Matters of Interest – Departing from the default

Articles Written by Christopher Beames (Partner)
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Most Australian superior and intermediate courts have the power to award successful litigants interest on monetary judgments for the period between their claim arising and judgment being given by the Court. Most jurisdictions also provide a default (or maximum or guide) pre-judgment interest rate to be applied, subject to the Court retaining an overriding discretion as to whether to award interest at all, over what period and at what rate.

The precise formulation of when Courts can or will apply or depart from the ‘default’ pre-judgment interest rates differs between jurisdictions. For example, Federal Court[1] and NSW Supreme Court[2] practice notes provide that parties should “expect that” the Court will “have regard to” the specified rates; South Australia prescribes rates “as a guide only”;[3] Western Australia prescribed rates “as a guide”, but “subject to any evidence adduced”;[4] and Victorian legislation requires the Supreme Court to apply rates not exceeding a maximum amount “unless good cause is shown to the contrary”.[5]

However, judicial statements about the prescribed rate being the usual starting position unless there is good reason to depart from it are not unusual. For example, the Victorian Court of Appeal recently stated in a joint judgment (emphasis added):

Section 58(1) of the [Supreme Court Act 1986] does not mandate application of the PIRA [Penalty Interest Rates Act 1983] rates unless good cause to the contrary is shown.  Rather, it designates those rates as the maximum rates that may be applied, leaving the Court with a discretion to apply lower rates.  Nevertheless, the practice in Victoria is to treat the maximum rate as the starting point for the exercise of the discretion.  Where a defendant contends that the facts and circumstances of the case warrant adopting a lower rate, evidence is required as to an appropriate lower rate.  Mere reliance by a defendant in broad terms on the fact that the PIRA rates are higher than market rates is not in itself a sufficient reason to apply a lower rate.[6]

Many of the ‘default’ rates prescribed are higher than contemporary lending or investment rates – a number of jurisdictions adopt the RBA target cash rate plus 4%, and the maximum rate prescribed in the Victorian Supreme and County Courts is currently 10% per annum. It should therefore be no surprise when defendants, particularly those subject to large judgments, ask the Courts to refrain from awarding interest or to depart from the default rates.

This article looks at some recent cases where parties have challenged an award of interest or the period or rate to be used in the calculation, and which provide some examples of circumstances where the courts will or will not be willing to depart from the ‘default’ position.

No interest – agreement between parties

In Wilson v Daco Developments Pty Limited,[7] the parties believed they had settled proceedings between them – in which the plaintiffs sought payment for services in relation to a property development – at a mediation, but in fact left two of the plaintiffs’ claims open. A dispute arose as to the terms of settlement, and the Supreme Court of NSW was asked to intervene. The plaintiffs claimed they should be entitled to pre-judgment interest on the claims that had not been resolved in the settlement.

However, the Court declined to make any award of interest on the basis that the settlement agreed between the parties put in place a mechanism to resolve remaining disputes which involved expert determination rather than any exercise of the Court’s powers. As a result, “the parties did not mutually envisage that they would be resolving their disputes in circumstances where the Court’s power to award interest would be engaged”.[8]

No interest under foreign award

The Federal Court was asked to enforce a foreign award under the International Arbitration Act 1974 (Cth) in Energy City Qatar Holding Company v Hub Street Equipment Pty Ltd.[9] The applicant also sought pre-judgment interest on the award sum. Jagot J declined to make any award for interest under the Federal Court of Australia Act 1976 (FCA) because the payment obligation arose under the law of Qatar, which did not permit the award of interest.[10]

Reduction in period for interest calculation

In Australasia Development (M) Pty Ltd v Glenwood Estate (Vic) Pty Ltd,[11] the Supreme Court of Victoria had given judgment in favour of the plaintiff for $6 million in a dispute between joint venturers in a property development. The plaintiff sought interest at the maximum rate of 10% from the date the defendant was contractually obliged to make payment of a guaranteed profit amount (September 2018).  The defendant argued the default rate was significantly higher than commercial rates and more than required to compensate the plaintiff, and also that interest should only run from a later date.

The Court found no good reason to depart from the default rate, but did find “good cause” to shorten the interest calculation period. There had a been a period of nearly six years in which it was unclear whether the plaintiff pressed for its contractual entitlement, and the Court found that interest should only be awarded from when the plaintiff demanded payment (in June 2019).  Riordan J found that “the plaintiff should not have reasonably expected that the defendants would have paid the guaranteed profit at least until they were informed that the plaintiff no longer intended to review the guaranteed profit”, and that the justice of the case required the plaintiff only be entitled to interest from the date of demand.[12]

The parties to Roohizadegan v TechnologyOne Limited (No 4)[13] had agreed a damages award for breach of contract. The respondents conceded that the applicant was entitled to pre-judgment interest (nearly $70,000) on the agreed sum from the date the compromise was communicated to the Court (October 2019) until the date of judgment (October 2020). However, the applicant sought to allocate the agreed sum between specific breaches dating between 2010 and 2015 and to calculate pre-judgment interest (exceeding $800,000) from those dates.

The Federal Court awarded interest from the date of communication of the compromise, finding that the applicant had never sought to reserve his position with respect to interest and the compromise was presented to the Court as an indivisible lump sum representing the net present value of the applicant’s loss at that date, not broken down by reference to specific breaches.  It was therefore impermissible for the applicant to attempt to “unpick” the agreement and allocate parts of the agreed amount “in an ad hoc way, to different points in time for the purposes of a further claim for pre-judgement interest on those amounts”.[14]

No reduction in interest when loss valued at judgment

The cross-claimants in Petkovski v Huang (No. 4)[17] were awarded judgment for a lost opportunity based on the value of three properties as at the date of the judgment. The cross-defendants argued that the cross-claimants should not be entitled to pre-judgment interest as the award already took account of capital gains in the period between the loss of opportunity (in 2011) and judgment (in 2019), and an award of interest would therefore amount to double-compensation.

The Supreme Court of NSW disagreed, finding that any capital gain in the properties did not compensate the cross-claimants for the loss of use and benefits (such as rent) they could have derived from the ownership of valuable commercial property over the period. It also found that any element of over-compensation was cancelled out by the fact that the interest award was likely to undercompensate the plaintiffs for the lack of rental income.  Slattery J found that an award of interest at the default rate was an “appropriate and just balance in the circumstances”.[18]

[1] Interest on Judgments Practice Note GPN-INT.

[2] Practice Note No. SC Gen 16.

[3] Uniform Civil Rules 2020 (SA), r182.3.

[4] Rules of the Supreme Court 1971 (WA), O36 r20.

[5] Supreme Court Act 1986 (Vic), ss58, 60.

[6] Australia Kunqian International Energy Co Pty Ltd v Flash Lighting Co Ltd [2020] VSCA 259 at [42] per Kyrou, Niall and Hargrave JJA.

[7] [2020] NSWSC 1441.

[8] Per Slattery J at [92].

[9] [2020] FCA 1219.

[10] However, it was accepted that post-judgment interest would accrue once the award became enforceable as a judgment of the Court under Australian law.

[11] [2021] VSC 831.

[12] At [24].  It should be noted here that the circumstances were unusual and it should not be assumed, as a matter of course, that interest will only run from the date of a demand rather than the date any cause of action arose.

[13] [2020] FCA 1729.

[14] Per Kerr J at [12]-[14].

[15] [2021] FCA 1645.

[16] At [4].  Note that interest in this case was awarded under the Fair Work Act 2009 rather than the FCA.

[17] [2020] NSWSC 1182.

[18] At [15].

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).

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