PRE-JUDGMENT INTEREST
8 Section 51A of the Federal Court of Australia Act 1976 (Cth), insofar as relevant, is in these terms:
(1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:
(a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or
(b) without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.
…
(3) Where the sum for which judgment is given (in this subsection referred to as the relevant sum) includes, or where the Court in its absolute discretion, or a Judge in that Judge's absolute discretion, determines that the relevant sum includes, any amount for:
(a) compensation in respect of liabilities incurred which do not carry interest as against the person claiming interest or claiming a sum in lieu of interest;
(b) compensation for loss or damage to be incurred or suffered after the date on which judgment is given; or
(c) exemplary or punitive damages;
interest, or a sum in lieu of interest, shall not be given under subsection (1) in respect of any such amount or in respect of so much of the relevant sum as in the opinion of the Court or the Judge represents any such amount.
(4) Subsection (3) shall not be taken to preclude interest or a sum in lieu of interest being given, pursuant to this section, upon compensation in respect of a liability of the kind referred to in paragraph (3)(a) where that liability has been met by the applicant, as from the date upon which that liability was so met.
9 Practice Note CM 16 - Pre-judgment Interest is as follows:
1. Section 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth) provides for the making of orders for the inclusion of interest in judgments.
2. Practitioners and litigants should expect that where, pursuant to section 51A(1)(a), interest in respect of a pre-judgment period is to be included in a judgment, the Court will have regard to the following rates, being rates agreed upon by the Discount and Interest Rate Harmonisation Committee established following a referral by the Council of Chief Justices of Australia and New Zealand:
(a) in respect of the period from 1 January to 30 June in any year - the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced, and
(b) in respect of the period from 1 July to 31 December in any year - the rate that is 4% above the cash rate last published by the Reserve Bank of Australia before that period commenced.
10 S&P submitted that the councils and LGFS should not be awarded pre-judgment interest as, in effect, they had not proved any profit they might have made or loss suffered by reason of being kept out of their money (citing, in support, Riches v Westminster Bank Ltd [1947] AC 390 at 400). S&P also said that it is not the case that "good reason" must be shown before an award of interest is declined, citing Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 244 at [45]. Gillard J in this case in fact said at [45]:
The phrase "unless good cause is shown to the contrary" qualifies the obligation of the court to grant an award of damages in the nature of interest and indeed, in a rare case, the court could refuse to allow interest at all or allow interest on terms which are less onerous to the judgment debtor than those prescribed by the subsection, namely, the date of commencement of the period for interest. On the other hand, the determination of the appropriate rate of interest is a question of discretion for the court and does not depend upon establishing good cause to the contrary. These propositions are supported by what the Full Court said in Clarke's case, above [Clarke v Foodland Stores Pty Ltd [1993] 2 VR 382].
11 ABN Amro, for its part, submitted that the councils and LGFs should not be awarded interest at the rate in Practice Note CM 16. First, in the principal reasons for judgment at [2860] I had found how the councils would have invested their funds if they had not invested in the Rembrandt CPDO notes and the rate of interest the councils would have earned from such investments was far less than the rate specified in Practice Note CM 16 (being about 36 bps over BBSW for Cooma and 20 bps over BBSW for the other councils compared to 400 bps over BBSW under Practice Note CM 16). Second, even under the Rembrandt CPDO notes themselves the councils and LGFS were entitled to interest at the rate of only 190 bps over BBSW. S&P adopted ABN Amro's submissions in the alternative if its own position of no pre-judgment interest were rejected.
