Yuwana Nominees Pty Ltd v Jason Ong & Anor

PARTIES : Yuwana Nominees Jason Ong

COUNSEL : Mr N. Newton (Plaintiffs) Mr A. Jungwirth (Second Defendant)

1 HIS HONOUR: In these proceedings the plaintiffs seek to recover loans of money made to Jason Ong ("Jason") the first defendant, and seek to recover the unpaid amounts on the basis of two guarantees said to have been given by Jason's father Chin Chye Ong ("Chin"), the second defendant in respect of these loans. Jason and Chin accept that $250,000 was received by way of loan by Jason but the identity of the lender is in dispute, the contents of the loan agreements are in dispute and Chin denies that he gave any effective guarantee to any of the plaintiffs.

2 Jason did not appear when the matter was called on. He was formerly represented by the solicitor who now represents Chin, but a Notice of Ceasing to Act has been filed by that solicitor with respect to representation of Jason. Jason has not complied with orders for discovery that were made by the Court. He filed and served no evidence in support of his defence.

3 Chin did not file or serve any affidavits in support of his defence but through his solicitors, notified the plaintiffs' solicitors that he did not intend to file any evidence.

4 The plaintiffs (for whom Mr N Newton of Counsel appears) read the affidavits of Cecilia Yuwana ("Cecilia") of 22 October 2007 and of 4 February 2008, and the affidavit of Bing Yuwana ("Bing"), her husband, of 4 February 2008. The plaintiffs also tendered some written material in support of their case. Cecilia gave short oral evidence, which I received subject to the issue of relevance. She was cross-examined by Mr Jungwirth of Counsel (who appears for Chin) both on 7 February and again on 20 February 2008 to which date the proceedings were adjourned. The evidence which she gave, and which I admitted subject to relevance, related: (a) To the absence of any lending by Yuwana Nominees Pty Ltd ("YNPL") to anyone other than Jason and her husband, (b) to how she had arranged for the $100,000 to go to Jason and (c) as to by whom she understood the loan to be made. The first item is relevant to the question of the applicability of the Code, and is admissible on that issue. The second area is relevant to determining the source of the funds provided to Jason which is of relevance in determining who made the loan to Jason. I shall deal with the third area below.

5 The first plaintiff, YNPL, has as its sole director and shareholder Cecilia. YNPL trades in shares; Cecilia says that is its sole business. The plaintiffs claim that Cecilia agreed on behalf of YNPL to lend to Jason $150,000 in April 2005 and a further $100,000 in May 2005, and did in fact lend the two amounts to Jason. Chin accepts that the $150,000 was lent by YNPL to Jason, but asserts that the $100,000 was not lent to Jason by YNPL, but by a company GMD (NSW) Pty Ltd ("GMD"). GMD is not a plaintiff. Against the possibility that Cecilia is held to be the lender and not YNPL, Cecilia is an additional plaintiff, but the joint primary position of all plaintiffs is that YNPL, and not Cecilia, was the lender.

6 The issues which the Court needs to determine are these: (1) In respect of the loan made to Jason in April 2005 ("the April loan"), with whom was the agreement made? (2) In respect of the loan of $100,000 made to Jason in May 2005 ("the May loan"), with whom was the agreement made? (3) Is either of the loan agreements a "credit contract" within the ambit of the Consumer Credit (New South Wales) Code ("the Code") and in particular: (a) Were the April and May loan agreements made "wholly or predominantly for personal, domestic or household purposes" (Clause 6(1)(b)) (b) Was the business of YNPL/Cecilia one of "providing credit" (Clause 6(1)(d)), or was the credit provided "as part of or incidentally to any other business of the credit provider". (4) Did Chin enter into a guarantee of Jason's obligations in respect of the April loan agreement and or in respect of the May loan agreement or are the April and May guarantees void for uncertainty? (5) If Chin did guarantee Jason's obligations under either loan agreement, and if the April or May guarantees (or either of them) are not void for uncertainty is Chin's guarantee limited to the principal or does it include interest? (6) Was the lender (if YNPL or Cecilia or Cecilia and Bing) entitled to credit payment made by Jason of $140,000 (the figure is agreed) to interest outstanding? (7) Was the rate of interest unconscionable and hence unenforceable as a penalty?

