Australian Securities Ltd v Ehrenfeld
[2023] WADC 121
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL
LOCATION: PERTH
CITATION: AUSTRALIAN SECURITIES LTD -v- EHRENFELD [2023] WADC 121
CORAM: BARONE DCJ
HEARD: 30 SEPTEMBER, 1-2 OCTOBER, 24 & 27 NOVEMBER 2020
25 JANUARY, 3, 9 & 18 MARCH, 1 APRIL & 28 JUNE 2021
2 FEBRUARY 2022
21 SEPTEMBER 2023
DELIVERED : 17 OCTOBER 2023
PUBLISHED : 20 OCTOBER 2023
FILE NO/S: CIV 1960 of 2018
BETWEEN: AUSTRALIAN SECURITIES LTD
Plaintiff
AND
DANIEL EHRENFELD
Defendant
DANIEL EHRENFELD
Plaintiff by counterclaim
AUSTRALIAN SECURITIES LTD
Defendant by counterclaim
Catchwords:
Construction of contract - Finance facility agreement - Guarantee and indemnity
Characterisation of claim - Mitigation of loss
Statutory unconscionable conduct - Unfair contract terms - Applicability of the small business and unfair contract terms amendments - Redemption - Implied contractual terms - Duty of cooperation - Co-extensiveness of guarantor - Interest - Merger of causes of action in judgment
Legislation:
Australian Consumer Law (Cth)
Australian Securities and Investments Commission Act 2001 (Cth)
Civil Judgments Enforcement Act 2004 (WA)
Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)
Supreme Court Act 1935 (WA)
Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth)
Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2015 (Cth)
Result:
Plaintiff's claim allowed in part
Defendant's counterclaim dismissed
Representation:
Counsel:
| Plaintiff | : | Ms E C Hensler, Mr L Y T Lee (27 November 2020) |
| Defendant | : | Mr T O Coyle, Ms C P Fierro (3 & 9 March 2021) |
| Plaintiff by counterclaim | : | Mr T O Coyle |
| Defendant by counterclaim | : | Ms E C Hensler |
Solicitors:
| Plaintiff | : | Lavan Legal |
| Defendant | : | McNally & Co |
| Plaintiff by counterclaim | : | McNally & Co |
| Defendant by counterclaim | : | Lavan Legal |
Case(s) referred to in decision(s):
Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868
Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424
Australian Competition and Consumer Commission v Geowash Pty Ltd [No 3] [2019] FCA 72; (2019) 368 ALR 441
Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40, (2021) 285 FCR 133
Australian Security and Investments Commission v Kobelt [2019] HCA 18; (2019) 267 CLR 1
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
Bofinger v Kingsway Group Ltd [2009] HCA 44
Bonanno v Finamore [2022] NSWCA 276
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Cargill Australia Ltd v Viterra Malt Pty Ltd [No 28] [2022] VSC 13
Clambake Pty Ltd v Tipperary Projects Pty Ltd [No 7] [2009] WASC 390
Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337
Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (In Liq) and Starmarker (No.51) Pty Ltd [1998] SASC 6616
GE Capital Australia v Davis [2002] NSWSC 1146; (2002) 180 FLR 250
GR Engineering Services Ltd v Investmet Ltd [2021] WASCA 136
In the matter of Matcove Pty Ltd [2020] NSWSC 625
James Point Pty Ltd v The Minister for Transport [No 3] [2018] WASC 277
Jams 2 Pty Ltd v Stubbings [2020] VSCA 200
Lift Capital Partners Pty Ltd v Merrill Lynch International [2009] NSWSC 9
Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50
Paciocco v Australia and New Zealand Banking Group Ltd [2016] HCA 28 [293]; (2016) 258 CLR 525
Pilbara Iron Ore Pty Ltd v Ammon [2020] WASCA 92
Project Research Pty Ltd v Permanent Trustee of Aust Ltd (1990) 5 BPR 11,225
Rawson v Hobbs (1961) 107 CLR 466
Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79
Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 15] [2023] WASC 56
Stubbings v Jams 2 Pty Ltd [2022] HCA 6
Sun North Investments Pty Ltd v Dale [2013] QSC 44
Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245
Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson t/as Holgerssons Complete Home Service [2019] WASCA 114
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
United Pacific Finance Pty Ltd (Rec and Mgrs Apptd) v Govindasamy [2020] NSWSC 128
Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194
Westina Corporation Pty Ltd v BGC Contracting Pty Ltd [2009] WASCA 213; (2009) 41 WAR 263
Yang v Finder Earth [2019] VSCA 22
BARONE DCJ:
Introduction
The essential facts in this matter are not and have never been in dispute.
Put simply and broadly, Rational Enterprises Pty Ltd as trustee for The Wellington Trust (the borrower) was loaned money by Australian Securities Limited (ASL) but did not repay it as required. A mortgage secured the loan. In addition, a director of the borrower, Daniel Ehrenfeld, the defendant, personally provided a guarantee to ASL for all monies owed by the borrower and an indemnity in certain circumstances.
After the time for repayment had passed, ASL made a demand for payment to the borrower and to the defendant as guarantor. The parties communicated back and forth about what was the correct amount owed. The borrower organised a loan from another lender to repay ASL. The parties further communicated back and forth about repayment and the discharge of the mortgage. Unbeknown to ASL, the other lender withdrew before any repayment and discharge of the mortgage could occur. In any event, ASL refused to discharge the mortgage until a financial ombudsman service complaint had been resolved.
Ultimately, repayment was never made. ASL arranged for the mortgaged property to be sold. The net sale proceeds did not cover the amount owing.
The defendant does not dispute that the borrower failed to pay ASL the amount owing required under the loan. Nor does the defendant dispute that he, as guarantor, has not complied with the demand to pay ASL.
ASL now claims against the defendant to enforce the guarantee and indemnity.
The defendant says that as a matter of construction the indemnity does not apply to the circumstances arising in ASL's claim.
ASL's prayer for relief seeks, in part, damages equal to the total amount owing. The defendant says the guarantee does not cover claims for damages and accordingly ASL's claim must fail.
By way of defence, the defendant relies upon matters that could have been raised by the borrower in defence as an equitable set-off against ASL's claim. The defendant says that ASL engaged in unconscionable conduct in its dealings with the borrower and further that ASL breached the terms of the loan.
By way of counterclaim the defendant seeks an order setting aside the guarantee and indemnity.
ASL seeks payment of the total amount owing under the guarantee and indemnity, interest, and costs.
The defendant took issue with ASL's reliance upon certification clauses in the loan agreement or the guarantee and indemnity agreement. Without concession, ASL also relied upon the underlying financial documentation and witnesses in proof of the total amount owing at trial.
Ultimately the defendant did not dispute any of the figures or calculations relied upon by ASL. Rather, in respect of quantum the defendant took issue with his liability to pay certain items said by ASL to be payable under the loan agreement and/or the guarantee and indemnity agreement. The defendant also took issue with the rate of interest claimed by ASL.
For reasons here expressed, I grant judgment for the plaintiff and dismiss the defendant's counterclaim.
The facts in respect of liability
The facts in respect of liability were not in dispute between the parties. Of course, the legal import of those facts has been the matter of submission by each party.
In respect of liability, no witnesses were called. Each of the parties tendered various documents, including correspondence. A list of agreed facts was also tendered.[1]
[1] Exhibit 4.
Turning firstly to the establishment of the loan and securities and their scope.
The establishment of the loan and securities
On 12 December 2013 ASL provided Rational Enterprises Pty Ltd as trustee for The Wellington Trust (the borrower) a loan facility with a limit of $576,000 (the loan).
The terms of the loan were set out in a finance facility agreement (the loan agreement) dated 12 December 2013.[2]
[2] Exhibit 1.3.
The loan application dated 12 November 2013 set out fees and charges also applicable to the loan.[3]
[3] Exhibit 1.1.
The loan agreement provided that the borrower had payment obligations including:
(a)to pay the total amount outstanding of the money secured by 15 December 2014: cl 4.1 and Item 7;
(b)to pay interest on the money secured: cl 5; and
(c)if in default, to pay the whole of the secured money when demanded: cl 10.1(a).
Clause 9 of the loan agreement set out when the borrower would be in default, including that the borrower is, at the option of ASL, immediately in default if:
(a)the borrower fails to pay on the due date any part of the money secured or any interest: cl 9.1(a); or
(b)in ASL's opinion there has been deterioration in the value of property of the borrower and/or security provider: cl 9.1(j).
The loan agreement provided for ASL's obligations to be conditional upon the provision of security. Pursuant to cl 7.1(a) and Items 15, 16 and 17 the following security was to be provided:
(a)a first registered mortgage over Unit 1, 863 Wellington Street, West Perth WA 6005;
(b)a deed of guarantee and indemnity by Daniel Ehrenfeld; and
(c)a first registered general security deed by the borrower.
On 13 December 2013 Daniel Ehrenfeld (the defendant), a director of the borrower, provided a guarantee and indemnity in relation to the borrower's obligations under the loan.
A guarantee and indemnity agreement set out the terms of the guarantee and indemnity provided by the defendant.[4]
[4] Exhibit 1.5.
Pursuant to cl 3.1 and cl 4.1 to cl 4.3 of the guarantee and indemnity agreement the defendant guaranteed that the guaranteed money (a defined term) would, without demand, be paid to ASL when it is due and payable.
Pursuant to cl 5.1 of the guarantee and indemnity agreement the defendant indemnified ASL for all monies ASL cannot recover from the borrower.
The scope of the indemnity
The defendant submits that ASL did not plead the proper construction of the indemnity clause in their amended statement of claim, nor any material facts in relation to the preconditions the defendant submits applies before the indemnity can arise. Accordingly, the defence submits ASL's indemnity claim must fail.[5]
[5] Defendant's closing submission at pars 11 - 14.
ASL submits the indemnity claim was sufficiently pleaded in the amended statement of claim because on a proper construction the indemnity is not limited by the contingencies asserted by the defendant. ASL pleads as such in their reply to the defendant's amended substituted defence and counterclaim.[6]
[6] At 2C.3, dated 24 September 2020.
ASL also submits that, in any event, the borrower's act or omission of not paying (a default) would fall within the contingency of 'unenforceable'.[7]
[7] ts 329 and ts 332.
Therefore, whether ASL's claim in respect of the indemnity can succeed turns upon the construction of the indemnity.
Clause 5.1 of the guarantee and indemnity agreement provides:
The Guarantor also indemnifies ASL for all monies ASL cannot recover from the borrower if a finance facility application, finance facility agreement or security are either cancelled, terminated or unenforceable because of:
(a)The borrower's death, insolvency or incapacity;
(b)Any act or omission by the borrower; or
(c)Any other circumstance affecting the borrower, including without limitation a failure by the borrower to proceed with the loan under the finance facility.
Clause 28.1 provides that 'finance facility' means any agreement [whether entered into now or in the future] in which ASL lends the borrower money.
The indemnity must be construed in the context of the guarantee and indemnity agreement as a whole, the surrounding circumstances known to the parties, and the purpose and object of the transaction: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd;[8] Westina Corporation Pty Ltd v BGC Contracting Pty Ltd.[9]
[8] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165.
[9] Westina Corporation Pty Ltd v BGC Contracting Pty Ltd [2009] WASCA 213; (2009) 41 WAR 263.
