TPC (Vic) Pty Ltd v NWC Finance Pty Ltd
[2016] VSC 117
•23 MARCH 2016
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2016 00524
| TPC (VIC) PTY LTD | Plaintiff |
| v | |
| NWC FINANCE PTY LTD AND ANOTHER | Defendants |
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JUDGE: | ELLIOTT J |
WHERE HELD: | MELBOURNE |
DATES OF HEARING: | 1, 3, 22 MARCH 2016 |
DATE OF JUDGMENT: | 23 MARCH 2016 |
CASE MAY BE CITED AS: | TPC (VIC) PTY LTD v NWC FINANCE PTY LTD |
MEDIUM NEUTRAL CITATION: | [2016] VSC 117 |
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MORTGAGES – Payment of money secured by other mortgagee – Amount due – Construction of loan and security documents – Transfer of Land Act 1958 (Vic), s 87.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P Fary | Stacks Law Firm |
| For the First Defendant | Mr M J Galvin QC with Dr O Bigos | ERA Legal |
| For the Second Defendant | Mr B C Ryde | Brian Ward & Partners |
TABLE OF CONTENTS
A.. Introduction................................................................................................................................... 1
B.. Transaction history...................................................................................................................... 1
C.. Further background..................................................................................................................... 3
D.. Issues for determination............................................................................................................. 5
D.1... The rate of interest applicable for September, October and November 2015............ 5
D.2... Default fee of 1.5 percent.................................................................................................... 8
D.3... The Second Mortgages...................................................................................................... 10
D.3.1.. The documents....................................................................................................... 10
D.3.2.. Preliminary matters............................................................................................... 15
D.3.3.. The approval/valuation fee................................................................................ 16
D.3.4.. The establishment fee........................................................................................... 17
E... Conclusion................................................................................................................................... 21
HIS HONOUR:
A. Introduction
The plaintiff, TPC (Vic) Pty Ltd (“TPC (Vic)”), as a subsequent mortgagee, seeks to pay all money due to the mortgagee with priority, the first defendant, NWC Finance Pty Ltd (“NWC Finance”), in order to obtain the rights and benefits that flow from such a payment.
Section 87 of the Transfer of Land Act 1958 (Vic) provides:
If the money secured by any mortgage is due and the mortgagee requires payment thereof any other mortgagee of the same land may tender and pay to the mortgagee requiring such payment the money due upon [its] security, and the mortgagee making such payment shall be entitled at [its] own cost to a transfer of the interest of the mortgagee requiring such payment who shall effect the transfer accordingly.
NWC Finance does not challenge the ability of TPC (Vic) to make the proposed payment. However, there is a dispute as to how much is due and required to be paid before the mortgage is paid out.
The second defendant, Foscari Holdings Pty Ltd (“Foscari”), is the registered proprietor and mortgagor of the relevant land (“the Land”).[1] Foscari also disputes the amount NWC Finance claims is required to be paid. At trial, Foscari effectively adopted the submissions of TPC (Vic).
[1]The Land is described as lot 8 on plan of subdivision 130043, volume 9336 folio 613, being located at 99 Palmers Road, Truganina.
B. Transaction history
On 5 July 2013, Bourke & Queen Mortgages Pty Ltd (“Bourke & Queen”) lent funds to Foscari (“the Bourke & Queen Loan”). The Bourke & Queen Loan was secured by a mortgage over the Land (“the Bourke & Queen Mortgage”).
On 17 June 2015, NWC Finance provided a loan to Foscari (“the NWC Finance Loan”) in return for a charge over Foscari’s assets and a mortgage, incorporating memorandum of common provisions AA1404, over the Land (“the NWC Finance Mortgage”). The NWC Finance Loan was for 3 months, all amounts being due on 17 September 2015. The amount of this loan was subsequently increased on 24 June 2015 by a deed of variation. This deed recorded interest accrued monthly in advance and was payable on the 17th day of each month.
Also on 17 June 2015, a deed of priority was executed by Bourke & Queen, NWC Finance and another 2 unrelated companies. Broadly speaking, the effect of this deed was to give NWC Finance priority over Bourke & Queen with respect to their security interests in the Land. Further, up to a specified limit, the deed provided that Bourke & Queen had priority over the 2 unrelated companies.
Approximately 3 months later, Foscari sought to rollover the NWC Finance Loan. Discussions took place and an agreement was reached (“the Rollover Agreement”). On 22 September 2015, NWC Finance’s solicitor sent an email to Foscari’s solicitor in the following terms:
Further to my email, it appears that there has been some discussion informally between the parties and the following agreement has been reached.
[Foscari] will pay interest at 2% per month for the first month of the rollover and 2.75% per month for the second and third months of the rollover.
We confirm that the rollover fee for the 3 months is $50,000.
The parties accepted that this email accurately recorded what had been agreed between NWC Finance and Foscari.
