DEFENDANT ASSERTS THAT PLAINTIFF IS NOT ENTITLED TO BE AWARDED WITH DAMAGES AND OTHER FEES ON THE GROUND THAT THE AGREEMENT WAS ILLUSORY
Prime Capital Securities Pty Ltd v Gore Hill Transport Pty Ltd [2021] NSWSC 169 (3 March 2021)
This case involves construction and interpretation of a Loan Agreement entered into by parties where the plaintiff asserts that the terms of loan approval provided for payment of all fees, costs and outlays payable herein if loan not drawn down within 30 days, while the defendant asserts that the plaintiff is not entitled to such fees asserting that the agreement is illusory and unenforceable.
Facts:
The plaintiff conducts a business providing finance to small and medium size enterprises. In these proceedings it seeks to recover money said to be payable pursuant to the terms of a Loan Approval dated 11 September 2018. The amount claimed consists of an Establishment Fee, liquidated damages, Legal Fees, and Valuation Fees. The plaintiff further claims that it has an equitable charge over a property in Artarmon owned by the second and third defendants which secures the amounts claimed to be owing.
The plaintiff contends that a binding agreement was entered into with the defendants when they accepted the Loan Approval by signing it and returning it to the plaintiff. The plaintiff then contends that in circumstances where the loan did not proceed within 30 days of acceptance, or at all, cl 17 of the Loan Approval operated so that each of the defendants became immediately obliged to pay “all fees, costs and outlays payable herein” and “liquidated damages equivalent to one month’s interest at the Lower Rate”.
The plaintiff submitted that upon the true construction of cl 17 of the Loan Approval “all fees, costs and outlays payable herein” included the Establishment Fee, and also the Legal Fees and Valuation Fee, that are referred to in Section 1.0 of the Loan Approval. The plaintiff further says that by cl 18 of the Loan Approval the Artarmon property is charged with payment of the amounts so payable to the extent they remain outstanding.
The defendants, by their Amended Defence, disputed the plaintiff’s case and specifically raised arguments to the effect that the plaintiff was not ready, willing and able to perform its obligations under the Loan Approval because it was only prepared to proceed with a loan of $1.68 million, not the $2.4 million the subject of the Loan Approval and that there was no enforceable contract because the promises made by the plaintiff were illusory and no consideration was given by the plaintiff.
Issue: Are the promises given by the plaintiff under the terms of the Loan Approval illusory, such that no enforceable contract came into existence when the terms were accepted by the defendants which does not entitle the plaintiff to the claim it is seeking?
Held:
The promises purportedly given by the plaintiff under the terms of the Loan Approval are not illusory. The Loan Approval was accepted by the defendants by signing the document and paying the Application Fee. The Application Fee, as described in Section 7.0, is an amount to be paid towards “the fees, costs and outlays”. Those words evidently refer back to the expression “fees, costs and outlays” as found in cl 14 and 17 of Section 6.0 and also in the acknowledgments given by the Borrower and the Guarantors.
The Loan Approval should be construed such that upon its acceptance and payment of the Application Fee, the plaintiff is bound to engage a valuer to complete a valuation of the security property, as envisaged by cl 4. The plaintiff is thus obliged to take certain action, indeed action that would reasonably be expected to result in it incurring a liability to the valuer.
It can thus be seen that upon acceptance of the Loan Approval, the plaintiff not only had an obligation to engage a valuer to complete a valuation, it also had associated obligations to consider the valuation and make an honest decision about whether it was to its satisfaction. Those promises made by the plaintiff under the Loan Approval were real, not illusory, and they afforded valuable consideration to the defendants.
The terms of the Loan Approval make it clear that the plaintiff was not bound by any unqualified obligation to provide a loan of $2.4 million. The approval of the proposed loan in that amount was stated to be conditional (cl 2), and the required valuation had to be to the plaintiff’s satisfaction (cl 5). As the valuation was less than the estimate provided by the defendants, the plaintiff was entitled to amend the approval and offer a loan of $1.68 million.
Conclusion: The contract is not illusory and the plaintiff is entitled to claim for the fees and damages against the defendant.
