Ostrocco Pty Ltd v Terry[2002] QDC 33

DISTRICT COURT OF QUEENSLAND

1. [1]
   This is an appeal from the decision of a magistrate who on 30 January 2001 dismissed the appellant’s claim against the respondents. The respondents on 19 September 1998 signed an appointment of the appellant to act as real estate agent for the sale of two house properties at Greenslopes^[1]; there was a separate identical agreement in respect of each property.  The agreement was for an exclusive agency for a period of two months, and pursuant to clause 4 “at the expiration of the agency period (if the subject property has not then been sold) the vendor hereby engages the agent to act as agent for the sale of the subject property unless otherwise advised in writing and agrees to pay the agent commission as aforesaid in the event of the subject property being sold by the agent.”  There was no subsequent advice in writing to terminate the non-exclusive agency which was created or continued by clause 4, and the subject property was sold^[2], and the principal issue before the magistrate, and on the appeal, was whether the property had been sold “by the agent”.

The authorities.

2. [2]
   In L.J. Hooker Ltd v W.J. Adams Estates Pty Ltd (1977) 138 CLR 52 Gibbs J said at p. 66:

“The right of an agent to receive commission from his principal rests on contract express or implied. ... The initial question – what, on the proper construction of the contract, is the event upon the happening of which the agent acquires a right to commission – is one which has led to difficulty and to a diversity of opinions in many cases.   But it is not the crucial question in the present case.  When the question of construction has been determined a second question may arise.  If, upon the true construction of the contract, the commission is only payable in the event that a particular transaction was brought about by the agent, e.g. upon the completion of a sale effected by his instrumentality, the question may arise whether the transaction which in fact occurred was brought about as a result of his agency.”

At p. 67 his Honour continued:

“It is therefore clear that the appellant [real estate agent] is not entitled to recover commission under the contract in the present case simply because it expended considerable time and energy in the interests of the respondent and found a person ready, willing and able to buy and indeed brought that person to the very brink of a sale.  The appellant must show that a sale was actually effected.  Of course, a sale was made and completed in the present case, but the appellant must also establish the necessary causal relationship between its actions and the sale, or in other words, that the sale was brought about through its agency.” 

In that case the agent failed to establish that that sale was brought about through its agency, in circumstances where the agent introduced one potential purchaser of the company but the owner also knew another purchaser not introduced by the agent, and ultimately sold to that purchaser, although after an agreement had been made between the two potential purchasers pursuant to which the land was subsequently transferred to a company formed by the purchaser located by the owner, but in which shares were issued in favour of the purchaser located by the agent. 

3. [3]
   That decision was applied by the Full Court of Queensland in Rasmussen & Russo Pty Ltd v Gaviglio [1982] Qd.R 571.   The owners of a property appointed a real estate agent who located a purchaser who entered into a contract subject to finance, but was unable to secure finance and the contract was rescinded.  Following the failure of this contract the agency was terminated.  The purchaser subsequently was told about a different real estate agent who might be able to secure finance, and with the assistance of that real estate agent a fresh contract was signed, and completed with the assistance of finance made available by a financier secured by the second agent.  The first agent then sued for commission but failed, and McPherson J at  p. 580 said, of the question whether the efforts of the agent were a cause of the sale :

“This is a question of fact involving a determination of the true causal relationship between the respondent agent’s efforts and the event (namely a sale to the purchaser which was completed) on which a right to commission arises.  ... The crucial factor in the transaction was the arranging of finance by or for the purchasers, in which, as matters turned out, the respondent agent played no part at all. ... The position would not doubt be different if the purchasers here had, through their own unaided efforts, procured the necessary finance ...”. 

4. [4]
   In Bradley v Adams [1989] 1 Qd.R 256 the appellant who was negotiating the purchase of certain land retained a real estate agent to find a purchaser for the land or a joint venture partner.  The respondent negotiated a contract which was subject to finance for the resale of the land, but finance did not become available before the contract was terminated.  Subsequently there was a contract signed between the original owners of the land and that party, and an arrangement was entered into between the appellant and that party under which the appellant obtained some units in a unit trust to the trustee of which the land was transferred.  The respondent claimed commission in respect of that transaction.  That claim was unsuccessful, on the ground that he was not an effective cause of that transaction. 

