Confusion about commission disputes

In this article I thought would address some common misunderstandings/questions that get referred to me

1     That introduction/effective agency/instrumentality (or whatever), creates an absolute entitlement to commission:

In fact entitlement to a commission is dependent in the first instance on the terms stated in the contract of agency (the “listing”). The above factors may create or impact on entitlement but only if they are properly covered in the listing form.

This is why I encourage Members to review their listing forms frequently. It never ceases to amaze me how many Members use a form that is years old and in some cases so poorly drafted that entitlement is not created even in simple and obvious situations.

In fact, the first time some Members ever consider the terms in their listing is when they are chasing a commission or are in trouble, either with the vendor or another Member. It is a bit late to then discover that there is no entitlement to commissions because the listing authority is defective.

One instance I am aware of involved a Member in a commission dispute claiming commission on the basis of their introduction of the purchaser. This claim went all the way to arbitration where it was pointed out that their listing, which had been in use for some years, did not specify introduction and their claim failed on this point. Needless to say a revised document was soon off to their printer.

Similarly, I am aware of Members who have claimed commission on the basis of instrumentality to discover that it was not stipulated in their listing authority.

Listing forms should be reviewed regularly because they create the contractual relationship and specify the basis of entitlement.

2 That the REINZ Rules are not tough enough or specific enough in addressing commission disputes

The REINZ Rules do not address the issues of commission disputes. They can’t and they shouldn’t. The Rules merely define them and the process for resolution.

Commission disputes are primarily addressed on matters of contract law, not Rules. It would be extremely foolish for REINZ to attempt to provide Rules that were in any way an attempt to redefine the law.

For those with long memories, this was partly the problem with Rule 21, which purported to take away Member’s legal rights. Yes, there was value in what Rule 21 was trying to achieve but in reality it could not survive while it was inherently flawed.

In fact contract law and law of agency regarding commission entitlement is very robust and, when used in conjunction with the Mediation or Arbitration processes, is also capable of fast results (compared to using the civil court systems).

REINZ Rule 15 prescribes the process for resolving Member to Member disputes. It stipulates that in the absence of agreement the Members shall use Mediation and/or Arbitration. The advantage being that we resolve our differences in private and not in the Courts where they would be open to public scrutiny and far more costly. The disadvantage is that, due to the confidentiality of the processes, we do not have precedents to learn from.

REINZ Rule 14.10 states that a member not holding an agency shall direct any enquiries they have to the sole agent. This is common sense and is intended to protect the vendor from being liable for two, or more, commissions. The implications and impact of this Rule have been addressed in some of my earlier articles, all of which are published under “Knowledge Base” on www.reinz.co.nz The main point being that this is a Rule only, not the law, but I would think that an arbitrator would take into account the conduct of a member who breached this or any REINZ Rule.

 

3 That REINZ conducts commission dispute Arbitrations and/or Mediations

Some Members get confused about this because REINZ Rule 15 stipulates the resolution process. In fact, once appointed, mediators and arbitrators act in a private capacity as per the agreement signed by the disputing Members.

Also, many salespersons contracts stipulate that in the event of a Member to salesperson dispute, the President or Chief Executive of REINZ shall nominate an arbitrator. Once that is done REINZ has no further part or jurisdiction in the process.

4 That there is no difference between an Arbitration and a Mediation

There is a huge difference.

In very simple terms, mediation is an endeavour to assist the parties to reach agreement, with the help of an independent person (the mediator) who would then write up the terms of any agreement. A mediator cannot make a decision as to who gets what whether or not there is agreement between the Members.

If the parties do not reach agreement in mediation then, in accordance with Rule 15, the matter would then be referred to arbitration, which is by virtue of the Arbitration Act 1996, a civil court procedure. Both parties present their cases, produce evidence and possibly witnesses, and the arbitrator makes a decision.

The Members can agree to avoid mediation and go straight to arbitration where they are guaranteed a decision.

What Mediation and Arbitration do have in common is that mediation agreements and arbitral awards are both enforceable with the full force of the law.

5 Arbitration is an informal process that people do not have to comply with if they don’t like it or the Arbitrator

As already stated, arbitrators decisions (arbitral awards) are very robust and enforceable under the provisions of the Arbitration Act 1996. The awards cannot be challenged or appealed on the facts. Basically the only grounds for appeal are serious legal error or bias by the arbitrator and appeals are heard in the High Court.

Usually the agreement to arbitrate is created by an earlier contractual arrangement (e.g. salespersons employment contract) or agreed to at the time of the dispute. Generally once the commitment is made the process proceeds through to completion and will not stop unless both parties agree. The process cannot be stopped by one party (usually the respondent) deciding they don’t like something about the process or the arbitrator. Once a dissenting party realises that the process will run to completion and the award will be binding, even if they don’t attend the hearing, they almost invariably do participate fully.

As always, I welcome your comments, questions and challenges to my articles and will endeavour to respond to them either directly or in the next article

Michael Pinkney FREINZ AAMINZ
National Councillor
First Published October 2008