Memery v Trilogy Funds Management Limited [2012] QCA 160

Judgment (90 paragraphs)

[1]

[1] MARGARET McMURDO P: I agree with Fraser JA's reasons for refusing the application for leave to appeal with costs.

[2]

[2] FRASER JA: The applicant seeks leave to appeal against a judgment in the District Court in favour of the respondent for $43,181.66 plus interest.

[3]

[3] The proposed appeal would turn upon the proper construction of the the respondent's "Facility Letter" dated 17 August 2009, which the applicant signed to signify acceptance of its terms. So far as is presently relevant, the Facility Letter is in the following terms -

[4]

Your request for a loan facility has been approved on a 'best endeavours' basis subject to all conditions being satisfied. The approval is not unconditional until the making of the advance, the principal terms of which are outlined below.

[5]

This letter is not to be construed as a binding agreement to make the advance. Such agreement shall only come into existence upon the making of the advance which may be delayed, or may not occur at all, unless all of the Lender's requirements are satisfied promptly.

[6]

A brief summary of the details proposed to be relied upon to prepare documentation is enclosed in the Schedule headed 'Security Details'. Please note that further conditions may be imposed for the facility at the direction of the lender prior to the Advance being made.

[7]

Please return the following documents to us by courier as soon as possible to expedite the preparation of the security documents:

[8]

1. Documents satisfying special conditions (if applicable)

[9]

"SCHEDULE TO LOAN FACILITY LETTER DATED 17 AUGUST 2009

[10]

Below are the principal terms and conditions which shall be incorporated into the security documentation. Please advise if any corrections are required.

[11]

Trust Company Fiduciary Services Limited 000 000 993 as custodian for the Trilogy First Mortgage Income Trust

[12]

An indicative breakdown of this amount is as follows:

[13]

This breakdown is indicative only, and may be varied at the lenders [sic] discretion.

[14]

$57,000 plus GST, brokerage in the amount of $19,000 plusGST will be paid from that amount to your broker.

[15]

15.00% per annum. However if ..., the Lender will accept interest at the lower rate of 11.00%. ...

[16]

Loan Administration fees totalling 3.00% (plus GST) per annum of the loan amount to be calculated and payable monthly in arrears by the borrower.

[17]

The matured loan shall be repaid in full on the date which is twelve (12) months from the date of settlement.

[18]

13.2 First Registered Mortgage over the property situated at 8 - 12 Ernest Street, Lutwyche and described as [real property description followed]

[19]

13.3 Such other Loan Agreements, Certificates, Acknowledgements, Securities or other documents as are required by the Lender's Solicitors.

[20]

The fees of the Lender and its Solicitor are listed in the attached schedule. The Lender and its Solicitor reserve the right to vary these fees in light of searches to be undertaken, government charges including stamp duty or registration fees payable or in any other circumstance advised to the Borrower where the Lender or its Solicitors [sic] believe it reasonable to do so.

[21]

The Loan Agreement to be provided to you will contain details of Conditions Precedent to be satisfactorily dealt with prior to the Advance being made.

[22]

16.1 Inspection of the property by an authorised representative(s) of Trilogy. The cost of this inspection is the responsibility of the Borrower and will be deducted from the commitment fee should the loan not proceed for any reason.

[23]

16.3 A report of the property is to be undertaken by a Trilogy quantity surveyor.

[24]

16.6 100% of the net sale proceeds are to be applied as principal reduction of this loan.

[25]

16.13 Two valuations of the property is [sic] to be undertaken by Trilogy panel valuers. These reports are to be instructed by Trilogy for mortgage security purposes and are to be to the satisfaction of Trilogy in all respects. Trilogy reserves the right to vary the conditions of the loan offer upon formal review of the documents submitted including the right to appoint a project manager at any time during the course of construction at the cost of the borrower. ...

[26]

16.14 Independent legal advice is to be obtained by Sean Kevin Memery with respect to the signing of third party mortgages, guarantees and other documents for this loan proposal.

[27]

This Facility Letter may be withdrawn by the Lender:-

[28]

17.1 If circumstances or facts arise or come to the Lender's notice which, in the Lender's opinion, may be prejudicial to the Lender's interests.

[29]

17.2 If the Lender's Solicitors advise the Lender of anything which in their and/or Lender's opinion is detrimental to the Lender's interests.

[30]

17.3 Upon the occurrence of any event (including but not limited to any new law, order or regulation) affecting the Lender's control of funds in a manner and/or to an extent not now existing.

