| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : KENNEDY & ANOR -v- DODDS & ORS [2010] WADC 122 CORAM : BOWDEN DCJ HEARD : 22-23 JUNE 2010 DELIVERED : 23 AUGUST 2010 FILE NO/S : CIV 249 of 2009 BETWEEN : GILLIAN KENNEDY DONNCHA KENNEDY
Plaintiffs
AND
SUZANNE DODDS
TIMOTHY DODDS
First Defendants
ALAN RANCE
REBECCA RANCE
Second Defendants
Catchwords: REIWA Contract for sale of land (2006) revision - Subject to finance clause - Lender nominated in the schedule - Application for Finance Approval may be made to a lender other than the lender nominated in the schedule - Application for Finance Approval requires application to be made to a lender, as defined by the contract, which is capable of approving the application
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Legislation: Finance Brokers Control Act 1975 Result: Judgment for the plaintiff Representation: Counsel:
Plaintiffs : Mr Solomon
First Defendants : Mr D A Lenhoff
Second Defendants : No appearance
Solicitors:
Plaintiffs : Solomon Brothers
First Defendants : Holborn Lenhoff Massey
Second Defendants : Not applicable
Case(s) referred to in judgment(s):
Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99
Chartbook Ltd v Persimmon Homes Ltd [2009] 4 All ER 677
City of Canning v Avon Capital Estates (Aust) Ltd [2009] WASCA 120
Dockside Holdings Pty Ltd v Rakio Pty Ltd [2001] SASC 78
Doubikin Holdings Pty Ltd v Grail Pty Ltd (1991) 5 WAR 563
Erley Pty Ltd v Gunzburg Nominees Pty Ltd, unreported; SCt of WA; Library No 9801132, 3 April 1998
Fay v Sheridan [1999] WASCA 61
Flotilla Nominees Pty Ltd v West Australian Land Authority [2003] WASC 122, (2003) 28 WAR 95
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115
Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579
McCourt v Cranston [2009] WASC 56
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Pacific Carriers Pty Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451
Paltara Pty Ltd v Dempster (1991) 6 WAR 85
Sanpine Pty Ltd v Koompahtoo Local Aboriginal Land Council [2005] NSWSC 365
Staley v Pivot Group Pty Ltd (No 3) [2009] WASC 355
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165
Westpac Banking Corporation v Tanzoni Pty Ltd (2000) NSWCA 25
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1 BOWDEN DCJ:
Introduction 2 On 4 April 2008 the first defendants (Mr and Mrs Dodds) entered into a standard REIWA Contract for Sale of Land by Offer and Acceptance, September 2006 revision, (the Contract, Exhibit 4) whereby they agreed to purchase 60 Waterford Drive, Hillarys ("the property") for $672,500 from the plaintiffs (Mr and Mrs Kennedy). Incorporated into the contract were the 2002 Joint Form of General Conditions ("the Conditions", Exhibit 41). 3 The contract was subject to finance and the parties nominated the ANZ Bank (ANZ) as the Lender, 21 April 2008 being the latest time for Finance Approval to be obtained and the amount of the loan as $677,500. 4 The second defendants (Mr and Mrs Rance) were the plaintiffs' real estate agents (Exhibit 3, Exhibit 43), who took no active part in these proceedings other than submitting to the Court's jurisdiction.
The essential issue 5 The essential issue for determination is whether there has been compliance with the subject to finance clause, a copy of which is annexed to this judgment. 6 The plaintiffs say no application for Finance Approval was made because the first defendants did not apply to the Lender nominated in the schedule (ANZ). They say where a Lender is nominated in the schedule, an application for Finance Approval must, at the very least, be made to that Lender. 7 The plaintiffs say if the Court rejects that submission, and an application for Finance Approval can be made to an entity other than that nominated in the schedule, the first defendants failed to make such an application, at best they merely enquired of a mortgage broker whether finance would be available. 8 The first defendants say they complied with the subject to finance clause because they applied for finance when they met with Mr Blackburne, a mortgage broker carrying on business in the State of Western Australia, on 11April 2008 and therefore met the contractual requirements of cl 1.1(a)(1). (Page 5)
Summary of facts not in dispute 9 Many of the facts are not disputed and can be summarised as follows. 10 Prior to signing the contract, the male second defendant told the first defendants it would be preferable to submit a "subject to finance" offer rather than an offer subject to the sale of their property. He told them they could submit a subject to sale offer if unsuccessful in obtaining finance. There is no suggestion he said such an offer would be accepted. 11 On 9 April 2008 the first defendants paid a deposit of $3,000 (Exhibit 43, Exhibit 7) to the second defendants. 12 On 11 April 2008 the first defendants met with a mortgage broker, Mr Jason Blackburne ("the meeting") and, applied for finance. This meeting will be examined in more detail in later parts of the judgment. 13 On or about 14 April 2008 Mr Blackburne provided the first defendants with a letter advising he was "… unable to arrange a loan for you to assist with the purchase ... "(Exhibit 44, Exhibit 9). The first defendants forwarded this letter to the second defendants (Exhibit 43). 14 At some time Mrs Rance told Mrs Dodds she would need to obtain a letter from the ANZ declining finance (T85). The date of the conversation was the subject of controversy and will be dealt with later in this judgment. 15 On or about 19 April 2008 the first defendants wrote to the plaintiff (Exhibit 12) stating: 16 On or about 21 April 2008 (Exhibit 15) the first defendants wrote to the second defendants saying: "… we are regrettably withdrawing from the contract to purchase the property immediately …" (Page 6)
17 On or about 5 May 2008 the first defendants served a Deposit Holder Notice on the plaintiffs (Exhibit 18) in an attempt to recover their deposit. 18 On or about 8 May 2008 the plaintiffs served a Notice of Deposit Respondent on the first defendants (Exhibit 19). 19 Settlement of the property was to occur on 20 May 2008 (the Dodds' Settlement). 20 The first defendants failed to settle. They considered the contract had ended as finance had not been obtained pursuant to the subject to finance clause. 21 On or about 22 May 2008 the plaintiffs served a Default Notice (Exhibit 20) stating the first defendants were required to remedy their default of failing to pay the balance of the purchase price at settlement. 22 On or about 10 June 2008 the plaintiffs served a Termination Notice (Exhibit 23) stating the first defendants had failed to comply with the default notice and terminated the contract. 23 On or about 13 June 2008 the plaintiffs served a Deposit Holders Notice on the first defendants (Exhibit 24). 24 On or about 18 June 2008, the first defendants served a Notice of Dispute by Deposit Respondent on the plaintiffs (Exhibit 25). 25 In approximately September 2008 the plaintiffs moved from the property to their new residence (T42). 26 The plaintiffs continued to offer the property for sale (T50). 27 On 8 September 2008 the plaintiffs entered into a contract to sell the property to Mr Blain for $615,000 (Exhibit 29), settlement occurring on 7 October 2008 (the Blain settlement). After the Blain settlement the plaintiff commenced this action.