Any doubt as to the construction of the indemnity, including any doubt arising from its apparent breadth of possible application, must be resolved in favour of the defendant as indemnifier: Andar Transport Pty Ltd v Brambles Ltd;[10] Bofinger v Kingsway Group Ltd;[11] Westina Corporation Pty Ltd v BGC Contracting Pty Ltd.[12] As the High Court noted in Bofinger[13] the doubt as to construction may arise not only from the uncertain meaning of a particular expression but from its apparent width of possible application.
[10] Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424.
[11] Bofinger v Kingsway Group Ltd [2009] HCA 44 (Bofinger).
[12] Westina Corporation Pty Ltd v BGC Contracting Pty Ltd [49].
[13] Bofinger [53].
In support of a construction that the indemnity is not limited to the indemnity contingencies, counsel for ASL submitted that the word 'also' conveys that cl 5.1 does not confine the indemnity because it is an addition to the other rights that ASL has to get the money owed.[14]
[14] ts 331.
The defendant submits that the word 'also' conveys that the indemnity provided for in cl 5.1 is in addition to the other obligations and rights otherwise provided for in the guarantee and indemnity agreement and that it does not alone expand or change the scope of the indemnity provided.[15]
[15] ts 369.
In my view the word 'also' denotes that the indemnity is independent from the guarantee. Such a construction is consistent with cl 6.2 and cl 6.3. Clause 6.2 provides the obligations of the defendant under the guarantee are separate and independent from the obligations of the defendant under the indemnity. Clause 6.3 provides that ASL may enforce its rights under the indemnity even if ASL cannot recover under the guarantee.
It is difficult to understand ASL's submission that 'also' means the indemnity is not limited by the words after the word 'if'. There is no other indemnity established by the agreement and counsel for ASL has not asserted otherwise.
A plain reading of cl 5.1 reveals the scope of the indemnity. In my opinion the indemnity is contingent upon the matters set out in cl 5.1 following the word 'if'. It is obvious from the use of the word 'if'. Only if the finance facility application, finance facility agreement or security are either cancelled, terminated or unenforceable because of (a) to (c) will the indemnity apply.
ASL submits that the word unenforceable in cl 5.1 means 'can't get paid'[16] such that the finance facility application, finance facility agreement or security has become unenforceable because the borrower's act or omission of not paying means ASL cannot get the money owed from them.[17]
[16] ts 330.
[17] ts 332.
The defendant submits there is a distinction between unenforceable in the sense of whether a statue or contract works and the sense that it is unenforceable because ASL has not recovered under it.[18]
[18] ts 368.
The guarantee and indemnity agreement does not include a definition of the word unenforceable.
The Oxford English Dictionary defines unenforceable as 'of a law, claim, contract etc.: that cannot be enforced'. The Cambridge Dictionary defines unenforceable as 'if a rule or law is unenforceable, it is impossible to force people to obey it'. The Oxford English Dictionary defines enforceable as 'capable of being enforced'.
The word unenforceable also appears in cl 9.2(b) and cl 25.1 of the guarantee and indemnity agreement without definition. The word appears to bear the meaning of not being capable of being enforced at law when one looks to the use of the word in the context of each of those clauses. For example, cl 25.1 provides that:
Provision in this Agreement that is prohibited by law or unenforceable in whole or in part is only effective to the extent it is prohibited or unenforceable. It does not invalidate any other provision.
Within cl 5.1 the word unenforceable follows the words 'cancelled, terminated or'. These immediately preceding words convey that a set of words are being used to indicate that recourse cannot be had to the finance facility application, finance facility agreement or security because they are not operative.
ASL submits the clear purpose of the indemnity is to ensure it can recover all the monies owed. In closing submissions, counsel for ASL submitted that the indemnity is 'about getting money, not about whether contracts are valid or invalid. It's about the outcome, it's about being paid'[19] and that cl 5.1 is directed to this inability to obtain payment.[20]
[19] ts 331.
[20] ts 336.
There is an obvious tension between the asserted purpose of the indemnity clause and the ordinary meaning of the language when considered within the overall context of the agreement. It is not difficult to accept that the purpose of the guarantee and indemnity agreement was to ensure that ASL could recover the money lent to the borrower. The guarantee and indemnity agreement was executed specifically as a security for the loan.
However, in my view the meaning of the language is clear. The word unenforceable is used in cl 5.1, and in the entire agreement, to mean not able to be enforced at law.
The legal principles applicable to the construction of the indemnity necessitates the same conclusion, as it would be the construction most favourable to the defendant, the indemnifier.
The non-performance by the borrower of their obligation to pay the loan did not itself indicate that ASL could not enforce the finance facility application, finance facility agreement or security at law. Non‑payment by the borrower established a breach of the obligation to pay under the loan agreement and no more.
Accordingly, the plaintiff's claim, insofar as it seeks to enforce to indemnity, fails.
The guarantee
Clause 3.1 of the guarantee and indemnity agreement provides:
The Guarantor unconditionally guarantees that the guaranteed money will, without demand, be paid to ASL when it is due and payable.
Clause 4.1 of the guarantee and indemnity agreement provides:
The guaranteed money is all monies the borrower owes ASL now or in the future under or in relation to a security given by the borrower to ASL, a finance facility application between the borrower and ASL (as varied from time to time) and any finance facility agreement entered into between the borrower and ASL, including without limitation all reasonable enforcement expenses reasonably incurred by ASL to enforce any of these agreements.
Clause 4.3 of the guarantee and indemnity agreement provides:
The liability of the Guarantor under this Agreement is the borrower's liabilities under the finance facility agreement plus all reasonable enforcement expenses reasonably incurred by ASL to enforce the Agreement.
The defendant accepts that the guarantee provided in the guarantee and indemnity agreement gives rise to a claim in debt such that the defendant guaranteed the payment of debt owed by the borrower to ASL.[21]
[21] Defendant's closing submissions at par 10.
The defendant says however that in this instance ASL has made a claim for damages. The defendant refers to the prayer of relief sought by ASL.
ASL's rights against the defendant as a guarantor will depend on the terms of the guarantee and the nature of the obligation, performance of which is guaranteed. As set out in Sunbird Plaza Pty Ltd v Maloney,[22] if the subject of the guarantee is payment of a debt or a sum of money which has accrued due, the creditor may, on default by the principal debtor, sue the guarantor instead of the principal debtor for the debt or sum of money, his claim being for a liquidated amount. If, on the other hand, the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract.
[22] Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; (1988) 166 CLR 245 [6] (Mason CJ).
ASL does not dispute that it's claim is for a liquidated amount ascertainable under the contract. ASL's amended particulars of damages seeks a liquidated amount.
ASL submits that even though the prayer for relief in the amended statement of claim seeks damages, the court is not confined in granting relief to that which has been claimed.
If I find that the facts pleaded and established make out a cause of action establishing the liability of the defendant to pay a liquidated sum to ASL, relief is a matter for the court, and it does not matter that the prayer for relief sought damages: Rawson v Hobbs.[23]
[23] Rawson v Hobbs (1961) 107 CLR 466, 485.
Counsel for the defendant conceded that the court should look to the substance of the claim.[24] Courts should not take an unduly technical or restrictive approach to pleadings.
[24] ts 396.
However, the defendant referred to Yang v Finder Earth[25] in support of a submission that there was a real and substantial point to be made about a party pleading a claim for damages when in substance the claim is one for debt.
[25] Yang v Finder Earth [2019] VSCA 22 (Yang).
In my view Yang turns on its own facts and does not assist the defendant. The court in that instance considered that the claim was in substance a claim for damages because the plaintiff was seeking to recover loss arising from the other party's misapplication of loan funds, rather than alleging an indebtedness under the terms of the guarantee. The court considered that a debt owing under the guarantee by reason of the non-payment by the borrowers of amounts due and payable by them was nowhere pleaded in that case.[26]
[26] Yang [30].
The pleadings in Yang lacked many of the elements that would ordinarily be found in a claim for the recovery of a debt. The pleadings did not contain allegations of a default event rendering the loan repayable by the borrower, a demand being made for payment from the borrower, a failure by the borrower to repay, a demand made under the guarantee, and a failure by the guarantor to perform their obligations under the guarantee.
In these proceedings, these allegations are the very substance of ASL's pleading against the defendant. I am satisfied that ASL's statement of claim clearly claims payment of a definite or ascertainable sum of money fixed by the loan agreement and the guarantee and indemnity agreement under the guarantee.
As I have already noted, the defendant accepts that the guarantee provided in the guarantee and indemnity agreement gives rise to a claim in debt against the defendant as guarantor.
The defendant has admitted all of the facts pleaded by ASL.[27] Such was obvious from the commencement of the trial notwithstanding the state of the defence pleading at the time the trial began. In opening, counsel for the defendant conceded that the defendant admits that there was a loan facility, that the facility required payment, that payment was not made, and that debt is due. Counsel stated 'And, of course, it follows from that that if our defence is wholly failed then, subject to other issues about proving the plaintiff's quantum, then the amounts will be paid. That's correct'.[28]
[27] Per the defendant's re-amended substituted defence and counterclaim.
[28] ts 134.
Accordingly, I am satisfied that the facts pleaded and established by ASL makes out their claim under the guarantee. I will return to the amount claimed in due course.
Mitigation of loss irrelevant
Ancillary to the submission that ASL's claim was one for damages, the defendant submitted that ASL had failed to mitigate its loss by refusing to discharge the mortgage without requiring the defendant to pay an additional amount as security for costs.
Given my finding that ASL's claim is in substance a claim in the nature of a debt it follows that whether ASL attempted to mitigate its loss is irrelevant. In respect of an action on the guarantee for a liquidated sum the creditor (here, ASL) is under no duty to mitigate its loss.
The defence
In defence, the defendant relies upon matters that could have been raised by the borrower in its defence of ASL's claim against it.
Although the obligation of a guarantor to the principal creditor arises under the contract between them, protection extends in equity to the guarantor with the effect that the guarantor can raise an equitable defence in part or in whole against a claim for its contractual liability. The protection is subject to any provision in the contract between the guarantor and the principal creditor which qualifies or limits the guarantor's rights: GE Capital Australia v Davis.[29] If the borrower was entitled to a remedy, the guarantors are entitled to a similar remedy by way of an equitable defence to the claim against them, subject to the provisions of the guarantee.[30]
[29] GE Capital Australia v Davis [2002] NSWSC 1146; (2002) 180 FLR 250 [85].
[30] GE Capital Australia v Davis [92].
The defendant submits that ASL engaged in unconscionable conduct under s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) in its dealings with the borrower regarding the potential refinancing of the loan with another lender and its failure to discharge the mortgage. The defendant relies upon the borrower's loss arising from ASL's unconscionable conduct by way of an equitable set-off as a pro tanto reduction or extinguishment of the amount claimed against him under the guarantee.
The defendant further submits that ASL by its conduct breached both an implied cooperation term and an implied early repayment timing term of the loan agreement. The defendant relies upon the borrower's loss, namely the loss of the opportunity to discharge the debt and obtain a release of the securities, as an equitable set-off as a pro tanto reduction or extinguishment of the amount claimed against him under the guarantee.
It is necessary therefore to return to the facts.
Rollovers of the loan
The loan agreement provided that the repayment date of the loan was 15 December 2014.[31]
[31] Exhibit 1.3, sch Item 7.
The loan agreement provided for when and in what circumstances the loan could be repaid. The repayment option stipulated was NR.[32] The repayment option dictated which sub-clause of cl 6.3 applied and therefore when and in what circumstances repayment could be made.