7 It was agreed that if the answer to both (3) (a) and (b) above was in the affirmative and the Code applied then none of the plaintiffs could succeed on the claim.

8 There was agreement that the following principles of construction, summarised by reference to High Court authority in a decision of mine, Marguerite Pocknell v Payce Properties Pty Ltd [2008] NSWDC 5, applied: (1) "The primary duty of a Court in construing a written contract is to endeavour to discover the intention of the parties from the words used of the instrument in which the contract is embodied"; a clause's meaning may be revealed by other parts of the document per Gibbs J (as he then was) in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109 (2) The Court endeavours to ascertain the meaning of the terms agreed upon objectively - the subjective intentions of the parties are not relevant: see Toll (FGCT) Pty Ltd (formerly Finemores GCT Pty Ltd) v Alphapharm Pty Ltd (2004) 219 CLR 165, and see Equuscorp Pty Ltd v HGT Investments Pty Ltd (2005) 218 CLR 47 at [34] (3) The process of interpreting terms is a pragmatic process, and "no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements" Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, per Barwick CJ at [35]-[36], [40]-[42]. Commercial contracts should be construed "fairly and broadly, without being too astute or subtle in finding defects" per Lord Wright in Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2 cited with approval by Gibbs J in Australian Broadcasting Commission (supra) pp.109-110. (4) Questions as to meaning are "to be answered in a practical and realistic way, not in a way which adopts an overly fine or theoretical approach that is alien to commercial agreements": McCann v Switzerland Insurance Australia Ltd. (2000) 176 ALR 711, 729 (5) " There is more to the construction of the words of written instruments than merely assigning to them their plain and ordinary meaning": per Mason J (as he then was) in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337, 348, which His Honour remarked has led to a recognition that evidence of surrounding circumstances is admissible in aid of the construction of a contract. (6) " If the words 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" per Gibbs J in Australian Broadcasting Commission (supra) and see Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Limited [2007] NSWCA 276 at [38] per Beazley JA (Campbell JA concurring). (7) If the words used give rise to absurdity or inconsistency "words may generally be supplied, omitted or corrected in an instrument when it is clearly necessary in order to avoid absurdity or inconsistency" per Dixon CJ and Fullagar J in Fitzgerald v Masters (1956) CLR 420 at pp.426-7. (8) In resolving an ambiguity "… 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'", and "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 the instrument" per Gibbs J in Australian Broadcasting Commission (supra).