On 14 February 2016, TPC (Vic) took an interest in the Land. At that time, Bourke & Queen assigned all of its right, title and interest in the Bourke & Queen Mortgage and the Bourke & Queen Loan to TPC (Vic). Notice of the assignment was given to Foscari on the same day.
Also on 14 February 2016, TPC (Vic) entered into a further deed of assignment in relation to an unregistered mortgage held by another party with respect to the Land. It is not necessary to set out the detail for the purposes of resolving the issues in this proceeding.
C. Further background
On 8 October 2015, NWC Finance served a notice of default and demand on Foscari in the sum of $2,909,070.75. The demand was not met by Foscari.
In late October 2015, an offer of finance (“the Offer of Finance”) was made to a company related to Foscari, Bilkurra Investments Pty Ltd (“Bilkurra”), which was accepted in writing. (Further details of the Offer of Finance are set out in paragraph 37 below.)
As a result of the Offer of Finance being made, on 9 November 2015,[2] NWC Finance entered into a further mortgage with Foscari, incorporating memorandum of common provisions AA2769 (“the Second NWC Finance Mortgage”). On the same day, Bilkurra also granted a mortgage in favour of NWC Finance (“the Bilkurra Mortgage”). These further mortgages (together “the Second Mortgages”) were to secure a proposed advance of $6.8 million (“the Proposed Loan”). Notwithstanding initial contentions to the contrary, ultimately it was agreed by all parties that: (1) the Second NWC Finance Mortgage was binding on Foscari; and (2) Foscari was liable for any moneys owing under the Bilkurra Mortgage.[3]
[2]See par 56 and fn 36 below.
[3]Foscari, in addition to Bilkurra, was recorded as a borrower under the Bilkurra Mortgage.
No moneys were ever advanced under the Second Mortgages. NWC Finance decided not to proceed with the Proposed Loan because the value of the Land, together with other land owned by Bilkurra, did not satisfy NWC Finance’s security requirements. NWC Finance incurred actual valuation costs, before the decision was made not to proceed, in the sum of $18,150.
On 30 November 2015, receivers and managers (“the Receivers”) were appointed to Foscari by NWC Finance. The receivership of Foscari is continuing. There is no issue as to the validity of the appointment of the Receivers.
On 15 December 2015, the Australian Securities and Investments Commission applied to the Federal Court of Australia for orders, including that Foscari be wound up. The hearing of the Federal Court proceeding is presently adjourned to 13 April 2016.
On 16 February 2016, an application was made by TPC (Vic) for interlocutory relief in this proceeding. The application was urgent because a further monthly payment was due under the NWC Finance Loan the following day.[4] In essence, TPC (Vic) sought orders by which it was to pay $3.5 million to NWC Finance, together with a payment into court of an amount said to represent the disputed amount (which ultimately, on an interlocutory basis only, was ordered in the sum of $446,732.67). The desired effect of such orders was to seek to put an end to further costs being incurred with respect to the NWC Finance Mortgage and the Receivers. This interlocutory relief was in aid of the final relief sought, namely a determination with respect to issues relating to the disputed amount, so that a final sum could be tendered with certainty.
[4]See par 6 above.
Also on 16 February 2016, the court was informed the issues in dispute were of narrow compass. It was agreed the matter could proceed to trial based on an agreed list of 4 issues. At the time, there was agreement as to the first 3 issues. The parties were directed to finalise the fourth item in the list so the proceeding could be brought to trial promptly.[5] On this basis, the matter was set down for trial on 24 February 2016 on an estimate of 1 day. Subsequently, at the request of the parties, the trial date was adjourned for a few days.
[5]This item concerned the amounts charged by the Receivers. The dispute as to these amounts was settled before trial.
On 1 March 2016, the trial commenced. The court’s attempt to dispose of the proceeding promptly was somewhat thwarted. TPC (Vic) sought to introduce further issues that had not previously been ventilated with the court. In addition, submissions were put during the course of argument that expanded the issues as previously identified. At the end of the day’s hearing, the proceeding was adjourned for the parties to finalise the issues for determination.
On 3 March 2016, the hearing resumed. On that occasion, some of the issues previously enlivened were withdrawn. Further, the parties, in consultation with the court, finalised the list of issues. The final list was provided on 4 March 2016, together with an amended statement of agreed facts.
Also on 3 March 2016, a direction was given for the parties to file submissions with respect to the further issues. Upon considering those submissions, the court was then to determine whether a further hearing would be necessary.
Further submissions were filed by TPC (Vic) on 7 March 2016. In response, NWC Finance filed submissions on 11 March 2016. Submissions in reply were filed by TPC (Vic) on 16 March 2016. Finally, on 21 March 2016, NWC Finance filed supplementary submissions. The matter was then listed for a final hearing on 22 March 2016.
D. Issues for determination
The issues for determination were as follows:
(1)What NWC Finance was entitled to charge Foscari by way of interest under the NWC Finance Loan, as varied by the Rollover Agreement, for the months of September, October and November 2015.
