Fifteen conditions were then stipulated. A sixteenth condition precedent to the offer was " any other conditions which the Mortgagee may impose as a result of its enquiries ".
11 There is no evidence as to whether any of the conditions precedent, other than the condition of a "Privacy Act Consent", was satisfied.
12 The letter also contained the following important provisions:
" Reservation
This offer is not to be construed as an agreement binding Gippsreal to make an advance under the facility. Such agreement shall only come into existence on the making of the advance which may be delayed, or may not occur at all, unless all of Gippsreal's requirements including any additional requirements to those set out herein are satisfied fully and promptly.
Gippsreal may, in case of any error, correct any particulars of or relating to the proposed advance and, if any term of this proposal is breached for whatever reason, Gippsreal shall not be liable for any damage, loss, cost or expense suffered by the borrower or by any third party as a result of such variation.
Gippreal reserves the right to impose additional terms and conditions to the facility at any time (both before the advance and at any time during the term of the loan) should it become aware of other matters or issues which may affect the terms of the facility and which are at the time of issue of this offer unknown, unclear or unverified.
Gippsreal reserves the right to withdraw this offer at any time up to and including the date of settlement should the borrower fail to comply with each condition (either set out herein or subsequently imposed by Gippsreal as a result of its enquiries) or any undisclosed information is determined from its enquiries and upon the withdrawal of this offer the mortgagor and any borrowers, covenantors and guarantors will be liable to make payment of all monies due hereunder.
Gippsreal additionally and specifically reserves the right to withdraw this offer at any time up to and including the date of settlement for any other reason whatsoever without it being obliged to explain or justify the decision to withdraw the offer, however in the event that the offer is withdrawn without explanation than Gippsreal will not be entitled to demand payment of the liquidated damages set out herein, though the mortgagor will at all times remain liable for all costs and disbursements incurred by Gippsreal.
Acceptance
If you wish to proceed with the loan please arrange for the attached copy offer and Acknowledgement and Acceptance to be completed, signed and returned.
Upon acceptance of this offer Gippsreal Ltd will instruct various agents (ie. solicitors, property valuers) and may also allocate mortgage funds for the loan advance and will generally incur costs as a result. The mortgagor and guarantor's acceptance of this Offer may not be revoked without Gippsreal's consent in writing which consent will only be considered upon receipt of a written request from the mortgagor/guarantor and shall be determined at the absolute discretion of Gippsreal Limited. "
13 The letter further provided that interest would be payable commencing four weeks from acceptance of the offer, regardless of whether the loan settled on that date, or upon settlement, whichever was the earlier.
14 Pages 14 and 15 of the letter comprised a form entitled "Acknowledgement and Acceptance of Loan Offer". This form included the following paragraphs:
"[The Applicants] hereby acknowledge:
2. acceptance of the terms and conditions specified in this Offer and in particular the terms of payment of interest and principal.
…
7. that upon acceptance of this Offer I/we cannot subsequently withdraw or revoke that acceptance without incurring the substantial financial costs and charges as set out herein unless Gippsreal Limited agrees in writing to my/our doing so.
8. that by signing this acceptance, I/we authorise Gippsreal Limited to instruct its solicitors to begin with all necessary searches and to proceed with preparation of all security and mortgage documents and to charge me/us the application fee and all other amounts as set out herein and I/we shall be responsible for payment of the whole of those charges to be paid within 7 days of demand irrespective of whether or not this loan proceeds to completion.
9. that if I/we choose not to proceed with the loan once I/we have accepted the Offer or it is not drawn down within the required time limit, I/we have breached our agreement and Gippsreal will have suffered a loss. In that event, I/we agree that the following liquidated damages will apply;
9.1 $35,000.00 for professional costs;
9.2 $264,993.75 being three months interest at the lower rate;
9.3 any other costs and disbursements incurred by Gippsreal Limited or its agents at the actual costs or if the actual cost cannot be reasonably quantified, then pursuant to any costs agreement entered into by Gippsreal Limited.
("the Liquidated Damages")
and a Certificate issued by Gippsreal Limited pursuant to this agreement will be conclusive evidence as to any Liquidated Damages determined to be so outstanding.
10. that the liquidated damages are fair and reasonable.
