Oak Capital Wholesale Fund Pty Ltd ACN v Nunis - [2023] WADC 110

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION:   PERTH
CITATION:   OAK CAPITAL WHOLESALE FUND PTY LTD ACN -v- NUNIS [2023] WADC 110
CORAM:   PALMER DCJ
HEARD:   19 SEPTEMBER 2023
DELIVERED          :   26 SEPTEMBER 2023
FILE NO/S:   CIV 3668 of 2021
BETWEEN:   OAK CAPITAL WHOLESALE FUND PTY LTD ACN
Plaintiff
AND
RALPH MARCEL NUNIS
Defendant

Catchwords:

Application for summary judgment pursuant to O 14 r 1 of the Rules of the Supreme Court 1971 (WA) - Application for summary judgment out of time - Whether notice given that Lower Interest Rate applied - Whether term that imposed interest rate was unenforceable as penalty

Legislation:

District Court Rules 2005 (WA)
Rules of the Supreme Court 1971 (WA)

Result:

Summary judgment granted

Representation:

Counsel:

Plaintiff	:	Mr L N Firios
Defendant	:	Mr T J Langdon

Solicitors:

Plaintiff	:	Summer Lawyers
Defendant	:	TGC Lawyers

Case(s) referred to in decision(s):

Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30; (2012) 247 CLR 205
Cheney v Moore [2020] WASC 227
City of Canning v Avon Capital Estates (Australia) Ltd [2009] WASCA 120
Dunlop v Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79
Gallo v Dawson [1990] HCA 30; (1990) 64 ALJR 458
Girando v Girando (1997) 18 WAR 450
Hazart Pty Ltd v Rademaker (1993) 11 WAR 26
Jin Lian Group Pty Ltd (in liq) v ACapital Finance Pty Ltd [2021] NSWSC 931
Kellas-Sharpe v PSAL Ltd [2012] QCA 371; (2012) 2 Qd R 233
Kezic v St John of God Health Care Inc [2015] WASCA 220
Oak Capital Mortgage Fund Ltd v Dlakic [2019] NSWSC 1538
O'Dea v Allstates Leasing System (WA) Pty Ltd [1983] HCA 3; (1983) 152 CLR 359
Paciocco v Australia & New Zealand Banking Group Ltd [2016] HCA 28; (2016) 258 CLR 525
Quantum Asset Management Pty Ltd v Love Properties (WA) Pty Ltd [2017] WASC 167
Simonsen v Legge [2010] WASCA 238
Zaghloul v Bayly [2021] WASCA 125

PALMER DCJ:

Introduction

By a Notice of Appeal dated 15 March 2023, the defendant (Mr Nunis) appeals from a decision made by Registrar Nunn on 23 February 2023 to grant the plaintiff (Oak Capital) summary judgment.
Mr Nunis requires leave to appeal because his appeal was filed nine days late. Rule 15(2) of the District Court Rules 2005 (WA) (District Court Rules) requires any appeal to be commenced within 10 days of the decision the subject of the appeal.
Mr Nunis has been a property developer for over 20 years. In 2020, Mr Nunis was operating his business through a company called Spiral Wave Pty Ltd (Spiral Wave). He was the sole director of Spiral Wave (which is now deregistered).[1]
[1] Affidavit of Ralph Marcel Nunis in Opposition to Summary Judgment, sworn 2 February 2023 (Nunis Affidavit - 2 February 2023), par 2; Affidavit of Mohamud Ahmed, affirmed 21 October 2022 (Ahmed Affidavit - 21 October 2022), par 4.
In January 2020, Oak Capital agreed to loan $1,119,072 to Spiral Wave. The loan was secured by a mortgage (the Mortgage) over land owned by Spiral Wave in Redland Bay in Queensland (the Property).[2] Under the terms of the Mortgage, both Mr Nunis and Spiral Wave were obliged to repay the money borrowed by Spiral Wave and Mr Nunis guaranteed Spiral Wave's obligations.[3]
[2] Ahmed Affidavit - 21 October 2022, par 5.
[3] Ahmed Affidavit - 21 October 2022, par 5.
In early 2020, Spiral Wave defaulted on its obligations under the Mortgage. Although Oak Capital exercised its rights as mortgagee to sell the Property to recover the amount it was owed, the Property sold for less than the full amount of the debt owed and there was a shortfall. In September 2021, Oak Capital commenced these proceedings to recover that shortfall from Mr Nunis.[4]
[4] Writ of Summons Indorsed with Statement of Claim, dated 24 September 2021.
The proceedings progressed slowly but on 21 October 2022 Oak Capital applied for summary judgment. That application was heard by Registrar Nunn. Before the Registrar, Mr Nunis resisted summary judgment on the basis that Oak Capital had breached a duty of care that it owed to sell the Property for the best possible market price,[5] engaged in misleading or deceptive conduct by advertising that they were licenced[6] and failed to afford Mr Nunis an opportunity to refinance.[7] After a hearing, Registrar Nunn granted summary judgment.
[5] Defendant's Outline of Submissions, filed 26 January 2023; Nunis Affidavit - 2 February 2023, pars 21 - 22.
[6] Nunis Affidavit - 2 February 2023, pars 3 - 10.
[7] Nunis Affidavit - 2 February 2023, pars 11 - 20.
On the day of the hearing of this appeal, Mr Nunis filed a Minute of Proposed Amended Defence and Counterclaim pleading a new defence based on the fact that the Mortgage provides for two interest rates: a higher rate of interest and a lower rate of interest. It was alleged that the term that imposed the higher rate of interest was unenforceable as it was a penalty.[8] It was alleged that if the enforceable lower rate of interest had been applied there would have been no shortfall following the sale of the Property.[9]
[8] Defendant's Amended Defence and Counterclaim, dated 19 September 2023 (Amended Defence and Counterclaim), par 1A.
[9] Amended Defence and Counterclaim, par 8.
At the hearing of the appeal, the sole basis upon which Mr Nunis resisted summary judgment was that there was a serious question to be tried as to whether the term imposing the higher rate of interest was unenforceable because it was a penalty.[10]
[10] Defendant's Submissions, dated 14 September 2023 (Defendant's Submissions - 14 September 2023), pars 3, 14 - 15.

