BOS INTERNATIONAL (AUSTRALIA) LIMITED v STRATEGIC NOMINEES LIMITED (IN RECEIVERSHIP) CA327/2013 [2013] NZCA 643

BOS INTERNATIONAL (AUSTRALIA) LIMITED v STRATEGIC NOMINEES LIMITED (IN RECEIVERSHIP) CA327/2013 [2013] NZCA 643 [12 December 2013]IN THE COURT OF APPEAL OF NEW ZEALANDCA327/2013[2013] NZCA 643BETWEEN BOS INTERNATIONAL (AUSTRALIA)LIMITEDAppellantAND STRATEGIC NOMINEES LIMITED (INRECEIVERSHIP)RespondentHearing: 3 October 2013 (further submissions 4 December 2013)Court: Harrison, White and Priestley JJCounsel: Z G Kennedy and C L Haemmerle for AppellantM V Robinson and T D Bloy for RespondentJudgment: 12 December 2013 at 10.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellant is to pay costs to the respondent for a standard appeal on a band A basis together with usual disbursements.____________________________________________________________________REASONS OF THE COURT(Given by White J)Table of ContentsPara NoIntroduction [1]Factual background [7]The Senior Facility Agreement [14]The Intercreditor Deed [22]Non-waiver clauses [28]High Court judgment [31]Grounds of appeal [32]The interpretation of the Senior Facility Agreement [36]The interpretation of the Intercreditor Deed [47]Definition of "Priority Amount" [47]Clause 7.2 [60]Non-waiver clauses [68]Result [72]Introduction[1] This appeal arises out of a dispute between two lenders, BOS International (Australia) Ltd (BOS) and Strategic Nominees Ltd (in rec) (Strategic), both of whom provided funding to Takapuna Village Ltd (in liq) (Takapuna) for a property development.[2] Both lenders made secured loans to Takapuna: $10,730,000 from Strategic in2005 and $24,338,000 from BOS in 2008. The parties all agreed that BOS's loanshould take priority up to a defined specified amount.[3] The issue on appeal is whether, in terms of the agreement between the parties,the amount of BOS's priority was limited to the principal component of its priority, being the loan amount ($24,338,000) plus any fees and interest that had been capitalised up to a $27,549,000 limit. BOS contends that all capitalised interest totalling $3,710,455.19 was within the definition of the specified amount so that it was entitled to retain the total loan repayments of $28,353,586.91. Strategiccontends that any capitalised interest not within the principal component of BOS's priority, was not otherwise "interest" within the definition of the specified amount. BOS was therefore not entitled to retain the sum in dispute of $804,586.91, being the difference between the total loan repayments made by Takapuna to BOS of $28,353,586.91, and the sum of $27,549,000, being the principal component.[4] In the High Court Strategic was successful in an application for summary judgment.1 Associate Judge Christiansen rejected BOS's contentions.2[5] BOS appeals to this Court essentially on the grounds that the Associate Judge misinterpreted the agreement between the parties and reached a decision in conflict with the leading authorities establishing that capitalisation of interest does not mean that it loses its character as interest.3[6] It is common ground that the outcome of the appeal depends on the interpretation of the priority provision in the agreement between the parties in the context of the relevant factual background.Factual background[7] BOS's 2008 loan of $24,338,000 was made to Takapuna to enable it to refinance its debts under what was called a "Senior Facility Agreement" (the SFA).The loan was made on the condition that security granted by Takapuna to BOS forthe facility would have priority over Strategic's existing security, but only to the extent of BOS's priority amount which was defined in a separate agreement called an "Intercreditor Deed" entered into by the parties on the same day.[8] Under BOS's SFA, the loan facility had an "initial advance" limit of $24,613,490 and a total "Facility Limit" of $27,549,000, expressed as "including capitalised interest and fees". The SFA also contained a provision entitling Takapunato require BOS to capitalise any outstanding interest during the term of the loan.[9] Takapuna drew down $24,338,000 under the SFA on 27 June 2008. This was repayable 12 months later.41 Strategic Nominees Ltd (in rec) v BOS International (Australia) Ltd [2013] NZHC 904 [High Court judgment].2 At [85]–[89].3 Bank of New South Wales v Brown (1983) 151 CLR 514 and Whitbread plc v UCB Corporate Services Ltd [2000] 3 EGLR 60 (CA).4 The difference between the "initial advance" limit of $24,613,490 and the draw down of$24,338,000 was $275,490, being a fee which was capitalised under the SFA.