In March 2013, the plaintiff, KBL Mining Limited (KBL) issued a number of notes with an aggregate face value of $10 million pursuant to a Note Issuance Deed (Deed). The noteholder’s right to receive payment from KBL on redemption of the notes was later assigned to RIKID511 Pty Limited as Noteholder or Lender.

The Deed provided that KBL could redeem the notes at the expiry of one year for an aggregate value of $11.3 million, but was otherwise obliged to redeem the notes at the expiry of two years for an aggregate value of $12.6 million. There was no benefit to KBL redeeming the notes at any earlier time. Significantly, the Deed did not specify if the premium of the redemption value (i.e. $1.3 million or $2.6 million) constituted ‘interest’.

KBL granted security over all of its assets in favour of the authorised holder of the notes from time to time pursuant to a General Security Agreement (GSA). The GSA stated that:

  1. KBL must pay interest on the Secured Money ‘owing’ to the Noteholder, in accordance with any agreement requiring interest to be paid on the Secured Money; and
  2. if there was no such agreement, interest would accrue at a specified interest rate from the day on which the Secured Money became owing.

In this regard, the GSA’s interest clause appeared to be a standard interest clause.


In January 2015, the Noteholder issued KBL with a notice demanding payment of interest on what it claimed was the Secured Money owing to it. The Noteholder claimed that the Secured Money owing to it was $12.6 million and, therefore also claimed interest calculated at the specified interest rate contained in the GSA. The Noteholder contended that it was entitled to interest on the redemption value of the notes as the premium was part of the price payable for the redemption of the notes – not interest.

KBL objected to the Noteholder’s demand on two grounds. First, KBL argued that the Secured Money owing to the Noteholder should be read as meaning the Secured Money ‘owing and payable’ to the Noteholder. On this interpretation, no Secured Money was yet actually owing to the Noteholder. (This argument was rejected by the court.) Secondly, KBL argued that, in any case, the notes’ premium constituted interest and accordingly, the interest clause under the GSA specifying a rate of interest was not enlivened.


The court decided that, in the circumstances, the GSA’s interest clause was not engaged. This was because the return on the advance of $10 million, namely the premium, constituted interest. Critical to the court’s reasoning was its finding (based on the term sheet between KBL and the initial noteholder and other extrinsic evidence) that the objective aim of the transaction was to improve KBL’s cashflow by not requiring cash payments before the redemption of the notes.

However, the court commented that if it were to only have regard to the text of the documents without the benefit of any extrinsic evidence, such as the term sheet and other extrinsic evidence, the court would have concluded that the Noteholder was entitled to interest on the redemption value of the notes.

On the application of the plaintiff, the court also ordered that the GSA be rectified to include a clause expressly stating that no interest would be payable on the value of the notes if KBL redeemed the notes in accordance with their terms. On the issue of rectification, the court was satisfied that it had clear and convincing proof that at the time the agreement was entered into, both parties intended that no interest would be payable on the value of the notes.


This decision serves as an important reminder when preparing and negotiating commercial documents. It is imperative that consideration is given to each clause and whether it will be applicable to the particular circumstances of the transaction. The issue in this case could have been avoided if careful attention had been paid to the interest clause under the GSA and how it related to amounts payable on the notes.