Edwards Jason Glenn v Australia and New Zealand Banking Group Ltd

Tay Yong Kwang J:

[1] This case, at its simplest, is one of a borrower who took out a loan to buy properties and to invest and now refuses or is unable to pay it back. It is complicated by the mechanisms within the loan, for example, the different currencies that denominate the different tranches of the loan, as well as the different triggers that set off related calls on the loan but, at its heart, it is a case of a borrower who is facing a claim from the bank and seeking a declaration to absolve himself of his debts. In attempting to do so, the plaintiff has mounted a multi-pronged attack on the contract he signed on, claiming, among other things, that the contract is void for uncertainty and that there are multiple difficulties in the construction of the contract.

[2] Having considered the evidence and the parties’ three sets of written submissions tendered sequentially after the trial, I have decided to dismiss the Plaintiff’s claim and to allow the Defendant’s counterclaim. I now give the reasons for my decision.

[3] The plaintiff, Jason Glenn Edwards (“Edwards”) is an Australian citizen who has lived in Singapore for 6 years. He is General Counsel at Clearwater Capital Partners, a firm in the business of private equity and fund management. He was previously a partner at the law firm, Baker and McKenzie. It is not in dispute that Edwards is a financially astute and sophisticated customer who was proactive in buying and selling instrument funds as well as booking forward currency conversions. His income is paid to him in either USD or SGD.

[4] The defendant, Australia and New Zealand Banking Group Limited (“ANZ”), is an international banking group operating in Singapore. ANZ provides banking and financial services, including deposits services and loan facilities.

[5] Edwards testified at the trial. An Australian property valuer who did a valuation of 61 George Street in Queensland (see [10] below), one of the properties in issue here, and an Australian estate agent engaged by the previous owner of 61 George Street to sell the said property in January 2008 were supposed to testify at the trial via video-link. However, it was agreed at the start of the trial that their affidavits of evidence-in-chief (“AEIC”) be admitted without cross-examination but would be subject to submissions to be made. The witnesses who appeared for ANZ at the trial were:

(a) Ms Jodene Frances Edwards (“Jodene Frances”), a former employee of ANZ in Singapore from 2004 - June 2007. She is a former Private Banker in ANZ, specializing in the sale of dual and multi-currency facilities. She met Edwards sometime before January 2006 in her capacity as private banker after he was referred to her by one of her colleagues.

(b) Malcolm George Crispe (“Crispe”), an ANZ Associate Director of Private Banking at ANZ. He dealt with Edwards after Edwards’ account was transferred to him from Jodene Frances in April 2007. Crispe was Edwards’ Relationship Manager till April 2009, when Edwards’ account was transferred to the Asset Management Unit of ANZ.

(c) Maya Lim, the Senior Manager, Lending Services Asia of ANZ. He dealt with Edwards from 20 April 2010 onwards.

[6] Similarly, an Australian valuer engaged by ANZ to do a retrospective valuation of 61 and 75 George Street (the latter being the other property in issue here- see [9] below) was also supposed to have testified via video-link. His AEIC was also admitted by consent without cross-examination but subject to submissions to be made.

[8] In January 2006, ANZ advertised a package that appeared to be perfectly suited to Edwards’ needs. It featured the ability to borrow in income currency and/or property currency and the flexibility to switch in between.

[9] On 24 January 2006, Edwards signed a facility letter for a Multi Currency Term Loan Facility (“the Facility Letter”). Funds were made available to Edwards in Japanese Yen (“JPY”), Singapore Dollars (“SGD”), Australian Dollars (“AUD”) and US Dollars (“USD”). ANZ’s Standard Terms and Conditions (“the T&Cs”) were issued as part of the Facility Letter. The stated purpose of the facility was to refinance an existing loan with Commonwealth Bank of Australia, Hong Kong, for a property located at 75 George Street, Burleigh Heads, Queensland, Australia (“75 George Street”), for investment purposes, and to finance the purchase of a residential property located in Singapore. The Facility Letter was subsequently varied by variation letters dated: 22 March 2006, 13 April 2006, 27 July 2006, 21 August 2007, 10 December 2007, 14 July 2008 and 23 October 2009 (collectively, “the Variation Letters”). The Facility Letter, Variation Letters and the T&Cs together formed the entire facility agreement (“the Facility Agreement”) entered into between Edwards and ANZ. I draw particular attention here to the 14 July 2008 variation letter (“the 14 July letter”). It is of central importance in this trial and almost the entirety of the trial was spent on interpreting the clauses in the 14 July letter (see [42] – [102] below).

[10] In July 2008, Edwards wanted to purchase 61 George Street Central, Burleigh Heads, Queensland 4220 (“61 George Street”). He sought a variation of the existing loan facility to obtain additional loan funds in order to assist in financing the purchase. On 14 July 2008, Edwards signed the 14 July letter which set out how much funds would be made available to Edwards and what securities ANZ wanted from Edwards. It also set out terms relating to the Loan to Security Ratio (“LVR”) and terms relating to the consequences of breaching certain LVRs (see [43] below for the exact terms). On or about 25 July 2008, Edwards drew down on the new facility. The amount required was AUD 1,714,879.11, of which Edwards requested that:

(a) AUD 1,000,000 be converted to JPY, with the resulting loan being JPY 103,709,000;

(b) AUD 714,879.11 be converted to USD, with the resulting loan being USD 688,078.29.

[11] As of or about 25 July 2008, Edwards’ total loan principal under the Facility Agreement (“the Total Loan Principal”) was:

(a) AUD 269,073.04;

(b) JPY 180,297,938; and

(c) USD 997,148.29.

[12] On 7 October 2008, the LVR was in excess of 80%, a stipulated threshold in the Facility Agreement (see [43] below). On 10 October 2008, Crispe informed Edwards via email that a call had been triggered on the remaining loans. Crispe asked that Edwards call him to discuss his options. Crispe also attached to the email:

(a) A letter dated 9 October 2008 by Michael Byers, the Head of Risk and Compliance, Private Banking, Asia, by which ANZ informed Edwards that: LVR was in excess of 90% and that Edwards was required to either (1) provide additional security of a pledged cash deposit of an amount not less than AUD 1,139,000; (2) reduce the loan outstanding by AUD 1,025,000; or (3) provide other security that would be acceptable to ANZ by 20 October 2008. If he did not do either of the three, ANZ would exercise its right to convert Edwards’ loan outstandings.

