Simto Resources Ltd v Normandy Capital Ltd & Anor. Normandy Capital Ltd v Simto Resources Ltd
[1993] FCA 408
•17 JUNE 1993
SIMTO RESOURCES LIMITED v. NORMANDY CAPITAL LIMITED; GINO VITALE; JOHN VINCENT
CARUSO and ANTHONY ROYSTON HYDE
WAG No. 9 of 1991
FED No. 408
Number of pages - 38
Finance Broker
(1993) 115 ALR 609
(1993) 11 ACLC 856
COURT
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
French J(1)
CATCHWORDS
Finance Broker - Finance Brokers Control Act 1975 (WA) - finance broker - definition - whether carrying on business as such - licensing requirement - financial advisor and arranger of major project capital - whether carrying on business as finance broker - Information Memorandum - to be circulated to prospective financiers - fee for preparation - part of agreement for services including arrangement of project finance - whether preparation of Memorandum is service provided in capacity as a finance broker - whether fee recoverable - construction of Finance Brokers Control Act 1975 - protective and penal aspects - preliminary issue - illegality - whether within preliminary issue.
Words and Phrases "finance broker", "business" and "services in that capacity".
Finance Brokers Control Act 1975 (WA)
Trade Practices Act 1974 s.51A
Fair Trading Act 1987 (WA) s.9
Nader v. Australian Pharmaceutical Industries Ltd (1981) 37 ALR 453
Yango Pastoral Co. Pty Ltd v. First Chicago Australia Ltd (1978) 139 CLR 410
HEARING
PERTH, 29 April 1993
#DATE 17:6:1993
Counsel for the Applicant and First: Mr W.S. Martin QC and
Third Cross-Respondents Mr M. Hawkins
Solicitors for the Applicant: Pye and Quartermain
Counsel for the Third Cross-Respondent: Mr M.W. Odes
Solicitors for the Third Cross-Respondent: Parker and Parker
Counsel for the First and Second : Mr M.J.McCusker QC and
Respondents and Cross Claimant Mr J. Gilmour
Solicitors for the First and Second : Pullinger Sanderson and
Respondents and Cross Claimant Workman
ORDER
The Court orders that:
1. The trial of the cross-claim be adjourned to the trial of the action.
2. The costs of the hearing of the preliminary issue be reserved.
3. There be liberty to apply.
Note: Settlement and entry of Orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
REASONS FOR JUDGMENT ON PRELIMINARY ISSUE
Introduction
FRENCH J Simto Resources Limited ("Simto") claims damages in excess of $31 million from Normandy Capital Limited ("Normandy") for alleged misleading or deceptive conduct arising out of proposals to arrange project finance for a mineral sands mining project to be undertaken by Simto. Normandy cross-claims against Simto, John Caruso, who is one of its directors, and its company secretary, Anthony Hyde. The cross-claim is for unpaid fees of some $39,000 said to be owed to it by Simto and damages of $100,000 representing the difference between an agreed fee of $50,000 and a fee of $150,000 which Normandy says it would have negotiated for its services but for assurances which were give to it by Simto, Caruso and Hyde.
In answer to the cross-claim, Simto, Caruso and Hyde assert that the fee and damages claimed by Normandy relate to its services as a finance broker. They say that because it is not licensed as such, Normandy is deprived by the Finance Brokers Control Act 1975 of any entitlement to a fee in respect of those services. The question of Normandy's entitlement to a fee having regard to the terms of the Finance Brokers Control Act 1975 has been set down for hearing and determination as a preliminary issue in the case. Before turning to the arguments advanced on each side, it is necessary to explain the nature of the proceedings by reference to the pleadings. What follows is a summary of their salient features which does not involve any finding of fact.
The Case as Pleaded
3. By the statement of claim it is said that in 1989 Simto was the owner of mining tenements near Wonnerup, said to contain proven or prospective resources of mineral sands. Normandy carried on business in Western Australia as a resource banking company and financial advisor. Gino Vitale was a director of Normandy. Simto says that in November 1989, with the intention of mining, treating and selling sands from the tenements, it entered into a contract with United Construction Pty Ltd ("United") for the design and construction by United of a mineral sands treatment plant and associated facilities at Wonnerup and port facilities at Bunbury (the Construction Contract). It pleads that on 4 November 1990 it made a Retainer Agreement with Normandy under which Normandy undertook, for an agreed fee, to arrange and procure finance required by Simto to pay for the development of its project for the mining, treatment and sale of the sands including the cost of construction of the plant and facilities and the provision of working capital. The agreement is said to have been partly written and partly oral. The oral part was comprised in discussions between Caruso, Hyde, and Messrs Gino Vitale and Keith Harvey representing Normandy.
Simto alleges that Normandy represented to it that it would arrange project finance of approximately $30 million comprising senior project debt funds of about $20 million and subordinate debt funds of about $10 million. Various associated representations are also alleged by Simto but it is not necessary for present purposes that they be set out here. Simto says the representations were made in trade or commerce and that each of them was misleading. It says, inter alia, that Normandy did not, as promised, arrange or procure the project finance and it relies upon s.51A(2) of the Trade Practices Act 1974 to characterise the promissory representation as misleading or deceptive. In relation to Vitale, it invokes s.9(2) of the Fair Trading Act 1987 (WA).
Simto claims that it entered the Retainer Agreement on the strength of Normandy's representations and took no other steps to arrange finance until after July 1990 when it became apparent that Normandy was not able to arrange the finance itself. It continued until 17 May 1990 to incur liabilities to United under the Construction Contract when it could have suspended or slowed down the work being done under the contract. It subsequently granted United a second mortgage over its assets, including the tenements. But because it was in default under the contract and under a first mortgage to the Commonwealth Bank of Australia, Simto claims it was required by the Bank and United to sell its interests in the project which it did on or about 17 December 1990 to a company called AMC Mineral Sands Ltd for $10,700,000 plus interest being an amount of $192,000. Simto pleads that but for its reliance on Normandy's representations it would not have entered the Retainer Agreement and would have made its own inquiries into the availability of project finance by way of loan finance or from the sale of equity in the project. It would have suspended the Construction Contract and would not have entered into Heads of Agreement with United or executed a second mortgage in favour of that company. By way of unforced sale it would have sold about fifty per cent of its interest in the project for not less than $15 million and with the equity partner so introduced would have raised the balance of the project finance required. Alternatively, it would have sold the whole of its interest in the project for not less than $30 million. Simto claims loss and damage suffered by reason of these matters. Particulars provided assert total losses in excess of $31 million. Normandy's conduct is said to have been in contravention of s.52 of the Trade Practices Act 1974. Vitale is said to have been knowingly concerned in or party to Normandy's contravention and to have himself contravened s.10 of the Fair Trading Act 1987 (WA). Simto claims damages pursuant to s.82 of the Trade Practices Act 1974 as against Normandy and Vitale and also invokes s.79 of the Fair Trading Act against Vitale.
