Plaintiff v Defendant

2 In support of the application, plaintiff's counsel submitted that from 1 August 2003, the date on which the property sale was settled, the plaintiff had been a "creditor" in respect of a "sum certain". He submitted that the amount was payable by virtue of a written instrument - being the Deed of 3 February 1997[2] together with the operative contract of sale; and that it became payable on the date of settlement.

3 Counsel referred to Dimos v Willetts and anor[3]. There it had been held that moneys held in trust pursuant to court order did not meet the language of s. 58(1).[4] That decision, he submitted, was to be contrasted with the decision of Osborn J in Maher and ors v Millennium Markets Pty Ltd and ors[5]. His Honour had there held that moneys received by a solicitor in breach of fiduciary duty to his clients, could fall within s. 58(1).[6] This proceeding was akin to Maher, subject only to there being a "date certain" where in Maher that had not been so.

4 The defendant made no submission which addressed the legal position. She did say, poignantly, that the fate of the application mattered not, because she could not pay in any event.

5 The amount of interest claimed was calculated by plaintiff's counsel, for the period between 1 August 2003 and 9 May 2005, at $40,527.81.

6 Regardless whether the defendant considered that what she did was justified, in fact she wrongly deprived the plaintiff of his substantial share in the proceeds of sale. It would do much less than practical justice if the defendant was liable simply to repatriate to the plaintiff what was rightfully his. As at trial he had been out of his money for over 20 months, and so had been deprived of the opportunity of using it to his advantage.

7 It seems to me, in the circumstances, that the plaintiff ought in some way be entitled to interest. There are two possible sources of entitlement: s.58(1) of the Supreme Court Act 1986, and equitable principles.

8 Section 58(1) relevantly reads:

"If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor... from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made." [my emphasis]

By sub-s. (3) a debt or sum payable, or a date or time, is to be taken to be certain if it has become certain.

9 Dimos v Willetts was surely a strange case on the facts. That said, it provides authority for the proposition that, at least ordinarily, a beneficiary is not the creditor of his or her trustee,[7] in which circumstances s. 58(1) could not apply.

10 In that case Tadgell JA put the matter somewhat differently. An award of interest, he said, was an award of damages, and could only be made against a debtor.[8] Again, putting aside the cases specifically identified, an award of interest ran from when a demand was made. That naturally referred to a demand being made by "a creditor in that capacity from a debtor in that capacity".[9] In the instant case, the party in whose favour interest under s. 58 had been awarded at first instance had been either (as a result of Court order) a trustee, or else a stakeholder, of disputed proceeds of sale. He could not be regarded as a creditor of the other party in the litigation, any more than the other party, had he succeeded in the litigation, could have been characterised as a creditor of the trustee or stakeholder.[10]

11 His Honour, evidently, placed at the forefront the concepts of "creditor" and "debtor". Upon that question, Batt JA accepted that the word "creditor" is flexible in its meaning. He said also that "if there is a creditor there must, it seems incontrovertible, be a debtor".[11] But he footnoted a qualification in respect of use of the word "debt"; and later said that it was true that:

"... the expression 'the creditor' must have a meaning apt to 'sum certain' as well as to 'debt', but the whole context of the section points to amounts which defendants are liable to pay... at least from the commencement of the proceeding."[12]

12 Before Dimos, Hansen J had considered the applicability of s. 58(1) in Farrow Finance Company Ltd (in liq) v Farrow Properties Pty Ltd (in liq) and ors[13]. There a party loaned moneys in breach of fiduciary duty and did so to the knowledge of the party receiving the same. His Honour held that the recipients held the moneys, and an asset to which they could be traced, on a constructive trust in favour of the lender. He made an order for the payment of equitable compensation, and also for interest under s. 58(1), on the footing that the loan amount was a debt or sum certain. The competing argument, which his Honour rejected, was that interest should be allowed on equitable principles. The question whether the lender was a "creditor" was not debated.[14]

13 I doubt that his Honour's analysis, given the matter not debated, was at odds with what was said in Dimos. There seems to be to be a significant difference between the relationship of trustee and beneficiary and between parties one of whom has so conducted himself as leads the Court to impress property held by that party with a constructive trust in favour of the other. There the Court is saying, really, that the one has wrongfully kept the other out of his property. The other's right to the property might have arisen in any one of a number of ways which seem to me not incompatible with the application of s. 58(1).

