Whiteley v Hodge

Supreme Court of NSW|2000-12-05|Before: Hamilton J, Young J, Powell J

CITATION : Whiteley v Hodge [2000] NSWSC 1161 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 2051/00 HEARING DATE(S) : 5 December 2000 JUDGMENT DATE : 7 December 2000

PARTIES : Mely Meia Whiteley (P) Russell John Hodge (D) JUDGMENT OF : Hamilton J

COUNSEL : T A Kolomyjec (P) A K Ottesen (D) SOLICITORS : Virginia Odtojan & Associates (P) Owen Hodge Lawyers (D) CATCHWORDS : INTEREST [5] - Recoverability of interest - Award of interest as damages - Up to judgment - General principles - Supreme Court Act 1970 s 94 - In "proceedings for recovery of any money" - Proceedings for declaration of sum repayable under mortgage - What are - INTEREST [21] - Where equitable relief or fiduciary relationship - Where contract displays intent that no interest be paid. LEGISLATION CITED : Supreme Court Act s 94 Bloch v Bloch (1981) 180 CLR 390 Brennan v Kinjella Pty Ltd (No 2) SCNSW 20 July 1993 Young J unreported Mendl v Smith (1943) 112 LJ Ch 279 CASES CITED : Piper Industries Pty Ltd v Hemphill (No 2) SCNSW 20 June 1989 Young J unreported Piper Industries Pty Ltd v Hemphill SCNSW 8 June 1989 Young J unreported Whiteley v Hodge [2000] NSWSC 866 Williams v Vicroft Pty Ltd SCNSW 31 May 1989 Powell J unreported DECISION : That there be no order for the payment of interest.

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2051/00 MELY MEIA WHITELEY v RUSSELL JOHN HODGE - EXECUTOR OF THE ESTATE OF GWENDOLINE DAISY WHITELEY

1 HIS HONOUR: In this matter I delivered a judgment on 24 August 2000 in which I answered three questions which I ordered, under Part 31 r 2 of the Supreme Court Rules 1970, to be determined separately from and before any other questions in these proceedings: Whiteley v Hodge [2000] NSWSC 866 ("my judgment"). The parties have considered the answers I gave to those questions and have now made submissions on other questions which need to be determined finally to dispose of the proceedings. 2 The first of the matters to be determined relates to whether there is now a valuation which answers the description in clause 1.2 of the mortgage and in what sum that valuation is to be taken to be. In my judgment I determined that there was not, at that time, any valuation in existence which answered the description of clause 1.2 of the mortgage, or to which the parties were otherwise bound. I did indicate, however, that, bearing in mind the terms of clause 1.2, there was not, in my view, any reason why the plaintiff should not, even at this comparatively late stage, procure a valuation which might answer the description. 3 The plaintiff proceeded to obtain a valuation from a Mr Jeffrey Burns. Mr Burns indicated, in a report which he initially produced ("the first report") that, in his opinion, the value of the property, as at the relevant date, was in the range of $300,000 to $330,000 and adopted the figure of $315,000 as the value. There were two difficulties that were raised concerning the first report. The first was that Mr Burns had been unable to obtain access to the interior of the property, which is now long since in other ownership, and, indeed, despite further efforts since he made the first report, he has continued to be unable, even with the parties' assistance, to gain access. However, that does not prevent a valuation being done. Furthermore, there were factual disputes as to the state of the premises at the time. One instance was whether or not there was then an air conditioning system in the property, which is now there. The parties have been able to agree that, without expending time or money in investigating the matter further, the property should be taken not to have had the disputed features at the time. 4 Mr Burns prepared a second report, in which he indicated that the absence of those features would diminish the value of the property, in his opinion, by "less than two per cent". Whilst this means, looking at Mr Burns' valuation reports as a whole, that there is not a specific figure specified by him as the value of the property, one may deduce from them that his opinion is that the value at the relevant time was $315,000 minus a little less than two per cent. In my view, the reports indicate that the value of the property at the time was $310,000. It is not now really contested by Mr Kolomyjec, of counsel for the plaintiff, that Mr Burns' reports, taken together, answer the description of being a valuation within the meaning of clause 1.2. He has submitted the figure indicated by the valuations should be taken to be $315,000 minus a full two per cent, but I have taken the view that the figure indicated by the valuation reports is some $310,000, which is about $1,300 more than Mr Kolomyjec contends for. 5 The other factors which must be taken into account to permit the liabilities between the parties arising from the mortgage to be calculated and appropriate declarations made by the Court are four in number:

