Agency Affairs Board’s 2008/2009 annual report the Board had issued fidelity fund certificates to 60 000 individual estate agents and 16 000 firms at the continued on next page
414
ESTATE AGENTS’ COMMISSION: “EFFECTIVE CAUSE” EXPLAINED
415
payment of lawfully earned commission, even if earning it involved relatively little effort.3 By the same token, however, nobody can be expected to pay commission to an estate agent who is legally not entitled thereto, particularly so if one takes into account that a substantial amount of money may be involved. The difficulty, however, is that views often differ as to whether commission has in fact been earned,4 with the result that commission disputes easily arise. Take the following everyday examples: (a) Estate agent A obtains a mandate from B to find a buyer for a property. He introduces a prospective purchaser (C) who is keenly interested but wants a few days to consider the matter. Ten days later C buys the property through the intervention of another estate agent (D). The sale agreement contains a clause stating that C warrants that D was the effective cause of the transaction. B pays commission to D, ignoring A. (b) Estate agent A has a mandate to find a buyer for B’s house and erects a “for sale” signboard on the property. C sees the board and telephones A, only to be told by an answering machine that A is unavailable but will call back. C leaves a message but never hears from A. He thereupon enters into a sale agreement with B without any intervention on the part of A. B refuses to pay A commission, arguing that he (A) had not assisted C and that the “for sale” board was not in itself sufficient to warrant payment of commission. (c) Estate agent A is mandated to find a buyer for a property. He introduces a prospective buyer who wants to buy but cannot afford the asking price. The buyer has no further contact with A. Three months later the buyer submits an offer to the seller, below the asking price, which the seller accepts. The transaction is finalised without any involvement on the part of A. The seller refuses to pay commission, contending that the sale was not triggered by anything done by A but because he (the seller) had become desperate to sell and was forced to reduce the asking price. At common law estate agent A in these examples will be entitled to payment of commission only if, inter alia, it can be proved on a balance of probabilities that he was the effective cause of the sale agreement in question. This article focuses on the gist of the “effective cause” requirement in estate agency law. The first part examines the meaning and scope of effective cause, in particular the distinction between an effective cause and the effective cause. It includes a discussion of the value of a purchaser’s evidence in determining whether or not an estate agent was the effective cause of a transaction, as well as an explanation of how the effective cause requirement may be excluded by agreement. Part two sets out certain guidelines that may be applied when evaluating whether an estate agent’s input was the effective cause of a transaction. ________________________
peak of the property boom in 2006. The recent downturn saw the numbers drop to approximately 20 000 and 8 000 respectively at the end of March 2009, still significant given prevailing market conditions. The majority of these estate agents are active in the residential property market in historically advantaged urban areas, which is a relatively small market. Thus competition is rife to obtain mandates and conclude deals. 3 Estate agents are remunerated on a results basis, not for their time and effort – see the discussion below. 4 See eg the split decision in Gordon v Slotar 1973 3 SA 765 (A).
416 2
2010 (73) THRHR
EFFECTIVE CAUSE DEFINED
2 1 The effective cause or an effective cause? South African courts have consistently held that in order to succeed in a commission claim at common law an estate agent has to prove that his efforts were the effective cause of the transaction contemplated by the mandate.5 This involves a process of weighing up the various factors that contributed to the transaction and identifying the key or main factor that brought it about. That factor is then stated to be the effective cause.6 The result is that an estate agent is not entitled to commission at common law where his efforts were not the causa causans, even if those efforts were extremely important or helpful towards bringing about the desired result. As Eloff DJP stated in Basil Elk Estates (Pty) Ltd v Curzon:7 “[T]he onus was on the appellant to satisfy the Court that on a balance of probabilities its activities predominated as a causative factor. From that it follows that where there are competitive causative factors the appellant must fail unless it can firmly be stated that its endeavours override other factors of importance.”
In some jurisdictions, however, it has been suggested that the emphasis is to be placed not so much on whether the estate agent was the effective cause of the transaction contemplated by the principal, but rather whether his input was an effective cause. An estate agent is then said to be entitled to commission if his efforts were an effective cause, albeit not the effective cause. According to the American Law Institute’s Second restatement of agency8 an agent is “an effective cause” “when his efforts have been sufficiently important in achieving a result for the accomplishment of which the principal has promised to pay him, so that it is just that the principal should pay the promised compensation to him”. On this approach, when more than one factor plays a role in bringing about the transaction contemplated by a mandate the question to be asked in a commission dispute is not whether the estate agent’s efforts were the key factor, but whether the estate agent had done enough to earn commission. Thus the effective cause requirement does not involve a search for the main factor that triggered the transaction, but brings into play equitable considerations namely whether it is just or fair that the estate agent be paid given the value or importance of his services. For the purposes of this evaluation it is immaterial that a factor other than the estate agent’s services, such as the efforts of another estate agent or that of the seller, may have been equally or more important than the estate agent’s input (or even decisive). Viewed as such the “an effective cause” approach provides a straightforward (but not universally acceptable)9 solution to double commission disputes where two estate agents claim to be entitled to payment of commission from a principal in respect of the same transaction. There is then no need to become engaged in an enquiry as to whose efforts were the effective cause of the transaction: both estate agents would be entitled to commission if the services rendered by each of them in bringing about the transaction were sufficiently ________________________
5 Different expressions are used in this regard but in essence they all convey the same principle. See the cases cited in para 2 2 below. 6 Basil Elk Estates (Pty) Ltd v Curzon 1990 2 SA 1 (T) 5F–I. 7 See the previous footnote. 8 (1958) para 448 (referred to in the text as “the Restatement”). 9 Some courts favouring the an effective cause approach appear to be loathe to oblige a seller to pay double commission. To avoid the issue they simply fall back on the “the effective cause” test in cases where more than one estate agent may have a claim for payment of commission arising from the same transaction – see the discussion below.
ESTATE AGENTS’ COMMISSION: “EFFECTIVE CAUSE” EXPLAINED
417
important to justify the payment of commission. Accordingly, the dilemma brought about by the application of the “the effective cause” test does not arise, namely where it is impossible to draw a clear line of distinction between the respective efforts of two or more estate agents and to determine which estate agent was the effective cause.10 2 1 1 English law The “an effective cause” approach has received a fair amount of attention in the English courts. In Lordsgate Properties Ltd v Balcombe11 it was held that there is no good reason in law why a seller may not be liable to two agents in respect of the same transaction if both were instrumental in effectively causing the sale. Drake J observed that “[i]t will no doubt be very unusual for a vendor to find himself liable to two agents on the basis that each has been an effective cause in bringing about the sale, without the chain of causation on the side of one agent being broken by the acts of the other. But I can see no reason at all why this unusual situation may not occur” (my italics).