12 In Management 3 Group Pty Ltd (in liq) v Lenny's Commercial Kitchens Pty Ltd (No 2) (2012) 289 ALR 275; [2012] FCAFC 92 the Full Court at [25] said:
Pre-judgment interest is awarded to compensate an applicant for being kept out of the applicant's money by the respondent's refusal to pay that which the court at trial orders to be paid, and not to punish the respondent for the respondent's refusal to pay: Batchelor v Burke (1981) 148 CLR 448 at 455; 35 ALR 15 at 19 (Batchelor) per Gibbs CJ; Thompson v Faraonio (1979) 24 ALR 1 at 7. The rate at which interest is payable is the subject of the court's discretion under s 51A(1)(a): Kazar [Kazar v Kargarian (2011) 197 FCR 113; [2011] FCAFC 136] at [97]. Because the award of pre-judgment interest is intended to be compensatory, the interest rates provided for in the Penalty Interest Rate Act have no application. The proper rate of interest to be applied should be the rate prevailing from time to time in the market place which would represent the cost of the money to a successful applicant. The court has suggested in Practice Note CM16 that that rate is 4% above the cash rate fixed by the Reserve Bank. In our opinion that rate is a rough and ready guide of the prevailing interest rate at any given time and should be applied in relation to pre-judgment interest on any award which has been calculated as at the date that the cause of action arose.
13 The rate in Practice Note CM 16 is a "rough and ready guide" but it is a guide nonetheless, published by the court as to what parties should expect the court will have regard to in respect of pre-judgment interest. In the present case I do not accept the submissions of S&P or ABN Amro. The findings at [2860] have to be read in context. My primary finding was that but for the unlawful conduct of S&P and ABN Amro the councils and LGFS would not have invested in the CPDO notes at all. Insofar as the councils are concerned, I found that it was unnecessary for them to prove what might have happened in the "alternative universe" of them not investing in the CPDO notes (an argument S&P and ABN Amro put against the councils). I also found that the notion that there had to be some alternative investment the councils would have made was itself misconceived because they might not have made any investment (at [2859]). That is, the councils might have spent the money on performing their primary functions of public services rather than investing the money either at all or at some time in the 10 year term of the CPDO notes. The findings I made at [2860] are alternative findings assuming my primary findings are wrong. Even on that basis, they are findings about nothing more than what the evidence established the councils would most likely have done had they chosen to invest at all as at the date they invested in the CPDO notes. As the evidence also disclosed, most council investments were for terms far less than 10 years. I made no alternative finding, and could not have done so, about what the councils most likely would have done with their funds after the initial investment that I am satisfied they most likely would have made assuming they made any investment at all.
14 For these reasons the councils and LGFS are in an equivalent position in terms of my findings. They would not have invested in the CPDO notes and would not have lost their money but for the unlawful conduct of S&P and ABN Amro. Hence, they would have had the use of those funds for the period from investment onwards. Beyond that, the next step in the reasoning process involves hypothesis for the councils not a finding (that is, the hypothesis the councils might have invested rather than spent the money) and neither hypothesis nor finding for LGFS. But I do not accept this means that the councils and LGFS are not entitled to pre-judgment interest to compensate them for the loss of their money. They will have been kept out of their money from the date of cash-out until the date orders are made. On the date of cash-out they lost their principal and their future interest. It is the purpose of pre-judgment interest to compensate them for that loss. They did not need to prove a profit they otherwise would have made. The compensatory purpose extends to the loss of the use of the money they otherwise would have had. That is sufficient to enliven the compensatory purpose unless good cause is shown to the contrary. No good cause is shown. It is just that the councils and LGFS be awarded pre-judgment interest, the relevant starting date, however, being the date of cash-out rather than the date of initial investment. Confining the period of pre-judgment interest in this way is appropriate because the councils and LGFS were out of their money from that date onwards.
15 In terms of the rate, I can see no reason to depart from the expectation established by Practice Note CM 16. As to the other investments made by the councils, as noted, they tended to be over relatively short periods which would have attracted lower rates of interest than an investment over 10 years such as the CPDO notes. Moreover, the councils and LGFS have now been out of their money since the cash-out date which is agreed to have occurred on 24 October 2008. Further, the CPDO notes offered interest over the full period of BBSW plus 190 bps so LGFS and the councils would have had the use of the interest at that rate for over four years which they have been denied. In these circumstances, the "rough and ready guide" afforded by Practice Note CM 16 should be applied.