Business Development Leaders Pty Ltd v Eslarn Holdings Pty Ltd [2009] NSWSC 1164 | Case summary

2447/09 BUSINESS DEVELOPMENT LEADERS PTY LTD v ESLARN HOLDINGS PTY LTD & ORS JUDGMENT 1 The plaintiff, Business Development Leaders Pty Ltd, claims judgment for non-payment of a service fee of $16,995 and orders for the continuation or substitution of caveats over land securing the service fee. 2 Gary Royston Simonite was the sole director and shareholder of Business Development. It was a mortgage broker operating principally in Queensland. Christiaan Edward Jarvis was the sole director and shareholder of Jarvis Consulting Pty Ltd. It was a mortgage broker operating principally in New South Wales. Mr Simonite and Mr Jarvis agreed to merge their businesses and operate together as from 1 July 2008. From 11 November 2008 Mr Simonite and Mr Jarvis conducted their businesses through Viking Capital Group Pty Ltd of which they were the directors and shareholders. 3 Allan Iles was a finance broker who conducted business through a trading entity, Janallan Pty Ltd. 4 The defendants, Eslarn Holdings Pty Ltd and its directors Jonathon Woodward Bedel Stanford, Jeremy Chetwode Bedel Stanford and Terrence Lansdown conducted a timber business and were in need of short-term finance. They retained Mr Iles or Janallan to obtain such finance. He was unable to do so. He contacted Mr Jarvis who contacted Mr Simonite. Mr Simonite said he had a lender who would probably satisfy the borrowers' request. Mr Jarvis telephoned Mr Iles and told him that Mr Simonite had a lender for Eslarn. 5 Mr Jarvis said he told Mr Iles that Mr Simonite would have the general carriage of the loan and asked what Mr Iles was expecting as a fee. Mr Iles said he had put a lot of work in for the borrowers and he was looking for a fee of 1%. Mr Jarvis said the brokerage fee would be 3% upon success of which Mr Iles would be entitled to 1%, Mr Simonite would have 1% as would he. 6 Mr Iles agreed that he said he had put a lot of work in to try to obtain a loan. He denied he requested 1%. He said Mr Jarvis stated that he would allocate him 1%. He said the brokerage fee would 3% of which Mr Iles would be paid 1%. 7 Whatever were the precise words, it is clear that Mr Iles accepted that he would receive 1% and the work he had done and the loan application he had prepared were passed to Mr Simonite. 8 Mr Simonite prepared a spreadsheet that calculated a gross loan of $515,000 to produce, at indicative interest rates, a net loan of $400,000. Mr Simonite forwarded the spreadsheet to Mr Iles on 1 September 2008. 9 On 2 September 2008 Mr Jarvis sent an email to Mr Iles with a copy to Mr Simonite: "As discussed we have an interested party to provide a net loan of $400K for a period of 3-4 months and to proceed we need commitment as to the proposed terms…". The email set out information that was required. 10 Mr Jarvis said he told Mr Iles that he and Mr Simonite would be working on the matter together. Mr Iles denied this and said he had no knowledge of the merged businesses of Business Development and Jarvis Consulting. 11 Mr Iles forwarded the loan application documentation he had prepared. 12 On 16 September 2008, a service agreement and irrevocable authority addressed to Business Development was executed by Eslarn and by its three directors. 13 By cl 1 Eslarn and its three directors authorised and directed Business Development to act on their behalf to source finance substantially on the terms and conditions: Loan Amount $515,000.00 (Gross Loan Amount) Loan to Value Ratio Not to exceed 65% of valuation Term of Loan: 3 months Loan Purpose: Investment Purposes Interest rate: 5.5% per month (Indicative) Establishment Fee: 1.65% (Incl.GST) Interest: Capitalised 1) Registered 2nd mortgages over the Subject Properties as listed below Security: 2) Registered Fixed and Floating Charge over the corporate entities 3) Guarantees of the Directors 4) Collateral Security as required"

