Matters of interest – fixed or floating?

A recent decision of the Supreme Court of Queensland has highlighted the need to be vigilant when calculating pre-judgment interest, particularly in respect of long running litigation.

In a world where court proceedings are often not brought until limitation periods (often 6 years) are nearly expired, and where it can take years from the institution of proceedings until complex commercial disputes are resolved at trial (or on appeal), it is not unusual for modern trial or appeal courts to still be delivering judgments on causes of action that arose more than 10 years ago.

As the legislation and rules governing most Australian courts provide for the application of pre-judgment interest to monetary claims (for the period up to judgment), in those circumstances, such interest can form a very substantial part – and in the some cases the majority – of a damages award, and differences in interest calculations and rates can have a very significant effect in dollar terms.

Over the past decade, most of the state and territory superior courts (Victoria and Western Australia being the main exceptions), and the federal Courts, have adopted a uniform approach to the default rates of interest to be applied both pre- and post-judgment (although most Courts retain the ability to depart from the default rate where appropriate to do so).  Those default rates are based on the RBA target cash rate plus a margin (of 4% in the case of pre-judgment interest, and 6% in the case of post-judgment interest) which adjusts every 6 months.

However, prior to that unification, most courts specified their own default interest rates, often based on fixed rates that were updated from time to time as the courts saw fit.  In an era of high interest rates, those rates in some courts exceeded 20% per annum in the late 1980s and early 1990s.

In the matter of Bankier v HAP2 Pty Ltd (No 4) [2019] QSC 198, the Supreme Court of Queensland had to consider a matter where the pre-judgment calculation spanned periods from:

• 2010 to 2013, in which the default rate was a fixed 10% per annum; and
• from 2013 to 2019, in which the default rate (as published in a practice direction issued in April 2013) was the floating RBA cash rate plus 4%. 

The parties were divided about whether the fixed or floating rates should apply in the earlier period – that is, whether the RBA +4% rates should also apply between 2010 to 2013 (a period in which that formulation would have produced rates generally declining from 8.5% to 7.0%) in place of the fixed 10%.

Martin J found that the new floating default rate should only apply from 2013 and should not be ‘backdated’, based on the language of the relevant practice direction (the use of the phrase “in any year” was not intended to apply the practice direction to periods prior to its publication) and due to the legislative presumption against retrospectivity.

While a different result may fall from other courts (based on the language of the individual legislation, rules and practice notes), the decision emphasises how failing to give consideration to these issues (including historical provisions) could leave one party to the litigation much worse off (and the other party much better off) than they ought to be.