The factual background

The mortgage between Oak Capital, Spiral Wave and Mr Nunis was a written document comprising of:
(a)registered mortgage 719869144;[11]
(b)Mortgage Common Provisions 718188316 (Common Provisions)[12] which had two schedules:
(i)Schedule A;[13] and
(ii)Schedule B.[14]
[11] Ahmed Affidavit - 21 October 2022, par 5 and page 10.
[12] Ahmed Affidavit - 21 October 2022, par 5 and page 12.
[13] Ahmed Affidavit - 21 October 2022, par 5 and page 54.
[14] Ahmed Affidavit - 21 October 2022, par 5 and page 59.
In April 2020, Spiral Wave failed to make the interest payment due under the Mortgage.[15]
[15] Ahmed Affidavit - 21 October 2022, par 9.
On 14 May 2020 and 22 June 2020, Oak Capital issued notices of default and demand.[16]
[16] Ahmed Affidavit - 21 October 2022, pars 10 and 12.
Although Spiral Wave made some payments to Oak Capital,[17] it remained in default[18] and Oak Capital took possession of the Property.[19] The Property was sold at auction on 21 November 2020 for $1.4 million.[20]
[17] Ahmed Affidavit - 21 October 2022, par 14.
[18] Ahmed Affidavit - 21 October 2022, par 15.
[19] Ahmed Affidavit - 21 October 2022, par 15.
[20] Ahmed Affidavit - 21 October 2022, par 19.
These proceedings were commenced by writ of summons dated 24 September 2021.
Pleadings were exchanged in early 2022 but the proceedings had not advanced much further by the middle of 2022. On 10 June 2022, the matter was entered onto the inactive cases list.
On 21 October 2022, Oak Capital applied for summary judgment.
The summary judgment application was heard by Registrar Nunn on 3 February 2023. Orders were made at that hearing for the filing of additional submissions. Registrar Nunn otherwise reserved his decision.
On 23 February 2023, Registrar Nunn delivered his reserved decision orally, granting summary judgment to Oak Capital.

The Mortgage

Mr Nunis's obligations

Clause 3.1 of the Common Provisions provides:[21]
[21] Ahmed Affidavit - 21 October 2022, page 25.
The Debtor covenants that the Debtor:
(a)shall pay the Secured Money (or any part thereof) to the Lender:
(i)in accordance with the terms of this Mortgage and by the end of the Term; or
(ii)if no time for payment is specified, immediately on demand by the Lender; and
(b)shall perform, observe and comply with all of the Obligations at all times and at its own cost.
The term 'Debtor' is defined in cl 1.1 to include both the 'Borrower' and 'Mortgagor'.[22] Schedule A identifies Mr Nunis as a 'Mortgagor'.[23]
[22] Ahmed Affidavit - 21 October 2022, page 17.
[23] Ahmed Affidavit - 21 October 2022, page 54.
Clause 28 of the Common Provisions is a guarantee. It provides:[24]
[24] Ahmed Affidavit - 21 October 2022, page 50.
28.5The Guarantor agrees to guarantee to the Lender and indemnify the Lender as to:
(a)the payment by the Debtor of the Secured Money (or any part thereof) in accordance with the terms of this Mortgage;
(b)the performance and compliance by the Debtor with all of the Obligations.
28.6The Guarantor agrees that if the Debtor fails, refuses or neglects to
(a)pay the Secured Money (or any part thereof) to the Lender; or
(b)meet any of the Obligations - the Lender may demand that the Guarantor pay to the lender:
(i)the amount that the Debtor fails to pay to the Lender; and/or
(ii)any amount that will result in the Lender being fully indemnified for the Debtor's failure to meet any of the Obligations.
'Secured Money' is defined in cl 1.1 of the Common Provisions to mean 'the aggregate of all monies which the Debtor is, or at any time may become, actually or contingently liable to pay to the Lender for any reason or on any account whatsoever …'.[25]
[25] Ahmed Affidavit - 21 October 2022, page 22.
The definition lists some non-exhaustive examples, including the Principal Amount, Interest, Outstanding Interest, Fees, and Costs and Expenses, each being a defined term.[26]

Clause 5

[26] Ahmed Affidavit - 21 October 2022, pages 16, 18 - 21 (the definitions), and pages 59 - 60 (the fees themselves).

Clause 5 addresses the payment of interest and fees.[27]
[27] Ahmed Affidavit - 21 October 2022, page 27; This is a description of the subject matter of the clause. By cl 1.2(a) of the Common Provisions, regard may not be had to headings.
Clauses 5.3, 5.4 and 5.7 are all central to the consideration of Mr Nunis's arguments.[28] They are set out at [75] and [77] below.
[28] Ahmed Affidavit - 21 October 2022, pages 27 - 28.
Clause 5.9 of the Common Provisions provided: [29]
[29] Ahmed Affidavit - 21 October 2022, page 28.
If the Debtor has paid Interest on the Date for the Payment of Interest based on the Lower Interest Amount and it later becomes apparent that at the time that the Interest was paid:
(a)the Debtor had failed to pay any amount due under this Mortgage by the due date for payment of that amount; or
(b)the Debtor had failed to comply with any of the Obligations; or
(c)an Event of Default had occurred -
then the Interest payable by the Debtor for the Interest Period immediately prior to the event in paragraphs (a) to (c) above and all subsequent Interest Periods shall be the Higher Interest Amount.

Some other relevant provisions in Schedule A

Special Condition 4(a) in sch A provides that the Debtors warrant to the Lender that they will repay the Secured Money due under the Mortgage by way of refinance of the Property by not later than the Final Repayment Date.[30]
[30] Ahmed Affidavit - 21 October 2022, page 56.
Schedule A provides that the Final Repayment Date was 12 months after the Commencement Date.[31]
[31] Ahmed Affidavit - 21 October 2022, page 54.
Special Condition 4(b) in sch A provides that if the Debtors fail to refinance by the Final Repayment Date, an Event of Default has occurred under the Mortgage and the Debtors undertake to sell the Property.[32]
[32] Ahmed Affidavit - 21 October 2022, page 57.

