Union Fidelity Finance (Aust.) Pty. Ltd v Renauf

[2025] NSWSC 356

Supreme Court

New South Wales

Medium Neutral Citation:

Union Fidelity Finance (Aust.) Pty. Ltd v Renauf [2025] NSWSC 356

Hearing dates:

13 March 2025

Date of orders:

15 April 2025

Decision date:

15 April 2025

Jurisdiction:

Equity - Real Property List

Before:

Pike J

Decision:

(1)   Direct the parties to confer and seek to agree final orders to give effect to these reasons, including as to interest and costs.

(2)   Direct the parties to provide any agreed orders, or competing orders, to my Associate by no later than 5pm on 24 April 2025.

(3)   In the event there is no agreement, including as to costs, direct the parties to provide to my Associate by no later than 5pm on 24 April 2025 any submissions and supporting material, such submissions not to exceed 3 pages.

(4)   Direct the parties to provide to my Associate by no later than 5pm on 1 May 2025 any submissions and supporting material in reply, such submissions not to exceed 3 pages, whereupon the remaining issues will be determined on the papers.

Catchwords:

CONTRACT – construction and interpretation of Prospective Approval Indication contract – regard to text, context and purpose – importance of grammatical structure – reading contract as a whole – no question of principle

EQUITY – relief against penalties – whether contract clause unenforceable as a penalty – no question of principle

Legislation Cited:

Nil

Cases Cited:

Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205

Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231

Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd (2017) 18 BPR 36,683

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640

GEC Marconi Systems Pty Ltd v BHP Information Technology Pty Ltd (2003) 128 FCR 1

Goodwin v Phillips (1908) 7 CLR 1

HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342

Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2007] NSWSC 592

La Trobe Capital v Mortgage Corporation Limited (No 2) [2009] NSWSC 1372

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104

Onesteel Manufacturing Pty Ltd v Bluescope Steel (AIS) Pty Ltd (2013) 85 NSWLR 1

Paciocco v Australia and New Zealand Banking Group Limited (2014) 309 ALR 249

Paciocco v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525

Taylor v Dexta Corp Ltd [2006] NSWCA 310

Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561

Texts Cited:

Herzfeld and Prince, Interpretation (3rd ed, 2024, Thomson Reuters)

Category:

Principal judgment

Parties:

Union Fidelity Finance (Aust) Pty Ltd . (ACN 002 723 953) (First Plaintiff)
Union Fidelity Pty Ltd (ACN 670 315 536) (Second Plaintiff)
Samuel Mark Renauf (Defendant)

Representation:

Counsel:
A Cornish (Plaintiffs)
S O’Brien (Defendant)

Solicitors:
Hunt & Hunt Lawyers (Plaintiffs)
Ronayne Owens Lawyers (Defendant)

File Number(s):

2025/00058486

Publication restriction:

Nil

JUDGMENT

Introduction

1. The first plaintiff, Union Fidelity Finance (Aust.) Pty Ltd (UFFA) and the second plaintiff, Union Fidelity Pty Ltd (UF) conduct a business in the non-bank, non-conforming lending market. Specifically:

1. UF operates a loan aggregation platform, the commercial function of which is to connect prospective borrowers (who, characteristically, are unable to obtain bank-finance) with prospective lenders (being lenders who are willing to enter into loans with borrowers in this category);

2. UFFA contracts with prospective borrowers in respect of the introduction of prospective borrowers to prospective lenders identified by UF’s loan aggregation facility.

2. Mr Bernard Hugh Danby Ross (Mr Hugh Ross) is the director of UF and UFFA. Mr Alexander Ross (Mr Ross) manages UF’s and UFFA’s business.

3. The defendant, Mr Samuel Renauf (Mr Renauf):

1. was at all material times, the proprietor of 6 Ruby Street, Mosman (the Property);

2. was all material times, engaged in the redevelopment of the Property; and

3. in the period from February 2024 to March 2024, was seeking financing for the redevelopment of the Property.

4. On 18 March 2024, UF (as agent for UFFA) issued to Mr Renauf a document styled “Prospective Approval Indication contract” (PAI) which was accepted by Mr Renauf on 22 March 2024 and returned to UF. UFFA contends that moneys are owing to it by Mr Renauf under the terms of the PAI. On 3 July 2024, UFFA lodged Caveat AU214900 (First Caveat) on the title to the Property.

5. On 28 January 2025, Mr Renauf served a lapsing notice in respect of the First Caveat.

6. By Summons filed 13 February 2025 UFFA and UF seeks the following final relief:

7. Upon the plaintiffs by their counsel giving the usual undertaking as to damages, extend caveat AU214900 in respect of the property comprising A/378291 of which Mr Samuel Renauf is the registered proprietor until further order of the court.

8. Costs of the application to extend the Caveat be costs in the cause.

9. Judgment for the first plaintiff in the sum of $217,838.00.

10. In the alternative to paragraph 9, judgment for the first plaintiff in the sum of $108,919.00.

11. Declare that the property comprising A/378291 and known as 6 Ruby Street, Mosman (Property) is charged in favour of Union Fidelity Finance (Aust) Pty Ltd as security for the sum of $217,838.00.

12. In the alternative to paragraph 11, declare that the property comprising A/378291 and known as 6 Ruby Street, Mosman (Property) is charged in favour of Union Fidelity Finance (Aust) Pty Ltd as security for the sum of $108,919.00.

13. Extend caveat AU214900 in respect of the property comprising A/378291 until further order of the court, withdrawal by Union Fidelity Finance (Aust) Pty Ltd or removal by the registrar-general.

7. On 18 February 2025, I made orders by consent to the effect that the First Caveat be removed but that UFFA has leave to file a further caveat in the same interest as the First Caveat.

8. On or about 18 February 2025, the First Caveat was withdrawn. On or about 21 February 2025, Caveat AU847078 (Second Caveat) was registered on the title to the Property.

9. The proceedings were heard on 13 March 2025. Mr A Cornish appeared for the plaintiffs and Mr S O’Brien appeared for the defendant. No witnesses were cross examined.

10. Although the submissions traversed, to some extent, the issue of the validity of the two caveats, the hearing was a final hearing essentially concerned with whether the money claimed by UFFA was owing under the PAI was in fact owing. This involved determining the proper construction of the PAI and whether the relevant clause operated as a penalty in the circumstances.

11. For the reasons set out below I have determined that UFFA’s claim for the Brokerage Fee succeeds. Mr Renauf’s contentions, including that clause (c)(i) of the PAI is unenforceable as a penalty, should not be accepted. The parties should seek to agree orders to give effect to these reasons and any remaining issues will be determined on the papers.

Overview of the facts

12. The resolution of the principal issue litigated – whether the moneys are owing under the PAI – primarily depends on the proper construction of the PAI and the circumstances in which the prospective loan did not proceed. Some evidence was adduced as to the circumstances leading up to the PAI. These circumstances are largely of peripheral relevance only. I set out the relevant chronology below.

13. On 20 February 2024, Mr Renauf - via his broker, Mr Matt Sweeney (Mr Sweeney) - approached UF by email seeking financing for the redevelopment of the Property (Loan Proposal). Two documents were attached to the email.

14. First, a memorandum providing a high level overview of the development project. The Key Financial Metrics set out in the memorandum included an estimate of Gross Realisation of $25 million with an estimate of construction costs of $5.835 million.

15. Second, a copy of the development consent in relation to the proposed redevelopment.

16. On 21 February 2024, Mr Ross advised Mr Sweeney that UF would be happy to take on the Loan Proposal. He requested certain further details be provided.

