Wilaci argues A$33.6mn in late payment fees weren't a penalty in Court of Appeal
By Sophie Boot
Oct. 4 (BusinessDesk) - Lawyers for Australian businessman John Grill's Wilaci investment unit have argued that A$33.6
million in late payment fees it wants from Pyne Gould Corp subsidiary Torchlight Fund No 1 LP weren't penalty fees in
the Court of Appeal this morning.
Last October, Justice Matthew Muir in the High Court ruled the Torchlight unit didn't have to pay the fee on a A$37
million loan from Wilaci, which "so significantly exceeds the loss likely to be caused by the breach that it qualifies
as extravagant and therefore unenforceable," saying the A$2.17 million per month fee "was undoubtedly extravagant in
relation to any such loss."
Wilaci loaned the funds to Torchlight on Aug. 22, 2012, to help the Pyne Gould entity through what managing director
George Kerr described as "a very tight liquidity situation" when Bank of Scotland International was leaving Australasia
and calling for repayment from its debtors, including Torchlight's Australian real estate investment, RCL Group. A
high-profile dispute with the Financial Markets Authority made it more difficult for Kerr to recapitalise Torchlight.
The loan was due to be repaid by Oct. 26, a deadline Torchlight missed, although Wilaci didn't immediately call on the
loan, rather it managed the repayment through seven tranches between October 2013 and May 2014.
Justice Stephen Kos, president of the appeal court, said he had summarised Wilaci's appeal case in five points. Wilaci
has relied on the Australian Federal Court's 2015 decision in Paciocco v ANZ Banking Group, where it was found that late
fees charged by the bank on credit card payments weren't penalties and therefore were enforceable, in its arguments in
the High Court and the appeal court today.
"The first is that in Paciocco, to be a penalty, the sole purpose of the provision must be functional," Justice Kos
said. "The test is not simply whether the provision is designed to incentivise payment on the due date. Third, the
relevant interests of the innocent party go beyond simply breach damages otherwise payable. That may be particularly in
the case where the parties are substantial, sophisticated commercial entities. The trend seems to be to constrain the
doctrine rather than to expand it, and it is easier to justify the doctrine in a consumer context rather than a
commercial one."
Wilaci is also arguing that to be a penalty, the fee charged "would need to be out of all proportion to the innocent
party's legitimate commercial interests," Justice Kos said, which the appellant's Sydney-based lawyer, David Jackson QC,
agree with.
Justice Forrest Miller grilled Bruce Stewart QC, one of Pyne Gould's lawyers, on whether Grill's capital had been placed
at risk
"Now we're talking about $37 million being at risk, and we're gauging the reasonableness of this fee against that
context. Isn't this your essential problem? We're not talking about damages on the assumption that $37 million has been
repaid, we're talking about $37 million being at risk," Justice Miller said.
Stewart said that didn't affect whether the payment was a penalty or not, but Justice Miller said it was important to
the question of whether the payment was "extravagant or unconscionable."
Justice Kos questioned why Torchlight's Kerr had not taken a loan elsewhere when the fund couldn't pay back the money
within the 60 day loan period.
"Sixty-one days into the transaction, he could have taken this to another banker and got a presumably more expensive
funding option," Kos said. "Instead he has essentially gained the prospect of being able to set aside the continued
financing effect on the basis it's a penalty. He gets the money on that basis - 1.5 percent above market - that's a very
cheap rate in the circumstances."
Stephen Hunter, the other lawyer for the respondent, said the capital wasn't necessarily at risk despite the fund not
meeting the payment obligations as Torchlight had assets but not cash.
"When we're talking about a fee for late repayment, you have the damages recoverable in law, which in this case is
either the cost of getting the money elsewhere or the interest costs Wilaci itself was incurring from Credit Suisse,
which was $1.8 million - measure that against the penalty, which is $31 million," Hunter said.
The hearing is set down for two days and is continuing.
(BusinessDesk)