Supreme Court Act 1935 as amended

Judgment for plaintiffs in each action with interest

Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99

Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337

Ruby v Marsh [1975] HCA 32; (1975) 132 CLR 642

Schenker & Co (Aust.) Pty Ltd v Maplas Equipment & Services Pty Ltd & Anor [1990] VR 838

Treloar v Ivory & Anor (1991) 4 WAR 318

Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101

Banque Brussels Lambert SA v Australian National Industries Ltd [1989] 21 NSWLR 502

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

Byrne v Australian Airlines Ltd [1995] HCA 24; (1995) 185 CLR 410

Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Pty Ltd, unreported; SCt of NSW; BC9403486; 9 December 1994

Re Andersons Seeds Ltd & The Companies Act [1971] 2 NSWLR 120

Re Galaxy Media Pty Ltd (in liq) [2001] NSWSC 917; (2001) 39 ACSR 483

The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd [1968] HCA 8; (1968) 118 CLR 429

1 NISBET DCJ: By order of this Court made 13 June 2001 all four actions, 847, 848, 849 and 850 of 2001 were ordered to be heard together at the same time before the same judge, for very good reason, namely that the plaintiffs are all members of the one family who all lent varying amounts of money to the same three defendants evidenced by agreements in writing all of which are in precisely the same terms save as to the amounts of the loans and some small variations in dates of payment and repayment.

2 The plaintiffs in action 847 of 2001 loaned the defendants $15,000 on or about 27 March 1998 repayable in full with interest on 27 July 1998. It was common ground between the parties that on 9 September 2000 the defendants paid to the plaintiffs the sum of $7,500 and a further payment of $7,500 was made on 21 June 2001. These two sums represented the return of the capital advance of $15,000 and neither included nor has there been any payment of interest.

3 In action 848 of 2001 the plaintiffs loaned the defendants the sum of $20,000 on or about 27 March 1998 repayable in full with interest on 27 July 1998. Of that sum the defendants repaid the sum of $10,000 on 9 September 2000 and the further sum of $10,000 on 21 June 2001. Both of these payments were on account of the principal sum advanced and neither included any amount for interest and no amount of interest was paid then or since.

4 In action 849 of 2001 the plaintiff loaned the defendants the sum of $4,000 on or about 27 March 1998 which was repayable in full with interest on 23 July 1998. No amount was paid on that date or at all until 9 September 2000 when the defendants paid the plaintiff the sum of $2,000 and a further sum of $2,000 on or about 21 June 2001. Nothing was paid by the defendants to the plaintiff on account of interest either then or since.

5 Finally, in action 850 of 2001 the plaintiffs loaned the defendants the sum of $10,000 on or about 8 April 1998 which was repayable in full with interest on 8 August 1998. By a further agreement in writing the repayment date was extended to 14 September 1998. No amount was paid by the defendants to the plaintiffs in repayment of the principal sum until 9 September 2000 when the defendants paid the plaintiffs the sum of $5,000 and a further sum of $5,000 was paid on 21 June 2001. Neither sum included any amount of interest and no interest was paid either then or since.

6 The agreements in question are called "Loan Facility Agreements" the parties to which are described as "Lenders", "Borrowers" and "the Additional Covenantor". The deeds have an interpretation provision and then give effect to the loans in clause 2 as follows:

2.0 The Lender shall make the Facility available to the Borrower during the Availability Period on the terms and conditions of this deed by the provision of Drawings provided that the Lender shall not be obliged to provide a Drawing if following any such Drawing the Principal Sum would exceed the Facility Limit."

By cl 4 repayment of the loan the subject of the agreement was to be:

"... in full to the Lender the Principal Sum and all other moneys owing or payable, as the case may be, by the Borrower from time to time under this deed on or before the earlier of;

The provision for interest in each of the agreements is as follows:

5.1 The Covenantor shall pay to the Lender interest on the Principal Sum at the rate specified in item 5 of schedule 1 from the date of the first Drawing until the date of actual payment in full.

