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[2009] QSC 236
defendant. 1. The plaintiff's claim is dismissed. 2. The plaintiff pay the defendant's costs, to be assessed on the standard basis. 3. Liberty reserved for additional written submissions regarding costs...
Joelco sought damages, alleging that Balanced Securities charged penal interest and acted unconscionably under statute and general law after Joelco defaulted under a facility agreement. The Supreme Court held Joelco failed to prove unconscionability or that the higher interest and fees were penalties. The court found Joelco was commercially experienced, had advice and scope to negotiate, and did not demonstrate a special disadvantage. The lender validly exercised rights under its contract. The plaintiff's claim was dismissed and costs were awarded to the defendant (paras [1], [10]-[15], [20]-[26], [31]).
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Joelco Pty Ltd entered a facility agreement with Balanced Securities Limited on 22 December 2006 for a $7.7 million financing facility intended to refinance a development at Maleny (paras [1], [4], [5]). The facility included a contracted "Acceptable Rate" of 12.2% per annum and a "Higher Rate" which was about 7% above that, together with several ancillary provisions: a sales covenant (minimum four sales per interest period) (clause 11), a capitalised interest allowance of $500,000 (clause 4.5), early repayment terms requiring two months interest (clause 3.3(c)), a 1.5% rollover fee (clause 3.4(c)), and rights on default enabling the lender to declare amounts immediately due and enforce securities (clauses 14.2 and 14.3) (paras [4], [9] subclauses 1–5).
Joelco fell into default in March 2007 by failing to achieve the required sales (para [9] sub 1). Balanced Securities issued a notice of exercise of power of sale (served on or about 17 April 2007) claiming principal and various interest and fee amounts including interest calculated at the higher rate, early repayment interest, and a rollover fee (para [9] sub 3). Joelco ultimately repaid the facility by settlement on 23 October 2007 with a series of early repayments in the months prior, which attracted early repayment interest and occasioned the rollover fee (paras [7], [9] sub 4–5).
Joelco sued alleging breach of contract, unconscionable conduct (statutory and equitable), and contravention of ss 12CA, 12GF and 12GM of the ASIC Act and s 991A of the Corporations Act, claiming that the higher interest rate and fees were penal and that Balanced Securities had acted unconscionably (paras [1], [4], [10]). The Chief Justice dismissed Joelco's claim and awarded costs to Balanced Securities (para [31]).
The Chief Justice framed the contest around two principal legal doctrines: unconscionability (statutory and general law) and the penalty doctrine (whether contractual sums operate as a penalty) (paras [2]-[3], [10]-[15]). On unconscionability, the court emphasised the established requirement that a plaintiff demonstrate a relevant special disadvantage or unconscientious exploitation (citing GPG v GIO and ACCC v Berbatis) (paras [2], [24]). The judge found Joelco to be a commercially experienced company, represented by brokers and solicitors, aware of its circumstances for months before the facility, and actively negotiating terms; the evidence did not establish that Joelco was under a special disadvantage that was exploited by Balanced Securities (paras [21]-[26]). The court relied on the well-known High Court teaching that inequality of bargaining power alone does not amount to unconscionability and that robust commercial bargaining may extract concessions without offending conscience (para [24]).
On the penalty issue, the court noted that the higher interest rate was presented in clause 4.4(b) as the primary contractual rate for interest calculations, and that it was therefore not plainly a default-only rate (para [13]). The judge stressed the plaintiff's onus to demonstrate that the contractual rate did not reflect a genuine pre-estimate of loss or was extravagantly disproportionate; Joelco produced no comparative market evidence to substantiate that claim. On the evidence, it would be speculative to conclude the higher rate was penal (paras [14]-[15]). The early repayment interest and rollover fee were characterised as compensatory for lender actions (reinvestment time, rolling over the facility) rather than punitive; the rollover fee was not charged as a penalty for breach but as consideration for the lender's discretionary continuation of the facility (paras [4]-[5]).
Finally, on exercise of contractual rights, the court held that clause 14.2 did not expressly require prior notice and that the service of the notice of exercise of power of sale in mid-April 2007 was sufficient to evidence the exercise of the lender's option to make moneys immediately due and enforce securities (para [9]).
