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Allen v G Developments Pty Ltd QCA 287
SUPREME COURT OF QUEENSLAND
Allen v G Developments Pty Ltd & Anor  QCA 287
JOHN ALLEN (AS TRUSTEE FOR THE BUNDAMBA TRUST)
G DEVELOPMENTS PTY LTD
ACN 116 332 220
GARRICK GRAHAME BULL
RICHARD JAMES GARNER
ALEXANDER SCOTT HAGAN
Appeal No 6416 of 2019
Court of Appeal
General Civil Appeal
Supreme Court at Brisbane –  QSC 107 (Bradley J)
6 December 2019
29 October 2019
Morrison and Philippides JJA and Mullins AJA
CONTRACTS – GENERAL CONTRACTUAL PRINCIPLES – CONSTRUCTION AND INTERPRETATION OF CONTRACTS – INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS – where the appellant loaned $1 million to the respondent pursuant to a loan deed to enable the respondent to complete the purchase and development of land – where the loan deed embodied a transaction between commercial parties – where the loan deed contained an express covenant in clause 4(a) by the borrower to pay interest of 25 per cent per annum payable on the expiration of the minimum period, which was the earlier of one year after the date of drawdown or project completion date – where the loan deed allowed for the variation of the rate of interest after the expiration of the minimum period – where the principal was repayable on or before the first anniversary of the drawdown of the loan – where the appellant asserted that clause 4(a) should be construed as providing for interest to continue to accrue if default were made in repayment of the principal – where the respondent asserted that clause 4(a) provided for the maximum interest payable under the loan to be $250,000, irrespective of when the principal was repaid – where the loan deed must be construed as a whole and to avoid commercial nonsense – where clause 4(a) should be construed as incorporating an express obligation to pay interest after the first year of the loan when default was made in repayment of the principal
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640;  HCA 7, cited
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104;  HCA 37, considered
S J Lee with J J T Dudley for the appellant
M D Martin QC, with P G Jeffery, for the first and second respondents
HWL Ebsworth Lawyers for the appellant
Evans Lawyers for the first and second respondents
- MORRISON JA: I have read the reasons of Mullins AJA and agree with those reasons and the orders her Honour proposes.
- PHILIPPIDES JA: I agree with Mullins AJA.
- MULLINS AJA: Mr Allen who was the plaintiff at first instance appeals against the decision of the learned primary judge on the construction of the loan deed dated 20 January 2010 between Mr Allen as trustee of the Bundamba Trust as the lender and Radical Developments Pty Ltd and the first respondent G Developments Pty Ltd as the borrower: Allen v G Developments Pty Ltd  QSC 107 (the reasons). Mr Allen appeals specifically against the dismissal of the proceeding and the order that he pay the first respondent’s costs and the costs of Mr Bull (the second respondent) of the claim against them, on and from 18 August 2018, to be assessed on the standard basis. In lieu of those orders, Mr Allen seeks the following orders:
- the first and second respondents pay the appellant the sum of $2,132,344.42 plus ongoing interest on $709,327.98 calculated at 25% per annum from and including 30 October 2019 until the Court of Appeal’s judgment, or $485.84 per day;
- the first and second respondents pay the costs of the appellant of and incidental to the proceedings below on and from 18 August 2018, to be assessed on the standard basis;
- the first and second respondents pay the costs of the appellant of and incidental to this appeal;
- the sum of $89,049.99 which was paid to the appellant on or about 17 May 2019 be set off against the total amount due to the appellant pursuant to sub paragraphs a, b and c above.
- The primary judge ordered the first and second respondents to pay Mr Allen’s costs of his claim against them up to and including 17 August 2018, to be assessed on the standard basis, and there is no appeal against that order.
The loan deed
- The background to the making of the loan is set out at - of the reasons:
“ The first defendant G Developments Pty Ltd is part of a group of companies involved in the building of residential development projects. From its incorporation in 2005, the second defendant Garrick Grahame Bull has been the sole director.