9 I set out in the paragraphs below the conversations and contents of emails passing between Jason, Bing, Cecilia and Chin taken from the affidavits of Cecilia and Bing. To understand these conversations and emails it is necessary to know that Cecilia is also known as Sian Ku, Jason as Meng, and that Cecilia is Chin's brother, and Jason, Chin's son. Bing was called "Uncle Bing" by Jason, Cecilia being Jason's aunt. It is clear that Jason refers to his father as Pa Pa as well as "Dad". (1) In April 2005 Jason approached Bing asking for assistance with a loan for at least $150,000 offering 4% interest per month. The text of two SMS messages he sent to Bing and which Cecilia was shown are found as an Annexure to Cecilia's affidavit of 22 October 2007. The first is in the following terms: "Can you please help me find out whether anyone would be in a position to lend me. As you have previously suggested that you might approach sien ku on my behalf. I feel very embarrass (sic.) to ask her and I hate to trouble her however if there are no other options I might need to approach her as I am in a very sever (sic.) position right now. Please let me know. Thank you. Once again, sorry for any inconvenience caused". (2) The second is in the following terms: "If you can help me arrange for the loan I would provide the lender all the necessary loan documents as required; I will also get Dad to acknowledge the borrowing and reimburse any charges arising from the arrangement of the loan. Once again, thank you very much." (3) Cecilia told Bing to tell Jason she would help him and on 13 April 2005 she had the following conversation with Jason: [Cecilia] said: "I can sell some of my shares in my company, Yuwana Nominees to lend you the money. If I do that then I will definitely need to be paid back within two to three months as you agreed because I need the money for my share trading. As you know I use my margin loan money for my share trading. Uncle Bing said that you will pay me 4% interest a month. I will lend you the money on the condition that your Father will be the guarantor on the loan as you mentioned to Uncle Bing in your sms." Jason Ong said: "Yes. Thankyou Sian Ku, the latest I will repay the money to you will be in three months if not earlier. I will get Pa Pa to acknowledge the guarantee." (4) On or about that date Cecilia received from Chin an email dated 13 April in which Chin states: "Dear Keng, It is so kind of you to lend to Jason a loan of $150,000 to help him tie over his cash flow. I understand that he will repay you in 3 months' time togerther (sic.) with all the incidental costs. This letter serves to confirm that I guarantee that the said loan will be repaid to you as promised failing which I shall repay you on his behalf. Looking forward to seeing you and Bing in Kuala Lumpur soon. Love Chin Chye". (5) Jason informed Cecilia of the details of the bank account to which the $150,000 was to be paid, and on or about 15th April 2005 that amount drawn from YNPL's account was paid into the bank account nominated by Jason. (6) On 3 May 2005 Cecilia had the following conversation with Jason: Jason Ong said: "Sian Ku, as I mentioned to Uncle Bing, I need to borrow another $100,000.00. It will be on the same terms as the money you have already lent me and I will again ask Pa Pa to be the guarantor." [Cecilia] said: "Meng, I will only lend you the extra $100,000.00 if you agree to repay all the money you owe on the same terms as the first loan and within the original three month period. I need to be able to do my share trading with this money." Jason Ong said: "Definitely, thank you Sian Ku." (7) On or about 3 May Chin sent an email to Cecilia in the following terms: "Dear Keng Thank you for giving another $100,000 loan to Jason. This letter serves to confirm that I gaurantee (sic.) the due payment of the said loan. Looking forward to seeing you and Bing in Kuala Lumpur. Love Chin Chye". (8) Cecilia directed the amount of $100,000 owed to YNPL by GMD (NSW) Pty Ltd a company owned by Bing to be paid (out of a brokerage account) to Jason's account. (9) On 6 July 2005 Chin wrote to Cecilia saying: "Dear Keng This letter serves to confirm that I am aware that you gave another loan of AUD100,000 (dollars one hundred thousand only) to Yew Meng on 15 May 2005 in addition to the earlier loan of AUD150,000. I further confirm my guarantee of the due repayment of the total loan of AUD250,000 by Yew Meng. Yours sincerely (Signed) ONG CHIN CHYE". (10) On or about 8 June 2005 Jason sent a letter to Cecilia and Bing in which he said: "Mr Bing Yuwana/Mrs Cecilia Yuwana I hereby confirm that I took a loan of AUD150,000.00 on 15th April 2005 and an additional loan of AUD100,000.00 on 10th May 2005.

I further confirm that I shall pay to you an interest of 4% (four per cent) per month on the outstanding amount until full repayment of the said loans.

(Signed) ONG YEW MENG" (11) Subsequently by email of 23 June 2006 Jason wrote to Cecilia: "Dear Sian Ku, Further to our discussion of last Saturday, this is to confirm that you have agreed to give me 6 months from the date hereof for the full repayment of the loan plus interest. It is also agreed that pending the full settlement of the loan, I will pay you the interest due calculated on the outstanding balance monthly. I would like to thank you for your kind consideration and understanding. Regards, Jason".

10 After July 2005, efforts were made by Cecilia either on behalf of YNPL (as she asserts) or on her own behalf to recover the monies lent to Jason and interest. A number of emails that were sent were copied to Chin, see Annexures "L", "M", "P", "S", "T" and one directly to Chin, see Annexure "W".