Together, these findings meant Joelco did not discharge the burdens on it: no unconscionability shown and no penalty established. The claim was dismissed with costs (para [31]).
Before this judgment, the governing principles were well-established in Australian authorities:
This judgment applies those principles to a straightforward commercial lending arrangement. The decision reinforces existing law rather than altering it:
Thus the case sits squarely within established precedent and offers an exemplar application of those doctrines rather than a doctrinal shift.
Paragraph [2], statutory frame:
Paragraph [3], threshold for licensee misconduct:
Paragraph [14], penalty onus:
Paragraph [24], bargaining power and unconscionability (quoting Berbatis):
Paragraph [9], exercise of clause 14 rights:
This judgment is instructive where:
Practitioners should note that mere commercial imbalance, time pressure to obtain financing, or the fact of a distressed refinancing are not alone sufficient to establish unconscionability or to render contractual rates unenforceable.
The judgment itself does not canvass subsequent judicial treatment. The reasons adopt well-established High Court and appellate authorities (for example ACCC v Berbatis, Ringrow) and apply them to the facts (paras [24], [14]). If one seeks to understand subsequent appellate treatment of Joelco specifically, that is not provided in the reasons and would require searching subsequent reports or citators. This decision should be read as an applied example rather than as a novel authority likely to change subsequent law.
Evidence thresholds on penalty claims: The court treated the absence of market comparators as fatal to the penalty claim (paras [14]-[15]). That leaves open the precise contours and quantity of market evidence needed to overcome the onus in other fact patterns. A borrower who adduces comparative rates, lender internal risk assessments, or expert evidence about likely losses might fare differently.
Characterisation of primary vs default rates: The court relied on the contractual presentation of the higher rate as primary (para [13]). Where drafting is ambiguous, courts could be asked to resolve whether a rate is punitive or genuinely a primary contractual component; different drafting might yield different outcomes.
Notice and manifestation of exercise of option: The decision held that clause 14.2 did not require notice and that the notice of exercise of power of sale evidenced the exercise (para [9]). Where clause drafting is different or where the borrower can show prejudice from lack of prior notice, the outcome might differ; courts may need to parse the parties' intentions more finely.
Statutory unconscionability in finance cases against licensees: The court reiterated the high threshold under s 991A (para [3]). Whether different factual matrices (for example, individual consumers, language barriers, absence of advice) produce different results under s 12CA or s 991A remains open and fact-sensitive.
Aggregated commercial pressure: The judgment treated the aggregate of Joelco's disadvantages (need for quick finance, limited options) as insufficient to show special disadvantage (paras [21]-[26]). But closer cases where a borrower lacks independent advice or suffers cognitive impairment or similar attributes may be decided differently.
Practitioners should extract from Joelco the core lesson: in commercial lending disputes the evidentiary burden lies with the challenger; absence of precise market or contextual evidence, and presence of negotiation and advice, will strongly support enforcement of contractual terms (paras [13]-[15], [21]-[26]).
The plaintiff claims damages for breach of contract, unconscionable conduct, and/or under ss 12GF and 12GM of the Australian Securities and Investments Commission Act 2001 (Cth) for breach of s 12CA of that Act, and/or pursuant to the provisions of s 991A of the Corporations Act 2001 (Cth). The claim rises from the provisions of a "facility agreement' between the parties (with Mr David Thomas, as guarantor), dated 22 December 2006.
"(1) A person must not, in trade or commerce, engage in conduct in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories."
That probably relates to the unconscionable dealings doctrine (GPG (Australian Trading) Pty Ltd v GIO Holdings Ltd [2001] FCA 1761; (2001) 117 FCR 23). Consequent loss or damage may lead to an award of damages, under s 12GF(1).
[3] Section 991A of the Corporations Act 2001 (Cth) proscribes unconscionable conduct by a financial services licensee, with a right to damages for consequent loss. The notion of "unconscionability" in that context has been said to import "a high level of moral obloquy" (ASIC v National Exchange Pty Ltd [2005] FCAFC 226; (2005) 148 FCR 132; Canon Australia Pty Ltd v Patton [2007] NSWCA 246). The defendant was a licensed provider of financial services.
