Credit Connect Pty Ltd v Pacific Financial & Investment Pty Ltd

File Number(s): 2024/80488

Publication restriction: N/A

Judgment

1. On 21 January 2022, the defendant applied to the plaintiff for a loan to fund a residential property development at 32 Patterson Street, Ermington, New South Wales. The defendant made the application through its finance broker, Mr Henry Su.

2. The plaintiff made a conditional offer of loan on 24 January 2022, subject to due diligence. The defendant accepted that offer and paid an establishment fee of $1,100 on 25 January 2022.

3. After completing its due diligence, including obtaining a valuation report for the Ermington property, the plaintiff issued a letter of offer to the defendant on 1 June 2022 for a loan of $1,290,647 for a term of 12 months. The defendant accepted the offer by signing it the same day. Mr Su sent the signed letter of offer to the plaintiff on behalf of the defendant.

4. Clauses 1, 4 and 18 of the loan contract that arose on the defendant’s acceptance of the plaintiff’s offer provided that the advance of $1,290,647 would be made by:

5. an initial advance of $105,000 payable on settlement to fund:

(a) the loan approval fee of $35,493 (being 2.5% of the loan amount) which was payable by the defendant to the plaintiff under clause 6 of the loan contract; (b) the brokerage fee of $7,500 payable by the defendant to Mr Su; (c) legal and settlement costs relating to the loan in the amount of $12,037; and (d) the interest payable in respect of the first month of the term of the loan;

2. further advances to be made by the plaintiff on receipt of progress claims from the builder, which were required to be accompanied by certain certifications by the builder and quantity surveyor.

3. However, the advance of funds was subject to satisfaction of the conditions set out in clause 17 of the loan contract, including that the defendant was to provide written confirmation from the Principal Certifier that all “Prior to Commencement of Works” conditions noted on an Approved Complying Development Certificate dated 16 February 2022 had been satisfied.

4. Clause 7 of the loan contract provided that interest was payable at the rate of 13.75% per annum, charged on a monthly basis during the term of the loan based on the cumulative balance owing each month. Clause 7 set out an indicative calculation of the balance that would be owing each month, together with a calculation of the amount of interest that would be payable on that balance in that month. The indicative balance for the first month was the initial advance amount of $105,000, calculated in the manner I have explained above including the approval fee.

5. Clause 6 of the loan contract provided:

“An Approval Fee of 2.5% plus GST of the total approved loan amount in the sum of $35,493.00 will be deducted at settlement and paid to Credit Connect Group (CCG). In the event you accept this offer of finance and fail to proceed with the advance, or CCG (acting reasonably) determines that the advance will not proceed due to your actions (including in circumstances where CCG relies on clause 20) you will be liable for this fee.

8. Clause 20 provided:

“Once this offer has been accepted and the loan has not settled within thirty (30) days of the date of acceptance, this Letter of Offer may be withdrawn, or interest may be charged at the Effective Rate until the loan has settled.

The Borrower (and any Guarantor) acknowledge that, on receipt of this executed letter of offer, CCG (or a third-party lender) will take steps to cause the Loan Advance to be made available so that that it can be drawn upon as soon as practicable after execution of security documents and satisfaction of all outstanding requirements.

In the event that, after executing this letter of offer and in circumstances where the lender has caused legal documentation for the proposed loan advance to be prepared, the Loan Advance does not proceed for any reason whatsoever other than as a result of CCG (or the third party lender) electing not to proceed, the Borrower (and any Guarantor) must pay a cancellation fee of $20,803.98 representing a pre-estimate of the reasonable costs of making the Loan Advance available.”

9. Clause 3 of the loan contract provided that the loan was to be secured by first ranking registered mortgage over the Ermington property (referred to as the “Security Property”), a general security deed between the defendant and the plaintiff, and by personal guarantee of Mr Zhan Shi, who was then the sole director of the defendant.

10. Clause 15 of the loan contract provided:

“In consideration of this agreement and any subsequent agreement, the Borrower (in every capacity) and any Guarantor (in every capacity) named herein, hereby charges all its assets including but not limited to any real estate including the Security Property named herein with the repayment of any money owing under this agreement (including to but not limited to the CCG Approval Fee, Solicitor Fees and the cancellation fee) and consents to the lodging of a Caveat or charge over such property to better secure the repayment of all such sums (including in circumstances where CCG relies on clause 20). The Borrower and any Guarantor acknowledge that CCG may maintain its caveat or charge until payment of all money owing under this agreement is made to CCG.”

11. The “Prior to Commencement of Works” conditions noted on the Approved Complying Development Certificate dated 16 February 2022, which clause 17 of the loan contract required to be satisfied prior to the advance of any funds, included the defendant obtaining an easement for drainage over the property adjoining the Ermington property in accordance with the stormwater plans included in the development plans for which the Complying Development Certificate had been issued. The adjoining property was a council reserve.