11 It should be noted that the email of 13 April 2005 set out at [9(4)] from Chin to Cecilia was sent after Cecilia had spoken to Jason. There is nothing to suggest that Cecilia had spoken to Chin before he sent to her the email at Annexure "D". I draw the inference that Jason told Chin of his conversation with Cecilia, and of the terms of the loan that Cecilia had communicated to Jason. I accept that it is possible that Jason did not honestly or accurately recount to his father what Cecilia had told him but I think it is most unlikely. The unlikelihood is strengthened by four matters: (1) Chin made reference to Jason having to repay the loan in 3 months' time "together with all incidental costs", which points to Jason being open with his father; (2) the later emails of 9 June, 11 June and 23 June 2006 from Jason to Cecilia were copied to Chin; (3) when Cecilia sent to Chin a copy of the details of payments made by Jason and their application the document (Exhibit N) made reference to "Yuwana" and to a 48% per annum interest rate. No email was ever sent by Chin querying this; (4) Chin put on no evidence to say that he was not told by Jason that Jason had agreed to pay 4% per month for the 3 month loan (indeed had offered that rate). I think that the inference which arises can be more comfortably drawn given the absence of any evidence from Chin: see Jones v Dunkel (1959) 101 CLR 298 and see Manly Council v Byrne [2004] NSWCA 123 which explains the operation of the principle.

Identity of the lender: April loan 12 Jason in his defence does not accept that YNPL was the lender. He asserts that Cecilia and Bing were the lenders. As I have noted, Mr Jungwirth accepted that YNPL was the lender. Leaving aside Mr Jungwirth's concession on behalf of Mr Chin, there is some inconsistent material but focussing solely on what was said and written when the April loan was made there are two potential lenders - either YNPL, which provided the funds for the April loan to Jason, was the lender or Cecilia was the lender. Whilst I do not think the matter is entirely clear, on the balance of probabilities I think that the contracts made through Cecilia were contracts made with YNPL. I take that view because: (1) Jason and, I infer, Chin, knew that YNPL was providing the $150,000 because Cecilia had told Jason that. Her reference to "selling shares in my company" would, in context of her being a share trader, be understood to be sale of shares owned by YNPL, not a reference to shares in YNPL. (2) Cecilia in fact had complete control over YNPL and her comment to Jason would convey to him a significant degree of control (3) YNPL in fact provided the $150,000 to Jason by direct transfer

13 There is a further point which is that the mere fact that the email and letters do not specifically mention YNPL does not preclude YNPL from enforcing the agreement made by Cecilia, on behalf of YNPL, whether with Chin or Jason. Mooney v Williams (1905-6) 3 CLR 1 establishes that a principal can step in and take over the benefit of a contract made by an agent who has not previously disclosed the existence of a principal; see also Garrett v Handley (1825) 4 B&C 664, 107 ER 1208, cited in O'Donovan & Phillips' The Modern Contract of Guarantee and approved in Capital Finance Australia Ltd v Karabassis [2003] NSWSC 737 at [11], both of which are guarantee cases. In Karabassis Gzell J held that the creditor was entitled to enforce on an undisclosed principal the guarantee although not named in it. On the question of whether Cecilia was in fact acting on behalf of herself or YNPL (of which she was the sole director and shareholder) as an undisclosed principal, Cecilia's evidence has relevance since YNPL's position as principal is not admitted by Jason nor Chin so far as the guarantee is concerned although it is not admissible in determining who were the parties to the contract.