Mr Nunis's submissions

Mr Nunis submitted that he should be given an extension of time in which to appeal because:
(a)he has a defence on the merits;
(b)the appeal notice was filed within 10 days after the orders were formally made; and
(c)the delay in filing the appeal was only short and did not occasion any substantive prejudice to Oak Capital.[33]
[33] Defendant's Submissions - 15 September 2023, pars 4, 39 - 40.
Mr Nunis said that his solicitor requested a copy of the transcript of the Registrar's reasons, including the orders pronounced, on the same day as the hearing and again on 28 February 2023. It was said that there was a delay in receiving the transcript and it was in fact not received until 5 April 2023.[34]
[34] Defendant's Submissions - 14 September 2023, par 40; Affidavit of Tihomir Galic, sworn 18 February 2023 (Galic Affidavit).
It was submitted that the extent of the delay was relatively short and that the delay in commencing the appeal has not occasioned any substantive prejudice to Oak Capital.[35]
[35] Defendant's Submissions - 14 September 2023, par 41.
As mentioned, the sole basis upon which Mr Nunis resisted summary judgment was that there was a serious question to be tried regarding whether the imposition of the higher rate of interest was an unenforceable penalty.[36]
[36] Defendant's Submissions - 14 September 2023, pars 3, 14 - 15.
Mr Nunis submitted that in AndrewsvAustralia and New Zealand Banking Group Ltd,[37] the High Court held that a stipulation prima facie imposes a penalty if it is a collateral stipulation which, upon failure of a primary stipulation, imposes upon one party an additional detriment to the benefit of another party. It was said that cl 5.7 of the Common Provisions was such a provision because 'the default rate applies' if:
(a)the Debtor has failed to pay any amount due under the Mortgage by the due date for payment; or
(b)the Debtor has failed to comply with any of the Obligations; or
(c)there is any Event of Default.[38]
[37] AndrewsvAustralia and New Zealand Banking Group Ltd [2012] HCA 30; (2012) 247 CLR 205 [10] (Andrews).
[38] Defendant's Submissions - 14 September 2023, par 16.
Mr Nunis submitted that before the Registrar, Oak Capital asserted that the higher rate of interest could not be a penalty because it is 'the contractual rate' under the loan agreement and that it was to apply unless Oak Capital notified Spiral Wave that the lower rate was payable.[39] It was submitted that there was now evidence before the court that such notice was given. Mr Nunis referred to:
(a)the Letter of Offer dated 21 January 2020 (the Letter of Offer) from Oak Capital to Mr Nunis provided that:
(i)'If for whatever reason your loan goes into default, in Oak's absolute discretion, Oak may elect to charge interest at the Higher Rate'; and
(ii)interest would be capitalised for three calendar months at the commencement of the loan; and
(b)a loan account statement. It was said that Oak Capital charged the lower rate of interest during the initial three month period when interest was capitalised and the higher rate was only charged after Spiral Wave defaulted.[40]
[39] Defendant's Submissions - 14 September 2023, par 17.
[40] Defendant's Submissions - 14 September 2023, par 18; Affidavit of Ralph Marcel Nunis, sworn 18 September 2023 (Nunis Affidavit - 18 September 2023), pages 4 - 5.
Mr Nunis submitted that in any event, an argument that default interest cannot be a penalty if it applies in the absence of a default was rejected by Banks-Smith J in Quantum Asset Management Pty LtdvLove Properties (WA) Pty Ltd,[41] following the High Court's decision in Andrews that a contractual sum may be a penalty even if it is payable in the absence of breach.[42]
[41] Quantum Asset Management Pty LtdvLove Properties (WA) Pty Ltd [2017] WASC 167 [90] (Quantum Asset Management).
[42] Defendant's Submissions - 14 September 2023, par 19.
Mr Nunis contended that it is apparent from reading cl 5 of the Mortgage Agreement as a whole that, on its proper construction, the higher rate of interest was only ever intended to be paid if the conditions specified in cl 5.7 were satisfied. It was said that that was the only possible construction of cl 5 that is consistent with the Letter of Offer.[43]
[43] Defendant's Submissions - 14 September 2023, par 20.
Mr Nunis said that it was implicit in cl 5.7 that, if there was no default or failure to comply with an Obligation, the lower interest rate would be payable. It was submitted that this required a further step to be taken, does not alter the effect of cl 5.7.[44]
[44] Defendant's Submissions - 14 September 2023, par 21.
Mr Nunis referred to cl 5.9 and said that the provision plainly contemplated that, unless it has become apparent that one of the events in cl 5.9(a) - (c) has occurred, the Debtor is entitled to pay the Lower Interest Amount and will not be obliged to pay the Higher Interest Amount until that occurs.[45]
[45] Defendant's Submissions - 14 September 2023, par 23.
Mr Nunis contended that it follows that cl 5.1 only provides that, as is set out in the Letter of Offer, there is an administrative step to be taken by Oak Capital if an Event of Default occurs, by giving notice to Spiral Wave that the higher rate of interest applies.[46] It was contended that in the circumstances, the default rate of interest is a penalty unless it can be shown that the higher rate is a genuine pre‑estimate of the lender's loss if an event of default occurs.[47]
[46] Defendant's Submissions - 14 September 2023, par 24.
[47] Defendant's Submissions - 14 September 2023, par 25.
Mr Nunis submitted that there is a presumption that a contractual sum is a penalty if it is a single sum made payable on the occurrence of one or more of several events, some of which may occasion serious, and others only inconsequential, damage.[48] Mr Nunis referred to the House of Lords decision in Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd[49] that Mr Nunis said was approved by the High Court in PacioccovAustralia & New Zealand Banking Group Ltd.[50]
[48] Defendant's Submissions - 14 September 2023, par 26.
[49] Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79 (87) (Dunlop).
[50] Paciocco v Australia & New Zealand Banking Group Ltd [2016] HCA 28; (2016) 258 CLR 525 [36] (Kiefel CJ), [148] (Gageler J), [265] (Keane J), [317], [339] and [345] (Nettle J) (Paciocco).
Mr Nunis submitted that under the terms of the Mortgage, the higher rate of interest is imposed in a broad range of events, some of which could occasion serious loss, but many of which may occasion no loss whatsoever. Mr Nunis submitted that Spiral Wave would be taken to have failed to comply with an 'Obligation' as defined in cl 1.1 if it:
(a)fails to pay all amounts on time (cl 3.1);
(b)fails to pay all amounts by direct debit if so directed by Oak Capital, rather than any other manner of payment (cl 3.6);
(c)fails to 'fully' observe, perform or comply with all restrictions, covenants and easements relating to or affecting the Redland Bay property (cl 3.12);
(d)fails to pay all insurance premiums when due (cl 6.1(b));
(e)fails to provide a copy of the policy of insurance and/or any certificate of currency to Oak Capital (cl 6.1(d));
(f)does anything, or permits anything to be done, which 'may' increase the premium for any insurance policy relating to the Redland Bay property (cl 6.2(a)(i));
(g)creates or 'allow[s] to come into existence' 'any Encumbrance' affecting the Property (cl 7.1(b);
(h)enters into a Lease or granting a Licence in relation to the Redland Bay property (cl 7.1(c));
(i)consents to or permits any sub-lease or assignment or variation of any sub-lease of the Property (cl 7.1(d));
(j)fails to pay all rates and taxes in relation to the Redland Bay property when they fall due (cl 9.1);
(k)permits, without Oak Capital's consent, the Redland Bay property to be unoccupied for more than 30 days (cl 9.4); or
(l)fails to give Oak Capital notice, as soon as possible, of any notice issued, made or given by any Government Authority (which includes the 'Federal Government', the 'State Government', or 'any local government and any body or entity owned or controlled by any Federal, State or local government') concerning, relating to or that in any way affects, either directly or indirectly, the Redland Bay property or the security conferred by the Mortgage Agreement over the Redland Bay property (cl 9.8(b)).[51]
[51] Defendant's Submissions - 14 September 2023, par 29.

Mr Nunis also relied on the fact that 'Event of Default' had been broadly defined and includes:
(a)a compromise or arrangement being proposed or becoming effective in relation to the creditors or any class of creditors of Spiral Wave or Mr Nunis (cl 18.2(h));
(b)anything that 'in the Lender's opinion' may have a Material Adverse Effect on the ability of Spiral Wave or Mr Nunis to comply with any of the Obligations (cl 18.2(i));
(c)a material decrease in the value of the Redland Bay property 'in the Lender's opinion' (cl 18.2(j));
(d)any attempt by a creditor of Spiral Wave or Mr Nunis to levy 'an interest or execution against' the Redland Bay property, or any attempt to obtain a garnishee order in respect of any debt owed to Spiral Wave or Mr Nunis (cl 18.2(l)); and
(e)any application being made to wind up Spiral Wave (cl 18.2(q) and cl 1.1, definition of 'Corporate Insolvency Event). [52]
[52] Defendant's Submissions - 14 September 2023, par 30.
Mr Nunis submitted that with such a broad range of events triggering the imposition of the higher rate of interest, the presumption of a penalty plainly arises. It was contended that in the absence of evidence justifying the higher rate of interest, there is no basis on which the court could find, on a summary basis, that the higher rate of interest, is a genuine pre‑estimate of the loss that Oak Capital would suffer if an Obligation was not complied with, or an Event of Default occurred.[53]
[53] Defendant's Submissions - 14 September 2023, par 31.
Further, Mr Nunis submitted that the Mortgage:
(a)provides that Oak Capital is entitled to be indemnified for 'any Costs and Expenses' (which is expansively defined in cl 1.1 of the Mortgage Agreement); and
(b)imposes a daily 'Default Management Fee' of $50 per day once an Event of Default occurs, and a 'Rollover Fee' of $24,620 payable if an Event of Default occurs as a result of the expiry of the Final Repayment Date.[54]
[54] Defendant's Submissions - 14 September 2023, par 34.
This was said to fortify Mr Nunis's argument.[55]
[55] ts 29.
Mr Nunis said that in contrast to Quantum Asset Management, Oak Capital had failed to lead evidence to 'rebut the presumption'.[56]
[56] Defendant's Submissions - 14 September 2023, par 32.

