JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE FULL COURT (WA)
CITATION : HARDIE & ORS -v- SHADBOLT & ORS [2004] WASCA 175
CORAM : TEMPLEMAN J
HEARD : 19 MAY 2004
DELIVERED : 17 AUGUST 2004
FILE NO/S : FUL 103 of 2002
BETWEEN : CAROL NORMA HARDIE
First Appellant (First Defendant)
DEAN GEORGE SCOOK
Second Appellant (Second Defendant)
CHALLISTON PTY LTD
Third Appellant (Third Defendant)
AND
TREVOR JAMES SHADBOLT
LEANNE ROSEMARY SHADBOLT
First Respondents (Plaintiffs)
ALBERT LAWRENCE SHADBOLT
MARGARET EMMELINE SHADBOLT
Second Respondents (Plaintiffs)
BLYTHE SHADBOLT
Third Respondent (Plaintiff)
(Page 2)
DAVID PATRICK SHADBOLT
ANDREA LEE SHADBOLT
Fourth Respondents (Plaintiffs)
ON APPEAL FROM:
Jurisdiction : DISTRICT COURT OF WESTERN AUSTRALIA
Coram : NISBET DCJ
Citation Number : [2002] WADC 159
File Number : CIV 847-850 OF 2001
Catchwords:
Contract - Interpretation - Whether ambiguity in terms - Interest payable on loan - Repayment of principal and interest on specified date - Repayment not made on due date - Whether contractual interest payable thereafter
Legislation:
Supreme Court Act 1935 (WA), s 32
Result:
Appeal allowed
Category: B
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Representation:
Counsel:
First Appellant (First Defendant) : Mr H R Robinson
Second Appellant (Second Defendant) : Mr H R Robinson
Third Appellant (Third Defendant) : Mr H R Robinson
First Respondents (Plaintiffs) : Mr G A Rabe
Second Respondents (Plaintiffs) : Mr G A Rabe
Third Respondent (Plaintiff) : Mr G A Rabe
Fourth Respondents (Plaintiffs) : Mr G A Rabe
Solicitors:
First Appellant (First Defendant) : Haydn Robinson
Second Appellant (Second Defendant) : Haydn Robinson
Third Appellant (Third Defendant) : Haydn Robinson
First Respondents (Plaintiffs) : Stables Scott
Second Respondents (Plaintiffs) : Stables Scott
Third Respondent (Plaintiff) : Stables Scott
Fourth Respondents (Plaintiffs) : Stables Scott
Case(s) referred to in judgment(s):
Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99
Broadbank Corporation Ltd v Mosgiel Ltd [1985] 1 NZLR 257
Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Cook v Fowler (1874) LR 7; HL 27
Fitzgerald v Masters (1956) 95 CLR 420
Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1994) 6 BPR 14053
Hungerfords v Walker (1989) 171 CLR 125
Lai v Gong (1997) 8 BPR 15,837
Nicolene Ltd v Simmonds [1953] 1 QB 543
Re Andersons Seeds Ltd [1971] 2 NSWLR 120
Schenker & Co (Australia) Pty Ltd v Maplas Equipment & Services Pty Ltd & Anor [1990] VR 834
Shadbolt v Hardie & Ors [2002] WADC 159
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Case(s) also cited:
Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191
Batchelor v Burke (1981) 148 CLR 448
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Citicorp Australia Ltd v Hendry (1985) 4 NSWLR 1
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64
De Vito v Commercial Union Assurance Co Ltd (2001) 78 SASR 439
Dunlop Pneumatic Tyre Co Ltd v New Garage & Motor Co Ltd [1915] AC 79
Durbin v Perpetual Trustee Co Ltd (Estate of Durbin (decd)) [1995] ANZ ConvR 280
McPherson v Summerville (1905) 6 SR (NSW) 1
Robinson v Harman (1848) 154 ER 363
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1 TEMPLEMAN J: I have had the advantage of reading in draft the reasons to be published by Roberts-Smith J. I agree with those reasons and with the orders proposed by his Honour for allowing each of the appeals and for the payment of interest at 6 per cent per annum.