14 I conclude that the April loan was made pursuant to an agreement between YNPL by its agent Cecilia, and Jason.

15 If I were wrong in that conclusion I would find that the April loan agreement was made between Cecilia and Jason.

Identity of the lender: May loan 16 The April loan is, in my view, a relevant factual matter known to both parties in relation to the identity of the lender of the May loan. I find that Cecilia on behalf of YNPL agreed to lend the $100,000 to Jason in May 2005. The fact that Cecilia on behalf of YNPL arranged for the funds to be paid by GMD does not alter the fact that it was YNPL that was advancing the funds. Mr Jungwirth did not argue that the May loan was concluded between Cecilia (or Cecilia and Bing) with Jason, but rather asserted that GMD was the lender. Whilst it is clear that GMD transferred the funds, it was on Cecilia's evidence, which I accept, repaying a debt under the direction of Cecilia on behalf of YNPL. On the question of Cecilia's credit, I should note that I thought that Cecilia was a careful and essentially honest witness and I accept her evidence. I accept that she did not regard the loan to her friend as a loan in the same category as that to Jason and it was not put to her that she had attempted to conceal that loan when asked about loans made by YNPL.

17 Again, if I were wrong in concluding that YNPL was the lender on the May loan I would find that Cecilia was the lender.

The Purpose of the Loan 18 As Mr Jungwirth points out, the Code is taken to apply to credit contracts unless the contrary is established: s.11 of the Code. The onus here therefore lies on the plaintiff.

19 There is evidence, albeit limited, which points to Jason being a developer of properties and needing the loans to meet obligations incurred in connection with that business. These items of evidence are: (1) He said to Cecilia in 2004 and early 2005 "I am in the property business Sian Ku. I buy properties and renovate them and sell them for a profit". (See para 7 of Cecilia's affidavit dated 4 February 2008). (2) He said to Cecilia at the time of seeking the first loan "the builder for my property business in the Gold Coast is chasing me for money, I have to pay him urgently" (para 8 of Cecilia's affidavit dated 4 February 2008). (3) In 2003 and 2004, Jason was involved in property development, see Exhibit B. (4) Jason and Bing were involved in property development together (see para 4 of Bing's affidavit, see also paras 3 and 6 of Bing's affidavit) (5) Jason lived in NSW in rented accommodation (see Exhibit C), which suggests that he did not borrow the money for a domestic renovation.

20 No evidence was led from Jason on behalf of Chin to establish that Jason had a different purpose than that which is suggested by the material to which I have referred namely to pay a builder who had done work for him on a Gold Coast property development, giving rise, once again, to a Jones v Dunkel inference.

21 I am satisfied on the balance of probabilities that the purpose of the loans was not one for a personal domestic or household purpose and hence not a loan falling within s.6(1)(b) of the Code. Accordingly, the Code does not apply.

22 An extensive argument was put by Mr Jungwirth concerning the business dealings of YNPL on behalf of the Yuwana Trust of which YNPL was a trustee. Although Mr Jungwirth cross examined Mrs Yuwana about the loans made by her and other members of her family to YNPL and loans made by GMD No 1 Pty Ltd and GMD No 2 Pty Ltd, and to and from RBJ Holdings Pty Ltd, the only relevant material appeared to be the evidence that YNPL had given $2,800 to Ken Yuwana (her son) and had lent $10,000 to a family friend and that YNPL had lent GMD (NSW) $100,000 for two weeks. The loan of $10,000 was not a subject of any documentation and did not require the payment of any interest. The loan by YNPL for a few weeks to GMD did not involve interest. I do not think that the two instances of loans establish that the loan to Jason was provided in the course of a business of YNPL providing credit. The loans were not a part of, or incidental to, the business of share trading which was the only business of YNPL. It follows that the Code did not apply for this further reason.

The April Guarantee: whether void for uncertainty 23 In his submissions, Mr Jungwirth draws attention to the fact that the term of the guarantee is "I guarantee that the said loan will be repaid to you as promised failing which I shall repay you on [Jason's] behalf". He asserts that the April guarantee is void for uncertainty because: (1) there is no clear identification of the parties to the contract of loan (2) the 'said loan' refers only to a principal sum of $150,000 without "mention of any liability (on the part of the debtor or another) for the payment of interest or other charges" (3) the term "as promised" introduces further uncertainty - there being, he says, no evidence of what was contemplated by the terms of the agreement between Jason and the lender (4) the event of default is not adequately defined by "failing which", (5) the promise to repay is unclear and incapable of easy rectification.

