Magnolia Private Capital Pty Ltd v Floate
[2022] WASC 131
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: MAGNOLIA PRIVATE CAPITAL PTY LTD -v- FLOATE [2022] WASC 131
CORAM: ALLANSON J
HEARD: 19 APRIL 2022
DELIVERED : 22 APRIL 2022
FILE NO/S: CIV 1241 of 2022
BETWEEN: MAGNOLIA PRIVATE CAPITAL PTY LTD
Plaintiff
AND
ASHLEIGH ANN FLOATE
First Defendant
ADRIAN JASON FLOATE
Second Defendant
Catchwords:
Real property - Caveat - Where defendants were guarantors under agreement for loan - Where loan documents provided for fees payable in specified circumstances where loan does not proceed - Where defendants charged property including real property to secure fees - Where plaintiff withdrew offer of loan - Where plaintiff relies on fees payable where the offer is cancelled by the borrowing parties - Where caveat preventing defendants from refinancing and exposing them to high interest charges - Whether case advanced by plaintiff for caveatable interest weak - Whether balance of convenience favours order extending the operation of the caveat
Legislation:
Transfer of Land Act 1893 (WA)
Result:
Application dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | JE Scovell |
| First Defendant | : | TJ Poli |
| Second Defendant | : | TJ Poli |
Solicitors:
| Plaintiff | : | Piper Alderman |
| First Defendant | : | Kings Park Legal |
| Second Defendant | : | Kings Park Legal |
Case(s) referred to in decision(s):
Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57
Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42
Gangemi v Gangemi [2009] WASC 195
Midland Brick Co Pty Ltd v Welsh [2006] WASC 122; (2006) 32 WAR 287
Navarac Pty Ltd v Moondancer Holdings Pty Ltd [2009] WASCA 95; (2009) 40 WAR 150
Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171
Porter v McDonald [1984] WAR 271
ALLANSON J:
Introduction
The plaintiff, Magnolia Private Capital Pty Ltd, is a company registered in New South Wales.
On 9 December 2020, the plaintiff lodged caveat number 0579456 over a property registered in the name of both defendants in Kallaroo. The property is also subject to a mortgage to a bank, registered on 14 March 2016.[1]
[1] Affidavit of Mitchell Atkins sworn 14 March 2022, MA4.
On 10 February 2021, the plaintiff lodged caveat number 0636744 over a property registered in the name of the first defendant in City Beach. That property is also subject to mortgage, registered on 18 January 2021, and a further caveat lodged 12 August 2021.[2]
[2] Affidavit of Mitchell Atkins sworn 14 March 2022, MA4.
On 16 February 2022, the Registrar of Titles sent notices to the plaintiff pursuant to s 136B of the Transfer of Land Act 1893 (WA) that the caveats over each property would lapse at midnight on 14 March 2022 unless a Supreme Court order was obtained, extracted, and lodged with the Registrar before that time.[3]
[3] Affidavit of Mitchell Atkins sworn 14 March 2022, MA7 and Affidavit of Jesse Dwyer sworn 14 March 2022, JD‑1.
By originating summons filed 14 March 2022, the plaintiff applied for the caveats to be extended until further order of the court.
On 14 March 2022, by consent, I made orders extending the operation of the caveats and programming the application through to a special appointment, which was heard on 19 April 2022.
Each caveat records that the plaintiff claims an interest as chargee, and claims a charge in an agreement of 2 December 2020 between FAAF Pty Ltd and Rare Air Nominees Pty Ltd. Each caveat prohibits dealings absolutely.[4]
[4] Affidavit of Mitchell Atkins sworn 14 March 2022, MA3.
The principles on an application to extend the operation of a caveat
The principles to be applied on an application under s 138C of the Transfer of Land Act are well established and I can summarise them briefly.
In this application, the onus is on the plaintiff to demonstrate that the caveatable interest it claims has or may have substance.[5] This is equivalent to the test on an application for an interlocutory injunction: that is, whether the plaintiff has shown a sufficiently arguable case to justify in the circumstances the preservation of the restraint on dealings effected by the caveat.[6]
[5] Transfer of Land Act 1893(WA) s 138C(2). Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42, 50.
[6] See Australian Broadcasting Corporation v O'Neill [2006] HCA 46; (2006) 227 CLR 57; Perron Investments Pty Ltd v Tim Davies Landscaping Pty Ltd [2009] WASCA 171 [42] ‑ [44].
An interest in land under a charge created by contract is a caveatable interest.
The proceedings to extend the operation of the caveats are interlocutory, and it is not appropriate to attempt to determine disputed questions of fact.[7]
[7] Porter v McDonald [1984] WAR 271, 276.
The decision whether to extend the operation of the caveat is discretionary. In Gangemi v Gangemi, Murphy J summarised the relevant principles in this way:
In the exercise of the court's discretion under s 138, the balance of convenience is a relevant factor. There is no rule of law that once an arguable case for a caveatable interest has been established, removal of the caveat will only be ordered if it is shown that the 'circumstances are so unusual' that the caveat should be removed. The discretion is to be exercised having regard to the particular circumstances of the case. Observations in cases to the effect that it would be unusual to discharge a caveat once an arguable caveatable interest has been shown, are general observations by reference to the particular facts of the case.[8]
[8] Gangemi v Gangemi [2009] WASC 195 [45], citing Navarac Pty Ltd v Moondancer Holdings Pty Ltd [2009] WASCA 95; (2009) 40 WAR 150 [20], [21] and [29].
Where the caveat is based upon a proprietary interest held by the plaintiff, it is unusual to refuse an order extending a caveat where the plaintiff has demonstrated an arguable case. Where, as here, the interest claimed by the caveator is a security interest, the balance of convenience issues may become decisive.[9]
[9] Navarac Pty Ltd v Moondancer Holdings Pty Ltd [2009] WASCA 95; (2009) 40 WAR 150 [22].
A caveat must not go beyond the legitimate claim necessary to protect the caveator's rights. Where the caveator claims an interest as a chargee, an absolute caveat is generally not appropriate. Under s 138C(2)(ii) of the Transfer of Land Act, the court may make such orders as it thinks fit concerning the caveat, and that power includes the power to amend.[10] The plaintiff did not seek to amend, but contended that an absolute caveat was appropriate in the circumstances.
[10] Midland Brick Co Pty Ltd v Welsh [2006] WASC 122; (2006) 32 WAR 287 [342]; Gangemi v Gangemi [2009] WASC 195 [44].
The evidence of a caveatable interest
The letter of offer
The plaintiff relies on an agreement constituted by a letter of offer, dated 2 December 2020 with two annexures: Annexure 1 is a Terms Sheet and Annexure 2 contains Standard Terms and Conditions.[11]
[11] Affidavit of Mitchell Atkins sworn 14 March 2022, MA2.
By the letter of offer, the plaintiff advised the directors of FAAF Pty Ltd (borrower) and three guarantors, including the first and second defendants, that the plaintiff had accepted FAAF's application for finance on the terms set out in the letter and attached documents. The Offer was available for acceptance by close of business, 4 December 2020.
The letter included the statement:
Once this Offer has been executed, you will be bound by the terms but note that we will not have any obligation to provide any finance until and unless the formal loan and security documentation has been executed.
FAAF and the guarantors signed the letter, accepting the Offer, on 2 December 2020.
The Term Sheet
Under the Term Sheet, the plaintiff (or any other party which the plaintiff nominated) was designated the lender, FAAF the borrower, and each of the first and second defendants in their own capacity and as trustee of any trusts were individual guarantors.
The total facility amount was $6,999,900 with the loan term of three months. Interest was payable at 2% per month, or 5% per month in the event of a default.
The loan was to be secured by a first mortgage over three specified properties, with additional security pursuant to a General Security Agreement over the borrower's and guarantors' assets and undertakings.
Relevantly, the term sheet provided for 'Financial Close' on 7 December 2020, to coincide with the settlement of the purchase of the City Beach property.[12] Particular fees, including an establishment fee of 2% of the facility limit and a facilitation fee of 5% of the facility limit, were due and payable on the occurrence of Financial Close. Despite the specified date of Financial Close, nothing was done which could reasonably be construed as financial close by that date. Formal loan documents were not prepared and provided to the solicitors for FAAF and the guarantors until 31 December 2020, with additional documents provided over the following two week period. The defendants say that when loan documents were provided, they included 18 new conditions precedent.[13]
The Standard Terms and Conditions
[12] Affidavit of Adrian Jason Floate sworn 6 April 2022 [15].
[13] Affidavit of Adrian Jason Floate sworn 6 April 2022 [29].
The Standard Terms and Conditions comprise 28 clauses.
Relevantly, the plaintiff was under no obligation to make the loan available until certain conditions were met, including 'all other matters raised by us or our solicitors have been resolved to our satisfaction': cl 2.
Clause 7 provided for non‑refundable Upfront Fees 'upon signing the Offer'. The plaintiff could, however, agree to defer the Upfront Fees until drawdown of the loan.
By cl 8:
We may withdraw or revoke the Offer at any time if:
•settlement is not affected [sic] within 7 days of acceptance of this Offer;
•circumstances or facts arise or come to our attention which, in our opinion may be prejudicial to our interests or result in a situation where it would, in our opinion, be uncommercial to provide the loan pursuant to the Offer.
You agree that we shall incur no liability whatsoever to you if we withdraw or revoke the Offer.
By cl 9(a), the borrower parties (that is the borrower and guarantors) could not withdraw from the Offer, once accepted, without the plaintiff's prior consent. Paragraphs (b) to (e) of cl 9 provided for payment of specified fees, if the loan did not proceed, in the following circumstances:
b)If, after you accept this Offer, the Offer is withdrawn prior to the formal Loan Documents being issued …
c)If, after you accept this Offer, the offer is cancelled after the Formal Loan Documents have been issued but before the final execution version of the Formal Loan Documents are issued …
d)If, after you accept this Offer, the Offer is cancelled by you after the final execution version of the Formal Loan Documents are issued but before the Loan Amount has been deposited into trust …
e)If the Offer is cancelled by you after the Loan Amount has been deposited into trust, which will not occur without the consent of the Borrower …
The fees payable under cl 9(e) were:
•any unpaid Upfront Fees and the Due Diligence Fee;
•the Valuation Fee;
•the full amount of the Loan Documentation Fee;
•any other costs and expenses incurred by the Lender including (but not limited to) any costs incurred as referenced in the Special Conditions;
•100% of the Withdrawal Fee;
•100% of the Facilitation Fee; and
•the costs of funds fee, which is the cost incurred by us in obtaining the loan amount from investors which is equal to 2 months' interest at the normal interest rate.
(collectively 'the Costs')
Clause 9(e) was the only circumstance defined in the Standard Terms and Conditions where the 'costs of funds fee' was payable.
Costs not paid within seven days of invoice or demand attracted interest at 15% per annum. The borrower parties were also liable for all recovery costs, including legal fees on an indemnity basis.
With the exception of Upfront Fees, the various fees referred to in cl 9(b) to (d) were all defined in the Terms Sheet.
By cl 13, each guarantor charged all of their present and after acquired property, including real property, in favour of the lender and consented to the lender lodging a caveat over any of the guarantor's property to secure 'the Costs' ‑ which I understand as a reference to the costs payable under cl 9.
By cl 15, the borrower parties declared that the credit to be provided was to be applied wholly or predominantly for business purposes or investment purposes, other than investment in residential property. The borrower parties did make such a declaration. It now appears that the funds were for the purchase of a residential property in City Beach. It is not necessary for me to decide, in order to determine this application, whether the purpose for which the funds were being borrowed was known to the plaintiff.
Withdrawal of the Offer
On 14 January 2021, the plaintiff, through its solicitors, caused a notice to be issued that the plaintiff considered that FAAF had failed to meet certain conditions, and withdrew the offer, purportedly on the basis that the lender had 'lost confidence in the Borrower's ability to satisfy the terms and conditions set out in the relevant loan and security documents'. The loan advance contemplated by the Offer was not advanced. The plaintiff took the view that the defendants were liable to the payment of fees and charges which were then due and payable, totalling $787,566.21.
That amount was claimed in an invoice issued in the name of Magnolia Credit Pty Ltd on 14 January 2021. The amounts claimed were described as legal fees (Loan Documentation Fee); Withdrawal Fee; Facilitation Fee; Cost of Funds Fee; Due Diligence Fee; and Valuation Fees.
Some of those fees were defined in the Terms Sheet:
•The Loan Documentation Fee was payable 'at or prior to the entry into this Loan or the advance by the lender of the capital loan Amount'.
•The Withdrawal Fee, 1% of the Facility Limit, was defined as 'a fee to be paid by the Borrower in the event that the Borrower does not proceed with the loan after issue of final execution copies of Loan Documentation on usual terms for a facility of this type and nature and negotiated in the usual course (and after provision of valuation that is reasonably satisfactory to the Borrower)'. It was payable in the circumstances set out in cl 9(d) and (9)(e) ‑ that is (in each case), 'if the Offer is cancelled by you'.
•The Facilitation Fee (5% of the Facility Limit) was due and payable on the occurrence of financial close, and to be capitalised at the commencement of the initial term of the loan.
•The Valuation Fee and the Due Diligence Fee were due on the execution of the Offer and payable on the sooner of Financial Close of the Debt Facility or termination of the Offer.
