Bank of China v Permanent Nominees Aust Ltd [1999] VSC 77

5. The proceeding arose out of an intended agreement which failed in May 1994. In respect of the alleged agreement, the plaintiff had paid the sum of $875,000, being ten per cent of the proposed purchase price of the relevant property. After the breakdown of the negotiations and settlement on 12 May 1994, there were thereafter a number of attempts to achieve a concluded agreement which failed. This, as my reasons for judgment indicate, involved a number of positions being adopted by the parties. The agreement had provided for the retention on interest rates of the deposit to be paid, and paid. There had been a previous agreement which remained uncompleted because of the inability of the defendant to achieve performance of a condition precedent. After the breakdown of the replacement agreement, the defendant returned the deposit but only part of the interest generated upon its investment, pending the working through of the contract (an attempt which failed).

8. Upon the delivery of my reasons and judgment, there was no dispute that the plaintiff was entitled to the costs of the proceeding. A dispute arose as to whether or not the plaintiff was entitled to interest pursuant to s.58 of the Supreme Court Act at the rates as provided by the Penalty Interest Rates Act or whether it was entitled to no more than the interest engendered upon the returned deposit from the relevant account, pending the determination of the proceeding. Thus there was no outstanding issue in relation to the deposit of $875,000 and the interest accrued upon its investment in the relevant account ($282,263.62), a total of $1,157,263.62. That amount has already paid over to the plaintiff's solicitors on 1 March 1999, according to information supplied to the Court. The dispute between the parties is related to the difference between the interest calculated from the date of the commencement of the proceeding (8 June 1994) to the date of the receipt of the principal amount pursuant to the judgment (1 March 1999) calculated in accordance with the Penalty Interest Rates Act (the total being $537,851.51 to that date) and the interest actually paid. That difference is $255,580.09. Thus the plaintiff does not contend that it is entitled to the total interest upon the sum in dispute at penalty interest rates, without allowing for the interest derived from the deposit of the sum in the account. The plaintiff accepts that that amount must be offset; the sum it seeks in addition to the sums already paid is $255,588.09, to 1 March 1999.

11. The plaintiff's application for interest is made pursuant to s.58 of the Supreme Court Act which provides as follows:

"Interest to be allowed when debts or sums certain recovered

(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, ... at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made."

Examination of the exhibits and correspondence tendered during the trial shows that the plaintiff did make demands for the return of the deposit prior to the commencement of the proceeding. However, the plaintiff does not seek interest on a date further back the commencement of the proceeding that is the issue of the writ.

17. The commencing point of the process here is that the Court must on application allow interest to the creditor in accordance with the Penalty Interest Rates Act (but nevertheless pursuant to s.58) unless good cause is shown to the contrary. The language of s.58 would suggest that there is a discretion as to the interest rate so long as it does not exceed the rate fixed by the Penalty Interest Rates Act ("the Act"). The burden is thus thrown on the defendant to raise and justify matters which would amount to the showing of good cause not to make the interest allowance that the statute contemplates. My own experience is that unless circumstances were established to that amounted to the showing of "good cause to the contrary", almost inevitably there is allowed interest at the rates fixed by the Act. As a general practice, the exercise of discretion did not penetrate into the rate of interest applied. It is not surprising that this should be the case as the relative certainty of the prevailing rate of interest likely to be achieved upon judgment for the successful plaintiff will ordinarily be a relevant matter affecting offers of settlement or offers of compromise in accordance with the Rules. Nevertheless, it cannot be doubted that the Court's discretion does extend to fixing a lower rate of interest than that prescribed by the Penalty Interest Act. See Clarke v. Foodland Stores [1993] VicRp 81; [1993] 2 V.R. 382 at 394, 396-7. Both parties to this application appeared to rely upon various passages in Clarke's Case. The Court however clearly stated that, following statements in MPB (SA) Pty. Ltd. v. Gogic [1991] HCA 3; (1991) 171 C.L.R. 657, that the purpose of allowing interest is to compensate the plaintiff for being kept out of his money not because he has lost the opportunity to invest, but because he has been deprived of its use, whatever use that might be. In the same judgment, emphasis was placed by the Full Court on the proposition that interest was to compensate the plaintiff, and was not driven by penalising the defendant for hanging on to the money. Doubtless the fact that the defendant has had the use of the money contrary to the plaintiff's use of it is additional reason to allow interest. Not all defendants have the use of money in any event and, in relation to the deposit, this defendant did not. If a defendant unilaterally chose to put the money in an account pending trial, or was prevented by court order from using the funds because e.g. the court froze them, it would not appear to be just that those events could be successfully deployed to reduce the interest to which the successful plaintiff would otherwise be entitled simply because the defendant did not have the use of the money.

