In the private lending world, a number of lenders seek to secure their fees and charges notwithstanding the borrower ultimately withdraws and does not proceed with a loan.

The apparent intention is to protect their time and fees against the often legitimate suspicion that borrowers (and their brokers) are shopping around for the best available deal.

The recent Queensland Supreme decision of (DCZ Early Learning Pty Ltd (“DCZ”) v Semper Mortgage Management Pty Ltd [2024] QSC 120) involved such a fees clause and its interface  with the recently expanded unfair contract regime.

Facts:

In November 2023, DCZ entered into an agreement to purchase part of a childcare business and procured a broker to obtain finance. There was some urgency as the vendor purportedly  wished to settle before Christmas.

Three of the “big four” banks indicated they could not settle a loan before Christmas and following negotiations DCZ  entered into an “indicative letter of offer” and agreed to borrow $2.4 million from a private lender being Semper Mortgage Management Pty Ltd (“Semper”). The sum of $15,500 was provided as a commitment fee.

Semper obtained valuations of the two properties offered as security by way of second mortgages and lodged caveats and PPSR registrations for their fees in accordance with the letter of offer.

The borrower ultimately did not proceed with the loan, refuted the letter of offer was legally binding and requested a refund of search and valuation fees.

Semper’s response was to issue a demand for various fees payable under the letter of offer.

Letter of Offer:

• Provided all fees, costs, and disbursements were immediately payable even if the loan was not made for any reason;

• Purported to charge the obligor’s interest in any real and personal property, both present and future as security for the payment of the lender’s fees, costs, and disbursements.

• To facilitate such charge the borrowers/obligers agreed that the lender could lodge a charge, caveat, or register a security interest on the PPSR over any real or personal property that the obligers had an interest in.

Issue:

The borrower sought to strike down the fees and charging clauses of the indicative letter of offer as unfair within the meaning of 12BF of the Australian Securities and investments Commission Act 2001 (“ASIC Act”).

Section 12BF of the ASIC act provides that a term of a consumer/small business contract is unfair if:

• The term is unfair;
• The contract is a standard form contract; and
• The contract was a consumer/small business contract for a financial product or for the provision of financial services.

It was admitted in the pleadings that the contract was a small business contract for the provision of a financial product.