Special Declaration: This article is an original work by Attorney Shao Shiwei. It represents only the personal views of the author and does not constitute legal consultation or legal advice on specific matters. For article reposting, legal consultation, or business exchanges, please add: sswls66

 

Introduction:

“Skipping the intermediary” is not a strictly defined legal concept. The term commonly refers to the act whereby a client, leveraging exclusive information provided by an intermediary company, bypasses said intermediary to directly enter into a sales contract with the other party, thereby reducing the intermediary fees payable by the client or preventing the intermediary from obtaining its due remuneration.

 

Author of this article: Attorney Shao Shiwei

 

 

 

Body:

The major controversy that emerged at the beginning of February 2022 has finally been resolved. Let us promptly examine the details!

Reference to the Original Controversy:“Xie Na and Zhang Jie Accused of ‘Skipping the Intermediary’; The Threatening Intermediary Contracted COVID-19”(Click the link to view the original article)

In brief, the original controversy alleged that in February 2022, one Mr. H claimed that he had shown Ms. Xie Na and Mr. Zhang Jie a property at Sinan Mansions in 2019. The couple stated they did not like the property but subsequently purchased it through another intermediary. Mr. H further alleged that he was threatened by their lawyer. To avoid such threats, he went abroad and was now preparing to file a lawsuit.

On February 23, 2023, the Huangpu District People’s Court of Shanghai issued its first-instance judgment.[i] The court did not support Mr. Huo’s claims that Zhang Jie and Xie Na had “skipped the intermediary” or his demand for intermediary commission fees. Let us take a closer look at this recent development.

 

According to the facts ascertained by the court:

1. Key Parties Involved in This Case:

Sihe Center: The original owner of Sinan Mansions

Yaluan Company: The intermediary company that initially showed the property; its legal representative is Mr. Huo

Davis Company: The intermediary company ultimately engaged by Zhang Jie and Xie Na

Meikai Yanxiao Company: A company in which Xie Na holds a 99% equity interest, making her the actual controller

2. Timeline of Events

On June 21, 2019, Ms. Xie’s assistant, Mr. Luo, contacted Mr. Huo, the legal representative of Yaluan Company, via WeChat to inquire about available properties at Sinan Mansions. Mr. Huo then recommended the property in dispute to Mr. Luo (listed at RMB 62 million, with no room for price negotiation).

Mr. Huo also registered this showing with Sihe Center. Additionally, Mr. Huo stated that during the property viewing, Ms. Xie signed the “Sinan Mansions · East Wing Visitor Registration Form.” However, Sihe Center neither provided this registration form to Yaluan Company nor allowed Yaluan Company to photograph it. According to the notes on the “Sinan Mansions · East Wing Visitor Registration Form,” the validity period for referred clients was six months (meaning that before December 21, 2019, Ms. Xie and Mr. Zhang, as clients of Yaluan Company, constituted exclusive information belonging to Yaluan Company).

On June 22, 2019, Ms. Xie and others viewed the property again and expressed their interest in purchasing it.

In early September 2019, Ms. Xie engaged a lawyer to negotiate with Davis Company regarding the property purchase.

On October 15, 2019, Meikai Yanxiao Company was established.

On December 1, 2019, Meikai Yanxiao Company entered into a Real Estate Brokerage Contract with Davis Company. The transaction price for the property in dispute stipulated in this contract was RMB 59.2 million.

On December 14, 2019, Sihe Center, through Shanghai C Co., Ltd., executed the online-signed version of the Shanghai Real Estate Sales Contract with Meikai Yanxiao Company (contract price: RMB 59.2 million).

On March 9, 2020, Meikai Yanxiao Company obtained the real estate title certificate for the property in dispute.

On May 11, 2020, Davis Company applied to Sihe Center for settlement of the commission. On May 26, 2020, Sihe Center, through Shanghai B Co., Ltd., paid Davis Company a commission of RMB 592,000.

3. Key Issues in Dispute:Did Sihe Center engage in “skipping the intermediary”? Did Ms. Xie’s purchase of the property in the name of a company constitute a conspiracy to “skip the intermediary” as alleged by Yaluan Company?

Yaluan Company argued as follows: First, according to the “Sinan Mansions · East Wing Visitor Registration Form,” before December 21, 2019, Ms. Xie and Mr. Zhang, as clients of Yaluan Company, constituted exclusive information belonging to Yaluan Company. Sihe Center, being aware of the client validity period and the fact that Ms. Xie purchased the property through a registered company due to purchase restrictions, failed to diligently verify the validity period and the shareholder structure of Meikai Yanxiao Company. This negligence resulted in Davis Company successfully brokering the transaction. Therefore, Sihe Center’s actions constituted a breach of contract by “skipping the intermediary.” Second, Yaluan Company contended that it had advised Ms. Xie on the method of purchasing the property through a company, after which Ms. Xie registered a company and engaged another intermediary to complete the purchase.

4. Court’s Viewpoint:

(1) Yaluan Company failed to provide evidence proving whether Ms. Xie signed the “Sinan Mansions · East Wing Visitor Registration Form.”