[10] The interest accruing on the loan under the SFA was regularly capitalised by BOS and added to the principal sum. Interest capitalised by BOS under the SFA totalled $3,710,455.19.[11] BOS's Takapuna loan statement showed that BOS recorded the capitalisedinterest as an addition to the "Facility Balance".[12] Takapuna defaulted on its obligations under the SFA on 27 June 2009, being the repayment date. BOS did not cancel the loan and seek to realise its security then. Instead it invoked its rights to charge additional penalty interest and to continue to capitalise all accruing interest until 10 February 2011 when Takapuna paid the final amount it owed to BOS, including the disputed amount.[13] Between drawdown on 27 June 2008 and 10 February 2011 Takapuna made loan repayments to BOS totalling $28,353,586.91.The Senior Facility Agreement[14] The provisions of the SFA relating to the payment of interest by Takapuna to BOS and the capitalisation of outstanding interest by BOS are contained in cl 5 which provided:5. Interest on Advances5.1 InterestThe Borrower will pay interest on each Advance at the Interest Rate applicable to that Advance and on each Interest Payment Date applicable to that Advance.5.2 ...5.3 Interest CapitalisationOn each Interest Payment Date, interest otherwise due and payable on any Advance shall be capitalised to the Facility Outstandings and itself bear interest at the Interest Rate, provided that:(a) if an Event of Default has occurred such interest shall be payable in full on the relevant Interest Payment Date and may only be capitalised at the option of the Lender; and(b) interest may only continue to be capitalised on an amount equal to the Capitalisation Amount.[15] The right of Takapuna as the "Borrower" to request capitalisation of outstanding interest prior to an "Event of Default" resulted from the combined effectof cl 2.1, which entitled Takapuna to request further advances, and cl 2.2(a)(ii) whichentitled Takapuna to use "any subsequent Advances to pay capitalised interest".[16] "Event of Default" was defined in cl 1.1 as those events set out in cl 12.1. The non-payment of any principal or interest was an "Event of Default":Events of Default...(a) Non-paymentThe Borrower or the Guarantor fails to pay:(i) on its due date, any principal or any interest or other amount payable under any Relevant Document;[17] Clause 12.1 contained a wide variety of events which also constituted an"Event of Default", including government intervention, the insolvency or liquidationof the borrower or guarantor and breach of contractual obligations by the borrower or guarantor.[18] The expressions "Advance", "Capitalisation Amount" and "Facility Outstandings" in cl 5 were defined in cl 1.1 of the SFA as follows:Advance means a NZ$ denominated cash advance to the Borrower under the Facility, or if the context requires, the principal amount outstanding of such advance;...Capitalisation Amount means, at any time, the amount determined by the Lender to be the amount of interest, fees and costs to be capitalised to future Advances and/or the Facility;...Facility Outstandings means, at any time, the aggregate principal amount of all outstanding Advances.[19] The SFA also included the following provisions relating to the purpose for which further advances might be made:4.2 Limitations on requests for AdvancesUnless otherwise agreed by the Lender:...(c) subsequent Advances may only be made for the purpose set out in clause [2.2(a)(ii)].(d) no Advance may be requested if the Lender determines that, after that Advance is drawn down (and taking into Account likely future Advances) the Available Facility [defined as the Facility Limit minus Facility Outstanding] is less than the Capitalisation Amount.[20] The limitations on further advances referred to in cl 4.2 were also subject to the conditions precedent in cl 3.2 of the SFA which relevantly provided:3.2 Conditions precedent to AdvancesThe obligation of the Lender to make available any Advance is subject to the further conditions precedent that:...(b) no defaultno Event of Default [or] Potential Event of Default... subsists where the [notice of a drawdown is given] or will occur as the result of an Advance.