NIKOLOFF -v- PERPETUAL TRUSTEE COMPANY LIMITED [No 2] [2022] WASCA 16 (17 February 2022)

4 On 2 August 2019, Perpetual commenced the primary proceedings and sought summary judgment on its claim and the appellant's counterclaim. On 28 October 2020, the acting master granted Perpetual's summary judgment application. She awarded Perpetual judgment in the sum of $855,772 which was found to then be outstanding under the loan agreement. The acting master also ordered the appellant to give possession of the Beckenham properties to Perpetual within 28 days.

5 The appellant now appeals against the award of summary judgment against her. For the following reasons in our view the appeal must be dismissed.

6 The following background concerning the primary proceedings is taken from this court's reasons for decision on the appellant's unsuccessful stay application.[2]

7 Perpetual applied for summary judgment against the appellant in respect of its claims, as well as on a counterclaim filed by the appellant.[3] In support of its application, Perpetual filed several affidavits which verified the facts on which its claim was based, including the entry into the loan agreement and mortgages in favour of Perpetual and matters relating to default.[4]

8 The appellant opposed Perpetual's application for summary judgment. She raised four issues to the following effect:

1. The appellant claimed that the loan was securitised by Perpetual without notice to the appellant.[5]

2. The appellant contended that the loan agreement lacked certainty, and that the loan agreement and mortgages were unenforceable on that basis.[6] In this regard, she also complained as part of her counterclaim that Perpetual was given unfettered discretion in relation to the rate of interest.[7]

3. The appellant said that she had entered into the loan agreement under the mistaken belief that the variable interest rate under the loan agreement would always align with the Reserve Bank of Australia (RBA) cash rate.[8] The appellant contended that while she had read a note in the financial information table of the loan agreement, which stated that the specialist lending variable rate may be changed without her consent, she had interpreted this as allowing the bank to adjust the interest rate in line with the RBA cash rate.[9]

4. The appellant contended that Perpetual engaged in unconscionable conduct.[10]

9 The appellant also raised additional matters concerning the conduct of banks generally.[11]

10 The acting master was satisfied that:[12]

1. Perpetual's affidavits provided prima facie evidence of its claims;

2. Perpetual had satisfied the criteria to exercise the power of summary judgment; and

3. Perpetual had a prima facie entitlement to judgment on its claim.

As Perpetual had established a prima facie case, the evidentiary onus shifted to the appellant to demonstrate that there was an arguable defence or other reason for trial.[13]

11 The acting master found that, in all of the circumstances, she was satisfied that the appellant had no arguable defence to the claim.[14]

12 In respect of the first issue raised by the appellant, the acting master found that there was no evidentiary basis for this claim and it was a mere assertion.[15] In any event, it did not provide the appellant with a viable defence to Perpetual's claim or counterclaim. The acting master found that, insofar as the appellant claimed that a lack of notice invalidated the loan agreement, the terms of the loan agreement were such that Perpetual was able to 'assign or otherwise deal with its rights in any way and there [was] no requirement in the loan agreement or mortgage for notice of any assignment to be given to [the appellant] ... '.[16]

13 As to the second issue raised by the appellant, the acting master found that, based on the authorities considered, it was not arguable that the provisions of the loan agreement as to interest were void for uncertainty. Further, the acting master determined there was also no need to consider whether it was arguable that the interest provision was not severable from the contract.[17]

14 In respect of the third issue raised by the appellant, the acting master accepted the submission by Perpetual that the terms of the loan agreement with respect to the interest rate, and the right to vary the interest rate, were clear on the face of the documents signed by the appellant. There was no representation in these documents that the variable interest rate would align with the RBA cash rate. The acting master also found there was nothing in the wording of the note, or the loan agreement as a whole, that was capable of giving rise to the interpretation suggested by the appellant.[18]

15 As to the fourth issue raised by the appellant, the acting master considered the possibility of unconscionable conduct both in equity and under s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

16 As to the position in equity, the acting master found that there was no arguable defence or counterclaim for the appellant based on unconscionable conduct.[19] The reasons for this were, in effect:

1. The appellant's perceived difference in bargaining position was insufficient of itself to give rise to a special disadvantage.[20]

