Saeed v Capital Securities Australia Pty Ltd

Supreme Court of NSW|2020-03-04|Before: Davies J

Judgment

The plaintiffs appeal pursuant to s 39 of the Local Court Act 2007 (NSW) from a judgment of Magistrate S Freund in the Local Court given on 27 August 2019. That judgment concerned a claim by the defendant for $29,050.00 made up as follows: Establishment fee: $24,000 Legal fee: $5,500 Valuation fee: $6,050 Less deposit: $6,500 Total: $29,050

Background

The defendant is a non-bank lender to whom application had been made by the plaintiffs for a loan of $900,000 to the second plaintiff guaranteed by the first plaintiff.
On 12 September 2018 the solicitors for the defendant sent to the plaintiffs a letter entitled "Indicative letter of offer" (referred to herein as the "Indicative letter"). The letter relevantly said: Capital Securities Australia Pty Ltd and/or its nominated lender ("CSA") is pleased to provide you with indicative terms and conditions of a loan facility set out in this letter. This indicative letter of offer does not represent a formal offer of a loan facility. Until formal credit approval is obtained and a facility agreement is issued, we do not offer to provide you with a loan facility.
The letter also said: Disbursement summary/fees and charges - unless otherwise stated all fees are non-refundable. These fees may be payable even if the loan does not proceed for any reason. Type of Cost Description Amount Loan Amount This is the loan amount. $900,000.00 Less Establishment Fee A fee paid by you to CSA for assessing your loan application, producing this letter of offer and arranging money for settlement. ($24,000.00) Less Introducer Fee A fee payable by you to your broker for obtaining you this loan. ($6,000.00) Less Valuation Fee A fee paid by you for valuation of the Security. ($TBA) Less Legal Fee A fee paid by you to our solicitors for production of loan documents only. ($5,500.00) Less 2 Months Interest Prepaid Interest to be retained by the lender. ($39,600.00) Amount Due To You $824,900.00

Under the heading "Offer terms" the following appeared: By signing this Indicative Letter of Offer, you have read the offer and understand it establishes a legal contract between you and us. We reserve the right to withdraw from this transaction if this offer is not accepted by 5pm. Thursday 13 September 2018, or if anything occurs which in our opinion makes settlement undesirable. Each of you has made the following declarations: Upfront Fees You agree to pay the lender 100% of the Establishment Fee and 100% of Legal Fee (Withdrawal Costs), even if the loan does not proceed to settlement (including because we withdraw from this offer) and hereby charge all your real and personal property as security to CSA for the Withdrawal Costs. … Valuations We may require, in our sole discretion, a valuation to be performed on the securities included in the agreement. The choice of the valuer is in our sole discretion and we will not accept a valuation from a valuer who in our own opinion has not provided an independent valuation of the security. We have the right to withdraw or amend the offer if the loan to value ratio is exceeded based on our valuation. You agree to pay all the costs that may incur concerning this valuation. The clients agree, on those occasions when the lender considers that circumstances render it reasonable to do so, obtain a revaluation, at clients expense, on one or all security properties the lender hold during the term of the loan. … Loan Preparation By signing the offer you authorise us to instruct our solicitor to prepare all loan and security documentation. You acknowledge that all fees, costs and outlays charged by our solicitor are immediately payable by you upon demand by our solicitor (unless paid prior to settlement). Further legal fees and charges will apply in order to proceed to settlement (These include but not limited to Searches/Due diligence, protecting the lenders interests. Deeds of priority. Complying with conditions, etc)
That loan offer was executed by the first plaintiff on behalf of the second plaintiff on 14 September 2018.
On 26 September 2018 the solicitors for the defendant forwarded security documents including a mortgage for execution by the plaintiffs. The Mortgage was executed by the first plaintiff both in his capacity as a director of the second plaintiff and in his own capacity as guarantor on that day. The Mortgage was returned to the solicitors for the defendant on the following day.
Schedule B to the Mortgage set out various fees that were payable. The Schedule relevantly contained the following: Description of fee Amount Date for the payment of fee 1 Establishment fee - a fee to be paid by the Debtor to the Lender as an establishment fee for this Mortgage. $24,000.00 At or prior to the entry into this Mortgage or the advance by the Lender of the Principal Amount. 2 Brokerage fee - a fee to be paid by the Debtor to their introducer of the loan to the Lender. $6,000.00 At or prior to the entry into this Mortgage or the advance by the Lender of the Principal Amount. … 13 Legal fee - a fee to be paid by the Debtor to the Lender's lawyers for preparation of securities and settling the Mortgage*. $5,500.00 At or prior to the entry into this Mortgage or the advance by the Lender of the Principal Amount. *lf our solicitors incur extra work outside the scope of their initial estimate of work and as a result their fees increase, you must also reimburse us those additional fees. Additional work includes (but is not limited to) additional work because settlement Is delayed or the searches reveal additional enquiries are required, you seek to negotiate the documents. 14 Legal disbursements - are expenses and disbursements incurred by the Lender's lawyers for preparation of securities and settling the Mortgage including but not limited to search fees, enquiry fees, lodgement fees, PEXA fee, all government revenue charges, transaction specific banking charges, external photocopying costs. $unascertainable At or prior to the entry into this Mortgage or the advance by the Lender of the Principal Amount.