(b) A spreadsheet summarising Edwards’ position, containing the value of the securities, the amount of loan outstandings, the maximum approved LVR and the amount of payment that needed to be made by Edwards to cure the LVR breach.

[13] On 10 October 2008, Edwards responded that he wanted to:

(a) liquidate the funds that were being used as security for the facility;

(b) repay the AUD loan in full;

(c) make partial repayment of the USD loan the following week;

(d) not have the loans converted.

[14] On or about 24 October 2008, Edwards’ LVR was still in excess of 80%. On 31 October 2008, Edwards informed Crispe via email that he had set up the standing instruction to transfer USD 10,000 a month, beginning 3 November 2008. On or around 6 November 2008, USD 10,000 was received by ANZ.

[15] On 17 November 2008, Crispe informed Edwards over the phone that ANZ had decided to convert all loan outstandings to AUD, as LVR was in excess of 90%. Edwards expressed disappointment and stressed that he had the capacity to make payment to reduce the loan outstandings.

[16] In email replies on 18 November 2008, Edwards reiterated his proposals to avoid conversion. He proposed to pay the AUD loan with:

(a) at least USD 200,000 from his bonus;

(b) proceeds from the sale of his Thai property; and

(c) proceeds from the sale of the Series 11 Fund.

[17] He also proposed to reduce the USD portion of the loan from approximately USD 997,000 to USD 350,000. He would then continue to pay USD 10,000 each month and add to these monthly payments to make sure the rest of the USD loan was repaid in full in less than two years. These proposed payments would leave him with the JPY portion outstanding.

[18] In an email dated 18 November 2008, Crispe informed Edwards that the JPY loan would be converted to AUD but Edwards could retain the USD portion of the loan on the basis that USD 500,000 would be repaid by March 2009, with USD 300,000 paid from the proceeds of sale of the Thai property and USD 200,000 from Edwards’ bonus. Upon conversion of the JPY loan to AUD, the proceeds from the sale of the Series 11 Fund and term deposit of AUD 44,047.27 would be used to repay part of the AUD loan, with the remaining AUD loan being AUD 2,635,000. In response, Edwards’ sent an email to Crispe the same day, proposing to pay an additional USD 300,000 to avoid the conversion of the JPY loan. Edwards stated that he may have to seek a loan from his employer to raise the USD 300,000. He stated that this proposal would bring the LVR down to 90% in a few months, and following from that, he could repay the remaining loans.

[19] On 19 November 2008, Crispe called Edwards to inform him that his proposal was rejected. The JPY loan was to be converted but the USD portion of the loan could be retained. According to a diary note prepared by Crispe, Edwards expressed his disappointment over the JPY conversion and wanted to challenge the decision. Crispe advised that the decision was final and would not be reviewed. On 20 November 2008, when the LVR stood at 120.93%, ANZ confirmed the conversion of the JPY loan to AUD by way of email and written confirmations which set out the amounts that were converted. JPY 180,297,938.00 would be converted to AUD 2,962,518.97. The Actual conversions took place on 25 November 2008 (LVR at 119.6%), 17 December 2008 (LVR at 120.8%), and 26 March 2009 (LVR at 117%).

[20] Between December 2008 and April 2009, Edwards liquidated some of the security that he had pledged to ANZ and used the funds to repay his loans. He also made monthly repayments of USD 10,000.00 from November 2008 to March 2010, as proposed earlier (see [17] above). However, he failed to make the USD 300,000 payment which was supposed to come from the proceeds of sale of the Thai property and also did not make repayments from his bonus, two repayments that were part of the same proposal. The USD 10,000 payments were insufficient to reduce the loan significantly and the LVR remained in excess of 90%. Crispe reminded Edwards in an email of 3 March 2009 that the retention of the USD portion of the loan was conditional on the payments coming from Edwards’ bonus and the proceeds of sale of the Thai property. Edwards replied the same day via email, stating that his bonus was only USD 150,000 and that it was payable in instalments. More importantly, Edwards demanded to know what assurance ANZ would give him before he would commit to repayment.

[21] As of 16 April 2009, Edwards’ total outstandings under the Facility Agreement were AUD 2,591,134.06 and USD 997,148.29. After the earlier liquidations, the residual securities were the mortgages over 61 and 75 George Street. On 3 April 2009, 29 April 2009 and 30 April 2009 ANZ sent letters to Edwards proposing repayment arrangements, but these were rejected by him.

[22] By 6 May 2009, ANZ had not received the USD payment from the sale of the Thai property. Crispe sent an email to Edwards on the same day informing Edwards that his USD loan outstandings would be converted to AUD if he did not furnish the sum of USD 285,000. Edwards replied the same day stating that the buyer of the property wanted three more months and that the funds had not been transferred. Crispe replied stating that ANZ was not prepared to offer any further concessions with regard to the receipt of payments and would exercise its rights under the Facility Agreement and convert the USD loan to AUD if the payments were not received.

[23] On 7 May 2009, nearly seven months after default, Crispe informed Edwards that his USD loan outstandings would be converted and confirmed the conversion by way of written confirmations. The total loan outstandings in USD of USD 997,148.29 would be converted to AUD 1,332,144.82. The conversions took place on 15 May 2009 (LVR at 118.4%), 22 May 2009 (LVR at 117.4%) and 25 September 2009 (LVR at 117.4%).

[24] As of 25 September 2009, Edwards’ total loan outstanding was AUD 3,923,278.88 (“the post conversion amount”).

[25] In a letter dated 22 October 2009 (“the 22 October letter”), ANZ offered Edwards, on a without prejudice basis, certain terms of repayment. Edwards signed the letter, acknowledging that the total debt owing by him as at 19 October 2009 was that of the post conversion amount.