It is clear, however, that English courts do not generally favour the view that an estate agent would in all instances be entitled to commission by merely establishing that it was an effective cause of the transaction in question as opposed to the effective cause. Thus in Brian Cooper & Co v Fairview Estates (Investments) Ltd12 Woolf LJ, speaking for the Court of Appeal, commented as follows on a submission that an implied term should be added to a contract that an estate agent would be entitled to commission if it was an effective cause: “It is only necessary for me to add that Mr Chadwick submitted that, nowadays, when a term is to be implied the appropriate term to imply is not that set out in the passage from Bowstead which I have quoted but an implied term that the agent is ‘an’, not ‘the’, effective cause of the letting. Mr Chadwick may be right as to this in the case of some commission agreements, but I am not satisfied that he is right as to all. It could also create problems where there are two or more effective causes, each of which could be the subject of a claim for commission.”
Subsequently, in John D Wood & Co v Dantata13 and Chasen Ryder & Co v Hedges,14 the Court of Appeal formulated the test as the effective cause. However, a somewhat different approach was adopted later by the Court of Appeal in Nahum v Royal Holloway & Bedford New College15 where Waller LJ, referring to two Australian judgments,16 doubted “whether it makes any difference whether it is ‘an’ or ‘the’ effective cause except possibly where there are two agents with agreements that they are entitled to commission if they introduce a purchaser”. On this approach the “an effective cause” test is to be applied where only one estate agent has been mandated to find a buyer and the question to be ________________________
10 See Webranchek v LK Jacobs and Co Ltd 1948 4 SA 671 (A) where the court raised the matter but left open the question whether in such instances the seller could be held liable to pay more than one commission. For a discussion see Delport “The risk of having to pay double estate agent’s commission” 2009 Obiter 738. 11 [1985] 1 EGLR 20. 12 [1987] 1 EGLR 18. 13 [1987] 2 EGLR 23. 14 [1993] 1 EGLR 47. 15 [1998] EWCA Civ 1760. 16 Doyle v Mount Kidston Mining and Exploration Pty Ltd [1984] 2 Qd R 386 and LJ Hooker Ltd v WJ Adams Estates Pty Ltd (1977) 138 CLR 52. See the discussion below.
418
2010 (73) THRHR
determined is whether that agent’s introduction of the purchaser justifies payment of commission. However, where two estate agents have been mandated and a dispute arises as to which of them is entitled to commission, the question to be decided is which agent was the effective cause of the sale. This point of departure was underscored by the Court of Appeal in Standard Life Assurance Co v Egan Lawson Ltd17 where Mummery LJ set out the law as follows, relying on Waller J’s judgment in Nahum: “In the case where only one estate agent is appointed by the vendor the solution is simple: his introduction of the purchaser usually is treated as carrying with it the (or ‘an’) effective cause of the sale. It is unnecessary to consider further whether there were other events, such as the vendor’s own efforts, which could be described as a cause of the transaction between the vendor and the purchaser introduced by the agent. Nahum v Royal Holloway and Bedford New College [1999] EMLR 252. In the case of two estate agents appointed by the vendor, each with competing claims to commission from the vendor for an introduction of the eventual purchaser, the issue is more difficult. It is not resolved by simply adopting a chronological approach and asking which introduction took place first. . . . The first introduction by an agent may be the effective cause of nothing. It may not lead to any interest or offer on the part of the eventual purchaser. And it may be that the second, later, introduction, which is in no way dependant on the first and may even relate to and lead to a different bargain, is the effective cause of the transaction: Chasen Ryder & Co v Hedges [1993] 1 EGLR 47. In deciding which introduction was the effective cause of the sale it is relevant to ask what would have happened if the second agent had never come into it. Would the introduction by the first agent then be regarded as the effective cause of the sale?”
Recently, it has been said by the Court of Appeal18 that the “present rationale for the implication of a term that the agent should be at least an effective cause of the transaction is, thus (mainly at any rate), the need for the client to avoid the risk of having to pay two sets of commission”. This is confusing. Based on what was said by the Court of Appeal in both Nahum v Royal Holloway & Bedford New College and Standard Life Assurance Co v Egan Lawson Ltd the “an effective cause” test is applied in situations where only one estate agent has been mandated to find a buyer, that is, in cases where the risk of double commission does not arise. A double commission claim is likely to arise only in cases where two or more estate agents have been engaged to find a buyer, and according to the authorities cited above the test to be applied in such situations is that of the effective cause. If anything the “an effective cause” test would promote the risk of double commission where more than one estate agent has been appointed, not avoid it. Limiting the risk is to some extent achieved by the application of the “the effective cause” test, not the “an effective cause” test.19 ________________________
17 [2000] EWCA Civ 293; [2001] 1 EGLR 27. 18 Per Longmore LJ in The County Homesearch Co (Thames & Chilterns) Ltd v Cowham [2008] EWCA Civ 26. 19 See Foxtons Ltd v Pelkey Bicknell [2008] All ER 328; [2008] EWCA Civ 419 where Lord Neuberger of Abbotsbury (referring to Lonmore LJ’s dictum in The County Homesearch Co (Thames & Chilterns) Ltd v Cowham quoted in the text above) remarked that “the main reason for implying the term is to minimise the risk of a seller having to pay two commissions”. The “term” referred to by Lord Neuberger was not “an effective cause” but that which the learned judge described as “the term identified in Article 57 of Bowstead”. In that article it is stated “where the remuneration of an agent is a commission on a contract to be brought about, he is not entitled to such commission unless his services were the effective cause of the transaction being brought about” (my italics). It is thus clear that Lord continued on next page
ESTATE AGENTS’ COMMISSION: “EFFECTIVE CAUSE” EXPLAINED
419