2 MILLER J: I have had the opportunity of reading in draft the reasons for judgment of Roberts-Smith J. I agree with those reasons and with the conclusion reached by his Honour. I would make orders in the terms proposed by his Honour.
3 ROBERTS-SMITH J: This is an appeal from the judgment of the District Court upholding the respondents' claim that interest on four loans is payable at the rate of 75 per cent per annum.
4 The appeal requires determination of the proper construction of the interest provisions in four loan agreements.
5 There were four different actions but they were ordered to be heard together.
6 The respondents are all members of the one family. They loaned different amounts of money to the same three appellants. The parties entered into a written agreement each time. The agreements were all in the same terms, except for the amounts of the loans and some small variations in the dates of payment and repayment.
7 Blythe Shadbolt's parents had loaned money to the respondents previously, by way of investment. Blythe and her husband Ian Shadbolt became interested in doing the same. A meeting was arranged with Carol Hardie on 27 March 1998. Ms Hardie produced a loan agreement which the parties signed. By it, Blythe Shadbolt loaned the appellants $4,000. The loan was repayable in full with interest on 23 July 1998. Nothing was in fact paid until 9 September 2000 when the appellants paid $2,000. A further $2,000 was paid on or about 21 June 2000. No interest was paid.
8 As a result of discussions with other members of the Shadbolt family in March 1998, they also made loans to the appellants.
9 On 27 March 1998, Trevor and Leanne Shadbolt loaned the appellants $15,000, repayable with interest on 27 July 1998. In fact nothing was paid until 9 September 2000 when the appellants made a payment of $7,500, with a further repayment of $7,500 on 21 June 2001. Again, no interest was paid.
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10 Also on 27 March 1998, Albert and Margaret Shadbolt loaned the appellants $20,000, repayable with interest on 27 July 1998. Nothing was paid until 9 September 2000 when the appellants made a repayment of $10,000. A further $10,000 was paid on 21 June 2001. No interest was paid.
11 On 8 April 1998, David and Andrea Shadbolt loaned the appellants $10,000 repayable on 8 August 1998. By an undated agreement headed "Loan Facility Agreement Extension" ("the Extension Agreement") and stamped on 15 March 2001, the repayment date was extended to 14 September 1998. The Extension Agreement made no provision for interest during the five week period by which the termination date was extended. The appellants made a repayment of $5,000 on 9 September 2000 and a further $5,000 on 21 June 2001. There was no payment of interest.
12 The agreements are described as "loan facility agreements". Challiston Pty Ltd is described as "additional covenantor".
13 By cl 2 of the agreement the lender agreed to make the loan available to the borrower. Clause 3 allowed the borrower to draw on the loan facility during the availability period, that being defined as the period from the commencement date to the termination date.
14 Clause 4.1 provided:
15 Clause 5 read:
5.1 The Covenantor shall pay to the Lender interest on the Principal Sum at the rate specified in item 5 of
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Schedule 1 from the date of the first Drawing until the date of actual payment in full.
5.2 The Covenantor shall pay the Interest in the manner and on the days specified in item 6 of Schedule 1."
16 Interest is defined in cl 1.1(14) to mean the interest payable by the borrower to the lender under cl 5.1.
17 Item 5 of Sch 1 was headed "Rate of Interest" and in each instance read simply "twenty five per cent (25%)". Item 6 of Sch 1 was headed "Payment of Interest" and set out a money amount, so that in the case of the agreement between the appellants and Trevor and Leanne Shadbolt, it read "three thousand seven hundred and fifty dollars ($3,750.00) as per Schedule 1, Item 4".
18 Item 4 of Sch 1 stipulated the termination date (in that instance 27 July 1998).
19 As the learned trial Judge observed, the following provision in Sch 1, namely cl 7, was entirely inappropriate to the transaction. It was headed "Special Provisions" and read "an amount equal to 1/3 of the difference between purchase price of 50 cents and sale price is payable. The borrower reserves the right to sell early" (AB 129). His Honour correctly described that provision in the context as "nonsensical".
20 For convenience, from this point, I shall refer simply to "the Agreement", as all four were relevantly in identical terms.
