180 Capital Finance Pty Ltd v Dickinson Street Pty Ltd

[2007] NSWSC 398

CITATION:	180 Capital Finance Pty Ltd v Dickinson Street Pty Ltd [2007] NSWSC 398
HEARING DATE(S):	2 April 2007
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
EX TEMPORE JUDGMENT DATE:	2 April 2007
DECISION:	Proceedings for declaration that plaintiff had equitable mortgage over defendant's land dismissed with costs.
CATCHWORDS:	CONTRACTS [142]- Contract that charge existed if the defendant's representations and warranties were incorrect and misleading- Defendant said it had a valuation report which said land worth $1.4 million- True value nearer $700,000- Valuation never relied on by plaintiff- Held no incorrect representation or warranty.
LEGISLATION CITED:	Real Property Act 1900 Trade Practices Act 1974 (Cth)
CASES CITED:	Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130 Drinkwater v Caddyrack Pty Ltd (Young J, 25.9.1997, unreported) Godecke v Kirwan (1973) 129 CLR 629 Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111
PARTIES:	180 Capital Finance Pty Limited (P) Dickinson Street Pty Limited (D)
FILE NUMBER(S):	SC 5356/06
COUNSEL:	G George (P) M Ashhurst (D)
SOLICITORS:	Huntingdale Smythe Lawyers (P) Hewitts Commercial Lawyers (D)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Monday 2 April 2007

5356/06 – 180 CAPITAL FINANCE PTY LTD v DICKINSON STREET PTY LTD

JUDGMENT

1 HIS HONOUR: This is an application by the plaintiff for the court to declare that it has an equitable mortgage which is valid and enforceable against certain land of the defendant situated in 45 and 47 Dickinson Street, Charlestown.

2 The summons is probably a little inadequate in making that claim because one does not just declare that there is an equitable mortgage; if there is one, one makes the actual order that the defendant execute a mortgage in proper form so as to confer legal title.

3 The odd thing about the "pleadings" in this case is that they do not follow the established form, but, in a misguided thought that costs might be saved, the parties consented to orders that the plaintiff file a statement of its case and the defendant a statement of its contentions.

4 In the plaintiff's statement of its case, which was filed on 3 November 2006, the plaintiff claims that on or about 20 June 2006 the parties executed an agreement headed "Offer of Term Finance". Pursuant to that agreement, the defendant agreed, upon execution of that agreement, that it would immediately pay to the plaintiff an establishment fee of $5,000 plus GST. That establishment fee was to be payable irrespective of whether or not the plaintiff proceeded with the Term Loan Facility. Further, the defendant promised that it would immediately pay to the plaintiff a "break fee" in the amount of $15,000 plus GST if it did not proceed with the Term Loan Facility, plus any disbursements or other expenses reasonably incurred in connection with the Term Loan Facility. The fees were charged upon any land of which the defendant is or becomes the registered proprietor, including the parcels of land known as 45 and 47 Dickinson Street, Charlestown.

5 The "pleading" goes on to say that pursuant to the agreement the defendant agreed that certain conditions precedent were conditions precedent to the obligation of the plaintiff to make the advance; they included that:

“(a) the Plaintiff has received from the Defendant in form and substance satisfactory to the Plaintiff, all information and documentation which the Plaintiff requests from the defendant; and
(b) all warranties and representations provided by the Defendant to the Plaintiff are correct and not misleading."

The document then says that the defendant represented to the plaintiff that the properties had a market value of $1.4 million and certain other matters. It was put that that representation was incorrect and misleading because the market value of the properties was determined by the plaintiff, through investigation, to be only $700,000. It was then put that the information received was not satisfactory because of certain reasons which are set out in the "pleadings". It is common ground that the advance was never made.