5.2 The Covenantor shall pay the Interest in the manner and on the day specified in item 6 of schedule 1."

7 Before moving to the schedules to the agreements it is as well to note that by cl 1.1(14) "Interest" is defined to mean: "... the interest payable by the Borrower to the Lender under clause 5.1." And by cl 1.1(19) "Principal Sum" is defined to mean "... the aggregate of all Outstanding Drawings from time to time;" and further, by cl 1.1(17) Outstanding Drawings is defined to mean "... a Drawing or any part of a Drawing which has been made available under this deed and has not been repaid to the Lender;"

8 In schedule 1 of the agreement the subject of action 847 of 2001 the plaintiffs in that action are described as the lender and then the following provisions appear:

"2. Facility Limit: Fifteen Thousand Dollars ($15,000)

5. Rate of Interest: Twenty Five percent (25%)

6. Payment of Interest: Three Thousand Seven Hundred and Fifty Dollars ($3,750) as per Schedule 1, Item 4."

9 For the sake of completeness I should observe that each of the agreements then contains a completely nonsensical provision indicating that the agreements have been inappropriately copied from a precedent.

10 Each of the plaintiffs and defendants argued that these agreements were complete and unambiguous in their terms as to the provision of interest on the loans, did not require any examination of any extrinsic evidence to explain those terms and were plainly enforceable on their face. The plaintiffs in each of the actions contended for an interpretation of the relevant provisions of the agreements as to interest so as to mean that in the event that the principal sums were not repaid when required by the deeds, interest would continue to run at the effective annual rate of 75 per cent per annum having regard to the fact that the agreements each provide for interest at the rate of 25 per cent for four months, an argument which, by itself, does not sit happily with the extension of the date of termination in the loan facility agreement extension forming part of Exhibit 4 and being the subject of action 850 of 2001 where the termination date was extended by more than a month from 8 August 1998 to 14 September 1998 without there being any additional provision for interest during the five week period by which the termination date was thereby extended. Further, however, it must be said that the plaintiffs relied upon what they said was the plain meaning of cl 5.1 in each of the agreements which provides that interest on the principal sum at the rate specified in Item 5 of Schedule 1 from the date of first drawing must be paid "until the date of actual payment in full". The plaintiffs claim that when this provision is read in conjunction with the particulars in Schedule 1 which provide for interest at 25 per cent for a period of four months the clear and unambiguous meaning of the agreements is that interest at the rate of 25 per cent each four months, or 75 per cent per annum would be paid on the principal sum or so much thereof as remained outstanding from time to time until payment in full.

11 The defendants for their part say that the clear and unambiguous meaning of the agreement insofar as it relates to interest is that the parties had within their contemplation and provided for a loan of four months duration only and that there was to be a one-off payment of interest of 25 per cent for that period and that period alone. The defendants contend that the parties did not turn their minds to there being any default in repayment of the principal sum or any part thereof such that the agreement is silent as to the provision of interest and the plaintiffs' only remedy is as to damages for breach of the term of the agreement as to repayment. This position was only taken by the defendants at trial because previously it had contended that the agreements were uncertain in their terms and that no interest was payable. The defendants, however, changed solicitors and counsel on the day before trial and when Mr Robinson appeared for the defendants he submitted that he was bound to concede that the proper construction of the agreements meant that each of the plaintiffs was entitled to interest at 25 per cent on the principal sums advanced for the period stipulated for each advance and that thereafter the plaintiffs were entitled to damages for breach of the agreements to repay on a specified date.

12 It has been said that:

"It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied ... If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court, has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious or the most grammatically accurate', ... Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision and the rest of instrument. Finally, the statement ... that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance ..." per Gibbs J in Australian Broadcasting Commission v Australasian Performing Rights Association Ltd [1973] HCA 36; (1973) 129 CLR 99 at 109 - 110.

13 It should also be noted that Barwick CJ in that case was quite definite that it was not a case about resolving an ambiguity for in his opinion the meaning of the disputed clause as to the provision of royalty payments by the ABC to APRA was quite clear.

14 The approach to be taken is objective. As McGarvie J put it in Schenker & Co (Aust.) Pty Ltd v Maplas Equipment & Services Pty Ltd & Anor [1990] VR 838 at 840:

"In its construction of [the disputed clause] the court is seeking to ascertain what reasonable business people in the positions of Maplas and Schenker, if they had applied their minds to it at the time of contracting, would have regarded the clause as meaning. The approach suggested by Shaw LJ in Nea Agrex S.A. v Baltic Shipping Co Ltd [1976] QB 933 at 954 is a useful one to apply to this case. First, ask what in the circumstances a person in the position of Maplas would have supposed Schenker meant by the clause, then ask what a person in the position of Schenker would have supposed Maplas understood the clause to mean. This approach emphasises that the essential question is what would reasonable business people in the position of the parties have taken the clause to mean."