Onus of proof 28 The first controversy between the parties is who bears the onus of proving, on the balance of probabilities, when the contract came to an end. 29 The plaintiffs contend the first defendants bear the onus. They say the first defendants claim to have justifiably terminated the contract because they complied with the subject to finance clause and therefore bear the onus of proving that fact: Sanpine Pty Ltd v Koompahtoo Local (Page 7)
Aboriginal Land Council [2005] NSWSC 365 at 171 - 174 per Campbell J affirmed by the High Court in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd [2007] HCA 61; (2007) 233 CLR 115. 30 The first defendants say the onus is on the plaintiffs to prove they were in default at the time the notice of termination was given. To succeed they say the plaintiffs must prove the first defendants breached the terms of the contract by failing to apply for finance. 31 It is not disputed that Sanpine (supra) correctly states the law. Sanpine states: "(171) In a civil suit the onus lies on the plaintiff to prove all facts which are an essential part of its cause of action, or in some way an essential part of its case. Thus in a civil suit in which it is part of a cause of action on which the plaintiff sues, or in some other way an essential part of the plaintiffs case ,to establish a negative proposition the onus lies on the plaintiff of proving that proposition …. (172) Applying this principle necessarily involves an analysis of what are the essential ingredients of a plaintiff's cause of action or otherwise an essential part of the plaintiff's entitlement to the relief it claims … (174) As always happens in our system of law the substantive law concerning who bears an onus of proof finds expressions in the rules of procedure governing pleadings. The principle that in an action for damages for breach of contract it is the defendant who bears the onus of proving that there was a justification for the termination of the contract finds expression in pleading, by the plaintiff in such a suit pleading the entering of the contract, that the defendant has failed to perform the contract, and damage. It is for the defendant to raise in its defence any matters of justification for the termination upon which it seeks to rely. (175) … in using that proposition to decide whether it is a plaintiff or a defendant who bears that onus one must bear in mind the particular cause of action being asserted and relief claimed in the litigation in which they occur." (Page 8)
32 On analysis it is clear the plaintiffs' case is based on the first defendants' failure to settle on the due date when the plaintiffs were ready, willing and able to settle. This is the basis upon which the Default and Termination Notices (Exhibits 20, 23) were issued and the basis upon which the plaintiffs terminated the contract and forms the default relied upon in pars 7, 9, 10 of the statement of claim. 33 The first defendants contend the Default notice issued by the plaintiffs was based upon the failure to apply for finance approval. In support of this contention they refer to Exhibit 19 (the "Notice by Deposit Respondent" given by the plaintiffs). The notice does refer to the first defendant's failure to use their best endeavours in good faith to obtain finance approval. However, that notice does not refer to the contract being terminated. On the contrary it refers to the contract not coming to an end. 34 I consider the first defendants' submissions to be misconceived. Exhibit 19 is a notice given in connection with the deposit and is not a notice upon which the plaintiffs based the termination of the contract. 35 The first defendants also point out the statement of claim refers to the terms of the contract which provide they must immediately make an application for Finance Approval for $667,500 to the ANZ bank or some other lender carrying on business in Western Australia (par 5.2) and must use their best endeavours in good faith to obtain finance approval (par 5.3) and pleads the first defendants' refusal or neglect to make an application for finance approval (par 6). In my view these paragraphs simply recite the factual contentions of the plaintiffs. 36 I find the plaintiffs issued default notices and terminated the contract on the grounds they were ready, willing and able to settle on the settlement date and the first defendants refused, neglected or failed to provide the balance of the purchase price on that date. They base their case on those facts (pars 7, 9 and 10). 37 The essential ingredient of the plaintiffs' cause of action is the failure to settle on the settlement date. 38 The onus is on the plaintiffs to establish the first defendants failed to provide the balance of the purchase price on the settlement date. The plaintiffs have discharged that onus. 39 The onus is on the first defendants to establish in their defence the matter of justification upon which they rely. The first defendants must (Page 9)
establish their compliance with the subject to finance clause which resulted in the contract came to an end. 40 This approach accords with the comments of Steytler J, as he then was, in Fay v Sheridan [1999] WASCA 61 where, without wishing to discuss the distinction between a condition precedent to completion and a condition subsequent in agreements of this kind, his Honour remarked: Construction of the contract 41 The Court's primary task in construction is to discover the intention of the parties from the words used in the contract, read as a whole. 42 Gibbs J in Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109 set out the following principles: "… The whole of the instrument has to be considered, since the meaning of any one part of it may be revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', to use the words from earlier authority (Page 10)
