Shepparton Projects v Cave Investments [2013] VSCA 152

The loan agreement was for a substantial sum, for the purpose of a subdivision of land. When it became clear that the project was taking longer than expected to complete, the parties renegotiated. It was a condition of the renegotiated loan agreement that in absence of default the lender would accept repayment by 14 blocks of the subdivision in lieu of cash repayment.

Subsequently, the borrower defaulted on its obligation to pay interest. It had also defaulted on another condition of the loan, to report about the progress of the subdivision. The lender wrote a letter to the borrower requesting payment of outstanding interest within seven days. In that letter, the lender (who was aged 81) made an error about the dates.

The amount was not paid by the due date, however the borrower offered an amount which was less and together with interest up on the erroneous dates the lender had put in the letter. This payment was rejected by the borrower. The lender then rejected the agreement to repay by transfer of land, and claimed that repayment of the loan amount in cash was required, together with interest.

The lender filed proceedings seeking the cash amount plus interest. The borrower argued the lender could not claim the sum in cash because the loan provided for transfer of property and there had not been any default; and further, that the lender had in fact repudiated the contract by refusing to accept the interest payment they had offered.

The Court of Appeal determined that the effect of the letter sent by the lender, when looked at against the contractual relationship between the parties, was plain. At the time of the letter the borrower was still required to accept repayment by way of transfer of properties. However the contents of the letter did not mean that the lender was not entitled to exercise his option to require repayment in cash upon default by the borrower.

As to whether there had been default, the Judges found that the borrower had an obligation to pay interest in the higher sum (the amount stated by the lender in his letter), not the reduced amount that they offered. The Judges stated that part payment of that debt was not enough to fulfil the borrower’s obligations under the loan and it was in default. It also still had not furnished any reports as required by the loan. Therefore the lender was justified in rejecting the partial payment by the borrower and insisting on its rights.

The Judges confirmed that the lender was entitled to a judgment in his favour for the cash amount plus interest owing.

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