[32] Exhibit 1.3, sch Item 8A.
On 24 October 2014 ASL sent the borrower an automatic rollover offer indicating a one year term with a new repayment date of 15 December 2015.[33] The applicable interest rates for the further term were higher than before and provided for a base interest rate of 6.68% and a higher interest rate of 10.68%.
[33] Exhibit 1.9.
On 8 October 2015 ASL sent the borrower an automatic rollover offer indicating a further one year term with a new repayment date of 15 December 2016.[34] The applicable interest rates increased to a base interest rate of 6.88% and a higher interest rate of 10.88% and the repayment option changed from NR to RR.
[34] Exhibit 1.10.
On 17 December 2015 a rollover confirmation was sent to the borrower.[35]
[35] Exhibit 1.11.
On 13 October 2016 ASL sent the borrower an automatic rollover offer for a further one year term with a new repayment date of 15 December 2017.[36] The applicable interest rates and the repayment option were unchanged.
[36] Exhibit 1.12.
The offer indicated that unless the borrower advised by 15 November 2016 the loan would be automatically rolled over on 15 December 2016 with payments to commence on 15 January 2017.
On 1 March 2017 ASL sent the borrower a conditional rollover offer. The offer indicated a loan term of seven months with a repayment date of 15 July 2017.[37] The applicable interest rates and the repayment option were unchanged but additional conditions were proposed, including:
(a)That the borrower repay or reduce the debt by $114,000 by 15 July 2017;
(b)That if the borrower failed to repay or reduce the debt by $114,000 by 15 July 2017, the higher interest rate would apply from 15 December 2016 until the loan was repaid in full; and
(c)If the debt was reduced by $114,000 and serviceability had been established, then the loan would continue until 15 December 2017 on a NR repayment option.
[37] Exhibit 1.19.
On 6 April 2017 ASL sent the borrower a rollover confirmation. The loan term was said to be six months with a new repayment date of 15 July 2017.[38] The applicable interest rates were unchanged, and the repayment option remained as RR. The rollover confirmation made no reference to the additional conditions indicated on 1 March 2017.
[38] Exhibit 1.24.
On 19 June 2017 ASL emailed the borrower to touch base regarding 'the reduction of the loan on the 15/7'.[39]
[39] Exhibit 1.26.
On 21 June 2016 the borrower advised they were unable to reduce the loan by the requested amount and were attempting to sell the secured property and/or seek re-financing of the existing loan with another lender.[40]
[40] Exhibit 1.26.
Within the same correspondence the borrower enquired whether ASL would consent to the borrower obtaining a second mortgage for the $114,000 from another lender to reduce ASL's first mortgage by the requested sum.[41]
[41] Exhibit 1.26.
On 27 June 2017 ASL sent the borrower a loan repayment confirmation letter confirming that repayment is to occur on 15 July 2017 and indicating the borrower will receive a pay out approval form setting out the amount to be paid.[42]
[42] Exhibit 1.29.
On 29 June 2017 ASL sent the borrower correspondence indicating the repayment calculation amount of $564,904.46 to be paid on 17 July 2017 (15 July 2017 being a Saturday).[43]
[43] Exhibit 1.27.
On 17 July 2017 the borrower informed ASL they had made arrangement for a facility to reduce the loan by the requested sum of $114,000 via a second mortgage on the property. The borrower indicated the facility had been approved and solicitors were preparing the paperwork, with an expectation that the settlement of the amount would be made within seven days.[44]
[44] Exhibit 1.32.
Demand notices sent
On 26 July 2017 ASL sent the borrower a notice of default and demand.[45] The notice indicated the borrower was in default because they had failed to repay the total amount owing under the loan, being $564,904.46, by 17 July 2017 and because in ASL's opinion there had been a material adverse change in the value of the secured property.
[45] Exhibit 1.38.
The notice indicated the total money payable as at 24 July 2017 was $589,645.19.[46]
[46] Exhibit 1.38 at par 3.4.
On 26 July 2017 ASL sent the defendant, as guarantor, a demand under the guarantee for payment of the total of the money secured and indicated a figure of $589,645.19 as at 24 July 2017.[47]
[47] Exhibit 1.39.
Discussions concerning the continuation of the loan
On 27 July 2017 ASL informed the borrower by email what was required before they would consent to a second mortgage. The correspondence confirmed that ASL had called in the loan.[48]
[48] Exhibit 1.32.
On 31 July 2017 the borrower emailed ASL. As part of the correspondence the borrower noted that ASL had not responded to their 21 June 2017 or 17 July 2017 correspondence seeking ASL's consent to a second mortgage.[49] The borrower again requested ASL's consent to a second mortgage.
[49] Exhibit 1.32.
On 4 August 2017 Lavan, on behalf of ASL, sent the borrower a breakdown of amounts referred to in the default notice and informed that ASL required a copy of the proposed loan agreement with the second mortgagee and evidence of serviceability before considering any forbearance request.[50]
[50] Exhibit 1.41.
Dispute regarding the amount owed
On 7 August 2017 the defendant informed ASL that he, as guarantor, and the borrower, disputed both ASL's right to have issued demand notices and the amount demanded and had lodged a formal dispute with the Financial Ombudsman Service Australia (FOS). The correspondence set out the basis upon which the borrower disputed some constituent amounts of the total amount demanded but sought further information regarding other constituent amounts.[51]
[51] Exhibit 1.42.
The same correspondence further advised that the borrower had arranged to re-finance the facility with another lender and requested ASL to re-prepare the discharge of mortgage calculations without 'all these penalty and costs additions that [ASL had] imposed after 17/07/2017', so that a settlement and discharge could occur on 14 August 2017. The correspondence did not clarify which of the constituent amounts earlier referred to were '[the] penalty and costs additions'.[52]
[52] Exhibit 1.42.
On 8 August 2017 ASL informed the borrower that given the dispute they would provide a conditional repayment calculation which would include an allowance for security for costs. ASL indicated that when they had received the dispute from the FOS they would obtain independent advice as to what the sum should be. The correspondence further indicated that ASL would stay its legal recovery action until the dispute was resolved.[53]
[53] Exhibit 1.42.
The borrower sought and obtained an alternative source of finance from Mr Kenneth McPherson. On 10 August 2017, Mr McPherson transferred $650,000 to his solicitors, Lyons Babington, in preparation for settlement of the borrower's refinancing of the loan.[54]
[54] Exhibit 4, Agreed Facts, par 1.
On 14 August 2017 Lavan on behalf of ASL informed the borrower that the total secured amount was $602,858.89. The figure was said to be the total of an undisputed amount of $569,314.88 and a disputed amount of $33,544.23.
Lavan indicated that ASL would only release its mortgage if the borrower agreed to release ASL from any claim and discontinue the FOS complaint in respect of the undisputed portion and agree that ASL would hold the disputed portion on trust either for the borrower, ASL, or as security for costs depending on the FOS's findings. Further (at list item 4), Lavan indicated that if the borrower would not agree to provide a release, ASL was entitled to retain the disputed amount under cl 8 of the finance facility agreement.[55]
[55] Exhibit 1.43.
Later on 14 August 2017, Lavan provided the borrower with a breakdown of the undisputed sum.[56] They then corresponded further on 14 August 2017 regarding the correct division of the total secured amount between the disputed and undisputed portions.[57]
[56] Exhibit 1.43.
[57] Exhibit 1.43.
Requests for settlement and ongoing discussions
On 17 August 2017 at 12.30 pm the borrower emailed ASL directly about settlement not taking place on 14 August 2017 as previously requested. The borrower wrote: 'We advise that we are ready, willing and able to settle, and we again request that you ensure that a discharge be effected, immediately'.[58] The correspondence referred ASL to a further payment made by the borrower on 15 August 2017 and sought an adjustment of the settlement calculations accordingly. The correspondence was also faxed to ASL on 17 August 2017 at 1.12 pm.[59]
[58] Exhibit 1.43.
[59] Exhibit 1.46.
On 18 August 2017 at 11.45 am the borrower wrote to ASL directly seeking confirmation of the payment figure so that settlement could be booked as a matter of urgency.[60]
[60] Exhibit 1.43.
On 18 August 2017 at 3.06 pm Lavan wrote to the borrower providing an updated figure of $600,823.84 and asking whether the borrower agreed with the approach proposed in their 14 August 2017 letter and whether the borrower agreed the disputed portion (set out by highlighting) would be held by ASL on trust following refinancing.[61]
[61] Exhibit 1.43.
On 18 August 2017 at 5.23 pm the borrower wrote to Lavan and ASL asking the for the preparation of the discharge of mortgage based on the figure $600,823.84. The correspondence indicated that the borrower did not intend to provide a release nor discontinue the FOS complaint and referred ASL to item 4 of their 14 August 2017 email [re cl 8 of the loan agreement].[62]
[62] Exhibit 1.43.
On 18 August 2017 the borrower, the defendant and Mr McPherson executed a deed of loan by which Mr McPherson agreed to lend the borrower $650,000 to repay all monies secured by ASL's mortgage.[63] A copy of the deed was never provided to ASL.[64]
[63] Exhibit 4, Agreed Facts, par 2; Exhibit 2.5, cl 3(b).
[64] Exhibit 4, Agreed Facts, par 8.
On 21 August 2017 at 10.37 am the borrower faxed Lavan a copy of the email dated 18 August 2017 at 5.23 pm seeking an urgent response.[65]
[65] Exhibit 1.47.
On 21 August 2017 at 2.28 pm the borrower wrote to Lavan and ASL amending their position and advising that they accepted ASL's 'proposal methodology for discharge set out [in the] email of 14th August 2017' and requesting 'Please immediately prepare and advise the details for the discharge of mortgage on the basis of your emails of [14 August 2017]'.[66]
[66] Exhibit 1.43.
The borrower also sent a fax to Lavan at 2.56 pm on 21 August 2017 repeating that the borrower amends their position and advising they accept the ASL's 'proposal methodology for discharge'.[67]
[67] Exhibit 1.48.
On 23 August 2017 at 8.58 am Lavan sent an email referring to the borrower's previous indication that they would not provide a release, nor discontinue the FOS complaint, seeking urgent clarification as to whether the borrower intended to pursue a claim of maladministration or excessive fees in the court if the FOS complaint was not successful. The correspondence noted that ASL required this clarification for the purposes of confirming the payout figure for settlement.[68]
[68] Exhibit 1.51.
In addition, the correspondence included a without prejudice settlement proposal that would remain open for 14 days.[69] The proposal included a circa $17,500 reduction of the payout figure.
[69] Exhibit 1.51.
On 23 August 2017 at 7.45 pm the borrower faxed Lavan and ASL indicating they had already accepted the terms of Lavan's email dated 14 August 2017 and seeking an urgent discharge of the mortgage on the terms already agreed.[70]
[70] Exhibits 1.49; 1.50.
In addition, the correspondence included an in the alternative without prejudice settlement proposal. The proposal included a termination of the FOS complaint. The proposal was to remain open until 25 August 2017.[71]
[71] Exhibits 1.49, 1.50.
On 28 August 2017 at 12.09 pm the borrower emailed ASL directly in what they described as being 'out of sheer frustration' regarding the failure of ASL to effect discharge of the mortgage and a failure to respond to their correspondence of 23 August 2017. The borrower stated that they unreservedly accepted ASL's offer of 14 August 2017 on 21 August 2017 and have agreed to secured monies being held on trust pending the resolution of the FOS complaint. The borrower repeated their request for urgent settlement and extended time for the without prejudice settlement proposal proffered on 23 August 2017.[72]
[72] Exhibit 1.57.
