Australian Executor Trustees Limited v Prodap Services Pty Ltd & Ors [2014] QCA 142

SUPREME COURT OF QUEENSLAND CITATION: Australian Executor Trustees Limited v Prodap Services Pty Ltd & Ors [2014] QCA 142 PARTIES: AUSTRALIAN EXECUTOR TRUSTEES LIMITED ACN 007 869 794 (appellant) v PRODAP SERVICES PTY LTD ACN 069 646 037 (IN ITS OWN RIGHT AND AS TRUSTEE UNDER INSTRUMENT NUMBER 7078510006) (not a party to the appeal) ROSLYN ELIZABETH CHIRNSIDE (respondent) WILLIAM JAMES MORRIS (not a party to the appeal) FILE NO/S: Appeal No 12341 of 2013 SC No 5951 of 2011 DIVISION: Court of Appeal PROCEEDING: General Civil Appeal ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 13 June 2014 DELIVERED AT: Brisbane HEARING DATE: 29 May 2014 JUDGES: Holmes and Morrison JJA and Dalton J Separate reasons for judgment of each member of the Court, each concurring as to the orders made ORDERS: 1. The appeal be dismissed. 2. The appellant pay the respondent’s costs of the appeal. CATCHWORDS: PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER UNIFORM CIVIL PROCEDURE RULES AND PREDECESSORS – SUMMARY JUDGMENT – where the appellant appealed the decision of the learned primary judge dismissing an application for summary judgment – where the appellant loaned $2,831,200 to Prodap Services Pty Ltd under a loan agreement – where the loan was secured by the respondent’s guarantee – where the appellant gave the respondent a demand under the guarantee and a default notice – where the respondent contended that cl 10.3 of the loan agreement was void for uncertainty as it allowed the appellant to “change the interest rate at any time”, but does not provide a mechanism to calculate that -- 1 of 7 -- 2 change – where the appellant contended a term would be implied as a matter of law that changes had to be “fair and reasonable” – where the learned primary judge held that the letters notifying interest rate changes were not evidence that the rates were, in fact, fair and reasonable – whether the learned primary judge erred in not finding that there was an implied term that interest rate changes must be “fair and reasonable” to save the clause and contract from uncertainty – whether, if such a term was implied, the evidence before the learned primary judge was sufficient to prove the rates actually applied were “fair and reasonable” – whether the learned primary judge erred in dismissing the application for summary judgment Uniform Civil Procedure Rules 1999 (Qld), r 292 Agar v Hyde (2000) 201 CLR 552; [2000] HCA 41, cited Cross v National Australia Bank Ltd, unreported, Federal Court, Drummond J, 29 April 1994, cited Kabwand Pty Ltd v National Australia Bank Ltd (1989) 80 PR 40; (1987) 16 FCR 85, cited Perpetual Nominees Ltd v Parist Holdings Pty Ltd [2005] NSWSC 1345, considered Rich v CGU Insurance Ltd (2005) 79 ALJR 856; [2005] HCA 16, cited Smith v Welden (1922) 30 CLR 585; [1922] HCA 35, cited South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478, cited COUNSEL: S Anderson for the appellant S Holland for the respondent SOLICITORS: Gadens Lawyers for the appellant Arcuri Lawyers for the respondent [1] HOLMES JA: I agree with the reasons of Morrison JA and the orders he proposes. [2] MORRISON JA: This is an appeal from the decision of the learned primary judge, given on 4 November 2013, dismissing an application for summary judgment under r 292 of the Uniform Civil Procedure Rules (“UCPR”). The plaintiff applied for judgment against the second defendant, the proceedings having been discontinued against the other defendants. Background [3] The appellant is a lender who lent $2,831,200 to Prodap Services Pty Ltd as Trustee for the Ridges Unit Trust (“Prodap Services”). The loan was made on 8 January 2007. The contract between the parties was contained in: (a) a document entitled “loan agreement” between the appellant and the borrower, Prodap Services;1 and (b) general terms and conditions incorporated by the loan agreement.2 1 AB 201. 2 AB 211. -- 2 of 7 -- 3 [4] The loan was secured by mortgages over nine pieces of real estate,3 and the second respondent’s guarantee.4 The guarantee was to pay, on demand, “all money owing at any time by the Borrower to the Lender.”5 [5] For the first four years the repayments were interest only. At least 17 rate changes were notified to the borrower, by letters that attributed a reason for the particular change. The reason for the change was not always expressed in the same way, and included that: (a) the rate was being “adjusted in line with the 90 Day Bank Bill SWAP Reference Rate”;6 (b) the rate was being adjusted “in line with the Reference Rate”;7 (c) Bank Bill rates had increased;8 (d) that “underlying factors, including but not limited to Bank Bill rates” had increased the “funding cost” for the lender;9 and (e) movements had occurred in the “official cash rates by the Reserve Bank”.10 [6] The lender gave the borrower a notice of default on 21 April 2011.11 It specified that default had been made in repayment of interest totalling $46,689.98. [7] Then followed a demand under the guarantee, and a notice of default under the mortgage, addressed to the second respondent.12 These relied upon the same breach as formulated for the main default notice. The relevant loan terms [8] The intended loan agreement was given as a form of disclosure document on about 18 December 2006. So far as appears there were no changes to the document when it was executed on 8 January 2007. As far as the interest rate was concerned a section was entitled “What is the annual percentage rate(s)?”, under which it specified:13 “As at the Disclosure date:  The Program Manager’s Standard Variable Rate is: 6.40% per annum  your margin is: 2.30% per annum  Your indicative rate at the disclosure date is: 8.70% per annum 3 Identified in the loan agreement: AB 205. 