Perpetual Trustee Company Limited v Agusta Pty Limited

Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 450 BP Refinery (Western Port) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 China Ocean Shipping v PS Chellaram & Co (1990) 28 NSWLR 354 Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 CASES CITED : Goodlen Pty Ltd v BP Australia Pty Ltd [2004] NSWSC 646 Joseph Guljas v Caltex Oil (Australia) Pty Ltd, unreported, FCA, 13 May 1992 Permanent Trustee Company Limited v Agusta Pty Ltd [2008] NSWSC 646 Satchithanantham v National Australia Bank Ltd [2009] NSWCA 268 Toll v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165

Perpetual Trustee Company Limited (1st Plaintiff) PARTIES : Challenger Managed Investments Limited (2nd Plaintiff) Augusta Pty Limited (Defendant)

COUNSEL : Mr P M Barham (Plaintiffs) Mr D Ash (Defendant)

SOLICITORS : Deacons (Plaintiffs) Colin Biggers & Paisley (Defendant)

• 21 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

15032/07 PERPETUAL TRUSTEE COMPANY LIMITED v AGUSTA

JUDGMENT 1 HER HONOUR: Agusta Pty Ltd is the registered proprietor of an industrial property at Kings Park in the State of New South Wales. On 4 October 2006, Agusta mortgaged the property to Perpetual Trustee Company Limited to secure Agusta's obligations under a loan agreement with Challenger Managed Investments Limited. 2 The limit of the facility was $2,000,000 but only $725,000 was drawn down by Agusta. The term of the facility was 12 months commencing on 1 November 2006. Before the loan agreement was entered into, Agusta provided a form of authority to Challenger's mortgage manager to enable monthly interest payments to be deducted by direct debit. However, the hand-writing on the form was unclear as to whether the last numeral of the BSB number for the account to be debited was a six or a zero. The correct BSB number for the account ended with a zero. Unfortunately, Challenger read it as "06 2006". 3 That relatively innocent combination of errors has generated contractual chaos. The problem was not identified until over six months after the commencement of the facility. In the meantime, each time Agusta was notified that the debit had been "dishonoured", it made its payment by cheque, but Challenger treated those as late payments and began to charge additional interest. Agusta disputed Challenger's entitlement to do so and continued to pay interest at the lower rate. 4 By July 2007 Challenger was alleging that the loan was $13,515.16 in arrears due to Agusta's refusal to pay the additional interest. 5 In October 2007, Challenger and Perpetual commenced these proceedings seeking possession of the security property on the basis of the alleged arrears. Since the commencement of the proceedings, the position has been complicated by Agusta's contention (made by its defence and cross-claim) that the original 12 month facility was renewed for a further term of 12 months on 1 November 2007 and again on 1 November 2008. Agusta contends that even if there was default in the payment of interest, the effect of the first renewal is that Perpetual cannot now rely on such default as the basis for an order for possession (because the renewal entailed an implicit acknowledgement of Agusta's right of possession). 6 Separately, Agusta contends that there was no default in any event (on the proper construction of the agreement) and that if there was, Challenger is precluded from relying on it by its unconscionable conduct, and has waived or is estopped from relying on default in failure to repay the principal upon maturity of the facility. 7 It is common ground between the parties that, if the facility was not renewed, it has expired by effluxion of time and that Perpetual is entitled to enforce the mortgage if the loan is not repaid. On that analysis, however, it remains necessary to resolve the question of the original alleged defaults in interest payments for the purpose of quantifying the debt. 8 Accordingly, the issues that arise for my determination are: (a) Whether the facility was renewed in 2007 and again in 2008. If the facility was not renewed, there is default, subject to any waiver or estoppel, but there remains a question as to how the debt should be quantified and whether any writ should be stayed while that occurs. (b) Whether there was any default between November 2006 and May 2007. Agusta contends that there was not, relying on both the express terms of the loan and terms said to be implied. (c) If there were defaults between November 2006 and May 2007, is Challenger precluded from relying on them, either on the basis of the renewal or on the grounds of unconscionability?