6 The defendant's statement of contentions was that the representation that a development site owned by it had a market value of $1.475 million was not incorrect or misleading; that the plaintiff's refusal to provide finance was not reasonable; that the plaintiff had a duty to act in good faith to ensure it complied with its obligation, but despite this, it arbitrarily and without proper cause refused to perform its obligations pursuant to the agreement. The statement of contention ended up:

“By way of Cross Summons the Defendant seeks the following orders ... "

and that included a declaration pursuant to s 87 of the Trade Practices Act 1974 (Cth) that the agreement was void ab initio.

7 Today, Mr Gregory George appeared for the plaintiff and Mr Mark Ashhurst appeared for the defendant. I am indebted to both for their submissions. The submissions on both sides were not strictly confined to the matters raised in the statements of contention of either party that I have referred to, but that is one of the problems when one does not have proper pleadings.

8 The problems come about to a great extent by the form that was proffered by the plaintiff to the defendant, which is headed "Offer of Term Finance". However, before I get to that, I need to deal with some of the relevant factual background or factual matrix to the transaction.

9 It is common ground that on 2 June 2006, Joanca Pty Ltd, which was a company under the control of a Mr Graham Turner, was being proceeded against by the Deputy Commissioner of Taxation, who sought its winding up. Mr Evans, an employee of the plaintiff (he is not a director of the plaintiff and no director of the plaintiff ever gave any evidence) telephoned Mr Turner and indicated that the plaintiff could assist him to develop a strategy to resolve the winding up proceedings. Mr Turner replied the company had no assets, he had no assets, so he was just going to let the company go into liquidation.

10 However, the plaintiff followed up this conversation with what Mr Evans describes in his affidavit as a marketing letter. This marketing letter is in evidence as p 1 of PX01, though the pro forma in the exhibit is dated 1 November 2006.

11 Assuming that the form had not changed from June, the letter is addressed to a director and headed in bold type "Does your company need immediate access to cash" and "cash" is in capital letters.

12 It then indicates that short term loans would be conditionally approved over the phone; there would be no upfront fees; the funds up to half a million dollars are available within 24 hours, and that a second mortgage or caveat was required. There was then a reference to long term finance without security with conditional approval over the phone.

13 On 16 June 2006, Mr Turner contacted the plaintiff and indicated that the defendant needed funds to submit a DA for approval and asked what sort of loans were available. He told Mr Evans, the employee of the plaintiff, that he would need about $200,000 to get the DA approval and in due course the loan would be repaid through refinance via a construction loan. Mr Evans said:

"Okay. What is the market value of the property and how much is owed to the existing mortgagee?"

to which Mr Turner said:

"It's valued at $1.4 million and there's about $720,000 owing on it."

Mr Evans said:

"Okay. I will send you an application form which you will need to fill out and send back so we can consider it."

14 Although Mr George did submit that there was a representation there in what Mr Turner said, it seems quite clear from the whole of the conversation that this was merely preliminary banter between the representatives of the two parties, and that nothing was seriously said between them, other than that the application form would need to be filled out and when the application was filled out and sent back, then the plaintiff would consider the matter.

15 Mr Evans sent a blank standard application form to the defendant and on 19 June 2006 received back the loan application form filled out. The company details for the applicant were set out as "Dickinson Street Pty Ltd, as trustee for Dickinson Street Unit Trust". There was then a series of questions answered, and there were enclosed with the application form the financial statements of the Dickinson Street Unit Trust and a company said on the application form to be a related company, Tamarack Properties Pty Ltd.

16 In each case the accounts were as at 30 June 2005. It would appear from the evidence before me that Tamarack Properties Pty Ltd was the only unit holder of the Dickinson Street Unit Trust. There is no evidence at all as to the finances of the defendant. I am asked to infer, and I probably should infer, that as it is a trustee company it has no assets of its own and that that is reinforced by Mr Turner's remark to Mr Evans that he had no money himself.

17 The balance sheet of the Unit Trust values the land and buildings at 45 to 47 Dickinson Street, Charlestown as $1.2 million and after taking out the liabilities, including the first mortgage, recognises that the net assets of the trust were $511,473.62.

