Oxygen Funding Solutions Pty Ltd v Dick-Telfar - [2020] NSWSC 582 - NSWSC 2020 case summary — Zoe

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Oxygen Funding Solutions Pty Ltd v Dick-Telfar

[2020] NSWSC 582

Supreme Court of NSW|2020-05-13|Before: Adamson J, Johnson J, Harrison J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2020-05-13

Before

Adamson J, Johnson J, Harrison J

Catchwords

CONTRACTS - Remedies - money claim made under loan agreement - whether attempts to discharge debt by refinancing were frustrated by conduct of the lenders

Source

Original judgment source is linked above.

Catchwords

CONTRACTS - Remedies - money claim made under loan agreement - whether attempts to discharge debt by refinancing were frustrated by conduct of the lenders

Judgment (31 paragraphs)

[1]

Solicitors: Summer Lawyers (Plaintiffs / Cross-defendants) Carroll & O'Dea Lawyers (Defendants / Cross-claimants) File Number(s): 2018/315828

[2]

Introduction

Oxygen Funding Solutions Pty Ltd (Oxygen), Catalyst Provisional Lending Pty Ltd (Catalyst) and John Ramsay (together, the plaintiffs) claim judgment for the amount owing by Robert Dick-Telfar and Kristin Venae-Telfar (the defendants) pursuant to a loan agreement entered into on 4 January 2018. In their amended statement of claim filed on 17 April 2019, the plaintiffs claimed an order for possession of a residential property at Malabar (the property) of which they were a mortgagee, a writ of possession and judgment for the amount owing.
On 14 February 2020, Johnson J made orders for summary judgment for possession and granted leave to the plaintiffs to issue a writ of possession forthwith with respect to the property: Catalyst Provisional Lending Pty Ltd v Dick-Telfar [2020] NSWSC 79. On 31 March 2020, Harrison J refused the defendants' application for a stay of the writ of possession. The reasons set out below address the balance of the proceedings: the plaintiffs' money claim and the defendants' cross claim for damages.

[4]

The search for short-term finance

The plaintiffs engage in short-term money lending. HomeSec Business Finance Pty Ltd (HomeSec) arranges and manages loans, including loans from the plaintiffs. Paul Stone and Jason Brockmuller were both directors of HomeSec. Mr Stone was also a director of Oxygen. Catriona Anderson was HomeSec's credit manager.
In December 2017 the defendants required short-term finance. They used the services of Victoria Sobczyk of EV Financial (the broker) who was, at all material times, their agent. The broker sought funds on their behalf from First Mortgage Capital Pty Ltd (FMC) as well as through HomeSec.