11. If I/we have not made payment of the liquidated damages in full within seven days of any written demand, then the following will apply;
11.1 the amount due to be paid shall be deemed to be an equitable Mortgage over any property owned by me/us (or any property that I/we have any estate or interest in either at the date of this agreement or any future date) including the security property herein, with the amount due herein as Liquidated Damages along with any interest costs or charges thereon, being the principal sum repayable within seven days of written demand;
11.2 Gippsreal Limited may lodge a Caveat(s) over any property owned by me/us (or any property that I/we have any estate or interest in either at the date of this agreement or any future date) including the security property set out herein and I/we will not request the removal of that Caveat(s) nor bring any Court proceeding to have it removed whilst any money remains owing by me/us to Gippsreal Limited;
… "
15 The application fee referred to in paragraph 8 was a sum of $35,000. The letter provided that this sum was payable "on account of the valuation fee, quantity survey, legal fees and our costs (non-refundable)".
16 Each of the defendants signed the Acknowledgement and Acceptance form. They also signed a consent form said to be required by the Privacy Act 1998 (Cth) as "Applicants/Guarantors".
Events Following the Signing of the Acceptance
17 Mr Woods and Mr Boyle signed the acceptance of Gippsreal's offer on 5 December 2005. The loan was not drawn down within four weeks. However, there is no evidence that the loan was available to be drawn down. There is no evidence that the conditions precedent to the "offer" were satisfied or waived.
18 Following the defendants' execution of the acceptance of Gippsreal's letter of offer, Gippsreal incurred costs in instructing valuers, solicitors and quantity surveyors, and inspecting the properties. A manager of Gippsreal, Mr Morton-Pedersen, deposed that the plaintiff had received tax invoices in the following approximate amounts:
" A. Valuers - $11,000
B. Solicitors - $15,000
C. Quantity Surveyors - $43,000 ".
19 He also deposed that he had driven hundreds of kilometres over a three-day period to inspect properties at Leeton, Tumut and Jindabyne. Gippsreal received the application fee of $35,000.
20 On 20 February 2006, Gippsreal wrote to Moin & Associates, solicitors, who were apparently acting for the proposed borrower. The heading of the letter indicates that Gippsreal had been proposing to lend to a company called Leeton Development Co Pty Ltd. That company was not a party to the letter of offer. Gippsreal stated that it had recently come to its attention that the mortgagee of the property had been in possession of the property for some time and was selling to "your client's new company" as mortgagee in possession, presumably as a result of a default by the registered proprietor. It contended that this information had not been disclosed to it, and its directors had resolved to withdraw the offer of the loan. It demanded that "your client" pay all liquidated damages due under the terms of the letter of offer within fourteen days. This letter was responded to by a finance broker who had apparently been arranging the finance. The broker claimed that Gippsreal had known that the loan was to be made to the Leeton Development company which would be purchasing the property from the existing mortgagee. He complained about Gippsreal's decision to withdraw the loan and stated that it was a devastating blow for all concerned. The broker's letter acknowledged that a lot of work had been done, that is, obtaining valuations, quantity surveyors' reports, preparation of mortgage documents and the conduct of due diligence by Gippsreal.
21 Gippsreal replied to the broker's letter and asserted that it had been deceived by not having been informed that there was a mortgagee in possession. It acknowledged that its withdrawal of what it called its "loan offer" was a devastating event. It said that Gippsreal had undertaken a significant amount of work "progressing the loan application" and in "finalising the loan advance". It said that it had gathered in approximately $6,000,000 in readiness for the initial settlement.
22 Notwithstanding the initial impression which might be gained from a tax invoice sent by Gippsreal to Leeton Development Co Pty Ltd and dated 3 January 2006, it is clear that no part of the loan was drawn down.
No Consideration to Support a Contract Through Exchange of Promises
23 The defendants' principal submission was that there was no consideration for the promise by the defendants to grant a charge over their real property because Gippsreal was under no obligation to make any loan, or to do anything, under the letter of offer. The principle relied upon by the defendants was stated by Kitto J in Placer Development Ltd v Commonwealth of Australia (1969) 121 CLR 353 at 356 as follows:
"… wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought at all. The succinct statement of the principle in Leake on Contracts , 3rd ed, p 3: ' Promissory expressions reserving an option as to the performance do not create a contract' was approved by the Lord Justice, as it was later by Lord Wright in Hillas and Co Ltd v Arcos Ltd (1932) 147 LT 503, at p 517."
