Private Mortgages Australia Pty Limited ACN 600 628 813 as trustee for the PMA Trust v Stever

1. [1]

   HER HONOUR: The plaintiff, Private Mortgages Australia Pty Limited as trustee for the PMA Trust (Private Mortgages Australia) sent a letter of offer dated 27 February 2015 to the defendants, Merril Stever and Bruce Maples, pursuant to which the plaintiff was to arrange a loan of $550,000 to EMIC Holdings Pty Ltd I.I.O.R & A.T.F 165 Donaldson Range Road Unit Trust (EMIC). The defendants executed the letter of offer as guarantors.

2. [2]

   The loan was to enable EMIC to purchase property known as Lot 92 in Deposit Plan 804970, Razorback NSW (the Razorback property), which the second defendant and his business partner wanted to develop. As circumstances unfolded, the purchase of the Razorback property fell through and the loan did not proceed.

3. [3]

   The plaintiff claims that an originator fee in the amount of $18,150 (originator fee) and the balance of legal and administration costs of $2,750 (legal/admin fees) are payable by the defendants as guarantors pursuant to the executed letter of offer. The plaintiff’s summons seeks an amount of $20,673.13 but the hearing proceeded on the basis that the amount in dispute was $20,900 (being the sum of the originator fee and legal/admin fees).

4. [4]

   The plaintiff also seeks orders in relation to a caveat it lodged to secure payment by the defendants of fees and expenses over land owned by the first defendant at Carrington Road, Robertson (the Robertson property), including that the caveat be extended until the amounts claimed as owing are paid.

5. [5]

   The defendants accept that they signed the letter of offer as guarantors but say that the amounts claimed are not payable in circumstances where the loan did not proceed to settlement. In the alternative, they claim that the amounts are not payable either because they are a penalty or, insofar as it relates to the first defendant, the letter of offer is unjust and therefore void under the Contracts Review Act 1980 (NSW).

6. [6]

   The defendants also dispute that any caveatable interest existed at the time the plaintiff lodged the caveat. To the extent there currently exists a caveatable interest, they submit the Court should exercise its discretion and not allow the caveat to remain.

7. [7]

   The issues in this case are:

Facts

1. [8]

   The plaintiff is a provider of loans, offering mortgage finance for small to medium businesses.

2. [9]

   The defendants are wife and husband. They have been married for approximately 20 years. The first defendant, Merrill Stever, is a registered nurse. The second defendant, Bruce Maples, is a builder and was a director and shareholder in EMIC.

3. [10]

   On 10 November 2014, EMIC entered into a contract for the purchase of the Razorback property from Perpetual Trustee Co Ltd for a price of $1,100,000. The second defendant and his business partner, Mr Lance Syme, wished to develop the Razorback property.

4. [11]

   The contract for sale of the Razorback property required completion by 22 December 2014. The completion date was extended on three occasions to fall on 24 February 2015, 4 March 2015 and then 6 March 2015.

5. [12]

   EMIC had to raise finance in order to acquire the Razorback property. As at early February 2015, it was intended that WINSEC Savings and Loans (WINSEC) was to be the principal lender to EMIC and would take a first mortgage over the Razorback property by way of security. By 20 February 2015, it was agreed that WINSEC would advance $813,750 to EMIC.

6. [13]

   In February 2015, WINSEC obtained a valuation report in relation to the Razorback property which valued it at $1,550,000.

7. [14]

   Further finance was required for the purchase and development of the Razorback property and the second defendant contacted a finance broker named David Watson of David Watson and Associates (the broker), for that purpose.

8. [15]

   On or about 19 February 2015, the broker made an application for mortgage finance to the plaintiff in the name of the first defendant which noted that the funds were required by 23 February 2015. The application stated that the purpose of the loan was to cover a shortfall on a subdivision settlement and that the Razorback property was to be sold in six months and in three blocks.

9. [16]

   The application for mortgage finance is purported to have been signed by the first defendant. I accept her evidence that it was not signed by her and that she did not recognise whose signature was on the document.

10. [17]

    The plaintiff issued an indicative letter of offer dated 19 February 2015 to the first defendant for a loan in the amount of $300,000 which was executed by the first defendant on 21 February 2015. The indicative letter of offer identified the loan’s purpose as “equity needed by EMIC for a land purchase” and the loan’s term being for a short period of 6 to 12 months. It also included the following:

11. [18]

    The signed indicative letter of offer was sent by the broker to the plaintiff on 23 February 2015. On the same day, the plaintiff sent an email to the broker setting out a list of outstanding items it required in order to progress the loan.

12. [19]

    On 27 February 2015, the plaintiff issued two letters of offer for a loan, both of which identified the borrower as EMIC and the defendants as guarantors. Only one of those letters of offer was executed on that day. I refer to that document as the Executed Letter of Offer in these reasons. It is the agreement encompassed in this document on which the plaintiff relies in these proceedings.

13. [20]

    The Executed Letter of Offer relevantly provided the following (bold and italic emphasis in original):

14. [21]

    The final page of the Executed Letter of Offer, which contained the clauses of execution, was headed (in bold) “Borrower(s) & Guarantor(s) declarations, agreement and direction to proceed” and then listed six matters before the execution clauses which were completed by the second defendant on behalf of EMIC and by both defendants as guarantors. These relevantly included:

15. [22]

    By 2 March 2015, the broker had sent the plaintiff the Executed Letter of Offer.

