Background
Strathfield Partners Pty Ltd, a real estate agent, entered into an Agency Agreement with Anna Wakim on 16 May 2022 for the exclusive sale of her residential property in Concord, NSW. The agent introduced purchasers who contracted to buy the property for $3.92 million on 18 June 2022, entitling the agent to commission of $58,800. The contract contained Special Condition 54 (SC 54), which disclosed that unauthorised works had been carried out on the property. Under SC 54, the vendor warranted that she had applied to the local council for an unconditional building approval (BIC) for those works, and the purchasers were entitled to rescind the contract if no such approval was obtained before settlement.
The sale failed to complete by the original date of 18 December 2022. After the purchasers issued a Notice to Complete in March 2023 making time of the essence, the sale still did not proceed. On 6 April 2023, the purchasers exercised their right of rescission under SC 54 and the deposit was returned. Two factors contributed to non-completion: the vendor’s failure to obtain the council approval, and the existence of six caveats on title. The agent subsequently invoiced the vendor for $64,474.86 in commission, advertising disbursements, and related costs.
The Local Court Magistrate (Brender LCM) dismissed the bulk of the claim in September 2024, finding that the vendor had made bona fide efforts to obtain the council approval and had not been shown to have breached any obligation to use reasonable endeavours, and therefore had not “defaulted” within the meaning of the Agency Agreement. The agent appealed to the Supreme Court on questions of law, with the appeal ultimately focusing on the construction of clause 5.vi(b) of the Agency Agreement — specifically whether the vendor’s failure to secure the BIC constituted a “default” owing to which the sale did not complete.
The Court’s Holding
Elkaim AJ dismissed the summons and upheld the Local Court’s decision. Applying the contractual construction principles from Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, his Honour held that the only positive obligation SC 54 imposed on the vendor was to apply to the local council for approval — an obligation she had already fulfilled and diligently pursued. The vendor had not warranted that approval would be obtained, only that she had made the application. Accordingly, the non-issuance of the BIC by the council could not constitute a “default” by the vendor for the purposes of clause 5.vi(b) of the Agency Agreement.
On the causation limb of clause 5.vi(b) — requiring that the sale not be completed “owing to” the default — the court further held that the proximate cause of non-completion was the purchasers’ exercise of their contractual right to rescind under SC 54(c) once the settlement date passed without a BIC being issued. The word “failure” in SC 54(c) did not import a finding of fault on the vendor’s part, particularly given the uncontested finding that she had taken genuine steps to pursue the application. The absence of the BIC was attributable to the council’s non-issuance, not to any conduct of the vendor.
The court also rejected the agent’s broader submission that clause 5.vi(b) operated as an “all-purpose” entitlement to commission in any case of non-completion not attributable to the agent or purchaser. Such a reading would render the “default” requirement meaningless, effectively converting any failed sale into an automatic commission entitlement against the vendor.
Key Takeaways
- A vendor’s failure to obtain a third-party approval (such as council sign-off on unauthorised works) is not a contractual “default” under a standard agency commission clause if the contract only required the vendor to apply for that approval and pursue it in good faith — not to guarantee its grant.
- The “owing to” language in commission entitlement clauses requires genuine causation: where the proximate cause of non-completion is the purchaser’s exercise of a contractual right to rescind, that does not automatically translate into a vendor default triggering commission liability.
- Courts will not construe agency commission clauses so broadly as to treat any non-completion as automatic vendor default; the “default” requirement must be given independent content, assessed by reference to the vendor’s actual contractual obligations.
- The presence of the word “warrants” in a special condition does not necessarily impose a guarantee of outcome — the warranty must be read against its specific text to identify what conduct is actually required.
Why It Matters
This decision provides important guidance for real estate agents and vendors on the limits of commission entitlement clauses in agency agreements. It confirms that an agent cannot recover commission on a failed sale simply because the vendor was unable to satisfy a condition precedent to completion, unless the vendor actually breached a specific contractual obligation — not merely failed to achieve a contractually contemplated outcome. Agents should carefully review the language of special conditions when structuring agency agreements, as the difference between a best-endeavours obligation and a warranty of outcome can be outcome-determinative.
The case also reinforces the approach taken in Northwalker Realty Pty Ltd v TFM Chatswood Land Pty Ltd (No 2) [2022] NSWSC 1409, extending its reasoning to a different factual context involving unauthorised building works. Together, these decisions signal that NSW courts will scrutinise the specific obligations a contract places on a vendor before treating non-completion as a “default,” and will resist interpretations that effectively make vendors insurers of their agents’ commission regardless of fault.