(2)Whether NWC Finance was entitled to charge a default fee of 1.5 percent on the whole of the principal of the NWC Finance Loan by reason that interest had been capitalised.
(3)What fees NWC Finance was entitled to charge Foscari with respect to the Second NWC Finance Mortgage.
D.1 The rate of interest applicable for September, October and November 2015
Together the common provisions and the schedule forming part of the NWC Finance Mortgage, provided a “Higher Rate” of interest of 60 percent per annum and a “Lower Rate” of 24 percent per annum.[6] Clause 251 of the memorandum of common provisions provided:
[6]The parties were asked if the court ought to consider the provisions concerning the Higher Rate and the Lower Rate and whether they might operate to impose a penalty on Foscari. The parties stated that no issue was raised in this regard.
Interest must be paid at the Higher Rate. However, if:
(a)[NWC Finance], on every day on which interest is payable under the Agreements, is paid the interest owing; and
(b)[Foscari] and Co-Surety duly observe and perform all the terms, covenants and conditions contained in and implied by the Agreements; and
(c) no Event of Default has occurred,
then [NWC Finance] will accept payment of interest at the Lower Rate for the payment in question only.
The issue between the parties is the proper construction of the Rollover Agreement.[7] More particularly, the parties were at odds over the manner by which the Rollover Agreement varied the common provisions concerning interest. The difference in the interest payable for this 3 month period, based on the competing contentions, is approximately $175,000.
[7]See par 8 above.
TPC (Vic) contended that the agreement with respect to interest in the Rollover Agreement was confined to the terms of the email, so that interest was payable at 2 percent per month for the first month of the rollover and 2.75 percent per month for the second and third months. On this premise, TPC (Vic) argued this replaced the regime in clause 251 of the Higher Rate or the Lower Rate. Alternatively, TPC (Vic) submitted that the new rates were intended to be the Higher Rate for the purposes of clause 251.
In contrast, NWC Finance submitted that the interest rates referred to in the email were references to the Lower Rate, and otherwise the common provisions remained unchanged so that a Higher Rate would be applicable unless each of the conditions set out in clause 251 were met.[8]
[8]A submission was also put that NWC Finance was granting an “indulgence” by rolling over the NWC Finance Loan. It was submitted that, on this basis, it must be presumed that the parties would have intended that NWC Finance could charge the Higher Rate. When asked what evidence there was to indicate Foscari was in default before the rollover, this submission was withdrawn by NWC Finance.
The email is plain in its terms. It says nothing about the Higher Rate or the Lower Rate, but simply provides for a rate for each of the 3 months of the rollover of the NWC Finance Loan. I do not accept NWC Finance’s contention that the Rollover Agreement varied only part of clause 251 of the common provisions concerning the payment of interest. In short, the Rollover Agreement exhaustively restated the position in relation to interest. Accordingly, I accept the submissions made by TPC (Vic) that there was no agreement pursuant to which NWC Finance could charge the Higher Rate for the months of September, October and November 2015. The interest to be charged was in accordance with the email.
Alternatively, if this construction is incorrect, and the rates referred to in the email were intended to replace 1 of the alternate rates under clause 251 but preserve the structure of a Higher Rate and a Lower Rate, the relevant rate to be varied would be the Higher Rate, not the Lower Rate. Pursuant to the terms of clause 251, it was the Higher Rate that would apply, unless certain conditions were met. In other words, the language of clause 251 indicated that the parties had chosen the Higher Rate as the applicable, non-discount, rate. The fact that the Higher Rate and the Lower Rate would have been the same for September 2015 does not lead to a conclusion that the parties intended the rates in the email to refer to the Lower Rate. In short, this different approach leads to the same result.
Finally, NWC Finance sought to rely on “the market” in which the Rollover Agreement was struck.[9] However, beyond the rates charged in the contracts in this proceeding, there was no evidence of what rates prevailed in the relevant market (however that might have been defined) in September 2015. In my view, in these circumstances, the fact that the earlier agreement had a Higher Rate of 5 percent per month and a Lower Rate of 2 percent per month cannot alter the clear meaning of the words used in the email.[10]
[9]The market may properly be considered in construing the terms of a contract: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656-657 [35] (French CJ, Hayne, Crennan and Kiefel JJ).
[10]See Codelfa Construction Pty Ltd v State Rail Authority NSW (1982) 149 CLR 337, 352.2 (Mason J).
D.2 Default fee of 1.5 percent
The determination of this issue depends upon the proper construction of clause 255 of the common provisions to the NWC Finance Mortgage, which relevantly read as follows:
[NWC Finance] may capitalise any interest which is not paid by the due date. In relation to this power:
…
(e)[NWC Finance] will be entitled to charge an establishment fee for the new loan (brought about by the capitalisation of interest). The fee will be 1.5% of the new principal amount.