17. Between 21 February and 28 February 2024, Mr Ross sought and received from Mr Sweeney further information in relation to the Loan Proposal (including a statement of assets and liabilities, an indicative sale realisation opinion and a copy of the relevant development consent). The relevant development consent stated that the “cost of development” was $1,496,000.

18. On 28 February 2024, Mr Ross introduced the Loan Proposal to Mr Matt Claffey of Australian Securities Limited (ASL).

19. On 29 February 2024, Mr Ross informed ASL of a revised financing request of $10,886,500.00. The 28 February 2024 email sought finance of $16,250,000.

20. In Mr Ross' initial approach to Payton Capital Ltd (Payton) on 6 March 2024 in relation to the Loan Proposal, the particulars of the loan proposal cited were:

1. borrower – Mr Renauf;

2. borrowing - $18,886,000.00;

3. gross realisation value on an as if complete basis - $26,000,000.00; and

4. LVR - 72%.

21. The email from Mr Ross also stated that the clients had already been offered terms by three other financiers.

22. On 8 March 2024, Mr Sweeney provided Mr Ross with a copy of a statement of the current loan in respect of the Property (which loan was in the name of SSMW Group Pty Ltd (SSMW) – a company associated with Mr Renauf).

23. On 11 March 2024, Mr Michael Deegan (of Payton) internally referred the Loan Proposal to a colleague, Mr Michael Tadros of Payton (Mr Tadros).

24. On 13 March 2024:

1. Mr Ross sought Mr Tadros’ advice as to progress in the consideration of the Loan Proposal;

2. Mr Tadros advised Mr Ross that “I'll come back to you tomorrow with high level pricing and terms if I'm comfortable with it. I've only had it a few days please manage the clients expectations”;

3. Mr Ross advised Mr Tadros that:

I understand where you are coming from – however it was sent to Melbourne over a week ago and they advised:

“Our general pricing for construction would range between 10.5% to 11.25% depending on where the final LVR lands in a stretched position up to 80% then plus line fees of 1.25% and establishment fee of 1.25%”

Would you be in the same ball park?

Unfortunately, I conveyed to them that you would be coming back to me by COB yesterday as advised - and they have given me to COB today to provide them with an indication, else go to another funder

4. Mr Tadros advised Mr Ross: “Same ballpark definitely. I would say for stretch it would be between 11.5 - 12% plus 1.25% line fee plus 1.25% estab fee”;

5. Mr Ross provided a proposed construction funding / project loan table setting out a preliminary feasibility analysis and sought Mr Tadros’ advice as to whether the table “would … be a fairly accurate depiction of the proposed construction funding table … ?”; and

6. Mr Tadros responded:

It’s a high Level feaso [sic] and I can’t say how accurate it is until I have QS initial report or at least a detailed costing. The figures in your below table will no doubt change once we have final figures

My main issue with this transaction is the Cost Plus contract. I understand that cost plus is common in the high end Resi space but we won’t fund unless we have a Fixed price building contract. I think you will find most financiers will take a similar stance. A fixed price contract keeps the builder honest and limits costs blowouts which, I’m sure you can appreciate, is important from the funders perspective.

Would the builder consider a fixed price contract? If not, there is little point in proceeding with the transaction

25. On 14 March 2024:

1. Mr Ross responded to Mr Tadros’ final email of 13 March 2024:

Michael I agree completely, and have already advised them to this effect. I have suggested a $5.5M fixed priced building contract- to which they have agreed. Basically with these clients, I need to draw an outline for them to colour in between the lines- I know which is a bit cart before the horse, however we know the fixed items, and now just need to negotiate the variables – which will be subject to valuations and QS and they can make up the difference with their cash resources, for which there is more than enough Thus, if we can predicate everything to a QS costings and a fixed priced building contract of $5.5M – we can work from there?

2. Mr Tadros replied to Mr Ross:

Ok Excellent

Will they begin the marketing campaign during construction – A property like this will probably take some time to sell given its at the higher end of the resi market. Also the buyer will potentially want input into the finishes and there may be some design changes requested;

3. Mr Ross further responded to Mr Tadros:

That’s the idea- I know the real estate agent from ray White Geoff Smith and Bernard Ryan very well and Michael Coombs from Atlas – and BOTH have detailed that they believe the property will be sold before completion – with a “soft launch” after lockup with an event on the premises – for which they believe they will attain a buyer who will “contribute input” to their desired finishings at that time; and

4. subsequently, Mr Ross sent a further email to Mr Tadros stating

“I am just looking for a possible indicative quote / term sheet”; and

5. Mr Tadros’ replied to Mr Ross’ request for an indicative term sheet:

I’m not issuing a term sheet. Our term sheets are credit tested and if I issue one it means we will do the deal if there is no or little change to the deal presented for formal approval from the deal we looked at prior to issuing a term sheet

I’ll give you high level pricing and key indicative terms via email by COB But given the information I have it will mean little

It won’t mean that we will do the deal because I don’t have enough information to make that decision

6. Mr Daniel Howe of Payton (Mr Howe), at Mr Tadros’ request, provided pricing and key indicative terms to Mr Ross:

Michael forwarded this on to me and asked that I send you some more concrete pricing. Based on the information we’ve seen so far and at a 70% LVR our pricing would be as follows:

- Interest rate: 11.00%

- Line fee: 1.25%

- Loan approval fee: 1.25%

Let’s have a quick chat tomorrow on pathway forward for this one. Ideally, we would like to see a valuation report as part our process to issuing an indicative as we will have to workshop this transaction with our Investment Committee. Having some kind of confirmation that the proposed works will meet buyer expectations at that price point would be a key consideration here which a valuer’s opinion on would be very helpful.

If that is not available I’m keen to understand what is driving the assumed $25m estimated market value?

26. In light of UF’s correspondence with Payton, on 18 March 2024 UF issued a letter agreement to Mr Renauf (c/o Mr Sweeney) (referred to in these proceedings as a “Prospective Approval Indication contract - the PAI”):

1. Mr Renauf executed and returned the PAI to UF by means of the “Docusign” service; and

2. paid the processing fee (of $7,866.25) provided for by the PAI as directed by UF.

27. I set out the relevant terms of the PAI later in these reasons.

28. Having received the executed PAI from Mr Renauf, Payton proceeded to accept and assess the Loan Proposal.

29. On 25 March 2024, Mr Ross sent an email to Mr Howe:

The clients have accepted your quote, and we are mandated - Susie from our Sydney office will forward to you shortly.

What else can I supply you with in order to progress this loan and whilst we are awaiting the return of the valuation? (once it has been quoted and paid for).

30. On 26 March 2024, Mr Howe sent an email to Mr Ross:

Apologies Alex, this had slipped my mind after we spoke last week. I’ve spoken to Ben Toole at M3 who will receive our instructions and arrange to get us a quote.

To keep momentum here I’ll look to take this to workshop next week so I can issue an indicative term sheet to you. To assist with that can you confirm:

- the anticipated valuation figure is $25m (ex GST)

- Provide further detail of internal m2, bedrooms, bathrooms, parking etc for the proposed property – I can roughly work out some of it from the plans but would be good to get confirmation.

- Confirmation as to who the builder will be – for indicative purposes I’ll work to a $5.5m fixed price contract as previously discussed with Michael.

