· 2021-09-06T14:59:03+0000 · 465 posts

Parties Dispute Liability Under Contract

Bai v Lightspeed Finance Pty Ltd [2021] VSC 543 (3 September 2021)

The parties are in dispute over whether or not Mr Bai and Lightspeed entered into the Alleged First Contract on the terms set out in the Victoria Parade Loan Deed Form. Lightspeed denies liablity to Mr Bai under the Alleged First Contract and imputes such liability to the negligence of the third party, Summer Lawyers. The Court, in adjudicating this dispute, relied upon the evidence provided by the parties as well as relevant jurisprudence discussing the variations of contracts and categories of such cases where a subsequent formal contract is contemplated.

Facts:

On or about 16 February 2017, Mr Bai met with Mr Fitzpatrick, a 90% shareholder of Lightspeed and Ms Gu, a loan broker from Lightspeed. Mr Fitzpatrick explained that Lightspeed could provide investment opportunities for Mr Bai in Australia. Thus, they negotiated loan proposals and agreements which included a loan to Victoria Parade and the Funder Agreement. The plaintiff (‘Mr Bai’) claims $1.5 million (‘the Principal Sum’) plus interest pursuant to a loan agreement (‘the Alleged First Contract’) between Mr Bai and the first defendant (‘Lightspeed’), on the terms of a Deed of Loan executed by Mr Bai or alternatively a breach of trust by the second defendant (‘Summer Lawyers’) in making unauthorised payments from the Principal Sum.

Lightspeed denies that it entered into the Alleged First Contract with Mr Bai, and claims that it referred to Mr Bai a loan application from 462 Victoria Parade Pty Ltd (‘Victoria Parade’) for the Principal Sum; and/or it subsequently entered into a funder agreement (‘the Funder Agreement’) with respect to the Principal Sum, executed on behalf of Haide holdings, a company controlled by Mr Bai, and which supplanted the Alleged First Contract. Lightspeed claims that, if it is liable to Mr Bai under the Alleged First Contract, such liability is the result of the negligence of the third party, Summer Lawyers, in failing to properly advise and in circulating the Victoria Parade Loan Deed Form without proper instructions. In the Merchant Building Loan, the letter of offer contained a Conditional Approval for Finance, by which Lightspeed and/or its nominee lender offered a loan amount of $1,087,000 for a term of three months at an interest rate of 3% per month.

Further negotiations took place in relation to the Merchant Building Loan Deed which led to the agreement ultimately not proceeding, despite having been executed by Mr Bai and Lightspeed. Prior to the decision not to proceed with the Merchant Building loan, Lightspeed and Mr Bai commenced negotiating a second loan proposal, to Victoria Parade. This project had a principal of $1.5 million; an interest rate of 15% per annum with a default interest rate of 24% per annum; a period of 12 months; and secured by a registered second mortgage over 462 Victoria Parade, East Melbourne (‘the Victoria Parade Property’). Ms Gu, in an email to Ms Gurdina, Mr Fitzpatrick, Mr Evans and Mr Reese, stated ‘new deal for you’ and requested that Ms Gurdina ‘lodge the caveat’ and ‘draft the loan agreement’.

The email attached a letter of offer, by which Lightspeed and/or its nominated lender offered a loan on the same terms save for a new interest rate of 19.5% per annum if paid on time, and 24% per annum if not; and by which Lightspeed was appointed ‘exclusively solely to negotiate with funders/lenders and obtain approval for the Facility on a reasonable effort basis’. It is common ground between the parties that the Victoria Parade loan has not been repaid. The executed Funder Agreement was between Haide Holdings as funder and Lightspeed. Haide Holdings agreed to appoint Lightspeed to refer loans to it, and that the relationship would be subject to the terms and conditions of the agreement which provides that the loan proceeds were to be applied firstly, in payment of all amounts required by order of priority; secondly, towards satisfaction of recovery costs; thirdly, towards repayment of the Loan Funds; and as a payment of Interest Proceeds repayable by a borrower on a settled loan.

Issues:

I. Whether or not Mr Bai and Lightspeed entered into the Alleged First Contract on the terms set out in the Victoria Parade Loan Deed Form.

