Edmiston v Heesen – “ELECTRA”– Brokerage Commission Disputes and the Effective Cause Test

Introduction

On 03 August 2020, the Dutch Court of East Brabant handed down an interim judgment in a legal case brought by Edmiston & Company Limited (Edmiston) against Heesen Yachts Sales B.V. (Heesen) in relation to the sale of the 50 metre hybrid aluminium Motor Yacht ELECTRA. The Judgment was published on 04 August 2020 by the Dutch Judiciary placing the information in relation to the dispute within the public domain.

So, what is happening, what relevance is this dispute to the superyacht industry and, given that the matter is being decided in the Dutch courts, what is the relevance of English law to this dispute?

The Reported Facts

According to the published case report, the dispute involves a claim for brokerage commission brought by Edmiston against Heesen in relation to the sale of motor yacht ELECTRA by Heesen to a Swedish entrepreneur. Edmiston allege that they are entitled to commission on the sale of ELECTRA because they say that they were the “effective cause” of the conclusion of the sale agreement between Heesen and the buyer of the yacht.

The “effective cause” test will be familiar to those doing business in the superyacht industry, particularly after Berezovsky v Edmiston in 2010 (appealed in 2011) and Moran v Pisarev in 2014 (appealed in 2017). Indeed, long before the term became widely applied in the superyacht industry, the English courts used this test (or similar formulations of it) to determine when an agent is entitled to be paid commission for his/her services – in fact, some of the reported cases date back to 1903[1] and earlier[2].

The facts in Edmiston v Heesen are reported to be as follows:

1. In September 2019, one of Edmiston’s yacht brokers came into contact with a successful Swedish businessman at the Yacht Club in Monaco. During their discussions he mentioned to the broker that he was looking for a yacht and the broker discussed with him his budget and other considerations.
2. In October 2019, the broker and the potential buyer were in phone and WhatsApp contact about various yachts and during one of those exchanges the broker provided the potential buyer with a link to the specification for the Heesen superyacht ELECTRA and another yacht Heesen had for sale called NASEEM. ELECTRA was a speculative build by Heesen (built without a buyer having been found in advance).
3. Various messaged passed back and forth between the broker and the potential buyer in October and on 06 November 2019 the broker contacted the sales director of Heesen to inform him about the potential buyer. Information was then sent to the broker on ELECTRA by Heesen which was shared with the potential buyer.
4. On 21 January 2020, the buyer emailed Heesen directly making the following request of Heesen:
   Please keep our visit confidential I am chased by… Edmiston…every day now since Hayken … fell through. We just want to get ourselves accustomed to the Heesen product without pressure. I hope you understand! Looking forward to meet next week!
5. On 23 January 2020, the broker sent a message to the potential buyer saying:
   ‘My colleague is at Heesen today. He has sent me photos / videos of: - 5000 hybrid ELECTRA (delivery March 2020) - 4700 displacement TRITON (not sold / delivery March 2020) - 5000 aluminium AQUAMARINE (delivery March 2021) Would you like to forward it to you?’
6. The potential buyer responded the same day saying 'Sure!” and thereafter the broker forwarded the information on Electra to him.
7. At the end of January 2020, the potential buyer visited the Heesen shipyard in the Netherlands with his wife - without the broker
8. On 31 January 2020, the potential buyer sent an e-mail to Heesen (with copy to the sales director and to his wife) saying:
   “We have been thinking hard since we left the yard on Wednesday and here are our thoughts:
   (…) My wife has fallen in love with Electra (…) so what is your lowest price for it if:
   We close as soon as possible. (February)
   No owners supply
   No brokers fee”
9. On 10 February 2020, the broker sent an e-mail to the potential buyer about another Heesen Yacht - Project Triton. The potential buyer responded saying:
   ‘I paid them a visit when I was in Holland and unfortunately Triton has a really ugly interior so it was a no go for us.’
   To which the broker responded:
   'What about ELECTRA or the 5000 Aluminium for delivery 2021?’
   And the potential buyer replied:
   “We’ll see! I don’t like the exterior of Electra with that ice breaker bow but [my wife] loves it. I am focusing on a new investment project now since the Yachting community don’t want me…”
10. On the same day, the broker messaged Heesen’s sale director via What'sApp to say that the potential buyer was not interested in Triton but possibly Electra because his wife was impressed with Electra.
11. The Heesen sales director contacted the broker by telephone. The parties have a different view of what was discussed during this conversation. However, as a result of the telephone conversation, the broker sent an e-mail message (on 10 February 2020) to Heesen’s sales director saying as follows:
    “Thanks for reaching out to update me about the visit of Mr and Mrs xxx to the shipyard. As you know I have been encouraging Mr. and Ms xxx to own an Heesen yacht, either new or second hand, for months.
    (…)
    (…)
    I understand from xxx that TRITON is not to their liking while ELECTRA could be the one. (…) As discussed earlier on the phone, I would be grateful that you confirm to have included the standard brokerage commission that would be due to Edmiston in the prices that you have quoted to [them].”
12. On 11 February 2020, the broker messaged the potential buyer explaining that he was back in Monaco and inviting him for coffee. The potential buyer replied explaining that he was busy, had given up on finding a yacht and that he has decided to use Amare for another season.
13. The broker informed the Heesen Sales Director via What'sApp that the potential buyer was no longer interested in the purchase of a yacht.
14. The sales director replied in relation to the broker’s email of 10 February (with regard to commission) saying: “I am afraid the position is far from clear. As you know four brokers have introduced the [potential buyer] to us. However, it is now becoming clear that one of the brokers is taking a lead in the discussions we are having with them, we understand he is a personal friend of the [potential buyer] and is their chosen representative. (…) Therefore for these reasons I am afraid we do not agree with your last paragraph that we should ‘include the standard brokerage commission’ for Edmiston and I would be grateful if you could reply withdrawing your request and confirm that Edmiston are not expecting a commission from Heesen in this case.”
15. On 12 February 2020, the broker and the potential buyer had a telephone call in which the potential buyer indicated that he would not be looking for a new yacht this year and that there was a very small chance that he would make an offer for Electra, but that if he did, it would not be through Edmiston, but would be run through a friend of [the potential buyer], who had offered to help without charge.
16. After this telephone conversation, until a meeting in the Yacht Club Monaco, there was no more contact between the broker and the potential buyer.
17. An agreement for the purchase of Electra was concluded between the potential buyer and Heesen on or about 25 February 2020 for an agreed price of €29,300,000
18. On or about 04 March 2020, lawyers for Edmiston wrote to Heesen requesting the payment of commission on the sale asserting that Edmiston were the “effective cause” of the sale of Electra. On 10 March 2020, lawyers for Heesen replied stating that Edmiston was not the “effective cause”, that several brokers had been in contact with the potential buyer and that buyer had been introduced to Heesen by other brokers, not by Edmiston.

