Parker v Hammer
[2014] VSC 387
•22 August 2014
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
S CI 2013 02847
| HARVEY PARKER | Plaintiff |
| - v - | |
| DAVID HAMMER | First Defendant |
| - and - | |
| EVA KARPATI (also known as EVA KARPARTY) | Second Defendant |
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JUDGE: | DALY AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 4 June 2014 |
DATE OF JUDGMENT: | 22 August 2014 |
CASE MAY BE CITED AS: | Parker v Hammer and Anor |
MEDIUM NEUTRAL CITATION: | [2014] VSC 387 |
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MORTGAGES OF LAND – Statutory construction – Section 56(2) of the Republic of Vanuatu Land Leases Act 1989 – Section permits charging of higher interest upon payments of interest due under the mortgage at a higher rate than the “appointed rate”, but at a rate no higher than 3 per cent greater than the appointed rate – Applicability of section 56(2) to rates charged upon unpaid principal outstanding at the end of the loan term.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr J.L. Evans | Doherty & Colleagues |
| For the Defendants | Mr A. Meagher | Tisher Liner FC Law |
HER HONOUR:
In or about January 2008 the plaintiff, Mr Harvey Parker, lent the defendants, Mr David Hammer and Ms Eva Karpati, the sum of $255,000 for the purposes of providing vendor financing for the purchase of an apartment on Iririki Island, located just off Port Vila in Vanuatu. The apartment was sold pursuant to a contract of sale between the defendants and Iririki Holdings Pty Ltd, which held the apartment on trust for Mr Parker.
The loan from the plaintiff to the defendants was secured by a mortgage over the apartment dated 6 February 2008 (“Mortgage”). The terms of the Mortgage provided for the loan funds to be advanced for a period of three years. No interest was payable upon the funds advanced during the term of the loan, but the terms of the Mortgage provided for an interest rate of 15 per cent per annum to be payable upon any outstanding amount payable under the Mortgage after the expiry of the three year term of the loan, which commenced on the date of the settlement of the contract of sale of the apartment, being 29 February 2008.
The funds secured by the Mortgage were not repaid at the expiry of the three year term, being 1 March 2011. A letter of demand was served on or about 30 December 2011, and this proceeding was issued on 4 June 2013. Judgment was entered against the defendants for the principal sum secured by the mortgage on 12 February 2014 after the plaintiff was substantially successful in a summary judgment application before Lansdowne AsJ. However, the issue of the quantum of interest entitled to be claimed by the plaintiff upon the principal sum owing under the Mortgage remained at large.
In his statement of claim, the plaintiff claimed, in the prayer for relief:
Interest at 15% p.a. pursuant to the Mortgage, alternatively interest pursuant to statute.
The sole issue in this proceeding is whether the terms of the Mortgage providing for the charging of interest at 15 per cent upon the outstanding balance of the funds advanced after the expiry of the three year term of the Mortgage contravened s 56(2) of the Land Leases Act 1989 (“Act”) in force in the Republic of Vanuatu at all relevant times. The application of the provisions of the Act to the Mortgage was not a matter of dispute, and the relevant provisions of the Act were in evidence. However, it is clear from the terms of clause 11 of the Mortgage that the plaintiff is entitled to bring proceedings in any jurisdiction to enforce the terms of the Mortgage, and indeed, no issue regarding the appropriateness of this Court to determine this proceeding appears to have ever been raised.
The Second Schedule of the Mortgage, headed “Terms and Conditions of Loan”, provides, relevantly, as follows:
1.
Principal Sum:
AUD255,000.00
2.
Term:
3 Years
3.
Commencement Date:
Upon date of settlement of the purchase of Apartment 119/219 by the Mortgagor (settlement date) as set out in the Contract for Sale entered into by the Mortgagor and Iririki Island Holdings Limited dated _________ .
4.
Interest:
Nil
5.
Date of Repayment:
By one payment of AUD255,000.00 on the date three years from the Commencement Date referred to above.
6.
Penalty:
Interest at the rate of 15% per annum shall apply to any outstanding monies unpaid as from the date of repayment set out in 5. above.
7.
Security:
Second Mortgage over Title herein.
Section 56(2) of the Act provides, relevantly, as follows:
A mortgage may provide for the payment of interest at a higher rate than that appointed if the interest at the appointed rate is not paid within a specified period after the same shall become due; but so that the higher rate shall not exceed the appointed rate by more than 3 per centum per annum.
The Act does not include any definition of the “appointed rate” of interest, but common sense dictates that it must be the rate of interest charged on the outstanding balance of the funds advanced and secured by the mortgage.
Counsel for the plaintiff submitted that the limitation in s 56(2) of the Act does not apply to the Mortgage, in that there is no relevant interest rate appointed by the Mortgage, and no payments of interest charges required by the Mortgage to which the terms of s 56(2) could apply. That is, there is no date upon which interest becomes due. The plaintiff’s claim for interest is based upon non‑payment of principal after the expiry of the term of the Mortgage, not a claim for non‑payment of interest during the term of the Mortgage. Counsel for the plaintiff submitted that an interpretation of s 56(2) of the Act which restricted the plaintiff to claiming interest at 3 per cent per annum would lead to an absurd result, in that it means that a party which made an interest free loan for a fixed term could never recover interest upon any unpaid principal at a rate greater than 3 per cent per annum. Counsel submitted that reading clause 56(2) in the context of the authorities regarding the charging of higher rates of interest upon payments in arrears[1] demonstrates that the purpose of s 56(2) was to permit the charging of “penalty” interest by lenders, but circumscribing the permissible differential between the usual rate of interest and the amount chargeable upon arrears of interest. Counsel for the plaintiff submitted that the legislature could not have intended that lenders who made interest free or low interest loan could be precluded from recovering a commercial rate of return on any unpaid principal.