Circumstances in which it is alleged the loan was renewed

9 In order to assess Agusta's contention that the facility was renewed, it is necessary to recite the history of both the loan and the litigation in some detail. The terms of the loan agreement are set out in a deed of loan executed by the parties on about 4 October 2006. The loan was a variable interest facility. Interest was payable monthly in arrears on the first day of the following month. If paid on that date, or within 7 days thereafter, it was payable at "the Lower Rate" (clause 6.3(2) of the deed of loan). Otherwise, interest was payable at "the Higher Rate", which was the lower rate plus 4% (clause 6.3(1)). At the time the loan agreement was entered into, the lower rate was 7.45% per annum (First Schedule, Item 5).

10 It appears that the direct debit authority form was completed and provided to Challenger by Mr Angelo Ferella, but he did not give evidence in the proceedings. There was a second version of the authority in evidence before me on which the BSB number is written clearly as ending in a zero, but the number is incomplete, being written as simply "2000" (the correct number was 06 2000). In any event, neither party suggested that the second version of the form was ever sent to Challenger. Challenger sought to rely on it in the proceedings as an "admission" by its author that the number in the form originally sent looked like a six, but I did not admit it on that basis (T50 to 51). 11 Pursuant to clause 6.2(1) of the loan agreement (read together with clause 29(17) of the definitions clause), the first payment of interest was due on 1 November 2006. Challenger attempted to obtain the interest payment by direct debit on that date, without success. It is now clear that the reason payment was not obtained is that Challenger had entered the wrong BSB number. It appears, however, that the information provided to Challenger by its bank, Westpac Banking Corporation, did not include details as to why the direct debit failed. Challenger simply received an electronic file in respect of all borrower accounts identifying which payments had been received and which had not. It did not know that the direct debit failed because the account name and account number did not match. 12 On 6 November 2006, Challenger wrote to Agusta in the following terms: "Our bank has advised us that your periodical direct debit for November in the sum of $4,143.42 has been dishonoured. This may be due to invalid bank account details provided to us, the closure of your direct debit facility or that there were insufficient or uncleared funds in your bank account. We request that you forward a cheque made payable to Perpetual Trustee Company Limited to us, including a $20 dishonour fee that has been debited to your account. Please note that interest payments are due on the 1 st of each month and payable within 7 days. If payment is received after this date, interest will be applied at the higher rate." 13 Agusta paid the sum of $4,143.42 by cheque and that amount was credited to Agusta's loan account on 8 November 2006. That pattern continued for several months until the error as to the BSB number was discovered. Some of the cheques, however, were not credited to Agusta's account within 7 days after the first day of the month. Challenger contends that those payments were not made within the time allowed under clause 6.3(2) and, accordingly, that interest for the periods pertaining to those payments was calculable at the higher rate. 14 Correspondence sent to Challenger during that period from Ms Tiziana Ferella on behalf of Agusta discloses that Agusta was proceeding on the basis that Challenger should not attempt to obtain payment in accordance with the direct debit until the 7th day of each month, because Agusta received its funds from the tenants of the property on the sixth day of each month. In a letter dated 27 March 2007 to Mr Paul Williams at Challenger, Ms Ferella stated: "I note with conviction, I have reviewed the file the account is up to date it is disputed that we are indebted in the sum of $3,987.96, please go back and check your figures because you are incorrect, also please note as you were told on several occasions you are not able to draw the funds until the 7 th of each month because that is when the funds are placed in the bank by the tenants." 