Normandy, by way of defence, says that its agreement with Simto was entirely in writing and that upon a proper construction of the agreement it gave no undertaking to arrange and procure the project finance but was engaged by Simto to act on its behalf to endeavour to arrange such finance. It says that a fee of $50,000 was payable to it by Simto for preparation of an Information Memorandum "for the purpose of despatch to banks which might provide senior project loans such fee being payable by monthly instalments of $7,500 commencing on 4 April 1990 with any outstanding balance to be paid on despatch of the said Information Memorandum". This latter plea is as amended over objection on the day of the hearing of the preliminary issue. It had previously been alleged that the fee was payable "for preparation by Normandy of an Information Memorandum and its despatch to banks which might provide senior project loans etc..." (emphasis added). If Normandy were successful in obtaining a commitment from providers or underwriters of subordinated loans and commitments from providers of senior loans amounting to not less than $30 million, then additional fees payable would be $100,000 upon commitment to subordinated loans and $120,000 upon commitment to senior loans.
Normandy pleads various representations said to have been made on behalf of Simto by Caruso and Hyde relating to the viability of the project and the extent of work already done which would be available for the purposes of the Information Memorandum. False representations are said to have been made by Simto about the existence of negotiated forward sales, the existence of a feasibility study, the quality of the proposed plant's zircon output, the existence of a cashflow model and a proven design guarantee and the availability of completion and plant performance guarantees. Representations are also said to have been made that the Bank of New Zealand had been prepared to provide finance of $23 million for the project and that the Commonwealth Bank was prepared to participate in funding the proposed senior debt portion of the project finance. Normandy says that it entered into its agreement with Simto in reliance upon the representations and thereafter made its best endeavours to arrange and procure the project finance. Because of the representations it says it was obliged to do much more work in preparing the Information Memorandum than would otherwise have been the case. It was not possible to provide finance because the project could not be demonstrated to banks or other lending institutions to be bankable and viable and, in fact, was neither.
Normandy accepts that it did make certain statements to Caruso and Hyde about its capacity and willingness to arrange finance and itself participate in the funding process. These statements, however, were said to have been conditioned on various matters including the viability of the project. According to Normandy it told Caruso and Hyde that if it did not succeed in procuring the project finance no fees would be payable other than "the sum of $50,000 for preparing and despatching the Information Memorandum for submission to banks which might provide senior payment loans". Inducement and the causal relationship between the claimed loss and the misleading or deceptive conduct to arrange project finance were put in issue.
By way of cross-claim Normandy says that in or about July 1990 it despatched an Information Memorandum to banks which might provide senior loans for the project. Simto, it says, had paid it $15,000 being "part of the fee of $50,000 payable upon the despatch of the said Information Memorandum but has failed to pay the balance of $35,000 or any of it to Normandy which balance was due and payable by Simto in accordance with the agreement on 3 July 1990". Normandy also claims to have incurred out-of-pocket expenses of $4,238 in connection with the Information Memorandum. It says it was induced to agree to prepare the Memorandum for a fee of $50,000 by misleading or deceptive conduct on the part of Caruso and Hyde as to the sufficiency of technical and financial information already in Simto's possession. It had refrained from negotiating a higher fee for preparing the Information Memorandum. Normandy says it would have required a fee of $150,000 "being a reasonable fee for the work entailed in preparing the said Information Memorandum". Previously this aspect of the plea alleged that Normandy refrained from negotiating a higher fee for preparing and despatching the Information Memorandum and that but for the representations it would have required $150,000 for that work. The amendment to delete the reference to "despatching" was made on the day of the hearing of the preliminary issue and was linked to the amendment to Normandy's defence also made on that day. Normandy cross-claims against Simto payment of $39,238 being the balance of the agreed fee and expenses plus damages of $100,000. It also claims against Caruso and Hyde damages of $100,000. The damages are claimed under s.82 of the Trade Practices Act and s.79 of the Fair Trading Act 1987 (WA).
It is not necessary for present purposes to canvass the reply to the Normandy defence. However, in their defence to the cross-claim Simto and Caruso say, inter alia:
"27. Further, and in any event, as regard Normandy's claims:
(a) against SRL for:
(i) payment of the sum of $39,238 pursuant to paragraph 13 of the Cross-Claim;
(ii) damages or compensation of $100,000 pursuant to paragraphs 14 to 19 inclusive of the Cross-Claim;
(b) against Caruso and Hyde for:
(i) damages or compensation of $100,000 pursuant to paragraphs 20 of the Cross-Claim; the First and Second Cross Respondents say that:
(1) Normandy's services, the subject of its aforesaid claims, were performed in its capacity as a finance broker as defined in Section 4 of the Finance Brokers Control Act 1975 ("the Act");
(2) Normandy was not, at any material time, licensed as a finance broker under the Act;
(3) consequently, by virtue of Section 43 of the Act, Normandy is not, and never has been, entitled to receive any commission, reward or other valuable consideration in respect of its said services;
(4) in the premises, Normandy is not entitled to payment of the said sum of $39,238 or any sum and nor is it entitled to be compensated for the loss of any fees which, were it not for the provisions of Section 43 aforesaid, might otherwise have been payable to it in respect of its said services."
A similar plea is made by Hyde in his defence to Normandy's cross-claim against him.
The Preliminary Issue
11. The trial of the action is listed for some three months commencing on 5 July 1993. Hyde's involvement as a party is limited to the narrow issue raised by the cross-claim against him in respect of the fee for the preparation of the Information Memorandum. The plea in the defence to the cross-claim based on the Finance Brokers Control Act 1975 would, if successful, appear to be a complete answer to the claim. For that reason an order was made for the trial of the question raised by that plea by Simto, Caruso and Hyde to be dealt with as a preliminary issue. The precise terms of the order were as follows:
"1. The issue to be tried in the preliminary hearing on 29 April 1993 be: "Whether, on the basis of the documents alleged by the cross-claimant solely to constitute the Retainer Agreement ("the Agreement") between the parties, the cross-claimant was acting as a finance broker as specified in and for the purposes of the Finance Brokers Control Act 1975, in preparing and distributing the Information Memorandum as part of the services the subject of the agreement."
2. The above issue be determined without prejudice to the rights of the parties to canvass, if necessary, at the trial, the factual allegations made by them in the pleadings save that the parties will be bound by the determination of the preliminary issue set out above.
3. If the above issue is decided in the affirmative the cross-claim will be dismissed.
4. For the purposes of the preliminary hearing of the above issue only the parties agree that the cross-claimants performed the work of the kind listed in the attached summary of tasks performed by Normandy Capital Ltd in Preparation and Distribution of the Information Memorandum" as part of the services the subject of the agreement. Provided that it will be open to the cross-respondents to contend at trial that certain of the work claimed to have been done by the cross-claimant was done by one or more of them."
The summary of tasks which it was agreed were performed by Normandy in the preparation and distribution of the Information Memorandum was as follows:
"A. Preparation
1. Derivation of detailed cashflow model to facilitate analytical review of project sensitivities.
2. Discussion of impact on cashflow of the mining plan including discussions with independent engineering and geological experts concerning:-
(i) mining plan recommendations;
(ii) inclusion of Area 6 and change in mining schedule to allow for high grade areas to be mined first;
(iii) recommendations on changes to mining rate.
3. Meetings/discussions with existing financiers, Commonwealth Bank, to verify existing loan arrangements and securities and arrange release of securities upon obtaining project finance.
4. Discussions with the plant construction company, United Constructions including:-
(i) attendance at various meetings with United Constructions and Simto;
(ii) clarification on required provisions of construction contract and performance guarantee to satisfy project lenders.
5. Discussions/meeting with project engineer, TMSC:-
(i) consultations re technical aspects of project and process guarantee to be provided by TMSC.
6. Appointment of and discussions with independent experts on behalf of Simto in relation to the project including, for example, Andrew Brycher, Mackay and Schnellmann, Australian Mineral Economics and Dema Pty Ltd.
7. Consultations with Caruso and Hyde re management structure.
8. Assistance with resolution of conflict between Simto and independent engineering expert, Dema Pty Ltd, in relation to its report to form part of information memorandum.
9. Compilation of information:- This task consisted primarily of putting together in a logical and understandable formatall existing relevant data on the project, however generated, ie by Simto, its technicalconsultants or independent experts commissioned by Normandy Capital Limited on behalf of Simto or other sources. The data referred to would have included statements on the results of an NPV analysis, particularly evidence of financial viability (ie detailed cashflow models with assumptions and financial ratio analysis), market analysis reports, potential commodity sales, need for equity investors and proposed corporate structure, details on the construction contractor (completion guarantees etc), the process design and technical competence of the process engineer, a statement of the mining reserves, status of the mining plant, and management and technical personnel details (including structure, evidence of capability, experience etc).
10. Verification that mining leases were registered in the name of Simto Resources Limited and that it had rights to tenure.
11. Review of agreements with landholders to establish nature and extent of compensation agreements and materiality thereof.
12. Confirmation that clearances from environmental authorities to establish mining operation were in place.
13. Verification that Simto had access to wharf facilities at Bunbury.
14. Verification that Simto had export licence.
15. Review of proposed accounting system for evidence of internal controls and generation of accurate data.
16. Review of appropriateness of corporate structure.
17. Check fees paid to related parties and other potentially undisclosed transactions to related parties.
18. Verification of operating cost and capital cost estimates to source documents, and assessment of reasonableness thereof.
19. Obtaining information in relation to project risks including:-
(i) general project risk analysis;
(ii) specific risk analyses in the following areas:
(a) reserve risk;
(b) mining risk;
(c) commodity price risk;
(d) management risk;
(e) interest rate risk;
(f) commodity market (demand/supply risk;
(g) loan service ratios (interest and principal repayment);
(h) adequacy of insurance coverage;
(j) adequacy of return to equity ratio;
(k) review of loan coverage ratios;
(l) inventory cycle; and
(m) adequacy of shipping arrangements;
(iii) refinement of very detailed cashflow model to facilitate sensitivity analysis of the abovementioned risks; B. Distribution
20. Arranging printing and physical compilation of Information Memorandum.
21. Physically packaging, and sending by appropriate means, both volumes of the Information Memorandum to recipients either selected by Normandy or nominated by Simto being eight banks, three non-bank financial institutions and four other parties."
Statutory Framework
13. The statutory framework in this case resides entirely in the Finance Brokers Control Act 1975 (WA). It is described in its long title as "An Act to make provision with respect to the Licensing, Regulation, and Supervision of Finance Brokers, and for related purposes." In the Second Reading Speech to the Finance Brokers Control Bill it was said that the Bill provided for the statutory control of finance brokers "that is, those who, as agents, in the course of business negotiate loans on behalf of another". As was pointed out, up to that time, finance brokers were not subject to any specific statutory control. They were not required to keep trust accounts and they were not subject to any audit. The need for legislation was said to be emphasised by a recent conviction of a mortgage broker who had misappropriated a substantial sum of money leaving various of his clients with little or no recourse. Reference was made in the Second Reading Speech to a Report of the Law Reform Commission submitted in September 1974 recommending that finance brokers be controlled by statute and detailing the form such controls could take. The Bill, it was said, broadly followed the recommendations of the Commission.
Various terms including "finance broker" and "business" are defined in s.4 of the Act which provides, inter alia:
"4. In this Act unless the context otherwise requires - "business" means the business of a finance broker "finance broker" means a person who, as an agent, in the course of business negotiates or arranges loans of money for or on behalf of other persons but does not include the exceptions specified in section 5(1)."
The various exceptions from the definition of "finance broker" are set out in s.5(1) which provides:
"5(1) Exceptions to the meaning of "finance broker" in and for the purposes of this Act are as follows:
(a) banks and insurance companies authorised under any law of the Commonwealth or State to carry on banking or insurance business;
(b) a pastoral company in respect of which the Minister is satisfied that, by reason of an order in force under section 11 of the Banking Act 1959 of the Parliament of the Commonwealth, or that Act as amended from time to time, the clients of the company are adequately safe guarded in respect of the proper application of trust funds received by the company from them or on their behalf;
(c) building and friendly societies authorised to act under any law of the State;
(d) stockbrokers who are members of an approved stock exchange within the meaning of the Securities Industry (Western Australia) Act 1970 when dealing in securities within the meaning of that Act;
(e) a body corporate authorised by the law of any State, or of a Territory of the Commonwealth to take in its own name, a grant of probate or of letters of administration of the estate of a deceased person;
(f) certificated legal practitioners within the meaning of the Legal Practitioners Act 1893, when acting incidentally to the practice of their profession as such;
(g) a person who, in association with a bona fide business of supplying goods or services carried on by him, acts as an agent to negotiate or arrange loans for persons who deal with him in the ordinary course of that business and who authorise in writing the application of the loans in payment for the goods or services; and
(h) persons and classes of persons in respect of whom exceptions under subsection (2) are in force."
Sub-section 5(2) provides for ministerial notices excepting specified persons or classes of persons from the definition.
The licensing requirement is imposed by s.26 of the Act which provides:
"26(1) On and after the appointed day a person shall not carry on business, or by any means hold himself or itself out, as a finance broker unless he or it is licensed as such under this Act and holds a current annual certificate in respect of the licence. Penalty: $500
(2) In subsection (1) "appointed day" means such day as is fixed by the Minister by notice published in the Government Gazette to be the appointed day for the purposes of that subsection."
A body corporate may apply to the Finance Brokers Supervisory Board for a licence which shall be granted if the Board is satisfied that all the directors of the body corporate and all persons concerned in its management or conduct are of good character and repute and fit to be concerned as directors of or in the management and control of a finance broker's business. The applicant for a licence must have sufficient material and financial resources available to comply with the requirements of the Act and when there are no more than three directors at least two of them must be licensed including the person in bona fide control of the business operated under the licence (s.29(1)). Section 29(2) provides:
"Where the Board is satisfied that finance broker's business is a minor part of the business of any body corporate if may recommend to the Minister that a declaration be made to that effect and the Minister may by notice published in the Government Gazette make a declaration accordingly and the Minister may upon the recommendation of the Board by notice so published revoke any such declaration."
Where such a declaration has been made it will be sufficient that the officer in bona fide control of the finance broker's part of the business is licensed (s.29(1)(c)). Licences must be renewed annually.
Important for present purposes is s.43 which disables an unlicensed person from claiming valuable consideration in respect of services rendered as a finance broker:
"43(1) A finance broker is not entitled to receive any commission, reward, or other valuable consideration in respect of his services in that capacity unless -
(a) he is licensed in that capacity and he holds a current annual certificate in respect of his licence when he renders the services;
(b) his appointment to act in that capacity is in writing signed before the receipt of the commission, reward, or other valuable consideration (whether before or after the services are rendered) by the person to be charged therewith or some person lawfully authorized to sign the appointment on his behalf.
(2) A person shall not demand or receive any commission, reward, or other valuable consideration in contravention of subsection (1). Penalty: $500."
Section 44 of the Act empowers the Finance Brokers Supervisory Board to fix maximum amounts of remuneration, by way of commission or otherwise, for services rendered by licensees and may do so by reference to the type of loan negotiated or arranged, and the value thereof and the type of security, if any, offered or where no security is offered, by reference to that fact. Sub-section 44(3) provides:
"44(3) In the absence of an agreement to the contrary between a licensee and the person by whom or on whose behalf he was appointed to negotiate or arrange a loan, the licensee's remuneration is payable only on the loan being obtained unless a failure to obtain the loan is due to the fault of the person by whom or on whose behalf the licensee was so appointed."
A licensee is not entitled to receive, for negotiating or arranging a loan, any commission, reward or other valuable consideration that exceeds in value the maximum remuneration fixed by the Board (s.44(6)). A licensee is prohibited on penalty of a fine of up to $500, from demanding, receiving or holding any commission received or other valuable consideration in contravention of s.44 (s.44(6)). Any commission, reward or other valuable consideration received or held in contravention of s.44 may be recovered as a civil debt recoverable summarily in any court of competent jurisdiction (s.44(7)).
The Act makes provision for a finance broker to maintain a trust account and to pay to the credit of such account all monies received for or on behalf of any other person "in respect of loans negotiated or arranged by the finance broker or in respect of interest on such loans collected by him" (s.48). There are record keeping and audit requirements (ss. 49, 50 and 51) and provision for the qualifications, approval, appointment, duties and remuneration of auditors under the Act (ss.52-65). There is a power in the Board to seek an order from the District Court restraining dealing with trust or other accounts in the name of a finance broker. The Court may also order the suspension of a finance broker from carrying on his business and the appointment of a supervisor whose powers and duties are also defined (ss.73-75). The Board has a disciplinary role and may impose penalties on finance brokers ranging from reprimand or caution to cancellation of the licence (ss.81-83).
Section 90 provides that except as is expressly provided in the Act nothing in the Act shall have the effect of limiting, restricting or otherwise affecting any right or remedy a person would have if the Act had not been enacted. A person is not competent to waive any right conferred by the Act (s.91).
It does not seem that there is any reported case law on the Act on the questions in issue in this case or indeed at all. No reference was given in argument to similar legislation in other States and Territories. To some extent it appears that the Western Australian legislation is unique although there is provision in other States and the Australian Capital Territory for the regulation of finance brokers. The Credit Administration Act 1984 (NSW) and the Credit Ordinance 1985 (ACT) each prohibit a person from carrying on business as a finance broker unless that person is licensed as such. The definition of "finance broking" in each of those jurisdiction is "negotiating, or acting as intermediary to obtain credit for persons other than as employer or principal of the person so negotiating or acting" (NSW s.4(1), ACT s.5(1)). As with the Western Australian Act, there are various exclusions from the licensing requirements. In Queensland there is a Mortgage Brokers Act 1987 which requires registration of persons carrying on the business of mortgage broking. South Australia has no relevant legislation applicable to finance brokers. Victoria, like Western Australia, has stand-alone legislation, being the Finance Brokers Act 1969 although it differs in the definition of "finance broker". For comparative surveys of the legislation in the various States and the Australian Capital Territory see Duggan, Begg and Lanyon, Regulated Credit - The Credit and Security Aspects, Law Book Co. (1989) pp 730-736 and Cavanagh and Barnes, Consumer Credit Law in Australia, Butterworths (1988) ch 13. Generally speaking it appears to be the case that the scheme in Western Australia for regulating finance brokers is more elaborate than in other jurisdictions and that the definition of "finance broker" is different - see Duggan, Begg and Lanyon p 733; Cavanagh and Barnes p 706.
The Fee Agreement
21. There were in evidence before the Court, exhibited to the affidavit of Mr Hyde's solicitor, Ms. Willmott, the letters, said by Normandy in para.4 of its defence, solely to constitute its agreement with Simto. Those letters are dated 21 March 1990 and 3 April 1990. It is assumed for the purpose of determining the preliminary issue that they did constitute the agreement as pleaded. The first of the letters, bearing the letterhead of Normandy Capital Ltd, was signed by Gino Vitale as "Executive Director". The text of the letter as a whole is important and is set out below:
"Dear Mr Caruso
WONNERUP MINERAL SANDS PROJECT (WMSP) $30 MILLION LIMITED RECOURSE PROJECT FINANCE FACILITY Thank you for the opportunity of meeting with you last week and for your follow up letter of 15 March. We are impressed with the progress made to date and confirm that the contents of your letter reflects the broad terms of our discussion on the various technical, managerial and financing aspects of the project. Role for Normandy Capital Limited (NCL) We believe Normandy Capital Limited (NCL) can best assist you to expedite project completion by being awarded the exclusive mandate to arrange the entire financing package, including both the sub-ordinated debt and senior debt components. Having one party arrange all aspects of the financing package would create a focal point for the co-ordination of participating institutions and ensure orderly dissemination of information to the marketplace to achieve the best result. Constraints on level of Project Debt and Equity Participation As discussed with you it is our experience that to achieve limited recourse funding, providers of senior debt will require the prior commitment of a substantial proportion of equity funds. Depending on the nature of the project and perceived risk this is usually between 30% and 50% of total capital requirements, and would include funds expended to date. We acknowledge that you do not wish to sell down equity in the project at this time, but would prefer to do so six to twelve months after practical completion, at which time the project is likely to command a premium for entry. General Financing Plan
To take account of the above constraints we have proposed to you a general financing plan which envisages the introduction of sub-ordinated and senior project debt in roughly the following proportions: Sub-ordinated Debt (in lieu of equity)$ 10m Senior Project Debt 20m Total $ 30m The senior lenders will require full recourse to the sponsor of the project, Simto Resources' parent, at least until practical completion has been achieved, as well as a first ranking fixed and floating charge over all of the assets and undertakings of the project. The term of the facility will of course depend on the anticipated cash flow. Repayment may be structured by way of either fixed regular repayments of principal and interest or on the basis of available uncommitted cash flow from operations. Interest during construction could be capitalised as part of the facility. Providers of sub-ordinated funds will take non project credit risk but will require second ranking security over project assets, with interest payable during the term of the facility (funded from senior debt). Scope of Work
We envisage that the scope of work to be performed by NCL will be as follows: * Preparation of Information Memorandum for distribution to participating banks; * Determination of terms of limited recourse project financing structure suitable for a greenfield project of this type; and * Arrangement of and negotiation with underwriters in respect of both the senior debt component and the sub-ordinated debt component. In this respect, we note that the Commonwealth Bank has provided financial accommodation to the project thus far and has indicated an interest in taking a significant position as a senior lender to the project. We would propose that the Commonwealth be offered the opportunity to underwrite all or part of the senior project debt. In order to underwrite the financing requirements of the project, subject to due diligence review and our regular internal approval process at Credit Committee level, it is likely that NCL would take all or part of the risk participation in the sub-ordinated debt facility on terms to be agreed and as determined by market conditions at the time. Similarly in respect of the senior debt component, we would envisage that our joint venture partner, State Bank of South Australia would also take some risk participation through NCSB Resource Finance Ltd. Fees
Our normal fees for an engagement of this kind are based on a time fee element plus a fee on success. As discussed, we would be prepared on this occasion to heavily weigh our remuneration toward a success fee which would be payable in tranches as the various stages of the financing package are put together. We propose the following fee for our role as packager: Total Fee
- 1% of total funds raised, being $30m $300,000 Payable in following tranches:
(i) Upon despatch of Information Memorandum to Banks providing senior project loans, being a non refundable fee $ 50,000
(ii) Upon commitment of providers or underwriters of sub-ordinated loans $100,000
(iii) Upon commitment of providers of senior loans $150,000 Total $300,000 Our arranger/packager's fee will be exclusive of any establishment, underwriting and credit enhancement/guarantee fees to be charged by the various participating institutions in respect of the various components of the financing structure. In respect of the preparation of the Information Memorandum, in order to cover costs, we will require a monthly payment of $7,500 up to a maximum of $50,000 payable in advance to be credited against the first $50,000 payable under the arranger's fee. To provide an indication of the cost associated with the establishment of the sub-ordinated debt facility, we envisage that the parties providing the lenders with security and accepting the underwriting risk will require a minimum return of 7.5% per annum for their guarantees. This of course will be in addition to the normal loan establishment fees and interest cost associated with the debt. In addition to the above, should the decision be taken that the senior debt be underwritten by one or more banks prior to sell down to a lending syndicate we envisage an underwriting fee between 1.0% and 1.25% of the amount underwritten will be payable to the underwriting banks.
Costs
Legal, stamp duty and all out of pocket expenses incurred by NCL or independent consultants as approved by you including travel and accommodation expenses associated with the establishment of the facilities will be for your account. Timing
You mention in your letter that you anticipate a target date of 30 April 1990 for the finalisation of the financing facility. This represents an extremely tight timetable. We envisage that it would take a minimum of four weeks to prepare the Information Memorandum commencing from the time that we are given a mandate, or from the time that we have available all the necessary project information, whichever is the latter.
Acceptance
If you agree with the terms of this proposal, to confirm our appointment please sign and return the attached copy letter together with a cheque for $7,500.00. Finally we look forward to working with you in the time ahead to bring this project to fruition. Yours faithfully,
NORMANDY CAPITAL LIMITED Gino Vitale
Executive Director"
The further letter of 3 April 1990 was as follows:
"Dear Mr Caruso
WONNERUP MINERAL SANDS PROJECT (WMSP) $30 MILLION LIMITED RECOURSE PROJECT FINANCE FACILITY Further to our letter of 21 March 1990, subsequent meetings with you, and our briefing to Commonwealth Bank in respect of our proposed financing structure for the project, we now write to document the final terms of our appointment as agreed with you in respect of our role as packager/arranger of the said facilities. Timetable
We confirm that as a matter of priority we will agree on a timetable of critical dates with you, with a view to drawdown availability for both senior and sub-ordinated debt by the end of June 1990. We reiterate that this represents a very tight schedule and achievement of this target date is dependent upon: i) availability of all necessary information in respect of technical and financial considerations of the project; ii) achievement of all conditions precedent in particular marketing contracts and management; and iii) satisfactory outcome of technical review to be conducted by an independent consultant acceptable to senior lenders and providers/guarantors of the sub-ordinated debt facility. Term for Sub-ordinated Debt We confirm that your preferred term for the sub-ordinated facility is twelve months from practical completion (expected in November 1990) or 15 December 1991, whichever is the earlier, with an option to extend at Simto's request for a further ninety (90) days. The extension would be granted for a fee to be agreed. You have asked us to consider structuring the terms of the sub-ordinated facility on a basis that will provide Simto with a financial incentive for on-time repayment. Our preliminary review (sic) is that any pricing advantages to be gained from such an arrangement would be negated by higher hidden imposts that would be levied against the borrower as compensation to lenders. We believe concessions of a greater magnitude could be achieved from lenders by incorporating incentives for early repayment. Fees
Further to our verbal agreement with you we confirm the following fee arrangements will apply in respect of our role:
Total Fee Estimate - 0.9% of total funds to be raised, including standby facilities currently estimated at $30 m $270,000 Payable in following tranches:
(i) Upon despatch of Information Memorandum to Banks providing senior project loans, being a flat non refundable fee $50,000
(ii) Upon commitment of providers or underwriters of sub-ordinated loans $100,000
(iii) Upon commitment of providers of senior loans - balance of fee $120,000* Total $270,000 * Calculated as balance of total fee not covered by payments (i) and (ii) above. As before, in order to cover costs, we will require a monthly payment of $7,500 up to a maximum of $50,000 payable in advance. Fees so paid will be credited against the first $50,000 payable under the arranger's fee. Acceptance
If you agree with the revised terms of our proposal as outlined herein and in our previous letter of 21 March 1990, please sign and return the attached copy letter together with a cheque for $7,500 whereupon we shall commence work on the brief. Thank you for the opportunity of being of service. Yours faithfully
NORMANDY CAPITAL LIMITED Gino Vitale
Executive Director"
The terms of each of these letters were accepted by Simto by Caruso's signature and return on 4 April of a copy of the letter dated 3 April 1990.
Also in evidence was the Information Memorandum prepared by Normandy. The cover page bears the Normandy logo and beneath the logo and the company name the words "FINANCIAL ADVISORS AND ARRANGERS". The introductory page bears the headings "Mineral Sands Project Wonnerup" and "Invitation to Participate in $21 Million Limited Recourse Project Financing Facility". The introductory text begins with the words:
"Normandy Capital Limited ("Normandy") has been appointed by Simto Resources Limited ("Simto") to arrange project funding for the construction of a greenfields mineral sands project at Wonnerup in Western Australia.
Normandy is now seeking indicative bids in writing from prospective lenders on the terms outlined in the terms sheet forming part of this Information Memorandum ("the Memorandum")."
A deadline of 20 July 1990 was specified as the time by which indicative bids in respect of all or part of the facility should be received by Normandy.
In an Executive Summary at p 1 of the substantive text of the Memorandum, its purpose was described as follows:
"... to provide a comprehensive description of the technical, operating and financial aspects of the Wonnerup Mineral Sands Project ("the project"), sufficient to enable prospective bankers to determine the terms and conditions under which they would be prepared to provide limited recourse project finance to fund completion of the construction phase."
The summary went on to state that funding to that date had been provided by the project sponsor's internal resources and an interim corporate facility provided by the Commonwealth Bank. It was further stated:
"Normandy Capital Ltd has now been appointed to arrange more traditional limited recourse finance for the project."
At page 3 under the heading "Technical and Commercial Viability" the Memorandum said:
"From the point of view of project lenders, the financial model developed by Normandy demonstrates that the project cash flows are adequate to repay the loan funds sought well before the proven reserves are depleted."
At p 12 it was said:
"It is envisaged that up to three major lending institutions will be invited to participate in the funding of the senior project debt Facility. This Memorandum has been circulated to a limited number of prospective project financiers."
These and other references were highlighted by counsel for Mr Hyde to indicate that Normandy's purpose in preparing the Information Memorandum was to sell the project to potential providers of finance. I accept that the statements quoted from the Information Memorandum were included in it by or with the authority of Normandy and, to the extent that they referred to its role and purposes in connection with the preparation and distribution of the Memorandum, were accurate statements of that role and those purposes. I accept also, and it is common ground, that Normandy is not a licensed finance broker and did not fall within any of the exceptions set out in s.5(1) to the definition of "finance broker".
The Contentions
25. It was submitted for Hyde that the work done by Normandy in connection with the preparation and distribution of the Information Memorandum, could not be looked at in isolation from the agreement comprised in the two letters of 21 March 1990 and 3 April 1990. The work was performed pursuant to that agreement and the damages claimed against Hyde are, it was said, based upon the fee which Normandy now claims it would have sought for that work but for the assurances given to it by Caruso and Hyde. It was submitted that an analysis of the letters shows that at all times it was proposed that Normandy be paid a total fee. This was stated to be $300,000 in the first letter, but was reduced to $270,000 in the second. It was said to be clear from the terms of the letters that the reason the parties were entering into the agreement was for Normandy to arrange the project finance which Simto required for the mineral sands project. Reliance was placed upon the reference to Normandy being awarded "the exclusive mandate to arrange the entire financing packaging..." and the description of its role as "packager/arranger of the said facilities". The preparation and distribution of the Information Memorandum was said to form an integral part of Normandy's work in arranging the finance facilities on behalf of Simto. It was a function which could not be viewed separately from the performance of the agreement as a whole. It was submitted for Hyde that there was no term relating to the preparation and distribution of the Information Memorandum which was severable from the remaining terms of the agreement. That preparation and distribution amounted to a contravention of s.26(1) and was illegal.
Publication of various of the statements in the Information Memorandum was alleged to amount to Normandy holding itself out as a finance broker in contravention of s.26(1). The illegality, it was argued, prevented the terms of the agreement relating to the preparation and despatch of the Information Memorandum from being severed from the remaining terms of the contract. It would defeat the statutory purpose if a person were entitled to recover remuneration for the preparation of a document and presentation of it to a bank for the purpose of negotiating loans on behalf of another. And if the preparation and distribution of the Information Memorandum were a discrete and independent term of the agreement, it was limited by illegality because the purpose for which the work was done was at all times to enable Normandy to proceed to negotiate and arrange the project financing. The actual distribution of the Information Memorandum amounted to negotiating and/or arranging loans of money in so far as it was an invitation to prospective lenders to participate in the project financing by making loans to Simto.
On behalf of Simto and Caruso, and in addition to the submissions made for Hyde, it was said that the word "business" in the definition of "finance broker" is not limited to "the business of a finance broker". It should be read as meaning an activity which is an occupation as distinct from pleasure, an activity engaged in as a commercial enterprise, not in a private context. If the negotiation of a loan is done as an incident of another business then it is still caught by the definition.
Counsel for Simto and Caruso referred to the amendment made by Normandy to its pleading which alleged that the $50,000 fee was payable merely for the preparation of the Information Memorandum for the purpose of despatch to appropriate banks where previously it had been alleged that the fee was payable for the preparation and despatch of that document to the banks. He contended that the amendment raised a factual issue which could not be resolved on the agreed facts and the evidence presently before the Court. He would want to argue, he said, that the agreement was for payment on the preparation and despatch of the Memorandum and would want, by evidence, to resolve what could be an ambiguity in the agreement in that respect. I made no ruling on the effect of that concern at that time as its practical implications depended on my conclusion on the construction of the Act and its application on the hypothesis that the previously pleaded facts are made out.
Normandy submitted that the question to be determined was whether its claim was by a "finance broker" for fees in respect of "services in that capacity" within the meaning of s.43(1) of the Act. "Services in that capacity" it was said, are services in the capacity of a finance broker i.e. a person who is an agent who in the course of business negotiates or arranges loans of money for or on behalf of other persons. The preparation of the Information Memorandum, it was said, could be carried out for reward by any person. It would defy logic for a person to be unable to recover a fee for a service which is not the negotiating or arranging of a loan if that service is for the purpose of enabling the client, either personally or through an agent, to negotiate or arrange a loan. The sole issue was one of characterisation of the service, not the purpose for which it was performed. There is no warrant, it was submitted, for extending the application of the Act so as to deny recovery of a fee for services which are provided for the purpose of assisting in, or preparatory to, the negotiating of a loan. The Act, it was said, should be given a purposive interpretation recognising that it was intended to protect the public against defalcation by brokers who may receive and misappropriate funds.
Aspects of the agreement were referred to which, it was said, indicated that the preparation of the Information Memorandum was a separate service distinct from "arrangements" of finance and negotiation with underwriters. The fee of $50,000 was separate and non-refundable. It was to be paid in the course of the preparation of the Information Memorandum by monthly instalments of $7,500 with the balance payable upon completion of the Memorandum and its despatch. The work involved in the preparation of the Information Memorandum was of a substantial and technical nature. None of it was the negotiating or arranging of a loan. It was a preliminary service. The point was made that the fee for the Information Memorandum work was discounted in anticipation of a success fee if negotiations for finances was successful. The argument that the agreement to pay the fee was illegal was said to be based upon a wrong view of s.43 of the Act which makes it unlawful for an unlicensed finance broker to demand or receive a fee for negotiating or arranging a loan of money. Neither s.43(1) nor 43(2) renders unlawful or prohibits a contract under which such a fee may be payable. In any event the fee for the Information Memorandum was severable from the rest of the agreement.
Operation of the Finance Brokers Control Act 1975
31. The origin and content of the Finance Brokers Control Act 1975 mark it as consumer protection legislation directed to persons who, not being otherwise subject to relevant statutory regulation, are in the business of negotiating or arranging loans for third parties. The first recourse of any constructional inquiry must be to the words of the Act itself. Nevertheless it is unlikely to be the case that those who drafted and enacted it had in mind its application to large and complex transactions of the kind in issue in this case.
The first construction issue to be considered relates to the meaning of the term "finance broker" and whether it is necessary that to be a finance broker for the purposes of the Act, a person carry on business as such. A "finance broker" is a person who as an agent in the course of business, negotiates or arranges loans of money for or on behalf of other persons. "Business", unless the context otherwise requires, means the business of a finance broker. If the definition of "business" is inserted into that of "finance broker" the finance broker becomes "a person who, as an agent, in the course of the business of a finance broker negotiates or arranges loans etc....". The question is whether the context requires "business" in the definition of finance broker to bear some other meaning. It is to be noted that the word is used throughout the Act in the phrase "carries on business as a finance broker" or analogous phrases in which the application of the statutory definition of "business" would be entirely superfluous and contrary to context. Another phrase in which the word appears in the Act is "the business of a licensee" referring to the broking business of a licensed finance broker. There are few uses of the word in the Act to which the definition of "business" in s.4 can usefully be applied.
The "business" referred to in the definition of "finance broker", if not expanded by reference to its statutory definition, refers not to "a business" but business activity or commercial activity, analogous perhaps to the notion of conduct in trade or commerce. The exceptions listed in s.5(1) might be said to include classes of activity which would, if not excluded, fall within the definition of "finance broker". And the classes of persons there defined are engaged in businesses which range much wider than negotiating or arranging loans. On the other hand, the Act also contemplates that the business of a finance broker may be carried on as part of some larger business. Section 29(1)(c) provides for the licensing of a body corporate which has a licensed officer who is in bona fide control of the finance broker's business where that is a minor part of the business of the body corporate (s.29(1)(c) read with s.29(2)). The exclusions in s.5 pick up classes of persons who, but for that section, might be carrying on the business of a finance broker as part of their larger business. Section 5(1) therefore does not compel a "trade and commerce" approach to the construction of "business" in the definition of "finance broker". Although the application of the statutory definition of "business" to the definition of "finance broker" may be said to introduce a degree of circularity into the latter definition, it cannot be said to be contrary to context. Further, in my opinion, it serves the statutory purpose which is directed to persons who carry on such businesses. It is not directed to the ad hoc negotiation or arrangement of a loan on behalf of a third party, albeit that such negotiation or arrangement may occur in a commercial context. That is not to say that the circumstances surrounding a single transaction may not indicate that it is part of a business of such transactions albeit it may be the first of its kind engaged in by the broker. This view of the construction of the definition accords with that of Cavanagh and Barnes (supra) at p 707 where it is said of the Western Australian legislation:
"The term "business" means the business of a finance broker, so that a finance broker is in business as such and, although there is no express statement to the effect that the broker may, concurrently, carry on any other business the definition ought to be so read."
The authors claim support for the latter proposition, which accords with my own view, from s.29. The contrary construction could have the consequence that an ad hoc broking transaction in the course of some other business would attract the whole regulatory panoply for which the Act provides. A construction of the section that produces such a result is one that should not be adopted unless required by the language of the Act. In this respect I note the analogous reasoning of the Full Court in Nader v. Australian Pharmaceutical Industries Ltd (1981) 37 ALR 453 in relation to the Money Lenders Ordinance 1936 (ACT) especially at p 457 per Lockhart J (Kelly J agreeing) and p 465 per Sheppard J.