[4] Under the facility agreement, the defendant advanced $7.7 million to the plaintiff, comprising $7.26 million together with $440,000 "interest allowance". That allowance was available for the discharge of interest payments "from the Second Interest Period" (cl 4.5). The defendant exercised its rights pursuant to the agreement, following upon default by the plaintiff, claiming to be entitled to interest payments at the rates of 19.2 percent and 19.45 percent from time to time, which the plaintiff contends were penal rates. The defendant also charged a "rollover fee" of $124,502.40 which the plaintiff disputes, and the defendant levied additional fees because of early repayment of principal, in the amount of $143,248.60. The plaintiff alleges that the defendant thereby acted unconscionably, and in the course of that, extracted penalties from the plaintiff.
[5] The plaintiff was a company developer which owned 96 lots of land at Maleny. It had developed those lots with a joint venturer, Australia Estates Pty Ltd. The National Australia Bank and Grant Taylor Technologies Pty Ltd had financed that development to the tune of $8.1 million. In July 2006, the bank advised the plaintiff that it would not continue to finance the development, because of caveats which had been lodged over the land by the joint venture partner.
[6] The plaintiff then set about refinancing the project. It utilized the services of a finance broker, which was its agent, Union Fidelity Capital Funding Pty Ltd. I accepted the evidence of Mr Ross, Director and Group Funds Manager of that company, as to the steps he took to arrange alternative finance for the plaintiff, which led to an offer of finance from the defendant. Following two earlier approaches by the plaintiff with other financial brokers which had come to nothing, subsequent negotiations occurred with the defendant. See for example, the defendant's offer of 14 November 2006 (Ex 1 tab 19), which included, as a special condition, that the borrower must "obtain a minimum of four sale settlements per quarter", with the proceeds of those sales going "to reduce the principal sum". I accepted Mr Ross's evidence that the defendant's offer was the best he could secure for the plaintiff, in that that offer ended up as "the only one on the table which had not been declined".
[7] On 14 December 2006, Mr Thomas, Director of the plaintiff, signed the facility agreement, and he also signed an acknowledgement that the mortgage and ancillary documents had been "fully explained" by his solicitor (Mr Lawrence) (Ex 1 tab 23). I accepted the evidence of Mr Lawrence and Mr Thomas that it was, however, but a cursory explanation, given in circumstances where the plaintiff's primary solicitors, H W L Ebsworth, had been running the transaction for the plaintiff, and where Mr Thomas was simply not interested in receiving any additional comprehensive explanation.
[8] On 18 December 2006, Mr Thomas called on Mr Hodges, the defendant's senior credit manager, in Melbourne, to discuss aspects of the proposed transaction. (The defendant had not executed the finance agreement by that stage.) The defendant executed the agreement four days later. Prior to the payment of the funds under the agreement (which the parties termed the "settlement" of the agreement), Mr Thomas complained that the plaintiff was having to pay a $60,000 brokerage fee, which effectively reduced his intended "interest allowance" from $500,000 to $440,000, albeit temporarily until repayment of the $60,000. Mr Thomas also queried the plaintiff's interest commitment. But the "settlement" proceeded with the facility agreement (Ex 1 tab 32) executed and in place.
[9] It is necessary to trace now what happened in the carrying out of the facility agreement, by reference to factual circumstances and the provisions of the agreement. In the course of what follows, I will seek to deal with a number of the plaintiff's challenges to the way the defendant proceeded.
11.1 Whilst the Borrower remains liable or contingently liable to pay the Moneys Hereby Secured or any part thereof the Borrower must obtain a minimum of 4 sales per Interest Period to commence on the Interest Commencement Date to arms length purchasers which Contracts of Sale reflect:
(a) prices that confirm valuation figures or less if agreed to by the Lender in writing;
(b) a minimum of 5.00% deposit paid by the purchaser which money is held in a trust account by the Borrower's solicitor; and
(c) acceptable terms and conditions to the Lender
and sales of no more than one lot sold to any one purchaser or related party pre-sales will be excluded from the Lender's pre-sale requirements."