In Harding Maughan Hambly Ltd v Compagnie Européenne de Courtage D’Assurances the Queen’s Bench Division (Rix J, as he then was) summarised the legal position as follows:20 “The real issue in the case is therefore one of causation. In this connection, the question arose whether the test was one of the or only an effective cause. The matter is helpfully discussed in Bowstead and Reynolds on Agency (16th edn, 1996) art 59. There the rule is set out in terms of the effective cause (at para 7-027) and the choice is explained at para 7-029. It is pointed out that various authorities use the expression ‘an effective cause’, but that in a recent case Woolf LJ had said that this could cause problems where there were two or more effective causes, each of which could be the object of a claim for commission: see Brian Cooper & Co v Fairview Estates (Investments) Ltd [1987] 1 EGLR 18 at 20. Therefore, the learned editor concludes, ‘it seems better to retain the word “the”.’ . . . I note that in two recent cases in the Court of Appeal the rule is stated in terms of the effective cause: see John D Wood & Co v Dantata [1987] 2 EGLR 23, Chasen Ryder & Co v Hedges [1993] 1 EGLR 47. On the other hand, in earlier years the Court of Appeal spoke in terms of an effective cause: see Millar Son & Co v Radford (1903) 19 TLR 575 at 576 and Nightingale v Parsons [1914] 2 KB 621 at 626, [1914-15] All ER Rep 551 at 552, applied by Branson J in McNeil v Law Union & Rock Insurance Co Ltd (1925) 23 LL L Rep 314. I can well see that where the choice faced is essentially between two rival claimants for the same commission, then the court may have to determine which of them is the effective cause: because to say that both were, would or might well lead to the result that the principal would have to pay both agents a full commission. Even so, that may have to be the result, upon the wording of particular contracts, see Lordsgate Properties Ltd v Balcombe [1985] 1 EGLR 20. . . . I am impressed by two citations to be found in Bowstead & Reynolds under article 59. One is a passage from the judgment of Barwick CJ in LJ Hooker Ltd v WJ Adams Estates Pty Ltd (1977) 138 CLR 52 at 58, cited for the submission that the word ‘effective’ may be more important to stress than either the definite or the indefinite article: ‘The factual inquiry is whether a sale is really brought about by the act of the agent.’ The other is the definition of effective cause from the American Law Institute’s Second Restatement of Agency, 1958, at para 448 . . . It articulates the thought that the decision on causation is a matter of common sense informed by its context and designed to produce a just result.”
Useful as this summary may be, what it conveys essentially is that there is no clarity in English law as to whether the test to be applied in commission cases is the effective cause or an effective cause. Not surprisingly, the Court of Appeal acknowledged this unequivocally in its most recent judgment on the issue.21 2 1 2 Australian law The matter has also received some attention in Australia. In Dominium Factors Pty Ltd v LJ Hooker Ltd22 Sugerman J expressed the view that there “seems to be ________________________
Neuberger meant to convey that the reason for applying the “the effective cause test” is to minimise the risk of double commission disputes. 20 [2000] 1 All ER (Comm) 225. See too Aboualsaud v Aboukhater [2007] EWHC 2122 (QB). 21 See Foxtons Ltd v Pelkey Bicknell [2008] All ER 328; [2008] EWCA Civ 419 para 20 where Lord Neuberger of Abbotsbury (Waller LJ and Rix LJ concurring) stated, with reference to previous judgments of the Court of Appeal, that “it is not entirely clear whether the test is ‘an effective cause’ or ‘the effective cause’”. 22 [1963] NSWR 573.
420
2010 (73) THRHR
no warrant for the proposition that in the case of any given sale there can necessarily be only one efficient cause” and that although it “may be that the situation would not often occur . . . it still does appear possible that more than one agent may be in a position to claim that what he has done has been an efficient cause in that sense”. In LJ Hooker Ltd v WJ Adams Estates Pty Ltd23 each of the presiding five High Court judges delivered a judgment and although neither of them analysed the distinction between an and the effective cause in detail, there was seemingly no uniformity on the issue. Barwick CJ stated the following:24 “It is true that an agent to procure a purchaser of property in stated terms may earn the commission payable to him in various ways. But the commission is not fully earned unless there is a sale which has resulted wholly or partially from the efforts of the agent. The most common way of performing the agent’s task is to introduce to the principal a person who becomes the purchaser under a binding contract of sale. In terms of causation, the agent has thus been an effective cause of the sale. It is nothing to the point in such a case that that person would have become the purchaser without the intervention of the agent: or that the principal's own efforts were also an effective cause of the sale. Another not unusual manner in which the agent may be entitled to his commission is the introduction to the property of the person who ultimately becomes the purchaser. That introduction can be regarded as an effective cause of the sale, though the principal may not be aware when selling to that person that he has been introduced to the property as a purchaser by the agent. Again, the circumstance that the principal’s own efforts effectively contributed to the resulting sale will not preclude the conclusion that the agent’s introduction of the purchaser to the property was an effective cause of the sale.”
Barwick CJ thus clearly favoured the view that an estate agent may be entitled to commission even though his efforts were not the effective cause; it is sufficient if they were an effective cause. Accordingly, commission may be claimed even if the seller’s efforts were also an effective cause. Gibbs J,25 while not commenting on the distinction between “the causa causans” on the one hand and “an efficient cause” on the other, merely quoted with approval the following dictum in Burchell v Gowrie and Blockhouse Collieries Ltd26 where the two expressions were used as if they were the same: “There was no dispute about the law applicable to the first question. It was admitted that, in the words of Erle C.J. in Green v. Bartlett [1863] EngR 605; (1863) 14 CB (NS) 681, at p.685 [1863] EngR 605; (143 ER 613, at p.614.), ‘if the relation of buyer and seller is really brought about by the act of the agent, he is entitled to commission although the actual sale has not been effected by him.’ Or in the words of the later authorities, the plaintiff must shew that some act of his was the causa causans of the sale (Tribe v. Taylor (1876) 1 CPD 505, at p.510), or was an efficient cause of the sale (Millar v. Radford (1903) 19 TLR 575).”
Stephen J, in turn, referred to earlier judgments where an estate agent was held to be entitled to commission “because the agent was an effective cause of the sale, his initial introduction of the prospective buyer having led quite directly to the sale”.27 Jacobs J considered that it “probably” makes no difference whether the test is an or the effective cause, provided it is properly understood that the true ________________________
23 24 25 26 27
[1977] HCA 13; (1977) 138 CLR 52. 58–59. 67–68. (1910) AC 614 624. 76.