31. On 8 April 2024, UF sent an email to Mr Sweeney to update him in respect of the consideration of the Loan Proposal:

Sorry to interrupt your day, but we thought we’d update you on your application on behalf of the clients: Samuel Renauf

The current status: Awaiting Valuation Quote from Paytons for Knight Frank and M3

Next Step: Payment of Valuation and Proceed to credit

32. On 9 April 2024, Mr Sweeney sent an email to Mr Ross stating “Can we set up a call? Clients very worried”.

33. On 10 April 2024:

1. Mr Ross sent an email response to Mr Sweeney:

I have been dealing with the background of Ashington and the capacity of BWC Group being predominantly Commercial builders not luxury residential builders with the credit committee every day this week.

We believe we have these satisfied, and are awaiting an M3 valuation quote today, and the outcome of the credit committee tomorrow. I appreciate this has been dragging out however Knight Frank detailed that they would be 4-5 weeks to come back with a quote for – as it has to be completed at a senior level due to the risk, and the lender has had to be re-accredited on a luxury residential basis – so hence we have opted for M3 to speed things up.

Have the clients built with BWC Group previously? Are they wedded to BWC as a builder?

They are doing comprehensive DD on everything before allocating the funding and getting the senior credit committee approval – as they settle ALL indicatives they issue, rather than just a term sheet on a “maybe”

2. Mr Sweeney responded “Yes, I can confirm the client has been working with BWC for many years. They have a long-term relationship & done many projects together. Please let me know outcome and time frame on this one also as I did tell the client 4th of April as per your email”;

3. Mr Howe sent an email to Mr Ross:

Further to our chat the other day I had a hunt for what had been disclosed to us regarding the litigation with Ashington and we hadn’t received anything in the information we’d been provided.

Are you able to send me what you thought you’d provided on that? I just want to make sure I’m fully covered before presenting this tomorrow

4. following which, Mr Ross sent an email to Mr Sweeney:

Apparently the clients had an appeal awarded against them for $3M + Costs in December 2023

Are you aware of this?

Paytons is, and is sending through and is going to ask for the clients response to this, given there is only 1 higher court in the land, and it is expensive- or if there is another explanation as to why they didn’t disclose to you?

5. Mr Howe then sent a further email to Mr Ross:

Further to our discussion below is a link to the December 2023, Court of Appeal judgment which overturned the previously favourable 2022 judgement at Supreme Court.

If you could get comment on that today from Sam so we can talk to it tomorrow that would be appreciated; and

34. On 12 April 2024:

1. Mr Sweeney advised Mr Ross that Mr Renauf held a dedicated $2.5m fund for the purpose of meeting the adverse judgment;

2. Mr Ross replied to Mr Sweeney, stating:

Thanks for this – however there was a [sic] appeal in December, and the decision was a judgement against Nichola and Samuel for $3M + Ashington’s costs How are they dealing with this ostensibly? Are they going to appeal, or just pay the judgement? If so have they already done so or do they have a provision for this?

35. On 15 April 2024:

1. Mr Ross sent an email request to Mr Sweeney - “Can you please confirm evidence of payment of their portion of the $3M + costs judgement?”; and

2. Mr Sweeney responded, stating “After, speaking with the client, they have advised me They have sufficient funds to cover any judgement, handed down. At this current time, nothing has been charged to them at the moment”.

36. On 16 April 2024:

1. Mr Ross enquired of Mr Sweeney - “[w]hich Company name do they wish to borrow in now please?” and Mr Sweeney advised SSMW Group Pty Ltd;

2. Mr Ross sent an email to Mr Howe stating - “After, speaking with the client, they have advised me they have sufficient funds to cover any judgement, handed down. At this current time, nothing has been charged to them at the moment”; and

3. Mr Howe advised Mr Ross:

Finally got the quote back from M3 on this one. Had a quick chat with our lawyers on the CLAA issue as well, they are going to give me their thoughts this afternoon.

At this point I would like to have a meeting with the borrower prior to submitting this one up for consideration again. Are you happy to arrange this for later this week? Assuming all goes well we can look to put the workshop paper back to committee for next Tuesday.

37. On 7 May 2024:

1. Mr Thomas Panzatis of Payton (Mr Panzatis) sent an email attaching an engagement letter from M3 Valuers for Mr Renauf’s attention and execution:

Please see the attached engagement letter we received from M3 for the valuation of 6 Ruby St. Could you please pass this on to Sam for completion.

If you have any questions, I have cc’d Dimitri Roditis from M3 who will be able to help with any questions relevant to the undertaking of the valuation; and

2. Mr Renauf executed the valuer engagement letter.

38. On 29 May 2024, M3 Property issued a formal valuation of the Property (as at 9 May 2024) on two bases; “As Is - free of GST” of $15 million and “As if complete - free of GST” of $25,000,000 (Valuation). Relevantly, the Valuation stated:

Goods and Services Tax

Our assessed Market Value Assessment have been prepared on a GST free basis.

It is our conclusion that a future sale of the property would not be subject to GST. We are also of the view that any intending purchaser of the subject property should obtain their own legal advice on the GST position. Should this advice vary from our interpretation of the legislation and Australian Taxation Office rulings current as at the date of this valuation we reserve the right to review and amend our valuation accordingly.

Our assumptions with respect to GST are current at the time of this report. Changes to the GST Act may impact the value of the subject land if and when these occur.

Refer to Critical Assumptions and Qualifications – GST.

39. On 14 June 2024, Mr Howe sent Mr Renauf an email raising the question of the applicability of GST to a sale of the Property at the conclusion of its redevelopment:

Apologies I’m just getting to this email now after our conversation last week. As discussed, with the valuation now in and with the additional context you have provided around your experience working with the builder on similar projects at 33 Stanley Ave and 3 waringa Ave, this has provided the additional info we will need to progress this funding request.

We discussed the valuation having come in at $25m and the conversation I’d had with Ben Toole regarding the GST treatment adopted in the valuation. I would have assumed GST would apply to an on-sale but I’m keen to understand what your tax advice is on that? I believe it has been discussed with you that we will need any borrowings to be in a company name, we have been advised the borrowing entity will be SSMW Group Pty Ltd ACN 612479571. I’m also keen to understand whether this will have any GST implications.

Next step is for us to get you an offer letter and I will be presenting this transaction to our investment committee next week, at which point we can commence with the full builder due diligence process we discussed – this would involve getting the following information:

- Three years of annual accounts

- Debtors and creditors reports

- Management accounts to 30 June 2024

- Cashflow for the next 12 months

- WIP list

- Capability statement covering their luxury residential experience (and noting prior work at 33 Stanley Ave and 3 waringa Ave)

I do just want to highlight now that while we initially indicated a 70% LVR would be possible, with the benefit of having read the valuation, and noting the comments relating to downside risk to sales in the prestige residential markets, I’m not confident of getting a result at a 70% LVR. There has appeared to be a thinning of transaction volume in the $10m plus market at Mosman in recent months and acknowledging a number of new projects coming on in the area, at this juncture I think a 65% LVR is more realistic noting that the market risk element in this transaction is quite high.

One other thing to note is that the valuer has not completed a Project Related Site Valuation at this stage, which will be due to the fact the project has not been fully costed at this stage. We would need that to be completed once a QS report is held, this could come by way of update to the existing report.

If you can get me that information regarding the GST treatment from your accountant, I will then be able to get this into investment committee next week.

40. On 18 June 2024, Mr Panzatis sent an email to Mr Renauf stating:

We recently instructed Mitchell Brandtman to begin their initial report on your property at 6 Ruby Street, Mosman as requested. They informed us that the original fee proposal was never accepted and therefore they cannot begin their assessment until payment has been made. I have attached the original fee proposal for your viewing as well as Mitchell Brandtman RFI.

