Spotter's fees

The judgment of Haigh Farming (Pty) Ltd v E G Elliot Real Estate CC (14175/13) [2014] ZAKZPHC 58 (18 November 2014) deals with an application (at the end of the plaintiff’s case in a claim for compensation, and before the defence has started leading evidence) to dismiss the matter at that point because there is no case to meet (absolution from the instance). What the court did hold was that because the Defendant could not refer to any case law which said that it is indeed illegal to claim finder’s fees (spotter’s fees) - if you don’t have an FFC - the court was not inclined to dismiss the Plaintiff’s claim at that point. It in fact left the question wide open. The case did therefore not say that a spotter’s fee cannot be claimed, as has been reported.

Such a conclusion creates the impression that if I refer a friend who wants to sell a house, to an agent and the agent agrees to pay me 20% of his commission as a finder’s fee, that the law is now that simply because I don’t have an FFC, I may not claim this from the agent, should the agent default. S34A clearly creates a bar to claim commission, where people hold out to be acting as agents, do not have FFCs. Upon an ordinary reading, this section cannot possibly be interpreted to mean that a referral fee may not be claimed from an agent, (as against a seller) simply because I don’t have an FFC.

An important point to remember is that Sections 26 and 34A of the EAA Act are there to protect the public and to discourage people from acting as agents without FFCs, under penalty of criminal and / or disciplinary sanctions, obviously because the law doesn’t want people to hold onto deposits without Fidelity Fund protection. It is also trite law that if commission is paid to a non FFC holding agent by a seller, it cannot be claimed back, and the agent then simply faces disciplinary and / or criminal sanction. So it then begs the question whether an agreement to pay someone a finder’s fee, who clearly does not hold out to be an agent but is merely referring work and expects a finder’s fee is illegal in terms of this legislation. It cannot be when considering the purpose of the Act as a whole.

These sections and sanctions are clearly not there to regulate agreements of the nature under discussion, between agents and 3rd parties. A referral fee/ spotter’s fee should therefore not be confused with “commission” as intended in the EAA Act because that legislation is intended to regulate the relationship between an agent and seller.

Robert Krautkramer
Miltons Matsemela Inc