24 The reason the defendants submit that Gippsreal had a discretion or option as to what it would do is to be found in the reservations quoted above. The first paragraph under the heading "Reservation" demonstrates that Gippsreal was under no obligation to make an advance, and that "such agreement" (i.e. an agreement to make an advance) should only come into existence on an advance being made. The fourth paragraph reserved to Gippsreal the right to withdraw the offer at any time if the borrower failed to comply with any condition either set out in the letter of offer or subsequently imposed by Gippsreal as a result of its enquiries. If Gippsreal withdrew the offer on this basis, the mortgagor, borrowers and guarantors would be liable to make payment of moneys "due hereunder", which would include payment of liquidated damages payable under paragraph 9 of the acceptance form. However, the last paragraph of the reservation was even wider. It gave Gippsreal the right to "withdraw this offer" for any reason whatsoever without its being obliged to explain or justify its decision. Hence, the defendants submitted that Gippsreal had a discretion as to what, if anything, it did pursuant to the defendants' acceptance of the letter of offer. There was therefore no consideration for the defendants' promise to charge their land in favour of Gippsreal.
25 This question was recently considered by Hollingworth J in the Supreme Court of Victoria in a case dealing with a letter of offer in the same terms as the letter with which the present case is concerned (Gippsreal Limited v Registrar of Titles and Kurek Investments Pty Ltd [2006] VSC 115). Her Honour concluded (at [26]) that Gippsreal had reserved its rights to such a degree that it provided no valuable consideration for the bargain, such that the consideration was illusory. Her Honour said (at [33]):
"I turn to consider the caveator's ' promise ' to advance money, in the light of those principles. Obviously, the lending of money is at the core of the transaction the subject of the loan documents. The first reservation expressly states that the offer is not to be construed as an agreement binding the caveator to make an advance, and that ' such agreement shall only come into existence on the making of the advance which may be delayed, or may not occur at all '. It is hard to imagine a clearer statement of the fact that the caveator has made no binding promise to do anything. Coupled with additional reservations which entitle the caveator to withdraw the offer at any time up to and including settlement, including for any reason whatsoever ' without being obliged to explain or justify the decision' , it is in my opinion clear beyond doubt that the consideration offered by the caveator is illusory."
26 Counsel for Gippsreal submitted that it was seriously arguable that this was not correct. In particular, Gippsreal relied upon the concluding words to the first paragraph of the reservation as indicating that, if Gippsreal's requirements were satisfied fully and promptly, then it was required to make an advance. Counsel also submitted that construed as a whole, the letter of offer contained a promise by Gippsreal to investigate whether or not to make the loan, and it was required to do this in good faith. This, it said, was sufficient consideration to support the defendants' promises. In support of its contention that Gippsreal was obliged to investigate in good faith whether to make the loan, counsel pointed to the second paragraph under the heading "Acceptance", which provides that Gippsreal "will instruct various agents". Such an obligation could also be inferred from its receipt of a non-refundable payment of $35,000 on account of valuation fees, quantity surveyors fees, legal fees and its costs.
27 Counsel also submitted that Gippsreal's rights under the reservation, including its rights to withdraw the offer at any time up to settlement for any reason, were not unlimited, but were constrained by an implied obligation that it exercise such a right in good faith and for its legitimate interests, and not arbitrarily or capriciously (see Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 at [216]-[217]).
28 Gippsreal also submitted that it was plain that, upon acceptance of the letter of offer, the documents were intended to have contractual effect. The Court should be slow to find that a document which the parties intended to have legal effect was nugatory.
