Month: September 2021

Blog 48. On being charged $11,828 for the “experience” of applying for a loan.

Skymation Pty Ltd v ALS342 Pty Ltd& Anor [2021] VSC 386 (20 July 2021), Daly AsJ. concerns a caveat based on a term in a contract constituted by a letter of offer of a loan.  The loan never proceeded but to the surprise of the registered proprietor the caveator claimed certain preliminary expenses, a solicitor asserting “your client cannot decide not to lend the money then charge our client $11,828.00 for the experience”.  Reading this case stirred my memory of reading a Victorian decision about 15 years ago in which a financier was attempting to recover its “up front” funds for another abortive loan.  I remembered the name of counsel, David Robertson QC, and he said it was Gippsreal Ltd v Kurek Investments Pty Ltd [2006] VSC 115 at first instance and Gippsreal Ltd v Registrar of Titles (2007) 20 V.R. 157, [2007] VSCA 279 on appeal.  He said that the successful argument for the “borrower” in that case was that the contract contained so many possible let-outs for the financier that the consideration provided by it was illusory.

Skymation also concerns whether a nominee “lender” becomes a party to the contract of loan.  By contrast Blogs 8 and 28 concern caveats lodged by a purchaser who had nominated a substitute purchaser.

The facts were –

  • The plaintiff (Skymation) was the registered proprietor of a property in Toorak.   Its director (Negri) had a long-running dispute with his son Richard about control of Skymation and beneficial ownership of the property.   Richard had been a director and secretary of Skymation, then resigned, then in 2019 clandestinely removed his parents and appointed himself director and secretary.   This was rectified but in the words of Daly AsJ he did not “resign”.  Richard also caveated over the property in February 2020, which caveat a judge on 15 September 2020 directed him to remove.
  • Negri enquired of a company (Assetline) about Skymation borrowing $400,000 secured by the property.  On 18 September 2020 he received a letter of offer from Assetline.  Later that day he executed and returned the Borrower Declaration included in the letter of offer with a non-refundable payment of $2,860.   The letter of offer was executed by directors of the first defendant (ALS342) and by Negri as the director of Skymation and as guarantor.
  • The letter of offer included:
    • “Assetline Investments Pty Ltd and/or its designated nominee (Assetline or Lender) are pleased to advise you that your application for finance has been approved on the terms detailed within this Offer Sheet and the attached Offer Terms.”;
    • Under the heading “Parties”: “Lender(s) Assetline Investments Pty Ltd and/or its designated nominee”;
    • Under the heading “Security”: “Other Security Such agreements, certificates and acknowledgements, securities and other documents as we or our solicitors may reasonably require”;
    • In the Offer Terms: “Any reference to “we”, “us” and “our” means the Lender”. The rest of the Offer Terms used the first person plural to describe the Lender;
    • That the Lender would instruct the solicitor to prepare and issue loan documents after the valuation and due diligence were completed;
    • That the Lender could withdraw from the proposed loan without liability;
    • Under cl. 25, that if Skymation withdrew from the proposed loan it was liable to pay what is referred to below as the ‘secured sum’, a charging clause attaching to this. The Lender was permitted to lodge a caveat to secure its interest as chargee over any real property owned by Skymation or Negri.
  • A director of ALS342 deposed that upon receipt of the executed letter of offer he instructed solicitors to prepare the loan and security documents.  On 25 September the solicitors provided a letter and these documents.  This letter described the lender as ALS342.
  • This letter also enclosed a “Checklist of required settlement documents” which included: a statutory declaration from Richard enclosing a certified copy of the executed company minutes of meeting resolving that he had resigned from Skymation and a resignation letter executed and dated by him.
  • On 30 September ALS342 lodged a caveat imposing an absolute prohibition on dealings and claiming an interest as chargee pursuant to an agreement dated 18 September 2020.
  • Negri could not obtain the resignation letter from Richard, no money was lent and the security documents were not executed.
  • In November ALS342’s solicitors wrote claiming $11,828.00 (‘secured sum’) comprising a legal fee, a 50% establishment fee and a costs of fund fee.  Skymation’s solicitors replied that:
    • ALS342 had not advised Skymation that documentation was required from Richard after completing its due diligence, and it should not have instructed preparation of loan documentation if unsatisfied with the due diligence;
    • Skymation had not withdrawn from the loan, rather ALS342 had decided not to provide it because of its insistence on documentation from Richard.  It could not do this and then “charge our client $11,828 for the experience”.