 Since 12 January 2006, G Developments has held a licence in the class Builder – Low Rise issued under the Queensland Building and Construction Commission Act 1991 (Qld). In that period, it has undertaken 1,466 residential construction jobs, with a total value over $334 million. There are no conditions on its licence. It has not been the subject of any tribunal direction orders, disciplinary action or orders, recorded convictions, exclusions, bans, disqualifications, infringement notices or demerit points. It has received two directions to rectify structural work. It has complied with each.
 On 15 May 2009, G Developments entered into a written contract to purchase land at 10 Creek Street, Bundamba. The land was considered a potential development site, suitable for the construction of 20 strata title units. The contract specified a purchase price of $1,050,000, and was subject to finance.
 Between 15 May 2009 and early January 2010, G Developments was unable to obtain finance to complete the purchase of the land. Over that period, G Developments paid deposits totalling $80,000 to the seller and, it appears, the purchase price was adjusted by agreement to become $1.07 million.
 In early 2010, Mr Bull approached the third defendant Richard James Garner about arranging funding for the land purchase and also for the associated development project. At the time Mr Garner was a finance broker and property marketer, with experience in sourcing funds for projects like that proposed for the Bundamba land.
 On 14 January 2010, Radical Developments Pty Ltd was incorporated, with Mr Garner, the fourth defendant Alexander Scott Hagan, and the fifth defendant Dalibor Stevanovic as its directors. Mr Garner and Mr Stevanovic each held 50 ordinary shares and Mr Hagan held 33 ordinary shares in the company.
 Also on 14 January 2010, G Developments and Radical Developments ‘agreed to subscribe to interests in a joint venture in relation to the development, management and operation’ of the project for the Bundamba land. The two companies entered into a written joint venture agreement dated 14 January 2010 to ‘record the nature of their relationship, rights and obligations.’
 By the joint venture agreement, G Developments and Radical Developments agreed to cause to be advanced ‘all moneys required to establish the Project, estimated at $1,100,000’, which approximated the balance purchase price and associated settlement costs; and to ‘jointly seek funding on behalf of the venture in the sum of $3,600,000’, the then estimated cost of developing the project. No fee was to be charged by either joint venturer for any services rendered to the project, unless mutually agreed. G Developments was appointed the ‘Project Manager.’
 Mr Bull’s evidence, which was not contested, is that: the contribution to the project by Radical Developments and its directors was to comprise sourcing the funding to complete the purchase of the land, organising construction funding, and selling the units in the project; and G Developments’ contribution was to be organising the sub-division of the land and building the units.
 On about 20 January 2010, the plaintiff John Allen loaned $1 million to Radical Developments and G Developments. According to Mr Bull, whose evidence I accept in this respect, Mr Garner had arranged the loan from Mr Allen.
 Mr Allen drew the loan money from funds he held as trustee of the Bundamba Trust. The Bundamba Trust is a unit trust governed by a deed made on 15 January 2010, the day after Radical Developments was incorporated and the joint venture agreement was signed.” (footnote omitted)
- Radical Developments was deregistered on 8 June 2014 and therefore can be ignored for the purpose of the appeal. The second respondent is one of the guarantors under the loan deed. The purpose of the loan set out in recital A of the loan deed was to enable the borrower to complete the purchase and/or development of identified land at Bundamba.
- The relevant provisions of the loan deed are set out at  of the reasons. Clause 4 of the loan deed deals with interest:
“(a) 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’) at the fixed rate namely the rate referred to in Item 5 of the Schedule (hereinafter called ‘the fixed rate’).
- (b)The parties further agree if the Secured Monies is repaid at any time prior to the first anniversary date of the initial drawdown, a minimum payment of twenty-five percent of the loan amount is payable as interest. The parties agree that the total payment incorporates a penalty amount in compensation for the opportunity costs of the lenders entering into this agreement and is fair and reasonable in the circumstances.