Please provide all QS related documents to Tass Assarapin ([email protected]) & Kate Kelly ([email protected]) at Mitchell Brandtman.

Please provide remittance of fee proposal at your earliest convenience.

41. On 19 June 2024:

1. Mr Sweeney sent Mr Ross an email attaching a letter from Mr Paul Tesoriero of Eagle Financial Chartered Accountants (GST Letter) stating “[a]s accountant for Mr Samuel Renauf and SSMW Group Pty Ltd I can confirm based on discussions with my client and plans for the renovations of 6 Ruby St, Mosman NSW, there would no GST applicable for the sale of the property”;

2. Mr Ross on-sent the GST Letter to Mr Howe, stating - “[I]s this Accountant’s letter sufficient for Payton’s purposes as to why GST is not accountable? We look forward to hearing from you at your earliest convenience and appreciate your assistance in this matter”; and

3. Mr Howe responded to Mr Ross, stating “[I]t would be helpful if his letter could be expanded to cover their rational [sic] for providing this advice. Okay to look to a letter from their accountant but, for something that is a departure from typical treatment for a company borrower, I’ll need the letter to be more specific as to why that is the treatment”.

42. On 20 June 2024:

1. Mr Renauf executed the fee proposal for the appointment of a QS (Mitchell Brandtman);

2. Mr Sweeney sent Mr Tesoriero an email stating:

I just heard back from the lender this morning. They require a letter providing commentary on why you believe GST is not applicable for the build and sale of 6 Ruby Street, Mosman.

Could you please add this commentary to the bottom of the letter?

The lender has a credit committee meeting today at noon, so your prompt attention to this matter would be greatly appreciated.

3. Mr Tesoriero responded by providing an amended letter which added a statement that “GST is not applicable to the sale of the property due to the works carried out not being considered “Substantial Renovations” per the GST Act”; and

4. Mr Ross advised Mr Sweeney that Paytons required Mr Renauf to obtain a GST clearance certificate:

Payton’s have come back to me with the following link, and their solicitors have advised that from their perspective that this build WOULD fall under substantial alterations

However, as we are BOTH neither Accountants or Solicitors, Paytons have suggested that the Accountant gain from the ATO with regards to this build a “GST Clearance Certificate” confirming that GST is NOT applicable for this specific build.

In essence, they have suggested that the client “as the umpire” as to if it is applicable or not, as the provided letter gives no comfort to the credit committee who as now part of a publicly listed company and have auditors who will check their work and rationale.

43. On 27 June 2024 at 4.19pm Mr Ross sent an email to Mr Sweeney in the following terms:

I just wanted to advise you that I had a talk to Paytons head of credit and have convinced him to accept the existing letter from the Accountant whilst waiting for the ATO GST Clearance Certificate - and anything approved will be subject to receipt of this

What this means, is that the loan will be put up for formal credit approval next week - so as we can progress this loan to settlement rather than wasting time waiting for the Accountant to get this certificate. I hope/believe this is what you would have wanted me to do in your absence

44. On 28 June 2024 at 4.19pm, Mr Sweeney sent an email to Mr Ross withdrawing Mr Renauf’s Loan Proposal on account of Mr Renauf’s accountant’s inability to provide a GST Clearance certificate:

I’ve spoken to the client’s accountant, and they are unable to provide a GST clearance certificate. Since loan maturity is coming up, chasing this further is not feasible. As a result, the client has decided not to proceed with the construction finance for Paytons. Instead, he will look to refinance with another lender as his loan matures on the 4th of July. …

Unfortunately, we couldn’t proceed as planned, but I must follow the client’s instructions.

45. On 1 July 2024 at 10.54am, Mr Hugh Ross sent an email to Mr Sweeney marked “without prejudice save as to costs” advising that the matter had now been taken over by UFFA.

46. On 1 July 2024 at 2.34pm, Mr Howe emailed Mr Sweeney stating:

I regret to inform you that following our due diligence process, Payton Capital will not be able to proceed with the proposed funding for the purchase and refurbishment of the property at 6 Ruby Street, Mosman.

I wish you and your client luck with finding an alternative funding solution.

47. At 2.49pm Mr Sweeney asked Mr Howe to confirm this with UF and at 2.56pm Mr Howe stated that he verbally confirmed this with UF earlier today and that he was happy for UF to be provided with a copy of his email from 2.39pm if further confirmation is required.

48. Subsequently on 1 July 2024, Mr Hugh Ross sent a notice to Mr Renauf and Ms Nicola Garrett (Notice). The Notice stated (in part):

We refer to the Prospective Approval Agreement, dated 18 March 2024, issued by Union Fidelity Pty Ltd as agent for Union Fidelity Finance(Aust) Pty Ltd, to Samuel Renauf for an amount of $17,427,000.00 signed and accepted by the Borrowers and Guarantors, Samuel Renauf and Nicki Garrett, on 22 March 2024 for which a Processing Fee of $7866.25 (including a credit card fee of $116.25) was paid as consideration for the contract.

We understand from your Broker, that you no longer wish to proceed with this loan arrangement in breach of the contract agreement.

We draw your attention to the above contract, dated 18 March 2024, at page 5 (of 11) at 'Conflict' (c) (1) in regard to Payment of Fees regardless of whether the loan proceeds or not.

Under this Prospective Approval Indication (PAl) Contract you are liable to pay the outstanding brokerage for the loan arrangement an amount of $217,838.00.

We would appreciate if you could attend to payment of this amount of $217,838.00 into our Bank Account (details of which are noted on the Irrevocable Authority which is part of the PAI) to avoid recovery expenses. Details of Union Fidelity's Bank account as below:-

Union Fidelity Finance (Aust) Pty Ltd Westpac Banking Corporation

BSB: 032-716

Acc No. 489 872.

Ref: Renauf

49. On 4 July 2024 an identical letter was issued, this time addressed also to “the Secretary SSMW Group Pty Ltd”.

50. The First Caveat was lodged on 3 July 2024 and registered on 14 July 2024. The First Caveat stated that the “Estate or Interest Claimed” was a Charge by virtue of an agreement between UFFA and Mr Renauf. Next to “Details Supporting the Claim” it was stated “Pursuant to facility agreement dated 22/3/2024 between the caveator and Payton Capital Ltd as borrower and the registered proprietor as guarantor”.

51. Correspondence then ensued between the parties in which Mr Renauf’s lawyers demanded that the First Caveat be removed.

52. On 28 January 2025, a Lapsing Notice was served on behalf of Mr Renauf in respect of the First Caveat. The proceedings were then commenced.

53. The First Caveat was withdrawn on 18 February 2025.

54. The Second Caveat was registered on 21 February 2025. The only substantial difference between the First Caveat and the Second Caveat is in the “Details Supporting the Claim” section which now states “Pursuant to Prospective Approval Agreement dated 18/03/2024 between the caveator and registered proprietor”. The caveator is UFFA.

The real issues in dispute and their resolution

55. Although the case began as a duty matter seeking an extension of caveat and was heard on a final basis within weeks of commencement and without pleadings, the issues litigated were quite clear and focussed on ultimate questions of liability.

56. Essentially, they can be reduced to three:

1. The proper construction of the provisions of the PAI in relation to the payment of the brokerage fee in circumstances where no loan was ultimately advanced?

2. Whether, in the circumstances that eventuated, the brokerage fee was payable in accordance with the terms of the PAI properly construed?