NWC Finance asserted that this provision meant that, each time it capitalised interest which was not paid by the due date, an establishment fee of 1.5 percent could be charged on the whole of the new principal amount. TPC (Vic) contends that to construe the provision in this way would be to permit NWC Finance to impose a penalty each time interest was capitalised.
On the construction contended for by NWC Finance, if the amount of capitalised interest was only a single dollar, NWC Finance would have an entitlement to impose an additional establishment fee[11] in the order of $39,300 on the new principal of $2,620,001.[12] Self-evidently, such an operation would impose a penalty upon the mortgagor. As a matter of substance, the establishment fee would be collateral to the primary stipulation to compensate for non-payment of interest and would far exceed the prejudice NWC Finance would suffer because of the non-payment.[13] It could only be viewed as a requirement to pay in terrorem of Foscari.[14]
[11]At the commencement of the loan, an establishment fee of $26,680 had already been imposed.
[12]That is, the principal amount as varied on 24 June 2015, plus the capitalised interest of $1.
[13]Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205, 216-217 [10] (French CJ, Gummow, Crennan, Kiefel and Bell JJ).
[14]NWC Finance submitted that the penalty doctrine did not apply because the establishment fee of 1.5 percent was in return for the provision of further or additional benefits, services or accommodation “being the new loan, which [was] brought about by the capitalisation of interest”. On this basis it was submitted that it was not collateral to ensuring compliance with the primary stipulation. There was simply no evidence to support the submission. Contrary to its initial submission, the final position adopted by NWC Finance was that there was no default by Foscari before the NWC Finance Loan was rolled over.
The authorities establish there is a presumption that a provision is a penalty if a single lump sum is payable on the occurrence of 1 or more or all of several events, some of which may be serious and others of which may be trifling.[15] On the hypothetical referred to in the previous paragraph, if the court were to accept the construction put forward by NWC Finance, that could only be characterised as imposing a penalty. But even looking at the particular event in this case, NWC Finance claims $44,161.40 by way of an additional establishment fee on the total principal owing, which principal includes the capitalised interest of approximately $55,000. Such a claim can only be considered a penalty in circumstances where an establishment fee had already been charged at the time the loan was established,[16] and NWC Finance would be entitled to charge interest on the entirety of the new principal amount.
[15]See, for example, Dunlop Pneumatic Tyre Company Ltd v New Garage and Motor Company Ltd [1915] AC 79, 87.8 (Lord Dunedin), citing Lord Elphinstone v Monkland Iron and Coal Co Ltd (1886) 11 App Cas 332, 342.8 (Lord Watson).
[16]See fn 11 above.
TPC (Vic) accepts another construction was available which did not involve the imposition of a penalty. If the reference to 1.5 percent of “the new principal amount” is treated solely as a reference to the capitalised interest, no issue of penalty arises. Although not the most obvious meaning, the language “the new principal amount” may properly be understood as referring to the additional principal amount. Accordingly, of the 2 options contended for by the parties, this is the preferred construction.
Finally on this issue, NWC Finance relied upon clause 71 of the common provisions. That clause provided:
In the case of an ambiguity the construction that most favours the Lender will prevail.
This clause does not assist NWC Finance. It is clear there is ambiguity with respect to this clause, however giving the clause the construction for which NWC Finance contended would not most favour it, because it would then give rise to a penalty with the result that the clause would be unenforceable. In short, clause 71 takes the matter no further.
D.3 The Second Mortgages
D.3.1 The documents
As already discussed,[17] the Offer of Finance was sent by NWC Finance to Bilkurra. The Offer of Finance included the following:
[17]See par 12 above.
[NWC Finance] is pleased to offer to you the facility detailed in this letter. The facility is offered on the terms contained within this letter and subject to verifying the accuracy of the information contained in your application and subject to formal documentation and the satisfaction of our solicitors.
…
THE OFFER
Loan Amount
$6,800,000.00
Loan Term[18]
Interest
Acceptable Rate:
2.75% per month (rate payable if there is no default)
Normal Rate:
6% per month (rate payable if an event of default)
Borrowers[19]
Guarantors
Ian Edward Stephens …
Security [Property owned by Bilkurra Investments]
[The Land]
General Interest Security [Bilkurra Investments
Foscari]
...
Fees (including but not limited)
Application fee $25,000.00
Paid at settlement[20]
Valuation fee $12,000.00
(audit)
(paid at settlement) Establishment fee 2.20%
(to be deducted from the Principal upon settlement)
Legal fee $8,800.00
(deducted from the Loan Amount upon settlement)
…
TERMS & CONDITIONS OF OFFER
Maximum Approved LVR
The “Maximum Approved LVR” (Loan Value Ratio) shall be 60%
…
Security Valuations WE may at OUR discretion instruct a qualified property valuer to perform a valuation on any or all of YOUR Security. YOU are responsible for the cost of this valuation ... …
Liability for Interest, Costs, Charges, Fees and Expenses By signing this offer YOU irrevocably indemnify US for all costs and disbursements incurred by US concerning YOUR loan application, including but not limited to … valuation fees … …
SUMMARY
Loan Amount $6,800,000.00 App/val Fee $37,500.00[21] Establishment Fee $149,600.00 1 Month Interest $187,000.00 Legal Fee $8,800.00 Amount to you $6,417,600.00 [18]No loan term was specified.