12. Mr Cheng Zhang was the plaintiff’s Business Development Manager at times relevant to these proceedings and dealt with Mr Su in relation to the proposed loan to the defendant in the period from January 2022 and in relation to the loan contract in the period from June 2022. Mr Zhang gave evidence that Mr Su had informed him about the requirement for the defendant to negotiate a drainage easement during discussions in January and February 2022. On 30 May 2022, Mr Su forwarded to the plaintiff a letter that the defendant had received from the Property Services Officer at Parramatta City Council setting out the terms on which the Council would be prepared to grant the drainage easement. On 1 June 2022, Mr Su sent a further email to Mr Zhang and others at the plaintiff stating that the Council had approved the easement plan but were “waiting another 4 weeks for the notice to the neighborhoods” [sic]. Mr Su advised that the defendant was contacting the Principal Certifier to find out if they were content to give written confirmation that all other pre-commencement conditions were now satisfied. When Mr Su emailed the loan contract signed by the defendant to Mr Zhang and others at the plaintiff later that same day, he advised that he expected that the Principal Certifier would confirm within three or four weeks that the drainage easement condition had been satisfied.

13. According to Mr Zhang’s evidence, he had a further conversation with Mr Su in early June 2022 in which Mr Su told him that the defendant expected to receive the easement in about four weeks’ time, but that construction would not commence for at least a few months. According to Mr Zhang, Mr Su told him:

“We don’t need you to issue the loan and security documents right now.

The loan and security documents can be issued to my client once the commencement of work conditions have been met. This will be in about a month and when the further advance of the loan will be needed. I will tell you when.”

14. Mr Zhang gave evidence that, as a result of that conversation, he did not cause the plaintiff to instruct its solicitors to begin preparing loan and security documents for the loan contract. He continued to monitor the situation, and to liaise with Mr Su throughout June, July and August 2022 in relation to the defendant’s satisfaction of the conditions for commencement of the building works. Mr Zhang intended to instruct the plaintiff’s solicitors to prepare the loan and security documents for execution as soon as those conditions were satisfied. Mr Zhang recalls Mr Su telling him during this period that the approval process for the drainage easement was taking longer than anticipated.

15. Mr Zhang gave evidence that Mr Su informed him on 26 September 2022 that the drainage easement had been approved by the Council. At the same time, Mr Su sought amendments to the terms of the loan contract on behalf of the defendant to vary the term of the loan from 12 months to 18 months, and to remove the requirement for the director of the defendant to provide a personal guarantee. After discussing those proposed amendments with the plaintiff’s Chief Executive Officer Mr Peter Benson, Mr Zhang informed Mr Su on or about 30 September 2022 that the plaintiff did not agree to the proposed changes. Mr Zhang did not receive any further communication from Mr Su or from the defendant about the loan contract after that conversation on or about 30 September 2022.

16. Mr Benson gave evidence about his discussions with Mr Zhang concerning the loan contract that it is consistent in all material respects with Mr Zhang’s evidence of his discussions with Mr Su referred to above. Mr Benson recalled Mr Zhang conveying to him the defendant’s request to increase the term of the loan from 12 months to 18 months. Mr Benson did not approve that proposed variation. Mr Benson rejected the defendant’s request to waive the requirement for the director of the defendant to guarantee the loan.

17. Mr Zhang and Mr Benson gave evidence that the plaintiff did not withdraw the letter of offer dated 1 June 2022. By January 2023, the plaintiff had not received any communication from the defendant confirming that all “Prior to Commencement of Works” conditions had been satisfied. Nor had the plaintiff received any other communication from the defendant indicating that it was ready for the plaintiff to issue loan and security documents and to proceed with the advance. In those circumstances, the plaintiff lodged a caveat against the title to the Ermington property on 16 January 2023 claiming a charge over the property created by agreement dated 1 June 2022 securing moneys owing under the loan contract. The plaintiff claimed, and continues to claim, that the approval fee was owing under the loan contract in circumstances where the defendant had accepted the letter of offer but had failed to proceed with the loan.

18. The defendant issued a lapsing notice in respect of the caveat on 16 February 2024. The plaintiff then commenced these proceedings on 1 March 2024. The plaintiff’s caveat was extended until further order pursuant to orders made by consent on 5 March 2024. In order to facilitate the defendant’s sale of the Ermington property, the Court made orders by consent on 9 July 2024 requiring the defendant to pay the amount of the approval fee into court to be held in court pending further order, and noting the agreement of the plaintiff to withdraw the caveat within two business days after the payment of those funds into court.