Skymation commenced this proceeding under the Transfer of Land Act s. 90(3) to remove the caveat.  ALS342’s director deposed that the proposed loan did not proceed because of the matters referred to in solicitors’ correspondence and because the security documents were unexecuted.  Negri deposed that Skymation desired to sell the property.  Skymation argued that it had no contract with a caveator and if there was a contract it did not owe the caveator anything.

ALS342 applied for leave to amend the caveat: to state the date of its interest as being 25 September 2020, and; if the court held that it had no rights, but Assetline did, to name Assetline as caveator.

Her Honour removed the caveat, holding –

  1. Where a contract permitted a party to nominate another party in substitution for the original contracting party, the substituted party did not acquire the rights and obligations of the original contracting party absent “compelling language” in the relevant agreement. Thus on the one hand in one previous case reference to “and/or nominee” in a contract of sale of shares was construed not to permit the substitution of another person as a purchaser, but on the other hand in another case a nomination clause in a contract of sale of land was construed as rendering the nominee as the purchaser, ie to effect a novation of the agreement, the vendor having known of the intended nominee before the contract was made.  [31]-[35]
  2. There was a prima facie case that the caveator was a party to the loan contract, by reason of the nomination clause in the letter of offer, and as such had assumed the rights and obligations of Assetline under the Offer Terms, because –
    • although the letter of offer referred to Assetline in the singular tense, there was a reference to Assetline’s “designated nominee” and repeated references to the lender’s obligations and rights using the first person plural;
    • of general commercial practice in the finance industry and the nature of the transaction;
    • of evidence that Skymation consented to this. [28], [43], [44]
  1. It was doubtful whether Skymation was indebted to ALS342 because –
    • the instructions to the solicitors to prepare the security documents may well have been premature because the checklist included documents which might ordinarily be required as part of a due diligence process (but, that said, cl. 14.1 of the Offer Terms may amount to Skymation’s agreement to immediately authorise ALS342 to instruct its solicitors to prepare the security documents before completion of due diligence);
    • it was at least arguable that ALS342 withdrew from the proposed loan. [28], [45]-[48]
  1. The balance of convenience favoured removal of the caveat.   In favour of the caveator was no sale being imminent and reduction in its ability to recover the alleged debt.  This was, however, outweighed by: Negri’s intention to sell; the impact of the caveat on prospective purchasers; the guarantor (ie Negri) being a man of substance; real doubt about the existence of the debt, and; because the charging clause permitted ALS342 to caveat over other property of Skymation or Negri. [28], [49]-[51].
  1. If it had been necessary to decide the matter leave would only have been granted to amend the caveat to substitute 25 September 2020 as the agreement date. [28], [52]

 

     Philip H. Barton

     Owen Dixon Chambers West

     Tuesday, September 28, 2021

Blog 47.  No contract of sale – No caveatable interest

In Hazelwood v Mercurio & Ors [2021] VSC 362 (22 June 2021) Daly AsJ –

  • primarily deals with an agent lacking authority to conclude a binding contract on behalf of a vendor (similar to the lack of authority of a solicitor: Leahy v Javni [2020] VSC 680 at [122]);
  • notes that, if a document existed whereby the vendor expressly authorised the agent to execute the contract on her behalf, it would be a breach of the Civil Procedure Act not to disclose it;
  • distinguishes English authority on whether an exchange of emails can comply with the Statute of Frauds;
  • held that if the caveators had established a binding contract the balance of convenience would have favoured them;
  • stayed the removal of caveat for 7 days to enable the caveators to apply for an injunction restraining completion of a further sale based on an alleged estoppel.