5. [5]
   Thomas J said at p. 263-4:

“The mere fact that the vendor and purchaser vary the terms or even the structure of an original contract that results from an agent’s introduction will not necessarily be fatal to the agent’s claim for commission.  ....  It is really a question of fact in each case whether the agent’s introduction (and where appropriate other activity) is the effective cause of the sale.  ...  When further negotiations ensue and a  different mechanism of sale results or a variation of terms other than the price ensue, it must be a factual exercise from case to case to decide whether the agent’s work was the effective cause. ... An agent’s work may be regarded as the effective cause for sale even when significant changes occur between the initial contemplated transaction and that which finally results.”

6. [6]
   That was said to be consistent with a number of other decisions where an agent failed to obtain commission in circumstances where the potential purchaser located by the agent originally had a financial difficulty which was only overcome through the assistance of some other party, or as a result of additional negotiations for which the agent was not regarded as responsible. There are examples of cases where the owner has negotiated a lower price with the potential purchaser originally introduced by the agent, where it has been held that the agent was entitled to commission: Rolland v Barraclough (1960) 78 WN (NSW) 964; Birtchell v Morris [1923] VLR 201.

7. [7]
   The statements in those authorities were confirmed by the High Court recently in Moneywood Pty Ltd v Salamon Nominees Pty Ltd (2001) 75 ALJR 408.  In that case Gummow J approved the statement by Jacobs J in LJ Hooker (supra) at p. 86:

“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.”

In Moneywood there was some consideration of the issue of whether the agent was the effective cause of the sale, but in circumstances where the owner was attempting to overturn concurrent findings of the trial judge and the Court of Appeal in favour of the agent the High Court had little difficulty in concluding that it was not appropriate to interfere.  That was a case where there was an original transaction procured by the agent which fell through because of a difficulty created by a local authority, and was replaced by a subsequent transaction in respect of part of the land (in conjunction with the sale of the other part to the local authority), thereby overcoming the difficulty in the way of the purchase.  The agent was held to be the effective cause of the sale of the smaller parcel notwithstanding that he had not been involved in overcoming the obstacle to the completion of the first contract.  

8. [8]
   One of the cases referred to by Thomas J in Bradley was Hooper v Bradbury [1957] QWN 39.  In that case there had been some negotiations between the owner and ultimate purchaser but he was not prepared to pay the price the owner wanted.  The owner then retained an agent to auction the property, which was unsuccessful, and subsequently that agent conveyed an offer from the ultimate purchaser to the owner, which was not accepted.  There were then some further negotiations face to face between the owner and the ultimate purchaser at which the agent was present, but they did not produce an agreement.  Ultimately however without further intervention from the agent they negotiated a sale.   An appeal against a judgment in favour of the agent in the Magistrates Court was allowed.  It was held that the agent had not introduced the purchaser to the owner, and had not induced any offer, and had not been an effective cause of the agreement which was ultimately made as a result of direct negotiations.   That case is interesting because the amount for which the vendor ultimately sold was the amount of the offer which was conveyed to the vendor by the agent, so that in that case it could have been said that but for the refusal at that time to accept that price the sale would then have been effected by that agent.  However, the court did not seem to regard even that offer as having been procured by the agent. 

The evidence

9. [9]
   The magistrate in the present case heard evidence from Mr Jones, the representative of the ultimate purchaser, and Mrs Terry, who was the respondent actively involved in the sale of the land. That evidence was accepted. A representative of the appellant gave evidence, but not the person who was actively involved in the negotiations, a Mr. Mullins; there was evidence that he had subsequently left the appellant and was no longer available as a witness. Accordingly the issue is whether, on the evidence of the representative of the purchaser (Mr Jones) and the female respondent, the agent was the effective cause of the sale which occurred.

10. [10]
    Mrs Terry said that her husband had had a head injury in February 1997. In August 1998 she received a letter from the appellant asking whether she would consider selling one of the two properties; Exhibit 2. At the time she was interested in seeing what the properties could be sold for, because of her concern about their financial position as a result of her husband’s head injury. So she rang the appellant and spoke to Mr Mullins, and told him they were interested in selling the two properties together: p. 31-2. A few days later Mr Mullins rang back and said he had a developer who wanted to look at the property and that he wanted the sole agency agreement signed first; she agreed to that, although she did not want any signs up or anything else done to disturb the tenants. She said that at that stage she did not want to negotiate, she just wanted a contract which she could either accept or reject: p. 32. After the appointment forms were signed there was a period during which nothing very much happened although Mr Mullins kept in touch, and provided various pieces of marketing information: p. 34.