20. As I understand the defendant's submissions in this case, it is that good cause to the contrary has been shown by the events which led to the putting of the sum on deposit. On 8 June 1994 the plaintiff issued a summons seeking an order that the defendant be restrained from forfeiting the deposit of $875,000 or of forfeiting any interest paid on it. The defendant undertook to hold the deposit in an interest-bearing account until the determination of the proceeding as the order of Beach, J. made on 9 June 1994 indicates, that specific undertaking being noted. However it may be observed that there is nothing in the order to indicate that the plaintiff abandoned or surrendered its right to seek an order that it should have interest at the higher penalty interest rate if it was successful. Whilst there appears to have been an agreement that the moneys in dispute be held on deposit, there was no agreement between the parties that the accrued interest in that account was to be in lieu of or in substitution for statutory entitlements to interest or damage for the loss of use of money that might arise under the law, if the plaintiff succeeded. It would not have been difficult to make such an agreement but none was made. Faced with this fact, the defendant submitted that at no time did the plaintiff indicate or notify the defendant that it was going to seek an additional sum of interest other than the interest generated by that account. However, the burden on this issue lies on the defendant. There is no evidence before me as to the circumstances leading to the undertaking given by the defendant to the Court and I am not prepared to conclude that that undertaking was the result of an agreement between them to limit the recoverable interest to the amount added to the invested sum by way of interest. While it is true that the defendant has not had the use of the money, that does not seem to do much for the plaintiff being kept out of the money which, as I have found, was its money. The defendant's submission seemed to proceed on the basis that s.60 of the Supreme Court Act was the applicable section. However, s.60 does not apply if s.58 does. See s.60(2)(e)

23. I note that in the course of the oral debate about this matter on the day on which I delivered my reasons, a claim was made by senior counsel for the defendant that the matter had only come to trial some four-and-a-half years after the proceeding was commenced, claiming that no one could suggest that that was the fault of the defendant. There is no evidence before me as to the causes for that elapsing of time and I note that in the written submissions on the part of the defendant no argument, or facts upon which argument might be based, as to delay has been advanced. Thus there is no basis for taking the view of the matter as was taken, for example, by Smith, J. in Willetts v. Leo Dimos and the Registrar of Titles (unreported, 27 February 1998). Thus I ignore the issue of delay.

26. I note that in Clarke's Case the trial judge had fixed the rate provided by the Penalty Interest Rates Act as the basis for his calculations. See also too Farrow Finance Company Ltd. (In Liq.) v. Farrow Properties Pty. Ltd. (In Liq.) and Others (Hansen, J., unreported, 16 April 1998). Accordingly I am of the view that the defendant has not made out good cause to the contrary as to why the plaintiff should not have the benefit of the exercise of the Court's discretion to order interest at the Penalty Interests Act level. And in my judgment, that is a proper order to make.

29. The principal sum and the interest on the moneys deposited in the account having already been paid, I am of the view that the sum required to be paid by way of interest is the sum which I was informed of in the course of submissions viz $255,588. If that amount should be added to because of the elapsing of time then someone should tell me what the correct figure is.