16. [23]

    On 2 March 2015, the plaintiff requested the broker to attend to certain items in order to progress the loan, including providing an application form by the second defendant, copies of the Trust Deed and a letter from an accountant in the form attached to the email, and confirming that the directors and shareholders had been changed. The plaintiff also confirmed that a further market appraisal by the agent was required as the plaintiff's credit policy required the agent to walk through the secured properties.

17. [24]

    On 7 March 2015, Elders undertook a market appraisal for the plaintiff and valued the Robertson property at between $1.2 and $1.275 million.

18. [25]

    On 9 March 2015, the vendor terminated the contract for the purchase of the Razorback property as EMIC had not completed in the time required (being by 6 March 2015).

19. [26]

    On 10 March 2015, the plaintiff advised the broker that it was ready to proceed with the Executed Letter of Offer. The email also requested an update about the broker’s progress regarding the outstanding items, which included additional items to those identified in the 2 March 2015 email, and enquired about the source of the surplus funds required to settle the purchase of the Razorback property.

20. [27]

    By email later on the same day, the conveyancing solicitor confirmed to the second defendant that the proposed purchase of the Razorback property was not proceeding as the vendor had not agreed to a further extension of time beyond 6 March 2015 and that EMIC, as purchaser, was liable to pay the full 10% deposit (the 10 March email).

21. [28]

    On 12 March 2015, the plaintiff wrote to the broker noting it had not heard from him for several days and asking him to confirm the intended course of action. The email stated that the plaintiff would assume that EMIC and the defendants had withdrawn from the proposed loan advance if the plaintiff had not heard back by close of business.

22. [29]

    On 13 March 2015, the plaintiff lodged caveat AJ331474 in respect of the Robertson property (the Caveat). The Caveat referred to an “equitable interest as chargee of the land” and that the “terms of the Letter of Offer provides that the Registered Proprietor charges the land to secure payment of the caveator’s fees and expenses”.

23. [30]

    On 18 March 2015, the second defendant forwarded the 10 March email to the broker stating that it included details of the cancelled Razorback property contract and that “there could be some legal action to follow”.

24. [31]

    The broker forwarded the second defendant’s email and the 10 March email to the plaintiff very soon after and stated:

25. [32]

    The email from the broker was then forwarded by the plaintiff to its solicitor, Luke Owens, which email noted that the broker had called on the matter and stated:

26. [33]

    The evidence before the Court indicates that there was then silence between the plaintiff, the broker and the defendants until the solicitors for the plaintiff sent a letter to the defendants on 16 April 2015 which demanded payment of the originator fee, interest, legal fees incurred to date and the caveat lodgement fee. The letter did not include a demand for the balance of the legal/admin fees which are now claimed in these proceedings.

27. [34]

    There is no evidence relating to the termination of the arrangements contemplated by the Executed Letter of Offer, but it seems clear, and the case proceeded on the basis that, sometime between 18 March and 16 April 2015, the Executed Letter of Offer was terminated.

28. [35]

    The legal principles applicable to the construction a contract were not in dispute.

29. [36]

    The primary duty of the Court is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. That means the whole of the instrument has to be considered: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 per Gibbs J at 109.

30. [37]

    If the words used in a contract are unambiguous, they must be given effect to even if the result may appear capricious or unreasonable, or it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language of a contract is open to different constructions, the one that will be preferred is the one which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 per Gibbs J at 109; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52; McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; [2000] HCA 65.

31. [38]

    The defendants submit that, on the proper construction of the Executed Letter of Offer, the originator fee and the admin/legal fees now claimed were payable only on settlement of the loan or, alternatively, at the point in time at which the plaintiff had confirmed that the necessary funds were available and that it was otherwise ready, willing and able to proceed to settlement of the loan.

32. [39]

    They submit that any other construction, including that contended for by the plaintiff (that the originator and legal/admin fees are payable notwithstanding the loan did not proceed) would be commercially absurd as it would enable the plaintiff to charge (and be paid) those fees regardless of whether it was able to secure the necessary funds.

33. [40]

    I do not accept the defendants’ submission on the construction of the Executed Letter of Offer. The words used in the document are unambiguous and make plain that the obligation to pay the originator fee and the legal/ admin fees was not limited to a situation in which the loan proceeded to settlement or the plaintiff had the funds available and was otherwise ready, willing or able to proceed with the loan.

34. [41]

    The Fees section in the Executed Letter of Offer is expressed in mandatory terms stating “You must pay” the originator fee and the balance of the legal/ admin fees in respect of the establishment of the loan.

35. [42]

    The Fees section then clearly states that those fees are payable in two circumstances, being:

36. [43]

    The obligation on the defendants (as the guarantors under the letter of offer) to pay those fees is also clearly set out on the last page of the Executed Letter of Offer where it states that the guarantors “agree to pay” the originator and legal/admin fees in consideration for the plaintiff proceeding with the establishment of the loan. That agreement to pay is not expressed to be limited to payment upon settlement of the loan. Instead, it is expressed as pursuant to the Executed Letter of Offer which, as noted in paragraph 42 above, expressly provides for payment in the event that the loan does not proceed to settlement.