[26] On 14 March 2010, Edwards sent an email to ANZ informing the bank that he was no longer able to meet him repayment obligations (as agreed to in the 22 October letter) and proposed two alternative repayment plans. On 29 March 2010, Edwards requested a copy of the facility letters from ANZ. From April to May 2010, ANZ’s employees and Edwards engaged in discussions to restructure the loans. In May 2010, Edwards made a complaint to the Australian Financial Ombudsmen Service. ANZ ceased discussions with Edwards. In June 2010, Edwards contacted ANZ regarding the sale of 75 George Street. On 30 June 2010, ANZ’s solicitors sent a letter of demand to Edwards. On 5 July 2010, Edwards commenced these legal proceedings. On 21 July 2010, pursuant to Clause 21 of the T&Cs, ANZ issued a Conclusive Certificate for the amount of AUD 4,021,855.59. Edwards argued that this certificate was not sent to him. This amount consisted of:

(a) Principal sum: AUD 3,923,278.88;

(b) Interest accrued pursuant to Clause 4 of the 23 October 2009 Variation Letter: AUD 95,902.51;

(c) Default Fee pursuant to Clause 7 of the T&Cs: AUD 1,024 (SGD 1,200 converted at SGD/AUD rate of 0.8535); and

(d) Valuation Fees pursuant to Clause 15 of the T&Cs: AUD 1,650.00.

[27] On or about 30 August 2010, Edwards, with ANZ’s consent, sold 75 George Street for AUD 1.1 million and ANZ received the sale proceeds of AUD 1,057,059.96, which was set off against ANZ’s counterclaim.

[28] Edwards’ claims against ANZ are:

(a) A declaration that the two conversions amounted to breaches of ANZ’s duties to Edwards and were invalid;

(b) Further or in the alternative, damages for ANZ’s breaches to be assessed;

(c) Interest;

(d) Costs; and such further or other relief as the Court deems fit.

[29] ANZ’s counterclaim is:

(a) A sum of AUD 2,964,795.63; and

(b) Default interest on the sum of AUD 4,021,855.59 at the rate of 4% per annum above ANZ’s Costs of Funds, from 21 July 2010 to 29 August 2010; and

(c) Default interest on the sum of AUD 2,964,795.63 at the rate of 4% per annum over ANZ’s Costs of Funds, from 30 August 2010 until date of full payment; and

(d) Costs on an indemnity basis.

[30] This case centres on the construction of 2 clauses which formed part of the 14 July letter.

[31] Edwards’ case was that the only real issue was whether the Variation Letter gave ANZ the right to convert the denominations of the currency used in the loans. He submitted that the Variation Letter clearly did not give ANZ this right. In deploying this argument, he assailed certain words in the two clauses and argued, in the main, that the contract was uncertain.

[32] Before I begin on the issues, though, it would be useful to set out the law that governs cases such as this which turn on the interpretation of contracts.

[33] The interpretation of a contract is an objective exercise. This was made clear by the Court of Appeal in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] 3 SLR(R) 1029; [2008] 3 SLR 1029 (“Zurich Insurance”), where the court (at [131]) endorsed a summary of principles set out by Gerard McMeel in his book, The Construction of Contracts: Interpretation, Implication, and Rectification (Oxford University Press, 2007) (“McMeel”), two of which I find useful to set out as a backdrop for the exercise of construction that this case requires:

[34] Lord Steyn referred to this objective exercise in Sirius International Insurance Co (Publ) v FAI General Insurance Ltd and others [2004] UKHL 54 (at [18]-[19]), where he addressed the approach to take when construing a commercial instrument:

[35] The objective nature of the inquiry as set out in the above case was referred to in the Court of Appeal case of The “Asia Star” [2007] 3 SLR(R) 1 (at [36]). I now turn to addressing the parties’ arguments. As will be seen, Edwards’ arguments were essentially in the same vein as the literalism Lord Steyn cautioned against.

[36] This was an argument that Edwards raised at a rather belated stage. Edwards applied, on the second day of trial, to amend his pleadings to take this argument into account. He argued that the 14 July letter was impossible to understand because it varied a “mysterious facility letter dated 10 December 2007 whose terms are unknown” (“the 10 December Facility Letter”). For clarity, this was what the beginning of the 14 July letter stated:

[37] Edwards then argued that the terms of the 10 December Facility Letter were essential to a proper understanding of the terms and structure of the 14 July letter.

[38] There were two more documents that were referred to by the parties:

(a) an unsigned 10 December 2007 variation letter titled “Facility Letter 1” (“the unsigned letter”);

(b) another 10 December 2007 letter (“the second 10 December letter”).

[39] Crispe testified that the unsigned letter that was produced in discovery was the 10 December Facility Letter. ANZ’s arguments were as follows:

(a) The 10 December Facility Letter was immaterial to the interpretation of Clauses 14 and 16.

(b) The unsigned letter was the 10 December Facility Letter that was referred to in the 14 July letter. ANZ argued that though Edwards claimed to have signed a letter (meaning that the unsigned letter could not be the letter referred to), he did not deny that the unsigned letter bore the same terms as the 10 December Facility Letter which formed part of the facility arrangement.

(c) The contents of the second 10 December letter and the evidence of Crispe clarified that the second 10 December letter related to a separate term loan facility.

(d) This contention regarding the referencing of the correct letters was not a genuine contention but an afterthought that came up only during trial. The contention did not appear anywhere in Edwards’ pleadings, earlier affidavits or AEIC, despite the unsigned letter having been disclosed by ANZ very early in the proceedings. The remedial Action taken by Edwards’ was to seek to apply to amend his pleadings on the second day of trial. This was dismissed by the court.

[40] As I stated when I dismissed the application to amend during the trial, I was of the view that it was incumbent on Edwards, having contested that the letter was not the same one as the one he signed, to prove his assertion by oral or documentary evidence. To continue to contend that the unsigned letter was a mystery letter that could have been a version different from the 10 December Facility Letter, in and of itself and without proof, would be a venture into the realm of speculation.