15 That position was reiterated in a letter dated 22 April 2007 when Ms Ferella stated: "You have been notified on many occasions not to try and draw down funds from our account in regards to the facility in place on the first day of the month until we have resolved the funds being received from the tenants, because we receive all payments on the sixth of every month in arrears, we are finally coming to a stage where this will be resolved in which you will be able to draw the funds on the first day of the month from now on." 16 The error in respect of the BSB number was finally discovered in early May 2007. On 9 May 2007, Ms Ferella wrote to Mr Williams to inform him that, according to her bank, there had been no attempt to deduct any moneys from the relevant account by periodic payment during the relevant period. Ms Ferella stated that her bank had suggested that "the error must be at [Challenger's] end" because there had been no reversals for insufficient funds in respect of any withdrawals on the account from 1 January 2007 to 1 May 2007, nor indeed any attempt to obtain a debit from the account by periodic payment. 17 On 14 May 2007, Ms Fiona Giorgi, an employee of Challenger, made an entry in the loan journal in respect of Agusta's loan in the following terms: "Loan bank details changed from (062-006 [followed by account number]) to (062-000 [followed by account number])." 18 Ms Giorgi could not recall how the information as to the correct number had been conveyed to her. After that date, the monthly interest payments were received within the 8 days allowed for payment at the lower rate by means of direct debit in accordance with the authority Agusta had intended to grant at the outset of the loan. An account statement tendered by Challenger (exhibit B) indicates that those payments continued until February 2008. However, Challenger took the view that Agusta was still in default under the loan agreement (due to its failure to make some of the earlier interest payments on time) and continued to debit the loan account at the end of each month with additional interest reflecting the increment for the higher rate. So far as Challenger was concerned, the account continued to be in arrears because Agusta had not paid that additional interest. 19 On 10 July 2007, Challenger sent Agusta a notice of arrears claiming an amount of $13,515.16. A copy of the "current interest statement" for the account was attached to that notice but that statement opens with a balance in arrears of $6,471.13 as at 11 April 2007 and it is therefore not possible to be certain as to the precise composition of the amount claimed. It appears to represent the increment for interest calculated at the higher rate over five months. 20 Ms Ferella responded by disputing that Challenger was entitled to the higher interest rate, contending that Challenger had been given the account number regarding periodic payment when the facility commenced. That letter was sent on 21 July 2007. On 31 July 2007, Challenger served a notice on Agusta pursuant to s 57(2)(b) of the Real Property Act 1900. Ms Ferella again wrote disputing that Agusta was in default under the mortgage. Her letter concluded with an invitation to Challenger's solicitors to commence proceedings if they considered they "have a case". On 3 October 2007, Challenger did commence proceedings, seeking an order for possession of the property and leave to issue a writ of possession. The statement of claim alleged that the arrears unpaid as at 10 September 2007 were $18,456.14.

