Meerkin & Apel v Rossett Pty Ltd [1999] VSCA 10

11. Where a judgment for debt or damages is set aside on appeal, the appellate court endeavours, so far as practical and within certain limits, to restore the parties to the position in which they would have been but for the erroneous judgment. The jurisdiction to do so was examined by the Full Court in National Australia Bank Ltd. v. Bond Brewing Holdings Ltd. [1991] VicRp 31; [1991] 1 V.R. 386, especially in the judgment of Brooking, J. at pp.591-599. The following passage summarizes his Honour's conclusion:

"This survey shows that the principle on which the courts have for centuries acted is that when an erroneous judgment or order is overturned, whether by means of appeal or by any other procedure, the court will achieve a just result by requiring anything that has been taken from him by the other party by virtue of the wrong decision to be restored. Interest is for this purpose treated as the fruit of money and he who has had the use of money will not be heard to say that there were no fruits. The principle is, as it was in the reign of the first Elizabeth (Eyre v. Woodfine Cro. Eliz. 278; [1653] EngR 1241; 78 E.R. 533), one of restitution or restoration. The court is seeking to restore to one party what it has wrongly taken from him and given to the other. It does not seek to restore the successful party to his former position by awarding damages to compensate him for loss flowing from the erroneous judgment or order. There is no basis for an award of damages. No right of the party suffering loss has been infringed. There is no decision of the courts of this country or of England which suggests that the power of which the decision in Rodger's Case is an illustration authorises an award of damages. As I said earlier in these reasons, many final judgments and orders are apt to cause great damage to the unsuccessful party; I gave as examples a winding up order, a final injunction in a nuisance action and a judgment for possession of business premises. Why is it that no application has ever been made, after a successful appeal in a case of this kind, to have the injury done to the suitor by the act of the court redressed on the principle of Rodger's Case by an award of damages? The reason is clear. No right of the party ultimately successful has been infringed and the principle of Rodger's Case allows no more than the passing back to that party of what has been taken from him."

15. In the present case it is common ground that the appellants are entitled to repayment of the damages with interest. The only dispute is as to the rate and whether the interest should be simple or compound. Repayment was effected on 4th February 1998 and on 24th March 1998 the respondent paid interest calculated on a simple basis at seven per cent per annum. The appellants contend that a greater amount should have been paid on account of interest in respect of the period between satisfaction of the judgment and 4th February 1998. See and compare para. 4 of the order made in the J.L.W. Case, the minutes of which are set out at p.250, and para. 6 of the order made in Mallesons Stephen Jaques v. Trenorth Ltd. [1998] VSCA 58, the minutes of which are set out in my judgment at para. 3.

18. Mr. Macaulay's primary submission was that interest should be calculated at the rate applicable under s.2 of the Penalty Interest Rates Act 1983. It was conceded that that would be simple interest, by analogy with interest allowed under s.58 of the Supreme Court Act 1986 and damages in the nature of interest given under s.60 of that Act. It was conceded that neither s.58 nor s.60 applied directly, a concession which I think was rightly made. Those sections are materially different from the usual provisions based on s.3(1) of the Law Reform (Miscellaneous Provisions) Act 1934 (U.K.), of which s.94(1) of the Supreme Court Act 1970 (N.S.W.) is an example. That was a quite deliberate choice on the part of the legislature, following the recommendations of a Statute Law Revision Commitee which drew on the work of the Chief Justice's Law Reform Committee: see Braeside Bearings Pty. Ltd. v. H.J. Brignell & Associates (Boronia) [1996] VicRp 3; [1996] 1 V.R. 17 at pp.21-22. The New South Wales decisions are therefore readily distinguishable: see Woolworths Ltd. v. Kelly [No. 2] (unreported, New South Wales Court of Appeal, 29th August 1991) at p.5 and para. 3(f) of the order at p.8; Production Spray Painting & Panel Beating Pty. Ltd. v. Newnham [No. 2] (1992) 27 N.S.W.L.R. 659 at p.663; Government Insurance Office of New South Wales v. Healy [No. 2] (1991) 22 N.S.W.L.R. 380 at pp.385-387, a decision under s.95 of the New South Wales Act; and Haig v. Minister Administering the National Parks and Wildlife Act 1974 [No. 3] (1996) 90 L.G.E.R.A. 408 at pp.411-412.