(c) … If Business Development Leaders Pty Ltd cannot obtain suitable finance for the Borrower(s) substantially under the terms as described in Clause 1, then no service fee shall be levied." 16 Clause 8 provided security for payment of the service fee. Business Development could lodge caveats over the securities and the borrowers and the guarantors consented to the lodgement. The borrowers and guarantors also agreed not to bring any proceedings to remove a caveat lodged pursuant to the terms of the agreement. Eslarn and the three directors were the borrowers and guarantors. 17 Clause 9 contained a notice provision. It was in the following terms: "All monies, which are due by the Borrower(s) to Business Development Leaders Pty Ltd in accordance with the terms of this Agreement, must be paid within 14 days from the date of a written notice from Business Development Leaders Pty Ltd requiring payment of those amounts. That notice will be served by [sic] on the borrower(s) when monies due pursuant to this Agreement become due and payable." 18 Mr Simonite was subsequently told that his lender was no longer interested. 19 Mr Jarvis made contact with 180 Capital Finance Pty Ltd. He then sent the application for finance originally prepared by Mr Iles with the work done on it by Mr Simonite under cover of a Jarvis Consulting Commercial Mortgage Loan Application Form to Greg Woszczalski, the general manager of 180 Capital, with a request that Mr Woszczalski call him to discuss the matter. 20 Mr Woszczalski sent the application to Jayson Littlefield, an employee of 180 Capital. 21 On 25 September 2008, Mr Littlefield sent an email to Mr Jarvis with a copy to Mr Simonite enclosing an application form for the directors of Eslarn to complete so that 180 Capital could organise an offer for them as soon as possible. 22 On the same day Mr Simonite sent an email to Mr Littlefield with copy to Mr Jarvis saying that a Jarvis Consulting application form had already been completed and was enclosed. He said he held a draft company balance sheet to 31 May 2008 but would request updated management accounts. Mr Simonite concluded his email thus: "If at all possible could you please speak with Christiaan this morning to see whether we can get an IP issued straight away to keep the clients happy? Additional items can be requested in the IP." 23 No doubt "IP" means "in principle". Mr Jarvis said that he had a conversation with Mr Littlefield that day and was told that the application he had submitted was fine and a letter of offer would issue shortly. 24 Later that day Mr Littlefield sent an email to Mr Jarvis saying he was just about to send him the offer. He needed a title reference and proprietor details. 25 Mr Littlefield then sent an email to Mr Simonite: "Just spoke with Chris - that is fine. Will get our offer out to him shortly." 26 On 26 September 2008 Mr Jarvis sent an email to Eslarn and Mr Iles with a copy to Mr Simonite. It stated that as requested by Mr Iles, Mr Jarvis had an investor who had agreed to fund their transaction using his company to process the loan. He said they had also managed to secure a cheaper facility for the three month term. There was some question as to the detail regarding some of the titles in question but this could be clarified in due course. He requested the directors of Eslarn to review the matter and contact him or otherwise execute the agreement. What was attached was an offer of short term finance from 180 Capital dated 26 September 2008. At lower interest rates, a spreadsheet arrived at a figure of $484,000.00 gross loan to produce a net loan of $400,000.00. 27 On 29 September 2008 Mr Iles sent an email to Mr Jarvis seeking clarification of items in the loan application. Shortly after that Mr Jarvis received the acceptance of the 180 Capital offer executed by Eslarn and its three directors and he returned it to 180 Capital. 28 180 Capital was seeking further information. Mr Jarvis said to Mr Iles that it would be more expeditious for him to talk directly with Mr Littlefield to save having the lender's requests put through him. 29 Mr Iles did provide further information to Mr Littlefield. The offer was subject to a condition precedent that 180 Capital was satisfied that Eslarn had the capacity to, and would, proceed to refinance the loan facility on or before the repayment date. On 2 October 2008, Mr Iles sent to Mr Littlefield a letter from Bankwest. Also on that day he provided Mr Littlefield with the folio identifier number of the property owned by Mr Lansdown. But Mr Littlefield responded that the letter from Bankwest fell a way short of saying that the remainder of the work to be done was a formality. 30 On 3 October 2008, Mr Iles provided details of a wood supply agreement, a letter confirming the amount of timber the company could take, a letter providing a formula to value Eslarn's licence and a schedule of aged timber. Mr Littlefield said that he needed to apologise to Mr Jarvis because he already had the information with the exception of the saleable timber list. 31 On 7 October 2008, Mr Iles provided a letter prepared by an industry specialist providing detailed information about pricing and values. 