Giasoumi v Ribbera

[2017] VSC 631

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL COURT

S CI 2016 00975

IN THE MATTER of an application for payment out of funds in Court held by the Senior Master, which were paid into Court by Ringersma Investments Pty Ltd pursuant to s 69 of the Trustee Act 1958 and s 77 of the Transfer of Land Act 1958

BETWEEN

NICHOLAS GIASOUMI (in his capacity as trustee of the bankrupt estate of Paul Ribbera)	Plaintiff
v
CATHY RIBBERA, PRIME CAPITAL SECURITIES PTY LTD and LIGHTSPEED FINANCE PTY LTD	Defendants

---

JUDGE:	Mukhtar AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	22 June 2017
DATE OF JUDGMENT:	16 October 2017
CASE MAY BE CITED AS:	Giasoumi v Ribbera
MEDIUM NEUTRAL CITATION:	[2017] VSC 631

---

CONTRACT ― Duress ― What constitutes unacceptable pressure to procure entry into contract ― Informed borrowers in financial distress seeking urgent refinance ― Extrinsic deadlines and pressure on borrowers ― Apparent absence of bad faith by willing broker and lender ― Acceptance of offer of finance on terms obliging payment of fees and charges if acceptance withdrawn ― Borrower’s inability to give the required security ― Borrower withdraws acceptance of loan offer withdrawn and loan cancelled ― Contractual obligation to pay fees and expenses ― Whether contract procured by duress or unsupported by consideration

CONTRACT ― Consideration ― Contract with finance broker to procure a loan ― Fee payable according to loan amount ― Offer of loan obtained on certain conditions and security ― Fees payable to lender to establish loan ― Offeree obliged to pay liquidated damages and fees and costs if acceptance of loan is withdrawn ― Inadequate security ― Loan unattainable and not advanced ― Claim by broker and lender for fees ― Whether obligation to pay fees and costs is supported by consideration

CONTRACT ― Penalties in contract ―  Offer of finance ― Establishment fee payable ― Fees and costs payable by borrower for grant of loan ― Obligation to pay ‘Liquidated Damages’ if borrower withdraws or revokes acceptance of loan ―  ‘Liquidated damages’ included fees and costs payable for grant of loan  ―  Whether law of penalties applies

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr J Kohn	Dimos Lawyers
The First Defendant appeared in person
For the Second Defendant	Ms L Barrett	QBM Lawyers
For the Third Defendant	Ms A Weiner, solicitor	Evans Ellis Lawyers

HIS HONOUR:

1. Mortgagees of land have paid $134,434.22 into the Funds in Court office of this Court.  That was the money remaining after they exercised their power of sale and applied the net proceeds of sale to repay moneys owed to them.  The mortgagors were husband and wife Paul and Cathy Ribbera as joint tenants.  The mortgage was security for an advance of $986,000.[1]  The mortgaged land was at 174 Gooch Street Thornbury and was previously owned by Cathy Ribbera’s parents and gifted to her.  Paul and Cathy Ribbera then subdivided the land into two lots to become 174A and 174B Gooch Street.  Paul Ribbera later transferred his interest in 174B Gooch Street to his wife, thus making her sole registered proprietor of that property.  I gather the idea was to live on one property and develop the other for sale.  What eventuated was financial distress for them and the present laborious disputes over the moneys in court with a finance broker and a financier. 

   [1]The lenders were Rosemarie and John Morriss for whom Equity–One Mortgage Fund Ltd was acting as manager. 

1. Before the mortgagees’ sale occurred, two major events occurred which shape the disputes.  First, on 27 November 2014 Paul Ribbera was made bankrupt.[2]  His bankruptcy had the legal effect of severing the joint tenancy over 174A Gooch Street.  That meant Cathy Ribbera held that land on trust for herself and the trustee in bankruptcy as tenants in common in equal shares, unless there was evidence to establish that the bankrupt’s interest as joint tenant was less than an equal share.[3]  The second event, which created greater problems for the Ribberas, was that on 21 July 2015 the mortgagees obtained a default judgment against them for $1,020,894.68 and possession of both 174A and 174B Gooch Street. 

   [2]Bankrupted on a County Court judgment for $109,976 plus costs.  His appeal to the Court of Appeal was dismissed.

   [3]See Kevin McNamara & Son Pty Ltd v Vlahos [2014] VSC 336, [43]–[50] and Systrom v Urh (1992) 40 FCR 550, 556.

1. On 5 August 2015, the mortgagees took possession of the land at 174B Gooch Street; that is, the land of which Cathy Ribbera was sole proprietor.  They sold it for $710,000.  After applying the net sale proceeds towards payment of the moneys secured, there were no surplus funds available, and there was still a shortfall in satisfaction of the money owed to the mortgagees.  The mortgagees then took possession of 174A Gooch Street; that is, the land that was co-owned by Cathy and Paul Ribbera.  That land was sold by the mortgagees for $715,000 in December 2015.  After payment of $473,350.87 to the mortgagees, that left a surplus of $134,434.22.  That is the amount that has been paid into Court by the mortgagees. 

1. This proceeding was brought by Nicholas Giasoumi in his capacity as the trustee of the bankrupt estate of Paul Ribbera.  His claim is for 50% of the moneys in Court commensurate with Paul Ribbera’s interest in 174A Gooch Street which vested in the trustee in bankruptcy. 

1. The claim to the balance of the moneys in Court is made by a finance broker Lightspeed Finance Pty Ltd (‘Lightspeed’ or ‘the broker’) and a lender Prime Capital Securities Pty Ltd (‘Prime Capital’ or ‘the lender’).[4]  In circumstances that I shall expose later, after the mortgagees had served the Ribberas with a notice to pay, Cathy Ribbera tried to refinance the entire debt to avoid the imminent mortgagees’ possession and sale of both properties.  She engaged the broker to find urgently a source of refinance.  Prime Capital was found to agree to refinance the Ribberas in an amount that would have satisfied their indebtedness to the mortgagees, to be lent on the security of 174A and 174B Gooch Street.  The borrower was a corporation of which Cathy Ribbera was sole director and secretary, so the National Credit Code does not apply to the dealing.  Throughout this judgment, for ease of narration and in accordance with the practical realities, I may describe the loan dealing as being with the Ribberas or Cathy Ribbera.  If I do, that means the corporate borrower, for whose obligations the Ribberas were liable as guarantors as secured by a charge over their land. 

   [4]It does not appear from ASIC searches that these companies are associated legally, and there is no evidence of a formal business affiliation.

1. Under the written terms of the broker’s engagement, and under the written terms of the offer of finance from the lender, various fees, outlays and expenses were payable by the borrower.  The most prominent of these was a ‘Mandate Fee’ to the broker of 1.1% of the facility limit for procuring the loan, and, a ‘Discount Establishment fee’ to the lender of 2.2% of the facility limit.  As a preview, there were two separate and successive loan offers of $1.2 million and $600,000 attracting a total Mandate Fee (ex GST) of $19,090 to the broker and a total Establishment Fee (ex GST) of $39,600 to the lender, as well as other lesser fees and expenses.  Under the broker’s agreement and the lender’s agreement, if an offer of finance was given to the Ribberas, and they accepted that offer, but then ‘withdrew’ or if the lender ‘cancelled’ the loan, the borrower was obliged nevertheless to pay those fees  and other fees and charges.  And, in short, that is what happened.  The Ribberas had reduced security because of the severance, on bankruptcy, of Paul Ribbera’s interest in 174A Gooch Street.  Cathy’s Ribbera’s parents, who were expected to support them by providing guarantees and a mortgage security over their own home and guarantees, became unwilling to do so after taking independent legal advice as arranged by the lender.  The lender was ready willing and able to lend as offered, but the Ribberas could not proceed because of their inability to give the security required by the lender.

1. As a consequence, the lender and the broker now claim their fees and expenses under the agreements, by recourse to the moneys in court.  The agreements contained charging clauses which secured the obligation to pay fees and expenses over the Ribbera’s land.  On that basis both lender and broker lodged caveats on the land.  By law their equitable charge attaches to the surplus funds from the mortgagees’ sale that are now held on account in Court. 

1. The lender and broker do not dispute the trustee’s entitlement to 50% of the funds.  From the remaining 50% ($67,217.11) the lender’s claim to the funds is for $53,719.77 which is the whole amount it says is owed to it for fees and expenses.  The broker’s claim is for the balance of the moneys in court, being $13,497.34 for its fees in procuring the loan, although that is less than the amount of $22,500 said to be owing to it.  That allocation of the money in court is not in dispute as between broker and lender, for it is accepted that the lender lodged its caveat first in time, and there is nothing to displace its prior equity. 

1. The other claimant is Cathy Ribbera herself, as the ex-registered co-proprietor of 174A Gooch Street.  She disputed the claim by the broker and lender on grounds that I shall come to.  But she also disputed the trustee’s claim to a 50 per cent interest in the land at 174A Gooch Street.  She contended that the whole of the previously un-subdivided land at 174 Gooch Street  was a gift to her from her parents, and that her husband (and by legal extension, the trustee in bankruptcy) had as co-owner an interest less than 50 per cent, and on subdivision, his interest was likewise less than 50 per cent.  That lesser interest was not quantified.   

1. After the presentation of the trustee’s application in Court, I gave an immediate decision and unwritten reasons to allow his application.  Later in this, a composite judgment, I shall recapitulate the reasons why the trustee’s claim had to be allowed.  It is sufficient to say at the outset that the trustee’s claim was allowed on an elementary application of the principle of res judicata (‘a matter which has been adjudicated upon’).  On 30 March 2017 Justice Murphy of the Federal Court decided in a final way, on an application brought by Cathy Ribbera against the trustee, that Paul Ribbera’s interest in the land at 174A Gooch Street was equal to hers.  Commensurate with that, 50 per cent of the funds in Court must go to the trustee in bankruptcy as plaintiff here.  I have already made orders giving effect to that outcome.

1. As for the 50 per cent balance of the funds in Court, the basis of Ms Ribbera’s opposition to the claim of the lender and the broker was not clear.  She does not deny signing the agreements, as director of the corporate borrower and as guarantor, on which the lender and broker make their claims.  Otherwise, I am afraid to say her conduct of the case has been disorderly and unhelpful to the court, and her own interests.  The Court had to, with difficulty and in the face of some discourteous behaviour from her (which I will attribute to her distressed situation and a transmission of her strong views about conduct of the broker and lender)  try to ascertain the grounds of opposition to the claim.  It has been said that ‘A frequent consequence of self-representation is that the court must assume the burden of endeavouring to ascertain the rights of parties which are obfuscated by their own advocacy’.[5]  This burden of ascertaining her rights came to be tested as the case involved a factual enquiry and agitated some substantial legal issues, on which a litigant in person could not be expected to grasp and make submissions.  I have to say, the conduct of this case has created an extraordinarily active role for the Court in identifying and analysing the legal issues for identification.  As I apprehend the decision might possibly be a matter of significance to the claimants’ business, it would have been of real benefit to have an opposing argument preferably by legal representation to properly adduce the facts and moreover to really test the legal points which I think were testable. 

   [5]Neil v Nott (1994) 68 ALJR 509, 510.

1. In the end, the Ribberas in effect left it up to the Court.  That should not put a duty on the Court to find or run a case for them.  Moreover, just because there is a litigant in person does not mean the proceeding loses its adversarial quality, or, that burdens of proof are put to one side.[6]  Yet, recent appellate statements say that to ensure fairness and balance, my role is also to ensure that a self-represented litigant does not become an ‘unwitting victim of the pitfalls that the adversarial system can present to those uneducated in the law’.[7]  Such formulations give way to the exigencies and practical necessities of observing the interests of justice in an imbalanced situation and ensuring cases are decided according to law.  The Court is unavoidably inducted to not only putting the claimants’ case to the test, but to see if the litigant in person has a latent case in opposition.  A judgment call has to be made in each case how far to go. 

   [6]Cicek v Estate of late Solomon [2014] NSWCA 278, [130].

   [7]See Redzepovic v Western Health [2016] VSCA 251; Loftus v ANZ (No 2) [2016] VSCA 308; Trukulja v Markovic [2015] VSCA 298.