[21] The provision of the SFA dealing with the payment of interest by Takapuna to BOS on default was cl 15 which provided:Default interestIf the Borrower does not pay, when due, an amount payable by it under a Relevant Document (the overdue amount) then, without prejudice to its other obligations, the Borrower will pay interest on the overdue amount (including interest payable under this clause) calculated from the due date to the date of receipt of the overdue amount by the Lender (after as well as before judgment) compounded and payable at intervals selected by the Lender at its discretion. This obligation to pay default interest is to arise without the need for a notice or demand. The rate of default interest will be the aggregate of the rate that is two per cent per annum above the Interest Rate applicable on the due date of that overdue amount.The Intercreditor Deed[22] The purpose of the Intercreditor Deed, as stated in cl 2.1(a), was to subordinate Strategic's security to BOS's security up to the "Priority Amount" whichwas defined in cl 1.1 as the total of three components:Priority Amount means, at any time and in respect of a Creditor, the aggregate of:(a) an amount equivalent to its indebtedness (including, on any day, interest capitalised prior to that day) at that time, but limited to its Nominated Amount as such amount is reduced pursuant to clause 7.2;(b) an amount equivalent to the interest due or accrued due to that Creditor at that time but limited to an amount equal to the interest that would accrue in a period of twenty four months, at the maximum rate chargeable by that Creditor tothe Debtor under that Creditor's Facility Agreement; and(c) an amount equivalent to that Creditor's Costs of Realisation (including all interest and taxes on an amount);[23] There was unchallenged affidavit evidence before the High Court from Mr David McPherson, the lawyer advising Strategic on the Intercreditor Deed, thatthe initial draft of the definition of "Priority Amount" in cl 1.1 included after the word "interest" in the first line of sub-cl (b) the further words in parenthesis"including capitalised interest". Mr McPherson deposed that these words had beenexpressly removed at his request.[24] BOS's "Nominated Amount" component under sub-cl (a) was set at $27,549,000, the same amount as the loan facility limit under the SFA. There is no dispute that the scope of the priority covered all funds received from Takapuna.[25] The provisions of the Intercreditor Deed relating to BOS's application ofmoneys received from Takapuna, which required BOS first to satisfy any"outstanding interest" on Takapuna's debt, are contained in cl 7.2(a) which provided:7.2 Reduction in BOS' Priority AmountSubject to clause 7.4, BOS agrees that all moneys received from the Obligors in relation to Senior Indebtedness (being Net Proceeds or otherwise) will be applied in accordance with the Senior Facility Agreement;(a) first in payment of any outstanding interest on the Senior Indebtedness but limited to an amount equal to the interest that would accrue in a period of 24 months at the rate charged by BOS pursuant to the Senior Facility Agreement; and ...[26] After outstanding interest was satisfied, cl 7.2(b) provided that moneys received were to be applied as a "Principal Reduction" to Takapuna's outstandingdebt under the SFA:(b) second in permanent repayment of the principal amount of the Senior Indebtedness (a Principal Reduction).[27] The clause also provided that the "Nominated Amount" component of BOS'spriority would be reduced to the extent of any Principal Reduction:With effect from the payment of a Principal Reduction, BOS'Nominated Amount will be reduced by an amount equal to the amount of the Principal Reduction (but subject always to any amount being avoided under any law of insolvency).Non-waiver clauses[28] Both the SFA and the Intercreditor Deed contained provisions relating to circumstances in which BOS, if it failed to exercise, or delayed in exercising, a right would not be treated as having waived its right or would be precluded from further exercising that right.[29] Clause 22.1 of the SFA provided:22.1 Exercise of rights and waiversTime is of the essence in respect of all dates and times for performance by the Borrower and the Guarantor of their obligations under each Relevant Document. However, no failure to exercise, and no delay in exercising, a right of the Lender under a Relevant Document will operate as a waiver of that right, nor will a single or partial exercise of a right preclude another or further exercise of that right or the exercise of another right. No waiver by the Lender of itsrights under a Relevant Document is to be effective unless it is in writing signed by the Lender.