A middleman entered into an agreement with parties to an acquisition transaction, under which it was intended to receive brokerage fees. After the deal fell through, some of the involved parties established a new company that ultimately executed the deal and made the acquisition, without paying the brokerage fees.
The Court held that the middleman is entitled to brokerage fees for the transaction. A party claiming entitlement to brokerage fees must prove two cumulative conditions: first, that a brokerage contract was formed between such and one of the parties to the transaction, and second, that it was the “effective cause” of the transaction. Regarding the “effective cause”, it is not enough for the broker to show that it was a factor in the chain of causation; rather, it must have actively assisted and advanced the transaction. When a related party makes use of information provided by the broker, outside the framework of the engagement with the broker and in order to bypass it, this constitutes unjust enrichment at the broker's expense, which gives rise to restitution. Here, the middleman and the original purchasing company had a valid agreement, which was known to the purchaser's board of directors, and no objections or disputes were raised regarding it. In addition, the middleman acted in accordance with its obligations under the agreement, established the initial contact between the parties and assisted in managing the negotiations. The related parties in the purchasing company were exposed to the business opportunity as part of the original transaction, and were also exposed to material confidential information which they used to advance the actual acquisition through the new company they established. By doing so, they enriched themselves at the expense of the middleman and are therefore obligated to pay brokerage fees, or at least part thereof.