Auckland property developer Wallace Homes has to pay lender Pearlfisher Trustees fees totalling $345,000 on a refinancing deal Wallace claimed it never committed to. Preliminary paper work signed by Wallace Homes was at law a contract committing Wallace to payment of loan establishment fees, even when it did not take up the loan.
Wallace Homes Ltd is currently undertaking an 18-property residential development at Mangere Bridge. A $9.5 million credit line was sourced from Spinnaker Securities Ltd. Wallace directors were looking to refinance the Spinnaker debt. Using broker Rachel Wang, Wallace opened discussions with second-tier lender: Pearlfisher Trustee Ltd. As is common commercial practice, Pearlfisher sent an ‘indicative offer’ to Wallace. This enables borrower and lender to iron out commercially acceptable terms before time and money is spent working up a formal agreement.
The High Court was told this first indicative offer was not accepted. Wallace negotiated down fees to be charged by Pearlfisher and in turn was willing to accept a higher interest rate. A second ‘indicative offer’ was made. It prescribed a $10,000 work fee payable ‘on acceptance of the indicative offer’, an arrangement fee of $100,000 payable ‘upon issue of a formal letter of offer’, and an establishment fee of $245,000 payable ‘upon acceptance of a formal letter of offer’. Wallace signed this $9.85 million ‘indicative offer’. A formal offer followed. Wallace directors signed. Two days later lawyers for Pearlfisher sent Wallace Homes a comprehensive Finance Facility Agreement for signature. Wallace refused to sign, pulling out of the deal. Spinnaker’s intention to charge a break fee for early repayment of its loan caused Wallace to reconsider its refinancing plans. Wallace paid Pearlfisher’s $10,000 work fee, but refused to pay any more. Final contract terms were never agreed, Wallace said. At best, there was only an agreement to agree.
Associate judge Andrew ruled Wallace Homes was liable to pay Pearlfisher’s claimed further fees of $345,000. Fee levels had been hammered out before the second ‘indicative offer’ was sent. The second ‘indicative offer’ together with the signed offer set out the essential terms agreed. Once signed by Wallace, Pearlfisher was committed to what was a conditional agreement to provide finance. Wallace was committed to paying the agreed fees regardless of whether any loan was drawn down. Pearlfisher’s later Facility Agreement, rejected unsigned, only fleshed out the essential terms agreed earlier.
Wallace Homes Ltd v. Pearlfisher Trustee Ltd – High Court (12.10.18)
18.197