ESTATE AGENTS’ COMMISSION: “EFFECTIVE CAUSE” EXPLAINED
421
inquiry is whether a sale was “really brought about” by the estate agent. The learned judge expressed himself as follows: “The phrase that is time honoured in this context is ‘effective cause’ or ‘efficient cause’, that the agent was an effective cause or the effective cause. See Anderson v. Densley [1953] HCA 47; (1953) 90 CLR 460, at p 467. The inquiry is a factual one and it probably does not matter in the long run whether the definite or indefinite pronoun is used before the words ‘effective cause’. Thus in Burchell v. Gowrie and Blockhouse Collieries Ltd (1910) AC 614, at p 625 Lord Atkinson used the phrases ‘the effective cause’ and ‘an effective cause’ without distinction between them. In almost any factual situation a result will have more than one cause and if there could only be one effective cause in relation to a sale within the meaning of the implication, then there are plenty of events in this case which would have strong claims for the title in competition with the appellant’s actions. ‘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 factual inquiry is whether a sale is really brought about by the act of the agent: Green v. Bartlett [1863] EngR 605; (1863) 14 CB (NS) 681, at p 685 [1863] EngR 605; (143 ER 613, at p 614) quoted in Burchell’s case (1910) AC, at p 624.”
It is submitted that there is a marked difference between the approach adopted by Jacobs J and that of Barwick CJ. Take the case where an estate agent made an important contribution towards a transaction but the efforts of the seller were of equal (or even more) importance. On Barwick CJ’s approach the estate agent would be entitled to commission in such instances, not because its efforts really brought about the sale but because its efforts, like those of the seller, contributed effectively towards the sale. The estate agent was an effective cause as opposed to the effective cause. However, on Jacobs J’s approach the estate agent’s commission claim will fail if the efforts of the seller – and not those of the estate agent – really brought about the sale, despite the fact that the estate agent’s efforts were a major contributing factor. It is therefore submitted that the distinction between an and the effective cause is not just a question of semantics and that the outcome of a commission dispute will be fundamentally different depending on which approach is followed.28 2 1 3 South African law South African academics in general have not questioned the “the effective cause” approach.29 The exception is Kerr,30 who favours an approach resembling the an effective cause test. His point of departure is that when the “causal significance” of an agent’s efforts has to be determined a distinction should be drawn between empowered agents (ie those empowered to contract on the principal’s behalf) and unempowered agents (ie those not so empowered, but whose services create an opportunity for the principal to enter into or vary a contract).31 He then maintains ________________________
28 See too the High Court of Australia’s judgment in Moneywood Pty Ltd v Salamon Nominees Pty Ltd [2001] HCA 2 where no substantive distinction was drawn between “an” and “the” effective cause. Kirby J (para 122) expressed the view that expressions such as real cause, causa causans and “effective” cause are of limited use and serve only “to assist in the act of judgment required to distinguish the case where it is proper to regard the agent as entitled to commission because in a relevant way it caused the transaction in question from the case in which the agent did not cause the transaction”. 29 See Joubert Die Suid-Afrikaanse verteenwoordigingsreg (1979) 253; Silke De Villiers and Macintosh The law of agency in South Africa (1981) 396. 30 The law of agency (2006) 164. 31 See Kerr’s explanation of these concepts idem 4.
422
2010 (73) THRHR
that it is appropriate only in the case of an empowered agent “to enquire into the significance of his work as a factor contributing to the conclusion of the transaction which is the end result of the negotiations, eg the sale”. In the case of an unempowered agent the question is: “What is the significance of his work as a factor contributing to the successful conclusion of that part of the negotiations which falls within his sphere of action?” On this approach, Kerr argues,32 an unempowered agent’s efforts “may be sufficiently significant to entitle him to his commission even although his actions are not proximate in time or are of lesser importance than those of someone else”. In this respect he cites Aida Real Estate Ltd v Lipschitz33and Pretorius v Meyer34 as examples where “the work done by the purchaser was more important than that done by the agent; but the work of the agent was considered to be sufficiently significant to merit the award of commission”.35 His opposition to the stance taken by the courts is expressed as follows:36 “To speak, as the courts do, of an unempowered agent’s work being the cause of the transaction which is the end result of the negotiations, is to obscure the issue. Clearly the most significant factor (on the principal’s side) contributing to the entry into the contract is the decision of the principal to accept the offer made to him by the third person or to make an offer to the third person. When the principal contracts himself, nothing that the agent has done can properly be considered to be the cause of the transaction.”
This reasoning is unconvincing. It focuses on the principal’s decision to accept an offer but overlooks the fact that an estate agent’s negotiating skills and efforts may be the most significant factor enabling the principal to make the decision. Many sellers would readily concede that their decision to accept an offer was almost automatic given the terms of the offer. They would also concede that the most significant factor inducing the sale was the offer as such, not their decision to accept. True, no sale can materialise without a decision to accept an offer – the decision to accept is a causa sine qua non – but in an effective cause enquiry the focus is not so much on the principal’s decision to accept but rather on the main factor that induced the decision. In the case of an offer subject to suspensive conditions a further enquiry arises, namely whether the main factor that induced the decision to accept the offer remained the driving force in bringing about a binding, enforceable contract. As stated earlier, South African courts have consistently expressed themselves in terms favouring the “the effective cause” approach. Kerr37 incorrectly cites Aida Real Estate Ltd v Lipschitz and Pretorius v Meyer as examples where the work of the estate agent was sufficiently significant to merit the award of commission, despite the fact that the purchaser’s efforts were more important than that of the estate agent. Neither court came to that conclusion; on the contrary, it was held in both cases that the estate agent’s efforts outweighed that of any other party and that the commission was payable because of that. It has to be said though that the South African courts have not yet debated the “an effective cause” definition in the Restatement (quoted above) extensively. The most attention it received was a cursory reference to the final sentence thereof (“so that it is ________________________
32 33 34 35 36 37
165. 1971 3 SA 871 (W). 1975 3 SA 279 (T). 165 fn 365. 164. See the text to fn 35 above.
ESTATE AGENTS’ COMMISSION: “EFFECTIVE CAUSE” EXPLAINED
423
just that the principal should pay the promised compensation”) in Aida Real Estate Ltd v Lipschitz,38 where Marais J commented as follows on the meaning of effective cause: “This enquiry is not a metaphysical speculation in the result of cause and effect. It requires, as is said in Webranchek v L.K. Jacobs and Co Ltd . . . a commonsense approach to the question of what really caused the sale to be concluded, or, to put it differently, as it is said in a restatement of the law in America, whether it is ‘just’ that the agent should receive credit and compensation for the work he has done for the seller.”
