The higher interest rate was not a penalty but a valid contractual term: court
The WA Supreme Court ruled in favour of a lender, granting possession of a mortgaged property and upholding the enforceability of a higher interest rate, rejecting the borrower's claims that it was a penalty or unconscionable.
A loan agreement was made on 25 June 2019, under which the lender advanced funds to the borrower, secured by a mortgage over a property in High Wycombe. The borrower was required to repay the loan by 2 July 2020, and interest was set at either a higher rate of four percent per month or a lower rate of 1.95% per month, at the lender’s discretion. After the retained interest period ended, the borrower made no further payments and did not repay the loan by the due date. The lender issued a default notice demanding payment, but the debt remained outstanding. The lender then initiated legal proceedings to obtain possession of the property and recover indemnity costs.
The borrower contested the claim, arguing that the higher interest rate was a penalty and, therefore, unenforceable. He also asserted that the lender owed a duty of care to provide an accurate payout figure. The court rejected both arguments, finding that the higher interest rate was not a penalty but a valid contractual term. The judge noted that similar differential interest rate structures had been upheld in previous cases. The court also ruled that the lender had no legal obligation to provide a payout figure before enforcing the mortgage. It determined that an event of default had occurred when the borrower failed to repay the loan by the agreed date.
Throughout the litigation, the borrower initially had legal representation but later represented himself. The Supreme Court allowed him procedural leniency but maintained fairness for both parties. Despite multiple opportunities, he did not file a witness statement or amend his defence. At trial, he attempted to introduce new issues beyond the scope of the pleadings, which the court did not allow. A director of the lending company provided witness testimony verifying previously filed statements, and the borrower cross-examined him but did not present his own evidence.
The court granted an order for possession of the property to the lender. Indemnity costs were also awarded, except for costs associated with a dismissed summary judgment application and appeal. The decision affirmed that differential interest rate structures in secured loan agreements are enforceable and clarified that lenders are not required to provide payout figures before enforcing a mortgage.
