Cayden Pty Limited T/As Acuity Funding v Patrick Nouh and 3 Ors

[2008] NSWSC 1219

CITATION:	CAYDEN PTY LIMITED TRADING AS ACUITY FUNDING v PATRICK NOUH & 3 ORS [2008] NSWSC 1219
HEARING DATE(S):	12 November 2008
JUDGMENT DATE :	12 November 2008
JURISDICTION:	EQUITY
JUDGMENT OF:	Bryson AJ at 1
DECISION:	(1) Order that upon the summons, judgment be given for the defendants with costs. (2) Order that upon the cross claim, claim one, judgment be given for the cross- claimants for $3300. (3) Order that the sum of $13,800 paid by the defendants under interlocutory arrangements be now repaid to the defendants. (4) Order that the plaintiff withdraw caveat AD793669 on or before 13 November 2008. (5) Order that the cross defendant pay the cross claimants’ costs of the cross claim, assessed at $700.
CATCHWORDS:	Contract – retainer of mortgage broker with commission – loan approval – retainer agreement contained conditions which were not fulfilled – loan approval did not correspond with application – held no entitlement to commission – caveat removed – initial payment recovered – decision on facts and non-standard document.
PARTIES:	Cayden Pty Limited t/as Acuity Funding – Plaintiff Patrick Nouh – 1st Defendant Sharon Nouh – 2nd Defendant Joseph Nouh – 3rd Defendant Rita Nouh – 4th Defendant
FILE NUMBER(S):	SC SC 2222/08
COUNSEL:	A Chee – Pltf M Tyson - Dft
SOLICITORS:	Proctor Phair Lawyers - Pltf Veritas Legal - Dfts

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON AJ

WEDNESDAY 12 NOVEMBER 2008

2222/08 - CAYDEN PTY LIMITED T/AS ACUITY FUNDING v PATRICK NOUH & 3 ORS

JUDGMENT

1 HIS HONOUR: These proceedings arise out of the retainer by the defendants of the plaintiff to carry out mortgage broking and obtain approval for a loan facility. The proceedings were commenced by summons and there have been no pleadings. Initially the plaintiff by summons claimed judgment for $12,485 which was alleged to be the balance of commission payable for work done under the retainer. The plaintiff also claimed remedies to give effect to a charge over three properties which was created by a passage in the retainer headed “Security for fees due to Acuity Funding”. The remedies sought would give effect to the charge under the directions of the court.

2 At an interlocutory stage an application was made to extend or remove caveats which the plaintiff had entered on three properties owned by the defendants for which the defendants had given lapsing notices. An interlocutory arrangement was made which continued the caveats, or some of them, until money was paid under the control of the court to secure what it was claimed the caveats protected.

3 What is before me now for adjudication, then, is whether the plaintiff is entitled to commission of $12,485. Upon an extremely belated cross claim the defendants seek orders on a number of matters which plainly require to be attended to on disposition of the proceedings and also an order that the plaintiff, the cross defendant, return $3300 which was paid under the provision of the retainer agreement relating to fees.

4 What I refer to as the retainer agreement is found first in a letter of 19 September 2007 at p 4 of Exhibit A, also RT1, signed on the third page by the managing director of the plaintiff, and signed by the defendants on the fourth page under the heading “Acceptance of Loan Proposal”. That document, after a heading referring to the finance application, opens, “We refer to your application dated September 2007.” In my opinion the terms of the document incorporate what is referred to as “Your application dated September 2007” as part of the parties’ agreement. Even if this were not correct it would be necessary to refer to the application for the purpose of establishing or identifying the subject matter with which the retainer letter deals.

5 There were oral exchanges between the defendant, Mrs Sharon Nouh, and the managing director, Mr Thambyrajah, before 19 September but it is in my finding altogether clear that the application referred to is a detailed statement headed “Proposal for purchase” bearing date 10 September 2007 and other documents which Mrs Sharon Nouh sent to Mr Thambyrajah by a letter dated 9 September 2007 but in fact despatched on 10 September 2007. (Annexure A to the Affidavit of Sharon Nouh, sworn 8 April 2008) It is necessary to look at the Proposal to understand what the application was and what the retainer agreement retained the plaintiff to do. This could not be understood without looking at the previous communication. I regard it as highly improbable that there was an intention to refer to or incorporate a series of unrecorded conversations when this relatively formal expression of the application existed, was in writing, and was known to both sides.

