Perpetual Trustee Company Ltd v Montpensier Pty Ltd

CATCHWORDS : PROCEDURE - summary dismissal - letter of offer of finance - right to withdraw offer if matter arises which may adversely affect the proposed loan - unavailability of funds to lender - whether matter arising - offer alleged to be misleading and deceptive - whether issue of fact for trial - construction of agreement is a matter of law - Cross-Claim dismissed.

LEGISLATION CITED : Trade Practices Act 1974 (Cth)

Butt v Long (1953) 88 CLR 476 CASES CITED : General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709 Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834

Perpetual Trustee Company Ltd (Plaintiff) Montpensier Pty Ltd (First Defendant) PARTIES : Gary James Baker (Second Defendant/Cross-Claimant) Challenger Managed Investments Limited (Second Cross-Defendant/Applicant) LandMark White (Third Cross-Defendant)

G Lucarelli (Plaintiff) COUNSEL : B Burke (Second Cross-Defendant/Applicant) M Klooster (Second Defendant/Cross-Claimant) S Dow (Third Cross-Defendant)

Middletons (Plaintiff) SOLICITORS : Norton Rose Australia (Second Cross-Defendant/Applicant) Spinks Eagle Lawyers (Second Defendant/Cross-Claimant) DLA Phillips Fox (Third Cross-Defendant)

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION POSSESSION LIST

2009/297367 PERPETUAL TRUSTEE COMPANY LTD V MONTPENSIER PTY LTD

JUDGMENT 1 The Plaintiff lent $4m to Montpensier Pty Ltd to assist in the acquisition of Unit 1, 6 Knox Avenue, Bondi Beach. Gary James Baker, the Second Defendant, guaranteed the obligations of Montpensier under the loan by a guarantee dated 7 July 2008. 2 The loan was due to be repaid on 7 November 2008 and has not been repaid. The Plaintiff brings the present proceedings against the Defendants claiming the amount of the loan together with interest which is accrued. Montpensier is now in liquidation and the claim is pursued against Mr Baker. 3 Mr Baker admits to signing the guarantee, admits not paying monies due, but relies on a Cross-Claim which he brings against the Plaintiff, Challenger Managed Investments Ltd and Landmark White (NSW) Pty Ltd. The Cross-Claim seeks declarations and orders under s 87 Trade Practices Act that the guarantee is unenforceable or should be set aside or declared void. It also seeks an order varying the guarantee so that the total amount owing under it is limited to whatever was realisable from the exercise of the power of sale over Unit 1. An indemnity is sought from Challenger and Landmark for any liability Mr Baker has to Perpetual Trustee Company Ltd, and damages are sought against all of the Cross-Defendants. 4 The Cross-Claim pleads 7 representations, the first of which was said to have been made by Challenger, the second, third, fourth and fifth were said to be made by Landmark in relation to a valuation it provided of Unit 1 on 2 May 2008, and the sixth and seventh representations were said to have been made by Perpetual or an agent of Perpetual. 5 Perpetual filed a Notice of Motion on 19 October 2010 seeking summary dismissal of the Cross-Claim against it, alternatively that the Cross-Claim be struck out. In addition, it sought that there be judgment entered for the Plaintiff in the proceedings. 6 After I had heard argument from counsel for the Plaintiff on that Notice of Motion I indicated that I was not prepared to dismiss the Cross-Claim against Perpetual and enter judgement in favour of the Plaintiff. I said that I considered that the matters raised by Perpetual went only to the form of the pleading, and I invited submissions in relation to the pleading from counsel for Mr Baker. Counsel for Mr Baker accepted that the Cross-Claim needed to be re-pleaded. In those circumstances I made directions which were agreed between Perpetual and Mr Baker allowing for a re-pleaded cross-claim. In the circumstances, I do not need to say anything further about that Motion in these reasons. 7 Challenger also filed a Notice of Motion on 23 August 2010 seeking orders that the Cross-Claim against it be summarily dismissed, alternatively, struck out. Despite the alternative order sought, Challenger argued the Motion only on the basis that no cause of action was shown against it nor could be shown by any amended pleading. The Cross-Claim against Challenger 8 The claim against Challenger is set out in the Cross-Claim as follows: [4] In May 2007, Montpensier entered into negotiations with Challenger with a view to entering into a Loan agreement with Challenger to enable Montpensier to purchase the Property. [5] On or about 11 May 2007 Landmark provided to Challenger a written valuation dated 11 May 2007 in respect to the Property. The valuation stated that the market value of the Property was as at that date $3,650,000.00. (the First Valuation ) [6] Challenger and Landmark each sent a copy of the first valuation to Gary Baker.