[41] Ideally, of course, I would have preferred to have had sight of a signed copy of the 10 December Facility Letter. However, this was not produced and Edwards’ inability to prove his assertion leaves me with the version that ANZ has produced, the unsigned letter, which I take to contain the contents of the 10 December Facility Letter.

[42] The 14 July letter was a document that both parties placed a great deal of emphasis on. It was a variation letter sent to Edwards from ANZ’s Head of Risk and Compliance for its Private Bank division, Michael Byers.

[43] It would be beneficial to set out the relevant clauses of the 14 July letter in full. The relevant clauses are:

[44] It was explained by ANZ during the trial that the reference to “Clause 4” in Clause 12(v) was Actually a reference to Clause 12(iv). Having set out the relevant clauses, I now address the arguments relating to them.

Was ANZ only entitled to effect a redenomination of Edwards’ loans upon a change of currency of his income, by virtue of clause 16 being read with clause 14?

[45] Edwards’ position is that, consistent with ANZ’s promotional material and Edwards’ own understanding of the matter from the outset and the clear terms of the 14 July letter, ANZ was only entitled to effect a redenomination of Edwards’ loans upon a change of currency of Edwards’ income.

[46] In support of this position, Edwards relies on the words “Subject to the provisions in clause 14...” at the beginning of Clause 16 and argues that the clear and obvious meaning of these words is that Clause 16 is subservient to Clause 14. He argues that:

(a) Any limitations applicable to the dominant clause will apply equally to the subservient clause.

(b) Clause 14, the dominant clause, states that ANZ could only redenominate loans upon a change in Edwards’ income currency.

(c) Clause 16, being subservient, must be limited by the same.

(d) Accordingly, because the currency of Edwards’ main income never changed, ANZ did not have any right to redenominate his loans.

[47] Edwards argues that if it was intended that Clause 16 could provide for redenomination in circumstances not envisaged by Clause 14, Clause 16 would have started with the words “Notwithstanding the provisions in Clause 14” and not “Subject to the provisions in Clause 14”.

[48] ANZ’s position is that Edwards’ interpretation is ill fitting and submits as follows:

(a) the meaning of “Subject to the provisions in clause 14” in Clause 16 is that the rights or obligations in Clause 16 are subject to ANZ having the rights that it has reserved in Clause 14.

(b) Clause 14 is not a clause that sets out limitations or conditions on ANZ’s rights.

[49] I agree with ANZ’s argument that Clause 14 is not a clause that sets out limitations or conditions on ANZ’s rights. Firstly, clause 14 relates to “General Conditions”. By this, I understand that the two rights ANZ reserves to itself in Clause 14(a) and (b) are the right to require the borrower to reduce the amount owing under the Facility Agreement if LVR exceeded 80%, and the right to require Edwards to redenominate the Facility into a different currency other than USD/SGD/JPY upon a change in the currency of his main income.

[50] The scenario envisioned in Clause 16 is a slightly different one. Here, the event that is being considered is that of the outstanding loan amount being denominated in a currency different from the currency of the Security. When a scenario falls under this description, the clawback conditions in Clause 16 will apply. The words “Subject to the provisions in clause 14...”, in my opinion, mean that ANZ retains the two rights in Clause 14 but in this particular situation of there being an outstanding loan amount that is denominated in a currency different from the currency of the Security, the clawback conditions in Clause 16 will apply. In a sense, Clause 16 is a sub-specie of the general scenarios envisaged in Clause 14.

[51] Accordingly, I do not agree with Edwards’ submission that ANZ was only entitled to effect a redenomination of the loan upon a change of currency of his income.

[52] For ease of reference and understanding, I set out Clause 16(c) again. I have emphasized the phrases in the clause which are the bone of contention here:

[53] Edwards’ case is as follows: Clause 13(b) makes no reference to “additional securities” that Edwards may be required to furnish to ANZ. Similarly, Clause 13(a) does not refer to any relevant amount for any “CLAWBACK CONDITION”. The only thing that is clear about Clause 16(c) is that it does not give ANZ the right to redenominate Edwards’ facilities in the manner that it did.

[54] ANZ’s case is that the references to “CLAWBACK CONDITION – Clause 13(a)” and “CLAWBACK CONDITION – Clause 13(b)” in Clause 16(c) were typographical errors. ANZ does not deny making a mistake in the references to Clause 13(a) and (b). ANZ argues that the correct references should be to “CLAWBACK CONDITION – Clause 16(a)” and “CLAWBACK CONDITION – Clause 16(b)” respectively.

[55] First, Clause 16 is the only clause in the 14 July letter that is titled “CLAWBACK CONDITION” and the inclusion of the phrase “CLAWBACK CONDITION” in the erroneous references indicates clearly that Clause 16(c) was referring to Clauses 16(a) and 16(b).

[56] Second, the terms “relevant amount” and “deposits and/or securities” are not mentioned in Clause 13 at all. Clause 13 (titled “CONDITIONS PRECEDENT”) deals with completely different subject matters and that makes it even clearer that parties could not have intended the references to be to Clauses 13(a) and 13(b), which provide that ANZ’s obligations under the Facility Letter are subject to the bank receiving a copy of the insurance for the two properties in issue and a copy of the receipt evidencing full payment of Edwards’ equity portion for the purchase of 61 George Street (wrongly stated as 64 George Street in Clause 12(ii) and as 6 George Street in Clause 6). .

[57] Third, the initial facility letter of 24 January 2006 (“the Initial Facility Letter”) that was signed by Edwards has the same “CLAWBACK CONDITION” clause at Clause 16, where the references to the sub-clauses are correct. Clause 16 of the Initial Facility Letter reads as follows:

[58] ANZ then submits that the court has the power to correct obvious mistakes in the written expression of the intention of the parties and, once corrected, the contract is interpreted in its corrected form.

[59] I find ANZ’s arguments on this matter persuasive. First, the clauses referred to in Clause 16(c) were labelled “CLAWBACK CONDITION - 13(a)” and “CLAWBACK CONDITION - 13(b) above”. In the 14 July letter, there are no other clauses with the heading “CLAWBACK CONDITION”. Second, a similar clause in the Initial Facility Letter referred correctly to Clauses 16(a) and (b).