21 On 4 October 2007, Perpetual gave notice to Agusta's tenant under s 63 of the Real Property Act requiring payment of all rents and other moneys to Perpetual (the operation of that notice was subsequently stayed by Johnson J: see Permanent Trustee Company Limited v Agusta Pty Ltd [2008] NSWSC 646). 22 It is difficult to understand why Challenger took those steps to recover $18,456.14 in disputed arrears in interest when the facility matured in any event on the first day of the following month. On the one hand, it might be inferred that Challenger had no intention to renew the facility at that time. If that is so, however, I do not understand why Challenger did not simply await the expiry of the facility the following month and demand repayment of the whole loan at that time, when it would have had an indisputable entitlement to possession if it was not repaid.

23 Instead, the expiry of the loan was completely ignored by both lender and borrower in their correspondence with each other, both before and after the date passed. Agusta did not request renewal of the facility, and Challenger did not offer it. On the expiry date itself (1 November 2007), rather than noting Agusta's obligation to repay the facility that day, Challenger sent an invoice for the administration fee for the next six-month period. The letter stated: "The Administration Fee for the above account became due on 4 October 2007 in the amount of $2,200 inclusive of GST. Could you please make the payment in favour of Challenger Commercial Lending Limited within the next 21 days. Payment of the fee should be kept separate to the monthly loan instalment." 24 Challenger's decision to send an invoice for the administration fee is consistent with renewal of the agreement for a further year, and inconsistent with the expiry of the agreement. The relevant clauses of the loan agreement as to fees provide: "8. Fees 8.1 Establishment fee Prior to or on the date of this Deed, the Borrower has paid or will pay to the Lender an establishment fee of the amount set out in Item 3.1 of the First Schedule. 8.2 Annual Administration fee The parties acknowledge that the Borrower has agreed to pay to the Mortgage Manager the Annual Administration Fee. If the Borrower fails to pay the Annual Administration Fee on the due date the Borrower hereby authorises the Lender (at the Lender's discretion) to make such payment to the Mortgage Manager on behalf of the Borrower. The borrower acknowledges and agrees that the amount of such payment shall be part of the Secured Moneys and shall be immediately due and payable by the Borrower to the Lender. 8.3 Rollover fee If the Borrower does not repay the Principal Outstanding or any other Secured Moneys due but unpaid before or within seven days after the Expiry Date, the Borrower shall be deemed to have extended the Facility only for the purpose of this clause 8.3 so that the Borrower shall pay to the Lender a rollover fee in an amount determined by the Lender having regard to the period of time between the Expiry Date and the date the Principal Outstanding or those other Secured Moneys are fully repaid so as to be in the proportion that the establishment fee under clause 8.1 bears to the term of the Facility."

25 The establishment fee was $6,600 (item 3.1 of the schedule). The Annual Administration Fee was $4,400 per annum (clause 29(1) and item 3.2 of the schedule. The fee was calculated at 0.22% of $2,000,000 per annum). 26 Reading clauses 8.2 and 8.3 together, I do not think that Challenger was entitled to the Annual Administration Fee after the expiry of the loan agreement. Challenger's entitlement to fees in the event of failure by the borrower to repay the principal within seven days after the expiry date was governed by clause 8.3. The obligation of the borrower in that event was to pay a fee in proportion to the ratio of the establishment fee to the term of the facility. If the loan agreement expired on 1 November 2007, that ratio was $6,600 per annum. The fee invoiced on 1 November 2007 for the six-month period from 4 October 2007 represented $4,400 per annum, which was the administration fee, not the rollover fee. It appears (from exhibit B) that the fee was in due course paid by the mortgagee and debited to Agusta's loan account, as contemplated by clause 8.2. 27 On 30 November 2007, Agusta filed a defence by which it denied an existing obligation to repay the principal sum and denied any default in the payment of interest instalments. In the meantime, Challenger continued to correspond with Agusta as if the loan agreement was on foot. On 13 November 2007, Challenger gave notice to Agusta of "an increase in the variable interest rate on your loan following the .25% per annum increase in the official cash rate announced by the Reserve Bank on 7 November 2007". The letter gave an indicative monthly payment from 1 December 2007 based on the new interest rate. Similar letters were sent on 15 February 2008 and 5 March 2008. On 4 April 2008, a further invoice for the next six months administration fee was sent. 28 Challenger did not file a reply to the defence, and did not assert its entitlement to repayment of the principal until 4 July 2008, when an amended statement of claim was filed seeking "judgment in the sum of $725,000 being the principal amount of the loan drawn down by the defendant" (although I note that default by failure to repay the principal was alleged in a draft amended statement of claim referred to by Johnson J in his Honour's judgment dated 25 June 2008). 29 The amended statement of claim alleged that the first default in payment of instalments occurred on about 1 November 2006 when the defendant failed to pay $4,143.42. The basis for that contention was that the payment made on 8 November 2006 was not made by cash or bank cheque in accordance with the requirements of clause 11.1 of the loan agreement and that the funds were therefore not credited to Challenger's account on 8 November 2006. However, that contention was abandoned at the hearing. Mr Barham, who appeared for the plaintiffs, acknowledged that the November payment was credited to Agusta's loan account before 12 o'clock midday on 8 November 2006 (T14.49-15.15). He indicated, further, that exhibit B is a statement that shows in each case the date on which payments were in fact credited to the loan account. 30 The amended statement of claim further alleged that between 2 November 2006 and 13 May 2007 Agusta maintained some payments by cheque within seven days of the date when interest fell due for payment but that in each case the payments were not made by cash or bank cheque in accordance with clause 11.1 (and that the funds were therefore not credited to Agusta's loan account on the dates that the cheques were received). However, it was acknowledged at the hearing (on the strength of exhibit B) that only four payments were credited after the eighth day. 31 The amended statement of claim alleged, in the alternative, that Agusta was in default of the loan agreement and the mortgage by failing to repay the principal at the expiry of the term of the loan on 1 November 2007.