19. The defendant did not cross-examine Mr Zhang or Mr Benson. Their evidence, which is broadly consistent with contemporaneous emails and other documents, is unchallenged.

20. The defendant relies on the evidence of Mr Zhan Shi, who was a director of the defendant at all material times until 9 August 2022, and the evidence of Mr Mark Licciardo who became a director of the defendant on 30 January 2024. The defendant did not adduce evidence from any person who was a director of the defendant during the period from Mr Shi’s resignation on 9 August 2022 until the lodgement of the plaintiff’s caveat in January 2023.

21. Mr Shi confirmed that Mr Su had acted as the defendant’s broker in applying for the loan from the plaintiff. In his affidavit affirmed on 6 December 2024, Mr Shi deposed that he had no direct contact with anyone from the plaintiff, and that all of the defendant’s communications with the plaintiff in relation to the loan application process were conducted through Mr Su.

22. Each of Mr Shi and Mr Licciardo deposed that the plaintiff did not issue loan or security documents after the letter of offer was signed, did not propose or stipulate a date for settlement of the loan, did not advise that the lender was ready, willing and able to proceed with the loan, and did not allege that the defendant was in breach of the loan contract or that it was liable to the plaintiff for any amounts referred to in the letter if the loan did not proceed to settlement.

23. Mr Shi deposed that, after he signed letter of offer as the defendant’s sole director on 1 June 2022, the defendant did not have any further correspondence or communications with the plaintiff, and that the plaintiff was “completely silent to” the defendant. The plaintiff did not provide loan and security documents after the letter of offer was signed, and did not advance any funds to the defendant. After hearing nothing from Mr Su or the plaintiff in the second half of 2022, the defendant sought alternative finance for the construction. Mr Shi lost contact with Mr Su in late 2022.

24. Under cross-examination, Mr Shi gave evidence that Mr Thomas Wei of the defendant gave him his affidavit to sign, and he “wasn’t fully aware all of the details” and “didn’t treat it serious” and “I go through just roughly, just sign my name” because “I saw the company paid money for the solicitor, solicitor should defend, you know, our interests”. Mr Shi also gave evidence in cross-examination that after he resigned as a director of the defendant on 9 August 2022, it fell to Mr Wei as the defendant’s office manager to liaise with Mr Su on behalf the defendant in relation to matters concerning the loan. Mr Shi asked Mr Wei to instruct Mr Su to request the plaintiff’s agreement to extending the term of the loan from 12 months to 18 months and to removing Mr Shi as a personal guarantor of the loan since he was no longer a director of the defendant. He understood that Mr Wei would speak to Mr Su about those matters, but did not know how the plaintiff had responded because he (Mr Shi) had left the defendant and was busy with other matters. He totally trusted Mr Wei to carry on his duties when he left the defendant. Mr Shi accepted that, ultimately, the defendant did not proceed with the loan from the plaintiff and had obtained alternative finance for the construction of the development at the Ermington property.

25. The defendant did not adduce evidence from Mr Wei.

26. I accept the evidence of Mr Zhang and Mr Benson which, as I have said, was consistent with contemporaneous documents and was not challenged.

27. I reject Mr Shi’s affidavit evidence as wholly unreliable having regard to his failure to consider the contents of the affidavit before he affirmed it, as he explained in cross-examination.

28. On the basis of the evidence of Mr Zhang and Mr Benson, and the evidence given by Mr Shi under cross-examination, I find that the loan did not proceed during the period from early June until late September 2022 because the defendant was still in the process of satisfying all of the conditions of the Complying Development Certificate that were required to be satisfied prior to the commencement of building works, and the defendant did not require loan and security documentation to be prepared or loan funds to be ready for draw down of the initial advance or payment of progress claims unless and until those conditions were satisfied and the defendant was ready to commence the construction work. I further find that the defendant did not proceed with the loan, and obtained a loan from an alternative lender at some time after September 2022, because the plaintiff did not agree to the defendant’s requests made through Mr Su to extend the term of the loan to 18 months and to waive the requirement for a personal guarantee from the defendant’s director.

29. It remains to consider the proper construction of clause 6 of the loan contract, and its operation in the circumstances described above.

30. The loan contract is to be construed in accordance with the established principles governing the construction of commercial contracts. As the High Court said in Electricity Generation Corporation (t/as Verve Energy) v Woodside Energy Ltd, [1] and re-affirmed in Simic v New South Wales Land and Housing Corporation: [2]

“The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.”

31. Clause 6 expressly provides that the approval fee is payable by the defendant in three alternative scenarios:

32. First: “at settlement”, when the fee will be “deducted” and paid to the plaintiff.

33. Second: if the defendant accepts the letter of offer (as occurred on 1 June 2022) but “fails to proceed with the advance”.

