UAG West Melbourne Pty Ltd v PropertyShares Holdings Pty Ltd

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

COMMERCIAL DIVISION

Revised
Not Restricted
Suitable for Publication

Case No. CI-20-02238

UAG WEST MELBOURNE PTY LTD	Plaintiff
v
PROPERTYSHARES HOLDINGS PTY LTD	Defendant

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JUDGE:	HIS HONOUR JUDGE MACNAMARA
WHERE HELD:	Melbourne
DATE OF HEARING:	21 & 22 June 2021
DATE OF JUDGMENT:	6 July 2021
CASE MAY BE CITED AS:	UAG West Melbourne Pty Ltd v PropertyShares Holdings Pty Ltd
MEDIUM NEUTRAL CITATION:	[2021] VCC 872

REASONS FOR JUDGMENT
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Subject:Loan Contract
Catchwords: Loan facility; provision to extend; borrower requesting extension; whether liable for “option fee”; whether conditions precedent satisfied; whether lender estopped from charging option fee in circumstances; whether option fee unenforceable as a penalty; lender’s entitlement to costs of out of court dispute over loan payout figure
Cases Cited:Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Latec Finance Pty Ltd v Knight [1969] 2 NSWR 79; Walton Stores (Interstate) Limited v Maher (1988) 164 CLR 387; Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1; MelbourneLinh Son Buddhist Society Inc v Gippsreal Ltd [2017] VSCA 161; Giasoumi v Ribbera [2017] VSC 631; Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914] UKHL 1; Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292; Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205; Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525; Andrews v Australia and New Zealand Banking Group Ltd [2019] FCA 2216; Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd (2010) 31 VR 46
Judgment: Orders: 1. Within 14 days of this date the parties must bring in short minutes to give effect to these reasons.
2. Costs reserved.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr I Hristovski	HWL Ebsworth Lawyers
For the Defendant	Mr B Carew	Corrs Chambers Westgarth

HIS HONOUR:

Background
1Ms Chow, the principal of the plaintiff company, has been involved in property development in metropolitan Melbourne for 26 years. She has organised a number of major redevelopments in metropolitan Melbourne in that time. (Transcript (“T”) 87‑88) Her husband, Mr Tony Battersby, is also a director of the plaintiff company. (T69, Lines (“L”) 24‑26) He is an architect by profession and undertook the architectural work for the project the subject of this proceeding. (T89, L2‑3) Ms Chow, it seems, took the lead on matters such as the raising of finance and has developed an expertise in this field. (T88, L23‑30)
2The plaintiff company had purchased a development site at 45‑55 Dudley Street, West Melbourne. (T69, L14-18) The name of the plaintiff suggests that it is a special purpose vehicle, viz a company incorporated specifically for the purpose of carrying out a single property development.
3Ms Chow said that her companies had been established customers of the St George Bank which later changed its name to the Bank of Melbourne. (T67, L28‑31) During the course of that banking relationship, Ms Chow became well acquainted and friendly with one of the bank’s senior executives, Mr Scott Tanner, whom she described as “my very loyal banker”. (T68, L5-6)   In particular, as an executive of the Bank of Melbourne, Mr Tanner had been involved in funding one of Ms Chow’s developments “opposite the hospital precinct at Flemington Road, North Melbourne”. (Ibid, L7-8)
4Mr Tanner left the Bank of Melbourne to become executive chairman of the defendant, PropertyShares Holdings Pty Ltd (“PropertyShares”). Ms Chow says that in that capacity, Mr Tanner made a number of approaches and eventually arranged a meeting at her offices in which he sought business on behalf of his new employer, PropertyShares. (T68, L10‑17) According to Ms Chow, she “regarded him as a close, long‑time working relationship about ten years … and we became very good friends and I just wanted to support [him].” (Ibid, L23‑26)   She said it was this personal connection that led her to seek finance for the Dudley Street project from PropertyShares in preference to her usual practice of raising finance from the big banks. (Ibid, L29‑31, T69, L11-13)
5PropertyShares issued a letter of offer of loan facility to UAG West Melbourne Pty Ltd (“UAG”) dated 3 May 2019. The proposed loan facility was to be embodied in the letter of offer in a set of pages described as the Loan Details, and a further document described as “PropertyShares Standard Terms, November 2018 Edition”, which was annexed to the offer letter. (Court Book (“CB”) 236)   This offer of facility was accepted on behalf of UAG on 7 May 2019. (CB 237) Ms Chow was to be a guarantor of the facility. (CB 238) The facility limit was expressed to be $16,900,000, or 65 per cent of the “as is” value of the property net of the goods and services tax. This apparently calculated out as $16,250,000. The term of the loan was to be 12 months subject to a power of extension set out in clause 7(e) of the Loan Details. (CB 239) The interest rate provided for was 9.25 per cent. UAG was required to pay a Mandate Fee of $30,000 to PropertyShares together with a 1.25 per cent establishment fee calculated on the facility limit. The Loan Details also made provision for a “line fee”, which, in the event, was stated to be 0.00 per cent per annum. (CB 240‑1) The loan-to-valuation ratio was set at 65 per cent and the “Loan Details” document and the Standard Terms contained a fairly typical range of “boiler plate” loan provisions.
6The loan was to be secured by a first mortgage over the subject property, an unlimited guarantee from Ms Chow and a “general security agreement” over the assets and undertaking of UAG, and also of Ms Chow. (T243‑4) According to clause 9, “The Lender’s obligations to make available any Facility, or allow or provide any drawing under any Facility is conditional on the conditions precedent set out in Clause 4 of the Standard Terms…”. The Loan Details themselves included some 17 Conditions Precedent. (CB 244)
7Crucial to the present dispute is clause 7(e) of the Loan Details, which provided as follows:
“1.If not less than one month prior to the date which falls 12 months following the date of Financial Clause:
a.the Lender receives a written request (to be in the form of a Drawing Notice or such other form reasonably accepted by the Lender from time to time) from the Borrower seeking a further extension of the Term; and
b.the Borrower is not in default of any term of the Facility Agreement; and
c.the Borrower/Guarantor satisfy all Conditions Precedent to the Loan;

then the Lender may, in its absolute discretion, extend the Term by 3 months. If the Lender extends the Term, then:
d.the applicable Interest Rate on and from the original Termination Date will be increased to 12.5%;
e.interest will be payable for a minimum period of 3 months from the original Termination Date; and
f.the Borrower agrees to pay the Lender an option fee equivalent to 0.5% of the current Facility Limit.

2. The Borrower and Guarantor expressly agree that if the Lender extends the Term pursuant to this clause 7(e), then the Lender may also attach any other additional reasonable conditions it requires.” (CB 243)

8The loan was drawn down, it would seem, on 17 May 2019, and was therefore due for repayment on 17 May 2020. (T69, L19-20)
9Ms Chow said that on 6 or 7 March 2020, she and her husband, Mr Battersby, made a weekend visit to Mr Tanner’s beach house at Shoreham. (T69, L21-30) Mr Tanner said that this was an entirely social occasion and no business was discussed. (T158, L1-8)
10Ms Chow, however, said she raised the looming maturity of the loan transaction with Mr Tanner. She said:
“I discuss to him that I have already negotiated with CBA [viz the Commonwealth Bank of Australia] for the construction facility loan to take over upon maturity, which is another two months in May at that time, but because of the COVID hit in late February and it started to have a lot of anxiety and panic in the financial industry … I got a feeling at the time CBA might be delay in delivering the construction facility documentation to us. I have been waiting from CBA so I have been following up. However, I could see that CBA keep telling me that next week and next week, so I just brought it up to Mr Tanner, I say that, ‘Mr Tanner, what happen if, let’s say, CBA just delay by few weeks or a month in order to take over the existing loan when the maturity come on 17 May?’ So he said to me ‘… As long as you can provide us with a letter of approval of the CBA facility documentation, we can always roll over for you’. I say okay. And I say, ‘What happen if delayed that I could not get any paperwork by then?’ He said, ‘Let me go back to – once I go back to Melbourne I will check it out, I will give you a call. (sic)” (T70, 8-29)
11Ms Chow said she was concerned about this issue and continued to press Mr Tanner, asking “whether that we could extend?”. (T71, L10) She said Mr Tanner told her that the “committee” at PropertyShares would require provision of “paperwork of the mandate from the big bank, either CBA or NAB, in order to stand alone”. (T72, L2-3) I took this to mean that a “bank mandate” was required before the PropertyShares facility could be extended beyond 17 May.
12Mr Tanner sent an email to Ms Chow at 8.28am on 25 March 2020, which stated:
“Hi Nicole,
Further to our telephone call yesterday I confirm with this email that, subject to the provision by you in the next 6 weeks of a signed copy of a bank mandate for the construction facility from a bank lender, PropertyShares will roll over your current $16.25M facility for Dudley Street for a further 3 months.
The interest rate that will apply is the current 9.25% plus there will be a roll over fee of 0.5%. The roll over facility will be paid interest in advance by you at the maturity of your current facility in mid May 2020.
We will provide the paperwork for you to sign in due course.
We are pleased to be supporting you once again. Our sincere thanks for your ongoing support.
Best,
Scott” (CB 247-8)