18 On 20 June 2006, Mr Evans telephoned Mr Turner to discuss the application, and said:

"I need to know the details of the property you were offering as security for the loan facility."

To which Mr Turner said:

"It's 45 and 47 Dickinson Street, Charlestown. I've got a valuation report for the property. I will send it to you."

19 He also indicated that he wished to increase the amount he wanted to borrow to $250,000.

20 There was on that day, and subsequently, a discussion as to the interest rate and eventually the parties agreed it would be 36 percent per year reducible to 18 percent per year if there was no default.

21 On 20 June 2006, Mr Evans prepared the Offer of Term Finance document, which we need to look at in some detail. The first clause of the document read:

“180 Capital Finance Pty Limited ACN 110 294 767 (the 'Financier') offers to the Borrower a Term Loan Facility on terms and conditions to be incorporated into a formal Term Loan Facility Agreement, and summarised below, and other terms as contained in or varied by any other document issued by the Financier to the Borrower from time to time."

22 The borrower was denoted as Dickinson Street Pty Ltd ACN 085 975 855. It was also indicated as the mortgagor and, together with "Graham Ralf [sic] Turner", jointly and severally as the guarantors. The principal advance was shown as $250,000 and the interest was stated as 1.5 percent per month, with the inadmissible following sentence:

“In the event of default under the Term Loan Facility Agreement the interest rate is and shall remain 3% per month.”

23 It is not necessary to set out all the terms of the document. On p 2 under the heading "Establishment Fee", after stating the amount, the following appears:

“The Establishment Fee and any GST payable thereon is payable by the Borrower on or before the date of the Term Loan Facility Agreement. The Financier will agree to capitalise the Establishment Fee and any GST payable thereon, for so long as the Borrower and the Financier proceed with the Term Loan Facility and there is no default under the Term Loan Facility Agreement, in which case the Establishment Fee and any GST payable thereon will be payable on the Repayment Date."

24 Then lower down on p 2 under the heading "Conditions precedent to Principal Advance" five conditions are listed, but only two are currently relevant. So far as is relevant, the clause proceeds:

“The obligation of the Financier to make the Principal Advance is subject to the following conditions precedent (unless otherwise waived by the Financier):
1. the Financier has received from the Borrower in form and substance satisfactory to the Financier, all information and documentation which the Financier requests from the Borrower;
2. all the warranties and representations provided by the Borrower are correct and not misleading."

Then, under the heading “After Acceptance of the Offer", the following appears:

“After acceptance of this Offer, subject to the provisions of this Offer and the formal loan documentation, the Borrower, Mortgagor and Guarantor agree, jointly and severally, to immediately pay the Financier, irrespective of whether or not the Borrower or the Financier proceeds with the Term Loan Facility:
1. any disbursements or out of pocket expenses reasonably incurred in connection with the Term Loan Facility, which include but are not limited to, application fees, the Establishment Fee, registration fees, legal fees (on a full indemnity basis), valuation fees, travel expenses, search and lodgement fees or fees of any other experts and the amount of any GST payable thereon;
2. a Break Fee being an amount equal to $15,000.00 (exclusive of GST), representing a reasonable estimate of the internal cost to the Financier associated with preparation of this Offer and steps taken in establishing the Term Loan Facility but otherwise thrown away as a consequence of the Term Loan Facility not proceeding. In the event both the Financier and the Borrower proceed with the Term Loan Facility, the Break Fee will not be payable by the Borrower under any circumstances ... "

25 Finally, the borrower, mortgagor and guarantor agreed that:

“the Financier has the right as mortgagee and/or chargee, at any time after the acceptance of this Offer, to lodge a caveat over the Property and other real property owned by any of them at the time of acceptance of this Offer or any time thereafter, restricting the registration of any form of dealing in respect to any such property."

