Jackson, in the matter of Conway v Conway

REASONS FOR JUDGMENT 1 The applicant seeks an order that a bankruptcy notice issued by the respondent be set aside or alternatively, that the time for compliance with the bankruptcy notice be extended. 2 The bankruptcy notice requires the applicant to pay to the respondent the amount of a judgment debt plus interest accrued since the date of the judgment or alternatively to make arrangements to the respondent's satisfaction for settlement of the debt. The bankruptcy notice gives the amount of the judgment as $111,449.59 and claims interest on that amount since the date of the judgment. 3 The judgment debt arose following a contested proceeding in the District Court of New South Wales. In that proceeding the respondent (who was the plaintiff before the District Court) alleged that the applicant (who was the defendant before the District Court) had agreed to pay her $70,000 on 30 June 1995 and that, despite demands being made for payment, he had not paid her on 30 June 1995 or at any other time. On 13 June 2000 his Honour Acting Judge Cripps gave judgment in favour of the respondent. His Honour found that the applicant remained under an obligation to pay the respondent $70,000. His Honour noted that interest up to the date of judgment was claimed in an amount of $41,449.59. The formal orders of the District Court entered on 13 June 2000 were: "1. there be a verdict for the plaintiff in the sum of $111,449.59 inclusive of interest. 2. the Defendant pay the Plaintiff costs". 4 The applicant claims that the bankruptcy notice should be set aside as improperly claiming interest on interest. That is, the applicant claims that the respondent is not entitled to claim post-judgment interest on the entire amount of the verdict entered in her favour but only on the principle sum of $70,000. 5 The pleadings that were filed in the District Court have been placed in evidence. They show that neither party pleaded an agreement to pay interest on the principal sum of $70,000. The claim for interest made in the District Court proceeding was presumably made under s 83A(1) of the District Court Act 1973 (NSW) ("the DC Act") which provides: "In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) the Court may order that there shall be included, in the amount for which judgment is given, interest at such rate as it thinks fit on the whole or any part of that amount for the whole or any part of the period between the date when the cause of action arose and the date when judgment takes effect." 6 The policy behind s 83A(1) of the DC Act may be presumed to be that a party should not profit by refusing or delaying payment of money due to another. Thus a party who has had the benefit of the use of funds which ought to have been paid to another, and has wrongly kept the other party out of funds to which that party was entitled, may be required to pay interest on the funds to the date of judgment. 7 Once judgment was entered in the District Court in favour of the respondent, the original cause of action was merged in the judgment. The applicant was no longer liable to pay the respondent $70,000 pursuant to an agreement; he was liable to pay on the judgment. 8 Section 85 of the DC Act provides as follows: "85(1)Unless the Court orders in any particular case that interest be not payable, interest shall, subject to subsection (3), be payable on so much of the amount of a judgment debt as is from time to time unpaid. (2) Interest payable under subsection (1) in respect of a judgment debt shall - (a) subject to subsection (3), be calculated as from the date when the judgment debt came into being or from such later date as the Court in any particular case fixes; (b) be calculated at the rate prescribed for the purposes of section 95(1) of the Supreme Court Act 1970; and (c) form part of the judgment debt, but not so as to require the payment of interest upon interest." 9 The policy behind s 85(1) of the DC Act may be assumed to be not only that a party should pay interest on money which it retains which in truth belongs to another, but also that litigants ought to comply with orders of a court promptly. It is the latter aspect of this policy which explains the tendency of at least some courts to fix the interest payable on judgment debts at a rate higher than the prevailing commercial rate of interest. 10 The applicant contends that if interest is payable on the whole of the judgment debt of $111,449.59, he will be paying interest on interest contrary to s 85(2)(c) of the DC Act. Lockhart J gave consideration to s 85(2)(c) of the DC Act in Re Wong; ex parte Kitson (1979) 27 ALR 405 at 413. After noting that interest on a judgment debt would not ordinarily be understood as answering the description of a "judgment debt", his Honour said: "In my opinion, all that s 85(2)(c) does is to provide that for purposes of enforcement of the statutory obligation to pay interest on a judgment debt, the interest is to be treated as if it were part of the judgment debt itself; but it does not answer the description of 'the judgment debt' as defined in Div 4 of the District Court Act." 11 The significance of the concluding words of s 85(2)(c), in my view, is to make clear that although, for the purpose of enforcement of the statutory obligation to pay interest on a judgment debt, the interest is to be treated as if it were part of the judgment debt, compound interest on the judgment is not permitted. That is, further interest on such interest is not payable. The paragraph, however, has nothing to say concerning the payment of interest on the judgment debt itself. That issue is governed by s 85(1) read with the definitions of "judgment" and "judgment debt" contained in s 84(1) of the DC Act. Section 84(1) provides: "In this Division, except in so far as the context or subject matter otherwise indicates or requires - judgment includes any order of the Court for the payment of an amount of money as costs or otherwise; judgment debt includes - (a) any amount ordered by the Court to be paid as costs or otherwise; and (b) any amount payable as provided by the rules as costs without any order of the Court." 