Marais J did not provide the full details of the work referred to by him as “a restatement of the law in America” but there is little doubt that the learned judge had in mind the definition of effective cause in the Restatement referred to above. It is submitted, however, that Marais J apparently overlooked the fact that the test set out in the Restatement, namely whether it is just that an estate agent should be compensated for his work, has been formulated in the context of a definition of “an effective cause”, not “the effective cause”. What is stated in the Restatement is at odds with how the expression “the effective cause” is generally understood. Ultimately, however, nothing turned on this in the Lipschitz case, since Marais J decided the matter on the basis of the “the effective cause” approach: “In these circumstances, despite the break that occurred . . . in the negotiations and despite the fact that (the estate agent) dropped out of the negotiations, it was his introduction and therefore his efforts on behalf of the plaintiff company which were the effective causes of this sale going through.”
It is submitted that the test formulated in the Restatement does not correctly reflect South African law, despite Marais J’s apparent approval thereof. This submission is fortified by the following observation of Eloff DJP in Basil Elk Estate (Pty) Ltd v Curzon:39 “It remains lastly to deal with a submission made on behalf of the appellant based on a passage in the Aida Real Estate case at 874B where Marais J mentioned the possibility derived from a passage in the American Restatement that an agent might claim commission if it is just that he should be given credit or receive compensation for work which he had performed. With respect, the only basis on which, according to our law, an agent such as the appellant can claim commission is that set out earlier. 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. Experience in these cases shows that an agent frequently earns a substantial commission by a simple phone-call or by leaving his card. Contrarywise [sic] it sometimes happens that in spite of many days of effort nothing eventuates. I do not think that it would be correct to base a decision on the passage in the Restatement.”
2 1 4 Evaluation It is submitted that Eloff DJP’s views in Basil Elk Estate (Pty) Ltd v Curzon provide an adequate reason why the requirement in estate agent’s commission cases ought to be the effective cause as opposed to an effective cause. An estate agent is remunerated for bringing about a specific result, not for the efforts that contributed towards the result. This is the fundamental nature of an estate agent’s business. There is always a risk that the contributions, however significant, may ________________________
38 1971 3 SA 871 (W). 39 1990 2 SA 1 (T) 7E–H.
424
2010 (73) THRHR
not really bring about the result, in which case no commission will be earned. But the risk must be seen in context: it is precisely because of the risk that an estate agent stands to earn a significant amount of money if the desired result is in fact brought about by his efforts. The extent of the remuneration accounts for the risk.40 Accordingly, there can be no objection if an estate agent insists on being paid the full amount of his commission if his efforts, scant as they may have been, did indeed bring about the transaction. By the same token, however, it is inequitable that a seller be held liable to pay the full amount of the agreed commission where the estate agent has not really brought about the desired result but merely made a contribution thereto, albeit an important contribution. The question is not whether the estate agent had done enough to be paid but whether he had done what he was engaged to do. Nothing prohibits a seller and an estate agent from agreeing that the latter would render specific services for which a fee will be paid, for example organising a show-house or arranging mortgage bond finance. However, where the remuneration is linked to a specific result and not the estate agent’s services, the estate agent is expected to effectively bring about the result and not merely render services that contribute significantly, but not decisively, towards achieving the result. The “the effective cause” approach does pose a difficulty in cases where a principal has mandated more than one estate agent and it is impossible to determine which one of them was the effective cause.41 Where it is common cause that the estate agents’ efforts brought about the sale it would offend one’s sense of justice if the law were to allow the seller to escape from paying commission merely because, fortuitously, the estate agents’ services were of equal value so that it cannot be said who the effective cause was. It is submitted that double commission ought to be awarded in such instances, simply on the basis that it constitutes an exception to the general rule that commission is earned only if an estate agent is the effective cause of the transaction in question.42 No equitable objections can be raised to this: a seller who engages more than one estate agent to find a buyer knowingly runs the risk of having to pay more than one commission if it is clear that the estate agents in question did bring about the sale but it cannot be determined whose efforts were the effective cause. It is furthermore submitted that there is no rationale for the application of different tests to determine an estate agent’s entitlement to commission, depending on whether the principal engaged more than one estate agent or one only. As discussed above, some authorities in the UK suggest that an estate agent is not entitled to payment of commission in situations where he is an effective cause of a sale but another estate agent mandated by the seller is the effective cause; however, such estate agent would be entitled to commission if he is the only agent mandated by the seller and the seller is the effective cause of the sale. It is difficult to understand the reasoning behind this distinction. What gave rise to its birth, it seems, is the realisation by the courts that the an effective cause approach creates a substantial risk that a seller would have to pay more than one commission in cases where he has engaged two or more estate agents to find a ________________________
40 From an estate agent’s point of view there is obviously a better chance of earning commission on the basis of being an effective cause of a sale as opposed to the effective cause. The business risk associated with being the effective cause is appropriately reflected in commission rates. 41 See fn 10 above. 42 Delport 2009 Obiter 738.