[30] Clause 11.1 of the Intercreditor Deed provided:11.1 Exercise of rights and waiversTime is of the essence in respect of all dates and times for compliance of this Deed. However, no failure to exercise, and no delay in exercising, a right of a Creditor under this Deed or any agreement constituting or evidencing any of the Senior indebtedness or the Strategic indebtedness will operate as a waiver of that right, nor will a single or partial exercise of a right preclude another or further exercise of that right or the exercise of another right. No waiver by a Creditor of its rights under this Deed or any agreement or other agreement constituting or evidencing any of the Senior indebtedness or the Strategic indebtedness is effective unless it is in writing signed by the relevant Creditor.High Court judgment[31] In giving summary judgment for Strategic, Associate Judge Christiansen held that:(a) Interest ceased to be "interest" for the purposes of cl 7.2(a) of the Intercreditor Deed and sub-cl (b) of the definition of "Priority Amount" in cl 1.1 of the Intercreditor Deed as soon as it was capitalised under the SFA. Given that BOS had capitalised all interest under the SFA, there was no relevant "interest" for the purposes of cl 1.1(b) and cl 7.2(a).5(b) The non-waiver clauses in cl 11.1 of the Intercreditor Deed and cl 22.1 of the SFA did not entitle BOS to reverse the capitalisation of interest and retrospectively account for interest in some other way.6(c) BOS's legal costs of disputing the interpretation of the Intercreditor Deed with Strategic were not "Costs of Realisation" within themeaning of sub-cl (c) of the definition of Priority Amount.75 High Court judgment, above n 1, at [68], [77], and [85].6 At [72], [75], [78], and [87].7 At [84] and [89].(d) Accordingly, BOS's Priority Amount was limited to its "NominatedAmount" of $27,549,000. As BOS had received a total of$28,353,586.91 from Takapuna, BOS had therefore received $804,586.91 in excess of its Priority Amount, which should have gone to Strategic.Grounds of appeal[32] BOS raises three grounds of appeal in respect of which it claims the High Court erred in law:(a) The finding that all interest "capitalised" by BOS after 27 June2009 could not be outstanding interest for the purposes of cl 7.2(a) of the Intercreditor Deed because it had become principal was wrong as a matter of construction of the SFA and especially because it was in conflict with the authorities.(b) The interpretation of sub-cl (b) of the definition of "Priority Amount" in the Intercreditor Deed was wrong because:(i) "capitalised" interest due or accrued due under sub-cl (b) encompassed interest which accrued duringthe term of the "Facility" and had been paid bysubsequent "Advances" as well as unpaid interestaccruing after the "Repayment Date" of 27 June2009;(ii) the "capitalisation" of the latter category of interest by BOS in the loan statement did not convert it into principal, but that interest would be caught under sub- cl (b) even if it did; and(iii) the evidence of Mr McPherson did not have the evidential significance attributed to it by the High Court.(c) The interpretation of the effect of cl 11.1 of the IntercreditorDeed and cl 22.1 of BOS's SFA was wrong because theseclauses enabled BOS to exercise a right to charge interest on a compound rather than a capitalised basis.[33] There is no dispute between the parties that for the period prior to therepayment date of 27 June 2009 the relevant definitions and the terms of BOS's SFAmeant that interest that was capitalised was treated as having been paid and was added to the loan principal. Consequently, it was no longer outstanding interest for the purposes of cl 7.2(a) of the Intercreditor Deed.[34] BOS accepts that interest capitalised in this way prior to the repayment date could not be taken into account under cl 7.2(a) of the Intercreditor Deed, but submits that interest "capitalised" after Takapuna's default on 27 June 2009 was "outstanding interest" for the purposes of cl 7.2(a) of the Intercreditor Deed. It submits that post- default interest was compound interest which could not be capitalised under cl 5.3 of the SFA.[35] It is therefore convenient to address the various grounds of appeal in the context of interpreting the SFA and the Intercreditor Deed. We start with the SFA and deal with cl 7.2(a) of the Intercreditor Deed later.8The interpretation of the Senior Facility Agreement[36] We do not read cl 5.3 of the SFA as preventing BOS from capitalising interest after default. Nor do we read the reference in cl 15 to interest being compounded as preventing BOS from capitalising default interest.[37] While after 27 June 2009 BOS was exercising its right to charge additional interest under cl 15 of the SFA, this did not mean that the interest could not then be capitalised in accordance with cl 5.3 in the same way as the original interest chargeable under cl 5.1. Although Takapuna's contractual entitlement to have8 Below at [60].interest capitalised came to an end, cl 5.3(a) expressly provided that, after default,interest could be capitalised "at the option of [BOS]".