AKRON SECURITIES LTD v ILIFFE & ORS

(2) The respondent is liable to repay the principal and interest at penalty rates pursuant to s95 Supreme Court Act in respect of the loan and lease agreements. The rate of interest to apply is the contractual rates set out in the lease agreement.

(3) The resultant sum (ie the amount paid by Akron pursuant to the judgment of Rolfe J less (2) above) should carry simple interest at rates pursuant to s95 Supreme Court Act. The aim is to put the parties in the position they should have been when the litigation was completed at first instance.

(4) The costs order below should not be disturbed. However, the appellant is entitled to costs of the appeal.

Mason P and Priestley JA The parties have been unable to agree as to the orders which should flow from the Court's earlier judgment.

Leaving aside costs for the moment, the appellant's Short Minutes proceed as follows:

(1) in lieu of the orders made by Rolfe J, they enter judgment for the appellant against each respondent in a sum which represents

(i) the total of the moneys due under the contracts in respect of the lease account and the loan account. These sums include "default interest" of 19% per annum compounded monthly, as provided for in cl4.4 of the Lease Agreement

less (ii) damages flowing from the absence of the minimum receipts undertaking or "guarantee" (described as the "MRU Credit") (ie $40,291) plus simple interest calculated at s94 rates from 1 August 1991.

[The earlier reasons for judgment contain a mathematical error in calculating the MRU Credit. It should have been $40,291, being $43,426 less $3,135.]

(2) each respondent is ordered to repay a sum representing the moneys returned by the appellant to the respondents on 29 November 1994 pursuant to the rescission orders made by Rolfe J, plus s94 interest thereon calculated from 29 November 1994.

The respondents submit that this approach is unjust. They accept that the appellant has approached the matter in the way envisaged in that part of Mason P's earlier reasons dealing with "The Appropriate Order" in that Akron is effectively waiving the monetary equivalent of the "guarantee" represented by Miss Bollard. However, it is contended that those reasons (and the calculations based thereon) produce an injustice because step (1) above sets off contractual

"penalty" compound interest (19% per annum compounded monthly) on what is due by the Investors under the contract against statutory simple interest (ranging from 10.5% to 12% and back to 10.5% in the period in question) on what is due by Akron in respect of its "default" in procuring the MRU Credit.

At the outset we should indicate that it is clearly open to the respondent to raise this contention. We do not understand the appellant to argue to the contrary. No orders have been pronounced, let alone entered. And the earlier reasons proceeded upon the assumption (now shown to be false) that Akron's contractual claims carried interest at s94 rates: see p15 of Mason P's judgment.

The respondents' point is that, if the minimum receipts guarantee had been effective, as represented, then the respondents would have received by way of distribution from NZI (for each share held) $43,426 less $3,135 at the close of the Venture, ie $40,291. $43,426 was the amount needed to pay out the lease residual ($5,440) and the loan principal ($37,986). Had $40,291 been paid (by NZI) when needed, ie when the Venture was wound up, it would have been handed over to Akron in partial discharge of what was then owing by each respondent. This would have discharged the respondents' several obligations to pay to Akron what was then due on account of lease residual and loan principal. However, it would have been a partial discharge because each respondent happened also to be in arrears for Lease rental for fiscal 1991 ($10,754) and Loan Agreement interest for fiscal 1991 ($5,900): see p15 of earlier reasons.

In our view the respondents are correct in their submission that "the whole point of the minimum receipts insurance was to ensure that the debt now claimed by [Akron] did not arise if the venture collapsed", subject only to acknowledging that the minimum receipts guarantee did not and was never intended to relieve the respondents of their obligations to pay their lease and loan obligations during the currency of the Venture.

The appellant Akron argues that s94 interest is appropriate for calculating what is due on account of its obligation effectively to make good the lost minimum receipts guarantee. It argues that Akron was not contractually bound by the guarantee, and in that sense it was not its guarantee to give. Had Bernborough been solvent its promise would have been effective. Had the guarantee in fact been backed by NZI it would have been NZI that was obliged to pay the respondent investors $40,291 per share when the Venture was wound up. We do not think that these arguments address the true issue, which is the valuation of the loss suffered by the respondents when the minimum receipts guarantee was not as it had been represented by Akron to be. That loss has to be offset in an effective way against what was otherwise owing by the respondents under their several contractual liabilities.

The respondents have calculated what is due on this basis, taking | August 1991 as the date from which the respondents should have paid out the Lease Agreement and the Loan Agreement as well as the date upon which the appellant should have made good "its" minimum receipts guarantee. These calculations envisage the entry of judgments in favour of the appellant against each respondent (for moneys due under the two Agreements) and judgments in favour of each respondent against the appellant (for moneys due on account of damages for failure to provide the minimum receipts guarantee).

