ASCF Funding Solutions Pty Ltd v SL Property Maintenance Pty Ltd

[2025] NSWSC 262

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

ASCF Funding Solutions Pty Ltd v SL Property Maintenance Pty Ltd [2025] NSWSC 262

Hearing dates:

13 March 2025

Date of orders:

26 March 2025

Decision date:

26 March 2025

Jurisdiction:

Equity

Before:

Brereton J

Decision:

Summons dismissed (see [51])

Catchwords:

CONTRACTS – Construction and interpretation – express terms – implied terms – whether the express terms of the letter of offer require the payment of the fees – whether there is an implied term in the letter of offer that has the effect that the fees cannot be recovered – whether the fees are penalties and unrecoverable – where no claimed fees are payable under the express terms of the letter of offer.

Legislation Cited:

n/a

Cases Cited:

Andrews v Australia and New Zealand Banking Group Limited (2012) 247 CLR 205

Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99

Inghams Enterprises Pty Ltd v Hannigan (2020) 379 ALR 196

Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd [2017] VSCA 161

Paciocco v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525

Private Mortgages Australia Pty Ltd as trustee for PMA Trust v Stever [2019] NSWSC 462

Realestate.com.au Pty Ltd v Hardingham (2022) 277 CLR 115

Saeed v Capital Securities Australia Pty Ltd [2020] NSWSC 223

Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166

Texts Cited:

n/a

Category:

Principal judgment

Parties:

ASCF Funding Solutions Pty Ltd (Plaintiff)
SL Property Maintenance Pty Ltd (Defendant)

Representation:

Counsel:
H Somerville, C Hartcher (Plaintiff)
M Collins (Defendant)

Solicitors:
Summer lawyers (Plaintiff)
Bridges Lawyers (Defendant)

File Number(s):

2024/385907

Publication restriction:

n/a

JUDGMENT

1. By Summons filed 17 October 2024, the Plaintiff, ASCF Funding Solutions Pty Ltd, seeks an order that the Defendant pay to the Plaintiff the sum of $255,145, as well as a declaration that the Plaintiff has an equitable interest in certain land in Vaucluse.

2. The Plaintiff contends that the right to payment and the alleged charge arise from the terms of a Letter of Offer of Finance that was dated and signed by the Defendant on 11 September 2024 (‘Letter of Offer’).

3. The Letter of Offer included provisions concerning various fees, including an Establishment Fee.

4. For reasons I will come to, the Letter of Offer did not lead to a loan facility and no finance was given by the Plaintiff to the Defendant.

5. The proceedings raise three main issues:

1. whether the express terms of the Letter of Offer require the Defendant to pay the Establishment Fee and other fees;

2. if so, whether there is an implied term that has the effect that the fees cannot be recovered from the Defendant; and

3. if not, whether the fees cannot be recovered because they are penalties.

6. For the reasons set out below, I have concluded that none of the claimed fees are payable under the express terms of the Letter of Offer. In those circumstances, the Plaintiff’s case fails.

7. Had I come to the conclusion that on the proper construction of the express terms of the Letter of Offer the fees are payable, I would not have found that there is any relevant implied term that applies and would not have found that the fees are penalties.

Terms of the Letter of Offer

8. The Letter of Offer includes a number of relevant provisions. It opens with the following:

The application for finance the Borrower(s)/Guarantor(s) (‘you’) has requested has been approved by ASCF Funding Solutions Pty Ltd and/or its nominee subject to the attached terms of conditions.

The terms and conditions detailed in this indicative letter of offer are not exhaustive and are necessarily general in nature. Any subsequent facility agreement would comprehensively detail the terms and conditions on which a loan facility is offered, however, the key commercial terms in the documentation will be based on this offer.

We have prepared this offer based on the information provided to us by you and/or your broker in the loan application. If any of the terms or conditions are not commercially agreed please tell us.