Oak Capital's submissions

Oak Capital submitted that Mr Nunis's submissions focused on cl 5.7 and failed to address the operation of cl 5.3 and cl 5.4.[57] Oak Capital referred to cl 5.3 and cl 5.4 and drew attention to the fact their effect was that absent a notice under cl 5.4, the applicable interest rate in respect of any given monthly interest instalment was the higher rate.[58] With regard to the submission that Mr Nunis made regarding the implication that might be drawn from cl 5.7,[59] it was submitted that such an implication would be contrary to the clear and express words of cl 5.3.[60]
[57] Plaintiff's Outline of Further Submissions dated 19 September 2023 (Plaintiff's Submissions - 19 September 2023), par 9.
[58] Plaintiff's Submissions - 19 September 2023, pars 5 - 6.
[59] Defendant's Submissions - 14 September 2023, par 21.
[60] Plaintiff's Submissions - 19 September 2023, par 9.
Oak Capital submitted that it did not give notice under cl 5.4 of in respect of the Interest Period for April 2020 and the higher interest rate was therefore the applicable rate by virtue of cl 5.3.[61] Oak Capital disputed the suggestion that the documents relied upon by Mr Nunis were notice for the purposes of cl 5.3 and cl 5.4.[62]
[61] Plaintiff's Submissions - 19 September 2023, par 8.
[62] Plaintiff's Submissions - 19 September 2023, par 10.
It was submitted that the letter of offer, preceded and was overtaken by the subsequent facility agreement. It was submitted that the terms governing the loan agreement are those contained in the Mortgage, not the Letter of Offer. Oak Capital drew attention to the fact that the Letter of Offer, explicitly, recorded that the letter 'will not form part of the loan documentation'.[63]
[63] Nunis Affidavit - 18 September 2023, page 5 (definition of Loan Documents); Plaintiff's Submissions - 19 September 2023, par 11.
Oak Capital said that the loan statement is also not a notice under cl 5.4. It submitted that the loan statement merely records, consistent with sch A, that interest was capitalised for three months and fixed in the amount of $39,032, being the Retained Interest sum. It was accepted that the capitalised interest component may have been calculated by reference to the lower interest rate, but it was submitted that that said nothing about the interest rate that would apply thereafter in accordance with cl 5.3.[64]
[64] Plaintiff's Submissions - 19 September 2023, par 12.
Oak Capital submitted that in any event, it is well established that clauses in a finance agreement that offer a lower 'concessional' interest rate while there is no default but provide for a higher rate on default are not penal.[65] Reference was made to Jin Lian Group Pty Ltd (in liq)v ACapital Finance Pty Ltd,[66] Quantum Asset Management, Kellas‑SharpevPSAL Ltd[67] and Oak CapitalMortgage Fund LtdvDlakic.[68] Such clauses are sometimes referred to[69] as an 'O'Dea Clause' referring to the judgment of Gibbs CJ in O'Dea v Allstate Leasing System (WA) Pty Ltd.[70]
[65] Plaintiff's Submissions - 19 September 2023, par 13.
[66] Jin Lian Group Pty Ltd (in liq)v ACapital Finance Pty Ltd [2021] NSWSC 931 [32] - [36] (Jin Lian Group).
[67] Kellas-Sharpev PSAL Ltd [2012] QCA 371; [2013] 2 Qd R 233, [2] ‑ [4], [33] - [42].
[68] Oak CapitalMortgage Fund LtdvDlakic [2019] NSWSC 1538 [106] (Oak Capital).
[69] Jin Lian Group [33].
[70] O'DeavAllstates Leasing System (WA) Pty Ltd [1983] HCA 3; (1983) 152 CLR 359 (366) - (367).

The appeal

The period for commencing an appeal and extensions of time

Rule 15(2) of the District Court Rules provides that an appeal must be commenced within 10 days after the decision or such longer period as a judge may allow.
The object of the rule permitting extensions of time is to ensure that the rules which fix time for the doing of acts do not become instruments of injustice.[71] In Simonsen v Legge, the Court of Appeal indicated that four major factors should be considered when a party's appeal is out of time (although they are not necessarily exhaustive in each case):[72]
(a)the length of the delay;
(b)the reasons for the delay;
(c)the prospects of the applicant succeeding in the appeal; and
(d)the extent of any prejudice to the respondent.
[71] Gallo v Dawson [1990] HCA 30; (1990) 64 ALJR 458 (459); Simonsen v Legge [2010] WASCA 238 [8].
[72] Simonsen v Legge [8(d)].
Other factors may include whether the delay was intentional, or contumelious, or merely the result of a bona fide mistake or blunder, and whether the delay is that of the litigant or of its lawyers with which the litigant should not be saddled.[73]
[73] City of CanningvAvon Capital Estates (Australia) Ltd [2009] WASCA 120 [33]; Simonsen v Legge [8(e)].
The length and reasons for the delay must be addressed by the applicant and the cogency of the explanation increases as the period of the extension sought increases.[74]
[74] GirandovGirando (1997) 18 WAR 450 (454); Simonsen v Legge [8(f)].
The time for appealing will not be extended unless the proposed appeal has some prospect of success; the converse of that proposition is not that time must be extended if an appeal has any prospect of success, but rather, the fact that an appeal has some prospect of success is a factor which is to be taken into account, together with all other relevant factors.[75]

The nature of an appeal

[75] City of CanningvAvon Capital Estates (Australia) Ltd [17]; Simonsen v Legge [8(g)].

Rule 15(6) of the District Court Rules provides that an appeal from a registrar is to be by way of a new hearing of the matter that was before the registrar.
A new hearing means that the judge hearing the appeal must treat the application as if it was before the court for the first time.[76] The appellant is not required to show that the learned Registrar made an error in the decision appealed.[77]
[76] KezicvSt John of God Health Care Inc [2015] WASCA 220 [42].
[77] Cheneyv Moore [2020] WASC 227 [9].
The court may rely upon additional evidence on the hearing of an appeal by way of a new hearing, subject to the court having a discretion to exclude such evidence.[78]
[78] Hazart Pty Ltdv Rademaker (1993) 11 WAR 26 (28).
In effect, therefore, it is necessary for me to redetermine the summary judgment application.