32 On 8 October 2008, Mr Iles responded to a request for photographs saying they already existed and Mr Iles would receive them as soon as possible. On the same day Mr Littlefield said that instructions had been given to the solicitors to draw formal documents and that he would need some assistance with title reference details. On the same day Mr Littlefield forwarded a disbursement authority and an applicant document checklist for execution. He said he did not have a copy of the certificate of insurance for the timber and other on site assets of Eslarn. 33 Also on 8 October 2008, there was discussion about the provision of the loan by two tranches of $200,000.00 with a request from Mr Iles that the initial payment be $250,000.00. On the same day, photographs of the timber storage yard were provided to Mr Littlefield. 34 On 9 October 2008, Mr Littlefield informed Mr Iles that loan documents would be sent that afternoon. He indicated that Mr Lansdown's property was in the joint names of he and his wife and she would need to become a guarantor. There was also a registered mortgage over the title but it had been offered unencumbered. 35 On 10 October 2008, Mr Iles sent detail of Eslarn's marketing options. Mr Iles said the appropriate email address for the documents was that of the solicitors for Eslarn. Mr Littlefield asked for a copy of the policy particulars with regard to the insurance issues over stock. Mr Littlefield said statements by both existing lenders were needed together with confirmation of total payout figures, together with evidence of servicing conduct for the past six months. 36 On 13 October 2008, Mr Iles inquired who was entitled to 50% of the application fee and a 0.5% commission trail: "The reason I wish to know this is because Eslarn signed a mandate with Business Development Leaders P/L which is I believe, the trading company of Gary Simonite, not Chris Jarvis. If this is so then I will use it against Chris if he will not be reasonable." 37 Mr Littlefield replied that he had no formal agreement with Mr Jarvis regarding brokerage fees. He had an informal verbal agreement to pay them to Mr Jarvis's company. 38 On 13 October 2008, Mr Iles sent an email to Mr Jarvis saying that because of the fragmented nature of the application on behalf of Eslarn it was appropriate to agree who is to get what in terms of all or any of the particular application fees and brokerage charged to, or paid by, the client. 39 Mr Jarvis said he telephoned Mr Iles and said the sharing of the brokerage had already been agreed referring to their earlier conversation following Mr Iles' email of 11 September 2008 to Mr Simonite. It said it was prudent that they discuss brokerage. He noticed that Mr Simonite had included 3% in the loan scenario and he presumed that would be split 50/50 between him and Mr Simonite. Mr Jarvis had responded by email on the same day saying they had put down brokerage at 1% for Mr Iles, Mr Simonite and himself. 40 Mr Jarvis said that Mr Iles responded in the telephone conversation that he did not care about that and he wanted half of everything. Mr Jarvis responded that the split was fair. 41 Mr Iles sent an email on 14 October 2008 rejecting the 1% split and claiming a 50/50 split. Mr Jarvis said he telephoned Mr Iles after he received this email and said he would not be moved on the issue. The conversation became heated. Mr Iles denied what he was alleged to have said and alleged acrimonious remarks by Mr Jarvis. 42 On 16 October 2008, Mr Iles sent an email to Mr Littlefield attaching additional information and saying the insurance policy would follow. He then asked further questions about brokerage which Mr Littlefield ignored. 43 On 17 October 2008, Mr Iles sent a disbursement authority for brokerage due to him and an insurance certificate of currency for the timber. The documents were sent to the solicitors that day. Later that day Mr Littlefield advised Mr Iles that the transfer of $250,000 had been made to Eslarn and $13,200 had been paid to Janallan. 44 While Mr Littlefield acknowledged that the initial approach to 180 Capital had been by Mr Jarvis, he said that, subsequently, further documentation was requested by him and supplied by Mr Iles and but for the work performed by Mr Iles, the loan would never have been advanced by 180 Capital. 45 I do not accept that statement. The work done by Mr Iles before the provision of his loan application documentation to Mr Simonite could not be used to justify 180 Capital regarding Mr Iles as the person who sourced the loan to Eslarn. Mr Iles had relinquished that work for a 1% commission trail. And the supply of information to which reference is made above is hardly exceptional and would not justify that course. 