[60] I adopt the principle set out in Kim Lewison, The Interpretation of Contracts (Sweet & Maxwell, 5 Ed, 2011) ("Lewison") at para 9.01, p 465:

[61] The learned author goes on to cite a few cases supporting the proposition, two of which I find useful in the present case. In East v Pantiles (Plant Hire) Ltd [1982] E.G.L.R 111, a case which the parties also cited in their submissions, Brightman LJ held:

[62] In G & s Brough Ltd v Salvage Wharf Ltd [2009] EWCA Civ 21, Jackson LJ stated:

[63] Clause 16(c) was deliberately inserted in the contract for one clear reason. This is to allow the bank to convert, at its discretion, the relevant amount into any currency if the borrower does not provide additional deposits or securities. If Clause 16(c) refers to Clause 13(a) and Clause 13(b), which speak of a copy of the insurance and a receipt for full payment respectively, it would be, in the words of Jackson LJ, nonsense. Clause 16(a) and Clause 16(b) are clearly the clauses that ANZ intended to refer to in the 14 July letter and ANZ’s error, which it has admitted was a careless one, is an obvious typographical error. The obvious mistake can be easily and fairly rectified and I do not think that Edwards can honestly claim to have been misled or prejudiced in any way by the error in the clause numbers. In the same vein, Edwards was also not misled by the wrong house number in Clause 12(ii) where 61 George Street was, again carelessly, stated as 64 George Street. Accordingly, I treat the references to Clauses 13(a) and (b) as references to 16(a) and 16(b).

Even if Clause 16(c) referred to Clause 16(a) and Clause 16(b), the 14 July letter failed to identify a “relevant amount” in Clause 16(a) for the purposes of Clause 16(c)

[64] Edwards argues that Clause 16(a) does not provide for any “relevant amount”. He says that Clause 16(a) is simply a definition clause and provides for a mechanism for a notional determination of the loan to security ratio.

[65] ANZ argues that the “relevant amount” is the outstanding amount(s) that is not in the currency of the Property / Fund (“Property” and “Fund” as defined in Clause 12 of the 14 July letter) which is the subject of the notional conversion done in Clause 16(a).

[66] In my view, Edwards is correct in characterising Clause 16(a) as a definition clause. However, it is also clear from the opening words of Clause 16(a) (viz, “For the purposes of this clause...”) that the definition of LVR set out in 16(a) applies to the entire of Clause 16. To understand the meaning of “relevant amount”, one has to look at Clause 16 in its entirety. It is from examining Clause 16 as a whole that I take the view that “relevant amount” refers to the outstanding loan amount denominated in currencies other than the currency the securities are denominated in. I agree with Edwards that based on a purely literal reading of Clause 16(a), there is no use of the term “relevant amount” or any figure that would be seen as a “relevant amount”. However, I do not think that means, in the words of Edwards, that “it is impossible to say what conversions were envisaged” and that the clause is void for uncertainty. I refer to the case of Travista Development Pte Ltd v Tan Kim Swee Augustine and others [2008] 2 SLR(R) 474; [2007] SCGA 57, where the Court of Appeal held (at [20]):

[67] This proposition is also addressed in Zurich Insurance, where it was made clear that when construing contracts, the court will take a holistic approach (at [131]):

[68] Applying this principle, Clause 16(a) should not be considered in isolation but must be considered in the context of the whole document. In this case, Clause 16(a) refers to the “outstanding amount”. Just above that, there is the phrase “... in the event the outstanding loan amount is denominated in a different currency to the currency of the Security...”. Seen in totality, these references to the “outstanding amount” provide the answer to the question as to what “relevant amount” refers to. This outstanding loan amount which is denominated in a currency different from the currency of the Security in Clause 16 was the subject of the conversion ratio in Clause 16(a) which was referred to in Clause 16(c).

[69] Accordingly, I disagree with Edwards’ submissions that the 14 July letter failed to identify a “relevant amount” for the purposes of Clause 16(c).

A conversion of the loan should not have been performed, as the “outstanding loan amount” referred to in Clause 16 was not denominated in a different currency to the currency of the security

[70] Edwards argues that Clause 16 does not envisage situations where loans in multiple currencies were secured by assets in multiple currencies. Accordingly, Clause 16 does not apply to the present case.

[71] He supports this by stating, first, that the outstanding loan amount here was not denominated in a currency different from the currency of the security. Two of the loan tranches (Tranches 2 and 8) were denominated in AUD. This was the same currency as the mortgaged properties. The “outstanding loan amount” could not be converted to the currency of the security, as part of it was already in that currency.

[72] Second, he states that Clause 16 refers to the “currency of the Security”. This shows that the clause does not cover a situation where loans in multiple currencies were secured by securities in multiple currencies. He points out that the securities in this case included:

(a) a term deposit of AUD 44,047.27 and a cash pledge of SGD 42,000;

(b) an investment in a fund known as Series II OM-IP 220 Limited in the amount of AUD 511,650; and

(c) an investment in Nomura Protected Global Emerging Market Notes in the value of around USD 500,000.

[73] He then closes his argument by raising the question: for the purpose of calculating the LVR, which security currency is to be used?

[74] ANZ has four main counter-arguments. First, ANZ argues that the phrase “in the event the outstanding loan amount is denominated in a different currency to the currency of the Security” refers to the situation where any portion of the outstanding loan is denominated in a currency different from the currency of the security.

[75] Second, ANZ points to the purpose of Clause 16. ANZ argues that Clause 16 is there to eliminate ANZ’s foreign exchange risk resulting primarily from a depreciation of the currency of the security against the different currency or currencies of the outstanding loan. The risk is present as long as any part of the loan amount is in a currency that differs from the currency of the security. Accordingly, the phrase “in the event the outstanding loan amount is denominated in a different currency to the currency of the Security” has to include the situation where any portion of the outstanding loan is in a currency different from that of the security.