21 The competing positions of the parties were concisely set out by the learned trial Judge at [10] and [11] of his judgment (Shadbolt v Hardie & Ors [2002] WADC 159):
"10 Each of the plaintiffs and defendants argued that these agreements were complete and unambiguous in their terms as to the provision of interest on the loans, did not require any examination of any extrinsic evidence to explain those terms and were plainly enforceable on their face. The plaintiffs in each of the actions contended for an interpretation of the relevant provisions of the agreements as to interest so as to mean that in the event that the principal sums were not repaid when required by the deeds, interest would continue to run at the effective annual rate of 75 per cent per annum having regard to the
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fact that the agreements each provide for interest at the rate of 25 per cent for four months, an argument which, by itself, does not sit happily with the extension of the date of termination in the loan facility agreement extension forming part of Exhibit 4 and being the subject of action 850 of 2001 where the termination date was extended by more than a month from 8 August 1998 to 14 September 1998 without there being any additional provision for interest during the five week period by which the termination date was thereby extended. Further, however, it must be said that the plaintiffs relied upon what they said was the plain meaning of cl 5.1 in each of the agreements which provides that interest on the principal sum at the rate specified in Item 5 of Schedule 1 from the date of first drawing must be paid 'until the date of actual payment in full'. The plaintiffs claim that when this provision is read in conjunction with the particulars in Schedule 1 which provide for interest at 25 per cent for a period of four months the clear and unambiguous meaning of the agreements is that interest at the rate of 25 per cent each four months, or 75 per cent per annum would be paid on the principal sum or so much thereof as remained outstanding from time to time until payment in full.
11 The defendants for their part say that the clear and unambiguous meaning of the agreement insofar as it relates to interest is that the parties had within their contemplation and provided for a loan of four months duration only and that there was to be a one-off payment of interest of 25 per cent for that period and that period alone. The defendants contend that the parties did not turn their minds to there being any default in repayment of the principal sum or any part thereof such that the agreement is silent as to the provision of interest and the plaintiffs' only remedy is as to damages for breach of the term of the agreement as to repayment. This position was only taken by the defendants at trial because previously it had contended that the agreements were uncertain in their terms and that no interest was payable. The defendants, however, changed solicitors and counsel on the day before trial and when Mr Robinson appeared for the
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defendants he submitted that he was bound to concede that the proper construction of the agreements meant that each of the plaintiffs was entitled to interest at 25 per cent on the principal sums advanced for the period stipulated for each advance and that thereafter the plaintiffs were entitled to damages for breach of the agreements to repay on a specified date."
22 His Honour came to the conclusion that the wording of the Agreement was clear and unambiguous and that upon its ordinary reading, the appellants must have been regarded as agreeing to pay to the respondents interest at the rate of 25 per cent every four months on such of the principal sum as remained outstanding from time to time. His Honour observed that explained why, in the case of the Agreement with David and Andrea Shadbolt, the Extension Agreement made no reference to what was to happen with interest - cl 5.1 was clear enough in its terms.
23 His Honour further concluded that if he was wrong in his construction of the Agreement, and it was ambiguous, he would be unable to resolve any such ambiguity by reference to the extrinsic evidence comprising the oral testimony of the witnesses, there was no extrinsic evidence which would support any implied term as to any other rate of interest and if there was ambiguity, it was not such as to call for the application of the contra proferentem rule against the appellants (who drew the Agreement).
24 The learned trial Judge accordingly held the respondents were entitled to judgments in respect of a calculation of interest at the rate of 75 per cent per annum until each of the principal sums in the actions were repaid in full.
25 It should be noted at this point that it is common ground there is no question of any implied term in the circumstances of this case.