1. In the way the case was conducted, Ms Ribbera’s case is to be understood as based on two grounds of opposition.  First, she says that the agreements with the broker and the lender were the product of duress — that was her description.  She says there was a hard or pushy sell by the broker, and by extension the lender, for her to sign the loan documents part of which extended to inducing the involvement of her parents to provide additional security.  The duress, she portrayed, was part of a general attack on the honesty of the dealing and the charging of ‘astronomical’ fees.  In essence, her case was that pressure was exerted and the agreements were unfair in requiring her to pay big fees for a loan that did not proceed. 

1. The second issue attracted greater attention.  Ms Ribbera asserted she should not have to pay fees and expenses if a loan was not made even if she was the one that, in effect, withdrew from the loan on offer.  When asked by the Court to grapple with the fact that the signed agreements obliged the borrower to pay fees and expenses if the acceptance of the offer of finance was later withdrawn, her response was ‘Like what did they do to earn that money?  There’s got to be some logic here Your Honour.  What did they do to earn that money?’[8]  That is the same as asking ‘Why should I have to pay fees for taking out the loan if the loan was not taken out?’  That is a reasonable question.  The lender responds ‘because that is what you agreed to do’ and the Court’s role is not to relieve a party from a contractual obligation merely on the ground that the contract proves to be onerous or imprudent.  In the case of the broker, it procured the loan for the borrower.  As for the lender, it offered to make the loan and was always ready and willing and able to lend on conditions including the giving of certain security.  When the parents became unwilling to give the additional security the borrowing could not proceed and the Ribberas withdrew.  Thus, as I see it, the Ribbera’s complaint could be sharpened to say: ‘Why should we pay these fees on a loan that was not made because our parents would not give the security as required by the lender?  We did not promise they would.’ 

   [8]Transript 119, 122.

1. This agitates the second issue: was there was consideration for the borrower’s promise to pay commission and other expenses if the borrower could not proceed?  That is, what was the lender’s quid pro quo for that promise?  That is a question of construing the agreement.  In doing so, the law of contract is concerned with the reality, not the adequacy of the consideration, although the adequacy of consideration may be the concern of equity in the case of a disadvantageous transaction procured against good conscience. 

1. There came to be a third issue which accosted the Court.  It was not raised, in terms, at trial by the Ribberas, or in  anticipation by the claimants.  It concerns the doctrine of penalties in the law of contract.  A substantial part of the lender’s claim is for payment of a ‘Discount Establishment Fee’ of 2.2% of the loan.  After the conclusion of the trial, and having reserved my judgment, I discovered for myself that on 23 June 2017 the Victorian Court of Appeal published its decision in Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd.[9]  That was a case of a loan ‘to persons who might not otherwise qualify for loans from the major banks’ (like here it seems) and where the borrower failed to settle a mortgage loan within the time stipulated in an offer from the lender.  An establishment fee of $26,625 on a loan advance of $500,000 (equivalent to 5.32% of the loan) was payable as a component of a liquidated damages clause.  Amidst various grounds of appeal, and on facts I shall expose later, the Court of Appeal in Gippsreal held by majority that the establishment fee was unenforceable as a penalty.[10]  That decision rejected a submission that a justification of the establishment fee was the risk inherent in the loan, because the risk of a loan defaulting has no relevance when a loan does not proceed.[11]  Coincidentally, there was an anterior issue in Gippsreal whether the penalty point was pleaded by the borrower or was raised in submissions at trial for consideration by the trial judge.  The trial judge regarded the point as not having been submitted by the borrower, and therefore did not consider it.  The Court of Appeal decided, unanimously, that the penalty point was raised, and the trial judge was in error in not considering it.   

   [9][2017] VSCA 161.

   [10]By Kyrou JA and Cameron AJA; Maxwell P not deciding on the ground of insufficient evidence or no opportunity by the lender to adduce evidence to decide on appeal whether the fee was a penalty.  

   [11]Gippsreal at [200].

1. It is not quite the same situation here, but as Gippsreal concerned an establishment fee for a loan that did not proceed, the case had a resemblance or a significance that was enough to my mind to invite the parties to file written submissions whether the establishment fee did or did not constitute a penalty.  I did so recognising expressly that the Ribberas had not specifically argued a penalty point, and that evidentiary questions may arise preventing it from being raised if it was something more than a question of law on existing facts.  As it had not been an issue, there had been no evidence at all from the lender about the basis or justification for the establishment fee or the lender’s legitimate and commercial interests protected by the fee.  In addition the recent decision of the High Court of Australia in Paciocco v Australia and New Zealand Banking Group Ltd[12] (which was considered in Gippsreal) might be regarded as ‘new law’ which commentators say has its own difficulties in content and in application.[13]  The Ribberas cannot be expected as litigants in person to deal with a doctrinaire matter. 

   [12](2016) 258 CLR 525.

   [13]See Carter et al, ‘Assessment of Contractual Penalties: Dunlop Deflated’ (2017) 34 Journal of Contract Law 4; Gray ‘The Law of Penalties and the Question of Breach’ (2017) 45 ABLR 8.  See also Tiverios, ‘A restatement of relief against contractual remedies (II): A framework for applying the Australian and English approaches’ (2017) 11 Journal of Equity 185.

1. Written submissions were filed by the lender and broker seeking to distinguish Gippsreal.  The lender contended in essence that as a matter of construction of the agreement here, the establishment fee was not part of liquidated damages but a freestanding contractual obligation not referable to breach, and therefore the law of penalties was not engaged. The lender also contended that the penalty point was not put by the Ribberas and should not be allowed now, and could require evidence if the case was to be reopened.  Ms Ribbera filed written submissions which might be taken to intensify the consideration point, saying (with her emphasis): ‘It is evident that Lightspeed Finance and Prime Capital did not provide any services for the costs they are claiming.  It doesn’t make sense that you can claim commission on nothing.’  Her submission complains about a lack of honesty in the whole dealing and refers the Court to a report of a Senate Enquiry about unfair practices in the broker industry, the exploitation of a borrower’s dependency on brokers, and the charging of ‘astronomical costs’. 

1. An absence of consideration and a striking down of a penalty provision are two different matters.  But there could be a connection of the thinking on the two according to the essential facts of what occurred here.  That is, if a condition (that is, a prerequisite) of giving the loan was her parents’ supporting security, and they could not give it, that means the loan cannot proceed.  As the borrower has not made a promise to provide that security, there is no breach of contract by the borrower giving rise to compensatory damages and therefore the doctrine of penalties (for breach) has no work to do.  The Ribberas could be taken to be saying: as the loan could not proceed for that unfulfilled condition, for what is the offeree paying the establishment fee?  Is that a penalty according to Gippsreal?  If not, even if it appears unfair to pay fees for a non-existent loan, is that the obligation that was incurred under the contract and which is enforceable at law?

1. I think the Court is bound in the interests of justice to consider the penalty point.  I shall return to it ultimately.  But first I shall deal with the opposition to the trustee’s claim.

The claim by the trustee in bankruptcy

1. As stated earlier, the legal effect of the bankruptcy was to sever the joint tenancy over the land at 174A Gooch Street, Thornbury.  Early in this proceeding, Ms Ribbera told the Court she intended to challenge the trustee’s claim.  She appeared to be raising an unquantified equity to divest the trustee in bankruptcy of his entitlement under the Bankruptcy Act to the property of the bankrupt.  Such a claim by her was a matter in bankruptcy which came within the exclusive jurisdiction of the Federal Court, and not a matter capable of being cross vested to this Court.[14]  The onus was on her to take steps in the Federal Court to make her claim concerning her proprietary interest in the land at 174A Gooch Street. 

   [14]See Turner v Gorkowski [2014] VSCA 248; Truthful Endeavour Pty Ltd v Condon [2015] FCAFC 70; Jakimowicz v Jacks [2016] VSCA 42.

1. On 13 or 14 October 2016, Ms Ribbera filed an application in the Federal Court of Australia against the trustee in bankruptcy by which she challenged his claim or assumption of 50 per cent ownership of the land at 174A Gooch Street.  She failed or refused to file or serve any affidavit material or written submissions or a chronology of events as was required.  As she did not attend the hearing of the case, on 30 March 2017, Murphy J dismissed Ms Ribbera’s claim and ordered her to pay the trustee’s costs on an indemnity basis.  On 5 April, his Honour delivered written reasons for judgment to which it is necessary I make some reference.  His Honour recited the elements of the application to the Court in this way:

15.On 17 October 2016 Ms Ribbera filed an Originating Application in this court with an affidavit in support sworn 13 October 2016.  The application was apparently drafted without the assistance of a lawyer but it made it clear enough that Ms Ribbera sought a declaration that the Trustee was not entitled to half of the proceeds of the sale of the Property.  Ms Ribbera appeared to accept that the Trustee was entitled to an unspecified percentage share of the proceeds of sale, but less than 50 per cent. 

16.Although prior to its sale Mr and Ms Ribbera were the joint registered proprietors of the Property, in the proceeding Ms Ribbera claimed that she owned most of the Property as it was a gift from her parents.  She pleaded (leaving the errors as they are):

The subject property was jointly owned in names only.  We had a verbal agreement between myself, Paul Ribbera and my parents that my share would be more than 50% interest due to the fact that my parents gifted us the property.  Most important, I take care of my brother in the future, whom has disabilities.  This was not to be as Paul used more than his share on legal costs believing he would success with the support of my parents. 

17.      The questions in the proceeding were:

(a)whether Ms Ribbera held the proceeds of sale of the Property on trust for the Trustee; and

(b)whether Ms Ribbera has a greater than 50 per cent interest in the Property.

1. His Honour stated that there was no proper basis for her claim, even though she did not appear to prosecute it.  After dealing with the effect of s 58(1)(a) of the Bankruptcy Act which effects a severance of the joint tenancy, his Honour stated:

28.There is no cogent evidence to indicate that Mr Ribbera’s interest as joint tenant was less than an equal share.  The material goes no further than a broad claim that there was a verbal agreement between Mr and Ms Ribbera and her parents that Ms Ribbera’s share would be more than 50 per cent.  It is unclear how Ms Ribbera proposed to establish her case.

1. Ms Ribbera has not taken any steps to set aside or appeal that judgment.  Accordingly, in accordance with the principles of res judicata, any claim she asserts to a greater than 50 per cent interest in the property has been rejected by the competent Court, and has passed into judgment so as to lose its independent existence.  The matter is not one of the discretion of the Court but operation of law.  The cause of action by her has ceased to exist and it is no longer competent for her to maintain the same opposition to the plaintiff’s claim here.[15] 

   [15]See Chamberlain v Deputy Commissioner of Taxation (1987) 164 CLR 502, 510.

The remainder of the claims

1. The claims are not, relatively speaking, for a lot of money in commercial litigation in the Supreme Court.  But it will be a lot for the Ribberas.  I had made orders that the hearing of the application by the broker and the lender proceed as a trial by affidavit subject to cross‑examination on notice.  As I have said, the Court was hampered by the absence of any clear revelation in the affidavit material filed by Cathy Ribbera about the grounds and the facts upon which she opposed the claim by the broker and lender.  Ultimately, she contended adamantly that her case could be shown according to documents in her possession.  On the faith of that, I made a specific order on 20 February 2017 that ‘whether or not Cathy Ribbera files any additional affidavit, she shall by 14 March 2017 prepare a ring-binder of all the documents on which she seeks to put before the Court to oppose the claim.’ 

1. The trial proceeded as a trial by affidavit.  There were no notices served for cross‑examination of any deponent.  There was no additional unwritten evidence.  The Court was left in the position where it was deciding the claim on untested affidavit material.  The Court had its real apprehensions about resolving possible conflicts as between affidavits or possibly questions of fact or credibility.  In addressing the court, Ms Ribera kept slipping into casual accounts of conversations or discussions, none of which were documented in any way or otherwise the subject of sworn evidence.  The claimants’ case was based on affidavits explaining the assessment of the loan applications producing the transactional documents, agreements, correspondence and business records, thus at least equipping the Court to see the objective documented evidence.  Their case rested on the terms and construction of the agreements.