11. [11]
    The purchaser was a developer specializing in town houses. It was necessary for the purposes of its business to buy property suitable for that form of development from time to time. Mr Jones was originally shown the property by Mr Kelly, a different real estate agent: p. 60. The property was tenanted, and Mr. Kelly was the managing agent of the property. According to Mr Jones, he was told about the property by Mr Kelly who said that he was hoping to list the property and suggested that he (Mr. Jones) do some work on it so that he could make an offer quickly when it was listed: p. 71. As a result Mr Jones did some preliminary work, such as a preliminary design to work out what could be built on the property, so as to determine how much he could pay: p. 70-1.

12. [12]
    After the property was listed with the appellant Mr Kelly rang Mr Jones and told him that that had occurred. Mr Jones suggested that he conjunct with the appellant but he was not willing to do this, and as a result Mr Jones rang Mr Mullins and dealt with him in offering to purchase the property: p. 72. Mrs Terry agreed that she was unaware of Mr Jones’s company before he contacted the appellant. Nevertheless, on Mr Jones’s evidence he found the land through Mr. Kelly, and as a result he found the appellant; this is not a case where the appellant found him as a potential purchaser. His interest in the land was not the product of anything done by the appellant. On this evidence the magistrate was entitled to find, as he did, that the appellant had not located the purchaser, but rather the purchaser had developed an interest in the property independent of the activity of the appellant, and had come to have dealings with the appellant only because the appellant was at that time the respondent’s agent with whom the property had been listed for sale.

13. [13]
    Subsequently Mr Mullins rang Mrs. Terry and told her of Mr Jones, and said that he was going to make an offer. She says she told him that the respondents wanted $450,000, and that if he could not get a decent offer not to worry about it: p. 37. He put a number of prices to her, and she repeated her request to get a decent offer and put it on paper. This led to Mr Jones making an offer in writing on the property through Mr Mullins, at $405,000 (Exhibit 3), which offer was not accepted. Mrs. Terry said there was further discussions about price, during which she repeated that she wanted $450,000. There was a subsequent offer made in writing by Mr Jones for $415,000; after it was submitted, the respondents showed it to their solicitor who prepared a set of draft special conditions. However, that offer was also not accepted.

14. [14]
    Mr. Jones subsequently withdrew that offer (by a letter from his solicitors: p. 42) and walked away from the negotiations: p. 63. He was not willing to make a further offer without a counter offer from the respondents “in case it went on for ever”: p. 67. He said that he would generally pay the asking price but in this instance there was no asking price: p. 68. He had the impression at the end of the negotiations with Mr Mullins that the respondents were not willing to sell the property at that stage. That was because he was told by Mr Mullins that they were waiting on some insurance payment: p. 69. Mr Mullins gave him the female respondent’s phone number and suggested he speak to her directly: p. 63. Mr Jones telephoned the female respondent in November before negotiations broke down completely: p.70.

15. [15]
    Mr Jones was away for some time, but in February 1999 further negotiations were initiated when he^[3] spoke on the telephone with Mrs. Terry, and also with Mr Kelly, who was at that stage trying to get a deal together: p. 64. In the first phone call Mrs Terry indicated that their price was $450,000, and Mr Jones did not agree to that price.  Subsequently Mrs Terry spoke to Mr Kelly, the other real estate agent, and as a result she decided to lower the price, which led to agreement being reached on $425,000: p. 56.   Mr Jones said that he paid some money to Mr Kelly after the settlement, and also used Mr Kelly when he sold some of the townhouses: p. 65. 

16. [16]
    Mr. Jones said that he was trying to get the respondents to make a counter offer, and he did not get that until early 1999 (when he was dealing with Mr Kelly) at which stage he received a counter offer of $425,000 from them, and he agreed to that price: p. 66. From the evidence of Mr Jones, the reason why the property was not sold in 1998 was that the respondents would not come back to him with a signed contract at a price they would accept. It is not clear from the evidence whether this was because the respondents were not prepared to sign a counter offer at any price at that stage, or whether Mr Mullins decided that their price was too high and did not even attempt to get a signed counter offer at that price

