DCZ Early Learning Pty Ltd v Semper Mortgage Management Pty Ltd [2024] QSC 120

SUPREME COURT OF QUEENSLAND CITATION: DCZ Early Learning Pty Ltd v Semper Mortgage Management Pty Ltd [2024] QSC 120 PARTIES: DCZ EARLY LEARNING PTY LTD ACN 673 187 696 (first applicant) AND CHRISTOPHER ZENONOS (second applicant) AND COLEEN JUNE ZENONOS (third applicant) AND DANIEL FIORE CUDA (fourth applicant) AND HEIDI MAY REIDSMITH (fifth applicant) v SEMPER MORTGAGE MANAGEMENT PTY LTD ACN 666 837 707 (respondent) FILE NO/S: BS 16315/23 DIVISION: Trial PROCEEDING: Originating Application ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 7 June 2024 DELIVERED AT: Brisbane HEARING DATE: 27 May 2024 (with supplementary written submissions received on 28 May 2024) JUDGE: Freeburn J ORDER: 1. The application is dismissed. 2. Judgment is given for the respondent on its counterclaim in the sum of $150,620. 3. The parties be heard on the question of the form of the orders, interest and costs (including the costs of proceeding 2 of 2024). CATCHWORDS: TRADE AND COMMERCE – COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION – CONSUMER PROTECTION – UNFAIR CONTRACT TERMS – where the applicants required a loan -- 1 of 21 -- 2 urgently to purchase part of a childcare business – where the applicants engaged a broker – where only private lenders were able to provide a loan in the short timeframe – where the respondent, a private lender, agreed to provide a loan – where five versions of an agreement, the Indicative Letter were exchanged during negotiations – where the applicants signed the Indicative Letter after various changes were made – where clauses 8 and 9 of the Indicative Letter made certain fees payable to the respondent upon acceptance – where clauses 8 and 9 where standard, boilerplate clauses and not subject to negotiations – where the applicants’ withdrew from the loan arrangement – where the respondent issued a demand for fees and lodged caveats and PPSR registrations – where the respondent counterclaims for further fees – whether clauses 8 and 9 can be declared void and of no effect pursuant to s 12BF of the Australian Securities and Investments Commission Act 2001 (Cth) – whether the Indicative Letter is a standard form contract – whether clauses 8 and 9 of the Indicative Letter are unfair Australian Securities and Investments Commission Act 2001 (Cth) s 12BA, s 12BF, s 12BG, s 12BK Australian Competition and Consumer Commission v Ashley & Martin Pty Ltd [2019] FCA 1436, cited Australian Competition and Consumer Commission v CLA Trading Pty Ltd [2016] FCA 377, applied Director General of Fair Trading v First National Bank plc [2002] 1 AC 481, cited Naegeli v Dalton and Schaeffer as Executors of the Estate of Schaeffer [2023] NSWSC 466, distinguished COUNSEL: C C Upton for the applicant J Wang for the respondent SOLICITORS: AJ & Co Lawyers for the applicant Solomons Legal for the respondent REASONS Introduction [1] Late last year, on 28 November 2023, the first applicant company, DCZ Early Learning Pty Ltd, entered into an agreement to purchase part of a childcare business. DCZ engaged a finance broker, Australian Commercial Finance, to procure finance for the purchase. There was some urgency because the seller was anxious to settle by Christmas 2023. [2] Two of the ‘big four’ banks advised that they could not settle a loan by Christmas and so, on DCZ’s behalf, the broker approached private lenders. The respondent, Semper Mortgage Management Pty Ltd is a private lender and was prepared to lend -- 2 of 21 -- 3 $3.425m to DCZ.1 And so, within a week, the broker had secured an “Indicative Letter of Offer” from Semper. Ultimately, on 8 December 2023, DCZ2 signed the fifth version of that Indicative Letter and agreed to borrow $2.4m from Semper. The sum of $5,500 was paid as a commitment fee. [3] Steps were then taken to progress the purchase of the interest in the childcare business and to progress the loan. Semper obtained valuations of two properties offered as security for the loan by way of second mortgages. The security offered included personal guarantees from the second to fifth applicants. [4] By 18 December 2023 Semper formed the view, correctly as it turned out, that DCZ was getting cold feet. Semper instructed its lawyers to lodge caveats and PPSR registrations for their fees “On the chance that the loan may not proceed”. [5] The following day Mr Zenonos, the second applicant, sent an email to DCZ’s broker complaining about the delays and Semper’s requests for information and saying that “Another issue is that it’s not limited liability of 1.2 million for each property that’s being put up for security. This is a gamebreaker for my wife to sign.” [6] The broker forwarded that email to Semper, along with another email demanding removal of the caveats and PPSR registrations. DCZ stated that the purchase was now not proceeding before Christmas and may not proceed at all. [7] Later that same day, Mr Cuda, the third applicant, emailed the broker and Semper saying that there was no deal and refuting that the applicants’ execution of the Indicative Letter constituted a legally binding loan agreement. He requested a refund of the search and valuation fees, a total sum of $8,800. [8] Semper’s response was to issue a demand for $366,260 for the various fees payable under the Indicative Letter. The Issues [9] DCZ does not persist with their claim that there was no binding contract. Instead, they seek a declaration that clauses 8 and 9 of the Indicative Letter, which deal with the applicants’ liability for fees, are void and of no effect. They contend that those clauses are unfair within the meaning of s 12BF of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act). The Contract [10] The Indicative Letter is a relatively simple document.3 The first page just contains some essential details: the name and address for service of the borrower, DCZ, as 1 The precise sum loaned is a little obscure because the loan sum is expressed as subject to deducting for interest in advance and fees. 2 For convenience I will refer to all five applicants (i.e