[76] Third, ANZ addresses the second argument of Edwards that the clause does not cover a situation where loans in multiple currencies were secured by securities in multiple currencies (at [72] above). ANZ argues that this argument was made without the benefit of careful examination and follows up by referring to Clause 12 of the 14 July letter (see [42] above). ANZ argues that under Clause 12, “Security” encompasses the mortgages over 61 and 75 George Street, the assignment of the properties’ fire insurance policy to ANZ, the charge over the term deposit (AUD 44,047.27) and the charge over AUD 511,650.00 Series 11 OM-IP 220 Limited. ANZ argues that these are all denominated in AUD. However, Edwards, in his reply submissions, refers to paragraph 44(d) of Crispe’s AEIC, where it states that ANZ held a cash pledge of SGD 42,000. Accordingly, the term deposit of AUD 44,047.27 was not the only term deposit held as security.

[77] Fourth, to the question posed by Edwards as to which security currency is to be used for the purpose of calculating the LVR (see [73] above), ANZ states that the currency of the security refers to the currency of the Property (defined in Clause 12 of the 14 July letter to mean 61 and 75 George Street) and the Fund (as defined in Clause 12 of the 14 July letter) and the express provisions of both Clauses 14(a) and 16(a) of the 14 July letter provide guidance for this. Both the Property and the Fund are denominated in AUD.

[78] It is clear to me that the scenario this case presents is on all fours with that envisaged in Clause 16. I agree with ANZ’s arguments. The only hesitation I have with regard to the third argument of ANZ was Edwards’ counter-argument in his Reply that Crispe had asserted there were other term deposits that were not denominated in AUD. Having referred to the paragraph cited (paragraph 44(d)), I see no such reference to the cash pledge in SGD. However, Maya Lim’s evidence was that sometime in October or November 2008, a term deposit of AUD 44,047.27 (which is unobjectionable, being in AUD) and a cash pledge of SGD 42,000 were pledged by Edwards as security under the facility arrangement. Seeking to clarify this by going through the other pieces of evidence, I find that Crispe’s evidence (at a different location from where counsel pointed me to) reiterates that on 30 October 2008, AUD 44,027.27 and SGD 42,000 were both pledged as security for the Facility Agreement. Does this now mean that there is no singular currency for the Security as claimed by ANZ and if so, is the clause operative?

[79] Before I answer these questions, there appears to be some confusion over the SGD cash pledge and the AUD 44,047.27. Maya Lim’s evidence was corrected by Crispe’s evidence. Crispe stated that the term deposit of AUD 44,047.27 and the cash pledge of SGD 42,000 were, in addition to another term deposit of AUD 27,861.26, pledged for the purposes of a separate standalone facility dated 3 April 2008, under which a loan of USD 400,000 was disbursed to the Plaintiff. This loan was secured in the 3 April 2008 facility agreement by Edwards’ investment of USD 500,000 in Global Emerging Market Notes. The term deposits were pledged on 15 August 2008 as additional security when the LVR for the USD 400,000 loan was breached and the SGD 42,000 was used to meet interest payments on that same loan on 10 October 2008. However, the SGD 42,000 was not used to pay down the interest as the said Notes were sold on 16 October 2008 and the proceeds from the sale were sufficient to repay the loan in full. As the term deposits and the cash pledge were no longer required for the USD 400,000 loan facility, a request was made on 30 October for the release of both the term deposits. The credit team approved the release of the AUD 27,861.26 term deposit. The AUD 44,047.27 term deposit and the cash of SGD $42,000 were pledged as security for the Facility Agreement. The answer to the questions I posed above is that on an objective interpretation of the clause, the reference is to a singular currency for the “Security”. It is evident that the “Security” consists of 61 and 75 George Street, the assignment of the Fire Insurance Policy to the Bank or its nominees, “Term Deposit” and “Fund”. All these securities were in the same currency (AUD). In my opinion, the conversion of the loans was valid. Applying the construction I have adopted to the facts of the case, it is clear that the only contentious security is that of the SGD cash pledge. The two other term deposits were in AUD and could be assimilated into Clause 12(iv) (the “Term Deposit” clause). In my view, the SGD cash pledge cannot be classified as a term deposit. Instead, the provision of the said cash pledge falls under Clause 16(b), which allows ANZ to demand a deposit in a currency acceptable to the bank and/or demand additional securities should the LVR exceed 80%. At the time the cash pledge was taken in (viz, 30 October 2008), the LVR for the purposes of the Facility Agreement was above 80%.

[80] Accordingly, I find that, contrary to Edwards’ arguments, Clause 16 applies to the present case.

[81] Edwards argues that ANZ was only entitled to redenominate his loan to “fully eliminate its foreign exchange risks” (see Clause 16(c) at [52]). He argues that ANZ’s conversion of the loan at the material time would not fully eliminate ANZ’s foreign exchange risks. Instead, the foreign exchange risks would have been increased. He posits the following scenario:

(a) Edwards’ income was in USD/SGD;

(b) After conversion of the loan, an appreciation of the AUD would result in payment by Edwards of substantially larger sums in USD/SGD to make the requisite payments of principal and interest in AUD;

(c) This would increase ANZ’s foreign exchange risks.

[82] Accordingly, there was no elimination of foreign exchange risks.

[83] Second, Edwards argues that the conversion of Edwards’ loan into the security currency will fully eliminate ANZ’s foreign exchange risks only if the security was realised when the LVR is less than 100% as the sale proceeds would settle the full outstandings. However, ANZ did not issue a margin call until LVR was 115%. This was ANZ trying to earn higher interest and increase the price of the loan in terms of Edwards’ income currency.

[84] ANZ argues that the meaning of its “foreign exchange risks” is very clear: it is ANZ’s risk of the value of the security it holds depreciating against the loan outstanding as a result of currency fluctuations, in particular due to a depreciation of the security currency against the loan currency that is different from the security currency.

[85] Second, ANZ argues that Edwards’ submissions on ANZ’s foreign exchange risks Actually address the risk of Edwards defaulting on the repayments and that Edwards’ interpretation of the phrase is contrary to the ordinary and natural meaning of the phrase.