26 The present case really concerns very little by way of money, but some of the principles that arise are quite complex. It would seem that the maximum that the plaintiff can charge against the properties at Dickinson Street, Charlestown, is no more than $30,000, and that any mortgage would be subject at least to the first mortgage, and may well be subject to the beneficial interests of the beneficiary in the Dickinson Street Unit Trust. It is clear that the existence of that trust, and the fact that the borrower was a mere trustee, was known to the financier at all material times.

27 A problem that this creates is that it is difficult to see, on the material before the Court, how any advantage can be obtained by the plaintiff at all because if it is correct that the value of the property, unless and until there is some development, is only $700,000, and the amount owing on the first mortgage is $720,000, then the mortgage which it seeks this Court to have granted to it will secure nothing. One must bear in mind the ancient maxim that "Equity, like nature, does nothing in vain".

28 However, Mr George points out that leaving the plaintiff to its remedies at law would also give it very little because it would seem that the defendant itself is a trustee company and probably has no assets, so that an award of damages would be of no value as a matter of practice. That is an awkward matter that I will deal with in due course if necessary.

29 Mr George says that there are a number of matters I have to consider, namely:

1. To whom is the offer addressed?

2. If it is to the Unit Trust, what is the effect of the agreement, is it an agreement that the plaintiff will do due diligence and investigate, or is it a promise to lend?

3. Was the plaintiff entitled to treat the valuation proffered by the defendant as a representation, or representation or warranty under the second of the conditions precedent?

30 Mr Ashhurst, who appeared for the defendant, says that there were other matters to consider:

1. Whether this was really an illusory contract under the doctrine of Godecke v Kirwan (1973) 129 CLR 629 at 646;

2. On a true construction of the contract was the establishment fee payable?

3. How are internal inconsistencies in the document to be resolved?

4. Whether it can be said that in the circumstances the proffered valuation was part of a misleading representation on which the plaintiff could rely to decline to make the loan; and

5. Whether the first of the conditions precedent only applied where the financier had requested information and that request had not been complied with.

31 The valuation to which reference has been made is in evidence. It was made by one Brian Dirou of Newcastle and extends over some 40-odd pages. The valuation is not so much of what the property is worth now, but what it would be worth when there is development approval, or what it would be worth in view of various other factors.

32 The conversations that took place with respect to the valuation, before the approval, I have already set out. On 20 June 2006, Mr Turner said that he was going to send the valuation. Mr Turner says that he told Mr Evans:

"I have a valuation on the property which was completed just a few weeks ago, so it is very current. It shows a value on an 'as is' basis at $1,475,000.00 and once the development application that I have been working on is approved by Lake Macquarie City Council the property will be valued at $1,700,000.00. The valuer has viewed the current drawings. What sort of loan terms would you envisage?"

The discussion then moved on to that sort of subject matter.

33 The plaintiff contends that at all material times the value of the land as it existed at the time of the agreement was no more than about $700,000. In other words, not even enough to pay the first mortgage.

34 The plaintiff is a company that would describe itself as a third tier lender. Freely translated, that means a person who lends to persons that are not able to obtain finance through regular channels at first or second mortgage regular rates and, accordingly, is expected to charge higher rates of interest because of the risk involved.

35 Mr George says that one must take that into account when one is looking at the documents. I think that is right, but, on the other hand, one must also look at it from the other side, and that is that people who resort to third tier lending are often in desperate financial plight. If equity can see that for the knowledge of the third tier lender the desperate financial circumstances of the intended borrower are really amounting to what is close to equitable duress, equity will be very wary before granting the third tier lender any relief in equity at all.

36 Secondly, a third tier lender must be very careful that its advertisements (such as advertisements which give the indication that approval can be given over the phone for short term loans for people who have otherwise difficulty in getting finance) do not, when one looks at the actual documentation, offend against the Trade Practices Act. Thirdly, third tier lenders who have in their contracts what might appear to the average person to be onerous conditions, must be very sure that their documentation has crossed every "t" and dotted every "i".