Mr Jungwirth contends that the plaintiff's case "seems to be an attempt to imply certain terms" (see 24.1, 24.2, 24.4, 28.2 of the Amended Statement of Claim) and that the criteria for implication of terms set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 have not been met. 24 Dealing with the last point first, the paragraphs of the Amended Statement of Claim to which Mr Jungwirth refers are pleaded as the following express terms in relation to the April loan 24.1 - Principal together with interest repayable within two to three months 24.2 - Interest of the outstanding amount at the rate of 4% per month 24.4 - Repayment of the capital within 3 months 28 - By subsequent agreement Jason to repay the principal and interest in full by 22 December 2006 and there are similar particulars set out in paragraph 3 of the Amended Statement of Claim in relation to the YNPL loan.

25 I do not think the plaintiffs' case on the April loan is based on implied terms at all. The same conclusion applies to the May loan in respect of which the plaintiffs rely on a conversation between Jason and Cecilia and a subsequent exchange of emails in which the date for repayment was amended.

26 So far as the identity of the parties is concerned, I think it is clear that the loan was made by Cecilia. The only question is whether Cecilia was acting on her own behalf, or on behalf of YNPL, and I have dealt with that matter. It is clear that the guarantee was given to Cecilia and again the only question is whether it was given to her in her own right, or as agent for YNPL.

27 YNPL (and Cecilia) rely on the conversation set out in [9(1)] above. In the conversation the amount is not specified. The maximum amount had been discussed previously with Bing and $150,000 was in fact transferred. The period of the loan was "two to three months". The interest rate was specified. The requirement for a guarantee by Chin was specified. The extension of time to 22 December 2006 was the subject of agreement as recorded in Jason's email (copied to Chin), see Exhibit Q. The reference to "said loan" is clearly to the loan of $150,000 to Jason and the terms of which were discussed by Cecilia and Jason and which were communicated, I have found, by Jason to Chin.

28 When all matters are taken into account in my view there is no uncertainty as to the date of repayment in the sense of precluding the conclusion of a binding contract although "two or three months" is imprecise. Even had there not been subsequent agreement that both the April and May loans would be repaid with interest by 23 December 2006 (see Annexure Q) I think that Jason would have been entitled to assert that he did not have to repay until 3 months after the loan was made but the agreement recorded in "Q" resolves any such doubt.

29 There is an issue of construction of the guarantee concerning whether the promise was to repay the principal only or interest as well and I deal with that below, but I do not think that the fact that there is an issue about that renders the contract of guarantee void for uncertainty.

30 I do not think that 'failing which' is unclear or imprecise - it comprehends failure to repay the loan and all charges relating to the loan, and again that is an issue of construction to which I shall return.

31 An argument about lack of consideration contained in the second defendant's outline of submissions was expressly abandoned at the hearing. No argument that there had been a discharge of the guarantee was advanced.

Construction Issues 32 In relation to the construction issues there arose a further question of general approach because Mr Jungwirth, whilst accepting the applicability of the principles outlined above in [8], relied on the proposition that a contract of guarantee and indemnity should be construed strictly in favour of the surety.

33 There are many cases in which the construction of guarantees has been considered. Mr Jungwirth refers to Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549, Estoril Investments Pty Limited v Westpac Banking Corporation Limited (1993) 6BPR 97, and Burke v State Bank of New South Wales Limited [1995] NSWLR 53, and in particular cites a passage from the judgment of Santow J (as he then was) in Burke: "Where ambiguity is present, or where the language is not wholly clear, any doubt in the case of guarantees should be resolved, where the language permits, in favour of the guarantor and, certainly in the case of guarantees and probably more generally, so as to avoid absurdities or results which could not sensibly have been contemplated."