2. It was not arguable that the appellant's mistaken belief regarding the calculation of interest on the loan seriously affected her ability to make a judgment as to her best interests such as to constitute a special disadvantage.[21]

3. Even if there was a special disadvantage, there was no evidence that it was sufficiently evident to Perpetual.[22]

4. There was no evidence that there was conduct by Perpetual which was harsh or oppressive involving taking advantage of any purported special disability of the appellant.[23]

17 The acting master also found that there was no arguable defence or counterclaim for the appellant based on unconscionable conduct under s 12CB of the ASIC Act.[24] The reasons for this were, in effect:[25]

1. There was no evidence of the relative strengths of the bargaining positions of the parties at the time they entered into the loan agreement and mortgages, nor of actual inequality.

2. There was no evidence that the bargain struck was procured by Perpetual's unfair exploitation of the appellant's weakness.

3. There was no evidence of the terms under which the appellant could have acquired identical or equivalent financial services from a lender other than Perpetual, or indeed whether such services were available to the appellant.

4. There was no evidence that the appellant sought to negotiate the terms of the loan agreement and mortgages, and was refused by Perpetual.

5. The appellant voluntarily entered a loan agreement with a variable interest rate.

6. There was no evidence Perpetual misled the appellant regarding the variable interest rate.

7. While the appellant held a mistaken belief as to the variable interest rate, she is an accountant.

8. There was no evidence the appellant was unable to understand the terms of the loan agreement or mortgages, nor that Perpetual caused or contributed to, or knew or ought to have known about, her mistaken belief regarding the variable interest rate.

9. Changes to the interest rate under the loan agreement were made in accordance with Perpetual's express contractual rights.

18 The acting master considered that the additional and more general complaints raised by the appellant were insufficient to demonstrate an arguable defence or other reason for trial.[26]

19 Grounds 1 - 5 of the appellant's appeal concern the question of whether the loan agreement was void for uncertainty by reason of the identification of the 'specialist lending variable rate' as the variable interest rate applicable to the loan agreement.

20 The original loan agreement identified three different portions of the loan amount, identified as A, B and C. In the case of each portion, the annual percentage rate was identified in the following terms:

Variable rate option

The annual percentage rate is the specialist lending variable rate which is 7.34% as at the disclosure date [31 December 2013].

(defined terms italicised in original)

21 The original loan agreement provided that the term of the loan was 30 years, with monthly interest only repayments for the first 5 years of the loan term, followed by principal and interest repayments. The original loan agreement provided for mortgages of the Beckenham properties and a property in Balga to be granted as security for the loan.

22 The acting master set out the following relevant provisions of the General Terms:[27]

34 Meaning of words

These meanings apply in this agreement:

annual percentage rate means a per annum rate of interest.

specialist lending variable rate means the rate we publish from time to time as our advertised 'specialist lending variable rate' or a name we substitute for that name.

Obligation to pay

8.1 You must pay us interest charges for each day on the balance owing on your loan account, or if the loan is split, each balance owing on the sub-account, for the end of that day. Interest charges are calculated daily at the annual percentage rate applying to the relevant amount for that day on the basis of a 365 day year (including in a leap year). If you have an offset portion which has a positive balance recorded against it, the recorded positive balance of that offset portion will be offset against the balance of one or more portions under a variable rate option so as to reduce the balance owing on the sub-account for the purposes of the interest calculation on that portion or portions.

Interest rates

9 Under the variable rate option

Variable rate

9.1 If you have a Alt Doc loan, whenever the loan or a portion of it is under the variable rate option, the annual percentage rate at any time for the loan is the specialist lending variable rate most recently notified to you (see clause 30 below).

...

Changing the rate

9.2 Whenever an amount is under the variable rate option, we may change the annual percentage rate which applies to that amount at any time. Therefore, if your loan or a portion of it starts under the variable rate option, the annual percentage rate shown in the Details is the rate applying at the disclosure date and is only a guide - the actual rate may have changed by the settlement date.