On 21 December 2017, the broker approached HomeSec to obtain a loan for East Sydney Hospitality Management Pty Ltd (ESHM), a company associated with the defendants. The broker submitted an application through HomeSec's online portal. On 22 December 2017 HomeSec issued a letter of conditional approval. Later that day, the broker asked for the borrowing entity to be changed to KRV Enterprises Pty Ltd (KRV). In response, HomeSec sent a letter of offer which contained an amended conditional approval, naming KRV as the borrower. The letter of offer was executed by KRV as borrower and the defendants as guarantors of the loan and mortgagors of the property to secure the loan. The plaintiffs instructed Summer Lawyers to act on their behalf, prepare loan documentation and advance the funds that would be provided to them by the plaintiffs when the documents had been executed. Elizabeth Mead, a solicitor employed by Summer Lawyers, had day-to-day carriage of the matter on behalf of the plaintiffs, under the supervision of Paul Reese.
On 4 January 2018 the loan agreement was entered into and the sum of $691,700 was advanced for a period of three months from the "Commencement date". The Commencement Date, which was relevantly defined to be the date of the first advance, was agreed to be 3 January 2018. The terms of the loan agreement included that interest was payable each month at a lower rate of 4% and a higher rate of 10%. The higher rate applied if KRV failed to pay interest on the Due Date, which was defined in Schedule A to the loan agreement as being "on the same day of each month as the Commencement Date". A mortgage over the property was executed to secure the loan.
Clause 24 of the loan agreement provided: "24. Lender's Certificate (prima facie evidence) 24.1 The Lender may rely on a Lender's Certificate as conclusive evidence and as binding on the Debtor in any proceeding by the Lender against the Debtor whether in a Court or a Tribunal or before any Government Authority. 24.2 A Lender's Certificate is conclusive of any matter stated in it unless the Debtor establishes in a Court or a Tribunal or before any Government Authority (as the case may be) that any information in the Lender's certificate is incorrect."
On 4 January 2018, the defendants paid to the plaintiffs the establishment fee of $58,696 and pre-paid three months' interest of $83,004.
After the loan agreement had been signed, Mr Dick-Telfar received a phone call from Anthony Marquez of FMC who accused him of "shopping around" with his loan and demanded payment of a brokerage fee of $12,780. He threatened to lodge a caveat on the property if the money was not paid. The defendants paid the sum requested.
Ms Mead lodged a caveat on the title of the property to protect the plaintiffs' interest as equitable mortgagees pursuant to the loan agreement. Ms Mead contacted the first registered mortgagee, Perpetual Corporate Trust Ltd (La Trobe), and requested that it make available the certificate of title to the property so that the plaintiffs' interest in the property (as mortgagees) could be registered. The certificate of title was in the possession of, and controlled by, LexTech, a service provider associated with Purcell Partners, La Trobe's solicitors. LexTech sent an invoice dated 16 January 2018 under cover of a letter of the same date which set out the charges for the production of the certificate of title for this purpose.