37 With those remarks, and with that analysis of the pleadings and basal facts, I turn to the matters that have been argued.

38 These can, I think, be put in summary under the following heads, all of which I think I have already, at least, mentioned.

39 There are four issues thrown up by the plaintiff which I will call P1 to P4, namely:

P1. With whom was the contract?
P2. Was the contract an agreement to perform due diligence, or an agreement to lend conditionally?
P3. Has there been a breach of the contract, and if so by whom?
P4. If a mortgage is to be granted, under what conditions is it to be granted, or is it premature to deal with that matter at this stage?

40 The defendant then raises six issues:

D1. The Godecke point;
D2. Whether the establishment fee is payable;
D3. The significance of internal inconsistencies within the document;
D4. The significance of the proffered valuation;
D5. Whether the first condition has been fulfilled; and
D6. Whether there is an implied term that the plaintiff will act bona fide and not rely on its own wrong.

41 One then has to finish the exercise by what I will call:

C1. Summarising; and
C2. Dealing with the result of the litigation.

42 I will endeavour to deal with each of these issues in turn.

43 P1 is really a non issue because a trust, as such, does not have an independent personality. The borrower is always the defendant, but the question is really whether the borrower is borrowing in its own right, or whether it is borrowing and offering as security the Unit Trust's interest in the property.

44 The significance of this is that if it is the latter, then the agreement will act as an equitable mortgage, and if that be the position, it will rank after the first mortgage and will not rank after the rights of the beneficiaries in the Unit Trust.

45 The indication from the application is that the lending was to be to the Unit Trust and not to the borrower. If, however, the application has been accepted by the financier, one would have said that the Unit Trust being the mortgagor would follow as night follows day. However, that is not what happened.

46 Instead of there being an acceptance, there was an offer, so there was a counteroffer and the counteroffer was then accepted. Now, there is still some indication that the Unit Trust may have been the borrower because there is an indication that the same person is the borrower, the mortgagor and the guarantor. That may indicate the different capacities. However, it seems to me that that implication is taken away by the clause which refers to two or more persons comprising the borrower, the mortgagor or the guarantor, and on the terms of the document itself there is no mention of the Unit Trust whatsoever.

47 Accordingly, in my view, the question is really irrelevant. The borrower is the corporation.

48 P2. Mr George strongly submits that on its proper construction the contract is merely one whereby in consideration of the establishment fee and break fee, the plaintiff agreed to do due diligence about the application for finance.

49 Unfortunately, most of the document, though not all, points in the other direction. First of all, it is called "Offer of Term Finance", and unless the document is a sham one takes some notice of the label that the parties have given to it.

50 Secondly, the principal clause, being the very first clause in turn, is phrased in terms of an offer of a Term Loan Facility, and even on the first page we get the focus on the principal advance, and the interest on the principal advance. On p 2 it talks about an establishment fee. An establishment fee usually means a fee for setting up a loan, not a service fee payable for doing the inquiries preparatory to a loan. The document then refers to conditions precedent to the principal advance with the focus again being on the advance rather than on the due diligence.

51 Thirdly, there is very little in the document about due diligence. What there is is some indication that the financier may ask questions, and that there is a condition precedent to the advance that the questions will be answered satisfactorily. There is also a condition that the borrower's warranties and representations are correct, which one would not expect in such a prominent position if this were a mere contract for due diligence because what would be happening would be the financier would be relying on his due diligence.

52 Accordingly, in my view, if there has to be a label put to the document, it is an agreement to lend, not a due diligence agreement.

53 P3. Has there been a breach? There is a difference between non fulfilment of a condition precedent and a breach, but why one focuses on the non fulfilment of the condition precedent in the instant case is that the financier says that because the first two conditions precedent were not fulfilled, it was under no obligation to make the loan and, accordingly, the break fee and the establishment fee have become payable.

