Australian Central Credit Union Ltd v Pertsinidis No. Scgrg-97-501 Judgment No. S6814

AUSTRALIAN CENTRAL CREDIT UNION LIMITED V PERTSINIDIS AND ANOR

ACTION NO 501 OF 1997

[1998] SASC S6814

Judge Burley

The plaintiff claims to be entitled to an order for possession in respect of the land contained in Certificate of Title Register Book Volume 5176 Folio 131, a property which is known as the Carey Gully General Store (“the land”). The following facts are not in dispute.
The defendants are the registered proprietors of the land. By a loan contract entered into on 4 February 1992 between the plaintiff and the defendants, the defendants borrowed from the plaintiff the sum of $208,000. Clause 1 of the loan contract is as follows:-
“1..... The Credit Union will lend to the Borrower who will borrow from the Credit Union the amount of the total principal set forth in Item B hereof (hereinafter called ‘the principal’) and the Borrower will repay to the Credit Union ... the principal together with interest at the rate set forth in Item C hereof at the times and in manner set forth in Item D hereof PROVIDED that the Credit Union may at any time and from time to time and whether before or after the date of the advance of the principal by written notice to the Borrower increase or reduce the rate of interest to be paid hereunder and if necessary and in the absolute and unfettered discretion of the Credit Union vary the amount of the periodic instalments referred to in Item D hereof accordingly.”