26 The general principles for the interpretation of a contract are set out in Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 per Gibbs J at 109-110:
"It is trite law that the primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. Of course the whole of the instrument has to be considered, since the meaning of any one part of it may be
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revealed by other parts, and the words of every clause must if possible be construed so as to render them all harmonious one with another. If the words used are unambiguous the court must give effect to them, notwithstanding that the result may appear capricious or unreasonable, and notwithstanding that it may be guessed or suspected that the parties intended something different. The court has no power to remake or amend a contract for the purpose of avoiding a result which is considered to be inconvenient or unjust. On the other hand, if the language is open to two constructions, that will be preferred which will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust, 'even though the construction adopted is not the most obvious, or the most grammatically accurate', … Further, it will be permissible to depart from the ordinary meaning of the words of one provision so far as is necessary to avoid an inconsistency between that provision so far as is necessary to avoid an inconsistency between that provision and the rest of the instrument. Finally, the statement of Lord Wright in Hillas & Co Ltd v Arcos Ltd (1932) 147 LT 503, at p 514, that the court should construe commercial contracts 'fairly and broadly, without being too astute or subtle in finding defects', should not, in my opinion, be understood as limited to documents drawn by businessmen for themselves and without legal assistance."
27 Although Gibbs J was in the minority, that was not in respect of the application of principle, but on whether the subject agreement was ambiguous. Barwick CJ and Stephen J thought the agreement was not ambiguous. In that situation, as Stephen J pointed out (at 115):
"The approach of courts to the construction of such documents, when they contain no ambiguity nor any other patent error or omission, cannot be other than that of an uncritical rendering of the meaning of the text."
28 Even if an agreement is susceptible to two or more possible meanings, absent ambiguity, resort may not be had to extrinsic evidence of the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except insofar as they are expressed in its terms (Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337).
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29 The learned trial Judge correctly observed that the approach to be taken is objective. He favoured that taken by McGarvie J in Schenker & Co (Australia) Pty Ltd v Maplas Equipment & Services Pty Ltd & Anor [1990] VR 834 at 840, that the essential question is what would reasonable business people in the position of the parties have taken the clause to mean?
30 His Honour pointed out that if he were to apply his own standards of commercial understanding to the transaction, his commercial conservatism would never have permitted him to enter into an agreement which made provision for an effective annual interest rate of 75 per cent. He said that highlighted why the approach endorsed by McGarvie J was the correct one to use. His Honour then continued ([15]-[17]):
"15 … These people did enter into an agreement which made provision for payment of interest of 25 per cent for four months. What then must each of them have thought the other thought the agreement provided for in the event that the principal sum was not repaid on time? Applying this test, the plaintiffs would not have contemplated that the defendants' view was the plaintiffs would not be receiving some interest on the principal sums they advanced if they were not repaid on the dates stipulated in the contract, particularly where the principal sums were not repaid for about three years. Conversely, whilst the defendants had every intention of repaying the principal sums on the dates they fell due they too could not have contemplated that these loans were intended by the plaintiffs to become interest free (in effect) if not repaid on the due dates, a point in effect conceded by Mr Robinson during the trial, when he said the plaintiffs were entitled to damages for non-payment.
16 The question then becomes what each of the parties must have thought the relevant interest rate would be in the event that the principal sums were not repaid on time. The plaintiffs would have read cl 5.1 in no other way than that they would receive interest at the rate of 25 per cent every four months ie, an effective annual rate of 75 per cent per annum. Looking at this question from the defendants' standpoint one has to ask why they would have thought the interest rate would be anything less than 25 per cent every four months, faced with a clause such
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as 5.1. Whilst they may have had every intention of repaying the principal sums on the dates specified in the various agreements they could not have thought that the interest rate would drop to a mere 5 or 6 per cent per annum because the effect of this would mean that it would be in their interest to delay repayment as long as possible so that the interest rate averaged down and accordingly, in my opinion, the defendants must have thought that the true intention of cl 5.1 was that interest should continue at the rate of 25 per cent every four months until the date of actual payment in full.
17 In my opinion the wording of the agreement between the parties is clear and unambiguous and upon its ordinary reading the defendants must have been regarded as agreeing to pay to the plaintiffs interest at the rate of 25 per cent every four months on such of the principal sums as remained outstanding from time to time. …"
31 The principal difficulty with his Honour's reasoning is that it takes item 5 of Sch 1 as setting a rate of interest. But the provision does not do that. All it does is state a percentage (ie 25 per cent). The amount of interest due on the termination date is the amount specified in item 6 of Sch 1.