On 29 August 2017 at 9.18 am Lavan emailed the borrower stating that ASL had not received the requested confirmation and was not in a position to provide a discharge at that time. The correspondence asked 'specifically, can you please urgently clarify whether, in the circumstances, you intend to pursue a claim for maladministration or excessive fees in the court if your FOS complaint is not successful. Our client requires this clarification for the purposes of confirming the payout figure for settlement purposes'. A rejection of the borrower's without prejudice offer is communicated, along with an indication that ASL's offer remains open.[73]
[73] Exhibit 1.57.
Following some interim correspondence on 29 August 2017, on 30 August 2017 at 12.19 pm the borrower sent an email to Lavan and ASL indicating they have formed no view as to their intended actions post‑FOS stating: 'We have not at any stage made or threatened legal action against ASL, we have simply made a complaint with FOS in order to obtain an expedient low cost resolution [of] the matter'. The borrower disputed ASL's inability to provide a payout figure, referring to ASL's prior provision of payout figures despite an FOS complaint, and again urgently asked for a discharge of the mortgage.[74]
[74] Exhibit 1.57.
On 31 August 2017 at 1.32 pm the borrower emailed Lavan and ASL seeking a reply to the 30 August 2017 correspondence.[75]
[75] Exhibit 1.57.
On 1 September 2017 at 11.27 am the borrower emailed and faxed ASL and Lavan expressing disappointment at ASL's failure to discharge the mortgage even though they have advised repeatedly of the urgency of the requests. The borrower advised that a failure to discharge the mortgage by the close of business that day (and any further delay) may adversely affect them and will prejudice their access to the new loan facility that 'we have put in place' which is necessary to discharge the current mortgage with ASL.[76]
[76] Exhibits 1.57, 1.56, 1.55.
Discharge and settlement do not occur
On 4 September 2017 Mr McPherson decided to withdraw his offer of finance to the borrower.[77]
[77] Exhibit 4, Agreed Facts, par 3.
On 4 September 2017 at 9.22 am Lyons Babington Lawyers advised the borrower that Mr McPherson had decided to withdraw his offer to provide finance effective immediately.[78] Due to an address error, the borrower was informed of the content of this correspondence the following day.[79]
[78] Exhibit 1.58; Exhibit 4, Agreed Facts, par 4.
[79] Exhibit 4, Agreed Facts, par 5.
Prior to Mr McPherson withdrawing his offer of finance on 4 September 2017, the defendant had not provided ASL with copies of:
(a)Mr McPherson's letter dated 4 August 2017 addressed to the borrower stating that Mr McPherson gave unconditional approval for a loan to the borrower of $650,000; or
(b)Mr McPherson's letter dated 8 August 2017 addressed to ASL, confirming that unconditional approval had been given to the borrower for a loan to discharge the amount owing to ASL; or
(c)The deed of loan.[80]
[80] Exhibit 4, Agreed Facts, par 7.
Further, ASL was not provided with copies of these documents by any other party, prior to Mr McPherson withdrawing his offer of finance on 4 September 2017.[81]
[81] Exhibit 4, Agreed Facts, par 8.
On 4 September 2017 at 2.32 pm Lavan emailed the borrower stating ASL's 'position is that, in all of the circumstances, in particular the existence of a threat of a claim against ASL in respect of its mortgage, it is not prepared to discharge its mortgage until the FOS complaint (which relate to this security and threat of a claim) have been resolved, either by consent, or by determination of FOS'.[82]
[82] Exhibit 1.60.
Unconscionable conduct
The defendant submits that ASL's failure or refusal to settle on the proposed refinancing was unconscionable given:
(a)ASL's asserted position was based on an incorrect interpretation of the loan agreement, in particular cl 6 and cl 8.1 to cl 8.4;
(b)the security for costs term (cl 8.3(a)) of the loan agreement was harsh and unreasonable;
(c)the security for costs term (cl 8.3(a)) was an unfair contract term within the meaning of the s 12BF(1) of the ASIC Act and s 23(1) of the Australian Consumer Law (Cth) (ACL);
(d)the security for costs term (cl 8.3(a)) was a clog on the equity of redemption; and
(e)ASL's conduct in not proceeding to settlement upon receipt of the defendant's 21 August 2017 acceptance email was itself unconscionable.
ASL disputes that it engaged in unconscionable conduct. ASL disputes the construction of cl 6 and cl 8.1 to cl 8.4 of the loan agreement contended for by the defendant. Further, ASL disputes that cl 8.3(a) is an unfair contract term and submits that the relevant sections of the ASIC Act and ACL did not apply to the loan agreement when it was entered into on 12 December 2013.
By reference to the terms of the loan agreement, ASL further submits that in the circumstances that existed at the time, it was under no obligation to discharge the securities it held in relation to the loan agreement. Those circumstances being that the borrower had failed to pay or tender payment of the total secured money, or provide evidence of an ability to tender payment, and failed to inform ASL in writing that it did or did not dispute liability to pay any or all of the secured money.
ASL also disputes whether there has been an impermissible clog on redemption.
Turning firstly to the construction of the loan agreement.
Construction of the loan agreement
The defendant submits that properly construed, cl 8.1 to cl 8.4 of the loan agreement apply only in relation to a payment made on the repayment date.
The defendant accepts that it does not follow that ASL engaged in unconscionable conduct because it asserted a contract right incorrectly or relied upon a non-existent contractual right. Counsel for the defendant conceded that 'would be putting it far too high'.[83]
[83] ts 384.
Rather, the defendant says that ASL's incorrect reliance upon cl 8 is part of the context relevant to the court's assessment of whether ASL acted unconscionably in failing or refusing to discharge the mortgage and settle on the proposed refinancing. Particularly ASL's requests for information regarding the borrower's disputes and a potential claim in court, and any reference to security for costs, because cl 8 (including notably cl 8.2 and cl 8.3(a)) did not apply because this refinancing did not involve a payment on the repayment date.
ASL submits that except arguably for cl 8.1, cl 8 of the loan agreement is not confined to repayments made on the repayment date. Further, ASL says that cl 8.1 does not qualify the balance of cl 8 such that the balance of cl 8 must be read subject to cl 8.1.
Accordingly, ASL says it has, by seeking information about the borrower's dispute and any potential claim in court, acted in accordance with its rights under the loan agreement.
Clause 8 of the loan agreement
Clause 8 provides:
This Agreement is a continuing security so the obligations and promises of the borrower and/or any security provider continue until they are released by ASL and all securities are released. The security continues despite any settlement of account, intervening payment or other thing.
Clause 8.1 provides:
The borrower must [not less than five days before the repayment date] approve in writing the amount certified by ASL as the total money secured to be repaid by ASL.
Clause 8.2 provides:
The borrower must inform ASL in writing not less than five days before repayment and/or any discharge or release of any security of any amount the borrower or security provider does dispute in payment. The reasons for disputing payment must be specified at the time in the notice to ASL.
Clause 8.3 provides:
(a)ASL may require and hold additional funds as security for costs in anticipation of any dispute if the borrower does not approve without reservation, protest or condition in writing the amount required by ASL to repay the secured money and to obtain the release and discharge of any security.
(b)ASL is not required to release any security or discharge any mortgage held as security until the borrower complies with this obligation in Clause 8.2.
(c)ASL may at its option substitute cash from the borrower for part or all of the security.
Clause 8.4 provides:
The borrower may not dispute the amount due under this Agreement or any security after repayment and release by ASL of the securities except as permitted by Clause 8.3.
Clause 8.5 provides:
ASL is not obliged to release the security unless the borrower has first:
(a)Made a request to repay the secured money pursuant to Clause 6; and
(b)Paid in full the secured money; and
(c)Performed all obligations under this Agreement or any security provided for securing payment of the secured money.
ASL is not obliged to accept payment or release any security if it believes that the borrower -
(a)Owes further money to ASL [contingently or otherwise] which is or will be secured by this Agreement and the security;
(b)Will owe further money to ASL which is or will be secured by this Agreement and the security within a reasonable time frame from the date of the borrower's request to repay the secured money or release of the security.
…
The term 'repayment date' is defined in the loan agreement to be the date stated in Item 7 of the schedule as varied according to the agreement. The repayment date was initially 15 December 2014. There is no dispute between the parties that the repayment date was most latterly varied to be 15 July 2017.[84]
[84] See the defendant's closing submissions at par 61.
The word repayment is not defined in the loan agreement.
The principles concerning the construction of contracts generally were recently outlined in Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson t/as Holgerssons Complete Home Service,[85] Black Box Control Pty Ltd v Terravision Pty Ltd[86] and GR Engineering Services Ltd v Investmet Ltd.[87] I adopt and incorporate those principles without repetition.
[85] Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson t/as Holgerssons Complete Home Service [2019] WASCA 114 [51] - [53] (Tokio).
[86] Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42].
[87] GR Engineering Services Ltd v Investmet Ltd [2021] WASCA 136 [96].
Applying those principles, in my view the loan agreement is to be construed as follows.
The 'repayment date' is a stipulated date in the loan agreement. Pursuant to cl 4.1, it is the date that the borrower will pay to ASL the total outstanding amount of the money secured and it can be varied by agreement.
The loan agreement provides that the borrower must not repay the loan early and that ASL is not obliged to accept any amount before it is due: cl 6.1 and cl 6.2.
The borrower can repay on the repayment date, subject to conditions: cl 6.3(a).
However, the borrower can elect to repay on a date (being a date other than the stipulated repayment date in sch Item 7) as set out in cl 6.3(a) to cl 6.3(f) after first giving ASL thirty days written notice: cl 6.3. Whether the right to repay on a date set out in cl 6.3(a) to cl 6.3(f) is available to the borrower depends on the repayment option stipulated in sch Item 8A.
Each of the options provided for in cl 6.3(b) to cl 6.3(f) are available before the repayment date has passed. The loan agreement uses variable wording to express this concept,[88] but the import is clear on a plain reading of the clauses.
[88] For example, cl 6.3(b) uses the words 'before the due date', whereas cl 6.3(c) uses the words 'before the repayment date'.
Clause 6.3(g) provides that a date nominated by the borrower under cl 6.3(a) to cl 6.3(f) becomes the repayment date when accepted by ASL in writing. All secured money is to be paid on that day.
Further, ASL may extend the repayment date, subject to conditions, and the extended repayment date is substituted for the repayment date stipulated in sch Item 7: cl 6.5.
It is clear from these provisions read as a whole, if any new date for repayment is set before the repayment date has passed, the new date for repayment becomes the 'repayment date'.
This contrasts with 'repayments' made after the repayment date has passed.
Clause 6.8 provides for repayments made after the repayment date. On its face the wording of cl 6.8 is difficult and can lead to two constructions.
First, it could be construed that cl 6.8 applies to the following repayments:
(a)repayments made after a repayment date, whether the repayment date is the date identified in sch Item 7 or the earlier date substituted because a repayment option under cl 6.3(b) to cl 6.3(f) was nominated; and
(b)all repayments made after ASL having exercised its default rights under cl 10, regardless of whether the repayment date has passed.
Alternatively, a second construction is that cl 6.8 applies to:
(a)repayments made after a repayment date, whether the repayment date is the date identified in sch Item 7 or the earlier date substituted because a repayment option under cl 6.3(b) to cl 6.3(f) was nominated; and
(b)repayments made after ASL having exercised its default rights under cl 10 if that repayment occurs after the repayment date has passed.