13This proposal, if implemented, would have met Ms Chow’s concerns. However, at 3.33pm on the same day, Mr Kulraj Liddar, sent an email to Mr Tanner reporting upon his consultation with the person described as “the investor”. (CB 249-50)
14Mr Tanner, in his evidence, explained that PropertyShares “does not have a balance sheet”. (T135) By this, I understood him to mean that it does not have its own funds to lend in the same way that a bank does. Rather, it acts as intermediary, identifying first a project to finance, and then arranging investors to provide the funding. (T127)
15In the present case, this was done by its issue of what was described as a “select investment memorandum” seeking funding for a facility of $16,900,000 for a term of 12 months with a “target return” of 8.5 per cent. (CB 218-35)
16In the present case, there was a single investor, namely Moelis Australia, which in itself did not command the necessary funds, but assembled funds from its own investment customers. (CB 256)
17Mr Liddar reported to Mr Tanner that the investor, Moelis Australia, did not wish to extend the facility for three months at the current rate. According to Mr Liddar, Moelis Australia wanted its “funds back either at maturity and or [to] remain in line with the IM which states the investor returns jumps to 12% p.a. date after the maturity date”. (CB 249)
18Mr Liddar reported that Moelis Australia was not “happy with just an indicative letter of offer from a bank, they wish to either be paid back at maturity or if not leave things as they are with the rate jumping to 12% p.a.”. (Ibid) He said Moelis Australia was not happy with an arrangement which entailed “kicking the can up the hill” and “would like to work towards an exit and on time”. (Ibid)
19According to Mr Liddar, Moelis Australia was “under their own pressures with fund redemptions”. (Ibid)
20Apparently, as a consequence of what Mr Liddar had reported, Mr Tanner telephoned Ms Chow and advised her that the extension referred to in his previous email would not be forthcoming. He sent an email at 11.16am on 26 March 2020, stating as follows:
“Further to our telephone call just now I’m writing to confirm that the investor in your current Dudley Street facility has informed us that they want to apply the existing contract terms, and are prepared to do so without further documentation from you. I have attached the current letter of agreement between us for convenience.
This will mean that in order to extend the facility beyond mid May you’ll need to pay a rollover fee of .5% and an interest rate of 12.5% per annum for the three month extension.
If you’re able to secure alternate funding for the facility to take them out before the rollover date then obviously this would be a good thing to do for you.
Yours sincerely,
Scott” (CB 252)

21In Moelis Australia’s email to PropertyShares the reference to an enhanced rate of return of 12 per cent, being less than the 12.5 per cent set out in clause 7(e) of the Loan Details, is explained by the fact that PropertyShares was taking an additional 0.5 per cent as a “credit risk margin”. (T155)
22According to Ms Chow, in the telephone conversation referred to in the email, Mr Tanner had told her that the investor was “not prepared to stand alone because of the COVID-19”. (T74, L1-2)
23According to Ms Chow, she protested bitterly:
“But he [Mr Tanner] said to me that, ‘you know, that is how it is, but there is a loophole in the existing offer, which is the clause extension’ and he say to me, Mr Tanner say to me, and very clear, and he said to me that there is a loophole there. We actually do not needing the investor to approve, we can trigger that clause if you cannot find any other financial to take you up or CBA to take it up, but with that clause the interest is 12.5 per cent and you got three months there for the extension of 12.5 per cent, with a roll over fees of 0.5 per cent, and when I heard that I was really, really distraught and upset and disappointed, and I say to him, I say, ‘Scott’, I say, ‘it’s 12.5 per cent. At this climate in the COVID-19’, I say ‘All the banks are trying to help everybody’ I say I’m not going to pay 12.5 per cent, you know, I will look for elsewhere in order to try to take that up. (sic)” (T74, L6-21)
24She continued to remonstrate with Mr Tanner and he replied: “Unless you can find another one [viz, another investor], and there is the clause that you can rely on, do not need to go back to get the investor, we can trigger that clause”. Ms Chow said she was very upset and put the phone down. (Ibid, L28-31)
25The following day, 27 March, Ms Chow forwarded a letter of endorsement of the same date from Bank of Melbourne to Audrey Khaw of Balmain NB Commercial Mortgages Limited. Ms Chow asked Ms Khaw to provide the letter of endorsement to her company’s chairman so that “he might reconsiders (sic) funding Dudley St West Melb?”. (CB 254)
26Ms Chow said that between the telephone conversation and email of 26 March, and a further email from Ms Chow to Mr Tanner on 31 March 2020, there was a further telephone conversation between her and Mr Tanner. (T78, L11-17)
27According to Ms Chow, Mr Tanner said:
“in order to trigger that loophole after three months, that if you want to utilise that you just have to send me an email of confirmation so that I can hold that aside whilst you are looking for other financial to take you up”. (Ibid, L26-29)
28She said that in this conversation, Mr Tanner enquired as to Ms Chow’s success in obtaining a loan from another institution advising her if she was not successful, “you better send in the email, you know, just to make sure we got that held for you whilst you are finding another financial”. (T79, L3-5)
29Ms Chow said of Mr Tanner:
“He never mention at all about the roll over fee. He just keep telling me that send in the email just to hold that, just the email. I say what kind of email? ... And he said … the bank will send documentation. If you need to trigger that, would there be any documentation? He said, yes, secretly, there will be other documentation but in the meanwhile, while you are looking for financial, is better that you send it in the email, just a simple email to confirm that I say, just to confirm that simple. Yep, he said. Just to confirm that, that, you know, you want to adopt a … of that and interest rate and just mention according to the clause 0.5 per cent. So I did exactly according to the email that he ask me to do.” (T79, L7-22)
30At 4.28pm on 31 March 2020, Ms Chow sent an email to Mr Tanner copied to Mr Scott Price (also of PropertyShares) in the following terms:
“Hi Scott T & Scott P
Thank you for the email below confirming the Extention of further 3 months of the funding of $16,250,000 till 15 August 2020.
This is to confirm that we are pleased to accept the Extention of the further 3 months and the rollover fees of 0.5% and interest rate of 12.5% for the period after mid May to mid August.
Thank you so much for the support.
Warmest regards,
Nichole Chow
Managing Director – UAG (sic)” (CB 258)

31As to the conversation between Mr Tanner and Ms Chow in the period 26 March to 31 March, whilst the telephone records for both parties were produced and included in the Court Book, no record of such conversations having taken place is to be found in those records. Asked about the conversation Mr Tanner said, “No such conversation occurred. There is no record of any conversation and I can’t see on what basis I’d ever make a statement like that”. (T171, L12-14) He said this in answer to a suggestion from cross-examining counsel, Mr Hristovski on behalf of the plaintiff, that he has said in the telephone conversation to Ms Chow: “You need to send me an email to put a hold on the extension while you look for refinance”. (Ibid, L9-10) He was prepared to concede having said something along these lines on 26 March. (Ibid, L19-20) Mr Tanner said he might have or likely may have said to Ms Chow: “You need to send us an email confirming that you want to extend”. (T172, L2-3)
32Mr Tanner said that the email exchanges and telephone conversations occurred at a time when Ms Chow “was in a panic”, and had complained of having breathing problems. Apart from the financial issues relative to the Dudley Street development, her father was ill and travel restrictions precluded her visiting him in Malaysia or Singapore. Mr Tanner added:
“you’ve got to sort of transport yourself back in time to understand what was going on. I was trying to do whatever I could to help out, but I can’t make commitments that I can’t deliver upon and Nicole, you know, needed help and she was a friend, so I was doing what I could, but I’m not offering to, you know, provide a facility that I can’t provide. We don’t have a balance sheet, it’s not like I can make a decision like that.” (T172, L15-23)
33Mr Tanner said it was unnecessary to enquire about the progress of alternative financing proposals because “she’s already got an extension from us”. (T173-4)
34Ms Chow said there was a further telephone conversation between her and Mr Tanner on 2 April 2020. She said that Mr Tanner telephoned her enquiring as to the progress of her attempt to obtain alternative finance. She said:

