To Pay Or Not To Pay? That Is The Question [ 03 Dec 2007]

(Construction and Engineering )

The world of the commercial estate agent is a world which relies heavily on local land and off market knowledge which brings potential development sites to interested parties such as property developers. Where the estate agent has been the “effective cause” of a transaction involving the sale and purchase of land between landowner and developer the estate agent will be entitled to commission at an agreed rate. This general principle governing the entitlement to commission is set out in Bowstead & Reynolds on Agency (2006 Edition).

In determining whether an agent's work is an "effective cause", rather than simply a "cause", the question is whether the agent actually brought about the relationship between the buyer and seller. Bowstead confirms that no clear set of principles can be derived from the many cases on this subject and that the courts have not given a precise definition of "effective cause". The question as to whether an agent is the "effective cause" of sale will depend, therefore, on the facts of each case.
Pettigrew v George Wimpey UK Limited [2007] EWHC 2559 (QB) is one such case which looks at this issue. In this particular case, the High Court held that a house builder was not required to pay commission to a commercial property agent because the agent was not able to show it was the "effective cause" of the sale.

The facts

Pettigrew was a chartered surveyor and estate agent who specialised in introducing land to potential purchasers. 

In 1996, T, the regional land manager of Wimpey UK Limited, wrote to Pettigrew and other agents stating that Wimpey was looking for sites and that effective introductions would be recognised (the “Letter”). Pettigrew replied to the Letter on 3 May 1996, providing details of four sites, one of which was in Chichester, the site in question. Pettigrew explained in his letter that the site did not have planning permission though a site plan was available. He also stated in his letter that he would seek commission if the site was purchased.  T responded on 16 May 1996 and asked Pettigrew to register Wimpey's interest in the Site, which Pettigrew duly did by writing to the seller's solicitor.

T left Wimpey on 25 July 1997 and N assumed the position of regional land manager.  As part of the handover between T and N, T only mentioned the sites which were of interest and also, the live and current ones. The Chichester site was not deemed to be such a site as it was considered tenuous and long term.  T's remit during his employment at Wimpey had been to focus on short term projects not exceeding two years. T had kept his live files on his desk, reviewing them monthly. If nothing had happened after a few months, they were considered "dead". Importantly for this case, dead files were then disposed of if not resurrected within three years.

Following his appointment, N had written to Pettigrew informing him of his appointment and requesting information about various sites.  In April 1999, Pettigrew spoke with the seller's solicitor on the telephone and followed this up with a letter stating that his clients would be interested in the site once the planning matters had been dealt with. Pettigrew also wrote to N updating him and stating that matters were proceeding at a leisurely pace.  In 2000, N wrote to Pettigrew informing him that he was leaving Wimpey and that Pettigrew should liaise with N's colleagues, B and F, who were based in Hook. 

The seller appointed an agent, H, in 2000.  H wrote to a number of his contacts, one of whom was Mr Taylor, the land manager at Alfred McAlpine Homes, querying whether the site was of interest.  Mr Taylor's office was based in Chandlers Ford.   Mr Taylor informed H that the site was possibly of interest to McAlpines. This marked the beginning of a professional relationship between H and Mr Taylor.

McAlpines was taken over by Wimpey in November 2001. Mr Taylor remained the land manager but, following the corporate restructuring of Wimpey, the company for which he was now working, from the Chandlers Ford office, was George Wimpey Southern Counties.

H and Mr Taylor built a close professional relationship and spoke several times a week about various opportunities.  In April 2002, H wrote to Mr Taylor informing him of the site and about the planning application. 

In February 2003, Pettigrew wrote to B at the Hook office informing him that he had introduced the site in May 1996 and that matters were now progressing. Following the corporate restructuring, the company operating from the office in Hook was George Wimpey (West London). B replied that Pettigrew should contact Mr Taylor. Pettigrew wrote to Mr Taylor on 23 February 2003 but received no response.  He wrote to Mr Taylor again in February 2004. Pettigrew did not ring any bells with Mr Taylor who asked a colleague to look into the matter.

The seller subsequently decided to approach a number of potential purchasers inviting them to tender for the site and proposed to send the tender packs out to them.

On 12 May 2004, the seller's solicitor e-mailed H requesting that he send a tender pack to Pettigrew. The seller's solicitor explained that the surveyor was instructed by Wimpey and had been in touch in April 1999. This e-mail and the sending out of the tender documents occurred at more or less at the same time.

Wimpey were successful with their tender resulting in the exchange of contracts for the purchase of the site in August 2004.

Pettigrew claimed that he was entitled to commission on that purchase, stating that it was due to him under a contract made in 1996. The contract was contained in the Letter and in Wimpey's advertising.  Wimpey denied that the commission was payable as a result of the introduction made in 1996 by Pettigrew as it was not the effective cause of Wimpey's acquisition of the site. Wimpey argued that there were two entirely different businesses carried on at the offices at Hook and in Chandlers Ford and this was of great significance. As a result, there was no causal link between Pettigrew's introduction of the site to T and the purchase by Wimpey in 2004.

Pettigrew contended that all these assertions of change and serendipity were illusory. He stated that T organised the business of the office in Hook and handed it over to the office in Chandlers Ford. He argued that a key member of the team, W, was transferred to the office in Chandlers Ford and therefore knowledge was transferred, preserving the link with Pettigrew's introduction to the site in 1996.

The Decision

The High Court denied Pettigrew's claim and held that he was not entitled to commission.

The court held that it was for the surveyor to establish that his actions really brought about the relationship of buyer and seller.  There was force in Wimpey's submission that there was an implied term in the contract that the introduction should be an effective cause of the purchase before commission was payable to Pettigrew and the burden was on Pettigrew to show that his activities were an effective cause of the purchase. 

The court was satisfied that whatever correspondence there was from the surveyor, it did, on the balance of probabilities disappear from the Hook office within three years or so of it being sent. Any lead contained in the correspondence sent by Pettigrew was not considered to be a "live" lead and was forgotten about. Consequently no record of Pettigrew's introduction to the site in 1996 could have been transferred to the office in Chandlers Ford. There was no indication that W had any knowledge of Pettigrew's introduction to the site in 1996.

Consequently, there was no causal link between Pettigrew's introduction of the site to T and the purchase of it in 2004. Pettigrew's introduction to the site, effected in 1996, was "spent" by 1997, some seven years before contracts for the purchase of the site were exchanged.

The site was introduced by H in 2000 when Mr Taylor was working for McAlpines.

Comment

This case will be interesting to house builders and developers whose use of agents can span many years from the initial step of identifying sites of interest until their successful purchase resulting in the agent's commission becoming payable. House builders and developers use a variety of agents to help them source land deals. This case highlights the difficulties that agents could encounter in proving that they were the effective cause of a transaction and consequently, their entitlement to commission, in an industry where frequent changes in personnel and company restructuring is not unusual.