[19]No borrowers were specified.
[20]Elsewhere in the Offer of Finance, it was suggested that the Application Fee and the Valuation Fee had to be paid at the time of acceptance, along with the return of the signed Offer of Finance. No point was made that an application for finance had not been made by reason of the non-payment of these amounts.
[21]This amount was different to the total of the application fee and the valuation fee set out on the previous page of the Offer of Finance.
The Offer of Finance was accepted by Ian Stephens (“Stephens”), who was a director of both Foscari and Bilkurra, by signing both in his capacity as director of Bilkurra and as a guarantor.
Before NWC Finance had obtained a valuation, in order to ascertain whether or not the maximum approved loan value ratio of 60 percent could be satisfied, the Second NWC Finance Mortgage was executed by Foscari. At the same time, Bilkurra executed the Bilkurra Mortgage. NWC Finance claims against Foscari amounts due by Bilkurra, under the Bilkurra Mortgage, pursuant to the provisions of the Second Mortgages.
For the purpose of resolving the various issues raised, it is necessary to set out a number of the common provisions incorporated into the Second NWC Finance Mortgage. The following provisions are relevant:
A. DEFINITIONS[22]
[22]Headings were provided for “ease of reference only and [were] not to be used in the construction of any part of [the common provisions]”.
1. In this Memorandum, the following words and phrases have their corresponding meaning as set out in the Table. Any word or Phrase appearing in this Memorandum which is not specifically defined in the table shall have the meaning attributed to such word or phrase in s 9 of the Corporations Act (Cth) 2001 as applicable or otherwise shall have attributed to it, its ordinary, everyday meaning.
…
Amount of Credit includes the Principal, the Balance plus all interest, Enforcement Expenses, Credit Provider’s Costs and Other Monies.
…
Credit Provider’s Costs means without limitation all amounts which the Credit Provider may invoice, levy or charge and includes Fees, remuneration and expenses and any other amount for which the Credit Provider becomes liable as a result of this Memorandum or Security Document; and also includes any amount(s) payable by the Borrower to the Credit Provider in relation to or in connection with the Amount of Credit, as specified in the Schedule or as the Credit Provider may notify to the Borrower from time to time. The Credit Provider’s Costs include (but are not limited to) legal costs calculated on a solicitor and own client basis or at a minimum hourly rate of $480.00 plus GST.
…
Document has the meaning attributed to that word by the dictionary to the Evidence Act (NSW) 1995 as amended from time to time.
…
Establishment Fee means the amount specified in the Schedule as the establishment fee.
…
Loan Date means the day on which any funds are advanced by the Credit Provider to the Borrower or two days following the execution of the Security Documents by the Borrower, whichever is the earlier.
…
Overriding Intent means the intent of the parties that the Credit Provider will be able to recover from the Borrower and from the Charged Property any outlay made by the Credit Provider in any transaction in any way, whether directly or indirectly, associated with the granting of this Mortgage, together with interest and costs.
…
Security Document means this Memorandum, the Schedule, any Mortgage, any Caveat, any associated deeds, agreements or other Documents in relation to or concerning the Amount of Credit or any Charged Property, as amended from time to time. Security Interest has the meaning attributed to it by ss 10, 31(4), 31(5) and 84A of the Personal Property Securities Act (Cth) 2009.
…
B. RULES OF CONSTRUCTION
2. In this Memorandum, unless expressly stated to the contrary, rules of interpretation and construction apply, as set out in the following table:
TABLE
Construction rules – general matters. It is the parties’ intention that, in the interpretation of this Mortgage:
…
5. This Memorandum must be construed and interpreted in accordance with the Overriding Intent.
…
14. This Memorandum, together with the Security Document and the Schedule represent the entire agreement between the Credit Provider, Borrower and Guarantor and any prior agreements, representations or warranties are rescinded with respect to the subject matter of the Schedule.
…
16. The Schedule or Security Document may include alterations or variations to the terms of this Memorandum. That is permissible provided such other Document is signed by both parties. In the event of any inconsistency between that other Document and this Memorandum, this Memorandum shall prevail.
…
Grammar, syntax and punctuation
…
Loan Date blank – if 1. Loan date deemed to be the date on which any amount is first advanced by the Credit Provider.
Term Date blank – if 1. Term date deemed to be the Loan Date plus 6 (six) calendar days.
…
D. AGREEMENT OF BORROWER TO REPAY
…
6. The Credit Provider has agreed to lend the Amount of Credit to the Borrower in accordance with the terms of this Memorandum in consideration for the Borrower’s agreement to repay to the Credit Provider (or as the Credit Provider directs) the Amount of Credit from time to time, and any other amount required to be paid by this Memorandum or any Security Document.