[31]

The Borrower's acceptance of this loan facility, once notified to the Lender, may not be revoked without the consent in writing of the Lender which consent will only be considered upon receipt of a written request from the Borrower.

[32]

This letter is open for acceptance until 5pm on 21 August 2009.

[33]

Please confirm your intention to proceed by signing the duplicate of this letter on each page, completing the Acceptance Form and returning the signed documents to us.

[34]

By signing the Acceptance Form, the Borrower authorises the Lender's Solicitors to deduct the Lender's and its Solicitors [sic] fees and outlays from the Advance at settlement.

[35]

The Lender is authorised to instruct its Solicitors to proceed with any necessary searches and to proceed with preparation of all security documents. Otherwise, all fees referred to in clause 15 and listed in the attached schedule shall be payable immediately upon demand if the loan proceeds or does not proceed as a result of the borrowers [sic] default or withdrawal."

[36]

[6] The "Acceptance Form" addressed to the respondent, which is signed by the applicant, provides:

[37]

"I/We acknowledge that prior to our signing this Acceptance of the Facility Letter, I/We have had an opportunity of seeking such independent legal and financial advice as we might require in making a full appraisal and an informed decision in relation to whether or not to proceed with this loan. I/We have not relied on any other representation by any person whatsoever. I/We agree to be bound by the terms and conditions outlined in the Facility Letter dated 17 August 2009.

[38]

[7] The first page of what is called "Privacy and Credit Information Privacy Authorisations/Agreements" gave the name of the respondent as "NAME OF INTRODUCERS". An "Authority and Consent" form, signed by the applicant, states:

[39]

"...The undersigned agrees to support this application with a valuation of the subject property by a qualified valuer selected by Trilogy Funds Management Limited, at the expense of undersigned and without implied obligation on the part of Trilogy Funds Management Limited. The undersigned further agrees to pay all necessary expenses, including legal costs, incurred in obtaining this loan. It is agreed that by accepting this application Trilogy Funds Management Limited is not obligated to grant a loan. ..."

[40]

[8] The primary judge was required to resolve many issues of fact between the parties. For present purposes it is necessary only to mention the few findings of fact which are relevant to the narrow grounds of the proposed appeal. The applicant does not seek to challenge these findings:

[41]

(a) After the respondent's representative, Mr Wood, went through the facility letter with the applicant during a meeting on 18 August 2009, the applicant gave Mr Wood a $5,000 cheque for the commitment fee, which the respondent banked on the same day.[1]

[42]

(b) At a meeting on 19 August 2009 between Mr Wood, the applicant and others, the applicant gave Mr Wood the facility letter which was then signed by the applicant.[2]

[43]

(c) After some communications between the applicant and Mr Wood between 20 August and early September 2009 concerning the valuation to be obtained by the respondent and payment of the valuer's fee, and after the applicant had received copies of documents from the respondent's solicitor and obtained advice from his own solicitor, the applicant decided not to go ahead with "the Trilogy deal", obtained funding from another source, and in April 2010 completed the development in respect of which he had originally sought the loan from the respondent.[3]

[44]

(d) When Mr Wood rang the applicant on 10 September 2009 about the outstanding fees, the applicant told Mr Wood that he would not proceed with the loan and that he had obtained finance from a bank.[4]

[45]

[9] The primary judge held that the parties made an enforceable agreement on 19 August 2009;[5] that the parties' dealings and the Facility Letter contemplated that the applicant would pay the respondent for the introductory and investigative services described in the letter;[6] and, as to the issue whether there was consideration:[7]

[46]

"In the present case, good consideration moved from Trilogy with its promise to use its 'best endeavours' [to obtain] the $1,900,000 loan, subject to certain conditions being met. Upon receipt of the commitment fee of $5,000, the plaintiff, in accordance with its promise, proceeded with the site inspection. It was a condition precedent of the facility being made to Mr Memery that due investigations be made, and in particular that a proper valuation of the Lutwyche property be obtained. In effect, the plaintiff incurred the detriment of the outlays involved in making its investigations and the defendant received the benefit of 'best endeavours' being made in order to advance to it a substantial loan. The promise to make 'best endeavours' was the price or quid pro quo bought by Mr Memery. Accordingly, the agreement struck by the parties was supported by good consideration."

