N1 Loans Pty Ltd v Sarai

The plaintiffs seek possession of two properties owned by the first defendant, one in Ryde and the other in Darling Point, both suburbs in Sydney. The first defendant resides in the Darling Point property.

I will refer to the first defendant as Mr Sarai and the second defendant, Aldrich Pty Ltd, as Aldrich. Mr Sarai, at all relevant times, was the sole shareholder and director of Aldrich. Mr Sarai and Aldrich have filed cross-claims against the four plaintiffs, and also against the receiver.

The two properties are subject to registered mortgages in favour of the plaintiffs. The plaintiffs lent Aldrich a total of $12,825,000 secured by the properties. Mr Sarai guaranteed repayment of the loans.

The two loans and the two mortgages were executed at the same time on precisely the same terms. For convenience, the terms common to both loans were referred to by the parties as “the Agreement”. However, the parties in respect of each loan are slightly different. In the loan in respect of the Darling Point property the agreement was made between the first, second and third plaintiffs (as lenders) and Aldrich (as borrower). Mr Sarai became a mortgagor and guarantor of the loan. The amount borrowed was $10.5m.

In the loan in respect of the Ryde property the fourth plaintiff was the lender. Aldrich was again the borrower, and Mr Sarai was the mortgagor and guarantor. The amount borrowed was $2,325,000.

The loans were executed on 26 September 2024 together with a Deed of Cross-Collateralisation. Under this deed the two loans were collateralised so that they each secured the whole of the secured monies.

The loans were repayable after three months, but with monthly interest only to be paid during the three months.

A chronology is of assistance (although it is noted that there are some discrepancies of dates as between the plaintiffs’ and defendants’ respective chronologies):

Nearly all of the evidence was in affidavit form or documentary exhibits attached to the affidavits. Only one deponent, Mr Sarai, was cross-examined and the cross-examination was short (but meaningful).

The plaintiffs relied on an affidavit of Mr Blake Palmer, dated 29 July 2025 and Mr Ren Hor Wong dated 3 October 2025. There were also two affidavits of service from Mr Justin Richards dated 26 and 27 November 2024, respectively. Mr Palmer is a solicitor in the employ of the plaintiffs’ solicitors. Mr Wong is a principal of three of the plaintiff companies and a business associate of the fourth (the third plaintiff).

The defendants relied on affidavits of Mr Sarai, dated 25 July 2025, and Mr Anthony Del Baglivo, dated 17 October 2025. Mr Del Baglivo is a finance broker who dealt with the defendants in securing finance.

The receiver, Mr Kaso, relied on his own affidavit of 25 July 2025.

It is clear from the affidavit material that Mr Sarai was not an amateur in the finance and property fields. He is the principal of a firm of lawyers which, inter alia, practises in property conveyancing and leasing and debt recovery and insolvency. In his affidavit he also describes himself as a “property investor” and lists nine properties of which he was the owner (either personally or through a company) as at July 2024.

Before signing the relevant loan agreements Mr Sarai had the benefit of legal advice. Under cross-examination he gave this evidence:

Mr Sarai denied that he did not take any action after the appointment of the receiver because he had never been able to refinance the loans. I think this fact blunts the defendants’ submissions arising from Inglis v Commonwealth Trading Bank of Australia (1972) 126 CLR 161. Mr Sarai would not have had to pay money into Court to have the receiver removed. To the contrary he could have submitted that the appointment of the receiver was the very reason he could not pay money into Court.

As to the availability of finance there was this passage of evidence:

It was suggested by the defendants’ senior counsel that I should take judicial notice that a solicitor whose affairs had been placed under a receiver would find it very difficult to obtain finance. There is certainly logic in the proposition, but I do not think it such a commonplace event that I could take judicial notice of the fact (as required by s 144 of the Evidence Act 1995 (NSW)). I will return to the taking of judicial notice below.

Moreover, it is clear from the passages of cross-examination just quoted that Mr Sarai did not single out the appointment of a receiver as an impediment to him obtaining finance.

