An entity that owned a mine obtained funding through notes issued by it and gave security over its mine. The lender assigned its rights to the mine’s competitor and the new lender alleged default. This was challenged by the borrower along with its liability to pay interest. The borrower argued that the redemption of its notes incorporated interest in the redemption price.
The court held that it was a question of construction and found that the difference between the amount advanced for the notes and the amount redeemable was interest although not described as such. The court found that the intention of the parties was for the interest component to be built in and rectified the agreement to make it clear that interest is only payable after the redemption date has passed. The court held the default notices invalid and accordingly found this disentitled the lender to its contractual indemnity costs.
The judge commented:
I am comfortably satisfied that the notices were issued as part of a campaign to seek to bring about a default so that [the lender] could acquire control of [the borrower’s] assets. It did not act in good faith. It is true that its claim to interest on the debt of $12.6 million was a claim that, as a matter of contractual interpretation, was reasonably arguable. But I am satisfied that [the lender] knew that construction was not the true agreement that the parties had made. It was not reasonable for [the lender] to advance that claim.