34 Mr Newton, in further written submissions of 13 February 2008, made reference to Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235. Mr Newton relied on the Chief Justice's conclusion in that case that where the indemnifier has drafted the indemnity he is not entitled to the benefit of the approach in Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 which followed Ankar; see [18] - [25] of Gardiner. Mr Jungwirth did not respond to that submission.

In Gardiner , the Chief Justice said: [20] "I agree with the conclusion of Campbell JA in Rava v Logan Wines supra: '[56]…[T]he application of the principle for construction of guarantees and indemnities that was adopted by the High Court in Andar does not involve preparing a list of all the possible meanings of a clause that the language can bear without breaking, and choosing the meaning that is most favourable to the guarantor or indemnifier. Rather, the choice is limited to choosing amongst meanings that are fairly open by reason of the application of other rules of construction'. [21] Where, as here, OAL drafted the indemnity it is not, in my opinion, entitled to the benefit of the approach adopted in Andar . Accordingly, an ambiguity will not necessarily be construed in its favour".

35 Mr Jungwirth argues that (if the guarantee is not void for uncertainty) the promise was only to repay the $150,000 and not interest. He submitted that in accordance with Smith v ANZ Banking Group Ltd (1996) NSW Conv. R55-774 and Estoril Investments Pty Limited v Westpac Banking Corporation Limited (1993) 6BPR 97, 404, it was necessary to look at the language used in the terms of the April guarantee, its context and the commercial purpose of the agreement between the parties.

36 In my view, the guarantee ought be construed objectively as a promise that the principal and interest would be repaid. Firstly, the email refers to the loan of $150,000 and states "I understand that he will repay you in 3 months' time together with all the incidental costs". Chin then guarantees that "the said loan will be repaid to you as promised failing which I shall repay you on his behalf". "As promised", in my view, incorporates the promise to repay the loan and hence a promise to pay interest as well as principal. I take into account that neither party was a lawyer and they were not endeavouring to record matters with the precision of a skilled professional.

37 If I am wrong in that view, then, the reference to "incidental costs" is sufficient to comprehend interest. Mr Jungwirth argued that the phrase "incidental costs" does not comprehend interest pointing to the use in s.588FD(1) of the Corporations Act 2001. I am required to interpret the words of a contract and do not think that statutory phrasing is of any assistance in that context. Mr Jungwirth also argued that Chin, in agreeing to guarantee "the said loan" was not agreeing to guarantee 'incidental costs' so that if that phrase did refer to interest then Chin was not guaranteeing that payment. My view is that the reference to 'incidental costs' is an express recognition by the guarantor that the loan had elements beyond the principal and if repayment of the 'loan' did not, without more, include interest, then 'incidental costs' did include the interest and by mentioning it, Chin was guaranteeing their payment by Jason.

38 I do not think an objective bystander would have concluded that Mr Chin was guaranteeing only the repayment of the principal. I do not regard the express written terms as ambiguous in the context in which they were set. I think that the construction contended for by Chin would "produce a result which could not sensibly have been contemplated", using the words of Gibbs J cited above. As I have previously stated, I draw the inference that Mr Chin was informed by his son of the terms of the loan before he wrote and sent his email.

39 If I am wrong in concluding that there is no ambiguity, I would follow the approach of the Chief Justice in Gardiner and regard Chin as not able to rely on the approach adopted in Andar. The joint judgment (per Gleeson CJ, McHugh, Gummow, Hayne & Heydon JJ) in Andar, as Spigelman CJ noted in Gardiner, did not reject the possibility that a different approach to the usual might be taken where a surety had drafted the wording: see [19] of Andar and the cases referred to in fn 18 of Andar. Kirby J in Andar, agreeing with the outcome in the joint reasons, raised as a matter of further consideration the wider question of whether the benign approach to surety's liability should be reviewed at [73]. Callinan J saw the contra proferentum rule as having no role to play and was of the view that the surety was liable on the indemnity. I think that the context and the words used even if ambiguous lead to the same conclusion that the parties intended that Chin would guarantee all of his son's obligations.