30. Notice of changes to variable rates

We notify you in writing (which may be by advertisement in the banking section of the Australian Financial Review newspaper) on or before the date of any increase in the specialist lending variable rate. We notify you of a reduction in the specialist lending variable rate in the next statement of account sent to you.

You can also find out the specialist lending variable rate at any time by contacting the originator.

(defined terms italicised in original)

23 The variation to the loan agreement altered the terms of the loan, and provided for the repayment of one of the loan portions and the consequent discharge of the mortgage over the Balga property. In relation to interest rates, the variation agreement provided:

The annual percentage rate for the existing portions are the same as the annual percentage rates that apply under your existing loan and can vary in the same way as the rates for the existing loan.

24 Grounds 1 - 3 in essence allege that the acting master erred in law by focussing on 'the narrow interpretation of contract law' without consideration of the 'fair and reasonable implications of the words, undermining any possibility of good faith'. Grounds 4 and 5 challenge the acting master's conclusion that the loan agreement was not arguably void for uncertainty.

25 There is no error in the acting master's approach. The contractual terms used are unambiguous in authorising the variation of the 'specialist lending variable rate' on written notice to the borrower. There is no textual basis for the appellant's contention that the contractual power to vary the interest rate is limited by reference to rates set by the RBA.

26 The present case is not one where a contract creates no binding and enforceable obligation because essential and critical terms are absent. Nor are essential and critical terms expressed so obscurely that the court is unable to attribute to the parties any particular contractual intention. The provision as to interest is present and unambiguous, and in any event ambiguity which the courts can (and will strive to) resolve by construction does not make a contract void for uncertainty.[28]

27 The present case is also not one in which there is a promise to pay an unspecified sum of money to be determined by the promisor. That is, this is not a case of a purported promise to make a payment accompanied by words showing that the promisor is to have a discretion or option as to whether the promisor will carry out the purported promise. Promises of this category may be unenforceable, not as vague or uncertain promises but as illusory promises.[29] However, in the present case the obligation placed on the appellant to pay the identified rate of interest was not conditioned by any discretion or option on her part.

28 A broader principle suggested by Gibbs J in Godecke,[30] and by the Full Federal Court in Kabwand Pty Ltd v National Australia Bank Ltd,[31] is that there can be no concluded bargain if a vital matter has been left to the determination of one of the parties. In the latter case, it was held that a court would enforce an agreement to pay a sum of money to be determined by a party so long as the parties select some criteria which is capable of objective determination. That requirement was held to be met in a case where a bank was given a contractual power to increase or decrease the rate of interest 'conforming with general movements in the [b]ank's interest rates'. The court observed:[32]

Whatever may be the case where a loan agreement provides that the lender may select any interest rate it pleases, the present is not that case. Here the rate of increase or decrease of interest must conform to the general rates of interest charged to customers of the bank, that is to say there is an objective market standard to be applied at all times.

29 In ANZ Banking Group Ltd v Fink, Adams J applied Kabwand to find, in a summary judgment application, that a contractual provision for interest to be charged by reference to an 'ANZ Home Loan Index' was not void for uncertainty.[33]

30 The broader principle was applied by Drummond J in Cross v National Australia Bank Ltd,[34] and by Brereton J in Perpetual Nominees Ltd v Parist Holdings Pty Ltd,[35] to find invalid provisions that were construed to give a lender an open-ended and unconfined discretion to vary interest rates without constraint or reference criteria. However, the approach taken in Cross was disapproved of by Sundberg J in Drambo Pty Ltd v Westpac Banking Corporation Ltd,[36] and by Pembroke J in Abod Pty Ltd v Kingston Finance Pty Ltd.[37]

31 In Australian Executor Trustees Ltd v Prodap Services Pty Ltd,[38] a borrower resisted a lender's summary judgment application on the ground that the loan agreement left the change of a variable interest rate entirely in the discretion of the lender. In response the lender said that it was an implied term that changes to the interest rate had to be fair and reasonable. Summary judgment was refused on the basis that the evidence was insufficient to prove that the interest rate variations in that case were in fact fair and reasonable, and therefore authorised by the term for which the lender contended. Morrison JA, with whom Holmes JA agreed, proceeded on the assumption that a clause conferring an unconfined discretion would be void.[39] Dalton J expressly declined to decide questions concerning the effectiveness of the interest rate variation clause.[40]

32 The above cases support an argument that a contractual provision giving a lender an unfettered power to fix interest rates without constraint or reference criteria (including a lender's own benchmark rates)[41] may be void for uncertainty. The open question of whether or not such a provision is void is not appropriately resolved on a summary judgment application.

