Agent's commission examined by Supreme Court

The recent New South Wales Supreme Court decision of Savills (NSW) Pty Ltd v ATF CTH Pty Ltd [2020] NSWSC 956 examines an agent's claim for commission in circumstances where there was no valid agency agreement in place and it was alleged that seller had engaged in unconscionable conduct.

Background

In 2014, ATF CTH Pty Ltd (ATF), a property developer, purchased a vacant block of land in Surry Hills, New South Wales (property), with the aim to develop the property into a single tower with hotel, residential, and retail components. ATF established Andev Pty Ltd (Andev) to manage the development of the property on behalf of ATF. The Hotels division of Savills (NSW) Pty Ltd (Savills) was engaged by Andev in April 2016 to provide design services in relation to the development of the hotel.

As well as being engaged for its design services, Savills aimed to be appointed as the agent for the sale of the hotel. In May 2016, Savills sent a formal proposal to Andev in relation to the disposition of the hotel component of the development only. Savills proposed a sole exclusive mandate, with commission of 1.25% of the gross sale price plus 5% of any amount over $68.2 million.

Did Savills and ATF have a validly executed sales agreement?

On 31 May 2016, a representative of Savills met with an Andev representative to discuss its proposed sales strategy and appointment as sales agent of the hotel component of the development (hotel). In the meeting, Andev advised Savills that any sales agency agreement would need to be entered into by ATF as the owner of the property. The following day, Savills sent a draft agency agreement to Andev, however, Andev was incorrectly named as the principal of the agency agreement.

Andev responded with various minor changes to the contract, including having ATF inserted as principal of the agency agreement, and requested that a 'carve out' for the commission be inserted in the event that a buyer was introduced by ATF itself. Savills responded with a finalised version of the agency agreement (without the carve out) and requested that ATF advise once it had been appropriately executed.

Savills maintained that it signed the agreement (albeit without witnessing it) and delivered it to ATF's offices for its execution. However, there was no documentary evidence (from either party) to demonstrate that the agreement was ever signed by Savills or ATF.

Savills alleged that it followed up several times with ATF for the signed agreement. However, the Court did not accept this evidence and stated that it was unlikely that Savills ever expected that the agreement would be signed, given that it did not include the carve out as requested by ATF. Regardless, Savills commenced preparation for the marketing of the sale of the hotel, and even attended an international roadshow in July 2016 in Singapore to promote the hotel.

In or around August 2016, Savills introduced a prospective purchaser, Aligned FM Pty Ltd (Aligned) to Andev. Aligned put forward an offer of $70.6 million to purchase the hotel. The directors of ATF informed Savills that they were happy with the amount offered by Align. Savills continued to negotiate the terms of the contract between ATF and Aligned and, in December 2016, Savills informed Aligned that the director of ATF was flying to Australia and would be signing the contract shortly.

After discussions between ATF and Andev, it was decided that the development costs were going to be significantly higher than anticipated. The directors of ATF eventually decided that the development was not feasible, and they would sell the property as a development site instead.

In February 2017, ATF engaged Knight Frank and Massari Corporation Pty Ltd (Massari) to sell the property. On 28 February 2017, Andev emailed Aligned to confirm the sale of the hotel to Aligned would not proceed. In July 2017, ATF entered into a contract of sale with WR Sydney Pty Ltd for $70.5 million. The sale settled on 17 January 2018. Massari was named as the sales agent, with Knight Frank as the co-agent.

Was Savills entitled to commission for the sale of the property?

Savills sent ATF an invoice for advisory services and agent's commission that it alleged was owing under the agency agreement. The invoice stated that the commission amounted to $797,000. The fees and disbursements, and design fees, were paid by ATF.

Savills issued proceedings against ATF in the NSW Supreme Court seeking its commission on the sale or, in the alternative, damages for unconscionable conduct on ATF's part for encouraging it to do work on the basis of an assumption that it was ATF's exclusive agent for the sale of the property.

At trial, Savills was unable to produce an agency agreement signed by representatives of either Savills or ATF. From the evidence provided, the Court did not accept that those documents were ever signed. The Court considered several evidentiary matters, including the credibility of the witnesses, and the possibility that ATF and Andev had purposely allowed their email systems to lapse in order to avoid being compelled to disclose documents. However, the Court ultimately concluded that the evidence and numerous documents provided by Savills (which notably did not include an even partially signed agency agreement) was enough to establish that the agency agreement was never signed.

The Court found that the most accurate description of the relationship between Savills and ATF was that both parties were aware that there was no signed agency agreement, and that Savills proceeded to market the hotel on the mutual understanding that it would be paid commission in the event it introduced the buyer to the hotel and secured a finalised contract.

The Court considered section 55 of the Property and Stock Agents Act 2002 (NSW). The equivalent in Queensland is section 89 of the Property Occupations Act 2014, which states that:

"(1) A person is not entitled to sue for, recover or keep a reward or expense for the performance of an activity as a property agent or resident letting agent unless, at the time the activity was performed, the person-

...

(c) was properly appointed under part 4 by the person to be charged with the reward or expense."

In circumstances where Savills was unable to demonstrate that there was a written agency agreement, the Court concluded that its claim for the commission for the sale of the hotel failed. The Court also concluded that regardless of whether there was a signed agency agreement, Savills would not be entitled to commission for the sale achieved by Knight Frank and Massari.

Claim for damages for unconscionable conduct

Savills made an alternative claim for damages under section 236 of the Australian Consumer Law (ACL) for statutory unconscionability contrary to section 21 of the ACL in the amount of $297,000, based upon the time Savills spent undertaking a 'detailed review' of materials for the sale of the hotel.

Savills claimed that ATF behaved unconscionably by encouraging it to spend time and effort on the negotiations with Aligned to sell the hotel, and then choosing to sell the property through a different agent, thereby depriving it of the commission it would otherwise have been entitled to and incurring expenses it would not otherwise be compensated for.

In order to establish statutory unconscionability, Savills was required to prove some moral fault or moral responsibility or that ATF's conduct amounted to serious misconduct which is plainly unfair and unreasonable.[1]

The Court found that the reason ATF decided not to develop the site and sell the hotel component was the estimated construction costs had made the development unfeasible. The Court noted that it is always open to an owner to decide not to proceed with a sale, and it was not unconscionable for ATF to decide not to pursue the development and sell the property as a development site instead. Further, since the Hotels division of Savills had no particular expertise in selling land, it was not unconscionable for ATF to engage Knight Frank and Massari as joint agents to sell the property.

The Court concluded that it was not satisfied that ATF's conduct was unconscionable within the meaning of section 21 of the ACL. The Court also found that Savills was unable to establish that it had sustained any loss as a result of ATF's actions and its claim for damages was therefore dismissed.

Conclusion

Ultimately, Savills was unsuccessful in its claim for commission. It was unable to prove that an executed sales agency agreement had been entered into, which meant that it was not entitled to any commission. Savills also failed in its claim for damages for unconscionable conduct by ATF as the Court found that ATF was entitled to withdraw the hotel for sale.

This decision serves as a timely reminder for agents to ensure that they obtain an executed sales agency agreement before taking any steps to sell a property, otherwise they will not be entitled to claim commission for any eventual sale.

[1] Qantas Airways Limited v Cameron (1996) 66 FCR 246.

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