This was an appeal by a borrower to the Court of Appeal from the decision of the trial judge. Equititrust, entered into five loan facilities with related Borrowers for amounts totaling $20 million. The amounts were all repaid, but not until after the due date. The Borrowers brought proceedings contend the amount of interest that Equititrust had charged.
Equititrust argued that it was entitled to charge interest at the “Higher Rate” from the due date until repayment. The Higher Rate was 6% pa higher than the “Lower Rate” payable if the loan was not in default. The Borrowers argued that Equititrust had made an election that precluded it from charging interest at the Higher Rate, or alternatively, that Equititrust was estopped from charging interest at that rate.
The trial judge noted the Borrowers’ case of estoppel was the classic one of where the “defendant is alleged to have made a representation to the plaintiffs, by words and conduct, justifying an assumption by the plaintiffs that the defendant would not exercise or insist upon its existing legal rights”. He noted the elements needed to establish this were:
- the words or conduct of the defendant must be clear and unambiguous;
- the conduct of the plaintiff in relying to its detriment on those words or that conduct must be reasonable;
- the defendant must know or intend that the plaintiff will act or abstain from acting in reliance on those words or that conduct;
The trial judge concluded:
All of the necessary features of an equitable promissory estoppel are absent in this case. The lender’s conduct was not clear and unambiguous; the borrower’s reliance was not reasonable; the lender had no reasonable expectation that its words or conduct would induce some detrimental reliance by the borrowers; and the commercial reality and inherent probabilities are against the borrowers. Even more fundamentally, I am not satisfied that the borrowers’ director held and maintained the assumption that is the foundation of the borrower’s case…
The Borrowers’ election argument was that Equititrust made an unequivocal election to charge interest at the Lower Rate, rather than the Higher Rate, by providing account statements to the Borrowers debiting interest only at the Lower Rate and by accepting payments of that interest. The Borrowers argued that Equititrust’s rights to charge interest at the Higher and Lower Rates were inconsistent rights and that the common law principle concerning election between alternative rights or remedies and precluded Equititrust from charging interest at the Higher Rate after it had made an unequivocal election to charge only at the Lower Rate.
The trial judge’s rejected this argument:
In my view, the circumstances of this case do not give rise to an election. The conduct relied upon was not unequivocal in the sense of being consistent only with the exercise of one of two sets of rights and inconsistent with the exercise of the other. The contractual terms expressly contemplated, and absolved the lender from the consequences of, any indulgence, omission, neglect, delay, waiver or failure to exercise a right. The lender was not making a choice to charge the Lower Rate of interest and to abandon its entitlement to the Higher Rate. Further, it made its position clear in the loan statements which it issued to the Borrower. … In my view, the borrower’s director well understood this, despite his claim that he did not read the reservation of the defendant’s right to charge default interest that appeared on the statements.
The account statements in question contained the following note at their foot:
This is a statement of transactions only and does not show a payout figure or default interest calculations.
The trial judge further noted that Equititrust’s rights were not inconsistent. If they had been inconsistent, a reservation of rights would likely have been ineffective because the outright exercise of one such right usually constitutes an election not to exercise the other, whatever reservation might have been made where a party unsuccessfully sought to “protect himself against the legal consequences of his acts by stating that he [did] them without prejudice” . If the time has not arrived at which a party is confronted with the need to choose between two inconsistent rights, it may keep its position open by refraining from engaging in conduct that unequivocally indicates that it has made a choice between them. If there has not been any outright exercise of one of the rights, reservations by a party of its rights may assist in depriving its conduct of the necessary unequivocal character.
The trial judge also noted that a further reason that the Borrowers’ election argument fails is that, by charging interest at the Lower Rate, Equititrust did not exercise a right that was inconsistent with its rights to charge interest at the Higher Rate. Equititrust’s conduct amounted to the charging (and acceptance of payment of) a part, rather than the whole, of the interest debt. That conduct did not of itself preclude Equititrust from subsequently claiming the balance as it has long been established that acceptance of part payment of a debt does not, without more, satisfy the whole of the debt. The common law doctrine of election did not therefore apply here because Equititrust’s claim for, and acceptance of payment of, the lesser amount of interest was not inconsistent with its later claim for a greater amount. This is not to say that some other principle of law such as estoppel might not in some circumstances preclude a creditor’s later claim but that depends on other considerations which were absent here.
The Court of Appeal agreed with the trial judge however Justice Young made the following additional comments concerning interest charges:
It is significant that the Higher rate was the contractual rate. It is only if the loan is not in default the Lower rate constitutes a sufficient discharge of the obligation to pay interest.
The reason why the document takes this form is that, traditionally, making the lower rate the ordinary rate and setting a higher rate for late payment might be set aside as a penalty in equity.
Whilst lawyers appreciate this, it is understandable that lay borrowers may not, especially if the lender does not strictly enforce the payment of interest at the contractual rate.
I can thus understand the appellants’ apparent feeling that they are hardly done by, but in my view, they are contractually bound to pay in accordance with the primary judge’s determination.