(1) interest (if it is to be allowed, which is contested); (2) valuation fees (which are not really a matter of contest); (3) the costs of the proceedings (which must be determined by the Court); and (4) the uncontested amount of $180,668.82 already paid out of the proceeds of sale of the house, when the house was sold to an outside purchaser, to procure the discharge of a mortgage which the plaintiff had raised. 6 So far as concerns the question of whether interest ought be ordered, two questions of law arise. There was, in the mortgage, no stipulation for interest. The question, therefore, arises whether an order for interest may be made, based upon either a general law obligation to pay interest, or under s 94 of the Supreme Court Act 1970 ("the SCA"). Mr Kolomyjec's written submission concerning this and other questions of law traversed in the course of this judgment were clear and have been most helpful to the Court in determining these questions of law. 7 Section 94 of the SCA provides as follows: "94 Interest up to judgment

(1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods), the Court may order that there shall be included, in the sum for which judgment is given, interest at such rate as it thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date when the judgment takes effect.

(a) proceedings have been commenced for the recovery of a debt or liquidated damages, and

(b) payment of the whole or a part of the debt or damages is made during the currency of the proceedings and prior to or without judgment being given in respect of the debt or damages,

the Court may order that interest be paid at such rate as it thinks fit on the whole or any part of the money paid for the whole or any part of the period between the date when the cause of action arose and the date of the payment.

(a) authorise the giving of interest upon interest, (b) authorise the giving of interest on any debt in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise, or

An order for interest under s 94 is opposed by Mr Kolomyjec on behalf of the plaintiff on the ground that, in the present circumstances, there are no "proceedings for the recovery of any money" in which the Court may order the payment of interest. It should also be noted, in relation to the words of s 94(1), that, even where there are proceedings for the recovery of money, there can be no order for interest unless some other order for the recovery of money is made. That flows from the words that the "Court may order that there shall be included , in the sum for which judgment is given, interest" (my emphasis). 8 The meaning of the expression "proceedings for the recovery of any money" in provisions empowering Courts to award interest have received judicial attention in a number of matters. In the High Court in Bloch v Bloch (1981) 180 CLR 390, Wilson J said, at 398 - 99: "Counsel argues that the action is one for a declaration and hence does not fall within the description of proceedings for the recovery of money. I think this contention must fail. The claim is for a declaration that the plaintiffs are entitled to a one-third share of the 'proceeds of sale' of the property, and, inter alia, for 'further or other relief'. The writ was issued on 5 July 1976, the sale of the property was finalized on 9 July 1976, and on that day, by arrangement between the parties, the sum of $20,000 being part of the proceeds of sale was paid into court. In addition to making a declaration of the one-third entitlement of the respondents his Honour also ordered that the judgment be satisfied by payment out of the moneys in court. In my opinion, the proceedings clearly come within the description of proceedings in respect of a cause of action for the recovery of money."

