“Illegal” penalty loan rates go to appeal: ramifications for finance & property immense
The Casino NSW borrower who won a reprieve against mezzanine interest rates of 7.5% per month, has failed to stop the lender entering into possession for a mortgagee sale of her Lake Cooroibah property.
Ordered in February to pay syndicate lender PSAL Limited $1,366,330.95 – calculated by reference to a court-reduced interest rate of 5% per month – on or before 4 pm 28 March, Wendy Kellas-Sharpe filed an appeal and applied to the supreme court in Brisbane for an order preventing the lender taking the property until after three appeal judges rule on her case.
The appeal argument – that has fundamental ramifications for finance lending practices across Australia – is whether or not the differential between base and default mortgage interest rates amounts to a de facto illegal “penalty”.
The loan was on the time honoured terms of a “standard” interest rate of 7.5% per month and a “concessional” rate if payments were made promptly – and if the borrower was not otherwise in default – of 4% per month.
Trial judge Applegarth J, conceded that the “well-established” rule that protects such practice “may have unsatisfactory origins” and that “the time may have arrived for it to be replaced”. He declined to do so on the basis that such interest rate spreads have been considered without grievance by the courts for more than 300 years.
Her application for a stay of enforcement of the February ruling was heard on 16 April and the decision published on Thursday.
Noting that “it is arguable, at least in the High Court, and perhaps in the Court of Appeal, that it should now be held that the jurisdiction to relieve against penalties does extend to an interest rate provision in the present form”, Fraser JA deciding the application, refused it only on the basis of the basis of potential prejudice from delay, to the lender.
Our heroic nurse – if she remains presistent – may yet get her redress.
But to dampen all enthusiasm and to change the economics of the fight, the lender began proceedings on 4 May, to take possession of the mortgaged property.