4 AB 205 (item 10), 229. 5 Clause 1.1; AB 230. 6 AB 303. 7 AB 310, 311, 312, 314, 315, 316, 317, 318, 319, 320. 8 AB 304, 307, 308. 9 AB 309. 10 AB 305, 306. 11 AB 299. 12 AB 181. 13 AB 201-202. -- 3 of 7 -- 4 Commencing four years from the settlement date, your interest rate will reduce by 0.5% per annum from the then current rate if up to that time there has been no payment default or other default.” [9] The Program Manager was identified as Seiza Mortgage Company Pty Limited.14 [10] Under the section dealing with fees and break costs this appeared: “WARNING. We may do any of the following without your consent:  Change the interest rate if it is variable.” [11] The loan agreement provided for the application of a default rate of interest, in these terms:15 “The default rate of interest at any time equals the interest rate applying to the relevant account plus 4% per annum. If the interest rate applying to the account changes, the default rate will also change. The default rate(s) as at the disclosure date are: Account 1 Cashflow manager: 12.7% per annum” [12] A clause provided for the interest rates to be charged when the loan was not governed by the Consumer Credit Code:16 “Despite any other provision of this loan agreement, if your loan is not regulated by the Consumer Credit Code your interest rate is 4% per annum above the interest rate disclosed in this loan agreement. However, in respect of repayments made by the due date, we will only charge you the lower interest rate.” [13] The Seiza General Terms and Conditions were incorporated into the loan agreement.17 They included the following terms as to interest:18 “10.1 Changes to your interest rate … will be notified on or before the day the change takes effect, either in writing or by advertisement in a major metropolitan newspaper. … 10.2 The interest rates and repayments shown in the financial information section in your loan agreement are correct at the disclosure date but may change prior to the settlement date if the rate changes. 10.3 The Lender may change the interest rate at any time, except in respect of a fixed rate loan during the fixed rate term. 14 AB 206. 15 AB 206. 16 AB 206. The loan agreement provided that loans to a company (which this loan was) or loans for investment purposes (which this loan was) were not regulated by the Consumer Credit Code. 17 AB 206, 211, 212. 18 AB 215. -- 4 of 7 -- 5 10.4 If the annual percentage rate changes, the Lender may change the amount of repayments. You will be notified of changes to repayments by a written notice.” Proceedings before the primary judge. [14] The application for summary judgment was supported by various affidavits, deposing as to the debt, default and demand, and exhibiting the various letters sent, to the borrower notifying the changes to the interest rate. [15] The main contention advanced against the application was that because cl 10.3 left the change of interest rate entirely at the discretion of the lender, with no mechanism specifying how or when it was to change, or against which it could be assessed or verified, the clause was void for uncertainty. Reliance was placed on Perpetual Nominees Ltd v Parist Holdings Pty Ltd,19 Cross v National Australia Bank Ltd20 and Kabwand Pty Ltd v National Australia Bank Ltd.21 [16] In answer to the contention that cl 10.3 was void, the appellant argued that a term would be implied as a matter of law, to the effect that the changes to the interest rate had to be fair and reasonable.22 [17] In argument before the learned primary judge the limited extent of the evidence supporting the calculation of the amount said to be due was identified, and in particular that the letters notifying the rate changes were not evidence that the rates were, in fact, fair and reasonable.23 The appellant relied on a certificate of debt as prima facie proof of the debt.24 Decision of the primary judge [18] The learned primary judge referred to the test to be applied on an application for summary judgment and the need for a high degree of certainty about the ultimate outcome.25 No contention is advanced to this Court that his Honour mistook the relevant test. [19] His Honour’s conclusion appears in this passage, which followed his Honour’s analysis of Parist:26 “In light of that decision and the principle in Kabwand, Brereton J held that the provision which conferred on the lender the ability to determine whatever benchmark rate it chose was void. It seems to me that the present case is relevantly indistinguishable, or at least that I should not be positively satisfied that the second defendant has no real prospect of successfully defending the claims against her. It seems to me that on the basis of Perpetual Nominees v Parist Holdings, clause 10.3 may well at trial be regarded as invalid, so that the plaintiff has no authority to change the interest rate at any time. 19 [2005] NSWSC 1345 (“Parist”). 