Background
After an explosion damaged a generating unit at the Callide Power Station in 2021, IG Power (Callide) Ltd (IGPC) required liquidity for the rebuild and related obligations. In April 2022, its then-parent company, Genuity Pty Ltd, agreed to lend IGPC up to $60 million under a short-form loan agreement. The agreement said the loan “shall not bear interest,” but also required IGPC to reimburse Genuity for necessary and reasonable fees, costs, charges and expenses incurred in funding and maintaining the loan.
Genuity funded the advance by borrowing from its parent, OzGen (UK) Ltd, under separate agreements carrying 10 per cent annual interest. Genuity advanced about $59.3 million to IGPC and later paid approximately $24.4 million in interest to OzGen (UK). After IGPC changed ownership, Genuity sued, contending that the upstream interest was recoverable from IGPC under the costs clause. A separate issue concerning the calculation of amounts otherwise due remained for a later tranche of the proceeding.
The Court’s Holding
Muir J held that clause 5 did not require IGPC to reimburse Genuity for the upstream interest. Read with clause 4, which expressly made the loan interest-free, clause 5’s reference to “fees, costs, charges and expenses” did not include interest paid by Genuity on its own borrowing. The parties had specifically addressed interest in the immediately preceding clause, yet did not expressly provide that Genuity could pass its borrowing interest on to IGPC.
The Court held that this interpretation was commercially coherent in the circumstances of the intra-group emergency funding arrangement. It was not commercially surprising for Genuity to bear interest incurred while supporting its then-ailing subsidiary. In any event, if clause 5 could encompass the interest, Genuity had not proved that the charges were necessary and reasonable: it knew the funds supplied to OzGen (UK) by its shareholders were equity-funded, and did not establish why OzGen (UK) needed to lend those funds to Genuity at interest rather than provide non-interest-bearing equity funding.
Key Takeaways
- An express term that a loan bears no interest will strongly weigh against treating a general costs-reimbursement clause as permitting indirect interest recovery.
- If parties intend upstream financing costs or interest to be passed through to a borrower, they should say so clearly and specifically.
- A lender seeking contractual reimbursement for costs described as necessary and reasonable bears the burden of proving both elements.
Why It Matters
The decision illustrates the limits of broad costs clauses in related-party financing. Sophisticated parties cannot rely on general references to costs and expenses to shift a substantial interest burden where the agreement expressly characterises the underlying loan as interest-free.
It also shows that internal funding choices may be scrutinised when reimbursement depends on necessity and reasonableness. The Court left the remaining accounting question, directions for the second tranche trial, and costs to be addressed separately.