Marquess Investment Fund Pty Ltd v Tjen

Supreme Court of NSW|2023-07-17|Before: Chen J

Introduction

On 23 June 2023 I delivered my reasons for judgment, and made orders that the parties confer with a view to agreeing upon orders finalising the proceedings in accordance with my reasons. In the event that the parties could not reach agreement, they were granted leave to file submissions outlining the proposed orders sought by 30 June 2023, 5pm.
The defendant filed his submissions (and proposed orders) on 30 June 2023. The plaintiff filed its submissions (and proposed orders) on 3 July 2023.
On 10 July and 11 July 2023, the parties consented to the outstanding issues being dealt with "on the papers".
There is no dispute between the parties that the costs of the proceeding should otherwise be paid by the defendant on the ordinary basis, as agreed or assessed. That order will be made.
There is also no dispute between the parties that the funds paid into Court by the plaintiff for security for costs (together with any interest) should also be released to the plaintiff forthwith. That order will also be made.
The parties were unable to reach agreement about the judgment sum to be entered in favour of the plaintiff: the plaintiff submits that, consistent with my reasons for judgment, the amount payable by the defendant is $4,005,287.67, whereas the defendant submits that the amount payable is $2,019,017.08.
That which follows assumes familiarity with the reasons in my earlier judgment.

Amount owing on loan agreement and calculation of interest

The issue in dispute

The plaintiff submits that its earlier recovery of $1,030,000 in partial satisfaction of the amount owing under the loan agreement should be applied first to the reduction of the interest outstanding, and then the principal sum owing (plaintiff's submissions at [6]). The defendant contends to the contrary, submitting that the $1,030,000 "ought to be applied in reduction of the Principal Sum as at the date of receipt" (defendant's submissions at [2]).
While the parties advanced competing positions as to how the judgment sum should be calculated, each party accepted that the calculations made by the opposing party in connection with the proposed judgment sum sought were correct. That is, if I accepted the plaintiff's argument in connection with the calculation of interest, I should enter judgment for the plaintiff in the amount proposed by the plaintiff; similarly, if I accepted the defendant's argument in connection with the calculation of interest, I should enter judgment for the plaintiff in the amount proposed by the defendant.

Discussion and consideration

The plaintiff's essential submission was that the correct principles to apply in the present circumstances is that the payment of amounts should be applied to interest first. In this respect the plaintiff relied upon the principle identified in E L G Tyler, PW Young and C E Croft, Fisher & Lightwood's Law of Mortgage (3rd Australian ed, 2014, LexisNexis Butterworths) ('Fisher & Lightwood') at [32.51] as follows: Where the debtor claims to be discharged by reason of payments which were not specially made in respect of either the principal or the interest of the mortgage, the rule is that a general payment shall be applied in the first place to sink the interest, before any part of the principal is discharged: Chase v Box (1702) Freem Ch 261; 22 ER 1197; and see Parr's Banking Co v Yates [1898] 2 QB 460 at 466; Wrigley v Gill [1906] 1 Ch 165.
The defendant's submission was that the "recovered funds" - being the money that the plaintiff had earlier recovered - should be applied in reduction of the principal sum first, and not the interest. The defendant did not rely upon, or draw attention to, any authorities in support of this submission.
The defendant also argued that the position now taken by the plaintiff was inconsistent with the way in which case was opened and, specifically in this respect, pointed out that the plaintiff had previously adopted a different approach to the calculation of interest - reflected in MFI 2. The defendant also submitted that it was important to observe two matters: first, that that document was prepared by the plaintiff "without any input from or consultation with the defendant"; and, secondly, MFI 2 is said to apply the recovered funds towards a reduction in the principal sum, rather than interest (defendant's submissions at [5]). The defendant submitted that the "plaintiff should be held to its evidence and the position taken at hearing" (defendant's submissions at [5]).
I will first deal with the submission that the plaintiff, in claiming interest, should be held to the approach adopted which is set out in MFI 2.

Whether the plaintiff should be held to the approach calculating interest in line with MFI 2

It is undoubtedly true, as the defendant submitted, that the content of MFI 2 adopts a different approach to the calculation of interest to the approach now taken by the plaintiff. The plaintiff accepts as much but emphasises, correctly, that MFI 2 is not evidence, but a submission only (plaintiff's submissions at [8]). Nevertheless, the plaintiff further submits that: (a) the defendant has not advanced any, at least any principled, reason to preclude the plaintiff from adopting the approach that it now has; and, (b) the defendant has not submitted that he suffers from any unfair prejudice of any kind in allowing the plaintiff to take the approach now taken.
In my view although it can rightly be said that it would have been desirable (at a minimum) for the plaintiff to frame its precise case accurately during the course of the trial, the fact that the plaintiff did not do so has not caused any forensic disadvantage or unfair prejudice of any kind to the defendant - nor, I emphasise, was there any suggestion of this. That is significant. Furthermore, given what I consider to be the correct approach at law, it would work an arbitrary and unfair injustice to bind the plaintiff to the approach reflected in MFI 2, as the defendant submitted I should.

The calculation of interest

The parties accepted that the loan agreement and the general security deed (and, for that matter, all other transactional documents) were silent on how any funds paid (including the recovered funds) ought be applied in reduction of the overall debt.
In my view, absent contractual stipulation to the contrary, or actual or express appropriation by the debtor or creditor, the position is as submitted by the plaintiff: that is, that any payment made to discharge the amount owing must first be attributed to interest. This general presumption was explained in Falk v Haugh (1935) 53 CLR 163, 173; [1935] HCA 35 ('Falk'), where a majority of the High Court noted: It has long been a rule that when payments are received generally on account of a debt, which is in part interest and in part principal, they are treated as applicable to interest in priority to principal.
In Re Mangan, Ross Alexander Ex parte Andrew, William Edward (1983) 123 ALR 633; [1983] FCA 135, Beaumont J similarly framed the general presumption as follows (at 639): Where the debtor claims to be discharged by reason of payments which were not specially made in respect of either the principal or the interest, of the mortgage, the rule is that a general payment shall be applied in the first place to sink the interest, before any part of the principal is discharged …
Here there is no submission, nor suggestion, of any appropriation by the debtor or indeed the creditor: Falk at 173-174; see also as to these exceptions, Fisher & Lightwood at [32.52]-[32.53]. In those circumstances, therefore, the payments received are to be applied to interest in priority to principal. (This approach it might be noted is the one that applies, unless the court otherwise orders, when there is a payment made on account of a judgment debt: s 136 of the Civil Procedure Act 2005 (NSW)).

Orders

For the above reasons I make the following orders: 1. Verdict and judgment for the plaintiff against the defendant in the sum of $4,030,238.67. 2. Order the defendant to pay the plaintiff's costs of the proceedings, as agreed or assessed. 3. Order the funds paid into Court by the plaintiff as security for costs, and any interest paid thereon, be released to the plaintiff forthwith.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 17 July 2023

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