It is admitted on the pleadings that on or about 20 March 2007, the plaintiff fell into default, because it had failed to obtain four concluded sales by the end of the first quarter, that is by 13 March 2007. That was an "Event of Default" (cl 14.1(b)).
2. The agreement provided for two rates of interest, an "Acceptable Rate" of 12.2 percent per annum, and a "Higher Rate" 7 percent higher than that. The interest provision, cl 4, comprehensively provided as follows:
4.1 Interest shall be calculated and payable to the Borrower to the Lender in accordance with the following provisions.
4.2 For the purpose of the calculation and payment of interest the Accommodation Period shall be divided into consecutive Interest Periods of 3 months each.
4.3 The Borrower acknowledges that the Lender has made the Facility available to the Borrower as from the Interest Commencement Date and so for the purpose of calculation of interest the first interest period shall commence on the Interest Commencement Date and the Borrower agrees to pay interest from the Interest Commencement Date.
4.4 The Borrower shall pay to the Lender:
(a) on the Interest Commencement Date interest for the following Interest Period calculated at the Acceptable Rate unless an Event of Default has occurred or is subsisting in which case interest is payable calculated at the Higher Rate.
(b) on the first day of each subsequent Interest Period interest at the Higher Rate provided that:
(i) if interest is paid not later than 4 days after the due date for payment; and
(ii) no Event of Default has occurred or is subsisting,
then the Lender shall accept the payment of interest for the Interest Period calculated at the Acceptable Rate;
(c) if a further Advance is made during an Interest Period then the Lender shall at its discretion either:
(i) deduct from such further Advance interest at the applicable rate from the date of that drawdown to the end of the Interest Period; or
(ii) add such interest to the Principal Outstanding.
4.5 The Lender has included in the Facility Limit a sum of $500,000.00 to be utilised for payment of interest commencing from the second Interest Period.
4.6 The Interest Allowance is only made available whilst the Borrower complies with all undertakings and warranties.
4.7 In the Event of Default, the Lender's obligation to capitalise interest to the Facility will cease.
4.8 Upon an Event of Default the Borrower shall (without prejudice to all or any of the other rights of the Lender arising out of such default) pay to the Lender interest on all such moneys then outstanding at the Higher Rate calculated on a daily balance from the date of the Event of Default until the Event of Default is rectified or repayment to the Lender in full in accordance with this Agreement. Where an Event of Default occurs during a quarter for which interest has been pre-paid at the Acceptable Rate additional interest will be payable at the difference between the Acceptable Rate and the High Rate effective from the Event of Default and will be immediately due and payable by the Borrower. Any interest calculated at the Higher Rate and which has not been paid will be capitalised with effect from the date of the Event of Default which amount shall be added to the Moneys Hereby Secured.
4.9 The Lender may increase the Acceptable Rate by delivering notice of such decision to the Borrower provided that the Lender shall not increase the Acceptable Rate to a figure which exceeds the Westpac Indicator Lending Rate for loans in excess of $100,000 at the date of such notice by more than 2.20%. In the event that the Westpac Indicator Lending Rate is no longer published, the rate which in the reasonable opinion of the Lender most closely approximates the said Westpac Indicator Lending Rate will be substituted in lieu of such rate for the purposes of the new interest calculation. The rate increase will take effect from the date of the relevant Westpac Indicator Rate increase herein known as the rate increase date.
4.10 In the event that the Lender increases the Applicable Rate pursuant to Clause 4.9, the Borrower agrees to pay at the next Interest Payment Date a further amount of interest calculated having regard to the difference between the Applicable Rate at the commencement of the Interest Period during which the Applicable Rate increased and the increased Applicable Rate notified pursuant to for the period from the relevant rate increase date to the end of that Interest Period."
In the events which occurred, interest was payable at the higher rate (19.2 percent per annum) (cl 4.4(b)(i) and (ii) and cl 4.8), and the plaintiff forewent its entitlement to have its interest commitment debited to the "interest allowance" (cll 4.6, 4.7).