3. Is clause (c)(i) of the PAI unenforceable as a penalty?

57. Submissions were also advanced in relation to whether the First Caveat and the Second Caveat were properly lodged. It emerged in closing submissions that resolution of these issues was only relevant to costs and the parties agreed that I would determine the contractual issues first and then give the parties an opportunity to be heard on costs.

58. Expressed in summary form, the plaintiffs contended that:

1. clause (c)(i) sets out the operative clause in relation to the payment of brokerage fees in the event that the contemplated loan does not proceed. Clause (c)(ii) operates to modify or ameliorate the operation of clause (c)(i);

2. the effect of these provisions is that if the contemplated loan does not proceed the brokerage fee was payable unless the reason that the contemplated loan did not proceed was for something other than Mr Renauf’s failure to satisfy a lending requirement, that is failure to remedy an event by which he did not proceed, or Mr Renauf’s election not to proceed;

3. in the present case, the contemplated loan did not proceed because of Mr Renauf’s election not to proceed or because of his inability to satisfy a condition of the lender, Payton, namely the provision of a GST Clearance certificate. In the present case it was thus the first part of clause (c)(ii) that applied and the brokerage fee remained payable.

59. Expressed in summary form, Mr Renauf contended that:

1. no brokerage fee is payable unless a formal loan approval is granted by the lender, Payton, and in the present case no formal loan was ever approved;

2. in the alternative, in the present case, clause (c)(ii) qualifies the operation of clause (c)(i) and in the circumstances of the present case the loan approval did not progress through no fault on the part of Mr Renauf but because Payton determined that it did not wish to proceed. In the circumstances, the second part of clause (c)(ii) applies and no brokerage fee is payable;

3. in the alternative, clause (c)(i) is unenforceable as a penalty – the primary obligation is to proceed with the loan approval – the obligation to pay a brokerage fee is a collateral obligation. The obligation is in terrorem of Mr Renauf proceeding with the loan approval.

Relevant provisions of the PAI

60. Central to the resolution of the dispute between the parties is the proper construction of the terms of the PAI.

61. The letter is on the letterhead of UF and is addressed to Mr Renauf, care of Mr Sweeney. It runs to eleven pages.

62. The letter relevantly begins:

Dear Sirs,

We refer to your loan proposal for $17,427,000.00. We advise that a potential lender has advised a Willingness to Proceed on the following terms and conditions.

….

(Although in bold, the PAI does not contain any definition of “Willingness to Proceed”)

63. There then follows a schedule which sets out a number of separate matters including “Borrower”, “Facility Amount”, “Interest Rate”, “Term”.

64. Against the heading “Other Conditions” it is stated “The lender will be pleased to consider approval of your loan subject to obtaining the following: …”. Ten items are listed, the last one being “Any other conditions as per lender deems to be fair and reasonable”.

65. Against the heading “Lender’s Establishment fee” is stated:

1.25% (+ GST) of the Principal to be advanced. (Minimum $1000)

1.25% (+GST) of the Principal by way of a Line fee

The fee shall be payable prior to the Lender instructing solicitors to prepare documentation.

A Lenders Application Fee of $TBA.00 will be due an [sic] payable upon acceptance of the Lenders Indicative offer (not this letter)

66. Against the heading “Conflict:” appears the following:

To the extent there is any conflict or ambiguity between the provisions of the Lender’s Formal letter of offer and the mortgage documents, the provisions in the mortgage documents will prevail.

The Borrower acknowledge that the Lender may pay a commission to the party, who introduces this transaction to the lender.

Please note that:-

(a) Purpose of Loan: On acceptance of the Lender’s Formal Offer the Borrower and/or Guarantor acknowledge that their understanding of the Purpose of the loan is correct.

(b) The Lender’s rights: The Lender reserves the right to withdraw or amend the loan approval at any time without liability and at their absolute discretion if, in their opinion or in the opinion of their solicitors, there arises any matter which may adversely affect the proposed loan. Any changes to the terms and conditions will be shown in loan documentation which will also give further and better particulars of the loan and shall prevail over the terms of this letter.

(c) (i) Payment of Fees regardless of whether the loan proceeds or not: It is acknowledged and agreed by the Borrower that on acceptance of this Prospective Approval Indication the Brokerage Fee and disbursements are payable regardless of whether the loan proceeds or not.

(ii) If the Lender withdraws the loan approval due to the Borrower’s default (see F below) the brokerage fee and disbursements remain payable by the borrower.

If the Lender withdraws the loan approval at any time under (B) above with no Borrower’s default Notice under (F) below no further brokerage fees are payable

(d) Caveatable charge: In the event of default of payment of brokerage fee and/or disbursements by the Borrower to Union Fidelity Pty Ltd as agent for Union Fidelity Finance (Aust) Pty.Ltd (Union Fidelity™) the Borrower hereby charges the land in Certificate(s) of Title reference, Ruby Street Mosman(“the land”) of which the Borrower is the registered proprietor / registered owner and all the estate and interest of the Borrower of that land and all other land of which the Borrower is currently and in the future the registered proprietor / registered owner with the payment to Union Fidelity™ of all monies which are due and payable to Union Fidelity™. The Borrower authorises the lodgement of a caveat in the event of default.

(e) An event of Default: For the purposes of this Prospective Approval Indication an event of default means the failure by the Borrower to remedy or make good any event by which the Borrower does not proceed with the accepted loan as set out in this Prospective Approval Indication after 7 calendar days notice of default in writing has expired.

The jurisdiction for any conflict shall be in a competent court in New South Wales.

67. Below this item, the letter states:

Please note that the above does not constitute a letter of offer but rather a prospective approval indication based on information to hand. Formal approval will be subject to detailed analysis of all information required.

68. Below the heading “Lender’s Fees” it is stated “Total Lender’s Establishment Fee” of $217,838.00 and it is then indicated that the fee will be deducted from settlement proceeds.

69. On the next page there is a heading “Brokerage Fees” below which it is stated:

Brokerage Fees

Union Fidelity™ Fees (incl Mortgageworks for 1/2)   $217,838.00

Settlement Fees                $ 0-00

(In accordance with Irrevocable Authority)

70. In order “to accept this prospective approval indication” the borrower is requested to initial all pages and sign page “Acceptance of Prospective Approval Indication”, sign Union Fidelity’s Irrevocable Authority to Pay and deposit a Processing Fee of $7,750.00 to Union Fidelity’s bank account.

71. Mr Renauf signed the “Acceptance of Prospective Approval Indication and Irrevocable Authority” and paid the processing fee.

72. The Irrevocable Authority provided that the Borrower irrevocably directs and authorises “the lender (               )” to pay Union Fidelity Capital Funding Pty Ltd from settlement proceeds a Brokerage Fee of $217,838.00. The bank account details provided is stated to be an account in the name of UFFA.

73. The final page of the letter begins “Below is the detail on how and what fees are payable”. There is then a table as follows:

When	To whom	For	How Much
Upon Acceptance of Prospective Approval Indication (this letter)	Union Fidelity™	Processing Fee	$7,750.00
Upon Acceptance of the Lender’s Conditional Offer	The Lender	Preparation of Loan and due diligence this is an offer acceptance fee	$TBA.00 for part payment application fee
Prior to Instruction of Valuer	The Lender	Valuation Fee for the valuation of your property	$TBA.00 (approx.)
Settlement of your loan
From Settlement Proceeds	Union Fidelity™, The Lender, Government and Solicitors for The Lender	Brokerage for Union Fidelity™ (incl Mortgageworks for 1/2)	$217,838.00
Lenders Fees (residual after what has already been paid by way of offer fee) Line Fee(deducted from loan proceeds)	$217838 $217838
Estimate Government Charges, Duties, Transfers etc	$120.00 Settlement Fee $130.00 Electronic Lodgement $145.00 Title Insurance
Estimate of Solicitors Fees	$TBA.00 Legal Fees + Out of Pocket Expenses

Principles of construction

74. The principles applicable to the construction of a commercial contract such as the PAI are well known. The following summary suffices for present purposes.