“I’m very disappointed, I ask him again, I say that I would never go up to the 12.5 per cent. I say no matter what, I say, ‘Scott, Mr Tanner, I will find other financial to take out at the maturity date’.” (T80, L22-25)
35Ms Chow said he replied, “Good on you if you could find that”. (Ibid, L26-27)
36The occurrence of this telephone conversation is borne out by the telephone records. As previously noted, Mr Tanner said that he believed he would not have enquired about the progress of alternate financing arrangements because an extension had already been arranged through PropertyShares. As to what was discussed, he said: “It could have been about checking on her health, actually”. (T173, 21-22)
37Nothing further transpired between 2 April and 14 April as between Ms Chow and Mr Tanner. (T174, L17-19)
38Ms Khaw sent a letter by email on 14 April 2020 to Ms Chow covering “indicative terms on which we believe Balmain NB Commercial Mortgages Limited … may be able to arrange the finance of [the Dudley Street] property”. (CB 388)
39The loan amount was $11.5 million with a term of 12 months “six month minimum earn”. Interest was to be prepaid or capitalised for the term of the loan. The interest rate was 9.25 per cent per annum. (CB 389) The facility was subject to lender’s evaluation. (CB 390)
40Where, as in the original facility, 12 months interest was “prepaid” (that is, simply withheld from the face value of the advance), it is arguable that in fact such an arrangement could be regarded as post-payment of interest ( that is, payment in full at maturity and not before). If a new facility on the same terms and of the same face value were approved, this would be what Moelis Australia had described as “kicking the can up the hill” – though Mr Tanner used what I understand to be the correct form of the metaphor “kicking the can down the road”. There would be less equity available because of the further capitalisation. The loan-to-valuation ratio would have to come down. (T162) This is the explanation for the decrease in the face value of the substitute (Balmain) facility as against the original UAG facility.
41Ms Chow accepted the indicative refinance offer by email on 14 April at 8.50pm. (CB 386) As a result of the lower facility limit and loan valuation ratio, proceeding with the Balmain proposal would, and presumably did, entail Ms Chow’s company “chipping in” a further $5-$6 million to top up the payout required by PropertyShares. (T82, L17-20)
42At 8.46pm on 14 April, Ms Chow sent an email to Messrs Tanner and Scott, stating:
“We will exit from your finance funding for our West Melbourne, we will repay you by 15 May this coming month.” (CB 383)
She requested that settlement be arranged.
43Mr Price responded the following morning, 15 April 2020, at 9.30am, stating:
“Hi Nicole,
I hope you, the family and team are doing well and keeping safe during the lockdown.
Thank you for the update. As per your email, dated March 31^st, 2020, we have already secured funds for West Melbourne. Should you wish not to proceed, the extension fee + GST is still payable.
Could you please confirm you still want to repay the facility and I will have the team arrange settlement, otherwise the facility is available to you until mid-August.
Best
Scott”. (CB 395)

44Ms Chow said she was dismayed by this response and made unsuccessful attempts to speak to both Mr Price and Mr Tanner, eventually receiving a message from Mr Price that he would call her at 3.00pm. Her account of that telephone conversation was as follows:
“‘Mr Price’, I say, ‘Scott, what is this 0.5 per cent?’ And I say that I have done everything right. My loan has not maturity yet, I still got another, you know, more than a month, like basically 32 days to go before the maturity date and I inform you like one month before, more than one month before and I pay everything, I done everything, what is this penalty to me? And he say to me that, ‘The 0.5 per cent you have to pay out and why you didn’t give us the opportunity’, this is Mr Price, Your Honour, he said to (indistinct), ‘Why you didn’t give us the opportunity? Why do you want to leave us?’ I said no, I could not afford, and I do not want to pay the 12.5 per cent of the interest rate and it gave me the no certainty after three months …” (T83, L17-29)
45Ms Chow said that if there were further delays with the CBA construction facility, she would be faced with difficulty. (T83, L31-T84, L3)
46Mr Price, according to Ms Chow, was very angry and upset and asked for 24 hours to match the Balmain offer. She said she replied that she had already “verbally agree to Audrey”. She continued, “although I’m female, I say I always call gentleman agreement and I say I already agree with Audrey”. (T84, L19-25)
47UAG went with the Balmain offer and, subject to the debate and arrangement to which I will turn presently, the PropertyShares facility was paid out.
48At 10.57pm, Mr Battersby sent an email to Messrs Tanner and Price on behalf of himself and Ms Chow in the following terms:
“Dear Scott P & Scott T,
Thanks for our assistance to date with the funding for the land at West Melbourne. I note that Nicole as originally drawn to help both of you and support the business to assist in growing Property Shares.
It seems there had been a degree of miscommunication between the parties relating to the fund extension, so this email is an endeavor (sic) to clarify our position.
A brief summary of events is listed below:
Further to Nicole’s email to you both dated 31^st March 2020, we were expecting a formal contract to properly execute the terms of the extension, on the basis that the 26^th March Scott T magnanimously advised:
‘If you’re able to secure alternate funding for the facility to take them out before the rollover date then obviously this would be a good thing to do for you’.
In good faith, and in the absence of any formal response or confirmation from Property Shares relating to the extension being executed, and as per Scott T’s suggestion above, we managed to secure another lender to take us out before the rollover date of 16/05/2020.
7.e) ‘If not less than one month prior to the date which falls 12 months following the date of Financial Close:’…
As we have not yet reached the end of our current agreement, we consider that the ‘extension’ fee of 0.5% is not applicable. In accordance with 7.e) above, we have until 30 days prior to 16/05/2020 to confirm the extension.
We accept that Nicole did send you a further email dated 31/3/2020 to confirm the extension of further 3 months, however we have withdrawn our further extension request 30 days prior to the request for ‘Further Extension’ clause 7(e). Nicole’s additional email dated 14/4/2020 (30 days prior) informs you that we are not proceeding with the offer of further extension.
We understand that this has met your requirement of Clause 7(e) not to extend further terms.
If there is no extension for a further term, we are curious to understand the actual charges incurred for this offer. We also note that we have not yet utilised or extended the loan beyond 17^th May 2020.
3.i) Notes that early repayment of cancellation fee is not applicable as the minimum interest term of 6 Months has been met.
12 months of interest at the agreed rate has been paid; a total of $1,379,864.64 paid to Property Shares, from 17^th May 2019 until 12^th March 2020. Therefore the terms of this clause have been met.
We hope the above clarifies our position, and we do want to continue to consider you both as good friends and supporters, particularly in these difficult global times. We do value your support and contribution to date for West Melbourne, however at this stage we are also trying to keep this challenging project alive, so your consideration of the above would be most appreciated. I hope that explanation assists.
Thanks to you both and we look forward to a harmonious settlement to this matter.” (CB 400-401)

49The arrangements that were finally reached at settlement were that some $109,375 was held in what was described as a controlled monies account. An amount of $20,000 was paid into the controlled monies account as security as against costs to be incurred by PropertyShares; $89,375 was the amount of the “option fee” inclusive of GST, referred to in clause 7(e) of the Loan Details document. Also in dispute was some $3,927.99 charged to UAG by the law firm Gadens.
50On 19 May 2020, solicitors acting for UAG filed a Writ commencing this proceeding and seeking a determination that UAG was not obliged to pay any of the three disputed amounts, and was entitled to recover them insofar as those amounts were held in a controlled monies account. Since the monies had not been paid over, but rather held in suspense, it would seem there was no necessity for UAG to resort to any cause of action for monies had and received, the premise being that with the monies being “in suspense” they had not been received by PropertyShares.