Summary judgment

Oak Capital applies for summary judgment pursuant to O 14 r 1 of the Rules of the Supreme Court 1971 (WA) (RSC) which provides:
Where in an action to which this Order applies a statement of claim has been served on a defendant and that defendant has entered an appearance, the plaintiff may, on the ground that that defendant has no defence to a claim included in the writ, or to a particular part of such claim, or has no defence to such a claim or part except as to the amount of any damages claimed, within 21 days after appearance or at any later time by leave of the Court, apply to the Court for judgment against that defendant.
Order 14 r 2 provides that an application under O 14 r 1 shall be made by summons supported by an affidavit verifying the facts on which the claim or the part of the claim to which the application relates is based, and stating that in the deponent's belief there is no defence to that claim or part thereof, as the case may be, or no defence except as to the amount of any damages claimed.
The principles to be applied in determining an application for summary judgment are well established and were summarized by the Court of Appeal in Zaghloulv Bayly[79] as follows:[80]
116The principles to be applied on an application for summary judgment are well established. The critical issue is whether it is clear that there is no real question to be tried. The issue is framed in this manner as it is only in the clearest of cases, where there is a high degree of certainty about the outcome if the proceedings were allowed to go trial, that summary judgment ought properly to be granted. The exercise of powers to summarily terminate proceedings must always be attended with caution.
117There are cases where the court has considered it appropriate to determine questions of law on a summary judgment application. There should be summary judgment if the facts are undisputed and the law is clear. In general, however, an application for summary judgment is not the occasion to dispose of difficult or substantial questions of law which cannot be determined without full argument. It will usually be appropriate to leave the determination of such questions for trial.
(footnotes omitted)
[79] Zaghloulv Bayly [2021] WASCA 125.
[80] Zaghloulv Bayly [116] - [117].

Disposition

Whether Mr Nunis should have leave to appeal

The explanation given for the delay in commencing the appeal by Mr Galic, Mr Nunis's solicitor, is that he was waiting for a transcript of Registrar Nunn's decision.[81] This explanation is unsatisfactory. Where oral reasons are given, it is the duty of counsel appearing to take a note of the reasons given. There should be no need to wait for a transcript.
[81] Galic Affidavit, par 4.
It does not seem that Mr Nunis himself was responsible for this delay, however. To the extent that the delay was caused by Mr Galic's failure, it would be unfair to visit the consequences of that failure on Mr Nunis.
The delay was also modest and there was no suggestion that Oak Capital was prejudiced by the delay. Oak Capital did not actively oppose the grant of leave.
Finally, the delay needs to be considered in the context of the fact that Oak Capital itself requires leave to apply for summary judgment and that Oak Capital has not prosecuted these proceedings with any particular alacrity.
In the circumstances, I will grant Mr Nunis leave to appeal out of time.

Oak Capital's application for summary judgment

Oak Capital requires leave to apply for summary judgment. Order 14 r 1 of the RSC provides that summary judgment may be applied for within 21 days after the defendant enters an appearance, or at any later time by leave of the court.
Oak Capital applied for summary judgment on 21 October 2022. An appearance was entered on the 8 October 2021, almost one year earlier.
Oak Capital relies upon an Affidavit of Christopher Yam sworn 7 September 2022[82] to explain the delay. The explanation given is not particularly lengthy or satisfactory.
[82] ts 36.
In my view, however, the materials relied upon by Oak Capital in relation to the summary judgment application, establish that, subject to consideration of the defence advanced by Mr Nunis (considered below), it is entitled to judgment. Mr Nunis did not seem to dispute this or oppose an extension of time for Oak Capital to apply for summary judgment.
In the circumstances, I am prepared to grant Oak Capital an extension of time to apply for summary judgment.

Whether clause 5.7 was engaged

Oak Capital argued that Mr Nunis was charged interest pursuant to cl 5.3, not cl 5.7. Oak Capital said that cl 5.7 therefore had no relevant operation so that even if there was an argument that cl 5.7 was a penalty (which Oak Capital disputed) that argument is never engaged.
Clauses 5.3 and 5.4 provide:[83]
5.3The Interest to be paid by the Debtor shall at all times be the Higher Interest Amount unless the Lender notifies the Debtor that the Lower Interest Amount is payable by the Debtor for any Interest Period.
5.4The Lender may notify the Debtor that a Lower Interest Amount is to be paid for any Interest Period and upon the Lender giving that notice the interest to be paid for that Interest Period shall be that Lower Interest Amount.
[83] Ahmed Affidavit - 21 October 2022, page 27.
Schedule A identified the Lower Rate of Interest as being 13.99% per annum and the Higher Rate of Interest as being 28% per annum.[84] The term 'Interest Period' is defined in cl 1.1 to mean 'the Month for which Interest is to be calculated and paid'.[85]
[84] Ahmed Affidavit - 21 October 2022, page 54.
[85] Ahmed Affidavit - 21 October 2022, page 19.
Clause 5.7 of the Common Provisions provided:[86]
The Debtor shall pay the Higher Interest Amount for any Interest Period where before the Date for Payment of that Interest Period:
(a)the Debtor has failed to pay any amount due under this Mortgage by the due date for payment; or
(b)the Debtor has failed to comply with any of the Obligations; or
(c)there is an Event of Default.
[86] Ahmed Affidavit - 21 October 2022, page 28.
Oak Capital argued that cl 5.3 obliged Mr Nunis to pay the Higher Interest Amount unless Oak Capital notified that the Lower Interest Amount applied. It said that there was no evidence before the court that such a notice was ever issued. It argued that there was no room for cl 5.7 to operate to increase Mr Nunis's interest rate to the Higher Interest Amount following a default because, as no notice had been issued, he was already obliged to pay that rate by cl 5.3.
Mr Nunis disputed the suggestion that there was no evidence before the court that a notice for the purposes of cl 5.3 and cl 5.4 was ever issued. He referred to two statements made in the Letter of Offer and a loan account statement as evidence of such notice being given.
The version of the Letter of Offer before the court is not signed. For the purposes of the determination of Oak Capital's application for summary judgment, I am prepared to assume that it would have been signed.
The first part of the Letter of Offer that Mr Nunis relies upon is where it states:[87]

Loan in Default

If for whatever reason your loan goes into default, in Oak's absolute discretion, Oak may elect to charge interest at the 'Higher Rate'

[87] Nunis Affidavit - 18 September 2023, page 5.