cited in Locke v Dunlop ((1888) 39 Ch. D 387, at p 393), which, although spoken in relation to a will, are applicable to the construction of written instruments generally; see also Bottomley's case. Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co. Ltd. v. Arcos Ltd ((1932) 147 LT 503, at p 514), that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance (cf. Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd ((1968) 118 CLR 429, at p 437)) (109 - 110)." 43 The meaning of the terms of a contract are determined by what a reasonable person would have understood them to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 [40]. This normally requires a consideration of not only the text, but also the surrounding circumstances known to the parties and the purpose and object of the transaction, including the market in which the parties were operating: Toll (FGCT) v Alphapharm (179) [40]; Pacific Carriers Pty Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451, 461 - 462 [22], Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181, 188 [11], McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 [22]. 44 The courts have consistently stated commercial contracts should be given commercial interpretations as can be seen from the following statements: "A commercial contract should be given a business like interpretation: McCann v Switzerland Insurance Australia Limited[2002] HCA 65; 203 CLR 579 at 589. The contract should be construed practically to give effect to its commercial purpose: Hancock Prospecting Pty Ltd v BHP Minerals Pty Ltd [2003] WASCA 259 [72]. The words should be given a construction so as to avoid … making commercial nonsense …: Zhu v Treasurer of NSW [2004] HCA 56; (2004) 218 CLR 530 at 559 (82). (Page 11)
It is a requirement not to approach words in a business contract pedantically or in a manner prone to defeat the evident commercial purpose: Franklands Pty Ltd v Metcash Trading Ltd (2009) NSWCA 407 at 19. An appreciation of the commercial purpose of the contract calls for an understanding of the genesis of the transaction, the background and the market: International Air Transport Association v Ansett Australia Holdings Limited[2008] HCA 3; (2008) 234 CLR 151 at 160." (See also Attorney-General of Botswana v Aussie Diamond Products [2010] WASC 141; Secure Parking (WA) Pty Ltd v Wilson [2008] WASCA 268; Investments (WA) Pty Ltd v Hatton & Anor [2007] WASCA 110, per Buss J at par 46; JCorp Pty Ltd v Mladenis [2009] WASCA 157 per Newness J.
The proper construction of this contract 45 A useful starting point is to examine whether the plaintiffs' contention the first defendants were obliged to apply to the ANZ for finance is correct.
The contractual obligation to apply for finance 46 As a buyer, the first defendant's obligations to the plaintiffs as seller are set out in cl 1.1 which provides as follows: 1.1 Buyer's Obligation to Apply for Finance and Give Notice to the Seller. 47 In this case the ANZ is nominated as the Lender in the schedule. 48 It is not disputed an application for finance was not made to the ANZ. (Page 12)
Is the buyer obliged to make an application for Finance Approval to the Lender nominated in the schedule? 49 The buyer is required to make an application for Finance Approval to the Lender (cl 1.1(a) (I)). 50 Lender is defined in cl 1.9 as: "Lender means: (a) the lender or mortgage broker nominated in the schedule; or (b) if the Buyer makes a finance application to, or if no lender is nominated in the Schedule then, any bank, building society, credit union or other institution which makes loans and in each case is carrying on business in Western Australia or a mortgage broker carrying on business in Western Australia." 51 The plaintiff says the use of the definitive article "the" in cl 1.1(a)(1) means the buyer must make an application for finance approval to "the lender" specified in subclause (a) of the definition of "Lender". They say the lender specified in subclause (a) is the lender nominated in the schedule and to contend otherwise is to give no effect to the deliberate use of the word "the" and treat "the" as meaning "a" or "any". 52 They say to allow the buyer to make an application for finance approval to an entity other than one nominated in the schedule, would result in the nomination, having no purpose. 53 The plaintiffs urge a "must" and "may" interpretation of the clause. 54 The plaintiffs say if a lender is nominated in the schedule, the buyer must at the very least apply to that lender. That is the absolute minimum obligation. 55 The plaintiff says if no lender is nominated in the schedule, then par (b) applies. 56 Paragraph (b) also, they contend, enables the buyer to obtain finance approval from a lender other than the lender nominated in the schedule with the result that if, for example, the buyer nominates a lender in the schedule who declines finance, the buyer may, but is not obliged, make an application for finance to any of the lenders specified in par (b). (Page 13)
57 If such an application is successful the seller cannot claim cl 1.1(a) has not been complied with because Finance Approval has been given, albeit by an entity other than the Lender nominated in the schedule. The buyer has the benefit in that the contract remains on foot. 58 If the application is unsuccessful, and the buyer has applied to the lender nominated in the schedule, the condition has been complied with. 59 The first defendants says if the word "the Lender" was intended to mean the lender nominated in the schedule, the words in cl 1.1(a)(I) would be followed by the words " … nominated in the schedule". 60 The first defendants submit the extended definition of "the Lender" in cl 1.1(a) (1) refers generically to the definition of "Lender" in the contract. The definition of "the Lender" includes a mortgage broker carrying on business in Western Australia and the first defendants say notwithstanding the nomination of a specific entity in the finance clause of the schedule, an application for Finance Approval can be made to that entity or any of the entities specified in par (b) which includes a mortgage broker carrying on business in Western Australia. 61 I consider a proper construction of the clause indicates the word "or" is clearly used in the alternative sense. That is the clear, natural meaning of the word in the context in which it is used. 62 A proper construction of the contract means an application for Finance Approval is not required to be made to the Lender nominated in the schedule. 63 A buyer may make an application for Finance Approval to the lender nominated in the schedule or any bank, building society, credit union or other institution which makes loans and in each case is carrying on business in Western Australia or a mortgage broker carrying on business in Western Australia. 64 Therefore an application for Finance Approval can be made to a mortgage broker carrying on business in Western Australia notwithstanding the ANZ was nominated as the lender in the schedule.