12 The above definitions make it plain that the amount of the judgment debt upon which interest was payable, unless the District Court ordered otherwise, was the sum of $111,449.59 plus any amount ordered by the District Court to be paid as costs or any amount payable as provided by the rules as costs without an order of the District Court. Although the respondent obtained a costs order in her favour in the District Court, it has not been suggested that the judgment debt includes any amount representing costs. Interest is thus payable under s 85(1) of the DC Act on so much of the sum of $111,449.59 as is from time to time unpaid. As no amount of the sum of $111,449.59 has been paid, the respondent was entitled by the bankruptcy notice to claim interest on the entire amount of the judgment debt of $111,449.59 at the rate prescribed for the purposes of s 95(1) of the Supreme Court Act 1970 (NSW) (see s 85(2) of the DC Act). 13 It is appropriate to note that the position might be otherwise had the parties entered into an agreement that interest was payable on the principal sum of $70,000 so long as any part of the sum remained unpaid. The relevant principle was explained by Fry LJ in Ex parte Fewings; In re Sneyd (CA) (1883) 25 Ch D 338 at 355: "When there is a covenant for the payment of a principal sum, and a judgment has been obtained upon the covenant for that sum, it is plain that the covenant is merged in the judgment, and, if there is a covenant to pay interest which is merely incidental to the covenant to pay the principal debt, that covenant also is merged in a judgment on the covenant to pay the principal debt. Of course a covenant to pay interest may be so expressed as not to merge in a judgment for the principal; for instance, if it was a covenant to pay interest so long as any part of the principal should remain due either on the covenant or on a judgment". 14 For a recent application of the above principle see Fruehauf Finance Corporation Pty Ltd v Zurich Australian Insurance Ltd (1993) 7 ANZ Insurance Cases 61-202. 15 The application to set aside the bankruptcy notice must be dismissed. 16 I turn to consider whether the time for compliance with the bankruptcy notice should be extended. Before the time fixed for compliance with the bankruptcy notice, the applicant lodged an appeal from the judgment of the District Court. By consent, the Supreme Court of New South Wales has ordered that execution of the judgment be stayed pending determination of the appeal or until further order. 17 Section 41 of the Bankruptcy Act 1966 (Cth) ("the Act") relevantly provides: "41(6A) Where, before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice: (a) proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; or (b) … the Court may, subject to subsection (6C), extend the time for compliance with the bankruptcy notice. (6B) [repealed] (6C) Where: (a) a debtor applies to the Court for an extension of the time for complying with a bankruptcy notice on the ground that proceedings to set aside the judgment or order in respect of which the bankruptcy notice was issued have been instituted by the debtor; and (b) the Court is of the opinion that the proceedings to set aside the judgment or order: (i) have not been instituted bona fide; or (ii) are not being prosecuted with due diligence; the Court shall not extend the time for compliance with the bankruptcy notice." 18 The only basis upon which the respondent pressed her opposition to an order further extending the time for compliance with the bankruptcy notice was that, as she contended, an appeal is not a proceeding to set aside a judgment within the meaning of s 41(6A) of the Act. 19 There is some conflict in the authorities on whether an appeal which seeks, as the appeal in this case does, that the judgment of the court below be set aside, is a proceeding to set aside a judgment within the meaning of s 41(6A) of the Act. In Lentini; ex parte Lentini v CSR Limited (1991) 29 FCR 363 Neaves J held that a notice of appeal filed against a judgment did not constitute a proceeding to set aside the judgment within the meaning of s 41(6A) of the Act. His Honour in that case took the same view as that which he had earlier expressed in Re Maddox (Federal Court of Australia, Neaves J, 12 May 1987, unreported). In Re Maddox his Honour said: "The language of s 41(6A)(a) is clearly apt to refer to proceedings by a judgment debtor in the court where judgment was entered against him to have the judgment set aside. What the provision contemplates is an application to have the court by which the judgment was pronounced revoke the expression of its coercive power where there has been a failure to follow the rules of procedure or where there is shown to be some defect or irregularity or some other circumstance which renders it desirable that the debtor should be given an opportunity to have the issue further litigated. It may be that, in some circumstances, such proceedings may be taken in a court superior to that in which the judgment was entered but, be that as it may, the language of the provision is not, in my opinion, apt to refer to proceedings which are properly characterised as an appeal from the judgment in respect of which the bankruptcy notice was issued." 20 In Re Halliday; ex parte Halliday v ACN 003 075 394 Pty Ltd (1993) 44 FCR 349 at 358, Olney J adopted the views of Neaves J as expressed in Re Lentini and Re Maddox. Foster J in Vincent v State Bank of New South Wales (1995) 60 FCR 290 at 298 also appears to have indicated support for the approach adopted by Neaves J in Re Lentini.