Interest
4 Runtong seeks interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) (FCA) from the date the Liquidators were appointed (18 June 2018) in the amount of $605,513.90.
5 Section 51A(1) of the FCA provides:
51A Interest up to judgment
(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.
6 An award of pre-judgment interest under s 51A is mandatory unless good cause is shown to the contrary. CEG did not suggest that good cause existed such that pre-judgment interest should not be awarded.
7 There is no dispute between the parties as to the rate of interest, rather it is from the date upon which interest should run.
8 CEG submits the ordinary rule in a claim for relief under s 588FF of the Act is that that interest should be allowed from the date of demand by the Liquidators - 7 March 2019, or alternatively the date the claim was issued - 12 June 2019.
9 In support of that submission, CEG refers to Ferrier & Knight v Civil Aviation Authority [1994] FCA 1019; (1994) 55 FCR 28, a decision of the Full Court dealing with preference claims.
10 The Court referred: at p 92, to the observations of McLelland J in Spedley Securities Ltd (In Liq) v Western United Ltd (In Liq) (No 2) (1992) 10 ACLC 887, that a preference is void only as against the liquidator so that until a liquidator is appointed there can be no cause of action. The Court continued by referring to his Honour's conclusions at pp 887-888 of Spedley that:
As a matter of principle and logic it is very difficult to see any proper basis for an award of interest in respect of a period prior to the accrual of any relevant cause of action.
11 Before continuing: at p 888:
I am not proposing any inflexible rule, but in the ordinary run of cases, particularly in the present case, it seems to me that it would not be proper to allow interest in respect of any period prior to a demand by the liquidator that any particular payment was in fact recoverable as a preference.
12 The Court preferred the reasoning of McLelland J in preference to two decisions of Hodgson J: Maurice Drycleaners Pty Ltd (In Liq) v National Australia Bank Limited (1990) 8 ACLC 798 and Hamilton v Commonwealth Bank of Australia (No 2) (1992) 10 ACLC to the effect that the appropriate commencement date in those matters, which were both preference claims, is the commencement of the winding up on the basis that a preference, once avoided, is treated as void from the commencement of the winding up.
13 The Court also considered: at p 92, that the cause of action in that matter arose, within the meaning of s 51A, only upon the appointment of the liquidators, however it also accepted: at p 93 that in the ordinary course, interest should be allowed only from the date of demand by the liquidators. The Court concluded that in all the circumstances there was nothing to displace the ordinary proposition that interest should run from the date of the demand.
14 The second decision relied upon by CEG is Kazar v Kargarian [2011] FCAFC 136; (2011) 197 FCR 113 at [88]-[94] (Greenwood, Rares and Foster JJ) is a decision dealing with, amongst other things, unreasonable director-related transactions.
15 In Kazar Foster J, (Greenwood and Rares JJ agreeing) observed that the general rule explained in Ferrier & Knight that interest should run from the date upon which the relevant demand is made by the liquidator is sound. However, Foster J considered: at [93], that a putative defendant to a liquidator's statutory cause of action is entitled to know whether any particular action by the liquidator will, in fact, be pursued is entitled to know the basis upon which the cause of action will be pursued. It was on that basis that Foster J held that pre-judgment interest pursuant to s 51A(1)(a) should commence to run from the date when the proceeding was commenced.
16 Runtong refers to three authorities, each of which involved a claim against directors for insolvent trading: Fryer v Powell [2001] SASC 59; (2001) 159 FLR 433, a decision of the Full Court of the Supreme Court of South Australia; Smith v Bone (No 2) (2015) 233 FCR 568, [2015] FCA 389 and Aquisite Pty Ltd v Moss (No 2) [2023] FCA 727.
17 In Fryer at [115], Olsson J (Duggan and Williams JJ agreeing), observed that the making of a demand is not a pre-requisite to a cause of action arising for the recovery of compensation for loss resulting from insolvent trading pursuant to s 588M of the Act and that as a matter of convenience, interest was allowed to run from the date of appointment of a liquidator.
18 In Smith, Gleeson J (when a member of this Court) referred to Kazar and Fryer in the context of a contention by the defendants, that no interest should be awarded in respect of the plaintiff's claim against the defendants for insolvent trading under s 588M of the Act.
19 Aquisite was also an insolvent trading claim where McElwaine J awarded pre-judgment interest pursuant to s 51A from the date of appointment of the liquidators.