32 The respondents point to the words in cl 5.1 "… until the date of actual payment in full" as showing a contractual intention that the "rate specified in item 5 of Schedule 1" was to apply to outstanding principal not only as at the termination date, but thereafter until whatever date the full amount of the principal was to be repaid. However, the provision does not say that interest will continue to accrue at the contractual "rate" after the termination date, the proposition does not sit well with the contractual stipulation of the amount of interest payable on the termination date and, as item 5 of Sch 1 does not set a rate (ie a percentage applied to a period of time) cl 5.1 is incapable of application in that way.
33 Item 5 is meaningless - or at best can be taken as indicating the way in which the stipulated amount of interest has been calculated - that is to say, at 25 per cent for the four month "available period".
34 Clause 5.1 and item 5 of Sch 1 cannot stand with cl 5.2 and item 6 of Sch 1, unless the former is construed as a statement that the amount of
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interest specified in item 6 of Sch 1 as being payable on the date payment in full is actually made, in accordance with the Agreement (which would be the termination date), has been calculated at 25 per cent of the principal.
35 Alternatively, cl 5.1 and item 5 of Sch 1 are meaningless because the latter does not in fact specify a rate and so must be ignored. As the principal contractual obligations of the parties (the advancing of the loan and the repayment of it with a particular amount of interest on the termination date) are unaffected by the otiose parts, they may be discarded (Nicolene Ltd v Simmonds [1953] 1 QB 543; Fitzgerald v Masters (1956) 95 CLR 420).
36 The position is therefore, that the Agreement simply makes no express provision for payment of interest after the termination date.
37 The line of authority from Cook v Fowler (1874) LR 7; HL 27 clearly establishes the principle that where a loan agreement does not expressly provide for interest to be payable after the date for repayment of a loan, interest is recoverable only as damages for breach of contract and not on the basis of any implied term that the contractual interest rate will continue to apply beyond the date fixed for repayment.
38 In Cook v Fowler a warrant of attorney was given to secure payment of a sum of money. The warrant was dated 2 May 1864. It provided that "The within written warrant of attorney is given for securing the payment of the sum of £1,330, with interest thereon, at and after the rate of £5 per cent per month on the second day of June. Judgment to be entered up forthwith …" The House of Lords held that this was nothing more than an authority to enter judgment for those sums, to be ascertained on 2 June 1864, after which time the holder would stand simply as a creditor for the sums ascertained and the statutable rate of interest upon them that might be allowed by the court.
39 The warrant was given on 2 May 1864. The rate of interest was 60 per cent per annum. The writer died later the same month, before the time stipulated for payment of the principal and interest. The administrators of the deceased's estate were unaware of the warrant and the high rate of interest. Although the appellant filed in the estate as a judgment creditor, he gave no particulars of the warrant. He maintained that position for more than four years, without giving the executors notice, but at which time he claimed interest had been running on during the whole time at the rate of 60 per cent.
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40 As to the warrant itself, Lord Cairns LC explained that it was an authority to enter judgment and a stipulation that execution was only to issue in one way and for one purpose. It was to issue on 2 June in default of payment of the principal and interest so that once that happened, execution and other process may issue for the amount of the principal plus the interest stipulated. His Lordship thought that on its literal construction the warrant amounted to (32):
"… an authority to issue execution on the 2nd of June for one total sum, which is to be composed of the principal sum of £1,330, interest at 60 per cent up to the 2nd of June, and those expenses, unascertained in the first instance, but to be ascertained at the time described, as expenses of Sheriff's poundage and other matters of the same kind."
41 However, his Lordship opined the same conclusion was to be arrived at even if the alternative view were taken, that it was a warrant to secure a debt with interest up to a certain day, and without any mention of subsequent interest upon the face of the instrument (32):
"If so, according to the well-known principle which has been referred to in many cases, and which may be taken most conveniently from a note to the case of Mounson v Redshaw 1 Wm Saund 201, n, any claim, in the nature of a claim for interest after the day up to which interest was stipulated for, would be a claim really, not for a stipulated sum and interest, but for damages, and then it would be for the tribunal before which that claim was asserted to consider the position of the claimant, and the sum which properly, and under all the circumstances, should be awarded for damages. No doubt, prima facie, the rate of interest stipulated for up to the time certain might be taken, and generally would be taken, as the measure of interest, but that would not be conclusive. It would be for the tribunal to look at all the circumstances of the case, and to decide what was the proper sum to be awarded by way of damages."