- (c)At the expiration of the period referred to in Item 6 of the Schedule (hereinafter called ‘the minimum period’) the Lender may at its discretion at any time and from time to time thereafter give notice in writing to the Borrower varying the rates of interest payable hereunder and may in such notice prescribe a new rate. The new rate of interest so prescribed shall become effective from the date of the notice and thereupon the Borrower shall be liable under the covenants to pay interest at the new rate and this Deed shall be deemed to be varied accordingly.”
- Clause 5 of the loan deed deals with repayments:
“(a) The Borrower covenants that the Borrower will repay the Loan Amount and any other monies owing to the Lender pursuant to the provisions hereof on or before the date referred to in Item 7 of the Schedule (hereinafter called ‘the repayment date’)
- (b)The Borrower further covenants that the Borrower will repay the Principal Sum forthwith upon written demand being made at any time after the happening of any of the following events:
- (i)Default being made by the Borrower in the due or punctual payment of any monies which comprise part of the secured monies or in the due or punctual observance or performance of any other obligation on the part of the Borrower under this Deed:
[Other events of default which do not affect the construction of the loan deed are then listed]
- (c)It is hereby agreed and declared that all monies received by the Lender in reduction of the secured monies shall be applied by the Lender firstly in reduction of any interest due but unpaid and secondly in reduction of the remainder of the secured monies”
- The only other provision of the loan deed that contains a covenant by the borrower to make certain payments of costs and expenses is clause 6:
“The Borrower covenants to pay all costs, charges and expenses including legal and other professional fees, stamp duty and registration fees paid or payable by the Lender for or in relation to the preparation execution stamping and registration of this Deed or the obtaining of any advice which the Lender reasonably requires in consequence of the happening of any of the events referred to in Clause 5(b) hereof, the exercise or attempted exercise of any of the rights powers and privileges of the Lender hereunder.”
- The term “Principal Sum” is defined in clause 1(b) of the loan deed to mean “in relation to any day, the difference between the total of all amounts which have been lent by the Lender to the Borrower pursuant to Clause 3 hereof as at 5:00pm on that day and the total of all amounts which have been repaid by the Borrower to the Lender hereunder as at 5:00pm on that day”. The term “Secured Monies” is defined in clause 1(c) of the loan deed to mean “all monies which are or which hereafter may become owing or payable by the Borrower to the Lender or under or pursuant to this Deed”. These definitions are specified to apply “unless contrary intention appears”.
- The schedule to the loan deed sets out the “Items” that are referred to in the loan deed. Item 8 which is referred to in clause 4(a) and has the description “THE MONTHLY INSTALMENT” reads “NIL”. Item 3 purports to be “THE DATE OF FIRST REPAYMENT” and is incomplete, as it specifies “ day of 2011 or date of practical completion of project whichever is earlier”, but there is also no reference to Item 3 in the clauses of the loan deed.
- The subject matter of Item 5 is “THE FIXED RATE” and it specifies:
“Twenty five percent (25% per annum) with a minimum payment of 25% of the loan amount if the loan amount is paid back within 365 days.”
- Item 6 deals with “THE MINIMUM PERIOD” and specifies “One year or project completion date whichever is earlier”.
- Item 7 contains “THE REPAYMENT DATE” and the date of “20th day of January 2011” is inserted.
The primary judge’s construction of clause 4(a)
- The primary judge referred at  of the reasons to the general rule at common law that “interest is not payable on a debt or a loan in the absence of express agreement or some course of dealing or custom to that effect” which is referred to in F A Pidgeon & Son Pty Ltd v Daneshurst Investments Pty Ltd  1 Qd R 448, 451. The primary judge then set out the basic elements of an agreement to pay interest at  of the reasons:
“There are four basic elements of an agreement to pay interest: first, the agreement that interest will accrue on the principal sum advanced; second, the rate at which the interest is to be calculated; third, the rests at which the interest is to accrue; and finally, the date(s) on which the accrued interest is to be paid.” (footnote omitted)
- The primary judge noted at  of the reasons that, if the cross reference to Item 8 in clause 4(a) was an error, it was not of any significance, and then stated:
“The parties described the relevant date expressly in cl 4(a) as ‘one year from the date of drawdown or project completion whichever is earlier’. It follows that G Development’s obligation to pay interest at the agreed rate was to be performed one year from the drawdown date or on project completion, if that occurred before the one year period elapsed.”
