Commission Disputes, What can you claim?

One of the interesting effects of our members setting their own charges is the impact it can have on claims at Arbitration. This can be compounded by negotiated Vendor commissions, in some cases for substantial amounts.

An interesting insight into the risk of taking a reduced commission was provided by the Decision of Judge J E MacDonald, (Dunedin, 26 July 1999, NP 274/99) in Brian Skerten & Associates (Plaintiff/Real Estate Agent) vs M B & J A Fraser (Defendant/Vendor).

This was a simple enough case where Skerten, the sole agent, affected a conditional sale of Fraser’s property for $228,000 in August 1997. The sale came to an end four months later due to the Purchasers inability to sell their own home.

In May 1998 Harcourt’s sold the Fraser’s home to the same Purchaser for $192,000 and in doing so provided a written indemnity stating that Fraser’s were “not liable for any further commissions or payments” to Skerten and that any claim by Skerten would be between Skerten and Harcourt’s.

(I am unaware as to whether this had been the subject of a commission dispute, as it appears it should have been under our Rules.)

Skerten were awarded their commission of $8,479.69 (+GST) from the Vendor. Presumably the Vendor then relied on the indemnity and claimed their loss (commission and costs?) from Harcourt’s. The real problem for Harcourt’s was that they had only charged $2,000 (+GST) so the potential loss was quite significant.

The danger for a Member taking a significantly reduced commission is that, if there is a commission dispute for any reason, the claiming agency can ask the full amount of their loss, irrespective of the amount charged by the defendant.

Even where the claimant only has a partial win, the amount can be based on the full amount of the claim. As a simple example, if a claim were for $10,000 and the award was 75%, the amount awarded would be $7,500. If the defendant had only charged $8,000 they would end up with only $500. The award for costs could make the situation worse.

The method of determining costs is, in the first instance, up to the disputing parties. As covered in earlier articles on Arbitration, if the parties can agree, they can select any method of allocation.

In the event that they don’t agree, the issue will be entirely at the discretion of the Arbitrator which is my preferred option, and I suspect the most common option. That way, if it is shown that there was anything untoward in the conduct of one of the parties, the costs can be charged to them in a appropriate manner. For example, many Arbitrators tend to inversely apportion the costs i.e. if the award was 80% - 20%, the costs could be awarded in reverse i.e. 20% - 80%.

Most disputes that I have arbitrated are not the result of dishonesty by the Members but where the parties have both done a good job and circumstances conspired against them. Sometimes (this is hard to believe) it is the questionable conduct of the Purchaser and/or the Vendor that causes the problem in which case the costs would normally be shared irrespective of the apportionment of the commission.

The easiest disputes to resolve are those where it is apparent, beyond doubt, that one of the parties has maliciously misbehaved. Then the award is simple; 100% of the commission and no costs to the innocent party. 100% of the costs and no commission to the other. In our profession I am delighted to say that these are rare occurrences.

Michael Pinkney FREINZ AAMINZ
National Councillor
First Published October 2003