On 19 November 2018 the plaintiffs advised that they were not going ahead with the loan that the defendant had offered.
On 21 November 2018 the defendant demanded payment of the fees.

Issues in the court below

The agreed issues were these: 1. Was there a contract between the parties in accordance with the terms of the indicative Letter of Offer? 2. If so, then in relation to the defendants' allegation that the fees provided for by the letter are excessive and unreasonable: (a) Has that been established? (b) What is the legal significance (if any) of such a finding? 3. Is it open to the plaintiffs to claim fees pursuant to the executed mortgage in circumstances where the loan the subject of it ultimately did not proceed? 4. Did the plaintiff, by its conduct, waive any entitlement to such fees? (I have, when setting out those issues, referred to the parties as they were described in the Local Court.)
In relation to the first of those issues, the plaintiffs' argument was that the Indicative letter did not constitute a binding contract because it was superseded by the executed loan documents including the Mortgage. Reliance was placed on what was said to be the analogous factual position in Private Mortgages Australia Pty Limited ACN 600 628 813 as trustee for the PMA Trust v Stever [2019] NSWSC 462. The argument was that what was contained in the Indicative letter was superseded by the subsequent contractual terms in the loan documents which were of a binding nature.
The plaintiffs argued that the fees constituted a penalty and, in any event, they were excessive and unreasonable in circumstances where the loan did not proceed.
The plaintiffs' submission in the Court below in relation to whether the plaintiffs were bound to pay the fees by reason of the terms of the Mortgage, focused on what appeared in the third column of Schedule B to the Mortgage. The argument was that there were two occasions when the fees were payable, being at or prior to the entry into the Mortgage on the one hand, and at the time of the advance of the principal sum by the lender on the other. The plaintiffs argued that when the loan did not go ahead the focus could only be on the words "at or prior to the entry into this Mortgage", and no demand had been made for the fees prior to that time. In that way, the plaintiff argued that the defendant had waived its right to the fees.