- As there were no specified rests at which interest was accrued, the primary judge noted at  of the reasons “that the agreement appears to be for simple interest on the amount outstanding at the 25 per cent per annum rate calculated to the date of first repayment (which is also the due date)”, and referred to the authorities set out in El Khoury v Harsany  NSWSC 1774 at - for the proposition that a contractual provision which prescribes interest payable at a particular percentage rate per annum imposes an obligation to pay simple interest.
- The primary judge noted at  of the reasons the effect of the first sentence of clause 4(b) as:
“By this clause, the parties expressly contemplate that the Secured Monies might be repaid by G Developments within one year (i.e. ‘prior to the first anniversary date of the initial drawdown’). They agreed that, if this were to occur – whether because drawdown of the loan occurs after 20 January 2010 or because the project is completed before 20 January 2011 –then G Developments would make ‘a minimum payment of twenty-five percent of the loan amount … as interest’.”
- The primary judge observed at  of the reasons that “nothing in cl 4(b) alters the date for payment of interest, which remains that specified in cl 4(a)”.
- It was common ground at the trial that Mr Allen did not exercise the discretion conferred by clause 4(c) to give a notice varying “the rates of interest payable hereunder” and prescribing “a new rate”. The primary judge then set out at  of the reasons Mr Allen’s contention for construction of clause 4(a):
“For Mr Allen it is contended that the parties’ reference in cl 4(c) to a notice ‘varying the rates of interest payable hereunder’ infers that the parties agreed by cl 4(a) that, in the absence of such a notice, G Developments would pay interest on any part of the loan outstanding after 20 January 2011 at the rate of 25 per cent per annum. It is said that the language in cl 4(c) cannot be given any sensible operation unless another provision (inferentially cl 4(a)) operates to make interest payable at 25 per cent per annum after 20 January 2011 in the absence of a notice under cl 4(c).”
- The primary judge concluded at  of the reasons that clause 4(c) of the loan deed allowed for the variation of the rate of interest by notice, but the date for payment of interest was not varied, no additional date for payment of interest was agreed, and the liability to pay interest remained that “under the covenants” elsewhere in the loan deed, where the only specific covenant to pay interest was in clause 4(a). The primary judge then gave an example in  and  of the reasons how the variation of the rate of interest would have worked, if the project completion date were to occur before 20 January 2011. The example was on the basis that the project completion date occurred on 20 July 2010, so that the fixed interest of the $250,000 would be payable on that date, but the loan amount of $1m would not be repayable until 20 January 2011. In that example, clause 4(c) would permit Mr Allen to give a notice varying the interest rate and, if it was set above 25 per cent, the first respondent had an incentive to repay the loan amount of $1m earlier than 20 January 2011, because otherwise interest could then be calculated at the higher rate for the period from the date of the notice up to 20 January 2011 during which the $1m remained outstanding (less the sum of $250,000 that had already been paid). The primary judge therefore observed at  of the reasons that “the language in cl 4(c) may be given sensible effect without any additional interest accruing at 25 per cent per annum after the repayment date of 20 January 2011”.
- Even though the primary judge had recorded at  of the reasons that the loan deed was prepared by the lawyers and accountants based in the Australian Capital Territory who were advising Mr Allen, it was apparent that another document had been adapted for the loan deed which resulted in the primary judge observing at - of the reasons:
“ The Loan Deed includes a number of provisions, definitions and items that are not necessary for the transaction it records. These appear to be the ghosts of a different transaction – one that included the payment of a ‘monthly instalment’ from a specified ‘date of first repayment’ with a ‘fixed rate’ of interest for ‘the minimum period’ and a mechanism to vary ‘the fixed rate’ after the expiry of ‘the minimum period’.