[38] There is no dispute that BOS in fact continued to capitalise interest under cl 5.3 after Takapuna's default. This is proved by BOS's Takapuna loan statementand the affidavit evidence of Mr Christian Thomas, the Director of BOS's BusinessSupport Unit Corporate in Sydney.[39] We do not consider that cls 4.2, 2.2(a)(ii) and 3.2(b) of the SFA mean that BOS did not have an option under cl 5.3, which it exercised, to continue to capitalise the interest after default. As the opening words of cl 4.2 of the SFA expressly recognised, it was open to BOS to agree to make subsequent advances to Takapuna after default. In accordance with this entitlement, BOS in fact continued to make further notional advances to pay capitalised interest. The fact that by virtue of cl 3.2(b) BOS may not have been under an obligation to do so, does not mean that BOS was not able to do what it in fact did.[40] While there was passing reference to this aspect of the interpretation of cl 5.3(a) in a footnote to the written submissions for BOS, it did not feature at theforefront of Mr Kennedy's submissions. Having raised this issue with Mr Robinson after the hearing and having received his further submissions, we are satisfied that the interpretation of the SFA that we have adopted is correct.[41] As Mr Robinson also submits, this approach to the interpretation of the SFA is consistent with well-established common law principles that bankers have a customary right to capitalise interest. In National Bank of Greece SA v Pinios Shipping Co No 1 Lord Goff cited with approval the view of Lord Justice-Clerk Inglis in Reddie v Williamson that:9The privilege of a banker to balance the account at the end of the year, and accumulate the interest with the principal, is founded on this plain ground of equity, that the interest ought then to be paid, and, because it is not paid, the debtor becomes henceforth debtor in the amount as a principal sum itself bearing interest.9 National Bank of Greece SA v Pinios Shipping Co No 1 [1990] 1 AC 637 (HL) at 682 citingReddie v Williamson (1863) 1 Macph 228 (2 Div) at 237.[42] Nor do we accept Mr Kennedy's principal submission that this case should beresolved by the application of the authorities which establish that capitalisation of interest does not automatically convert interest into capital. As the following analysis of the authorities relied on by Mr Kennedy shows, the application of the principle will depend on the circumstances of the particular case, including whether the rights of third parties are affected or there is a statutory context.[43] The starting point is to recognise that by custom or contract parties may treat or agree that accrued interest is to be capitalised and treated as part of the principal. This is a usual and perfectly legitimate mode of dealing between banker and customer.10[44] It is equally well-established, however, that while custom or contract may transform interest into capital as between the parties, such a transformation will not necessarily affect the rights of third parties.11 In Bank of New South Wales v Brown, the authority relied on heavily by Mr Kennedy in this Court, the High Court of Australia was concerned with the interests of creditors under the Bankruptcy Act 1966 (Cth). In that context it was understandable that the High Court should decide that capitalised interest remained as interest. As Gibbs CJ said:12There is no legal principal [sic] that requires a court, in applying s 112 of the Bankruptcy Act, to treat a payment which in truth included interest as though it did not. Section 112 is obviously enacted for the benefit of the creditors generally. A banker and a customer cannot, by agreement betweenthemselves, affect the statutory priority which s 112 affords ... ."[45] Similarly, Dawson J said:13Even if it is correct to describe the interest which was debited to thecompany's account on each rest date as having been capitalized, it is stillnecessary to discern the purposes for which the capitalization took place. And even if the interest became capitalized for all purposes, that would not seem necessarily to determine the case because s 112 is concerned with a10 Lord Clancarty v Latouche (1810) 1 Ball & B 420 (High Court of Chancery); Reddie v Williamson, above n 9; Yourell v Hibernian Bank [1918] AC 372 (HL) at 385; Parr's Banking CoLtd v Yates [1898] 2 QB 460 (CA) at 467; and National Bank of Greece SA v Pinios Shipping Co No 1, above n 9.11 Paton v Inland Revenue Commissioner [1938] AC 341 (HL) at 348, Inland Revenue Commissioner v Oswald [1945] AC 360 (HL); and Bank of New South Wales v Brown, above n 3, at 523.12 Bank of New South Wales v Brown, above n 3, at 523.13 At 548.debt which includes interest as well as with interest as such, and it is possible, both as a matter of language and of logic, to conceive of a capital sum which includes interest as one of its components.