1. For completeness, I should identify the written evidence adduced ―

(a)   an affidavit of the plaintiff, Nicholas Giasoumi sworn on 16 March 2016 (which identifies the properties, the sale, the funds in Court and the interests of the lender and the broker);

(b)   an affidavit of Paul James Scanlon sworn on behalf of the lender on 27 April 2016 (he is a director of the lender);

(c)    an affidavit of Mark Fitzpatrick sworn on behalf of the broker on 6 July 2016 (he is a director of the broker); and

(d)  a second affidavit of Mark Fitzpatrick on behalf of the broker sworn on 6 February 2017.

1. Ms Ribbera swore three affidavits sworn on 28 September, 13 October and 15 December 2016.  In addition to those affidavits, Ms Ribbera filed, as she was ordered, a binder of documents, comprising 95 pages.  This compilation was treated by the Court as being the documents by which she contended she had grounds for opposing the claim.  Twenty one pages of that folder concern correspondence passing between her and the Financial Ombudsman Service Australia (‘FOSA’) between 18 January 2016 and 11 July 2016.  I regard the FOSA documents as irrelevant.  In any case, the reference to the FOSA went nowhere as the outcome was to inform her that the FOSA ‘cannot consider the dispute because the issues in dispute are more appropriately dealt with in the Supreme Court of Victoria’.  Under its Terms of Reference, the FOSA may refuse to consider, or continue to consider, a dispute if it is considered that such a course of action would be inappropriate, for example, because there is a more appropriate place to deal with the dispute such as a court or tribunal or another dispute resolution scheme.  As I read the material, it seems that the complaint made to FOSA concerned the lodgement of caveats by the broker and the lender under the agreements by which they were acting.  The FOSA took the view that the issue whether there was an entitlement to lodge the caveats was inextricably linked to the funds paid into court. 

1. The remainder of the material in Ms Ribbera’s compilation of documents is made up of some of the documents already in evidence and e-mail correspondence largely with the broker.  Her material shows she had a solicitor, a Mr Sam Ferraro advising her and speaking to the broker although I cannot tell to what degree.  Her own documents tend to support the view that the broker and the lender were looking, at her request, for an acceptable financial arrangement by which to extricate her and her husband from the judgment for possession of the land, and the imminent mortgagees’ sale.  And this is really where the story starts.  That is, the broker and the lender came to be involved, at Ms Ribbera’s request, in distressed circumstances to try and pay out the existing mortgagees who were about to take possession and then sell their properties.  For the lender, there was apparent risk.  Mr Ribbera was bankrupt.  The trustee in bankruptcy had to be paid out to free 174A Gooch Street as a security in a situation where Cathy Ribbera was contending her husband’s equity was less than 50 per cent.  There would have to be a high loan to value of security ratio.  Commercially, it had to be a short term lending, until the Ribberas could stabilise their situation with another lender. 

1. The following narration amounts to my findings of fact in this case from the affidavits as filed by all parties and Ms Ribbera’s compilation of documents.  An absence of any reference to facts from those sources does not mean I reject or disregard that evidence.  It means no more than I have had to, in this laborious case, isolate the documented and objective facts to explain the essence of the dealings and the claims by the broker and the lender. 

The facts

1. The commencement point is that a Notice to Pay from the existing mortgagees was served on the Ribberas on about 4 June 2015, seeking a total amount owing of $1,011,922.05.  According to those notices, the loan for which the mortgage was given expired on 1 May 2015 and the total amount owing under the mortgage facility agreement was due and payable.[16]  By June 2015, Ms Ribbera had consulted a firm called Carlton Ross which, she says, ‘assists with bankruptcy issues’.[17]  It appears that Carlton Ross had somehow helped her to make an application for refinancing to Lightspeed Finance.  Certainly, the documents show that by 15 June 2015 she was asked by Carlton Ross to fill in an application form for finance.[18]  Ms Ribbera produced the ‘Application For Finance’ to Lightspeed Finance which she and her husband signed on 15 June 2015.[19]  The amount sought is not stated.  The application valued the two properties at $1,580,500.  It stated their liabilities as $1,172,922 made up mostly of the moneys owed to the mortgagees.  It is noticeable that in the application ‘The lender’ is defined to mean Lightspeed Finance and any related corporation.  The application form does not state that Lightspeed was acting as broker.  Indeed, Ms Ribbera exhibits from the internet a statement of ‘Our Service Promise’ that:

Lightspeed Finance is entirely self-funded in most cases.  This means every step of the loan process from application through to settlement is handled in‑house, without the need to rely on third party finance providers.  Our experience lets your business enjoy the benefit of rapid loan turnaround times, backed by competitive interest rates.[20]

[16]Exhibit NG 04, document D.

[17]Affidavit of Cathy Ribbera dated 15 December 2016, para 1.

[18]See Cathy Ribbera’s compilation of documents (the ‘Compilation’) pp 1-5.

[19]Compilation pp 6-12.

[20]Compilation, p 13.

1. There was no evidence about the association between lender and broker, nor on the question of self-funding.  The claims for fees, and separate identification of the lender’s and the broker’s obligations were made according to the legal relationships under the agreement as signed.

1. Ms Ribbera says that during the refinancing process her lawyer advised her that the owner of Carlton Ross was the author of a book named ‘How Not to Pay Your Debts’.  She says she then came into ‘the grips’ of the broker:

I immediately stopped using the firm [i.e., Carlton Ross] but had already commenced the process with Lightspeed Finance Pty Ltd.  By this time I was in the grips of Lightspeed Finance Pty Ltd as I was running out of time due to delays by the trustee Mr Nicholas Giasoumi and I was pressured by them to rush the process because I would lose my property.  Lightspeed Finance Pty Ltd staff constantly brought to my attention the financial position I was in and that I would lose my properties if I didn’t hurry and sign their documents.[21] 

[21]Affidavit of Cathy Ribbera dated 15 December 2016, paragraph 1.

1. The next document to come into existence was a ‘Mandate to Act’ from Lightspeed Finance dated 1 July 2015.[22]  This may be called the first mandate.  The description of this document as a ‘mandate’ carries with it an imperative burden, but labels do not matter in the law.  The first mandate has Lightspeed Finance as not being the prospective provider of the loan, but as agreeing to take all reasonable steps to procure approval of the loan sought for a fee of 1% of the loan amount.  That fee was payable on settlement. 

   [22]Exhibit MF 3.

1. This first mandate identifies the applicant being Ditch It Pty Ltd, and the guarantors as being Cathy and Paul Ribbera.  Elsewhere in the documentation the borrower is identified slightly differently as Ditch It (Vic) Pty Ltd.  Ms Ribbera made an issue in court about the absence of ‘(Vic)’ in the corporate name as stated in the first mandate.  She asserted that the company was incorporated at the insistence of the broker to ‘avoid’ consumer lending laws, which are inapplicable to corporate borrowers.  But, in evidence is an official company search for Ditch It (Vic) Pty Ltd, showing it was registered on 6 February 2014 which was well before the first mandate, with Cathy Ribbera as sole director, company secretary and shareholder.[23]  The ACN number is the same as in the first mandate.  Thus I find that despite the missing ‘Vic’ in one location on the first mandate, the borrower was to be Ditch It (Vic) Pty Ltd (ACN 167 919 253).  As the borrower (‘Ditch It’) is a corporation, the dealing is outside the National Credit Code.[24]  That disposes of another argument made by Cathy Ribbera that she should have been given a scale or information about the charges, commission  and expenses of the loan akin to the stringent regulation of consumer loans.

   [23]Exhibit PJS 2.

   [24]See s 5.

1. The first mandate said (with my underlining):

This mandate confirms that Lightspeed Finance Pty Ltd has been appointed by the Applicant(s) to obtain approval of a loan facility for property(s) as detailed in the table above schedule and otherwise on reasonable terms and conditions, and to provide ancillary services.

…

Lightspeed Finance Pty Ltd will assess the Applicant(s) information and prepare the submission on behalf of the Applicant(s) and will take all reasonable steps to procure approval of the loan sought.  It is acknowledged on behalf of the Applicant(s) that any valuation fee and other usual fees and charges from Lightspeed or its Nominee(s) are expected to be payable in connection with the envisaged loan transaction. 

The Applicant acknowledges that in consideration of the services to be performed by Lightspeed Finance Pty Ltd pursuant to this mandate:

a)Mandate Fee is payable to Lightspeed Finance Pty Ltd as detailed in the schedule below and in the Letter of Offer.

b)The Applicant(s) further acknowledges that the fees payable upon settlement of an acceptable loan offer, and should the borrower choose not to proceed for whatever reason after the loan approval has been obtained and accepted, the below fees are still payable.

c)It is acknowledged that the Lightspeed Finance Pty Ltd Mandate Fee A is payable upon settlement of the loan and Mandate fee B is payable upon signing (non refundable) which is deducted from Mandate A upon settlement.

d)In signing this mandate, it is acknowledged that Lightspeed Finance Pty Ltd or its Nominated Financier may caveat any real estate and other assets owned by the client to recover any mandated, establishment and legal fees not paid by the client.

e)The Establishment Fee, Mandate Fee and legal fee remain payable under this agreement (please refer to Letter of Offer).

1. The schedule to that document states that there was payable: a mandate fee of 1% of the loan amount (including GST); a fee of $1,000 payable upon signing to be deducted from the 1% mandate fee upon settlement; and an establishment fee according to a letter of offer to come from the finance provider. 

1. The first mandate, dated 1 July 2015, was signed by Cathy Ribbera for Ditch It and by the Ribberas as guarantors on 12 July 2015.[25]  But curiously, there is also in evidence another letter also dated 1 July 2015 from the lender Prime Capital addressed to Ditch It.  The letter stated that an application for a loan facility had been approved on terms and conditions as set out in the letter, and the offer would expire on 6 July 2015.[26]  It was an offer for a commercial loan of $1,175,000 with a facility expiry date of 12 months.  It required a guarantee from both Paul and Cathy Ribbera and identified the security as a freehold mortgage over 174A and 174B Gooch Street.  There was also reference to a broker fee payable to Lightspeed Finance.  The acceptance of the offer was signed by Cathy Ribbera, but not dated.  But within the same document, a ‘Declaration of Purpose’ that the loan was wholly or predominantly for business purposes or investment purposes was signed by Paul Ribbera on 12 July 2015 as was, on the same date, a guarantee by him and Cathy Ribbera.  That coincides with the date of the first mandate and the date on which the first mandate was signed by the Ribberas.  There was no evidence giving an explanation for this oddity.  If, on 12 July 2015, the Ribberas on behalf of Ditch It gave a signed acceptance of the offer and gave a guarantee, the only evidence I have about this dealing comes from the lender to say that ‘The borrower subsequently advised that it would not be proceeding with the loan’.[27]  

   [25]Exhibit MF 3.

   [26]Exhibit PJS 3.

   [27]Affidavit of PJ Scanlon at [12].

1. Whatever the oddities, as neither the broker nor the lender seeks to make any claim arising from the procuration and offering of this finance for $1,175,000, I need say no more about it.  I do not understand Ms Ribbera to be making any point about it.  What matters is that the first mandate is the agreement on which the broker makes its claim on having obtained two subsequent offers of finance from the lender, to which I will come later. 

1. The first mandate authorised the broker to receive financial and other information about the borrower and the security and obliged the broker to assess that information and prepare submissions on the borrower’s behalf to get approval of a loan.  The mandate carried with it the obligation to pay fees on settlement of the loan procured, and the giving of a charge by the borrower to recover the fees payable under the mandate.  More to the point, it obliged the borrower to pay the broker’s fees ‘…should the borrower choose not to proceed for whatever reason after the loan has been obtained and accepted…’ (my emphasis).

1. On 21 July 2015 (that being the date of the mortgagees’ County Court default judgment for possession), the broker told Cathy Ribbera that the valuations had been obtained for their land for $1.54 million.  On a loan to value ratio of 75 per cent, the loan would be $1.155 million which was a little more than the debt to the mortgagees of $1,011,922.[28] 

   [28]Compilation Tab 2 p17.