DCZ as the borrower and the four personal guarantors, that is the second to fifth applicants) as DCZ. 3 As will be explained, s 12BG(2) the ASIC Act requires that, in considering whether the impugned terms are unfair, the court must take into account the contract as a whole. It is convenient to do that at the outset. -- 3 of 21 -- 4 well as the loan number, the date, and Semper’s details (which are pre-printed). The second page commences: Semper Mortgage Management Pty Ltd (Semper) is pleased to offer you the finance facility (facility) detailed in this letter. This letter only details the primary terms and conditions on which the facility will be made if accepted by you. On acceptance our lawyers will prepare a set of loan and security documents which will include our standard commercial terms. [11] Page 2 of the Indicative Letter then has a heading: Obligor’s Details. Under that heading are the details of DCZ and the four guarantors.4 The next heading is Loan Facility Summary. Under that heading are the essential details of the proposed loan including the proposed advance of $2.4 million, the loan term of 12 months, the purpose of the loan, and the interest rate (standard rate of 28% per annum and a discounted rate of 18% per annum). DCZ’s broker is specified as Australian Commercial Finance. [12] Page 3 of the Indicative Letter explains that the Obligors will be required to provide or procure the security detailed below. That security is specified as follows: (a) two second mortgages over property at Belmont and Fig Tree Pocket; (b) each of the Obligors were to provide a security interest over their present and after-acquired property to be registered on the Personal Property Securities Register; (c) each of the Guarantors was to provide an unconditional deed of guarantee guaranteeing the obligations of DCZ. [13] Then, page 3 provides a ‘Proposed Funding Table’ which lists these items: CREDIT AMOUNT Loan Sum $2,400,000.00 Less interest in advance $216,000.00 Debt Provider Fee $52,800.00 Legal Fees (estimate only, billed at settlement) $14,660.00 Broker Fees $30,000.00 4 The guarantees from the fourth and fifth applicants are expressed as limited guarantees. -- 4 of 21 -- 5 Establishment Fee $39,600.00 Admin Fee $13,200.00 Borrower Contribution (estimate only, to be paid at settlement) -$366,260.00 Cash Available to Client $2,400,000.00 [14] Here, Semper counterclaims for $150,260 comprising the Debt Provider Fee, the Legal Fees, the Broker Fees, the Establishment Fee and the Admin Fee. [15] The terms, conditions and acknowledgments are set out on pages 4 and 5 of the Indicative Letter. Those terms, conditions and acknowledgments can be described as the standard or boilerplate provisions. They are linked to the Loan Facility Summary details and the Proposed Funding Table on pages 2 and 3. For example, the standard and discounted rates of interest are explained in clause 5 and the broker is specified to be the agent of the borrower in clause 7.5 Clauses 8 and 9 [16] The two terms of the Indicative Letter which the applicants contend to be unfair are clauses 8 and 9. Those clauses are as follows: 8. Amounts Payable by Obligors 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; or 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. 5 Clause 7 specifies that any sum paid to the broker by the lender is paid on behalf of and at the direction of the borrower for the services provided by the broker to the borrower. -- 5 of 21 -- 6 9. Security a. As security to the Lender for payment of the fees, costs and disbursements detailed in this document, the Obligators 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). [17] Thus, the role performed by clauses 8 and 9 is as follows: (a) the applicants agree that, immediately the Indicative Officer is accepted, they are liable to pay to Semper “all fees, costs and disbursements outlined in this document”; (b) those fees and costs are payable even if the loan does not proceed – and for whatever reason it does not proceed; (c) as security for the payment of the fees, costs and disbursements, the applicants agree to charge their real and person property with that debt and agree that Semper can lodge a caveat or register a security interest on the PPSR. [18] It can be seen that clauses 8 and 9 are really machinery provisions. The actual fees, costs and disbursements are identified elsewhere in the Indicative Letter – in the Proposed Funding Table. Clauses 8 and 9 operate to make those fees (etc) immediately payable, and secured, whatever happens with the loan. [19] Importantly, clauses 8 and 9 secure the immediate payment of the fees but say nothing about the level of those fees. Clauses 8 and 9 might secure the immediate payment of $1.00 or $1 million. In this contract the clauses secure various sums totalling $366,260 – which are the fees specified in the non-standard provisions of the Indicative Letter. [20] I raised with counsel for the applicants the problem that, if the applicants were successful in having clauses 8 and 9 declared void, then the provisions specifying the fees payable would survive. Counsel’s answer to the problem was that the sums would not be immediately payable and the level of the fees payable would depend on what fees or costs Semper could prove had been incurred.6 As will be seen, the problem runs a little deeper than that. 6 It is unnecessary to decide this, but it is to be noted that the legal fees are to be paid at settlement, suggesting that the other fees are payable before that. -- 6 of 21 -- 7 The Consumer Protection Provision [21] The applicants rely on s 12BF of the ASIC Act. That section provides that a term of a consumer contract or a small business contract7 is void if three conditions are satisfied: (a) the term is unfair; and (b) the contract is a standard form contract; and (c) the contract is a financial product or a contract for the supply of financial services. [22] Condition (c) above is admitted on the pleadings. And so, the two issues for determination are whether clauses 8 and 9 were terms within a standard form contract and whether