ESTATE AGENTS’ COMMISSION: “EFFECTIVE CAUSE” EXPLAINED
425
buyer. Hence, to avoid this undesirable outcome the test must be the effective cause in those instances. However, what the courts have not explained is why the test should be an effective cause, and not also the effective cause, in cases where the seller has mandated one estate agent only. Why should less be expected of an estate agent to earn commission in a case where the seller has appointed one estate agent only, as opposed to the situation where more than one has been engaged to find a buyer? In a commission dispute the fundamental issue is not whether the seller has mandated one, or more than one, estate agent but whether the estate agent claiming commission has lawfully earned it. Having two tests can be quite confusing too: a seller who engages an estate agent to find a buyer is under no legal duty to inform such estate agent should additional estate agents be appointed at a later stage. The first estate agent engaged by the seller may justifiably believe that to earn commission he needs to be an effective cause of the sale only; however, if, unbeknown to him, the seller subsequently appoints another estate agent, he (the first estate agent) will now have to be the effective cause of the sale if he wants to lay claim to any commission. But how will he know that? 2 2 Meaning of “the effective cause” South African Courts have used divergent terminology to define the expression “the effective cause”. In Mackie v Whyte & Turpin Ltd43 it was stated that an estate agent must show that “the purchaser was induced to buy as a result of the introduction”. In Eschini v Jones44 the question was whether the initial introduction by the estate agent was the causa causans of the ensuing sale agreement, whereas in Webranchek v LK Jacobs & Co Ltd45 it was asked whether or not the estate agent’s efforts “rendered the one ready for selling and the other right for buying at an agreed price”. In Barnard & Parry Ltd v Strydom46 it was pointed out that what had to be determined was whether the activities of the estate agent were “the decisive factor” of the transaction. In Aida Real Estate Ltd v Lipschitz47 the inquiry was whether the estate agent’s introduction of the purchaser remained “overridingly operative”;48 or put differently, whether the introduction was the “overriding factor inducing the sale”.49 In Basil Elk Estates v Curzon50 it was observed that the onus is on the estate agent to show that its activities “predominated as a causative factor”, and that where there are competitive causative factors the estate agent claiming commission must fail unless it can be firmly stated that its endeavours “override other factors of importance”.51 In Wakefield & Sons (Pty) Ltd v Anderson52 it was said that where one agent introduces the buyer to a property and a second agent successfully negotiates the transaction with the same buyer, what has to be determined from a commission point of view are whether the first agent’s introduction “still operated to influence the purchaser to buy” and what the “significance or importance [was] of the ________________________
43 44 45 46 47 48 49 50 51 52
1923 TPD 347. 1929 CPD 18. 1948 4 SA 671 (A). 1946 AD 931. 1971 3 SA 871 (W). 874A. 874H. 5I. Ibid. 1965 4 SA 453 (N) 456A.
426
2010 (73) THRHR
part played by the second agent, in a causal sense, in relation to the conclusion of the contract”. Whatever the terminology, the inquiry in every case is in essence always the same.53 The heart of the matter is that an estate agent will be regarded as the effective cause of a transaction if he can show that his efforts constituted the dominant wave that ultimately triggered the transaction contemplated by the mandate, notwithstanding other factors which also played a role such as the intervention of other estate agents, the persuasiveness of the seller personally or the financial arrangements put in place by a third party. It is not sufficient to merely establish that the estate agent’s efforts constituted a causa sine qua non, in other words that the event would not have taken place but for the agent’s intervention, for example because the parties would never have met.54 It is also not enough to show that the principal had benefited by the estate agent’s input. What has to be established is that the transaction in question occurred mainly through the instrumentality of the estate agent claiming commission.55 The chain of causation leading to a property transaction usually has many links, but unlike a normal chain the links are not equal in value or importance. What has to be identified in a commission matter is the most important link. This involves a two-fold enquiry, namely: (a) Firstly, all the factors and/or efforts must be identified which contributed towards bringing about the transaction in question. Those efforts or factors can then be said to have “caused” the transaction, without necessarily being the effective cause thereof. (b) Secondly, it must be determined which factor or effort, objectively viewed, played the most significant or crucial role in bringing about the transaction. That factor or effort would then constitute the effective cause of the transaction. The inquiry involves the application of common sense standards56 and is not a “metaphysical speculation in the result of cause and effect”.57 As Van den Heever JA stated in Webranchek v LK Jacobs & Co Ltd:58 ________________________
53 Gordon v Slotar 1973 3 SA 765 (A). 54 Webranchek v LK Jacobs & Co Ltd 679; Basil Elk Estates (Pty) Ltd v Curzon 1990 2 SA 1 (T) 5. Stated differently, it is not enough to prove that a particular factor was a link in a long chain of events leading to a sale and that without that link the chain would have been broken and no sale would have resulted. The same can be said of all the other links in the chain and what must be decided is which of these “links” constituted the effective cause of the sale. In Kemp v Santam Insurance Co Ltd 1975 2 SA 329 (C) the Court pointed out that “the concept of a causa sine qua non may lead into a philosophical maze of cause and effect which the lawyer will not find helpful”. In Wells v Shield Insurance Co Ltd 1975 2 SA 865 (C) it was pointed out (with reference to the liability of an insurer under the Motor Vehicle Insurance Act 29 of 1942) that an “uncontrolled application of the concept of the causa sine qua non could introduce a vast number of links in the chain of causation and thus bring about liability on the part of a registered insurer under circumstances never contemplated or intended by the Legislature”. The same considerations apply when it comes to determining whether or not an estate agent was the effective cause of a transaction: the causa sine qua non test cannot be conclusive because the efforts of a number of estate agents could constitute causae sine qua non without any of the agents being the effective cause: Basil Elk 5. See further the dictum in Webranchek quoted in the text below. 55 Murdoch The law of estate agency (2003) 116. 56 Webranchek 679; Aida 874B. 57 Aida 874B. 58 679.
ESTATE AGENTS’ COMMISSION: “EFFECTIVE CAUSE” EXPLAINED
427
“The dispute really turned upon the application of the law to the facts of this case. Both counsel agreed that if plaintiff had brought defendant and (the buyer) together and by his efforts rendered the one ready for selling and the other ripe for buying at an agreed price, he cannot be deprived of his commission merely because the actual deed of sale was executed under the aegis of a competitor. It was agreed therefore that ‘effective cause’ means something more than that which causes in a mechanical sense. If I may use a figure: counsel were at one that if plaintiff brought about a super-saturated solution and a stranger merely jarred it into crystallisation, defendant could not lawfully withhold the plaintiff's commission. That admission immediately brings into play moral causes and moral effects, and it is difficult, if not impossible, to track and define causation in such a transcendental field. Accordingly a Judge who has to try the issue must needs [sic] decide the matter by applying the [sic] common sense standards and not according to the notions in regard to the operation of causation which ‘might satisfy the metaphysician’ (Yorkshire Dale Steamship Co Ltd v Minister of War Transport (The Coxwold) [1942] 2 All ER 6 (HL) [1942] AC 691 (HL) at 706). The distinction between the concepts causa sine qua non and causa causans is not as crisp and clear as the frequent use of these phrases would suggest; they are relative concepts. Where a causa sine qua non emerges as the only known causative factor, one is easily persuaded that it was also the causa causans . . . It is only where a number of causes compete for recognition as the effective cause that the distinction has any meaning.”