33 However, nothing in those decisions indicates that a lender may not be empowered to vary an interest rate by reference to a general market rate advertised as available to all qualified customers taking up certain categories of loan. As a matter of practice, that is the common means by which financial institutions provide variable interest rate loans.

34 The acting master found that the present case clearly fell within the category illustrated by the decision in Kabwand, observing:[42]

The 'specialist lending variable rate' does not apply solely to the loan in question but [to] all customers of [Perpetual] taking a loan of the same kind and so, to adopt the language of Kabwand at [50382], this clause requires the interest rate to 'conform to the general rates of interest charged to customers of the bank, that is to say there is an objective market standard to be applied at all times'.

In this case, as in Kabwand, borrowers under a specialist lending variable rate 'may challenge any increase in the rate of interest applied on the basis that it has been fixed otherwise than in conformity with the general movements referred to'. It follows that it is not arguable that the provisions of the loan agreement as to interest are void for uncertainty.

(citations omitted)

35 We see no error in that approach. The acting master correctly held that the provisions for interest are not arguably void for uncertainty. Grounds 1 - 5 are not established.

36 Ground 6 alleges an error of law in the acting master's rejection of the appellant's argument as to 'unconscionability' in equity. The acting master described the applicable general principle in the following terms:[43]

To establish in equity that the plaintiff acted unconscionably, the defendant must prove: first, that the defendant suffered from a special disadvantage (or special disability) which seriously affected her ability to make a judgment as to her own best interests; and secondly, that the plaintiff unconscientiously took advantage of that special disadvantage. The second element generally requires that the plaintiff knew or ought to have known of the existence and effect of the special disadvantage.[44]

The adjective 'special' emphasises that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his or own [sic] her own best interests. In this case, there is no evidence that the [appellant] was under a special disadvantage at the time of entry into the loan agreement. In the affidavits sworn by the [appellant], the [appellant] describes her occupation as 'accountant'. The [appellant] was not a volunteer to the transaction. There is no evidence before the court that the [appellant] was unable to judge for herself, or to conserve her own interests.

38 By ground 6, the appellant alleges that the acting master's discussion in this paragraph of the primary decision was 'not complete'. She states:

Implying that because I was an accountant, I could judge for myself, however, it is this very training at university that led me to trust in the integrity of the system as I know that there are laws in place to ensure that the lender will act within the law and with good faith and hence the belief that the system in place will keep the superior party honest, fair and reasonable.

39 The appellant's submissions in relation to this ground materially focus on what she contends was the inequality of bargaining power between her and Perpetual as to the terms on which the loan would be granted. In our view, that is not an arguable basis for finding that the equitable doctrine of unconscionable conduct was engaged. It may be accepted, as at least arguable, that Perpetual set the terms on which it was prepared to loan funds. However, to the extent that resulted in an inequality of bargaining power, it did not constitute a relevant special disadvantage or disability. As with any customer, the appellant had a choice as to whether she accepted an offer of loan funds on the terms being offered by Perpetual or sought financing from another lender (or not at all). There was no evidence that there was anything unusual or uncommercial about the terms on which Perpetual offered to lend money to the appellant.

40 The acting master was correct to hold that the evidence relied on by the appellant did not arguably raise a defence to Perpetual's claim on the basis that it had engaged in unconscionable conduct in equity. The evidence did not arguably establish that the appellant suffered from a special disadvantage (or special disability) which seriously affected her ability to make a judgment as to her own best interests. Ground 6 is not established.

41 Grounds 7 ‑ 9 allege errors of law relating to 'Additional doctrines not taken into consideration'. Ground 7 alleges consideration was not given to the 'doctrine of implied good faith'. Ground 8 alleges the acting master did not take into account 'duress/economic duress'. Ground 9 alleges the acting master did not take into account an 'unfair term going to the heart of the contract'.

