His Lordship then heard counsel and continued:
"I do not accept the submission that it should be 9½ per cent but I think my initial idea of 6 per cent was too low and I will fix it at 7 per cent because that is a rate which I have chosen on the facts of this case and it has no bearing upon what will be the proper rate for working out any other quantity, or even this one, in any other case."
80 That final passage suggests that the rate is one for the discretion of the trial judge as to what is appropriate in all the facts and circumstances of the case and that it is usually appropriate for evidence to be tendered as to what is the market rate, but if no such evidence is tendered, the Judge still must do the best he or she can in the circumstances and on the evidence that is presented.
81 So far as the largest transaction is concerned, Austin J noted that the plaintiff contended that the rate should be 15%, or alternatively a reasonable rate, or yet again, 15% for two years and thereafter at a reasonable rate. His Honour noted that in subsequent dealings there was no mention of 15% and then said at para 87:
"In all the circumstances, I conclude that the arrangement between the parties was that the balance outstanding from time to time would bear interest at a reasonable rate, for the common intention was that interest would be paid but the quantum was not settled. The third alternative advanced by the plaintiff does not appear to me to accord with such evidence as there is concerning intention of the parties. It is appropriate, in my view, to use the rates set out in Schedule J to the Supreme Court Rules in circumstances such as these."
82 The appellant put that there was no common intention at all that the loan should bear interest. If that were right, it still would make very little difference because the way the cases have gone show that interest is payable unless the circumstances show it was not to be payable. The appellant also says that the subsequent communications show that Mrs Gray was not willing to charge interest. I do not consider the material is strong enough for a court to hold that this is so.
83 Mr Lynch for the appellant said that there is a distinction between a commercial transaction by way of mortgage and a family transaction, and whilst equity may imply an obligation to pay interest in the former, it would not do so in the latter. He quoted no authority for this proposition and it seems to be against the reason for the equitable rule advanced by R W Goff J in the Cityland case which I have already quoted.
84 Mr Lynch submitted that Schedule J is not a reasonable rate because: (a) the present loan was in the New Zealand market, not the Australian market; and (b) it is notorious that Schedule J rates are at least 1% higher than the commercial rates; and (c) in any event mortgage home rates are usually lower than the commercial mortgage rate. There was some discussion during argument as to whether a Judge would also need to take into account the fact that the present loan was a bit precarious because it was made to a person with few means up to, it would seem, a large percentage of the property's worth and the loan was to a relative, relatives being notorious in paying their debts to relatives only as a matter of last resort.
85 There was no factual material before the learned Judge at all on the question of what was a reasonable rate of interest. It seems to me that in such a situation where the Judge has to do the best he or she can on the material available it is not an appealable error to choose Schedule J rates.
86 Mr Officer QC for Ventry said that there were really three matters to consider with respect to the question of interest: (a) whether it was payable at all; (b) from what date; and (c) what was a reasonable rate. I believe I have already covered (a) and (c).
87 As to (b), it should first be noted that the learned Judge held that interest was payable from 17 June 1988 on the large amount, but only from the date of death on the $5,000 as there was no contractual provision that the debt would carry interest. There is no challenge to this determination. Secondly, there is no doubt at all that in the instant case New Zealand law applied and that the relevant Limitation Act only barred the remedy not the right.
88 The appellant says that it is wrong to charge him with interest on the larger amount back to the date of the loan.
89 To examine this submission, one needs to analyse the principle in Cherry v Boultbee (1839) 4 My & Cr 442; 41 ER 171.
90 This rule is as formulated by Sargant J in Re Peruvian Railway Construction Company Ltd [1915] 2 Ch 144, 150, "… Where a person entitled to participate in a fund is also bound to make a contribution in aid of that fund, he cannot be allowed so to participate unless and until he has fulfilled his duty to contribute."
91 As Derham says in his The Law of Set-Off 3rd ed (OUP 2003) 1401, "It is an illustration of a more fundamental principle of equity, that he who seeks equity must do equity." The principle is not strictly one of set-off or retainer by an executor for as Kekewich J said in Re Akerman [1891] 3 Ch 212, 219, "Nothing is in truth retained by the representative of the esate; nothing is in strict language set off."