9. The Letter of Offer records that the proposed loan amount was $11.2 million and the term was to be six months.

10. There is a section in the Letter of Offer concerned with Valuation, which provides:

We require a valuation to be performed on the securities included in this agreement. The valuation report is to be instructed by us in all cases and is for mortgage purposes only. Whilst the valuation fee is paid for by the borrower the report remains the ownership of ASCF Funding Solutions Pty Ltd and a copy of the report will not be released to you. We have the right to withdraw or amend our offer if the loan-to-value ratio is exceeded based on the valuation report/s or if the property is not as disclosed to us in your application.

You agree to pay all the costs that may be incurred concerning each valuation. You agree, on those occasions where we consider the circumstances render it reasonable to do so, obtain a revaluation at the client’s expense. This may include one or all of the security properties we hold during the term of the loan.

11. The Letter of Offer includes a number of specific conditions, including the following:

A. In the event of inconsistency between this offer and the formal legal documentation, the legal documentation will prevail to the extent of the inconsistency.

B.   All expenses incurred by us in reviewing the Security and assessing the transaction are to be reimbursed by the Borrower on an indemnity basis.

C.    Execute formal security documents prepared by our lawyers on terms satisfactory to us.

D.    Satisfactory due diligence of the Borrower(S)/Guarantor(s) and Security Property to our sole discretion.

E.   Subject to satisfactory valuation conducted by a panel valuer and prepared for ASCF Funding Solutions Pty Ltd.

F.    Subject to satisfactory agent’s appraisal conducted by a registered real estate agent and prepared for ASCF Funding Solutions Pty Ltd.

H.    Subject to satisfactory completion of the ASCF borrowers application form by the borrower/s and prepared for ASCF Funding Solutions Pty Ltd.   

I.    Subject to ASCF receiving two satisfactory forms of identification prior to settlement.

K.    Subject to ASCF receiving a copy of the N1 Holding loan statement.

12. There is a section that addresses fees and charges. Within that section there is a box that states as follows: “Unless otherwise stated all fees are non-refundable. These fees may be payable even if the loan does not proceed for any reason.” Next to that box is a table that identifies various fees. It includes the following (among other fees):

Type of Cost	Description of Fee	Amount incl GST ($) where applicable
Application Fee	A fee paid by you to us for assessing your application. This fee is paid on settlement.	$595.00
Establishment Fee	A fee paid by you to us for approving the loan and arranging money for settlement.	$246,400.00
Valuation Fee	A fee paid by you for valuation of the security. (Paid Upfront)	$4,400.00
Legal Document Preparation Fee	A fee paid by you to our solicitors for the production of loan documents and registration of our interests on the security. (Paid at Settlement)	$4,450.00
Legal Disbursements Fee	A fee paid by you to cover our solicitor cost incurred in completing searches etc.	$1,500.00

13. There is a section headed “Disbursement Summary” that provides “how the amount you borrow will be disbursed at settlement”. There is a table that sets out the deductions applied to the Gross Loan Amount to reach the approximate net amount due on settlement, as shown below:

Gross Loan Amount	$11,200,000.00
Less Application Fee	$595.00
Less Establishment Fee	$246,400.00
Less Brokerage Fee	$168,000.00
Less 6 Month’s Capitalised Interest	$669,180.00
Less Legal Disbursements Fee	$1,500.00
Less Legal Fees (Paid at Settlement)	$4,450.00
Less Valuation Fees (Paid Upfront)	$4,400.00
Approx. net amount due to you upon settlement	$10,109,875.00

14. The Letter of Offer also provides for a “direction to proceed” as follows:

I/We, the Borrower(s)/Guarantor(s) accept the terms and conditions contained in this Letter of Offer, as set out above.

I/We, the Borrower(s)/Guarantor(s) hereby direct ASCF Funding Solutions Pty Ltd to proceed with arranging the formal loan documentation, engagement of solicitors to act on behalf of ASCF Funding Solutions Pty Ltd in relation to the loan, and to conduct such further due diligence inquiries as may be reasonably required by ASCF Funding Solutions Pty Ltd.

I/We the Borrower(s)/Guarantor(s) agree to pay the Application Fee, Establishment Fee, Solicitors Fee, Valuation Fee, and all costs that may be reasonably incurred in connection with the loan, to ASCF Funding Solutions Pty Ltd in consideration of ASCF Funding Solutions Pty Ltd proceeding with the establishment of the loan following the direction to proceed above.

