Fayad v B & G Properties Pty Ltd

The appeal concerned a dispute between Fayad and B & G Properties Pty Ltd regarding the construction of a loan agreement. The central issue was the interpretation of a clause that imposed default interest. Fayad contended that the default interest was only payable on the outstanding principal amount, whereas B & G Properties argued it applied to the entire indebtedness, including accrued interest.

The court was required to determine two primary legal issues. Firstly, it had to ascertain the correct construction of the default interest clause within the loan agreement. Secondly, the court needed to consider whether the default interest, as construed, was unenforceable as a penalty at common law.

The Court of Appeal held that the default interest clause was to be construed as applying to the entire indebtedness, not merely the outstanding principal. In reaching this conclusion, the court applied principles of contractual construction, emphasizing the ordinary meaning of the words used in the clause and the context of the agreement as a whole. The court further found that the default interest was not an unenforceable penalty, as it did not demand a sum disproportionate to the legitimate interest of the lender in performance of the contract.

The appeal was dismissed, and Fayad was ordered to pay the costs of B & G Properties.