The May Guarantee: Construction 40 What I have said concerning the April Guarantee applies also to the May Guarantee, and I find that it was made by Cecilia acting as agent for YNPL with Chin.

41 The email of 3 May 2005 refers to "the due payment of the said loan". There is no reference to "incidental costs" and the words "as promised" do not appear. I take into account the following matters: (1) The May guarantee was given following on from the April guarantee (2) The document does not refer to the debtor's obligation to pay a specific amount rather it refers to due payment of "the said loan" and identifies "another loan of $100,000…to Yew Meng on 15th May 2005" - that loan included a rate of interest at 4% per month. (3) Given the circumstances including the existence of the April guarantee, it would be surprising if the guarantor intended only to repay the principal if he did not expressly say so. (4) The document was drafted by the guarantor.

42 I think that 'loan' is capable of meaning both principal and interest and that objectively, it was intended by the parties that both would be paid by Jason, and I conclude that Chin promised that Jason would meet all of his obligations under the loan, that is, to pay principal and interest.

43 Once again, I follow the approach of the Chief Justice in Gardiner and am not constrained to construe any ambiguity favourably to Chin.

44 The argument about consideration in respect of the May guarantee was based on the assertion that GMD was the lender and not YNPL or Cecilia. I do not need to consider the point in view of my conclusion that Cecilia was acting on behalf of YNPL, and that the money was lent by YNPL.

Allocation of Interest 45 The April and May contracts contained no terms as to how payments were to be allocated. There is no dispute that YNPL treated payments as reducing interest. As Mr Newton pointed out, the High Court in Falk v Haugh (1935) 53 CLR 163 (per Rich, Dixon, Evatt and McTiernan JJ said: " It has long been a rule that when payments are received generally on account of a debt, which is in part interest and in part principal, they are treated as applicable to interest in priority to principal… The rule affords only a presumption in the absence of any actual or express appropriation by the debtor or the creditor" and that Giles JA in Healey v Commonwealth Bank (1998) NSWSC 678 said: "When a debtor who owes distinct debts to a creditor makes a payment to the creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly; if the debtor does not direct an appropriation at the time he makes the payment, the right of application devolves on the creditor". A surety has no right to dictate to the creditor how payments made by the debtor are to be appropriated: see Fahey v MSD Speirs Ltd [1975] 1NZLR 240. In my view, YNPL was entitled to appropriate payments first to interest and that is what it did.

46 The interest rate equated to 48% per annum. Whilst that is a high rate, the loan was originally only to be for 3 months and it was the rate proposed by Jason. Attention was drawn to Guardian Mortgages v Miller [2004] NSWSC 1236 at [104] where Wood CJ at CL said of an interest rate of 12% per month rising to 14.5% per month on default: "The interest rate, although admittedly high, does not constitute of itself an unconscionable or unjust provision, in a case such as the present involving a commercial loan, where there was no unconscionable pressure, placed on the Defendant by the Plaintiff, to enter into the transaction." I do not think that the rate of interest is unconscionable or unjust. In AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170, Mason and Wilson JJ spoke of the concept that an agreed sum is a penalty "if it is extravagant, exorbitant or unconscionable" at p.190. The focus there was of the difference between an agreed sum payable on default or breach. An agreed sum can amount to a penalty if it is imposed in order to compel or coerce compliance and is not a genuine pre-estimate of damage but as Gibb J's analysis in O'Dea v All States (1982-1983) 152 CLR 359 makes clear, the provision to be a penalty must be imposed in response to a breach see pp.366-369, and see also the famous passage from the speech of Lord Dunedin in Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Company Ltd [1915] AC 71, 86-87 cited at p.368 of O'Dea. In my view the requirement to pay interest at 4% per month is not a penalty.

Conclusion 47 It follows that in my view there should be a verdict and judgment for Cecilia on her claim against Jason and Chin. The claim is for $440,000 approximately including interest and after deducting the $140,000 paid by Jason. The precise amount up to today will need to be calculated, and draft short minutes should be prepared.

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