The judgment of the Magistrate

The plaintiffs submitted that paragraphs 10-13 of the Magistrate's judgment summarised completely the "appeal ground" (sic) which the plaintiff seeks to have considered. It is necessary, therefore to set out those paragraphs: 10. Mr Nguyen further submitted that: "the case of Private Mortgages Australia - v-Stever, provides clear support for the Defendant's case as to an ineffective use of Indicative Letter of Offer for contractual terms. In identical circumstances, at paragraph 17 of the judgment, the case of Stever involved the use of an Indicative Letter of Offer. At paragraph 49 and 50 of the judgment the Supreme Court found that the clearly labelled Indicative Letter of Offer was not the basis of binding contractual terms and preferred the subsequent correspondence as a basis for contractual terms. 11. Mr Nguyen's submission is quite clearly wrong at law and in my view he has taken the quote from the decision of Private Mortgages Australia -v- Stever out of context. 12. Paragraphs 48 to 50 of Private Mortgages Australia -v-Stever states (sic); "Counsel for the defendants raised a number of other arguments in support of the proposition that the Executed Letter of Offer should be interpreted as providing for the originator and legal/admin fees to be payable only on settlement of the loan or when the plaintiff confirmed that it was ready, willing and able to provide the funds. One of those arguments relied on the terms of the indicative letter of offer dated 19 February 2015 which provided for payment of a non-refundable evaluation fee of $575 and payment of the originator fee on settlement of the loan. It was contended that those matters supported an interpretation that the originator fee was a "success fee", payable only once the loan was established. The difficulty with this argument is that the evaluation fee was to be paid in exchange for the plaintiff's analysis of the loan submission and due diligence, activities to determine whether a binding letter of offer should be forwarded to the defendants, not for activities relating to the establishment of a loan in respect of which the originator fee was payable. Further, to the extent there is any inconsistency in the drafting as to when the originator fee was payable between the indicative letter of offer and the Executed Letter of Offer, the terms of the Executed Letter of Offer are to be preferred, being the binding agreement between the parties and the document on which the plaintiff now makes its claim. " 13. These paragraphs are simply Henry J restating the submissions made by counsel for the defendant and the reasons why the argument failed. It does not provide authority that subsequent correspondence should be preferred as a basis for contractual further terms over a clearly labelled indicative letter of offer.
In relation to the first issue the learned Magistrate also said this: 15. I am satisfied on the balance of probabilities that the Letter of Offer clearly intended to give rise to a binding contractual relationship between the parties for the following reasons: a. The Letter of Offer clearly provided for obligations to pay money to arise under it, so it would make no sense that it was not intended to be binding: b. The Letter of Offer expressly stated that in signing it "establishes a legal contract between you and us"; and c. the execution page of the Letter of Offer provided that the executing parties "acknowledge receiving and reading the offer terms and being bound by them", and then provided for formal execution in a manner entirely inconsistent with anything other than an intention to form a binding contract. 16. Moreover, the evidence indicates that Capital Securities carried out the things it was required to do pursuant to the Letter of Offer namely, assess the loan application, produce the loan documentation and arrange for a valuation of the property nominated as security, even though the parties did not proceed with the loan.
In relation to the issue of the unreasonableness of the fees, the learned Magistrate followed what Henry J said at [65]-[76] of Stever in that regard. The learned Magistrate also said that she was satisfied that the fees claimed did not amount to a penalty and that in the context of the commercial arrangement between the parties, the fees were neither unreasonable nor excessive.
In relation to the issue of whether the Mortgage bound the plaintiffs to pay the fees and whether there had been a waiver by the defendant, the solicitors for the plaintiff submitted that a waiver arose because, in response to a request from the plaintiff as to whether the fees were payable if the deal fell through, the solicitor was told by a representative of the defendant, "I will get instructions with this (sic) and get back to you", but no further contact by the defendant was made.
The learned Magistrate noted that no further enquiries or follow-up were made by the plaintiffs in that regard, and thereafter on 19 November the plaintiffs said that they would not be proceeding with the proposed loan. Her Honour noted that the defendant demanded the payment of the fees two days after the plaintiff's withdrawal was notified. Her Honour said that there was no evidence to suggest that the defendant did not intend to pursue the fees if the loan did not proceed. In that way there was no waiver by the defendant of its rights to the fees.

The grounds of appeal

The grounds of appeal are: 1. The Magistrate misapplied the case of Private Mortgages Australia v Stever [2019] NSWSC 462 in finding that it was not authority for the principle that subsequent correspondence should be preferred as a basis for contractual terms over a clearly labelled indicative letter of offer. 2. The Magistrate failed to consider the following, in finding that the letter of offer intended to give rise to a binding contractual relationship between the parties: a. The fact that the letter of offer, was clearly labelled "indicative letter of offer" on the cover page; b. The fact that the letter of offer was referred to in the cover page as "indicative terms and conditions of a loan facility"; c. The fact that the letter of offer stated on the cover page that it "does not represent a formal offer of a loan facility"; d. The fact that the letter of offer stated on the cover page that "any subsequent facility agreement would comprehensively detail the terms and conditions on which a loan facility is offered"; e. The fact that every page of the letter of offer was given a footer with the words "Indicative Letter of Offer"; f. The fact that the subsequently sent comprehensive loan documentation, set out clearly all the terms of the loan to be entered, was formal, required solicitor's certification, and comprehensive exceeding 50 pages.
It may be observed that the appeal grounds do not refer to the part of the learned Magistrate's judgment where she said that she was satisfied in the alternative that the executed Mortgage confirmed the obligation of the plaintiffs to pay the fees. I pointed out to the plaintiffs' solicitor that, even if he was successful in relation to the Indicative letter, the Magistrate's determination in relation to the Mortgage meant that the appeal could not succeed. The solicitor responded: My instructions are only to run the appeal on the points that I am arguing before your Honour.
Despite there being no grounds of appeal concerning the Mortgage, the solicitor for the plaintiffs, nevertheless, made submissions concerning the Mortgage. This involved a point of construction concerning the third column in Schedule B to the Mortgage, and the issue of waiver. Although counsel for the defendant said in his written submissions that the plaintiffs had not appealed against the findings related to the Mortgage, he did not object to the plaintiffs putting the arguments concerning those matters. In the circumstances, I will consider the submissions relating to the Mortgage.