3. Default by the plaintiff in March 2007 enlivened the operation of cll 14.2 and 14.3:
"14.2 If an Event of Default occurs, then the Moneys Hereby Secured shall at the option of the Lender immediately become due and payable and each Security shall at the option of the Lender become immediately enforceable and the Lender's further obligations under this Agreement or any of them shall upon the Event of Default occurring thereby be terminated.
14.3 At any time after the Lender makes a declaration under Clause 14.2, the Lender may exercise all or any of its rights under any Security and may apply any moneys deposited by the Borrower or the Guarantors in any account with the Lender in payment of any amount then outstanding to the Lender.
The defendant asserts that it exercised its option under cl 14.2 to render the monies due and payable and to enforce the securities etc. It claims to have despatched a letter dated 27 March 2007 to the plaintiff confirming that (Ex 1 tab 40). But I doubt that that letter was delivered, in view of the evidence of the accountant Ben Dean which I accepted. I am not satisfied that the letter was sent, as required by cl 20.1. (I would not however accept the plaintiff's Counsel's characterization of the letter as a "recent invention": there was nothing to support that.)
In any event, if notification to the plaintiff of the exercise of the option be needed (and I return to this later), it was accepted that the defendant served a notice of exercise of power of sale on or about 17 April 2007 (Ex 1 tab 43).
The notice of exercise of power of sale listed the following defaults:
"a) you have defaulted under clause 11.1 of the Facility Agreement dated 22 December 2006, which required you to make at least 4 independent sales of any of the above Lots to arms length purchasers during the first interest period, being from 20 December 2006 to 19 March 2007. There were no acceptable sales of any of the above Lots during this period;
In the notice of exercise of power of sale, the defendant made the following consequent claims:
Counsel for the plaintiff submitted that the notice of exercise of power of sale was produced as a mere "tactic to enable the plaintiff to have the caveats placed on the land by the plaintiff's joint venturer to be removed and the contract of sale of all of the lots to proceed". That was not established. There is no ground to doubt that the notice of exercise of power of sale was anything other than what it appeared to be: there is no warrant for concluding that the notice amounted to some sort of sham, or was not intended to operate as it might, or that its effect was in some way conditional.
I accepted Mr Hodges' evidence of the defendant's exercise of the option (day 1, p 66).
There was debate before me as to what the making of a "declaration under clause 14.2", as referred to in cl 14.3, must entail. Clause 14.2 does not refer to the making of a declaration, but to the exercise of an option. Clause 14.2 does not require that the exercise of the option be notified to the plaintiff. The making of a declaration, as referred to in cl 14.3, would presumably necessitate some manifestation of or assertion as to the exercise of the option. In my view that was sufficiently achieved in this case by the service of the notice of exercise of power of sale in mid-April 2007.
In any case, in relation to a contention that some more formal notification to the plaintiff had been required, I point out that those clauses are to be contrasted with cl 4.9 which, in its instance, expressly required the delivery of notice, a requirement absent from cll 14.2 and 14.3. Also, the terms of cl 14.2, in referring to the debt's "immediately" becoming due and payable upon the exercise of the option, with the securities thereby becoming "immediately" enforceable, are significant. It would be inconsistent for there to be deferment pending notification to the plaintiff.
In my view, whether or not any sort of notification to the plaintiff was required, the defendant satisfied the requirements of cll 14.2 and 14.3, and the defendant thereby became entitled to exercise all of the rights referred to in those provisions.
4. The plaintiff challenged the defendant's entitlement to "early repayment interest". This liability in the plaintiff arose when the proceeds of sale of the lots were paid to the defendant in reduction of the principal sum. That situation was governed by cl 3:
3.1 Subject to clauses 3.2 and 3.3, the Borrower shall repay to the Lender the Moneys Hereby Secured on the Repayment Date or earlier in accordance with Clause 14.
3.2 The Borrower may only repay a part or all of the Principal Outstanding prior to the Repayment Date in accordance with Clause 3.3 hereof.
