Queensland Court of Appeal construes the effect of oral and written terms on a standard loan contract in Zamia Investments Pty Ltd v Mesana Pty Ltd

Zamia Investments Pty Ltd (Zamia) and Mesana Pty Ltd (Mesana) were shareholders of Mini Tankers International Pty Ltd (MTI), a holding company with shares in Mini Tankers USA Inc (MT USA) and Mini Tankers Canada Ltd (MTC).

In late 2002, MTI resolved to reduce its debts by selling its interest in MTC for approximately $1.6m.  Prior to settlement of the sale however, MTI required urgent funding to assist MT USA, which was experiencing liquidity problems. Zamia decided to obtain an advance of $250,000 from the National Australia Bank (NAB) to contribute to a shareholder funded loan to MTI. Zamia represented to NAB that MTI's proceeds of sale would be used to repay the loan, even though MTI's Board had not agreed to this.

When the sale was completed, the proceeds were insufficient to repay Zamia's loan. NAB had assigned the debt to Mesana, so Mesana brought proceedings to recover the debt from Zamia.

In finding for Mesana, the Court firstly noted that a concluded loan contract existed when NAB advanced the money to Zamia, even though this occurred before any formal documentation was signed. A standard Market Rate Facility Agreement (the Agreement) was later signed by both parties, which did not provide that MTI's proceeds of sale would be used to repay Zamia's loan.

Zamia however argued that such a term existed, because the terms of the loan were not contained in the Agreement but rather in the oral and written terms that had been agreed upon between Zamia and NAB. The Court rejected this argument and held that the oral and written terms constituted the terms of the loan at the time the money was advanced only, prior to the Agreement being entered into.

The Court also noted that Zamia's failure to discuss the essential terms of the loan, such as the interest structure, would lead an objective observer to conclude that the parties intended the advance to be on the bank's standard terms.

Finally, Zamia argued that the terms of the Agreement could not be operative because they were inconsistent with an alleged oral term that NAB would obtain an irrevocable letter of direction from MTI. However the Court rejected that such a term existed, as it would be "commercially extraordinary" that NAB would undertake an obligation to Zamia to procure such a letter from MTI. The Court reasoned that it would ordinarily be the responsibility of Zamia, as the bank's customer, to procure any letter which the bank requested as security.

See case.

Parties entering into a standard form contract should take care to expressly include any oral or written terms previously agreed upon.  Failure to do so may result in the Court finding that such arrangements are superseded by the standard form contract later entered into.