The first offer of finance

1. Prime Capital made an offer of finance by letter dated 23 July 2015.[29]  This may be called the first offer.  It was expressed to expire on 28 July 2015.  It was an offer for a facility of $1.2 million for a term of 12 months.  The borrower was identified as Ditch It.  Section 5 of the offer listed the security ‘we will need before we will provide the Loan to you.’  The security was a guarantee from the Ribberas and Cathy Ribbera’s parents Dimitrios Kerasovitis and Sofia Kerasovitis.  The security property was a first all moneys mortgage to be given by her parents over their property at 51 Wilmoth Street in Thornbury, and, a freehold mortgage by Cathy Ribbera over 174B Gooch Street.

   [29]Exhibit MF 4.

1. Part of Cathy Ribbera’s complaint as stated in Court was the use of her parents as guarantors and mortgagors.  As I distil from the documents in evidence,  at about this time the mortgagees were about to take possession of 174B Gooch Street (owned by Cathy Ribbera) thus taking away a security, which made any possible loan from Prime Capital to payout the mortgagees not viable.  It appears by this stage that there was the prospect of taking security over her parents’ home at 51 Wilmoth Street.  That had an unencumbered value of $850,000 which when added to the security of 174A Gooch Street would give a total value of $1.62 million which could sustain a loan of $1.2 million on a 75 per cent loan-to-value ratio. 

1. I do not see in the e-mail correspondence any manifestation of duress or pressure or hard selling by the broker or the lender about the parent’s possible involvement.  An email dated 28 July 2015 from the broker said (with my emphasis)[30] ―

   [30]Compilation, p 19.

Hi Cathy,

Thanks for the update earlier, we have attempted to contact Doug after our conversation but have been unsuccessful so far.  Our office believes it is important to re-iterate our position, the position of our lender and your position so we can be very clear.

·Current Finance offer $1,200,000* (Approx as we have yet to obtain pay out figures)

·This is based on two properties i.e. 174 Gooch St & 51 Wilmoth St

·is willing to lend on this basis

·LVR (loan value ration) to 75%

·Using only 1 property will null and void any offer, LVR and ability to lend anything at all

Security: 51 Wilmoth unencumbered $850,000

Security: 174 Gooch St Valuation $770,000

Value Total: $1,620,000
Divided by
Debt Total: $1,200,000

+72.7% (maximum LVR is 75%)

This is without fees factored in*

As we have now lost (bank taken possession) one property from 174 Gooch St we are unable to lend based on just 1 property, there simply isn’t enough equity/security.

We are keen to understand Doug’s scenario to move forward without finance, if so lets all work together towards it.

Time is not on your side here unfortunately Cathy.  We have a lender ready to go and will be able to notify all parties and get you back on the track, further we would assist in 12 months’ time to again refinance with a commercial lender.

We then look forward to your instructions.  We need to notify our lender if this is to be financed or not to be financed.

Please advise asap.

1. In the lender’s letter of offer, the Fees and Costs included a ‘Discount Application Fee’ of 2.2% of the Facility Limit of $1.2 million.  The letter of offer contained these relevant terms (with my underlining):

7.        FEES AND COSTS

The following fees and costs apply to this facility:

Fees and Costs

(a)	Application Fee	$3,600
(b)	Discount Establishment Fee*	2.2% of Facility Limited
(c)	Broker fee – Lightspeed Finance	Refer broker
(d)	Legal documentation preparation	Costs incurred
(e)	Valuation fees	Costs incurred
(f)	All other fees, costs and outlays incurred by the Lender, including but not limited to stamp duty, title searches, ASIC and other search fees.	Costs incurred
Amount Payable (to the extend [sic] ascertainable)	Not ascertainable

Please note the Discount Establishment Fee will only be accepted where no Event of Default occurs, and a higher fee applies in all other cases as outlined in the General Terms.

…

Up Front Contribution to Fees and Costs

Upon execution of this Offer Letter by you, we require a payment of $3,600 towards these fees and costs.  This payment will be deducted from the fees and costs outlined above, and are NOT in addition to them.

Valuations, loan and security documentation may not be ordered until this payment is received from you.

All fees and costs are payable on the earlier of 30 days from the date of this letter or the first drawdown date, and if not paid by you to us, will be deducted from any funds advanced. 

You hereby authorise the Lender to instruct solicitors to proceed with the preparation of the loan documents and acknowledges that all fees, costs and outlays charged by such solicitors are payable by the Borrower immediately upon demand, even if the loan does not proceed for any reason whatsoever (including as a result of the withdrawal or revocation of this letter by the Lender).

Withdrawal of Loan Offer

This Offer Letter may be withdrawn or revoked by the Lender at any time prior to the Loan or part of the Loan being advanced to the Borrower:

(a)If settlement is not effected within 30 days of acceptance of this letter or within a prior period which in the Lender’s opinion is unduly prolonged.

(b)If circumstances or facts arise or come to the Lender’s notice which, in the Lender’s opinion may be prejudicial to the Lender’s interests or results in a situation where it would in the Lender’s opinion be uncommercial for the Lender to provide the loan.

(c)If the provisions of the consumer Credit Code are deemed to apply to the loan.

The Lender shall incur no liability whatsoever if it withdraws or revokes this Offer Letter.

Costs if you withdraw from this Offer after acceptance or the Loan is cancelled

Once accepted, this Offer Letter cannot be subsequently withdrawn or revoked by you unless you request same in writing and the Lender agrees.

If after you have signed this Offer Letter you later withdraw, or the loan is not drawn down within thirty days after the acceptance date, or the proposed funding is cancelled by the Lender in any circumstances, in addition to any other monies payable you and any Guarantor(s) will pay us the liquidated damages set out under the heading below ‘Liquidated Damages’.

Liquidated Damages

The Liquidated damages that we will suffer in any of the above circumstances will be the amount of $3,600 plus all Fees and Costs incurred (including legal costs on a full indemnity basis) and the fees outlined in section 8 above [this is an obvious mistake that should refer to section 7].

You acknowledge that these liquidated damages are a genuine pre‑estimate of the loss that we will suffer in such circumstances.  These liquidated damages will be deducted from any moneys already received from you.  This also reflects that on your signing of this acceptance, we will instruct solicitors to prepare loan documentation.

You and the Guarantor(s) charge all present and after acquired property in favour of the Lender in respect of monies payable to the lender including fees and costs outlined herein and any costs incurred or payable by the Lender under or in connection with the transactions contemplated by the parties in this Offer Letter, including (without limitation) any costs incurred in the preparation of any document (whether executed or not) in connection with those transactions and any costs incurred in considering, reviewing and negotiating those transactions and of recovery or enforcement action irrespective of when and how they arise or are incurred.

8.        IMPORTANT NOTICE

Please note this is not an unconditional offer for financial  accommodation and should not be relied upon as such by any party.

Any Advance is conditional upon the various matters outlined herein, satisfactory completion and execution of the General Terms and includes you providing us with information which is satisfactory to us in our absolute discretion.  The Loan is subject to a valuation of the property offered as security by a valuer acceptable to the Lender at the Borrower’s expense.  Such valuation is to be to the Lender’s satisfaction. 

This letter represents a brief summary of facility terms, the full terms of which will be outlined in the General Terms which will be prepared by our lawyers.   Those documents will prevail over this conditional offer. 

…

ACCEPTANCE BY THE BORROWER

…

(c)       By accepting this Offer Letter you acknowledge and agree that:

(i)a legally binding contract between us and you is created on the terms set out in this Offer Letter and the General Terms.

…

1. There was no evidence adduced about the General Terms that under the ‘Important Notice’ were supposed to prevail over the lender’s offer, and be part of the ‘legally binding contract’.

1. The Letter of Offer was expressed to expire on 28 July 2015, even though it seems to have been signed on 5 August 2015.  Her parents signed the second Letter of Offer as guarantors on 5 August 2015 in the section ‘Guarantor’s Acknowledgment’.  That signed and witnessed acknowledgement appears to me to be a guarantee in itself.  To understand what followed, the best I can do is try and cobble together the relevant facts about the subsequent events from some emails that are contained in the compilation of documents from Ms Ribbera, as follows.

1. Loan and security documents were prepared for signature by all parties concerned.  They are not in evidence.  Difficulties were encountered by the broker or lender in obtaining signatures on those documents.  E-mail correspondence shows that the Ribberas were not responding to telephone calls and emails from the broker.  I sense the broker was acting with a sense of urgency and apprehensive that settlement of the loan was going to be jeopardised in circumstances where by 5 August 2015 the mortgagees had already taken possession of 174B Gooch Street and were due to sell the land.  The broker was insisting that her parents had to sign guarantees in the presence of an independent lawyer.[31]  To that end, by 20 August 2015, the broker arranged for an independent lawyer, Mr Paul Douros of Douros Jackson Lawyers in Sunshine, to be consulted by the parents and to prepare a certificate of independent advice to satisfy the lender that the parents understood the nature and burdens of their obligations as guarantors and mortgagors.  Once that was done, the loan could go through and ‘you’ll be back into your property within hours’.[32]  It seems that by this stage Paul and Cathy Ribbera had actually been dispossessed of their home. 

   [31]Ibid, p 33 (but note clause (c) to the earlier ‘Guarantor’s acknowledgment’ in the First Offer.)

   [32]Ibid, p 34.

1. The e-mail correspondence, rather than showing duress or importunity, seems to me to show the broker was urging on the Ribberas the importance of having her parents attend an independent solicitor to sign the guarantee to enable the loan to proceed and to help them recover possession of their property.  To that extent, the broker was willing to organise transport for her parents to attend to consult the independent solicitor.[33]  This was said by Cathy Ribbera to be part of the pressure, but I do not see it that way.  It was the necessary, if not, prudent thing for the lender to do. 

   [33]Ibid.

1. By 20 August, the communications from the broker show frustration on its part as settlement of the loan was due to take place on that day and that ‘many parties have now put in a mountain of work with no finance to you’.[34]  The only evidence I have is that on or about 27 August 2015 the lender was told that the loan would not be proceeding as Cathy Ribbera’s parents ‘had decided not to sign the guarantees and security documents’.[35]  The security from the parents was critical to the viability of the loan on any assessment.  Indeed it was a condition of the loan.  Settlement of the loan did not proceed, and the lender regarded the deal to lend $1.2 million as being over.

   [34]Ibid. 

   [35]Scanlon [24].

The second offer of finance

1. The precise facts are not available, but by 9 September 2015 a proposal emerged to borrow a lesser sum.  On 8 September 2015, Ditch It and Cathy Ribbera and her parents as guarantors, signed a second mandate to act with the broker.[36]  An e-mail from Carlton Ross to the broker said:[37]

Please be advised that Cathy and Paul have instructed me that they would like you to go ahead with brokering finance for them.  Cathy’s parents are willing to be security this time as it is for a significantly lesser amount. 

Cathy and Paul believe that $400,000 will be adequate and leave them room for the uncertainty of the shortfall figure from the sale of 174B Gooch Street. 

As discussed yesterday the Notice to Vacate has already been served on the property they reside in, they have been requested to vacate by Friday 11 September, so timing is of the essence. 

Cathy and Paul’s solicitor, Sam Ferraro, will be assisting with the execution of the loan documents  … 

Please email him the loan documents as soon as they are ready to sign.

[36]Exhibit MF 6.

[37]Compilation, p 36.

1. By letter dated 8 September 2015 Prime Capital offered a facility of $600,000 for a term of 12 months.[38]  The offer, expressed to be open until 13 September 2015 was in similar form and content as the first offer.  The borrower was Ditch It.  The guarantors were Cathy Ribbera and her parents.  But, unlike the first offer, the only security property was her parents’ property in Thornbury.  The interest rate had been lowered from 12.95 per cent to 11.95 per cent.  The liquidated damages were $600 instead of $3600.  Within the document signed was a declaration by her that the $600,000 credit was for a loan wholly or predominantly for business purposes or investment purposes, with a recognition that the National Credit Code would not apply.  That letter of offer was signed by Cathy Ribbera and her parents on 9 September 2015.

   [38]Exhibit MF 7.