The Dispute and Judgment

The hearing to which the 03 August 2020 judgment relates was not a hearing in relation to the substantive claim for commission brought by Edmiston, rather it was a hearing in relation to the provision of documents sought by Edmiston from Heesen relating to the sale of the yacht which Edmiston was not privy to – as English lawyers, we would call this hearing an interlocutory procedural hearing. In this regard, the judgment is somewhat uneventful (and perhaps unsurprising), in that the substantive case is still to be decided. Nonetheless, the decision of the judge was to order Heesen to provide various documents to Edmiston to allow Edmiston to advance its substantive claim that it was the ‘effective cause’ of the sale.

Relevance of the Dispute

In certain respects, the Dutch judgment aligns with an already well established line of English case law because it recognises that in order for a broker, who does not have a contract appointing them as the sales agent of the yacht, to be entitled to brokerage commission on the sale of the yacht (whether that be a sale by a shipyard or by an owner) the broker will need to be able to establish that it was the “effective cause” of the sale.

So, what then is the “effective cause” test? As mentioned above, the English courts have dealt with this question on numerous occasions. The judgment in Berezovsky v Edmiston makes it clear that there is no authoritative definition of the term “effective cause” (presumably to reflect the fact that commission disputes are likely to be fact sensitive), but that judgment together with the judgments in Moran v Pisarev and Allan v Leo Lines as well as the summary offered in Chitty on Contracts Vol 2 (31st Ed) and Bowstead on Agency (15th Ed) offer some clear guideposts as to what an English court would be looking for in order to make a finding that a broker was an “effective cause” of the sale. In no particular order:

1. “ "Effective cause" means more than simply "cause". The inquiry is whether the actions of the agent really brought about the relation of buyer and seller and it is seldom conclusive that there were other events which could each be described as a cause of the ensuing sale.” – Jacobs J in LJ Hooker Limited v WJ Adams Estates Pty Ltd (1977) 138 CLR 52 at 86 restated by Mr Justice Field in Berezovsky at 38

