G Developments Pty Ltd & Anor v John Allen (as trustee of the Bundamba Trust) & Ors

[2020] HCATrans 74

[2020] HCATrans 074

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Brisbane  No B2 of 2020

B e t w e e n -

G DEVELOPMENTS PTY LTD ACN 116 332 220

First Applicant

GARRICK GRAHAME BULL

Second Applicant

and

JOHN ALLEN (AS TRUSTEE OF THE BUNDAMBA TRUST)

First Respondent

RICHARD JAMES GARDNER

Second Respondent

ALEXANDER SCOTT HAGAN

Third Respondent

DALIBOR STEVANOVIC

Fourth Respondent

Application for special leave to appeal

BELL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

FROM SYDNEY BY VIDEO LINK TO BRISBANE

ON FRIDAY, 5 JUNE 2020, AT 10.30 AM

Copyright in the High Court of Australia

____________________

MR F.L. HARRISON, QC:   May it please the Court, I appear with my learned friend, MR P.G. JEFFERY, for the applicants.  (instructed by Evans Lawyers).

MR S.J. LEE:   If the Court pleases, I appear with my learned friend, MR J.J.T. DUDLEY, for the first respondent.  (instructed by HWL Ebsworth Lawyers)

BELL J:   Yes, Mr Harrison.

MR HARRISON:   If the Court pleases, as appears from the application at page 63 of the application book, this is an application for special leave to appeal from the whole of the judgment of the Court of Appeal division of the Supreme Court of Queensland, given on 6 December 2019.

The question in the court below was whether the respondent was entitled under a deed of loan, which is to be found at page 71 of the application book, to interest at the rate of 25 per cent per annum after the due date for payments under the deed of loan.  At first instance, Justice Bradley – whose reasons are at page 4, with the actual reasons starting at page 7 ‑ held that the deed of loan only governed the question of interest up until the date provided for payment but this decision was reversed by the Court of Appeal.

Then Acting Justice Mullins gave the leading judgment which starts at page 46 of the application book and the two other members of the court concurred in her Honour’s reasons.  I would seek to start by taking your Honours, briefly, to the deed of loan which is to be found at page 71.

I would take your Honours, first, to page 73 – that which is the start of the operative provisions – and, first, to the definitions clause.  In clause 1(b), your Honours will see there is a definition of the “Principal Sum” which by cross‑reference to other provisions was the sum of $1 million.  But, there is also a definition of “Secured Monies” which is, on its face, different from the principal sum.  We get meaning for the secured moneys by going to clause 6 which also provides for the payment of mortgagees’ costs and expenses.  So, it is not the case, as Justice Mullins proceeded in her Honour’s judgment, that there is there only one sum that is secured.

If we go, then, to clause 3, the lender will lend the amount and that is called “the Loan Amount”.  But if we go to clause 4, dealing with interest, the covenant for interest is to:

pay interest on the Secured Monies computed at the rate of twenty five percent –

That is on the loan moneys plus any outstanding costs and expenses that have not been reimbursed.  The clause provides for interest at:

twenty five percent per annum and payable on the date referred to in item 8 –

which is one year, and so on. 

GAGELER J:   It does not actually say one year, does it?

MR HARRISON:  I am sorry, your Honour?

GAGELER J:     Item 8 does not make sense, does it?

MR HARRISON:   In my submission, it does.  It means there is a day for payment of interest, on the completion date, and the interest on the secured moneys will be calculable at 25 per cent on the loan amount, but in my submission, the interest on the other moneys – that is, the legal expenses and so on – would accrue only from the date on which they were incurred until the date of payment.

If I could deal quickly with this and then get to the substance of the appeal, I should refer then to 4(b), which provides for the parties to pay the 25 per cent on the interest but not other secured moneys:

if the Secured Monies is repaid at any time prior to the first anniversary date of the initial drawdown ‑

The date for repayment of the fixed moneys ‑ of the loan amount is defined by the schedule. 

There is also clause 4(c), which, at first read, may be puzzling, which allows the lender, as it were, to up the interest rate, which we submit would operate in these circumstances, in that under the provisions of the loan agreement the borrower is obliged to repay on the completion of the development the borrower notwithstanding that the early repayment gets no reduction for interest, and so there is really no incentive to repay in accordance with that covenant.  This clause at least serves the function of allowing the lender to up the interest rate if the borrower breaches the obligation to make early repayment if there is early completion of the development.

BELL J:   Mr Harrison, that, I think, was the analysis that the primary judge adopted to explain the provisions of clause 4(c), am I right?

MR HARRISON:   That is so, your Honour.

BELL J:   Well, Mr Harrison, can I ask this.  As I read both the primary judgment and the judgment in the Court of Appeal, there was no issue but that the principle of construction to be applied in the context of a poorly drafted contract where there were some anomalies, if you like, going either way, that the court should strive for a construction that achieved a commercial result on the assumption that that was the parties’ intention objectively speaking. 

Now, the primary judge considered that the absence of provision for interest at the expiration of the term was to have a commercial sense to it in the sense that it was a very high rate of interest and the presumed intention was that this was a short‑term loan, and the Court of Appeal took a different view, considering it uncommercial in the extreme to read the agreement as not making provision in the circumstances for interest.  Now, one can see arguments either way.  What value adding would this Court contribute beyond a view about what makes – what is the presumed commercial result?