1. This second offer was not on its face a variation of the first offer.  For the lender and the broker, it was a new dealing attracting a new set of fees.  Presumably the valuations would be the same; as would the loan and security documentation with minor alterations.  Thus, as Ms Ribbera complained, why should I pay more fees on ‘generic’ documentation?  There is no evidence about any discussions or statement from the lender concerning the accrual of a liability to pay fees on the abandoned first offer (including an establishment fee) or why the first offer was not just varied to the lower amount of the facility limit. 

1. I gather from Cathy Ribbera’s compilation of documents that the settlement for the $600,000 loan was due to occur on 15 September 2015.  The documents show that the broker was insisting that her parents attend again on an independent lawyer to be advised about the proposed loan and their obligations as guarantors.[39]  To that end, the broker arranged for the same Peter Douros to be consulted and to make an advisor’s  certificate.    

   [39]Compilation, p 37.

1. Settlement of this second loan did not take place.  I cannot be sure, but there seemed to be a question or negotiations about how much the trustee in bankruptcy was willing to accept for Paul Ribbera’s half interest in 174A Gooch Street in order to enable that property to become entirely the property of Cathy Ribbera.  I can only suppose part of the financing arrangement would involve borrowing money from Prime Capital to pay out the trustee in bankruptcy.  The broker or the lender was not willing to proceed until told of the amount the trustee required as payment.  The independent lawyer Peter Douros also needed that same information to properly advise the parents about their exposure.[40]  This delayed settlement of the loan.  The solicitor acting for the Ribberas, Sam Ferraro[41] later reached an agreement with the trustee to settle on a figure of $120,000.  On payment of that sum the trustee said he would transfer his interest in 174A Gooch Street to Cathy Ribbera.[42]   

   [40]Ibid, p 40. 

   [41]Ibid, p 43. 

   [42]Ibid, pp 42, 43. 

1. The parents became unwilling to be guarantors and mortgagors on this second lesser loan.  Under the second offer, theirs was the only security property.  On 22 September 2015, Peter Douros informed the broker, Cathy Ribbera and Sam Ferraro that he held a lengthy conference with the parents on 16 September 2015.  He wrote with clarity:[43]

I have this evening had further lengthy and detailed discussions with Sofia on behalf of both Proposed Guarantors.  I note that this followed the lengthy conference I had with both Guarantors on 16 September 2015.

The additional information that was provided was reviewed in detail.  Circumstances surrounding the need for funding and the pressing actions by other lenders were reviewed, including the claims of the Trustee in Bankruptcy.  All aspects of the proposed arrangements were discussed and the ensuing consequences in relation to the property is now the subject of mortgagee claims. 

Whilst unable to provide further details of those discussions, the final conclusion and instructions given to me are that the proposed Guarantors are not prepared to provide the security requested.  The proposed Guarantors understand that the provision of security is a necessary condition for funding and that without it the loan cannot proceed.  The instructions were put to me on the basis that I will not be required to progress any further in this matter as the position was final. 

In those circumstances, I am unable to assist further.  I thought it appropriate to advise you of this outcome at the earliest opportunity.

[43]Ibid, p 41. 

1. The lender and the broker were looking to ascertain if the Ribberas were going to proceed or not, as the mortgagees were ‘not slowing down and are proceeding with sale of properties’.[44]  As at 23 September 2015 the broker said that even though the parents were unwilling to give security, the broker was still ‘positioned to settle finance if we are able to re-engineer some items in the deal.’[45]  One possibility proposed was for Lightspeed to take a second mortgage on the property to be sold by the first mortgagee.[46]  The payout figure for the mortgagee as at 17 September 2015 was $1,162,311.54. 

   [44]Ibid, p 43.

   [45]Ibid, p 50. 

   [46]Ibid. 

1. The property at 174B Gooch Street was sold by the mortgagees on 10 October 2015.  The sale was completed on 24 November 2014 with the outcome that $676,264.70 was taken by the mortgagees, with no surplus funds.  The mortgagees then took possession of 174A Gooch Street on 30 October 2015.

The proposal for a third offer of finance

1. There is an e-mail from the broker to Paul Ribbera dated 5 November 2015 which Cathy Ribbera singles out enthusiastically as making out her case.[47]  It said:

   [47]Ibid, p 54.

Hi Paul,

Thanks for the chat yesterday, I have spoken to Prime Capital who are happy to proceed with a loan if you are able to secure your inlays [sic, in-laws’] property as security in addition to Gooch St.

The mortgage or caveat over your parents place may be as little as $30-$50k (approximation) then you’re safe.

If you are able to secure this we will be able to forward loan documents to you for signing almost instantly. 

As for fees any liquidation damages incurred on the past 2 deals will be discounted, this will decrease the fees by $4,000.*

Whilst Prime are happy to try and move forward they are weary [sic, wary] that your parents will not want to proceed, therefore will not do any extra work until this is secured.

Please advise?

Value of the property @ Gooch St - $790,000 (based on higher valuation, not the sales price)

75% LVR is the maximum amount that can be borrowed + $592,500

Minus the current debts
Equity one: $1,180,000 - $170,000 + $470,000
Trustee: $40,000
Prime Capital: $55,110.75 - $4,000 (discount of liquidation damages)
Lightspeed: $22,000 + $5,000 (new application fee/50% discount)
Sam Ferrero: $5,000 (approx.)

Total Debt = $592,110
Total Equity = $592,500

*There will be unavoidable fees incurred for the new loan, however they will be greatly reduced.  Also note that liquidation damages are no longer payable (Prime Capital) if a new loan proceeds i.e. $4,000 discount.

1. This email was sent at a time when the mortgagees were in possession of the land, and  the second offer for a loan of $600,000 had been accepted by the Ribberas but could not proceed because of the parents’ unwillingness to give mortgage security.  The subject of the e-mail therefore, based on discussions between the broker and the Ribberas’ solicitor, was whether there was some other way to proceed with a new (third) loan proposal.  To that end, as the opening line shows, the lender still required additional security from Cathy Ribbera’s parents.  The reference within the email to debts to Prime Capital of $55,110.75 and to Lightspeed of $22,000.00 are the fees and expenses owing under the first and second loan offers which when added to the indebtedness to the active mortgagees form part of the aggregate of the debts for which the Ribberas needed financing.  The email states that a new loan (that is, a third loan to be offered) would attract fees in the same way as the first and second loans, but would be ‘greatly reduced’.  In the lender’s accounting, therefore, there was no continuum with variations and there would be three sets of fees and expenses to the lender and broker on three separate deals. 

1. The e-mail of 5 November 2015 does not of itself expose the legal unsustainability of the claims, as Ms Ribbera tried to make out.  Rather, I think it is being used by her to show the Court what they contend is the unfairness of the accumulation of fees.  That is, they could not proceed with another separate loan to rescue the situation if they were bound to pay the commission and fees on the two earlier loan offers, and then pay another round of ‘unavoidable’ commissions and fees.  In her written submissions she highlights the lender’s statement that the mortgage over her parents place could be as little as $30,000 to $50,000 to say that ‘…their Mandate to Act … sees them being paid astronomical costs on a deal that could have been made’.[48]  Subsequent emails produced by Ms Ribbera show that the broker kept alive the possibility of another offer of a loan, but she did not respond to communications from the broker.  As I follow the documents, the prospect of another loan did not advance because the Ribberas were disaffected by the accumulated fees and there was no prospect of using her parents’ property as security.  As I follow the negotiations, any further loan would have the Ribberas borrowing money on security to pay the accumulated fees and commissions.  I detect that the complaint made by the Ribberas to the Financial Ombudsman Service put an end to relations and the prospect of any financing. 

   [48]Submissions at [3].

1. On 19 December 2015 the mortgagees sold 174A Gooch Street for $715,000.  The surplus is what was paid into Court.

1. The Ribbera’s complaint to the FOS in January 2016 was put on the basis the fees charged by Prime Capital and Lightspeed were unfair since no loan was ever provided.  But, more than that, I construe the Ribberas’ complaint to be this: they ‘withdrew’ not unilaterally but because the parents’ security was unavailable; they were being charged fees on the first and second offer repetitively when all that occurred was a reduction in the facility limit; and ultimately could not rescue their financial predicament because to proceed to a possible third offer still carried with it the obligation to pay accrued fees for the first two offers and more fees for a third possible offer all of which fees were secured by mortgages and guarantees.  All of this, they say, in a situation of duress at the hands of the broker and lender.  

1. Do the facts make for a case in duress? That is the first issue.

Duress 

1. The facts of this case make it unnecessary to give a disquisition on the law applicable to contracts procured by duress, which can shade into the law of unconscionable conduct.[49]  It is enough to say the elements of duress are that[50] —

1.The offeror lender has used a form of illegitimate pressure, physical, economic or psychological, in order to compel the offeree to assent to a transaction;

2.that pressure left the offeree with no reasonable alternative but to assent to the transaction; and

3.the pressure in fact caused the offeree P to assent to the transaction or was a cause of the offeree assenting to it. 

[49]See generally: Cheshire and Fifoot Law of Contract (10^th Aust ed) Ch 13; Carter, Peden and Tolhurst, Contract Law in Australia (5^th ed), [22-14] ff.

[50]Adopting Cheshire and Fifoot Law of Contract at [13.1].

1. Pressure in its various forms, and strengths, and subtleties may be part of trade and commerce and can exist externally to the dealing as an operative factor on a complainant without any attribution to an alleged wrongdoer.  That is why, fundamentally, there must be an element of wrongful conduct constituting illegitimate pressure.  Taking the approach according to the well-known Crescendo Management[51] case, the Court looks first to see if there was any pressure applied to induce assent.  If there was pressure applied, the question is whether the pressure went beyond what the law would countenance as legitimate.  Pressure will be illegitimate if it consists of unlawful threats.  One instance of recognisable unlawfulness is where the pressure, in the circumstances, amounts to unconscionable conduct under the equitable doctrine of unconscionable dealing or if it contravenes the statutory prohibition on unconscionable conduct in connection with financial services that in the context of the bargaining strength of the parties looks to see if there were unfair tactics or pressures exerted in disadvantageous circumstances amounting to serious misconduct.[52]

   [51]Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40, 46.

   [52]See s 12CB of the ASIC Act 2001.

1. On this first issue, my assessment of the facts leads me to conclude there were no wrongful threats or unfair tactics or pressures by the broker or the lender.  The fact is that the Ribberas sought the money to extricate themselves from a dire financial situation they had obtained.  The existing mortgagees had a judgment for possession of the land, and were showing no leniency.  Paul Ribbera was bankrupt and they were naturally at a disadvantage with any lender in having to adhere to terms of short term borrowing.  On the evidence, the broker and lender were not so much pressuring her to do something she did not want to do, but were urging her that unless she hurried up and signed the loan and security documents and made sure her parents were agreeable to support them, the mortgagees were going to take possession and sell her properties.  The mortgagees certainly were.  And they eventually did.  The only way this loan could proceed was for Cathy Ribbera’s parents to provide their property as security and the lender was unwilling to proceed unless the parents were given independent advice from a solicitor which the lenders arranged.  In the end, what stopped this deal going ahead was the parents’ refusal to give a supporting security over their home.  I find there was no pressure or duress on them, or their parents, to sign the acceptance of the offer.  The Ribberas’ grievance is about the injustice as they see it of having to paying the broker’s Mandate Fees and the lender’s Establishment Fees when the loan did not proceed because the required security was not available.

1. If the loan did not proceed, does that mean there was no consideration?   

The doctrine of consideration in contract law

1. It is elementary that the enforcement of contractual promises is based on the notion of exchange.  Accordingly, the doctrine of consideration means that to enforce the borrower’s contractual promises to pay the fees even if the loan did not proceed requires the lender and broker to show that such a promise was part of a bargain to which the lender and broker contributed something in return, be it by an act or counter promise.  What is offered in return must have content or reality; and if it does, the unwritten law of contract is unconcerned with the adequacy of the consideration; that is, the courts ‘will not seek to measure the comparative value of the defendant’s promise and of the act or promise given by the plaintiff in exchange for it, nor will they denounce an agreement merely because it seems to be unfair.’[53] 

   [53]Cheshire and Fifoot [4.12].