[8]

The ANZ refinance

On 27 April 2018 the Australia and New Zealand Banking Corporation (ANZ) offered to refinance the loans secured by the property by advancing the sum of $2.08 million with an interest rate of 4.7% per annum (the ANZ refinance). It was a condition of the ANZ refinance that the certificate of title to the property be made available to be produced by La Trobe.
On 27 April 2018, following receipt of the letter of offer from the ANZ, the defendants sent a discharge request to La Trobe.
The defendants also sought "shortfall funding" from FMC to bridge the gap between what ANZ was prepared to advance and what they required to clear the title of all encumbrances and caveats.
On 1 May 2018 Mr Dick-Telfar sent an email to HomeSec attaching the letter of offer from ANZ. Ms Anderson, of HomeSec, responded by saying that a settlement date could not be booked until the defendants were actually in a position to settle. She confirmed that, as interest was payable monthly in advance, the interest payment of $27,668 was due on 2 May 2018.
The defendants paid interest to the plaintiffs for May 2018. Neither KRV nor the defendants have made any payments pursuant to the loan agreement since 8 May 2018.
In May 2018, Ms Mead became aware that the defendants were seeking to refinance. When she undertook a title search of the property, she learned that two further caveats had been lodged on the title, one by FMC and the other by Prospa Advance Pty Ltd (Prospa). The caveat lodged by Prospa was said to be based on a charge granted by the defendants to Prospa pursuant to an agreement made on 18 September 2017 between Prospa, the defendants and ESHM. The caveat lodged by FMC was said to be based on a charge granted by the defendants pursuant to an agreement with FMC dated 19 December 2017.
As it happened, Summer Lawyers acted not only for the plaintiffs, but also for Prospa and FMC. Ms Mead's evidence was that all practitioners at Summer Lawyers work in a single room. She deposed that Summer Lawyers acts for a number of different lenders and that the solicitors in the firm who act for clients on different sides of a transaction are directed to treat each other as though they are part of different law firms. She explained that she would not have access to the files of clients for whom she did not act on a particular transaction and that this was the practice in the firm generally. She deposed that, as the solicitor with day-to-day carriage of the matter on behalf of the plaintiffs, she had no knowledge of instructions given by Prospa or FMC, except to the extent that she became aware of such matters through correspondence addressed to her. Nonetheless she was able to ascertain the identity of the solicitors at Summer Lawyers who had day-to-day conduct of the matters concerning Prospa and FMC and to inform the defendants' solicitor, Kate Riley of Patrick Hargraves & Co, of their contact details by email sent on 31 May 2018 so that Ms Riley could obtain a pay-out figure from them. Ms Mead told Ms Riley that Kate Brann acted for FMC and Jennifer Balech acted for Prospa.
On 31 May 2018, Samantha Mackinnon, "Securities Officer - Discharges" of LexTech, who acted on behalf of La Trobe, sent an email to Ms Riley informing her that they had contacted their "agent" to "follow up the whereabouts of the title for this matter". She also set out the booking requirements for settlement as follows: "We require 10 business days' notice (once we get the title returned to our office we should be able to settle sooner than this)."
On 31 May 2018 Ms Venae-Telfar phoned Ms Anderson and told her that they had just been told that there was an issue about the certificate of title to the property and that if it was not resolved they would not be able to settle on 4 June 2018. Ms Anderson told her that it was nothing to do with HomeSec and that any issues with title were the fault of La Trobe. She also told Ms Venae-Telfar that if settlement did not take place before 4 June 2018, they would have to pay another month's interest of $27,668 before that date.
On 1 June 2018, FMC executed a power of attorney in favour of Summer Lawyers. This document would appear to have no relevance to the affidavit sworn by Ms Mead in these proceedings. It was, however, included in the version of her affidavit included in the Court Book and bears a page number which follows sequentially from the pages of the affidavit itself. Ms Mead's evidence was that she did not know how that page came to be part of her affidavit. She confirmed that she had not acted on behalf of FMC for the transaction the subject of these proceedings. Stephanie Jin was the solicitor at Summer Lawyers who had day-to-day conduct of this litigation on behalf of the plaintiffs, subject to the supervision of Mr Reese. The presence of this document as part of Ms Mead's affidavit of 17 September 2019 was relied on by Mr Levet, who appeared for the defendants, as showing that the so-called Chinese walls said to have been notionally erected in the room from which all lawyers at Summer Lawyers practised were ineffective to create a sufficient barrier. This submission will be addressed below in the context of the cross-claim.
FMC agreed to accept a reduced figure of $7,000 to remove the caveat which it had lodged on the property. This sum was paid on 6 June 2018. FMC removed the caveat on 7 June 2018.
On 12 June 2018, FMC told the defendants that it was not prepared to advance any shortfall funding.
On 18 June 2018 Ms Riley wrote to HomeSec to inform it that she was awaiting current documentation from the incoming mortgagee and would keep HomeSec advised as to progress. On 19 June 2018, Ms Mead wrote to Ms Riley and asked for the expected settlement date so that she could inform her clients. On 20 June 2018, Ms Riley confirmed in an email to Ms Mead that she was not in a position to nominate a settlement date as she was awaiting "paperwork".

[10]