21. Sections 58 and 60 being inapplicable, there is no justification to apply them by analogy. Parliament has expressed no opinion, expressly or by implication, concerning the rate of interest appropriate when a judgment is reversed on appeal. The pre-existing general law is left untouched. Moreover different considerations apply to the interest payable by a defendant to a successful plaintiff and the interest payable by a respondent to a successful appellant. Interest at the "penalty interest rate" is payable in the former case because, in the contemplation of the law, the defendant should have paid the plaintiff's claim and the plaintiff should not have had to have recourse to litigation. (That is particulary true of the Victorian provisions, which refer to the time when demand of payment was made and to the commencement of the proceeding. See also para.6 of the Report of the Statute Law Revision Commission referred to above, which is reflected in the portion of the second reading speech set out in Mario Piraino Pty. Ltd. v. Roads Corporation [1991] VicRp 90; [1991] 2 V.R. 534 at p.536. Exceptional cases are covered by the words "unless good cause is shown to the contrary".) Similar considerations apply as between judgment debtor and judgment creditor: see s.101. By contrast, it cannot be said that a respondent should have disgorged damages awarded in its favour. A respondent is ordinarily entitled to rely on the judgment that it has obtained until and unless it is set aside. The judgment is presumed to be correct and will not be stayed except in special circumstances: see r.64.25 of the General Rules of Procedure in Civil Proceedings 1996; Scarborough v. Lew's Junction Stores Pty. Ltd. [1963] VicRp 20; [1963] V.R. 129; and Cellante v. G. Kallis Industries Pty. Ltd. [1991] VicRp 99; [1991] 2 V.R. 653.

24. Counsel's alternative submission was that we should prefer the "wider view" identified by Fitzgerald, P. in Idemitsu Queensland Pty. Ltd. v. Agipcoal Australia Pty. Ltd. [1996] 1 Qd.R. 26 in preference to the "narrower view" adopted by Brooking, J. in the Bond Brewing Holdings Case. The wider view is, in substance, that the court should focus on the loss that the appellant has sustained by satisfying the judgment. The narrower view is that the court should focus on the fruits of the judgment that the respondent has, or is presumed to have, enjoyed. Counsel submitted that the authorities to which Brooking, J. referred may be interpreted in a different sense, but I am not persuaded that his Honour's analysis is wrong and I note that, notwithstanding the reservation expressed by Davies, J.A. in the Idemitsu Case at pp.51 line 49 to 52 line 3, the rest of his Honour's judgment refers exclusively to the position of the respondents. See also State Bank of New South Wales v. Commissioner of Taxation (1995) 62 F.C.R. 371 at pp.380-381. An appellate court is concerned to do justice to the parties, not solely to the appellant. The error was made by the court below, not by the respondent. There is no right to compensation as against the respondent but only to restitution. If interest measured by the appellant's loss is awarded, all that the court will do is to shift the injustice occasioned by the erroneous judgment from the appellant to the respondent.

27. Affidavits were filed and calculations made on behalf of both parties. The respondent's material shows that most of the judgment sum was invested with the ANZ Bank but that a substantial part of it was credited to a trading account operated by the respondent and, together with other moneys, used for the purchase of four thoroughbred horses. The purchase of thoroughbred horses for the purposes of training and racing represents the major component of the respondent's usual business. The business as a whole was profitable and losses sustained in relation to the four racehorses were partly offset by taxation considerations. (I pause to say that such evidence illustrates the great inconvenience that would ensue if a court conducted a mini-trial whenever interest had to be given after a judgment was set aside.) Mr. Wheelahan conceded that the losses sustained by the respondent in relation to the four racehorses should be disregarded and that an appropriate rate should be applied to the whole of the judgment sum. He submitted that that rate would not be greater than the simple interest calculated at seven per cent per annum that his client had already paid. That was more than 5.67 per cent per annum, which was the average rate of return on the relevant ANZ term deposits, and greater than any of the rates declared by the Senior Master on Common Fund No. 1 in respect of the years 1995, 1996 and 1997.

30. I have already dealt with one issue of principle by saying that, in order to do justice to both the parties, the court must focus on restitution from the respondent rather than compensation to the appellants. Another question of principle that might have been thought to arise is foreclosed by authority. The judgment sum itself consisted of both principal and interest, but interest is to be awarded on the whole of the sum that was paid: see Rodger v. Comptoir d'Escompte de Paris [1871] EngR 3; (1871) L.R. 3 P.C. 465 at p.477. The sole issue with which we are concerned is the kind of rate that should ordinarily be applied. We do not have to consider the course that should be taken if an appellant, in exceptional circumstances, offers to prove that the respondent in fact received more, with a view to obtaining a higher rate, presumably not exceeding either the loss sustained by the appellant or the gain to the respondent. I express no opinion on that question, except to say that the offer would normally be at the appellant's own risk as to costs.