42 Adverting to the circumstances of the particular case, Lord Cairns concluded that whether it was to be taken by judgment for a specific sum, bearing no interest beyond the statutable interest of 4 per cent, or whether it was taken as a claim for damages for the detention of a debt, in either case it appeared to be out of the question that the rate of 60 per cent could be allowed.
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43 On the statement of legal principle, Lord Chelmsford wrote (at 35):
"There is no authority that I can find to support the argument of the counsel for the Appellant, that where a security for money payable at a certain day stipulates for the allowance of a certain rate of interest up to the day fixed for payment, interest at the same rate is implied to be payable afterwards. On the contrary the distinction seems to be well established between cases where the interest is expressly reserved in the instrument, and where it is not. In the latter case it is recoverable, not as interest according to the contract, but as damages for the breach of it."
44 Lord Hatherley agreed with the Lord Chancellor. Lord Selbourne agreed with the other Lords, adding (pertinently to the instant case) (at 37-38):
"I entirely agree with those of your Lordships who have preceded me that no such contract is to be implied, unless there is something to justify it, upon the construction of the words of the particular instrument; and that, although in cases of this class interest for the delay of payment post diem ought to be given, it is on the principle, not of implied contract, but of damages for a breach of contract. The rate of interest to which the parties have agreed during the term of their contract may well be adopted in a ordinary case of this kind by a Court or jury, as a proper measure of damages for the subsequent delay; but that is because, ordinarily, a reasonable and usual rate of interest, which it may be presumed would have been the same whatever might be the duration of the loan, has been agreed to. But in the case before your Lordships the agreed rate of interest is excessive and extraordinary; and, although no question is raised between the present parties as to its fairness or reasonableness, so far as it was matter of express contract, it by no means follows that it would have been fair and reasonable, or would have been so regarded by the borrower, if it had been indefinitely extended to every possible delay of payment after the stipulated time. In my opinion no Court or Judge could, under the particular circumstances of this case, have adopted that rate of interest as a proper measure of damages, without a very great miscarriage of justice."
45 The principle in Cook v Fowler has been followed and applied in Re Andersons Seeds Ltd [1971] 2 NSWLR 120; Broadbank Corporation Ltd
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v Mosgiel Ltd [1985] 1 NZLR 257; Hawkesbury Valley Developments Pty Ltd v Custom Credit Corporation Ltd (1994) 6 BPR 14053 and Lai v Gong (1997) 8 BPR 15,837).
46 In my view, on its proper construction, the Agreement provided for the making of a loan to the appellants, with repayment of the principal, together with a specified amount of interest, on the termination date. The Agreement says nothing about what the situation was to be if repayment was not made on the termination date. That being so, the principle in Cook v Fowler must apply. The appellants' failure to make payment of principal and the contractual interest on the termination date was a breach of contract, for which the respondents' remedy was damages.
47 The same result is arrived at if, contrary to my view, the provisions of the Agreement are thought to be ambiguous so that extrinsic evidence may be called in aid to the proper construction of it.
48 The appellants did not give evidence of the contractual negotiations. It is abundantly clear from a consideration of what the respondents said about the matter, that all parties always intended the loan was to be for four months and that the amount of interest then to be paid was 25 per cent of the loan, which equated to 75 per cent per annum. Nobody gave any thought to what was to happen if the loan was not repaid on the termination date.
49 Asked by counsel for the respondents if there was any discussion about the interest payable under the Agreement, Ian Shadbolt said (AB 85):
"Yes. She pointed out there was 25 (sic) per cent on the amount of money for that 12-month period and when - - -
Sorry, who said that?---Carol said that, yes, and I just made the passing comment to her, 'So that's equivalent to getting 75 per cent per annum,' and she agreed but then she stressed it was only for a 4-month period that they wanted the money for."
50 And a little later, asked what he told his parents about the proposed loans (AB 87):
"I just told it was 25 per cent on the amount for that period, so for whatever they invested, they would get back 25 per cent on their investment in 4 months' time.
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In 4 months' time?---Yes."