Second settlement date proposed: 6 July 2018

The following Monday, 2 July 2018, Ms Mead wrote to Ms Riley, referring to a discussion the previous Friday in which Ms Mead had confirmed that the pay-out figure which had been given on 29 June 2018 was the figure to pay out the loan to the plaintiffs. Ms Mead encouraged Ms Riley to contact the solicitors at Summer Lawyers (whose names and contact details had been provided by her on 31 May 2018) to ascertain the pay-out figures for the withdrawal of the caveats lodged by FMC and Prospa.
On about 2 July 2018, Ms Mead became aware that the certificate of title of the property was still "in production", having been requested by the plaintiffs in April 2018 for the purposes of registration of their mortgage. At 9.34am on 2 July 2018, she wrote to LexTech and said: "We refer to the above matter and understand the Certificate of Title is in production for lodgement of our client's mortgage. We have been advised the matter is now ready to discharge and your office will not take a settlement booking until the title is removed from production. Please urgently uplift the Certificate of Title from production and advise once done to enable the proprietor's solicitor to book in settlement."
In response, LexTech emailed Ms Mead and confirmed that she had contacted their agent "today to pull the Title out of Production".
At 1.54pm on 2 July 2018 Ash Mola, a solicitor who was also employed by Summer Lawyers, sent an email to Ms Mead, informing her that he acted for Ankat Investments Pty Ltd (Ankat). At that stage, the defendants were hoping to obtain finance from Ankat. Mr Mola asked for a pay-out figure for the loan from the plaintiffs as at 6 July 2018. Ms Mead did not respond directly to Mr Mola. Instead, she sent an email to Ms Riley on 4 July 2018 informing her that the current pay-out figure was $750,000 but that an exact pay-out figure could not be provided without a settlement date. Later that afternoon, at 4.36pm, Mr Mola sent an email to Ms Riley, which was copied to Karen Siu, another solicitor at Summer Lawyers, seeking that further details be entered into the security documentation. The email concluded: "Finally, the writer has spoken to his colleagues who act for Catalyst and Prospa. Contrary to your letter, these loans remain outstanding and no withdrawal of caveats have been lodged. Please seek your client's instructions."
At 6.01pm on 2 July 2018, Angelo Hatsatouris of Patrick Hargraves & Co (whom Ms Riley was assisting) emailed Mr Dick-Telfar and said: "Further to our recent discussion and the forwarding scans of the documents for review to the lenders solicitor I have received the response below to my letter attached with the attachments. On further review of the file I had some concerns around your belief that the other caveats were or would be withdrawn. It has been confirmed that you will need to be independently advised of Kristen and the company by another solicitor in the firm. I will speak to John Kenny to ascertain his availability. I also need to sight approval of the first mortgagee and be satisfied that they are aware of this loan and there is no Deed of Priority reqiured [sic]. One of the caveats has been withdrawn but it appears that there are other matters that need to be addressed concerning the withdrawal of the 3 that remain and I need to know what they are and satisfy myself that there can and will be compliance with all outstanding requirements and you have sufficient funds to achieve the outcome you are seeking within the time frame before the matter falls apart. See the essential matters referred to below:- • In accordance with our email dated 29 June 2018, Robert (who is not a director or secretary of the borrowing company) must receive independent legal advice from a separate solicitor in your firm (or another solicitor if one is not available) • In accordance with our email dated 29 June 2018 and covering letter, we require a certified photograph of each debtor holding identification documents taken by the solicitor providing the advice and witnessing execution of the security documents. • Please provide an updated council rates notice (if available). • Please advise us of ANZ's priority amount. • Finally, the writer has spoken to his colleagues who act for Catalyst and Prospa. Contrary to your letter, these loans remain outstanding and no withdrawal of caveats have been lodged. Please seek your client's instructions. ..."
On 5 July 2018, Mr Hatsatouris sent an email to Ms Mead and advised that Ankat was providing funds to refinance the loan and that it was proposed that settlement occur the following day. Ms Mead responded by providing a pay-out figure of $749,606.58 in the form of a lender's certificate pursuant to cl 24 of the loan agreement. The expiry date of the pay-out figure was said to be 6 July 2018. Later on 5 July 2018 Mr Hatsatouris informed Ms Mead by email that the settlement was unlikely to proceed on 6 July 2018 and that he would seek a further pay-out figure when a further settlement date was arranged. Mr Dick-Telfar's evidence was that the defendants were unable to settle on the amount in the lender's certificate without obtaining additional funds.
Mr Dick-Telfar's evidence was that, up until 5 July 2019, he believed that La Trobe was responsible for the delay in settlement because it had withheld production of the certificate of title. On the basis of this belief, the defendants made a complaint to the Australian Financial Complaints Authority about La Trobe. The response from La Trobe included a statement that it had been unable to locate any requests from the defendants or their solicitors for a settlement date in June 2018. The statement from La Trobe also included the following: "The title was made available at the request of the borrowers' other financiers (the second mortgagee) [the plaintiffs] and should there be a change in the circumstances, the onus to instruct or request the withdrawal of title from production lies with borrowers or the second mortgagee's Solicitors. It was open to the borrowers to request that the second mortgagee either register their mortgage and return the title, or return the title without registering the mortgage. As far as LTF [La Trobe] is concerned we were required to produce the title and in this case, acted reasonably upon the request of the second mortgagee."