That case is, however, different from the present case. This is a case in which the plaintiff has sought declaratory relief as to the sum which ought be paid by her upon the finalisation of the transaction between the parties. The defendant has, by cross-claim, sought an order for the payment of a sum of money which he says will be owing to him when the relevant sums to finalise the transaction are done. So far as the plaintiff's claim is concerned, the case is not akin to Bloch v Bloch , where, although the relief granted was declaratory, it was to the effect that a certain proportion of a particular sum ought be paid by the defendant to the plaintiff. This case is more akin to the situation considered by Young J in this Division in Piper Industries Pty Ltd v Hemphill SCNSW 8 June 1989 unreported and Piper Industries Pty Ltd v Hemphill (No 2) SCNSW 20 June 1989 unreported. There the plaintiff had been pressing the defendant to receive from the plaintiff the sum of $1 million, which was said by the plaintiff to be the correct sum payable under a transaction. The defendant resisted receiving payment of the $1 million, either on the basis that, on its approach to the transaction, the time for any payment had not arisen, or, alternatively, that the sum of $1 million was the wrong sum. In the first judgment, Young J decided that the $1 million was the correct sum payable. It was then paid by the plaintiff and received by the defendant. After the payment, the defendant sought leave to file a cross claim for interest. In No 2 his Honour declined to accede to an application by the defendant for interest on the $1 million and said: "That section gives this court a statutory power to award interest where there are proceedings for the recovery of money. That expression is fairly widely construed by the court; see eg In Shoppe Pty Ltd v Smith (1976) 6 ATR 242 and Bloch v Bloch (1981) 37 ALR 55. Although the phrase is construed liberally and widely, I cannot see how it can comprehend the situation where it is not the plaintiff who makes a claim for any money, but the plaintiff claims that it has to pay somebody else money. Even if this statement is too broad, where one has a case, as one does in the instant case, where the person who is to receive the money objects to receiving it on the basis that the contract does not mean what the person seeking to pay the money says it means, then I cannot see how under any wide construction of the phrase the litigation can come within it." 9 In this case it seems to me that the proceedings constituted by the plaintiff's claim cannot be said to be proceedings for the recovery of money. So far as the defendant's cross-claim is concerned, whilst the proceedings, insofar as they ask for an order for payment, may be proceedings for the recovery of money, I do not propose to make any such order upon the cross claim. No ascertainable money sum was payable at the time these proceedings were commenced. The plaintiff had not at that time obtained a valuation which permitted the calculation of what sum was owing or whether any sum was owing, bearing in mind the credits that had been given. There is, therefore, in my view, no basis for the making of an order for payment of interest under s 94 of the SCA. 10 The question remains as to whether there is an obligation to pay interest arising in the general law which ought found an order to be made by the Court. The situation both at law and in equity is usefully summarised in the judgment of Powell J (as his Honour then was) in this Division in Williams v Vicroft Pty Ltd SCNSW 31 May 1989 unreported. There his Honour said: "The general rule at common law is that, in the absence of express agreement, or some course of dealing or custom to that effect, interest is not payable on a debt or loan ( Page v Newman (1829) 9 B & C 378,381; Re: Gosman (1881) LR 17 Ch D 77; London, Chatham and Dover Railway Co v South Eastern Railway Co [1893] AC 429). The general position in equity is, however, different, the rule in equity being that, in the absence of any agreement, or custom, to that effect, interest is payable. Thus, interest is payable on a mortgage debt even though the relevant mortgage contains no mention of interest ( Mendl v Smith (1943) 112 LJ Ch 279). However compound interest is not payable unless expressly stipulated for, or unless the subject of a custom to that effect ( Fergusson v Fyffe (1841) 8 Cl and F 121, 140; Williamson v Williamson (1869) LR 7 Eq 542)."