I think the next person you spoke to was Trevor?---Yes.
What did you tell him about the proposed loan agreement?---Told him the same as what I told mum and dad, and then he asked me - so he made the same comment as what I did about being equivalent to 75 per cent per annum if it was over a 12 months' period and said, 'Yes, that's what I said' - which I made the comment to Carol about, yes.
Sorry. Can you just say that again? That's what?---That's what - I said it was 75 - Trevor asked me, or he come up with the same equation as me, saying that's equivalent to getting 75 per cent over a 12-months period and I said, 'Yes, but it's only for a 4-months period though,' which is what I had said to Carol, yes.
Which is what you have said to Carol?---At the time, yes.
And you then spoke to David, I think you said?---Yes.
Who was in New Guinea. Is that correct?---No. Trevor was in New Guinea.
Sorry. Trevor was - - -?---David was in Broome.
Can you tell the court what your discussion was in relation to the proposed loan with David?---I just told David about the agreement and the interest rate that he could get and then I left it with him to - I can't remember whether I actually got Carol to send the information up to him or whether I left a number with David for him to do it, but yes.
What did you tell David about the interest rate?---That it was 25 per cent for that 4-months period."
51 Blythe Shadbolt was asked in her evidence-in-chief whether there was any discussion about interest at the meeting with Carol Hardie. She said (AB 93):
"Now, was there any discussion at that meeting about what the documents said about interest?---Yes. My husband talked about the 25 per cent per - and then he said, 'Well, that amounts to 75 per cent per annum' but it was stated that it actually was only
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going to be for 4 months that we would have our money in, so it would be 25 per cent.
What did your husband say and what did Ms Hardie say about it?---My husband just commented and said, 'Well, that adds up to' or 'works out to be - - -"
What adds up to?---He said the 25 per cent would be - per annum would be 75 per cent but Carol Hardie brought it back again and said, 'But it's only for 4 months; it is not for any longer."
And again (AB 94):
"What was discussed about the rate of interest at that meeting?---That it would be 25 per cent - - -
No, I'm sorry, who said what?---Ian stated that - well, it was stated in the records that it would be 25 per cent for the 4 months we would have our money for.
Yes?---But my husband stated that he believed that 25 per cent per annum - that it would be 75 per cent if it went for a whole year.
What did Ms Hardie say in response to that, if anything?---She just brought it back again; that it was only going to be for 4 months so it would be 25 per cent."
52 In his evidence-in-chief, Trevor Shadbolt said (AB 101):
"RABE, MR: There was a discussion about interest and you said that you were told it was 25 per cent over a period of 4 months?---Yes.
Then you said that you did something else. What did you then do?---I double-checked with Ian to make sure that it - because I said to him, 'That works out at 75 per cent per annum.'
Yes?---He informed me, yes, that was as he understood it."
53 Albert Shadbolt made it clear that he was only looking to invest for a short period. That was because his farm was already operating on a substantial overdraft. In relation to the Agreement he explained (AB 105-6):
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"Was there any discussion between you and Ian about the agreement?---Well, I went through it with him. I said, 'Are you sure it's right?' because I said, 'I don't want to put money into a long-term thing' because I run the farm here on an overdraft and suchlike; you're in and out of credit. I said, 'Short-term, sure I'll put money into it.'
You read the agreement, the proposed agreement?---Yes.
The blank document that you were given, was there any reference to a rate of interest on it?---Not actually on the blank one, no.
Did you know what the rate of interest was?---Ian told me it was 25 per cent and I took his word for it. I mean, Carol Hardie sent the papers up that said 25 per cent. It was her handwriting.
Was the term of the loan discussed?---Beg pardon?
Was the term of the loan, the period of the loan, was that discussed?---Approximately 4 months, I think it was.
You referred to an amount of 25 per cent. Over what period did that apply?---I took it over the 4 months and then she was going to pay the whole lot back with 25 per cent interest.
What led you to that understanding?---Well, that's what Ian had said, that she only wanted the money for a short period and that's the way I understood it.
Thereafter, an agreement was prepared for you. Is that correct? Or did you prepare the loan agreement?---No. No, she prepared everything.