7. The Borrower warrants, covenants and represents to the Credit Provider that:
…
7.2 It will pay interest, in cleared funds in AUD, to the Credit Provider on the date(s) required by the Schedule in such amount as the Schedule specifies, calculated from the Loan Date or 2 days from the date the Security Documents are executed by the Borrower – whichever is sooner, until the end of the next relevant Interest Period;
…
17. In addition to, and not in derogation of any other rights available to the Credit Provider, if, for whatever reason after execution of the Memorandum or Security Document, including but not limited to an Event of Default, the Credit Provider does not or is not required to advance the Amount of Credit, then the Borrower shall still be liable to the Credit Provider for the Credit Provider’s Costs, including but not limited to those costs associated with the preparation of the Security Documents.
…
23. The Borrower agrees to pay the following fees to the Credit Provider, which are additional to other liabilities imposed under this Memorandum:
23.1 The Borrower must pay the Establishment Fee in full to the Credit Provider on or before the Loan Date.
…
The “Schedule” to the Second NWC Finance Mortgage provided that both Bilkurra and Foscari were borrowers. The Loan Date was recorded as “― November 2015” and the Term Date read “― February 2016”. As for the Interest payment dates, that entry read “― day of each month”. This Schedule did not list any fees.
The Bilkurra Mortgage attached the same memorandum of common provisions as those attached to the Second NWC Finance Mortgage. The “Schedule” to the Bilkurra Mortgage had identical entries for the Loan Date, the Term Date and the Interest payment dates, and also did not list any fees. (The Schedule to each of the Second NWC Finance Mortgage and the Bilkurra Mortgage will be referred to collectively as “the Schedules”.)
In addition, the Second Mortgages included a “Schedule to Memorandum”, which was executed by both Foscari and Bilkurra.[23] This Schedule to Memorandum contained the following with respect to fees:
Approval/Valuation Fee $37,500.00
Establishment Fee $149,600.00
Loan Documentation Fee $11,000.00.
[23]Stephens also signed in his own capacity as “Guarantor/Chargor”.
D.3.2 Preliminary matters
Before turning to the specific issues, a preliminary point was taken by TPC (Vic) as to whether or not the Offer of Finance formed part of the Second NWC Finance Mortgage. NWC Finance submitted that it did. This submission is plainly correct. The agreement that was the Second NWC Finance Mortgage comprised the memorandum of common provisions, the Security Document and the Schedule.[24] The Offer of Finance fell within the definition of Security Document, which definition included “agreements or other Documents in relation to or concerning the Amount of Credit or any Charged Property”. When confronted with this definition, TPC (Vic)’s counsel said he could not think of any reason why it would not be a “Document”.
[24]See cl 14: par 39 above.
As a further preliminary point, if any inconsistency existed between the Offer of Finance and the memorandum of common provisions, the memorandum prevailed.[25]
[25]See cl 16: par 39 above.
As a result of the execution of the Second Mortgages and the Offer of Finance, NWC Finance claims the following amounts were payable and secured:
(1)The approval/valuation fee of $37,500 (which includes an allowance of $12,000 with respect to the required valuation).
(2)A further amount of $6,150 with respect to the actual costs of the valuation (being the valuation fee of $18,150, less the allowance of $12,000).
(3) The legal/loan documentation fee of $11,000.
(4) The Establishment Fee of $149,600.
With respect to the claim made in paragraph 45(3), no issue was identified by the parties for determination. It was accepted the documentation fee was payable and secured.
D.3.3 The approval/valuation fee
As to the claims identified in paragraph 45(1) and (2) above, if the court were to find the Offer of Finance was binding,[26] TPC (Vic) accepted that $12,000 was payable by reason of the acceptance of the Offer of Finance. As a result, the issues that remain with respect to subparagraphs (1) and (2) are whether there was an obligation to pay the remaining $25,500 of the approval/valuation fee of $37,500 and, in any event, whether an additional amount of $6,150 was payable.
[26]As to which, see par 43 above.
The starting point is the Offer of Finance. This was the document first executed. In its terms, the Offer of Finance made it clear there was an application fee in the event an application was made. Upon executing that document, an application for finance was made.[27] Accordingly, the application fee must have been payable, subject to any inconsistency with the common provisions.
[27]See also fn 20 above.
As already noted,[28] there is an inconsistency on the face of the Offer of Finance. The application fee and the valuation fee are referred to separately in the sums of $25,000 and $12,000 respectively. However, when they were referred to in total, the sum of $37,500 was given. If the matter were left there, it would be likely that the specific values identified would be those payable. But the amount due for these fees must be understood in the context of the terms of the Schedule to Memorandum. The total given for the “Approval/Valuation Fee” was $37,500.[29] The change in language was nothing more than a rebadging of the same fees. There was no suggestion that NWC Finance was entitled to charge both an application fee and an approval fee. The provisions of the Second Mortgages must prevail.[30] In those circumstances, the full amount of $37,500 was payable.