 For such a transaction: cl 4(a) could have provided for a monthly payment of interest until the loan was repaid in full; cl 4(b) would have provided for a minimum amount of interest, in the event of early repayment; and cl 4(c) would have provided for the fixed rate of interest to be varied by notice at the end of the minimum period.”
- The primary judge’s approach to the construction of clause 4(a) of the loan deed was set out at - of the reasons:
“ The parties could have quite easily adapted cl 4(a) and item 8 to provide for interest to continue to accrue at ‘the fixed rate’ and to be paid at regular specified dates after 20 January 2011. Similarly, a provision could have been included in cl 5 to provide for a specific rate of interest to apply in the event of default. That such courses were not taken supports a conclusion that the parties did not agree for interest to be paid after the anniversary of the drawdown (or project completion, if that occurred earlier) at the 25 per cent per annum rate or at any agreed rate.
 The parties’ use of the words ‘being one year from the date of drawdown or project completion whichever is earlier (hereinafter called ‘the due date’)’ in cl 4(a) and the nomination of ‘NIL’ for ‘the monthly instalment’ dates in item 8 are consistent with each other. They manifest an intention that, for the present loan transaction, there would be only a single payment date in cl 4(a), rather than the series of monthly dates that might have been nominated in item 8.
 The absence of a provision for the calculation or payment of interest after 20 January 2011, even in the event of default, also tells against the submissions on behalf of Mr Allen that cl 4(a) should be construed to impose on G Developments an obligation to pay interest at 25 per cent per annum after that date.” (footnote omitted)
- It was noted at  of the reasons that no case was made that clause 4(a) and Item 8 were affected by mistake and no claim was brought for rectification of the loan deed.
- The primary judge made the following observations at  of the reasons to support the conclusion at  of the reasons that clause 4(a) was a covenant by the first respondent to pay Mr Allen interest on all monies payable under the loan deed on the first anniversary of the drawdown date (or on earlier project completion) at the rate of 25 per cent per annum and was not a covenant to pay interest (of any rate) on any outstanding sum on any other date:
“The express terms of the Loan Deed show the parties expected the project to be financed, built, sold and completed in 12 months or earlier. Such optimism is neither unusual nor unlikely at the commencement of a commercial property development. The rate of interest fixed in the Loan Deed is higher than the rate charged by banks or other mainstream lenders at the time the Loan Deed was executed. From the lender’s perspective, the higher rate may reflect a higher risk attached to the lending. From the borrower’s perspective, it may reflect the short-term nature of the borrowing and the inability to obtain funds elsewhere. These circumstances are not determinative, but they also reinforce a conclusion that by the Loan Deed the parties agreed that G Developments would pay Mr Allen interest at 25 per cent for a maximum fixed period of borrowing; and they did not agree that interest would be paid at that rate indefinitely.”
- The primary judge concluded at  of the reasons that the first respondent was obliged to pay Mr Allen pursuant to the loan deed a total of $1.25m on or before 20 January 2011. The first respondent defaulted in the payment of $1.25m on or before 20 January 2011. By the conclusion of the trial before the primary judge, the first respondent had paid a total of $1.25m to Mr Allen.
- There were other issues to be determined by the primary judge, as a result of further dealings between the parties after 20 January 2011. There is no challenge to the findings made by the primary judge in relation to the claims that were determined in the proceeding arising from the subsequent dealings between the parties.
Approach to the construction of the loan deed
- The loan deed must be construed as an agreement between commercial parties, as set out at  of the reasons:
“The transaction between the parties to the Loan Deed was commercial in nature. It follows that: the terms of the Loan Deed are to be understood as a reasonable business person would have understood them; the commercial purpose or objects to be achieved are to inform such an understanding; an appreciation of the purpose or objects is facilitated by understanding the genesis of the transaction, the background, the context and the market in which the parties are operating; and the court is entitled to assume the parties intended to produce a commercial result which makes commercial sense: Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at 656-7 .” (footnote inserted)
- The principles relevant to the construction of commercial contracts were summarised in the joint judgment of French CJ and Nettle and Gordon JJ in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104 at -. That judgment endorsed the principles referred to in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at , noting at :
“Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption ‘that the parties … intended to produce a commercial result’. Put another way, a commercial contract should be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience.” (footnotes omitted)
- The fact the loan deed may have been based on a precedent document that contained extensive provisions that were not necessary for the transaction between the parties does not alter the approach to the construction of the loan deed as embodying the transaction between commercial parties.