those clauses are unfair. Standard Form Contract? [23] The ASIC Act does not define a standard form contract. Section 12BA merely says that a standard form contract has a meaning affected by s 12BK. Section 12BK specifies that, 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 six factors set out in s 12BK which are listed below. It is an odd provision. No definition is given, and no boundaries are set as to what is and is not a standard form contract. The meaning of the expression is to be influenced by, or shaped by, the six factors in s 12BK. Clues as to the intended meaning are also given by s 12BK(3) which provide that a contract may be determined to be a standard form contract despite the existence of one or more of the following: (a) an opportunity for a party to negotiate changes, to terms of the contract, that are minor or insubstantial in effect; (b) an opportunity for a party to select a term from a range of options determined by another party; (c) an opportunity for a party to another contract or proposed contract to negotiate terms of the other contract or proposed contract. [24] And so, the Act has in mind a party being bound by substantive terms, where there was no opportunity to negotiate those terms. As counsel for the respondent explained, the remarks of Gilmour J in Australian Competition and Consumer Commission v CLA Trading Pty Ltd8 are a useful starting point: Section 12BF of the ASIC Act, like Pt 2-3 of the ACL, is a statutory exception to the freedom of contract approach of the Common Law, but applicable only to standard form consumer contracts. The terms of standard form contracts are not negotiated between the parties. Terms of such contracts are generally presented on a “take it or leave it basis”, with the consumer facing the alternatives of either accepting the terms without negotiation or not contracting at all. The latter in many cases will, ordinarily, not be a realistic alternative, given the prevalence of standard form contracts in the modern Australian commercial environment. 7 It is admitted this was a small business contract. 8 [2016] FCA 377 at [48]. -- 7 of 21 -- 8 [25] Here, the Indicative Letter is presumed to be a standard form contract unless Semper proves otherwise.9 Under s 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: (a) whether one of the parties has all or most of the bargaining power relating to the transaction; (ba) 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; (b) whether the contract was prepared by one party before any discussion relating to the transaction occurred between the parties; (c) whether another party was, in effect, required either to accept or reject the terms of the contract; (d) whether another party was given an effective opportunity to negotiate the terms of the contract; (e) whether the terms of the contract take into account the specific characteristics of another party or the particular transaction. [26] Each of those six factors can be considered in turn. Bargaining Power [27] The question here is whether Semper, a private lender, had all or most of the bargaining power relating to the loan transaction. This factor is not satisfied by merely identifying unequal bargaining power. It is satisfied by demonstrating that Semper had “all or most” of the bargaining power which led to the execution of the Indicative Letter. [28] The negotiations leading up to the signing of the Indicative Letter of Offer demonstrate that Semper did not possess all or most of the bargaining power. There were five versions of the Indicative Letter.10 All five versions involved some negotiations between Mr Hewlett, a representative of DCZ’s broker, Australian Commercial Finance, and Ms Jess Vozzo, Semper’s representative. Mr Hewlett discusses the negotiations at paragraphs 18 to 56 of his affidavit. [29] Some extracts from Mr Hewlett’s affidavit illustrate that there were negotiations between the broker on behalf of DCZ and Semper: 2ND ILOO11 21. The 1st ILOO was not accepted by my clients.12 22. My clients instructed me they wished to negotiate the following items: 9 Section 12BK(1) of the ASIC Act. That is the effect of DCZ alleging that the Indicative Letter is a standard form contract. 10 Only versions 1, 3 and 5 were issued. 11 The abbreviation ILOO stands for ‘Indicative Letter of Offer’. 12 In referring to his clients, Mr Hewlett is referring to the applicants. -- 8 of 21 -- 9 (a) Reduce the loan amount since the Respondent was no longer required to pay out the existing loan from Westpac and release Westpac from title; and (b) As such, grant a second mortgage behind Westpac to the Respondent instead of first mortgage. 23. I conveyed my clients’ above instructions to the Respondent and actioned my clients’ desired negotiation. 24. My clients’ requests were accepted by the Respondent. 25. On 5 December 2023 at 5.53PM, a revised 2nd ILOO was issued by the Respondent, with the negotiated items incorporated. 26. Upon review, the revised key terms were: • Borrower: DCZ Early Learning Pty Ltd • Loan amount of $2,850,000, Max 50% LVR • Proposed security: • SECOND mortgage over Boston Road (despite typo to the contrary), • SECOND mortgage over Cottesmore Street • Joint and several guarantees from Christopher Zenonos, Daniel Cuda • Limited guarantees to interests in security property only: Coleen Zenonos, Heidi Reidsmith • Limited guarantees to charges befitting shareholding from ANELC Holdings Pty Ltd • Starting interest of 18% p.a. (up to 28% in default) • Interest only for 12-month term with 6 months minimum • Deposit of $5,000 + GST due to extra work for two second mortgages 27. I then passed on the 2nd ILOO to my clients for their review. 3rd ILOO 28. The 2nd ILOO was not accepted by my clients. 29. My clients instructed me they wished to further negotiate the following: (a) Change the loan sum to $2,400,000.00; (b) Make all fees and interest to be included in the principal loan amount, rather than net. 30. I conveyed my clients’ above further instructions to the Respondent and actioned by clients’ desired negotiation. Specifically, I called Jess on 5 December 2023 at 5.47PM and had this conversation with her. 31. My clients’ requests were accepted by the Respondent. -- 9 of 21 -- 10 32. On 6 December 2023 at 8.53AM, a further-revised 3rd ILOO was issued by the Respondent, with the further-negotiated amendments incorporated. 