Suzlon Energy Ltd v Bangad

Background 2 One of the Suzlon parties' solicitors, Kristin Hibbard, said in her affidavit of 29 October 2014 that she searched the official website of the Reserve Bank of Australia and obtained a spreadsheet of international official interest rates from January 1980 to September 2014. She also searched the official website of the Board of Governors of the Federal Reserve System of the United States. There, she obtained details of the Federal Reserve's data for "bank prime loan" monthly rates, being one of several base rates used to price short term business loans on an investment basis posted by "a majority of top 25 (by assets in domestic offices) insured U.S.-chartered commercial banks". 3 The website search yielded data for United States' bank prime loan rates from January 1949 to September 2014. Ms Hibbard used that data for the period from May 2007 to September 2014 to calculate that, on average, the bank prime loan rate exceeded the Federal Reserve's official United States dollar interest rate by 3.13% over that time. 4 Next, Ms Hibbard searched the official website for the European Central Bank that is responsible for the single currency issued as the euro and obtained data for interest rates applied by "monetary financial institutions" (called MFI's) for euro-denominated deposits and loans by households and non-financial corporations (i.e. ones other than insurance companies, banks and financial institutions) resident in the Eurozone. She accessed the European Central Bank's data for MFI interest rates for the period from May 2007 to August 2014 and calculated that, on average, the MFI interest rates on loans to non-financial corporations with an agreed maturity of up to one year exceeded the official euro interest rate by 2.7% over that time. 5 Ms Hibbard then calculated sums for pre-judgment interest on the components of the principal amounts from the time of their individual misapplications in United States dollars and euros that I had identified in Suzlon [2014] FCA 1105 at [80] using the uplifts of 3.13% and 2.7% respectively on the published official rates over the periods that the respective data had revealed. She used the latest published monthly official rates in 2014 to calculate interest up to the present time in the more recent periods subsequent to those for which the rates had been published. On 4 November 2014, Ms Hibbard filed a supplementary affidavit that updated the earlier figures and corrected some errors.

Consideration 6 The ordinary practice of the Court for awards of pre-judgment interest is that in Practice Note CM 16, issued by the Chief Justice on 1 August 2001, conformably with the recommendations of the Discount and Interest Rate Harmonisation Committee that was established by a referral from the Council of Chief Justices of Australia and New Zealand. The Practice Note provides that, ordinarily, the Court will have regard to an interest rate of 4% above the cash rate last published by the Reserve Bank of Australia immediately before the commencement of half yearly rests of 1 January and 1 July for the period in those rests. 7 There is, and for some years past has been, a well-known and large interest rate differential between cash rates in Australia as compared with those in the United States and the Eurozone for their respective currencies. Accordingly, the compensatory purpose of an award of pre-judgment interest under s 51A and its analogues would not necessarily be achieved by applying the 4% uplift from the Australian cash rate to the calculation of pre-judgment interest on judgment sums in foreign currencies. 8 The purpose of an award of pre-judgment interest is to compensate the successful judgment creditor for the loss of use of the principal sum in the monetary award over all or such part of the period before judgment that the Court thinks fit: Haines v Bendall (1991) 172 CLR 60 at 66 per Mason CJ, Dawson, Toohey and Gaudron JJ. This rationale explains why, ordinarily, the discretion to award pre-judgment interest is usually exercised by applying a rate of interest that reflects, in a broad brush way, a market rate of simple interest that domestic banks would apply in the ordinary course of business to a loan of that sum. 9 However, that calculus does not take account of the actual financial position of the parties. Rather, it is intended to be a yardstick to provide a generally acceptable means for compensating successful parties, having regard to a notional but reasonable rate of simple interest that banks would have earned on the principal of the judgment award. Thus, the assessment of an appropriate rate of interest to apply in the calculation of an award of pre-judgment interest necessarily involves the Court arriving at a discretionary measure that it will employ. 10 I am of opinion that the methodology used by Ms Hibbard to calculate interest on the United States dollar and euro amounts for the various periods during which the respective Suzlon party was deprived of the use of those moneys to be reasonable and appropriate.

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