N & M Investments/Properties Pty Ltd v Australian Property Enterprise Pty Ltd [2022] NSWSC 1370

N & M Investments/Properties Pty Ltd v Australian Property Enterprise Pty Ltd [2022] NSWSC 1370

Both the Further Establishment fee and the Default Loan Management fee are unenforceable as penalties because they become payable upon a wide range of events of default—including those causing only trivial loss—with no genuine pre-estimate of likely loss to the lender; losses or costs justifying the fees accrue to a third-party (Pacific 8) rather than the mortgagee (N & M), and are thus out of proportion or irrelevant to the lender’s legitimate interests. The provisions are therefore extravagant and unconscionable, and operate in terrorem rather than to compensate for loss.

Parties
Plaintiff: N & M Investments/Properties Pty Ltd; First Defendant: Australian Property Enterprise Pty Ltd; Second Defendant: Yufei Bao; Third Defendant: Zion Chan; Fourth Defendant: Zion Trading Pty Ltd; Fifth Defendant: Westpac Banking Corporation Ltd; Sixth Defendant: ACN 601 158 507 Pty Ltd
Jurisdiction
Australia
Judgment Date
12 October 2022
Procedural Posture
Principal Judgment / Final Hearing and Judgment
Outcome
Plaintiff succeeds only to the extent permitted absent penalties; impugned fees are disallowed and plaintiff must recalculate amount due. Judgment for the plaintiff will be entered upon agreed recalculation excluding said fees and interest.
Legal Topics
Mortgages, Penalties, Loan Agreement Fees, Unenforceability of Penalties
Equity Contracts Mortgages Penalties Loan Agreement Fees Unenforceability of Penalties

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Parties

N & M Investments/Properties Pty Ltd

Plaintiff

Australian Property Enterprise Pty Ltd

First Defendant

Yufei Bao

Second Defendant

Zion Chan

Third Defendant

Zion Trading Pty Ltd

Fourth Defendant

Westpac Banking Corporation Ltd

Fifth Defendant

ACN 601 158 507 Pty Ltd

Sixth Defendant

Procedural Posture

Principal Judgment / Final Hearing and Judgment

Legal Issues

  1. 1 Whether Further Establishment fee and Default Loan Management fee under a mortgage are unenforceable as penalties
  2. 2 Whether the calculation and imposition of said fees can be justified as liquidated damages or are punitive in nature contrary to law

Ratio Decidendi

Both the Further Establishment fee and the Default Loan Management fee are unenforceable as penalties because they become payable upon a wide range of events of default—including those causing only trivial loss—with no genuine pre-estimate of likely loss to the lender; losses or costs justifying the fees accrue to a third-party (Pacific 8) rather than the mortgagee (N & M), and are thus out of proportion or irrelevant to the lender’s legitimate interests. The provisions are therefore extravagant and unconscionable, and operate in terrorem rather than to compensate for loss.

Court Disposition

Plaintiff succeeds only to the extent permitted absent penalties; impugned fees are disallowed and plaintiff must recalculate amount due. Judgment for the plaintiff will be entered upon agreed recalculation excluding said fees and interest.

Orders

  • The provisions of the Mortgage allowing the Further Establishment fee and the Default Loan Management fee to be charged are unenforceable as penalties.
  • The plaintiff is to re-calculate the amount owing excluding the impugned fees and associated interest.