How did your agreement come to be in your possession?---She posted it up to us."
54 As I have already noted, the Extension Agreement did not provide for additional interest. Ian Shadbolt was not happy about the extension but agreed to it because the parties were only talking about another six weeks. It is clear from his evidence that he expected the money to be repaid by the termination date and was not happy about the delay. There was no evidence about additional interest being paid after the termination date.
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55 The references in the evidence to 25 per cent for four months being equivalent to 75 per cent per annum are of course mathematically correct, but there is nothing in the Agreement nor in the evidence which indicates an intention that a rate of 75 per cent per annum should apply to any part of the principal outstanding after the termination date. To the contrary, it is in my view quite clear all the parties intended the principal, together with the specified amount of interest, to be paid on the termination date and no thought whatsoever was given to what should happen if that did not occur.
56 So on this approach too, one is led inevitably to apply the principle in Cook v Fowler.
57 In their statements of claim the respondents claimed in the alternative damages for breach of the Agreement, quantified as the amount due on the termination date (comprising the amount of the principal plus the specific amount of interest to that date), plus loss of opportunity to use the moneys comprising the principal outstanding from time to time to their commercial advantage, being an amount equivalent to interest earned on the outstanding moneys at the rate of 18 per cent per annum compounded at four monthly rests.
58 If established, such a claim may be allowed under the principle of Hungerfords v Walker (1989) 171 CLR 125, per Mason CJ and Wilson J at 144-146 and Brennan and Deane JJ at 152.
59 When asked what he would have done with the $10,000 plus the interest had it been received in September 1998, David Shadbolt said that (AB 68):
"At that time we probably would have invested it either in shares or with Winthrop Securities?
Sorry, shares or?---Or Winthrop Securities, and we also at that time were doing a bit of maintenance on the house. We would have spent it on that."
60 At AB 102 Trevor Shadbolt was asked what he would have done:
"Had you received the capital and interest that was due to you under the agreement in July 1998 can you tell the court what you would have done with that money at that time?---It would have been majorly up to Ian, for he had - I had asked him to look for different investments. I had previously invested money
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in fixed - sorry, term deposits. If this had turned out to be - if they had paid on time and in my opinion they seemed to be reliable, I maybe would have invested, whether it be the same amount or more or less, with Challiston and Dean, and Carol."
61 Blythe Shadbolt said simply when asked that if the money and interest had been paid when due, she and her husband would have reinvested in shares, but she could give no further information about what shares.
62 Trevor Shadbolt said that what would have been done with the principal and interest had it been duly paid by the appellants would have been up to Ian Shadbolt. Trevor Shadbolt had asked him to look for different investments; he had previously invested in term deposits. If the appellants had paid on time he "maybe" would have invested the same amount, or more, or less, with them (again).
63 Albert Shadbolt said that if he had been paid the $25,000 on the due date he would have put it into the farm working account, which was in overdraft at the time. After objection to this evidence, counsel for the appellants at the trial conceded (AB 109-110) that at 31 July 1998 the respondents' bank (Challenge Bank) charged 10.25 per cent for the overdraft facility and that Albert Shadbolt's account was overdrawn in excess of $25,000. However, Albert Shadbolt was unable to say how long that situation continued. The account fluctuated from being in credit to being in debit. He confirmed in cross-examination that it was a business trading account so interest payments were tax deductible. That of course would mean the effective rate of interest was somewhat less than 10.25 per cent.
64 The vagueness of the evidence about what the respondents would have done with the amounts of principal and contractual interest had they been paid in accordance with the Agreements does not enable any realistic assessment of loss by the respondents. Nonetheless, it is clear they did suffer some opportunity cost loss. In my view it would be reasonable to allow that at the statutory rate of 6 per cent per annum from the respective termination date to the date of payment in each instance.
65 I would allow each of the appeals. The judgment below should be set aside, and in lieu thereof, the appellants should be ordered to pay in each of the actions respectively, interest to be calculated in accordance with the judgment, namely, interest by way of the sum specified in item 6 of sch 1 of each of the agreements, and interest at 6 per cent per annum
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from the termination date of each loan respectively to the date of payment of the principal sum in each case.