Agent's claim for commission considered by QCAT appeal tribunal

The recent Queensland Civil and Administrative Appeal Tribunal (Appeal Tribunal) decision of Limitless[1] v Smith [2022] QCATA 13 examines an agent's claim for commission after a buyer terminated a contract of sale following receipt of an unsatisfactory building inspection report.

Background

Limitless was engaged by Kevin and Joanne Smith (the sellers) in May 2019 to sell their residential property in North Mackay. Limitless located a buyer, and a contract of sale was signed. The buyer subsequently purported to terminate the contract, on the basis he was not satisfied with the building inspector's report. The sellers accepted the buyer's termination and his deposit was returned.

Limitless subsequently claimed commission for the sale of the property on the basis it was payable under its appointment to act. In June 2020, the Queensland Civil and Administrative Tribunal (QCAT) dismissed Limitless' claim for commission. Limitless subsequently sought leave to appeal that decision.

Leave was required to appeal QCAT's decision as it was a minor civil dispute.[2] Leave will only be granted where there is a reasonable argument that the decision was made in error, and an appeal is necessary to correct a substantial injustice caused by the error, or where the appeal raises a question of general importance upon which further argument and a decision of the Appeal Tribunal would be to the public advantage.[3]

The June 2020 QCAT Decision

QCAT stated that the case turned upon the terms of Limitless' appointment to act and that Limitless relied upon the proposition that commission was payable on the basis that the contract was terminated by mutual agreement between the sellers and the buyer.

QCAT noted that the buyer had purported to terminate the contract due to an unsatisfactory building inspection report, which discovered a leak in the roof and one in the bathroom. The costs to rectify the leaks were in the amount of $35,000. After the buyer received the building report, he informed Limitless, who conveyed the information to the sellers and suggested reducing the sale price.

The sellers were provided with a copy of the building inspection report and the quotes the buyer was relying upon. The buyer then terminated the contract and the sellers did not dispute the termination. The deposit was returned to the buyer.

In those circumstances, QCAT held that the contract had not been terminated by mutual agreement of the parties and therefore concluded that commission was not payable to Limitless. Limitless' claim was therefore dismissed.

Grounds of Appeal

Limitless' first ground of appeal was that QCAT's decision was made in error because it failed to properly consider the terms of the appointment to act and definitions in the contract of sale. Limitless asserted that one of the documents relied upon by the buyer was not a 'quote' as defined in the special conditions of the contract, but it was an estimate only. Limitless also asserted that the other quote was rejected by QCAT on the basis it included more work than was necessary to rectify what was properly identified as a structural defect. Limitless also claimed that the buyer had not acted reasonably in terminating the contract and asserted that the buyer was not entitled to terminate so that in substance the termination occurred by mutual agreement of the parties.

Submissions of the Parties

Limitless asserted that the buyer had relied upon two quotes to terminate the contract, one that was rejected because it included unnecessary work and one that was not a quote, but an estimate only, and both quotes were insufficient to validly terminate the contract. Limitless also submitted that QCAT had given too much weight to the evidence of the sellers which was unreliable and inconsistent with other material and that the sellers had released the buyer from his obligations under the contract, which entitled Limitless to its commission.

The sellers submitted that Limitless was unable to prove the buyer was not entitled to terminate the contract. The sellers asserted that in order to terminate the contract, the buyers needed to identify a single defect where the cost of rectifying the defect exceeded $5,000. They maintained that on the evidence provided, there were two defects identified, and each had a cost of rectification over $5,000. The sellers also submitted that the buyer's obligation under the contract was only to act honestly[4] and that the buyer had several reasons to be unsatisfied with the report and he was therefore entitled to terminate the contract. The response from the sellers' solicitors to the buyer's solicitors to the notice of termination was that the sellers accepted that the contract had been validly terminated, but that did not mean that it had been terminated by mutual agreement.

The Appeal Tribunal's Decision

The contract of sale provided in Clause 4.1 that the contract was 'conditional upon the Buyer obtaining a written Building Report from a Building Inspector ... on the property by the inspection date on terms satisfactory to the Buyer.' Clause 4.1 also provided 'The Buyer must give notice to the Seller that ... a satisfactory Inspector's report under Clause 4.1(1) has not been obtained by the Inspection Date in the Schedule and the Buyer terminates this Contract. The Buyer must act reasonably' or that the clause has been satisfied or waived by the buyer.

A special condition in the contract stated that the buyer's right to terminate the contract was restricted to the extent that a building inspection report may only be deemed to be unsatisfactory if there is a structural defect, which was defined as a single defect where the cost of rectifying such defect exceeds $5,000.

There was no requirement in the contract for the buyer to produce a quote, but it was expected that the buyer would be able to produce a quote or demonstrate other evidence to show that the right to terminate existed.

The Appeal Tribunal stated that before a buyer can terminate, there must be a report by a building inspector which identifies at least one defect, the defect is going to cost more than $5000 to rectify, and buyer must give a notice that exercises that right, and a copy of the report, within 7 days of the date of contract.[5]

The Appeal Tribunal noted that there is no obligation to produce a quote to the seller or any other evidence to show that the right to terminate exists. It therefore held that Limitless' submission about the distinction between a quote and an estimate was irrelevant, and that the important factor is how much the repairs would actually cost.

It then stated that in view of the material available to the buyer at the time that he terminated, it would have been difficult to show that he was not acting reasonably. Once the buyer purported to terminate the contract, it was open to the sellers to investigate the position, perhaps by getting quotes or by getting the defects rectified to see what they actually cost, in the meantime reserving all rights under the contract.

In this instance, the Appeal Tribunal noted that the sellers could have accepted the termination, disputed the validity of the termination, or chosen to investigate the matter further - after seeking legal advice, the sellers accepted first option and returned the deposit to the buyer.

The Appeal Tribunal therefore concluded that the fact that the sellers acquiesced to the buyer's termination of the contract did not mean that the termination was by 'mutual agreement.' It added that the notion that there was some obligation on the sellers, owed to Limitless, to resist the termination of the contact was the buyer was 'not attractive.' [6]

The Appeal Tribunal found that Limitless failed to prove that the decision of QCAT was doubtful enough to justify the grant of leave to appeal or that there was any other reason for leave to appeal to be granted. Accordingly, Limitless was unsuccessful in its claim for commission.

Conclusion

This decision serves as a timely reminder for agents to ensure that they carefully review the terms of their engagement, and the terms of the contract of sale, before purporting to claim commission where a contract of sale has been terminated. If an agent is in doubt as to their entitlement to commission on the sale of a property, they should seek legal advice.

[1] Limitless Property Qld Pty Ltd v Smith [2022] QCATA 13.

[2] Queensland Civil and Administrative Tribunal Act 2009 (Qld) s142(3)(a)(i)

[3] Crime and Corruption Commission v Lee [2019] QCATA 38 at [12]

[4] Citing Meehan v Jones (1982) 149 CLR 571

[5] Under clause 4.1(1), the buyer also has a right to terminate if, despite taking reasonable steps to do so, he or she has failed to obtain a written report from a building inspector before the inspection date. That issue did not arise in this instance.

[6] Limitless Property Qld Pty Ltd v Smith [2022] QCATA 13 at [18]