In my view, the second construction is correct considering cl 6.4. Clause 6.4 provides that if a default event exists at the time of repayment or request for repayment by ASL as a consequence of any default event before the repayment date, then the borrower will pay as if the borrower made a request to repay and repaid under cl 6.3.
Viewed together, cl 6.4 relates to repayments made after a demand upon default if that repayment is made before the repayment date, and cl 6.8 relates to repayments made after a demand upon default if that repayment is made after a repayment date. Hence necessitating the conclusion that cl 6.8 provides for payments after the repayment date.
If a repayment is made on a date after the repayment date has passed, that date never becomes a 'repayment date'. To the contrary, cl 6.8 provides for no such redefinition of the date. Clause 6.3(g) does not extend to repayments made under cl 6.8 and there is no equivalent of cl 6.3(g) relating to repayments made after the repayment date has passed.
Further, cl 10 does not redefine a repayment made after a demand upon default as a 'repayment date'. Clause 10 contains the word repayment. Clause 10.1(a) specifically says that ASL can require, demand and recover immediate repayment irrespective of the repayment date. No other part of cl 10 redefines repayment after a demand upon default to be a repayment date. It is cl 6.4 in combination with cl 6.3(g) that does, but only if the repayment after demand upon default is made before the 'repayment date' has passed.
In light of the above, the terms 'repayment date' and 'repayment' do not have the same meaning. The loan agreement, read as a whole, would be nonsensical if the words repayment and repayment date had the same meaning.
When read in context, the word 'repayment' bears its ordinary meaning, that is, the act of repaying money.
Used harmoniously within the entire loan agreement, the terms 'repayment date' and 'repayment' therefore do not have the same meaning within cl 8 as contended for by the defendant.
There is nothing in the wording of cl 8, or arising from its purpose or operation, that compels the terms 'repayment date' and 'repayment' to be given the same meaning within cl 8, contrary to their use in the rest of the loan agreement.
It follows from this construction that any reliance by ASL on its rights pursuant to cl 8 of the loan agreement, or reference thereto in its correspondence with the borrower, was not misconceived.
Harsh and unreasonable to permit requirement for security for costs
The defendant submits that the term of the loan agreement that permits ASL to require and hold additional funds as security for costs (cl 8.3(a)) is harsh and unreasonable.[89] It is said this is so because it permits ASL to require provision of security in advance of proceedings being commenced regardless of merit, thereby circumventing the usual discretionary considerations/factors relevant to O 25 of the Rules of the Supreme Court 1971 (WA) and s 1335 of the Corporations Act2001 (Cth).
[89] This submission was made in the defendant's written closing submissions at par 63.
ASL did not directly address the defendant's submissions on this issue.
It is not particularly helpful to the court for the defendant to assert that because the clause is harsh and unreasonable in the abstract, it therefore supports the overall contention made by the defendant that ASL engaged in unconscionable conduct in this instance.
In the abstract, it is not unreasonable for a lender to want to ensure it will not be left with unrecoverable costs if it discharges the mortgage it holds as security for a loan, in circumstances where it is aware that the borrower disputes the amount required to repay the loan.
That much is obvious from counsel for the defendant's oral closing submissions on this point. In closing, counsel for the defendant said:[90]
The second most important thing to the borrower in this sort of loan is getting security back, and they say, 'Well, yes, but only if you give us another 30,000, or 50 or 60,' and the trouble with the security for costs term is that, as we say in the submissions, it's almost like it ousts the jurisdiction of the courts. Now, we don't advance this as a serious proposition, because those clauses can be permissible in certain contexts, but if you think about how far it goes.
[90] ts 384.
Whether ASL engaged in unconscionable conduct in its dealings with the borrower will be informed by what occurred, not theoretical possibilities.
Unfair contract terms
As part of its submission that ASL engaged in unconscionable conduct, the defendant says that cl 8 of the loan agreement is an unfair contract term within the meaning of s 12BF(1) of the ASIC Act and s 23(1) of the ACL.
ASL says that when the loan agreement was entered into on 12 December 2013 s 12BF(1) and s 12BG(1) of the ASIC Act and s 23 of the ACL did not apply because those sections applied only to consumer contracts. This is not disputed by the defendant.
Schedule 1 to the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 (Cth) amended s 12BF and s 12BG of the ASIC Act and s 23 of the ACL to apply to small business contracts. The commencement date of the amendments was 12 November 2016. The loan agreement was entered into before this commencement date.
In its submissions ASL directly referred only to the ASIC Act provisions. Whilst ASL submits that the loan agreement is not a small business contract,[91] in substance ASL does not dispute that the loan agreement falls within the definition of a small business contract set out in s 12BF(4) of the ASIC Act. Rather, ASL submits that taking into account s 301 of the ASIC Act and the terms of the loan agreement, s 12BF(1) and s 12BG(1) does not apply in this instance.
[91] Plaintiff's outline of closing submissions, par 27.
Section 301 of the ASIC Act sets out the application of the sch 1 amendments.
Relevantly s 301 provides:
301 Application
(1) The amendments made by Schedule 1 to the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Act 2015 apply in relation to a contract entered into on or after the commencement of that Schedule.
(2) The amendments do not apply to a contract entered into before the commencement of that Schedule. However:
(a) if the contract is renewed on or after that commencement - the amendments apply to the contract as renewed, on and from the day (the renewal day) on which the renewal takes effect, in relation to conduct that occurs on or after the renewal day; or
(b) if a term of the contract is varied on or after that commencement and paragraph (a) has not already applied in relation to the contract - the amendments apply to the term as varied, on and from the day (the variation day) on which the variation takes effect, in relation to conduct that occurs on and after the variation day.
…
ASL submits that the loan agreement was not relevantly renewed after 12 November 2016. ASL says after this date, all that occurred was that the borrower's time for payment was extended and further, that such an extension does not constitute a renewal for the purposes of s 301 of the ASIC Act.
ASL sent the borrower a document entitled automatic rollover offer, Exhibit 1.12, dated 13 October 2016. The document indicated the current repayment date was 15 December 2016 and that the rollover would automatically commence on 15 December 2016 unless the borrower advised otherwise. 15 December 2016 is plainly a date after the commencement of the ASIC Act amendments.
The defendant submits that Exhibit 1.12 constituted a renewal of the contract for the purposes of s 301 of the ASIC Act.
Renewed is not defined in the ASIC Act. The Oxford English Dictionary defines renewed as 'to begin again, recommence'; 'to repeat'; 'to re-enact, put into effect again'; 'to replace with something new or fresh of the same kind'.
The explanatory memorandum to the Treasury Legislation Amendment (Small Business and Unfair Contract Terms) Bill 2005 does not assist in ascertaining the meaning of renewed in s 301 of the ASIC Act beyond its ordinary meaning.
To determine whether the loan agreement was renewed as opposed to extended on 15 December 2016 requires a consideration of the terms and effect of the loan agreement.
The loan agreement gives the borrower a loan facility commencing on a specified date, being 12 December 2013: cl 1.1, cl 1.2 and Item 5.
The borrower is required to repay on a stipulated repayment date, being 15 December 2014, as varied by agreement: cl 4.1 and Item 7. The borrower must not repay early (cl 6.1), must give notice to repay on the repayment date (cl 6.3(a)), but can repay early, with notice, in certain circumstances (cl 6.3).
ASL at its option may continue the loan agreement for an identical term unless the borrower exercises a repayment right: cl 4.3(a). The agreement and any security continues on the same terms until varied or determined in accordance with the agreement: cl 4.3(c).
ASL at its option may extend the repayment date for a further term or terms unless the borrower has given 30 or more days notice to repay on the repayment date. The extended repayment date nominated by ASL will then be substituted for the repayment date: cl 6.5.
The agreement is expressed to be a continuing security. The obligations and promises of the borrower continue until they are released by ASL and all securities are released: cl 8. Security is a defined term including the loan agreement, the mortgage over Unit 1, 863 Wellington Street, West Perth WA, the deed of guarantee and indemnity, and the general security deed: definitions clause and Item 15.
When consideration is had to the express terms of the loan agreement, and the fact that no securities were discharged and no new securities were executed or provided upon each new repayment date being set, I accept ASL's submissions that the loan agreement remained in force since 12 December 2013 with ASL exercising its option to extend the repayment date from time to time.
Accordingly, the amendments to s 12BF of the ASIC Act do not apply to the loan agreement.
Whilst ASL did not directly address the operation of s 23 of the ACL, the relevant parts of the legislation, including s 290A regarding the application of the 2015 amendments, are substantively equivalent to the provisions of the ASIC Act. Accordingly, for the reasons I have already expressed, I would reach the same conclusion in respect of the application of s 23 of the ACL to the loan agreement.
Redemption
The defendant submits that cl 8.3(a) of the loan agreement is a clog on the equity of redemption because it imposes an additional payment obligation over and above the amount required to discharge the loan.
Clause 8.3(a) provides:
ASL may require and hold additional funds as security for costs in anticipation of any dispute if the borrower does not approve without reservation, protest or condition in writing the amount required by ASL to repay the secured money and obtain the release and discharge of any security.
Equity recognises and enforces a right in a mortgagor to redeem the mortgage, if the mortgagee fails to deliver a discharge of mortgage upon tender by the mortgagor of the mortgage debt.[92] It is well established that a party seeking redemption must have made an open and unconditional tender to pay the outstanding amount and that tender must extend to the principal amount, interests and costs.[93]
[92] Almona Pty Ltd v Parklea Corporation Pty Ltd [2019] NSWSC 1868 [508].
[93] In the matter of Matcove Pty Ltd [2020] NSWSC 625 [76]; Almona Pty Ltd v Parklea Corporation Pty Ltd [512].
However, it has been recognised that a mortgagee can require payment of a reasonable sum to cover anticipated costs of proceedings regarding a disputed payout figure.[94] Of course, the mortgagee takes the risk that requiring security for costs may be unreasonable and amount to misconduct depending on the circumstances.[95]
[94] Project Research Pty Ltd v Permanent Trustee of Aust Ltd (1990) 5 BPR 11,225, 11,230.
[95] Project Research Pty Ltd v Permanent Trustee of Aust Ltd (11,230).
ASL submits these risks necessitated their conduct of asking the borrower for information about the nature of the disputes before providing a payout figure for the secured money.
Further, ASL submits there has been no suggestion that the borrower did not freely enter into the loan agreement on terms including cl 8.3(a). Whilst equity will prevent reliance on contract terms if that reliance is unconscientious, it cannot be said that a contractual provision freely assented to by a mortgagor is void or unenforceable just because it allows the mortgagee to resist the mortgagor's attempt to redeem.[96] A court must examine all of the relevant circumstances.[97]
[96] Lift Capital Partners Pty Ltd v Merrill Lynch International [2009] NSWSC 9 [136] (Lift Capital Partners).
[97] Epic Feast Pty Ltd v Mawson KLM Holdings Pty Ltd (In Liq) and Starmarker (No.51) Pty Ltd [1998] SASC 6616.
Accordingly, ASL submits there has been no impermissible clog on redemption.
The defendant relies upon Sun North Investments Pty Ltd v Dale[98] in support of its submissions. The court in Sun North Investments declined to follow what was termed the 'Westfield approach' in reference to Westfield Holdings Ltd v Australian Capital Television Pty Ltd[99] and subsequent decisions including Lift Capital Partners.