[47]

[10] The primary judge referred to the "fairly cavalier approach" in the Facility Letter to the description of the amounts to be paid to the respondent,[8] but also referred to the provisions in the letter which indicated that the application fee was $38,000.[9] Her Honour held that there was a concluded contract between the applicant and the respondent.[10] Because the applicant revoked his acceptance of the agreement "without the due notification and consent" the respondent was entitled to judgment on the amount claimed.[11]

[48]

[11] The grounds of the proposed appeal are that the primary judge erred in:

[49]

(a) finding that the promise to pay the application fee of $41,800.00 ($38,000 plus GST) was supported by consideration;

[50]

(b) finding that the respondent had earned or was entitled to the application fee before any loan was actually advanced, "or at all"; and

[51]

(c) "...failing to give effect to the plain words of the agreement that it ('the agreement') was not to be construed as a binding agreement to make the advance and would only come into existence upon the making of the advance.

[52]

[12] It is logical to defer consideration of the first ground of appeal until after discussion of the remaining grounds, which concern the proper construction of the Facility Letter agreement.

[53]

(b) Was the respondent entitled to the application fee before the loan was advanced?

[54]

[13] The words "or at all" in the second ground of appeal were added by leave at the hearing of the application. After leave was given to make that amendment, the applicant argued that the respondent was not entitled to recover the application fee because any fee under the agreement was not payable to the respondent but to "the Lender" defined in item 4 of the schedule, Trust Company Fiduciary Services Limited as custodian for the Trilogy First Mortgage Income Trust. This point was not raised in the applicant's draft notice of appeal or his written outline of submissions. The respondent objected that the applicant should not be permitted to agitate the point because it was not taken at the trial. The objection is justified. The point was not pleaded in the applicant's defence or litigated at the trial, as the applicant's counsel frankly conceded. If the point had been taken, the respondent might have conducted the proceedings very differently. For example, the respondent might have amended its claim to add an alternative claim to enforce the applicant's promise to pay the fees to Trust Company Fiduciary Services Limited, a company which is presumably related to the respondent; and that company might have been joined as a plaintiff and perhaps pursued its own claim under s 55 of the Property Law Act 1974. The applicant should not be permitted to agitate this new argument for the first time on appeal.[12] It would be wholly inappropriate to grant leave to appeal for that purpose. The application should be considered on the footing that, as the Facility Letter (see [3] of these reasons) and the "Authority and Consent" form (see [7] of these reasons) arguably suggest, and as the matter was litigated, no distinction should be drawn between the liability of the respondent and the liability of "the Lender".

[55]

[14] Resolution of this ground of appeal otherwise turns upon the proper construction of the Facility Letter agreement. Relevant principles concerning the construction of commercial contracts of this kind were summarised by Muir JA, with whose reasons Holmes JA and White J (as her Honour then was) agreed, in Elderslie Property Investments No 2 Pty Ltd v Dunn[13]:

[56]

"The object of contractual construction is to 'ascertain and give effect to the intentions of the contracting parties.' Those intentions, to be determined objectively, are 'what a reasonable person would have understood [the words of the contract] to mean.' And to ascertain that 'normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.' Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract. The Deeds, as commercial contracts, 'should be given a businesslike interpretation'. The interpretation of each Deed requires 'attention to...the commercial circumstances which the document addresses, and the objects which it is intended to secure.' Commercial contracts are to be construed with a view to making commercial sense of them.

[57]

In Wickman Machine Tool Sales Ltd v L Schuler AG Lord Reid said:

[58]

'The fact that a particular construction leads to a very unreasonable result must be a relevant consideration. The more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear.'

[59]

In Antaios Compania Naviera SA v Salen Rederierna AB, Lord Diplock expressed stronger views concerning the imperative to make business sense of commercial contracts, stating:

[60]

'If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.'"

[61]

[15] In support of the proposition that the application fee was not payable until the loan was advanced, the applicant cited the reference to the $38,000 application fee in the "indicative breakdown" of $1,900,000 in cl 5 and the statement in cl 20 that, "[b]y signing the Acceptance Form, the Borrower authorises the Lenders' Solicitors to deduct the Lender's and its Solicitors [sic] fees and outlays from the Advance at settlement."

[62]

[16] Those provisions must be read together with the statement in the last sentence of cl 20 that "...all fees referred to in clause 15 and listed in the attached schedule..." (which clearly specifies the application fee of $38,000) "...shall be payable immediately upon demand if the loan proceeds or does not proceed as a result of the borrowers default or withdrawal." The Facility Letter thus expressly provides both that,

[63]

(a) if the advance is made, the application fee of $38,000 is then immediately payable upon demand, will form part of the advance, and may be deducted from the advance at settlement, and

[64]

(b) if the loan does not proceed as a result of the borrower withdrawing from the transaction, the application fee will then be immediately payable upon demand.

[65]

The applicant's contention that the application fee was only payable upon the loan being advanced is irreconcilable with the text of the Facility Letter.

