Monarch Airlines Ltd v Airservices Australia [1997] FCA 208

AND: AIRSERVICES AUSTRALIA Respondent CORAM: BRANSON J PLACE: SYDNEY DATE: 4 APRIL 1997

On 14 February 1997 I delivered reasons for judgment in these matters. I concluded therein that the determination of the Civil Aviation Authority dated 26 June 1991 published in the Commonwealth of Australia Periodic Gazette of 28 June 1991, which was purportedly made by the Civil Aviation Authority pursuant to s66(2) of the Civil Aviation Act 1988 (Cth) ("the Act"), was ultra vires. Consequently, I upheld the argument made on behalf of the applicants that there were no relevant charges "payable in respect of an aircraft" within the meaning of s69 of the Act so far as any of the aircraft flown by Compass Airlines was concerned, and that the statutory liens purportedly vested in the Civil Aviation Authority in respect of such aircraft were of no force or effect.

The parties were directed to file and serve written submissions as to the appropriate orders to be made in the light of my reasons for judgment. This was done and on Thursday last I heard counsel on the issues of controversy between the parties. The principal issue in controversy between the parties relates to the claims made by the applicants in their respective statements of claim that certain specified sums, being the amounts of charges purportedly outstanding as at January 1992 in respect of aircraft owned by them and leased to Compass Airlines, which amounts they had respectively paid under protest to the Civil Aviation Authority, be repaid to them "together with interest thereon at the rate of 7.5% per annum from [a date in January 1992] until judgment". Such claims are intended to reflect the terms of clause 3(a) of certain deeds which the applicants respectively entered into with the Civil Aviation Authority in January 1992. There is no material difference between the deeds as to the obligations of the Civil Aviation Authority with respect to the payment of moneys to the applicants in the circumstances which have happened. The following sub-clause, so far as it is relevant, is taken from the deed entered into between Canadian Airlines International Ltd and the Civil Aviation Authority on 24 January 1992: "(3)The CAA agrees: (a) ... if the substance and effect of any decision of the Court is that: (i) as against the Company, the Lien did not validly secure the Unpaid Charges or only validly secured part of the Unpaid Charges; or (ii) for any reason, the Lien or the Unpaid Charges or both, in whole or in part, is illegal, void or unenforceable, CAA must pay to the Company: (iii) in circumstances where the substance and effect of the decision is that the Lien did not validly secure any part of the Unpaid Charges or that the whole of the Lien or the Unpaid Charges or both Lien [sic] is illegal, void or unenforceable, an amount equal to the Moneys; or (iv) ... together with interest at the rate of 7.5% per annum on such amount, calculated from the date of this deed, within seven days of the day a final order, declaring the matters in subparagraphs (i) or (ii), as the case may be, is entered in the Proceedings." It is submitted by the applicants that the above clause creates an entitlement to interest calculated on the basis of annual interest compounding at the specified rate of 7.5%. It is submitted by the respondent that the clause creates an entitlement to simple interest only. In contending that the deeds are to be construed as giving rise to entitlements to compound interest, the applicants place reliance upon the following factors: (a) the deed is one between commercial parties who would assume that any reference to interest would be to compound interest;

(b) it is uncommercial for money to be handed over for an indefinite period in return for simple interest; (c) the circumstances in which the moneys were paid made the payments equivalent to loans pending the outcome of the legal proceedings and such loans should, by analogy with cases concerning banker and customer, be understood as allowing for the compounding of interest; (d) it would have been assumed by the parties that the payments made respectively by the applicants to the Civil Aviation Authority under the deeds would have increased their own borrowings upon which compound interest would be payable; (e) the rate forced by the deeds of 7.5% per annum is the same as the real rate of return which the Civil Aviation Authority sought to generate on the value of its capital; on the basis that such rate is to be equated with that payable on a commercial loan (which would be compound interest) the equivalent rate in the deeds should be understood as a rate of compound interest; (f) an award of simple interest would result in a windfall to the respondent; and (g) the selection by the parties of a rate of interest lower than the court scale (which is assumed to be simple interest) suggests that compound interest was intended. In contending that the deeds are to be construed as providing for simple interest, the respondent places reliance on the following factors: (a) the deed makes no express provision for the payment of compound interest, and in particular provides no basis for compounding; (b) the deed reveals an apparent belief by the parties that the proceedings would be resolved promptly, perhaps within "some months" (cl 2.6(b)); and (c) the arrangement between the parties formalised by the deeds was not one of loan, but more in the nature of a compromise of competing claims pursuant to which the applicants achieved the release of their respective aircraft and the Civil Aviation Authority secured the payment of unpaid charges levied against Compass Airlines. As Mason J pointed out in Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 352 - "... when the issue is which of two or more possible meanings is to be given to a contractual provision we look, not to the actual intentions, aspirations or expectations of the parties before or at the time of the contract, except in so far as they are expressed in the contract, but to the objective framework of facts within which the contract came into existence, and to the parties' presumed intention in this setting. We do not take into account the actual intentions of the parties and for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract."

