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 –
- 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]
- 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]
- 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]
- 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].
- 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