3.3 The Borrower may at any time during that Accommodation Period repay the whole or any part of the Principal Outstanding provided that:
(a) the Borrower has given to the Lender at least 30 days written notice of repayment;
(b) the Borrower has paid all interest that is payable up to the date of the early repayment on the amount so repaid. For the purpose of calculating interest under this sub-clause where interest has been paid or capitalised in advance of the date on which a reduction or repayment occurs that does not correspond to the last day of an Interest Period interest is to be calculated and adjusted on a daily basis; and
(c) the Borrower pays an additional 2 months interest on the amount so repaid.
and this clause shall apply notwithstanding that the Lender shall have served a notice to pay or a notice of default pursuant to this Agreement or any of the Securities, an in recognition of the time that may expire from the date of repayment to the time that an acceptable alternative loan may be sought, approved, documented and advanced."
Such payments were made on seven occasions, between 22 August and 24 October 2007, in varying amounts ranging from approximately $7,000 to approximately $226,000. Counsel for the plaintiff contended that the liability to "early repayment interest" was penal in effect.
Mr Hodges explained, in evidence I accepted, why it was reasonable for the defendant to be compensated for such early repayments, allowing for the time it would take to reinvest such monies in the ordinary course of the defendant's business. In any event, this early repayment fee was not levied consequent upon any breach of the agreement by the plaintiff. It is difficult therefore to see how it could be characterized as penal in any event.
5. Notwithstanding its notification by the notice of exercise of power of sale, the defendant did not proceed immediately to sell the subject land, but extended the term of the loan beyond the repayment date, in the hope that more time would facilitate the plaintiff's orderly sale of the land (Mr Hodges day 1, p 67, ll 50-60). This amounted to "rolling over" the loan. That was provided for by cl 3.4:
"3.4 If the whole of the Moneys Hereby Secured shall not be repaid to the Lender on or before the Repayment Date then the Borrower shall pay:
(a) interest until the date of the repayment of the Moneys Hereby Secured at the Higher Rate. For the purposes of calculating the interest under this sub-clause where interest has been paid or capitalised in advance of the date on which a reduction or repayment occurs that does not correspond to the last day of an Interest period interest is to be calculated and adjusted on a daily basis; plus
(b) interest on the Principal Outstanding at the Repayment Date for 2 months at the Higher Rate; plus
(c) a rollover fee to the Lender of 1.50% of the Principal Outstanding ("Rollover Fee") at the Repayment Date where the Lender at its sole discretion (without notice to the Borrower or Guarantors) elects to roll over the Facility for a further period of 90 days. The Rollover Fee shall be charged to the Borrower's account and forms part of the Moneys Hereby Secured on the original Repayment Date. Interest accrues on this amount at the Higher Rate.
and this clause shall apply notwithstanding that the Lender shall have served a notice to pay or a notice of default pursuant to this Agreement or any of the Securities, and in recognition of the time that may expire from the date of repayment to the time that an acceptable alternative loan may be sought, approved, documented and advanced."
By oversight, the defendant omitted to debit the plaintiff's account with the rollover fee, and rectified that subsequently (Mr Hodge day 1, p 68, ll 10-45).
The plaintiff alleges that the defendant breached the agreement by rolling over the loan before the "repayment date" had arrived. The "repayment date" was defined as the date the "accommodation period" expired, which was 20 June 2008, but the definition of "accommodation period" allowed for earlier expiration should the defendant exercise its rights under cl 14. The defendant did that, by 17 April 2007 (the date of service of the notice of exercise of power of sale) at the latest. There was accordingly no departure by the defendant from the contractual regime.
In relation to the plaintiff's contention that this "rollover fee" is penal in effect, I note that the fee is not an agreed sum payable upon breach by the plaintiff: it is a fee payable in return for certain action on the part of the defendant. It is not payable because the plaintiff had breached the facility agreement. Accordingly, this fee should not be characterized as a penalty, other aspects aside.
6. It remains to mention that by notice of 14 August 2007, the defendant advised the plaintiff that the interest rate had increased by .25 percent per annum to mirror an increase in the Westpac Indicator Rate which had occurred four days previously. That increase was authorised by cl 4.9.
