2715/07 - IACONIS v LAZAR
JUDGMENT
1 HIS HONOUR: The plaintiffs claim orders pursuant to s 74MA of the Real Property Act 1900 that two caveats be withdrawn by the defendants forthwith. Those are the interim orders that are sought. Final orders are sought under s 7 of the Contracts Review Act 1980 that a certain deed of loan and guarantee of 9 February 2007 is unjust and should be declared to be void. I am, however, only dealing with the caveat aspect of the case.
2 Before proceeding further I should note that the summons originally asked for two particular caveats to be removed. However, by order of 25 May 2007, those original caveats were removed and replaced by fresh caveats. Accordingly, the caveats I am now asked to remove are those fresh caveats which are numbered AD148260T and AD148274G. These caveats each claim an equitable interest pursuant to clause 7 of the document described as an exclusive mandate to act. For some unknown reason the mandate is said in caveat AD148274G to be dated 21 December 2006 (and Mr Allan for the plaintiffs took pains to point this out to me). However, the document appears to be that of 23 January 2007, and this is correctly recorded in the second caveat.
3 The document entitled "Exclusive Mandate to Act" bearing date 23 January 2007, was made between the second defendant, Business Acquisitions Australia Pty Ltd, of the one part and Dominic David Jackson and the first plaintiff of the other. Mr Jackson is not a party to these proceedings. There are three plaintiffs, Francesco Batolomeo Iaconis, Raffaele Iaconis and Angelina Iaconis.
4 The exclusive mandate describes the second defendant as "BAA" and provides, so far as relevant, as follows:
"This Exclusive Mandate confirms that BAA has been appointed as an exclusive agent for the Owner to (a) arrange approval of a commercial loan as detailed in Schedule A hereto ('Loan') on reasonable terms and conditions from a willing lender(s) and to provide ancillary and incidental services …
6. In consideration of the services to be performed by BAA pursuant to this Mandate:
(a) The Owner is liable to BAA for a Brokerage fee as referred to as Item 7 in Schedule A ('Brokerage Fee') and Application Fee as referred to as Item 8 in Schedule A ('Application Fee') plus any specific out-of-pocket disbursements incurred ('Disbursements') plus all applicable GST thereon to be paid upon BAA notifying the Owner or the Owner's representative in writing that an approval/s have been prospectively issued by a potential lender in respect of the sought loan and provides the Owner with details of the substance of the terms advised by such potential lender.
(b) A tax invoice for all fees due and payable in accordance with Paragraph 6(a) herein will be delivered to the Owner when the prospective approval indication is accepted.
(c) It is acknowledged and agreed by the Owner that once the prospective approval indication is accepted by the Owner the Brokerage fee and Application Fee and disbursements are payable regardless of whether the loan proceeds or not …
7. In the event of default of payment of brokerage fee, application fee, management fee and/or disbursements by the Owner to BAA, the Owner hereby charges the land listed in the schedule ('the Land') of which the Owner is the registered proprietor/registered owner and all the estate and interest of the Owner of that land and all other land of which the Owner is the registered proprietor/registered owner with the payment to BAA of all … ".
5 I have left the quote of paragraph 7 incomplete because whilst it might appear that there was a page 3 of the original document, despite my remarking on it, no page 3 was ever tendered.
6 A number of matters should be noted before I pass on. First, it should be noted that in clause 7 "brokerage fee, application fee, management fee or disbursements" do not have a capital letter whereas they do everywhere else in the document. Secondly, "owner" is defined as Mr Jackson and Mr Francesco Iaconis. Thirdly, the loan was for $1,550,000, the indicative interest was 60% per annum (described as 5% per month), the term was for six months, the brokerage fee $60,000 (plus GST) and the application fee a further $60,000 (plus GST). The purpose of the loan was to pay out the original BAA loan and to provide working capital.
7 The second defendant has lodged caveat AD148274G over Folio Identifier 283/DP11559 which is real property at Blacktown of which Raffaele and Angelina Iaconis are registered proprietors. They are the second and third plaintiffs and are the parents of Francesco Iaconis. Caveat AD148260T was lodged by the second defendant over various Strata Title units in Narrabeen which are registered in the names of Messrs Jackson and Francesco Iaconis.
8 The interlocutory claims are made under s 74MA of the Real Property Act 1900 which provides that any person who claims to be entitled to an estate or interest in land described in a caveat may apply to the court for an order that the caveat be withdrawn. Although Mr Jackson is not a party, and probably he should be, the statute enables one registered proprietor to seek an order that the caveat be removed.
9 I will deal first with the caveat affecting the Blacktown land.
10 The authority to lodge that caveat is said to be the exclusive mandate. The registered proprietors of the Blacktown land were never a party to the exclusive mandate.
11 The security listed in Schedule A to the mandate includes the Blacktown property. However, there is no evidence that Messrs Jackson and Francesco Iaconis ever had any interest in that land. The caveator accordingly has no interest in the land and the caveat should be removed. The caveator must pay the costs of the second and third plaintiffs and for reasons I will outline later, on the indemnity basis.