The parties provided me with a joint statement of issues:

The first two of the above issues can be dealt with together. The point is one of construction of the interest clauses in the loan documents. Each loan was constituted by two documents, a Finance Offer Schedule and a Memorandum of Common Provisions Version 5 (the “MCP”).

The controversy arises from the identification of when interest payments were to be made. Was it in advance or in arrears or is the position so uncertain that the interest provisions are void for uncertainty?

The defendants said that examination of the relevant clauses could only lead to a conclusion they were so vague as to be unenforceable. The plaintiffs said the interpretation favoured a conclusion that payment was to be made in advance.

The importance of the due date is that unless the November interest payment was due in advance, the borrowers were not in default when the receiver was appointed (in respect of Mr Sarai) on 21 November 2024 and, in turn, the appointment was a breach of the Agreement by the lenders.

If there had been a breach, then the defendants are entitled to damages because Mr Sarai, carrying the stigma of the appointment of a receiver, had been unable to refinance the loans. The damages claim is incorporated in the cross-claims which also join the receiver.

Conversely if I found in favour of the plaintiffs’ case, the appointment of the receiver on 21 November 2024 was valid and all the other issues would fall away. The plaintiffs would be entitled to their requested possession orders.

Senior counsel for the plaintiffs, although advocating for the retention of the interest payment clauses, said:

The plaintiffs submitted that a finding of ‘vagueness’ or uncertainty should not be easily reached. To this end I was referred to Brown v Gould [1972] 1 Ch 53 and Upper Hunter County District Council v Australian Chilling & Freezing Co Ltd (1968) 118 CLR 429; [1968] HCA 8.

In Brown, Megarry J, at pp 56-57, quoting from his earlier decision In re Lloyd’s Trust Instruments, 24 June 1970, stated:

In Upper Hunter, Barwick CJ said, at [9]:

Brown and Upper Hunter were relied upon by Black J in In the matter of Leslie Muir Holdings Pty Ltd [2019] NSWSC 1519, at [38]:

Hammond v Vam Ltd [1972] 2 NSWLR 16 (referred to by Black J in Leslie Muir Holdings), was quoted by the defendants in aid of their submissions, to the effect that the interest clauses were “so lacking in certainty of meaning that it is incapable of enforcement”.

The defendants went on to submit that if the interest clauses were void for uncertainty, it would follow that no interest was ever payable. The submission raised the distinction between the whole of the interest clauses being unenforceable or only those parts that refer to when the interest was payable (in advance or in arrears).

These are the relevant interest clauses. Firstly, under “Payment arrangements” in the Finance Offer Schedule:

One of the Special Conditions states:

Secondly, in the MCP:

There is no dispute that the loans were to be repaid on an interest only basis followed, after three months, by repayment of the principal sums. Clearly this was short term finance envisaging refinancing. As observed by Mr Small, on behalf of the receiver:

Mr Small then made this point:

The drawdown of the loans included a deduction of the first interest payments. The plaintiffs drew comfort from this fact in support of their interpretation that interest was to be paid in advance. I think the point is important. Not only does it represent a payment in advance, it reflects “a fair meaning” of the loan documents essentially recognised by Mr Sarai in accepting the deduction on drawdown (therefore in advance) and in him not immediately looking to the court to annul the appointment of the receiver. He had legal advice, he knew coming to court was an option, but he chose not to do so.

A second point arising from Mr Small’s submission is that if payment was to be made in arrears, then there would have been a two-month gap between the first and second payments, a result entirely inconsistent with a three-month loan, and not making commercial sense.

It is important, in the construction or interpretation exercise of a commercial agreement, to apply commercial sense and achieve commercial convenience. In ASSK Investments Pty Ltd v AMA Group Ltd (2020) 149 ACSR 387; [2020] NSWSC 1756 Hammerschlag J (as his Honour then was) said this:

While Mr Sarai’s acceptance of the initial drawdown is not an answer to the construction question, it is consistent with the construction put forward by the plaintiffs.

The interest provisions in the MCP are no doubt a little difficult to follow. However, this part of cl 3.5 is consistent with what occurred in this matter:

Interest was deducted on the first drawdown suggesting that the above part of cl 3.5 is applicable to these loans. This means interest payments were to be made in advance.