We agree with the respondents in point of principle, for the reasons they advance which I have already summarised. However, we think that the simpler and fairer way of assessing damages is to treat Akron as having made good the minimum receipts guarantee at the appropriate date (we are content with 1

URJ AKRON SECURITIES LTD v ILIFFE & ORS (No 2) (Mason P and Priestley JA) 3

August 1991) and the respondents as having used that sum on that date to pay out Akron what was due for lease residual and loan principal. This would leave the respondents exposed to judgment representing:

(i) Lease rental for fiscal 1991 ($10,754 per share);

(ii) "penalty" interest thereon to date of judgment;

(iii) Loan Agreement interest for fiscal 1991 ($5,900 per share);

(iv) "penalty" interest thereon to date of judgment.

Judgment should be entered in favour of Akron against each respondent for the resultant figures. That judgment will take effect on 18 August 1994, the date on which the judgment below took effect. This will put the parties in the position they would have been had "the court" made then the orders which the Court of Appeal has now thought appropriate: cf Commonwealth v McCormack (1984) 155 CLR 273 at 276. See Nicol v Allyacht Spars Pty Ltd (1988) 165 CLR 306.

We have considered anxiously whether this is a case in which the prescribed rate of post-judgment interest should be varied, pursuant to s95 of the Supreme Court Act. In our view it is appropriate that the judgment debt should bear interest at the contractual rate in the Lease Agreement: cf Mercantile Credits Ltd v McDowell [1980] 2 NSWLR 101. The "penalty" rate in the Lease Agreement is 1% lower than that applicable to the Loan Agreement, but it is convenient and appropriate that the lower penalty rate apply to the judgment sum. Unlike s94, there is no prohibition upon compound interest being ordered under s95.

On this basis, the parties are agreed that these figures are $61,078.24 in the case of the first respondent, and $30,539.12 in the case of the second and third respondents.

On 29 November 1994 Akron paid to the first respondent $127,068.24 and to each of the second and third respondents $63,659.57. These sums represented the net total of all moneys paid by each respondent to Akron during the course of the Venture plus interest. It was the price paid for restitutio in integrum. Akron is entitled to partial restitution of these sums, pursuant to Pt51 118. For each respondent there will need to be set off against the sums referred to at the beginning of this paragraph a sum calculated up to 29 November 1994 pursuant to the judgment (plus interest) which we propose to enter in favour of Akron.

Normally the resultant sum would itself carry interest at s95 rates from 29 November 1994 to date of the order: see Production Spray Painting & Panel Beating Pty Ltd v Newnham (No 2) (1991) 27 NSWLR 659. We shall assume that the Court has power to order restitution in a sum that includes compound interest. However, contrary to the appellant's submissions, simple interest at s95 rates is appropriate on this restitutionary sum because the aim is to put the parties in the position they should have been when the litigation was completed at first instance. There is no reason to assume that the respondents would not have discharged their judgment debts promptly, particularly since the prescribed interest rate itself offered an incentive to do so.

As to costs, the costs order below should not be disturbed. Although the extent of the remedy granted to the respondents has been pared back, they were nevertheless successful in establishing a remediable contravention of s52 as against Akron. Akron should have its costs of the appeal, with a Suitors' Fund Act certificate going to the respondents if entitled.

2. Vacate the orders made by Rolfe J on 18 August 1994 in favour of the respondents and substitute in lieu thereof:

(1) Judgment for the appellant in the proceedings against each respondent (fifteenth, twenty-sixth and fortieth defendants below respectively) in the following amounts:

First respondent $61,078.24 Second respondent $30,539.12 Third respondent $30,539.12

The judgments are to take effect on 18 August 1994.

(2) Pursuant to s95 of the Supreme Court Act, interest on the said judgments is to be payable at the rate of 19% per annum on monthly rests.

(3) Order that the plaintiff pay the costs of the plaintiff's proceedings of the fifteenth, twenty-sixth and the fortieth defendants as agreed or taxed.

3. By way of partial restitution each respondent is ordered to repay to the appellant a sum representing the difference between the moneys paid to that respondent by the appellant on 29 November 1994 and the sum calculated to that date in accordance with O(1) and O(2). The resultant sum is to bear interest until payment at the rate prescribed for the purpose of s95. Payment of the resultant sum with interest will discharge the judgment debt of the respondent involved.

4. Respondents to pay appellant's costs of the appeal and to have a certificate under the Suitor's Fund Act if qualified.

Meagher JA In this matter my brethren allowed the appeal. The parties do not understand what they meant. Everyone is now wallowing in a state of confusion which would not have arisen had the appeal been dismissed, as it should have been. I do not care what (if any) further orders are made, but will acquiesce in any order which appeals to my brethren.

The orders are those proposed by Mason P and Priestley JA in their judgment on p7 - p8.

Counsel for the appellant: B A Coles QC/M Cashion Solicitors for the appellant: Kemp Strange & Chippendall Counsel for the respondent: T F Bathurst QC/S Wheelhouse