32 On 15 July 2008, Agusta filed its defence to the amended statement of claim in which it denied Challenger's entitlement to a money judgment and Perpetual's entitlement to an order for possession on alternative grounds. First, Agusta denied that there had ever been a relevant default. As to the allegation of default in interest payments, that denial was based on the contention that it was Challenger and not Agusta that was in default due to the failure of the direct debit process. As to the allegation of default in failure to repay the principal upon maturity of the facility, the denial was based on the alleged renewal of the facility. 33 Secondly, Agusta contended that, even if there had been a relevant default, it was cured prior to the filing of the amended statement of claim (however, no particulars of that contention were provided). 34 Thirdly, Agusta contended that, even if there had been a relevant default, it would be unconscionable for Perpetual or Challenger to insist upon their legal rights in respect of the interest payment defaults and that, by the renewal, Challenger had waived or was estopped from relying on its rights arising from the failure to repay the principal upon maturity of the facility. 35 Finally, it was contended that any right of Perpetual to possession had been extinguished by the renewal of the facility for a further term.

36 The defence provided particulars of Agusta's denial that it was in default by failing to repay the principal amount on maturity. Those particulars included reference to the fact that Challenger had continued to administer the loan on the basis that the facility remained on foot and the fact that it had issued the two invoices for the annual administration fee. 37 Whether due to inadvertence or defiant adherence to its earlier position, notwithstanding the allegations made in the defence to the amended statement of claim (filed on 15 July 2008), Challenger again watched the anniversary of the facility pass without comment. On any view of events as they stood at that time, Challenger was entitled to maintain that the facility would come to an end on 1 November 2008 at the very latest, but it appears not to have asserted that position until 5 May 2009, when a draft further amended statement of claim added the alternative contention that Agusta failed to repay the principal sum "at the expiry of the term of the loan being by 1 November 2008." Was the loan agreement renewed? 38 There was no right of renewal in the loan agreement itself. The first argument put forward by Agusta was based on the letter of offer dated 1 September 2006 from Challenger to Agusta confirming Challenger's approval of Agusta's loan application. Mr Ash, who appeared for Agusta, noted that the letter described the administration fee as an annual fee, which he submitted was inconsistent with the facility being for a term of only 12 months (I note that it is also described in those terms in the loan agreement itself). I do not think there is any inconsistency. To describe a fee as "annual" simply means that it is payable each year of the agreement. If the term of the agreement is only one year, the annual fee is payable only once. 39 The letter of offer also stated "At maturity, we may be willing to renew the facility, subject to satisfactory conduct of the loan and our lending policy at that time." In its defence to the amended statement of claim, Agusta appears to contend that, as a result of its acceptance of the offer, it became a "condition" of the facility that, at maturity, Challenger might be willing to renew the facility subject to the matters identified. 40 Even if that is right, it is something short of a contractual right of renewal. It then becomes necessary to determine whether the parties made a fresh contract for a further term of 12 months. That question is to be determined in accordance with ordinary principles of contract. The test is what each party by words and conduct would have led a reasonable person in the position of the other party to believe: Toll v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. 41 Agusta relies on the following matters as evidence of the parties' objective intention to renew the facility:

(a) the fact that Agusta has continued to pay and Challenger has continued to accept further monthly interest payments on the basis that the facility remains on foot;

(b) the fact that Challenger issued the invoices for the administration fee (referred to above);