Clause 4.2 refers back to the offer where the relevant provisions are to be found under “Payment arrangements” in the Finance Offer Schedule, quoted above. This is where, I think, the real dilemma arises. The payment arrangements might certainly be seen as suggesting two opposed payment instructions. The words “Your interest charges for a payment period are due on the last day of the period” seem to be the very opposite of “Monthly in advance” and “Monthly repayments are to be made on the anniversary date of the first drawdown every month”.

Notwithstanding the apparent conflict, in my view, and in endeavouring to maintain the integrity of the Agreement as endorsed by the above authorities, the Agreement requires payment of interest in advance. I think the following are important factors in my reaching this conclusion:

The MCP has a “Definitions and interpretation” part, but I do not think any of the definitions assist. I did not understand the parties to make any contrary submission.

Because I have come down on the plaintiffs’ side in respect of when the payment of interest was due, it follows that:

My following reasons only arise if I am wrong on the construction point so that the plaintiffs were in breach of the Agreement, and the appointment of the receiver on 21 November 2024 was invalid.

In this scenario the cross-claimants would be entitled to damages to put them in the position they would have been if there had not been a breach of contract. The damages claimed by the cross-claimants are based on the difference between the interest rate that could have been obtained on refinancing (10% per annum) and the standard default interest rate charged by the plaintiffs (36% per annum).

The damages at 26% per annum are up to 31 May 2026, by which time it is anticipated that the loans would be discharged. I have been provided with a schedule of calculations of the damages which are $4,550,000 in respect of the Darling Point loan and $1,007,500 arising from the Ryde loan.

The damages claim is dependent upon my reaching a conclusion that Mr Sarai and Aldrich would have been able to refinance the loans upon completion of the three-month term of the loans. Such a conclusion has the following difficulties:

In his affidavit, Mr Sarai gives details of attempts to refinance and of a letter his solicitors wrote to the plaintiffs’ solicitors, on 17 January 2025, in which it is stated that “the appointment and presence of the Receiver ... has been of no utility to your clients and has served to impede and or prevent our client’s attempts to re-finance the loans.”

I accept that as a matter of common sense a lender might be wary of providing substantial funds to a person whose affairs had been placed under receivership. However, I think it would be taking a step too far to conclude that in this case I could take judicial notice that the defendants would have obtained further finance if the receiver had not been appointed.

In Woods v Multi-Sport Holdings Pty Ltd (2002) 208 CLR 460; [2002] HCA 9, McHugh J, at [64], said this about judicial notice:

Arguably, the whole of the damages claim depends upon me taking judicial notice, without inquiry, that the appointment of a receiver precluded the obtaining of further finance. This is against a background of there being no evidence of the fact of refusal of finance which could, presumably quite easily, have been obtained from at least one of the persons approached for finance. There is no correspondence stating this fact, and no proposed lender has provided evidence of a refusal of finance because of the existence of the receiver.

I decline to take the judicial notice requested by the defendants. It follows that I cannot safely conclude that refinance would have been obtained by the defendants. I repeat, that I would have expected the refinance to have been in place before the loans went into default. Mr Sarai knew the loans only had a three-month term, he knew the interest rate was high (especially on default), he was an experienced borrower, all of which suggest that refinancing was not the straightforward task that he has suggested.

It follows that I would have rejected the damages claim as put forward by the cross-claimants. Another factor arises from the failure to mitigate the damages. As seen above, Mr Sarai had the option to approach the court immediately upon the appointment of the receiver to challenge the appointment. If the presence of the receiver was so important to his financing efforts, one would have expected him to have taken prompt action to have the receiver removed.

In relation to the cross-claim against the receiver, there would have been a declaration that the receiver had been wrongly appointed, but no damages would have flowed, because the receiver has not actually received any funds.

In respect of costs, the plaintiffs said they did not seek any order for payment of their costs. I would otherwise have ordered that the defendants pay the plaintiffs’ costs of the whole of the proceedings. I do note that in not requesting a costs order, the plaintiffs reserved their expenses rights under the mortgages.

I make the following orders: