Srinivas Pty Ltd v Vansan Construction Pty Ltd
[2025] VSC 381
•27 June 2025
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2023 05674
BETWEEN:
| SRINIVAS PTY LTD (ACN 605 489 969) & ANOR (according to the attached Schedule) | Plaintiffs |
| and | |
| VANSAN CONSTRUCTION PTY LTD (ACN 104 934 732) & ORS (according to the attached Schedule) | Defendants |
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JUDGE: | Matthews J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 5 and 7 May 2025, last written submissions received 21 May 2025 |
DATE OF JUDGMENT: | 27 June 2025 |
CASE MAY BE CITED AS: | Srinivas Pty Ltd v Vansan Construction Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2025] VSC 381 |
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CONTRACTS – Plaintiffs seek to enforce loan agreements and guarantees where no repayments had been made – Non-fulfilment of condition precedent – Whether condition is a condition precedent to formation or instead to performance – Waiver – Whether requirement for waiver to be in writing can itself be waived – Non-compliance with some procedural requirements – Whether payments made by plaintiffs were made pursuant to the loan agreements – Whether borrowers were in default at time plaintiffs sought repayment – If payments not made pursuant to loan agreements, whether restitution claim arises – Commonwealth v Verwayen (1990) 170 CLR 394 – Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd [2017] QSC 85 – Canberra Advance Bank Ltd v Benny (1991) 115 ALR 207 – Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr G Lubofsky of counsel | MST Lawyers |
| For the Defendants | Mr S Prendergast of counsel | Vincent J Ryan |
Contents
A.. Introduction and overview
A.1 The parties
A.2 Overview of this case
A.3 Background to the dealings between the parties
A.4 The Loan Agreements
A.4.1 Entry into the First Loan Agreement and other transaction documents
A.4.2 Entry into the Second Agreement
A.4.3 Entry into the Third Loan Agreement
A.4.4 Key terms of the Loan Agreements
A.4.5 Key terms of the Guarantee
A.5 Subsequent developments
B.. Pleadings
C.. Conduct of the trial
D.. Issues for consideration
E... Does the non-fulfilment of the conditions precedent or the lack of written waiver thereof have the effect that the Payments were not made pursuant to the Loan Agreements?
E.1 The plaintiffs’ submissions
E.1.1 Waiver
E.1.2 The nature of this condition precedent – it is limited in effect
E.1.3 Estoppel by convention
E.2 The defendants’ submissions
E.2.1 Waiver
E.2.2 The nature of this condition precedent – its non-fulfilment means that the parties are not bound by the Loan Agreements
E.2.3 Estoppel by convention
E.3 The plaintiffs’ submissions in reply
E.3.1 Waiver
E.3.2 Nature of the condition precedent and the effect of its non-fulfilment
E.4 The defendants’ submissions in response to the plaintiffs’ reply
E.5 Analysis and consideration
E.5.1 The nature of the condition precedent
E.5.2 Waiver
E.5.3 Estoppel
F... Does the lack of written requests from the defendants for the Advances and/or the lack of written confirmation from the plaintiffs of the fact of the Advances have the effect that the Payments were not made pursuant to the Loan Agreements?
F.1 The plaintiffs’ submissions
F.1.1 Clause 1.1 does not impose an obligation to give notice in writing
F.1.2 No other arrangement identified by the defendants
F.1.3 Estoppel
F.1.4 Waiver
F.1.5 Variation of the Loan Agreements by conduct
F.2 The defendants’ submissions
F.2.1 No written request for Advances made under the terms of the Loan Agreements
F.2.2 No written confirmation of the fact of the Advances – therefore, no fixed Loan Drawdown Date
F.2.3 Estoppel/waiver
F.2.4 Variation of the Loan Agreements by conduct
F.3 The plaintiffs’ submissions in reply
F.3.1 Request for an advance
F.3.2 Estoppel/waiver
F.4 The defendants’ submissions in response to the plaintiffs’ reply
F.5 Analysis and consideration
G.. Conclusion as to whether the Payments were Advances made pursuant to the Loan Agreements
H.. Was the Notice invalid because the defendants were not in default as at 9 January 2023?
H.1 The plaintiffs’ submissions
H.2 The defendants’ submissions
H.3 The plaintiffs’ submissions in reply
H.4 Analysis and consideration
I.... Restitution
I.1 The plaintiffs’ submissions
I.2 The defendants’ submissions
I.3 The plaintiffs’ reply submissions
I.3.1 Liability of the third defendant
I.3.2 Liability of the first defendant
I.4 The defendants’ submissions in response to the plaintiffs’ reply
I.5 Analysis
J.... Liability of the third defendant
K.. Conclusion and disposition
HER HONOUR:
A Introduction and overview
A.1 The parties
The parties to the proceeding are as follows:
(a)The first plaintiff is Srinivas Pty Ltd (Srinivas).[1] Srinivasrao Nuvvala (Srini) is its sole director.[2]
(b)The second plaintiff is Nsrikanth Pty Ltd (Nsrikanth).[3] Venkata Srikanth Nuvvala (Sri), Srini’s brother, is its sole director and shareholder.
(c)The first defendant is Vansan Construction Pty Ltd (Vansan).[4] Shanmugalingham Suthersan (Shan) is the sole director and shareholder of Vansan. Since 2003, Vansan has been a builder in the construction industry.
(d)The second defendant is Dhruva Development Pty Ltd (Dhruva).[5] Kogulavani Sutharsan (Kogulavani), Mr Suthersan’s wife, is the sole director and shareholder of Dhruva. Dhruva acts as a property developer. Dhruva’s business model includes financing projects and then requiring property as security for finance raised.
(e)Shan is the third defendant.
[1]Srinivas was incorporated on 26 April 2015. The sole shareholder is Srini’s wife.
[2]For clarity and intending no disrespect, I will refer to the key players by their first names.
[3]Nsrikanth was incorporated on 27 April 2015.
[4]Vansan was incorporated on 2 June 2003.
[5]Dhruva was incorporated on 17 October 2019.
A.2 Overview of this case
This proceeding was commenced on 1 December 2023 by the plaintiffs, seeking to recover monies they had lent to Vansan and Dhruva via three loan agreements and to enforce a guarantee for those loans given by Shan. The defendants each filed defences in January 2024 and Dhruva also filed a counterclaim against the plaintiffs. As Dhruva abandoned its counterclaim on the first day of the trial, there is no need for me to say any more about it.
The defendants, by their original defences and by their amended defences filed on the first day of the trial, deny liability to the plaintiffs, with one exception. The defendants concede that the plaintiffs have a claim in restitution, but say that it is only the second defendant who is liable in that regard. The basis for the defendants’ denial of liability changed significantly with the amended defences, as I will explain later in these reasons.
For the reasons which follow, there will be judgment against all defendants for the plaintiffs.
A.3 Background to the dealings between the parties
Shan first met Sri around 2010. Over the years, they were involved in some building and property related projects together.
On 20 December 2019, Dhruva became the registered owner of the property located at 530-534 Springvale Road, Springvale South (the Property). The Property was acquired for the purposes of a residential development. It was intended that the land would be developed into 40 townhouses, with Vansan as builder.
On 2 February 2021, Shan and Sri met in Glen Waverley at the restaurant, Grill’d, where they discussed the potential investment by the plaintiffs of funds with the defendants.
At 7:47am on 3 February 2021, Shan sent an email to Sri with the subject line ‘Investment with vansan group 500k’, in which he stated:
Hi Sri,
Further to the meeting yesterday at grilled [sic] ,
Here I confirm that you invest 500k AUD with Vasan construction Pty Ltd, and return in one year we will give you 125k AUD in return aprox. [sic] 25% per annum. For Security we will provide you one unit from 530-534 Springvale rd Springvale south street worth more than 680-730k. If you happy with this, please provide the funds into our account. I thought I will put it in writing so we all clear.
If you have any queries please come back to me.
Shan
Ten minutes later, Sri forwarded that email to Peter Sanguinetti, the solicitor for the plaintiffs, asking Mr Sanguinetti to call to discuss the investment.
On 4 February 2021, Mr Sanguinetti wrote to Sri by email, referring to different options for the investment and their potential tax consequences. The email read:
Sri, one way to do this is as follows although his lawyer may have other ideas
1. Sign a contract of sale for $500k now
2. Settlement in 12 months time.
3. we will lodge a caveat
4. by separate agreement the seller can
a. pay you the interest c$125 and the contract sale becomes void
b. elect to complete the sale.
5. NOTE Under 4 b you will have to pay stamp duty and if you resell the property you may be up for CGT as it would be sold for more than the contract price ($500k) so you will need to factor that in.
The other option is to take a first ranking mortgage over a property to secure a loan of $625k plus a personal gurantee [sic] and then sell the property if he defaults although that has its tax complications as well.
The simplest solution is to try and get your money back in cash, although the interest component will be taxable as well.
Send me the S32 as soon as you get it and I can look into it further…
In another email to Sri later that day, Mr Sanguinetti identified that the Property was owned by Dhruva and was subject to two mortgages, and noted that individual titles for the 40 units had not appeared to have been issued yet.
On 9 February 2021, Mr Sanguineti emailed Sri and Srini, attaching a copy of the loan agreement. Mr Sanguineti highlighted clause 7 for Sri and Srini’s attention, indicating that clause 7 had the effect of being a “mechanism to repay the loan and interest via settlement of the property.”
On 10 February 2021, Sri wrote to Shan on WhatsApp, forwarding some of the correspondence from Mr Sanguinetti and asking for an update on when individual titles for the development would be available, or for Shan to ‘suggest the best possible way to secure funding’. Sri also sent via WhatsApp a document entitled ‘DRAFT Loan Agreement Vansan and NUV 9 Feb’. This was a draft loan agreement between Srinivas, Nsrikanth, Vansan and Dhruva.
On 11 February 2021, Shan emailed Sri a draft contract of sale for Lot 14 of the proposed development of the Property.
Later on 11 February 2021, Sri emailed Shan, attaching a draft loan agreement, guarantee, security deed and company resolutions.
A.4 The Loan Agreements
A.4.1 Entry into the First Loan Agreement and other transaction documents
On 12 February 2021, Srinivas and Nsrikanth (as Lenders), and Vansan and Dhruva (as Borrowers) entered into an agreement in respect of a loan facility of $500,000 from the plaintiffs to the defendants (the First Loan Agreement).
On the same date, the plaintiffs and Shan executed a deed of guarantee and indemnity (Guarantee).
Also on 12 February 2021, the directors of Vansan and Dhruva signed resolutions of directors’ meetings approving entry into the transaction documents.
On 12 February 2021, the plaintiffs paid $300,000 to the Borrowers and on 16 February 2021, the plaintiffs paid $200,000 to the Borrowers. I shall refer to the combined $500,000 as the First Payment.
On 3 March 2021, the plaintiffs registered a security interest on the Personal Property Security Register over the property of Vansan and Shan.
A.4.2 Entry into the Second Agreement
On 21 May 2021, Srinivas, Nsrikanth, and the Borrowers entered into another agreement in respect of a loan facility of a further $500,000 by the plaintiffs to the defendants (the Second Loan Agreement).
On 24 May 2021, the plaintiffs transferred $500,000 to the Borrowers (Second Payment).
A.4.3 Entry into the Third Loan Agreement
On 30 June 2021, Srinivas, Nsrikanth and the Borrowers entered into a third agreement in respect of a loan facility of $500,000 by the plaintiffs to the Borrowers (the Third Loan Agreement).
On the same date, the plaintiffs paid $500,000 to the Borrowers (Third Payment).
A.4.4 Key terms of the Loan Agreements
The three Loan Agreements were in substantially identical terms. I will describe the key terms by reference to the First Loan Agreement and will then point out any differences between them.
Clause 1.1 contains the defined terms of the First Loan Agreement. The relevant definitions are as follows:
(a)‘Advance’ means any drawing pursuant to this agreement;
(b)‘Conditions Precedent’ means each of the conditions set out in Schedule 2A;
(c)‘Conditions Subsequent’ means each of the conditions set out in Schedule 2B;
(d)‘Contract of Sale’ means the contract of sale attached as Appendix A pursuant to which the Lender or its nominee agrees to purchase that part of the Property known as Lot 14 (also referred to in the First Loan Agreement as the Springvale Property) on the terms set out in the First Loan Agreement and the Contract of Sale;
(e)‘Drawdown Date’ means, with respect to the Advance, the dates on which the Lender makes that Advance;
(f)‘Loan Drawdown Date’ means the date the Lender advances the Loan Advance of $500,000 in writing;
(g)‘Repayment Date’ is the date specified in Item 6 of Schedule 1 or any other date agreed in writing between the parties.
Clause 3.1 of the First Loan Agreement provides as follows:
Subject to the terms of this Agreement and satisfaction of the relevant Conditions Precedent, the Lender agrees to make the Facility available to the Borrower and, upon the request of the Borrower in writing , provide Advances (provided that the total of all Advances do not exceed the relevant Commitment) to the Borrower by way of cash advance on the terms and subject to the conditions set out in this Agreement. Each Advance will be provided to the Borrower by way of bank cheque(s) or electronic cleared funds transfer payable to the Borrower or as to the Borrower directs in writing and any Disbursement Authority.
The Borrower acknowledges and agrees that the Lender is not obliged to make any Advance to the Borrower unless each of the relevant Conditions Precedent have been satisfied or waived in writing by the Lender.
Clause 4 of the First Loan Agreement sets out the Lender’s obligations as follows:
4.1 Advances and Conditions to Advances
(a) The Lender's obligation to provide the Advance is subject to and conditional upon the Conditions Precedent in Schedule 2.
4.2 Non-Satisfaction of Conditions Precedent
(a) If one or both of the following events have not occurred by the Loan Drawdown Date:
(i) all of the Conditions Precedent referred to in clause 4.1(a) have not been fulfilled and fully satisfied or waived by the Lender;
then:
(ii) any Party may terminate this Agreement with immediate effect; and
(iii) no Party, subject to clause 4.2(b) has any further obligation to the other under this Agreement.
(b) If the Loan Advance does not occur by the Loan Drawdown Date because the Borrower failed to fulfil or fully satisfy all of the Conditions Precedent and the Lender did not waive the obligation to so fulfil or satisfy the Conditions Precedent:
(i) the Borrower unconditionally forfeits any amount paid to the Lender prior to or on the date of this Agreement; and
(ii)the Borrower remains liable to pay to the Lender all of the Lender’s legal Costs and out of pocket expenses incurred in connection with the negotiation and finalisation of this Agreement and each Transaction Document.
(c) All of the Conditions Precedent are for the sole benefit of the Lender and may only be waived by the Lender in its absolute discretion in writing.
Pursuant to clause 6.1 of the First Loan Agreement, interest accrues from the Loan Drawdown Date at 25%per annum and is repayable on the Repayment Date. Pursuant to clause 6.2, interest accrues on any monies outstanding after the Repayment Date at the default interest rate of 35% per annum.
Clause 7 of the First Loan Agreement provides as follows:
7.1 Repayment of Loan Amount on Repayment Date
Subject always to clause 7.2, the Borrower must repay and finally discharge the Loan Amount on the Repayment Date. The Borrower must also pay to the Lender any interest under clause 6.1(a) and all other Costs and amounts payable under this Agreement and unpaid, on or before the Repayment Date.
7.2 Manner of repayment
(a) Unless otherwise agreed in writing, the Loan Amount and all accrued interest and charges payable by the Borrower under this Agreement shall be fully discharged upon the settlement of the sale and the transfer of title of the Springvale Property to the Lender contemplated by the Contract of Sale.
(b) The Borrower acknowledges that no further consideration is due from the Lender to complete the purchase of the Springvale Property provided the Lender confirms in writing that the Loan and all accrued interest have been paid in full.
(c) The Borrower acknowledges that settlement of the Springvale Property shall be subject to the Lender being satisfied in its absolute discretion:
(i) The Springvale Property is unencumbered;
(ii) The Springvale Property is in new and liveable condition; and
(iii) The provisions of this Agreement apply in the event of any inconsistency with the Contract of Sale.
(d) If the Lender is not satisfied in accordance with Clause 7.2(c), the Lender reserves the right on immediate notice to terminate the Contract of Sale without penalty and to seek repayment of the Borrowers liability under this Agreement by way of an immediate cash payment of principal and interest upon written demand. The Borrower will consent to the entering of a judgement in a Court of competent jurisdiction in the event full payment is not made within 2 days of the making of demand by the Lender, and is without prejudice to the Lenders legal rights under the Securities.
(e) Upon registration of the transfer of title of the Springvale Property to the Lender (or its nominee) the Lender shall release all Securities.
Clause 10.2 provides, inter alia, that failing to pay any money when due under the First Loan Agreement and failing to transfer unencumbered title to the Springvale Property (ie Lot 14) as contemplated by the First Loan Agreement are events of default.
The Security required for each of the Loan Agreements was expressed to include a personal guarantee from Shan.
In respect of the First Loan Agreement:
(a)the amount loaned was $500,000;
(b)the term of the loan was 12 months from the Loan Drawdown Date, so the Repayment Date was 15 February 2022; and
(c)the land which was the subject of the Contract of Sale was Lot 14 on the proposed plan of subdivision for the Property.
As already mentioned, the Second Loan Agreement was in substantially identical terms, save that:
(a)the term of the loan was less than 12 months, as the Repayment Date was stated to be the same repayment date as for the First Loan Agreement, hence 15 February 2022; and
(b)the land which was the subject of the Contract of Sale was Lot 15 on the proposed plan of subdivision for the Property.
The Third Loan Agreement was also in substantially identical terms to the First Loan Agreement, save that:
(a)the Repayment Date was 365 days from the date of the Advance, therefore it was 29 June 2022; and
(b)the land which was the subject of the Contract of Sale was Lot 15 on the proposed plan of subdivision for the Property.
A.4.5 Key terms of the Guarantee
Pursuant to clause 3.3 of the Guarantee, Shan unconditionally and irrevocably guarantees to Srinivas and Nsrikanth (collectively referred to as the Beneficiary) the payment and satisfaction by Vansan and Dhruva (collectively referred to as the Debtor) of the Guaranteed Liabilities.
‘Guaranteed Liabilities’ is defined in the Guarantee as follows:
Guaranteed Liabilities means all money, obligations and Liabilities of any kind that are now or may in the future become due, owing or payable, whether actually, contingently or prospectively, by the Debtor to or for the account of any Beneficiary or any related body corporate of the Beneficiary on any account including on account of principal, interest, fees, expenses, indemnity payments, losses or damages and irrespective of:
(a) the capacity of the Debtor, the Beneficiary (whether as principal, agent, trustee, beneficiary, partner or otherwise);
(b) whether the Debtor is liable as principal debtor or as surety;
(c) whether the Debtor is liable alone, jointly or jointly and severally with another person;
(d) whether or not the money, obligation or Liability is owed to the Beneficiary or to their respective account as a result of an assignment, transfer or other dealing with or without any of the Debtor's consent; or
(e) whether the money, obligation or Liability is owed or secured before or after the date of this Deed or any assignment of this Deed or any other Transaction Document.
‘Liabilities’ is defined in the Guarantee as “all liabilities, whether actual or contingent, present or future, quantified or unquantified.” ‘Transaction Documents’ includes the First Loan Agreement.
Clause 4.1 of the Guarantee provides that if the obligation to pay or perform any Guaranteed Liabilities is not fully enforceable against, or any Guaranteed Liabilities are not fully recoverable from the Debtor or Shan for any reason, then Shan:
as a separate and independent primary obligation, … unconditionally and irrevocably indemnifies each Beneficiary as a result and the Guaranteed Liabilities are recoverable from, or enforceable against, the Guarantor as though they had been incurred and owing by the Guarantor and the Guarantor was the sole and principal debtor in respect of the Guaranteed Liabilities.
A.5 Subsequent developments
On 20 August 2021, Dhruva was issued with certificates of occupancy for the townhouses at the Property.
On 29 September 2021, Dhruva registered Plan of Subdivision 835524H over the Property and separate titles were issued in respect of the 40 development lots, including for:
(a)Lot 14, being the land described in Certificate of Title Volume 12333 Folio 494;
(b)Lot 15, being the land described in Certificate of Title Volume 12333 Folio 495; and
(c)Lot 16, being the land described in Certificate of Title Volume 12333 Folio 496.
The date for repayment under the first and second written agreements was 15 February 2022. As at that date, there was:
(a)caveat AU986834A recorded on the title to Lots 14, 15 and 16 in favour of IC Finance Holdings Pty Ltd and Margi IBC Holdings Pty Ltd; and
(b)mortgage AU167382D recorded on the title to Lots 14, 15 and 16 in favour of Payton Capital Ltd.
On 17 May 2022, the caveat in favour of IC Finance Holdings Pty Ltd and Margi IBC Holdings Pty Ltd was removed.
On 30 May 2022, the mortgage in favour of Payton Capital Ltd was discharged. However, on the same date, a new mortgage instrument AV682659C was recorded on the title to Lots 14, 15 and 16 in favour of Payton Capital Ltd.
Also on 30 May 2022, mortgage instrument AV682658E was lodged over Lots 14, 15 and 16 in favour of Crucis Pty Ltd, securing a loan of $3,818,750.
The repayment date under the third written agreement was 29 June 2022. As at that date, there were mortgages recorded on the title to Lots 14, 15 and 16 in favour of Payton Capital Ltd and Crucis Pty Ltd.
Throughout 2022 and 2023, there were numerous texts, emails and WhatsApp messages between Sri and Shan where Sri was chasing repayment of the loans and Shan was making statements about when monies would be paid or that he was making efforts to have one or more of the properties made available. There is no need for me to set all of this out here. I note that at no stage in those messages did Shan dispute that the loans were repayable. The flavour of his messages seems to be attempts to get extra time and to dissuade Sri from taking enforcement action.
On 9 January 2023, Peter Sanguinetti Legal sent a notice of default (Notice) to the Borrowers asserting a failure to repay the three loans and interest and the failure to transfer the Lots to the plaintiffs. The Notice purported to terminate the Loan Agreements under clause 7.2(d) and demand immediate repayment in cash. The Notice contained a schedule describing the accrual of interest totalling $591,572.35, in addition to the outstanding principal of $1,500,000.
On 20 April 2023, Dhruva sold Lot 14 for $690,000. On 26 May 2023, Dhruva transferred title to Lot 14 to a third-party purchaser.
On 20 August 2023, Dhruva sold Lot 15 for $695,000. On 26 September 2023, Dhruva transferred title to Lot 15 to a third-party purchaser.
On 1 September 2023, Mr Sanguinetti emailed Vinu of FCL Lawyers for the defendants referring to the loans and attaching relevant documentation.
On 10 October 2023, MST Lawyers on behalf of the plaintiffs sent a letter of demand (Demand) to the defendants in respect of the amount outstanding under the three Loan Agreements totalling $2,630,478.52.
On 1 December 2023, the plaintiffs commenced this proceeding.
On 9 January 2024, Dhruva sold Lot 16 for $705,000. On 13 March 2024, Dhruva transferred title to Lot 16 to a third-party purchaser.
B Pleadings
The current relevant pleadings are:
(a)the amended statement of claim dated 18 March 2024 (ASOC);
(b)each defendants’ amended defence, dated 5 May 2025 (Amended Defences);
(c)the plaintiffs’ amended replies dated 6 May 2025 to each of the Amended Defences (Amended Replies).
In their ASOC, the plaintiffs:
(a)plead each of the Loan Agreements and their key terms;
(b)allege that the Borrowers did not cause settlement of the sale and transfer of Lot 14, Lot 15 or Lot 16 on or before the respective Repayment Dates for each of the Loan Agreements
(c)allege that the respective Lots were not unencumbered and were not in a new and liveable condition as required under clauses 7.2(c)(i) and (ii) of the Loan Agreements;
(d)allege that the Borrowers did not repay the three loans by their respective Repayment Dates or at all, or any of the accrued interest;
(e)plead the Notice, and allege that the failure to transfer the Lots or repay the loans and interest were Events of Default under the Loan Agreements;
(f)allege that the defendants did not comply with the Notice or remedy the Events of Default;
(g)plead the Guarantee and its key terms;
(h)allege that Shan is liable to the plaintiffs for monies owed to them by the Borrowers, pursuant to the Guarantee;
(i)plead the Demand, and allege that the defendants failed to comply with the Demand; and
(j)claim:
(i)payment of $2,698,834.38, being the amount owing as at 1 December 2023; and
(ii)payment of interest, either:
(A)pursuant to the Loan Agreements from 1 December 2023 to date of judgment at the rate of $1,438.35 per day; or
(B)pursuant to statute.
At the commencement of the trial, the Court granted the defendants leave to file amended defences. The amended defences were filed on 6 May 2025. Dhruva’s amended defence abandoned its counterclaim against the plaintiffs.
In their original defences, the defendants denied the Loan Agreements and pleaded that different agreements, made orally, were entered into by the parties which contained terms that were different to those in the Loan Agreements. Many of the terms alleged by the defendants were contradictory to the signed Loan Agreements.
By their Amended Defences, the defendants:
(a)admit entering into the Loan Agreements;
(b)admit that the terms of the loans are those contained in the Loan Agreements;
(c)admit receipt of the Payments, but deny that these are Advances under the Loan Agreements, as:
(i)the Payments were made by the plaintiffs without strict compliance with the Loan Agreements, as
(A)the Borrowers did not make requests in writing for the Advances pursuant to clause 3.1; and
(B)the plaintiffs did not provide notice in writing of the fact of the Advances pursuant to clause 1.1;
(ii)the conditions precedent to the Loan Agreements in that neither party executed the applicable Contract of Sale and such conditions precedent were not waived by the plaintiffs in writing;
(d)allege that the plaintiffs’ exercise of rights under clause 7.2(d) was invalid as:
(i)the plaintiffs did not take steps before or after the expiry of the Loan Agreements to facilitate a transfer of the Lots; and
(ii)the Borrowers were therefore not in default of the Loan Agreements at the time of the Notice;
(e)allege that the Notice was defective, as the first and second defendants were not in default of the Loan Agreements; no termination of any Contracts of Sale for Lots 14, 15 or 16 was possible because no such contracts had been executed by the parties; and, the Notice failed to describe with sufficient certainty how Shan could rectify the alleged event of default;
(f)allege that the Loan Drawdown Date was not fixed until the Lenders had provided written notice to the Borrowers of the Advances having been made; and
(g)deny that Shan is liable to the plaintiffs under the Guarantee.
By their Amended Replies, the plaintiffs:
(a)admit that the conditions precedent in the Loan Agreements regarding execution of Contracts of Sale were not satisfied;
(b)admit that there was no written waiver of those conditions precedent;
(c)allege that the plaintiffs could and did waive the writing requirement for a waiver of the conditions precedent;
(d)allege that the plaintiffs waived the conditions precedent;
(e)deny that the Payments were not Advances pursuant to the Loan Agreements, despite there being no written request for the Advances and allege that written notice of having made the Advances was not required;
(f)allege an estoppel by convention such that the defendants are estopped from resiling from the assumption that written requests for and notice of Advances were not required;
(g)allege in the alternative that the parties varied the Loan Agreements by their conduct;
(h)allege that the defendants were never able to transfer the Lots to the plaintiffs with clear title and deny that they were required to take the steps pleaded by the defendants regarding the transfer of the Lots; and
(i)allege that if the Payments were not made pursuant to the Loan Agreements, then the defendants are liable to make restitution to the plaintiffs for the Payments.
Where necessary, aspects of the pleadings will be expanded upon later in these reasons.
C Conduct of the trial
At the start of the trial on 5 May 2025, the defendants sought leave to amend their defences. Their proposed amended defences had been provided to the Court and to the plaintiff about half an hour before the trial commenced. I stood the proceeding down for about 2 hours to give the plaintiffs an opportunity to consider their position. When the trial resumed, the plaintiffs’ counsel informed the Court that they consented to the amendments, and that as a result of the proposed amendments, the plaintiffs would no longer be calling any witnesses. Counsel for the defendants indicated that they would likely take the same course, but would confirm this once they had received the plaintiffs’ amended replies. On the assumption that no witnesses would be called, the plaintiffs proposed that the trial resume on 7 May 2025 when the parties would make their closing submissions. This was acceded to.
The defendants filed their Amended Defences later that afternoon, and the plaintiffs filed their Amended Replies the next day. The defendants confirmed they would not be calling any witnesses.
On 7 May 2025, the trial resumed. The court book was tendered by agreement. Thus, the evidence at trial comprised the contents of the agreed court book, along with the joint chronology provided by the parties as one of the pre-trial steps.
The plaintiffs provided written closing submissions just before the trial resumed. The plaintiffs’ counsel made oral closing submissions as well. Counsel for the defendants requested that he be permitted to file and serve written closing submissions a few days later, once the defendants had had a chance to digest the plaintiffs’ written and oral closings. That course was acceded to. The defendants filed and served written closing submissions on 12 May, and the plaintiffs provided their written submissions in reply on 16 May 2025. By agreement, the defendants provided a written response to the plaintiffs’ reply on 21 May 2025.
D Issues for consideration
The agreed list of issues filed by the parties prior to trial in accordance with the pre-trial directions is largely otiose, given the defendants’ Amended Defences.
Having now admitted entering into the Loan Agreements and that those documents contain the agreed terms regarding the loans, the issues between the parties can be much more narrowly stated. There are two main defences relied on by the defendants to refute the plaintiffs’ claims in this proceeding.
First, the defendants say that the monies received from the plaintiffs, which I have referred to as the First Payment, Second Payment and Third Payment (collectively the Payments) so as to use a neutral expression, were not made pursuant to the Loan Agreements. It is said that the Payments were not Advances made in accordance with the Loan Agreements and were therefore not subject to the terms of the Loan Agreements. Two matters are relied upon in this regard:
(a)the parties had not executed contracts of sale for each of Lots 14, 15 and 16 corresponding with each Loan Agreement (respectively, the Lot 14 Contract, the Lot 15 Contract and the Lot 16 Contract, collectively the Contracts of Sale), which is described in the Loan Agreements as a condition precedent, prior to each of the Payments being made. The Payments were not made under any enforceable loan agreement because the conditions precedent were not satisfied or waived in writing by the plaintiffs; and
(b)the procedure for Advances in the Loan Agreements was not followed, in that:
(i)the Borrowers did not make written requests for the Advances; and
(ii)the Lenders did not provide written notice of the fact of the Advances.
Second, the defendants say that the default/termination Notice is defective as they were not in default as at 9 January 2023, since the plaintiffs had not called for or taken any steps to have any of Lots 14, 15 and 16 transferred to them.
Thus, determining the plaintiffs’ claim requires determination of whether the Payments were made pursuant to the Loan Agreements. This requires consideration of matters raised by the plaintiffs such as waiver, estoppel, and variation of the Loan Agreements. If the Payments were not made pursuant to the Loan Agreements, then consideration of what terms apply to the Payments must be undertaken, and the plaintiffs’ alternative claim in restitution must be considered.
Further, it is necessary to determine whether the defendants were in default as at 9 January 2023. If not, consideration as to what rights the plaintiffs possess and can enforce is required.
The parties’ submissions, along with my analysis and conclusions, will be discussed for each of these issues in turn below.
Before doing so, it is worth noting that the defendants agree with the plaintiffs’ submission that the principles governing the interpretation of contracts is the summary given by the High Court in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd. [6] I agree with those principles and will apply them here.
E Does the non-fulfilment of the conditions precedent or the lack of written waiver thereof have the effect that the Payments were not made pursuant to the Loan Agreements?
[6](2015) 256 CLR 104, 116-7 [46]-[51] (Mount Bruce Mining).
E.1 The plaintiffs’ submissions
I begin with the plaintiffs’ closing submissions regarding this issue.
The plaintiffs refer to clause 4.1(a) of the Loan Agreements which provides that the plaintiffs’ obligation to advance the loan funds is subject to and conditional upon the conditions precedent in Schedule 2 being satisfied. Schedule 2 of the Loan Agreements provides a series of conditions precedent. Number 2 outlines the requirement for parties to execute a contract of sale for the relevant lot. Clause 3.1 provides further that the plaintiffs are not obliged to make any advance unless each condition precedent has been “satisfied or waived in writing by the Lender”.
The plaintiffs acknowledge that the Amended Defences are correct in contending that this condition precedent was not satisfied because the Borrowers did not execute the contract of sale annexed to the Loan Agreements, and that the defendants are correct in contending that the plaintiffs did not waive the condition precedent in writing. However, the defendants incorrectly assert that the effect of these 2 matters was that the Payments were not advanced pursuant to the Loan Agreements. The plaintiffs argue that such an assertion is premised on a fundamental misreading of the Loan Agreements and the function of the condition precedent clause.
In answer to the defendants’ position, the plaintiffs submit that:
(a)first, although there was a provision that provided for the plaintiffs to only waive conditions precedent in writing, the plaintiffs were still permitted to waive the condition precedent by conduct. In effect, the plaintiffs could waive the requirement for a waiver to be in writing. As this condition precedent was expressly for the benefit of the plaintiffs under clause 4.2(c), they could and did waive condition precedent by advancing the funds;
(b)second, even if the plaintiffs did not waive the condition precedent, this did not have the effect that the funds were not advanced by the plaintiffs pursuant to the Loan Agreements. That is because:
(i)the consequence of non-compliance with the condition precedent under clause 4.1(a) was that the plaintiffs were not obliged to advance the funds to the defendants;
(ii)while clause 4.2(a)(ii) permitted either party to terminate the Loan Agreements if the conditions precedent were not satisfied, neither party exercised such a right; and
(iii)the Loan Agreements remained on foot and continued to bind the parties until they were terminated by the plaintiffs on 9 January 2023; and
(c)third, having accepted and enjoyed the benefit of the Payments, the defendants are now estopped from alleging that the plaintiffs loaned the loan amounts other than pursuant to the Loan Agreements.
Each of these is addressed below.
E.1.1 Waiver
The plaintiffs’ written closing submissions set out in some detail the authorities in respect of a waiver of rights in a contract that only permits waivers to occur in writing. Given the emphasis placed on waiver by both parties, it is necessary to set these submissions out in a fulsome manner.
The plaintiffs point to Commonwealth v Verwayen,[7] where Dawson J identified two types of waiver that may arise in dealings between parties – waiver amounting to an election and waiver amounting to an estoppel. His Honour, citing Diplock LJ in Kammins Ballrooms Co Ltd v Zenith Investments (Forquay) Ltd,[8] outlined those categorisations as:[9]
The former… occurs where “a person is entitled to alternative rights inconsistent with one another” and “acts in a manner which is consistent only with his having chosen to rely on one of them”. The latter “debars a person from raising a particular defence to a claim against him” and “arises when he either agrees with the claimant not to raise that particular defence or so conducts himself as to be estopped from raising it”.
[7](1990) 170 CLR 394 (Commonwealth v Verwayen).
[8][1971] AC 850, 883.
[9](1990) 170 CLR 394, 452-3.
The plaintiffs highlight similar observations made by Mason CJ in Commonwealth v Verwayen where his Honour noted that “According to its strict legal connotation, waiver is an intentional act done with knowledge whereby a person abandons a right by acting in a manner inconsistent with that right”.[10]
[10]Commonwealth v Verwayen, 406-7.
The plaintiffs assert that such principles readily apply to procedural requirements of contracts, such as notice or writing requirements. In particular, the plaintiffs contend that parties that proceed with performance of the contract in the absence of satisfaction of those procedural requirements will be taken to have waived their right to rely on the relevant procedural requirement.
By way of example, the plaintiffs refer to Corbett Court Pty Ltd v Quasar Constructions (NSW) Pty Ltd,[11] where Hammerschlag J considered waiver in the context of a construction contract. There, the plaintiffs submitted that the principal did not insist on the contract complying with certain notice requirements for delay claims. In upholding a referee’s decision that both parties dispensed with the need to conform with procedural and notice provisions of the contract, his Honour stated:[12]
A party may expressly or impliedly give up its right to insist on a contractual condition. On the evidence the referee found that that is what the plaintiff had done. By its conduct throughout it had waived a right to insist on strict performance of the conditions of the Contract with respect to the making of claims generally which included waiving its right to insist on performance of the particular formal requirements in respect of the delay claim.
[11][2008] NSWSC 1163 (Corbett Court).
[12]Corbett Court, [110] (citations omitted).
The plaintiffs also refer to the subsequent decision of Flanagan J in Civil Mining & Construction Pty Ltd v Wiggins Island Coal Export Terminal Pty Ltd,[13] who referred to Hammerschlag J’s decision in Corbett Court with approval. In Civil Mining, extension of time claims were made by a builder without complying with notification requirements in the contract. The principal dealt with the builder’s claims despite those claims being made without compliance with the contract. His Honour found that the principal elected to abandon its right to rely on strict compliance with the notice provisions for all extension of time claims.[14]
[13][2017] QSC 85 (Civil Mining).
[14]Civil Mining, [796]-[797].
In addition, the plaintiffs contend that the doctrine of waiver also has application to contingent conditions, being those conditions that entitle parties to withhold performance or otherwise terminate the contract. The plaintiffs point to the summary of the principles as to waiver in respect of contingent conditions in Cheshire & Fifoot’s Law of Contract:[15]
A contingent condition may entitle both parties to rely on its non-fulfilment, or only one of them. In the first place this depends on the contract itself. The contract may provide, expressly or impliedly, that only one party’s obligation to perform is conditional on fulfilment of the condition; in that case its non-fulfilment may obviously not be relied on by the other party. However, even where the obligation to perform of both parties is conditional, if the condition has been included primarily for the benefit of one of them, the primary beneficiary may be entitled to ‘waive the benefit’ of the condition. By doing so the primary beneficiary of a condition can in effect delete it from the contract, depriving the other party (as well as itself) of the right to rely on its non-fulfilment.
[15]Rick Bigwood and Nick Seddon, Cheshire & Fifoot Law of Contract (11th ed, 2017),[20.13] (citations omitted). Note that the authors here rely on Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 (Sandra Investments).
Further, the plaintiffs highlight Sandra Investments Pty Ltd, where Gibbs J noted that the relevant inquiry in such cases is twofold: first, for whose benefit the clause was inserted; and second, what consequences flow from a failure to fulfil the condition.[16]
[16]Sandra Investments, 157-8.
The plaintiffs go on to assert that there have been numerous decisions which have held that a contractual requirement that a waiver be in writing does not prevent a party, for whose benefit the clause exists, from waiving that requirement other than in writing.
In Civil Mining, a construction contract contained a clause that prohibited the waiver or variation of terms save by the prior consent in writing of the principal. Flanagan J held that the principal had waived the notification requirements in connection with the extension of time despite there being nothing in writing. His Honour noted that:[17]
The requirement for a waiver to be in writing is subject to the exception that a waiver may arise at law or in equity. Clause 48 can itself be waived by the conduct of the parties as occurred in this case. Further clause 48 cannot operate to preclude a waiver in this case. A requirement for “the prior consent in writing of the Principal” is not applicable where the contractual requirement has been waived by the conduct of the Principal’s own agent, Worley Parsons.
[17]Civil Mining, [799].
The plaintiffs also refer to the Full Federal Court case of Canberra Advance Bank Ltd v Benny, as an example where the courts have found that waiver has occurred despite the absence of writing:[18]
The learned trial judge found that the respondents were protected against this breach because of the bank’s “waiver”. There are occasions when, notwithstanding the presence of a provision to the effect that a waiver must be in writing, the courts have found that waiver has occurred despite the absence of writing. R v Paulson [1921] 1 AC 271 is one such example.
[18](1991) 115 ALR 207, 220 (Canberra Advance Bank Ltd v Benny). The plaintiffs note that a similar outcome was reached in Wunda Projects Australia Pty Ltd v Kyren Pty Ltd [2010] SADC 96 at [149]: “It is common ground that the parties orally agreed to vary General Condition 42.1 relating to the manner in which Progress Claims would be submitted and paid. Clause 48 of the contract relating to waiver of contractual terms has been cited in this context, but I am satisfied that the parties, and in particular Kyren, agreed to waive the need for the written consent of the principal to that variation”.
The plaintiffs say that this principle is consistent with the well-known principles that permit parties to vary written agreements orally in spite of the existence of a “no oral modifications” clause. In respect of such clauses, Finn J held in GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd that:[19]
The conclusions to be drawn from the cases in this category are that (i) notwithstanding the writing requirement, it is open to the parties by express oral agreement or by contract implied from conduct to impose further or different rights and obligations on each other from those contained in the original contract; or (ii) that one party may so induce or encourage the other’s assumption on which it relies that the relevant formal requirements need not be complied with, as to be estopped from later setting up those requirements. The relevant principle, for present purposes, was stated concisely by Ellicott J in the Crothall Hospital case in the following terms (at 449):
It is open to the parties to a written contract to vary it. This may be done in writing or, except where the contract is required by law to be evidenced in writing, by oral agreement. The agreement to vary may be express or implied from conduct.
[19](2003) 128 FCR 1, [217] (GEC Marconi).
In summary, the plaintiffs submit that the authorities look to form over substance and hold consistently that such clauses do not preclude a party from waiving a right that is for that party’s benefit. They argue that equitable principles dictate that a party can implicitly waive the requirement for a waiver to only be in writing. This means that a contractual clause cannot preclude an equitable waiver that in fact takes place as between the parties.
Moreover, here the Loan Agreements state unambiguously in clause 4.2(c) that the conditions precedent are for the sole benefit of the plaintiffs. The requirement for the parties to execute a contract of sale is for the protection of the plaintiffs, as it was intended for this to provide a form of security for the plaintiffs if the Borrowers do not repay the loans. By choosing to advance the loan funds to the Borrowers in the absence of compliance with that condition precedent, the plaintiffs plainly elected to waive compliance with that requirement. Insofar as there was a clause which required a waiver to be in writing (again, a clause that would be for the sole benefit of the plaintiffs), the plaintiffs waived that requirement as well. The defendants cannot assert that the plaintiffs were precluded from waiving a clause for the plaintiffs’ own benefit when the facts demonstrate that the plaintiffs have done so.
E.1.2 The nature of this condition precedent – it is limited in effect
The plaintiffs say that even if the plaintiffs did not waive or satisfy the condition precedent under each Loan Agreement, this did not have the effect that the plaintiffs advanced the funds under some other arrangement. They say that the defendants’ argument to this effect is based on a fundamental misunderstanding of the manner of operation of the condition precedent.
Drawing this out, the plaintiffs say that the Loan Agreements provide for two potential consequences if a condition precedent is not met: (1) under clauses 3.1 and 4.1(a), the plaintiffs are not obliged to provide the Advance to the Borrowers; and (2) either party was entitled to terminate the Loan Agreement with immediate effect pursuant to clause 4.2(a)(ii).
The plaintiffs contend that these consequences demonstrate two things about the character of the conditions precedent in the context of the Loan Agreements.
First, the conditions precedent are conditions precedent to performance and not formation of the relevant agreement The plaintiffs refer to the following passage in Cheshire & Fifoot’s Law of Contract:[20]
There is an obvious difference between the condition precedent to formation of a contract and the condition which entitles the party to terminate the contract on non-fulfilment. In the first category, the transaction creates no rights until the condition is fulfilled. In the second category there is a binding contract which creates rights capable of enforcement.
[20]Rick Bigwood and Nick Seddon, Cheshire & Fifoot Law of Contract (11th ed, 2017), [20.3] citing Jane Swanton, ‘“Subject to Finance” Clauses in Contracts for the Sale of Land’ Parts I and II (1984) 58 Australian Law Journal 633,690-4.
In this case, the plaintiffs submit that:
(a)there is nothing in the Loan Agreements which provide that the agreements themselves are contingent on the satisfaction of the conditions precedent. Accordingly, non-satisfaction of the conditions precedent do not impact the existence of the agreements.
(b)clause 4.2(a)(ii) provides only for a right of termination and not automatic termination upon non-satisfaction of the condition precedent. As such, the Loan Agreements do not come to an end until a party elects to exercise that right under clause 4.2(a)(ii).[21] If neither party elects to exercise such a right, then the Loan Agreements remain on foot.[22]
[21]See generally Sandra Investments.
[22]The plaintiffs refer to Prospa Advance Pty Ltd v Barnard [2022] NSWDC 65 (Prospa), where a condition precedent for the provision of accounts by the borrower was not satisfied prior to the lender advancing funds. Abadee DCJ held at [37] that the condition precedent was for the lender’s benefit and was condition precedent only to the fact of performance of the contract, not of formation of it. The failure of the condition precedent meant that the contract was voidable at the lender’s election but that the lender’s decision to proceed with the loan agreement comprised an affirmation of the agreement.
Insofar as the plaintiffs were not obliged to advance the funds to the Borrowers without the condition precedent being satisfied, the plaintiffs plainly waived that right by in fact advancing the funds.
Second, although either party was entitled to terminate the Loan Agreements upon non-satisfaction of the condition precedent, neither party elected to do so. The defendants do not plead that either party elected to do so. Therefore, the Loan Agreements remained on foot and continued to bind the parties until such time as the plaintiffs terminated them on 9 January 2023.
E.1.3 Estoppel by convention
The plaintiffs referred to Finn J’s summary of the principles of estoppel by convention as enunciated in GEC Marconi,[23] which cited with approval the summary set out by the New Zealand Court of Appeal in National Westminster Finance New Zealand Ltd v National Bank of New Zealand Ltd.[24] I agree with the principles enunciated by Finn J and will apply those in this instance.
[23]GEC Marconi, 106 [426].
[24][1996] 1 NZLR 548, 550 (National Westminster Finance).
The plaintiffs submit that the defendants are estopped from contending that the plaintiffs did not loan the defendants funds pursuant to the Loan Agreements.
Both parties executed and exchanged the Loan Agreements without executing the accompanying Contracts of Sale. Having done so, the plaintiffs advanced the $500,000 to the Borrowers under each Loan Agreement. The plaintiffs say that the Borrowers raised no objection to the fact of non-compliance with the condition precedent and chose instead to enjoy the loan funds (and continue to do so up to today).
The plaintiffs submit that the parties both proceeded under the common assumption that the condition precedent was not required to be satisfied prior to the advance by the plaintiffs of the loan funds. The plaintiffs acted on this assumption and advanced the loan funds to the defendants under all three Loan Agreements. To permit the defendants to depart from this common assumption and argue that the plaintiffs advanced funds pursuant to some other arrangement would cause detriment to the plaintiffs. Therefore, they contend that the defendants are estopped from now making that assertion.
E.2 The defendants’ submissions
The defendants’ position is that the money was not transferred to the second defendant under any enforceable loan agreement because the condition precedent to the Loan Agreements was not satisfied or waived in writing by the plaintiffs.
E.2.1 Waiver
The defendants’ written closing submissions also addressed the principles regarding conditions precedent and waiver.
The defendants refer to Perri v Coolangatta Investments Pty Ltd, where Mason J explained the difference between a condition precedent and a condition subsequent:[25]
There is an obvious difference between the condition which is precedent to the formation or existence of a contract and the condition which is precedent to the obligation of a party to perform his part of the contract and is subsequent in the sense that it entitles the party to terminate the contract on nonfulfillment. In the first category the transaction creates no rights enforceable by the parties unless and until the condition is fulfilled. In the second category there is a binding contract which creates rights capable of enforcement, though the obligation of a party, or perhaps of both parties, to perform depends on fulfilment of the condition and non-fulfilment entitles him to terminate.
[25](1982) 149 CLR 537, 551 (Perri).
The defendants say that this passage appears to be the genesis for the passage from Cheshire & Fifoot relied upon the plaintiffs in their submissions.
The defendants accept that the relevant principles regarding waiver are as observed by Dawson J in Commonwealth v Verwayen.
The defendants also accept that a party may waive a contingent condition, but submit that any such waiver must nevertheless satisfy the principles of waiver set out by Dawson J in Commonwealth v Verwayen and any requirements as to waiver that are contained in the relevant contract.
The defendants do not accept that there is any general principle regarding potential waiver of “no oral waiver” clauses that is applicable to the circumstances of this case. Here, the defendants argue that the Loan Agreements unambiguously required that any waiver of the conditions precedent be in writing. They state that the cases relied upon by the plaintiffs to contend that they also waived the written notice requirement are not applicable, or can be distinguished from this case. In this regard, the defendants submit that:
(a)This case is very different from Civil Mining. In that case, the written waiver requirement which the Court had held was waived was contained in a boilerplate clause applying to the entire contract and was sought to be relied upon by a principal for the purpose of defeating extension of time claims made under a construction contract. In such circumstances, despite the Court in that case not articulating the reasons why a waiver nevertheless occurred in law or equity, it is easier to see why the Court may have been inclined to accept that a waiver had nevertheless occurred applying equitable principles. In this case, the requirement for a waiver to be in writing was expressly stated within the clause containing the relevant conditions precedent and the consequences of non-compliance impacted whether there were any rights created under the contract at all.
(b)In this case, the plaintiffs adduced no evidence that they understood the obligations regarding conditions precedent under the Loan Agreements but nevertheless intended to waive those requirements before advancing the money.
(c)The case of R v Paulson referred to by the Full Federal Court in Canberra Advance Bank Ltd v Benny is also very different to this case in that the principles derived from that case are apparently confined to principles as between a lessor and lessee for the purpose of tenancy law. There is nothing to indicate that the relevant findings have a broader application relevant to this proceeding.
(d)In relation to the plaintiff’s submissions at paragraph 90 above and their reliance upon GEC Marconi, the defendants submit that the manner in which courts may have approached the application of “no oral variation” clauses is irrelevant to assessing whether any waiver has occurred. That is because in the case of any oral variations there must necessarily be a meeting of the minds between the parties upon which the Court may then give effect to the parties’ objective intentions and agreement as a matter of contract law, despite the earlier agreement that variations must be in writing.
The defendants also submit that the effect of the words “for the sole benefit of the Lender” must be limited to providing that it is only the Lender, and not the Borrower, who may waive the conditions precedent. They argue that it is not intended to mean, for example, that the Borrower is nevertheless required to perform obligations under the Loan Agreement in circumstances where the conditions precedent have neither been fulfilled nor waived by the Lender in writing. They say that this is clear from clause 4.2(a).
E.2.2 The nature of this condition precedent – its non-fulfilment means that the parties are not bound by the Loan Agreements
The defendants argue that the effect of clause 4.2 is that if conditions precedent were not satisfied or waived by the Lender, then no party, subject to clause 4.2(b) (which is not relevant), has any further obligation to the other under the Loan Agreements.
The defendants refer to the plaintiffs’ contention that the parties are nevertheless bound by the Loan Agreements because neither party exercised their right to terminate them. They state that this should be rejected for the following reasons:
(a)The very nature of a condition precedent as opposed to a condition subsequent is that the parties are relieved of obligations upon their failure, regardless of whether the contract is terminated.
(b)The plaintiffs are in effect asking the Court to find that the conditions precedent specified in the agreement should be construed as conditions subsequent. It is clear that the parties intended the conditions precedent in Schedule 2 to act as true conditions precedent, rather than conditions subsequent, given that there are also separate conditions subsequent referred to in Schedule 2.
(c)Where there has been a failure of a condition precedent (as opposed to a condition subsequent), clause 4.2(a)(iii) is not dependent upon a party exercising a right to terminate the Agreement. If it had been so dependent, the words “following such termination” or other words to that effect would have been included at the beginning of sub-clause 4.2(a)(iii).
(d)It is artificial to argue that the defendants should have exercised a right to terminate the agreements upon failure of the conditions precedent in circumstances where (i) the defendants had failed to provide notice of any Loan Drawdown Date, and (ii) where the plaintiffs simply transferred money to the defendants before waiting for a request for money to be advanced under the Facilities.
(e)If the Court was to accept the plaintiffs’ construction of clause 4.2(a), that would have meant that the defendants could and should have terminated the Loan Agreements after already having received the money pursuant to the Loan Agreements. The defendants submit that this would have the effect that only once the Loan Agreements were terminated would the parties then have no further obligations under the Loan Agreements. The defendants argue that this would create a clearly unintended outcome whereby the defendants had been paid money in accordance with the Loan Agreements but then potentially had no obligation to repay that money under the terms of the agreements. In contrast, the interpretation which provides the most commercial sense is that until the conditions precedent were either fulfilled or waived by the Lender in writing, neither party had any obligations under the Loan Agreements. This meant that any money transferred during that period might be recoverable by way of restitution, but not under the terms of the Loan Agreement.
(f)The execution of Contracts of Sale was critical to the operation of the Loan Agreements because it was the primary mechanism by which it was intended that the defendants would discharge the loan advances. In the absence of properly executed Contracts of Sale, there was no certainty in relation to how and when the loans could be discharged by the defendants pursuant to clause 7.2. Accordingly, it is clear that a failure to have executed and enforceable Contracts of Sale was intended to affect whether or not any obligations were to even arise under the Loan Agreements, rather than just giving rise to a right to terminate the Loan Agreements.
(g)This case is distinguishable from the case of Prospa relied upon by the plaintiffs. In that case, the loan agreement did not address the consequences of failure of the conditions precedent, there were no separate conditions subsequent and the fulfilment of the conditions precedent were not important to the actual operation of the loan agreement. Furthermore, Prospa is a lower court decision of New South Wales which this Court is not bound to follow, is not cited with approval by any higher courts and lacks any persuasive reasoning which might be relevant to this case.
E.2.3 Estoppel by convention
The defendants make the following submissions regarding the authorities on estoppel by convention.
The defendants accept that the general principles of estoppel by convention are as summarised by the New Zealand Court of Appeal in National Westminster Finance. However, the defendants also rely upon the decision of LCY Pty Ltd v Ma,[26] which is a more recent decision of the Victorian Court of Appeal that provides further guidance as to the requirements of assumption and detriment.
[26][2017] VSCA 383 (LCY v Ma).
In LCY v Ma, Tate and Ashley JJ confirmed that the “assumption” upon which the estoppel claim is founded:[27]
(a)must be “an assumption subjectively held” and that it is not enough that each party makes the assumption independently; and
(b)must be proved on the evidence.[28]
[27]LCY v Ma, [45]-[46].
[28]The defendants highlighted that their Honours noted that this requirement does not mean that inferential reasoning is unavailable in order to prove the assumption, citing the decision of Buss JA in Alpha Wealth (2008) 66 ACSR 594, 633 [181] in support of that proposition, but noting that such inferential reasoning did not assist the party relying upon the estoppel in that case.
In relation to “detriment”, the defendants point to Tate and Ashley JJ’s observation that it is an indispensable element of successful reliance upon an estoppel that the party relying upon the estoppel establishes that they (citing Dixon J in Grundt v Great Boulder Pty Gold Mines Ltd[29]):
…so acted or abstained from acting upon the footing of the state of affairs assumed that he would suffer a detriment if the opposite party were afterwards allowed to set up rights against him inconsistent with the assumption. … [T]he real detriment or harm from which the law seeks to give protection is that which would flow if the assumption were deserted that led to it.
[29](1937) 59 CLR 641, 674 (Grundt).
In relation to the part which must necessarily have been played by the person against whom an estoppel is alleged, the defendants refer to their Honours’ citation of the following comments from Dixon J in Grundt:[30]
…he must have played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it. But the law does not leave such a question of fairness or justice at large. It defines with more or less completeness the kinds of participation in the making or acceptance of the assumption that will suffice to preclude the party if the other requirements for an estoppel are satisfied.
[30]Grundt, 675-6.
The defendants submit that neither the facts of LCY v Ma nor any other cases identified as dealing with estoppel by convention claims appear to be sufficiently similar to this proceeding so as to enable any useful comparisons to be made by way of analogy.
The defendants’ submissions as to estoppel by convention in the context of this case are all directed to the plaintiffs’ reliance on estoppel by convention in respect of the Payments having been made without a written request for them by the defendants or written confirmation from the plaintiffs of the fact of them having been made. The defendants do not appear to have specifically addressed estoppel by convention in respect of the non-fulfilment of the conditions precedent. However, as a matter of fairness, I will assume that they make the same general points in respect of that argument as well.
E.3 The plaintiffs’ submissions in reply
Following receipt of the defendants’ written closing submissions, the plaintiffs made the following reply submissions in accordance with the Court’s orders.
E.3.1 Waiver
The plaintiffs submit that the defendants’ attempt to distinguish the case at hand from cases concerning the waiver of conditions precedent relied upon by the plaintiffs is unconvincing. The only distinguishing facts identified by the defendants in respect of Civil Mining is that the written waiver clause was included in a separate, stand-alone provision in the contract rather than within the subject clause. That R v Paulson concerned a tenancy case is not a basis to distinguish the application of a like principle itself. These factual matrices are not a sufficient basis to ignore the principle in those cases. The principles of waiver apply to the relinquishment of rights regardless of the type of agreement in which those rights arise.
In any event, the plaintiffs submit that even if the factual matrices in those cases are distinguishable, the underlying principle that a party can orally, or by conduct, waive a “written waiver” requirement (in the same way that parties can orally vary a “no oral modifications” clause) is unimpeached. The defendants have not explained, as a matter of principle, why a lender, for whose benefit a condition precedent exists, cannot waive a requirement that waiver of such a condition be in writing. Further, the plaintiffs contend that the defendants have otherwise not referred to a single authority in which a party, for whose benefit a clause exists, was precluded from waiving that clause because of a “written waiver” requirement.
The defendants submit that the plaintiffs have adduced no evidence that they appreciated the obligations concerning the conditions precedent and nevertheless intended to waive those requirements before advancing funds. However, the plaintiffs submit that neither of those findings are required to be made before the Court can be satisfied that a waiver has taken place. Ordinarily, and as occurred in Civil Mining (and the cases cited therein), waiver arises from conduct that is inconsistent with the maintenance or assertion of a particular right. It does not require an intention or an appreciation of the fact of waiver occurring. The plaintiffs point to Dawson J in Commonwealth vVerwayen, where his Honour stated that waiver through conduct arises from “non-insistence upon a right either by choice or by default”.[31] The defendants’ assertion that some positive appreciation of waiver taking place is required is not supported by authority.
[31]Commonwealth v Verwayen, 457.
E.3.2 Nature of the condition precedent and the effect of its non-fulfilment
The plaintiffs point to the defendants’ reliance on Mason J’s judgment in Perri where his Honour identified the technical distinction between a condition precedent and a condition subsequent.[32] As his Honour noted, in its truest sense, a condition precedent is one which is precedent to the formation of the contract – and non-fulfilment causes the contract to end. On the other hand, a condition subsequent is one which is “precedent to the obligation of a party to perform his part of the contract”. Its non-fulfilment does not cause the parties’ rights to be at an end, but “entitles the party to terminate the contract on nonfulfillment”.
[32] Perri, 551, see paragraph 109 above.
In relation to whether a condition in a contract is a “true condition precedent” or a condition subsequent (that is, a condition precedent to performance), the plaintiffs say that this is a question of construction of the contract as a whole.[33] The plaintiffs submit that the mere fact that the parties call the condition a condition precedent in the contract does not make it such if the proper construction of the clause is as a condition subsequent.[34] Although conditions precedent and conditions subsequent are, at law, clearly delineable, it is plain that lawyers and judges often use the term “condition precedent” to describe what might be properly termed a condition subsequent. The plaintiffs point to the defendants’ reliance on Mason J’s description of a condition subsequent in Perri, where his Honour described “condition precedent to the obligation of a party to perform his part of the contract”. Gibbs CJ has separately described a condition subsequent in similar terms.[35] The plaintiffs submit that the term “condition precedent” provides only limited guidance as to how the clause is to be characterised.
[33] National Mutual Trustees Ltd v Targridge Pty Ltd (Supreme Court of Victoria, Nathan J, 2 October 1995).
[34]Kodak (A/asia) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231,234 (Jordan CJ) (Kodak (A/asia Pty Ltd v RTMIIA).
[35]Sandra Investments, 157. His Honour outlined that “The approval referred to in cl. 24 was expressed in the form of a condition precedent, but it was a condition precedent not to the formation of the contract but to the obligation to complete it”.
As noted in Sandra Investments, whether a condition is a condition precedent or subsequent can be most readily approached by inquiring whether the contract provides for the consequences that flow from the failure to fulfil the condition.[36] Drawing on Mason J in Perri, the plaintiffs submit that unless the parties are clear that the consequence of non-compliance is that the contract did not form at all, courts will tend to treat clauses as conditions subsequent. His Honour held to this effect as follows:[37]
Generally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract. In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion.
[36]Sandra Investments, 157.
[37]Perri, 552.
The defendants assert that the condition concerning the execution of a contract of sale is a “true condition precedent” — being a condition precedent to the formation of the Loan Agreement — and that the consequence of non-compliance with the condition precedent is that the Loan Agreement is automatically at an end. In making that submission, the defendants rely primarily on the fact that the obligation is described by the parties as a “condition precedent” and ignore the remainder of the terms of the Loan Agreement and the operation of the Loan Agreement in its totality.
Contrary to this, the plaintiffs submit that notwithstanding that the parties called the clause a “condition precedent”, the clause is a condition subsequent (or a “condition precedent to performance”). They say that the Loan Agreement is unambiguous as to the consequences of non-compliance and it is plain that neither party intended that the non-execution of a contract of sale would immediately end the Loan Agreement unless one party elected to exercise their right to terminate. Further, the case is on all fours with the rights in Sandra Investments, in respect of which Gibbs CJ held as follows:[38]
[The contract] provides that in such an event the purchaser at its option may cancel the contract. These words, which are in all material respects the same as those that govern the consequences of the dishonour of a cheque given in payment of a deposit, gave the purchaser the choice of cancelling the contract or of allowing it to remain on foot. The plain implication is that if the purchaser does not choose to cancel the contract the vendor has no right to treat it as being at an end.
[38]Sandra Investments, 158.
The defendants point to clause 4.2(a)(iii) as supporting a construction that the clause is a true condition precedent. In the plaintiffs’ submission, clause 4.2(a)(iii) must be construed as operating only if a party exercises rights under clause 4.2(a)(ii). The plaintiffs submit that by using the word “may”, clause 4.2(a)(ii) provides the parties with a right, but not an obligation, to terminate the Loan Agreement. That is also consistent with clause 4.1(a), which gives the Lender a right to refrain from advancing funds. They say that to rely on clause 4.2(a)(iii) in isolation would be to ignore the operation of the Loan Agreement as a whole and the exhortation of Mason J in Perri.
Furthermore, the plaintiffs point to Sandra Investments and emphasise that the execution of the contract of sale was a condition solely for the plaintiffs’ benefit – with the regime acting as a form of security for the defendants’ obligations to repay the loans. The plaintiffs contend that the parties agreed under clauses 3.1 and 4.1(a) that the plaintiffs would not be obliged to advance the loan funds without compliance with the condition. They never agreed that the Loan Agreement would immediately end, and such a conclusion would be squarely contrary to the parties’ clear words in clauses 3.1, 4.1 and 4.2. In essence, the non-satisfaction of the condition precedent did not have the effect of causing the Loan Agreement to be void ab initio.
E.4 The defendants’ submissions in response to the plaintiffs’ reply
In relation to the plaintiffs’ submission at paragraph 123 above, the defendants submit that the plaintiffs have the burden of proving that there has been a waiver despite the contractual requirement that waiver be in writing. While emphasising that Canberra Advance Bank Ltd v Benny made it clear that cases where waiver was found to have occurred despite non-compliance with a writing requirement were rare, they posit that it is not for the defendants to identify analogous cases where a party has been precluded from waiving a clause because of a written waiver requirement. They also say that the evidence in this case (including the requirements of the contract) does not establish any waiver in accordance with established principles and the cases relied upon by the plaintiffs are not relevantly analogous. Meanwhile, the requirement that waiver be in writing was not for the plaintiffs’ sole benefit. That is because the defendants were entitled to receive proper notice of any waiver so that they could (a) decide not to draw money from the Facilities in circumstances where there was no executed Contract of Sale through which the loans could be discharged and/or (b) notify the plaintiffs that they were treating the agreements as being not binding or terminated (which according to the plaintiffs’ own construction was required by clause 4.2(a)(ii)).
In relation to the plaintiffs’ submissions at paragraph 124 above, the defendants submit that Dawson J’s comment in Commonwealth v Verwayen refers only to when the term “waiver” is being used “loosely” and not “to describe election or estoppel.” It is not authority for any principle supporting the plaintiffs’ case. The defendants also rely on Mason CJ’s position in Commonwealth v Verwayen that “waiver is an intentional act done with knowledge….” (emphasis added).
E.5 Analysis and consideration
In my view, analysis of the question as to whether the non-fulfilment of the condition precedent or the lack of written waiver thereof has the effect that the parties are not bound by the Loan Agreements or that the Payments were not made pursuant to the Loan Agreements properly begins with an analysis of the nature of the condition precedent itself. This is due to the consequences of non-fulfilment of the condition precedent under the terms of the Loan Agreements. Considerations of waiver and, possibly, estoppel then arise.
I will begin with the consequences of the condition precedent not being fulfilled. Obviously, those consequences can be avoided if the condition precedent is waived, but in the first section below I am not taking waiver into account. That will be considered after I have discussed the nature of the condition precedent.
H.2 The defendants’ submissions
The defendants’ submit that if the Payments were made in accordance with the terms of the Loan Agreements (which is denied), they were denied the opportunity of discharging the loans by transferring the Properties as provided for in clause 7.2(a). They argue that this is because the Signed Sale Contracts Condition was not satisfied and the plaintiffs did not do the things referred to at paragraph 236 above which may have otherwise enabled transfer of the properties to occur.
The defendants argue that the words ‘settlement of the Springvale Property’ are critical to the operation to clause 7.2(c). They submit that clause 7.2(c) does not require satisfaction of the relevant conditions by the Repayment Date or any other date fixed under the Loan Agreements. Further, they say clause 7.2(c) assumes that there would be executed contracts of sale which would impose obligations on the parties to settle the transfer of the Lots by a particular date. Moreover, it is implicit from clause 7.2(c) that the date by when settlement was to occur under any executed Contract of Sale was not dependent upon the Loan Drawdown Date and may have been a date which was either before or after the Loan Drawdown Date. There were no signed Contracts of Sale.
As such, the defendants say that that there was no settlement date by when the parties were required to complete contracts of sale for each Lot. They contend that therefore there was no obligation upon the defendants to satisfy the conditions in clause 7.2(c) by any particular time. Their case does not therefore require them to prove that they were in a position to cause the removal of the encumbrances by any particular time, because the time for doing so had not been fixed.
Furthermore, the defendants submit that there are good reasons why the encumbrances did not need to be removed before Contracts of Sale were executed. They say this is because where there is a property that is subject to a contract of sale, it is typical for encumbrances on the property to be removed at the time of settlement of the transaction. Secondly, it was unreasonable for the defendants to be expected to take any steps to remove the encumbrances without a binding Contract of Sale which could be used to effect settlement of the sale.
The defendants argue that the plaintiffs appear to have misconstrued the effect of clause 7.2(d) that they say purportedly allowed them to terminate the “Loan Agreements” rather than just terminate the “Contracts of Sale” as had been intended. Further, the defendants say that the plaintiffs’ submissions do not clarify that clause 7.2(d) only granted a right to terminate the “Contracts of Sale” nor grapple with the difficulties that this right has on their reliance upon clause 7.2(d). Given there were no Contracts of Sale which were capable of termination, the plaintiffs could not exercise any rights under clause 7.2(d) by way of their notice of 9 January 2023. Further, the defendants draw attention to clauses 7.1 and 7.2. Here, they say that it is clear that a transfer of properties was the primary means of discharging the loans rather than any claim by the plaintiffs for repayment of the money, plus interest. Hence, the defendants cannot at that time – or at any time – be alleged to have been in breach of the Agreements for failing to repay money under the Agreements when there were no executed Contracts of Sale by which the defendants could have discharged the loans pursuant to clause 7.2(a), without incurring any interest.
H.3 The plaintiffs’ submissions in reply
The plaintiffs begin by responding to two submissions made by the defendants. First, that there was no obligation on the defendants to satisfy the conditions in clause 7.2(c) as there were no executed Contracts of Sale and therefore no agreed settlement dates. Second, there were “good reasons” as to why the encumbrances did not need to be removed before the execution of a Contract of Sale.
The plaintiffs submit that despite the defendants not explaining what the consequences of these matters are, they could have no impact on the plaintiffs’ rights under clause 7.2(d).
The plaintiffs submit that clause 7.2(d) is unambiguous to the effect that if the plaintiffs are not satisfied that the relevant Lot was unencumbered (inferentially, at the expiry of the loan period), the plaintiffs could demand the immediate cash payment of the amount owing and enter judgment against the defendants. They argue that provision could not be clearer, and that clause 7.2(d) is not, either on its terms or by inference, dependent on the execution by the parties of a Contract of Sale.
Furthermore, the plaintiffs refer to the defendants’ submission that because the parties did not execute Contracts of Sale, “the plaintiffs could not by their notice of 9 January 2023 have executed any rights pursuant to clause 7.2(d)”. The plaintiffs contend that the defendants’ submission is a bare assertion that is contrary to the clear words of clause 7.2(d), and that they do not provide justification as to why the plaintiffs could not exercise their rights under clause 7.2(d). They say that the defendants’ assertion is not consistent with the plain words or function that clause 7.2(d) was intended to serve.
The plaintiffs submit that the situation that the defendants seek to put forward would be unfair in the extreme for the plaintiffs. They say that the defendants seek to confect a situation in which they do not have to repay money to the plaintiffs, do not have to take any steps to discharge the encumbrances on the three Lots, and the plaintiffs are not permitted to end the Loan Agreements and demand repayment of the principal. The plaintiffs argue that such a situation could not have been objectively envisaged by the parties and ignores the submission to judgment in clause 7.2(d).
In addition, the plaintiffs also submit that at no time did the defendants ever take any steps to attempt to procure a transfer of the Lots. There is no evidence that they were capable of procuring a transfer of the Lots, and to now assert that the plaintiffs have forfeited their rights under clause 7.2(d) is a transparent attempt to avoid the plaintiffs relying on rights clearly agreed to by the parties.
H.4 Analysis and consideration
In my view, the defendants’ position in respect of this question is contrary to the clear words of the Loan Agreement.
Pursuant to clause 7.1 of the Loan Agreement, the Borrower must repay and finally discharge the loan amount on the Repayment Date, together with interest under clause 6.1(a). Thus, the first and second defendants must repay the loan and interest on 15 February 2022 in the case of the First and Second Loan Agreements and on 29 June 2022 in the case of the Third Loan Agreement. Clause 7.1 is expressed as being subject to clause 7.2, which provides for transfer of Lots 14, 15 or 16 (depending on which Loan Agreement) in lieu of payment. Clearly, the Repayment Date is the date by which payment or transfer of the relevant Lot must occur.
The provisions of clauses 7.2(c) and (d) are crucial here, and have been set out above.
Cash payment of the principal and interest can be demanded by the Lender if it is not satisfied of the matters in clause 7.2(c). It is patently clear that if the Lender is not so satisfied then it has the right to demand repayment of the loan and payment of interest by giving immediate notice. I accept the plaintiffs’ submissions in this regard, particularly those at paragraph 247 above.
The other matters relied upon by the defendants, being the plaintiffs not having called for the transfer of the Lots, not having signed Contracts of Sale, and there being no agreed settlement date, are irrelevant. They do not impact upon the plaintiffs’ rights under clause 7.2(d). It cannot be said that clause 7.2 could not be complied with because of the plaintiffs’ actions.
It follows from this analysis that I do not accept the defendants’ submissions at paragraphs 241, 242 and 244 above. It cannot be the case that repayment of the loans in the manner contemplated by clause 7.2(d) was as open-ended and unrestricted by time as the defendants suggest.
The defendants’ contention that there were good reasons why encumbrances would not be removed without executed sale contracts is also irrelevant. All that matters in order to trigger the right to demand immediate cash payment in clause 7.2(d) is that the Lender is not satisfied in accordance with clause 7.2(c). Here, that means whether the plaintiffs are satisfied that Lots 14, 15 and 16 are unencumbered at the Repayment Date or when they subsequently seek to exercise their rights.
In this case, the evidence clearly and unequivocally establishes that the relevant Lots were encumbered as at the relevant dates, being 15 February 2022 for Lots 14 and 15, and 29 June 2022 for Lot 16, and that they remained encumbered until 9 January 2023 and beyond. During oral submissions, the plaintiffs’ counsel carefully took the Court through the documents in the court book and the summary document (which was tendered without objection) which established this. The relevant documents were referred to in the plaintiffs’ written closing submissions and have been cited above.
The evidence also leads to the conclusion that the first and second defendants were not in a position, as at the Repayment Dates or thereafter, and in particular as at 9 January 2023, to deliver unencumbered title as the relevant Lots remained the subject of a mortgage and a caveat, later two mortgages, particularly if no money would be forthcoming from the transferee to discharge those obligations. There is no evidence that the first and second defendants were in a position to discharge those obligations from their own resources or from resources other than payment by the plaintiffs. Since no further monies were required from the plaintiffs for the transfer (pursuant to clause 7.2(b)), it was not as if settlement of the sale was going to result in funds being available from the plaintiffs for the discharge of those obligations so as to facilitate the discharge of the mortgages. Subsequent events bear this out: when the properties were later sold to third parties, the net proceeds of sale after selling costs were paid to the mortgagees; and in July 2023 Shan told Sri that he was trying to give two clear titles, which obviously did not occur.
Accordingly, the defendants were in default as at 9 January 2023 and the Notice was valid. The defendants’ defence in this regard fails.
Restitution
The plaintiffs claim that if they are not entitled to repayment of the loans and interest pursuant to the Loan Agreements, then they have a claim in restitution against each of the defendants.
The defendants concede that the plaintiffs have a claim against the second defendant in restitution, but not against the first or third defendants. The defendants say that any obligation to pay interest is not pursuant to the terms of the Loan Agreements.
In light of my findings as to the enforceability of the Loan Agreements and the defendants’ liability thereto, it is not necessary for me to determine the plaintiffs’ restitution claim.
However, out of deference to the arguments made by the parties, their positions and my analysis are set out below.
I.1 The plaintiffs’ submissions
The plaintiffs submit that if the Court concludes for some reason that the plaintiffs are not entitled to enforce the rights in the Loan Agreements, then the defendants must still make restitution to the plaintiffs by returning the funds. They highlight that the defendants do not plead that they had any right to retain the funds if the Loan Agreements did not operate.
The plaintiffs submit that the circumstances alleged by the defendants are equivalent to a situation where a lender advances funds to a borrower under an illegal, and therefore unenforceable, loan contract. In such a case, the borrower is obliged by restitutionary principles to repay the funds.[58]
[58]Hurst v Vestcorp Ltd (1988) 12 NSWLR 394, 445-6 (McHugh JA) (citations omitted).
If the plaintiffs are unable to enforce the Loan Agreements, they accept that they would not be entitled to interest at the contractual rate of 25% (the ordinary rate) and 35% (the default rate). However, they claim an entitlement to interest at the penalty interest rate of 10% from the date of the Payments.[59]
[59]See Australian Breeders Co-operative Society Ltd v Jones (1997) 150 ALR 488, 542 (Wilcox and Lindgren JJ), where loan moneys under an unenforceable contract payable pursuant to restitutionary principles were ordered to be paid with simple interest under the NSW Supreme Court Rules. At a minimum, the plaintiffs say they would be entitled to interest from 9 January 2023 pursuant to section 58 of the Supreme Court Act.
I.2 The defendants’ submissions
The defendants say that the plaintiffs have not properly pleaded any claim for restitution as an alternative to their claims under the Loan Agreement, including by properly pleading the material facts alleged to give rise to the cause of action. However, the defendants accept that for the purposes of this proceeding and in the circumstances of this case, the plaintiff do have a claim for restitution as against the second defendant for repayment of money that was transferred to it.
However, the defendants contend that the plaintiffs do not have a claim for restitution as against the first defendant or third defendant for two reasons. First, there is no evidence that they received the Payments. Second, the Guarantee relied upon by the plaintiffs should not be construed as applying to any claims for restitution. In particular, they argue that the definition of ‘Guaranteed Liabilities’ should be interpreted contra proferentem in favour of the third defendant so as to not encompass a claim for restitution.
The defendants go on to say that the only interest payable on the restitution claim would be interest which, following judgment of the primary claim, the Court is satisfied ought to be paid pursuant to sections 58 or 60 of the Supreme Court Act 1986 (Vic) (Supreme Court Act).
I.3 The plaintiffs’ reply submissions
I.3.1 Liability of the third defendant
In relation to the defendants’ submission that the Guarantee does not apply to restitution claims and should be interpreted contra proferentem, the plaintiffs say that the defendants make no effort to engage with the terms of the Guarantee in making such a submission, and the submission is contrary to the clear words of that deed.
The plaintiffs refer to the definitions of ‘Liabilities’ and ‘Guaranteed Liabilities’ in the Guarantee (see paragraphs 37 and 38 above).
The plaintiffs submit that it is plain from these definitions that Shan, as guarantor, is liable to the plaintiffs for any amounts that the first or second defendants as Debtors are liable to pay to the plaintiffs. They say that that liability could not be drawn in broader terms and plainly extends to liability pursuant to an order for restitution.
The plaintiffs highlight that in addition to guaranteeing the Debtor’s obligations, Shan is also liable to the plaintiffs as a primary obligation under the indemnity in clause 4.1 of the Guarantee (see paragraph 39 above). They argue that this would operate in the event that the plaintiffs were precluded from enforcing their rights against the defendants under the Loan Agreements. They contend that clause 6.2(c) otherwise applies to prevent any discharge of liability if an obligation under the Loan Agreements is unenforceable.
I.3.2 Liability of the first defendant
The plaintiffs refer to the defendants’ assertion that only the second defendant received the funds and that only the second defendant would therefore be obliged to make restitution to the plaintiffs. However, the plaintiffs submit that this assertion is contrary to the agreed purpose of the loans, which was to provide working capital for the first defendant’s business, and the parties’ joint chronology where both parties agreed that the plaintiffs paid funds to the “first and second defendants.” Therefore, the plaintiffs assert that given the first defendant received the benefit of the loan funds, there is no justification for the first defendant avoiding an obligation to make restitution jointly with the second defendant.
I.4 The defendants’ submissions in response to the plaintiffs’ reply
Referring to the plaintiffs’ submission in the preceding paragraph, the defendants assert that references in the joint chronology to the plaintiffs paying money to “the first and second defendants pursuant to the [agreements]” cannot be treated as admissions to the effect that the first defendant received that money for the purpose of a restitution claim. The defendants contend that when that chronology was prepared, the plaintiffs’ claim for restitution was not properly pleaded (as remains the case despite the defendants’ concession regarding the existence of such a claim) and was not identified in the list of agreed of issues. They say that this remains the case despite the defendants’ concession regarding the existence of this claim. Further, they argue that the defendants’ position is and has always been that the second defendant received the money, not the first defendant.
I.5 Analysis
Were it necessary to decide, I would hold that all of the defendants are liable to the plaintiffs in restitution for the principal amount of the loans, being $1,500,000, plus interest according to statute.
The defendants do not dispute that the second defendant is liable in restitution in this way. In the circumstances of this case, as the second defendant received the Payments, there is no basis for it to dispute liability to repay those monies, plus statutory interest.
In my view, the first defendant is liable to the plaintiffs in restitution. The situation here is not as simple as identifying the bank account to which the Payments were made. Importantly in this case, the Payments were made for the benefit of both the first and second defendants. The first defendant cannot retain the benefit in the circumstances of this case.
Further, I do not accept the defendants’ submission that regard cannot be paid to the joint chronology when considering whether the first defendant is liable in restitution. The joint chronology was filed pursuant to orders made by Attiwill J on 8 November 2024, which required the plaintiffs to serve on the defendants a draft neutrally expressed chronology of the relevant facts and events, the defendants to serve on the parties a further draft, following which the parties were to confer as to the content of the chronology after which the plaintiff was to file and serve the finalised neutrally expressed chronology. The orders stated that the finalised chronology must indicate if any fact is not agreed and by which party. The joint chronology is dated 19 December 2024 and was filed on 22 January 2025. Relevantly, the following facts were agreed in the joint chronology:
Date
Event
12 February 2021
The plaintiffs pay $300,000 to the first and second defendants pursuant to the agreement
16 February 2021
The plaintiffs pay $200,000 to the first and second defendants pursuant to the agreement
24 May 2021
The plaintiffs transfer $500,000 to the first and second defendants pursuant to the 21 May 2021 agreement
30 June 2021
The plaintiffs transfer $500,000 to the first and second defendants pursuant to the 30 June 2021 agreement
Having agreed to these facts, I consider the defendants cannot now simply cast that aside. Nonetheless, my conclusion in paragraph 279 above means that reliance on the joint chronology is not determinative. There is sufficient evidence that the first defendant is liable to the plaintiffs in restitution.
Insofar as the third defendant is concerned, I agree with the plaintiffs’ submission that the Guarantee applies in respect of the plaintiffs’ restitution claim. In particular, I agree with the plaintiffs’ submissions as set out at paragraphs 273 and 274 above. The definitions of “Liability” and “Guaranteed Liabilities” are broad enough to include liability for an amount ordered against the first and/or second defendants in restitution. The defendants’ submissions do not engage with the provisions of the deed itself, and simply make the broad assertion that the Guarantee should not be construed as applying to any claims for restitution. Insofar as their reliance on the principle of contra proferentem is concerned, the defendants do not explain how that doctrine even arises in this case. It comes into play only where there is ambiguity,[60] and here there is no relevant ambiguity.
[60]North v Marina [2003] NSWSC 64, [75]–[78].
Insofar as the question of statutory interest arises in respect of the plaintiffs’ restitution claim, section 58(1) of the Supreme Court Act provides that:
If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
Section 60(1) of the Supreme Court Act provides that:
The Court, on application in any proceeding for the recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.
In my view, s 58 of the Supreme Court Act applies if the plaintiffs’ restitution claim succeeds. This is because a “sum certain” is recovered, being the principal of $1,500,000. Interest would accrue on that sum, at the rate fixed under the Penalty Interest Rates Act 1983 (Vic), from 9 January 2023, as that was the date at which demand for payment was made. Earlier dates under the Loan Agreements for the accrual of interest at 25% to 15 February 2022 for the First and Second Loan Agreements and 29 June 2022, then at the default rate of 35% thereafter, do not apply as the restitution claim only arises if the Loan Agreements do not apply to the Payments. No good cause to the contrary has been shown by the defendants.
It follows that I do not consider it appropriate to apply s 60 of the Supreme Court Act.
J Liability of the third defendant
Apart from the plaintiffs’ claim in restitution, the defendants do not appear to dispute that if the first and second defendants are liable under the terms of the Loan Agreements, then the third defendant is liable to the plaintiffs pursuant to the Guarantee.
Accordingly, as I have found that the first and second defendants are so liable, the third defendant is also liable pursuant to the Guarantee.
K Conclusion and disposition
For the reasons set out above, there will be judgment for the plaintiffs. All of the defendants are jointly and severally liable to the plaintiffs for repayment of the principal amounts of the loans, being $1,500,000, plus interest.
Given that I have found that the Payments were made pursuant to the Loan Agreements, interest must be calculated in accordance with the terms of the Loan Agreements. The defendants did not appear to dispute the interest rate if the terms of the Loan Agreements governed the Payments, rather, they contended that interest pursuant to statute would apply if restitutionary principles applied.
Under the Loan Agreements, interest accrues on the principal at 25% per annum for the term of the loan and then at 35% per annum upon default. Given that I have not accepted the defendants’ contention that they were not in default of the Loan Agreements, the default interest rate applies from the time at which they were in default.
The parties are to confer regarding the form of orders to give effect to this judgment. By 4pm on 2 July 2025, the parties are to:
(a)provide my Chambers with an agreed form of order, if agreement can be reached; or
(b)provide my Chambers with each party’s preferred form of order, if agreement cannot be reached. In this event, the proceeding will be listed for 10am on 4 July 2025 for the making of final orders.
SCHEDULE OF PARTIES
| S ECI 2023 05674 | |
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| SRINIVAS PTY LTD (ACN 605 489 969) | First Plaintiff |
| NSRIKANTH PTY LTD (ACN 605 489 905) | Second Plaintiff |
| - v - | |
| VANSAN CONSTRUCTION PTY LTD (ACN 104 934 732) | First Defendant |
| DHRUVA DEVELOPMENT PTY LTD (ACN 636 875 628) | Second Defendant |
| SHANMUGALINGHAM SUTHERSAN | Third Defendant |
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