33. Rates of interest have become customary in various jurisdictions for different purposes. The best-known examples are, perhaps, the "trustee" rate and the "mercantile" rate in courts of equity: see, for example, Re Dawson; Union Fidelity Trustee Co. Ltd. v. Perpetual Trustee Co. Ltd. (1966) 84 W.N.(Pt. 1) (N.S.W.) 399, also reported at [1966] 2 N.S.W.R. 211; Hagan v. Waterhouse (1992) 34 N.S.W.L.R. 308 at pp.391-393; Alemite Lubrequip Pty. Ltd. v. Adams (1997) 41 N.S.W.L.R. 45 at p.47; and Maguire v. Makaronis (1995) V.Conv.R. 54-533 at pp.66,320-66,322 and, on appeal[1997] HCA 23; , (1997) 188 C.L.R. 449 at pp.475-477. Reference is sometimes made to "commercial rates allowed from time to time" in a particular jurisdiction: see, for example, Maguire v. Makaronis at p.477 and Bridgewater v. Leahy [1998] HCA 66; (1998) 158 A.L.R. 66 at para. 135. Mr. Wheelahan contended for simple interest at the trustee rate: cf. Merchant Banking Co. v. Maud (1874) L.R. 18 Eq. 659 at p.660. I took him to mean a rate based on Common Fund No. 1, not the higher rate exemplified by Common Fund No. 2 or Maguire v. Makaronis at p.66,322. Mr. Macaulay submitted that, if his primary submission that the statute should be applied by analogy were rejected, the Court should give compound interest at a mercantile or commercial rate with half-yearly rests.

36. The position of the respondent to an appeal is sui generis. It has had the benefit of a judgment and the moneys that it has received are its own, but there is a risk that the judgment may be set aside. The presumption in favour of the judgment and the fact that the moneys belong to the respondent favour a higher rate, for the respondent will not be heard to say that it did not earn a reasonable rate of return on its own moneys. If it dissipated them, that was by choice, whether the choice was made then or at some earlier time, as in the case of moneys that have to be applied to reduce an overdraft. The respondent's position is not, however, indefeasible and that consideration points towards a lower rate. It will be entitled to say that it dealt with the moneys mindful of the fact that, if the appeal were allowed, it would be ordered to repay them. A cautious, or perhaps ultracautious, respondent might invest the judgment sum in a series of bank bills or term deposits while the appeal is waiting to be called on and thereafter at call. The court is concerned with the fruits, or presumed fruits, of the judgment rather than the cost of borrowing equivalent funds: see and compare National Australia Bank Ltd. v. Budget Stationery Suppliers Pty. Ltd. (unreported, New South Wales Court of Appeal, 23rd April 1997) at p.8 per Mason, P. In my opinion an appellate court should not apply the trustee rate or the mercantile rate as such or commercial rates struck for quite different purposes. It should apply a rate of interest which, taking all the relevant circumstances into account, does justice as between the appellant and the respondent to an appeal. Evidence will ordinarily be unnecessary and the court will use its own experience and memory of rates during the relevant period, in the present case from April 1996 to December 1997. That was the approach adopted in the J.L.W. Case at p.249 lines 47-48.