As explained earlier, in proving that his efforts were the effective cause of a transaction it is not sufficient for an estate agent to merely show that his contributions were very important or played a significant role in bringing about the transaction. On the other hand, it need not be established that the estate agent’s input was the sole or exclusive cause of the transaction, or that the other contributing factors played an insignificant role. An estate agent can be the effective cause of a transaction even if the services rendered by other persons were of extreme importance. When determining whether or not an estate agent was the effective cause of a transaction all the facts must be evaluated together, each factor to be given its due weight. An estate agent will be the effective cause of a transaction if the cumulative effect of his efforts brought about the transaction, even though no single step, viewed in isolation, was the decisive factor. In the ultimate analysis the question whether an estate agent is the effective cause of a particular transaction depends entirely on the facts of each individual case. Two cases are never identical and although an estate agent might in one case have been the effective cause of a transaction, it does not necessarily follow that he is also the effective cause of another transaction concluded under similar circumstances. 3 THE VALUE OF THE PURCHASER’S EVIDENCE In deciding whether or not an estate agent was the effective cause of a sale every aspect of the case must be carefully considered, including the evidence of the seller and purchaser. However, the parties’ evidence is not decisive.59 Generally, much weight will be given to the purchaser’s evidence in this regard, but such evidence cannot always be given its full face value. As was stated in Barnard & Parry Ltd v Strydom:60 ________________________
59 Aida 874G. 60 1946 AD 931.
428
2010 (73) THRHR
“Where . . . the introduction by one agent has been followed by a sale directly arranged by another, the state of the purchaser’s mind during the stages leading up to the sale is very material and his own evidence thereon may be of great importance. But one must not overlook the fact that apart from his honesty or dishonesty he may not always be able to remember the factor or factors that really brought his mind to a decision. Cases may occur where the factor which seemed to him to be decisive appears to the Court to be so trivial and insignificant that his evidence even though accepted as honest cannot be given its full face value.”
The facts in Munitz v Steer’s Trust Co (Pty) Ltd61 provide a good example. J, an employee estate agent working for the defendant (Steer’s) had introduced B to a property on 1 August 1988. The seller wanted a net purchase price of R500 000, while B was prepared to pay a gross amount of R525 000 only. It followed that if commission at 5.5% of the purchase price (the tariff recommended by the Institute of Estate Agents at the time) was to be payable by the seller, the latter would have been left with a net amount of R496 125, that is, R3 875 less than she wanted. B did not submit a formal offer at the time of his introduction by J. Instead he later contacted another firm of estate agents (Homeseekers) who successfully negotiated the sale at R525 000, having agreed to cut their commission to R25 000. In the end, therefore, the seller received a net sum of R500 000. He refused to pay Steer’s any commission. It appeared that B could originally only afford a house up to a maximum of R450 000. After Homeseekers had showed him the property he again visited the house with his father, and the latter agreed to assist him financially in the form of a loan of approximately R100 000. Of particular importance was the fact that B had wanted to buy a house big enough to accommodate a snooker table. The house in question did not have a room suitable for this purpose, but according to Homeseekers they had indicated to B that there was a dry wall separating two rooms which could easily be knocked out so as to convert the two rooms into an area big enough to accommodate a snooker table. It was contended that Steer’s had done nothing to overcome the snooker room problem and was therefore not the effective cause of the sale. Much reliance was placed on a letter sent by B to Homeseekers stating that their efforts had “totally convinced” him to buy, which B underscored in his evidence at the trial. The court upheld Steer’s commission claim on the grounds that it was the effective cause of the transaction. It expressed itself as follows about B’s evidence at the hearing:62 “In the present matter there are distinct signs that Mr Bloomberg’s impressions of what induced him to buy were so tinged by subjective factors as to require caution in assessing their value. He placed great stress in his evidence on factors which, objectively viewed, were mere make-weights. I also have difficulty in accepting as accurate the statement in the letter which (B) signed that ‘it was at the time of returning to this house . . . that I was totally convinced by your agents that this house was meant for me’. It appears from his own evidence that what convinced him that the house was the house for him was his own measurements which showed that his snooker table could be accommodated in the house after all and his father’s approval and the accompanying financial assistance which put the house in his price range. I am not suggesting that Mr Bloomberg did not honestly believe ________________________
61 1993 2 SA 369 (C). 62 392I–393C.
ESTATE AGENTS’ COMMISSION: “EFFECTIVE CAUSE” EXPLAINED
429
what was in the letter he signed: what I am suggesting and am satisfied about is that Mr Bloomberg has so associated himself with the claim by Homeseekers CC that their efforts were the effective cause of the sale that his recollection cannot be relied on as a statement of objective truth.”
Estate agents often have a pre-printed clause in their standard sale agreement documents stating that the buyer warrants that the estate agent named in the sale agreement is the effective cause of the sale. It is submitted that in a commission dispute involving another estate agent a clause of this nature has evidential value only and does not constitute conclusive proof if the warranty or statement contained therein has been wrongly made.63 What has been said in Barnard & Parry Ltd v Strydom (quoted above) applies with equal force to such a clause. 4 CONTRACTING OUT OF EFFECTIVE CAUSE The requirement that an estate agent must be the effective cause of a transaction in order to earn commission can be excluded by agreement between the estate agent and the party liable for payment of the commission. Such an agreement is not readily assumed and must be set out in clear terms. As was stated in Rasmussen and Russo (Pty) Ltd v Gaviglio:64 “The form of words used (in the mandate agreement) in defining the agent’s right to commission contains no express reference to any causal connection between the agent's efforts and the sale itself. In this respect, it accords with all, or virtually all, other such agreements which the courts have had occasion to consider in the numerous reported decisions on the subject. Yet, in all such cases, the courts have invariably treated the agreement or the agent’s claim for commission as subject to the requirement of proof of causal connection ... It can hardly be said to have been the intention of the parties to such an agency agreement that the agent should be regarded as having earned his commission simply by locating an individual who, in the event, and quite independently of any further action by the agent at any time thereafter enters into and completes a contract of sale with the vendor . . . The agency agreement does not expressly provide that the contract of sale be entered into as a result of the efforts of the agent, or that it be brought about by his instrumentality, any more than it expressly provides that the agent must do more than merely locate a purchaser. But such requirement is, I consider as much implicit in one case as it is in the other.”