15 As can be seen therefore the submission of each of the parties urged upon me that I should look at the plain meaning of the interest provisions of the agreements will not always be the sole determinant. For my part I find the suggested approach of McGarvie J in Schenker & Co very helpful, not the least of reasons being because if I was to apply my own standards of commercial understanding to this transaction my commercial conservatism would never have permitted me to enter into an agreement which made provision for an effective annual interest rate of 75 per cent. Nor, indeed, could I have entered into any agreement which provided for an interest rate of 25 per cent over a four month period. I would have thought there was something intrinsically wrong with such an agreement which highlights again why the approach endorsed by McGarvie J is the correct one to use. These people did enter into an agreement which made provision for payment of interest of 25 per cent for four months. What then must each of them have thought the other thought the agreement provided for in the event that the principal sum was not repaid on time? Applying this test, the plaintiffs would not have contemplated that the defendants' view was the plaintiffs would not be receiving some interest on the principal sums they advanced if they were not repaid on the dates stipulated in the contract, particularly where the principal sums were not repaid for about three years. Conversely, whilst the defendants had every intention of repaying the principal sums on the dates they fell due they too could not have contemplated that these loans were intended by the plaintiffs to become interest free (in effect) if not repaid on the due dates, a point in effect conceded by Mr Robinson during the trial, when he said the plaintiffs were entitled to damages for non-payment.

16 The question then becomes what each of the parties must have thought the relevant interest rate would be in the event that the principal sums were not repaid on time. The plaintiffs would have read cl 5.1 in no other way than that they would receive interest at the rate of 25 per cent every four months ie, an effective annual rate of 75 per cent per annum. Looking at this question from the defendants' standpoint one has to ask why they would have thought the interest rate would be anything less than 25 per cent every four months, faced with a clause such as 5.1. Whilst they may have had every intention of repaying the principal sums on the dates specified in the various agreements they could not have thought that the interest rate would drop to a mere 5 or 6 per cent per annum because the effect of this would mean that it would be in their interest to delay repayment as long as possible so that the interest rate averaged down and accordingly, in my opinion, the defendants must have thought that the true intention of cl 5.1 was that interest should continue at the rate of 25 per cent every four months until the date of actual payment in full.

17 In my opinion the wording of the agreement between the parties is clear and unambiguous and upon its ordinary reading the defendants must have been regarded as agreeing to pay to the plaintiffs interest at the rate of 25 per cent every four months on such of the principal sums as remained outstanding from time to time. This explains why, in my opinion, in the case of action 850 of 2001 the extension provided by the plaintiffs in that action to the defendants made no reference to what was to happen with interest - cl 5.1 was clear enough in its terms.

18 In the event that I am wrong in my construction of the agreements I will deal with the evidence which was led in support of the plaintiffs' construction of the agreements in the event that I found that there was an ambiguity in their terms. There must of course be an ambiguity in the terms of the agreements before evidence is admissible in its proof: Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 347, 352. Over the objection of Mr Robinson of counsel for the defendants I received the evidence on the basis that I would only use it in the event that I found there was an ambiguity in respect of which extrinsic evidence was admissible in proof of the intention of the parties. The relevant evidence was firstly that of Mr Ian Shadbolt who gave the following evidence at t/s 59:

"Was there any discussion about the interest that was payable under the agreement?---Yes. She pointed out there was 25 per cent on the amount of money for that 12 month [sic - 4 month] period and when - - -

Sorry, who said that?---Carol said that, yes, and I just made the passing comment to her, 'So that's equivalent to getting 75 per cent per annum,' and she agreed but then she stressed it was only for a 4-month period that they wanted the money for."

19 Mr Ian Shadbolt was not cross-examined on this evidence. During the course of the trial and before this evidence was led I had ruled that the plaintiffs had not given sufficient particulars of this alleged conversation in their pleadings and I reserved to Mr Robinson the right to delay his cross-examination of Mr Ian Shadbolt until he had had the opportunity of taking the defendants' instructions and, in the event of those instructions requiring it, moving for an adjournment. I made it plain that that ruling applied to any witness who gave evidence of this conversation. Subsequently Mr Robinson informed me that he did not require Mr Ian Shadbolt to return to the witness box for cross-examination.