(c) correspondence sent by Challenger to Agusta consistent with the continuation of the facility, such as statements and notices of changes in interest rates, which appeared to acknowledge that the loan was on foot after 1 November 2007 (exhibit 1: see T65). 42 Mr Ash put the matter in this way. He submitted that there was no expiry of the loan agreement in November 2007 or in November 2008, because on each occasion there was a renewal. He further submitted that, as a consequence, any default under the first facility (by failure to pay interest when due) could not be said to be a breach of the second facility or the third facility. In support of that contention, he relied on the decision in Goodlen Pty Ltd v BP Australia Pty Ltd [2004] NSWSC 646 at [54], where Gzell J expressed his agreement with the principle that a breach of an original franchise agreement cannot constitute a breach of a renewed agreement. 43 As noted by Gzell J in Goodlen, that was the approach adopted by Cooper J in Joseph Guljas v Caltex Oil (Australia) Pty Ltd (Federal Court of Australia, 13 May 1992, unreported). In that case, an existing franchisee had entered into a new franchise agreement for a further term. Cooper J held that the later agreement constituted a new, complete and independent agreement between the parties and that such rights as the plaintiffs had were sourced in the second agreement, their rights under the earlier agreement having been spent by effluxion of time or the entry into the new agreement. 44 Mr Ash submitted that renewal of the loan agreement on 1 November 2007 and again on 1 November 2008 carried with it an acceptance of Agusta's right to possession (subject only to any future default) and an acceptance of its entitlement to pay interest at the lower rate. Whilst I acknowledge the ingenuity of Mr Ash's argument, I do not think it can succeed in the circumstances of the present case. 45 It is not necessary for present purposes to decide whether the principle stated in Goodlen is applicable in the case of renewal of a loan facility. As already noted, the critical question is what each party by words and conduct would have led a reasonable person in the position of the other party to believe at the time the facility matured. The manner in which the loan was administered by Challenger after that date was unfortunate since it was, as submitted by Mr Ash, completely inconsistent with the expiry of the facility on 1 November 2007. The administration of the loan and the conduct of the litigation sailed along completely different routes, and cannot be reconciled with any logic. 46 The critical question, however, is whether the parties made a bargain to renew a facility that otherwise expired on 1 November 2007. Mr Ash submitted that it is appropriate, in determining that question, to have regard to the post-contractual communications between the parties, relying on the principles stated by Gleeson CJ (with whom Hope and Mahoney JJA agreed) in Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 450 at 547G to 548A. As disclosed in that passage of his Honour's judgment, however, the purpose of having regard to post-contractual communications is to show what was in the contemplation of the parties at the relevant time. The conduct of Challenger relied on in the present case does not shed a great deal of light on that issue. 47 At the end of the day, I think it is impossible to conclude that the facility was renewed by mutual agreement when it matured. In my view, although Challenger's later conduct was confusing, a reasonable person in the position of Agusta on 1 November 2007 would not have concluded that Challenger intended to renew the facility for a further year when it was at the same time seeking an order for possession of the security property. Those two positions are irreconcilable, and the conclusion must be that there was no agreement to renew on Challenger's part. 48 In its defence and cross-claim, Agusta contended, separately, that even if the loan was not renewed on 1 November 2007, Challenger and Perpetual have waived or are estopped from relying on their legal rights. It is not clear to me whether that contention was maintained at the hearing, since it was not referred to in a list of agreed issues provided for my assistance by the parties. In any event, although Challenger's administration of the loan was inconsistent with its conduct of the litigation, I do not think there is any waiver or estoppel. Challenger and Perpetual have, at least since the amended statement of claim was filed on 4 July 2008, maintained their respective entitlements to obtain repayment of the loan and to enforce the mortgage. So long as that contention was being vigorously maintained in the litigation, I do not think it can be concluded that they waived their rights at any point, nor that Agusta reasonably altered its position in reliance upon a different understanding. 49 There has been no unequivocal representation made by Challenger at any stage that it was not necessary for Agusta to repay the principal in accordance with the terms of the agreement freely entered into by the parties: cf China Ocean Shipping v PS Chellaram & Co (1990) 28 NSWLR 354 at 367D per Gleeson CJ. Similarly, there has been no unequivocal representation made by Challenger that the loan facility was renewed and that it no longer sought repayment of the principal. It follows that Agusta is in default of its obligation to repay the principal upon expiry of the facility on 1 November 2007.