Recognition of the ordinary usage prevailing between bankers and their customers results in agreements between bankers and their customers being construed as authorizing bankers to compound interest due to them from time to time (see, for example, National Bank of Greece S.A. v Pinios Shipping Co. No. 1 [1990] 1 AC 637; see also Jageev Pty Limited v State Bank of New South Wales (unreported, Supreme Court of NSW, Sperling J, 26 March 1996)). The authorities make it plain that the usage prevailing between bankers and customers whereby unpaid interest is compounded with the principal due to the banker is based upon a recognition of entitlement in the banker to such interest as it accrues due. In Reddie v Williamson (1863) 1 Macph 228 at 237 the Lord Justice-Clerk said: "The privilege of a banker to balance the account at the end of the year, and accumulate the interest with the principal, is founded on this plain ground of equity, that the interest ought then to be paid, and, because it is not paid, the debtor becomes thenceforth debtor in the amount, as a principal sum itself bearing interest." In Paton v Inland Revenue Commissioners [1938] AC 341 at 349-350, Lord Atkin cited with approval the above passage from Reddie v Williamson and at 357 Lord Macmillan said: "... it was held in Eaton v Bell [5 B & Ald 34], that bankers who, with the knowledge of and without objection by their customers, debited them with interest with half-yearly rests in accordance with their general practice, did not offend against the usury laws. This method of dealing with loan accounts, which became common form among bankers, survived the abolition of the usury laws and is well established as the ordinary usage prevailing between bankers and customers who borrow from them and do not pay the interest as it accrues." In this case it cannot be suggested that the applicants respectively had an entitlement to be paid interest under the deeds pending the determination of the proceedings. The obligation of the Civil Aviation Authority under the deeds is, in the events which have happened, to pay the sums respectively specified therein as the "Moneys", together with interest at the specified rate calculated from the date of the deed, within seven days of the day a final order is entered in these proceedings. In this sense, at least, in my view, the relationship between the parties under the deeds is readily distinguishable from the relationship between a banker and a customer, or indeed, from the ordinary relationship between a lender and a borrower. In Consolidated Fertilizers Ltd v Commissioner of Taxation (1992) 36 FCR 1, Cooper J was required to determine whether the interest contemplated by ss9(1) and 10 of the Taxation (Interest on Overpayments) Act 1983 (Cth) was simple or compound interest. The rules of statutory construction are different from those which govern the interpretation of contracts. However, it is of interest to note that in reaching the conclusion that simple interest was contemplated by the section, his Honour had regard to the following factors: (a) the only sum upon which the statute authorized interest to be calculated was the amount of the overpayment of taxation (i.e. there was no statutory provision for interest to be calculated on interest); (b) the statute, except in limited circumstances, provided for only one calculation of the amount to be paid to the taxpayer; and (c) the statute did not provide for rest periods so as to allow the calculation of compound interest; his Honour expressly declined to imply annual rest periods from a rate of interest expressed as a per annum rate. I agree with his Honour's conclusion that a reference to an annual rate of interest is not of itself sufficient to justify an implication of annual rest periods for the calculation of compound interest. The factors listed above to which his Honour had regard in construing the Taxation (Interest on Overpayment) Act are all factors which can be identified in the deeds. They are factors which I consider it appropriate to take into account in determining the meaning reasonably to be ascribed to the phrase "with interest at the rate of 7.5% per annum on such amount" appearing in cl 3 of the deeds. They are, in my view, factors of greater weight than those upon which the applicants place reliance which, as it seems to me, fail to come to terms with the actual wording of cl 3(a) of the deeds. Having regard to the natural and ordinary meaning of the language of cl 3 of the deeds read in the light of the deeds as a whole, and having regard to the purpose that the deeds were intended to serve, I find that the phrase "with interest at the rate of 7.5% per annum on such amount" appearing in cl 3 of the deeds creates an entitlement to simple interest and does not create an entitlement to compound interest. I have reached this conclusion without reference to any presumption that unless there is a clear agreement to pay compound interest, interest is to be taken to be simple interest (see Bakker v Chambri Pty Ltd (1986) 4 BPR 9234 at 9236). I do not consider it to be necessary for me in this case to reach a concluded view on the present status and reach of the presumption referred to by Young J in Bakker v Chambri Pty Ltd. The other main issue of controversy between the parties relates to certain reserved costs. It is contended on behalf of the respondent that the orders for costs in favour of the applicants should except certain reserved costs, and that the applicants should be ordered to pay the respondent's costs of - (a) the applicants' summons for the reservation of certain questions for consideration by a Full Court of the High Court; and (b) two motions heard by Neaves J which were subject of orders made by his Honour on 18 March 1994.