34. Third: if the defendant accepts the letter of offer but the plaintiff reasonably determines that the advance will not proceed due to the defendant’s actions.

35. In my opinion, the reasonable businessperson reading clause 6 in the context of the loan contract as a whole, would understand “settlement” in clause 6 as referring to the payment of the initial advance of $105,000, calculated to include the amount of the approval fee, as provided for in clauses 1, 4 and 18 of the loan contract. The reasonable businessperson would understand from those clauses and from the indicative monthly balance calculation set out in clause 7 that, in this scenario, the amount of the approval fee would form part of that initial advance on which interest would be payable by the defendant, but would be *“*deducted” from the initial advance and paid to the plaintiff.

36. The plaintiff does not rely on the first scenario in clause 6. It is common ground that the loan did not proceed to settlement.

37. In my opinion, the reasonable businessperson would understand each of the second and third scenarios described in clause 6 as addressing the parties’ rights and obligations in respect of the approval fee in the event that the advance does not proceed, with the third scenario being limited to the advance not proceeding on account of conduct by the defendant that gave rise to reasonable grounds for the plaintiff to decide not to proceed.

38. The plaintiff relies only on the second scenario. It is clear from the loan contract as a whole that there are many reasons why the defendant might not proceed with the advance, including if it was unable to satisfy the conditions in clause 17. In my opinion, the reasonable businessperson would understand the words “fail to proceed” in the second scenario referred to in clause 6 of the loan contract as meaning nothing more than that the defendant does not, as a matter of fact, proceed with the advance in circumstances where it was open to the defendant to do so. That is what occurred in this case, as I have found above. I reject the defendant’s submission to the contrary.

39. Contrary to the defendant’s submissions, the absence of any evidence of a communication from the plaintiff to the defendant proposing or stipulating a date for settlement of the loan or advising that the lender was ready, willing and able to proceed with the loan, is irrelevant. In the circumstances described above, there was no occasion for the plaintiff to make any such communication to the defendant. As the defendant well knew, the plaintiff was awaiting confirmation from the defendant that it had satisfied the pre-commencement conditions set out in the Complying Development Certificate and that it was ready to proceed.

40. The absence of any communication from the plaintiff to the defendant alleging that the defendant was liable to the plaintiff for any amounts referred to in the letter of offer if the loan did not proceed to settlement is also irrelevant. As I have explained, clause 6 of the loan contract expressly states that the defendant will be liable for the approval fee in the event that it accepts the offer of finance set out the letter of offer (which it did) and fails to proceed with the advance (which it did fail to do).

41. As the plaintiff submitted, the approval fee of $35,493 is a debt that is due and payable by the defendant to the plaintiff under clause 6 of the loan contract. I accept the plaintiff’s submission that the defendant charged the Ermington property to secure payment of that debt pursuant to clause 15 of the loan contract, and that it is entitled to have that debt paid out of the funds now held in court. The defendant accepted that, if the approval fee was owing to the plaintiff, then the plaintiff was entitled to be paid out of those funds in court.

42. I reject the plaintiff’s submission that the rate of interest 13.75% per annum stipulated by clause 7 of the loan contract is applicable to that debt in circumstances where the approval fee was never advanced to the defendant. The reasonable businessperson would understand from the indicative calculation set out in clause 7 that the stipulated rate applies to advances made under the loan contract. The approval fee is owing by the defendant pursuant to clause 6, but it was not part of any advance made by the plaintiff in the events which happened.

43. I accept the plaintiff’s alternative submission that it is entitled to interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW), a claim for which was included in the plaintiff’s statement of claim. In my opinion, the interest should be calculated on the amount of the approval fee from 30 September 2022 – being the approximate timing of the advance as anticipated by the plaintiff and the defendant at the time the loan contract was entered into according to the evidence of Mr Zhang and Mr Benson, which I have accepted.

44. For all of those reasons, the orders of the Court are as follows:

45. Judgment for the plaintiff against the defendant in the sum of $35,493.00.

46. Order that the defendant is to pay interest on the judgment sum pursuant to s 100 of the Civil Procedure Act 2005 (NSW) in respect of the period from 30 September 2022 until the date of judgment.

47. Order that the judgment sum and interest in accordance with order 2 above be paid to the plaintiff out of the funds held in Court.

48. Cost would ordinarily follow the event, so that the defendant would be ordered to pay the plaintiff’s costs on the ordinary basis, as agreed or assessed. However, the plaintiff indicated that it wished to be heard in relation to costs and I will therefore hear from both parties.

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Endnotes

(2014) 251 CLR 640; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ) (citations omitted).

(2016) 260 CLR 85; [2016] HCA 47 at [78] (Gageler, Nettle and Gordon JJ).