[98] Sun North Investments Pty Ltd v Dale [2013] QSC 44 (Sun North Investments).
[99] Westfield Holdings Ltd v Australian Capital Television Pty Ltd (1992) 32 NSWLR 194.
Unhelpfully the parties did not engage in any substantive way with each other's arguments, nor the competing authorities.
Since the closing of submissions in this matter, the competing views were referred to by the New South Wales Court of Appeal in Bonanno v Finamore[100] without resolution by the plurality. Neither party has had the opportunity to make submissions regarding this decision, particularly the reasoning of Basten AJA (who was not in the plurality) at [56]:
As a matter of principle, the modern doctrine of unconscionability should be the touchstone of invalidity, in the manner identified with clarity and reference to authority by Barrett J in Lift Capital Partners Pty Ltd (in liq) v Merrill Lynch International, adopting the approach of Young J in Westfield Holdings Ltd v Australian Capital Television Pty Ltd. Although the trial judge expressed some reticence in applying that approach, the principles were cited with apparent approval by the Full Court of the Supreme Court of South Australia in Epic Feast Ltd v Mawson KLM Holdings Pty Ltd (in liq). That gave the support of an intermediate court of appeal which should generally be followed by trial judges. Indeed, it should be followed by this Court, unless comfortably satisfied that the principle stated is wrong.
(citations omitted)
[100] Bonanno v Finamore [2022] NSWCA 276.
In my view the matter is resolved by an examination of what occurred without requiring a resolution of the competing authorities.
If it be that that 'the shackles of judicial principle formulated over 100 years ago, in another country, and reflecting different purposes, should not bind this court'[101] and that the modern doctrine of unconscionability is the touchstone of invalidity, it could not be said that what occurred was unreasonable or offensive to good conscience.
[101] Bonanno v Finamore [58] (Basten AJA).
As it transpired ASL did not actually ever require from the borrower an amount as security for costs in addition to the amount required to discharge the loan pursuant to cl 8.3(a).
Whilst on 8 August 2017 ASL informed the borrower they would provide a conditional repayment calculation which would include an allowance for security for costs,[102] the offer put forward on 14 August 2017[103] did not seek an amount as security for costs over and above the amount ASL said was the secured money. Rather, the offer proposed the disputed portion of the secured money be held on trust for purposes including as security for costs.
[102] Exhibit 1.42.
[103] Exhibit 1.43.
This offer was advantageous to the borrower. Pursuant to cl 8.3(a) of the loan agreement ASL could have required the defendant to repay the secured money in full and provide additional funds as security for costs.
In any event, the borrower rejected the offer. Although the borrower tried to subsequently accept the offer, it is trite to say that once the offer had been rejected it was no longer available to be accepted. The borrower's expressed frustration that ASL did not act upon his subsequent attempt to accept the offer appears to be born out of ignorance of the fact that his subsequent attempt to accept the offer was an offer being made by him to ASL that they were not obliged to accept.
ASL then attempted to confirm the scope of any dispute to assess the amount to be requested from the borrower as security for costs. In light of the protection the security for costs afforded ASL, and the risks associated with requesting an unreasonable amount, it was appropriate and necessary for ASL to make such enquiries.
It should be noted that although the indicated amounts to repay attached to Lavan's correspondence of 4 August 2017,[104] 14 August 2017,[105] and 18 August 2017[106] refer to 'anticipated legal costs', it was identified in the correspondence of 4 August 2017 that these costs were the fees incurred by ASL to date.
[104] Exhibit 1.41, Lavan email of 4 August 2017 at 3.05 pm.
[105] Exhibit 1.43, Lavan email of 14 August 2017 at 4.20 pm.
[106] Exhibit 1.43, Lavan email of 18 August 2017 at 3.06 pm.
Alternatively, if it be that it is unnecessary to demonstrate unconscionable conduct before the equity of redemption may be enforced,[107] the borrower could not be said to have made an open and unconditional tender to pay the outstanding amount.
[107] Sun North Investments Pty Ltd v Dale [74], [78] (Henry J).
Clause 8.2 of the loan agreement placed an obligation on the borrower to inform ASL in writing, not less than five days before repayment and/or any discharge or release of any security, any amount the borrower disputed and the reasons for disputing payment. ASL was not required to release any security or discharge any mortgage until the borrower complied with this obligation: cl 8.3(b).
Whilst the borrower informed ASL of the basis upon which the borrower disputed some constituent amounts of the total amount demanded, the borrower did not comply with its obligation under cl 8.2. As set out at [98] - [99] above the borrower sought further information regarding other constituent amounts of the total amount demanded. There has been no evidence that the borrower subsequently informed ASL of the basis of any dispute regarding those amounts.
No settlement after defendant's email of 21 August 2017
The defendant submits that ASL's conduct in not proceeding to settlement upon receipt of the defendant's 21 August 2017 acceptance email was itself unconscionable. I understand this submission to properly refer to the borrower (as opposed to the defendant) emailing ASL in purported acceptance of ASL's proposal sent on 14 August 2017.
Despite its written submissions to this effect, in oral submissions counsel for the defendant broadened the conduct relied upon in advancement of its unconscionable conduct defence.
Although the defendant's re-amended substituted defence and counterclaim pleaded that ASL's conduct constituted unconscionable conduct within the meaning of s 12CA and s 12CB of the ASIC Act, and alternatively s 21 and s 22 of the ACL,[108] at trial, the defendant pursued only a claim of unconscionable conduct under s 12CB of the ASIC Act.
[108] Defendant's re-amended substituted defence and counterclaim at par 2H(b).
More particularly, the defendant says that ASL's overall conduct in refusal to settle:
(a)reflected their superior bargaining position (s 12CC(1)(a) of the ASIC Act);
(b)involved requiring the borrower to comply with conditions that were not reasonably necessary for the protection of ASL's legitimate interests (s 12CC(1)(b));
(c)involved an exertion by ASL of undue pressure or unfair tactics against the borrower (s 12CC(d)); and
(d)amounted to ASL acting in bad faith (s 12CC(1)(l)).
It is necessary therefore to consider the law concerning statutory unconscionable conduct and return to an examination of the facts in this context.
The law regarding unconscionable conduct
It is unnecessary for this court to delve into a lengthy review of the disputed state of the law regarding unconscionable conduct. Justice Martin's review of the relevant law in Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 15][109] is both instructive and binding.
[109] Sino Iron Pty Ltd v Mineralogy Pty Ltd [No 15] [2023] WASC 56 (Sino Iron).
I take from the court's review in Sino Iron the following:
(a)There is a significant textual overlap between the unconscionable conduct provisions in the ASIC Act and the ACL, therefore the observations of courts regarding each are instructive.[110]
(b)The court is required to undertake a comprehensive fact-specific analysis of all underlying circumstances surrounding a contention of statutory unconscionable conduct.[111]
(c)The state of the present law is that to establish statutory unconscionable conduct, it is not necessary that there be some form of pre-existing disability, vulnerability or disadvantage of which advantage was taken.[112]
(d)There is no clear baseline moral standard for what constitutes statutory unconscionable conduct. The standard must be lower than that developed in equity.[113]
(e)As to the necessary level of gravity in the conduct, unconscionable conduct is characterised by a substantial departure from that which is generally acceptable commercial behaviour. It is a departure which is so plainly or obviously contrary to the behaviour to be expected of those acting in good commercial conscience that it is offensive.[114]
(f)Not every breach of the norms underpinning commercial laws, or those expressed in codes of conduct or prevailing business standards will be a contravention of the statutory unconscionable conduct provisions. Nor will every conduct that involves an element of hardship or unfairness to the other party.[115]
(g)Whilst it is not within the remit of the court to undermine a fairly agreed bargain between sophisticated commercial parties, the concepts of freedom of contract and any allocation of risk do not provide a platform for parties to act contrary to law.[116]
[110] Sino Iron [2168].
[111] Sino Iron [2143], [2169].
[112] Sino Iron [2162], [2174] - [2176]; Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd [2021] FCAFC 40, (2021) 285 FCR 133; Australian Security and Investments Commission v Kobelt [2019] HCA 18; (2019) 267 CLR 1 (Kobelt).
[113] Sino Iron [2179]; Kobelt [295] (Edelman J).
[114] Sino Iron [2181]; Australian Competition and Consumer Commission v Geowash Pty Ltd [No 3] [2019] FCA 72; (2019) 368 ALR 441 [662] (Colvin J) (Geowash).
[115] Geowash Pty Ltd [No 3] [662] (Colvin J).
[116] Sino Iron [2183]; Cargill Australia Ltd v Viterra Malt Pty Ltd [No 28] [2022] VSC 13 [3030] (Elliott J).
The applicable standard is a normative one involving the evaluation of whether the conduct in question is so far outside societal norms of acceptable commercial behaviour as to warrant condemnation as conduct that is offensive to conscience. The evaluation exercise is informed by the non-exhaustive list of factors in s 12CC of the ASIC Act.[117]
[117] Jams 2 Pty Ltd v Stubbings [2020] VSCA 200 [90]; Kobelt [87], [92] (Gagelear J) [154], [234] (Nettle and Gordon JJ), [268] (Edelman J).
The court must take into account each of the considerations identified in s 12CC of the ASIC Act to the extent they apply in the circumstances. The considerations are non-exhaustive, but they provide express guidance as to the norms and values that are relevant to inform the meaning of unconscionability and its practical application.[118]
[118] Stubbings v Jams 2 Pty Ltd [2022] HCA 6 [57] (Gordon J); Kobelt [2019] HCA 18 [87] (Gagelear J).
Statutory prohibitions on unconscionable conduct do not require altruistic conduct.[119]
[119] Kobelt [75] (Keifel CJ and Bell J).
In Paciocco v Australia and New Zealand Banking Group Ltd[120] the evaluation of conduct was described as an evaluation that:
… must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.
[120] Paciocco v Australia and New Zealand Banking Group Ltd [2015] FCAFC 50 [296].
Returning to the facts
In submissions, the defendant says that ASL acted unconscionably by:
(a)Failing to provide a pay-out figure between 7 August 2017 and 14 August 2017;
(b)Indicating that it would only provide a discharge of the loan on terms which were not provided for in the loan. That is by asserting a right to ask for security for costs when it was not entitled to do so;
(c)Asking for security for costs regarding hypothetical claims the defendant may bring. Those hypothetical claims only arising if first, the FOS finds against the defendant, and second, the defendant decides to pursue some form of claim against ASL in court;
(d)Repeatedly asking for information about a potential court claim and the borrower's intentions. The defendant submits the repeated requests are unrealistic, harsh and based on a contractual right that did not exist;
(e)Failing to settle on 14 August 2017 when it could well have settled, but did not because of an asserted position that was unreasonable;
(f)From 14 August 2017 indicating that it would only settle on certain terms that were unreasonable and unfair;
(g)On 23 August 2017 specifically seeking information about hypothetical maladministration or excessive fees claims; claims that the borrower had not ever alluded to; and
(h)On 4 September 2017 refusing to settle until the FOS complaint was resolved.
The defendant says this conduct occured against the backdrop of the borrower repeatedly communicating within its correspondence that the position was urgent.
A further review of the facts reveals the following.
First, ASL consistently provided the borrower with the amount it said was required to be paid where it was possible for ASL to quantify the amount.
On Friday 4 August 2017 at 3.05 pm[121] Lavan did provide the borrower with a breakdown of the amount demanded on 26 July 2017.