This proceeding
Statement of Claim
51By its Statement of Claim, UAG alleged the terms of the loan facility granted to it by PropertyShares, asserting that it was repayable on 17 May 2020. It was said that in light of UAG’s email of 14 April 2020, advising it would not be extending the loan beyond the 12-month term and would be redeeming the relevant mortgage by 15 May, UAG was not liable to pay PropertyShares what it described as an “extension fee” for GST on that fee. It referred to what it described as the “controlled money agreement” said to be constituted by “a letter and emails passing between the parties and their solicitors dated 4 May 2020 and 7 May 2020”.
52The Statement of Claim denied that PropertyShares was entitled to charge the disputed legal fee, the “extension fee”, or the $20,000 for future legal fees. It sought an order for the refund of $3,927.99, being the disputed legal fees, interest on that amount, an account relative to those monies, and a declaration that UAG was entitled to $109,375 in the controlled interest account plus interest.
Defence
53By clause 6A of its Defence, PropertyShares said that “on or around 24 March 2020, the defendant requested that the plaintiff extend the terms of the Loan by a further three months”. This was particularised to a telephone conversation between Ms Chow on behalf of UAG, and Mr Tanner of PropertyShares. The reference to a request coming from the defendant appears to be erroneous, and should read that the plaintiff (viz UAG) requested the defendant (viz PropertyShares) to extend the term of the loan by a further three months.
54Next, it was said that on or around 26 March 2020, and in accordance with the terms of the loan, PropertyShares agreed to extend the loan by a further three months. The particulars referred to the second email of 26 March 2020 from Mr Tanner to Ms Chow. It was said that this extension was acknowledged by Ms Chow’s email of 31 March, with the result that the term was extended and a liability for additional interest and the option fee of $81,250 was incurred.
55According to paragraph 9 of the Defence, the option fee had not been paid and that constituted an “Event of Default” and interest at the rate of 18.5 per cent per annum was payable on the amount outstanding and unpaid. Further, it was said UAG was, in accordance with the terms of the loan arrangements, obliged to indemnify PropertyShares “in respect of all costs expenses incurred by [PropertyShares] upon the occurrence of the Event of Default”. UAG was required to pay to PropertyShares all costs charged as expenses incurred by it in connection with the exercise of rights upon the occurrence of an “event of default” and upon a full indemnity basis.
56Next, it was said that further or alternatively “at all material times from 26 March 2020”, the parties conducted their arrangements “on the mutual assumption” that the loan had been extended by three months and that PropertyShares “acted in reliance on that assumption [and UAG] knew this to be the case”. Any departure from that assumption, it was said, would cause “detriment” to PropertyShares and therefore UAG was “not entitled to depart from the assumption”. (Clause 9A)
57It was said the $20,000 held on account of future legal fees was appropriately so held, and if any amount in respect of the dispute of legal fees were refunded, then PropertyShares was entitled to set that liability off against its interest entitlement on the option fee or its costs and expenses incidental to the proceeding. It counterclaimed the amount of the option fee plus interest, and its costs of discharge and this proceeding “on an indemnity basis”.
Reply and Defence to Counterclaim
58By its Reply and Defence to Counterclaim, UAG said that by the email of 25 March 2020 from Mr Tanner, PropertyShares advised UAG that it would only extend the term of the loan if UAG paid a “0.5 per cent rollover fee [viz, the option fee] and 12.5 per cent interest in advance” and provided PropertyShares “with a signed bank mandate for the construction facility from a bank lender within the following six-week period”.
59As to that email, it was said that Mr Tanner advised UAG that it was in that company’s best interest “to secure alternative finding [scil funding] before the current term of the Loan expired”, and UAG would not need to pay PropertyShares “either the rollover fee or the 12.5 per cent interest if UAG could secure alternative funding before the expiry of the 12-month Loan Term”.
60It was said that the conditions precedent were not satisfied and, therefore, there was no agreement to extend the loan for a period of three months. Were PropertyShares allowed to depart from its representation, UAG would suffer detriment by having to pay the extension fee and the legal fees. PropertyShares, it was said, was “estopped from denying or acting inconsistently with the Representation”.
61Next, it was said that whether the loan was extended or not, the option fee constituted a penalty and was therefore void and unenforceable.
62UAG denied that any “event of default” occurred or that it was required to pay interest on the option fee or to indemnify PropertyShares for costs because no “event of default” had occurred.
63As to mutual assumptions between the parties, it was said that the mutual assumptions between the parties were that UAG could pay out or refinance the loan at any time prior to the expiration of 12 months and, in such circumstances, would not be liable to pay the “extension fee” [presumably the option fee] or interest at 12.5 per cent. Further, there would be no extension to the term of the loan beyond a 12-month period until the conditions precedent were satisfied.
64As to the counterclaim, UAG denied any entitlement on PropertyShares part to fees, legal costs or interest.
65Shortly prior to the initial trial date in April 2021, UAG obtained leave from Judicial Registrar Muller to file and serve an Amended Reply and Defence to Counterclaim. This added an allegation of a further representation on PropertyShares’ part “by way of a telephone conversation between Mr Tanner and Ms Chow on or about 29 March 2020”, where it was said Mr Tanner advised Ms Chow that she had to send Mr Tanner “an email to place a hold on a 3-month extension of the Loan”, and if UAG could refinance the loan before the expiry date “then UAG did not have to proceed with the extension”.

Conclusions
66In accordance with directions given by the Court, a document listing the issues for determination was filed dated 17 June 2021. The document is expressed to be prepared by the plaintiff’s solicitor, but I proceed on the footing that it entails a distillation of the issues agreed upon by counsel for both parties.
Issue 1
67The first issue stated for determination is as follows:
“Was the Loan Agreement extended and do the terms of the Loan Agreement obligate UAG to pay to the Defendant ... the Option Fee ...”

68As to the resolution of this question, I should deal first with the alleged telephone conversation between Mr Tanner and Ms Chow added by way of late amendment to the plaintiff’s reply and said to have occurred, according to the Amended Reply and Defence to Counterclaim, on or about 29 March 2020, or, according to the presentation at trial, between 26 March and 31 March.
69I accept Mr Tanner’s denial that such an additional telephone conversation took place. First, it is not evidenced in the phone records which were discovered and included in the Court Book and hence are in evidence. Secondly, there was no suggestion made by Ms Chow as to any explanation for the absence of a record of that call, for instance by asserting that it occurred via a telephone not comprised in and reported on by the relevant record. Thirdly, the giving of the alleged assurance said to have been given by Mr Tanner seems implausible. Finally, and most tellingly, it is not mentioned in the email sent in the late evening of 15 April 2020 on behalf of Ms Chow and Mr Battersby (see [48]). This letter was written within 2 ½ weeks of the alleged phone conversation. It was a vital support for the case they were seeking to make. Had it occurred, it would have been mentioned in the email and in the Plaintiff’s Reply before a late amendment in April this year.
70As to the plausibility of the occurrence of this conversation, as I understand it, what is alleged is that Mr Tanner invited Ms Chow to request an extension of the loan term so that the extended term would be available to her company UAG as a “fallback” should alternative funding not come through, but that such request being effective to create a fallback would not be effective to attach any liability for the extension to UAG. The funds would be “on hand”, there to be availed of without charge. Given that PropertyShares does not have a “balance sheet”, to use Mr Tanner’s language – viz, does not have its own money to lend, but only the money which it can arrange from investors – this would be a reckless assurance to give. I do not believe a banker of Mr Tanner’s lengthy experience and impressive curriculum vitae, as set out in his evidence to the Court, would be so unwise as to give such an assurance. Mr Tanner said of his discussions with Ms Chow that they amounted to “if you can refinance elsewhere, go for your life, all right, but we’re not offering a free option.” (T167, L10‑11) This finding is relevant to Question 1, but perhaps more immediately pertinent to Question 2 to which I will turn shortly.
71As to the effect of the email relative to the terms of the initial loan facility, the evidence of Mr Tanner at trial seemed to diverge somewhat from the pleaded position of PropertyShares. Mr Tanner said that the effect of his email of 25 March 2020 was not an invocation of the extension provisions of Clause 7(e) of the “Loan Details” document, but rather a proposal for a new and separate facility. (T122, L17‑19) He said that the reference in the email to a “bank mandate” was to a process in construction finance where the relevant bank has not gone the full distance of providing a letter of approval but has progressed beyond the level of a mere indicative letter. (T124−126)
72According to Mr Tanner, he sent his email at a time when Ms Chow was trying to convince PropertyShares that she held a construction “takeout” approval from the Commonwealth Bank of Australia in circumstances where, upon his consideration of the material put before him, it was plain that that point had not been reached and was some distance off. (T123) Mr Tanner said he envisaged a scenario relative to Ms Chow’s company where:

