The question for the court was whether the broker was entitled to its structuring fee on a mandate for a loan not ultimately advanced. The loan did not proceed because the offer was for 55% of the current market value of the properties and that amount was insufficient to refinance the existing loans. The terms of the mandate were as follows:
“The fee is payable to the broker for acting as agent and for obtaining approval for the loan from the lender. In consideration of the lender approving the loan to the borrower, the borrower agrees to pay the structuring fee to the broker and hereby specifically charges their interest in the properties to secure that payment.”
The District Court found that the broker was not entitled to the fee unless and until a loan was made but this decision was reversed by a majority on appeal.
The Court of Appeal found that the trigger for payment of the fee was obtaining an offer of finance for the borrower, and even if that offer was conditional, the liability to pay the fee was not.
The Court of Appeal found that when the borrower accepted the offer, that gave rise to an immediately binding and enforceable agreement. The court noted a number of contingent conditions in that agreement that related to the lender’s obligation to advance the loan and made the lender’s approval of finance conditional. The court noted that the mandate distinguished between approving the loan and advancing the loan and provided that it was payable for approving the loan. The court found no scope for construing the approval to mean unconditional approval. The court found that on the natural and ordinary meaning of the mandate, the objectively determined common intention of the parties was that the fee was for obtaining approval of finance on the terms of the finance offer and the approval triggered the liability to pay.
The court said:
Such a construction is not uncommercial. The relevant question is who was intended to carry the risk of the loan not proceeding to settlement. Having regard to the role played by the borrower in providing the information on which the March finance offer was structured (including the Statement of Affairs) and of the specification of a minimum loan by reference to a nominated percentage of the market value of the security properties, the objectively determined common intention is that the borrower would bear that risk.
The Court of Appeal found that the obligation to pay the broker was not contingent upon the lender not subsequently withdrawing its approval.
The Court of Appeal found for the broker.