Sihe Center stated that Ms. Xie did not sign the visitor registration form. The primary purpose of such a form is to confirm the source of the client, thereby protecting the interests of the intermediary who showed the property (specifically, whether it enjoys a six-month client exclusivity period). There was no necessity for Sihe Center to withhold copies or photographs of the form from Yaluan Company after the client’s signature. As for Yaluan Company, once the client had signed and confirmed, it should have proactively requested copies or photographs for its records to facilitate future commission settlements. Yaluan Company’s failure to safeguard its own rights means it must bear the consequences thereof.

There is no evidence to confirm whether Yaluan Company obtained brokerage authorization from Ms. Xie. The court does not accept Yaluan Company’s claim that it had secured a six-month validity period for Ms. Xie’s client status.

(2) Whether Sihe Center failed to fulfill its review obligations, thereby preventing Yaluan Company from receiving the brokerage commission.

Sihe Center and the intermediary companies did not enter into a written intermediary service contract. There was no agreed obligation requiring Sihe Center to review the shareholders of corporate buyers or to identify them against other clients who had previously viewed the property. Nor does the law impose such statutory obligations on principals. As a seller, Sihe Center’s primary concerns were the buyer’s eligibility to purchase, their ability to pay, the method of payment, and the payment timeline. Therefore, the court finds it difficult to accept Yaluan Company’s argument that Sihe Center failed to fulfill its review obligations.

Sihe Center reviewed the relevant materials submitted by Davis Company in accordance with the commission settlement process and paid a commission equivalent to 1% of the contract price. There was no conduct aimed at evading the payment of commissions.

(3) There was no conspiracy between Ms. Xie and Sihe Center to “skip the intermediary.”

However, based on the facts ascertained in this case, the brokerage model for the property in dispute was non-exclusive, and the intermediary’s commission was paid by the seller of the property, not the buyer. Before signing a brokerage contract with an intermediary, a buyer is fully entitled to obtain property information through public channels and has the right to choose an intermediary offering lower quotes and better services to facilitate the formation of the property sales contract. In this case, although Yaluan Company showed the property to Ms. Xie, there was no further contact between Ms. Xie and Yaluan Company after the viewing.

In the absence of corresponding agreements or other evidence,it cannot be confirmed that a brokerage contractual relationship was established between Yaluan Company and Ms. Xie solely based on the property viewing,nor can it be confirmed that Ms. Xie knew, either beforehand or afterwards, that she would bear legal consequences for engaging another intermediary after the viewing.

 

Legal Analysis:“Skipping the Intermediary” Can Be Divided into “Genuine Skipping” and “Alleged Skipping”

China’s Civil Code explicitly provides that “skipping the intermediary” requires compensation (this establishes a legislative precedent for holding clients liable for skipping intermediaries).

According to Article 965 of the Civil Code, if a client, after accepting the services of an intermediary, utilizes the transaction opportunities or mediation services provided by the intermediary to bypass the intermediary and directly enter into a contract, the client shall pay remuneration to the intermediary.

However, before claiming compensation, one issue must be resolved:What conduct constitutes “skipping the intermediary”?

So-called “genuine skipping” refers to conduct that is obviously identifiable as skipping the intermediary. For example: Party A engages Intermediary B to view a property, subsequently states dissatisfaction with the property, but then privately reaches a transaction with the landlord, either alone or through a familiar intermediary, and signs a contract.

So-called “alleged skipping” refers to situations where seeking judicial recognition of “skipping the intermediary” carries risk, and the intermediary cannot necessarily claim its alleged remuneration. For instance, in the present case, Mr. Huo did not sign a brokerage agreement with Ms. Xie during the initial viewing, nor is there evidence proving that a principal-agent relationship was formed between them. Furthermore, he did not continuously follow up with Ms. Xie regarding the property in question. The act of “showing the property” itself does not imply that the intermediary provided brokerage services.

Another example: Intermediary A shows a tenant a property, but the tenant’s price requirements are extremely stringent. Despite prolonged negotiations between Intermediary A and the landlord, no agreement is reached. Subsequently, Intermediary B approaches the tenant, stating, “I have successfully negotiated the price for you,” and the tenant ultimately signs a contract with the landlord. Such a scenario is also difficult to classify as “skipping the intermediary.” The tenant has the right to choose a more capable intermediary to facilitate the transaction, and this situation cannot be deemed to reflect subjective malice on the part of the tenant to skip the intermediary.

 

P.S. Additional Context on the Controversy

Based on the original content of the controversy and the court judgment, one can understand why Ms. Xie did not continue to engage Mr. Huo for the property transaction after the initial viewing.

Some screenshots disclosed in Mr. Huo’s article:

 

Excerpts from the original judgment:

Due to purchase restriction issues, Yaluan Company failed to propose corresponding solutions; otherwise, Yaluan Company should have continued to follow up on subsequent matters. Furthermore, Mr. Huo of Yaluan Company lacked broker qualifications. During the property viewing, he violated Ms. Xie’s prior instructions by secretly taking photographs. Consequently, Ms. Xie’s side was unwilling to engage Yaluan Company for intermediary services.

 

Two straightforward recommendations for intermediaries:

1. Sign contracts! Sign contracts! Sign contracts! Important points bear repeating three times!!!

2. Do not take secret photographs.

 

This concludes the article. Having finished discussing the controversy, and feeling exhausted from typing, I will now wash up and go to sleep.

 

[i] Case No. (2022) Hu 0101 Min Chu 2966