75. Three core principles emerge from what French CJ, Hayne, Crennan and Kiefel JJ said in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at [35]:

1. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean.

2. That requires consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. That, in turn, is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating.

3. Unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption that the parties intended to produce a commercial result. The contract is to be construed so as to avoid it making commercial nonsense or working commercial inconvenience.

76. Notwithstanding these three core principles, as French CJ, Nettle and Gordon JJ stated in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at [48], “ordinarily this process of construction is possible by reference to the contract alone”.

77. As Allsop P observed in Onesteel Manufacturing Pty Ltd v Bluescope Steel (AIS) Pty Ltd (2013) 85 NSWLR 1 at [61], the analysis is an objective one that can produce only one true meaning. The process of construction is not a process necessarily concluded by logical reason or a priori analysis. It involves the weighing of differing considerations partly logical and partly intuitive (though rational) leading to a choice. Analysis of competing arguments assists in that process, but the “correct” answer is not arrived at merely by seeing which side has the greater number of “good” points.

78. As Leeming JA observed in Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561 (Zhang v ROC) at [53], the starting point is to determine the literal or grammatical meaning or meanings of the clause. Second, one determines the legal meaning of the clause. Whereas here, there are several clauses of the agreement to be construed, it is clear that every provision must be read, together and construed with the others, so as to render, as far as possible, the provisions harmonious with each other: see Herzfeld and Prince, Interpretation (3^rd ed, 2024, Thomson Reuters) at [22.30] and the cases cited therein. This is with a view to the legal meaning reflecting a measure of internal coherence: see HP Mercantile Pty Ltd v Hartnett [2016] NSWCA 342 (HP Mercantile) at [134] per Leeming JA.

79. Where there is more than one available legal meaning, a court looks at the text, context and purpose with a view to determining which potential meaning best accords with those considerations. An iterative process is called for – checking each of the rival meanings against the other provisions of the document and investigating its commercial consequences.

80. As Leeming JA further observed in HP Mercantile at [134]:

…The process of working through the consequences of the competing literal or grammatical meanings enables a court to assess whether either party’s preferred legal meaning gives rise to a result that is more or less internally consistent and avoids commercial absurdity.

(see also Zhang v ROC at [80]-[87]).

Proper construction of the PAI

81. The effect of the PAI having regard to its terms is, obviously enough, nothing more than an agreement whereby UF, as agent for UFFA, indicates to Mr Renauf that it has found a lender who is prepared to consider (has a Willingness to Proceed in the words of the PAI) loaning the moneys sought to Mr Renauf on particular terms. The PAI makes it clear that it is not an offer from the lender (who is not even named) to loan moneys and further makes it clear that the lender reserves the right to amend the indicated terms and to impose new terms and conditions. The role of UF/UFFA is confined to having identified the lender and, for want of better words, introduced the lender to Mr Renauf.

82. Acceptance of the terms of the PAI by Mr Renauf binds him to having the lender consider formally approving the loan. It is a commitment by Mr Renauf to the lender going forward with the approval process. UFFA has introduced Mr Renauf to that lender as a lender prepared to move forward with a process of approving a loan to Mr Renauf (again – has a Willingness to Proceed). It is in this sense that the agreement is properly described as a prospective approval indication or PAI.

83. It is important to understand these basic matters when considering the respective submissions, particularly those advanced on behalf of Mr Renauf.

84. Turning now to clause (c)(i), looked at in isolation its grammatical meaning is tolerably clear. Mr Renauf acknowledges that an “acceptance of this Prospective Approval Indication” (the means by which this is to occur being clearly set out elsewhere in the document), the “Brokerage Fee” (which is clearly set out on page 7 of the document) is payable regardless of whether the loan proceeds or not. The reference to “the loan” in this regard is, clearly enough having regard to what precedes the reference in the document, and particularly the introductory words at the commencement of the document, the loan sought by Mr Renauf which a potential lender is prepared to proceed to formally consider approving.

85. The immediate context in which “the loan” is referred to in clause (c)(i) also supports this construction. The reference is in the context of whether the loan proceeds or not. There is no warrant for reading the words “the loan” as referring to a formally approved loan. The broader context – of an agreement whereby UF/UFFA have already performed their introductory role and have no further role to play in terms of whether the loan is formally approved – also supports this construction.

86. Unless qualified by another provision of the document, clause (c)(i) obliges Mr Renauf (having accepted the PAI) to pay the Brokerage Fee.

87. Whilst the terms of the PAI elsewhere contemplate the Brokerage Fee being deducted from the Settlement Proceeds, this is obviously where “the loan” proceeds and as such is not the situation principally dealt with by clause (c)(i).

88. Turning now to clause (c)(ii), it is made up of two separate parts.

89. It was not in dispute that clauses (c)(i) and (c)(ii) (both parts) must be construed together. Counsel for Mr Renauf contended that the only way that clause (c) as a whole can make sense is if the obligation to pay a Brokerage Fee did not take effect unless and until a “loan approval” was in place. A “loan approval” in this sense was said to be a formal approval by the unnamed Lender in the PAI, as opposed to the “indicative” approval the subject of the PAI.

90. In support of this contention, reliance was placed on the reference to “loan approval” in each of the two parts of clause (c)(ii), the reference to the “Lender’s Formal letter of offer” at the commencement of the clause headed “Conflict” (which includes clause (c)), and the fact that the consideration for the PAI was the processing fee of $7,750.

91. The plaintiffs contended that clause (c)(ii) did not qualify clause (c)(i) in this way but rather operated at a different point in time to clause (c)(i), at the later point in time when the fate of the loan was known. The reference to “loan approval” should be construed as referring to the prospective approval forming the subject of the PAI, and not as if referring to some later obtained formal loan approval.

92. I accept the plaintiffs’ contentions and reject those advanced by Mr Renauf.

93. The wording of clause (c)(i) is clear. Reading “loan approval” in the manner contended for by the plaintiffs is a plain and ordinary reading of the words in the context of the PAI. There is nothing nonsensical about such a construction. The inclusion of the word “remain” in the first part of clause (c)(ii) also supports the construction propounded by the plaintiffs – it is payable under clause (c)(i).

94. Adopting the construction propounded by Mr Renauf would be quite inconsistent with the clear terms of clause (c)(i). There is nothing in clause (c)(i) to the effect that the Brokerage Fee is payable on acceptance of the PAI and formal approval of the loan by the unnamed lender. There is no reason why the provisions need to be read together that way. Clauses (c)(i) and (c)(ii) can comfortably be read together in the manner contended for by the plaintiffs.

95. The fact that the consideration for the PAI is the processing fee of $7,750, does not lend support to Mr Renauf’s argument that the Brokerage Fee is only payable once formal loan approval is granted by the Lender. The issues are separate. The circumstances in which the Brokerage Fee is payable depends on the construction of the terms of the PAI.

96. The meaning of each subpart of clause (c)(ii) is also clear.

97. The first part applies where the loan is withdrawn by the lender due to the Borrower’s default which directs attention to clause (e), it being agreed that the reference to “F” was an obvious mistake. Clause “(e)” states that “an event of default means the failure by the Borrower to remedy or make good any event by which the Borrower does not proceed with the accepted loan … after 7 calendar days’ notice of default in writing has expired”.

