Each of the schedules in the annexures to the mortgages from the second loan was signed by the solicitor for the lender.
28 As noted above, Mr Cheshire of counsel, who appeared for Mr Selvarajah, submitted that there was no binding contract of guarantee because the documents relied on as containing the contract had not been signed by the lender. This argument is only available in respect of the first loan. I do not accept it. The evidence is that on the same day the documents executed by the two borrowing companies and by Mr Selvarajah as guarantor were delivered to the plaintiff, it transferred the loan amounts to the borrowing companies. It is clear that the plaintiff made the loans on the basis of the documents signed by the borrowing companies and by Mr Selvarajah as guarantor. In terms of offer and acceptance, the plaintiff accepted Mr Selvarajah's offer to guarantee the loans by making the loans.
29 Mr Cheshire also submitted that the plaintiff's claim failed at the outset because it failed to prove the terms of the contract. The plaintiff asserted that the terms were contained in the detailed provisions it tendered, but failed to prove that those provisions were incorporated as contractual terms.
30 For the reasons above, I accept that the plaintiff failed to prove the detailed provisions in the documents it tendered were incorporated as the terms of the contract. It does not follow that the plaintiff's case fails in limine. The documents signed by Mr Selvarajah expressly names him as a guarantor. The terms as signed by him and set out at paras [14] and [27] are sufficiently certain to give rise to a contract of guarantee, even in the absence of the more detailed provisions which were contemplated by the documents he signed. Mr Cheshire submitted that the contract could not be construed as a simple contract of guarantee because it was clear from the reference to provisions of other documents that other terms were intended to be incorporated. He submitted that unless the plaintiff could prove what were the terms of the guarantee incorporated by reference, it failed to prove what the terms of the guarantee were.
31 The underlying assumption in this submission is that the parties did incorporate other terms as was envisaged. If other terms were so incorporated, it would be open to the plaintiff or the defendant to prove what they were. In the absence of such proof, I infer that although the documents contemplated that other terms would be incorporated, the parties failed to incorporate such other terms. That does not mean that no contract was entered into. It simply means that the terms of the contract are to be found on the pages signed by the borrowers and Mr Selvarajah.
32 It follows that there is no question of Mr Selvarajah having given a charge over any of his property.
33 Even if the terms alleged by the plaintiff had been incorporated into the contract, the "Charge Provisions" would not have applied. The relevant clause was clause 160 which provided that:
" THE CHARGOR, as beneficial owner, charges the ASSETS as security to the LENDER for the payment of the DEBT and the performance by the CHARGOR of all of its obligations under this CHARGE. "
34 Clause 15 provided that the word "CHARGOR" had the "Values listed in the Schedule". As no-one was named in the schedule as CHARGOR, the Charge Provisions were not attracted. Mr Selvarajah was named as "GUARANTOR". The plaintiff relied upon clauses 4 and 5 of the Definition of Terms. They provided:
" 4. GUARANTEE means the agreement constituted by that part of this memorandum headed 'Charge Provisions' read together with the SCHEDULE.
5. CHARGE means the agreement constituted by that part of this memorandum headed 'Guarantee Provisions' read together with the SCHEDULE. "
35 It was submitted for the plaintiff that the effect of clause 4 was that because Mr Selvarajah was named as guarantor, the guarantee he gave was the agreement constituted by the part of the document under the heading "Charge Provisions". It was submitted that, although not named as chargor because he gave a "guarantee" meaning the agreement constituted by the "Charge Provisions", he was also taken to have charged his assets under clause 160. It was also submitted for the plaintiff that, as Mr Selvarajah was named as a guarantor, he was also bound by clauses 148 and 148 of the "Guarantee Provisions" whereby the "guarantor" guaranteed the due and punctual performance of the obligations of the "debtors".
36 If it were necessary to decide this question, I would not accept the submission. I think there is a plain mistake in clauses 4 and 5 which can be corrected to avoid absurdity without the need for rectification (Fitzgerald v Masters (1956) 95 CLR 420 at 426-427). Even if that were not so, the fact remains that Mr Selvarajah was not a chargor as defined and therefore clause 160 would not apply to him.
37 This is further confirmed by clause 28 which provides:
" In the event that the item CHARGOR in the SCHEDULE names more than one company then all companies will be deemed to have executed separate charges. In the event a company is named as MORTGAGOR, BORROWER or GUARANTOR it will be deemed to be named as a CHARGOR. "
38 The fact that corporate guarantors were deemed to be named as chargors shows that, in the absence of such a deeming provision, a person named as guarantor was not to be taken to be a chargor. There was no equivalent provision in respect of individual guarantors.
39 No reliance was placed on clauses 68 or 69 which contained agreements for the mortgaging of land. As I have concluded that the detailed provisions were not incorporated as terms of the contract, it is unnecessary to consider that matter any further.