Was an application for Finance Approval made? 65 Whether an application for finance has been made is a question of fact; Erley Pty Ltd v Gunzburg Nominees Pty Ltd, unreported; SCt of WA; Library No 9801132, 3 April 1998; Paltara Pty Ltd v Dempster (1991) 6 WAR 85. (Page 14)
66 It was submitted by the plaintiff that a written application for finance was required. The first defendants say an application, according to the Butterworths Concise Australian Legal Dictionary (3rd ed), means "The act of making a request" and no formality is required. 67 I do not accept the plaintiffs' submission. 68 Clause 1 provides many instances where actions are to be performed in writing, i.e. cl 1.3 to cl 1.8 inclusive. Indeed Finance Approval requires "written approval". If the contract required an application for Finance Approval to be made in writing, it would state so, as it did in the other clauses, to which I have referred. An application for Finance Approval does not need to be in writing. 69 The plaintiffs say the first defendants failed to make such an application; at best they merely enquired of Mr Blackburne whether finance would be available. 70 The first defendants say they made an application for Finance Approval to Mr Blackburn at the meeting of 11April 2008 and have therefore complied with their contractual obligations under cl 1.1(a) (1). 71 It is therefore necessary to consider the meeting of 11 April 2008 and subsequent events.
The meeting of 11 April 2008 and subsequent events 72 On 11 April 2008, the first defendants met with Mr Jason Blackburne. 73 Mr Blackburne was a mortgage broker carrying on business in the state of Western Australia. He was a licensed finance broker under the Finance Brokers Control Act 1975. He acted as an intermediary. He did not provide finance or credit directly rather he took applications on behalf of his clients and submitted them to financial institutions. Approximately 50 per cent of the applications he made for finance were to the ANZ (T145). He was not an agent of the ANZ able to approve finance applications (T150). 74 Ms Smith, a business development manager with the ANZ, was not at the meeting however she gave evidence (T135 - 142, Exhibits 47A, 47B) which was not disputed or contradicted and is accepted by me. She explained there were two types of loans obtainable from the bank, a low doc loan and full documentation loan (T150). A low document loan (Page 15)
involved "less hassles", reduced documentation and a less rigorous income verification process (T136, Exhibits 47A, and 47B). 75 The application form was the same for both loans (T138). The criteria for a low document loan, in addition to a maximum 80 per cent loan to value ratio, were the applicant, for a minimum of two years, was required to be self-employed and have an ABN registered. 76 A low document home loan application form required the applicant supply personal details, including name, address, time at address, current and previous employment history, details of the security property and statement of position (assets, liabilities, income and expenditure). Applicants did not have to provide their latest financial details, however, were required to make a separate and additional declaration as to their income over the past two years (T140). 77 She said Mr Blackburne was an accredited mortgage broker with ANZ and was entitled to submit, but not approve, loan applications to the ANZ. Once submitted the ANZ would consider and either approve or disprove the application (T137, 150). 78 There is no evidence Mr Blackburne was authorized by the bank to decide an application should not be submitted to them for their consideration because, for example, it did not meet their "benchmark" criteria for a loan. 79 Mr Blackburne took notes of the meeting but did not have those notes. He said he attended the meeting with a finance broker's application form, an ANZ loan application form and "perhaps applications" forms for other financial institutions (T147). Although it is not clear, it appears he was carrying on business under the title "The Finance Establishment" (Exhibit 9, 18, 48). However nothing turns on this. 80 He knew the first defendants already owned properties in Townsville and Stirling. Some years previously he refinanced the Townsville property and arranged finance for the Stirling property when it was acquired. Both transactions involved loans secured by mortgages in favour of the ANZ (Exhibit 48). 81 At the meeting he was shown the Contract for Sale and given the value of there two existing properties and the mortgages standing against them. He was also given general information as to the first defendants' children and "those sorts of things "(T146). The first defendants were unable to provide their previous year's financial history (personal and (Page 16)
business) as required by the ANZ for a full documentation loan and he considered their only option was a low doc loan (Exhibit 48). 82 He could not recall if he was shown the personal bank statements of the first defendants or made enquiries about their savings, or if he prepared a statement of position. Both the first defendants say they gave Mr Blackburne details of their savings, income received from childcare payments and other personal information. 83 Mr Blackburne agreed he was not given enough information to be able to prepare and complete an ANZ application form for either a low document loan or a full documentation loan (T163); however he was given sufficient information to make an assessment of whether the first defendants would meet the ANZ benchmark for a low document loan (T168). 84 He considered the stamp duty payable on the transaction, the first defendants' equity in their properties and how much cash they would require to proceed with the purchase. He knew the main lending criteria for the bank was a minimum of 20 per cent equity in all the properties owned. He calculated the loan to value ratio as 86.7 per cent which meant they did not meet the bank's criteria and would not be able to obtain a low document loan (T168, Exhibit 48) Mr Blackburne made his views known to the first defendants and they accepted this advice (Exhibit 48). 85 Mr Blackburne had no recollection of completing an ANZ loan application form and agreed he did not submit an application form to the ANZ or any other lender (T163). 86 There is no suggestion the first defendants provided false, inaccurate or insufficient information to Mr Blackburne; on the contrary, the evidence is they provided all information Mr Blackburne requested. 87 However, the information provided led Mr Blackburne to conclude the first defendants could not comply with the value to loan ratio and they would not be able to get finance (T168, Exhibit 48). Exhibit 12 establishes the first defendants believed they would not obtain finance. 88 After the meeting he made enquiries of other financial institutions to establish whether any would be prepared to lend the first defendants the money needed and these enquiries were unsuccessful because the loan to value ratio was too high (Exhibit 48). (Page 17)
89 I found Mr Blackburne's evidence to be honest, credible, straightforward and reliable. 90 Mrs Dodds says Mr Blackburne had a printed document with him. Mr Dodds says it was a formatted application. Both say they signed the document (T81, T119 to T120). They say the document was completed by Mr Blackburne, although they were not provided with a copy. They both say Mr Blackburne suggested he retain the document in case a "subject to sale" offer was later made, in which event he would have the appropriate information (T120). 91 Mrs Dodds accepts her statement makes no reference to signing the document. She said she thought the reference in her statement to "… we met with Mr Blackburne at our house to complete a finance application" covered what she says took place, that is, a document of some sort was signed (T89). 92 The plaintiffs contend the first defendants' evidence to the effect they signed an ANZ loan application form should be rejected and say it is an inherently incredible proposition that a form containing all of the information required in a low document application form was completed because: (a) The first defendants' evidence establishes the information provided to Mr Blackburne does not include all the information Ms Smith said would be required in the application form. (b) Mr Blackburne said insufficient information had been provided to enable him to prepare and complete the application form to submit to the ANZ. (c) Mr Blackburne lacked any records or recollection of completing an application form. (d) The form was signed on the basis it would be retained by Mr Blackburne so if a subsequent "subject to sale" offer was accepted the form would not need to be completed again. 93 I do not accept the plaintiffs' submission. 94 I found both first defendants' evidence to be credible, honestly given and, except for one matter upon which I place no significance, accurate and reliable. (Page 18)
95 I am satisfied Mr Blackburne attended the first defendants' residence with a finance broker's application form and an ANZ loan application form. 96 Considering approximately 50 per cent of his applications for finance were made to the ANZ and the two previous transactions involving the first defendants' Townsville and Stirling properties involved the ANZ, I have not the slightest hesitation in finding an ANZ low document application form was taken to the meeting by Mr Blackburne and at least parts of it were completed by him. 97 Mrs Dodd's evidence, notwithstanding that she did not refer in her earlier statement to signing the form, and Mr Dodds' evidence corroborates the existence of a document which I infer and find was an ANZ loan application form. 98 I accept the form was signed by the first defendants. 99 I find it consistent with the evidence the ANZ low doc application form, although signed, was not completed in every detail. 100 Mr Blackburne is an experienced mortgage broker. He has dealt with the ANZ and the Dodd's previously. The crucial aspect of low document loans was the loan to value ratio. He had calculated and concluded an application would not be successful. He advised the first defendants the transaction did not comply with the ANZ's requirements. This advice was accepted. Once this position had been reached there would be little, if any, point in completing the application form. 101 In view of the first defendants' desire to purchase this property and their prior discussions with Mr Rance about submitting a "subject to sale" offer, I am satisfied Mr Blackburne did advise the Dodds he would keep the application form in case they proceeded with such an offer. 102 The fact the application form has not been retained nor Mr Blackburne's notes preserved does not cause me to doubt the conclusions I have made. The transaction did not proceed and it is not surprising Mr Blackburne did not retain those sorts of records. 103 I am satisfied a low document application form was completed, at least in part, and signed by the first defendants and was retained by Mr Blackburne in case a "subject to sale" offer was later made. (Page 19)
104 It is clear there were no instructions given to Mr Blackburne to submit the application form to the ANZ (T81, T163). 105 Mr Blackburne's evidence, which I accept, was after this meeting Mrs Dodds asked him to provide a letter confirming his advice. He did so via Exhibit 9 which states: "... given your current circumstances, I am unable to arrange a loan for you to assist with the purchase of 60 Waterford Drive, Hillarys ..." 106 Exhibit 9 was subsequently forwarded by the first defendants to the plaintiffs and there was a telephone conversation whereby Mrs Rance told Mrs Dodds she needed to obtain a letter from the ANZ declining finance (T85). 107 Mrs Dodds said (Exhibit 44) she called Mr Blackburne to enquire about obtaining such a letter immediately after receiving Exhibit 9 and before she was spoken to by Ms Rance. 108 The plaintiffs say Mrs Dodd's evidence on this point is inconsistent with Exhibit 12 which is a letter sent by the first defendants to the plaintiffs on or about 19 April 2008. It states: "… At this stage Rebecca Rance then informed me that we actually needed a letter from the ANZ saying declined for finance .Our broker has recommended that we don't apply if we know we won't get finance as this will affect our future application with any other lenders …" 109 Although I note the use of the word "has" rather than "had" in the phrase "Our broker has recommended", the letter does not state, nor can I infer whether the recommendation was before or after the phone call from Ms Rance to Mrs Dodds. 110 Further, the plaintiffs say the first defendants' evidence conflicts over the issue of whether the call to Mr Blackburne was made before or after Mrs Dodd's spoke to Mrs Rance. I do not find any such conflict as Mr Dodd's made it perfectly clear he was not a party to the phone conversation between his wife and Mrs Rance. Further, there was nothing in his evidence which would enable me to ascertain the time of the Mrs Dodd/Mrs Rance conversation (T123). (Page 20)
111 The plaintiffs attach some significance to this issue. I do not attach any significance to this issue because it is not disputed the first defendants failed to make an application for a loan to the ANZ. 112 Exhibit 12 shows the first defendants believed there was no point applying for finance as a refusal could later adversely affect their credit. The first defendants say Mr Blackburne told them this. Mr Blackburne said he did not give that advice. When pressed on the point he said he could not recall giving that advice (T163). I am satisfied he did not give that advice and I prefer the evidence of Mr Blackburne to the first defendants on this point. 113 Again I do not attach much significance to this conflict as the essential question is whether an application for finance approval was made. 114 The plaintiffs also submit I should make a finding in relation to the effect of the "admissions contained in Exhibit 12". Those admissions are, as I understand it, implied from the use of the words: 115 I do not consider a finding is required in relation to the effect of this alleged admission. 116 The issue is whether the first defendants have complied with a contractual clause. The so-called alleged admission does not assist. The first defendants' opinion as to their compliance with the clause is irrelevant. The question is whether they have. At the highest their opinion is only evidence of their intent and state of mind at that time and may explain why they adopted a particular course of action. 117 The essential issue is whether the subject to finance clause has been complied with.