[66]

[17] The applicant argued that the result was so surprising that he should not be found liable for the application fee because it was not imposed by "plain words". No authority was cited for the proposition, but it may have been intended to invoke Lord Reid's statement in L Schuler AG v Wickman Machine Tool Sales Ltd[14] that "[t]he more unreasonable the result the more unlikely it is that the parties can have intended it, and if they do intend it the more necessary it is that they shall make that intention abundantly clear." In Australian Broadcasting Commission v Australasian Performing Right Association Ltd,[15] Gibbs CJ expressed the principle in similar terms in the course of summarising the general principles applicable in the construction of written contracts:

[67]

"It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority cited in Locke v. Dunlop, which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's Case. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co. Ltd. v. Arcos Ltd., that the court should construe commercial contracts "fairly and broadly, without being too astute or subtle in finding defects", should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf. Upper Hunter County District Council v. Australian Chilling and Freezing Co. Ltd.)."

[68]

[18] The applicant did not refer to any evidence which suggests that, in the context of an anticipated advance of $1,900,000 in the market in which these parties were dealing, a $38,000 fee payable upon the terms of the Facility Letter would have been thought by a reasonable person in the parties' position to be unusual or surprising, much less "capricious, unreasonable, inconvenient or unjust". The construction in [16] of these reasons reconciles the relevant parts of the Facility Letter "so as to render them all harmonious one with another". Reading the letter as a whole "fairly and broadly", the applicant was liable to pay the application fee.

[69]

(c) Does the primary judge's construction "fail to give effect to the plain words of the agreement ... that it was not to be construed as a binding agreement to make the advance and would only come into existence upon the making of the advance"?

[70]

[19] The third ground of appeal confuses the contemplated advance with the agreement upon the terms of the Facility Letter. The second paragraph of the Facility Letter includes an unambiguous statement that a binding agreement to make the advance shall only come into existence upon the making of the advance. Upon the making of the advance, "the loan proceeds" in terms of the last sentence of cl 20 and the application fee becomes payable in that event. In this case, the applicant's liability arose in the alternative event expressed in the last sentence of cl 20 that the loan "does not proceed as a result of the borrowers [sic] ... withdrawal."

[71]

(a) Was the promise to pay the application fee supported by consideration?

[72]

[20] Under the first ground of appeal, the applicant argued that there was no contract because the agreement left performance of the promise to advance the loan entirely within the discretion of the respondent. The applicant referred to the well known passage in Kitto J's judgment in Placer Development Ltd v The Commonwealth of Australia:[16]

[73]

"Cases in which a party's liability to make a payment is expressed as depending upon an exercise of discretion by that party have most often been cases of service agreements. The question there is usually whether the intention of the agreement is that the employer shall be entitled to decide whether any remuneration at all shall be paid and if so how much, or is that he shall be bound to pay at all events a reasonable remuneration. In other words, it is whether, on the one hand, the service is intended to be honorary unless the employer otherwise decides, or, on the other hand, a promise to pay a reasonable amount is to be implied. As may be seen from the case of Bryant v. Flight, in which Parke B. dissented from the decision of the Court, it is not always an easy question to decide ; but the general principle is established which Vaughan Williams L.J. in Loftus v. Roberts, expressed in words that were subsequently adopted by Lord Wrenbury, as Buckley J., in Broome v. Speak. It is that 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 Hilas and Co. Ltd v. Acros Ltd.."

[74]

The applicant argued that the effect of cl 17 was that the lender was given a "discretion or option as to whether he will carry out that which purports to be the promise", so that there was no contract.

[75]

[21] Adopting a businesslike interpretation of the agreement, the respondent agreed to use its "best endeavours" to advance $1,900,000 to the applicant, subject to satisfaction of the stated conditions. That agreement obliged the respondent "...to do all [it] reasonably [could] in the circumstances to achieve the contractual object but no more."[17] The primary judge referred also to Gibbs CJ's observation in Hospital Products Ltd v United States Surgical Corporation[18] that "[o]n the one hand, an express promise by an agent to use his best endeavours to obtain orders for another and to influence business on his behalf 'necessarily includes an obligation not to hinder or prevent the fulfilment of its purpose'. ... On the other hand, an obligation to use 'best endeavours' does not require the person who undertakes the obligation to go beyond the bounds of reason; he is required to do all he reasonably can in the circumstances to achieve the contractual object, but no more. ..."