[86] Third, ANZ attacks Edwards’ arguments by stating that he makes two assumptions. The two assumptions are that the AUD continually appreciates against his income currency and that Edwards’ income is the main form of repayment for the outstanding loans. On the former, ANZ submits that had the AUD depreciated (an event ANZ describes as indeterminable and uncertain), the risk that Edwards described would be eliminated. On the latter, ANZ submitted that the main form of repayment was not Edwards’ income but was the security that ANZ held.

[87] I first address Edwards’ arguments. It appears to me that Edwards mischaracterised the risk that ANZ was seeking to protect itself against when ANZ spoke of currency exchange risks. He seemed to allude to a default risk rather than a currency exchange risk; the risk here was that Edwards himself would default due to a conversion of the USD loan to AUD coupled with a rising AUD. Edwards, being paid in USD/SGD, would have to pay more USD as the AUD under the loan would have appreciated. This, I agree with ANZ, can be characterised as Edwards’ repayment risk or Edwards’ (as opposed to ANZ’s) foreign exchange risk. Whether the risk highlighted by Edwards is called repayment or default, it is nonetheless not ANZ’s foreign exchange risk which is protected in the following manner:

(a) LVR (as defined in Clause 16(a)) is set at 80%;

(b) If LVR is breached, ANZ can demand additional deposits or securities;

(c) If there are no additional deposits or securities provided or it LVR is more than 90%, then ANZ can, at any time in its absolute discretion, convert the relevant amount (outstanding loan) that the Bank deems fit in order to fully eliminate its foreign exchange risks.

[88] A key factor in the bank’s consideration of protecting itself must be that the value of the loan it extends does not exceed the value of the securities it holds. Two scenarios illustrate how ANZ’s protection works. Assuming that the outstanding loan amount is denominated in a currency (USD) different from the currency of the Security (AUD):

(a) Scenario 1: AUD appreciates against USD. After notional conversion, LVR is lower. There is no imminent threat of LVR breach.

(b) Scenario 2: AUD depreciates against USD. After notional conversion, LVR is higher. The rise in LVR threatens a breach of the LVR.

[89] It is in Scenario 2 that ANZ will turn to Clauses 16(b) and (c) to protect itself.

[90] In respect of Edwards’ second argument, I dispose of it by reference to Clause 16(c). Under that clause, ANZ is free not to convert the loan at any level or to convert when the LVR is higher than 90%.

[91] Edwards argues that Clause 16(c) is void for uncertainty. He argues that Clause 16(c) does not provide for a mechanism for valuing the security for the purposes of determining the LVR. He submits that the value of the security is an absolutely essential element in the LVR formula and without any provision as to how it is to be calculated, the whole formula fails.

[92] Edwards also takes issue with ANZ’s arguments that the LVR referred to in Clause 14(a) is the same as the ratio in Clause 16. First, he says that the power to determine the LVR in ANZ’s sole discretion is expressly limited in Clause 14 to that particular sub-clause (viz, Clause 14(a)). He argues too that the right bestowed upon ANZ under Clause 14(a) (viz, the right to seek payments to reduce the amount owing when LVR exceeds 80%) allowed for a “rough and ready” approach. This was as compared to the right that allowed ANZ to redenominate a borrower’s outstanding loan to a foreign currency which would expose the borrower to interest rate and foreign exchange risks. He claimed the latter right was drastic and it could not have been parties’ intentions that the “rough and ready” approach - applicable in Clause 14(a) - be applicable in Clause 16.

[93] Lastly, Edwards argues that whenever the need arose to put in a reference to discretion, ANZ did so. He points to Clause 14(a) and 16(a) and states that any provision that ANZ may value the securities in its sole discretion is glaringly absent.

[94] ANZ does not deny that Clause 16 does not specifically provide for the method of assessing the value of the security. ANZ’s argument is that Clause 14(a) provides the method for assessing the value of the security. The ratio referred to in Clause 14(a) is the same ratio that is referred to in Clause 16. This ratio is the LVR. In addition, ANZ also refers to Clause 16(f) of the Terms and Conditions where ANZ may at its sole discretion, require a revaluation of the mortgaged property if ANZ was of the opinion that the value of the property had declined from the initial valuation amount.

[95] Clause 16(c) refers to the LVR, as defined specifically in Clause 16(a). The LVR defined in Clause 16(a) refers specifically to the scenario set out in Clause 16 (viz, “the outstanding loan amount is denominated in a different currency to the currency of the Security”). The LVR set out in Clause 14(a) refers to a more general scenario which did not involve different currencies. In that sense, the two LVRs are not the same. However, I do not believe the fact that both LVRs are not the same makes the contract void for uncertainty. Accordingly, I agree with ANZ that Clause 16(c) is not void for uncertainty. It does provide a mechanism for the calculation of security value; the mechanism being that the bank would assess the values in its sole discretion.

[96] Edwards’ main argument here is that the valuations ANZ had on file were not valid at the time of the conversions as their validity period was expressly limited to three months. It is his case that when ANZ conducted its first conversion, the valuations were more than four months old and when ANZ conducted its second conversion, the valuations were more than 10 months old. Edwards states that if a valid valuation was used, his LVR would have been considerably less than the LVR stated by ANZ. He would then have been able to make payment of a sufficient sum to reduce the LVR to acceptable levels, avoiding the conversions.

[97] To this, ANZ argues that it has the contractual right to assess the value of the security using its discretion. This is not incompatible with ANZ using the valuations for 61 and 75 George Street done on 4 July 2008. ANZ also argues that the disclaimer for the valuations of 4 July 2008 states that the report is “for the use of the party to whom it is addressed and for no other purpose, and no responsibility is accepted to any third party for the whole or part of its contents” and therefore the disclaimer stating that the valuation was valid for three months applied to ANZ only and did not apply to Edwards.

[98] In addition, ANZ states that the values were not very outdated in any case and also contests Edwards’ assertion that he would have been able to repay the loan if updated and higher valuations were given to the securities.