Findings of fact relating to the meeting and subsequent events 118 I find the following facts proven. (Page 21)
1. Mr Blackburne was a mortgage broker carrying on business in the state of Western Australia. Although an accredited mortgage broker with the ANZ and therefore entitled to submit loan applications to them, he was not entitled to grant approval of such applications. Mr Blackburne is not a credit provider nor is he authorised on behalf of any credit provider to approve loans. His role is that of an intermediary. He submits loans to other bodies for their consideration. 2. At the meeting on 11 April 2008, an ANZ home loan low document application form was completed, at least in part, and signed by the first defendants. 3. Mr Blackburne advised the first defendants that they did not comply with the criteria for an ANZ low document loan. 4. The first defendants accepted that advice and the application was not submitted to the ANZ. They made no further applications as they believed they would be unsuccessful and a refusal could adversely affect their ability to obtain future loans. 119 With this in mind, I now consider the question of whether an application for Finance Approval was made.
Finance Approval 120 As we have seen the contractual obligation of the buyer is to "… make an application for Finance Approval to the Lender…" (cl 1.1(a)(1)). 121 Finance Approval is defined in cl 1.9 as: "Finance Approval means: (a) A written approval by the Lender of the Finance Application or a written offer to lend or a written notification of an intention to offer to lend made by the Lender; and (b) For the Amount of Loan; and (c) Which is unconditional or subject to terms and conditions: (1) which are the Lenders usual terms and conditions for finance of a nature similar to that applied for by the Buyer, or (Page 22)
122 "Finance Application" is defined in cl 1.9 to mean an "application made by or on behalf of the Buyer to the Lender to lend any monies payable under the Contract". 123 The plaintiffs contend the first defendants' dealings with Mr Blackburne involved at their highest, an enquiry as to whether they could obtain finance from the ANZ and do not amount to an application for Finance Approval. Further, they say Mr Blackburne's unsuccessful telephone enquiries to other institutions did not amount to an application for Finance Approval. 124 They say Mr Blackburne is not a "credit provider" within the extended definitions of s 5 and s 6 of the Credit Act 1984. He does not carry on the business of providing credit and acts solely as an intermediary who cannot make decisions on behalf of credit providers to approve loans. All he does is submit finance applications on behalf of his clients to others. 125 The plaintiffs say an application for Finance Approval requires an application to an entity which has the authority to approve the loan and say this is apparent from the proper construction of the definition of Finance Application and Finance Approval in cl 1.9. 126 In particular they draw my attention to the following: (Page 23)
(a) "Finance Application" is defined to mean an "application made by or on behalf of the Buyer to the Lender to lend any monies payable under the Contract"; and (b) "Finance Approval" is defined to mean, inter alia, "a written approval by the Lender of the Finance Application or a written offer to lend or a written notification of an intention to offer to lend made by the Lender"; and (c) The specific reference to "The Lender's usual terms and conditions for finance." in the definition of Finance Approval (underlining added). (d) The words" application for Finance Approval "in the context in which it is used implies the entity to whom the application for approval is made can grant approval. 127 They say if the entity to which the application for Finance Approval is made cannot approve the loan then, although an application can be made through that entity, it cannot be made to them. 128 The plaintiffs say you can apply for Finance Approval to a mortgage broker provided the mortgage broker can provide the loan or has authority to approve the loan. If the mortgage broker is an intermediary, as was Mr Blackburne, unable to either provide the funds sought or approve the loan, an application for Finance Approval cannot be made to that mortgage broker. 129 The plaintiffs accept a Finance Application can be made by or on behalf of the buyer through a mortgage broker to a Lender who is a credit provider. However, the application for Finance Approval must go to an entity that can either approve or decline the application. If an application for Finance Approval is made to a mortgage broker who fulfils those criteria, there has been compliance with cl 1.1(a) (1). If the mortgage broker is a mere "intermediary" and has not submitted the Finance Application to an entity who can either approve or decline the application there has been no application within cl 1.1(a)(1). 130 The first defendants say looked at objectively, the intent of the parties is ascertained from the words of the contract and the definition of Finance Application and Finance Approval in the contract do not require the Lender itself to lend the money and to suggest interpreting the words, in the definition of Finance Application, "to lend any moneys", as meaning a mortgage broker cannot be the recipient of a Finance Application is untenable. (Page 24)