15. The Letter of Offer recorded that the way to accept the offer was to sign and return the letter and also by paying the “upfront fees”, being the Valuation Fee of $4,400.00.

16. It was common ground that the Letter of Offer had contractual force.

The failure to provide or obtain finance

17. The Letter of Offer was accepted by the Defendant, SL Property Maintenance Pty Ltd, on 11 September 2024.

18. Following acceptance of the offer, the Plaintiff took some steps pursuant to the agreement. In particular:

1. it completed a Verification of Identity;

2. it completed the relevant credit checks, undertook company searches, rapid ID and title searches; and

3. it instructed an agent to attend the Vaucluse property to conduct a valuation.

19. When the valuer attended the premises on 14 September 2024, entry was refused. The valuer was informed that a mortgage held by N1SY Pty Ltd and N1 WH2 Pty Ltd (‘N1 Mortgage’) was in default.

20. The uncontested evidence is that the Plaintiff was ready and willing to proceed with the proposed loan but for the N1 Mortgage default, or the failure to disclose the status of the N1 Mortgage. The Plaintiff contends that it withdrew the offer on the basis that the property was not as disclosed in the application.

21. The Defendant contends that there was no relevant non-disclosure on its part.

22. On 16 September 2024, the Plaintiff lodged and registered a Caveat on the title of the Vaucluse property.

23. Through its solicitor, on 1 October 2024, the Plaintiff issued a letter of demand (‘Letter of Demand’), claiming the amount of $255,145.00, made up as follows:

1. Application Fee - $595.00

2. Establishment Fee - $246,400.00

3. Solicitor Fee (incl disbursements) - $5,950.00

4. Legal Fees of preparing this demand - $2,200.00.

The Letter of Demand asserted that the Defendant withdrew from the loan.

24. On 3 October 2024, the Plaintiff’s solicitors, received a Notice to Caveator of Proposed Lapsing of Caveat from the New South Wales Land Registry (‘Lapsing Notice’). On 14 October 2024, the Plaintiff issued a further letter to the Defendant in response to the Lapsing Notice, placing them on notice that they intended to make a Court application to seek orders extending the Caveat’s operation.

Construction of the Letter of Offer

25. There was no dispute in this case about the relevant principles of contract construction. The Plaintiff drew particular attention to the following principles. First, that the primary duty of a Court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument, including the whole of the instrument: see Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166 at [41]-[42]. Second, every clause in the contract must be construed in context; a particular contractual clause or subclause must not be construed in isolation but as part of the contract as a whole: Inghams Enterprises Pty Ltd v Hannigan (2020) 379 ALR 196; [2020] NSWCA 82 at [57].

26. The Plaintiff contends that the Letter of Offer, and in particular paragraph 3 of the direction to proceed, set out above, makes it clear that the obligation to make the payment of the fees was enlivened by the Plaintiff agreeing to take steps to establish the loan. It contends that it did start taking steps to establish the loan and, accordingly, the fees are payable.

27. In my view, the words of paragraph 3 of the direction to proceed, by themselves, are not clear in specifying that particular fees are payable in circumstances where a loan is not established, as happened in this case. The words “proceeding with the establishment of the loan” could mean that the agreement to take the first steps with a view ultimately to establish a loan, so that an obligation to pay those fees (at some time) arises upon entry into the contract, or at latest when the Plaintiff took some step to establish the loan. Alternatively, they could mean that the Defendant agrees to pay those fees (at some time), provided the Plaintiff takes the relevant steps to establish the loan. The relevant steps will depend on the particular fee that is in question.

28. I have concluded that when the Letter of Offer is read as a whole, paragraph 3 of the direction to proceed cannot be read as imposing an unqualified obligation to pay “the Application Fee, Establishment Fee, Solicitors Fee, Valuation Fee, and all costs that may be reasonably incurred in connection with the loan” once the contract is made, or when some first step is taken to establish the loan. When the Letter of Offer is viewed as a whole, it seems to me that paragraph 3 of the direction to pay cannot be read as a promise to pay those fees merely by the execution of the contract.