14 In Maher and ors v Millennium Markets Pty Ltd and ors the plaintiffs sold certain properties to the first three defendants. They did so in order to generate funds to repay a bank. Their solicitor, the fourth defendant, introduced the purchasers. He was paid a commission of $150,000 by one of the purchasers. He told the plaintiffs that he was to receive it. There was dispute about the detail of what he told them. A series of disputes arose out of the sales. Osborn J relevantly concluded that the solicitor defendant had breached the fiduciary duty which he owed his clients. In circumstances where there was a real potential for conflict between vendors and purchasers, and where it was in the solicitor's interest that the sale be consummated, the plaintiffs had not given a fully informed consent to the solicitor receiving the $150,000 commission. Moreover, at the times when the solicitor was paid the commission, there was actual conflict of interest between vendors and purchasers, and a consequential conflict of interest between the interests of the solicitor and the vendor plaintiffs. His Honour ordered that the solicitor pay the amount of $150,000 to the plaintiffs.

15 Thereafter, his Honour considered whether the successful plaintiffs were entitled to interest under s. 58(1). In the event, he awarded interest under s. 60(1). What stood in the way of an award of interest under s. 58(1), as his Honour perceived it, was on the one hand that the circumstances did not fall within a class of case specifically dealt with by the sub-section, and on the other hand that there was no evidence of any demand having been made before commencement of proceedings.[15] But for those circumstances, it appears that his Honour, having considered both Farrow and Dimos, would have held that the plaintiffs were entitled to s. 58(1) interest.[16] That is consistent with my understanding of those cases.

16 In my opinion the authorities to which I have referred support a conclusion that interest may be ordered under s.58(1) where a Court impresses property with a constructive trust and orders its disgorgement. It cannot be said, only because it requires an act of the Court to impress the trust and make such an order, that the defendant had not been liable to disgorge the property to the plaintiff at an antecedent time.

17 Against that background, I have concluded that -

• In the present case, the amount payable to the plaintiff out of the sale proceeds was a sum certain. It was certain in consequence of a combination of

• The Deed of 3 February 1997, reflected in Orders of the Family Court made that day.

• The Deed of 3 September 1999 (which reflected the fact that the plaintiff had repaid his 50% of the $65,000 borrowing referred to in the February 1997 Deed, and the balance of additional borrowings at that time).[17]

• The agreement signed by the defendant on 22 February 2001 and by the plaintiff on 27 February 2001.

• The amount to which the plaintiff was entitled at time of settlement was a sum certain - that is, by reference to the documents to which I have just referred, to adjustments at time of settlement, and to the payment of $5,000 made by the defendant to the plaintiff on 6 May 2003. It was not the less certain on that day because the defendant paid the plaintiff $25,000 on about 6 August 2003 - although receipt of that amount must plainly be brought to account.
• The sum certain was payable by virtue of a series of written instruments. It was not the less certain, neither not payable by virtue of such instruments, only because the defendant paid the plaintiff amounts totalling $30,000. Neither was it rendered not certain, nor not payable by virtue of such instruments, only because there were necessary adjustments at time of sale.
• The sum certain was payable at a time certain - that is, the date of settlement. That was essentially in consequence of the Deed of 3 February 1997.
• The plaintiff should properly be described as a "creditor" for the purposes of s. 58(1).

18 It follows that the plaintiff is entitled to interest under s. 58(1) from the date of settlement unless good cause be shown to the contrary. No such cause has been shown.

19 Under s. 58(1), interest is to be allowed "at a rate not exceeding" the Penalty Interest rate. There is no reason in this case to depart from the rate so fixed from time to time.

20 In the event, interest should be allowed in the amount of $40,527.81.

21 If I was wrong in concluding that interest should be allowed under s. 58(1), I should certainly have allowed interest on equitable principles. It would have been proper, I think, to allow interest from date of settlement. I say nothing about the rate(s) at which such interest ought to have been calculated.

1. [1] See [32] and [112]
2. [2] Which led to the Orders of the Family Court made that day
3. [3] [2000] VSCA 154; (2000) 2 VR 170
4. [4] See per Tadgell JA at [10], [12]; per Batt JA at [108]
5. [5] [2004] VSC 174, [2004] VSC 195
6. [6] See at [2004] VSC 195, [13], [14]
7. [7] Batt JA at [107], [108]
8. [8] At [9]
9. [9] At [10]
10. [10] At [13]
11. [11] At [108]
12. [12] At [108]
13. [13] [1999] 1 VR 584
14. [14] See generally at [187] - [197]
15. [15] [2004] VSC 195, at [14], [15]
16. [16] See at [6], [13]
17. [17] See my Reasons at [4], [7] and [8]