7. The loan was ultimately discharged on 23 October 2007, with the plaintiff settling the balance owing to the defendant as at the day before.
[10] The plaintiff contends that levying interest at the rate provided for in the agreement involved the imposition or exaction of a penalty. It fell to the plaintiff to demonstrate that effect.
[11] Counsel for the plaintiff relied principally on these circumstances: it was not likely that the plaintiff would have sold at least four lots per quarter, with the consequence that the higher interest rate would probably apply; the higher interest rate was a substantial rate (5.6 percent per annum higher than under the precedent NAB loan); that rate should properly be regarded as a "default" rate, and not a primary rate; the repayment of the defendant's debt was amply secured; and the defendant, at the hearing, offered no evidence "as to the additional risk they would have encountered if the plaintiff were to default under the loan".
[12] On the other hand, Counsel for the defendant relied on the higher rate's being advanced in the contract, as a matter of form at least, as the primary rate; that the interest rate was not rendered applicable by any breach; that the rate was agreed upon by parties of commercial experience and understanding; and that the plaintiff derived substantial commercial benefit from this facility, in circumstances where the NAB had withdrawn from the picture and no other competing facility was realistically on offer.
[13] As to the way the higher rate is presented contractually, cl 4.4(b) does present it as the primary, not a default rate, so that the sometimes criticized approach discussed in Fisher and Lightwood's Law of Mortgage (2nd Austn ed, 2005), dealt with by Chesterman J in Beil v Mansell (No 2) [2006] QSC 199; (2006) 2 Qd R 499, 505, does not immediately apply. It is also technically right to say that this interest at the higher rate was not exacted consequent upon any breach by the plaintiff (cf Iannello v Sharpe [2007] NSWCA 61; (2007) 69 NSWLR 452, para 33; Cloud Top Pty Ltd v Toma Service Pty Ltd (2008) NSWSC 568, para 65(v)(b)).
[14] Seeking then to balance the considerations raised by both parties, it would, I consider, be quite speculative now to determine whether or not the higher rate reflected "a genuine pre-estimate of the damage likely to be caused by the breach", and if it did not, whether the disproportion was "extravagant and unconscionable", pointing to oppressiveness (Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656, 663, 666-9). In other words, the plaintiff has not discharged its onus of establishing that the interest rate did not reflect a genuine pre-estimate in that sense.
[15] In relation to the plaintiff's reference to the defendant's not having led evidence as to the risk etc, it may also be noted that the plaintiff (which bore the onus) did not lead evidence of rates being charged in December 2006 in the finance market in relation to loans of this magnitude, where undertaking the risk was apparently not generally attractive to lenders, and where the borrower's own problems had provoked the need for refinancing.
[16] In the context of alleged unconscionability, the plaintiff criticized the defendant's requirement that it sell at least four lots per quarter. The basis of the criticism was that in the 18 months preceding the execution of the facility agreement, there had been only 20 sales, which amounted to 2.7 per quarter.
[17] But referring to a valuation obtained by the defendant, the plaintiff's broker raised the prospect of higher levels of sales in the future. On 7 November 2006, the broker's general manager Mr Ross had made this observation to Mr Hodges:
"Sale of the land since December 2005 indicates that 2 sales per month is achievable in the current climate even though HTW Valuations state a lower sales rate than is currently being achieved. HTW Valuations have been conservative since their first valuation was completed prior to the commencement of the development in 2003."
And it is of course important to note that the plaintiff, which I regarded as commercially experienced and astute, was prepared to contract on that basis.
[18] In these circumstances, it is difficult to be critical of the defendant's requirement for that level of sales, especially as I have said allowing for the plaintiff's agreement to it.
[19] Counsel for the plaintiff submitted that the requirement was "simply ... to enable the defendant to charge the higher rate when it knew or ought to have known that the plaintiff could not possibly reach the full sales requirement". I do not accept that contention, for the reasons already expressed.
Unconscionability generally: the parties' comparative positions
[20] This is not a case where the plaintiff was in a situation of "special disadvantage", in relation to the defendant, as that concept is understood in this area of the law.