The rule in equity was stated more narrowly, but relevantly to these proceedings, which concern a mortgage, by Simonds J (as his Lordship then was) in Mendl v Smith (1943) 112 LJ Ch 279 at 280: "It is urged by counsel on behalf of the mortgagees that interest at the rate of 5 per cent. Ought to be charged from May 27, 1942, until payment. He relies upon the statement of law in Fisher and Lightwood's Law of Mortgage (7th ed, at p 737): 'Contrary to the general rule as to loans, interest is payable upon mortgage debts, even though it is not expressly reserved, and although the mortgage is only equitable, including a charge by mere deposit of title deeds, and generally where the principal sum is a charge on specified property. Where, however, the contract expressly provides for re-conveyance upon payment of the principal, interest will not be payable, unless the deed contains elsewhere an express or implied agreement for payment of interest'. Objection is taken on behalf of the mortgagor to that submission. In the first place, it is said that there is now no such rule; the statement goes too far; that since Lord Tenterden's Act and, in particular, since the Law Reform (Miscellaneous Provisions) Act , 1934, there is no such equitable rule. The provisions of the law are sufficient to give to the creditor such interest as is fairly due to him, and it is urged that the statutory provisions have in fact superseded the rule of equity. I dissent from the proposition. It is now, as it always has been, the rule of this Court that in taking an account upon a mortgage interest is allowed, even though it is not expressly mentioned, unless there is some contractual right or some equity excluding it. That the rule still persists is sufficiently shown by the fact that where redemption is sought and an account taken in a redemption action, to which Lord Tenterden's Act has no application - nor has the recent Act of 1934 - interest is allowed to the mortgagee. I hold, therefore, that the general principle of law still applies, and that upon taking an account of what is due upon a mortgage deed interest is allowed to the mortgagee, even though interest is not mentioned. That is, of course, subject, as I have said, to anything in the contract between the parties or to any countervailing equity." 11 The submission that is made is that this is a case in which the equitable rule applies and that, in the absence of any stipulation concerning interest in the mortgage, the parties cannot be said to have contracted for the exclusion of the rule The question of contrary agreement was also dealt with by Young J in Brennan v Kinjella Pty Ltd (No 2) SCNSW 20 July 1993 unreported. His Honour there dealt with the relationship between s 94 and general law rights to interest and said: "Section 94 of the Supreme Court Act provides in 94(2)(b) that the section does not authorise the giving of interest to a litigant under the section where interest is payable as of right, whether by virtue of any agreement or otherwise. It may be argued that if there is a contract between the parties that no interest will be payable, that the spirit of s 94 is that the court, in its discretion, should not award any interest under that section. Indeed, Leighton Contractors Pty Ltd v Queensland Insurance Co Ltd , Court of Appeal 4 October 1978, unreported, seems to suggest that where the parties have specified a rate of interest then that ordinarily should be the rate of interest which is awarded under s 94. If the parties have specified nil, then nil interest should be awarded."

The submission in the present case is that the matter is within the equitable rule, the mortgage makes no stipulation as to interest, positive or negative, and, therefore, it cannot be said that there is an agreement which excludes the application of the equitable rule in favour of interest. 12 With this submission I do not agree. In my view, it is based upon an incorrect construction of the mortgage document. The correct view is that the intention evinced by the parties, to be deduced from the mortgage document, is that interest was not to be payable, despite the lack of mention of the subject matter. In coming to this conclusion, I rely upon the whole of the terms of the mortgage document and upon the circumstances in which it was made, as referred to in my judgment. The mortgage provided for a benefit to be taken by the testator by way of a share of the increase in the capital value of the property. In my view it should be inferred that this benefit was intended to be to the exclusion of, rather than in addition to, the payment of interest on the relevant sum. In those circumstances, without further considering the precise ambit of the equitable rule, I am of the view that there is no room for an order to be made for the payment of interest on general law principles. 13 The last item that requires determination for inclusion in the sum payable under the mortgage is the question of costs. The mortgagee is entitled, under the mortgage, to costs of the proceedings on a solicitor and client basis. The parties have sensibly agreed that there is a close approximation between the solicitor and client basis as stipulated for by the mortgage and the basis on which orders for indemnity costs are made and assessed under the present procedure of the Court. In those circumstances I shall proceed to make an order that the plaintiff pay the defendant's costs on the indemnity basis to be agreed or assessed and the sum determined in this way will be the sum that should be taken to be the sum for which the plaintiff is liable under the mortgage. If there is any order or direction which would facilitate or expedite the assessment of those costs, application may be made to the Court. 14 Short minutes should now be brought in to encompass the decisions of the Court contained in my judgment and in these reasons. …oOo…

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