Lake Street Investments Pty Ltd v Monet Finance Corporation Pty Ltd
[2014] QCAT 220
•19 May 2014
| CITATION: | Lake Street Investments Pty Ltd v Monet Finance Corporation Pty Ltd [2014] QCAT 220 |
| PARTIES: | Lake Street Investments Pty Ltd (Applicant) |
| v | |
| Monet Finance Corporation Pty Ltd Briknow Pty Ltd t/as BH Knowles & Co Breez Finance Corporation Pty Ltd (Respondents) |
| APPLICATION NUMBER: | MCDO1140-13 |
| PARTIES: | Breez Finance Corporation Pty Ltd (Applicant) |
| v | |
| Lake Street Investments Pty Ltd (Respondent) |
| APPLICATION NUMBER: | MCDO1559-13 |
| MATTER TYPE: | Other minor civil dispute matters |
| HEARING DATE: | 31 October 2013 and 29 January 2014 |
| HEARD AT: | Brisbane |
| DECISION OF: | Adjudicator Bertelsen |
| DELIVERED ON: | 19 May 2014 |
| DELIVERED AT: | Brisbane |
| ORDERS MADE: | 1. Monet Finance Corporation Pty Ltd and Breez Finance Corporation Pty Ltd pay to Lake Street Investments Pty Ltd the sum of $1,144.60. |
| CATCHWORDS: | Trailer commissions payable by financier – agreements to pay trailer commissions – involvement of multiple entities – cessation of entitlement to trailer commissions – liability for ongoing trailer commissions – point in time of cessation |
APPEARANCES and REPRESENTATION (if any):
| APPLICANT: | Terence Carter director; and Alicia Carter national sales manager of Lake Street Investments Pty Ltd |
| RESPONDENT: | Frances Fernandez director of Monet Finance Corporation Pty Ltd, Briknow Pty Ltd and Breez Finance Corporation Pty Ltd; and James Wright director of Briknow Pty Ltd |
REASONS FOR DECISION
Applications
By application 1140/13 filed 5 June 2013 Lake Street Investments Pty Ltd formerly known as Home Loan Centre Australia Pty Ltd (‘Lake Street’) claimed the sum of $12,834.47 for trailer commissions for the period December 2011 to April 2013 pursuant to an introducer agreement dated 11 August 2004.
By application 1559/13 filed 2 August 2013 Breez Finance Corporation Pty Ltd (‘Breez’) sought the refund of $1,834.74 for trailer commissions for the period March 2011 to November 2011 it asserted were mistakenly paid to Lake Street pursuant to an introducer agreement dated 30 March 2006/28 April 2006.
The applications were heard consecutively on 31 October 2013 and 29 January 2014 and on the basis that they were effectively consolidated for the purpose of final adjudication.
Evidence and background
On 11 August 2004 Lake Street entered into an introducer agreement (‘the 2004 agreement’) with Monet Finance Corporation Pty Ltd (‘Monet’). That agreement recorded amongst other things that Lake Street as introducer wished to refer loan applications to Monet as financier pursuant to the agreement. The agreement stated the introducer was an independent contractor/independent introducer. The financier appointed the introducer:
To submit loan applications from time to time on behalf of the introducers clients for one or more of the financiers loan and insurance products … The financier may revise the description and purposes of its products from time to time by notice in writing to the introducer.
Under the agreement the introducer was obliged to ‘observe the financiers practices and procedures for the marketing and writing of loan and insurance products’.
Pursuant to section 6.8 of the agreement:
The financier agrees to pay the introducer commission in accordance with Schedule 1 if the financier approves a loan and the whole of the loan is drawn down by the applicant … The financier reserves the right to vary the interest rate and add the trailer to the interest rate if it so deems necessary.
The agreement went on to state:
The following conditions apply to the payment of the trailer commissions:
(i)The financier may cancel or suspend trailer commissions on new business at its discretion and the introducer notified in writing if the loan is in arrears.
(ii)The trailer commission is payable for the life of the loan or until the introducers book value reduces to less than $1 million.
Additionally section 10 dealing with termination provided:
Should one or both of parties terminate this agreement trailer commissions will continued to be paid for the life of the loan or until the introducers book value reduces to less than $1 million.
Schedule 1 of the agreement under the heading trailer commission provided:
A trailer commission can be added on top the interest rate and will be payable in accordance with section 6.8 of this agreement.
It was not disputed that the trailer commission rate was usually .25 per cent above the loan rate payable monthly on the loan balance. Nor was it disputed that Monet commenced paying Lake Street trailer commissions on mortgage loans introduced by it to Monet from 2004 onwards. There does not appear to have been any argument, dispute, dissatisfaction or disruption to this arrangement until 9 February 2012 when Lake Street queried the ‘status of a trail report’.
By email of 10 February 2012 one Bob Osborne of Breez wrote:
I assume you are referring to payment of trails for both BH Knowles and Breez Finance for December and January. Unfortunately our wholesale funder (CBA) has ‘called up’ the housing cooperative loans for Jacaranda and Poinciana. Receivers and managers have been appointed for both these company’s. As a result no management fees have been paid for BH Knowles and Breez. Consequently at this point payment of trails have not been made. Our managing director is currently negotiating with the receiver (Grant Thornton) to try and have the trails paid as we have informed them the trailing commission is included in the client’s rate and so should be treated separately. We will advise you if any action is successful.
By email on 6 March 2012 Lake Street again queried status of trailing commissions. The same day Ms Fernandez in her capacity as director of BH Knowles & Co and Breez Corporation emailed Lake Street stating:
Recently the Commonwealth Bank (which is the funder of Poinciana and Jacaranda Cooperative Housing Societies) requested full and final payment of the societies loan facility. With five days notice, this was insufficient time to find a new financier so the bank appointed receivers so that they could control and take over all the assets of the societies. The trails payable to you were owing by the societies and being paid by its authorised managers, BH Knowles & Co and Breez Finance purely as a pass through obligation. We have not heard whether CBA will continue to meet your trailer payment obligations or not albeit we have vehemently advocated for trailer payments to be made. Any queries relating to payments will need to be forwarded to the receivers.
The receivers contact details were then recited.
By email of 19 March 2012 Lake Street stated:
It is unfortunate to read of your bank appointed receivers. However we have been unable to locate any provision in the agreement which refers to the ‘pass through obligation’ you refer to. Our agreement is with you and I am unaware of any right or provision in the agreement which denies the requirement of trailing commissions to be paid based on the situation of your lender not paying …
History of relationships
At hearing Ms Fernandez appeared as director of Monet Finance Corporation Pty Ltd (‘Monet’), Briknow Pty Ltd t/as BH Knowles & Co (‘Briknow/BH Knowles’) and Breez Finance Corporation Pty Ltd (‘Breez’). Mr Wright solicitor appeared as director of Briknow Pty Ltd t/as BH Knowles & Co.
Ms Fernandez asserted that Monet commenced paying Lake Street trailer commissions pursuant to the 2004 agreement in 2004; that Briknow/BH Knowles commenced paying Lake Street trailer commission pursuant to an informal arrangement between Lake Street and Briknow/BH Knowles in 2004; that Breez in or about 2006 commenced paying Lake Street trailer commission pursuant to the introducer agreement dated 30 March 2006/28 April 2006 (‘the 2006 agreement’); that Lake Street referred loan applications to Monet, Briknow/BH Knowles and Breez; that those three companies processed and approved loans referred to them by Lake Street.
Ms Fernandez asserted that when a loan application was approved by Monet to the introduced borrower the loan was issued to that borrower by either Poinciana Cooperative Housing Society Limited (‘Poinciana’) or Jacaranda Cooperative Housing Society Limited (‘Jacaranda’); that when a loan application was approved by Briknow/BH Knowles the loan was issued to Poinciana; that when a loan application was approved by Breez the loan was issued to Jacaranda.
On 17 January 2012 both Poinciana and Jacaranda were placed in receivership apparently on five days notice (pursuant to an equitable charge) by the CBA which appointed Grant Thorton Receivers and Managers.
Mr Fernandez argued that because Monet, Briknow/BH Knowles and Breez were no longer effectively in control of the cooperatives loans that it was not possible for trailer commissions to be paid. This was particularly so when the cooperatives loans including those introduced by Lake Street to Monet, Briknow/BH Knowles and Breez were sold by the receivers to Latrobe Financial Services Pty Ltd; that therefore the loan agreements between the cooperatives and their borrowers ceased to exist or put alternatively the obligation to pay trailer commissions went with the sale of the loan or in the further alternative that because the underling housing Co-ops were placed in receivership the obligation to pay management fees disappeared. Mr Carter stated that how a loan was transferred away was of no concern to Lake Street.
Historically all introductions were made by Lake Street to Monet up until June 2005 at which time they ceased. From July 2005 all introductions were directed to Breez. Ms Fernandez and a person Joe Cliff originally conducted the business of Monet. Mr Cliff had cancer and died in August 2005. After Mr Cliff’s death Ms Fernandez decided to operate and grow her own business. She commeced business as Breez a company incorporated October 2004. According to Ms Fernandez the first Breez loan was facilitated in May 2005. Mr Wright solicitor apparently provided capital input in about 2008 and although a silent partner for some time he is now neither a director nor shareholder of Breez.
Briknow/BH Knowles was, according to its circular, a management company managing the ‘four biggest cooperative socities in Queensland’. Its director was Mr Cliff. After his death in August 2005 Mr Wright solicitor was elected director in 2006. In March 2007 Mr Wright, needing assistance, asked Ms Fernandez, originally an employee, to return as a director as well. She did so and remains so.
In 2006 a fresh introducer agreement was signed between Lake Street and Breez on very much the same terms and conditions as the 2004 agreement. Differences were:
a) Section 6.8 a difference in timing to the payment of upfront commissions (not relevant here).
b) Section 12.2 omission of a goods and services tax example (not relevant here).
c) Schedule 1 upfront commission rate adjusted down from .7 per cent to .6 per cent and the timing of payment adjusted (not relevant here).
d) Schedule 1 trailer commission and delivery rate to be capped at .25 per cent added to the delivery rate which could vary.
e) Schedule 1 application fee. Under the 2004 agreement the application fee was payable to Monet the financier. Under the 2006 agreement it was payable to Jacaranda Cooperative Housing Society Limited (not a party to the 2006 agreement).
Mr Carter of Lake Street argued that when the 2004 agreement was signed it was on the basis that Monet represented itself as the financier; that such is how Monet is referred to in that agreement; that nowhere in the 2004 agreement is Monet referred to as a manager only; that the ‘housing coop thing’ only came out subsequently; that if Monet was not being paid (by the societies) then that was for Monet to address; that it was Monet’s responsibility; that how Monet apparently distributed loans was Monet’s business; that the 2004 agreement provided for trails for the life of loans; that payment of the trailing commissions was not dependent on who or what entity managed loans; that a change of management did not affect the currency of a loan; that the nature of the asset (the loan) had not changed.
In answer to the suggestion that Lake Street would have or should have known that Monet and Breez were only managers Mr Carter stated that all Lake Street’s other lenders were self funded; that the 2004 agreement concerned Lake Street being on a lending panel not a management panel; that it was properly assumed in accord with both the 2004 and 2006 agreements that Monet and latterly Breez were the lenders; that the 2006 agreement was in fact a continuation of the 2004 agreement brought about by Monet ceasing to accept loan applications in 2005 immediately followed by Breez accepting loan applications; that all dealings were through Monet then Breez; that in any event Lake Street did not know whether or not Monet or Breez owned the Co-ops; that at no stage was Lake Street informed that either Monet or Breez were purely intermediaries or agents or as suggested in 2012 correspondence had only ever assumed a ‘pass through obligation’. How Monet and then Breez shopped applications between various entities was not something that Lake Street was privy to.
More recently a company Asset Backed Pty Ltd trading as Aussie Mac (‘Aussie Mac’) a securitized lender was referred to as a source of funds. Breez which secured funds through Jacaranda latterly had secured funds through Aussie Mac. Breez apparently purchased Aussie Mac in December 2007 and is currently Aussie Mac’s sole shareholder.
Mr Carter asserted there were never any agreements with Briknow/BH Knowles or Aussie Mac; that trailer commissions were paid to Lake Street in respect of loans placed with Breez; that irrespective of whether or not Briknow/BH Knowles or Aussie Mac were involved trailer commissions were paid until very recently at the rate specified in the 2006 agreement ie .25 per cent; that it was spurious for Breez to now separate out entities (Briknow/BH Knowles, Aussie Mac in particular) with a view to asserting loans in respect of which trailer commissions are payable by Breez has fallen below the $1 million mark pursuant to section 6.8 of the 2006 agreement; that the value of all loans in respect of which trailer commission is payable ought to be taken into account; that even as at November 2011 the book value of loans introduced by Lake Street was $691,000 through Breez and $353,000 through Breez/Aussie Mac, still well over $1 million.
Current ASIC credit licences were held according to Mr Carter as follows:
a) by Breez licence number 392723
b) by Briknow/BH Knowles 391576
c) by Aussie Mac 289338.
However according to Ms Fernandez Briknow/BH Knowles licence had since been relinquished.
Presently Monet holds no assets only tax losses. Briknow/BH Knowles acts as a management company in respect of a number of securities in runoff mode and receives some residual management income which was to finish up in December 2013. Breez it appears still currently trades with two part-time employees.
Even more recently for the period May 2011 through to December 2011 Monet trailer commissions have been paid through an entity Online Migration Pty Ltd. Ms Fernandez stated that it was easier/simplier to pay trailer commissions through one entity.
Conclusions
Lake Street entered into two written introducer agreements firstly with Monet in 2004 and then with Breez in 2006. In each instance Monet and Breez were recited as financier.
There was never any written agreement between Lake Street and Briknow/BH Knowles a company publically circularised as a management company only. Nor was there any credible evidence put to the Tribunal confirmatory of or persuasive of the existence of any oral agreement.