The plaintiffs' submissions

The plaintiffs submitted that the position in the present case was the same as that identified in Stever. In the present matter there was the Indicative letter which was followed by a fully executed agreement. In Stever the fully executed agreement was called an Executed Letter of Offer, whereas in the present case the executed agreement was the Mortgage which was signed by the parties and certified by a solicitor. The plaintiffs submitted that Stever is authority for the proposition that the latter documentation (the Mortgage) is to be preferred over the former Indicative letter. The difference between the Executed Letter of Offer in Stever and the Mortgage in the present case was said to be one of semantics only.
The plaintiffs submitted that the frequent references to the letter in the present case being "indicative" (set out in ground 2 of the appeal at [20] above) demonstrated that the letter did not bring about a binding contract.
In relation to any obligation in the Mortgage to pay the fees, the plaintiffs submitted that the third column in the schedule to the Mortgage provided for two options, being "at or prior to the entry into [the] Mortgage" and "at or prior to the advance by the Lender". The plaintiffs submitted that because the defendant did not require payment "at or prior to the entry into the mortgage", the defendant was choosing the second option. Then, when the loan agreement did not go ahead, that option became inoperable. In that way, the fees were not required to be paid. The submission appeared to be that the defendant waived its right to those fees by not requiring them to be paid at or prior to entry into the Mortgage.