“If she can’t exit immediately to a construction facility, then she may just need us to provide support for her, that is continue to lend her money for three, six months, and that was the conversation that we’d been having with her, that we would continue to provide three to six months’ worth of support for her, if she needed that, but it would require something different, so a financial construction facility – the immediate exit to a construction facility, I’ve talked about the rollover that’s available in the existing contract. There is one other possibility and that is that she has a clear statement that they will – that she can re effectively fund this facility at some future point, probably with a major bank, and what she’s probably going to have to do is improve the valuation of the property or inject additional equity in order to reduce the LVR. It’s effectively a new loan. And the problem that we’ve got is that we’ve got a loan in which the interest has been capitalised; we’re prepared to loan up to a maximum of 65 per cent LVR, which is the rule of thumb within the industry, and that capacity has been consumed by the loan that she’s already got and the interest that’s already been capitalised.” (T124, L6‑28)

73No objection was taken to this evidence and view of matters being put before the Court despite its not strictly following the pleadings. Ultimately, however, this proposal seems to have gone nowhere. What is crucial for determining the answer to this question and to reach a conclusion on the contractual position between the parties independently of the operation of estoppels either by representation or convention, is what transpired from 26 March onward.
74UAG pleaded that the PropertyShares’ loan was not extended and no option fee became payable because certain conditions precedent to such extension were not satisfied. (Amended Reply, Clause 6A(b)(v)) The “conditions precedent” referred to appeared in sub-paragraph (i) of the same sub-clause of the Amended Reply, namely the payment of the option fee and the payment of interest at the higher rate of 12.5 per cent.
75It is difficult to see that the second of those matters, namely, payment of interest at the higher rate, to take effect from the beginning of the extended term, could be regarded as a condition precedent. It was necessarily posterior rather than anterior to the extension.
76Mr Hristovski’s contention was that it was the payment of the 0.5 per cent option fee or “rollover fee” (as it is sometimes referred to, for instance in the Amended Reply and in certain email correspondence), rather than merely the existence of an obligation to pay it or an acknowledgement of such an obligation, which constituted satisfaction of the condition precedent. If the payment of the option fee is properly characterised as a condition precedent, it must necessarily be a condition precedent to performance, not a condition precedent to contract. The provisions of Part 7 of the “Loan Details” document dealt with the modification of an existing contract. (Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, 541 per Gibbs CJ)
77Where a condition is inserted on the face of it solely for the benefit of one party, it is competent for that party to waive that condition, such that the other party may not rely on the condition as an excuse for a non-performance or to terminate the contract. (Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, 543, per Gibbs CJ; 553, per Mason J (as he then was). In the same case, Wilson J said:
“The purchasers may elect to waive the condition, [the subject of the appeal to the High Court] it being one wholly for their benefit, …” (1982) 149 CLR 537, 560
78Mr Hristovski conceded that, based on documentation such as the present, “a lender can withdraw them [conditions precedent] and can waive them, but this was never communicated”. (T225, L30-31)
79In a sense, there is an air of unreality in this line of reasoning and the enquiry which it leads to. The reason that this proceeding has been commenced is because PropertyShares has insisted on payment of the option fee. In that sense, there is no waiver at all, and the issue of communication of waiver necessarily cannot arise. Ultimately, what UAG contends is that any requirement to pay the option fee before the extension comes into effect has either not been waived at all, or any waiver which has been made is not effective for lack of communication at the relevant time.
80A point which might be considered analogous is dealt with by the learned editors of Cheshire and Fifoot’s Law of Contract (9^th Australian Edition) at [3.41], page 139, where in the context of formation of a contract by acceptance, they state:
“It is always possible for the offeror to waive the need to communicate acceptance. Such waiver may be expressed or may be inferred from the circumstances. Waiver will normally be assumed in unilateral contracts … On the other hand in executory bilateral contracts [such as the one between UAG and PropertyShares] an inference that the offeror has agreed to waive communication is not so readily drawn.”
They referred to Latec Finance Pty Ltd v Knight [1969] 2 NSWR 79.
81Here, we are concerned not with an entirely new contract but an arrangement to vary. The structure of clause 7 seems to indicate a regime whereby the borrower, UAG, requests with PropertyShares responding in its discretion so as to grant or refuse the request as it sees fit.
82In the way things worked out, the roles were reversed. Mr Tanner, in his email of 26 March (CB 252), indicated a willingness to accede to a request for a three-month extension “without further documentation from you”. Effectively, PropertyShares became the offeror and UAG’s acceptance came via Ms Chow’s email of 31 March 2020. (CB 258)
83To look at it another way, any further communication should be regarded as waived, in particular, in light of the statement by Mr Tanner that the extension could occur “without any further documentation from you” (viz UAG).
84There is a more fundamental objection to Mr Hristovski’s contention that the payment of the option fee is to be regarded as a condition precedent. First, there is nothing in the text of the relevant clause dealing with extension, which would indicate that the payment of the option fee must be made prior to the extension being granted. Indeed, the text tends to indicate the opposite. Mr Hristovski was at pains to stress the condition precedent was the payment of the fee, rather than a mere agreement to pay. The relevant sub-paragraph speaks not of the borrower paying the option fee but states “the borrower agrees to pay …”. The text is introduced by the words, “if the lender extends the term, then …”, meaning that by requesting an extension which is agreed to by PropertyShares, UAG ipso facto undertakes a liability to pay the option fee. On this analysis, the payment of the option fee is no condition precedent at all.
85Mr Hristovski also relied on the fact that there had been no further deed, letter of offer or other documentation as telling against any loan extensions in fact having been granted. (T224, L13-20) Mr Hristovski referred to evidence from Mr Tanner which he obtained under cross-examination relative to an industry practice of documenting variations in this fashion.
86Mr Tanner gave evidence under cross-examination to the effect that the establishment of a new facility, or material variation of an old one, would be documented in the manner described. (T163-4) He gave this evidence, however, in the context of a line of questioning about how the abortive proposal which he made in his email of 25 March, which would have entailed the establishment of a new facility, might have been implemented.
87The email of 26 March specifically indicated that no further documentation was required. This was because what was entailed was not the creation of new obligations or the modification of old ones requiring changes to the terms of the facility, but rather, the implementation of an option which was already documented and provided for in the existing facility arrangements.
88The answer to issue 1 is “yes”.
Issue 2: Estoppel
89As I have determined the answer to the first issue in the affirmative, the second issue is as follows:
“Is PropertyShares estopped from charging the Fee by reason of an estoppel founded on either the First or Second Representations?”
90Mr Hristovski referred to and relied upon the well-known passage from the judgment of Brennan J (as he then was) in Walton Stores (Interstate) Limited v Maher (1988) 164 CLR 387, 428-9. The representations said to ground the estoppel were first, that in the 26 March 2020 email it was represented to UAG that it could refinance at any time prior to the rollover date. The second representation was said to be found in the conversation between Ms Chow and Mr Tanner occurring between 26 March 2020 and 30 March 2020 which, in closing submissions, Mr Hristovski characterised as:
“That UAG needed to put a hold on the proposed extension by sending an email but if UAG could obtain a refinance prior to the rollover date then it could do so.”
91I deal with these representations, or alleged representations, in reverse order.
92I have already found that the second representation was not made in the sense that the conversation referred to did not occur. More particularly whether, in that conversation, or in any other, Mr Tanner did not accept that he had suggested or agreed to anything being “put on hold”. I take the concept of “on hold” to mean that the email of 31 March could be effective to have an extension of the PropertyShares facility at UAG’s disposal if required, without UAG becoming liable for the fees and other obligations attendant upon the grant of the extension.
93I found Mr Tanner’s evidence more convincing on this and other points. Whilst both he and Ms Chow were loquacious witnesses, Mr Tanner, for the most part, gave answers which were pertinent to the questions asked. Ms Chow tended to make lengthy speeches directed to what she saw as the merits of her company’s case, rather than to the questions which counsel had asked. Moreover, she swore to the existence of a telephone conversation which the objective evidence, namely the phone records, indicate did not occur. The second representation was not made.
94In a general sense, the first representation has been made out. The truth of that representation was borne out by the fact that UAG did in fact refinance in the very way the representation suggested it was at liberty to do. Insofar as the exchanges that are said to constitute the first representation are concerned, there is nothing in the text of any email which goes to the next step and says, for instance, that in the circumstances described no option fee would be payable. Nor did Ms Chow or Mr Tanner assert that in any of the telephone conversations or alleged telephone conversations that the option fee was mentioned one way or another.
95In Crown Melbourne Limited v Cosmopolitan Hotel (Vic) Pty Ltd (2016) 260 CLR 1, the High Court considered a contention by a retail tenant based on an alleged estoppel by representation. In a joint judgment of French CJ, Kiefel and Bell JJ, their Honours said at paragraph 35:
“It has long been recognised that for a representation to found an estoppel it must be clear. In Low v Bouverie, it was said that the language used must be precise and unambiguous. This does not mean that the words used may not be open to different constructions, but rather that they must be able to be understood in a particular sense by the person to whom the words are addressed. The sense in which they may be understood provides the basis for the assumption or expectation upon which the person to whom they are addressed acts. The words must be capable of misleading a reasonable person in the way that the person relying on the estoppel claims he or she has been misled. The statement that the tenants would be "looked after at renewal time" is not capable of conveying to a reasonable person that the tenants would be offered a further lease.” (2016) 260 CLR 1, 16 [35]
96In my view, the representation here suffers from the same ambiguity as did the representation considered by their Honours. UAG’s case effectively requires the “first representation” to go the distance of saying that whilst a refinancing may be effective, there would be no liability for the option fee, even despite UAG’s requesting the three-month extension. The representation simply does not go that far. It leaves the crucial question in this dispute unanswered.
97There is no estoppel preventing PropertyShares from asserting the claim that it makes in this proceeding.
98In the Amended Reply and Defence to Counterclaim, the first representation was pleaded in the following terms:
“UAG would not need to pay PSH [PropertyShares] either the rollover fee or the 12.5% interest if UAG could secure alternative funding before the expiry of the 2-year Loan term (the First Representation);”
99According to the particulars, this representation was made in the email of 26 March 2020 from Mr Tanner. This email specifically refers to the option fee (describing it as a “rollover fee”) and the increased interest rate. It does not state that these fees would not be payable in the event of alternate funding.
Issue 3 : Penalty
100The third issue for determination is whether the Fee is a penalty.
101Mr Hristovski placed primary reliance in support of his contention that the “option fee” (sometimes described as “rollover fee”) constituted an unenforceable penalty upon a decision of the Court of Appeal in MelbourneLinh Son Buddhist Society Inc v Gippsreal Ltd [2017] VSCA 161, where the court concluded that an establishment fee charged relative to a loan transaction which did not proceed was an unenforceable penalty. Reference may also be made to a decision of Mukhtar AsJ in Giasoumi v Ribbera [2017] VSC 631 to similar effect relative to another aborted loan transaction and the establishment fee therefore charged.
102The modern law on the issue of contractual penalties commences with a decision of the House of Lords in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1914] UKHL 1. In that case, their Lordships considered an arrangement whereby Dunlop, as a motor tyre manufacturer, included a term in its dealer agreements whereby the dealer, in consideration of receiving trade discounts agreed, inter alia, not to sell Dunlop’s goods to any private customers or cooperative society at less than Dunlop’s recommended retail price, or to sell to any persons whose suppliers had been suspended by Dunlop. Breach of that agreement required payment of £5 by way of liquidated damages for every tyre or other item sold in breach. Lord Dunedin stated a series of principles which have been regarded since as providing substantial guidance in determining whether a contractual stipulation is to be regarded on the one hand as being an unenforceable penalty or on the other hand a forceable liquidated damages clause. His Lordship said:
“… 1. Though the parties to a contract who use the words penalty or liquidated damages may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case.
2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage— Clydebank Engineering Company v. Castaneda.
3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach— Public Works Commissioners v. Hills and Webster v. Bosanquet.
4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:
(a)   It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. (Illustration given by Lord Halsbury in Clydebank Case.
(b)   It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid (Kemble v. Farren). This though one of the most ancient instances is truly a corollary to the last test. Whether it had its historical origin in the doctrine of the common law that when A. promised to pay B. a sum of money on a certain day and did not do so, B. could only recover the sum with, in certain cases, interest, but could never recover further damages for non-timeous payment, or whether it was a survival of the time when equity reformed unconscionable bargains merely because they were unconscionable, – a subject which much exercised Jessel M.R. in Wallis v. Smith – is probably more interesting than material.
(c)   There is a presumption (but no more) that it is penalty when “a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage” (Lord Watson in Lord Elphinstone v. Monkland Iron and Coal Co.).
On the other hand:
(d)   It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties (Clydebank Case, Lord Halsbury;
Webster v. Bosanquet, Lord Mersey).” [1915] AC 79, 86-8