40 It is also unnecessary to consider the consequence of the documents not having been stamped as a charge (Duties Act 1997 (NSW) ss 211 and 304).
41 It follows that the plaintiff's claim in proceeding 3800/07 for the appointment for trustees for sale will be dismissed.
42 Mr Cheshire submitted that the plaintiff's claim on the guarantee should be dismissed because it had failed to prove that at the date of hearing, any moneys remained unpaid by the borrowers. The plaintiff read Mr Langley's affidavit of 19 November 2007 in which he deposed that neither of the borrowers had repaid the moneys lent or any part thereof. He asserted that as at 7 December 2007, the borrowers and Mr Selvarajah would be indebted to the plaintiff in the sum of $2,160,000, with interest continuing to accrue at ten percent per month in the case of the first loan, and 15 percent per month in the case of the second loan on the principal sums advanced of $300,000 and $330,000 respectively, together with damages for late payment at ten percent per month in the case of the first loan and 15 percent per month in the case of the second loan.
43 There was no evidence as to whether the loans had been reduced or discharged after 19 November 2007. Mr Cheshire submitted that it would have been a simple matter for the plaintiff to have deposed whether any repayment had been made, and if so, in what amount; and that having failed to do so, the plaintiff had not proved that anything was owing, or if so, what sum was owing. Mr Gray who appeared for the plaintiffs, submitted that in the absence of evidence to the contrary, it should be presumed that the debt which was unpaid as at 19 November 2007 remained unpaid. It would have been open to Mr Selvarajah, who signed the documents as sole director and secretary of the borrowers, to have adduced evidence of any repayment.
44 The so-called presumption of continuance is simply an inference that can be drawn in some cases from the fact that a state of affairs existed at one point of time, that the same state of affairs existed at an earlier or later point of time. Whether the inference should be drawn depends on the particular circumstances and the chance or likelihood of intervening circumstances having altered that state of affairs (Axon v Axon (1937) 59 CLR 395 at 404-405; Wright v Morton [1998] 3 VR 316 at 332-336). In Jackson v Irvin (1809) 2 Camp 48; 170 ER 1077, the inference was drawn in respect of a debt of a bankrupt proved to have existed some months before the act of bankruptcy, where there was no evidence as to whether it continued down to the time of bankruptcy. The report states that Lord Ellenborough held (at 50) that "the debt being proved to have once existed, its continuance would be presumed."
45 The fact that the so-called presumption of continuance was applied in one case concerning the existence of a debt does not mean that it applies in all cases. That follows from the fact that it is not a true presumption, but rather a description of a process of reasoning by which inferences of fact might properly be drawn. In the present case, one can draw the inference from the fact that the loans were made at very high rates of interest and that the borrowers and the guarantor were unable (as distinct from unwilling) to repay the debts when they fell due on 22 January 2007 and 7 March 2007. It can be inferred that they remained unable to repay any part of the debt up to at least 19 November 2007. If that were not so, one would expect repayments to have been made to avoid the crippling rates of interest claimed by the plaintiff. In the absence of evidence to the contrary, I infer that that inability continued and the debts remained unpaid to the date of hearing.
46 The next question is what, on the proper construction of the contract, is payable. Each loan expired one month after it was made. One month's interest at the lower rate of five percent per month in the case of the first loan and 8.35 percent in the case of the second loan was prepaid. The contracts expressly provide for the payment of damages if the loans are not repaid at the end of the term. There are two components of the damages. One is the payment of the higher rate of interest from the expiry date until repayment (that is, at the rate of ten percent per month for the first loan and 15 percent per month for the second loan). In addition, for each month or part of a month that the loan was overdue a further "one month's interest" is payable. In the context in which the words "one month's interest" appear, it is an additional one month's interest at the higher rate. The contrary was not contended. Accordingly, the damages can be calculated as a minimum of 20 percent per month (or 240 percent per annum) in the case of the first loan, and 30 percent per month (or 360 percent per annum) in the case of the second loan.
47 The agreement to pay interest as damages for late repayment attracts the doctrine of penalties if, as a matter of substance, the sum payable is not a genuine pre-estimate of the loss the plaintiff may suffer by being kept out of its money, but is in the nature of a punishment (Acron Pacific Ltd v Offshore Oil NL (1985) 157 CLR 514 per Deane J at 520). The moneys are payable as a consequence of a breach of contract rather than as the withdrawal of an incentive. This distinguishes this case from those where a mortgage stipulates a higher rate of interest reduceable to a lower rate if instalments are paid on time.
48 It is no longer the law that damages cannot be recovered for late payment of a debt (Hungerfords v Walker (1989) 171 CLR 125). In any event, a provision for the payment of interest at a higher rate after default which does not operate retrospectively is not a penalty provided it can be seen as a genuine pre-estimate of compensation for loss the lender would suffer by being kept out of its money (David Securities Pty Ltd v Commonwealth Bank of Australia (1990) 23 FCR 1 at 30, 31).