[28]See fn 21 above.
[29]See par 42 above.
[30]See cl 16: par 39 above.
The remaining issue is whether an additional amount of $6,150 was payable by reason that the actual valuation cost was $18,150. In my view, it was.
Again, starting with the Offer of Finance, its terms are specific in this regard. Both the paragraph headed “Security Valuations” and the paragraph headed “Liability for … Fees and Expenses” expressly state that the proposed borrower is responsible for the cost of the valuation.[31] The fact that the upfront fee of $12,000 is stipulated in the Offer of Finance does not detract from these provisions. Further, the Offer of Finance expressly stated the Fees, including the Valuation Fee, were “including but not limited” to what was specified. Furthermore, there is nothing in the memorandum of common provisions inconsistent with the additional amount of $6,150 being payable. On the contrary, the provision for the payment of the “Credit Provider’s Costs” would include such a sum.
[31]See par 37 above.
D.3.4 The establishment fee
In relation to the establishment fee claim, a number of submissions were put. Dealing first with the Offer of Finance, the term “establishment fee” was not defined. The Macquarie Dictionary defines establishment as follows:[32]
[32]Fifth edition, 568.3 (col 2).
noun 1. the act of establishing. 2. the state or fact of being established. 3. something established; a constituted order or system. …
In turn, the definition of establish includes:[33]
verb 1. to set up on a firm or permanent basis … 4. to cause to be permanently accepted …
As set out above,[34] no funds were made available for drawdown because of the shortfall in the valuation obtained. Accordingly, by adopting the ordinary meaning of “establishment”, it could not be said that a fee was payable for the establishment of a loan. In making this finding, I reject NWC Finance’s submission that the loan was established simply by the relevant documentation being executed. At all times, the loan was not going to proceed unless the loan value ratio was 60 percent or better.
[33]At 568.1 (col 2).
[34]See par 14 above.
The terms of the Offer of Finance indicate the ordinary meaning of establishment was intended. Not only is there no language which suggests that such a fee was payable before the establishment of any loan, but the words next to the proposed establishment fee read, in parenthesis, “to be deducted from the Principal upon settlement”: emphasis added. Thus the establishment fee was to be paid directly from loan moneys. Obviously, for this to be capable of occurring the loan would need to be in place.
The remaining issue is whether there is anything inconsistent in the memorandum of common provisions which would effectively override what was the subject of agreement pursuant to the Offer of Finance.
NWC Finance submitted that the memorandum of common provisions required the Establishment Fee to be paid. Reliance was placed upon clause 23 and, in particular, clause 23.1 which required the Establishment Fee to be paid in full “on or before the Loan Date”.
Given the definition of Establishment Fee[35] and the amount of $149,600 specified in the Schedule to Memorandum, there can be no question that the Establishment Fee would be payable if, at the relevant time, a date had passed which could be properly described as “the Loan Date” for the purpose of clause 23.1. Further, it would follow from the definition of “Loan Date”, when read alone, that the Loan Date was 11 November 2015, being 2 days following the execution of the Security Documents.[36] Somewhat curiously, the definition of Loan Date operates regardless of what date is specified in the Schedules or the Schedule to Memorandum. This is because there are only 2 alternatives available under the definition, neither of which is concerned with any actual date inserted. However, the matter does not rest there in the event that the Loan Date was left blank.
[35]See par 39 above.
[36]Some of the documents themselves are not dated, including the Second Mortgages. However, I infer they were executed on 9 November 2015 based upon the fact that they were forwarded to NWC Finance’s lawyers on 9 November 2015, and resolutions on that day were passed by Bilkurra and Foscari respectively for their execution.
The memorandum of common provisions expressly contemplated that the Loan Date might be left blank.[37] The relevant clause provides that if the Loan Date were left blank, then a Loan Date would only arise on “the date on which any amount is first advanced”. As may be seen from the words in the clause preceding this phrase, the clause is a deeming provision which would operate regardless of the definition of Loan Date appearing elsewhere in the memorandum of common provisions. Further, the reference to the Loan Date being blank is more specific than the general definition of Loan Date. If the Loan Date were left blank, this deeming provision would operate over the more general definition of Loan Date otherwise provided.[38] Furthermore, if this approach were not taken, the provision concerning the blank Loan Date would have no operation, which, it must be presumed, is not something that the parties intended.[39]
[37]See par 39 (“Loan Date blank”) above.