98. Counsel for the plaintiffs did not shy away from the contention that this in effect required the Borrower (Mr Renauf) to go ahead with the loan, or when read with the other part of clause (c)(ii), meant that the only circumstance in which the Brokerage Fee was not payable was where the Lender withdraws pursuant to its discretion in clause (b).

99. Counsel for the plaintiffs contended that this was the commercial risk taken by a Borrower in the circumstances – principally the Borrower having to borrow in the non-conforming lending market, self-evidently unable to obtain finance through some more traditional i.e. bank lending channels. The substantial fee payable reflects that risk.

100. I agree that this is the ordinary and grammatical meaning of the words used in clause (e), construed along with the two parts of clause (c).

101. The meaning of the second part of clause (c)(ii), is also clear. The words “the Lender withdraws the loan approval at any time under (B) above with no Borrower’s default Notice under (F) [sic (E)] below no further brokerage fees are payable”, when read along with the words of clause (b) which gives the Lender the right to withdraw or amend the loan approval if “there arises any matter which may adversely affect the proposed loan”, confine the operation of the part to a situation where it is the Lender that is withdrawing and there is no inability or unwillingness on the part of the Borrower going ahead with the loan. This last aspect clearly emerges from the defined meaning of event of default in clause (e).

102. Adopting a harmonious reading of clauses (c)(i) and (c)(ii), the second part of clause (c)(ii) sets out the only circumstance in which the Brokerage Fee is not payable as clearly set out in clause (c)(i).

103. The combined effect of each of the relevant clauses is that:

1. the Brokerage Fee is payable upon acceptance of the PAI by the Borrower, regardless of whether the proposed loan proceeds or not; unless

2. the reason why the loan does not proceed is because the lender exercises its right to withdraw under clause (b) and there is no unwillingness or inability on the part of the Borrower to proceed.

104. To be clear, if the Borrower, having accepted the PAI, decides not to proceed with the proposed loan, the Brokerage Fee is payable. If the reason why the Borrower does not wish or is unable to proceed is because the Borrower is unable or unwilling to comply with a term imposed by the Lender, the Brokerage Fee is payable.

Why did the loan not proceed?

105. The question that next arises is why did the loan not proceed or, put another way, which of the two parts of clause (c)(ii) applies?

106. Mr Renauf contended that in the alternative to his contention that the Brokerage Fee was only payable in the event that formal loan approval was granted, the second part of clause (c)(ii) applied, namely Payton had withdrawn the loan, and as such no Brokerage Fee was payable.

107. I have set out the factual events above. Relevantly:

1. on 14 June 2024, Payton raised the issue of whether GST would apply to the on-sale;

2. Mr Renauf’s accountant prepared a letter confirming that based on his discussions with Mr Renauf, there would be no GST applicable for the sale of the property;

3. an amended letter was then provided (on 20 June 2024) by Mr Renauf’s accountant with an additional sentence as to why GST was not applicable – because the proposed works were not considered “Substantial Renovations”;

4. Payton were not satisfied with the letters from the accountant and required Mr Renauf to obtain a GST clearance certificate – again this occurred on 20 June 2024;

5. on 27 June 2024, Mr Ross of UF sent an email to Mr Sweeney to the effect that he had convinced Payton to accept the existing letter from Mr Renauf’s accountant whilst waiting for the ATO clearance certificate;

6. on 28 June 2024, Mr Sweeney sent an email to Mr Ross withdrawing Mr Renauf’s loan proposal on the stated basis that Mr Renauf was unable to provide a GST clearance certificate and that since the maturity of Mr Renauf’s existing loan was “coming up, chasing this further is not feasible”. (It is not clear on the evidence if this was communicated to Paytons);

7. on 1 July 2024, Payton emailed Mr Sweeney stating “following our due diligence process, Payton Capital will not be able to proceed with the proposed funding”. No further detail was provided in the email and there was no further evidence as to the ultimate reason for Payton’s decision, although it seems reasonable to infer that it was the inability of Mr Renauf to provide a GST clearance certificate.

108. What is clear on the chronology is that Mr Renauf withdrew his loan application first – on 28 June 2024 – and before Payton indicated it was not willing to proceed with the proposed funding – on 1 July 2024.

109. Mr Renauf sought to contend – as I understood the submission – that the operative act relied on by the plaintiffs was Payton’s email of 1 July 2024 indicating it was not proceeding. The contention is premised on the fact that the plaintiffs first notice of demand to Mr Renauf is dated 1 July 2024.

110. I do not accept this contention at a factual level in circumstances where, at 10.54am on 1 July 2024, several hours prior to Payton informing Mr Sweeney of its decision not to proceed, Mr Hugh Ross sent an email to Mr Sweeney marked “without prejudice save as to costs” advising that the matter had now been taken over by UFFA. The obvious context of this email, and its marking, was a potential dispute with Mr Renauf in relation to the Brokerage Fee. So much is clear from the notice of demand emailed at 5.46pm on 1 July 2024.

111. I am conscious in this regard that Mr Howe of Payton indicated to Mr Sweeney in an email at 2.56pm on 1 July 2024 that he had verbally confirmed Payton’s discussion with the plaintiffs “earlier today”, although he does not say precisely when.

112. In any event, I do not think any of this matters. Mr Renauf was first to withdraw his loan application on 28 June 2024. Payton’s decision not to proceed was likely in circumstances where Mr Renauf had indicated he was unable to provide a GST clearance certificate. Whilst the seven day notice to remedy provided for in clause (e) was not issued, such notice would never have been complied with given Mr Renauf’s decision to withdraw his loan application and go elsewhere. Whilst Mr Ross told Mr Sweeney on 27 June 2024 that he had convinced Payton’s Head of Credit to accept the existing letter from the accountant whilst waiting for the GST Clearance Certificate, self-evidently a clearance certificate was still being insisted on and this is what was stated on 28 June 2024 as not being able to be provided.

113. The second part of clause (c)(ii) has no application in the circumstances. Mr Renauf elected not to proceed on 28 June 2024. Pursuant to clause (c)(i), the “Brokerage Fee” is payable.

114. Counsel for Mr Renauf also placed some reliance on the fact that it was proposed, after the PAI was executed, that the loan would be in the name of a corporate entity associated with Mr Renauf - SSMW. As I understood the argument, this fact, together with the fact that Payton’s formed the view that an LVR of 70 percent (as referred to in the PAI) was no longer achievable, changed the character of the loan and placed it outside the scope of the PAI. I do not accept this submission. Neither of these “facts” takes Mr Renauf outside the terms of the PAI. There was only ever one proposed loan. Recognising that the borrower would be the existing borrower – a corporate entity associated with Mr Renauf – did not alter that fact. In relation to the LVR proposed change, the terms of the PAI permitted the lender to make these changes.

115. The plaintiffs also placed reliance on the decision of Slattery J in La Trobe Capital v Mortgage Corporation Limited (No 2) [2009] NSWSC 1372 where it was held that a Union Fidelity entity was entitled to recover a Brokerage Fee under an accepted “Prospective Approval Indication”. I accept counsel for Mr Renauf’s submission that this decision is distinguishable from the present case and thus does not assist the plaintiffs. A formal loan approval was in fact granted in that case and the operative provisions of the agreement were different.

108. Subject to the penalty question, to which I now turn, the Brokerage Fee is payable by Mr Renauf under the terms of the PAI.

