A look at the effective cause – The question of commission remuneration

The recent case of EMFC Loan Syndications LLP -v- The Resort Group Plc [2021] EWCA Civ 844 has served as a helpful reminder that when entering into an agreement concerning the payment of a commission, the basis upon which payment will arise should be set out very clearly.

In this case the Resort Group (“TRG”) engaged EMFC to provide services to assist in the raising of finance.  TRG and EMFC entered into a contract which dealt with EMFC’s remuneration.  TRG subsequently entered into facility arrangements with a third party to raise finance, following which EMFC claimed commission as well as seeking payment of their fees for the work carried out.  The combined sum sought by EMFC being €845,663.

A dispute arose between the parties regarding EMFC’s entitlement to the sums sought and, in the absence of an agreement being reached, proceedings were commenced by EMFC to recover the outstanding sum.

On the question of whether EMFC was entitled to the commission it sought, TRG argued that EMFC would only be entitled to such if they were the effective cause – i.e. their actions were instrumental to the facility agreement, which TRG argued they were not.

At first instance, the Court dismissed TRG’s argument on the grounds of the contract being repudiated.  It also found that EMFC had not been the real cause of the facility arrangements being entered into. Based on the decision, both EMFC and TRG appealed the decision.

The Court of Appeal held that EMFC was entitled to both the commission and the outstanding payments sought.

It was necessary for the Court to explore the detailed background giving rise to the claim.  In doing so, it reached the conclusion that the actions of EMFC did not amount to a repudiation of the contract.

On the question of whether EMFC was the effective cause of the facility agreement being entered into by TRG (i.e. it was their actions that resulted in TRG entering into the facility agreement), the Court found that there was no express effective clause term in the contract between the parties, when there easily could well have been such a clause.  The Court also took note that there was an entire agreement clause which the Court interpreted to mean the parties had considered the agreement to contain all that was required.  Had the parties intended for commission to be payable on terms that EMFC was the effective cause of the facility arrangements being entered into, then the agreement would have made provision for that very clearly.

In conclusion, the Court did not have to consider whether an implied effective cause term should be implied into the contract, as it did not deem such necessary.

Why is this case important?

This case emphasises that, if parties are entering into an agreement, it is important to ensure that the agreement fully reflects all aspects to be covered expressly in writing.

Where an agent is seeking remuneration by way of commission on a transaction that is to be brought about, the agent is not entitled to the commission unless the services performed were the effective cause of the transaction.

In order to avoid any possible confusion or conflict, as arose in this case, always be sure to get detailed legal advice on your position prior to entering into an agreement concerning commission remuneration.

If you have any concerns or queries relating to this or any other contractual matter, please contact Gemma Newing or a member of our Rooks Rider Solicitors’ Dispute Resolution team for advice and assistance.

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