[121] Exhibit 1.41.
Despite the borrower advising in clear terms that the amount to be repaid was in dispute, and requesting a re-preparation of the pay-out calculations on 7 August 2017 at 6.37 pm[122] stating ASL should do so without all of the penalties and costs that have been imposed after 17/7/2017, and asking for that recalculation without providing an indication of what precisely the disputed costs and penalties were, ASL responds the following morning, 8 August 2017 at 6.46 am,[123] providing the requested invoices and indicating that given the dispute they will provide a conditional repayment calculation with an allowance for security for costs included. ASL indicates it is waiting on information from the FOS and independent advice in order to calculate this figure.
[122] Exhibit 1.42.
[123] Exhibit 1.42.
More particularly, ASL submits that the implied terms contended for would effectively require ASL to:
(a)discharge the loan and securities upon request by the borrower;
(b)do so in circumstances where no agreement had been reached between the parties about the amount that is to be repaid (inconsistent with cl 8.4 that provides the borrower may not dispute the amount due under the loan agreement after repayment except as permitted by cl 8.3);
(c)but without any obligation on the borrower to inform ASL of any amount in dispute, or the reasons for such dispute (inconsistent with the express obligation on the borrower to do so in cl 8.2 of the loan agreement);
(d)and without any ability to obtain security for costs in anticipation of any dispute (inconsistent with the express ability to do so in cl 8.3 of the loan agreement); and
(e)do so on a time frame inconsistent with the contract, namely the usual thirty days notice for repayments (per cl 6 of the loan agreement), or the time ASL in its absolute discretion deems appropriate regarding repayments after default (per cl 10 of the loan agreement).
Such a set of circumstances would be inconsistent with cl 8.5 of the loan agreement that provides that ASL is not obliged to release the security unless the borrower has repaid all the secured money and performed all its obligations under the loan agreement for securing payment of the secured money.
Conclusion on implied terms
The defendant has not established that the implied terms are necessary.
Given the construction of the loan agreement I have set out above at [137] - [166] regarding the applicability and operation of cl 8, a cooperation term and an early repayment timing term have no work to do in respect of repayments made after a demand upon default or after the repayment date has passed.
Clause 8.2 to cl 8.5 apply and provide for the mechanism of discharge in such circumstances.
In any event, as set out above, the implied terms contended for by the defendant would be inconsistent with the express terms of the loan agreement, and therefore ought not be implied.
If the cooperation and early repayment timing terms were implied into the contract as contended for by the defendant, ASL would be put in the position of being required to release its security without any of the protections afforded to it by the express provisions of cl 8.2 to cl 8.4 of the loan agreement. Further, the borrower would be able to obtain the benefit of the discharge of the security without being required to comply with the express obligation cast upon it in cl 8.2.
Accordingly, I am not satisfied that ASL has breached an implied term of the loan agreement.
The defendant's counterclaim
By way of counterclaim the defendant seeks an order setting aside the guarantee and indemnity and costs.
At trial, the defendant abandoned its counterclaim relating to cl 9.1 and cl 11.2 of the guarantee and indemnity agreement.[166]
[166] ts 334.
The defendant has also abandoned its counterclaim for damages pursuant to s 12GF of the ASIC Act or alternatively s 236 of the ACL.[167]
[167] Re-amended substituted defence and counterclaim.
In light of my findings above, and in the absence of any other reason advanced in support of the defendant's counterclaim for an order setting aside the guarantee and indemnity agreement, the defendant's counterclaim is dismissed.
Quantum
Having determined that ASL has made out its claim under the guarantee, I turn to the issue of the quantum of ASL's claim.
The quantum of ASL's claim is to be assessed by reference to the terms of the loan agreement and the guarantee and indemnity agreement.
ASL called two witnesses and tendered without objection numerous business records[168] and a certificate prepared by ASL (Exhibit 6.7) in proof of what it says it is owed.
[168] Exhibits 5.28 - 5.30, 5.40 - 5.44, 5.46 - 5.56, 5.58 - 5.65, 5.70 - 5.75, 5.77, 5.79, 5.81, 5.82, 5.85 - 5.89, 6.1 - 6.6, 7.1 - 7.16.
The certificate[169] sets out the amounts ASL says is owed by the borrower as at 15 March 2021. The figure was expressed to be $368,832.32.
[169] Exhibit 6.7.
At trial, ASL chose not to pursue certain items and sought the sum of $323,393.21 as at 18 March 2021, plus interest at the rate of 10.88% per annum from that date, plus legal costs. 10.88% per annum being the interest applicable in the loan agreement.
ASL's prayer for relief seeks interest at the rate of 10.49% per annum from 14 May 2018 to payment pursuant to s 32 of the Supreme Court Act 1935 (WA) as amended. ASL's amended particulars of damages seeks interest at the rate of 10.49% per annum from 25 September 2018 pursuant to s 32 of the Supreme Court Act.
At trial, neither party addressed the discrepancy in the interest rate now sought by ASL and that pleaded in their claim. Whilst ultimately relief is a matter for the court, I requested the parties address my concern that the parties had not contemplated that ASL now sought an amount above that actually claimed.
By way of correspondence to the court dated 27 September 2023 the parties have confirmed that:
(a)if contractual interest is to be awarded in this case, the applicable interest rate is 10.88% per annum; and
(b)ASL need not apply to amend its statement of claim for the court to make orders referring to the interest rate of 10.88% per annum.
The defendant did not seek to be heard further regarding this issue.
In contrast to the defendant's earlier position during trial, by the time ASL led evidence regarding the quantification of its claim, the defendant did not take issue with any of the amounts claimed.[170] Rather, the defendant took issue with his liability to pay some of the items sought by ASL under the terms of the relevant agreement. As counsel for the defendant conceded at trial: 'the plaintiff has adduced all of the admissible business records that collectively speaking, comprise the total set of potentially claimable items'.[171]
[170] ts 732 to ts 737.
[171] ts 736.
Is the defendant liable to pay all of the claimed discharge costs?
In the defendant's written submissions on quantification, the defendant did not dispute the items and calculations contained in sch A of Exhibit 6.7 are payable save for the following items particularised under the heading discharge costs:
(a)a late discharge fee of $6,336 (said by ASL to be charged pursuant to cl 6.8(c) of the loan agreement);
(b)a payout calculation fee of $440 (said by ASL to be charged pursuant to cl 6.8(d) of the loan agreement); and
(c)3 months additional interest of $9,912 (said by ASL to be charged pursuant to cl 6.8(b)(ii) of the loan agreement).
In oral submissions the defendant also disputed the $55.00 resettlement fee said by ASL to be charged pursuant to cl 6.8(e) of the loan agreement.
The defendant says these items are not claimable because a plain reading of cl 6.8 indicates charges under that clause are only payable when the indebtedness is fully discharged after the due date and does not apply where there is a part payment realised upon recourse to secured property. The defendant submits there is no reference in cl 6.8 to interest, payout calculation fees, late payment fees, or resettlement fees being payable if something less than the full amount owing is paid.
ASL submits that such an interpretation of cl 6.8 would ignore the definition of secured money. I agree.
The definition of secured money in the loan agreement includes '… AND SHALL where the context so admits mean and include any part of the Secured Money'. Reading the definition of secured money into cl 6.8 necessitates that the borrower had agreed to pay the amounts now sought by ASL when it repays the secured money, or any part of it, after the repayment date.
Further, ASL says that the construction of cl 6.8 contended for by the defendant would work a commercial nonsense because it would mean that if a borrower was in breach and repaid only part of the secured money after the repayment date or paid all the secured money, but in instalments, no overdue repayment costs and fees would be payable. I agree.
The defendant submits that cl 6.8(c) requiring the payment of a late payment fee only makes sense in the context of repayment of the whole amount owing. The defendant says it would be an anomalous construction of cl 6.8(c)(i) that would permit the fee to be chargeable more than once.
Whilst the fee in cl 6.8(c)(i) would be payable if any proportion of the secured money was repaid after the repayment date, the fee would not be wholly duplicated. The definition of 'advance' in the loan agreement includes the amount of the advance, or the balance outstanding at the relevant time. Accordingly, the advance would reduce each time a portion of the advance was repaid and necessarily so would the 1.1% fee.
In my view the plain reading of cl 6.8, reading in the definition of secured money,[172] necessitates that the fees payable in that clause are payable regardless of whether the payment is for the whole or part of the secured money. This is in keeping with the ostensible purpose of cl 6.8 in the loan agreement.
[172] As required pursuant to the ordinary principles of contractual construction. See Tokio [51] - [53].
The purpose of cl 6.8 as a whole is to permit ASL to charge higher interest, additional interest, late payment fees, other fees, and legal costs and expenses on overdue repayments. It would not be in keeping with the commercial purpose of the contract to preclude ASL from charging such items on overdue repayments if more than a single repayment is made or necessitated by virtue of a deficiency in the sale proceeds of secured property (as is the eventuality in this instance).
I find that the late discharge fee of $6,336 claimed pursuant to cl 6.8(c), the payout calculation fee of $440 claimed pursuant to cl 6.8(d), and the three months additional interest of $9,912 claimed pursuant to cl 6.8(b)(ii), are payable by the defendant. I also find that the $55 resettlement fee claimed pursuant to cl 6.8(e) is payable by the defendant. These amounts are part of the secured money the borrower owes ASL under the loan agreement. Consequently, they are part of the guaranteed money payable by the defendant under the guarantee pursuant to cl 3.1 and cl 4.1 to cl 4.3 of the guarantee and indemnity agreement.
Is the defendant liable to pay the disbursements?
The defendant disputes that the disbursement amounts itemised in sch B of Exhibit 6.7 are payable by the defendant as guarantor, save for invoice 50965 being $2,679.09, plus $1,233.45 in interest.
That is, the defendant disputes that the disbursement amounts itemised in sch B of Exhibit 6.7 as invoices 51459,[173] 51953,[174] 54078,[175] 54487,[176] 59178,[177] 60310,[178] 60311,[179] 60851,[180] 61965,[181] 61968,[182] and 64155[183] are payable by the defendant as guarantor.
[173] Exhibit 5.30.
[174] Exhibits 1.18, 7.5.
[175] Exhibits 5.41, 5.42, 5.40.
[176] Exhibits 5.43, 5.44, 7.6.
[177] Exhibits 7.7, 5.51, 6.6, 5.53, 7.8.
[178] Exhibits 7.9, 5.54, 6.6, 5.60.
[179] Exhibits 7.11, 6.4, 7.10, 5.46, 5.47, 5.56, 5.61.
[180] Exhibits 7.12, 5.63, 5.58.
[181] Exhibits 7.13, 7.15, 5.77.
[182] Exhibits 7.14, 5.72, 5.64, 5.79.
[183] Exhibits 7.16, 5.85.
The defendant says these disbursements are not payable by him as guarantor because:
(a)ASL says these disbursements were payable by the borrower pursuant to cl 11.1, cl 11.2 and cl 11.5 of the loan agreement;
(b)cl 11.1, cl 11.2 and cl 11.5 of the loan agreement obliges the borrower to pay ASL all such amounts on demand;
(c)ASL has not proved these disbursements were demanded from the borrower; and
(d)although the guarantee and indemnity agreement provides the guaranteed money is payable without demand (cl 4.1 of the guarantee and indemnity agreement), the principle of co‑extensiveness makes the liability of the defendant as guarantor the same as the borrower's liability.[184]
[184] The Modern Contract of Guarantee, Thomson Lawbook Co, looseleaf [5.710].