33. Upon review, the further-revised key terms were: • Borrower: DCZ Early Learning Pty Ltd • Loan amount of $2,400,000, Max 50% LVR • Proposed security: • SECOND mortgage over Boston Road (despite typo to the contrary), • SECOND mortgage over Cottesmore Street • Joint and several guarantees from Christopher Zenonos, Daniel Cuda • Limited guarantees to interests in security property only: Coleen Zenonos, Heidi Reidsmith • Limited guarantees to charges befitting shareholding from ANELC Holdings Pty Ltd • Starting interest of 18% p.a. (up to 28% in default) • Interest only for 12-month term with 6 months minimum • Deposit of $5,000 + GST 34. I then passed on the 3rd ILOO to my clients for their review. 4th ILOO 35. The 3rd ILOO was not accepted by my clients. 36. My clients instructed me they declined the 3 rd ILOO due to high rate13 and the were desiring a better rate available for second-ranking mortgages. 37. I then called Jess on 6 December 2023 at 9.59AM and discussed my clients’ concerns with her. We had discussions relating to redoing the ILOO and freshly issuing the same with better rates for my clients. 38. On 6 December 2023 at 2.48PM, I called Jess again to chase up on the progress of the 4 th ILOO. I also stressed to her that the new ILOO should show the borrower’s contribution, so that the total facility amount is $2,400,000.00 39. On 6 December 2023 at 4.45pm, I called Jess again to chase up for the 4 th ILOO. I was told that the work is underway. 40. On 7 December 2023 at 9.55AM, Jess called me. She told me that the 4th ILOO is now ready to be issued. 41. However, I told Jess to hold-off issuing the 4th ILOO as my clients were still considering their options. 5th ILOO 13 Presumably this refers to the high interest rate. -- 10 of 21 -- 11 42. The 4th ILOO was not accepted by my clients even before it was formally issued because during the interim, I received further instructions from my clients relating to their further amendment requests. 43. Therefore, the 4th ILOO was never issued formally but negotiated and prepared at length. 44. On 7 December 2023 at 4.28PM, after receiving further instructions from my clients, I called Jess and conveyed the following: (a) My clients would like to proceed with two second-ranking mortgages; (b) My clients are keen on getting the Respondent’s best possible rate; (c) Loan amount of only $2,400,000.00 inclusive; (d) My clients required the ANELC guarantee to be removed; and (e) With the most recent needs and preferences incorporated, my clients (and the borrower company and their wives) will promptly sign the paperwork with the Respondent. 45. My clients’ most recent requests were accepted by the Respondent. 46. On 7 December 2023 at 4.37PM, the 5th ILOO was issued, with my clients’ requests incorporated. [30] Thus, Mr Hewlett’s evidence14 is that there were some five rounds of negotiations back and forth.15 During those negotiations Semper willingly accommodated some, but not all, of DCZ’s requests for alteration of the terms of the transaction.16 That evidence demonstrates a willingness on the part of both parties to negotiate the terms of their bargain. The evidence does not establish that either party held the whip hand in the negotiations or even that one or other of them had some command over the negotiations. [31] It is true that, at least at the time leading up to the signing of the Indicative Letter, DCZ was keen to secure finance so that it could proceed with the purchase prior to the seller’s deadline of 22 December 2023. But there is no evidence that DCZ was desperate or that Semper was implacable. The emails, both before and after the execution of the Indicative Letter, do not suggest that DCZ was an overly anxious borrower, or that Semper was anything other than a private lender, backed by investors, keen to make an advance if it could be done on advantageous terms. [32] It is important to observe that DCZ engaged brokers to act for them in the negotiations with the banks, and then the private lenders. The broker became the intermediary between DCZ and Semper. But the broker acted for DCZ. Mr 14 Mr Hewlett gave evidence by affidavit. He was not required for cross-examination, although two parts of his affidavit were excluded on the basis that those parts were inadmissible. 15 The five rounds included the initial details which Mr Hewlett, or his firm, provided to Semper which led to the first version of the Indicative Letter. 16 A reduction in the interest rate was requested but was not granted – seemingly because the interest rate was tied to whether the security on the two properties was offered as first or second mortgages or a condition of first and second mortgages. -- 11 of 21 -- 12 Hewlett’s affidavit makes clear that he engaged in meaningful and fruitful negotiations with Semper on behalf of DCZ. [33] Counsel for the applicants points out that clauses 8 and 9 were not specifically discussed during the negotiations.17 The point made is that the parties did not negotiate the standard or boilerplate terms because DCZ and its guarantors were forced into accepting those terms. I am not satisfied that the evidence supports that contention. The parties did negotiate the terms of the Indicative Letter. They chose to negotiate the non-standard terms on pages 2 and 3. But nothing in the evidence suggests that, at some future point, but for the pressure of time, they were to negotiate the standard or boilerplate provisions. It would make no sense for the negotiations to be segmented in that way. As explained, the non-standard and standard terms are linked and so, to use the example of clauses 8 and 9, the impact of those clauses depended on the level of fees, costs and disbursements – which were set out elsewhere in the document (in the Proposed Funding Table). [34] Counsel for the applicants described