54 The first condition refers to the financier receiving, satisfactory to it, all information and documentation which the financier requests from the borrower. Mr Ashhurst says that this points to the financier having asked the question and being given a reply, and does not mean that the borrower is under an obligation to furnish to the financier all information which the borrower, or a reasonable person in the shoes of a borrower, would reasonably understand the financier may want to see.

55 It seems to me that when one has conditions precedent to a transaction of this magnitude that one must read it fairly strictly, and on the strict reading of them the view put by Mr Ashhurst seems to me to be the logical and proper construction of the relevant clause. There is no indication in the evidence of any failure to comply with any request. There was no breach of the first condition.

56 The second condition refers to warranties and representations provided by the borrower. There is no actual reference in the document itself to what are the warranties and representations referred to.

57 There is, of course, a very big difference between a warranty and a representation. A warranty sounds in contract. A representation either sounds in fraud, or for equitable misrepresentation, or rescission.

58 No warranty has ever been shown to have been made by the borrower, and there is some case for reading the words "warranty and representation" together, so that unless a statement is both a warranty and a representation it does not come within the second of the conditions precedent.

59 However, Mr Ashhurst, probably wisely, has chosen to move from that argument to saying, that if the words are to be read conjunctively, there is neither a warranty nor a representation. The representation alleged is that the property had a value of $1.475 million as per the proffered valuation. Mr Ashhurst says that the only representation that was made was that there was, in the borrower's possession, a valuation which said that, and which would be proffered, and which was proffered; therefore, there could be no misrepresentation.

60 I think there is a lot of force in that. However, when one looks at the evidence, which I have already gone through, it is very difficult to see how the proffering of the valuation could be a representation in any event.

61 The whole flavour of the document is that the financier is going to carry out what it describes in argument as due diligence. It would be almost unthinkable in this sort of situation that a financier would not carry out inquiries as to its own valuation and, indeed, the "After Acceptance of the Offer" portion of the document indicates that this may well be what happens.

62 Indeed, the plaintiff never relied on the proffered valuation. Its own internal inquiries very quickly indicated to it that it could not have any reliance on it at all, and this is the way in which everyone understood the contract was going to work.

63 I do not consider that proffering the valuation, or the statement that I set out above by Mr Turner in connection with it, constituted a representation. Accordingly, in my view, there is no breach of either warranty.

64 P4. I put to Mr George on several occasions that it was necessary to work out the terms of the mortgage which he required the court to compel Mr Turner's company to grant. Mr George kept saying that it was not at this stage appropriate to work out the priority of that mortgage as against other claimants. With great respect, I disagree. What would need to happen is not that there be a mere declaration that there was an equitable mortgage, but rather, an order that there be granted a mortgage in terms settled by an Associate Justice in default of agreement. Further, the Associate Justice in the memorandum of prior encumbrances would have to indicate what equities were to take in priority. However, if this be a problem then it can be dealt with at the short minutes of order stage.

65 The alternative order is that the caveat continue to be in force. This would not normally be something that one would do after making a final judgment.

66 The caveat, which is PX06, merely claims an equitable interest as mortgagee by virtue of an offer of short finance of 20 June 2006. It purports to restrict all dealings as, of course, the agreement itself would allow on its face, but everyone must have known that this was just impossible because dealings by the first mortgagee, or any other person who had a prior interest to the plaintiff, could not have been prevented by the agreement, or any interest granted by the agreement. The caveat, accordingly, must be too big because it purports to prohibit all dealings and one could not leave such a caveat on the register.

67 I now pass to the defendant's arguments, many of which have already been dealt with.

68 D1. If a contract leaves too much to the discretion of one contracting party then the contract may be considered either to be void for uncertainty, or not to be enforceable because the consideration is illusory; see Godecke v Kirwan (1973) 129 CLR 629 and Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130. There are indications in this document that have fallen foul of that rule.