If this is assumed to be a statement (as Mr Nunis's argument seems to assume), it may immediately be seen that the statement does not refer to either of cl 5.3 and cl 5.4 and does not in its terms suggest that it was a notice given for the purposes of those clauses. It may be accepted, however, that those clauses did not stipulate any particular method for the giving of notice, or any formal requirements for such notice.
In my view, it is therefore necessary to consider the relevant text in the Letter of Offer in context to understand the intent behind it. It seems to me that once this is done, there are at least four textual and contextual indicators that strongly suggest that what was said was not a notice for the purposes of cl 5.3 and cl 5.4.
First, cl 5.3 provides that the Higher Interest Amount applies 'unless the Lender notifies the Debtor that the Lower Interest Amount is payable by the Debtor for any Interest Period'. Thus, the notice required by cl 5.3 was a notice that the Lower Interest Amount is to apply for a particular Interest Period.
What was said regarding the 'Loan in Default' is not expressed as notice to the Debtor regarding a particular Interest Period for which the Lower Interest Amount is to apply. Rather, it says that the Higher Interest Amount will apply if there is a default.
In this sense what is said in the letter addresses the same subject matter as cl 5.7 which also addresses the application of the Higher Interest Amount upon default. It seems to me therefore, that what is said in the letter addresses the same subject matter as cl 5.7, not the notice required by cl 5.3.
Secondly, when the terms of the Letter of Offer are considered it may be seen that what is said in the letter about 'Loan in Default' was not intended as a statement (as Mr Nunis's argument seems to assume) but rather was one of a number of terms and conditions set out in the Letter of Offer to which Mr Nunis was being invited to agree.
The letter is headed 'Formal Letter of Offer for Mortgage Loan'. The letter then states:[88]
Further to your recent application for funds, we are pleased to confirm that Oak is able to offer loan funding on the terms set out below on behalf of the Lender.
The terms and conditions detailed in this formal letter of offer ('formal offer') are not exhaustive and are necessarily general in nature. Any subsequent facility agreement would comprehensively detail the terms and conditions on which a loan facility is offered.
(original emphasis)
[88] Nunis Affidavit - 18 September 2023, page 4.
Immediately beneath this statement, on pages two and three of the letter, is a list of terms and conditions. They include things such as the lender, the borrower, the guarantor, the loan amount, the term and the rate. With regard to the rate, two rates were given. 'Interest - Lower Rate' at 13.99% and 'Interest - Higher Rate' at 28.00%.[89]
[89] Nunis Affidavit - 18 September 2023, page 4.
What is said about the 'Loan in Default' is one of the terms and conditions set out in this part of the Letter of Offer.
The fourth page of the Letter of Offer is titled 'Special Conditions and Requirements'. Requirement A is that all borrowers and guarantors are required to sign the Letter of Offer. Requirement B is that independent legal advice be obtained and formal security documents prepared by Oak Capital's lawyers on terms satisfactory to Oak.[90]
[90] Nunis Affidavit - 18 September 2023, page 6.
On the bottom of the same page appears:[91]
Please confirm your acceptance of the above terms and conditions by signing the Borrower(s) and Guarantor(s) Declarations, Agreement and Direction to Proceed and forwarding a complete copy of this Formal Offer.
[91] Nunis Affidavit - 18 September 2023, page 6.
The sixth page of the Letter of Offer is titled 'Agreement and Direction to Proceed'[92] and includes a number of paragraphs and a place for the borrower and guarantor to sign at the bottom of the page. Each of the paragraphs is an acknowledgement of some type by the borrower and guarantor. Paragraph 1 states that the borrower and guarantor accept the terms and conditions in the offer.[93] Paragraph 2 states that the borrower and guarantor have been afforded the opportunity to negotiate the terms of the offer and obtain independent legal advice before accepting the offer.[94]
[92] Nunis Affidavit - 18 September 2023, page 8.
[93] Nunis Affidavit - 18 September 2023, page 8.
[94] Nunis Affidavit - 18 September 2023, page 8.

Thirdly, the continued relevancy of the terms set out in the Letter of Offer is doubtful given the execution of the subsequent facility agreement ‑ the Mortgage. The comprehensive terms of the Mortgage have superseded the terms set out in the Letter of Offer.
The Letter of Offer anticipated that it would be superseded. As already mentioned, the letter anticipated the execution of a more comprehensive facility agreement. There was also a term of the Letter of Offer that addressed what would constitute the 'Loan Documents'. That term provided that security documents would be prepared by Oak's lawyers which would contain any provisions that Oak reasonably required. It also recorded that the Letter of Offer would not form part of the loan documentation.[95]
[95] Nunis Affidavit - 18 September 2023, page 5.
The dubious continued relevancy of the Letter of Offer can be illustrated by comparing the term in the Letter of Offer about the 'Loan in Default' against the relevant wording ultimately agreed by the parties in cl 5.7 of the Mortgage. Once this is done it may be seen that the two are not entirely consistent. The Letter of Offer provides that if there is a default, Oak may in its absolute discretion, elect to charge interest at the 'Higher Rate'. Clause 5.7, however, does not provide for Oak Capital to have any discretion regarding the application of the Higher Interest Amount. Rather, it provides that the Debtor 'shall' pay the Higher Interest Amount if there is a default.
I have not identified this inconsistency because I consider that it reveals something malign. It seems to me that the preparation of a more comprehensive agreement will typically involve some refinement of the precise terms of the agreement. Rather, I have identified the inconsistency because it seems to me that whatever may have been agreed about the ‘Loan in Default' in the Letter of Offer has been overtaken by the Mortgage rendering the term agreed in the Letter of Offer redundant.
Fourthly, the statement about the 'Loan in Default' in the Letter of Offer pre-dates the execution of the Mortgage. It seems unlikely to me that by asking Mr Nunis to execute the Letter of Offer with a term that addressed what would occur when there was a default, Oak Capital was intending to give a notice for the purposes of a clause in an agreement that had not yet been prepared or executed.
Further, if the parties were proceeding on the basis that a notice had been given before the Mortgage was executed, it might be anticipated that this would have been recorded somewhere in the Mortgage. While the Common Provisions were a standard form document, sch A contained Special Conditions relevant to this particular transaction. Schedule A could have recorded the terms of any notice given. That it did not is telling.
Ultimately, when what is said about 'Loan in Default' is considered in the context of the Letter of Offer as a whole and that letter is considered in the broader context of the transaction concluded, it seems to me that there is no credible argument that what was said in the letter about 'Loan in Default' was notice for the purposes of cl 5.3 and cl 5.4.
Mr Nunis also relied upon a second aspect of the Letter of Offer. That was the following:[96]

Loan Term

(12) Twelve Calendar Month(s) with interest capitalised for (3) Three Calendar Month(s). Thereafter, interest and fees to be paid monthly in advance.

[96] Nunis Affidavit - 18 September 2023, page 4.

Again, like what was said in the letter about the 'Loan in Default', what was said in the Letter of Offer has been superseded by the terms of the Mortgage. Schedule A to the Mortgage included the following: [97]
[97] Ahmed Affidavit - 21 October 2022, page 54.

Retained Interest

$39,032.00 being non-refundable interest has been retained by the Lender(s) and deducted from the Principal Amount to pay towards interest owed by the Debtor to the Lender under this Mortgage.

Early Payment Amount

Notwithstanding any clause to the contrary contained within this Mortgage, the Debtor(s) must pay to the Lender(s) a minimum of 3 months' worth of interest and Loan Management Fees calculated on the Principal Amount during the Term.