Quantification of the debt 50 By its further amended statement of claim filed 5 June 2009, Challenger seeks judgment in the sum of $725,000, being the principal amount of the loan drawn down by Agusta. Challenger also seeks interest on that sum in accordance with the provisions of the loan agreement. Accordingly, it remains necessary to resolve the dispute between the parties as to whether there was default in respect of any of the interest payments due between November 2006 and May 2007. I am not satisfied that there was. 51 Clause 11.1 of the loan agreement provides (my emphasis): " 11.1 Payments The Borrower shall make all payments under this Deed (without set-off, withholding, counterclaim, or any deduction of any kind) not later than 12 noon on the due date by cash or bank cheque paid to the Lender c/- Challenger Commercial Lending Limited, Level 41, 88 Phillip Street, Sydney or otherwise in such manner as the Lender or its solicitors authorise in writing." 52 By its letter of offer dated 1 September 2006, Challenger had authorised (and indeed required) payment in some manner other than by cash or bank cheque, namely, by direct debit. Page 2 of the letter stated: "In accepting this offer of finance the borrower acknowledges that monthly interest payments shall be made by direct debit to the borrower's nominated bank account using the direct debit authority." 53 Mr Barham submitted, however, that where the direct debit was unsuccessful, the obligation remained to make payments by cash or bank cheque in accordance with clause 11.1. I do not agree. In my view, Challenger having authorised payment by a different method, there was no obligation to pay by cash or bank cheque as contended. 54 Agusta contends that it was an implied term of the loan agreement that, if Challenger knew or ought to have known that in respect of any given monthly interest payment, it had not attempted to procure the direct debit of Agusta's account in accordance with the authority, then Agusta would not be in default in respect of the relevant payment until Challenger had given reasonable notice to the effect that it would make a further attempt to debit the account in due course. I am satisfied that there was an implied term of the agreement substantially to that effect.

55 The principles as to the implication of a contractual term in a commercial contract are well known. The conditions necessary to ground the implication of a term are set out in the judgment of Mason J in Codelfa Construction Pty Ltd v State Rail Authority (NSW) [1982] HCA 24; (1982) 149 CLR 337 at 347.2 (citing BP Refinery (Western Port) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 at 26): "(1) It must be reasonable and equitable; (2) It must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) It must be so obvious that it "goes without saying"; (4) It must be capable of clear expression; (5) It must not contradict any express term of the contract." 56 In my view, those conditions are satisfied by the implication of a term to accommodate the circumstance where the lender, due to error on its part, fails to debit the nominated account. It goes without saying that if that is the agreed method of payment, the payment in question should not be considered due and payable until the borrower is notified by the lender of the failure to debit the payment. 57 If such a term is implied in the loan agreement in the present case, in my view there has been no default by Agusta. Mr Barham submitted that Agusta was "negligent" in providing the incorrect BSB number. No issue arises in the present case as to whether Agusta was negligent in any legal sense. In any event, in my view Challenger's inability to obtain payment in a manner it had authorised was due to a combination of errors, including error on Challenger's part.

58 I am not satisfied that Agusta was at fault in any real sense for the problem that occurred with the direct debit. The authority form provided to Challenger was simply unclear. The last numeral of the BSB number looks a bit like a zero and a bit like a six. The person who entered the information into Challenger's system read it one way, but it could equally have been read the other, and it would have been a simple matter to check. There is no question of attributing blame, but the simple fact is that the process failed due to error on the part of Challenger.