37. [44]

    In my opinion, and consistent with the plaintiff’s submissions, the unambiguous language of these clauses means that the originator and legal/admin fees are payable even if the loan has not been established or if the plaintiff did not have the funds available and was unable to immediately proceed to settlement.

38. [45]

    This interpretation is supported by the references in the Executed Letter of Offer to the originator and legal/admin fees being payable “in respect of the establishment of the loan” and the guarantors agreeing to pay them “in consideration of [the plaintiff] proceeding to establish the loan”. This does not mean that the fees were payable, as the defendants submitted, only when and if the loan was established but provides for the fees to be payable in respect of anything which has “some discernible and rational link” to the establishment of the loan: Technical Products Pty Ltd v State Government Insurance Office (Qld) (1989) 167 CLR 45 at 47. Put another way, the fees were payable in consideration for the plaintiff taking any steps or activities in preparing to advance the loan funds.

39. [46]

    The evidence indicates that during the period from 28 February to 12 March 2015, the plaintiff was undertaking activities pursuant to the Executed Letter of Offer and in anticipation of and in connection with the establishment of the proposed loan. Those activities included arranging for walk through valuations of the security properties in accordance with the plaintiff’s credit policy and seeking relevant documents from the broker, such as an accountant’s letter, an application from the second defendant for the purposes of credit checks, an endorsement of title to the relevant property by the NSW Land Titles Office, the updated Trust Deed and certain agreements relating to the parties to the Executed Letter of Offer. Relevantly, some of these matters, such as the accountant’s letter, credit check, title search and updated Trust Deed, were required in order to satisfy certain of the conditions precedent outlined in the Executed Letter of Offer.

40. [47]

    Consistent with it having commenced those activities, the evidence also indicates that by 10 March 2015 the plaintiff was ready to proceed with the Executed Letter of Offer. It was not, therefore, a situation in which the plaintiff was doing nothing to establish the loan. As at 12 March 2015, the plaintiff had been pursuing what was needed and was waiting for the broker to take steps on behalf of the defendants and EMIC in order to progress the loan and proceed to the next steps outlined in the Executed Letter of Offer

41. [48]

    Counsel for the defendants raised a number of other arguments in support of the proposition that the Executed Letter of Offer should be interpreted as providing for the originator and legal/admin fees to be payable only on settlement of the loan or when the plaintiff confirmed that it was ready, willing and able to provide the funds.

42. [49]

    One of those arguments relied on the terms of the indicative letter of offer dated 19 February 2015 which provided for payment of a non-refundable evaluation fee of $575 and payment of the originator fee on settlement of the loan. It was contended that those matters supported an interpretation that the originator fee was a “success fee”, payable only once the loan was established.

43. [50]

    The difficulty with this argument is that the evaluation fee was to be paid in exchange for the plaintiff’s analysis of the loan submission and due diligence activities to determine whether a binding letter of offer should be forwarded to the defendants, not for activities relating to the establishment of a loan in respect of which the originator fee was payable. Further, to the extent there is any inconsistency in the drafting as to when the originator fee was payable between the indicative letter of offer and the Executed Letter of Offer, the terms of the Executed Letter of Offer are to be preferred, being the binding agreement between the parties and the document on which the plaintiff now makes its claim.

44. [51]

    Another of the defendants’ arguments relied on the disbursement schedule in the Executed Letter of Offer which refers to the originator and legal/admin fees being payable on settlement, and the potentially ambulatory nature of the amount of the originator fee given it was expressed in the Executed Letter of Offer to be calculated as 3.3% of the loan amount, which was $550,000 or 50% of the total value of security properties less any encumbrances.

45. [52]

    The disbursement schedule and the ambulatory nature of the originator fee do not, in my view, assist the defendants. The disbursement schedule clearly relates to payment of the originator and legal/admins fees in one of the two contemplated circumstances (namely, on settlement of the loan) and is not applicable to, and does not negate, the obligation of payment in the event the loan does not proceed. The prospect of the originator fee changing in quantum upon settlement does not mean the fee was insufficiently certain in the event the loan did not proceed. When the contract ended, the only loan being contemplated was for the amount of $550,000 and the originator fee was able to be calculated on that basis.

46. [53]

    Counsel for the defendants also pointed to the plaintiff’s ability to withdraw from the transaction and the requirement for the conditions precedent to be satisfied before the loan transaction could proceed in support of a submission that the Executed Letter of Offer should be interpreted to mean that the originator and legal/admin fees were only payable on settlement. Any other interpretation would lead to an absurd and uncommercial result as the fees would be payable upon execution of the Letter of Offer and in the absence of the plaintiff doing anything at all. This argument was also relied on by the defendants’ counsel in support of a submission that a term should be implied into the Executed Letter of Offer to the effect that the originator and legal/admin fees were only payable on loan settlement or at the time when the plaintiff was ready, willing and able to advance the loan funds.

47. [54]

    The defendants’ arguments relating to the conditions precedent, the discretion on the part of the plaintiff to withdraw and the necessity for an implied term may have had some force if the plaintiff had not been willing to proceed with the transaction or had been the cause of it not proceeding. The plaintiff’s insistence on payment of the originator and legal/admin fees in those circumstances would likely lead to a harsh result as the fee would be payable upon signing of Executed Letter of Offer regardless of the plaintiff’s own conduct. In the course of submissions the plaintiff conceded, rightly in my view, that there may be an implied term that the defendants’ liability for the originator and legal/admin fees would abate if the plaintiff, without reasonable cause, elected not to proceed with the loan.