[14]

On these figures this leaves a balance of $10,003.22 for our clients to make up to achieve settlement. We ask that you seek your client's urgent instructions as our client will be unable to settle this matter due to lack of sufficient funds."

After receiving this email, Ms Mead telephoned Ms Riley and told her that the figures in the letter of 10 July 2018 (sent on 11 July 2018) appeared to be incorrect. Ms Mead asked Ms Riley to provide each caveator's pay-out figure so that she could obtain instructions from the plaintiffs.
On 13 July 2018 at 11.18am, Ms Mead, who had not yet received a response to her request of 11 July 2018, emailed Ms Riley again asking about the pay-out figures. She confirmed that the plaintiffs' pay-out figure in the lender's certificate dated 11 July 2018 would be valid only if settlement occurred on 13 July 2018. Ms Mead did not receive a response to her email of 13 July 2018. Settlement of the refinancing did not occur on that day.
According to Mr Dick-Telfar, before 2.30pm on 13 July 2018 (the appointed time for settlement), Ms Riley phoned him and said, "They want $832,000 to settle today". As funds in that amount were not available, Mr Dick-Telfar told Ms Riley that they could not settle that day. A statement in such terms at that time is objectively improbable: see the analysis in Watson v Foxman (1995) 49 NSWLR 315, at 319 (McLelland CJ in Eq). First, it was inconsistent with the lender's certificate which had been provided on 11 July 2018 and confirmed earlier on 13 July 2018 which specified a pay-out figure of $749,606.58. Secondly, the figure of $832,000 was first communicated by Ms Mead by letter sent by post on 13 July 2018 (see below). Therefore, Ms Riley cannot have known about the figure at the time she is alleged to have made the statement to Mr Dick-Telfar. Thirdly, Ms Riley did not have access to her emails on 13 July 2018 because of difficulties with her computer (see below). Ms Mead had not communicated with her by phone on 13 July 2018.
I infer that the figure of $832,000 was mentioned by Ms Riley to Mr Dick-Telfar the following week after the notice of default had been received. I do not accept Mr Dick-Telfar's recollection that Ms Riley made the statement attributed to her on 13 July 2018. I infer that Mr Dick-Telfar has misremembered the date on which he learned of the new figure and has mistakenly attributed the date of 13 July 2018 to a conversation which he had the following week with Ms Riley. The unreliability of his evidence on this chronology also appears from his evidence that he received the default notice (referred to below) on 13 July 2018, when it had only been posted on that day and therefore could not have come to his attention until the following week. While these matters affect his reliability as a witness to some degree, I do not consider there to be any lack of honesty in his answers. Rather, I formed the impression that he was trying to piece together the narrative from contemporaneous documents in a period which must have been extremely stressful for him because of the financial pressure he was under at the time.
On 13 July 2018 Ms Mead arranged for formal default notices to be sent by post to the defendants. The amount claimed to be payable as at 13 July 2018 was $832,510.58, which comprised the principal of $691,700; outstanding interest of $138,340 and outstanding costs of $2,470. The notice of default gave the defendants 31 days from service of the notice to rectify the default, failing which the property would be sold by the plaintiffs as mortgagee.
On Monday 16 July 2018, Ms Riley responded to Ms Mead's email of 13 July 2018 as follows: "… Sorry for the delay. Computer went MIA [missing in action] and I have just been able to check emails. I am waiting on further instructions from our clients and will keep you advised."
On 23 July 2018 Ms Riley sent an email to Ms Mead attaching a letter dated 20 July 2018 in which she sought the plaintiffs' consent to accepting a lesser sum in the following terms: "It is with great concern our client received this Notice particularly as your firm was also acting on the advance from Ankat Investments Pty Limited approved to pay out this and other loans relying upon the indicative payout figure of $690,000.00 and part of the reason the delay in achieving settlement of the discharge with the funds approved on the refinance relates to the subsequent increases to the payout figure your client has requested, which increased significantly, has created an impasse. This has resulted in our client having to raise additional funds at short notice. Had the payout figure remained as it was initially advised, settlement would have taken place last week. In these circumstances, we would respectfully request that consideration be given to the payout figure now requested of $832,510.58 remain at $749,606.58. We look forward to hearing from you."
Ms Mead did not respond to that letter.
On 25 July 2018, Mr Mola wrote to Ms Riley, seeking "withdrawal costs of $10,200 (less the application fee of $900 already paid) being the money owed to our client pursuant to the attached letter of offer". The payment was to be made to "Summer Lawyers Statutory Trust Account". The attached letter referred to in the email was not included in Mr Dick-Telfar's evidence.