103Their Lordships concluded that applying these principles, the arrangements in the Dunlop Dealer Agreement did not constitute an unenforceable penalty. Lord Atkinson said:
“The object of the appellants [Dunlop] in making this agreement, if the substance and reality of the thing and the real nature of the transaction be looked at, would appear to be a single one, namely, to prevent the disorganisation of their trading system and the consequent injury to their trade in many directions. The means of effecting this is by keeping up their price to the public to the level of their price-list, this last being secured by contracting that a sum of £5 shall be paid for every one of the three classes of articles named sold or offered for sale at prices below those named on the list. The very fact that this sum is to be paid if a tyre cover or tube be merely offered for sale, though not sold, shows that it was the consequential injury to their trade due to undercutting which they had in view. They had an obvious interest in preventing this undercutting, and on the evidence it would appear to me impossible to say that their interest was incommensurate with the sum which it was agreed to pay.” [1915] AC 79, 92
104The law on this subject in Australia took a new turn in 2012. A representative proceeding was brought on behalf of 30,000 customers of Australia and New Zealand Bank Ltd, alleging that certain fees charged in the nature of honour, dishonour and non-payment fees, late payment fees and over-limit fees, were unenforceable penalties. A separate question was tried in the Federal Court by Gordon J, then a judge of that court, as to whether fees which were chargeable independently of any breach of contract were for that reason excluded from attack as penalty. In accordance with the then existing authorities, her Honour answered that question “yes”, in particular by reference to the decision by the New South Wales Court of Appeal in Interstar Wholesale Finance Pty Ltd v Integral Home Loans Pty Ltd (2008) 257 ALR 292. The matter was then removed to the Full Court of the High Court pursuant to s40 of the Judiciary Act 1903, thereby “leapfrogging” the Full Court of the Federal Court. The High Court reversed her Honour’s determination in Andrews v Australian and New Zealand Banking Group Ltd (2012) 247 CLR 205. In the later case of Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525, French CJ summarised the effect of the court’s decision in Andrews’ case as follows:

“… The Court held that equitable relief against penalties had not been subsumed into the common law rule and that the rule against penalties was not limited to cases arising out of a breach of contract.” (2016) 258 CLR 525, 537 [4]
(Footnote omitted.)

105In Andrews’ case, the court proceeded on the footing that there was no contractual obligation on a bank customer to refrain from depositing cheques from third parties which might be dishonoured, so the fee charged by the bank for cheque dishonours was not charged consequent on any breach of contract by its customers. In a joint judgment given by French CJ and Gummow, Crennan, Kiefel and Bell JJ, their Honours said:
“It has been established at least since the decision of Lord Macclesfield in Peachy v Duke of Somerset that the penalty doctrine is not engaged if the prejudice or damage to the interests of the second party by the failure of the primary stipulation is insusceptible of evaluation and assessment in money terms. It is the availability of compensation which generates the “equity” upon which the court intervenes; without it, the parties are left to their legal rights and obligations. The point is illustrated by Waterside Workers’ Federation of Australia v Stewart. A bond was given by the appellant in the sum of £500 on condition that it pay £50 if and so often as its members in combination should go on strike. Isaacs and Rich JJ emphasised that, whilst refusal to work almost inevitably would cause loss to employers, “no one can ever tell how much loss is sustained by not doing business” and on the principle stated by Lord Macclesfield no relief was to be given against payment of the £50.
It should be noted that the primary stipulation may be the occurrence or non-occurrence of an event which need not be the payment of money. Further, the penalty imposed upon the first party upon failure of the primary stipulation need not be a requirement to pay to the second party a sum of money.” (2012) 247 CLR 205, 217 [11]-[12]
(Footnotes omitted.)