48. [55]

    As I have identified above, the evidence indicates that the plaintiff had been taking steps in connection with the establishment of the loan, was waiting for the defendants to provide further information, and was ready, willing and able to proceed with the next steps in the transaction as contemplated by the Executed Letter of Offer.

49. [56]

    Defendants’ counsel submitted that the Court should infer that the plaintiff was the cause of the loan not proceeding as it failed to make the loan funds available in time, leading to the termination of the contract for sale of the Razorback property. That submission was based on the contents of an email from the broker to Mr Barbone (a director of the plaintiff) dated 18 March 2015 which stated:

50. [57]

    The evidence in relation to this email was scant. ‘Tim’ and the broker were not called by either party to give evidence to explain its contents. In cross-examination, Mr Barbone confirmed that Tim was the other director of the plaintiff and, in response to questions regarding the email, said that the plaintiff had been approaching the transaction on a ‘best endeavours’ basis but there were a number of conditions precedent outstanding by the applicants (being EMIC and the defendants) which meant that settlement could not proceed.

51. [58]

    Mr Barbone’s evidence on this topic was consistent with the documentary evidence, such as the emails from the plaintiff dated 2 and 10 March 2015 requesting an update from the broker on a number of outstanding items that had to be undertaken by the defendants in order for the loan to progress, including items relating to some of the conditions precedent contained in the Executed Letter of Offer and relevant to the establishment of the loan.

52. [59]

    In my view, the evidence does not support the inference sought to be drawn by the defendants that the plaintiff was the cause of the loan not proceeding and the contract coming to an end. Rather, the evidence indicates the defendants abandoned the loan transaction with the plaintiff as a result of the Razorback property sale not proceeding due to EMIC’s failure to complete the purchase by 6 March 2015. At that time, the plaintiff had been engaging with the defendants’ broker to pursue the outstanding items required to progress the loan and, as far as the evidence shows, was ready, willing and able to proceed with the loan transaction.

53. [60]

    Accordingly, I accept the plaintiff’s submission that the proper construction of events, based on the evidence, is that the defendants, by their broker or his silence, indicated to the plaintiff that they did not wish to proceed with the transaction and the plaintiff had, by 18 March 2015, accepted that the loan was no longer required.

54. [61]

    It follows that I reject the defendants’ submission that the plaintiff’s insistence on payment of the originator and legal/admin fees in this case was contrary to any implied term that such fees would not be payable if the loan did not settle due to the plaintiff’s actions.

55. [62]

    Payment of the originator and legal/admin fees in full may appear to be uncommercial or unreasonable in the context where the plaintiff had not completed all activities required to establish and settle the loan and the transaction was terminated at a relatively early stage. However, the terms of the Executed Letter of Offer regarding payment of the originator and legal/admin fees are clear and unambiguous, requiring the defendants (as guarantors) to pay those fees even if the loan did not settle. In a context where the plaintiff did not withdraw from the loan without reasonable cause and was ready to proceed to the next steps, there is, in my view, no alternate construction that is available on a sensible reading of the Executed Letter of Offer and it is not open to the Court to interpret the words in some other way.

56. [63]

    As to when the originator and legal/admin fees became payable, in the circumstances of this case, they became payable at or around the time the defendants made clear they did not wish to proceed with the loan transaction and the plaintiff accepted the loan was no longer required. On the facts that I have found, this occurred on or about 18 March 2015.

57. [64]

    The plaintiff is, therefore, entitled to judgment against the defendants in the sum of $20,900. As no submission was made to the contrary, I also accept that interest on that sum after judgment, in accordance with s 101 of the Civil Procedure Act 2005 (NSW), should be awarded.

Is the liability to pay the originator fee void as a penalty?

1. [65]

   The defendants argue, in the alternative, that the requirement to pay an originator fee in accordance with the Executed Letter of Offer is a penalty as it does not amount to any genuine pre-estimate of and is out of all proportion to any damage suffered by the plaintiff. As a result, it is said to be void and unenforceable. I do not accept this submission.

2. [66]

   As stated by Mason and Deane JJ in Legione v Hateley (1983) 152 CLR 406 at 445:

3. [67]

   The High Court in Andrews v Australia & New Zealand Banking Group Ltd (2012) 247 CLR 205 also set out a definition of a penalty as follows (at 216):

4. [68]

   Whether the sum stipulated for payment is extravagant and unconscionable compared with the greatest loss that may conceivably follow from the failure to satisfy the primary stipulation is relevant to the inquiry: Dunlop Pneumatic Tyre Company v New Garage & Motor Company Limited [1915] AC 79 at 87-88; Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656; [2005] HCA 71.

5. [69]

   In determining whether the sum is out of all proportion to the damage likely to be suffered, it may sometimes be appropriate to use as the basis for comparison the interest of the plaintiff in performance of the provision to which the alleged penalty relates: Paciocco v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525; [2016] HCA 28.

6. [70]

   In the present case, the obligation to pay of the originator fee does not arise as a result of the defendants’ failure to satisfy an obligation under the Executed Letter of Offer.