[15]

Fifth settlement date proposed: 3 August 2018

On 26 July 2018 the defendants obtained a shortfall loan from Joseph Essey, a private funder, with a view to the loan from the plaintiffs being paid out on 3 August 2018. The letter of offer provided for a loan of $230,000 for a period of three months at an interest rate of 4% per month, if paid on time, and an interest rate of 8% per month, if not paid on time. At that stage Hassat Lee and Co Solicitors were instructed by Mr Essey, who later transferred his instructions to Summer Lawyers.
On 1 August 2018, according to Mr Dick-Telfar's evidence, the broker rang Ms Venae-Telfar and said to her on speaker phone in the presence of Mr Dick-Telfar: "I've got good news for you. HomeSec has agreed [to] accept the $749,000 so long as it settles on the 3rd and you can cover the $28,000 shortfall owed to the caveators."
This evidence was admitted on the basis that it was limited to the terms of the communication and not as evidence of the truth of its contents. It follows that the fact that the broker told the defendants that HomeSec had agreed to accept $749,000 at a settlement on 3 August 2018 is insufficient to prove that HomeSec (as agent for the plaintiffs) was actually prepared to accept that amount. It is, accordingly, necessary to review any other evidence to determine whether the defendants have proved that such an agreement was reached. The broker was not called by the defendants. Ms Anderson was not called by the plaintiffs. Accordingly, there is no evidence from the persons who can be inferred were the agents of the principals in reaching any such agreement.
At 5.17pm on 1 August 2018, Ms Anderson sent an email to Mr Stone and Mr Brockmuller which said, of present relevance: "I just got off the phone to Victoria, the approx breakdown of the payout are: Available funds ANZ $2,080,000 Incoming 2nd $176,900 Total $2,256,900.00 Latrobe $1,435,000 Us $750,000.00 (lower rate payout $747,036.00 plus costs) Prospa $71,000 (Victoria's BDM gave a wrong payout earlier) Caveator $10K (this is apparently the lender that didn't settle the first time) Based on these figures there is still a short fall to payout the $10K. Victoria is going to email me, this was her figures off the top of her head whilst driving. This deal only works as a refi [refinance] if we accept a lower rate and let them payout the ones behind us."
At 5.19pm (a mere two minutes later), Mr Stone responded: "Thanks for that. So effectively EVERYONE is getting full tote, except us."
At the end of the sentence, Mr Stone inserted an emoji of a face with a downturned mouth.
The plaintiffs called Mr Stone as a witness. He purported to be authorised on behalf of all three plaintiffs. In an affidavit in reply sworn on 17 September 2019, Mr Stone deposed: "I have reviewed the Lenders' [plaintiffs'] files regarding the Loan and can find no record of the Lenders agreeing to accept $749,000 (or any similar amount) in discharge of the Loan on 1 August 2018, and I am not otherwise aware of such an offer ever being made on behalf of the Lenders."
I do not accept Mr Stone's evidence that he would have reviewed the emails extracted above for the purposes of preparing his affidavit. While the statement in the affidavit is not inconsistent with the terms of the email, I would have expected Mr Stone to refer to the email exchange between him and Ms Anderson on 1 August 2018, had he been reminded of it before swearing his affidavit, if only to say that the offer was not acceptable. However, I accept his evidence that his consent was required for any agreement which bound HomeSec to accept a reduced amount to pay out a loan and that neither Mr Brockmuller nor Ms Anderson had authority to make such a decision on behalf of HomeSec without Mr Stone's approval.