49 In Ringrow Pty Ltd v BP Australia Pty Ltd [2005] HCA 71; (2005) 224 CLR 656, the High Court referred with approval to a statement by Mason and Wilson JJ in AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170 at 190 that an agreement to pay a sum as damages should only be struck down as a penalty if "it is out of all proportion to damage likely to be suffered as a result of breach" (at 667 [27]). In Ringrow Pty Ltd v BP Australia Pty Ltd the High Court said (at 669 [32]):
" Exceptions from that freedom of contract require good reason to attract judicial intervention to set aside the bargains upon which parties of full capacity have agreed. That is why the law on penalties is, and is expressed to be, an exception from the general rule. It is why it is expressed in exceptional language. It explains why the propounded penalty must be judged ' extravagant and unconscionable in amount' . It is not enough that it should be lacking in proportion. It must be ' out of all proportion'".
50 There was no evidence, except that which can be inferred from the loans made to the two borrowing companies, of the extent of the likely or possible loss to the plaintiff from its loans not being repaid on the due dates. It goes without saying that the borrowers and guarantor remain liable to repay the principal debt, and that the damages for which the agreements provide are in addition to the obligation to repay principal. It was submitted for the plaintiff that the onus was on the defendant to show that the sum payable as agreed damages was out of all proportion to any loss that the plaintiff could have suffered and that the defendant led no evidence to support that contention.
51 Whilst I accept that the onus is on the defendant to show that the provision is a penalty, it appears to me that once some evidence is adduced which may be sufficient to satisfy that onus, there is an evidentiary onus on the plaintiff to explain the nature of its business, the rates at which it is able to lend, and how, when the contracts were entered into, it would have been anticipated that the moneys would be re-deployed on repayment of the loans. This information was entirely in the plaintiff's camp. Evidence is to be weighed according to the power of a party to produce it. Where facts are peculiar within the knowledge of one party, comparatively slight evidence may be sufficient to discharge the onus of proof lying on the opposite party (Parker v Paton (1941) 41 SR (NSW) 237 at 243; Hampton Court Ltd v Crooks (1957) 97 CLR 367 at 371-372; Apollo Shower Screens Pty Ltd v Building and Construction Industry Long Service Payments Corporation (1985) 1 NSWLR 561 at 564-65; Krstic v Brindley [2006] NSWSC 1414 at [26])
52 Part of the inquiry is whether "the propounded penalty [is] 'extravagant and unconscionable in amount'". No evidence was led as to the value of the mortgage security taken by the plaintiff over the land of the two borrowing companies. As it can be inferred that the borrowers have not repaid any part of the loans, it can also be inferred that the plaintiff has not considered it worthwhile to exercise its power of sale over the mortgaged properties, assuming that right exists. There is no evidence as to the value of Mr Selvarajah's guarantee. The fact that the loans were for short terms and at very high rates of interest (five percent and 8.35 percent per month) indicates that the transaction was, as Mr Gray submitted, "outside the normal parameters of a commercial lending environment."
53 In Accom Finance Pty Ltd v Mars Pty Ltd [2007] NSWSC 726; (2007) 13 BPR 24,729, Windeyer J dealt with the challenges made to certain mortgages and guarantees which secured loans with lower interest rates of 48 percent and 60 percent and higher interest rates of 96 percent and 120 percent. His Honour said (at [54]-[55]):
" [54] The final issue to address is whether Accom's interest rates somehow made the transaction unconscionable. Many people would think that the rates of interest charged were exorbitant for first mortgage loans of say 75% of value. I agree. But bad bargains are not necessarily unconscionable bargains or illustrative of unconscionable conduct. The fact is that there have been quite a number of decisions in this Court of trial judges where interest rates similar to the ones here have been upheld or at least not resulted in any relief being given on that ground: eg Takemura v National Australia Bank Ltd [2003] NSWSC 339; Guardian Mortgages v Miller [2004] NSWSC 1236; King Investment Solutions v Hussain [2005] NSWSC 1076. Accom's rates, or at least the higher rates, have nothing whatsoever to do with risk, although it is possible the lower rates might have some connection in view of the speed with which the loans are made available. The higher rates really have everything to do with what the lender thinks can be got away with, which at least here seems to be a doubling of the lower rate. However, unless there is pure asset lending, the fact that the rates appear exorbitant does not in itself make them unconscionable. I am aware through experience in other cases that such rates are not unusual. It is not claimed by para 22(c)(i) of the cross-claim that the rate is unconscionable; what is claimed is that Accom arbitrarily fixed a grossly excessive rate and that Mars had no capacity to negotiate the rate. ...