Contrary to the defendant's submissions Exhibit 1.27 establishes that a demand to the borrower was made for payment of invoices 51459 and 51953. Those invoice amounts were included in the repayment calculation sent to the borrower on 29 June 2017.[185]
[185] Exhibit 1.27.
There is however no proof that invoices 54078, 54487, 59178, 60310, 60311, 60851, 61965, 61968, and 64155 were sent to the borrower, or that ASL otherwise demanded the amounts therein from the borrower.
Ms Bode, the company secretary and CEO of ASL, gave evidence that she prepared Exhibit 6.7. In cross-examination Ms Bode was asked:[186]
Now, it's true, isn't it, that virtually all of the rest of the invoices were (1) internally generated; but (2) not, in fact, dispatched. Not sent out to Rational or Mr Ehrenfeld?---I think some may have been sent out to Mr Ehrenfeld, and some may not have been sent out to Mr Ehrenfeld. But I don't know specifically which ones had been sent and which ones had not been sent.
All right. Can I take it you haven't gone through an exercise of trying to identify those invoices that were sent out and those that were not?---Correct.
[186] ts 661.
No other document or witness evidenced that invoices 54078, 54487, 59178, 60310, 60311, 60851, 61965, 61968, and 64155 were sent to the borrower.
It is uncontroversial that these disbursements are part of the secured money and were payable by the borrower on demand.[187]
[187] Pursuant to cl 11.1, cl 11.2 and cl 11.5 of the loan agreement.
It is also uncontroversial that repayment of these disbursements was immediately enforceable against the borrower without actual demand.[188]
[188] United Pacific Finance Pty Ltd (Rec and Mgrs Apptd) v Govindasamy [2020] NSWSC 128 [172] ‑ [175].
This claim however is not against the borrower.
There is nothing in cl 4.1 to cl 4.3 of the guarantee and indemnity agreement indicating the guarantee provides for a more extensive liability than that which the borrower incurred under the loan agreement. To the contrary, cl 4.3 of the guarantee and indemnity agreement provides that the liability of the guarantor is the borrower's liabilities under the loan agreement.
The borrower was not liable to pay the disbursement amounts without demand.
There being no proof that a demand was made of the borrower for the disbursements claimed in invoices 54078, 54487, 59178, 60310, 60311, 60851, 61965, 61968, and 64155, in light of the above, the defendant is not liable to pay these amounts claimed.
Accordingly, I do not allow ASL's claim for the disbursement amounts in invoices 54078 ($7.60), 54487 ($70.90), 59178 ($1,748.73), 60310 ($4,035.20), 60311 ($7,382.50), 60851 ($260.95), 61965 ($231.36), 61968 ($188.55), and 64155 ($66.28).
For completeness it should be noted that ASL claims the disbursement items set out in sch B of Exhibit 6.7 but does not rely upon the amounts expressed therein. Rather, ASL claims the disbursement items in amounts reflecting the cost of the disbursement plus interest payable to the date ASL paid the disbursement (as opposed to interest payable from the date the invoice was due as set out in sch B). The defendant did not take any issue with this approach, or the quantification of the figures.[189]
[189] The quantification of the figures, including the interest claimed on the outstanding amounts, were set out in the plaintiff's updated aide memoire - quantum dated 27 June 2021.
Is the defendant liable to pay the default management fees?
ASL no longer pursues all of the default management fees set out in sch B of exhibit 6.7.
Counsel for ASL confirmed at trial that ASL pursues only the default management fees (plus interest thereon) in invoices 58512,[190] 58508,[191] 59059,[192] 59597,[193] 60194,[194] 60745,[195] 61269,[196] 61867,[197] 68291,[198] and 68743.[199] The total amount being $960 plus interest.
[190] Exhibits 5.48, 5.50.
[191] Exhibit 5.49.
[192] Exhibit 5.52.
[193] Exhibit 5.55.
[194] Exhibit 5.59.
[195] Exhibit 5.62.
[196] Exhibit 5.65.
[197] Exhibit 5.75.
[198] Exhibit 5.86.
[199] Exhibit 5.87.
The defendant disputes these default management fees are payable.
ASL submits these fees are payable under c1 11.5 and cl 11.1(i) of the loan agreement. Further, ASL submits that they became immediately payable whether or not any demand was made for them.[200] I will read these submissions as being payable on demand, but enforceable without demand consistent with ASL's submissions made in respect of the disbursements.
[200] Plaintiff's further outline of submissions on quantum, par 10.
ASL says that cl 11.5 and cl 11.1(i) requires the borrower to pay the fees set out in the loan application[201] made 12 November 2013. The defendant disputes that the loan application gives rise to a category of claimable costs, although does not dispute invoice 58512[202] would be payable by the borrower pursuant to cl 5.9 of the loan agreement.
[201] Exhibit 1.1.
[202] Exhibits 5.48, 5.50.
I do not need to resolve this dispute given that the defendant also submits there is no proof the default management fees were demanded from the borrower and for the same reasons advanced in respect of the disbursements, the defendant as guarantor is not liable to pay them.
Whilst the respective invoices were tendered at trial, no evidence established that ASL had sent those invoices to the borrower.
For the same reasons set out in respect of the disbursements I do not allow ASL's claim for the default management fees in invoices 58512 ($110), 58508 ($250), 59059 ($75), 59597 ($75), 60194 ($75), 60745 ($75), 61269 ($75), 61867 ($75), 68291 ($75), and 68743 ($475).
Should the defendant pay interest at 10.88% per annum?
ASL claims interest at 10.88% per annum since 15 December 2016[203] minus the interest paid to it under the loan agreement. The defendant does not dispute that this is the applicable contractual rate of interest.[204]
[203] The contractual higher interest rate having become 10.88% per annum on 15 December 2015, Exhibit 1.10.
[204] ts 748.
However, the defendant says the court should, in its discretion, not order interest at the applicable contractual rate. The defendant says that the manner in which ASL conducted the trial necessitated a second hearing on quantification and therefore ASL should not be granted interest at the higher interest rate of 10.88% per annum from the time in which the trial was adjourned. The defendant submitted that ASL was not ready to present its case in respect of quantification at the time the trial commenced.
ASL submits that it was able to quantify its claims at the commencement of trial and that the adjournment of the trial part‑heard was not necessitated by ASL being unable to proceed regarding quantification.
In my view ASL was in the position to present its case on quantum at the time the trial commenced. It is correct to say that the defendant took issue with the way that ASL was intending to prove the amount owed at the commencement of the trial and intended to oppose the tender of any certificate relied upon by ASL in proof of quantum. Nonetheless ASL intended to seek the tender of a certificate purporting to quantify their claim and had made witness arrangements and prepared trial books on the basis that quantum was in issue at the commencement of the trial.[205]
[205] MFI 1.1 - MFI 1.72.
It is overstatement for the defendant to submit, as it has,[206] that to make an order for judgment in an amount that includes interest at 10.88% per annum would be to reward ASL for its failure to be able to present its case on quantification at the time the trial commenced. The trial did not proceed in a regular manner in respect of quantification due to what can be described as an overall lack of clarity by the parties as to how the trial should proceed, how the issues should be ventilated, and issues regarding discovery, in respect of quantification.
[206] See defendant's submissions on quantification dated 25 June 2021, par 28.
Evidence and submissions on quantum were ultimately heard after the trial was adjourned part-heard and after orders for further and better discovery had been made. The defendant also sought and was granted an adjournment of the resumption of the trial to further prepare for the issue of quantum. It is not accurate to say that the passage of time between the adjournment of the trial part-heard and resumption of the trial for the purposes of quantum was due to ASL's conduct.
Accordingly, I do not accept the submission of the defendant that intertest should be allowed at an amount less than 10.88% per annum for some period between the trial being adjourned part-heard and judgment.
Interest after judgment
By way of written submissions,[207] ASL seeks an order that interest be payable from the date of judgment at the rate 10.88% per annum. ASL relies upon cl 5.8 of the loan agreement which provides that should ASL obtain judgment for all or any of the money secured, interest is payable at the higher contractual rate[208] until judgment is satisfied.
[207] Plaintiff's outline of closing submissions, par 42.
[208] Being 10.88% per annum since 15 December 2015, Exhibit 1.10.
The defendant has not addressed the issue of interest after entry of judgment. The plaintiff did not speak in support of its written submissions.
It goes without saying that with success in its claim against the guarantor, ASL does not obtain judgment against the borrower.
Section 8(1)(b) of the Civil Judgments Enforcement Act 2004 (WA) allows the court to direct that a rate of interest other than the statutory rate should apply to the unpaid amount of judgment. However, that does not derogate in any way from the established principle that a contractual right to interest will merge in the judgment unless the contract specifically provides for the different rate of interest to prevail even after the entry of judgment.[209]
[209] Clambake Pty Ltd v Tipperary Projects Pty Ltd [No 7] [2009] WASC 390 [109] - [110].
There will be grounds for ordering a rate of interest other than the statutory rate where the contractual obligations provide for a higher rate of interest, in displacement of the statutory rate, because of the specific agreement of the parties.[210]
[210] Clambake Pty Ltd v Tipperary Projects Pty Ltd [No 7] [110].
Clause 3.1 of the guarantee and indemnity agreement provides that the guaranteed money will, without demand, be paid to ASL when it is due and payable. Clause 4.1 provides that the guaranteed money is all monies the borrower owes ASL now or in the future under the loan agreement. The borrower of course continues to be liable to pay ASL the secured money incurring interest at the rate of 10.88% per annum. Clause 4.3 provides that the liability of the guarantor is the borrower's liability.
It is a question of construction whether these clauses provide for a contractual obligation of the guarantor to pay interest on any judgment at the higher rate.
In light of the defendant not making any submission opposing the ASL's clear submission for interest on judgment to be at the rate of 10.88% per annum, I would propose to allow interest at that rate subject to hearing further from the parties.
I will permit the parties to address this matter further before final orders are made given neither party has specially addressed how the court should construe the guarantee and indemnity agreement in respect of this issue.
Conclusion and orders
I will hear the parties as to the final orders that should be made.
Subject to hearing from the parties, the appropriate orders are:
(a)Judgment for the plaintiff in the sum of:
(a)$323,393.21 plus interest at the rate of 10.88% per annum from 18 March 2021 until judgment,
(b)less the disbursement amounts in invoices 54078 ($7.60), 54487 ($70.90), 59178 ($1,748.73), 60310 ($4,035.20), 60311 ($7,382.50), 60851 ($260.95), 61965 ($231.36), 61968 ($188.55), and 64155 ($66.28),
(c)less the default management fees in invoices 58512 ($110), 58508 ($250), 59059 ($75), 59597 ($75), 60194 ($75), 60745 ($75), 61269 ($75), 61867 ($75), 68291 ($75), and 68743 ($475), and
(d)less any amounts included in the $323,393.21 amount reflecting interest payable on the disbursement and default management fees that have not been allowed.
(b)Pursuant to s 8(1)(b) of the Civil Judgments Enforcement Act interest be payable from the date of judgment at the rate of 10.88% per annum; and
(c)The defendant's counterclaim is dismissed.
I anticipate the parties will calculate a figure reflecting [360(a)] above for inclusion in the final orders.
I will also hear the parties further as to the costs orders that should be made.
I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
DM
Associate to Judge Barone
17 OCTOBER 2023
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