It was plain from Mr Stone's evidence that he had no particular recall of the transaction. He surmised that he did not accept the offer made by the broker on behalf of the defendants from his response to the email and from the absence of any record that it had been accepted. His evidence was that the plaintiffs had documentary records of acceptances of offers but might not have a documentary record where an offer made by a borrower had been rejected. I did not find his evidence to be particularly reliable. However, the defendants bore the onus of proving the agreement. The plaintiffs had no onus of disproving it.
There is insufficient evidence to amount to a prima facie case that any such agreement was reached. Mr Levet placed significant emphasis on the fact that the plaintiffs had not called any witnesses other than Mr Stone and Ms Mead. However, a Jones v Dunkel inference (after Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8) can rise no higher than an inference that the evidence of a witness who could be expected to have been called by a party would not have assisted the defendants' case.
On 2 August 2018, according to Mr Dick-Telfar's evidence, Ms Venae-Telfar rang someone from La Trobe. Because she put the phone on speaker, he was able to hear that the representative from La Trobe said: "We want this settlement to go ahead. We will attend the settlement. We are prepared [to] reduce the amount we require on settlement by $28,000. You will still owe us that money, but we will get it from you later so that it doesn't hold up the settlement."
Straight after that conversation, the defendants rang Ms Riley and told her that La Trobe would accept $28,000 less at settlement. They instructed her to proceed to settle the matter on 3 August 2018 as they considered themselves to be in a position to do so.
On 2 August 2018 Ms Riley rang Ms Mead asking for settlement to be booked for 3 August 2018 and seeking a pay-out figure for that date. By email sent later that day Ms Mead provided a pay-out figure of $903,880.58 in the form of a lender's certificate pursuant to cl 24 of the loan agreement. Mr Edney, who appeared for the plaintiffs, explained that the substantial increase in the pay-out figure was because the plaintiffs had been prepared to accept interest at the lower rate (4% per month) for the outstanding balance up until 13 July 2018 when the notice of default was issued but that after default, the plaintiffs were not prepared to accept interest at the lower rate and calculated interest for outstanding monies (including those which remained outstanding prior to 13 July 2018) at the higher rate of 10%.
Following receipt of this email from Ms Mead on 2 August 2018, Ms Riley wrote to the defendants in the following terms: "This morning we received a telephone call from Victoria of EV Financial, the Broker for HomeSec, who has advised that HomeSec will no longer settle for the agreed $750,000.00. If this matter was to settle today the payout figure to HomeSec would be $830,000.00 and should the matter settle tomorrow the payout figure would be $900,000.00. The reasoning behind their decision was that the loan was in default with no attempt at payment. Victoria advised that HomeSec was of the view "that the Telfar's had $3,000.00 to throw at another lender and did not do anything to make payment on the default of this loan." Victoria suggested that you commence to put the property on the market to get the best possible sale price. It is with regret that our news is not happy news as we have all worked very hard to achieve a mutually positive outcome for you both. …"
When Mr Dick-Telfar received this email, he realised that the defendants were not in a position to settle in the sum of $830,000. Later that morning each of the defendants spoke to Mr Brockmuller. Mr Dick-Telfar asked him to let the settlement proceed at $749,000, to which he responded, "Mate, it's not enough money", and then hung up.
On 3 August 2018, Ms Riley informed Ms Mead by email that settlement would not be taking place that day.

