Recovering commission payments: not as straightforward as it may appear...
“Estate agents’ commission often generates litigation, not least in cases of multiple agencies.”
These were the opening comments of Kay LJ in the recent Court of Appeal decision in Glentree Estates Limited v Holbeton Limited (2011), a case which serves as a useful reminder of the problems that estate agents may face in recovering commission.
The case concerned the sale of a property called Silverwood which was originally placed on the market by Holbeton Limited (“Holbeton”) through an estate agency called Glentree Estates Limited (“Glentree”) on a sole agency basis. Subsequently another agency called Hanover Residential Limited (“Hanover”) was also appointed and a multiple agency arrangement was agreed.
Silverwood was sold to a Mr Ibrahim in July 2009 and Glentree sought commission of £368,000 including VAT from Holbeton. Holbeton refused to pay having already paid commission to Hanover. Proceedings followed. In order to succeed Glentree had to prove that it was the, or an, effective cause of the eventual sale to Mr Ibrahim.
The facts were that Mr Ibrahim originally viewed Silverwood in March 2009 through Glentree. He made an offer for £10,000,000 but that was rejected. Mr Ibrahim did view other properties through Glentree but he was not interested in these other properties and he made no further offer or enquiries about Silverwood at that time.
At the beginning of June Mr Ibrahim was advised by an intermediary that Silverwood could be purchased for £12,000,000. Although this turned out to be false information as part of an attempted fraud, it appears to have renewed Mr Ibrahim’s interest in Silverwood. He revisited the property on 1 and 2 July but this time through Hanover. He then negotiated directly with Holbeton and agreed to purchase Silverwood for £10,000,000 cash plus another property he owned.
Glentree tried to argue that Mr Ibrahim had made a second offer in March and that his interest in Silverwood “continued unabated and indeed increased as he saw other properties and discountenanced them”. However, the judge comprehensively disbelieved one of their witnesses and decided that the evidence of two others needed to be approached with extreme caution.
The judge at first instance rejected Glentree’s claim for commission on the basis that between the rejection of his offer in March 2009 and his renewed interest in Silverwood in June, Mr Ibrahim had effectively lost interest in the property so the chain of causation was broken. He found that after showing Mr Ibrahim round the property and communicating his offer of £10,000,000 Glentree, “did exactly nothing in relation to encouraging Mr Ibrahim to purchase Silverwood and it performed no role in the achievement of the eventual sale”.
In legal terms the judge looked at whether, “the continuity between the original relation brought about by the agent and the ultimate transaction has not merely been dislocated or postponed but broken.” On the facts he decided that Glentree was not the, or an, effective cause of the eventual sale of Silverwood.
Glentree appealed to the Court of Appeal.
The Court of Appeal dismissed the appeal holding that the judge was entitled to draw the inferences that he had. However, Kay LJ did make an additional comment,
“the test of “the”, or “an”, effective cause continues to complicate cases about estate agents’ commission. The authorities are equivocal as to whether, in the absence of an express term, “an” effective cause may be sufficient… What courts have understandably been anxious to avoid wherever possible is the liability of a vendor with multiple agents having to pay more than one commission, although there is no legal presumption either way.”
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.