29. The Establishment Fee of $246,400.00 is described in the Letter of Offer as “a fee paid by you to us for approving the loan and arranging money for settlement”. This language indicates that the Establishment Fee is a fee for approving the loan and arranging money for settlement and supports the proposition that the fee will not be payable unless the Plaintiff approves the loan and arranges money for settlement. Neither of those things occurred.

30. The “Application Fee” of $595.00 is: “a fee paid by you to us for assessing your application. This fee is paid on settlement”. The Plaintiff had not completed its assessment of the application prior to the failure of the Letter of Offer. There was no concluded assessment.

31. I infer that the “Solicitor Fee” of $5,950.00 is made up of the Legal Document Preparation Fee and the Legal Disbursement Fee. There is evidence that the Plaintiff undertook some company searches and title searches. There is no evidence, however, that it incurred any legal fees in carrying out those searches. If there had been work performed by solicitors, then there could be an argument that those fees had become payable. However, I cannot come to that conclusion on the evidence.

32. By way of contrast, the Letter of Offer makes plain that the Valuation Fee is to be paid “upfront”. There is no dispute that this fee was paid.

33. The Letter of Offer provided the Plaintiff with broad opportunities to withdraw or extract itself from giving any finance. Thus, the Letter of Offer reserved to the Plaintiff the right to withdraw if the “loan-to-value ratio is exceeded based on the valuation reports”, although the letter does not specify any particular ratio. There is a condition (see condition D) that there is satisfactory due diligence of the borrower and guarantor and of the security at the Plaintiff’s “sole discretion”. It may be thought to be anomalous if the Plaintiff was able to withdraw having undertaken very little work (as is the case here) yet still recover the full Establishment Fee. This supports the construction of the express terms as imposing an obligation to pay the Establishment Fee only if the Plaintiff approves the loan and arranges money for settlement.

34. The contract in this case may be contrasted with that considered by Henry J in Private Mortgages Australia Pty Ltd as trustee for PMA Trust v Stever [2019] NSWSC 462. The contract in that case provided for an “Originator Fee” and “Legal/Admin Fees” and expressly provided that: “If the loan does not proceed, you will remain liable to Private Mortgages Australia for the fees in accordance with this Letter of Offer”. Similarly, in Saeed v Capital Securities Australia Pty Ltd [2020] NSWSC 223, an “indicative letter of offer” stated: “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)…”

35. By way of contrast, the Letter of Offer does not anywhere provide that any fee (other than the Valuation Fee) will have to be paid even if the loan does not proceed to settlement. The Letter of Offer includes a provision that: “These fees may be payable even if the loan does not proceed for any reason”. The use of the word “may”, which is an expression of a possibility, suggests that it is necessary to look at the particular fee and other clauses in the contract to ascertain whether or not it would become payable, even if the loan did not proceed. An example of a fee that clearly would be payable on the express terms of the Letter of Offer, even if the loan did not proceed, is the Valuation Fee.

36. In my view, the wording of the direction to proceed is insufficiently clear by itself to impose an obligation to pay any fees even if the loan does not proceed. When the direction to proceed is read with the other express terms, it seems to me that the only fee that the Defendant agreed to pay upon entry into the contract, being the Letter of Offer, was the Valuation Fee. The other fees were contingent. Most importantly, the Establishment Fee was contingent upon the Plaintiff approving the loan and arranging money for settlement: that is, the Establishment Fee was a fee for taking the steps required to establish the loan. There was no agreement by the Defendant to pay that fee even if the Plaintiff exercised some right to withdraw and no loan was established.

37. In my view, on the proper construction of the Letter of Offer, none of the fees claimed by the Plaintiff ever became due and payable.

Whether there is an implied term

38. Although it is not strictly necessary for me to do so, in view of the conclusion to which I have come, I will briefly address the two alternative arguments advanced by the Defendant.