Whether or not the effective cause requirement is excluded by agreement, depends on the terms of the agreement. The following are some examples from case law:65 ________________________
63 See by way of analogy Ornelas v Andrew’s Café 1980 1 SA 378 (W) 387G–H. 64 [1982] Qd R 571 (quoted by Duncan Real estate agency law in Queensland (1990) 194). 65 For English law see Brian Cooper & Co v Fairview Estates (Investments) Ltd [1987] 1 EGLR 18. In that case the estate agents were instructed to market an office development on the understanding that commission would be payable “should you introduce a tenant . . . with whom we have not been in previous communication and who subsequently completes a lease”. The estate agency firm introduced a company which ultimately took a lease of the property, but only after its negotiations with the clients had ceased and been revived by another firm of estate agents. The first-mentioned estate agency firm was clearly not the effective cause of the lease, but the Court of Appeal held that, on the wording of the commission clause, they were not required to be. See too The County Homesearch Co (Thames & Chilterns) Ltd v Cowham [2008] EWCA Civ 26 where a buyer gave a buyer agency a mandate to find him a property. It was held that the commission clause in the buyer agency mandate excluded an implied term that the buyer agent had to be the effective cause of a sale to the buyer.
430
2010 (73) THRHR
(a) In Lombard v Katz Bros66 a furniture dealer knew of a prospective purchaser interested in purchasing the seller’s property. The seller and the furniture dealer agreed that commission would become payable to the latter should the house be sold. The agreement between them read as follows: “Somerset East 17/9/34. I, W Lombard, of this town agree to pay to Katz Bros of SE £50 commission for the sale of a house belonging to me where it is occupied by Mr Richards, Hope Street, the above amount to be paid if the sale of the house gets through. Should the house be sold for over £700 Katz Bros’ commission is £50. Should the house be sold for £700 or less Katz Bros’ commission will be £25. The prospect is Mr Vosloo, attorney at SE. W Lombard.”
The property was eventually sold to Vosloo but the seller refused to pay the furniture dealer commission. The court held that although the latter was not the effective cause of the eventual sale, commission was payable in terms of the agreement. (b) In Lieb NNO v I Kuper & Co67 a sole mandate provided that the seller “shall pay the agent commission . . . in the event of my selling the property myself or through any other agent during the fixed period or in the event of the sale of the property to any person introduced by you during this period”. The estate agent who held the sole mandate introduced a buyer (P) who eventually decided not to buy. After termination of the sole mandate P bought the property through another estate agent. The Court held that although the clause made no express mention of effective cause, the sole agent was not entitled to commission unless he could prove that he was the effective cause of the sale. This was not proved and the agent’s claim for commission thus failed. The tenor of the Court’s judgment is that the ordinary law of estate agency requires an estate agent’s efforts to be the effective cause of the ensuing sale; only then will the estate agent be entitled to commission. This may be excluded by agreement, but the sole mandate in question did not do so in clear terms.68 (c) In Hanz Huizeman (Pty) Ltd t/a De Huizemark v Audrey Trezise69 the estate agent’s sole mandate stipulated that the estate agent would be entitled to commission “on the sale of the property, at any time, to any person introduced (whether by De Huizemark or not) to the property or to the seller during the period of the sole mandate and including a sale to the spouse of, or a company controlled by, such person or a sale to any person at all as a result of any such introduction”.
The estate agent introduced a buyer to the property during the currency of the sole mandate. The buyer decided not to buy because the price was too high. After expiry of the sole mandate the buyer again viewed the property, this time with another estate agent and a sale was concluded through the ________________________
66 1935 EDL 460. 67 1982 3 SA 708 (T). 68 In DC Wylde & Co v Sparg 1977 2 SA75 (E) a commission clause was somewhat similarly worded and it was conceded that the estate agent was not the effective cause of the sale. The commission claim based on the clause failed on the grounds that the estate agent had not introduced the buyer. However, no question was raised as to whether the clause excluded the effective cause requirement. Clearly, if it had not been excluded the matter ought to have ended there in view of the concession that the estate agent was not the effective cause of the sale. 69 Unreported case no 19091/82 (W).
ESTATE AGENTS’ COMMISSION: “EFFECTIVE CAUSE” EXPLAINED
431
efforts of the latter agent. The court held that the commission clause in the sole mandate clearly gave the sole agent the right to claim commission whether or not he was the effective cause of the ultimate sale. In terms of the commission clause the sole agent’s entitlement to commission was dependent upon the timing of the introduction of the buyer, not whether such introduction was the effective cause of the sale. The sole agent thus succeeded in its claim for commission. In practice many sole agency documents used by estate agents provide that if, during a stipulated period after expiry of the sole agency, the seller sells his property (either personally or through another estate agent) to a person introduced by the sole agent during the currency of the mandate, the seller will pay commission to the sole agent whether or not the sole agent was the effective cause of such sale; if a sale is concluded to such a buyer after expiry of the stipulated period, the sole agent will be entitled to commission only if he can prove that he was the effective cause of such sale.70 The effective cause requirement is thus excluded in clear terms should a person introduced during the sole agency purchase the property within a certain period after expiry of the sole mandate. The underlying consideration is that a sole agent would normally be the effective cause of a sale when a person introduced to a property during a sole mandate period buys the property shortly after expiry of the mandate.71 To be continued
________________________
70 See eg the Estate Agency Affairs Board’s recommended sole agency document which contains the following clause: “The Seller will pay to the Estate Agent a commission based on . . . % of the purchase price at which the Property is sold by the Estate Agent during the mandate period, subject to the specific terms (if any) in this regard in the relevant agreement of sale. Such commission is also payable by the Seller if the Property is sold – within 30 (thirty) days after this agreement has come to an end, and the purchaser was during the mandate period introduced to the Seller or the Property, as a potential purchaser, by the Estate Agent or any third party; – after the expiry of a period of 30 (thirty) days after this agreement has come to an end, and the Estate Agent was the effective cause of such sale”. 71 The estate agents’ code of conduct imposes a number of specific duties on estate agents, particularly in relation to sole mandates. Every estate agent must protect the interests of his principal to the best of his ability (cl 2.2) and no estate agent may wilfully or negligently fail to perform any work or duties with such degree of care and skill as can reasonably be expected of an estate agent (cl 2.3). In addition, every estate agent must before accepting a sole mandate explain to the principal the specific obligations to be assumed by the estate agent in marketing the property during the sole mandate period (cl 3.10.2). In this respect a seller can expect a sole agent to render services not normally rendered by estate agents acting under an open mandate. Linked to the fact that sole agency documents used by estate agents in practice usually prohibit the seller from marketing the property himself during the sole agency period, the indications are that a sole agent would in all likelihood be the effective cause of a sale where a person introduced to a property by the sole agent buys the property shortly after expiry of the sole mandate.