II. Whether or not the Funder Agreement expressly or impliedly supplant the Alleged First Contract or the Alleged Loan.

III. Whether or not Summer Lawyers was in breach of its duty to Lightspeed.

Applicable law:

Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353 - where the High Court identified three categories of such cases where a subsequent formal contract is contemplated, in summary:

(a) where the parties intend to be immediately bound but propose a proper and more complete formal contract to a similar effect to the earlier agreement;

(b) where the parties intend to be immediately bound but require the execution of a formal document and intend no departure from the terms of the earlier agreement; or

Commissioner of Taxation (Cth) v Sara Lee Household & Body Care (Australia) Pty Ltd [2000] HCA 35; (2000) 201 CLR 520 - where the High Court considered the distinction between:

(a) a variation of a contract; and

(b) the replacement of a contract by a new contract without a change of parties.

Hillam v Iacullo [2015] NSWCA 196; (2015) 90 NSWLR 422 - where the New South Wales Court of Appeal considered whether the lenders could enforce the second of three loan agreements which they had entered into with a borrower.

Schreuders v Grandiflora Nominees Pty Ltd [2016] VSCA 93 -where it was held that where the parties enter into an agreement and then enter into a second agreement which varies the first agreement, it may be necessary for the court to determine whether the second agreement brings an end to the first agreement and replaces it with the second, or whether the effect is that the first agreement remains, subject to the variation.

Balanced Securities Ltd v Dumayne Property Group Pty Ltd (2017) 53 VR 14, 30 [71] - where it was observed that the critical factor in determining that issue in Hillam v Iacullo was the fact that the third loan agreement expressly dealt with the very same advances for which provision had been made in the second loan agreement.

Analysis:

Mr Bai submitted that he and Lightspeed entered into the Alleged First Contract, because there was a valid offer and acceptance. Lightspeed submitted that it did not enter into the Alleged First Contract on the terms set out in the Victoria Parade Loan Deed Form because it never signed the same. The hypothetical ‘reasonable observer’ could not be satisfied that the parties intended to adopt the Victoria Parade Loan Deed Form as the instrument that governed their relations. Merely providing an unsigned copy of the Victoria Parade Loan Deed Form could not amount to an offer capable of acceptance by Mr Bai because the parties had chosen to transact through a formal deed to be executed by all parties, as was the case with the Merchant Building loan.

An objective observer would not, in normal circumstances, consider that, by a party’s solicitor emailing a form of loan deed to the counterparty, such party was making an offer capable of acceptance by the other party unilaterally signing and returning the form of loan deed. On the contrary, as is usual, the Victoria Parade Loan Deed Form provided for signatures by both parties; and the common practice is for legal obligations to be concluded on the exchange of a deed signed by both parties.

If two relevant agreements between the same parties deal with the same subject matter in inconsistent ways, such that it would be impossible for both to be performed, it should be inferred that the latter was intended to supplant the former. The Funder Agreement and the Alleged First Contract deal with the same subject matter, being the Victoria Parade loan, in inconsistent ways, such that it would be impossible for both to be performed.

Mr Bai alleged that Ms Gu told him, prior to signing the Funder Agreement in August 2017, that it would only apply to future loans. However, Mr Bai did not articulate such a representation. There was no evidence by Mr Bai of reliance on the Alleged Representation. He did not give evidence that, if the Alleged Representation had not been made, he would not have signed the Funder Agreement.

Lightspeed submitted that Summer Lawyers prepared and circulated the Victoria Parade Loan Deed Form without taking sufficient instructions to ensure that it accorded with Lightspeed’s intentions. Summer Lawyers submitted that it's role in relation to Lightspeed was limited to drafting loan documents, and they did not involve themselves in the commercial dealings between Lightspeed and investors. Lightspeed has not established that it told Summer Lawyers that it did not intend to be bound by the Victoria Parade Loan Deed Form.

Conclusion:

The Court held that there are no facts in the case which supports a conclusion that, at the time the Victoria Parade Loan Deed Form was provided to Mr Bai, it was intended that legal obligations would arise prior to execution by both parties. The Court rejected Mr Bai’s allegation of an actionable misrepresentation. The Court is not satisfied that Summer Lawyers breached their duty of care to Lightspeed and as such Lightspeed’s claim against Summer Lawyers is dismissed.

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