39. The Defendant contends that if the relevant fees are found to be payable on the express terms of the Letter of Offer, there is an implied term that has the effect that the fees cannot be recovered. The Defendant contends a term is to be implied that would have the following effect: “the Defendant’s liability for fees, other than fees identified in the fee schedule as being ‘paid up front’, is subject to the Plaintiff obtaining valuation and electing not to withdraw the offer”.

40. The Defendant relied on the principles recently summarised by Kiefel CJ and Gageler J in Realestate.com.au Pty Ltd v Hardingham (2022) 277 CLR 115 at [18], as follows:

The conditions necessary to ground the implication of a term are well known. Apart from being reasonable and equitable, capable of clear expression and non-contradictory of the express terms of the contract, to be implied a term must be necessary to give business efficacy to the contract (which will not be satisfied if the contract is effective without it), and it must be so obvious that “it goes without saying”.

41. The effect of the implied term contended for by the Defendant is similar to the effect of the express terms of the contract as properly construed (see above).

42. If I had concluded that the relevant fees were payable on express terms of the Letter of Offer, I would not have found that there is an implied term that has the effect that the fees cannot be recovered. I would not regard such an implied term as being consistent with the express terms of the Letter of Offer, nor would the term be necessary to give business efficacy to the contract, nor would it be so obvious that it goes without saying.

Whether the fees are penalties

43. The Defendant also contended, in the alternative, that if the fees are payable pursuant to the terms of the Letter of Offer, and there was no implied term, the terms requiring payment constitute a penalty and are unenforceable. The Defendant relied on Paciocco v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525 and Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd [2017] NSWCA 99.

44. In my view, the Defendant’s reliance on the penalties doctrine is misconceived.

45. In Andrews v Australia and New Zealand Banking Group Limited (2012) 247 CLR 205, French CJ, Gummow, Crennan, Kiefel and Bell JJ stated at [9]-[10]:

Mason and Deane JJ observed in Legione v Hateley that, as the term suggests, a penalty is in the nature of a punishment for non-observance of a contractual stipulation and consists, upon breach, of the imposition of an additional or different liability.

In general terms, a stipulation prima facie imposes a penalty on a party (the first party) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation.

46. None of the fees that are claimed by the Plaintiff could be said to be collateral to a “primary stipulation”. They are all fees alleged to be payable as primary obligations arising from the Plaintiff agreeing to proceed to establish the loan. I agree with the analysis of Henry J in Private Mortgages Australia v Stever at [65]-[76], which concerned a similar set of circumstances.

47. The Defendant submitted that in the decision of Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd [2017] VSCA 161, the Court of Appeal in Victoria concluded that an establishment fee was a penalty. However, the Court in that case was concerned with the question of whether the establishment fee was a penalty when it was claimed as compensation for breach of the Deed of Offer. Kyrou JA and Cameron AJA (Maxwell P disagreeing) in obiter remarks concluded that the establishment fee was a penalty because it bore no relation to any possible damage to, or interest of, the respondent arising from the putative breach of the contract and was not commensurate with any legitimate commercial interest of the respondent which was sought to be protected by the deed in the event of its breach: see [191]-[195]. The Plaintiff in this case is not claiming any of the fees as compensation for a breach of the Letter of Offer. Rather, the claim is for a debt.

48. If I had concluded that the Defendant had agreed to pay these fees, they would not be unenforceable on the grounds that they are penalties.

Disposition

49. The Plaintiff’s case fails because it has not established that any of the claimed fees are payable under the terms of the Letter of Offer.

Costs

50. The Defendant seeks to be heard on costs. I propose to direct the parties to confer about the question of costs. If there is no agreement about final orders as to costs the parties should confer about appropriate directions that will enable the Court to rule on costs in an efficient way.

Orders

51. The orders of the Court are:

1. The Summons is dismissed.

2. The order of 21 October 2024 extending the operation of caveat AU412251 will cease to have effect from today’s date.

3. The parties are to confer about the question of costs and are to advise my Associate as to the outcome of that conferral by 5pm on 2 April 2025.

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Amendments

26 March 2025 - paragraph numbering

Decision last updated: 26 March 2025