1. On this issue, there is a distinction to be made between the broker’s claim and the lender’s claim.  Under the first and second Mandate to Act the broker was engaged to obtain approval of a loan facility, and the borrower agreed that a Mandate Fee was payable even if the borrower chose not to proceed for whatever reason after a loan was obtained and accepted.  The fact is that the first loan offer was obtained, as was the second.  Therefore the event giving rise to the entitlement to the broker’s fee has occurred and the obligation to pay the mandate fee comes to fruition.  There is no question that consideration was present and real and executed.  I am unconcerned with questions whether it was ‘unfair’ to have two separate mandates (rather than have the broker treat the second offer as  variation of the first) as it did not arise, and there is no evidence on that matter.  The fact is that the borrower signed a second mandate after the first mandate to deal with separate dealings; loans were procured successively; and the borrower is bound by the agreement as signed.    

1. The consideration issue, like the penalty issue, concerns the dealing with the lender.  The contractual relationship between borrower and lender is in the two letters of offer. As is said in section 8 of the offer ‘… this is not an unconditional offer for financial accommodation and should not be relied upon as such by any party.’  The offer identified the security that ‘we will need before we will provide the Loan to you’.  The provision of security was not an obligation on the borrower.  It was a condition for the benefit of the lender which had to be satisfied before any contractual obligation on the lender was due.  There were other ‘Pre-Settlement Conditions’ in Part 4 such as satisfactory valuations.  Clause 6 required certain information prior to first drawdown.  Clause 7 also posited situations entitling the lender to withdraw its offer, for which it ‘shall incur no liability’. 

1. Thus, in exchange for a conditional offer to lend, the borrower made a promise under clause 7 to: (a) pay fees costs and outlays charged by the lender’s solicitors ‘even if the loan does not proceed’; and (b) to pay liquidated damages of $3600 plus all fees and costs including the Discount Establishment Fee ‘…if you later withdraw, or the loan is not drawn down within thirty days after the acceptance date, or the proposed funding is cancelled by the Lender in any circumstances’  

1. The cardinal principle as adopted by Kitto J in Placer Development Ltd v The Commonwealth[54] is that:

… wherever words which by themselves constitute a promise are accompanied by words showing that the promisor is to have a discretion or option as to whether he will carry out that which purports to be the promise, the result is that there is no contract on which an action can be brought at all.

[54](1969) 121 CLR 353 at 356.

1. Counsel for the lender referred the Court to three authorities  that concern similar facts to support the submission that: even if the lender’s agreement to provide finance was conditional, there was nevertheless real consideration so long as the agreement did not give the lender an unqualified discretion to lend, in which case the consideration was illusory.

1. The first authority was Gippsreal Pty Ltd v Boyle[55] a decision of White J of the Supreme Court of New South Wales.  That was a caveat case.  The issue was whether a lender’s offer of finance gave consideration for a charging provision that was the basis of lodging a caveat.  The letter of offer stated:

   [55][2006] NSWSC 601.

Reservation

This offer is not to be construed as an agreement binding Gippsreal to make an advance under the facility.  Such agreement shall only come into existence on the making of the advance which may be delayed, or may not occur at all, unless all of Gippsreal’s requirements including any additional requirements to those set out herein are satisfied fully and promptly.

…

Gippsreal reserves the right to withdraw this offer at any time up to and including the date of settlement should the borrower fail to comply with each condition …

Gippsreal additionally and specifically reserves the right to withdraw this offer at any time up to and including the date of settlement for any other reason whatsoever without it being obliged to explain or justify the decision to withdraw the offer, however in the event that the offer is withdrawn without explanation than [sic, then] Gippsreal will not be entitled to demand payment of the liquidated damages set out herein, though the mortgagor will at all times remain liable for all costs and disbursements incurred by Gippsreal. 

1. The loan agreement also included a form by which the borrower was to give its acceptance of the offer.  That acceptance included an acknowledgement that if the borrower chose not to proceed with the loan once the offer was accepted then the borrower agreed to pay liquidated damages including $35,000 for professional costs and $264,993 being three months’ interest.  Despite that acceptance procedure, the distinct feature of Boyle was the reservation to the lender that no agreement binding it to make an advance would come into existence until the advance was actually made.  Thus, a contract was not brought into existence upon the signing and return of the acceptance form. That reservation in the offer meant that the lender was under no obligation to make an advance; had the right to withdraw the offer for any reason whatsoever without being obliged to explain or justify its decision; and that any agreement to make an advance only came into existence if an advance was in fact made.     

1. Following a decision of Hollingworth J in Gippsreal Limited v Reg of Titles[56] White J concluded there was no consideration for the borrower’s promise to grant a charge over property.  The lender had made no binding promise to do anything.  For other reasons, his Honour found that a contract came into existence subsequently to the giving of the acceptance which provided consideration for the borrower’s promises in the acceptance letter.

   [56][2006] VSC 115. The decision went on appeal without challenge to the conclusion that consideration was illusory: (2007) 20 VR 157, [2], [18].

1. In the present case the loan was certainly not unconditional.  The lender relied on a decision of the Queensland Court of Appeal in Memery v Trilogy Funds Management Limited[57] to say that the presence of such conditions did not mean the consideration was illusory.  In Memery, the lender sent a ‘facility letter’ which the borrower signed to signify acceptance of its terms.  The letter said (with my underlining):

PROPOSED MORTGAGE LOAN FACILITY - $1,900,000

Your request for a loan facility has been approved on a ‘best endeavours’ basis subject to all conditions being satisfied.  The approval is not unconditional until the making of the advance, the principal terms of which are outlined below. 

This letter is not to be construed as a binding agreement to make the advance.  Such agreement shall only come into existence upon the making of the advance which may be delayed, or may not occur at all, unless all of the Lender’s requirements are satisfied promptly.

A brief summary of the details proposed to be relied upon to prepare documentation is enclosed in the Schedule headed ‘Security Details’.  Please note that further conditions may be imposed for the facility at the direction of the lender prior to the Advance being made.

Please return the following documents to us by courier as soon as possible to expedite the preparation of the security documents:

[57][2012] QCA 160.

1. An application fee of $57,000 plus GST was payable from which brokerage of $19,000 would be paid.  The offer contained special conditions similar to the ones present here, concerning withdrawal of the facility by the lender.  The conditions were:

17.      Withdrawal of Facility by Lender

This Facility Letter may be withdrawn by the Lender:-

17.1If circumstances or facts arise or come to the Lender’s notice which, in the Lender’s opinion, may be prejudicial to the Lender’s interests.

17.2If the Lender’s Solicitors advise the Lender of anything which in their and/or Lender’s opinion is detrimental to the Lender’s interests.

17.3Upon the occurrence of any event (including but not limited to any new law, order or regulation) affecting the Lender’s control of funds in a manner and/or to an extent not now existing.

18.Revocation of Acceptance

The Borrower’s acceptance of this loan facility, once notified to the Lender, may not be revoked without the consent in writing of the Lender which consent will only be considered upon receipt of a written request from the Borrower. 

… 

20.      Acceptance

…

BY signing the Acceptance Form, the Borrower authorises the Lender’s solicitors to deduct the Lender’s and its Solicitors [sic] fees and outlays from the Advance at settlement. 

… Otherwise, all fees referred to in clause 15 and listed in the attached schedule shall be payable immediately upon demand if the loan proceeds or does not proceed as a result of the borrowers [sic] default or withdrawal.

1. In Memery the borrower argued on the faith of Gippsreal Limited v Reg of Titles[58] that the consideration was illusory because the putative agreement left performance of the promise to advance the loan entirely within the discretion of the lender.  The Court of Appeal rejected that submission, holding that the presence of ‘a great many contingencies’ does not mean there was a mere discretion to lend.  That is what Membrey stands for.  The Court said:

   [58][2006] VSC 115.

[21]Adopting a businesslike interpretation of the agreement, the respondent agreed to use its ‘best endeavours’ to advance $1,900,000 to the applicant, subject to satisfaction of the stated conditions.  That agreement obliged the respondent ‘…to do all [it] reasonably [could] in the circumstances to achieve the contractual object but not more.’  The primary judge referred also to Gibbs CJ’s observation in Hospital Products Ltd v United States Surgical Corporation that ‘[o]n the one hand, an express promise by an agent to use his best endeavours to obtain orders for another and to influence business on his behalf necessarily includes an obligation not to hinder or prevent the fulfilment of its purpose’.   …  On the other hand, an obligation to use ‘best endeavours’ does not require the person who undertakes an obligation to go beyond the bounds of reason; he is required to do all he reasonably can in the circumstances to achieve the contractual object, but no more.  …

[22]That is inconsistent with the applicant’s proposition that the respondent possessed a mere discretion or option whether to carry out its purported obligations under the Facility Letter, but it is necessary also to take into account the effect of cl 17.  Because that clause empowers the respondent to withdraw the Facility Letter, its literal meaning is that the respondent may relieve itself of the obligation to use its best endeavours to advance the loan in any of the circumstances expressed in cl 17.

[23]The operation of cl 17.1 is conditioned upon two matters.  The first is that there must be circumstances or facts which ‘arise’ or which ‘come  to the Lender’s notice’.  That contemplates only a circumstance or fact that comes into existence or comes to the respondent’s notice after the Facility Letter agreement.  The second matter upon which the operation of cl 17.1 depends is the formation of the respondent’s opinion that such circumstance or fact ‘may be prejudicial’ to the respondent’s interests.  Thus the clause will not operate except where the relevant circumstance or fact has both arisen, or come to the respondent’s notice, after the Facility Letter agreement and is potentially prejudicial to the interests of the respondent.  The clause would not permit the respondent to withdraw the facility Letter merely because, for example, the respondent discovered a more profitable use to which it might put its capital.  Clause 17.2 is similar in scope, save that it also comprehends a case in which the necessary opinion is formed by the Lender’s solicitor.  Clause 17.3 has a narrower scope for operation.  The ‘event’ to which it refers must both occur after the Facility Letter agreement and have an effect upon ‘the Lender’s control of funds’.  It might operate, for example, in a case in which the Lender’s ability to advance money is affected by some new regulation. 

[24]In Gippsreal Ltd v Registrar of Titles, upon which the applicant relied, the effect of a letter of offer signed by a borrower was that the lender reserved the right to withdraw its offer of the loan at any time and for any reason.  Clause 27 does not give the respondent such an unqualified discretion to withdraw the Facility Letter.  In the event of a dispute about the application of that clause, a court could decide whether any of the defined circumstances existed.  If no such circumstance existed, and if the conditions expressed in the Facility Letter were otherwise satisfied, a court could enforce the respondent’s obligation to use its best endeavours to advance the loan.  Although the circumstances described in cl 17 cover a great many contingencies, they do not confer a mere discretion or option upon the respondent.  The respondent’s conditional obligation to use its ‘best endeavours’ to advance the loan in all circumstances except those particular circumstances expressed in cl 17 was valid consideration, being the quid pro quo for the applicant’s obligation to pay the loan application fee.

[Citations omitted]

1. On 13 March 2013, the High Court of Australia refused special leave to appeal in Membrey saying:[59]

The Court of Appeal found that the loan facility agreement was not conditional on monies being advanced and that the application fee was supported by consideration.  The Court of Appeal found that the respondent did not retain such a wide discretion in relation to whether to advance monies that no contract was formed.  In this latter respect the Court of Appeal distinguished the terms of the loan facility agreement from the terms of the agreement considered by the Court of Appeal of the Supreme Court of Victoria in Gippsreal Ltd v Registrar of Titles (2007) 20 VR 157.

The applicant now seeks special leave to appeal to this Court.  The application seeks to canvas unremarkable conclusions drawn by the Court of Appeal from the terms of the loan facility agreement.  Contrary to the suggestion made in the applicant’s summary of argument, the decision of the Court of Appeal is not in conflict with the Court of Appeal in Victoria in Gippsreal v Registrar of Titles.  No question sufficient to warrant the grant of special leave is raised by the application.

[59][2013] HCASL 35.