46 On 30 October 2008, by email, Business Development sought payment of the $16,995.00 service fee under the service agreement and irrevocable authority stating that if payment was not received as requested they would refer the matter for collection. The letter asserted that for the purpose of arranging finance for Eslarn, Mr Jarvis had been retained by Business Development as a consultant. 47 On 7 November 2008, Mr Jarvis said he spoke with Mr Littlefield asking for the brokerage to be paid. Mr Littlefield told him that Mr Jonathon Stanford had told him not to pay the brokerage. Mr Jarvis said that despite attempts to have brokerage fees paid the defendants had refused to do so. 48 Mr Jonathan Stanford agreed that the loan application submitted on their behalf was accepted and 180 Capital made a loan of $400,000.00 to Eslarn. 49 The principal submission of Eslarn and its three directors was that the proceedings were commenced by the wrong plaintiff, the contractual relationship was between Jarvis Consulting and Eslarn and its directors. 50 There was no evidence that Eslarn entered into an agreement appointing Jarvis Consulting to find loan funds for it. But even if there was, that did not discharge the obligations under the agreement between Business Development and Eslarn. And the fact that the $515,000.00 loan never eventuated did not discharge Business Development from its obligation to source funds under the service agreement and irrevocable authority 51 Further, it is clear that Mr Simonite was involved in the acquisition of loan funds for Eslarn from 180 Capital. Mr Jarvis told Mr Woszczalski on 24 September 2008 that he intended the loan application to 180 Capital to state that they had committed and signed to "us" on an exclusive brokerage basis. 52 That could only be the service agreement and irrevocable authority between Business Development and Eslarn and its directors. And the email was copied to Mr Simonite. The inference to be drawn is that it must have been apparent to Mr Woszczalski that Jarvis Consulting was working with Business Development in procuring the funds from 180 Capital. 53 It did not matter that the application form was in the name of Jarvis Consulting. Business Development was free to provide its services under its agreement with Eslarn and its directors as it saw fit. And if it joined with Jarvis Consulting in making the successful application it was entitled to its fee. 54 And Mr Littlefield, whom Mr Woszczalski had appointed to analyse the application on its behalf, was aware that Mr Simonite was involved in the application. Gary Simonite sent an email to him on 25 September 2008 with a copy to Mr Jarvis saying "we" hold a draft company balance sheet and would Mr Littlefield please ring Mr Jarvis that morning. It must have been clear to Mr Littlefield that this was not an application coming from Jarvis Consulting alone but an application that involved Mr Simonite as well. Mr Littlefield responded to Mr Simonite on 25 September 2008, having spoken with Mr Jarvis, reporting that 180 Capital would get its offer up to Mr Jarvis shortly. 55 True it is that it was Mr Iles who provided additional information in the period 2 October 2008 to 20 October 2008. But that is explained by Mr Jarvis's suggestion that it was more efficient if Mr Iles dealt with Mr Littlefield's requests for further information directly. And in this regard I prefer the evidence of Mr Jarvis to that of Mr Iles. 56 The effective introduction of Eslarn and its directors to 180 Capital was not achieved by Janallan. It was achieved by Jarvis Consulting acting in conjunction with Business Development and a loan from 180 Capital to Eslarn having been achieved, Business Development was entitled to payment of $16,995.00 under cl 7 of the service agreement and irrevocable authority. 57 It was submitted that if Business Development initiated the loan from 180 Capital it was not substantially on the terms of the service agreement and irrevocable authority. It spoke in terms of a gross loan amount for $515,000.00 whereas the principal advanced under the 180 Capital offer was for $400,000.00 and it was that amount that Mr Jonathon Stanford said was received. 58 But $515,000.00 was the amount calculated at indicative interest rates to give rise to a net loan of $400,000.00. There was no substantial difference between the net amount Business Development was to initiate and the $400,000 in the 180 Capital offer. 