6 When the proposal is read it shows what the defendants needed and what they are asking the plaintiff to do. To show what this is, I refer first to p 9 of the Proposal which shows that what the defendants had in view was purchase by the first two of them of a child care facility business which was offered for the sum of $2,150,000 for which they then proposed to offer a maximum of $2,000,000; they proposed that the purchase was to be funded by the first and second defendants providing $200,000, the third and fourth defendants providing $200,000 in one way or another, and by obtaining finance for $1,600,000, being eighty per cent of the purchase price. Other indications of what they wanted and needed appear elsewhere in the papers. For example, at p 5, it appears that in their proposed profit and loss statement an annual loan repayment of $136,000 was budgeted for. This represents 8.5 per cent of $1,600,000. (It is 8 per cent of $1,700,000.) At p 7, in a list of other expenses, for most of which a time when the expense would be incurred was given, is the following - “Loan repayment $1,700,000 at eight per cent.” It will be noted that this is a departure from the $1,600,000 for which they sought finance. There is no reference to capital repayments year by year.

7 As only interest was provided for in the profit and loss statement the proposal can fairly readily be understood as proposing an interest-only loan. It should reasonably be understood that strict conformity with the proposal was not required or contemplated. The possibility that a higher purchase price might be negotiated than $2,000,000 is obvious, up to $2,150,000. The possibility that some other expenditure might have to be incurred for the purchase, which had not been adverted to on 10 September, is obvious. In fact Mrs Sharon Nouh says she came to see that there would be other expenditure not long after 10 September.

8 The retainer letter (p4 of Exhibit A) contains expressions which show contemplation that the loan to be obtained was not rigidly defined. Under the heading “Loan terms” there are several such indications. One is: “Loan amount: loan amount to be up to eighty per cent of the purchase price of the business. Expected maximum loan to be $1,760,000.00.” Obviously there was room for flexibility and contemplation that the loan might be less than eighty per cent of the purchase price or less than $1,760,000. Quite where $1,760,000 comes from is not altogether clear to me but I can see several sources from which this small departure from indications in the Proposal might have arisen. Under “Interest” there is a reference to the approximate interest rate ranging between eight per cent and ten per cent and an indication that more accurate rates could be assessed later - “after we have a full credit submission and our terms and conditions being accepted”. The term of the loan was not highly concrete. It was said in the retainer letter: “Term: Up to ten years. Longer or shorter terms can be considered if required.” Under “Repayments” this appeared: “Interest only repayments or payments as approved in line with the underwriter’s terms and conditions.”

9 When considering what performance by the plaintiff could be accepted as a performance of the obligation and the work which it undertook under the retainer agreement there must be some flexibility. I would not suppose that there would not be compliance unless a loan approval for $1,760,000 or $1,700,000 or $1,600,000 exactly were obtained. However unless there was some performance and some loan approval was obtained which fitted in with either what was proposed in the Proposal or with what the defendants actually came to do in their contemplated sale, there could be no entitlement to payment of a fee.

10 I put to counsel in argument some rather extreme positions. What happens if an approval is for $100,000 or $1,000,000? Counsel, naturally enough, was not able to deal with these extreme examples. It is, to my mind a matter of degree how far off a departure from the Proposal would still be a performance of the work. In my opinion substantial performance is required, and a performance which the defendants accepted and fitted into whatever arrangements they ultimately made to purchase the child care centre would be sufficient.

11 The ordinary approach to entitlement to payment under a commission arrangement such as this is that payment for work done is earned when the commission is fully carried out and completed and, if less is done, no payment is earned. Of course this approach does not always apply because it is not unusual for express terms of a retainer agreement to override it. There are express terms in this agreement which bear on the subject.

12 What the plaintiff actually obtained - to put the matter at the only high point - was an email message from Mr Burton, relationship manager at Bankwest Parramatta Business Centre, dated 11 December 2007 - Exhibit A, p 12. This message was directed to the loan officer of the plaintiff, Ms Hogan. Its text is:

Following our phone conversation today I advise that a Loan structure acceptable to the Bank for the financing of Kellyville Ridge Pre-School will be on the following basis;

· Commercial loan of $1,435,000 - which is equivalent to 70 per cent of the agreed Purchase Price and subject to a subsequent satisfactory Going Concern Valuation.

· Maximum Loan Term of ten years, fully amortized from draw down.

· Interest rate of 9.49 per cent pa (Business Edge Loan Rate + Margin as 0.70 per cent) resulting in loan payments of $18,646 per month

Please advise if the client wishes to proceed on this basis.

13 In the plaintiff’s case this was put forward as an approval in principle of a loan upon which the right to payment of a fee arose. In its own terms it was not, in my finding, an approval, or an approval in principle. What is set out departed in a number of important respects from what had been applied for, and the bank asked to be told whether the client wished to proceed “on this basis”. The proposed piece of business was not acceptable to the bank and the bank asked whether the client would proceed on a recognisably different basis. The loan is only $1,435,000 said to be seventy per cent of the purchase price. With the $400,000 which the defendants had marshalled this loan would have been no use whatever for the purchase they had in view. They could not have bought the child care centre either for the price the vendor wanted, for the money they had in mind or for anything in between which they decided to offer. The required payments of $18,646 per month were altogether different from the payments totalling $136,000 per year contemplated in their proposal. If this document were to be seen as approval or approval in principle, it was not an approval in principle of what the defendants asked for, or of the application the plaintiff was commissioned to make. It was so far short of anything useful that it could not be said that the work in the retainer was done.