20 Unreported, Federal Court, Drummond J, 29 April 1994. 21 (1989) 80 PR 40. 22 AB 14-15. 23 AB 15. Second Defendant’s Submissions, dated 4 November 2013, para 21; AB 423. 24 Plaintiff’s Submissions, dated 4 November 2013, para 27; AB 417. Guarantee, cl 5.4; AB 231. 25 Citing Agar v Hyde (2000) 201 CLR 552 and Rich v CGU Insurance Ltd (2005) 214 ALR 370, at [18]. 26 AB 430. -- 5 of 7 -- 6 If that be correct, then the interest calculations may nail (sic) the plaintiff over the period of some three and a half to four years – or over a period of some three and a half years from the time it first increased the interest rate, likely to have been too high by, on average, at least one per cent. No default is asserted before March 2011. It would therefore appear that if the first defendant made repayments in accordance with the interest rates relied upon the plaintiff that the first defendant may well have paid something in the order of $100,000 more than it was required to do up until March 2011, with the result that what was said to be arrears for March and April of that year were not, in truth, so. Because the plaintiff's claim depends entirely on the failure to pay the amount of $46,689.98, asserted to be [indistinct] in April of 20l1, its entitlement to relief depends on whether the first defendant had failed to pay that amount not (sic) on the date it was due to the plaintiff. It seems to me that it is by no means clear that that is so.” Grounds of appeal [20] The principal ground of appeal was that even if cl 10.3 was arguably void because it did not provide a mechanism for the rate change, or a way of ascertaining what was to be done in changing the rate, nonetheless the law would imply a term that the interest rate change had to be “fair and reasonable”. [21] Thus, it was said, a court would imply such a term to save the clause and the contract from uncertainty. Authorities relied on included South Sydney Council v The Royal Botanic Gardens & Domain Trust,27 Parist and Smith v Welden.28 [22] The respondent’s submissions included that there could be no implied term, but that, even if it was, the evidence before the learned primary judge was insufficient to prove that the rates actually applied were, in fact, fair and reasonable. Discussion [23] In my opinion the appellant’s contentions cannot be accepted. The reasons can be expressed fairly simply. [24] Let it be assumed that cl 10.3 would be void, but for the implication of a term to the effect sought by the appellant, namely that any interest rate change was to be fair and reasonable. That would save cl 10.3 from being uncertain. However, that would still leave the appellant in the position where no evidence was tendered before the learned primary judge to show that the interest rate changes actually made were, in fact, fair and reasonable. True it is that the letters notifying the changes were exhibited to an affidavit.29 However, nothing was adduced to show the relationship of the actual changes to the reasons attributed for those changes, or that the changes then reflected rates that were objectively fair and reasonable. [25] The evidence before the learned primary judge was left in the position that: 27 [1999] NSWCA 478, at [16] per Spigelman CJ. 28 (1922) 30 CLR 585, at 604. 29 AB 303-320. -- 6 of 7 -- 7 (a) the rates had been changed; and (b) reasons for each change were notified; but (c) there was no evidence the reasons were true; (d) there was no evidence of the relationship between the new rate in each case, and the reason ascribed for it; and (e) there was no evidence that the new rate in each case was fair or reasonable. [26] Therefore even if everything is assumed in the appellant’s favour in relation to cl 10.3, the learned primary judge was not provided with any level of proof that the interest rate changes were accurate, or fair and reasonable. In circumstances where the answer to the attack on cl 10.3 was an implied term that the changes would be fair and reasonable, reliance on the certificate of debt was insufficient, as it simply certified the total said to be due as a result of applying the rates as varied,30 not rates that were objectively shown to be fair and reasonable. Conclusion [27] It cannot be demonstrated that the learned primary judge erred in deciding that this was not an appropriate case for summary judgment. The appeal therefore fails. [28] I would order that: 1. the appeal be dismissed; and 2. the appellant pay the respondent’s costs of the appeal. [29] DALTON J: I agree with the orders proposed by Morrison JA. I prefer to limit the reasons for my joining with those orders to the evidentiary gap in the appellant’s material below, which he identifies. I do not think that this is a proper case to decide the points as to the effectiveness of a clause such as that found at cl 10.3 of the general terms and conditions; the correct basis to imply a term that interest rates are to be reasonable, or the effect of such an implication on a clause such as cl 10.3. The primary judge dealt with an application for summary judgment. The evidentiary point is sufficient to dispose of the matter and I am not confident that we have had full argument as to the legal points which I regard as significant in terms of their general application. 30 AB 265. -- 7 of 7 --