[21] In the statement of claim, the plaintiff raised these considerations:
1. The plaintiff "needed finance quickly so as to avoid foreclosure and/or loss of its development".
2. The plaintiff was "in ... a position of unequal bargaining power" with the defendant.
3. The plaintiff "had little or no other opportunity to obtain finance from alternative financiers".
4. The Plaintiff was "in the circumstances, in a position where it was unable to reject or negotiate about any further terms imposed by the [defendant] upon the plaintiff in the final facility agreement".
[22] None of those circumstances, or the aggregation of them, could give rise to a relevant "special disadvantage" such as would enliven issues of unconscionability. It is also relevant to note that the plaintiff was a company (cf. Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37, paras 55, 56).
[23] In any event, as to (a), the plaintiff knew in June 2006 that the NAB would not continue with the financing. Also, on 21 December 2006, the plaintiff was not so desperate as to prevent its quarrelling about paying the broker's fee and querying the interest commitment. As to (b), the plaintiff was a company of considerable commercial experience, as was its director Mr Thomas, and the plaintiff had, additionally, the support of a broker and legal representation. Mr Thomas made no complaint before me of having felt inadequate or borne down during the negotiations. On the contrary, my impression was that he had approached those matters with a degree of robustness. As to (c), the plaintiff knew of the need to obtain alternative finance from mid-2006. It was involved with two broking firms. It engaged in negotiation and bargaining. As to (d), the plaintiff did not accept the terms, when offered, without question.
[24] It is worth recalling, in this situation, what Gleeson CJ said in ACCC v Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51, emphasizing (pp 64-5) that, absent exploitation of a specially disadvantaged party, the other will not behave unconscionably by robustly asserting his or her superior bargaining position. The Chief Justice said this:
"A person is not in a position of relevant disadvantage, constitutional, situational, or otherwise, simply because of inequality of bargaining power. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests ...
Unconscientious exploitation of another's inability, or diminished ability, to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining position ..."
He spoke uncritically in that context of parties to commercial negotiations using their bargaining power to "extract concessions from other parties" observing "that is the stuff of ordinary commercial dealing".
[25] I would not however see this as a case in which the evidence established the exertion of any substantial influence by the defendant upon the plaintiff to secure an agreement in this form. The evidence disclosed that the plaintiff negotiated with a degree of independence and robustness inconsistent with a view that it was labouring under any inadequacy which was unfairly exploited by the defendant.
[26] This is not a case where unconscionability has been established, either under the general law or the statutory provisions raised by the pleadings.
[27] I have already set out the contractual basis for the defendant's entitlement to the amounts particularly challenged by the plaintiff.
[28] It remains to mention paras 40(b) and 41(b) of the statement of claim, in relation to an aspect on which Mr Hodges was cross-examined. The defendant's statement of account, Ex 1 tab 63, refers, in addition to the rollover fee of $124,502.40, to a "loan advance - ROM (Chq 17226 Balanced Applns)" in the same amount. There was a suggestion that two rollover fees may have been debited to the account.
[29] Such an allegation was not pleaded, and the defendant was not in a position to deal with it directly when it was raised in cross-examination. Mr Hodges was able to deny, however, that there was any "double charging", describing the entries as "internal bookkeeping" which the senior compliance manager Mr Williams could explain if necessary.
[30] That was not necessary, because this was not a live issue on the pleadings. In any event, I accepted Mr Hodges' explanation.
2. that the plaintiff pay the defendant's costs of and incidental to the proceeding, including any reserved costs, to be assessed on the standard basis; and
3. that liberty be reserved to the parties to make any additional submission in writing in relation to the issue of costs, within seven days, should it be suggested a different order should be made.
Joelco Pty Ltd
Balanced Securities Limited
(2003) 214 CLR 51
(2005) 148 FCR 132
(2006) 2 Qd R 499
(2001) 117 FCR 23
(2007) 69 NSWLR 452
(2005) 224 CLR 656
1. The plaintiff's claim is dismissed. 2. The plaintiff pay the defendant's costs, to be assessed on the standard basis. 3. Liberty reserved for additional written submissions regarding costs within seven days (para [31]).