[7] On or about 1 June 2007 Challenger wrote to Gary Baker offering (subject only to the conditions set out in that letter) to loan Montpensier the sum of $10,500,000.00. (The Challenger Offer Letter). The Challenger Offer Letter stated that the purpose of the proposed loan the subject of the Challenger letter was to enable Montpensier to purchase the property and also to purchase units 4,6 and 7/6 Notts Avenue Bondi Beach (Lots 4,6,7 / 6 Notts Ave Bondi Beach NSW). [8] Gary Baker on behalf of Montpensier accepted the offer as set out in the Challenger Offer Letter by signing the offer letter and returning same to Challenger". [9] Upon Gary Baker accepting the offer as set out in the Challenger Letter, an agreement was formed between Challenger and Montpensier whereby Challenger agreed inter alia that subject only to the matters set out in the final paragraph of that letter, it would lend to Montpensier an amount of $10,500,000.00 provided that the sum did not exceed 70% of Challenger's assessment of the value of the security properties, being units 1,4,6 and 7 Notts Avenue Bondi Beach (The Challenger Finance Agreement) Misleading and Deceptive conduct by Challenger [10] In sending the Challenger Letter, Challenger represented to Gary Baker that subject only to the matters set out in the final paragraph of that letter it would lend to Montpensier an amount of $10,500,000.00 provided that the sum did not exceed 70% of Challenger's assessment of the value of the security properties, being units 1,4,6 and 7 Notts Avenue Bondi Beach. ( the first representation)

[11] The making of the first representation constituted conduct in trade and commerce within the meaning of that expression in Section 52 of the Trade Practices Act 1974. (TPA)

[12] On or about 8 April 2008 Montpensier in reliance on the First Valuation and First Representation Montpensier agreed to purchase the Property for the sum of $3,500,000.00.

[13] The first representation was misleading or deceptive or likely to mislead or deceive within the meaning of those terms as set out in Section 52 TPA. PARTICULARS (a) On or about 11 June 2008 Challenger withdrew its agreement to provide finance the subject of the Challenger Offer Letter. (b) Gary Baker engaged in a conversation with Craig Hitchins an employee of Challenger who informed Gary Baker that Challenger had insufficient funds to lend to Montpensier. [14] In the circumstances, in making the first representation, Challenger contravened Section 52 of the TPA.

[18] As a consequence of being advised by Challenger that it would not loan the monies referred to in paragraph 13 above, on or about June 2008 Gary Baker commenced negotiations on behalf of Montpensier with Mirvac Funds Management as agent for Perpetual to borrow money from Perpetual.

… [21] On or about 2 July 2008 Montpensier accepted the Approval Term Offer Letter and agreed to borrow money from Perpetual to purchase the property. 9 Such a finding against Challenger of a contravention of s 52 is then said to result in a claim for indemnity against any liability for which Mr Baker is found to have to Perpetual, alternatively a claim for damages, although the particulars regarding damages are related only to his liability under Perpetual's guarantee. On the face of it, these are odd claims to make. 10 With regard to the indemnity claimed, there is no basis in law that Challenger should have to pay to Perpetual all of the money Mr Baker is obliged to pay to Perpetual. If the contract with Challenger had not been breached as Mr Baker alleges he would have borrowed the money from Challenger and would have been obliged to repay it, all other things being equal. Prima facie, his measure of damages against Challenger would be any additional fees or higher rate of interest that he was obliged to pay Perpetual. 11 To the extent that damages are claimed the particulars, as I have said, relate to the liability that Mr Baker has under the guarantee given to Perpetual. However, it is to be noted, that under the proposed arrangement with Challenger Mr Baker was to provide a guarantee of that borrowing in any event. 12 Nevertheless, these are not the bases upon which Challenger seeks summary dismissal of the claim against it. 13 It should be said at the outset that what appears as particular (a) under paragraph 13 of the Cross-Claim ought to have been pleaded as a separate material fact, probably between paragraphs 12 and 13. In truth, what is said to be the misleading and deceptive conduct was not the withdrawal itself but the reason for the withdrawal which is set out in particular (b). 14 Challenger says that an examination of the Letter of Offer referred to in paragraph 7 of the Cross-Claim reserved Challenger's right to withdraw the offer in such a way that, if s 52 was said to be breached by what is contained in paragraph 14 of the Cross-Claim, the breach will never be able to be made out. 15 The Letter of Offer is dated 1 June 2007. It is addressed to the Directors of Montpensier and it confirms a loan approval for $10.5m on security of Units 1, 4, 6 and 7, 6 Knox Avenue, Bondi Beach, and for the purpose of purchasing those Units. It identifies Mr Baker as the guarantor. 16 In the section of the letter headed property valuation the letter said: We shall commission a Valuation Report to determine the value of the security properties. The valuation shall be for the sole benefit of the Lender and shall remain the property of the Lender.