1. These authorities permit me to adopt the view that:[60]

When a promise is made with the rider ‘if I feel like it’ or some such similar qualification, there is clearly no promise at all. 

As long as there is some vestige of an objectively ascertainable obligation that can be broken by the promisor, then the promise probably amounts to a good consideration. 

[60]Cheshire and Fifoot Law of Contract pp 186-7.

1. I cannot conclude that the agreements between the lender and the borrower gave the lender a discretion  whether or not to carry out that which purports to be a promise to lend.  There is sufficient in the agreements to conclude, I think, that the lender is binding itself to lend (in more stringent terms than ‘best endeavours’) subject to the fulfilment of certain conditions.  As was the case in Membrey, and in similar language,  attention is attracted to the lender’s power in clause 7 of the offer to withdraw or revoke the letter of offer at any time prior to the loan or part of the loan being advanced to the borrower.  But that is not an unfettered right to withdraw or revoke at the whim of the lender.  As appellate authority supports the claimants’ case that if as a matter of construction of the agreement the lender had an obligation to lend, albeit subject to the fulfilment of conditions, then the consideration was real.  Thus I would hold that the agreements were not unenforceable for an absence of,  or failure of, consideration.

The quantum of the lender’s claim

1. The money claims are made according to invoices rendered by the lender separately for each of the two loans.[61]  For the first loan of $1.2 million the charges were:

   [61]Exhibits PJS 9, 12; MF 5, 8.

Application fee	$3,600.00
Discount Establishment fee	$26,400.00
Liquidated damages	$3,600.00
Legal fees	$1,819.77
Valuation fees	$2,640.00
Broker fees	$14,100.00
Sub-total	$52,159.77
Less payment received	-$3,600.00
$48,559.77
Plus GST	$4,855.98
TOTAL	$53,415.75

1. This part of the lender’s claim was subject to adjustments at trial.  The Application Fee was fixed in that amount in clause 7 of the offer.  The Discount Establishment fee was 2.2% of the facility limit under clause 3 and 7.  The liquidated damages figure comes from clause 7.  The legal fees stated in the invoice were proved in that amount by an invoice from the solicitors.[62]  The valuation fees were proved by invoices from the service providers in that total amount,[63] but as those invoices included GST the lender’s invoice had double counted that amount.  The broker’s fee of $14,100 was the subject of the broker’s separate invoice and should not have been claimed in the lender’s invoice.  After making those adjustments the total amount of this first invoice was reduced to $37,820 (to the nearest dollar). 

   [62]Exhibit PJS 7. 

   [63]Exhibit PJS 4-6.

1. For the second loan of $600,000 the charges (based on the same clauses of the loan offer as for the first loan) above were:

Application fee	$600.00
Discount Establishment fee	$13,200.00
Liquidated damages	$600.00
Legal fees	$600.00
Broker fees	$9,600.00
Sub-total	$24,600.00
Less payment received	-$600.00
$24,000.00
Plus GST	$2,400.00
TOTAL	$26,600.00

1. The brokers fee of $9,600 (and the GST on it) was the subject of the broker’s separate invoice and should not have been claimed here.  There was no supporting invoice for the legal fees (as there was for the first invoice) so I do not regard that $600 item as proved.  With those adjustments the total claimable charges were $14,400 plus GST of $1,440.  After deducting the payment received of $600 the total amount of this invoice was reduced to $15,180.  When that is added to the adjusted amount of the first invoice the total claimed for the lender comes to $53,000 (to the nearest dollar). 

The quantum of the broker’s claim

1. The claim on the first loan offer (which had a mandate fee of 1.1%) was made according to a tax invoice for these amounts:

Mandate to Act fees and charges	$10,909.09
Up front fee	$1,363.64
Liquidation [sic] Damages	$545.45
Sub Total	$12,818.18
GST	$1,281.82
Total inc GST	$14,100.00
Amount Applied	$0.00
Balance Due	$14,100.00

1. It appears to me that these figures for the three species of charge are pre GST amounts.   The solicitor for the broker had to disclaim the charge for liquidated damages because the mandate to act gives no such entitlement.  Nor, for myself, can I see in the Mandate the right of the broker to charge an ‘Up front fee’.  The only place I see reference to ‘Up front’ is in the letters of offer from the lender, clause 7 of which refers to an  ‘Up Front Contribution to Fees and Costs’ of $3600 for the first offer and $600 for the second offer.  Those amounts form part of the lender’s invoice.  Accordingly, on the evidence and submissions before me, there is no right for the broker to make such a claim.  It is confined to the 1.1% fee which means according to the invoice the adjusted amount is $10,909.09 plus GST which comes to $12,000.

1. The broker’s claim on the second loan of $600,000 (which had a mandate fee of 1.5%) was also made under an invoice stating:

Mandate to Act fees and charges	$8,181.82
Up front Fee – WAIVED
Liquidation Damages	$545.45
Sub Total	$8,727.27
GST	$872.73
Total Inc GST	$9,600.00
Amount Applied	$0.00
Balance Due	$9,600.00

1. A removal of the claim for liquidated damages reduces the balance due to $9,000.

Was any part of the claim void as a penalty?

1. ‘A penalty, as its name suggests, is in the nature of a punishment for non-observance of a contractual stipulation; it consists of the imposition of an additional or different liability upon breach of the contractual stipulation.’[64] 

   [64]         Legione v Hately (1983) 152 CLR 406, 445, adopted in Paciocco (2016) 258 CLR 525, 545 (per Kiefel J).

1. The question is whether I ought apply, or must follow, or can distinguish Melbourne Linh Son Buddhist Society Inc v Gippsreal Ltd[65] which decided, by majority, that the ‘establishment fee’ on the loan that a borrower failed to settle within a specified time of the lender’s offer was void as a penalty. 

   [65][2017] VSCA 161.

1. The dealing in Gippsreal commenced with a ‘Deed of Offer of Finance’ for $1,775,000 which said ‘The Borrower hereby accepts the Offer and agrees to be bound by the terms and conditions of the Offer and the proposed mortgage’.  The lender was to instruct solicitors to: make searches and enquiries to investigate the proposed mortgage; prepare security and mortgage documents; and arrange for investors to commit funds for the proposed mortgage which, the offer said ‘… will involve the mortgagee and its investors suffering loss and damage should the loan not proceed to completion’.  In consideration of that, the borrower agreed ‘to pay all monies due under this Offer (including the liquidated damages) within seven (7) days of demand and irrespective of whether or not the proposed mortgage proceeds to completion.’  An item of the costs and disbursements payable was an establishment fee of 1.5% on the loan of $1,775,000.  That was stated to be $26,625.  The Offer said ‘All charges for costs, disbursements and the like are payable by the Borrower by deduction from the principal sum available at settlement.’

1. The deed of offer contained a liquidated damages clause.  It was activated if the borrower did ‘not proceed the Proposed Mortgage to completion by the drawdown date’.  The deed quantified the liquidated damages to include $31,625.00 ‘on account of administrative and professional costs incurred by Gippsreal in investigating the loan prior to completion and procuring investors funds’.  The trial Judge found that the liquidated damages figure of $31,625 was constituted by the establishment fee of $26,625 and a mortgage preparation fee of $5,000.  That finding was not disturbed on appeal.   

1. The borrower told the lender it would not proceed.  The Deed of Offer  made provision for the loan amount to be reduced to 50 per cent of the value of the mortgaged property.  Subsequently, based upon a lower valuation of other mortgaged property, the approved loan became $500,000.  When that offer was made, instead of reducing the establishment fee to $7,500 to maintain the pre-existing 1.5% proportion between the fee and the loan amount, the lender maintained the establishment fee at $26,625.  In effect, that increased the establishment fee to 5.32% of the reduced loan amount.  The borrower took exception.  The lender made a counter offer  and fixed a settlement date for the loan which the borrower did not meet because, as I read the facts, the borrower disagreed with the terms of the reduced loan and was unaccepting of the disproportionately high establishment fee.  The lender then withdrew the offer and sued for liquidated damages including $26,625. 

1. The main issue in Gippsreal did not concern the law of penalties.  The main issue was whether the lender was entitled to withdraw its offer.  The Court of Appeal unanimously decided that the two preconditions under the deed of offer that enabled the lender to withdraw an offer of finance had not been met by the lender.  That is, the borrower did not breach the deed of offer, and the lender had no right to withdraw the offer of finance and doing so was repudiatory.  The outcome was that the lender had no legal right to make its claim for the establishment fee.  On that ground the appeal was allowed.  That part of the appeal is not relevant here.  However, Kyrou JA and Cameron AJA nevertheless went on to consider the other appeal grounds, two of which concerned the question whether the lender was entitled to claim liquidated damages most of which was the establishment fee of $26,625.  For that exercise, their Honours postulated that the offeree did breach the deed of offer.  Their Honours held that the establishment fee was a penalty.  The President, Maxwell J concluded there was insufficient evidence before the trial Court to enable that question to be answered on appeal. 

1. The first element of the decision in Gippsreal with which I concern myself is the distinct question on that appeal whether or not the lender was entitled to payment of the establishment fee when the borrower did not proceed with the loan.  The majority’s judgment recounts[66] —

The applicant [offeree] submitted that, as the loan did not proceed, the respondent was not entitled to payment of the establishment fee.  This was said to be because, under clause 14 of schedule 1 to the deed of offer, the fee was only payable by deduction from the principal sum available at settlement.  As to whether the fee was payable under the liquidated damages provisions of the deed of offer (clause 32 of schedule 3), the applicant submitted that the fee was a penalty.

[66]Ibid [158].

1. That first submission was rejected.  The majority in Gippsreal saw the establishment fee in that case as serving a dual purpose:[67]

… The first purpose was to be an amount payable by deduction from the principal sum where the Deed of Offer proceeded to settlement.  The second purpose was to be an amount payable by the applicant to the respondent as liquidated damages in circumstances which include the withdrawal of the offer of finance by the respondent due to the applicant’s failure to settle the loan in accordance with the deed of offer.

[67]Ibid [191].

1. It was held that other provisions of the deed of offer  were potentially wide enough to require payment of the establishment fee where the loan did not proceed due to the default of the offeree; and indeed the establishment fee was part of the liquidated damages figure of $31,625.[68]  Put another way: even if the loan did not proceed, the deed of offer said that the establishment fee was payable if there was a breach by the offeree in not proceeding.  That isolated the question whether the establishment fee, when claimed as compensation for breach of the deed of offer was a penalty.[69]   

   [68]Ibid [162].

   [69]Ibid [192].

1. In the present case, clause 7 of the offer said that all fees and costs (including the establishment fee) were payable ‘on the earlier of 30 days from the date of this letter or the first drawdown date, and if not paid…will be deducted from any funds advanced.’  But if the fees were not paid and the loan did not proceed, then there would be no funds from which to deduct the fees and costs.  Then the liquidated damages clause in clause 7 comes into play.  If the borrower ‘withdraws’ or ‘if the proposed funding is cancelled in any circumstances’ then the agreed liquidated damages clause said that $3600 plus all fees and costs, including the Discount Establishment Fee would be payable.  It could be said in this case there was no breach as such; what occurred was a failure of a pre-condition (for the benefit of the lender) to provide certain security from the parents.  But if that failure meant there was a ‘withdrawal’ by the borrower, or, a ‘cancellation’ of the proposed loan by the lender, then both are events of default that engage the liquidated damages clause which includes the establishment fee.  This appears to me to be tracking with the situation in Gippsreal.

1. How then did the majority decide the establishment fee was a penalty? 

1. I take leave to say the lender’s conduct in Gippsreal claiming the same establishment fee of $26,625 for the lesser loan of $500,000 as it had fixed for the earlier offered loan of $1,775,000  certainly strikes one forensically as being unreasonable and calling for some very good evidence of justification.  The liquidated damages clause in Gippsreal identified some of the lender’s interests to which the establishment fee was said to be referable.[70]  Otherwise, the witness evidence in that trial was that it was not a fee for service on an item by item basis; nor was it necessarily related to the percentage of the loan advanced.  The lender said it was a fee that varied from loan to loan depending on the loan to value ratio, the quality of the loan, the quality of the borrowers, the issues, and the risks involved.  It was said to cover administration and ‘covers the cost of doing business’.  It was said to be ‘our fee for providing the service’.  Yet, on the evidence, it was the lender’s usual practice to fix the establishment fee at 1.5% of the loan.