[46] Here, where there are no third party interests or any relevant statute, therespective parties were at liberty to reach agreement in BOS's SFA and the Intercreditor Deed to transform interest into capital. The authorities relied on by BOS are therefore distinguishable and do not affect the conclusion we have reached on the interpretation of the SFA.The interpretation of the Intercreditor DeedDefinition of "Priority Amount"[47] BOS's second ground of appeal focuses on the interpretation and application of sub-cl (b) in the definition of "Priority Amount" in cl 1.1 of the Intercreditor Deedand the significance, if any, of the evidence of Mr McPherson.[48] While the relevant definition provision may contain an arbitrary element, the interpretation of such provisions will depend on the language of the particular provision in the context of the particular case and may not in fact involve any arbitrary element.14[49] Here the definition of "Priority Amount" in the Intercreditor Deed, which was to apply "at any time", had three elements:(a) an amount equivalent to the "Indebtedness", but limited to the "Nominated Amount" as reduced under cl 7.2;(b) an amount equivalent to the interest due or accrued due to the Creditor at that time, but limited to a hypothetical cap not at issue in the proceeding; and(c) an amount equivalent to the Creditor's Costs of Realisation.14 Westpac Banking Corp v NZI Finance Ltd HC Wellington CP402/86, 25 June 1987, andWhitbread Plc v UCB Corporate Services Ltd, above n 3.[50] It is common ground that, notwithstanding the use in each case of theexpression "an amount equivalent to", the "Nominated Amount" in sub-cl (a) and the"Costs of Realisation" in sub-cl (c) will be the amounts actually owing at the particular time and will not be arbitrary.[51] It is also common ground that, subject to the component cap of the"Nominated Amount", sub-cl (a) will include capitalised interest. The case for BOS, however, is that capitalised interest is taken into account in both sub-cl (a) and sub- cl (b) even although that might be considered an arbitrary outcome. Mr Kennedy justified this interpretation on the basis that only this interpretation would enable BOS to recover all the capitalised interest in priority to Strategic.[52] For the following reasons we do not agree with the submissions for BOS.[53] First, we have already decided that the capitalisation of the interest by BOS under its SFA both before and after default meant that it was part of the principal and no longer interest.15 Clearly the Intercreditor Deed should be interpreted consistently with SFA.16[54] Second, the expressions "due" or "accrued due" in relation to interest do nothave the effect of bringing the capitalised interest back into sub-cl (b) in this case. As Mr Robinson submits:(a) even if capitalised interest could be considered to be an amount"accrued due", the amount could still not come within sub-cl (b)because capitalised interest is not "interest" in that sub-cl; and(b) while, in the context of interpreting s 309(1A) of the Companies Act1955, the phrase "accruing due" has been held to mean "falling or becoming due"17 and that, because of its tense, the phrase "accrued due" logically refers to interest that has previously fallen due or become due, it does not follow that interest "accrued due" includes15 Above at [36]–[46].16 ASB Bank Ltd v South Canterbury Finances Ltd [2011] NZCA 368, [2011] 3 NZLR 798 at [36].17 Re Peter Austin Ltd [1990] 2 NZLR 245 (HC) at 252 and 254.interest that has been paid. There is no support for that proposition in the authorities or the evidence.[55] Third, as Mr Robinson submits in his post-hearing submissions, the expressrequirement that the definition of "Priority Amount" in cl 1.1 was to apply "at any time", that is, before or after default, confirmed that no temporal restraint on themeaning of "interest capitalised" in cl 1.1(a) was intended by the parties. TheIntercreditor Deed is the only agreement between the three parties and is designed to determine the issue of priority between the two lenders. The plain language of the Deed should be given its natural and ordinary meaning.