[18]

Consideration

The defendants did not dispute the amount of the claim and accepted that the figure claimed by the plaintiffs be payable unless they made out their cross-claim. The parties identified the following issues arising from the cross-claim and confirmed that these were the issues on the pleadings and remained in issue. The answers to the questions (the reasons for which are given below) follow in italics: 1. Allegedly unconscionable interest rate (Amended Defence paragraph 9) a. Is the rate of interest provided for in the agreement sued upon (the Loan), being a "higher rate" of 10% per month and "lower rate" of 4% per month, unconscionable? No. b. If so, to what relief (if any) are the defendants entitled? Not applicable. 2. Alleged withholding of certificate of title (Amended Defence paragraphs 12.3 and 21-30) a. Did the plaintiffs prevent the defendants from being able to refinance the Loan before 5 July 2018 by improperly withholding the certificate of title to the Loan's security property until then? No. b. If so, to what relief (if any) are the defendants entitled? Not applicable. 3. Alleged frustration of further refinancing attempts (Amended Defence paragraphs 31-40) a. Were the defendants' further attempts to refinance the Loan over the course of July 2018 improperly frustrated by third parties also represented by the same firm of solicitors as the plaintiffs? No. b. If so, is relief available against the plaintiffs in respect of that conduct? Not applicable. c. If so, to what relief (if any) are the defendants entitled? Not applicable. 4. Alleged failure to accept agreed payout figure (Amended Defence paragraphs 41-46) a. Did the plaintiffs agree to accept a payout figure of $749,606.58 in respect of a refinancing of the Loan to occur on 3 August 2018? No, no such agreement has been established on the evidence. b. If so, were the plaintiffs bound by that agreement, or is relief otherwise available against the plaintiffs for refusing to accept the said sum in satisfaction of the Loan? Not applicable. c. If so, to what relief (if any) are the defendants entitled? Not applicable.

[19]

Alleged unconscionable interest rate (issue 1)

Mr Levet contended that both the "lower" interest rate of 4% and the "higher" interest rate of 10% were unconscionable. Mr Edney submitted that, although the interest rates were high, it was not open to me to accept Mr Levet's submission. He relied on Kellas-Sharpe v PSAL Ltd [2013] 2 Qd R 233; [2012] QCA 371 (Kellas-Sharpe) as summarising the authorities for this proposition.
It is plain that interest rates of 4% per month and, a fortiori 10% per month will result in outstanding interest exceeding the principal within a relatively short period. Such rates will be attractive only to the naïve, the ill-advised or the desperate. It was not suggested that the defendants fell into either of the first two categories. The rates are such that any prospect of refinancing the debt with a reputable lender, such as a bank, is likely to quickly disappear. One only has to compare the "lower" rate of 4% per month (48% per annum) which applied for the loan from the plaintiffs with the rate of 4.7% per annum offered by the ANZ to appreciate the uplift applied by lenders such as the plaintiffs on monies advanced by them. Loans on the terms advanced by the plaintiffs have such a high risk of default that it is almost inevitable that any property secured will have to be sold and that any equity held by the borrowers will be extinguished by the passage of time, consumed at a voracious pace by the interest.
However, courts have consistently held that, as long as the provisions for the lower and higher rates of interest are drafted in such a way as to make clear that the lower rate is payable by way of a discount, or reward, for timely payment and the higher rate is the rate otherwise applicable, the rate does not amount to a penalty and the lender's conduct is not unconscionable. Thus, it is irrelevant that 10% cannot possibly be a genuine pre-estimate of the plaintiffs' loss if the payment at 4% is not made on time since this is not the test. While trial judges and intermediate courts have railed against the consequences of this distinction, which is to immunise the result of a drafting device from scrutiny on the basis of equitable principles relating to penalties and unconscionability, it has been said, time and again, that the principle is too well established to be disturbed other than at the highest level, by the High Court or by Parliament: Kellas-Sharpe at [2]-[4] (Margaret McMurdo P), [32]-[49] (Gotterson JA) and [57]-[60] (Fryberg J).
Accordingly, the question is not whether the interest rates are unconscionable in any moral sense, but whether the law regards them as being unconscionable. In these circumstances, I accept Mr Edney's submission that it is not open to me to find that the interest rates charged by the plaintiffs were unconscionable within the meaning of s 12CA of the ASIC Act.

Oxygen Funding Solutions Pty Ltd v Dick-Telfar

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