131 The first defendants say where the word "Lender" appears throughout the contract, including within the definition of Finance Application and Finance Approval, it must be interpreted having regard to the definition specifically provided and that definition includes mortgage broker. They say the interpretation sought by the plaintiffs would lead to an absurd result, because Lender would mean in one part of the contract credit provider or intermediary, however, in other clauses it would mean a credit provider only and not an intermediary. This, they say, is hardly a commercially sensible outcome. 132 It is not disputed that courts should construe the contract so as to avoid any absurdity and to properly reflect the intention of the parties gathered objectively; Westpac Banking Corporation v Tanzoni Pty Ltd (2000) NSWCA 25, Dockside Holdings Pty Ltd v Rakio Pty Ltd [2001] SASC 78. 133 The first defendants say to avoid an absurd result, the contract should be construed by supplying, omitting or correcting words so that, for example, the definition would read as follows: 134 Further, the first defendants say if the definition of "Lender" in the contract renders the definition of Finance Application or Finance Approval ambiguous, the contract, having been prepared for the plaintiffs by their agents, should be construed contra proferentem. The first defendants do not dispute the contra proferentem rule is to be applied only as a last resort and where an ambiguity exists which cannot be resolved; McCourt v Cranston [2009] WASC 56 per Templeman J at [55] and cases cited therein. 135 It is well recognised it can be dangerous to hold a provision "commercially absurd" because what to one mind is commercially absurd may not be so to another; Chartbook Ltd v Persimmon Homes Ltd [2009] 4 All ER 677. Lord Hoffman, in delivering the lead judgment in that case, reinforced the need to obtain certainty of contract and the predictability of outcomes of contractual disputes. 136 As I have found the contract provides a Lender to whom the application for Finance Approval may be made is the Lender or mortgage (Page 25)
broker nominated in the schedule or any entity referred to in par (b) which includes a mortgage broker carrying on business in Western Australia. 137 The definition of Finance Application clearly envisages a mortgage broker acting as an intermediary as it allows an application made either by or on behalf of the buyer "to the lender to lend any moneys payable under the contract". 138 However, the application must be for Finance Approval. 139 The reference within the definition of Finance Approval to "written approval by the Lender of the Finance Application or a written offer to lend or a written notification of an intention to offer to lend made by the Lender" (cl (a)) and" the Lenders usual terms and conditions for finance" (cl (c)) and the ordinary, natural meaning of the word "approve" lead me to the view the contract should be interpreted as meaning an application for Finance Approval must be made directly, or through an intermediary, to an entity which is a Lender as defined in the contract and can give approval to the application. 140 If an application for Finance Approval is made to a mortgage broker who is an intermediary in the true sense of the word, the mortgage broker must submit the application to an entity that has authority to approve the loan to comply with cl 1.1(a) (1). 141 Business commonsense favours this construction. 142 The first defendants' submission this interpretation results in Lender meaning in one part of the contract "credit provider" or "intermediary" and in another part of the contract "credit provider" overlooks the context within which that word is used and that an application for Approval, in its ordinary, natural meaning requires the application be made, directly or indirectly, to an entity that can actually provide approval. 143 If an intermediary such as a mortgage broker is used, and this is clearly contemplated by the contract, a mere enquiry to that intermediary as to whether the loan would be approved by another, does not comply with cl 1.1(a) (1). 144 In Faye v Sheridan (supra), information had been provided to a finance broker. The finance broker did not make a written application to the bank for finance but telephoned the mortgage broker unit of that bank and was told the bank would not be prepared to provide the requested finance. Although that case involved the 1994 Joint Form of General (Page 26)
Conditions for the Sale of Land Steytler J, as he then was, discussed whether the purchaser used their best endeavours to obtain a loan from a bank and remarked "… there was never any opportunity for the bank to consider the material … in considering whether or not to lend to the appellants the amount sought by them …" (par 42). 145 Although these remarks were clearly obiter dicta and made in a case with different factual circumstances, they provide some support for the view an application for Finance Approval must be made to an entity with the power to approve or disapprove the application. 146 The legal effect of a subject to finance clause binds the seller to sell the property, subject to the buyer obtaining finance. Clearly the intent of both parties is for the buyer to make an application for Finance Approval to an entity that can approve the application. An enquiry to an intermediary, who lacks authority to approve the application, as to whether an application is likely to succeed is not sufficient. 147 Commercial efficacy requires an application for Finance Approval be made, even through an intermediary, to an entity which actually has authority to approve the loan and is a Lender as defined in cl 1. 148 Interpreting the clause in this manner does not result in any ambiguity and, whilst I find the contract was prepared by the second defendants as the plaintiffs' agents, it is not necessary to resort to contra proferentem rules of construction. 149 I do not consider Mr Blackburne's telephone enquiry with other financial institutions were applications for Finance Approval. 150 There is no evidence establishing those financial institutions were banks, building societies, credit unions, mortgage brokers or other institutions which make loans and in each case carrying on business in Western Australia. Accordingly, I find these enquiries were not applications for Finance Approval within the meaning of the contract. 151 In this case an application for Finance Approval was not made by the first defendants to either the ANZ or any other Lender as defined by cl 1 which was capable of approving the loan and they have therefore failed to comply with cl 1.1(a) (1). 152 I find there was no application for Finance Approval within the meaning of the contact. (Page 27)