[56] Fourth, we accept that the commercial consequences of a particular interpretation may be relevant as to whether that interpretation was in fact intended.18 In our view it is BOS's interpretation that would produce unlikelycommercial consequences because it would mean that BOS's total priority was greater than Takapuna's total obligation under the SFA even with penalty interest. Toinclude some capitalised interest under sub-cl (a) and all of the capitalised interest under sub-cl (b) would result in a total priority of approximately $30 million. To include pre-default capitalised interest under sub-cl (a) and post default compounded interest under sub-cl (b), contrary to the parties' intention that post-default interest could be capitalised, would result in a total priority of $28,353,586.91. It is more likely that the priority amount provisions were intended to protect at a minimum the loan principal, fees and interest capitalised during the term of the loan.[57] Our view that sub-cl (a) includes capitalised interest while sub-cl (b) does not is reinforced by the evidence of Mr McPherson that the words in parenthesis"including capitalised interest" were removed by the parties from sub-cl (b). BOSdoes not challenge the admissibility, veracity or relevance of Mr McPherson'sevidence. Instead BOS submits on the authority of Vector Gas Ltd v Bay of Plenty Energy Ltd19 that his evidence does not have the evidential significance attributed to it by the Associate Judge.2018 Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [8]–[9] per Blanchard J.19 Ibid.20 High Court judgment at [81].[58] Adopting the approach of Tipping J in Vector Gas,21 as Mr Kennedy did, weaccept that Mr McPherson's evidence may be relied on to show "objectively the meaning the parties intended their words to convey" and "any objectively apparent consensus" as to their meaning. When the deletion from sub-cl (b) of the referenceto "capitalised interest" is taken into account, together with the fact that there was no change to sub-cl (a) and the provisions of the SFA that treat capitalised interest as principal, we have little difficulty in concluding that the evidence objectively supports a consensus as to the meaning of interest in sub-cl (b).[59] We therefore do not agree with Mr Kennedy that the deleted words were merely an inclusive example of the broader category of interest used in sub-cl (b) or that the Associate Judge made a significant and erroneous leap of logic by concluding otherwise.Clause 7.2[60] We do not accept Mr Kennedy's submission that interest charged by BOS after 27 June 2009 remained "outstanding interest" under cl 7.2(a) of theIntercreditor Deed. As we have already said, the Intercreditor Deed should beinterpreted consistently with BOS's SFA. Both treat capitalised interest as principal and no longer as "interest". It is plain that, as a matter of contractual interpretation,capitalised interest cannot be "interest" within the meaning of cl 7.2(a).[61] Furthermore, the fact that BOS continued to capitalise the interest after 27 June 2009 remains significant in the context of the Intercreditor Deed. It would be surprising if the Deed were interpreted so as to recognise the interest as capitalised prior to default but not post-default when BOS was entitled to and had in fact treated it in the same manner during both periods.[62] We do not accept Mr Kennedy's submission that BOS's approach accordswith the clear commercial intention of the parties which was that cl 7.2(a) of theIntercreditor Deed would provide BOS with an allowance of up to 24 months'21 Vector Gas at [27] and [31] see also at [13] per Blanchard J, and [122] per Wilson J (and compare at [78] per McGrath J) and Trustees Executors Ltd v QBE Insurance (International) Ltd[2010] NZCA 608, (2010) 16 ANZ Ins Cas 61-874 at [32]–[33].outstanding interest before its "Nominated Amount" was to be permanently reducedby the payments received.[63] The reference to the period of 24 months appears in both sub-cl (b) of thedefinition of "Priority Amount" in cl 1.1 of the Intercreditor Deed and in cl 7.2(a) of that Deed which relates to payments made in reduction of BOS's "Priority Amount".Both references relate to a limitation on the amount of interest chargeable or charged by BOS under its SFA.[64] The several references to "interest" in those provisions should be interpretedconsistently and in light of the ability of BOS to capitalise post-default interest underits SFA. If "interest" here included capitalised interest it might also, as Mr Robinsonsubmits, be impossible for Strategic to calculate the hypothetical amount, leaving the contract incomplete for uncertainty.