106If I were wrong, the fee should still not be regarded as a penalty. Ultimately, there was no determination by the High Court or the Federal Court as to the proper characterisation of fees such as dishonour fees which did not proceed from a breach of contract by the bank’s customer. The proceedings were ultimately resolved by settlement. (See Andrews v Australia and New Zealand Banking Group Ltd [2019] FCA 2216). Part of the general dispute was not, however, encompassed in that settlement and reached the High Court of Australia on appeal from the Federal Court in 2016. (Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525) The matters in dispute there, were “late” fees charged on credit card accounts operated by the bank. The contention on behalf of Mr Paciocco, and the class which he represented, was that these fixed fees charged by the bank bore no relation to the cost incurred by the bank in dealing with the late payment. The High Court dismissed this claim. Keane J said:
“It may be accepted immediately that a bank, like any other party to a contract, has no legitimate interest in punishing its customers for their defaults or in threatening them with punishment in order to discipline their behaviour. But a bank has a multi-faceted interest in the timely performance of its customers’ obligations as to payment.” (2016) 258 CLR 525 [271]
107Kiefel J (as she then was) said:
“It was of some importance in Dunlop and Clydebank that the nature of the innocent party’s interests, which would be injured by breach, was such that it would be difficult to estimate and to prove damage. This difficulty of proof, and the uncertainty of the loss which could arise, made it reasonable for the parties to agree beforehand what the figure for damages should be in order to avoid the problem. In Cavendish it was observed that there is good reason to leave the assessment of the value of a complex interest as a matter of negotiation between the parties, especially since the court may not be in a position to value the interest itself. For present purposes it is perhaps more relevant to observe that difficulties of this kind may render problematic proof that a sum stipulated is a penalty.
It was not suggested in either Clydebank or Dunlop that the damage to the Spanish government’s or to Dunlop’s interests was impossible to estimate; rather, it appears that the damage was capable of estimation, albeit with little precision. It might be thought that the damage to the interests identified in Clydebank in particular might have qualified as impossible to prove, but the Earl of Halsbury LC went only so far as to say that it would be ‘extremely complex, difficult, and expensive’ to do so. And in Dunlop, the estimation was referred to as ‘almost an impossibility’. It will be recalled that equity’s jurisdiction was considered not to extend to a case when compensation was not thought to be possible, as is the case when damages could not be assessed. In these circumstances the parties would be left to their bargain.
What was said in Dunlop, and in Clydebank, about it being reasonable, in cases of difficulty in the estimation of possible loss, to leave the parties to contract for themselves for a sum to be paid on default might be thought to come close to an acceptance that they be left to their bargain. However, this would overlook the fact that the courts in those cases went on to determine whether the figure arrived at was a penalty and that they did so by considering whether it was unconscionable or extravagant in amount.” (2016) 258 CLR 525, 551-2 [48]-[50]
(Footnotes omitted.)

108French CJ and Kiefel J held that the late payment fees were not out of proportion to the interest damage by the late payment, which included operational costs, loss provisioning and increases in regulatory capital costs.
109Turning now to the Gippsreal case, the Court of Appeal including Maxwell P, Kyrou JA and Cameron AJA, accepted a contention that the establishment fee charged by the lender in that case constituted an unenforceable penalty. The salient terms of the loan facility document were extracted in the judgment of Maxwell P at [13]. Clause 32 headed “Liquidated Damages” as set out by his Honour, entailed an acknowledgement by the borrower that, having accepted the offer, if it did not proceed with the mortgage transaction it would be in breach and liable for liquidated damages. The Associate Justice from whom the appeal to the Court of Appeal was brought, held that the liquidated damages included a $26,625 establishment fee [157] per Kyrou JA and Cameron AJA. In their joint judgment, their Honours stated:
“The question whether the establishment fee of $26,625 constitutes a penalty must be considered in the light of the dual purposes served by that fee. The first purpose was to be an amount payable by deduction from the principal sum where the Deed of Offer proceeded to settlement. The second purpose was to be an amount payable by the applicant to the respondent as liquidated damages in circumstances which include the withdrawal of the offer of finance by the respondent due to the applicant’s failure to settle the loan in accordance with the Deed of Offer.” [2017] VSC 161 at [191]
110In the event, their Honours had to consider only the establishment fee in its secondary aspect, namely as an item of liquidated damages. They concluded that the establishment fee was a penalty, stating:
“In our opinion, the establishment fee of $26,625 is a penalty because it bears no relation to any possible damage to or interest of the respondent arising from the putative breach of the Deed of Offer by the applicant and it is not commensurate with any legitimate commercial interest of the respondent which is sought to be protected by that deed in the event of its breach.” [2017] VSC 161 at [195]
111Their Honours were not satisfied with the evidence as to the loss generated by wasted administrative work, claiming the loan transaction proved aborted [197]-[198] and said they were fortified that the charge was penal because, they said, establishment fees were usually set at between 1 and 2.5 per cent of the approved loan amount and are commonly at 1.5 per cent. The fee in the case before them was 5.32 per cent of the proposed loan amount. “It was 3.54 times greater than the establishment fee that the applicant usually charged”. [199] In Giasoumi v Ribbera [2017] VSC 631, Mukhtar AsJ considered a similar issue, namely a contention that an establishment fee constituted an unenforceable penalty. The structure of the facility documentation before his Honour seems to have been similar to the structure in Gippsreal. Once again, the fees were included under the rubric of liquidated damages chargeable as such in the event that the loan transaction proved abortive. His Honour was pressed with the contention by the lender that “the obligation to pay all fees and costs (which included the establishment fee) [as required in the liquidated damages clause] was a fixed contractual debt not referable to breach and therefore the law of penalties is not attracted”. [113] His Honour rejected that contention. He referred to these amounts being chargeable in the event of the loan transactions not proceeding, [115] and the characterisation of these amounts as being “liquidated damages” [115].
112In the present case, Mr Carew contended that the different structure of the loan facility in the present case excluded the principles which led the court in Gippsreal to hold the relevant fees to be a penalty. The “option fee” was not characterised as liquidated damages and was not expressed to be payable on some arguably breaching event, such as a failure on the part of the lender to draw down the facility. Rather, it was payable simply upon the establishment of the extension and was payable whether it proceeded or not.
113Presumably, the various fees charged by lenders are intended to have a similar effect as charges for interest. That is, to be taken for profit, not merely to be applied to indemnify the lender against losses.
114I have considerable sympathy with the view that, at least as structured in the present transaction, establishment fees should be regarded as outside the doctrine of penalties entirely. Nevertheless, acceptance of that view would seem perilously close to the view definitively rejected by the High Court that the penalty doctrine is engaged only in the case of contractual breaches. The “primary obligation” which, on its non-fulfilment, would require the payment of the option fee, could be regarded as the decision of UAG not to take up the extension to repay the loan within the originally-stipulated timeframe. Since the “option fee” here is not expressed to be part of a liquidated damages regime, it answers the description urged on Mukhtar AsJ in Giasoumi but rejected by him in that the context of the facility later in that case as a fixed contractual debt payable independent of default or any other matter which, in terms of the analysis in Andrews’ case could be regarded as a “primary stipulation”. It is a primary stipulation itself – not a secondary one. The penalty doctrime is not engaged.
115In contrast to cases such as Andrews and Paciocco, and even, it would seem, Gippsreal, there was no evidence as to loss or damage which UAG might sustain in events such as the present, viz where an extension is agreed upon but not availed of. Mr Carew said it threatened a situation where an investor, either directly with PropertyShares or indirectly as in the present case via Moelis, might have been assured that his, her or its funds were to be deployed at an interest rate of 12.5 per cent for a further three months, yet in the event the funds are back in his, her or its hands and earning no interest at all. There was no evidence of recrimination between Moelis and PropertyShares in the present case. If Moelis and its investors persisted in its earlier stated views, it would be as happy to have the funds back as having them for an extended term of three months, or perhaps happier.
116In a sense, however, this misses the point. The entire pandemic period has been exceptional, and was not and could not have been foreseen in 2019. The law of penalties requires allegedly penal provisions to be analysed by reference to reasonable foresight rather than hindsight, which, as the old saying goes, is always ‘20/20’. The establishment fee in Gippsreal was, as a percentage of the facility in question, ten times larger than the option fee. There was no evidence, as there apparently was in Gippsreal, as to the market level of establishment fees. The option fee might be regarded as distinguishable from the establishment fee in Gippsreal because it was chargeable by reference to the establishment of a short-term extension, not a long-term primary facility. It was less than half the Establishment Fee for the initial 12 month term.
117Trying to view the situation with reasonable foresight as in 2019, the option fee does not seem to me to be extravagant or out of proportion relative to the interest which, on this analysis, it was being charged to protect or compensate for: namely, recrimination between PropertyShares as the “middleman”, and the investor, ultimate or intermediate. The interest which the option fee can be regarded as protecting in the events that have occurred, viz investor recrimination where funds are not let out on interest, is as difficult to quantify as Dunlop’s interest in orderly marketing; yet the inability to make a precise calculation either prospectively or even retrospectively was not, in that case, regarded as invalidating the stipulated payment or, as Kiefel J said in Paciocco, it is possible to judge as to its proportionality to the interest protected. That there is a genuine and not merely theoretical risk of recrimination where money is assembled for loan but not put to interest is testified to by the exchange of text messages between Ms Audrey Khaw of Balmain and Ms Chow when UAG was delaying in committing to the Balmain Facility. (CB 416-7).
Issue 4 : Conventional estoppel
118The fourth question is:
“If the answer to Question 1 is no, is [the plaintiff] estopped from denying the Option Fee is payable by reason of (a) a “common assumption” between UAG and PropertyShares that the loan agreement was extended by 3 months? (b) a common assumption that the fee was payable on that basis?”