It seems to me that there is no credible argument that what was said in the Letter of Offer about 'Loan Term' was notice for the purposes of cl 5.3 and cl 5.4.
Like what was said in the letter about the 'Loan in Default', there is nothing in this text that suggests that it is intended to be notice for the purposes of either cl 5.3 or cl 5.4. Notably, although the text concerning the 'Loan Term' records the capitalization of interest, it does not record the interest rate to be paid.
Like what was said in the letter about the 'Loan in Default', what was said about the 'Loan Term' was set out in a part of the Letter of Offer that set out the terms and conditions that Mr Nunis was being asked to agree to. It was a proposed term, not a statement.
The final document referred to by Mr Nunis was a loan account statement. It was submitted that this revealed that Oak Capital charged the lower rate of interest during the initial three month period when interest was capitalised and the higher rate was only charged after Spiral Wave defaulted.[98]
[98] Defendant's Submissions - 14 September 2023, par 18(b).
There was no evidence given to properly explain the document.
The document seems to record the interest that had already been paid. It does not seem to be a notice regarding the rate of interest to be paid in the future. I did not understand counsel for Mr Nunis to suggest otherwise.
Even if it is accepted that the document reveals that Oak Capital charged the Lower Interest Amount during that initial capitalised three month period, this does not advance matters much. Schedule A to the Mortgage contained an express provision (discussed above) that provided for a fixed sum for the first 3 months' interest. It does not follow from the fact that the parties agreed to calculate the interest for that initial three month period at the Lower Interest Amount, that they agreed to apply that interest for the entire term. Significantly, no such agreement is recorded in the Mortgage.
Moreover, cl 5.3 required notice to be given if the Lower Interest Amount was to apply for a particular Interest Period. Thus, the Mortgage contemplated that different interest rates could apply for different Interest Periods.
It seems to me that there is no credible argument that the loan account statement was notice for the purposes of cl 5.3 and cl 5.4.
Ultimately, therefore it seems to me that none of Mr Nunis's arguments that the documents before the court were notices for the purposes of cl 5.3 and cl 5.4 are credible. In my view Oak Capital's argument that the evidence before the court is that no notice was given must be accepted.
Further, to the extent that Mr Nunis was in truth inviting me to infer from the documents in evidence, that notice was given, I am not prepared to do so. To the extent that Mr Nunis seeks to resist summary judgment on the basis that notice was given to him, as the recipient of the notice and a director of Sprial Wave, he should be able to produce, or at least identify, that notice.
In my view this conclusion is fatal to Mr Nunis's penalty argument. If no notice was given, then Oak Capital's argument that cl 5.7 had no relevant operation must also be accepted. Clause 5.3 obliged Mr Nunis to pay the Higher Interest Amount unless Oak Capital notified that the Lower Interest Amount applied. There was no room for cl 5.7 to operate to increase Mr Nunis's interest rate to the Higher Interest Amount following a default, if he was already obliged to pay the Higher Interest Amount by cl 5.3.

Whether the interest clauses were an 'O'Dea Clause'

Oak Capital also submitted that in any event, as the interest clauses in the Mortgage offer a lower 'concessional' interest rate while there is no default but provided for a higher rate on default, the doctrine of penalties had no application. In my view this submission must also be accepted.
Clauses similar to those under consideration in this case were considered by Fullerton J in Oak Capital. In that case, her Honour concluded that the doctrine of penalties had no application. Her Honour identified that the clauses before her were as follows:
94As noted at [50(1)(d)] above, there are two rates of interest expressly provided for under the loan agreement incorporated into the mortgage, namely the 'Lower Rate of Interest' of 9.95% per annum and the 'Higher Rate of Interest' which is 19.5% per annum. As to the operation of these rates of interest, clause 5.3 of the mortgage common provisions provides:
'The Interest to be paid by the Debtor shall at all times be the Higher Interest Amount unless the Lender notifies the Debtor that the Lower Interest Amount is payable by the Debtor for any Interest Period'.
95Clause 5.4 of that same document stipulates:
'The Lender may notify the Debtor that a Lower Interest Amount is to be paid for any Interest Period and upon the Lender giving that notice the Interest to be paid for that Interest Period shall be that Lower Interest Amount'.
96Schedule A to the mortgage qualifies the operation of these two provisions through the imposition of a special condition. That special condition reads as follows:
'The Lender notifies the Debtor that Clause 5.4 applies whilst ever an Event of Default has not occurred (in the Lender's sole and absolute discretion) whereas clause 5.3 applies at all other times. (Emphasis added.)'
It may be observed that cl 5.3 and cl 5.4 here appear to be in the same terms as those before Fullerton J. It may also be observed that in the case before her Honour, sch A included the requisite notice for the purposes of those clauses. As already discussed, the parties did not record such notice as having been given in sch A. Her Honour's reasons do not reveal whether the agreement before her included a term like cl 5.7.
Her Honour concluded that the interest rate model in question was outside the purview of the penalty doctrine. She said:
106 In any event, it would appear that the interest rate model incorporated in the loan agreement is outside the purview of the penalty doctrine. Under the agreement, the default or Higher Interest Rate was the standard rate applicable under the loan and the Lower Interest Rate only applied if notice was given by the plaintiff, with notice deemed to have been given where there was no default. Accordingly, in a technical sense, the differential interest structure does not operate to penalise the borrower for breach but rather provides for a 'concessional' lower rate whilst ever there has been no default. As noted in Kowalczuk v Accom Finance (2008) 77 NSWLR 205; [2008] NSWCA 343 (Campbell JA, Hodgson and McColl JJA agreeing):
'[162]…There is a conventional view that a properly drafted mortgage containing higher and lower rates does not attract the law of penalties at all. That is because the law of penalties strikes down those provisions of a contract that state the consequences that will flow when there is a breach of contract, if those consequences are not a genuine pre-estimate of the damage likely to be suffered in consequence of that breach. If the mortgage is drafted so that the borrower agrees to pay a particular rate of interest, but the lender agrees to accept a lower rate of interest in full satisfaction of the borrower's obligation to pay interest at that particular rate provided that the lower rate of interest is paid timeously (and, sometimes, provided that there is no breach of any other provision of the mortgage) that provision is not one that states the consequences of a breach of contract, and hence the law of penalties does not apply to it'.
107Further, as noted by counsel for the plaintiff, a clause similar to that contained in the mortgage and memorandum was the subject of consideration by Campbell J (as his Honour then was) in the decision of King Investment Solutions Pty Limited v Hussain (2005) 64 NSWLR 441; [2005] NSWSC 1076. His Honour held that such a clause fell outside the ambit of the doctrine:
[138]One requirement for a provision in a contract being a penalty is that it states a consequence which is agreed to follow from breach of one of the provisions of the contract. The structure of the interest clause in the present case is not like that. Rather, the interest clause in the contract involves a promise by the mortgagors to pay interest at 118.8%, and a promise by the mortgagee that, if the mortgagors pay the interest on time, or no more than 7 days late, the mortgage will accept interest at 60%. A clause structured in that way is not regarded as a penalty. (Emphasis added.)
108The submission that the Higher Interest Rate amounted to an unlawful contractual penalty is rejected.
(emphasis added)
At the hearing of the appeal, counsel for Mr Nunis submitted that the Special Condition before Fullerton J was couched in the negative. It was said that the terms of the Letter of Offer provide that the higher rate of interest will apply if an event of default has occurred.[99]
[99] ts 27.
As the Letter of Offer did not form part of the Mortgage and was superseded by the Mortgage, in my view what was said in that letter is irrelevant. I will assume, however, (to the benefit of Mr Nunis) that counsel was intending to refer to cl 5.7 of the Mortgage, not the Letter of Offer.
Counsel for Mr Nunis's submission about Fullerton J's decision in Oak Capital suggests that her Honour's decision turned upon the operation of the Special Condition in sch A. It seems to me, however, that her Honour's conclusion also rested upon the effect of cl 5.3 and cl 5.4. Her honour observed that:
(a)under the agreement, the default or higher interest rate was the standard rate applicable under the loan and the lower interest rate only applied if notice was given by the plaintiff, with notice deemed to have been given where there was no default; and
(b)in a technical sense, the differential interest structure does not operate to penalise the borrower for breach but rather provides for a 'concessional' lower rate whilst ever there has been no default.[100]
[100] Oak Capital [106].
Like the matter before her Honour, cl 5.3 and cl 5.4 of the Mortgage provide that the default interest rate was the Higher Interest Amount and the Lower Interest Amount only applies if notice was given by Oak Capital. Thus, the interest structure provides for a 'concessional' lower rate where notice is given.
If Mr Nunis was enjoying the concessional Lower Interest Amount and he failed to pay an amount due on time, failed to comply with his Obligations, or there was an event of default, cl 5.7 would have had the effect of causing the rate to revert to the default Higher Interest Amount. It seems to me the result would be to return Mr Nunis to the position that would otherwise apply, namely he would be obliged to pay the Higher Interest Amount.
Thus, although it is unclear whether Fullerton J had before her a clause like cl 5.7 and it is undoubtedly the case that sch A to the Mortgage lacked a term like that before Fullerton J, in my view, Fullerton J's conclusion applies equally in this case. It seems to me that the interest structure does not operate to penalise the borrower for breach but rather provides for a 'concessional' lower rate whilst there has been no default. In my view, the penalty doctrine has no application to the interest clauses in the Mortgage.