Determination

It is necessary to examine the terms of the Indicative letter to see if an obligation arose on the plaintiffs' part to pay the fees notwithstanding that the loan did not go ahead. In a sense, the plaintiffs' focus on Stever is a distraction from that exercise. The basic fallacy in the plaintiffs' submissions is the enquiry into whether the Indicative letter is a binding loan agreement. Plainly, it is not.
The letter said this: This indicative letter of offer does not represent a formal offer of a loan facility. Until formal credit approval is obtained and a facility agreement is issued, we do not offer to provide you with a loan facility. … Unless otherwise stated all fees are non-refundable. These fees may be payable even if the loan does not proceed for any reason.
However, the fact that acceptance of the Indicative letter did not create a binding agreement for a loan does not mean it did not create a binding contract in respect of other ancillary matters. The letter makes that position clear. It says: By signing this Indicative letter of Offer, you have read the offer and understand it establishes a legal contract between you and us. … Each of you has made the following declarations: Upfront fees You agree to pay the lender 100% of the Establishment Fee and 100% of Legal Fee … even if the loan does notm proceed to settlement … Valuation We may require, in our sole discretion, a valuation to be performed on the securities included in this agreement. … You agree to pay all the costs that may incur concerning this valuation. … Loan Preparation By signing this offer you authorise our solicitor to prepare all loan and security documents. You acknowledge that all fees, costs and outlays charged by our solicitor are immediately payable by you upon demand by our solicitor (unless paid prior to settlement).
These provisions make clear that the Indicative letter created a contract between the plaintiffs and the defendant whereby the defendant would commence to carry out preliminary work (what Henry J aptly described in Stever at [50] as "due diligence activities") to enable the loan to proceed. That was the consideration being provided by the defendant for the fees being paid by the plaintiffs. This was a separate, but ancillary, contract to any loan agreement subsequently entered into by the parties. It did not, however, bind either party to enter into a loan agreement. Either party had the right to withdraw. The defendant reserved an express right do so. In the present case, the plaintiffs chose to do so and the defendant did not resist their right to withdraw. That withdrawal did not negate the contract brought about by the signing of the Indicative letter. Its terms had still to be complied with.
There is no analogy between the Indicative letter in the present case and the indicative letter in Stever. Nor is there any analogy between the Mortgage in the present case and the Executed Letter of Offer in Stever. In Stever what was described as the indicative offer was superseded by the Executed Letter of Offer. This is made clear by what Henry J said at [48] - [50]: [48] Counsel for the defendants raised a number of other arguments in support of the proposition that the Executed Letter of Offer should be interpreted as providing for the originator and legal/admin fees to be payable only on settlement of the loan or when the plaintiff confirmed that it was ready, willing and able to provide the funds. [49] One of those arguments relied on the terms of the indicative letter of offer dated 19 February 2015 which provided for payment of a non-refundable evaluation fee of $575 and payment of the originator fee on settlement of the loan. It was contended that those matters supported an interpretation that the originator fee was a "success fee", payable only once the loan was established. [50] The difficulty with this argument is that the evaluation fee was to be paid in exchange for the plaintiff's analysis of the loan submission and due diligence activities to determine whether a binding letter of offer should be forwarded to the defendants, not for activities relating to the establishment of a loan in respect of which the originator fee was payable. Further, to the extent there is any inconsistency in the drafting as to when the originator fee was payable between the indicative letter of offer and the Executed Letter of Offer, the terms of the Executed Letter of Offer are to be preferred, being the binding agreement between the parties and the document on which the plaintiff now makes its claim. (emphasis added)
In the present case, the Indicative letter was not superseded by the Mortgage. The plaintiffs remained bound by the terms of the Indicative letter. It is the document on which the defendant principally makes it claim. The learned Magistrate's conclusion at paragraph 13 of her judgment was entirely correct.
The judgment in Stever, in any event, adds weight to the conclusion I earlier reached, that on a proper construction of the Indicative letter, the fees were payable in exchange for the due diligence activities to determine if the defendant would go ahead with a binding loan offer. In that way, the Indicative letter created a binding contract for that purpose.
The further difficulty for the plaintiffs is that, if the argument is accepted that the Mortgage somehow superseded the Indicative letter so that the letter was not binding, the Mortgage, which the plaintiffs signed and returned required the payment of the same fees. That was the basis of the defendant's alternative claim for the fees.
The plaintiffs' submission that the defendant opted for the second option for payment, being at or prior to the advance should be rejected. A number of the fees to be paid, listed in Schedule B to the Mortgage, are to be paid "immediately upon demand by the Lender". However, the fees in question here are to be paid without demand "at or prior to the entry into this Mortgage or the advance by the Lender of the Principal Amount". In my opinion, the proper construction of the latter phrase provides an option to the borrower, not to the lender. The fees may be paid at or prior to entry into the Mortgage or, if not then paid, by the time of the advance. However, if the fees are not paid by the time of entry into the Mortgage, the borrower cannot escape its obligations to pay the fees by choosing not to go ahead with the loan.
The fact that the defendant did not demand payment of the fees at or prior to the entry into the Mortgage does not amount to a waiver. That would also be so even if the option about when payment was to be made rested with the defendant. If money is owed, it does not cease to be owed because the lender does not demand it, at least until the expiry of any limitation period, unless an estoppel can be demonstrated. No estoppel is alleged.
Nor could a mere failure to demand payment mean that the lender had elected to forego it. The plaintiffs did not explain how a mere failure to demand the fees at a certain time (if a demand was even necessary given the terms of the schedule, and even if the option was given to the defendant) amounted to a waiver. The discussion in Agricultural and Rural Finance Pty Ltd v Gardiner and Another (2008) 238 CLR 570; [2008] HCA 57 at [53] ff suggests that such a failure does not amount to a waiver.
I would reject the grounds of appeal. I would also reject any challenge to the Magistrate's conclusion in relation to the Mortgage.

Costs

The defendant sought costs on an indemnity basis in the event that the appeal was unsuccessful. The basis for such an order was said to be by virtue of cl 3.1 of the Mortgage which provides that the Debtor is to pay the "Secured Money". The definition of "Secured Money" includes "Costs and Expenses", which, in turn, includes all "Legal Fees". "Legal Fees" is defined to mean, all solicitor's costs, barrister's fees, and any disbursements on a full indemnity or solicitor and own client basis whichever basis yields the higher amount.
The plaintiffs' solicitor said in submissions that he did not have any submissions to make with regard to costs.
Costs are in the discretion of the Court: s 98(1)(a) Civil Procedure Act 2005 (NSW). However, it is accepted that, where a party has a contractual right to costs on an indemnity or solicitor/client basis, the prima facie right to costs on a party/party basis may be displaced: Kyabram Property Investments Pty Limited & Anor. v Murray & Anor. [2005] NSWCA 87 at [11]-[14].
I am satisfied that, pursuant to the terms of the Mortgage, the defendant is entitled to its costs on an indemnity basis.

Conclusion

I make the following orders: 1. Amended Summons dismissed. 2. The plaintiff is to pay the defendant's costs on an indemnity basis.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 March 2020

At a glance

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Judgment (12 paragraphs)

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Legislation Cited (2)

Cases Cited (4)

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