Of the $787,566.21 claimed, all but $31,079.87 was made up of the Withdrawal Fee, Facilitation Fee, and the Costs of Funds Fee.
Consideration
The plaintiff submitted that there is clear evidence supporting the existence of a caveatable interest by reason of the charge granted to the plaintiff by each of the first and second defendants under cl 13 of the Standard Terms and Conditions in the letter of offer signed by them on 2 December 2020.
The plaintiff submitted that formal loan documents as defined in the letter of offer were prepared and provided to the defendants, and the proposed loan funds were paid into the plaintiff's solicitors' trust account. The evidence does not show that all documents had been signed and conditions precedent had been satisfied or waived before the plaintiff's notice withdrawing the offer.
The plaintiff submitted that under the terms of the offer, the defendants became liable to the plaintiff for the payment of fees and charges on the plaintiff withdrawing the offer.
The plaintiff further submitted that it had received the sum of $212,847.77 in part payment, and that the defendants had not raised any issues regarding the amounts said to be owing. It was not in dispute that the plaintiff had received that amount, although there was evidence that the defendants did not accept the plaintiff's entitlement to that payment.[14]
[14] Affidavit of Mitchell Atkins sworn 22 March 2022, MA82.
The plaintiff submitted that the balance of convenience favours the retention of the caveats, and were they removed or withdrawn, the plaintiff's interest would be lost.
There was some uncertainty in the plaintiff's submissions at the hearing as to which clause of the Standard Terms and Conditions it relied upon to establish its entitlement to the fees claimed. Its primary position was that the fees were payable pursuant to cl 9(e) of the Standard Terms and Conditions, although counsel for the plaintiff sought to rely, as an alternative, on the requirement to pay Upfront Fees in cl 7. The argument based on cl 7 clearly cannot succeed where the plaintiff is claiming a Facilitation Fee, which is payable on financial close and to be capitalised in the total loan advance; a Withdrawal Fee, which is payable only under cl 9(d) and 9(e); and a Cost of Funds Fee which is payable only under cl 9(e). None of those fees can be properly construed as 'non‑refundable Upfront Fees (payable) upon signing of the Offer'.
The plaintiff then submitted that it was a question of construction whether the withdrawal of the Offer by the plaintiff constituted cancellation by the borrower parties, so as to engage cl 9(e). The plaintiff identified nothing in the Standard Terms and Conditions by which withdrawal of the Offer by the plaintiff (presumably under cl 8 by which the plaintiff could withdraw or revoke the Offer at any time) would constitute or be deemed to constitute cancellation by the borrower parties.
In short, the primary argument advanced in reliance on cl 9(e) is, at best, weak.
Balance of convenience
In considering the balance of convenience, I take into account that the plaintiff has already received over $200,000, substantially more than those fees which might properly be regarded as 'upfront fees'.
The defendants have adduced evidence that, following the withdrawal of the offer by the plaintiff, the second defendant arranged alternative finance to complete the purchase of the City Beach property from another financier. The second defendant deposed that he has now received an offer to refinance, the effect of which will be to reduce interest costs by approximately $56,000 per month.[15]
[15] Affidavit of Adrian Jason Floate sworn 6 April 2022 [69].
The second defendant has also proposed alternative security. I do not take the alternative security into consideration for present purposes because it appears to be inconsistent with the security that the defendants will be required to give in the event of refinancing.
The plaintiff argued that in considering the balance of convenience - at least with regard to the caveat over the City Beach property - I should consider only the position of the first defendant, as she is the sole registered proprietor. The proposed refinancing, should it be successfully effected, will result in a substantial financial saving for FAAF. But, the plaintiff submitted, there is no evidence of saving or advantage to the first defendant.
In my opinion, that is a very narrow view of the balance of convenience which, after all, is directed to balancing the interests of justice in deciding whether the absolute restraint on dealings with the property should continue in the particular factual circumstances.
Further, the evidence is that the first defendant is a guarantor under the existing finance agreement for the City Beach property and accordingly has a direct interest which is affected by the defendants' inability to refinance.[16]
[16] Affidavit of Angelina Kozary sworn 13 April 2022, AK‑4.
I am satisfied that both defendants suffer real prejudice from the continued operation of the caveats which forbid, absolutely, the registration of any dealings on their land. The plaintiff has not demonstrated a sufficiently arguable case to justify, in the circumstances, the continuation of that restraint.
Conclusion
For these reasons, I am satisfied that the plaintiff's application to extend the operation of each caveat should be dismissed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
TB
Associate to the Honourable Justice Allanson
22 APRIL 2022
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