Is there an obligation to pay interest after the first year of the loan?
- The short point of construction that was determined against the appellant by the primary judge was that the loan deed only required the first respondent to pay interest for the first year of the loan and that, if there were default in repayment of the loan, no interest would accrue thereafter, irrespective of the length of the default period. The appellant submits that the sum of $250,000 is the minimum interest payable on the loan in accordance with clause 4(b) and Item 5 of the schedule, even if the loan were repaid before one year from the date of drawdown. The respondents submit that the sum of $250,000 is the maximum amount payable for interest on the loan under the deed by virtue of clause 4(a), irrespective of when the principal was repaid or whether default was made in the repayment of the principal.
- The appellant’s submissions are summarised as follows. The phrase “twenty five per cent per annum” in clause 4(a) and Item 5 of the schedule suggests that interest will continue to be payable until the loan amount is repaid in full, calculated at the rate of 25 per cent per annum, as otherwise the words “per annum” would be surplusage. Clause 4(a) describes the repayment date for interest not only as the “due date”, but also “the date of first payment”. The phrase “the date of first payment” and the words “first anniversary date” in clause 4(b) are phrases that connote that interest continues to accrue under the loan deed after the one year period referred to in clause 4(a). To the extent the primary judge treated “per annum” in clause 4(a) as merely the way the money was measured and dismissed the significance of the words “the date of first payment”, his Honour was in error. It is also relevant that clause 4(a) provides that interest is payable on the “Secured Monies” which includes amounts that may become payable under the loan deed, other than the loan amount. Clause 4(c) would have no work to do, if the only obligation to pay interest under clause 4(a) were limited to the interest calculated at 25 per cent per annum for the first year of the loan. Clause 5(c) of the deed would have no work to do, unless interest continued to accrue where the principal were not repaid on 20 January 2011. There would be no point in stipulating that repayment was applied first to interest rather than principal, if interest did not continue to accrue on the principal after 20 January 2011 that had not been repaid by that date.
- The first and second respondents’ submissions are summarised as follows. There is nothing in clause 4(a) and Item 5 of the schedule which suggests interest would continue to be payable until the loan amount was repaid in full. The fixed rate referred to in Item 5 is the rate of 25 per cent which is payable even if the loan were repaid earlier than 12 months from the date of drawdown. Reference to “per annum” does not suggest that interest is payable every year until the loan is repaid. It was a one year loan and the appropriate interest rate was 25 per cent for that year, so the words “per annum” are not surplusage. The mere reference to “the due date” or “the date of first payment” does not mean that interest is payable after the initial period of 12 months. In fact, the defined terms in clause 4(a) of “the due date” and “the date of first payment” can be ignored, as those terms are not repeated in the deed. The plain meaning of clause 4(a) is the borrower will pay interest limited to 25 per cent of the loan amount of $1m payable one year from the date of drawdown or project completion, whichever is earlier, and there is no covenant to pay any interest on any later date. There was no room for application of clause 4(c) to the transaction embodied in the deed, as clause 4(c) applied to a loan where interest was payable after the first year of the loan and was one of the provisions that fell within the primary judge’s description of “the ghosts of a different transaction”. There was no such obligation imposed under the deed in respect of the repayment of the loan made by the appellant to the first respondent.
