Lender fails in attempt to have fees paid due to a short term loan transaction not proceeding. The Supreme Court of NSW dismissed the lender’s claim of fees and expenses.
In Interim Finance v Bright Beginnings Learning Centre Glendenning [2018] the Court found the lender did not have a caveatable interest in the security property. Further, the Court ordered the removal of the caveat registered over the property.
Background to the short term loan transaction
Interim Finance is involved in short term loan transactions. Bright Beginnings provides child care services. Mena and Romany Ibrahim are brothers with joint shares in the Bright Beginnings’ business.
In June 2016, Bright Beginnings applied to Interim Finance for a $450,000 loan. Interim Finance prepared the Letter of Offer, and the Ibrahims signed this on 22 June 2016. The brothers paid the valuation fee of $660 on the same day.
Letter of Offer
The Letter of Offer identified the borrower as Bright Beginnings and the mortgagor as the Ibrahims. Further, it laid out the borrower’s financial obligations should Interim Finance prepare and issue loan documents, but the loan then failed to proceed.
It outlined three occurrences which could result in the loan not proceeding:
- the borrower decides not to proceed with the offer of finance,
- the borrower is unable to fulfil one or more of the requirements made by Interim Finance,
- Interim Finance becomes aware of an issue which changes its decision to provide the loan.
In the event of one of the above occurrences, the borrower is liable for the Loan Application Fee, legal costs of preparing the loan documents and an administration fee of $1,650.
Also the Letter of Offer stated the borrower had 5 days from the issuing of an invoice to pay the Fees. Thereafter it granted the lender an equitable interest and charge over the security property.
On 28 June 2016 the solicitors acting for Interim Finance completed the loan documents. However, they did not send the documents to the borrowers’ solicitors, OneGroup Legal (OGL). Rather they contacted Mena Ibrahim, who arranged to deliver the package to OGL.
Short term loan transaction seems to falter
Between 1st and 4th July communications occurred between the two parties. However, on the 5th July Andrew Littleford, managing director of Interim Finance, became concerned about possible “shopping around” for better finance options by the borrower. A phone call between Littleford and Ibrahim addressed the issue, but thereafter the borrower did not return signed loan documents to the lender.
Therefore on 8 July 2016, Littleford sent an email to the Ibrahims, stating:
“We take it from the lack of communication and the fact loan documents have not been executed or returned, that you do not wish to proceed with this matter.”
The email claimed a total of $8,100 owing and payable by 15 July 2016, and included an invoice for the amount. It also advised that the lender may register a caveat over the security property to secure the outstanding debt.
Interim Finance instructed its solicitors to go ahead and lodge a caveat over the security property.
Interim Finance received no response to the 8 July 2016 email. Rather, it seems Mena Ibrahim attempted to progress the transaction. Also OGL requested new loan documents, as “the original given to our client has been misplaced”.
Subsequently, on 12 July 2016, in a telephone conversation between Littleford and the Ibrahims, matters came to a head. Littleford confirmed that Interim Finance would not fund the loan.
Evidence provided by lender and borrower
The evidence focussed on the perceived delay in the return of the loan documents by the borrower.
The Interim Finance position, as given by Littleford, turned on his understanding of urgency initially indicated by the borrower. The short term loan transaction arena deals in short timeframes. Therefore, he concluded, the time between the issuing of the loan documents (28 June) and the email (8 July) indicated the borrower’s lack of intent. Bright Beginnings’ delay in returning the signed documentation led Interim Finance to believe that it did not mean to proceed with the loan. Therefore Interim Finance did not proceed.
By contrast the borrower, represented by Mena Ibrahim, claimed that no deadline existed for the return of finance documents. Also, he insisted that he did not understand the email on the 8 July to mean the cancellation of the loan transaction. Further, he argued, at no point did he indicate an intention to not proceed.
Conclusion reached by the Court
The Court considered why the loan transaction did not proceed. Did the borrower reject the deal and was therefore liable for the fees? Or did the lender withdraw from the loan agreement?
A short term loan transaction usually occurs quickly. However, the Court concluded that the Loan Agreement did not have a term requiring the return of the loan documentation within a set timeframe.
The Court found that none of the above three occurrences were the cause of the loan not proceeding. Rather, it concluded, the loan did not proceed because Interim Finance withdrew from the Loan Agreement on the basis of an assumption. In the 8 July 2016 email Interim Finance assumed that the borrower did not intend to proceed with the transaction. This assumption was incorrect.
As a result, the Court found no reason for the borrower to pay the invoiced Fees. It also ordered Interim Finance to remove the caveat lodged on the security property.
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Short-Term Loans Clamp Down: Rejected.
This publication is for your general information and interest only. It is therefore not intended to be comprehensive, and does not constitute and must not be relied on as legal advice. You must seek advice tailored to your specific circumstances.