12 I now turn to the Narrabeen land. This is land of which the owner referred to in the exclusive mandate, ie Messrs Jackson and Francesco Iaconis, is the registered proprietor.
13 Under the exclusive mandate, it is only in the event of default of payment of the brokerage fee, application fee, management fee and/or disbursements that the owner charges the land. In the absence of the Brokerage Fee, Application and Management Fee (with capital letters), as one has to construe the agreement strictly against the profferor, the true construction of the document may well be that in clause 7 what is referred to is the reasonable brokerage, application and management fee and not the Brokerage Fee etc as described in clause 6.
14 However, putting that aside for the moment, clause 6 says the owner is liable for those fees upon BAA notifying the owner that approval has been prospectively issued by a potential lender in respect of the sought loan. The sought loan was for $1,550,000. The evidence is a little obscure, but it would seem that the principal of the broker says he telephoned the accountant for the plaintiffs and said that because the value of the Narrabeen property was less than the plaintiffs said it was worth, he was only able to get a loan for $400,000. The accountant said, make it $400,000 then, whatever you can do. The requested loan amount was $1,550,000 inclusive of all fees and charges and the indicative interest rate was 5% per month (60% per year). The loan that was actually achieved appears to be $400,000, at 10% per month or 120% per year, reducible to 4% per month or 48% per year if paid promptly and the term was three months not six months.
15 Even accepting for present purposes that the accountant had authority to vary the amount required, which is very doubtful, the second defendant company has not shown that the brokerage fee for the higher loan was to be paid even though only a fraction of the money was obtained.
16 Next, clause 6(b) of the exclusive mandate provides that "A tax invoice for all fees due and payable in accordance with paragraph 6(a) herein will be delivered to the owner when the prospective approval indication is accepted." Mr Lazar, the principal of the second defendant company, says in his affidavit of 2 August 2007, that "Annexed hereto and marked 'IL-6' is a copy of a BAA invoice outlining the fees incurred by BAA with respect to the Mandate which remain unpaid to date."
17 There is no evidence that any such notice of prospective approval indication acceptance was ever given. As to that, Mr Donohoe, who appeared for the first, second and fourth defendants, said that the owner later drew down the $400,000 and that that was sufficient indication that there was an acceptance. So far as the invoice is concerned, Mr Allan for the plaintiffs said that I should note very carefully the way in which Mr Lazar had phrased his affidavit, that is, he merely annexed a copy of an invoice. He never ever said that it was actually sent. This point was made loud and clear by Mr Allan, and indeed, I mentioned it too, but there was no application by the defendants to reopen or to call further evidence. Mr Donohoe was only able to respond that the requirement under clause 6(b) was not a precondition to the payment of the brokerage and other fees being payable and that at least as soon as the draw down of $400,000 was made, those fees became payable.
18 That is an arguable point, though I must confess that it is not one that actually appeals to me at the moment. It may be, however, that one does not need to go this far because the loan that was "accepted" (assuming that one does not look for anything more than an action of acceptance rather than filling out the document) was not for the loan which was sought under the agreement. It may be that some quantum meruit sum is payable to the second defendant company, but not necessarily the amount in the exclusive mandate.
19 It follows from what I have said above, that the caveat cannot be supported and should be removed.
20 This is really the interlocutory aspect of the dispute between the parties. The plaintiffs claim extends to setting aside at least part of the transaction either under the general principles of equity or under the Contracts Review Act. I should not say too much about the case generally lest some prejudice be caused to the trial of that action. However, some of the circumstances of this case are so disturbing that I would be derelict in my duty if I did not say something.
21 However, my first comment is not in that category. I should record Mr Allan's submission that the scheme of the Real Property Act is that caveats are temporary. He says that it is an abuse of the processes of the Torrens System for people to take the view that they can enter into a commercial contract of adhesion in which there is a clause either prominent, or more usually buried away, which claims to impose a charge on all of the borrower's property and then to lodge a caveat never ever seeking to do anything else, at least until default.
22 I consider there is a fair degree of substance in that submission. A caveat should only remain on the title pending the application by the person claiming the equitable or other interest to commence a suit for specific performance or otherwise to vindicate that equitable interest. Indeed, the standard order when a caveat was challenged was that the caveat be removed in any event unless within a month the caveator commenced a suit and then, and only then, was the caveat to be extended until the hearing of the suit; see eg Ex parte Muston (1903) 3 SR (NSW) 663.
23 The current commercial enthusiasm for this sort of clause in a contract and for lodging a caveat was given a great boost by the decision of the Court of Appeal in Troncone v Aliperti (1994) 6 BPR 13,291. This decision has often been interpreted by persons seeking charges as meaning that every time there is an agreement that X can lodge a caveat over any property Y may own, that an equitable charge is created. It should be remembered, as McLelland CJ in Eq said in Coleman v Bone (1996) 9 BPR 16,235 at 16, 239, that the true principle is that "Where the authority to lodge a caveat is given in connection with an obligation by A to pay money to B, and there is no sufficient indication to the contrary, the implication is that the estate or interest granted is an equitable charge to secure payment to B of that money."
