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Finders Keepers? The Unlicensed Agent's Pursuit of a Finder's Fee

Introduction


It is not uncommon for a party brokering a property transaction to expect a “finder’s fee” despite not being a licensed property agent under the Valuers, Appraisers, Estate Agents and Property Managers Act 1981 (hereafter “the Act”). The Court of Appeal in Kunci Semangat Sdn. Bhd. v. Thomas Varkki a/l MV Varkki & Anor [2022] 3 MLJ 857 had occasion to consider the issue of whether an unlicensed broker is entitled to a “finder’s fee” in law.


Material Facts


Dato’ Amin, a director of Kunci Semangat Sdn. Bhd. (hereafter “the Defendant”), was sourcing for a piece of land for the purpose of building a workers’ hostel. He verbally agreed to pay Thomas Varkki and Amarjit Singh (hereafter “the Plaintiffs”) a “finder’s fee” at the rate of RM20.00 per square foot if the Plaintiffs were able to:- (i) locate a suitable piece of land for the Defendant; and (ii) negotiate a suitable price for the Defendant. Upon the Plaintiffs’ completion of their end of the bargain, the Defendant failed to pay the balance of the “finder’s fee” amounting to RM545,720.00 to the Plaintiffs (having already made part payment in the sum of RM75,000.00 to the Plaintiffs).


Proceedings in the High Court


In the High Court, the Plaintiffs succeeded in their claim for the balance of the “finder’s fee” payable by the Defendant. Although the Defendant contended that the Plaintiffs’ claim was illegal and that the Plaintiffs have breached the Act by acting as an unlicensed estate agent, the High Court refused to consider this argument because illegality was not pleaded by the Defendant as mandated by Order 18 rule 8 of the Rules of Court 2012 (hereafter “ROC”). However, in addition thereto, the High Court expressed the view that the Plaintiffs did not breach the Act as the transaction giving rise to their claim was a one-off or isolated one not amounting to an “estate agency practice”.

Order 18 rule 8 of the ROC provides that:-


Matters which shall be specifically pleaded (O 18 r 8)


(1) A party shall in any pleading subsequent to a statement of claim plead specifically any matter, for example, performance, release, any relevant statute of limitation, fraud or any fact showing illegality—


(a) which he alleges makes any claim or defence of the opposite party not maintainable;

(b) which, if not specifically pleaded, might take the opposite party by surprise; or

(c) which raises issues of fact not arising out of the preceding pleading.


Issues


On appeal, the Court of Appeal considered the following two (2) issues:-


(a) whether illegality has to be specifically pleaded under Order 18 rule 8 of the ROC, as found by the High Court; and


(b) whether the Plaintiffs’ provision of service to the Defendant was in breach of Section 22C(1)(d) read together with Section 22B(1A)(b) or (d) of the Act.


Illegality has to be specifically pleaded


The Court of Appeal noted that the Defendant raised the issue of illegality for the first time in its post-trial written submission – it was not canvassed at all when evidence was presented during trial. In fact, Thomas Varkki’s (one of the Plaintiffs) testimony that the Plaintiffs’ claim “has got nothing to do with real estate agent” was not disputed by the Defendant during trial.


In this case, the Court of Appeal found that the Defendant failed to plead any prerequisite facts to establish illegality, including facts relating to whether:-


(a) the Plaintiffs held themselves out and represented themselves as real estate agents to the Defendant; and


(b) the Defendant particularised the estate agent relationship that allegedly existed between the parties or that the Plaintiffs were in the business of or practice of estate agency.


As a consequence of the Defendant’s failure above, the Plaintiffs were deprived of an opportunity to adduce rebuttal evidence of the Defendant’s allegation that the Plaintiffs were involved in an “estate agency practice”. The Court of Appeal concluded that the Defendant’s allegation of illegality appears to be an “afterthought” and amounts to “trial by ambush”, which would result in a miscarriage of justice if considered for the first time on appeal.


The Plaintiffs did not breach the Act as it was a one-off transaction


The Court of Appeal followed its previous decision in Matad Sdn. Bhd. v. Ng Chee Keong [2004] 2 CLJ 99 and held that Matad remains good law even after the amendments to the Act in 2011 and 2017 (in particular to Section 22B(1A) of the Act). In Matad, the Court of Appeal upheld the High Court’s decision in allowing the unlicensed agent/broker’s claim for commission on the basis that a one-off transaction does not amount to an “estate agency practice”. In short, there needs to be “evidence of a system or continuity” in the unlicensed agent/broker’s conduct or activity. This is despite Section 22B(1A) of the Act being in our view wide enough to capture a singular transaction. Section 22B(1A) of the Act states:-


A person undertakes estate agency practice if he acts as an agent, or holds himself out to the public or to any individual or firm as ready to act as an agent, for a commission, fee, reward or other consideration—


(a) in respect of any sale or other disposal of land and buildings and of any interest therein;


(b) in respect of any purchase or other acquisition of land and buildings and of any interest therein;


(c) in respect of any leasing or letting of land and buildings and of any interest therein;


(d) in making known of the availability of land, building, or any interest therein for such sale or disposal, purchase or acquisition, or leasing or letting referred to in paragraph (a), (b) or (c), as the case may be; and


(e) in respect of any tenancy administration including rental collection, payment of outgoings, arrangement for minor repairs and handing over and taking over the possession of a property of any land and buildings and of any interest therein.


Further, Section 22C of the Act prohibits any person from carrying out an “estate agency practice” unless he is a registered estate agent. Subparagraph (d) of the same provision further disentitles an individual, who is not a registered estate agent, from recovering agreed remuneration for professional services rendered as an estate agent, through Court proceedings.


Key Takeaways


Agents and brokers, licensed and unlicensed alike, ought to take an interest in this decision of the Court of Appeal as it:-


(a) affirms the long-established legal principle that any allegation of illegality (i.e. in this case, a breach of the Act) can only be considered where illegality is specifically pleaded or, at the very least, the facts giving rise to it, to enable parties to adduce relevant evidence during trial;


(b) confirms that the long-standing rule in Matad, that one-off transactions are not caught by the Act, continues to apply after the amendments to the Act in 2011 and 2017; and


(c) makes clear that the burden of proof lies on the party alleging illegality to prove the continuity of an unlicensed agent/broker’s “estate agency practice”.


This decision in Kunci Semangat recognizes that a “finder’s fee” is claimable in law only if it was a singular endeavour, allaying concerns of whether the law in Matad (as followed in Teh Eng Peng @ Teh Joo v. Teh Swee Lian [2006] 2 MLJ 305 (Court of Appeal)) remains sound after the amendments to the Act. Whilst fortune may favour the bold, unlicensed brokers should bear in mind that if the evidence shows pursuits beyond the first, there will be no fee to be found for the reckless.


This article is contributed by Edward Kuruvilla and Soh Lip Shan of the Dispute Resolution practice group and Benjamin Chia of the Projects & Real Estate practice group.


For more information, please visit www.kyblegal.com or please feel free to contact Edward Kuruvilla at edward@kyblegal.com, Benjamin Chia at benjamin@kyblegal.com and/or Soh Lip Shan at lipshan@kyblegal.com.


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KYB Case Update - Finder's Keepers
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