7. [71]

   The defendant’s argument fails because the obligation on the first defendants to pay the originator fee is not “collateral” to, or intended to secure satisfaction for, some other obligation or promise contained in the Executed Letter of Offer. Nor did it became payable upon non-satisfaction of that other obligation or promise. Rather, the agreement to pay the originator fee is a primary obligation which arises prior to, and irrespective of, the performance of any obligation on the part of the defendants. It was not a fee that was imposed for any collateral purpose of encouraging compliance with the terms of the contract between the parties.

8. [72]

   The obligation to pay the originator fee arises because the defendants agreed to pay the fee in consideration of the plaintiff taking steps to proceed with the establishment of the loan in accordance with the direction given by EMIC and the defendants as guarantors. The time at which the fees became payable was, in this case, not on settlement of the loan but upon withdrawal from the Executed Letter of Offer by the defendants. The payment obligation was not the consequence of their failure to perform an obligation. If the transaction had gone ahead as planned, the defendants would still be liable to pay the fee.

9. [73]

   As the plaintiff rightly puts it, the payment of the originator fee under the Executed Letter of Offer is in fulfilment of the transaction and creates a debt, not damages. The fact that the relevant transaction may not have fully completed (as the loan did not settle) does not turn the originator fee into a payment as a consequence of breach. That the originator fee may not have been based on any pre-estimate of loss to the plaintiff from the loan not proceeding is, therefore, of no relevance.

10. [74]

    It has also been said that the penalties doctrine will not apply if the promise to pay is referrable to the performance of the service by the other party: see JW Carter, Contract Law in Australia (LexisNexis Butterworths, 7th ed, 2018).

11. [75]

    The payment of the originator fee could, in my view, be characterised as a payment referable to the performance of the service by the plaintiff, being the steps and activities involved in the establishment of the loan. Just because all of those steps were not completed by the plaintiff does not make the originator fee a penalty. A contractual obligation to pay a fee in relation to a service which a party was ready, willing and able to perform but was not fully rendered due to the other party’s conduct is not enough to attract the penalty doctrine.

12. [76]

    In those circumstances, the originator fee is not void or unenforceable as a penalty.

Is the first defendant entitled to relief under the Contracts Review Act?

1. [77]

   The first defendant claims, in the alternative, relief under the Contracts Review Act in respect of the Executed Letter of Offer as a whole, or in respect of those provisions relating to the payment and liability for the originator and legal/admin fees and the security interest in respect of those fees, having regard to the circumstances that existed at the time the first defendant executed the letter of offer.

2. [78]

   Section 7 of the Contracts Review Act provides for the grant of relief, including the making of an order that a contract is void in whole or in part, where the Court finds a contract or provision “to have been unjust in the circumstances relating to the contract at the time it was made”. “Unjust” is (non-exhaustively) defined in s (4)(1) to mean “harsh, unconscionable or oppressive” and “injustice” is to be construed in a corresponding manner.

3. [79]

   Section 9 lists the matters to which the Court shall have regard, to the extent that they are relevant to the circumstances, and provides as follows:

4. [80]

   The principles relating to a court’s assessment of whether a contract is unjust were considered in West v AGC (Advances) Ltd and Others (1986) 5 NSWLR 610 and can be summarised as follows (at 620-622):

5. [81]

   Before exercising the power to grant relief under the Contracts Review Act, the Court must first determine the facts and then assess whether the contract is unjust or not: Nemeth v Australian Litigation Funders Pty Ltd [2014] NSWCA 198 at [97].

6. [82]

   That assessment involves an evaluative process having regard to the totality of the circumstances. As Allsop P (as his Honour then was) said in Provident Capital Ltd v Papa [2013] NSWCA 36 (at [7]):

7. [83]

   The first defendant has been a registered nurse since 1986 and has been employed at Bowral Hospital since 2001. While somewhat nervous during cross-examination, she presented as a capable and well-spoken woman although (and with no disrespect intended) not someone who would be described as a sophisticated business person.

8. [84]

   The first defendant signed the letter of offer on 27 February 2015 at the kitchen table of her home having been asked to do so by her husband, the second defendant. She was not advised to, and did not seek, any independent legal advice on the letter of offer.

9. [85]

   The first defendant stated that she did not read the letter of offer when she signed it. She only saw the page on which she signed and did not read everything on that page.

10. [86]

    The first defendant gave evidence that at the time she signed the letter of offer she understood that its purpose was to procure a loan for $550,000 as bridging finance relating to the purchase of property. She understood that her husband was having difficulty obtaining funding and that he needed to raise extra funds quickly. She was not involved in the Razorback property transaction and did not know the purchase price or value of the property but understood that her husband considered it to be a “good deal”. She was willing to enter into the arrangement to raise funds for that reason.

11. [87]

    The first defendant also gave evidence that she believed that signing the letter of offer would not result in binding herself to anything “serious”. She expected that the details and terms of any loan contract would be explained to her by the plaintiff or a solicitor of her choosing after the offer she was signing was approved. She did not know that by signing the last page she would be giving any security over her property or that she may have to pay any money to the plaintiff.

12. [88]

    The first defendant accepted that she would have had to read the document to understand if it was binding or not.

13. [89]

    The first defendant had no direct dealings with the broker or the plaintiff prior to or after signing the Executed Letter of Offer.

14. [90]

    As counsel for the first defendant submitted, the facts indicate that some of the matters set out in s 9(2) of the Contracts Review Act to which the Court shall have regard were present at the time the first defendant executed the letter of offer and the relevant contract was entered into. Those matters include an inequality of bargaining power as between the first defendant and the plaintiff, a lack of negotiations between them relating to the terms of the letter of offer (although the evidence indicates the broker negotiated a lower interest rate for the proposed loan), the terms of the letter of offer not having been explained to the first defendant and a lack of any legal advice having been obtained by the first defendant on the letter of offer.

15. [91]

    The facts could also be considered as indicating the first defendant was subject to some time pressure by the second defendant to sign the letter of offer and, in that context, may not have been given a proper opportunity to understand the nature of the arrangement that she was entering into at the time.

16. [92]

    It does not follow from a finding that those matters were present that the Executed Letter of Offer was procedurally unjust. In my opinion, an evaluation of the overall circumstances does not support such a conclusion.

17. [93]

    I accept the first defendant’s evidence that she did not appreciate the consequence of signing the letter of offer. It appears, however, that the primary cause of that state of affairs is the first defendant’s decision not to read the document.

18. [94]

    Her ability to understand the terms of the Executed Letter of Offer was highlighted when she was taken to some of the conditions precedent during cross-examination and accepted that they were easily understood.

19. [95]

    The prospect of the first defendant understanding the document is also apparent from an objective review of the Executed Letter of Offer. The document is only five pages in length. It is not a long or overly complex document like some detailed loan agreements can be. Many of the terms contained within it, including the obligation to pay the originator fee and to provide security by way of a charge over property, are not written in complex legalese.

20. [96]

    By her own admission, the first defendant did not attempt to read the letter of offer. If she had done so, it was likely she would have understood the binding nature of the document and the possible consequences.

21. [97]

    A contract may be unjust even in the absence of any special disability on the part of the first defendant, or unfair tactics perpetrated by the plaintiff: Big Kahuna Holdings Pty Ltd v Kitar [2012] NSWSC 615; Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260. Nonetheless, those factors (or the lack thereof) may be taken into account pursuant to s 9(2).

22. [98]

    In this case, the first defendant was not under any special disability which meant she was unable to understand the agreement into which she was entering. She was aware the letter of offer related to a loan of $550,000. If she had read it in full she would have appreciated that she was accepting an offer made by the plaintiff to arrange a loan, not making an application. She would have appreciated that, as set out on page 5, she was providing a direction to the plaintiff to proceed to arrange the loan. She would also have appreciated that there would be fees payable to the plaintiff, including the originator and legal/admin fees, for which she (as guarantor) would “remain liable” if the loan did not proceed and for which she had to provide security by way of a charge over her property.

23. [99]

    The first defendant’s counsel did not submit or adduce any evidence that the terms contained in the Executed Letter of Offer were unusual or contained special features which gave rise to some substantive injustice. Rather, he said that their effect in this case was unjust as it would enable the plaintiff to recover a “success fee” when the loan did not proceed. In my view, that is not sufficient to establish that the terms themselves were harsh or oppressive.

24. [100]

    Additionally, there was no predation and no unconscionable conduct or behaviour by which the plaintiff sought to take advantage of the first defendant.

25. [101]

    The submission by the first defendant’s counsel that she would not have signed the letter of offer if the terms (including that she could be exposing herself to a debt of $20,900) had been explained to her does not seem plausible in light of her evidence that she signed because she understood her husband needed the funds urgently for a good deal and she knew the letter of offer related to a loan for a much larger sum of money.

26. [102]

    The absence of the first defendant obtaining any legal advice is, to my mind, not as significant in this case as it might be in others. The Executed Letter of Offer provided for the defendants to obtain legal advice in respect of the preparation of, and before entry into, the formal loan documentation. The time for obtaining that advice had not yet arisen.

27. [103]

    The evidence also indicates that the first defendant did not ask any questions of her husband, the second defendant, at the time she signed. It is also relevant that the defendants were represented by a broker who was also available if questions arose. There is no evidence that any were asked. Evidently, the first defendant unquestioningly accepted her husband’s advice that the signing the document related to a good deal. The evidence indicates the first and second defendants had the potential to make a meaningful profit from the transaction, a fact the first defendant accepted in cross-examination.

28. [104]

    An assessment of whether a contract or its provisions are unjust should take into account the burden on the party. Here, while not a nominal sum and perhaps not a necessity for the protection of the plaintiff’s interests given the loan did not proceed, the materiality of the amount claimed and impact on the defendants are relevant factors to take into account in the evaluative process. The obligation that is being sought to be enforced relates to a claimed debt of $20,900. It is not about the enforcement of security against property of the first defendant to the value of a loan or a debt in the amount of $550,000.

29. [105]

    Adopting the words of Allsop P from Provident Capital Ltd v Papa [2013] NSWCA 36, at the heart of this case is the recognition of the first defendant’s failure to protect her interests in the circumstances, notwithstanding her ability to do so.

30. [106]

    For these reasons, I am not satisfied that the Executed Letter of Offer or the provisions relating to the payment and liability for the originator and legal/admin fees and the security interest in respect of those fees are unjust within the meaning of s 7 of Contracts Review Act. Accordingly, no relief should be granted under that Act.

31. [107]

    The defendants’ counsel submitted that the plaintiff does not have a caveatable interest in the Robertson property. This is primarily because the originator and legal/admin fees are said not to be payable by the defendants.

32. [108]

    The alternative submission (assuming the originator and legal/admin fees are payable) is that there was no caveatable interest when the Caveat was lodged on 13 March 2015.

33. [109]

    For the reasons that follow, I find that the plaintiff had a caveatable interest in the Robertson property as at 13 March 2015 and continues to do so.

34. [110]

    The defendants’ counsel did not dispute that the charge in the Executed Letter of Offer could give rise to an equitable interest in land and could support a caveat. His argument related to timing as he contended that any caveatable interest could only arise when the originator and legal/admin fees became payable on termination of the contract, which occurred after the Caveat was lodged (on 13 March 2015).

35. [111]

    The defendants also contended that the earliest date on which the fees became payable was 18 March 2015, being the date on which the plaintiff received written notice that the Razorback property sale was not going ahead and, therefore, the earliest date on which the contract between the parties came to an end. I have already found at paragraph [63] that the fees became payable on or about 18 March 2015.

36. [112]

    The plaintiff submitted that the caveatable interest arose when the defendants’ liability for payment arose, being upon acceptance of the letter of offer, not when payment was required to be made.

37. [113]

    A caveat can be entered against land if the caveator has a relevant proprietary interest, including an equitable interest, in land: s 74F Real Property Act 1900 (NSW).

38. [114]

    Clause 6 on page 5 of the Executed Letter of Offer contains an agreement by the defendants “to hereby grant to [the plaintiff] “a fixed charge over all Other Property [of the defendants] by way of security for the payment of the fees set out above”. It was not disputed that the “payment of the fees set out above” included the payment of the originator and legal/admin fees or that the “Other Property” included the Robertson property.

39. [115]

    Clause 6 does not grant a charge to the plaintiff to secure outstanding monies and is not expressed to arise on default by the defendant guarantors or only when the “fees set out above” became due and payable.

40. [116]

    Rather, the grant of the charge in clause 6 is expressed as an immediate condition to provide security for the defendants’ obligations under the Executed Letter of Offer which, as guarantors, included the payment of the originator and legal/admin fees as and when they became payable.

41. [117]

    The use of the words “hereby grant to” make clear it was intended that the fixed charge would arise at once and was not postponed until a later time, such as when the fees became payable or overdue.

42. [118]

    This charging clause is not dissimilar to the terms of the charging clauses which gave rise to immediate equitable interests in land and rights to lodge caveats over property considered in other case: see for example Capital Finance Australia Limited v Sharpe Enterprises Pty Ltd and Others [2009] QSC 305; Allen Taylor & Co Pty Ltd (t/as Boral Timber) v Harrison [2010] NSWSC 1021; Allen’s Asphalt Pty Ltd v SPM Group Pty Ltd [2010] 1 Qld R 202.

43. [119]

    The terms of the charge granted by the defendants in clause 6 of the Executed Letter of Offer created an immediate security and equitable interest in the defendants’ property, including the Robertson property. The security charge and equitable interest were not dependent on or postponed until the contract was terminated or until the plaintiff became entitled to demand payment of the originator and legal/admin fees. The equitable interest in the defendants’ property arose upon the grant of the fixed charge by the defendants to the plaintiff on 27 February 2015, being the date of the Executed Letter of Offer.

44. [120]

    It follows from this that a finding as to when originator and legal/admin fees became payable is not determinative of the issue of whether the plaintiff had a caveatable interest.

45. [121]

    Accordingly, I conclude that the plaintiff had a caveatable interest on 13 March 2015 and was entitled to lodge the Caveat as it did to secure payment of the originator and legal/admin fees. As the fees have not been paid, the plaintiff continues to have a caveatable interest in the Robertson property and is entitled to the declaration in the terms sought in paragraph 1 of the summons.

46. [122]

    The defendants also submitted that, even if there was a caveatable interest, the Caveat should not be extended. This is because the Caveat was lodged at a time when the plaintiff did not know the loan transaction was not proceeding and had been lodged for the purpose of putting pressure on the defendants to pay the fees.

47. [123]

    The plaintiff submitted that it was likely but not certain that it knew about the termination by 12 March 2015 and that was the reason the Caveat was lodged on 13 March 2015. This could be inferred, the plaintiff said, from the terms of the letter from the plaintiff to the broker dated 12 March 2015, in which the plaintiff asked for an update in relation to the outstanding items, and the evidence given on behalf of the plaintiff by Anthony Barbone, a director of the plaintiff, in his affidavit and during cross-examination.

48. [124]

    I do not accept the plaintiff’s submission on this matter. Based on the evidence and consistent with my previous finding, I consider it probable the plaintiff was not aware of the termination of the Razorback contract for sale at the time of lodgement of the Caveat. This is for the following reasons.

49. [125]

    First, the only documentary evidence of the plaintiff having been informed about the termination of the sale of the Razorback property is the email from the broker dated 18 March 2015, which was sent five days after the Caveat was lodged.

50. [126]

    Second, the email from the plaintiff to the broker dated 12 March 2015 asking for an update on outstanding items made no mention of the termination of the Razorback property sale. If the plaintiff had heard by then, it is to be expected that the plaintiff would have referred to that event and the potential impact on the proposed loan in its 12 March email. It did not.

51. [127]

    Third, Mr Barbone’s affidavit evidence on the issue was inconsistent with the plaintiff’s submission and also confused. The affidavit suggested that the Caveat was lodged after the defendants withdrew from the plaintiff’s offer of a loan, which was said to be at about the time of the 18 March 2015 email from the broker, not on 12 March 2015. It also suggested the reason the plaintiff instructed its lawyers to lodge the Caveat was, in part, because the plaintiff discovered that the defendants were attempting to obtain finance from another lender. The explanation regarding another lender is not plausible given Mr Barbone knew the loan from the plaintiff was for mezzanine finance only and he was aware that another finance company was involved as early as 27 February 2015.

52. [128]

    Fourth, Mr Barbone’s evidence in cross-examination as to when he found out about the Razorback property sale falling through and why the Caveat was lodged was also inconsistent. Initially he asserted the Caveat was lodged after the plaintiff found out that the Razorback transaction was not going to proceed, asserting that he was told by the broker during a discussion sometime prior to 18 March, although he could not recall the date or content of that discussion. He then asserted that the Caveat was lodged as it was standard practice to lodge a caveat in preparation for settlement of a loan.

53. [129]

    Later he accepted that it was lodged because the plaintiff had a concern that the loan transaction would not proceed because communication had broken down and the broker was not responding to his emails. This appears to be the most likely explanation and is consistent with the documentary record. That explanation does not mean that the Caveat should not be extended.

54. [130]

    The defendants’ counsel also made a submission that lodging the Caveat was, in his words, “bordering on unconscionable conduct”, and had the “hallmarks of commercial hijacking” as it was only lodged to secure payment of the originator and legal/admin fees and was not about providing or securing the loan funds.

55. [131]

    In making that submission, he pointed to comments of Palmer J in Lawrence v Appleby [2001] NSWSC 649 at [24] to the effect that a caveat should not be lodged to bring unwarranted pressure upon a registered proprietor of land to force abandonment or compromise of a claim in a real and genuine dispute between the parties.

56. [132]

    The defendants’ counsel also referred to the comments of Bryson J in Clos Farming Estates P/L (Receivers & Managers Appointed) v Graham Rush Easton & Anor [2001] NSWSC 525 where he observed at [74]:

57. [133]

    The position in those cases is very different to the position in this case. Lawrence v Appleby [2001] NSWSC 649 concerned an application to extend a caveat in interlocutory proceedings prior to a final hearing on the caveator’s substantive claim, and Palmer J’s comments were made in the context of considering balance of convenience issues.

58. [134]

    Bryson J’s comments were made in a case where no substantive relief was being sought and where he found that it was “obvious” the plaintiff in the matter had no arguable ground for lodging a caveat.

59. [135]

    The issue in this case is whether the Court should exercise its statutory discretion under s 74K of the Real Property Act 1900 (NSW) to extend the operation of the Caveat.

60. [136]

    I have found that the defendants owe the plaintiff a sum of $20,900. I have also found that the plaintiff had a caveatable interest in respect of the defendants’ property to secure payment of the originator and legal/admin fees at the time the Caveat was lodged and that the plaintiff continues to hold that caveatable interest. It is not disputed that the monies the Caveat was lodged to secure have not yet been paid by the defendants.

61. [137]

    As Young J (as his Honour then was) stated in Kingstone Constructions Pty Ltd v Crispel Pty Ltd (Supreme Court (NSW), 12 March 1991, unrep):

62. [138]

    In the present case, the defendants have not proffered an alternative security in respect of the fees. The debt remains outstanding.

63. [139]

    There is also no evidence before the Court that there is some particular prejudice flowing to the defendants as a result of the continued lodgement of the Caveat.

64. [140]

    In those circumstances, I am satisfied that it is appropriate to make an order extending the Caveat until the judgment debt is discharged (or until this Court orders otherwise) as sought in paragraph 2 of the summons.

Costs

1. [141]

   The general rule is that costs follow the event unless it appears to the Court that some other order should be made: r 42.1 Uniform Civil Procedure Rules 2005 (NSW).

2. [142]

   This case has really been about whether a debt of $20,900 was due and owing by the defendants. The plaintiff commenced the proceedings to continue the operation of the Caveat pending the outcome of the final hearing on the substantive debt claim. It had a choice of transfer the debt claim to the Local Court while the Caveat stayed in operation. It chose not to do so and the claim has been litigated in this Court.

3. [143]

   No submissions were made at the hearing on the issue of costs in this case, including whether the amount of the claimed debt was relevant. In those circumstances, and as the plaintiff has succeeded in obtaining the relief sought in its summons, I do not consider it appropriate to apply anything other than the general rule in this case with the result that the defendants should pay the plaintiff’s costs of the summons.

Orders

1. [144]

   For the reasons given, the Court makes the following orders:

   1. (1)

      Declare that the plaintiff has a caveatable interest in the land described in certificate of title folio number 2/843560, known as and situated at 102 Carrington Falls Road, Robertson NSW 2577.

   2. (2)

      The operation of caveat number AJ331474 be extended until the payment of the judgment debt or further order of this Court (whichever is earlier).

   3. (3)

      Judgment for the plaintiff against the first and second defendants in the sum of $20,900.

   4. (4)

      Interest to be payable on the judgment sum in accordance with section 101 of the Civil Procedure Act 2005 (NSW).

   5. (5)

      The first and second defendants to pay the plaintiff’s costs of the summons.