24 The probabilities would be that if the facts show that there is a pro forma document and a person of limited commercial experience has signed it without evidence being proffered by the lender that the clause has been properly explained to the person who is said to have given the charge by or on behalf of the person providing the financial benefit, that the court may very well come to the conclusion that the former person never intended to give a charge notwithstanding the words used in the document.
25 I should also note, whilst endeavouring to clarify the position in equity of the sort of clause in question in the instant case, that whilst this court has said that the court will not set aside a transaction merely because a very high interest is charged, that does not mean that the court will take no cognizance at all of the interest rate.
26 There are situations where people with appropriate commercial expertise consider that they are going to make a profit from a venture and desperately need short term finance to finish that venture where the court may very well not have any qualms about enforcing a contract with a high interest rate.
27 However, where one finds a small businessman or developer, or even worse, a person in neither of those categories, who is paying more than 48% per year or 4% per month (being the amount which was fixed by many Australian States under the Moneylending legislation as being the top rate) then the court is very likely to look quite closely at all the facts and circumstances of the transaction.
28 The next matter of concern is that the present loan was secured, inter alia, by a grant of an option.
29 As a general rule, an option granted to the mortgagee to purchase a mortgaged property is not enforceable, see Fisher & Lightwood on Mortgages, 2nd Australian ed, [32.11]. The rule has been modified as Fisher & Lightwood say at [32.15] for "modern commercial transactions between commercial entities fully advised by competent lawyers and other experts with no claim to the protection of equity as persons who cannot look after themselves." That, however, is not the situation with small property developers, people buying trucks or other members of the public even though they may have legal advice. The court will not only be very wary about enforcing such options, but in accordance with its current practice, if it finds that a solicitor has constantly been a party to making borrowers sign options which are unenforceable in equity, it will report the solicitor for the appropriate disciplinary action.
30 Finally, I should note my concern with some of the correspondence that was issued on behalf of the defendants to the plaintiffs. On 10 May 2007, one Ian Lazar, who says he is the managing director of Business Acquisitions Australia, emailed the solicitor for the plaintiffs, saying, inter alia, "BAA holds a caveat on the particular properties at question for the exclusive mandate that was executed to provide the takeout finance of the short term loan. … I bring your attention to the case law that I have been most successful in, and should you go to court for such an application as you have inferred in your correspondence, I will defend such an action vigorously."
31 On 14 May he emailed "I deny any of your allegations made up to date and reiterate I will be defending any court action your client may bring to release our security for your clients indebtedness to BAA. I have been advised to inform the relevant authorities in regards to this transaction, however I am reluctant to do this as I believe it will only impede the amicable resolution which I know is forthcoming."
32 I may have led a sheltered life, but apart from the old time moneylending sharks, I would not have expected a reputable lender or broker in the 21st century: (a) to email a solicitor that it has always been successful in its litigation especially when it issues documents which are as poor as the present set of documents; and (b) where there is an implied threat on the debtor that unless the debtor pays promptly he will be black-listed. I hope not to see such correspondence again.
33 The second defendant company has been unsuccessful in this litigation as a result of incompetence in completing documents and in carrying out the transaction as contemplated by the documents. It has therefore not been necessary to go into the "merits" of the matter. However, because of the attitude which is reflected in the correspondence to which I have just referred, I thought that it was wise, in a case where it does not affect the result, to make it quite clear to financiers who function outside recognized banking circles, that the court is just not going to smile benignly on every one of their transactions just because the fine print in documents complies with the observations of the Court of Appeal in Troncone's case. The court will, where appropriate, vindicate the right of the lender, but it will also take great care that people who are not commercially savvy, who because of their desperation for finance will agree to unwise terms of finance, will be protected to some extent by a court of equity in appropriate cases.
34 The plaintiffs named four defendants, Mr Lazar, the principal of the second defendant, the second defendant company and two mortgagees. The interlocutory orders are only sought against the second defendant as caveator.
35 For the reasons given above, I order that the second defendant remove Caveats AD148260T and AD148274G by 4 pm on the day these reasons are delivered.
36 I indicated earlier that the second defendant never had any caveatable interest in the Blacktown land. Its case to maintain a caveat over the Narrabeen land was fundamentally flawed because of its own administrative ineptitude. Notwithstanding this, it was aggressive and threatening. It is thus a case for ordering that the second defendant pay the plaintiffs' costs of the application to remove caveats on the indemnity basis. I reserve all other questions of costs.
37 Unless counsel suggest some more appropriate day when I deliver these reasons, the proceedings will stand adjourned for mention to the Registrar's list at 9.30 am on 19 October 2007.