69 It may be that it is a deed. It has not been stamped as a deed. Indeed, it has not been stamped as a mortgage, but putting that aside, although there are some vagaries in it which can be filled up at the discretion of the financier, it seems to me that it just qualifies as an enforceable contract. The vagary which does disturb one is that the whole loan is subject to the first condition precedent, meaning that it is on the face of it the financier who is the judge of what is the information that is received from the borrower, and whether it is in form and substance satisfactory.

70 It may be that one has got to read that down by applying some reasonable objective standards, and if one does not, then it is too wide. There are also other provisions in the agreement which depend very much on the discretion of one party, without the other parties agreeing.

71 As I say, it is a commercial contract and one must try and give a commercial contract some operation, if one can, but I think that on the proper construction it just gets over the line.

72 D2. The establishment fee is said to be payable by the borrower on or before the date of the Term Loan Facility Agreement. There was never any such agreement. It was stated in the document, and this is common ground, that the fee would be capitalised. In other words, the moneys lent would in part be retained by the financier for the fee. Then it is said that the Term Loan Facility is to operate until default, in which case the establishment fee will be payable on the repayment date. There does not appear to be in the establishment fee clause anything that requires the payment before there is in existence some Term Loan Facility Agreement or draft. That never came about. Mr Ashhurst argues, accordingly, that the establishment fee never became due and payable.

73 There is an inconsistent provision in the document so that under "After Acceptance of the Offer" the borrower agrees immediately to pay to the financier, irrespective of whether or not the borrower or financier proceeds with the Term Loan Facility, any disbursement incurred in connection with the Term Loan Facility, including the establishment fee.

74 When one has inconsistent provisions in a deed, the earlier one prevails, so that what is under "After the Acceptance of the Offer" does not prevail over the earlier clear words, and even if they did, if there is no Term Loan Facility then there is nothing on which the "After the Acceptance of Offer" clause can hang its hat on, so that D2 and D3 lead to the result that nothing is payable.

75 D4. The valuation I have already dealt with; also D5, the construction of the first condition.

76 D6. Mr Ashhurst argues that it could not be the case that immediately after the execution of the offer of finance, that the financier could the next day say, "No, we are not going to make a loan, please give us the $22,000" (ie the establishment fee, the break fee, plus the GST). Mr Ashhurst submitted that there was a duty of good faith not to act in a manner prejudicial to the carrying into effect of the agreement: Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970) 1 BLR 111.

77 I think even Mr George admits it certainly could not be the situation where capriciously the next day the financier could refuse to make the loan, but would rather just take the fee.

78 However, he said that is not what happened in the instant case. In the instant case, the financier bona fide thought it was dealing with a situation where there was land to the value of $1.475 million and that the finance wanted was a mere $250,000, which would leave an equity of about half a million dollars after the first mortgage. However, looking at it realistically, rather than through rose-coloured spectacles, there was no equity there at all.

79 In my view, there was an implied condition as to the bona fide exercise of the financier's rights, but I do not see how that breached the condition.

80 Mr Ashhurst referred me to my decision in Drinkwater v Caddyrack Pty Ltd (25 September 1997, unreported), where I analysed the maxim a person cannot take advantage of their own wrong, but I do not really think that this case comes into the category of the financier acting on its own wrong.

81 C1. Accordingly, in summary, the documentation upon which the plaintiff relies is insufficient to enable it to succeed, for the reasons I have given.

82 C2. The proceedings are dismissed with costs and the defendant may have an opportunity for one month to move for damages under the Real Property Act 1900 if it feels so inclined.

83 In view of this result, it is unnecessary to consider further the matter as to whether, had it been successful, the plaintiff would have obtained equitable relief or common law damages.

84 The exhibits should remain.

85 I order that the caveat be removed no later than 4 pm on 3 April 2007.

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