Private Lender’s Fees & Unfair Contract Terms under the ASIC Act 2001 (Cth)- DCZ Early Learning Pty Ltd v Semper Mortgage Management Pty Ltd [2024] QSC 120

‍Recently, Solomons Legal has successfully represented a private lender, Semper Mortgage Management Pty Ltd (Semper), in a proceeding brought by its borrower and guarantors under a loan facility in the Supreme Court of Queensland.
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Factual Background


In November 2023, DCZ Early Learning Pty Ltd (DCZ), along with other applicants (Applicants), urgently sought a loan to purchase part of a childcare business. The Applicants engaged a finance broker who facilitated negotiations with Semper. In the lead up to signing of Semper’s Indicative Letter of Offer (ILOO), the parties, at the Applicants’ requests, had negotiated and exchanged some five versions of the ILOO. The negotiations predominantly entailed the Applicants negotiating with Semper the substantive commercial terms such as the facility amount, interest rates, securities, and such.

During the various iterations of the ILOO, the Applicants enjoyed ample opportunity to make substantial changes to the ‘main terms’ which were tailored to their preferences and specific characteristics of the deal they wished to enter with the seller of the childcare business. In so doing, however, the Applicants had not raised any concerns with Semper relating to any of Semper’s ‘boiler plate provisions’ contained in the standard terms and conditions at the back of the ILOO.

Once the 5^th version of the ILOO was executed, Semper performed various works including financial due diligence, legal due diligence, raising capital via pitch to investors, valuing the security properties, and such.

In mid-December, the Applicants had ceased all communication with Semper. Semper formed the view that the Applicants were getting cold feet and were attempting to perform an arbitrary withdrawal from the ILOO. Semper then proceeded, through Solomons Legal, to lodge caveats and PPSR registration for its fees rendered on the chance that the loan may not proceed. Semper’s fees rendered to date was $150,260.00.
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The Applicants’ Contention & the Respondent’s Counterclaim
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The Applicants then initiated a proceeding in the Supreme Court of Queensland to have Semper’s boiler plate provisions – namely, clauses 8 and 9 – declared ‘unfair’, void, and of no effect within the meaning of section 12BF of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). Clauses 8 and 9 read as follows: 
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             8. Amounts Payable by Obligors
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a. In consideration of the Lender offering to make the facility and reserving capital for these purposes, the Obligors unconditionally and irrevocably agree that, immediately upon acceptance of this offer the Obligors are liable to pay to the Lender, all fees, costs and disbursements outlined in this document.

b. The fees and costs detailed in this document are payable by the Obligors to the Lender even if the loan is not made for any reason, including because: 

      i. The Obligors were unable to provide the Securities or satisfy any of the conditions of the facility;
     ii. The Obligors determine not to proceed or refuse to take up the facility for any reason;
     iii. The Lender withdraws from, or refuses to proceed with, the facility because any representation which is made to the Lender, by or on behalf of any Obligor, whether before or after the date of this offer prove to be untrue in any material request, thus affecting the Lender’s decision to make this offer to you.
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             9. Security

a. As security to the Lender for payment of the fees, costs and disbursements detailed in this document, the Obligors jointly and severally, in their own right and in their capacity as trustees of any trusts, hereby irrevocably and unconditionally charge in favour of the Lender all their interest in any real and personal property both present and future.
b. In aid of the charge granted in the preceding sub-clause, the Obligors agree that Semper in its sole discretion may lodge a charge, a caveat or register a security interest on the Personal Property Securities Register over any real or personal property that the Obligors have an interest in, whether that property is presently owned or acquired by the Obligors in the future, as security for the fees, costs.
c. If a security interest is registered, the Obligors hereby waive their right to receive notice under section 157 of the Personal Property Securities Act 2009 (Cth).

As clear, clauses 8 and 9 are machinery provisions. The role performed by them are as follows:
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• the Applicants agree that, immediately after the ILOO is accepted, they are liable to pay to Semper “all fees, costs and disbursements outlined in this document”;
• those fees and costs are payable even if the loan does not proceed – and for whatever reason it does not proceed;
• as security for the payment of the fees, costs and disbursements, the applicants agree to charge their real and personal property with that debt and agree that Semper can lodge a caveat or register a security interest on the PPSR.

In response, as well as defending such application, Semper brought a counterclaim for its fees in the sum of $150,260.00.
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The Issues for Determination

Under section 12BF of the ASIC Act, a term of a consumer contract or a small business contract is void if three conditions are satisfied:
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• the term is unfair; and
• the contract is a standard for contract; and
• the contract is a financial product or a contract for the supply of financial services.

The third condition was not disputed.