39. That case affords no support to Mr. Macaulay's submission that there should be compound interest and no case was cited to us in which compound interest had been awarded when a judgment was set aside on appeal except the Idemitsu Case. Moreover, as Mr. Wheelahan submitted, there is much to be said for the view that such interest, at least where the judgment was for common law damages, is awarded pursuant to a common law power. Notwithstanding the references to decrees in other cases at pp.476-477, Rodger's Case itself concerned a judgment for damages in an action of trover. See also Central Electricity Board of Mauritius v. Bata Shoe Co. (Mauritius) Ltd. [1983] 1 A.C. 105 at p.108C; The Commonwealth v. McCormack [1984] HCA 57; (1984) 155 C.L.R. 273 at p.277; Commissioner for Railways (N.S.W.) v. Cavanough [1935] HCA 45; (1935) 53 C.L.R. 220 at p.225; the Bond Brewing Holdings Case at pp.593-594; and the Budget Stationery Suppliers Case at p.7 per Mason, P. It may be that the common law once investigated only actual, not presumed, fruits of the judgment, but that is no longer so. Counsel then relied on the views of the majority of the English Court of Appeal in Tehno-Impex v. Gebr. van Weelde Scheepvaartkantoor B.V. [1981] Q.B. 648 as summarized by Mason, J. in Codelfa Construction Pty. Ltd. v. State Rail Authority of N.S.W. [1982] HCA 24; (1982) 149 C.L.R. 337 at pp.370-371. I doubt that there is power at common law to award compound interest when a judgment is set aside on appeal. If there is, it should be exercised only in exceptional circumstances, which do not obtain here. The observations of Mason, C.J. and Wilson, J. in Hungerfords v. Walker [1989] HCA 8; (1989) 171 C.L.R. 125 at pp.149-150 were directed to compensation. An appellate court does not compensate the appellant for its loss.

42. A court of equity has power to award compound interest. In Westdeutsche Landesbank Girozentrale v. Islington London Borough Council [1996] UKHL 12; [1996] A.C. 669, the House of Lords was concerned with a payment made under an ultra vires agreement. Lord Goff of Chieveley and Lord Woolf considered that, although the Bank had no more than a personal claim to restitution at common law, equity could award compound interest in aid of that common law right. (The majority of the House took a different view, partly having regard to the history of the case and to the applicable legislation. Their Lordships favoured a narrow view of the circumstances in which courts of equity award compound interest.) Mr. Macaulay did not invoke the auxiliary jurisdiction, even supposing that the minority view was right or that the Westdeutsche Landesbank Case could be distinguished as dealing with claims as between plaintiff and defendant. Rather he submitted that, unless ss.58 and 60 were applied by analogy, restitutio in integrum required the adoption of compound interest. Moreover, although the appellants had demanded a higher rate of interest in the course of the negotiations that failed, they had not expressly claimed compound interest. Accordingly I express no view on the issues that divided the House of Lords, as to which see the Budget Stationery Suppliers Case at pp.10 per Mason, P. and 24 per Sheller, J.A. and The Commonwealth v. SCI Operations Pty. Ltd. [1998] HCA 20; (1998) 192 C.L.R. 285 at paras 74 and 101 fn. 165, but I should say that I have found no encouragement in the authorities for the view that compound interest should now be awarded as of course where a judgment for damages is set aside on appeal.

45. It is equally unnecessary to decide what the rate would have been if no interest had been paid. The rate that would have been just in the circumstances of this case would not have exceeded seven per cent per annum. I do not overlook the fact that, strictly speaking, interest should have been computed down to 23rd December 1997, leaving s.101 of the Supreme Court Act to apply thereafter. See para. 4 above.

48. In the course of these reasons I have several times referred to the need to be fair to both parties. That is the fundamental reason for my respectful agreement with the judgment of Brooking, J. in the Bond Brewing Holdings Case. It accords with the statements of principle by the Privy Council in Jai Berham v. Kedar Nath Marwari (1922) L.R. 49 Ind.App. 351 at p.355, referred to by Isaacs and Rich, JJ. in Heavener v. Loomes [1924] HCA 10; (1924) 34 C.L.R. 306 at pp.323-324, where their Lordships said:

"It is the duty of the Court under s.144 of the Civil Procedure Code to 'place the parties in the position which they would have occupied, but for such decree or such part thereof as has been varied or reversed.' Nor indeed does this duty or jurisdiction arise merely under the said section. It is inherent in the general jurisdiction of the Court to act rightly and fairly according to the circumstances towards all parties involved."

and by the Supreme Court of the United States in Northwestern Fuel Co. v. Brock 139 U.S. 216 (1891). Their Honours said at p.219 that the relevant power was "to restore, as far as possible, the parties to their former position". At p.220 they mentioned the requirement "that in directing restitution no further wrong be committed". The references in the opinion to restitution of what the appellant has lost were to property transferred or money paid rather than to losses sustained because the judgment was satisfied.

53. I would declare that the appellants are not entitled to further interest on the moneys paid pursuant to the judgment of 29th February 1996 that was set aside by the Court of Appeal. Subject to hearing counsel, I would also order that the appellants pay the costs of the further hearing of the appeal.