The term "business of a finance broker" necessarily takes its content from the definition of finance broker in which it appears by interpolation. There is, to that extent, a degree of circularity. But the circle is not closed for it is apparent from the definition that the business of a finance broker is one of negotiating or arranging loans of money by or on behalf of other persons.
Characterisation of Normandy's Conduct
35. In order for the statutory defence to Normandy's cross-claim to be made good it must be shown that Normandy was, at the relevant time, carrying on business as a finance broker in the sense described. The question was not squarely addressed on the evidence or the submissions. It seems clear however that Normandy which describes itself in the Information Memorandum as "Financial Advisors and Arrangers" does, in certain aspects of its commercial activities, carry on the business of negotiating or arranging loans of money for or on behalf of other persons. In its letter to Simto of 21 March 1990, the company sought an "exclusive mandate to arrange the entire financing package". It referred to its "experience" of the requirements of providers of senior debt which would have to be met "to achieve limited recourse funding". It also referred to "our normal fees for an engagement of this kind". References can be multiplied but there is little point. The contention that, inter alia, it carries on business as a finance broker was not conceded but, in my opinion, was made out. To so conclude however, is not to end the analysis.
The next constructional question concerns the operation of s.43(1) of the Act which disentitles a finance broker from receiving any commission, reward or other valuable consideration "in respect of his services in that capacity" unless licensed and the holder of a current annual practising certificate when the services are rendered. The disentitlement and prohibition imposed by s.43(1) constitutes restrictions upon commercial activity. Contravention of the prohibition is punishable by a fine. In considering the range of services covered by the term "services in that capacity" it is to be borne in mind that while the Act is beneficial it is also limiting of legitimate commercial freedom. The activity of arranging loans is not prima facie unlawful. The range of services which attract the disability imposed by s.43 is, in my opinion, not to be defined more widely than is necessary to serve the protective purposes of the Act. Services provided by a person in his or her capacity as a finance broker, for the purposes of s.43, are, in my opinion, limited to the services which are central to the business of a finance broker. That business, as I have already concluded, is one in which a person as agent negotiates or arranges loans of money for or on behalf of other persons. There may be ancillary activities which are associated with such a business. Whether or not such activities comprise services provided by a person in his or her capacity as a finance broker may depend upon the circumstances. A financial advisory service operated by a person who also carries on business as a finance broker will not of itself involve the negotiation or arrangement of loans of money. It should not readily be construed against the sense of the language to fall into that class of conduct.
Negotiation is a concept which, in this context, involves dealing with third parties in a way that goes beyond mere communication of information. To "arrange" a loan of money in this context means to come to an agreement or understanding with a lender or to settle details of a proposed loan with such a person - see Shorter Oxford English Dictionary and Macquarie Dictionary. In simple cases of the kind to which the Act is, in my opinion, principally directed, the initial approach to a lender by a finance broker on behalf of a client may well be an element of the process of negotiation and arrangement. The question is whether or not that characterisation can be applied to the conduct of Normandy in preparing and distributing the Information Memorandum in the present case.
The services offered by Normandy in the letters comprising its agreement with Simto involve a number of elements. They were conveniently described under the heading "Scope of Work" in the letter of 21 March 1990. Put shortly, they were:
1. Preparation of the Information Memorandum for distribution to participating banks.
2. Determination of a suitable limited recourse project financing structure.
3. Arrangement of and negotiation with underwriters of senior and sub-ordinate debt.
There was a suggestion in the letter that Normandy itself would be likely to take all or part of the risk participation in the sub-ordinated debt facility. There was therefore a sequence of services being offered by Normandy each of which, on the face of it, involved considerable technical and financial expertise. This is indicated in the case of the Information Memorandum by its contents which run to over 110 pages, not including twelve technical and other appendices in two substantial binders. In addition to the contents outlined earlier, the Information Memorandum contains a summary of the nature of the facility sought, a description of the project sponsor, an account of the project management and construction status, a detailed project description (28 pages), marketing and sales projections for various products to be derived from the project, a project risk summary, a statement of the project economics and financial model printouts. The appendices include a geology and ore reserve review by Mackay and Schnellmann Pty Ltd and Wilkinson and Associates, a Technical and Cost Assessment by Dema Pty Ltd and a Market Report by Australian Mineral Economics Pty Ltd. It is true that the preparation and distribution of the Information Memorandum was a necessary preliminary to the process of attracting and negotiating with prospective financiers and underwriters of the project. It was not, however, to be placed in the same category as an initial telephone call or letter from a finance broker to a prospective lender. It was a substantial and distinct service and did not, in my opinion, fall within the description of negotiating or arranging a loan. It was designed to attract the interest of one or more of a number of prospective financiers with a view to negotiating and arranging finance. But it was a service which at least in theory, could have been contracted out to some third party who would not otherwise have been involved in the negotiation and arranging of finance.
I accept that the fee for preparation of the memorandum was proposed by Normandy as a component of a global fee expressed as a percentage of total funds raised. That does not, in my opinion, affect the characterisation of the service for which the $50,000 was payable which, whether or not inclusive of the actual despatch of the Memorandum, was not within the scope of services provided in Normandy's capacity as a finance broker for the purposes of s.43. In my opinion therefore, Normandy is not disentitled by virtue of s.43(1)(a) from claiming its fee in respect of preparation or preparation and despatch of the Information Memorandum.
This leaves the question of illegality. This issue was not raised on the preliminary issue as defined in my order of 29 April 1993. It raises questions of some complexity in the construction of the statute and whether or not it is intended to invalidate contracts made which involve conduct in contravention of its terms - see for example Yango Pastoral Co. Pty Ltd v. First Chicago Australia Ltd (1978) 139 CLR 410. There may also be factual issues which it is necessary to consider in relation to such an argument. In my opinion the question of illegality falls outside the narrow scope of the preliminary issue and I do not propose to determine it at this stage.
CONCLUSION
41. The preliminary issue as formulated throws up the question of Normandy's entitlement to recover fees having regard to the provisions of s.43. That section refers to a disentitlement from receiving fees in respect of services provided by a person in his or her capacity as a finance broker. To establish the statutory disentitlement it is necessary to show that the services involved the negotiating or arranging of a loan or loans of money. On the basis of the documents alleged by Normandy solely to constitute the Retainer Agreement between the parties, it was not acting as a finance broker as specified in and for the purposes of the Finance Brokers Control Act 1975 in preparing and distributing the Information Memorandum as part of the services the subject of the agreement.
For the present, it is sufficient, I think, to adjourn the hearing of Normandy's cross-claim to the trial of the action. There will be liberty to apply and the costs of the preliminary issue will be reserved.
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