- In the circumstances where the loan was procured to be made by the appellant to the first respondent where the first respondent had been unable to obtain finance to complete the purchase of the land for the development proposed by the joint venture, the respondents’ construction of clause 4(a) that denies the lender the right to claim interest on the amount of the loan outstanding when the borrower defaulted in repaying the loan on the first anniversary of the loan (when the project was still incomplete at that time) does not suggest an agreement between commercial parties. It would take the clearest language in a commercial agreement to deny the lender the right to pursue the borrower for interest on the principal outstanding, after default in repayment of the principal was made. For the reasons that follow, the proper construction of clause 4(a) is that it includes a covenant to pay interest at the fixed rate in Item 5 of the schedule, if the loan was not repaid within one year of the date of drawdown. Clause 4(a) should be read and construed, as if the word “and” were inserted before, and the word “thereafter” was inserted after, the words “at the fixed rate”. Clause 4(a) contains the covenant to pay interest up to one year from the date of drawdown and a covenant to pay interest at the fixed rate after the expiry of that year. Although it is awkward that clause 4(a) should be read by inserting those words, it would be more awkward to construe clause 4(a), as if the words “at the fixed rate namely the rate referred to in Item 5 of the Schedule” and the content of Item 5 simply repeated the obligation earlier set out in clause 4(a) to pay interest up to one year from the date of drawdown and were therefore effectively meaningless.
- Clause 4 has three paragraphs that deal with the payment of interest. Clause 4(a) contains the covenant to pay interest. Clause 4(b) deals with the specific circumstance of the minimum payment of interest that was required, if the secured monies were repaid at any time prior to the first anniversary date of the initial drawdown. Clause 4(c) allows for the variation of the rate of interest after the expiration of the period referred to in Item 6 of the schedule that is defined as the minimum period and which was the earlier of one year (after the date of drawdown) or project completion date.
- Clause 4 must be construed in the context of the loan deed as a whole and as embodying a transaction between commercial parties and to avoid commercial nonsense. Pursuant to clause 2.1(f) of the loan deed, a schedule to the deed forms part of the deed. That means that the contents of the schedule which are the items that are incorporated by reference into the loan deed must be considered in construing the deed. If the appellant’s contention that clause 4(a) makes no reference to the payment of interest after the expiry of the earlier of one year from the date of drawdown or project completion were correct, it leaves no reason for the specification of the fixed rate in Item 5. If the only interest that were payable was that calculated at 25 per cent of the loan amount for one year, there would be no purpose in identifying the fixed rate in clause 4(a) as shown in Item 5 of the schedule. The plain meaning of Item 5 is for the purpose of specifying the interest rate that applies, if the loan were not repaid within 365 days or if there were other amounts outstanding under the loan (such as costs and expenses chargeable to the borrower under clause 6 of the loan deed). There would otherwise be little point in specifying in Item 5 as to what the fixed rate of interest was, if interest did not accrue after the first year. Similarly, clause 4(c) refers to the minimum period specified in Item 6 of the schedule which can be either one year or the project completion date (whichever is the earlier) before which the interest rate could be varied. That one year could be the minimum period also suggests that it was anticipated by the parties that the obligation to pay interest at the fixed rate would continue after that period of one year. The fact that the primary judge by an example could show that clause 4(c) could be given effect, if the project were completed before the first anniversary of the drawdown of the loan, does not displace that clause 4(c) by its terms was intended to operate also at the expiration of one year from the drawdown of the loan.
- Although it is common ground that clause 4(c) does not itself impose an obligation to pay interest, but provides the mechanism for varying the rate of interest payable under the loan deed at the expiration of one year or the project completion date, whichever is the earlier, clause 4(c) is consistent only with there being an obligation under another provision for the payment of interest after the expiration of the minimum period. That assists in construing clause 4(a) as imposing that obligation.