59 In those circumstances, the implication of a term that Challenger would not treat interest as being due until after Agusta had been put on notice of the failure to debit the account is, in my view, reasonable and equitable. It is necessary to give business efficacy to the contract, because the mutual object of having payments made and received promptly could not be achieved unless Agusta was made aware of the problem. In my view, such an implied term is so obvious that it goes without saying. It is capable of clear expression and supplements the express terms of the contract rather than contradicting them. 60 It remains to consider whether any payment was not received in accordance with the loan agreement including the implied term. The payments which were not received within 7 days after the first of the month were the payments due in January, February, April and May 2007. 61 As to the payment due in January, Challenger's letter advising Agusta that the periodical direct debit had been "dishonoured" was dated 9 January 2007. Challenger's statement of the account (exhibit B) discloses that a further attempt to debit the amount was made on 17 January 2007. On that date, Ms Giorgi made an entry in the loan journal maintained by Challenger in relation to Agusta's loan stating "Please draw via DD an amount of $4974 being concessional interest for January and the $20 dishonour fee for loan id: 8123". 62 Ms Giorgi stated that a request of that kind is ordinarily generated at the request of the borrower. The obvious inference is that someone on behalf of Agusta, after receiving the letter dated 9 January 2007, requested Challenger to make the debit again, which Challenger attempted to do on 17 January 2007. That is within 8 days after the date of Challenger's letter. The attempt was of course unsuccessful since, unbeknownst to both parties, Challenger was still not attempting to make the debits from the correct account. 63 Challenger did not notify Agusta of the failure of the second attempt to obtain the January payment until the following month. Challenger sent a letter on 7 February 2007 seeking an amount that reflected the payments for both January and February. The amount requested was credited to the account on 16 February 2007. I am satisfied that those payments were made within 8 days after the date on which Agusta would have received Challenger's letter (assuming the letter was received the day after the date it bears). 64 In April, Challenger's letter was sent on 5 April 2007 and the payment was credited to the account on 11 April 2007, within 8 days after the date of the letter. For the month of May, the letter was dated 7 May 2007 and the payment was credited to the account on 15 May 2007, again within 8 days after the date of the letter. In respect of each of those payments, I am satisfied that payment was made within 8 days after Agusta was made aware that payment in the manner authorised by Challenger had been unsuccessful. Accordingly, I am satisfied that Challenger was not entitled to interest at the higher rate at any stage until the loan matured. 65 In light of the conclusions I have reached, it is not necessary to consider Agusta's robust contention that Challenger behaved unconscionably. 66 A further matter to be considered is the effect of the orders made by Johnson J referred to above. As already noted, on 4 October 2007 Perpetual gave notice to the tenant of the security property pursuant to s 63 of the Real Property Act requiring the payment of all rents and other moneys to Perpetual as mortgagee. On 25 June 2008, Johnson J suspended the operation of that notice but ordered the tenant, within 21 days, to pay an amount of $50,000 to Perpetual. During the hearing of the proceedings before me, I was informed that that amount has not been credited to Agusta's loan account, but has been held in a trust account. As I indicated during the hearing, I do not understand why the payment was treated in that way. It seems to me to have been entirely inimical to the purpose of the orders made by Johnson J. In my view, the calculation of the amount outstanding under the loan should account for that payment as a credit in favour of Agusta entered on the date on which it was paid by the tenant to Perpetual and applied in reduction of interest payments then outstanding. Orders 67 The security property is a commercial property owned by a company. It is not the home of any individual, and there is accordingly no occasion to stay the execution of the order for possession to which Perpetual is entitled on that ground: cf Satchithanantham v National Australia Bank Ltd [2009] NSWCA 268 at [67] per Young JA. However, since it has been necessary for a dispute between the parties as to the quantum of the debt to be resolved by the Court, I think it is appropriate to stay the execution of the order pending calculation of the amount outstanding under the loan in accordance with these reasons and a reasonable opportunity for Agusta to pay that amount. I will hear the parties as to the form of orders to be made to that end, and as to costs. 68 The orders I propose are:

(1) That the second plaintiff provide to the defendant within 14 days a statement of the loan account calculated in accordance with these reasons.

(2) An order for possession in favour of the first plaintiff.

(3) Leave to the first plaintiff to issue a writ of possession within 21 days after the second plaintiff has complied with order (1).

(4) Liberty to apply on 48 hours notice in the event that there is a dispute as to the calculation under order (1).

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