[1]See, for example, Kellas-Sharpe v PSAL Ltd [2012] QCA 371, which affirmed the rule that in finance contracts there is no penalty where it is agreed to charge a reduced rate of interest where repayments are made punctually, despite the Court recognising that drafting loan contracts in such a way might contradict equity’s preference for substance over form.
In response, counsel for the defendants submitted that it is clear from the terms of the Mortgage that the appointed rate of interest was nil, but that in the event that any interest remained unpaid, which occurred in the current case, there is a limitation on the higher rate that can be claimed of 3 per cent per annum. Further, counsel for the defendants submitted that there was nothing in the language of s 56(2) which limited its operation to defaults which occur during the term of the relevant loan. Accordingly, the clause in the Mortgage providing for the payment of interest at 15 per cent per annum should be severed, and that the interest payable to the plaintiff should be limited to an amount calculated on the basis of 3 per cent per annum until the date of judgment, and interest pursuant to the Supreme Court Act 1986 (Vic) thereafter.
Finally, counsel for the plaintiff submitted that, in the event that his submissions regarding the inapplicability of clause 56(2) of the Act did not find favour with the Court, then the plaintiff claimed interest upon the principal sum at the rate prescribed under ss 58 and 60 of the Supreme Court Act 1986 (Vic) from the date the three year term of the Mortgage expired, that is, from March 2011.
As might be expected, neither counsel was able to refer to any authority which has considered the interpretation and operation of s 56(2) of the Act. So, what is before the Court is a task of statutory construction. No argument was advanced before me that the charging of interest at 15 per cent on the outstanding balance of the loan was an unlawful penalty.
There is no evidence before me regarding the existence or otherwise of an equivalent to the Interpretation of Legislation Act 1984 (Vic) in the Republic of Vanuatu or the common law principles of statutory construction applicable in Vanuatu. Accordingly, the common law rules governing the interpretation of statutes in Victoria are deemed to apply to the construction of foreign statutes.
While there have been some modifications to the “literal” approach to statutory construction traditionally propounded by the common law,[2] there can be no dispute that the starting point in any exercise of statutory construction must commence with an examination of the language of the statute itself.
[2]See, for example, Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355.
In my view, based upon the plain and unambiguous words of the statute, the provisions of s 56(2) of the Act do not apply to prohibit the charging of interest at 15 per cent upon the unpaid balance of principal after the term of the loan has expired. This is because the prohibition upon charging excess interest does not apply to any default under the relevant mortgage, but rather is limited to defaults involving the non‑payment of interest charges due under the terms of the mortgage. In the current case, no interest payments were due at all.
Reading the plain language of the statute, the prohibition is clearly intended to apply to the amount of interest charged upon payments of interest which are in default, and not the outstanding principal sum. One can see how, in commercial lending practice, such a provision might be difficult to apply to loans involving regular repayments of both principal and interest, but such issues do not detract from the plain meaning of the statute in the absence of any ambiguity in the language of the statute, or any absurd or perverse result arising out of the application of the plain, ordinary meaning of the words used in the statute. In any event, no such impracticalities arise in the current case. At first glance there appears to be no reason in principle why the legislature, if it wished to impose some limitation upon the rates of penalty interest charged by mortgagees, should not extend that prohibition to all defaults, not just defaults in the payment of amounts due of interest. However, the legislature clearly must have intended such a limitation, there being no ambiguity in the language of the statute.
In any event, to the extent that the purpose of the Act is discernible from the provisions of the Act viewed as a whole, and is relevant to the exercise of statutory construction in the current case, the text of s 56(2), and the result of its application, do not appear to be inconsistent with the purpose of the Act. The preamble to the Act states:
To provide for the creation and disposition of leases of land, for their registration and for matters connected therewith.
The Act as a whole is concerned with the establishment and regulation of a Torrens type system of land registration. The preamble to the Act, and the other provisions of the Act do not cast any light upon any particular purpose of the Act which is inconsistent with the construction of s 56(2) of the Act advanced by the plaintiff and accepted by me. Indeed, the terms of s 56(1)(a) of the Act state:
There shall be implied in every mortgage unless the contrary is expressed therein, on the part of the mortgagor, the following obligations –
(a) to pay to the mortgagee the principal sum secured, and interest (if any) thereon, at the appointed time and rate.
This is certainly not inconsistent with the preferred construction of s 56(2). Indeed, it contemplates that interest free advances may be made, and, unsurprisingly, imposes an express obligation upon a mortgagor to repay the principal sum upon a due date. However, s 56(2), which is in turn permissive (in that it permits the charging of higher interest upon interest charges due which are in arrears) and restrictive (in imposing a limit upon the differential between the higher rate and the appointed rate), simply makes no reference to any interest chargeable upon unpaid balances of principal. Given the express reference to and obligations imposed with respect to the principal seen in the preceding subsection, the failure of s 56(2) of the Act to make any reference to interest which might be charged upon outstanding principal must have been deliberate.
Accordingly, I shall give judgment in the terms sought by the plaintiff.
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