Consumer Information

Author : Maryna Botha – STBB
12 September 2016

SELLER TO DISCLOSE THAT PURCHASER’S AGENT RECEIVES SECRET COMMISSION ?
ATTORNEYS FIDELITY FUND BOARD OF CONTROL V INTIBANE MEDIATES AND OTHERS (56341/2010) [2016] ZAGPPHC 699 (26 JULY 2016)

The 25 pages of facts in this matter reads like a drama, telling the story of how a property purchaser was induced to pay an excessively increased purchase price due to collusion between the seller and the purchaser’s agent. When this became known to the purchaser, it could not claim against its agent due to the latter’s demise. Was there a claim against the seller? In other words, is the seller under a duty to inform the purchaser of a secret commission sharing agreement which inflates the purchase price?

SUMMARY OF JUDGMENT

FACTS
(The facts in this matter are long and stretches over 25 pages of the judgment. Only the bare essentials are reported here.)

In 2009, the Law Society of South Africa (LSSA) approached the Attorneys Fidelity Fund (AFF) with a request that the Board acquire new headquarters for the LSSA. The purpose was to procure one building that could accommodate all the divisions that were then spread over two buildings.

The LSSA was keen to acquire an erf and to construct a building at a business park approximate to the R21 Highway (R 21 site). It appointed Intibane Mediates (represented by Ramothibe) as consultants and developers for the R21 site.

Subsequently, due to the size of the initial site, the LSSA and AFF decided rather to purchase another building, owned by one Roome. Intibane was kept on as consultants on behalf of the AFF.

Ramothibe (of Intibane) and Daya, an executive on the LSSA board and a member of the subcommittee appointed to manage the property acquisition, were neighbours and it appeared that much of the internal discussions at the AFF and LSSA were made known to Ramothibe by Daya. Daya also promoted Ramothibe as a preferred service provider to the LSSA and AFF for the project and actively endorsed Roome’s properties for the inflated prices of R51 million, R40 million and lastly R37,5 million.

In turn, Ramothibe had concluded a mandate with Roome, a so-called Non-Disclosure and Agency Commission Agreement, in terms of which whatever amount Ramothibe could convince the AFF to pay for the property in excess of R32 million, Ramothibe could pocket as commission. Roome’s bottom-line price was R32 million. The property was eventually sold for R37,5 million, after much pressure on the AFF from the quarters of Daya and Ramothibe. It appeared further that Ramothibe and Daya had entered into a private commission sharing agreement.

The AFF had no knowledge of the existence of the additional mandate between Ramothibe and Roome. When this became known, after the sale agreement was signed and in the course of signing the transfer duty declarations, the AFF insisted that the transferring attorneys retain R5,5 million of the purchase price in trust, pending further Court action.

By this time, Intibane had been deregistered and Ramothibe had passed away. It was also common cause that Intibane did not have a Fidelity Fund Certificate. The AFF thereupon instituted action against Roome, arguing amongst other things that:

(i) Roome, as seller, had a legal duty to disclose the commission agreements with Intibane and that due to the delictual non-disclosure, the AFF suffered damages.
(ii) In the alternative, that Roome misrepresented to the AFF that its bottom line for the selling price of the property was R37,5 million whereas it was in fact R32 million. Due to the misrepresentation, the AFF suffered damages in the amount of the commission.
(iii) In the alternative, that lntibane’s misrepresentations to the AFF induced the AFF to act to its detriment as it would otherwise never have bought the properties for the amount of R37,5 million.

HELD:

• The facts established that during the negotiation process the AFF had no, nor could have had, any knowledge that Ramothibe would also earn an inordinate amount of secret commission. Ramothibe, as agent, had a duty to disclose this to the AFF.

• The question was whether Roome, as the seller, also had a legal duty to disclose this fact to the AFF.

• Roome was aware that Ramothibe and Daya collaborated to improperly persuade the AFF to pay a purchase price well in excess of the price that Roome was prepared to accept in order to secure the largest possible commission. In this knowledge, Roome represented to the AFF that he wanted R40 million and that his bottom line was R37,5 million. He did this while aware that the AFF was ignorant of the commission as part of the purchase price.

• Roome’s silence amounted to a wrongful misrepresentation and, as a seller, he had a greater duty to impart information within his exclusive knowledge. The commission fell within his exclusive knowledge and the buyer would be entitled to the frank disclosure thereof in accordance with the legal convictions of the community.

• In this regard it is accepted that the AFF was justified in relying on the conduct of Roome: it could reasonably have expected Roome to inform it that Ramothibe, their agent, was aspiring to secret commission that was inflating the purchase price. Roome would lose nothing; his real bottom price of R32 million would still be attained.

• Whilst it is true that in all sale agreements the seller might start with a sale price higher than the market value and will in most instances have a bottom line price, the agent’s commission is reflected in the agreement and the bottom line price is ultimately known to the purchaser. This reflection of commission is most definitely necessary where the agent of the purchaser is, unbeknown to the purchaser, also receiving a secret commission. Roome had a sufficient relationship of proximity to the AFF to reasonably contemplate that the AFF would not pay Ramothibe an exorbitant R5,5 million commission secretly agreed to by Roome as an inflated purchase price.

• The failure to disclose this constituted a fraudulent misrepresentation entitling the AFF to recover the damages while standing by the contract.

• The causality of damages lies therein that the AFF agreed to pay the R37,5 million because of Ramothibe’s initial glowing report of Roome’s property and the pressure placed on the AFF, especially by Daya, to acquire the property. It otherwise would not have made this offer.

• The Courts are reluctant to impose a legal duty for an omission (Roome’s failure to inform the AFF) due to the recognition of a laissez faire concept of liberty that recognises that individuals are entitled to ‘mind their own business’. But the present circumstances is such that a legal duty should be recognised: under these circumstances the legal convictions of the community would dictate that Roome did not have the right to ‘mind his own business’. Roome as the seller should have disclosed to the AFF as purchaser that he was striking a deal with Ramothibe who had a close relationship with the AFF. Roome’s omission was accordingly wrongful.

• A negligent misrepresentation gives rise to delictual liability if Roome breached his legal duty to act where he needed to act positively. Thus, where there is a duty to speak, Roome negligently made a misrepresentation to the AFF about the purchase price and commission. This related to a material fact intrinsically relevant to the sale agreement and which misrepresentation induced the contract.

CONCLUSION:
The action therefore succeeded and Roome was ordered to pay to the AFF R5,5 million.

The Judgment can be viewed here: