Australian Broadcasting Corporation v O'Neill

(1) application fee 'paid by you to Kalx Capital for assessing your loan application, conducting due diligence, credit papers submissions in arranging funding for settlement';

(2) establishment fee 'paid by you to Kalx Capital for approving and settling the loan' and described as '2.0% deducted at settlement', less the application fee;

(3) brokerage fee, 'payable by you to your broker for obtaining this loan';

(4) valuation fee, 'paid by you for valuation of the securities subject to this facility', also to be deducted at settlement; and

(5) solicitor fee: 'you shall be responsible for KC's legal costs, in respect to all mortgage documentation, stamp duty, registration fees and any other relevant outlays even in the event the loan does not proceed'. The solicitor fee was to be 'deducted at settlement at cost'.

45 Kalx reserved the right to vary or withdraw the Letter of Offer at any time before settlement.

46 In four numbered paragraphs the borrower and guarantors declared and agreed:

1. I/We, the Borrower(s)/Guarantor(s) accept the terms and conditions contained in this Letter of Offer, as set out above.

2. I/We, the Borrower(s)/Guarantor(s) hereby direct Kalx Capital to proceed with arranging the formal loan documentation, engagement of solicitors to act on behalf of Kalx Capital in relation to the loan, and to conduct such further diligence as may be required by Kalx Capital to proceed with the loan.

3. I/We, the Borrower(s)/Guarantor(s) agreed to pay the Establishment Fee, Solicitors Fee and all costs which may be incurred in connection with the loan, to Kalx Capital in consideration of Kalx Capital proceeding with the establishment of the loan in accordance with the direction to proceed above.

4. I/We, the Borrower(s)/Guarantor(s) hereby grant to GC[26] a PPSA Security interest over all PPSR Personal Property, and a fixed charge of all Other Property[27] by way of security for the payment of the fees set out above.

47 On 3 February 2021, Mr Hatt forwarded to Mr Becerra and Mr Caruana a construction cost assessment.[28]

48 Also on 3 February 2021, Mr Hatt forwarded to Mr Becerra and Mr Caruana a quote to undertake a valuation of the Richardson Street property, and Mr Caruana forwarded the quote to Rhys Scott.[29]

49 Kalx has put in evidence an Indicative Term Sheet, dated 3 February 2021, addressed to Richardson 1 as the borrower, and the other defendants as guarantors. Kalx is referred to in the document as a 'loan manager', not lender. The lender is not identified, although the Term Sheet states: 'Based on direct feedback from our Singaporean lending partners, we are confident in our ability to assist you in arranging finance for this project based on the specifications outlined in this mandate'.[30]

50 The proposal in the term sheet was open for acceptance until 5.00pm on 12 February 2021.

51 The term sheet specified an 'Indicative Facility Limit' of $60.8 million (Senior Debt $57.3m, Junior Equity $3.5m).

52 Combined lender/broker fees included 2.2% of the Limit to Kalx as Loan Manager.[31] The terms for payment of the Loan Manager fee was that fees were to be payable immediately on presentation of an invoice on the occurrence of four milestones:

(1) $20,000 upon the borrower signing the proposal;

(2) $20,000 upon issue of the Lenders Letter of Offer, subject to it being generally in accordance with the proposal and 'which is payable whether or not the Borrower proceeds with her accepts the lender's offer, unless waived by agreement in writing';

(3) $20,000 payable upon issue of the Lenders Letter of Offer for Junior Equity; and

(4) the balance due and payable on acceptance of the formal offer of finance by the Borrower, with payment to be made to Kalx from the distribution of the finance proceeds of loan settlement or as otherwise agreed.

53 The Indicative Term Sheet provided for the borrower to request Kalx to proceed with the application for finance based on the finance proposal, with the fee to Kalx 'due and payable immediately' if the loan is approved substantially within the terms of the proposal.[32]

54 On 5 February 2021, the third defendant wrote by email to Rhys Scott, Mr Becerra and Mr Caruana regarding the proposed term sheet which he described as looking 'workable' subject to ironing out a couple of key items.[33]

55 On 10 February 2021, the third defendant sent to Mr Becerra and Mr Caruana, by email, a marked-up version of the term sheet. Mr Becerra forwarded the marked-up copy to Rhys Scott.[34]

56 On 22 February 2021, Rhys Scott sent an email with the term sheet attached to Mr Becerra and Mr Caruana. The proposal was now open for acceptance until 5.00pm on 26 February 2021. Mr Caruana forwarded the term sheet to the defendants, advising 'time is of the essence'.[35]

57 On 24 February 2021, Damon Ferguson, on behalf of Richardson 1, advised Kalx that they would not be proceeding further with Kalx, and that they no longer had confidence that the transaction would be completed.[36]

58 Kalx lodged the caveat over the title to the Richardson Street property on 13 April 2021. The title is also subject to two mortgages, lodged in 2013, two caveats lodged in April 2017, and a caveat lodged March 2019.[37]

59 To support its caveatable interest, Kalx relies upon the agreement in the Letter of Offer to grant a fixed charge over the property of Richardson 1, 'by way of security for the payment of the fees'.

60 Kalx relies on its entitlement to the sum of $990,000 as a settlement fee, as provided for in the Letter of Offer.[38] Kalx contends that Richardson 1 has repudiated the agreement and, following repudiation, is liable to pay the Establishment Fee and that fee is secured by a charge on the property.

61 That construction of the Letter of Offer cannot be sustained.

62 The Letter of Offer is to be construed by the principles that apply to any commercial agreement. Those principles are well-established.[39] In CA & Associates Pty Ltd v Fini Group Pty Ltd, the Court of Appeal stated five general principles:

1. The rights and liabilities of parties under a provision of a contract are determined objectively by reference to its text, context (the entire text of the contract) and purpose.

2. In determining the meaning of the terms of a commercial contract it is necessary to ask what a reasonable business person would have understood the terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purposes or objects to be secured by the contract.

3. The court approaches the task of giving a commercial contract an interpretation on the assumption that the parties intended to produce a commercial result - one which makes commercial sense. (This has been said to require that the construction to be placed on the relevant provision be consistent with the commercial object of the agreement.) Thus a commercial contract should be construed so as to avoid it making commercial nonsense or working commercial inconvenience.

4. Ordinarily the process of construction is possible by reference to the contract alone.

5. However, sometimes recourse to external events, circumstances or things is necessary; for example, to identify the commercial purpose or objects of the contract (by reference to the genesis of the transaction, the background, the context and the market in which the parties are operating) or to determine the proper construction where there is a constructional choice due to ambiguity.[40]

63 The Establishment Fee was expressed to be a fee for 'approving and settling the loan' and was payable at settlement (to be deducted at settlement). Unlike the Solicitor Fee, the Establishment Fee was not stated to be payable even in the event that the loan does not proceed. Further, Kalx had reserved the right to withdraw its offer at any time before settlement. On the proper construction of the Letter of Offer, Richardson 1 was not obliged to pay the Establishment Fee where no loan has been approved and there has been no settlement.

64 This is consistent with the terms later included in the Indicative Terms Sheets, although I do not rely on those documents in determining the proper construction of the Letter of Offer.

65 I am not required in this application to determine whether Kalx may have a claim for damages for loss of opportunity to earn the Establishment Fee on repudiation of the agreement.

66 The charging clause must also be construed by reference to principle. For convenience I will set it out again:

I/We, the Borrower(s)/Guarantor(s) hereby grant to GC a PPSA Security interest over all PPSR Personal Property, and a fixed charge of all Other Property by way of security for the payment of the fees set out above.

67 In its further written submissions, filed by leave after the hearing of the application, Kalx argued that, at the time it lodged the caveat, the defendants had repudiated the loan agreement. At that time, Kalx argued:

(1) its entitlement to damages had crystallised and it had a vested entitlement 'by way of damages to the balance of the Application Fee and the Establishment Fee (and, further, to any costs and expenses that had been incurred in fulfilling the Plaintiff's obligations under the Loan Agreement)';

(2) alternatively, it had a right to specific performance of the 'Loan Agreement' (that is, the Letter of Offer) to the effect that Richardson 1 was obliged to pay the Fees and costs and expenses;

(3) alternatively, it had a 'crystallised right' to damages for an amount contingent on the court's determination of quantum.

68 The plaintiff referred to two authorities where the court considered whether equitable charges expressed in very general terms secured a contingent debt.

69 The first case referred to was Clarke v Raymor (Brisbane) Pty Ltd (No 2).[41] The relevant clause in that case provided: 'To secure payment to you of any amounts outstanding I charge all of my property both real and personal with the amount of my indebtedness until discharged'.[42]

70 The second case, a decision of Jarrett FM in the Federal Magistrates Court of Australia, followed that decision in relation to a clause by which a purchaser charged to its supplier, 'all of the present and future real property of the Purchaser as security for the due and punctual payment of all debts and monetary liabilities owed by the Purchaser to the Supplier pursuant to contract on or including the terms of these Conditions'.[43]

71 Neither case assists the plaintiff. The construction and operation of the present agreement must be based on its text, by reference to general principle. Findings made with regard to the operation of differently worded clauses in other cases can be of little, if any, assistance.

72 In the present case, the charging clause was more limited and operated to give security for the payment of fees. The Establishment Fee was payable, at settlement, for Kalx 'approving and settling' the loan. At the time Kalx lodged the caveat it had no right, contingent or otherwise, to a fee for approving and settling the loan. As a matter of construction, the charging clause was not engaged.

73 Further, even if there were a contingent right to damages at an earlier time, it does not come within the quite specific terms of the charging clause.

74 The plaintiff's reference to specific performance does not assist it. I note that, in CIV 1625 of 2021, Kalx has claimed a declaration that it is entitled to specific performance of the defendants' obligation to pay it $1,118,800 but ignores any corresponding obligation it may have to approve and settle the loan. There is nothing in the evidence in this application to support a finding that Kalx would, at any time, have been able to settle a loan for $56m so as to become entitled to the Establishment Fee. Kalx has not demonstrated an arguable case for specific performance.

75 Three other categories of fee were possibly in contention.

76 At first Kalx claimed a Brokerage Fee, which Mr Scott claimed in his first affidavit was $687,500.[44] Kalx now accepts that the Brokerage Fee was not payable to them.

77 Kalx has not led any evidence that it incurred solicitor costs in respect of mortgage, documentation, stamp duty, registration fees or other relevant outlays. In his first affidavit, Mr Scott referred to a solicitor's fee for preparation of loan documentation and mortgage documentation of $20,000. None of the documents he produced is endorsed as being prepared by a solicitor, nor do they appear to be professionally drafted. On the evidence currently before the court, I am not satisfied that Kalx engaged solicitors and incurred such costs.[45]

78 The last fee is the Application Fee. In his affidavit, Mr Scott claimed that $60,000 of $110,000 had been part paid. In written submissions filed on behalf of Kalx, it was accepted that Kalx had agreed to a reduced fee of $70,000 rather than the amount referred to in the Letter of Offer. That submission is consistent with the email of 21 October 2020, in which Mr Scott proposed a compromise of $70,000.[46]

79 Mr Scott's initial evidence in his first affidavit, where he asserted a debt of $1,747,500 was outstanding, is clearly wrong.[47] Kalx now accepts that Richardson 1 was not liable to pay to Kalx a brokerage fee of $687,500. Mr Scott's characterisation of the $60,000 paid to Kalx as a 'deposit amount'[48] is not supported by any evidence.

80 It is not possible, on the documents, to determine whether the fee had been reduced. The evidence of the amount outstanding is unsatisfactory, where Mr Hatt does not deal directly with the issue and Mr Scott's evidence is inconsistent with the submissions filed on behalf of Kalx.

81 At best, Kalx may have a claim for a balance of $50,000 for the balance of the Application Fee that remains unpaid.

82 With regard to the Establishment Fee and Solicitor Fee, it is unnecessary to consider the balance of convenience. Kalx has failed to demonstrate that it has or may have a caveatable interest.

83 Balance of convenience is a relevant factor with regard to any remaining claim to maintain the caveat solely for the balance of the Application Fee.

84 Under s 138C(2) of the Transfer of Land Act, if it is satisfied that the caveator's claim has or may have substance, the court has a discretion whether to make an order extending the operation of the caveat. In the exercise of that discretion, the balance of convenience is a relevant factor. There is no rule of law that once an arguable case for a caveatable interest has been established, removal of the caveat will only be ordered if it is shown that the 'circumstances are so unusual' that the caveat should be removed. The discretion is to be exercised having regard to the particular circumstances of the case.[49] The balance of convenience may be particularly important when the caveatable interest claimed is a security interest.

85 The defendants have adduced evidence that there is currently no equity in the property to be developed. They submit that Kalx seeks to maintain its charge for the purpose of applying illegitimate commercial pressure.

86 For the purposes of the present application, it is sufficient that I find the plaintiff lodged, and attempted to support, an absolute caveat for a debt of $1,747,500. Kalx now accepts that an absolute caveat went beyond what was necessary to protect its rights.

87 It also now accepts that it is not entitled to the brokerage fee of $687,500 on which it previously relied; and I have found that the agreement upon which it relies does not operate to give it security over any entitlement it may have to damages.

88 In my opinion, the balance of convenience does not favour the retention of a caveat when Kalx maintains a security interest only, its claim is with regard to a comparatively small sum, and its interest could be otherwise protected so that the removal of the caveat would not defeat or extinguish its claims.

89 The question is whether, pending determination of the action, the court should order security in some other form, for example by a charge over, or an injunction with respect to, the proceeds of any sale of the property, or by the payment of the amount claimed into court.

90 I will hear the parties on the question of any continuing security, and the costs of this application. The application to extend the operation of the caveat will be dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

CITATION : KALX CAPITAL SECURITIES PTY LTD -v- RICHARDSON 1 PTY LTD [No 2] [2021] WASC 302 (S)

Practice and procedure - Caveats - Where application to extend caveat dismissed on balance of convenience - Whether alternative security should be ordered and in what form - Turns on own facts

Practice and procedure - Costs - Whether defendants successful party - Turns on own facts

Plaintiff to pay the costs of the first to fourth defendants

Frigger v Professional Services of Australia Pty Ltd (No 2) [2011] WASCA 103

Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164

Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72

91 These reasons were delivered orally following the hearing on 17 September 2021.

92 On 2 September 2021, after hearing on 16 August 2021, I determined that the plaintiff's application to extend the operation of Caveat No. 0700662 over a property being developed by the first defendant in South Perth should be dismissed. I found that the plaintiff had no arguable case in relation to the very substantial establishment fee which it contended was owing by the defendants. I further found that there was an arguable case that the defendants were liable for an application fee, the amount of which was uncertain but did not exceed $50,000. The balance of convenience did not favour the retention of a caveat for that sum.

93 A further consideration was that the absolute caveat lodged by the plaintiff could not, in any event, be sustained. The caveat should have been in the form of either a subject to dealings or a notice caveat.

94 The caveat was, however, continued in operation for a short time, to enable consideration to be given to some alternative security for the amount that, arguably, was owing. The form of alternative security would be affected by whether the plaintiff gave security for costs in the substantive action (CIV 1625 of 2021) or those proceedings remained stayed.

95 Since 2 September 2021, the following developments have occurred. First, the plaintiff has failed to pay either the first or second tranche of security for costs in CIV 1625 of 2021, so that its action remains stayed. Second, on 10 September 2021, the solicitors who had been acting for the plaintiff came off the record. The plaintiff has not appointed alternative legal representation. The plaintiff has been advised that, pursuant to O 4 r 3 of the Supreme Court Rules 1971 (WA), a body corporate may not carry on any proceedings in the Supreme Court otherwise than by a solicitor.

96 Balancing the interests of all parties, I am satisfied that the plaintiff's interest may be preserved by an injunction requiring the defendants to give it notice of any proposed dealing with the property. I will except the giving of security by mortgage or otherwise in the ordinary course of the defendants' business.

97 I should also allow for the fact that the substantive proceedings are stayed because the plaintiff failed to give security for costs. I will stay the order granting the injunction while those proceedings are stayed. The injunction will remain in place until further order or the determination of the substantive proceedings, whichever is earlier.

98 The costs of and incidental to all proceedings in court are in the discretion of the court: Supreme Court Act 1935 (WA) s 37(1). The discretion must be exercised judicially, but it is otherwise unconfined: see, for example Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72 [21] ‑ [22], [134]; Northern Territory v Sangare [2019] HCA 25; (2019) 265 CLR 164 [24] - [25]. While the discretion to award costs cannot be shackled, and considerations which might guide the exercise of the discretion cannot be rigidly applied, the Rules and the authorities offer guidance on the proper exercise of the discretion and help to ensure consistency in the exercise of judicial discretion.

99 The general rule in O 66 r 1 of the Rules of the Supreme Court, while it is expressed to not limit the general discretion conferred on the court, is that the court will generally order that the successful party to any action or matter recover his costs: see Northern Territory v Sangare [25].

100 Whether a party is successful is to be determined by the reality of the circumstances, by which party has succeeded in the underlying real contest: Frigger v Professional Services of Australia Pty Ltd (No 2) [ 2011] WASCA 103 (S) [12]; Oshlack v Richmond River Council [70].

101 When considering the whole of the application, it was the defendants who succeeded. The plaintiff's claim was that it had or may have a caveatable interest, being a charge over the property for approximately $1 million. It failed in that claim. While I am satisfied that some security should remain in place in favour of the plaintiff, that is for a small sum only and requires either the amendment of the caveat, or an alternative form of security.

102 The costs of the application to extend the operation of the caveat should be awarded to the defendant.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[2] Transfer of Land Act 1893 (WA) s 138C(2). Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 50.

[3] See Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57; Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171 [42] ‑ [44].

[4] Porter v McDonald [1984] WAR 271, 276.

[5] Navarac Pty Ltd v Moondancer Holdings Pty Ltd [2009] WASCA 95 [22]; [2009] WASCA 95; (2009) 40 WAR 150.

[6] Midland Brick Company Pty Ltd v Welsh [2006] WASC 122; (2006) 32 WAR 287 [342]; Gangemi v Gangemi [2009] WASC 195 [44].

[7] Affidavit of Robert Henry Hughes II sworn 1 July 2021 [3].

[8] Affidavit of Antony Kan Hatt sworn 6 August 2021 [7].

[9] Affidavit of Chad William Ferguson sworn 14 July 2021 [3].

[10] Affidavit of Antony Kan Hatt sworn 6 August 2021 [15].

[11] Affidavit of Antony Kan Hatt sworn 6 August 2021 [21].

[12] Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-1.

[13] Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-2.

[14] Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-2, p15.

[15] Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-3.

[16] Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-4, p30.

[17] Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-5.

[18] Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-6.

[19] Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-7.

[20] Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-8.

[21] Affidavit of Antony Kan Hatt sworn 6 August 2021, AKH-3.

[22]Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-9.

[23] Affidavit of Rhys Scott sworn 23 June 2021 [11].

[24] Affidavit of Antony Kan Hatt sworn 6 August 2021, AKH-5, pp29 - 31.

[25] Affidavit of Rhys Scott sworn 23 June 2021, RS-4, pp15 - 19.

[26] The reference to 'GC' as the grantee of the charge is not explained.

[27] Other property is defined to mean all present and after acquired property of the Borrower/Guarantors which is not PPSA Personal Property.

[28] Affidavit of Rhys Scott sworn 23 June 2021, RS-5, pp20 - 21.

[29] Affidavit of Rhys Scott sworn 23 June 2021, RS-6, p38.

[30] Affidavit of Rhys Scott sworn 23 June 2021, RS-7, p47.

[31] Affidavit of Rhys Scott sworn 23 June 2021, RS-7, pp51 - 52.

[32] Affidavit of Rhys Scott sworn 23 June 2021, RS-10, p85.

[33] Affidavit of Rhys Scott sworn 23 June 2021, RS-8, p58.

[34] Affidavit of Rhys Scott sworn 23 June 2021, RS-9, pp60 - 61.

[35] Affidavit of Rhys Scott sworn 23 June 2021, RS-11, p86.

[36] Affidavit of Rhys Scott sworn 23 June 2021, RS-12, p87.

[37] Affidavit of Rhys Scott sworn 23 June 2021, RS-3, p14.

[38] The sum is taken from the statement of claim in the related proceedings.

[39] See Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 [35]; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 [46] ‑ [52].

[40] CA & Associates Pty Ltd v Fini Group Pty Ltd [2020] WASCA 31 [51] (Buss P and Vaughan JA).

[41] Clarke v Raymor (Brisbane) Pty Ltd (No 2) [1982] Qd R 790.

[42] Clarke v Raymor (Brisbane) Pty Ltd (No 2),794.

[43] Australian Steel Company (Operations) Pty Ltd v Chubb [2012] FMCA 866 [13]; [2012] FMCA 866; (2012) 269 FLR 312.

[44] Affidavit of Rhys Scott sworn 23 June 2021 [9].

[45] Affidavit of Rhys Scott sworn 23 June 2021 [9(d)].

[46] Affidavit of Robert Henry Hughes II sworn 1 July 2021, RH-8.

[47] Affidavit of Rhys Scott sworn 23 June 2021 [22].

[48] Affidavit of Rhys Scott sworn 23 June 2021[11].

[49] See Navarac Pty Ltd v Moondancer Holdings Pty Ltd [20], [21] and [29].