THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION
TUESDAY 17 SEPTEMBER 1996
20680/96 - JOHN WILSON v ST GEORGE BANK LIMITED
MASTER: On 22 August 1996 the defendant filed a motion seeking that the statement of claim be struck out pursuant to Pt 15 r 26, or that the
proceedings be summarily dismissed under Pt 13 r 5 of the Supreme Court Rules.
I remind myself that in dealing with an application for summary disposal the onus is on the party seeking relief on a summary basis to satisfy the Court that
the opponent has no plausible claim or defence.
Briefly, the facts of the relationship between the parties concern the borrowing by the paintiff of $150,000 from the defendant. The contract was
referred to as a "Home Loan Plus".
The Loan Approval, which is Annexure A to the affidavit of David Singer, sworn on 21 August 1996, indicates that the loan was for a period of
seven years with a five-year period of fixed interest at 10.9 per cent, reducing to 9.9 per cent for prompt payment.
The annexure to the loan approval document dealt with the remaining terms of the loan. It is headed "Fixed Interest Rate Loan - Fixed for 1, 2, 3 or
5 years". The relevant part of that document reads that the interest rate on the loan is fixed for a period of five years. It continues:
"On the 5th anniversary of the first advance of your
loan the above fixed interest rate will cease. At that
time , the following interest rate options will be available:
(a) A further interest rate period at the rate applicable
for St George's fixed rate residential loans at that time;
(b) St George's variable residential loan interest rate
applicable at that time."
The defendant publishes from time to time the interest rates for its various lendings, including the home loan interest rates. Annexed to Mr
Singer's affidavit are two publications, one is a copy of a publication of the rates which is available in branches of the defendant's bank, the second (annexure E) is an example of a publication
in the Sydney Morning Herald of Monday 29 July 1996. Mr Singer deposes that the rates are published in the Sydney Morning Herald on each Monday.
The plaintiff's statement of claim was filed on 4 July 1996. It recites in the first eight paragraphs details of the Home Loan Approval. It sets
out information which the plaintiff says is relevant to his argument. The statement of claim then reads:
9. There is no certainty as to what 'the rate applicable for St George's fixed rate residential loans' will be "On the 5th
anniversary of the first advance' and , therefore, what the monthly repayment figure will be.
10. There is no certainty as to what 'St George's variable residential loan interest rate' will be 'On the anniversary of the
first advance' and, similarly, what those monthly repayment figures will be.
11. Variable interest rate loan contracts are contrary to Common Law which demands that 'certainty of terms' are an essential
element for the creation of a contract.
12. Variable interest rates contravene basic principles of economics applicable to the determination of 'The rate of interest charges
for any particular transaction' (Ref Collins Dictionary of Economics. Second Edition) which will depend on such considerations as the purpose and duration, the amount borrowed, the
collateral security (if any), and the creditworthiness of the borrower, all factors influencing the degree of perceived 'risk' involved in making the loan by the lender."
Part 13 r 5 of the Supreme Court Rules provides that where in any proceedings it appears to the Court that there is no reasonable cause of action disclosed, or
the proceedings are frivolous or vexatious, or the proceedings are an abuse of the process of the Court, the Court may order that the proceedings be stayed or dismissed generally, or in relation to
any claim for relief in the proceedings.
Part 15 r 26 provides that:
"Where a pleading discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading, or has a
tendency to cause prejudice, embarrassment or delay in the proceedings, or is otherwise an abuse of the process of the Court, the Court may ... order that the whole, or any part of
the pleading be struck out."
The plaintiff's argument is quite simple and clear. He submits that under his contract with the defendant he does not know what rate of interest he
will have to pay in five years when the fixed interest component of his loan expires and he, therefore, does not know what the loan will cost. Thus, the contract is uncertain and must be void for
In aid of this submission the plaintiff calls on the words of Viscount Maughan in Scammell and Nephew Limited v Outon (1941) AC 251 where the learned judge
"There was no evidence to suggest that there are any of the well-known usual terms of such a contract, for instance, as to the
The "terms" to which the judge was referring concern interest rates which were said to be "hire-purchase terms payable over two years" and
in the circumstances this term was held to be void for uncertainty and therefore the contract was held to be void for uncertainty.
The question of the effect on a contract where the future interest rate is uncertain, although specified at the time when the contract was entered
into, was considered by Smith J in the Supreme Court of Victoria in Tonelli v Komirra Pry Limited. It is reported at (1972) VR 7737. At page 741 the learned judge wrote:
"The defendant's contention that the sale note was void by reason of uncertainty as to the rate of interest payable on outstanding
purchase money was based on the fact that conditions 2 (A) and 2 (B) provided that the rate of interest should be one-quarter per cent above 'the current bank overdraft rate'. It was
submitted that what these words referred to was a current rate which would have been charged by whatever bank the plaintiff might have approached for a loan of the amount of the outstanding purchase
money. And it was pointed out that, according to the evidence, the rate which each bank would have charged any customer upon any loan, whatever the amount or purpose, would have been fixed
by negotiation with the particular borrower; so that it was not possible to identify any rate as being that currently charged by banks for any particular size or class of loan.
In my view, however, the conclusion that follows from this state of the evidence is not that the provision as to the rate of interest
was void for uncertainty. It is that the provision does not refer to a rate of interest currently charged by banks for loans of a certain size or class, but refers to the only uniform rate
that did exist, namely, the uniform maximum bank overdraft interest rate prescribed and published from time to time by the Reserve Bank with the approval of the Commonwealth Treasurer.
Accordingly, this third allegation of uncertainty, like those earlier discussed must be rejected."
Turning now to the terms of the loan approval which I have dealt with in greater detail earlier, the loan approval is for the period of seven
years, the first five years of interest being fixed at 9.9 per cent, the remaining two years of interest on the loan would be set at one of the two options which were available: either the St George
fixed residential rate applicable at that item; or the St George variable residential loan interest rate applicable at that time.
I am of the view that the contract which the parties entered into is not void for uncertainty. The agreement between the parties is that at the end of
five years, the interest rate will be that prescribed and published by the bank for residential fixed interest rate loans, or the variable interest rate loans. Uncertainty does not lie in the terms of
the contract which were agreed between the parties, but in what the rate will be applicable at the expiration of the five years. Thus whilst the amount of that future rate is uncertain, the rate
itself is indeed certain. It has been defined as the rate that is applied in the circumstances which I have earlier set out.
It follows, therefore, that the plaintiff's pleading falls because the gravamen of his complaint, namely, that the contract is void for
uncertainty, is not correct. The contract is certain, certain in its terms. It is the percentage of interest to be determined in an agreed way and payable in the sixth and seventh years of the
contract which is unknown at this point in time. Now whilst the quantum of the future interest rate is uncertain, its method of determination is not.
As the basis of the plaintiff's claim is built upon the submission that the contract is void for uncertainty, it follows that the plaintiff's
claim cannot stand. I, therefore, dismiss the statement of claim. The plaintiff is to pay the defendant's costs.
It follows from what I have said that the plaintiff's motion for summary judgement also cannot stand. I, therefore, dismiss that
motion, the plaintiff to pay the defendant's costs.
I certify that this and the five preceding pages are a true copy of the reasons for judgement herein of Master Greenwood.
Dated 17th September, 1996