Hence, the Court was asked to determine whether clauses 8 and 9 were terms within a standard form contract and whether those clauses are unfair.
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Conclusion 1: Not a Standard Form Contract
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Under section 12BK, in determining whether a contract is a standard form contract, a Court may take into account such matters as it thinks relevant, but must take into account the following six factors:
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• whether one of the parties has all or most of the bargaining power relating to the transaction;
• whether one of the parties has made another contract, in the same or substantially similar terms, prepared by that party, and if so, how many such contracts that party has made;
• whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties;
• whether another party was, in effect, required either to accept or reject the terms of the contract;
• whether another party was given an effective opportunity to negotiate the terms of the contract;
• whether the terms of the contract take into account the specific characteristics of another party or the particular transaction.

 
In a holistic consideration of the above factors, the Court held at [54]-[55]:
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“…this is not a case where Semper possessed all or most of the bargaining power. Semper had previously made contracts in the same or similar standard terms, but this contract was not pre-prepared, although it did include some standard terms. The contract was not presented to DCZ on a ‘take it or leave it’ basis. Importantly, not only did DCZ have an opportunity to negotiate, it took advantage of that opportunity and, through its broker, negotiated a tailor-made bargain that it was prepared to sign.

The negotiations between the parties, in particular, means that Semper has overcome the presumption in s 12BK(1), and has proved that the Indicative Letter was not a standard form contract. That means that 12BF of the ASIC Act does not apply and the applicants’ case must fail.”
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Standard Form Contract point as a Prerequisite to Arguing Unfairness Point

Establishing the standard form contract point was a prerequisite for the Applicants to succeed before arguing the unfairness point. The Court nonetheless saw the utility of doing so and accordingly opined at [55] that “…it is appropriate to consider whether, if…the Indicative Letter was a standard form contract, clauses 8 and 9 are unfair”.
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Conclusion 2: Not Unfair

At[56], the Court noted that pursuant to the criteria outlined in section 12BG, a term of a contract will be ‘unfair’ if:
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• it causes a significant imbalance in the parties’ rights and obligations under the contract; and
• it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
• it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on.

Importantly, the Court was made aware that under section 12BG(2), in determining whether a term of a contract is unfair, a court must consider the extent to which the term is transparent, and the contract as a whole.

Again, after a holistic consideration of the statutory criteria, Freeburn J held that whilst clauses 8 and 9 do cause detriment upon the Applicants, they:
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• do not cause a significant imbalance in parties’ rights and obligations; and
• are reasonably necessary to protect Semper’s legitimate interest; and
• are written in a transparent manner so as to be expressed in reasonably plain language, legible, presented clearly, and readily available to any party affected by the term.

In so ruling, his Honour made some notable observations:

“It is important to observe that the evidence is that Semper sought investors who were willing to invest money in the loan transaction. There was likely to be time and effort in that process which required a firm commitment from the borrower”: at [65].

“Once the Indicative Letter was signed, on 8 December 2023, Semper embarked on is preparation work. Between 8 and 19 December 2023 Semper carried out these activities:

(a) negotiated with potential investors to secure funding;
(b) expedited the valuations of the two mortgaged properties;
(c) liaised with banks;
(d) carried out legal due diligence;
(e) carried out administration tasks – including discussions and correspondence with the broker.

Semper had a legitimate interest in ensuring that it was not out-of-pocket for that time, effort and expense”: at [74]-[75].

“Importantly, it cannot be forgotten that the fees were only one element of the transaction. The parties were also concerned with the loan amount, the term, the security and the interest provisions. In that context, even if the provisions of clauses 8 and 9 were shown to be overly protective of the lender’s fee, that was one possibly minor part of an overall transaction which involved a private lender providing rapid finance for a business transaction in circumstances where two banks said they were unable to assist”: at [92].

Hence, his Honour reached the conclusion that clauses 8 and 9 are not ‘unfair’ within the meaning of that expression in section 12BG of the ASIC Act.

Consequently, the application was dismissed, and judgment was given for Semper’s counterclaim for its fees.
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Key Takeaways

Solomons Legal’s suggested key takeaways from this case are:
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• Court will adopt a contextualist approach rather than a textualist approach when determining whether certain impugned clauses are unfair within the meaning of the ASIC Act.
• Negotiation is a key factor in deciding whether a contract is a standard form contract.
• So long as a party is provided with the entire contract document, which includes both the ‘main commercial terms’ and ‘standard boiler plate provisions’, choosing to negotiate only the former does not negate the fact that legally recognisable negotiation has taken place. Negotiation of main terms tends to indicate (in the absence of evidence to the contrary) that an opportunity to negotiate boilerplate terms was also present.
• The lenders should ensure that their ‘fee clauses’ are clear to the extent that they will proportion fees recoverable from the borrower/guarantor if they withdraw from the transaction before settlement. Lenders should take care to ensure the wording of charging clauses do not, prima facie, provide disproportionate powers of termination.

Solomons Legal is grateful to have represented and assisted Semper to have eventually obtained the rightful outcome in the end.
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Full decision can be accessed at: https://www.queenslandjudgments.com.au/caselaw/qsc/2024/120