Is clause (c)(i) unenforceable as a penalty?

117. Mr Renauf contends that clause (c)(i) is unenforceable as a penalty. The elements of the argument – as advanced in written submissions, where little was said orally in relation to it – was as follows:

1. clause (c)(i) purports to oblige the borrower to pay the brokerage fee regardless of whether or not the loan proceeds;

2. in circumstances where the loan does not proceed then clause (c)(ii) applies to modify the operation of clause (c)(i), such that the brokerage fee is only payable on default or breach by the borrower;

3. the definition of “event of default” in clause (e) is defined to mean “the failure of the Borrower to remedy or make good any event by which the Borrower does not proceed with the accepted loan”;

4. in substance, the brokerage fee is a collateral stipulation only payable if the borrower is in default or breach of the primary stipulation in favour of the lender and is in terrorem of the satisfaction of the primary stipulation.

118. As I understand the contentions, the “primary stipulation” was to go ahead with the loan.

119. It was then contended that the Brokerage Fee of $217,838.00 claimed by the plaintiff was patently extravagant and unconscionable, out of all proportion to any genuine pre-estimate of damages.

120. The plaintiffs disputed that the clause operated as a penalty. No attempt was made by the plaintiffs, however, to justify the quantum of the Brokerage Fee in the event the doctrine applied. Rather, the debate was whether the clause operates as a penalty.

121. The High Court reframed the law of penalties in Australia in Andrews v Australia and New Zealand Banking Group Ltd (2012) 247 CLR 205 (Andrews) and Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 (Paciocco). The relevant principles are not in dispute – see Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 93 NSWLR 231 (Arab Bank) at [69]-[76] per McDougall J (Gleeson JA and Sackville AJA agreeing) and Australia Capital Financial Management Pty Ltd v Linfield Developments Pty Ltd (2017) 18 BPR 36,683 (Australia Capital) at [353]-[376] per Ward JA (McColl and Gleeson JJA agreeing).

122. In Andrews at [9]-[10], the Court (French CJ, Gummow, Crennan, Kiefel and Bell JJ) stated:

[9] Mason and Deane JJ observed in Legione v Hateley that, as the term suggests, a penalty is in the nature of a punishment for non-observance of a contractual stipulation and consists, upon breach, of the imposition of an additional or different liability.

[10] In general terms, a stipulation prima facie imposes a penalty on a party (“the first party”) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. In that sense, the collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation. If compensation can be made to the second party for the prejudice suffered by failure of the primary stipulation, the collateral stipulation and the penalty are enforced only to the extent of that compensation. The first party is relieved to that degree from liability to satisfy the collateral stipulation.

123. In Andrews, the High Court held that the primary stipulation to which the penalty doctrine applies may be the occurrence or non-occurrence of an event which is neither a breach of contract nor an event which it is the responsibility or obligation of the party subjected to the penalty to avoid (at [12], [45], [46], [67]). That is because “a penalty conditioned on failure of a condition is for these purposes in substance equivalent to a promise that the condition will be satisfied”: Integral Home Loans Pty Ltd v Interstar Wholesale Finance Pty Ltd [2007] NSWSC 406 at [57].

124. The onus of proving that the impugned clause is a penalty rests with the party asserting it, in this case, Mr Renauf: see Arab Bank at [75], [111].

125. In considering whether the penalties doctrine is engaged at all, Ward JA at [359] in Australia Capital referred with approval to the framework proposed by Gordon J in Paciocco v Australia and New Zealand Banking Group Limited (2014) 309 ALR 249. The framework is in the following terms:

[15] To assist in understanding the form and substance of the following analysis, a particular stipulation may (not must) be considered by reference to the following steps:

(1) Identify the terms and inherent circumstances of the contract, judged at the time of the making of the contract: Dunlopat 86–7 and AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170; 68 ALR 185 (AMEV).

(2) Identify the event or transaction which gives rise to the imposition of the stipulation: Dunlopat 86–7 and Andrews High Court at [12] .

(3) Identify if the stipulation is payable on breach of a term of the contract (a necessary element at law but not in equity). This necessarily involves consideration of the substance of the term, including whether the term is security for, and in terrorem of, the satisfaction of the term.

(4) Identify if the stipulation, as a matter of substance, is collateral (or accessory) to a primary stipulation in favour of one contracting party and the collateral stipulation, upon failure of the primary stipulation, imposes upon the other contracting party an additional detriment in the nature of a security for, and in terrorem of, the satisfaction of the primary stipulation.

(5) If the answer to either question 3 or 4 is yes, then further questions arise (at law and in equity: see Andrews High Court at [77]) including:

(5.1) Is the sum stipulated a genuine pre-estimate of damage?

(5.2) Is the sum stipulated extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved?

(5.3) Is the stipulation payable on the occurrence of one or more or all of several events of varying seriousness?

These questions are necessarily interrelated.

(6) If the answer to question 5 is that the sum stipulated is not a genuine pre-estimate of damage and is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have been sustained by the breach, or the failure of the primary stipulation upon which the stipulation was conditioned, then the stipulation is unenforceable to the extent that the stipulation exceeded that amount. Put another way, the party harmed by the breach or the failure of the primary stipulation may only enforce the stipulation to the extent of that party’s proved loss: Andrews High Court at [10].

126. Of present relevance are questions (3) and (4).

127. I do not accept Mr Renauf’s contention that in the present case clause (c)(i) is properly viewed as a stipulation collateral to a primary stipulation of progressing the loan. On the view that I take of the PAI, clause (c)(i) is a primary stipulation in itself, requiring the Borrower – Mr Renauf – to pay the Brokerage Fee whether the proposed loan proceeds or not. The fee is the same whether the loan proceeds or not. It is the fee payable by Mr Renauf to UFFA for the introduction to the lender “willing to proceed”, i.e. for the introduction to the lender who is prepared to consider formally approving the loan.

128. The Brokerage Fee is not payable on breach of a term of the PAI. The PAI does not impose any obligation on Mr Renauf to proceed with the proposed loan. Clause (c)(i) does not impose an additional detriment on Mr Renauf. It is payable on acceptance of the PAI.

129. The penalty doctrine is not engaged.

Conclusion and other issues

130. For the reasons set out above, the plaintiffs succeed and the first plaintiff is entitled to judgment for the sum sought of $217,838, plus pre-judgment interest.

131. At the request of the parties, I will not deal with costs or the issue of the validity of the First Caveat and the Second Caveat.

132. I will give the parties the opportunity to be heard on any remaining issues, including as to interest and costs. My preliminary view is that costs should follow the event and Mr Renauf be ordered to pay the plaintiffs’ costs. There seems to me to be little utility in determining the issues associated with the validity of the caveats in circumstances where Mr Renauf accepted that if, as I have found, the Brokerage Fee is payable, UFFA would be entitled to lodge a fresh caveat on title.

133. The orders of the Court are:

1. Direct the parties to confer and seek to agree final orders to give effect to these reasons, including as to interest and costs.

2. Direct the parties to provide any agreed orders, or competing orders, to my Associate by no later than 5pm on 24 April 2025.

3. In the event there is no agreement, including as to costs, direct the parties to provide to my Associate by no later than 5pm on 24 April 2025 any submissions and supporting material, such submissions not to exceed 3 pages.

4. Direct the parties to provide to my Associate by no later than 5pm on 1 May 2025 any submissions and supporting material in reply, such submissions not to exceed 3 pages, whereupon the remaining issues will be determined on the papers.

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Decision last updated: 15 April 2025