We reserve the right to amend the loan approval or attach further conditions, as we may deem appropriate after receiving the Valuation. 17 The letter concludes by saying: Please note that:

(a) By signing and returning the copy of this letter you acknowledge that our understanding of the Purpose of this loan is correct; and

(b) We reserve the right to withdraw or amend the loan approval at any time without liability and at our absolute discretion if, in our opinion or in the opinion of our solicitors, there arises any matter, which may adversely affect the proposed loan. Any changes to the terms and conditions will be shown in the loan documentation, which will also give further and more detailed particulars of the loan and shall prevail over the terms of this letter. 18 Challenger submits that what is contained in particular (b) of that final paragraph was well within the reservation of rights in the Letter of Offer. 19 Mr Baker submits that Challenger's not having sufficient funds to lend to Montpensier was not a matter that might adversely affect the proposed loan. Mr Baker submitted that one needed to test the reasonableness of the opinion of Challenger or their solicitors in that regard. That was a matter, Mr Baker submitted, that was suitable only for the final hearing and not for determination in an interlocutory application. 20 The resolution of the matter turns on a question of construction of paragraph (b) of the final paragraph of the Challenger letter. If Challenger's having insufficient funds to make the loan was a matter which may adversely affect the proposed loan then the opinion of Challenger or its solicitor to that effect would be a reasonable one. The proper construction of a contract is a matter of law: Jennings v Credit Corp Australia Pty Ltd (2000) 48 NSWLR 709 at 713. 21 In the first place, "any matter" which might adversely affect the proposed loan might ordinarily be thought to include anything that would affect the loan's proceeding, or which might in some way cause a detriment in relation to the loan such as, for example, a change in the status or circumstances of the borrower, or of the property. The question is, therefore, whether there is any reason to limit "any matter" to a matter concerned with the borrower himself or even, perhaps, the security being offered in consideration for the loan. 22 No doubt, a change in the status or circumstances of the borrower would be a matter which may adversely affect the proposed loan. No doubt, also, if the security property was not valued at a sufficient amount to justify the making of the loan as proposed, bearing in mind the appropriate Loan to Value Ratio, that would be a matter which may adversely affect the loan. Certainly the reservation contained under the heading property valuation, contains a right to amend the loan approval or attach further conditions after the valuation is received, but that reservation may not otherwise entitle the lender to withdraw the loan approval as the paragraph under consideration permits. 23 The only way in which the words "any matter" are qualified is by the words "which may adversely affect the proposed loan". They are not qualified by linking the matter to the borrower or the security property. Further, the "matter" which justifies the withdrawal is not said to be something that may adversely affect the proposed loan only after it is made. It could scarcely be argued, for example, that if the proposed borrower went into liquidation, or the guarantor became bankrupt, before the loan was made, that would not be a matter which might adversely affect the proposed loan. If, therefore, events affecting the borrower or guarantor which occur before the loan are to be regarded, it is difficult to see why events which affect the lender before the making of the loan should not similarly be regarded. 24 It is entirely appropriate to have regard to the commercial setting in which the contract was negotiated: Butt v Long (1953) 88 CLR 476 at 486-7 and 490; Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834 at 837. Such commercial setting includes the fact that lenders themselves need to source the funds they lend. It cannot be assumed that the funds will always be available to a lender in that regard. Accordingly, it is not at all surprising that the lender reserves to itself the right to withdraw in circumstances which might include the fact that it would not have the funds to lend even if it believed it could access them at the time the offer was made. 25 In my opinion, the unavailability of funds to enable the lender to complete the arrangement was a matter which might adversely affect the proposed loan. Gary Baker accepted the offer and agreed to the reservation contained in paragraph (b) at the conclusion of the letter. There was, accordingly, no misrepresentation by Challenger, nor was the representation that it would lend to Montpensier an amount of $10,500,000 on the terms set out misleading or deceptive or likely to mislead or deceive. There was no contravention of s 52 Trade Practices Act. 26 The claim against Challenger is doomed to failure. It easily satisfies the tests in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129.

(1) The first Cross-Claim by Gary James Baker against the Second Cross-Defendant is dismissed.

(2) The Cross-Claimant is to pay the Second Cross-Defendant's costs.

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