119Based on the findings I have already made, this question does not arise.
Issue 5 : Legal fees
120The fifth question is:
“Do the terms of the loan agreement obligate UAG to pay PropertyShares the disputed legal fees?”

121Gadens rendered a bill to PropertyShares dated 11 June 2020 for $3,927.99 inclusive of Goods and Services Tax. The headline descriptor was “Attendance to Settlement, preparation of releases and all negotiations thereto”. The fundamental point in dispute which led to the attendances and advices billed for by Gadens in the present case was the dispute as to whether the option fee was payable in the events that had occurred. The reason why this became a matter of crucial dispute and required at least an interim resolution by the use of the controlled monies account was that the “takeout” finance provided by Balmain required UAG to be able to provide a registered first mortgage, which could only be done once the PropertyShares mortgage was discharged. When I was engaged in conveyancing transactions in a previous life, the fee chargeable by a legal practitioner attending a settlement on behalf of an outgoing mortgagee was a modest fixed item prescribed by the Solicitors Remuneration Order. This sort of charging, however, was appropriate where there was no substantial dispute as to the correct payout figure, which is not the present situation.
122I have already referred to the crucial involvement here of a real estate mortgage and a substitute mortgage for Balmain. In my experience, the memoranda of common provisions which pertain to mortgages registered under the Transfer of Land Act 1958 typically include extensive, one might say turgid and all-embracing, costs covenants. One might have expected, in the circumstances, that PropertyShares would have taken a stand at least partly on the basis of such a clause in the memorandum of common provisions. Whether its failure to do so is the result of critical analysis of the relevant clause and perhaps a perception of a significant deficiency therein on the one hand, or simply inadvertence to the relevance of such a clause on the other, I cannot say.
123In the present instance, PropertyShares placed its reliance upon Clause 16.1 of its standard terms and conditions which are incorporated by reference and were apparently attached to the security letter. The relevant clause provides as follows (CB 212−213):
“16.1 Costs and expenses
The Borrower must pay the Lender on demand for:
...
(b)the Lender’s costs, charges and expenses in connection with any consent, or any exercise, non exercise, or attempted exercise of rights (including those arising from any Event of Default);
...
(e)including in each case:
...
(ii)legal costs and expenses on a full indemnity basis or solicitor and own client basis, whichever is higher.”

124Mr Carew, on behalf of PropertyShares, contended that the costs incurred to Gadens were incurred by reference to an exercise, non-exercise, or attempted exercise of rights relative to an “event of default”, the “event of default” being the non‑payment of the option fee. It occurs to me that PropertyShares had a right to be paid its entitlement under the facility, and taking steps to ensure that such entitlement extending to the option fee was collected prior to the release of security would be within the scope of the obligation to pay costs whether, in the events that had occurred, an “event of default” had occurred or not. Clause 11.1 of the standard terms and conditions (CB 208) defines an “event of default” as extending to any “default ... in the performance of any term, covenant, agreement [or] undertaking” or “any indebtedness or obligation of the Borrower [UAG] to any person including the Lender ... not paid, met, or satisfied when due ...”
125Mr Hristovski (Closing Submissions, paragraph 81) said that, according to UAG’s contention, there was no “event of default” because no option fee was payable. Even if that were not correct, the obligation to pay the option fee did not arise until 17 May and most of the costs were incurred before that date.
126As explained above, the obligation to pay costs should be regarded as within the scope of the relevant clause, whether there was an “event of default” or not. Moreover, UAG was adopting the position that it would not meet the option fee. Based on the findings I have made, this was at least a foreshadowed “event of default” and as such should be regarded as within the scope of the obligation to pay the costs.
127As to the scale and quantum of the costs, whilst there were criticisms, there was no attempt to suggest that the attendances recorded did not in fact occur and that the legal debates to which they pertained were not undertaken. Mr Hristovski contended that the costs should not be payable by UAG on a full indemnity basis. He referred to a decision of Kheirs Financial Services Pty Ltd v Aussie Home Loans Pty Ltd (2010) 31 VR 46. An immediate point of distinction between that case and this is that the costs in question were costs in a Supreme Court proceeding. These costs were incurred out of court. Costs incurred in a proceeding are, despite contractual obligations between the parties, ultimately in the Court’s discretion. The passage relied on by Mr Hristovski appears at paragraph [119] of the joint judgment of the learned judges of the Court, Maxwell P, Tate JA and Habersberger AJA, where their Honours said:

“We consider that the award of indemnity costs by the trial judge in favour of Aussie was made in error. We do not consider that it could be justified as, in effect, a means of enforcing the contractual obligation under clause 5, given that the award was only 70 per cent when a breach of the contract would give rise to an entitlement to 100 per cent. If made in the general exercise of discretion, we consider that the discretion ought not to have been informed by the contractual obligation in the manner it was, in the absence of unequivocally plain language that the costs that were agreed to be paid were to be on a solicitor and own client or indemnity costs basis.” (2010) 31 VR 46, 74 [119]

128The “clause 5” to which their Honours referred is, as I understand it, set out at paragraph [42] of the judgment:
“The Aussie Representative Contractor Agreement also provided for an indemnity in the event of breach. Clause 5, entitled ‘Indemnity and Set Off’, provided:
(a) You indemnify us against all or any loss, damages, claims, costs and expenses that we incur as a result of you, any Aussie Mortgage Adviser, any Associate, or any other person involved in any way in the introduction of Loans or Cross Sale Products through you to us:
(i)failing to observe any of the provisions of this Agreement …”

129It will be seen that this clause, if it be the one referred to by their Honours, makes no reference to indemnity costs or costs on a solicitor and client or solicitor and own client basis. In footnote 87, which pertains to paragraph [117] of the Court’s judgment, their Honours state:
“In this respect, clause 5 stood in contrast to the terms of indemnity in clause 9.1 of the Origination Agreement which referred to ‘legal costs on a solicitor and client basis’.”

130Based on these considerations, I do not believe that Kheirs’ case provides any guidance in the present case, except to the extent that the Court recognised that clear language in contractual arrangements can create an entitlement to costs on a full indemnity basis.
131UAG is entitled to retain the disputed costs. The language of clause 16.1(e)(i) is clear as to PropertyShares’ entitlement to indemnity costs.

Costs of the proceeding
132I have heard no submissions on the question of costs, and so I will reserve them.

Disposition
133I will direct the parties to bring in short minutes to give effect to these reasons.

[2021] VCC 872

6 July 2021