[76]

[22] That is inconsistent with the applicant's proposition that the respondent possessed a mere discretion or option whether to carry out its purported obligations under the Facility Letter, but it is necessary also to take into account the effect of cl 17. Because that clause empowers the respondent to withdraw the Facility Letter, its literal meaning is that the respondent may relieve itself of the obligation to use its best endeavours to advance the loan in any of the circumstances expressed in cl 17.

[77]

[23] The operation of cl 17.1 is conditioned upon two matters. The first is that there must be circumstances or facts which "arise" or which "come to the Lender's notice". That contemplates only a circumstance or fact that comes into existence or comes to the respondent's notice after the Facility Letter agreement. The second matter upon which the operation of cl 17.1 depends is the formation of the respondent's opinion that such circumstance or fact "may be prejudicial" to the respondent's interests. Thus the clause will not operate except where the relevant circumstance or fact has both arisen, or come to the respondent's notice, after the Facility Letter agreement and is potentially prejudicial to the interests of the respondent. The clause would not permit the respondent to withdraw the Facility Letter merely because, for example, the respondent discovered a more profitable use to which it might put its capital. Clause 17.2 is similar in scope, save that it also comprehends a case in which the necessary opinion is formed by the Lender's solicitor. Clause 17.3 has a narrower scope for operation. The "event" to which it refers must both occur after the Facility Letter agreement and have an effect upon "the Lender's control of funds". It might operate, for example, in a case in which the Lender's ability to advance money is affected by some new regulation.

[78]

[24] In Gippsreal Ltd v Registrar of Titles,[19] upon which the applicant relied, the effect of a letter of offer signed by a borrower was that the lender reserved the right to withdraw its offer of the loan at any time and for any reason. Clause 17 does not give the respondent such an unqualified discretion to withdraw the Facility Letter. In the event of a dispute about the application of that clause, a court could decide whether any of the defined circumstances existed. If no such circumstance existed, and if the conditions expressed in the Facility Letter were otherwise satisfied, a court could enforce the respondent's obligation to use its best endeavours to advance the loan. Although the circumstances described in cl 17 cover a great many contingencies, they do not confer a mere discretion or option upon the respondent. The respondent's conditional obligation to use its "best endeavours" to advance the loan in all circumstances except those particular circumstances expressed in cl 17 was valid consideration, being the quid pro quo[20] for the applicant's obligation to pay the loan application fee.

[79]

[25] Paragraph 2 of the statement of claim alleged that "the Plaintiff and the Defendant entered into an agreement ("the Agreement") whereby the Plaintiff agreed to provide to the Defendant with [sic] a mortgage loan facility in the sum of $1,900,000.00 ("the Loan Facility")." The applicant argued that this allegation did not comprehend the consideration found by the primary judge. That argument appeared to misconstrue the pleading as an allegation that the respondent agreed to advance the sum of $1,900,000. Rather, it alleged entry into an agreement, one term of which contemplated provision of the loan facility. In any event the Facility Letter agreement was wholly in writing and the circumstances in which it was formed were exhaustively investigated at the trial. In those circumstances, even if the pleading was deficient, the respondent should not be precluded from relying upon the primary judge's correct construction of the agreement.

[80]

[26] The proposed appeal would not succeed. For that reason, I would refuse the application for leave to appeal, with costs.

[81]

[27] WHITE JA: I have read the reasons for judgment of Fraser JA and agree with his Honour's reasons for refusing the application for leave to appeal. I agree with his Honour's costs' order.

[82]

[12] See Whisprun Pty Ltd v Dixon [2003] HCA 48; (2003) 200 ALR 447.

[83]

[13] [2008] QCA 158 at [20] - [22]. (Citations omitted.) This passage was quoted with approval in Platinum United II Pty Ltd & Anor v Secured Mortgage Management Ltd (in liq) [2011] QCA 162 at [6].

[84]

[14] [1973] UKHL 2; [1974] AC 235.

[85]

[15] [1973] HCA 36; (1973) 129 CLR 99 at 109 - 110. Footnotes omitted.

[86]

[16] [1969] HCA 29; (1969) 121 CLR 353 at 356. Emphasis added.

[87]

[17] Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 64, per Gibbs CJ.

[88]

[18] [1984] HCA 64; (1984) 156 CLR 41.

[89]

[19] [2007] VSCA 279; (2007) 20 VR 157.

[90]

[20] Australian Woollen Mills Pty Ltd v The Commonwealth [1954] HCA 20; (1954) 92 CLR 424 at 456-457, per Dixon CJ, Williams, Webb, Fullagar and Kitto JJ.

(1969) 121 CLR 353

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Judgment (90 paragraphs)

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