Whilst it was asserted that Lake Street was aware that both Monet and Breez were only management companies there was no compelling evidence that Lake Street would have or should have been aware that such was the case. Whilst there was evidence that other entities were involved in the approval of loan applications or that other entities were otherwise financially involved the Tribunal accepts that loan applications were always placed with Monet and then Breez and that the involvement of other entities was always at the behest of Monet or Breez. That accords entirely with the existence of written agreements with Monet and Breez and the absence of any other written agreement whatsoever. In fact the 2004 Monet and 2006 Breez agreements are slanted very much towards obligations on the part of Lake Street even to the point of Monet and Breez for instance having the right to inspect Lake Street’s premises on any business day within 24 hours of notice being given and to examine the books of account and records relating to the submission of loan contracts to them. No such right of enquiry existed on the part of Lake Street as to the conduct of either Monet or Breez or entities associated with them. How loan applications were handled by Monet or Breez and the subsequent interaction between Monet or Breez and applicants (who became borrowers) and other entities that might be involved were not matters for Lake Street which was only entitled, if a successful applicant was introduced, to upfront commission and trailer commission pursuant to the two agreements.
Trailer commissions were paid (through a number of entities including Monet and Breez) over a lengthy period 2004 through 2011. The mere fact that trailer commissions were paid in this manner does not establish that there were separate relationships existing with other entities. For instance Online Migration Pty Ltd paid Monet trailer commissions only as a matter of commercial ease and simplicity.
There is nothing in the evidence to suggest that Lake Street was not entitled to rely fully on the two agreements to the effect that all trailer commissions were paid by or via Monet or Breez. That said it was not for either Monet or Breez to artificially separate out or allocate existing loans to different entities with the result that Lake Street’s book value in respect of Breez loans reduced to less than $1 million thus terminating all trailer commission.
Life of the loan
Lake Street considered Monet and Breez to be financiers as stated in the two agreements. In fact both were managers. In Monet’s case the lender would be either Poinciana or Jacaranda and in the case of Breez it would be Jacaranda. A percentage was added to the loan interest rate usually .25 per cent. That was collected by Monet and Breez or entities on their behalf and paid to Lake Street.
Irrespective of whether Monet and Breez are to be construed as financiers or managers the loans in respect of which trailer commissions are claimed were called in and sold to a third party in January 2012.
How Monet and Breez handled loan applications and subsequent approvals was up to Monet and Breez. If a loans life ended for any reason it was simply a case of trailer commission also ending. Any capacity to prosecute the terms and conditions of the loan also ceased. The ‘loan’ referred to at section 6.8 of the two agreements is the loan as applied for approved and conducted over time. Whilst it might be argued the terms and conditions of the loan remained constant post sale the parties to the loan changed. The loans were entirely out of the hands of Monet and Breez. In that context the loans life has ended. The life of the loan as referred to in section 6.8 of the two agreements can reasonably be construed as the life of the loan between the parties to those two agreements. It would be illogical to impose a liability for payment of trailer commissions where both Monet and Breez had no right to collect trailer commissions or even if construed as primary financiers had no standing in relation to the loans in respect of which trailer commissions are claimed let alone the ability to assess trailer commissions (for the reason that Monet and Breez would have no way of knowing the state of the loan at any given time).
Neither the 2004 nor the 2006 agreements referred to the application of any criteria to determine whether a loans life has come to an end. Commercial common sense principles must therefore be relied on in the context of the two agreements. Such would suggest that the total loss of control over loans whether as financier or manager ends the loans life as contemplated by section 6.8 of the two agreements.
The total loss of control occurred in January 2012 when the loans the subject of Lake Street’s claim were taken out of the control of Monet and Breez and subsequently transferred to Latrobe Financial Services Pty Ltd.
Lake Street has claimed trailer commissions for 22 loans for the months of December 2011 through April 2013. The trailer commission therefore is payable in each instance for the month of December 2011 only. The total of December 2011 trailer commissions as claimed inclusive of GST is $734.44.
In finality
Lake Street is entitled to trailer commissions to the end of the calendar year 2011. The only month in respect of which trailer commissions have not been properly paid is December 2011 the sum of $734.44.
The claim by Breez for refund of trailer commissions it asserted were overpaid cannot be sustained as it refers to a period March 2011 through November 2011 at which time trailer commissions were properly payable.
Orders
Monet and Breez pay to Lake Street the sum of $734.44 together with interest at 10 per cent for the period 1 January 2012 to 30 April 2013, $97.79, and at the QCAT calculator rate for the period 1 May 2013 to 29 January 2014, $37.37. The application fee of $275.00 is allowed.
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