   [70]Ibid [13].

1. The majority focussed on Paciocco to say[71] —

…The High Court held that a contractual term would not be a penalty if it protects the legitimate commercial interests of the non‑defaulting party under the contract.  Relatedly, the Court held that, in determining whether a sum payable is out of all proportion to the likely loss to be suffered as a result of a breach of contract, a court is not limited to considering only such losses as is recoverable as damages for that breach.  Rather, a court is entitled to take into account detriment to other commercial interests which the non‑defaulting party has legitimately sought to protect.  That is because the question to be decided is whether a provision for the payment of a sum of money on default is out of all proportion to the legitimate commercial interests of the party which it is the purpose of the provision to protect.

[71]Ibid [171].

1. Reference was also made to a statement by Keane J in Paciocco that the terms ‘extravagant’ and ‘unconscionable’ function as pointers towards the punitive purpose which imbues the challenged provision with the character of a punishment.  His Honour viewed the question as being ‘whether the sum or remedy stipulated as a consequence of a breach of contract is exorbitant or unconscionable when regard is had to the innocent party’s interest in the performance of the contract’.[72] 

   [72]Ibid [268].

1. The majority in Gippsreal viewed the evidence as showing that the retention of the higher amount of the establishment fee had nothing to do with the protection of the lender’s legitimate commercial interests in the event of a breach of the deed of offer.  Rather, the evidence disclosed that the lender decided to retain the higher amount predominantly due to the additional administrative work from the constant changes in the applicant’s position regarding the proposed loan.  The majority concluded that the ‘irresistible inference’ was that the fee of $26,625 was retained in order to punish the borrower for the inconvenience that its conduct caused the respondent, rather than to protect any legitimate commercial interest arising from a breach.  The majority concluded that the establishment fee was a penalty[73] —

… because it bears no relation to any possible damage to or interest of the respondent arising from the putative breach of the Deed of Offer by the applicant and it is not commensurate with any legitimate commercial interest of the respondent which is sought to be protected by that deed in the event of its breach.

[73]Ibid [195].

1. The President, looking to the legal task of characterisation, regarded the evidence from the lender’s manager about the factors he had in mind when fixing the fee at $26,625 as not assisting the enquiry required under Paciocco which extended to the wider commercial interests of the lender for which there would need to be evidence.[74] 

   [74]Ibid [8]-[10].

The lender’s submissions in this case

1. The lender’s written submissions commence with two propositions.  First, that the essence of a penalty is by reference to a breach of contract or, alternatively, some other non‑observance of a contractual stipulation.   Secondly, a provision in a contract for the payment of money by one party upon the happening of a specified event does not constitute a penalty because it is not a payment agreed in advance as being payable upon breach of contract, and it is not the Court’s role to relieve a party from a contractual obligation merely on the ground that the contract proves to be onerous or imprudent.   I understand that proposition to mean: the payment of  the establishment fee was a freestanding obligation under clause 7  ―  a contractual debt ― and therefore the law of penalties was not even engaged.

1. The essence of a penalty is its punitive character.  In its standard if not universal application, the law of penalties is attracted where a contract stipulates that on breach, the contract breaker will pay a stipulated sum which exceeds what can be regarded a genuine pre-estimate of the damage likely to be suffered by the innocent party.  That was the unanimous view of the High Court in 2005 in Ringrow.[75]  In 2012, questions were framed for the High Court in Andrews[76] requiring consideration whether the unwritten law making penalties unenforceable was limited to cases in which the putative penalty was enlivened by a breach of contract.  A unanimous Court in Andrews held that equitable relief against penalties had not been subsumed into the common law rule and that the rule against penalties was not limited to cases arising out of a breach of contract.  In 2015 in Cavendish[77] the Supreme Court of the United Kingdom regarded that as a radical departure from established law, and held that only detriment imposed on breach of contract can amount to a penalty.  The concern was that an application of the law of penalties into other substantive contractual obligations would imperil the freedom of contract and contractual certainty.  The dispute in Paciocco decided by the High Court in 2016 concerned bank credit card fees arising out of breach of contract, so it fell into undisputed territory making it unnecessary for the High Court to say anything about the position in Andrews or Cavendish.  But, observations in Pacoccio[78] say that Andrews did nothing to disturb the settled understanding in Australia that a contractual provision imposing a penalty is unenforceable at common law without the discretionary intervention of equity.  The significance of Paciocco,  as I understand it, is the High Court’s resolution to apply the ‘interests analysis’ in assessing whether something is a penalty.  That is, a provision is a penalty if it is out of all proportion to the promisee’s interests, and those interests may extend beyond an interest in the recovery for compensation for the loss caused directly by the breach. 

   [75]Ringrow Pty Ltd v BP Australia (2005) 224 CLR 656, 662.

   [76]Andrews v ANZ Banking Group Ltd (2012) 247 CLR 205.

   [77]Cavendish Square Holding BV v Makdessi [2015] 3 WLR 1373.

   [78]See the judgment of French CJ and Gageler J.

1. What is established is the proposition that the law of penalties is attracted where  a contract stipulates that, on breach, the contract breaker will pay a stipulated sum which is out of all proportion to the interests of the party which it is the purpose of the provision to protect, including an interest of a business or financial nature.[79]  But, as Andrews acknowledges, a payment will not be characterised as a penalty if it is not security for performance of a primary stipulation, but is the agreed consideration for some additional benefit.[80]  That distinction is shown in Metro- Goldwyn Mayer Pty Ltd v Greenham,[81] a case where a contract for the hiring of films gave the exhibitor no right to use a film otherwise than on an authorised occasion unless the exhibitor exercised an option to pay a hiring fee that was four times the usual hiring fee.  That was held not to attract the law of penalties. 

   [79]Pacoccio at 547-8 (per Kiefel J).

   [80]Ibid [79]–[82].

   [81][1966] NSWR 717, 723-4, 727 (Ct App).

1. The lender submits that the right to the establishment fee was independent and not in the nature of a collateral right that arises on the non-performance of a primary obligation.  It submits

20.In this case, the Discount Establishment Fees were payable upon either 30 days of signing each of the Loan Offers, or the first drawn down date, whichever was earlier.  It was not therefore, dependent upon a breach occurring, or even any non‑observance with any other contractual provision.  Rather, in this case, the relevant ‘trigger’ for payment of each of the Discount Establishment Fees was the signing of the Loan Offers and the elapse of 30 days.  It is therefore immaterial whether the loan proceeded or not, or whether there was a breach of contract or some other non‑observance of a contractual provision.  The invoices rendered by Prime Capital demonstrate that the fees owed to Prime Capital (including the Discount Establishment Fees) were considered as separate and distinct from any liquidated damages amounts. 

1. That was said to distinguish this case from Gippsreal.  The submission was:

21.… In that case, the relevant establishment fee had dual purposes – firstly, as an amount payable by deduction from the principal sum where the loan proceeded to settlement; and secondly, as an amount payable by the borrower to the lender as part of a demand for liquidated damages, in circumstances where the loan had not proceeded.  The amount was sought by the lender under the second purpose, and the Court of Appeal expressly confined its consideration of the penalty issue to that circumstance – it did not consider the position as to whether the establishment fee was a penalty in so far as it was payable by way of deduction from the principal sum at settlement. 

1. The submission is based on the stipulation under the heading “Up Front Contribution to Fees and Costs’ in clause 7 of the loan offer that ‘All fees and costs are payable on the earlier of 30 days from the date of this letter or the first drawn down date, and if not paid by you to us, will be deducted from any funds in advance.’  From there, the lender is contending that the obligation to pay all fees and costs (which included the establishment fee) was a fixed contractual debt not referable to breach and therefore the law of penalties is not attracted.

1. I do not accept that submission.  I think it misconstrues the letter of offer by not reading it as a whole.  It is self-evident that the obligation to pay ‘All fees and costs … on the earlier of 30 days from the date of this letter or the first draw down date, and if not paid by you to us, will be deducted from any funds advanced’ is not a payment to be made for breach of a primary stipulation.  It is an obligation to pay fees and costs at a certain time.  But if it is not paid, the clause says the lender will self-satisfy the obligation to pay by a deduction from the advance.  That deduction can only be made if there is an advance. 

1. There was no advance.  The lender’s submission overlooks what is said plainly elsewhere in the same clause 7 in the event that the loan is not drawn within 30 days or if the lender withdraws or if the lender cancels ― which is exactly what happened.  The relevant part of the clause says:

Costs if you withdraw from this Offer after acceptance or the Loan is cancelled

…

If after you have signed this Offer Letter you later withdraw, or the loan is not drawn down within thirty days after the acceptance date, or the proposed funding is cancelled by the Lender in any circumstances, in addition to any other monies payable you and any Guarantor(s) will pay us the liquidated damages set out under the heading below ‘Liquidated Damages’.

Liquidated Damages

The liquidated damages that we will suffer in any of the above circumstances will be in the amount of $3,600 plus all Fees and Costs incurred (including legal costs on a full indemnity basis) and the fees outlined in section 8 [sic, read section 7] above.  

1. The way I would construe the stipulation that ‘all fees and costs are payable on the earlier of 30 days from the date of this letter or the first drawn down date’ is to say that it assumes that the loan proceeds and that an advance is made.  That makes sense of the ancillary right of the lender. ‘if not paid by you to us’ to deduct the fee from the advance.  That construction then coheres with the subsequent clauses which are concerned with the situation where the matter dos not proceed to an advance because the offeree withdraws or the loan offer is withdrawn, in which case there is a breach of the contract and the liquidated damages clause is attracted, which includes the establishment fee.  Here the loan did not proceed or was cancelled.  Therefore the claim is for liquidated damages.   

1. Contrary to the lender’s written submission, the two invoices are consistent with  this.  The invoices claim the liquidated damages figure of $3600 and also, faithful to the liquidated damages clause, claim the fees under section 7 of the offer.  I think it disingenuous to point to the separate line item in the invoice that says ‘Discount Establishment Fee’ to say that therefore shows this was a claim not for liquidated damages but for a contractual debt, when the very same ‘contractual debt’ is an integral component of the liquidated damages.  To that extent, the situation is the same as in Gippsreal: the establishment fee in both cases was part of liquidated damages, and categorically so in this case. 

1. Thus, I reject the lender’s submission that discount establishment fee was a contractual debt that did not attract the law of penalties.  In that regard it is worth directing attention to this related statement by the majority in Gippsreal:[82]

We reject the respondent’s submission that the establishment fee is incapable of being characterised as a penalty because it was a fixed amount that the applicant agreed to pay to the respondent.  Neither the fixed nature of the amount nor the fact that the applicant agreed to pay it has any bearing on whether the establishment fee is a penalty.  That is because, where a party seeks to impugn an amount payable under a contract as a penalty, that party does not allege that he or she did not agree to pay that amount, but rather that the amount is unenforceable based on the principles which we have discussed above. 

[82]Gippsreal at [202].

1. The outcome therefore, on the claim as brought by the lender, is to hold that on the facts the law of penalties is attracted to the Discount Establishment Fee payable under the liquidated damages clause in the letters of offer.   I am bound to accept the lender’s submission that no determination should be made absent an opportunity for the lender to adduce evidence of the enquiry to be made according to Paciocco.  As for the broker, it appears to me to be in a different situation.  Its claim is based on the event of procuring the loan, which it did on two occasions.  I see no question of penalty arising.  The Mandates stipulate that the brokerage is payable for the consideration given, even if the loan does not proceed.  However, given the association, and the agreement in place between broker and lender about the division of the moneys in court, I shall abstain from making any order on the broker’s claim until the determination of the lender’s claim

1. I invite the lender’s solicitors to prepare proposed procedural orders for the filing of further affidavit evidence on the question, and in response by the Ribbera’s.  The proceeding will be reopened to enable further argument to be made in Court (that is, not by written submissions, although an outline may be filed if desired) on a date in 2018 to be arranged by my Associate in consultation with the parties.