29 Gippsreal relied also upon a judgment of the Victorian Court of Appeal given on 26 May 2006 on an application for a stay of the orders of Hollingworth J (Gippsreal Ltd v Registrar of Titles and Kurek Investments Pty Ltd, Supreme Court of Victoria, Court of Appeal, 26/5/06 unreported). After noting Gippsreal's submissions, which were repeated before me, the Court of Appeal concluded that there were sufficiently arguable grounds to consider granting a stay (at [19]). However, the Court expressed no conclusion on the merits of the argument. I do not accept that the Victorian Court of Appeal's conclusion that there were sufficiently arguable grounds to justify a stay in itself warrants a conclusion that there is a sufficiently serious question to be tried that there was a binding agreement to give a charge to justify extending the caveats. The question raised is purely one of law.
30 I agree with Hollingworth J's conclusion that the reservations in the letter of offer are such that no consideration was provided by Gippsreal which could bring a contract into existence upon the signing and return of the acceptance form. That is to say, I agree, for the reasons her Honour gave, that no bilateral contract was entered into by the exchange of mutual promises. I do not consider that the concluding words of the first paragraph of the reservation can be construed as binding Gippsreal to make an advance if its requirements were satisfied fully and promptly. Such a construction would be inconsistent with the earlier parts of the reservation which provide that no agreement binding it to make an advance would come into existence until the advance was actually made. Moreover, the last reservation by which Gippsreal reserved the right to withdraw the offer for any reason at any time up to settlement, is inconsistent with Gippsreal's being required to make an advance if its requirements were fully and promptly satisfied.
31 But for the last paragraph of the reservations, I would accept Gippsreal's submission that the letter of offer, once accepted, obliged Gippsreal to investigate the making of the loan. I do not accept that the provision that, upon acceptance of the offer, Gippsreal "will instruct various agents", was promissory and obliged it to instruct agents. Rather, those words gave notice to the proposed borrower that the costs of instructing agents would be incurred. They were not a promise by Gippsreal to incur such costs. The engagement of the agents would be for the benefit of Gippsreal, not the mortgagor, and Gippsreal could choose not to instruct the agents without being in breach of contract. However, the provision for it to be paid $35,000 on account of various fees and its costs, which payment was not to be refundable, would import an obligation on it to investigate the making of a loan. However, the last paragraph of the reservation is not confined to Gippsreal's withdrawing the offer to lend money. In this respect, it stands in contrast to the first paragraph of the reservation, which is so limited. The last paragraph of the reservation gives Gippsreal the right to withdraw the offer for any reason up to settlement. This must extend to any obligation which Gippsreal may have expressly or impliedly offered to assume, including any obligation to investigate the making of the loan. It was given a discretion whether or not to do so.
32 Nor can the document be saved by importing implied terms of good faith and fair dealing which, if there is a contract, might constrain the exercise of contractual powers. It does not seem to me to be logically possible to demonstrate the existence of consideration to support a contract by reference to implications which would arise if a contract were made. Moreover, the express term giving Gippsreal the right to withdraw the offer for any reason whatsoever, without its being obliged to explain or justify its decision, would be inconsistent with its only being able to exercise the power to withdraw the offer for a reason which was not capricious or not arbitrary. Hence, any such implied term, assuming it to be relevant on this question, would be contrary to the express terms of the reservation. In my view, the letter of offer provides no consideration from Gippsreal for the promises made by the defendants.
33 Nor am I persuaded that I should construe the letter of offer favourably to Gippsreal so as not to defeat the parties' intentions, as expressed in the document, that a contract had been entered into. The document was drawn by Gippsreal and is heavily in its favour. If it has over-reached itself, I see no reason to rescue it from a situation of its own making.
Unilateral Contract
34 The next question is whether consideration for the defendants' promises was afforded by Gippsreal having undertaken its investigations for making the advance and having incurred expense in so doing, and whether those actions brought a contract into existence. Hollingworth J dealt with this question as follows:
"35. The caveator raised an alternative argument. If the consideration was found to be illusory, then the caveator says that the loan documents were made enforceable by reason of the steps which the caveator had taken to be ready for settlement. Those steps include such matters as obtaining a valuation, conducting searches, corresponding about proposed contract variations and possible settlement dates and taking internal steps to have the loan moneys available for settlement. Although the caveator's counsel consistently referred to these as acts of ' part performance ', the use of that expression seems unhelpful and likely to mislead. It seems to me that the more appropriate enquiry is to determine whether a binding contract has ' sprung into existence' by reason of any subsequent conduct.