clauses 8 and 9 as standard terms. That is an apt description. But it does not demonstrate that Semper held all or most of the bargaining power. Very few contracts will not have at least some standard or boilerplate terms. A contract that is drafted from scratch, and without utilising at least some standard terms, is a rare beast. [35] In any event, the negotiations illustrate that DCZ did seek to negotiate some of the terms of the proposed loan, including the interest rate. The negotiations also show that Semper was prepared to consider significant alterations to terms of the proposed bargain. [36] There is no direct evidence as to why DCZ did not seek to alter the standard or boilerplate terms, and there is no direct evidence that Semper was unwilling or, if asked, would have been unwilling to consider alterations to the standard terms. Can a reason be inferred? Counsel for the applicants argues that it can be inferred that DCZ was forced into accepting the standard terms. I am unable to draw such an inference. DCZ retained a broker. On DCZ’s behalf the broker negotiated alterations to a number of terms over the period from 5 to 7 December 2023. If DCZ desired a change to the standard terms, it could have been and would have been raised with the broker. There is no evidence that it was raised. And this is in a context where DCZ was perfectly comfortable raising significant changes to the proposed bargain. [37] For those reasons the evidence is against the idea that Semper had all or most of the bargaining power relating to the loan transaction. The evidence, including the emails involving the broker, makes clear that the parties negotiated at arm’s length and that neither occupied a superior bargaining position. [38] Indeed, it is worth noting that DCZ decided not to proceed with the loan, and just before that decision was communicated the second applicant, Mr Zenonos, advised Semper what he described as a ‘gamebreaker’ term for his wife. After the termination Mr Cuda asserted that there was no deal and demanded the return of the fees that had been paid. None of that illustrates a lack of bargaining power. 17 Mr Cuda does give evidence that he raised the fees with Brian Fincham, a representative of the broker, but that seems to have not progressed from there to a communication with Semper. -- 12 of 21 -- 13 Other Contracts of Similar Terms [39] It is agreed that Semper made other contracts in the same or similar standard terms. The number of other contracts is not clear, but it can be accepted there were a reasonable number – consistent with Semper’s business as a private lender. Pre-Prepared? [40] Section 12BK(2)(b) requires that the court consider whether the contract was prepared by Semper before any discussion relating to the transaction. [41] Even the first version of the Indicative Letter was prepared after discussion with DCZ’s broker. Mr Hewlett says that.18 That discussion was necessary so that Semper could prepare the Indicative Letter with the essential terms such as the loan amount, the proposed security, the term and the interest rate. [42] Thereafter, the terms of the bargain were negotiated. [43] The applicants contend that it is significant that there was no negotiation of clauses 8 and 9. It is true that there was no negotiation of any of the standard terms. But, the context is that the parties, from the beginning, negotiated some of the significant terms of their bargain. Their failure to negotiate the terms of the clauses 8 and 9 hardly demonstrates that the bargaining power was one-sided. Accept or Reject? [44] It is necessary to consider whether DCZ was, in effect, required to either accept or reject the terms of the contract. [45] There is no evidence that Semper presented DCZ with the terms of the bargain on the basis of “take it or leave it”. The evidence is to the contrary. [46] As counsel for the respondent points out, the parties negotiated what may be regarded as the ‘main terms’ of their bargain. That rather suggests that the non-main terms, or machinery provisions like clauses 8 and 9 may have been able to be adjusted – if there was a request. [47] It is important to bear in mind that s 12BK(2)(c) requires that the court consider whether the party with the lesser bargaining power was required to accept or reject the terms of the contract. The use of the expression “terms” means that what the court must consider is whether the terms of the contract are being presented on a “take it or leave it” basis. The fact that a party holds out for one specific term, or even a number of terms, will not generally illustrate that there is unequal bargaining power, let alone one-sided bargaining power. Opportunity to Negotiate [48] Section 12BK(2)(d) requires the court to consider whether DCZ was given an effective opportunity to negotiate the terms of the contract. 18 See Mr Hewlett’s affidavit at [18]. -- 13 of 21 -- 14 [49] Here, not only did DCZ have an opportunity to negotiate, it took advantage of that opportunity and, through its broker, sought and obtained adjustments to the bargain.19 Specific Characteristics [50] It is necessary to consider whether the terms of the Indicative Letter take into account the specific characteristics of DCZ or the particular transaction. [51] Here, the Indicative Letter is an amalgam. It is in a standard and colourful format. As explained, the non-standard and important terms are set out at pages 1, 2 and 3. Those pages identify the borrower, the term, the interest rate, the security and the various fees. Pages 4 and 5 contain the terms and conditions. Page 6 is the execution page. Page 7 is an invoice for the “commitment fee” and a guide to speeding up the loan process. [52] In a real sense, the Indicative Letter has been tailored to DCZ and to this transaction. Some of that tailoring occurred through negotiation. This is not a case where DCZ has been required to accept a generic contract. [53] It must be acknowledged that the terms and conditions are standard or boilerplate provisions which are likely to apply to every loan transaction entered into by Semper.20 But, that is not surprising, and, in my view, it is not evidence of inequality of bargaining power. Conclusion 1: Not a Standard Form Contract [54] And so, 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. [55] 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 s 12BF of the ASIC Act does not apply and the applicants’ case must fail. However, it is appropriate to consider whether, if I am wrong, and the Indicative Letter was a standard form contract, clauses 8 and 9 are unfair. Unfair Contract [56] Section 12BG of the ASIC Act explains the meaning of an “unfair” term of a contract: 19 The present situation contrasts with Naegeli v Dalton and Schaeffer as Executors of the Estate of Schaeffer [2023] NSWSC 466. There Steven J concluded that the drafting party did nothing to impede the other party’s opportunity to negotiate. 