2. “Subject to clear indications to the contrary, where the agency contract provides that the agent earns his remuneration upon bringing about a certain transaction, he is not entitled to such remuneration unless he is the effective cause of the transaction being brought about. On this point there is a substantial body of case law, resulting from the use of words such as "find" or "introduce" a purchaser. Thus in Millar v Radford the plaintiff was retained by the defendant to find a purchaser of the defendant's property or, if that was not possible, a tenant. A tenant was found and the plaintiff was paid his commission. Over a year later the tenant bought the property from the defendants. The plaintiff claimed commission although he had not been in any way concerned with the sale. The Court of Appeal held that he was not entitled to commission, since he had not brought about a sale and was not the effective cause of it taking place. The agent need not, however, be the immediate cause of the transaction, provided that there is sufficient connection between his act and the ultimate transaction. Thus, an auctioneer was instructed to sell the island of Herm by auction or otherwise, but the island failed to reach the reserve price at the auction. A potential buyer then asked the auctioneer for the name of the owner and, upon receiving it, purchased the island directly from him. It was held that the auctioneer was entitled to his commission. If the transaction which results in a sale is different from that which the agent was engaged to bring about, it will be a matter of construction whether the parties intended remuneration to be payable in the changed circumstances. If the agent was the effective cause of the ultimate transaction the court may make the necessary implication or may imply a new contract from the fact that the agent continued to act at the principal's request towards completion of the new transaction. But if the ultimate transaction was of a wholly different nature from that contemplated or worked towards, the agent may not be entitled to remuneration. Thus, where an agent employed to find a buyer introduced a government department which then compulsorily acquired the property, he was not entitled to commission." – Chitty on Contracts Vol. 2 (3st Ed)

3. “In order to satisfy the test of "effective cause" a claimant must show that "it was his actions that really brought about the relation of buyer and seller" between the two principals” - per Waller LJ in Nahum v Royal Holloway and Bedford New College [1999] EMLR 252, restated by Mr Justice Meales in Moran v Pisarev at 95

4. “…the fact that one agent introduces a person who ultimately purchases after a later introduction by another agent will not necessarily entitle the first agent to commission. In such a case the court must determine which of the two agents was the effective cause of the transaction taking place.” - Bowstead on Agency (15th Ed) at page 230

5. “If a broker effects an introduction and is willing to go on with the usual business negotiation, it hardly lies in the mouth of an owner who takes it out of his hands to say that he has made no further contribution” – Allan v Leo Lines [1957] 1 Lloyd’s Rep 128.

In summary, all commission disputes, including the one between Edmiston and Heesen, are likely to turn on their own facts. However, to conclude, I will leave you with the remarks of two of my colleagues in the Sixth Edition of their book Ship Sale and Purchase:

“it is … difficult to lay down any hard and fast rules about the way in which a broker’s contribution will be measured in order to determine whether or not he is due a commission. But, if a broker is judged to have made a material or valuable contribution to the consummation of a sale, even where this is limited in providing an introduction, then he will probably be due a commission. But, the broker’s entitlement to commission may be denied if the seller can prove that there was some event that broke the chain of causation linking the broker to consummation of the sale or that constituted an intervening cause of greater potency than the broker’s actions.”

Against the backdrop of the above, it will be interesting to see how this latest superyacht brokerage commission scuffle develops and whether the law is further developed as a result.

[1] See Millar, Son & Co v Radford (1903) 19 TLR 575, Court of Appeal in which Collins MR held that “it is, therefore, important to point out that the right to commission does not arise out of the mere fact that agents have introduced a tenant or a purchaser. It is not sufficient to show that the introduction was a causa sine qua non. It is necessary to show that the introduction was an efficient cause in brining about the letting or the sale. Here the plaintiffs fail to establish what is a condition precedent to their right to commission – viz, that they have brought about the sale. It is open to the defendant in action like this to say either that, though the plaintiffs effected a sale, they were not his agents, or that, though they were his agents, they had not effected the sale. If the defendant proves either one or the other, the plaintiffs fail to make our their case.”

[2] See Toulmin v Millar (1887) 58 LT 96 in which Lord Watson held that “in order to found a legal claim for commission there must not only be a causal, there must also be a contractual relation between the introduction and the ultimate transaction of sale.” And Rimmer v Knowles (1874) 30 LT 496 in which an agent who was tasked with finding a purchaser of property was held to be entitled to commission when he introduced a tenant who took a 999 year lease of the property.