A Failure To Disclose Sees Estate Agents Ordered To Repay $3M Commission

August, 2015

In Cross Country Realty & Anor v Ubertas 350 William Street Pty Ltd [2015] VCC 2012, the County Court of Victoria ordered that estate agents, Cross Country Realty Victoria Pty Ltd and Park Trent Properties Group Pty Ltd (collectively, the Estate Agents) repay commission of $3,084,774.00, with interest, to developer Ubertas 350 William Street Pty Ltd (Developer).

The Background

The Estate Agents entered into two separate agreements with the Developer to sell apartments in its development, for 350 William Street, Melbourne.

The Estate Agents failed to provide a rebate statement in compliance with section 49A(4) to the Developer, in contravention of sections 49A and 50 of the Estate Agents Act 1980 Act (Act).

The Estate Agents procured sales on behalf of the Developer and were paid commissions totalling $3,084,774.00 (Commissions).

A dispute arose in relation to unpaid commissions of $186,455.47 and $49,355.20 which the Estate Agents claimed they were respectively owed by the Developer (Unpaid Commissions) and the Estate Agents commenced proceedings against the Developer to recover the Unpaid Commissions.

The Claims

The Developer sought summary judgment dismissing the Estate Agents’ claim (on that basis that no cause of action was disclosed) and judgment in its favour on a counterclaim that the Estate Agents had breached the Act by failing to comply with the mandatory disclosure requirements of the Act and, as a result, were not entitled to the Unpaid Commissions or to retain the Commissions.

The Developer relied on sections 49A and 50 of the Act to argue that as a result of those breaches, the Estate Agents had no entitlement to “obtain, seek to obtain, sue for, recover or retain” any commission in respect of the development. Relevantly, section 50 of the Act expressly provides that an estate agent cannot retain any commissions paid to it unless the estate agent has complied with, amongst other obligations, sections 49A(1) and (2).

The Estate Agents admitted the alleged breaches of sections 49A(1) and (4) and sections 50(1)(b) and (4) of the Act.

The Estate Agents raised the equitable defences of quantum meruit, estoppel, rectification and illegality. However, ultimately none of these defences were successful, and each was dismissed summarily by the Court.

The Judgment

In dismissing the Estate Agents’ claim, in obiter His Honour Judge Lacava referred to the earlier decision of Her Honour Justice Cameron of the Victorian Supreme Court in Oliver Hume (Australia) Pty Ltd v Land Source Australia Pty Ltd [2015] VSC 77, in which Her Honour held that the Act is intended to have a strict operation, and given the structure of the legislation, harsh consequences may follow from a failure to comply with its terms but that it is not for equity to nullify what Parliament has decreed in the legislation, or for parties to seek to recover or retain remuneration in clear circumvention of an Act of Parliament.

The approach adopted by the County Court in this case is a standard exercise in the interpretation of legislation, and strongly reiterates that where the words of a statute are clear and unambiguous, the Court will not look beyond the statute to determine its meaning or application and equitable defences will not succeed.

The County Court dismissed the Estate Agents’ claim largely because the breaches of the Act were admitted, and the Estate Agents could not bring forward any evidence to demonstrate that they would have any prospect of success at trial. It was ordered that the Estate Agents repay the Commissions plus interest of $252,190.84, to the Developer.

Lessons to be learned – Agents

Estate agents must strictly comply with their obligations under the Act and this decision confirms that non-compliance with the disclosure obligations may result in an estate agent being required to repay commissions paid to the agent and/or being unable to claim commission payments from a client.

In this instance the Estate Agents were required to repay the Commissions notwithstanding the fact that they had carried out the work, the Developer had had the benefit of that work and, had the Estate Agents complied with the Act, they would otherwise have been entitled to retain the Commissions and receive the Unpaid Commissions.

This decision confirms that a failure to comply with the Act could have significant consequences for Victorian estate agents and we recommend that estate agents immediately review their engagement and appointment agreements, and if necessary seek our advice, to ensure that they are compliant with the Act.

Advice for Vendors

Vendors should check all appointment agreements with any agents to confirm that these comply with the Act and to ensure that vendors are not paying commissions in circumstances where the agent is prohibited from claiming or retaining these under the Act.

Commissions paid to agents who have not complied with the Act may be recoverable and vendors should seek our advice if they have any queries about this.

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