20 The next witness was Mrs Blythe Shadbolt, wife of Mr Ian Shadbolt and the plaintiff in action 849 of 2001. She gave this evidence at t/s 67:

"Now, was there any discussion at that meeting about what the documents said about interest?---Yes. My husband talked about the 25 per cent per - and then he said, 'Well, that amounts to 75 per cent per annum' but it was stated that it actually was only going to be for 4 months that we would have our money in, so it would be 25 per cent.

What did your husband say and what did Ms Hardie say about it?---My husband just commented and said, 'Well, that adds up to' or 'works out to be - - -"

What adds up to?---He said the 25 per cent would be - per annum would be 75 per cent but Carol Hardie brought it back again and said, 'But it's only for four months; it is not for any longer.'

...

What was discussed about the rate of interest at that meeting?---That it would be 25 per cent - - -

No, I'm sorry, who said what?---Ian stated that - well, it was stated in the records that it would be 25 per cent for the 4 months we would have our money for.

Yes?---But my husband stated that he believed that 25 per cent per annum - that it would be 75 per cent if it went for a whole year.

What did Ms Hardie say in response to that, if anything?---She just brought it back again; that it was only going to be for 4 months so it would be 25 per cent."

21 This was the only direct evidence given of the dealings between any of the plaintiffs and the defendants in respect to the interest rate. Other plaintiffs gave evidence of what they had been led to understand the interest was in consequence of Mr Ian Shadbolt's discussions with Ms Hardie and certainly, I have no doubt that insofar as all of the other family members were concerned 25 per cent for four months was the equivalent of 75 per cent per annum. In my opinion, however, all of this evidence rather begs the question as to what the intention of the parties was as to what interest rate would apply if the moneys were paid late. That is to say what would be the interest rate after the dates when all of the relevant principal sums should have been repaid? This evidence doesn't help at all in that regard. I should also record that Mrs Blythe Shadbolt was not cross-examined on her testimony notwithstanding that I reserved to Mr Robinson the right to delay his cross-examination of her until after he had obtained instructions and, again, he informed me that his instructions were not to cross-examine Mrs Blythe Shadbolt.

22 Likewise I should also record that I have no doubt about the veracity of any of the witnesses called on behalf of the plaintiffs. They all appeared to me to be honest and straightforward people such that if a higher court has any need to review this evidence it need not be troubled by any suggestions that they were not credible witnesses - they were.

23 Accordingly, if there is an ambiguity in the provisions in the agreements as to interest then I am unable to resolve it by reference to the extrinsic evidence comprising the oral testimony of the witnesses to whom I have referred.

24 Whilst extrinsic evidence is of course admissible in order to support a plea for the implication of a term into a contract, the extrinsic evidence led in this case does not assist me either. In the event that I am wrong in my construction of the agreements and that the provisions as to interest are ambiguous the plaintiffs' case is not advanced because if the interest rate is not provided for at 25 per cent every four months for such times as the principal sums remain unpaid, there was no extrinsic evidence which would support any implied term as to any other rate of interest.

25 In my opinion this is a rule of construction of last resort. The effect of this rule is that an ambiguity in an agreement may be resolved by construing it against the interests of the party who drew the agreement, in these cases, the defendants. However, at the risk of overstating my view of the matter there is no ambiguity in the terms of the agreements and certainly no ambiguity that requires resort to the contra proferentem rule for its resolution.

26 It follows that I need make no assessment of damages in the alternative in this case. The plaintiffs are entitled to judgments in respect of a calculation of interest at the rate of 75 per cent per annum until each of the principal sums in the actions were repaid in full. Ordinarily a provisional assessment is required. In this case, should the occasion warrant, I would have assessed damages in all of the cases except 848 of 2001 in accordance with the rates on deposits given in Exhibit D2. In action 848 of 2001 whilst the evidence was sparse, on balance it has persuaded me that the relevant rate for determination of the plaintiffs' damage in that case was the overdraft rate of 10.25 per cent because I accept the evidence of Mr Shadbolt in that action that had the moneys been repaid on time he would have used them to retire debt which he then clearly had and which was secured by overdraft to his bank at the rate described. Accordingly the calculations in each of the cases will be as follows:

1. $15,000 x 75 per cent p.a. = $30.82 per day for 2 years 166 days

2. $ 7,500 x 75 per cent p.a. = $15.41 per day for 285 days

1. $20,000 x 75 per cent p.a. = $40.10 per day for 2 years 166 days

2. $10,000 x 75 per cent p.a. = $20.05 per day for 285 days

1. $4,000 x 75 per cent p.a. = $8.22 per day for 2 years 170 days

2. $2,000 x 75 per cent p.a. = $4.11 per day for 285 days

Repayment date: 8 August 1998, extended to 14 September 1998

1. $10,000 x 75 per cent p.a. = $20.05 per day for 2 years 159 days

2. $5,000 x 75 per cent p.a. = $10.03 per day for 285 days

Interest - Section 32 Supreme Court Act 1935

27 Since s 32 of the Supreme Court Act 1935 was amended by Act No 47 of 1982 (s 3) proclaimed to come into effect on or about 20 June 1983 it has (relevantly) read as follows:

(1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods), the Court may order that there shall be included, in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date when the judgment takes effect.

(a) authorise the giving of interest upon interest;

(b) apply in relation to any debt upon which interest is payable as of right whether by virtue of any agreement or otherwise;

28 In their prayers for relief in these proceedings the plaintiffs sought "... Interest thereon from 22 June 2001 to the date of judgment at such rate as this Honourable Court deems just pursuant to s 32 of the Supreme Court Act." Two questions arise viz:

1. The judgments in these actions being for interest only, the capital sums having been repaid, whether an award of interest under this head of claim would offend against s 32(2)(a); and

2. whether the interest is in fact a debt upon which interest is payable as of right by reason of the agreements.

29 In my opinion the answers to these questions may be briefly stated. In s 32(2)(a) in my opinion the legislature is speaking of the court's award of interest. It is a fetter upon the court's undoubted discretion to award pre-judgment interest.

30 As to the discretionary nature of the award see Treloar v Ivory & Anor (1991) 4 WAR 318 at 322 where Ipp J said:

"It seems to me that the object of s 32 of the Supreme Court Act, has always been to empower the court in its discretion to award pre-judgment interest on whatever sum of money was ordered to be paid by the judgment debtor. There seems to be no reason to limit the court's power in this regard."

31 His Honour was not of course considering the effect of s 32(2)(a) in that case but it seems to me to be relatively clear that what the legislature has provided is that the court in the exercise of its discretion may only make an award of interest which has no element of compounding in it. So, for example, the court could not award interest at the rate of 6 per cent per annum with annual rests.

32 As to the second question, the answer is that the debt is the unpaid interest and upon those sums in each case interest is not payable as of right but only in the discretion of the court.

33 Bearing in mind what Barwick CJ said at 652 - 653 in Ruby v Marsh [1975] HCA 32; (1975) 132 CLR 642 that:

"The purpose of giving courts the power to award interest damages is to my mind twofold, and neither aspect of the purpose should be lost sight of. In the first place, the successful plaintiff, who by the verdict has been turned into an investor by the award of a capital sum, and whose claim in the writ has been justified to the extent of the verdict entered, ought in justice to be placed in the position in which he would have been had the amount of the verdict been paid to him at the date of the commencement of action. In the second place, the power to award interest on the verdict from the date of the writ is to provide a discouragement to defendants ... from delaying settlement of the claim or an early conclusion of proceedings so as to have over a longer period of time the profitable use of the money which ultimately the defendant agrees or is called upon by judgment to pay.",

it seems to me that the plaintiffs are entitled to interest pursuant to the provisions of s 32 upon the unpaid amounts of interest which should have been paid by the defendants and the calculations are as follows:

847/2001: $32,006.57 x 6 per cent p.a. from 21 June 2001 until judgment (408 days) = 5.26 per day x 408 days = $2,146.08, hence the judgment will be in the sum of $34,152.65 inclusive of interest.

848/2001: $41,643.85 x 6 per cent p.a. from 21 June 2001 until judgment = $6.85 per day x 408 days = $2,794.80, and judgment will be for $44,438.65 inclusive of interest.

849/2001: $8,569.35 x 6 per cent p.a. from 21 June 2001 until judgment = $1.41 per day for 408 days = $575.28, and judgment will be for $9,144.63 inclusive of interest.

850/2001: $20,683.00 x 6 per cent p.a. from 21 June 2001 until judgment = $3.40 per day for 408 days = $1,387.20, and judgment will be for $22,070.20 inclusive of interest.