20 However, it may be that even the standard terms were tailored for this transaction with DCZ. Clause 7 specifically refers to the broker by name. -- 14 of 21 -- 15 (1) A term of a contract referred to in section 12BF is unfair if: (a) it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and (b) it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and (c) it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. (2) In determining whether a term of a contract is unfair under subsection (1), a court may take into account such matters as it thinks relevant, but must take into account the following: (a) the extent to which the term is transparent; (b) the contract as a whole. (3) A term is transparent if the term is: (a) expressed in reasonably plain language; and (b) legible; and (c) presented clearly; and (d) readily available to any party affected by the term. (4) For the purposes of paragraph (1)(b), a term of a contract is presumed not to be reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term, unless that party proves otherwise. [57] It is therefore necessary to consider the three conditions in s 12BG(1), as well as taking into account relevant matters including the extent to which the term is transparent and the contract as a whole. Significant Imbalance [58] It is necessary to consider whether clauses 8 and 9 would cause a significant imbalance in the parties’ rights and obligations under the loan transaction. [59] Counsel for the applicants has neatly summarised the principles as follows:21 (a) The “significant imbalance” requirement is met if a term is so weighted in favour of the supplier as to tilt the parties’ rights and obligations under the contract significantly in its favour – this may be by granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty.22 (b) “Significant” in this context means “significant in magnitude”, or “sufficiently large to be important”.23 21 See Applicant’s Outline at [40]-[43]. 22 Director-General of Fair Trading v First National Bank [2002] 1 AC 481 at [17]; ACCC v ACN 117 372 915 Pty Ltd (in liq) [2015] FCA 368 at [950]. 23 Jetstar Airways Pty Ltd v Free (2008) VSC 539 at [10]-[105]. -- 15 of 21 -- 16 (c) The lack of individual negotiations of contracts between an entity and its customers is not relevant to whether a term causes a significant imbalance in the rights and obligations arising under the contract. The assessment of that question requires consideration of the relevant term together with the parties’ other rights and obligations arising under the contract.24 (d) Factors that have been identified as relevant include: whether the customer cannot “opt out” of unfair terms;25 whether the contract gives one party a right without imposing on that party a corresponding duty or without giving any substantial corresponding right to the counterparty;26 and whether the party advantaged by the term is better placed to manage or mitigate the risk imposed by the term than the customer. [60] DCZ’s first complaint about clauses 8 and 9 is as follows: First, upon accepting the ILOO v5, the offeree becomes immediately liable to pay the Respondent the entirety of the fees, costs and disbursements outline in ILOO v5 (Fees). The obligation on the offeree is unqualified. So for example, if an offeree accepts the offer, and 24 hours later gives notice of intention not to proceed with the loan, the offeree is liable to pay the Respondent the entirety of the Fees. [emphasis added] [61] It is a legitimate criticism that making the fees payable immediately means that in the event that the transaction is cancelled within 24 hours of the execution of the Indicative Letter, Semper is still entitled to its full fees. But the opposite is also true. The transaction may be cancelled at the last minute, and, by that time, the investors funds will have been paid to Semper, all of the fees and expenses will have been incurred, but the benefits and profits the transaction will have been lost. [62] There are three problems with the argument. The first is that the argument assumes that the effect of clauses 8 and 9 is to enable Semper to charge fees that are high or unreasonable.27 However, as explained, the level of fees is not specified in clauses 8 and 9 at all. The fees are specified in the Proposed Funding Table. Some payments specified in that table are payable at settlement. Just when the others would be payable in the absence of clauses 8 and 9 is difficult to say.28 But the effect of clauses 8 and 9 is not really to create a significant imbalance. DCZ could hardly complain if clauses 8 and 9 made a nominal amount immediately payable and secured as fees. [63] The second problem is that there is no evidence of industry practice that demonstrates that no reasonable private lender would charge these fees at this level, or that no reasonable private lender would make the fees immediately payable, or that no reasonable private lender would require security for their fees. And so, the 24 Australian Competition and Consumer Commission v Chrisco Hampers Australia Limited [2015] FCA 1204 at [50]-[51]. 25 Chrisco at [52]. 26 Chrisco at [53]. 