[99] I agree with ANZ’s first proposition, that ANZ has the contractual right to assess the security using its sole discretion. However, a point that was not canvassed before me was whether this discretion was unfettered and, if it was not unfettered, whether it was exercised incorrectly. To answer the question, I turn to Lewison, who states the following principle (at 14.11):

[100] Recently, the High Court has reviewed the authorities and addressed this question as well. In MGA International Pte Ltd v Wajilam Exports (Singapore) Pte Ltd [2010] SGHC 319, the Court stated (at [103]-[106]):

[101] ANZ therefore does not have untrammelled discretion. Applying that to the present case, I am of the view that the exercise of discretion by ANZ in using the previous valuations was not arbitrary or capricious or perverse. The valuations done by CB Richard Ellis on 4 Jul 2008 were four months and ten months old at the time of the first and second conversions respectively. The value given for 61 George Street was AUD 2m while that for 75 George Street was AUD 1.3m. It would not be irrational to rely on them as the periods that had elapsed between the valuations and the conversions were not unreasonably long. It is also not uncommon to find differences in valuations done by different valuers. Edwards’ valuer did a retrospective valuation of 61 George Street after inspecting it on 29 Sep 2011. He opined that its value as at 18 Nov 2008 would have been AUD 2.5m. The estate agent engaged to sell 61 George Street stated that the highest offer recorded for 61 George Street at an auction on 26 Jan 2008 was AUD 2.4m but the sale did not go through as the vendor insisted on a sale price of AUD 2.45m. No valuation was done for 75 George Street as Edwards had sold it in 2010 for AUD 1.1m. He said he was forced to do so by ANZ. ANZ’s valuer did a retrospective valuation for both Australian properties. He gave his opinion as to their values on four dates, namely, 4 Jul 2008, 1 Jan 2009, 1 Jul 2009 and 19 Nov 2009. For 61 George Street, the values given were AUD 2m, 1.9m, 1.9m and 1.8m respectively. For 75 George Street, the values were AUD 1.3m, 1.2m, 1.2m and 1.1m respectively. The fact that Edwards’ valuer gave a higher value to one of the Australian properties does not necessarily mean that ANZ’s earlier valuations were wrong. The same comment applies to ANZ’s updated valuations done for the purposes of this trial.

[102] I am satisfied that ANZ Acted honestly and in good faith in relying on the valuations done by CB Richard Ellis on 4 Jul 2008. Although both these valuation reports stated that “[t]his valuation can be relied upon for a period of three months from the date of valuation for first mortgage security purposes only”, that does not mean that they are of no value whatsoever after three months. It merely means that no liability attaches to the valuer if ANZ chooses to rely on the reports after the three-month period. Accordingly, I am of the view that ANZ Acted within its “sole discretion” in valuing the Australian properties in the way that it did. The argument by Edwards that an updated valuation would have shown that the LVR was lower and that he could have avoided conversion is thus disposed of as well.

[103] Edwards’ main arguments are that any ambiguity in the contract should be construed against the maker of the contract, that subsequent conduct is irrelevant and that the subsequent conduct relied on does not support ANZ’s position.

[104] ANZ’s arguments are in the alternative. First, ANZ reiterates its argument that Clauses 14 and 16 of the 14 July letter entitled ANZ to effect the conversions in the circumstances that it did.

[105] In the alternative, ANZ submits that the conduct of the parties will resolve any ambiguity in the Clauses in favour of the interpretation offered by ANZ. ANZ argues:

(a) that this Court can look at the subsequent conduct of the parties;

(b) that Edwards was fully aware of how the facility worked and was aware of ANZ’s entitlement to convert Edwards’ loan outstandings;

(c) that Edwards was aware that the conversions had been effected;

(d) that Edwards was fully aware of the value attributed to the mortgaged properties in the LVR calculations;

(e) that this Court should take note of Edwards’ reaction to the conversions;

(f) that Edwards acknowledged his debt in the 22 and 23 October 2009 letters;

(g) that Edwards made various unfulfilled promises to repay.

[106] Both parties cited the pronouncements of the Court of Appeal in Zurich Insurance to bolster their case. However, the parties agreed that subsequent conduct does not have to be looked at. Edwards submits that the subsequent conduct does nothing for ANZ’s case and ANZ argues in the alternative only that subsequent conduct has to be referred to. As I have found that Clauses 14 and 16 of the 14 July letter entitled ANZ to effect the conversions in the circumstances that it did, there is no need to address this alternative argument.

[109] The Court of Appeal recently reaffirmed the principles with regard to penalty clauses in CLAAS Medical Centre Pte Ltd v Ng Boon Ching [2010] 2 SLR 386 (at [63]):

[110] As to what a penalty is, the Court of Appeal in the same case stated (at [64]):

[111] In my view, the increase in interest rates is neither extravagant nor unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach. The burden is on Edwards to show that the increase was so extravagant that it cannot constitute a genuine pre-estimate of the damages which ANZ would suffer. He has not discharged this burden.

[113] In addition, Edwards cites the case of Hong Leong Finance Ltd v Tan Gin Huay & another (“Hong Leong Finance”) [1999] 1 SLR(R) 755. He cites paragraphs 26 and 27 which I find to be useful here but I also add the principles that the Court of Appeal set out in paragraphs 24 and 25:

[115] In Soon Kok Tiang and others v DBS Bank Ltd and another matter [2011] SGCA 55, the Court of Appeal observed (at [63]):

[116] If those who are unschooled in the law or in finance are held to such a standard, what more a person who is familiar with both? In the present case, Edwards cannot claim that he is not familiar with the language of the contract he entered into. He is clearly far from illiterate. Edwards is a lawyer who works in the finance industry, who took out a mortgage loan with ANZ on terms he agreed to and who knew what he was getting into. However, the same terms, which could have benefited him had the course of the financial markets taken a different direction, have now saddled him with obligations which he no longer wishes to or is unable to bear and which he now wants this court to relieve him of. On the facts here, the court is not able to grant him the relief he seeks. The contract read as a whole is not uncertain. Where there were careless errors, they were clear on the face of the document and could be addressed using the principles of contractual interpretation.

[117] In the circumstances, Edwards fails in his claim (see [28] above) against ANZ and ANZ’s counterclaim (see [29] above) against him succeeds.