MR HARRISON:   Your Honour, this Court would add value because of, in our submission, the illegitimate way in which her Honour Justice Mullins solved the commerciality problem by inserting words, and if we can go back to clause 4(a), we will see what her Honour did, and her Honour did it specifically as a process not of implying a term, but of inserting words in the agreement.  If we go to the interest clause again on page 74, 4(a) reads:

The Borrower covenants that the Borrower will pay interest on the Secured Monies computed at the rate of twenty five percent per annum and payable on the date referred to in Item 8 of the Schedule being on one year from the date of drawdown or project completion whichever is earlier (hereinafter called “the due date”) (hereinafter called “the date of first payment”) –

which seems to be superfluous.  Then her Honour inserted “and” after that before “at”.  So she converted what appeared to be one covenant into, in effect, two covenants:  will pay on the completion ‑ on the due date and at the fixed rate.  And then her Honour inserted thereafter:

namely the rate referred to in Item 5 of the Schedule (hereinafter called “the fixed rate”).

So her Honour, by inserting words, changed the meaning of the last two or three and a bit lines, or three lines of the judgment, and that, in our submission, is something which the Court ‑ is contrary to current authority, and is something which the Court should put a stop to.  In other words, if, as a matter of construction, her Honour could have construed the words then what your Honour Justice Bell says would be perfectly right, but it is this further step which we submit was a step too far that was taken by her Honour and could in fact ‑ later reasoning, once ‑ if the reasoning is adopted in later cases.

GAGELER J:   So the step too far is the insertion of words into ‑ ‑ ‑

MR HARRISON:   Yes, your Honour.  Now, it is conceivable that her Honour might have, by some other means, come to the same result, but her Honour did not.  But this is a decision of an intermediate court, which is available to be followed in other courts, and that is the point which we submit needs to be set right.

GAGELER J:   One way of characterising what her Honour did was simply using additional words to explicate what she regarded as the natural meaning in the context of the words that were actually used.

MR HARRISON:   That is not, with respect, the reasoning that she followed, and that is not what one would ‑ a subsequent person arguing on ‑ a subsequent litigant arguing on the basis of this decision would, in our submission, be able to take out of it, and the gist of her Honour’s actual reasoning, I suppose, the ‑ of the decision is paragraph [38] starting on page 57:

It is apparent that there must be some words omitted from clause 4(a) as there are no connecting words between the rest of clause 4(a) and the closing words ‑

et cetera.  As a matter of construction we would, with respect, take issue with that, but reading on ‑ and then over the page, her Honour goes ‑ I am sorry, I may have the wrong cross‑reference, I will have to check my notes.  I should go back to page ‑ ‑ ‑

GAGELER J:   Did you mean paragraph [34], Mr Harrison?

MR HARRISON:   Yes, I am sorry, your Honour.  Yes, I have just picked that up.  That is the other – the first time her Honour employs that methodology.  So it is clear, in our submission, that that is the methodology that her Honour has employed to solve the problem even if it might have been possible to solve it another way and it would be very hard for someone in a court at first instance to argue that that was an impermissible methodology when it has been adopted by our Court of Appeal.

GAGELER J:   Relevantly, her Honour says in the last – or second last line on page 56 of the application book that:

Clause 4(a) should be read and construed, as if the word “and” were inserted before, and the word “thereafter” was inserted ‑

My reading of what her Honour said there, provisionally, is that her Honour is simply explaining how the words are to be understood, not purporting to insert words as a matter of implication.

MR HARRISON:   But if your Honour reads that with paragraph [38] where her Honour says:

It is apparent that there must be some words omitted from clause 4(a) ‑

Her Honour is making clear that, in our submission, she is doing more than that and, in fact, rewriting the clause by inserting words to make it conform to the intention that she – what her Honour concluded was a commercial construction.

GAGELER J:   Mr Harrison, on your construction of clause 4(a), the clause contains superfluous words, does it not?

MR HARRISON:   It does, and that was explained, in our submission, by the fact that it is an ill‑adapted – both judges accepted ‑ that is at first instance in the Court of Appeal ‑ it was an ill‑adapted precedent which the parties have failed to properly edit and it is pushing the bounds of construction even further in a case such as that where her Honour really goes about the job of editing it further in the way that the parties should have done.

Your Honour, the whole of the approach is on the assumption that the clause should provide – the parties would have intended that the high interest rate would apply at a later date when the parties, on the face of it, did not turn their minds to that.  The 25 per cent one may, without, in my submission, stretching things too much is a means by which the lenders are sharing in the profits.  So, it makes sense to provide a 25 per cent where everybody is expecting it to be a profitable endeavour.

But it is, in our submission, taking the matter too far by seeking then to deal with what the parties should have agreed, or might have agreed, if they had turned their minds to the possibility of a failure.  And doing that goes against the basic principle which we have referred to, that one needs specific words to charge interest.  The parties have agreed to charge interest for one period; her Honour is in effect implying an obligation to charge interest for a period that the parties have not referred to, and, in that sense, her Honour is taking the principles of commercial construction too far as well.  Those are our submissions, your Honour. 

BELL J:   Thank you, Mr Lee, we do not need to hear from you.

We are of the opinion that the application does not raise a question of principle suitable for the grant of special leave.  Accordingly, the application is refused with costs.

Adjourn the Court. 

AT 10.49 AM THE MATTER WAS CONCLUDED