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Property: Money for nothing

Every Issue

Cite as: (2008) 82(10) LIJ, p. 74

A decision allowing an agent to take a commission where no valid deposit had been paid warrants closer examination.

Victorian estate agents might be contemplating adopting the famous Dire Straits song “Money for Nothing” as their new anthem after the Court of Appeal’s decision in Icon Property P/L v Wood,1 handed down on 26 June 2008.

Wood engaged Icon to sell an apartment. A purchaser signed a contract and paid a deposit by a cheque, which was subsequently dishonoured. The vendor rescinded the contract and sued the purchaser for losses, but the purchaser was the typical “man of straw” and the vendor recovered nothing.

In the meantime the agent sold the property to a second purchaser and that transaction settled in due course.

When the agent accounted to the vendor, commission was deducted in respect of both the first (failed) sale and the second sale. The vendor issued proceedings in VCAT claiming a refund.

The vendor gave evidence that the agent had agreed prior to the second sale that only one commission would be charged; the vendor appears to have been quite convinced that that was the case, as an attempt by the vendor to “discuss” the question of commission with the agent resulted in an intervention order against the vendor. VCAT did not accept that evidence and found the agent was entitled to commission on the first sale. However, VCAT held that the agent did not hold an authority under s49 of the Estate Agents Act 1980 to charge commission on the second sale, and ordered a refund in respect of that commission.

Perhaps there was some justice in this result, as the vendor made the sale and the agent made a commission. But in the context of the first sale alone, the agent made the commission even though the vendor did not make the sale. While this was the outcome, perhaps it was not the decision.

Bowman J stated that “ultimately it was basically agreed between the parties” that the agent was entitled to the first commission, adding, “in my view, that approach is correct”.

However, there does not appear to have been any argument on the point, much less reference to authority.

Victorian estate agents have long been a protected species.

The general common law principle of agent’s entitlement to commission requires the sale to be completed before the agent is entitled to a commission, and this is the law in other states of Australia. But a long line of Victorian authority2 has established an agent’s entitlement to commission at an earlier point in time, generally referred to as “when a purchaser signs a document capable of becoming an enforceable contract” if that document is subsequently signed by the vendor.

This recognises that it is the agent’s function to find the purchaser and it is then for the vendor to complete the transaction.

On this basis an agent will be entitled to commission if the vendor “lets a purchaser out of a contract”3 or the contract falls over as a result of the action, or inaction, of the vendor – such as a defective vendor’s statement, resulting in the purchaser avoiding the contract. But this is not an absolute right and an agent will not be entitled to commission if the sale “goes off” because a special condition (such as a loan condition) is not satisfied.4

No Victorian case has considered an agent’s right to commission where effectively no deposit has been paid because the cheque bounced, but it has been considered in New Zealand,5 where it was decided that an agent who failed to collect the deposit (or accepted a dishonoured cheque for the deposit) was not entitled to commission.

This seems to be an eminently sensible result, as expecting a vendor to pay a commission when no deposit is paid seems ludicrous, and no less so if the deposit is constituted by a rubber cheque.

Agents’ authorities in the past included reference to a 10 per cent deposit.

The fact that that requirement seems to have “fallen off” the current authority does not reduce the implied expectation of a vendor that a purchaser will have shown an intention to be bound to the contract by paying the universally accepted deposit of 10 per cent.

In specific circumstances a vendor might agree to a lesser deposit, but the normal expectation, and an implied term of the retainer, would be payment of 10 per cent – and not by a rubber cheque!

The agent unsuccessfully appealed to the Court of Appeal, which confirmed the lack of authority in respect of the second commission.

As such, the issue of the first commission was not a subject of the appeal, although none of the judges seemed to have a problem with the first commission and Redlich JA in brief reasons accepted the agent’s entitlement to the first commission.

Virtually none of the authorities were discussed (other than in footnotes) and the case, despite first appearances, should not be regarded as authority that a rubber cheque will justify commission. The fat lady has not begun to sing the anthem.

RUSSELL COCKS is the author of 101 Conveyancing Answers.

1. [2008] VSCA 123.

2. Commencing with Scott v Willmore & Randall [1949] VLR 113.

3. Cannon Real Estate P/L v Hubble [2000] VSCA 116.

4. Trotter v McSpadden [1986] VR 329.

5. Akarana Real Estate Ltd v Angus (1993) ANZ ConvR 91.


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