59 Next it was said that the interest rates varied. But that was a variation in favour of Eslarn. As the rates were lower, the gross cost to Eslarn was lower. Counsel for Eslarn did not dwell on this point in final address. 60 In like vein was the submission that grossing up the $400,000.00 loan made by 180 Capital did not achieve a gross figure of $515,000.00. That, again, was to the advantage of Eslarn. The lower interest rates meant that the grossed up figure was the $484,000.00 in the spreadsheet. 61 There were differences in the securities required by 180 Capital. Peter Seymour Bedel Stanford was required to be an additional guarantor, no doubt because the registered owners of one of the properties were the three brothers Stanford. 62 But the service agreement and the irrevocable authority not only specified properties over which a registered second mortgage was to be offered, but included any further properties as otherwise required by the lender. That contemplated that additional security from that specified in the service agreement and irrevocable authority might be required by a lender with whom Business Development initiated contact. 63 It was submitted that Business Development was entitled to no payment under the service agreement and irrevocable authority because it gave no notice under cl 9. But cl 7 made the service fee payable on the issue to Eslarn of a formal letter of offer and that happened before the $400,000.00 was lent by 180 Capital. Clause 9 is merely an evidentiary aid in establishing when a due amount becomes payable. In light of the specific provision in cl 7, Business Development had no need of the deeming provision in cl 9. 64 It was argued that the notice of 30 October 2008 was bad because it was sent by email whereas an address for service was specified in cl 1. That argument fails for the reason that Business Development did not need the aid of cl 9. 65 It was submitted that Business Development is denied an entitlement to the service fee because it did not issue a tax invoice. A New Tax System (Goods and Services Tax) Act 1999 (Cth), s 29-70 requires a tax invoice to be issued for a taxable supply. Section 29-70(1) was in the following terms: "A tax invoice for a taxable supply: (a) must be issued by the supplier, unless it is a recipient created tax invoice (in which case it must be issued by the recipient); and (b) must set out the ABN of the entity that issues it; and (c) must set out the price for the supply; and (d) must contain such other information as the regulations specify; and (e) must be in the approved form. However, the Commissioner may treat as a tax invoice a particular document that is not a tax invoice." 66 Section 29-70(2) of A New Tax System (Goods and Services Tax) Act requires the supplier of a taxable supply to give the recipient a tax invoice within 28 days after the recipient requests it. There was no such request in this case. 67 Assuming in favour of Eslarn and its directors that Business Development carried on an enterprise and was registered, or required to be registered, its supply of services under the service agreement and irrevocable authority was a taxable supply if it was not input taxed in terms of s 9-5. A financial supply is input taxed under s 40-5(1). 68 Business Development's service under the service agreement and irrevocable authority was not a financial supply because it did not create or issue any of the interests in A New Tax System (Goods and Services Tax) Regulations 1999 (Cth), r 40-5.09 and because, even if 180 Capital made financial supplies, which I doubt, Business Development's services fell within the items defined not to be a financial supply in reg 40-5.12. Item 3 of the table is: "professional services, including information and advice, in relation to a financial supply." 69 It follows that upon the assumptions I have made, Business Development was required to issue a tax invoice. But the question is when? 70 A New Tax System (Goods and Services Tax) Act, s 27-5 provides that each period of three months ending on 31 March, 30 June, 30 September and 31 December are tax periods unless an election is in force or the Commissioner determines otherwise, neither of which eventualities arose in this case. The relevant tax period to which Business Development's taxable supply is attributable is defined in s 29-5 which was in the following terms:

Business Development Leaders Pty Ltd v Eslarn Holdings Pty Ltd

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Judgment (16 paragraphs)

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