[65] Strategic's submission that the hypothetical cap captures simple interest onlyis supported by the decision in Westpac Banking Corp v NZI Finance Ltd that when a deed of priority does not expressly define the correct rate of interest:22... it could not be right to inflate the amount by compounding, unless that was very clearly expressed in the arrangement made in the deed of priority.[66] Here we do not consider that BOS is entitled to inflate the "Priority Amount"by including capitalised interest when cl 5.3 of the SFA expressly provides that interest is no longer treated as interest once it is added to the loan principal.[67] We do not accept Mr Kennedy's submission that there are clear parallelsbetween this case and the case of Whitbread v UCB Corporate Services Ltd.23 The English case involved a priority provision containing three separate components, principal, interest and costs – there was no question of two overlapping categories of interest.22 Westpac Banking Corp v NZI Finance Ltd, above n 14, at 19.23 Whitbread plc v UCB Corporate Services Ltd, above n 3.Non-waiver clauses[68] BOS's third ground of appeal is that cl 11.1 of the Intercreditor Deed and cl 22.1 of BOS's SFA (the non-waiver clauses) enabled BOS to exercise a right now to charge interest on a compound rather than a capitalised basis and that the Associate Judge erred in law in deciding otherwise.24 In support of this ground, Mr Kennedy relies on the decisions in Westpac Merchant Finance Ltd v Chadwick25and Raptorial Holdings Ltd (in rec) v Elders Pastoral Holdings Ltd26 for the proposition that such rights and waivers clauses will be enforced according to their terms.[69] We agree with Mr Kennedy that these clauses should be enforced according to their terms, but we do not agree that their terms in fact support the submissions for BOS, principally because BOS, having exercised its option under the SFA to capitalise the interest after 27 June 2009, is not able or entitled to alter what it has already done and retrospectively seek to do something different. The provisions of the non-waiver clauses do not permit BOS to take such action. They are bothdirected at "another or further exercise" of the right not to capitalise interest in thefuture and do not empower BOS to alter decisions already made in respect of the capitalisation of interest. Neither of the authorities relied on by BOS suggests that the clauses should be interpreted in this way.[70] Furthermore, by exercising its option to capitalise the post-default interest, BOS exercised a discretionary contractual power. The exercise of the option constituted an election between two mutually inconsistent legal rights, each of which had different consequences.27 An election, once made, is typically said to be irrevocable.28 In the context of the choice as to the prospective operation of a loan,we have no doubt BOS's unilateral decision was binding, particularly in light of the fact that, while the power might appear unconstrained, the Court will imply a term24 High Court judgment, above n 1, at [72]–[78].25 Westpac Merchant Finance Ltd v Chadwick HC Wellington CP 326/90, 19 July 1990.26 Raptorial Holdings Ltd (in rec) v Elders Pastoral Holdings Ltd [2001] 1 NZLR 178 (CA).27 China National Foreign Trade Transportation Corporation v Evlogia Shipping Co SA of Panama [1979] 1 WLR 1018 (HL) at 1034–1035 per Lord Scarman and generally Rick Bigwood "Fine-Tuning Affirmation of a Contract by Election: Part 1" [2010] NZ L Rev 37 at 38, 40 and 44.28 It has been questioned whether an election will always be irrevocable, however: Giao Liu"Rethinking Election: A General Theory" (2013) 35 Sydney Law Review 599 at 623–624.requiring the power to be exercised reasonably and in good faith and consistently with the purpose of the power.29 The purpose in this case was to set rights and obligations between the parties.[71] Even if BOS could, as matter of common law, revoke its decision, we consider that it would now be estopped from doing so.Result[72] Accordingly, for the reasons given, we do not consider that any of the grounds of appeal raised by BOS is established and the appeal is dismissed.[73] Costs should follow the event. The appellant is to pay costs to the respondent for a standard appeal on a band A basis together with usual disbursements.[74] We record our appreciation for the assistance provided by counsel to the hearing and resolution of this appeal.Solicitors:Minter Ellison Rudd Watts, Auckland for AppellantSimpson Grierson, Auckland for Respondent29 See Stephen Kós "Constraints on the Exercise of Contractual Powers" (2012) 42 VUWLR 17 and Jeannie Paterson "Implied Fetters on the Exercise of Discretionary Contractual Powers"(2009) 35 Mon LR 45.