14 There are other significant difficulties in the plaintiff’s path. On the second page of the retainer document are a number of provisions under the heading “Acuity Funding’s Fees”. These included paragraphs about fee amounts, about special conditions, about interest on fees, about security for fees due to Acuity Funding. The special conditions are, on any fair reading of the document, conditions to which Acuity Funding’s entitlement to fees is subject. The document is set out in a way which shows that they are part of the subject of Acuity Funding’s fees. They are, in my view, to be regarded as conditions precedent to entitlement to fees, the performance of which the plaintiff has the burden of proving.

15 The first Special Condition is “Subject to acceptance by underwriter.” For reasons I have stated I am of the view that the message of 11 December 2007 does not constitute an acceptance by an underwriter of the loan application under consideration. The second condition is “Subject to valuation.” It is altogether clear that the project never reached the point where there was a valuation, so this condition was not fulfilled. The third special condition is - “Subject to satisfactory Baycorp report and credit checks.” There was no evidence dealing with whether or not there was a Baycorp report or there were credit checks, or whether they were satisfactory. The plaintiff has not shown satisfaction of this special condition. The fourth is “Subject to suitable serviceability.” Such indications as there are in the evidence indicate that the payments required were considerably in excess of the payments which the defendants proposed to make. It has not been shown that this condition was fulfilled.

16 Under the heading “Fee amounts” the retainer letter contained these provisions:

1. $3300 (inclusive of GST) to be paid upon acceptance of these conditions. This fee will be deducted from the one per cent fee on settlement (see point 2 immediately below.)

2. An amount equal to one per cent plus GST or greater of:


(a) the Loan Amount approved in principle by underwriter prior to valuation; and

(b) the Loan Amount approved by underwriter following valuation (the “Fees”).

It is agreed Acuity Funding is to be paid its commission at settlement or two months from delivery of an approval in principle from one of our underwriters, whichever comes first.

Later on the page this appears:

If the letter of offer from our underwriter is turned down, the full amount is immediately due.

17 In a concluding passage on the third page of the retainer letter there is reference to unconditional approval:

We understand that unconditional approval for the loan facility is subject to:


(a) the valuation of the Security Property satisfactory to the lender/underwriter.

(b) all fees being due to the lender for fees and charges, including valuation costs, legal costs and government duties.

That is to say, there is an overt distinction between approval in principle and unconditional approval.

18 For reasons I have already stated I have found there was no approval in principle for a loan amount. It is also plain that no loan amount was approved by the underwriter following valuation. There was never a valuation. So neither of the integers in para 2 to which one per cent is to be applied can be established. If the work had been done, contrary to my earlier opinion, it would not have been possible to calculate any fee under the one per cent provision. The provision about turning down a letter of offer does not apply because, in my finding, there was no letter of offer. There are indications that there might be circumstances in which a fee is payable before “settlement”, but all these indications are subject to the special conditions. It is obvious that the special conditions override all else because they are given considerable emphasis, they are expressed to be special conditions, they are printed in bold and their nature is such that they would override all else. If any entitlement otherwise existed it would have been defeated for non fulfilment of special conditions and of cl 2 in the passage under fee amounts.

19 In my judgment, therefore, the plaintiff is not entitled to recover the fee of $12,485 in its invoice. It follows that the plaintiff did not have an entitlement to lodge caveats as nothing was charged on the defendants’ property.

20 The cross claim claims back the $3300 paid on acceptance of the conditions. This was to be deducted from the one per cent fee at settlement. There is no express provision in the agreement about what is to happen in relation to the $3300 fee if settlement does not take place or if there never is an entitlement to the one per cent fee. The express terms of the contract are neutral on whether the plaintiff is to keep the $3300 no matter what happens or whether it is to be refunded if the commission does not become payable. On general principles, and not in enforcement of any express or implied term of the agreement, I am of the view that the $3300 is recoverable as on a common money count or in restitution because it was paid for a consideration which has wholly failed. The defendants got nothing for their $3300 except engagement of their time and attention in a lot of communications with Mr Thambyrajah and a useless email from Bankwest. The retainer was not carried out. They got nothing by it, and the apparently good reason for their paying $3300 turned out to be a bad reason and useless.

21 In my judgment the consideration for this payment has wholly failed and the defendants are entitled to judgment for its recovery.

The orders are:
1. Upon the summons I give judgment for the defendants with costs.
2. Upon the cross claim, claim one, I give judgment for the cross- claimants for $3300.
3. I direct that the sum of $13,800 paid by the defendants under interlocutory arrangements be now repaid to the defendants.
4. I order that the plaintiff withdraw caveat AD793669 on or before 13 November 2008.
5. I order that the cross defendant pay the cross claimants’ costs of the cross claim, assessed at $700.

**********