In the alternative the respondent contends that there should be no order for costs in respect of the above summons and motions. On 28 April 1993 Deane J dealt with the applicants' summons of 21 April 1993 whereby the applicants sought, amongst other things, an order "that there be reserved for the consideration of a full court, pursuant to section 18 of the Judiciary Act, questions as to the validity of the provisions of Part VI Division 2 of the Civil Aviation Act whereby certain charges were purportedly determined and liens purportedly imposed". On 28 April 1993, after hearing counsel, including counsel intervening for the Attorney-General of the Commonwealth, Deane J made the following orders: "1. That the further proceedings in this action be remitted to the Federal Court of Australia, Australian Capital Territory District Registry. 2. That the action proceed in the Federal Court as if the steps taken in this Court had been taken in that Court. 3. That the Registrar of this Court forward to the Proper Officer of the Federal Court photocopies of all documents filed in this Court. 4. That the costs of the action to the date of remission, including the costs of the present Summons and of taking out these orders, be according to the scale applicable to proceedings in this Court, and thereafter according to the scale applicable to that Court and in the discretion of that Court. 5. That the costs of today's proceedings and the proceedings to this date be reserved, pending the outcome of the proceedings in the Federal Court." The issue of reserved costs has been argued before me on the basis that the above orders reserve to this Court in its discretion the costs of the actions in the High Court to the date of remission. Although that construction of the orders of Deane J does not seem to me to be the only construction open, I am willing to assume that the approach of counsel before me reflects the intention behind the above orders. The applicants were entitled to institute their proceedings in the High Court. It has been suggested that they took a calculated risk by doing so. Certainly Deane J took the view that the matter, although constitutional in nature, ought appropriately to be dealt with by the Federal Court rather than going directly to the Full Court of the High Court. Moreover, the course which the proceedings took in this Court tends to suggest that they could not conveniently have been heard in the original jurisdiction of the High Court. However, it is easy to be wise with hindsight. I am not satisfied that either the institution of the proceedings in the High Court, or the making of the unsuccessful applications for the reservation of certain questions for the consideration of the Full Court of the High Court, should deprive the successful applicants of orders for costs which include the costs of the proceedings in the High Court to the date of remission. The costs of the two motions heard by Neaves J on 12 August 1993 I regard differently. Before Neaves J Monarch Airlines Limited moved for orders that the Civil Aviation Authority give further and better discovery and that it have leave to serve on the Civil Aviation Authority a notice requiring it to answer certain interrogatories. The Civil Aviation Authority moved the Court on that day for orders that Monarch Airlines Limited file and serve further and better particulars of par 22 of the statement of claim filed on its behalf and that the Civil Aviation Authority have leave to file and serve an amended defence. After hearing argument on the two motions, Neave J gave certain directions on 18 March 1994 intended to facilitate the classification of the issues between the parties, adjourned the two motions before him generally and reserved the costs of such motions. Almost identical notices of motion in relation to Polaris Holding Company and Canadian Airlines International Limited were also adjourned, and costs reserved. In his reasons for decision his Honour was critical of the statement of claim of Monarch Airlines Limited. He expressed the opinion that much of the difficulty which had arisen in the case stemmed from the inadequacy of the statement of claim. It is to be remembered that these two motions were heard by Neaves J approximately 15 months after the institution of the proceedings in the High Court of Australia. Although his Honour's reasons indicate some criticism of the Civil Aviation Authority for not applying to strike out the statement of claim, I accept that the terms of the deeds which the Civil Aviation Authority had entered into with the applicants respectively made the taking of such a step by it inappropriate. The directions made by his Honour required the Civil Aviation Authority to provide certain information concerning the charges referred to in the statement of claim and required Monarch Airlines Limited thereafter properly to particularize its claim. It appears that his Honour's directions did lead to a sufficient clarification of the issues between the parties to allow adequate pleadings to be drawn. In my view, it is appropriate that there be no order as to the costs of the two motions heard by Neaves J on 12 August 1993. There was some debate before me as to the terms of the declaration to which the applicants are entitled in the light of my reasons for judgment. Ultimately I do not consider that any real dispute between the parties on this issue remains. The applicants are entitled to such declarations as are necessary to establish their substantive rights but not to declarations which can have no real consequences for the parties or which may go beyond what was necessarily decided in the litigation between them. The orders of the Court will be in the terms of the minutes of order attached to these reasons. This and the preceding twelve (12) pages are a true copy of the Reasons for Decision of the Honourable Justice Branson. Associate: Date: Counsel for the applicants: Mr J.C. Campbell QC Solicitors for the applicants: Allen Allen & Hemsley Counsel for the respondent: Mr J.C. Sheahan Solicitors for the respondent: Mallesons Stephen Jaques Hearing date: 27 March 1997