Pertsinidis v Australian Central Credit Union Ltd No. Scgrg-97-501 Judgment No. S6996

[1998] SASC 6996

PERTSINIDIS v AUSTRALIAN CENTRAL CREDIT UNION LIMITED

[1998] SASC 6996

1 WICKS J                  This is an appeal from an order of a Master of this Court made 28 August 1998 in which the learned Master ordered that the defendants (appellants) give up possession to the plaintiff within 28 days of the service of a copy of the order upon them of the land described in Memorandum of Mortgage Register No 7256864 being the premises situated at 1275 Greenhill Road, Carey Gully and being the whole of the land comprised and described in Certificate of Title Register Book Volume 5176 Folio 131 (formerly Volume 3333 Folio 98).  The Master also made various consequential orders.

2 In the action Australian Central Credit Union Limited was plaintiff and Mr and Mrs Pertsinidis were defendants.
3 The following is a statement of the material facts and findings in the matter taken from the reasons for judgment of the learned Master leading to the order under appeal:
"                 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 [the plaintiff] will lend to the Borrower [the defendants] 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 [the Loan Contract dated 4 February 1992] 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 [the Loan Contract dated 4 February 1992]; 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

1. 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 [the Loan Contract dated 4 February 1992].

2.2    as at 4 February 1997 the defendants were not in default to the plaintiff pursuant to the terms of the loan [the Loan Contract dated 4 February 1992] 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."

4 The learned Master quoted a passage from Contract Law in Australia, 3rd Edition, Carter and Harland where the authors 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 commonsense 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."

6 In the last quoted paragraph of the learned Master’s reasons, he refers to the period of the loan as being set out in Item D of the loan contract.  I have been unable to find any such reference in Item D or elsewhere in clause 1 of the loan contract.  As it appears that there is no reference to the term of the loan in the loan contract, that fact would appear to strengthen the plaintiff’s case.
7 I now turn to the proviso to clause 1 of the loan contract.
8 The first part of the proviso reads:
"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"

9 To my mind, those words import a wide discretion in the plaintiff to increase or reduce the rate of interest.  There are no legal restraints on that power, but clearly, as the plaintiff works in a competitive industry, it will be restrained either way in which it exercises the power and will need to have regard to the forces applying within the market place.
10 The proviso proceeds to deal with the circumstances under which the periodic instalments referred to in Item D may be varied.  There appear to be two criteria.  A variation in the periodic instalments can only be made "if necessary" but may be made in the absolute and unfettered discretion of the plaintiff.  The full text is as follows:
"... 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."

I have difficulty with the words "if necessary".  They invite the question of "necessary from whose point of view?"  The expression "if necessary" is vague and is negated by what follows.
11 The word "accordingly" conveys the notion that if the interest rate is varied, there is to be a corresponding variation in the periodic instalments referred to in Item D.  However, this part of the proviso contains the words "and in the absolute and unfettered discretion of the Credit Union vary the amount of the periodic instalments referred to in paragraph D hereof accordingly."  These words seem to me to suggest that if the interest rate is varied the plaintiff is not obliged to do anything about a variation in the periodic instalments.  If, however, the plaintiff decides to make a variation in the periodic instalments, it cannot make any variation it likes but is bound to make a variation in the periodic instalments corresponding to the variation in interest rate that is what the word "accordingly" denotes.
12 There is no reference in paragraph 1 of the loan contract to the loan being for a term of 20 years although if one takes the amount of the loan referred to in Item B, the rate of interest referred to in Item C and monthly instalments of the amount referred to in Item D, I am told that these factors will together relate to the loan having a term of 20 years.  However, there is nothing in the loan contract which would suggest that the loan must be for such a period.  There may have been representations by the plaintiff to that effect, but that is another matter.
13 If interest rates had risen, after the making of the loan, it may well have been necessary for the plaintiff to revise the monthly payments upward to ensure that the loan did not remain outstanding for a period in excess of 20 years.  I can understand that in a climate where interest rates are falling, the plaintiff would have less incentive to vary the monthly repayments. 
14 The appellant contended that every contract is to be construed with reference to its objects and the whole of its terms.  It was contended that taking the loan contract as a whole, it was clear that it was not a contract where the loan was to be repaid on demand or conditionally upon an event bound to happen.  It was suggested that this led to the inevitable conclusion that the principal sum must be repayable at a fixed or determinable future time and that that time in this case was 20 years.  I do not accept that contention.  There was no ambiguity about any factor in relation to the loan.  The principal amount lent was clearly stated.  The interest rate was specified but made variable from time to time at the option of the plaintiff.  The monthly repayments are clear.  There is no difficulty with the monthly repayments which, if maintained, will enable the loan and interest to be paid in full over time, which may not necessarily be a 20 year period. 
15 The amount which the defendants have to pay and the interest rate applicable from time to time is clear.  There is no ambiguity.
16 In my opinion the plaintiff’s contention is correct.
17 I would dismiss the appeal.