Summary 153 The contractual obligation of the first defendant was to "… make an application for Finance Approval to the Lender…" (cl 1.1(a)(1)). 154 Clause 1.1 does not require the first defendant buyer to make an application for Finance Approval to the lender nominated in the schedule. 155 A buyer may make an application for Finance Approval to the lender nominated in the schedule or any bank, building society, credit union or other institution which makes loans and in each case is carrying on business in Western Australia or is a mortgage broker carrying on business in Western Australia. 156 An application for Finance Approval must be made to a Lender as defined by cl 1 which is actually capable of approving the application. 157 The first defendants did not make an application for Finance Approval as defined by the contract and have therefore failed to comply with cl 1.1(a) (1)
The plaintiff's entitlement to damages 158 Clause 24.3 of the Conditions allows the plaintiffs to "elect" to exercise any one or more of the following: 159 I consider these rights are cumulative upon the plaintiffs' ordinary rights at common law and the plaintiffs are not required to "elect" between their contractual and common law rights; Doubikin Holdings Pty Ltd v Grail Pty Ltd (1991) 5 WAR 563 at 571 and cases cited therein. 160 I am satisfied on the Dodds' settlement date the plaintiffs were ready willing and able to settle. I accept the plaintiffs' evidence. The evidence of both plaintiffs was credible, honest, accurate and reliable. Although the "for sale" sign remained on the front lawn (T48, T49) it does not mean the plaintiffs were not ready, willing and able to settle. They remained the registered proprietors of the property (Exhibit 33). They had obtained legal advice and did not conduct further home opens until after the termination notice (T47). (Page 28)
161 The property did not settle because the first defendants wrongly believed the contract ended as a result of what they considered to be their unsuccessful application for finance (Exhibit 18). 162 After the termination date the plaintiffs continued to market the property, albeit with a different agent (T50). The offer, ultimately accepted, from Mr Blain for $615,000 was the only offer received (Exhibit 43). It is not disputed the resale settled on 7 October 2008. 163 Pursuant to cl 24.6 of the Conditions, as a resale took place within 12 months the liquidated damages, after taking into account the costs and expenses of the resale and the amount of the deposit ($3,000) is the amount received by the plaintiffs from that resale less the purchase price of the original sale. 164 There is no evidence of the costs and expenses of the resale. The only evidence is the plaintiffs received $615,000 when the property resold. The difference, after allowing for the forfeited deposit, is $54,500. I allow those liquidated damages. 165 I allow interest calculated at 6 per cent per annum on that sum from 7 October 2008 to 22 August 2010 being 684 days at $8.95 per day or $6127. 166 Clause 24.3 of the Conditions entitles the plaintiffs to forfeit the deposit. This is achieved by ordering the second defendants pay the plaintiffs the deposit. The plaintiffs failed to adduce any evidence as to whether the deposit is in an interest bearing account and accordingly I would not allow their interest claim. 167 The plaintiffs also claim council (Exhibit 2, 28), water rates (Exhibit 1, 26) and home insurance (Exhibit 13, 32) on the property from the date of the Dodds' settlement to the Blain settlement, (20 May to 7 October 2008). These are items of expenditure properly incurred on maintaining the property before its resale. These expenses are damages arising from the default by the first defendants. 168 I therefore allow the following amounts: (Page 29)
169 I allow interest on those amounts calculated at $0.12 per day from 7 October 2008 until 22 August 2010 being 684 days equalling $88.42. 170 I allow $627.41 paid to Solomon Brothers (Exhibit 35) on the issue of the default notice and termination notice. These expenses are damages arising from the default by the first defendants. 171 I allow interest on that amount calculated at $0.103 per day for 684 days totalling $70.54. 172 I allow marketing fees of $1,500 (Exhibit 22, 27) relating to the marketing of the property prior to the contract being terminated. 173 I allow interest on this amount calculated at $0.246 cents per day for 684 days totalling $168.65. 174 The plaintiffs also claim 6 per cent interest on the original purchase price of $672,500 from the Dodds' settlement (20 May 2008) to the Blain settlement (7 October 2008) being 140 days at $110.55 per day totalling $15,476.71. 175 The plaintiffs retained ownership of the property until the Blain settlement and continued to reside there until at least early September 2008. The first defendants did not, in cross-examination or by the introduction of evidence, seek to establish an economic value of that occupancy or ascertain whether the premises were rented or otherwise occupied after early September. 176 In the absence of such evidence I allow the interest claimed. 177 The plaintiffs seek costs on an indemnity basis. 178 This is not a case where the first defendants properly advised should have known they had no chance of success. I do not consider the first defendants' submissions were frivolous or involved any extraneous matters. There has been no identification of any element of improper or unreasonable conduct on the part of the first defendants or their legal advisers in relation to this case and accordingly I would not order indemnity costs: Flotilla Nominees Pty Ltd v West Australian Land Authority [2003] WASC 122, (2003) 28 WAR 95 at [25]; Staley v Pivot Group Pty Ltd(No 3) [2009] WASC 355; City of Canning v Avon Capital Estates (Aust) Ltd [2009] WASCA 120. 179 The orders I make are as follows: (Page 30)
1. The second defendants pay the deposit of $3,000 held by them as stakeholder to the plaintiffs. 2. The first defendants pay the plaintiffs damages and interest in the amount of $79,345.18. 3. The first defendants pay the plaintiffs costs of this action to be taxed or agreed. (Page 31)
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