Mr Nunis's penalty argument

Further, in my view, the argument advanced by Mr Nunis that cl 5.7 was a penalty did not rise much higher than bald assertion.
Mr Nunis's argument relied heavily on Dunlop as authority for the proposition there is a presumption that a contractual sum is a penalty if it is a single sum made payable on the occurrence of one or more of several events, some of which may occasion serious, and others only inconsequential, damage.[101] It was said that this decision was approved by the High Court in Paciocco.[102]
[101] Defendant's Submissions - 14 September 2023, par 26.
[102] Paciocco [36] (Kiefel CJ), [148] (Gageler J), [265] (Keane J), [317], [339] and [345] (Nettle J).
Mr Nunis submitted that such a presumption arose in this case because under the terms of the Mortgage, the higher rate of interest is imposed in a broad range of events, some of which could occasion serious loss, but many of which may occasion no loss whatsoever.[103] It was contended that Oak Capital had failed to lead evidence to 'rebut the presumption'.[104]
[103] Defendant's Submissions - 14 September 2023, pars 29 - 30.
[104] Defendant's Submissions - 14 September 2023, par 32.
In referring to Paciocco, reference was made to amongst other judgments, the judgment of Gagelar J. In that case he observed:
148The statement that a stipulated amount 'will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach' harked back to Lord Kyllachy's statement of principle in Clydebank. The statement that a stipulated amount 'will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid', was explained to be 'truly a corollary to the last test'. And the statement that a stipulated amount is a penalty 'when "a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage''', was explained to be 'a presumption (but no more)'.
149The words 'test' and 'presumption' were evidently used to mean 'indicia'. They were not used to import either a legal criterion or a shift in the evidentiary or persuasive onus.
(footnotes omitted)
In my view, even if it is accepted that there were differential consequences of breach as argued by Mr Nunis, that was only a single indicia that the clause might be a penalty. This consideration was not conclusive and did not shift the evidentiary or persuasive onus. At the hearing of the appeal, counsel for Mr Nunis properly accepted as much.[105]
[105] ts 30.
In Oak Capital, after referring to the decisions of the High Court in Andrews and Paciocco and Banks-Smith J in Quantum Asset Management, Fullerton J made the following observations about the penalty argument before her:
102As noted above, the defendants as the parties seeking to be absolved of the liability imposed by the contractual stipulation as to interest, bear the onus of proving that the stipulation amounts to a penalty (see also Paciocco at [167]).
103I am not persuaded that the defendants have discharged that burden. In support of the submission that the Higher Interest Rate amounted to a contractual penalty, counsel for the defendants referred to Andrews but without elaboration. That case does not advance the defendants' case in any meaningful way. Andrews concerned an appeal from a Federal Court decision, in which the Federal Court found that a number of fees charged by ANZ were incapable of being characterised as a penalty as they were not payable upon a breach of contract. The High Court in Andrews unanimously overturned that decision, finding that the rule of penalties is not limited to breaches of contract. As expressed by McDougall J at [73] in Arab Bank Australia Ltd v Sayde Developments Pty Ltd (2016) 23 NSWLR 231; [2016] NSWCA 328, 'the real point of the decision in Andrews was to identify that the equitable jurisdiction to relieve against penalties remained alive and well'. That proposition bears little significance to the defendants' case.
104Beyond the asserted reliance upon Andrews, nothing further was advanced by the defendants' counsel. No evidence was led to address whether the interest rate was commensurate with the interest protected by the bargain. In order to make such an assessment, I would require evidence of the value of the interest the plaintiff sought to protect through the imposition of the impugned provision and there was no evidence adduced permitting that assessment to be made.
105Further, the defendants have failed to demonstrate that the Higher Interest Rate was inserted into the loan agreement as a 'threat' or for the purpose of 'punishing' Beachview as a borrower in default (see Paciocco at [17]). Equally, nothing has been proffered to support the proposition that the Higher Interest Rate of 19.5% per annum is 'extravagant and unconscionable' (see Pacioccoat [51]).

In my view, the position before her Honour bears some similarity to the position before me.
The argument made by Mr Nunis focused on establishing that there was a presumption that arose and then reliance was placed on Oak Capital's supposed failure to 'rebut' that presumption. There was little further analysis beyond that point. The little textual analysis of cl 5 undertaken by Mr Nunis failed to engage with cl 5.3 and cl 5.4.
There is no satisfactory evidence put before me by Mr Nunis (or Oak Capital) to permit to conclude that there is a plausible contention that the higher interest rate was a 'threat' or for the purpose of 'punishing' or that the rate was 'extravagant and unconscionable' because it was out of proportion to the interest to be protected.

Conclusion

For all of these reasons, I consider that the defences asserted by Mr Nunis do not have sufficient merit to warrant a trial. I will grant Oak Captial's application for summary judgment.
I will hear from the parties on the question of costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
FN
Associate to Judge Palmer
26 SEPTEMBER 2023

Retained Interest	$39,032.00 being non-refundable interest has been retained by the Lender(s) and deducted from the Principal Amount to pay towards interest owed by the Debtor to the Lender under this Mortgage.
Early Payment Amount	Notwithstanding any clause to the contrary contained within this Mortgage, the Debtor(s) must pay to the Lender(s) a minimum of 3 months' worth of interest and Loan Management Fees calculated on the Principal Amount during the Term.