42 There is no merit in these grounds, which generally raise matters not advanced before the acting master, and about which there was no relevant evidence before the acting master. In particular, there was no evidence that Perpetual may have acted in breach of any implied warranty that it would act in good faith or that the loan agreement was entered into under duress.[46] Nor is it reasonably arguable that the absence of any tie to the RBA interest rates operates unfairly or in a way which could arguably vitiate the loan agreement. The matters raised by these grounds do not demonstrate any error in the award of summary judgment to Perpetual.

43 In her submissions, the appellant also contended that a term should be implied in the loan agreement, in effect requiring that any changes in interest rate reflect the RBA cash rate, as a matter of business efficacy. Having regard to the criteria for implying a term on that basis,[47] the submission cannot be accepted. Such a term would be inconsistent with the express terms of the loan agreement, is not necessary to give business efficacy to the contract and is not 'so obvious that it goes without saying'.[48]

44 We recognise that summary judgment should be awarded only in the clearest of cases, where one party can demonstrate that the question will certainly be resolved in their favour.[49] However, for the reasons explained above, we consider the acting master correctly held this to be such a case. The appeal should be dismissed.

45 By application in an appeal filed on 16 March 2021, the appellant seeks leave to adduce additional evidence in the appeal, comprising various documents relating to interest rates generally. We would dismiss that application on the ground that it is not in the interests of justice to admit the additional evidence in circumstances where it has not been shown to have been unavailable to the appellant at the hearing before the acting master, and there is no significant possibility that the new material would affect the outcome of this appeal if it were admitted.[50]

1. The appellant's application in an appeal filed on 16 March 2021 is dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

[2] Nikoloff v Perpetual Trustee Co Ltd [2021] WASCA 94 [6] - [15].

[3] Perpetual Trustee Company Limited v Nikoloff [2020] WASC 389 [8] (primary decision).

[12] Primary decision [4], [26] - [27].

[27] Primary decision, 'Schedule A', 29 - 30.

[28] See Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101 [28] - [33] and cases there cited.

[29] See Thorby v Goldberg [1964] HCA 41; (1964) 112 CLR 597, 605; Placer Development Ltd v The Commonwealth [1969] HCA 29; (1969) 121 CLR 353, 356, 359 - 360; Godecke v Kirwan [1973] HCA 38; (1973) 129 CLR 629, 646 ‑ 647.

[31] Kabwand Pty Ltd v National Australia Bank Ltd [1989] FCA 131; (1989) ATPR 40-950.

[33] ANZ Banking Group Ltd v Fink [2013] NSWSC 1781 [23].

[34] Cross v National Australia Bank Ltd (unreported, FCA, 29 April 1994) 41 - 42.

[35] Perpetual Nominees Ltd v Parist Holdings Pty Ltd [2005] NSWSC 1354 [35].

[36] Drambo Pty Ltd v Westpac Banking Corporation Ltd [1996] FCA 1665; (1996) 2 ACCR 479, 532 - 534.

[37] Abod Pty Ltd v Kingston Finance Pty Ltd [2019] NSWSC 242 [6] - [12].

[38] Australian Executor Trustees Ltd v Prodap Services Pty Ltd [2014] QCA 142.

[39] Australian Executor Trustees [24].

[40] Australian Executor Trustees [29].

[44] Thorne v Kennedy [2017] HCA 49; (2017) 263 CLR 85 [38], [64]; and Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392 [14] - [20], [122] - 124], endorsed by the plurality in Thorne [37]. See also Commonwealth Bank of Australia v Dinh [No 2] [2019] WASC 456 [679] ft 574.

[46] As to which see Chang v Legal Profession Complaints Committee [No 2] [2020] WASCA 208; (2020) 56 WAR 263 [270] and cases there cited.

[47] See BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, 283.

[49] Spencer v The Commonwealth [2010] HCA 28; (2010) 241 CLR 118 [54] - [55].

[50] As to the principles governing the reception of additional evidence in a civil appeal, see Saunders v Public Trustee [2015] WASCA 203 [83] - [90].