[38]As to the specific term inserted in the contract in question, see: Pegela Pty Ltd v National Mutual Life Association of Australasia Ltd [2006] VSC 507, [188] (Redlich J); Hume Steel Ltd v Attorney-General (Vict.) (1927) 39 CLR 455, 462.8 (Isaacs J, with whom Power J agreed), cited in Commissioner of Land Tax v City of Melbourne [1994] 1 VR 486, 491.6 (Fullagar J, with whom Brooking and McDonald JJ agreed). And, as to the more specific term in unaltered provisions prevailing over the general term or terms, see: Pegela Pty Ltd v National Mutual Life Association of Australasia Ltd [2006] VSC 507, [188] (Redlich J); Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402, 411.5 (Lockhart and Hill JJ), applied in Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd (as trustee for Michael Crivelli)) v IOOF Investment Management Ltd (2013) 304 ALR 436, 455-456 [81] (Leeming JA, with whom McColl and Gleeson JJA agreed).
[39]Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522, 529 [16] (Gleeson CJ, McHugh, Gummow and Kirby JJ), citing Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355, 381-382 [69]-[71] (McHugh, Gummow, Kirby and Hayne JJ).
It follows from the above discussion that, given that no moneys were advanced under the Second Mortgages, if the Loan Date were left blank, the Loan Date would not have arisen for the purposes of the memorandum of common provisions, including clause 23. Therefore, a pivotal question is whether or not the Loan Date was in fact left blank in the Schedules or the Schedule to Memorandum.
As set out above,[40] insofar as the specific day for each of the Loan Date, the Term Date and the Interest payment date was not stated but was referred to by the insertion of a dash (eg “― November 2015”), each of the dates in the Schedules and the Schedule to Memorandum has not been fully completed. TPC (Vic) submits that the absence of the specific day for the Loan Date means that it has been left blank. In contrast, NWC Finance submits that “date” can mean the day of a month, a month, or a year of an event or a period of time.[41] On this basis, NWC Finance contends that the Loan Date has not been left blank.
[40]See pars 40-41 above.
[41]Reference was made to the Oxford English Dictionary in making this submission.
The definition of “date” in the Macquarie Dictionary includes the following:[42]
noun 1. a particular day, as denoted by some system for marking the passage of time: today’s date is 11 February. 2. an inscription on a writing, coin, etc, that shows the time, or time and place, of writing, casting, delivery, etc. 3. the time or period of an event or to which anything belongs. 4. the time during which anything lasts; duration.[43]
[42]Fifth edition, 432.3 (col 2).
[43]The authorities make it plain that “date” does not include parts of a day: see, for example, Trow v Ind Coope (West Midlands) Ltd [1967] 2 QB 899, 914G-915D (Lord Denning MR); Williams v Nash (1859) 28 Beav 93, 95 [54 ER 301, 302] (Sir John Romilly MR).
Accordingly, the meaning of the word “date” can vary depending upon the context in which it is used. In the context of a mortgage loan, and the relevant provisions of the memorandum of common provisions, in my opinion “Loan Date” was intended to identify a specific day, rather than a month or year or a period of time. This is for a number of reasons.
First, the date upon which various obligations arise depend upon the Loan Date being a specific day. There is nothing in the memorandum of common provisions suggesting that, if a month or a year is identified, then time will start to run from the beginning, the end or any other point in time of that period. Secondly, the definition of Loan Date itself refers to “the day” before the 2 options are given. Thirdly, it is contemplated that the Term Date may also be left blank. If this is to occur, then the Term Date is deemed to be the Loan Date plus 6 calendar days. Again, a specific day is required for the purposes of identifying the period of time the subject of this provision. Fourthly, the reference to “the date” in the provision concerning the blank Loan Date, in referring to the time at which any amount is first advanced, can only sensibly be understood to be a reference to a day, rather than a month, a year or some other period.
In summary, both considering the document as a whole and also looking at the specific provisions in question, that “Loan Date” is a reference to a particular day. It follows that the absence of a specific day in the Schedules and the Schedule to Memorandum means that, as a matter of construction, the Loan Date has been left blank.
Accordingly, in the circumstances, the Loan Date is deemed to be the date on which any amount was first advanced by NWC Finance. As no moneys were advanced, there is no Loan Date for the purpose of clause 23.1 of the common provisions. Thus, consistent with the Offer of Finance, no obligation arose for the payment by Foscari of the Establishment Fee.
E. Conclusion
For the reasons set out above, with respect to the issues identified in this judgment, Foscari was liable to pay NWC Finance the following:
(1)Interest for the period of September, October and November 2015 at the interest rates respectively of 2 percent per month, 2.75 percent per month and 2.75 percent per month.
(2)An establishment fee on the interest capitalised by NWC Finance pursuant to clause 255(e) of the NWC Finance Mortgage at an amount equating to 1.5 percent of the capitalised interest.
(3)$25,500, by way of an application/approval fee.
(4)$12,000 as the initial valuation fee.
(5)An additional $6,150, being the further amount to meet the actual cost of the valuation.
(6)$11,000, being the documentation fee.
(7)Nil for the Establishment Fee.
I will hear the parties on the question of costs, including whether such costs of this proceeding are recoverable under any of the relevant mortgages.
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