27 That seems to be clear from the expression “the entirety of the fees”. Counsel for the applicants frankly conceded that the DCZ’s real complaint was that clauses 8 and 9 supported a claim for a high level of fees. 28 One would thing that some would be payable immediately. The name ‘Establishment Fee’ rather suggests it would be payable on signing. -- 16 of 21 -- 17 fees charged by Semper may be perfectly consistent with industry practice, or they may be quite inconsistent with industry practice. There is no evidence either way. [64] The third problem is that the applicants’ arguments assume that, but for the presence of clauses 8 and 9, Semper would be required to prove or justify the high fees that it charged. That is not shown to be the case for all of the fees. The five components of the fees were the Debt Provider Fee of $52,800, Legal Fees (estimate only, billed at settlement) of $14,660, Broker Fees of $30,000, Establishment Fee of $39,600 and the Admin Fee of $13,200. With the exception of the legal fees, which are plainly intended to be reimbursed based on the legal fees actually expended, the other fee components are expressed as flat fees payable by the borrower. It is doubtful that the Establishment Fee in particular is not immediately payable as a price for Semper entering into the transaction. [65] 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. [66] The applicant’s second complaint is as follows: Second, the obligation to pay the Fees is not conditioned on which of the parties fails to perform their obligations under the ILOO v5: it falls on the offence no matter the reason for the loan not being performed. For example, if the Respondent fails to make the loan, the offeree is liable to pay the Fees. [67] The imposition of the fees, even if Semper fails to lend, certainly creates an imbalance in the parties’ rights. Semper could, for example, regularly enter transactions like this, and not proceed with them but collect its fees. [68] Is that an imbalance that is significant in magnitude? It is difficult to tell. The fees are only a part of the bargain. They comprise roughly $150,260 in a transaction of roughly $2.4 million. The interest component for the first six months was to be $216,000 and for the 12 months term of the loan was to be $432,000. Again, there is an absence of industry evidence that the fee is significant, and that the imbalance created was significant. [69] The applicant’s third complaint is as follows: Third, the Terms give the Respondent the right to charge the real and personal property of the offeree to secure the payment of the Fees. There is no corresponding right for the offeree to charge the property of the Respondent in the event the Respondent fails to advance the loan as security for any loss or damage suffered by the offeree. [70] It is difficult to see how or why there ought to be corresponding rights. It is Semper that is lending the money and it is Semper that is charging DCZ fees and interest for the loan. It is Semper that assumes the risks. That makes it difficult to look at the transaction through a reciprocal lens. Certainly, it is hard to see any justification for a provision that gives DCZ the right to charge Semper’s property. -- 17 of 21 -- 18 [71] For those reasons, I am not satisfied that the applicants have proved, to the civil standard, that clauses 8 and 9 would cause a significant imbalance in the parties’ rights and obligations under the Indicative Letter.29 Not Reasonably Necessary [72] The next question is whether clauses 8 and 9 were not reasonably necessary in order to protect the legitimate interests of Semper.30 [73] Counsel for Semper quoted from Banks-Smith J in Australian Competition and Consumer Commission v Ashley & Martin Pty Ltd: “[51] The question of what is ‘reasonably necessary’ will also involve consideration of the particular circumstances of the business. … [54] … Nettle and Gordon JJ took into account when assessing whether the relevant system was reasonably necessary to protect the respondent’s legitimate interests that ‘there were alternatives’ (at [264]) … [55] What is ‘reasonably necessary’ might also involve an analysis of the proportionality of the term against the potential loss sufferable. [Counsel’s emphasis]. 31 [74] 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. [75] Semper had a legitimate interest in ensuring that it was not out-of-pocket for that time, effort and expense. [76] Of course, at first glance, it is difficult to conclude that the time, effort and expense justified fees totalling $150,260. But it may be that the fees charged do not necessarily coincide with the effort. In the financial sector fees may be charged as a percentage. Fees are not always charged as hourly rates. The broker’s fee, for example, may be payable as a percentage of the loan rather than on the basis of time costing. Again, there is no evidence that suggests that the fees are unreasonable or beyond what it is regularly charged by equivalent private lenders for a similar relatively urgent short-term loan. 29 The applicants bear this onus. 30 The onus here lies on Semper: see s 12BG(4). 31 [2019] FCA 1436. -- 18 of 21 -- 19 [77] Again, it is important to repeat the point that all that clauses 8 and 9 purport to do is to make the fees (specified elsewhere) immediately payable, and payable even if the loan does not proceed, and are secured against property. Clauses 8 and 9 say nothing about the quantum of the fee. [78] In the circumstances, I am not satisfied that DCZ has established, to the requisite standard, that clauses 8 and 9 were not reasonably necessary in order to protect the legitimate interests of Semper. In reaching that conclusion I accept that what is “reasonably necessary” may cover a range of responses to the legitimate interest. The question is whether those clauses, in providing for immediate liability, and payment irrespective of the fate of the loan, and payment secured against the property, fall outside the range of what is reasonably necessary. DCZ has not established that they are beyond the range. Detriment [79] Under s 12BG(1)(c) of the ASIC Act the third element to the definition of an “unfair” term is that it would cause detriment (whether financial or