- 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 of “at the fixed rate namely the rate referred to in Item 5 of the Schedule (hereinafter called ‘the fixed rate’)”. Clause 4(a) contains a covenant that interest on the secured monies at the rate of 25 per cent per annum will be payable one year from the date of drawdown or project completion (whichever was the earlier), but the closing words of clause 4(a) in conjunction with the balance of the clause can be construed as also containing a covenant by the borrower to pay interest on the secured monies at the fixed rate referred to in Item 5 after the first year. It is not essential that rests be stipulated for the calculation of interest after the first year, because as the primary judge noted at  of the reasons that is otherwise an agreement to pay simple interest. The obligation to pay interest after the first year was in respect of the secured monies that remained outstanding. The loan deed specified when the interest for the first year was payable, but there was no express provision as to when interest that continued to accrue on the secured monies payable. In the absence of such provision, a demand was required for payment of that interest. It is not in issue between the parties that demand was made for the payment of the interest that continued to accrue after the first year of the loan.
- The loan deed was poorly drafted and that gave rise to respectable arguments both for and against the question of whether interest was payable on the principal sum after the first year of the loan. There are more indications in the terms of the deed, the purpose of the loan and the commercial nature of the transaction that favour the construction of clause 4(a) as containing a covenant to pay interest on the principal sum that remained outstanding after the first year of the loan than not.
- The appellant also made submissions based on what was alleged to be subsequent conduct of the parties in relation to the meaning of clause 4(a) of the loan deed. The appellant had not relied on the alleged subsequent conduct of the parties for the purpose of the construction of the deed before the primary judge. The respondent opposed consideration of this argument on the basis that it was not something which the parties specifically addressed in evidence before the primary judge, but that, in any event, the subsequent conduct of the parties could not assist in the construction of the deed. In view of the conclusion that I have reached as to the proper construction of clause 4(a) without regard to the subsequent conduct of the parties, it is unnecessary to deal with the appellant’s submissions based on alleged subsequent conduct or the respondent’s opposition to the consideration of those submissions.
- The respondents had filed an application for security for costs of the appeal that was resolved by the appellant’s providing security. The question of the costs of that application are outstanding. The appellant proposed that the costs of that application be costs in the appeal or the respondents’ costs in the appeal. The respondents’ preference was for an order that the costs of that application be the respondents’ costs in the appeal. As the appellant did not provide security until after the application for security for costs of the appeal was filed, the appropriate order is that those costs be the respondent’s costs in the appeal. In view of the appellant’s success in the appeal, the effect of that order is that the respondents will not recover their costs of the security for costs application. It is still appropriate to make the order, as it means that the appellant will not recover its costs of the security for costs application.
- The orders which should be made are as follows:
- Appeal allowed.
- Paragraphs 2 and 6 of the orders made by Bradley J on 24 May 2019 are set aside.
- The first and second respondents must pay the appellant the sum of $1,972,220.52.
- The first and second respondents must pay the appellant’s costs of the proceeding below on and from 18 August 2018.
- The first and second respondents must pay the appellant’s costs of the appeal.
- The costs of the application for security for costs filed on 26 July 2019 are the respondents’ costs in the appeal.
- Published Case Name:
Allen v G Developments Pty Ltd & Anor
- Shortened Case Name:
Allen v G Developments Pty Ltd
 QCA 287
Morrison JA, Philippides JA, Mullins AJA
06 Dec 2019
- White Star Case:
|Event||Citation or File||Date||Notes|
|Primary Judgment|| QSC 107||07 May 2019||Plaintiff has leave to amend his claim to seek interest pursuant to s 58(3) of the Civil Proceedings Act 2011 (Qld); judgment for the plaintiff against the first and second defendants in the amount of $88,867.39, being interest payable pursuant to s 58(3) of the Civil Proceedings Act 2011 (Qld) on the outstanding balance of $1,000,000 owed by the first defendant to the plaintiff; plaintiff's claim otherwise dismissed: Bradley J.|
|Notice of Appeal Filed||File Number: Appeal 6416/19||19 Jun 2019||-|
|Appeal Determined (QCA)|| QCA 287||06 Dec 2019||Appeal allowed; order of Bradley J otherwise dismissing the plaintiff's claim set aside; in lieu the first and second defendants ordered to pay the plaintiff $1,972,220.52 and costs.|
|Special Leave Refused (HCA)|| HCATrans 74||05 Jun 2020||Special leave refused: Bell and Gageler JJ.|