92 A leading case on the rule is Courtenay v Williams (1843) 3 Hare 539; 67 ER 494 (Wigram VC) affirmed as Courtenay v Williams (1846) 15 LJ Ch 204. Lord Cottenham LC said at 208:
"The executor is in possession of assets. He is to distribute those assets according to the will of the testator. Part of the assets are in the hands of the party who claims another portion of the assets. The executor says, 'You have assets sufficient to satisfy your demand; apply them for that purpose.' That was the rule laid down in a case, not indeed barred by the Statute of Limitations, but in a case cited at the bar, in the course of this argument; it was a case where the legatee was indebted for maintenance to the testator. The defendants', the legatees' demand (the Court says) is in respect of the testator's assets, without which the executor is not liable; and it is very just and equitable for the executor to say, that the defendant, the legatee, has so much of the assets already in his own hands, and consequently is satisfied pro tanto.
That applies directly to the present case. He has so much of the testator's assets in his hands - assets that are not recoverable at law, because they are barred by the Statute of Limitations; but they are still assets in his hands, and let him pay himself out of those pro tanto. "
93 Later, on the same page, the Lord Chancellor said:
"… though there has been no decision on the point, in all equitable cases where the debt exists, in the case of lien, the case of appropriation, and other cases of that description, the Court has always considered that the debt being a subsisting debt, the party had an equity to have that debt applied, where the circumstances were such that it could be applied without bringing an action for the purpose of recovering the amount. I think the principle of those cases is directly applicable to the present case."
94 There is no doubt that under the rule in Cherry v Boultbee, not only the debt but also interest due on the debt is able to be set against the legacy due to the debtor. This proposition is supported by cases such as Campbell v Graham (1831) 1 Russ & M 453; 39 ER 175, affirmed on appeal as Campbell v Sandford (1834) 8 Bligh NS 622; 5 ER 1073.
95 In Dingle v Coppen [1899] 1 Ch 726, 737-740, Byrne J distinguished cases under the rule in Cherry v Boultbee from other cases, saying at 740:
"… in the case of a legacy, the person indebted to the testator's estate is not entitled to claim that legacy unless he treats the legacy in one way or other as being pro tanto satisfied … by the amount due from him to the testator, although barred by the Statute of Limitations."
96 The rule in Cherry v Boultbee has its exceptions, see Derham op cit Chapter 14 and the cases which Austin J discussed of Re Bickerdike (No 2) [1919] VLR 62. However, it is not necessary to go into these matters, as the rule clearly applied in the present case.
97 It should be noted that the general equitable principle is not confined to the Cherry v Boultbee situation, but applied whenever a person seeks equity but owes money in a case where the creditor is able to claim repayment of the debt without having to bring an action to recover it, at least where the relevant limitation acts bars only the remedy; see eg Australian and New Zealand Banking Group Ltd v Douglas Morris Investments Pty Ltd [1992] 1 Qd R 478, 497.
98 The 8th edition of Hanbury, Modern Equity (Stevens, Longon, 1962) pp 44-6 deals with the rule in Cherry v Boultee. [This was the last edition edited by Professor Hanbury personally; later editors have omitted this section]. At p 46 Hanbury cites the decision of Parker J in Re Sewell [1909] 1 Ch 806 and then says:
"Equity regards the question not what A [that is the debtor] can be compelled to do, but what he ought in conscience to do, and will withhold from him the advantages which it is in his power to give him, unless he will purge his conscience by paying what he is morally bound to pay."
99 Meagher, Gummow and Lehane (4th ed) [37-145] relying on this passage note that the right under Cherry v Boultbee may be exercised against a statute barred debt.
100 In the instant case, Austin J properly found that there was an agreement that the large debt would carry interest. No interest was paid. The executor may not have been able to sue at law for the principal or all the interest, but, as discussed above, this is irrelevant when the rule in Cherry v Boultbee is involved.
101 Thus the learned trial judge's award of interest on the large debt must be upheld.
102 (6) Accordingly, the appeal must be allowed only to the extent of deleting the Judge's orders 1(c) and 1(d) with respect to the $2,000 and $10,000 transactions, deleting orders 2(c) and (d) which are consequential and adjusting the money amount by deleting the interest that was referable to the two transactions on which the appellant has succeeded.
103 So far as costs are concerned, there was no argument put before us. The learned Judge made a very complicated order for costs after hearing submissions. I believe it is wiser to publish these reasons, to have short minutes brought in and deal with costs at that stage. My preliminary view from which I am quite willing to listen to argument as to why it should not prevail is that as the appellant has succeeded only on a very minor matter in the appeal and has been completely unsuccessful on the major matters, that the appellant, despite his small success, should pay 90% of the respondents' costs.