Items B, C and D are as follows:-
“B.... Amount of Loan  $ 208000.00
Outstanding balance of previous loan
         as at   19              $_________
         TOTAL PRINCIPAL  $ 208000.00
C      RATE OF INTEREST
         Interest shall be charged at the rate of 1.063 % per month
         at monthly rests.
D...... INSTALMENTS
Monthly    instalments of    $ 2327.00 commencing on
the 12th March 1992 and continuing until the principal
and all interest thereon is paid."
The loan agreement provided that the defendants would give security in respect of the loan by way of registered first mortgage over the land.
It was not in dispute that a mortgage was duly given by the defendants to the plaintiff to secure the loan and that the provisions of the mortgage enabled the plaintiff to obtain possession of the land if the defendants were in default in compliance with the terms of the loan contract and/or mortgage. It was not in dispute that the plaintiff advanced to the defendants the sum of $208,000 pursuant to the loan contract on about 4 March 1992 and that a mortgage to secure the repayment of the principal and interest was registered on the title.
The plaintiff alleges that as at 4 February 1997 the defendants were in arrears with respect to the loan contract in the sum of $8,856.08. It was not disputed that on 5 February 1997 the plaintiff caused to be served on each of the defendants notices of demand claiming payment of some of the arrears within 7 days. It was not in dispute that on 19 February 1997 the plaintiff caused to be served on each of the defendants notices of default pursuant to Section 132 of the Real Property Act and Section 55A of the Law of Property Act.
The defendants contend that, on the proper construction of the loan contract, they were not in default as alleged in the notices of 5 February 1997 and 19 February 1997 or at all. The essence of the defendants’ contention is that the loan contract provided for payment of the principal and interest over a period of 20 years which was a fixed term. It was argued that if the loan contract was for a fixed term of 20 years, the defendants were not in default.
During the course of the trial, a statement of agreed facts was put before the Court with the consent of all of the parties. It is as follows:-
“STATEMENT OF AGREED FACTS
Agreed facts if Plaintiff’s contention correct
1.1... The plaintiff’s contention is that the correct interpretation of the Loan Contract (Ex P2) is that the periodic instalments which the defendants were obliged to make were fixed at $2,327 per month, unless the plaintiff in the exercise of its ‘absolute and unfettered discretion of the Credit Union var[ied] the amount of the periodic instalments referred to in Item D hereof accordingly’, under clause 1 of the Loan Contract dated 4 February 1992.
1.2... It is agreed that:
1.2.1......... the plaintiff from time to time varied the rates of interest in accordance with Clause 1 of Ex P2; and
1.2.2......... the plaintiff did not vary the monthly periodic instalments at Item D in the said contract.
1.3... It is agreed that if the plaintiff’s contention is correct:
1.3.1......... the defendants were in arrears as at 4 February 1997; and
1.3.2......... the plaintiff’s notices dated 4 February 1997 and 17 February 1997 were valid and correct in every particular.
Agreed facts if Defendants’ contention correct
2...... It is agreed that:
2.1... between 4 February 1992 and 4 February 1997 the plaintiff from time to time varied the rates of interest in accordance with Clause 1 of Ex P2;
2.2... as at 4 February 1997 the defendants were not in default to the plaintiff pursuant to the terms of the loan (Ex P2) if the court finds that the term of the loan contract was for a period of 20 years which the ACCU had no discretion to vary unilaterally.”
The defendants conceded that if the loan contract were to be construed in the manner contended for by the plaintiff, the plaintiff had complied with all the evidential requirements leading to an order for possession in respect of the land in favour of the plaintiff. The parties agreed, in addition, that I was able to draw inferences, as a matter of arithmetical deduction, that if the interest rate payable was varied up or down by the plaintiff pursuant to the terms of the loan agreement, and if the monthly repayments remained constant, the time taken to repay the total principal and interest would be increased or decreased according to whether the interest rate was increased or decreased.
Both parties agreed that the loan contract on its face was unambiguous and that oral evidence in relation to pre-contractual and post-contractual dealings was not admissible. My task, therefore, is to determine what the proper construction of the loan contract is in relation to whether or not it is a loan over a fixed term of 20 years.
Mr Lane, counsel for the defendants, drew my attention to Item D of the loan contract which provides for the payment of monthly instalments of $2,327.00 commencing on 12 March 1992. It was his contention that if such payments are made on a monthly basis at an interest rate of 1.063% per month at monthly rests, the loan would be repaid both as to principal and interest over a period of 20 years. It was not disputed by the plaintiff that this contention was arithmetically and therefore factually correct.
Mr Lane contended that the proviso to Clause 1 should be read in light of the content of Item D. It followed, he argued, that if the plaintiff increased or reduced the rate of interest in accordance with the terms of the proviso, the plaintiff was required to alter the amount of the periodical instalments referred to in the proviso so as to maintain the repayment of the loan over a 20 year period. As can be seen from the Agreed Statement of Facts, it was accepted by the plaintiff that if such a construction were placed upon the loan contract, the defendants could not be said to have been in arrears as at February 1997 as set out in the notices referred to above.
Ms Maharaj, counsel for the plaintiff, contended that the construction of the loan agreement contended for by the defendants was not open to the Court. She argued that the 20 year period implicit in Item D was merely an indicative period of the loan and that it had to be read in light of the proviso to paragraph 1, which allowed a variation of the interest rate and a variation of the monthly instalments. She argued that there were two discretions vested in the plaintiff under the proviso: first, that the interest rate might be varied and, second, that the plaintiff might “if necessary and in [its] absolute and unfettered discretion” vary the amount of the monthly instalments. She argued that the interest rates could be altered without the amount of the monthly instalments being varied and if that occurred the 20 year term would be either decreased or increased according to whether the interest rate was decreased or increased.
I accept the criticism of the defendants that the expression “if necessary and in the absolute and unfettered discretion” is an unsatisfactory phrase because it potentially creates mutually inconsistent concepts. For example, is the interest rate to be varied if necessary or is it to be varied only in the absolute and unfettered discretion of the plaintiff? If the words “if necessary” govern the exercise of the discretion, according to what or whose necessities is the interest rate to be varied? The answer to these questions is not obvious, but that infelicitous use of language does not, in my view, bring about the construction contended for by the defendants.
I think it appropriate to take the approach suggested by the learned authors of “Contract Law in Australia”, Third Edition, Carter and Harland, where they said at paragraph 704:-
“It is essential, given the objective approach to contract construction, that the courts adopt a sensible approach. Their function is to give effect to the bargain, not to deny its efficacy by a restrictive technical analysis. This finds its expression in a number of ways. For example, as a general rule, where a contract is construed the court will apply a presumption that the parties did not intend its terms to operate unreasonably (L Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235). Therefore, where a particular construction would achieve an unreasonable result the court will be reluctant to accept that this was meant by the parties (TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 146)...
Second, a comonsense approach must be taken, particularly in commercial contracts which are expressed in an imperfectly constructed document. Thus, Lord Diplock has said (Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191 at 201) that ‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense’.”
Applying those principles there is no doubt, in my view, that the proper construction of the loan agreement is that contended for by the plaintiff. The period of the loan set out in Item D of the loan contract was merely an indicative period subject to variation according to whether or not the interest rate and/or the instalments were altered in the discretion of the plaintiff. I specifically reject the defendants’ contention that if the plaintiff altered the interest rate it was also required to alter the amount of the monthly instalments to preserve the 20 year period. That is not, in my view, a construction which is consistent with commonsense.
For the above reasons, and in light of the concessions made by the defendants in the Statement of Agreed Facts, I hold that the plaintiff is entitled to an order for possession in respect of the land.
In the prayer for relief in the plaintiff’s statement of claim the plaintiff seeks the following order:-
“2..... an order that, upon the defendants paying to the plaintiff the monies remaining due to the plaintiff under the security of the Memorandum of Mortgage Registered No 7256864, the plaintiff (subject and without prejudice to the due exercise of any power of sale for the time being vested in it) redeliver to the defendants possession of the said Land subject to the said Mortgage and release to the defendants the security constituted by the said Mortgage;”
That part of the prayer for relief is a recognition by the plaintiff of the right of the defendants to “redeem” or pay out the mortgage prior to the entry into a contract for sale of the land by the plaintiff in pursuance of the power of sale contained in the mortgage and the provisions of the Real Property Act. It is one of the factors to be taken into account when determining a period within which the defendants are to be required to give up possession, even though the right to redeem may be exercised after possession has been taken by the plaintiff. I have not as yet heard submissions from the parties as to that aspect of the matter and before I make the order for possession I shall hear submissions from counsel in that regard.

[1998] SASC 6814

28 August 1998