17. [17]
    Mrs. Terry when explaining why negotiations were broken off made two separate points (p. 41): the first was that she was concerned about whether there would still be a claim on the insurance policy in respect of payments to be made under the mortgage on the property if the property were sold, and the second was that she did not believe the negotiations were getting anywhere because the purchaser was nowhere near her price and Mr Mullins had said that $415,000 was Mr Jones’s highest offer. She said that she understood that it was normal for negotiations to proceed by crossing out the price inserted by the buyer in the contract and writing in the price that the vendor wanted, but “I couldn’t see the point in that we weren’t getting anywhere” (p.41). That I find difficult to understand: the reason why the negotiations were not going anywhere was that she did not take that step. According to her the price she wanted was $450,000 but she did not explain why she did not cross out the price in the offer and write in $450,000, and sign that, unless it was because of concern about the insurance policy. However, later under cross examination Mrs Terry agreed that it was the issue of price which prevented the deal from going ahead earlier than it actually did: p. 53-4. She agreed that she raised the issue of the insurance claim essentially as a means of putting off Mr Mullins: p. 55.

18. [18]
    At one point Mrs Terry said that after negotiations with Mr Jones had broken off in 1998 she asked Mr Mullins whether it was necessary for her to write to say that she was not selling the property any more, and she was told by him that that was not necessary because the sole agency had expired: p. 43. Mrs Terry said she was unhappy with Mr Mullins because he would not get more money for her, even as much money as she was able to obtain herself in further negotiations: p. 44.

Conclusions as to the facts

19. [19]
    This evidence which was accepted by the magistrate would lead to the following conclusions:

• The appellant did not locate Mr Jones as a potential purchaser, rather Mr Jones identified the land as suitable for his purposes, and he contacted the appellant after he had been told by Mr Kelly that the property had been listed with the appellant.
• The appellant communicated offers from Mr Jones to the respondent but they were not accepted. 

20. [20]
    The negotiations conducted through the appellant were unsuccessful, essentially because Mr Mullins was unable to persuade the respondents to make a written counter offer nominating a particular price, and was unable to persuade Mr Jones to make a written offer at a price which the respondents found attractive. Mr Mullins was unable to persuade the respondents to lower their price, and unable to persuade Mr Jones to raise his price sufficiently for a sale to occur. Ultimately those negotiations were broken off because the respondents reacted adversely to what they saw as pressure from the plaintiff’s employee which they interpreted as being more directed to obtaining a sale than to obtaining what the respondents wanted. Subsequently and independently of the involvement of Mr Mullins, the respondents were persuaded by another agent to lower their price, and as a result of this a sale occurred.

21. [21]
    I consider that the excuse that the insurance claim was pending, as was said during cross examination, was really something which was said to get rid of Mr Mullins, because the respondents did not want to be pestered by him further. That suggests that Mr Mullins’s efforts were not at that time constructive: he was not assisting in the process of negotiations, but was rather a barrier to negotiations. Once he went out of the picture and the vendors got over their reaction to him, they were able to enter into fruitful negotiations. They developed some price flexibility as a consequence of the efforts of another agent; that agent achieved what Mr Mullins had not been able to achieve, inducing such flexibility on the part of the respondents.

22. [22]
    In these circumstances, the appellant has not shown any more than did the unsuccessful agent in Hooper v Bradbury (supra).  In these circumstances, in my opinion the magistrate was entitled to conclude that the efforts of the appellant were not an effective cause of the sale of the property.  Indeed, one interpretation of the evidence open was that the actions of Mr Mullins were only ever an obstacle to the sale coming to fruition.  Had it not been for him, the parties may well have got together in late 1998 and negotiated the contract then, either directly or with the assistance of Mr Kelly.  But whether the real obstacle to the sale in 1998 was Mr Mullins’s inability to bring the parties to an agreement on price, or whether it was the respondents’ unwillingness to reduce the price, which obstacle was overcome ultimately by the other agent, on this evidence it was open to the magistrate to conclude that the appellant was not the effective cause of the sale.  Indeed, on the basis of the transcript as I have analyzed it, that seems to me to have been the correct conclusion from the evidence accepted by the magistrate.

23. [23]
    The case may well be a marginal one, being not far from a factual situation where the agent could have been seen as an effective cause of the sale, but the issue is one of fact and I am not persuaded that the magistrate was wrong in arriving at the conclusion he reached.

24. [24]
    The appeal is therefore dismissed with costs.