The facts were –

  • The plaintiff vendor gave an Exclusive Sale Authority to an agent (whose employee was Campbell) to market an apartment and two separately titled car parking spaces in the Melbourne CBD.  The Authority provided that the agent would advertise, market and sell the property and that “sold” meant (in normal circumstances) “the result of obtaining a binding offer”.  Clause 13 also authorised the agent to –
    • instruct a legal practitioner or conveyancer to prepare a section 32 statement, contract of sale, agree the content of either document and advise and agree on other amendments or additions to either document;
    • fill-up a standard form contract or contract to record the sale as permitted by statute;
    • negotiate and, with the vendor’s approval, agree and record, or have the legal practitioner or conveyancer record, the final terms of, and obtain signatures to, the contract;
    • attend to contract exchange; receive the price and certain advice or notices; and make public certain information.
  • The caveators deposed that on about 11 February they made an unconditional offer to purchase the apartment and one car space for $750,000, with settlement within seven days. Campbell deposed that caveators imposed a very short deadline on the offer and that he conveyed it to the vendor.
  • The caveators deposed that on 16 February Campbell said that he had found a purchaser for the other space and that the vendor had accepted their offer.  Campbell disputed this, deposing that although he could not remember his exact words he had no intention of conveying that a sale had been completed until signing of a written agreement. 
  • The vendor deposed that Campbell told her that he had located a potential purchaser of the apartment and one car space and another purchaser of the second space, and that she instructed him to amend the documents accordingly.    
  • On 18 February Campbell emailed the caveators: stating that if they could “confirm the below points for me” he would start the paperwork.  The points were: whether they had a conveyancer; their full names and address; price $750,000 with a 10% deposit; as to time for settlement; solicitors’ details.  The email concluded: “New paperwork is getting drawn up at our end so nothing for you to do at this stage”.
  • The caveators provided full names, address, lawyer’s details, and stated that settlement would be on 12 March.  
  • On 24 February Campbell emailed an unsigned section 32 statement and contract.  His email stated that he had just received these documents and not yet reviewed them “so let me know any questions you have and I’ll work through them”.   The unsigned contract named the vendor, referred to the apartment and to particulars of title of one space, but omitted purchasers’ names, price and settlement date.  When a caveator queried this Campbell replied that he had “just hit send as soon as I received and so you could have your people quickly review it before signing”.
  • On being informed by Campbell that someone else had purchased the apartment and both spaces the defendants on 2 March caveated on the grounds of a “part performed oral agreement” with the plaintiff.   On 4 March this contract was executed.  The vendor issued a notice under s. 89A of the Transfer of Land Act (TLA), leading to the caveators issuing a Proceeding with a Statement of Claim.  The vendor issued this proceeding under s. 90(3).  Campbell deposed that on average more than ten apartments in the building would be marketed and sold in any year.

The Victorian Statute of Frauds provision, contained in the Instruments Act s. 126, provides that –

“An action must not be brought to charge a person … upon a contract for the sale … of an interest in land unless the agreement on which the action is brought, or a memorandum or note of the agreement, is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note”.

In their Statement of Claim the caveators alleged, in the alternative to breach of contract, that the vendor represented that she would sell the apartment to them, such that she was estopped from resiling from that representation. 

Daly AsJ held –

  1. Accepting, for present purposes at least, that –
    • to comply with s. 126 a contract of sale need not be contained in a single, self-contained document; [33]
    • a sender of an email, by identifying themselves as the sender, can be considered to have “signed” the email; [33]
    • section 126 should be construed as to accommodate “accepted contemporary business practices”; [34]

nonetheless, the vendor had not signed anything.  The only signatory was Campbell, who was authorised to market the apartment but not to enter a contract on behalf of the vendor.  In the Authority there was a material difference between the definition of “sell” and the phrase “endeavour to sell”.  More importantly, cl. 13 did not authorise the agent to sign any contract on behalf of the vendor, but contemplated personal execution by the vendor and purchaser. [35]-[39]

  1. What was stated in the foregoing holding was based on the non-existence of a document in which the vendor not only confirmed her acceptance of the caveators’ offer but also expressly authorised the agent to execute the contract on her behalf. If such a document existed, it should have been disclosed by the vendor in accordance with s. 26 of the Civil Procedure Act headed “Overarching obligation to disclose existence of documents”. [46]
  2. The English decision in Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltdas to whether an exchange of emails between parties to a negotiation can constitute an agreement in writing for the purpose of the Statute of Frauds, was distinguishable.  There was a material difference between English and Victorian legislation. [40]-[44]
  3. If it had been necessary to consider the balance of convenience, this would have favoured the caveators because:
    • notwithstanding Campbell’s evidence that the sale of properties equivalent to the apartment was not rare, this apartment was particularly suitable to the caveators’ needs;
    • while the vendor not unreasonably considered that, absent an executed contract, she was free to deal with the apartment, and was now exposed to claims by the new purchaser, she entered this contract knowing that the caveators asserted that they had a contract with her and so she assumed the risk of this being established. [47]
  1. The caveators had not argued that their estoppel claim created an immediate equitable interest supporting a caveat. However this estoppel claim might found injunctive relief.  Accordingly the order for removal of the caveat would be stayed for 7 days to enable the caveators to apply for an injunction as they may be advised. [24], [48] – [50]

Philip H. Barton

Owen Dixon Chambers West

Friday, September 17, 2021