Morton v Elgin-Stuczynski & Anor [2008] VSCA 25

The applicant undertook to pay interest on the basis of the then current banking practices. The compounding of interest had long been recognised by the courts as one of those practices. Although in today's banking world, where following the adoption by governments of a policy euphemistically described as "deregulation", the certainty that banks would conform to particular lending practices must have diminished to a degree, there is nothing before the court, nor would it appear that there was anything before his Worship, to suggest that even at the present time this would operate to deny to a banker compound interest on a debt owed by a client. Certainly I consider that his Worship would have been entitled to find that in 1976, when the contract was entered into, banking practices would have been well established in this respect.

**21 Counsel submitted that similar reasoning must apply to a loan contract which referred to the rate normally charged by the Commonwealth Bank. It was also submitted that the use of the words 'accrued interest' meant that interest was to be compounded, because the word 'accrued' required interest to be added to the amount owing and then recalculated. It was said that the word 'accrued' would have been surplusage if the parties had only intended that the respondents should pay simple interest on the amount owing. The only purpose in using that word was to indicate the manner in which interest was to be calculated.