otherwise) to a party if it were to be applied or relied on. Clauses 8 and 9 are designed to enable Semper to take steps to enforce the fees set out in the Proposed Funding Table. The effect of those clauses, in making the fees immediately payable, and secured, irrespective of the fate of the loan, would be to cause detriment to the borrower. [80] Counsel for Semper drew attention to the following passage from the judgment of Lord Bingham in Director General of Fair Trading v First National Bank plc: …The essential bargain is that the bank will make funds available to the borrower which the borrower will repay, over a period, with interest. Neither party could suppose that the bank would willingly forgo any part of its principal or interest. If the bank thought that outcome at all likely, it would not lend. If there were any room for doubt about the borrower's obligation to repay the principal in full with interest, that obligation is very clearly and unambiguously expressed in the conditions of contract. There is nothing unbalanced or detrimental to the consumer in that obligation; the absence of such a term would unbalance the contract to the detriment of the lender. [Counsel’s emphasis] 32 [81] From that passage counsel for Semper argues that, where the absence of a term unbalances a contract to the detriment of the lender, there is an inference to be drawn that the existence of that term is not unfair. Counsel then argues that as the absence of clauses 8 and 9 would leave Semper vulnerable to out-of-pocket expenses, the existence of those clauses cannot be considered a detriment to DCZ. Counsel also draws parallels between a bank forgoing its principal and interest and Semper’s claim to fees. [82] I do not accept those arguments. First, the context of the passage from the judgment of Lord Bingham was a consideration of the assessment of the fairness of the term. The passage does not specifically address the element of detriment. Second, there is not an easy parallel between, on the one hand, principal and interest and, on the other hand the fees claimed by a private lender. Third, it has not been shown that the fees here can be properly characterised as out-of-pockets. More likely that not the fees claim comprises both reimbursement and fees that are not out-of-pockets. 32 [2002] 1 AC 481 at [20]. -- 19 of 21 -- 20 Fourth, the issue here is not whether or not Semper can claim its fees, but rather whether Semper’s right to claim the fees immediately, and irrespective of whether the loan proceeds, and its right to secure those fees against DCZ’s property constitutes a detriment to DCZ. [83] In my view, the fact that Semper’s right to charge DCZ’s property in order to secure its fees does constitute a detriment. A caveat or other charge on DCZ’s property can hardly be characterised as other than a detriment, especially in circumstances where it secures the payment of the five types of fees. That element of the definition is satisfied. Transparency [84] Section 12BG(2) of the ASIC Act requires the court to take into account the extent to which clauses 8 and 9 are transparent. The applicants contend that clauses 8 and 9 are not transparent because the method by which the fees have been calculated is not apparent. [85] The first problem is that, as explained, clauses 8 and 9 saying nothing about the level of fees to be imposed. Clauses 8 and 9 are completely transparent – they make the sums specified elsewhere payable immediately, and payable irrespective of the fate of the loan, and they make the fees secured. [86] The second problem is that the court is to take into account the extent to which the term is transparent. Not only are clauses 8 and 9 transparent, but the fees themselves are transparent. Nothing in s 12BG(2) of the ASIC Act requires that the clause must communicate not only what must be paid but also how the contracting party has arrived at that figure. The transparency is directed at ensuring that the communication between contracting parties is clear. The objective is not to expose the underlying rationale for each parties’ commercial position. [87] Section 12BG(3) of the ASIC Act specifies the characteristics of a transparent term, namely, that it is: (a) expressed in reasonably plain language; (b) legible; (c) presented clearly; and (d) readily available to any party affected by the term. [88] None of those characteristics burden the drafting party with obligation to explain their rationale as to how they came to impose a fee at a particular figure. [89] The applicants say that the lack of transparency is most evident in the imposition of the commitment fee which increased from $1,100 in version 1 of the Indicative Letter to $5,500 in version 5. However, there was an explanation that the increase was because of extra work associated with negotiating two second mortgages and seeking funding different investors. [90] But all of that is beside the point. The evident objective of s 12BG(2) or (3) is to require the terms of the parties bargain to be clear. Those provisions do not require the fees specified in various drafts considered in the negotiations to be clear, and -- 20 of 21 -- 21 they do not require the rationale for a commercial fee to be explained. What is required is that the terms of the bargain be clear. The Contract as a whole [91] Section 12BG(2) of the ASIC Act requires that the court consider the contract as whole in determining whether the impugned clauses are unfair. The contract as a whole has been considered above. [92] 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. Conclusion 2: Not Unfair [93] For those reasons, whilst the element of detriment is satisfied, I am unable to conclude that clauses 8 and 9: (a) cause a significant imbalance in the parties’ rights and obligations arising under the contract; and (b) are not reasonably necessary in order to protect the legitimate interests of Semper; (c) are therefore “unfair” within the meaning of that expression in s 12BG of the ASIC Act. [94] It follows that the application must be dismissed and the counterclaim for fees allowed. -- 21 of 21 --