FEDERAL COURT OF AUSTRALIA

PRACTICE AND PROCEDURE – interest on judgment – appropriate rate – whether Supreme Court rate of State in which case being heard

Federal Court of Australia Act 1976 (Cth) s 51A

Penalty Interest Rates Act 1983 (Vic)

Namol Pty Ltd v AW Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388

Alec Finlayson Pty Ltd v Armadale City Council (unreported, Burchett J, 6 March 1998)

Kettle Chip Co Pty Ltd v Apand Pty Ltd (1998) 155 ALR 134

Nagy v Masters Dairy Ltd (1996) 150 ALR 273

Embo Holdings Pty Ltd v Gary Sterling and Others (unreported, Millane JR, 19 June 1998)

SEA Food International v Lam (1998) 16 ACLC 552

Henderson v Amadio Pty Ltd (No 2) (1996) 62 FCR 221

EMCL PTY LTD & ANOR v ESANDA FINANCE CORPORATION LTD (NO. 2)

VG 102 of 1998

HEEREY J

18 DECEMBER 1998

MELBOURNE

THE COURT ORDERS THAT:

1.         There be judgment for the first applicant against the respondent for $90,529.83.

2.         The Court declares that the respondent is entitled to receive and retain for itself the residual value in respect of the leases of the 2749 vehicles referred to in paragraph 5 of the further amended statement of claim.

3.         The applicants, whether personally or by their servants agents or howsoever otherwise, be restrained permanently from sending any invoice or other request for payment in respect of any of the 2749 vehicles referred to in paragraph 5 of the further amended statement of claim.

4.         The applicants, whether personally or by their servants agents or howsoever otherwise, be restrained permanently from interfering with or hindering the respondent’s right to receive the residual value or any other monies in respect of any of the 2749 vehicles referred to in paragraph 5 of the further amended statement of claim or any part of the proceeds of their sale including the first applicant refusing to remove any security interest over any such vehicle.

5.         The order made by the Honourable Justice Sundberg on 16 April 1998 as varied by the orders of the Honourable Justice Heerey on 25 May 1998 and 11 June 1998 is set aside.

6.         On or before 23 December 1998 the respondent write to the following persons advising them that the respondent has no interest in the leases in the name of those persons and that all payments in respect of the said leases should be paid to the first applicant:

(a)        Ian Arthur Shuttle                                 Contract No. 200980002;

(b)        Endovision Pty Ltd                               Contract No. 300980006;

(c)        RG Woodward Pty Ltd                        Contract No. 300980004;

(d)        Shepparton Newspapers Pty Ltd          Contract No. 300980003;

(e)        V Haller Pty Ltd                                   Contract No. 300980001;

(f)         Patricia Margaret Dunnicliff                   Contract No. 700980007.

7.         The Court declares that the calculation of any amounts due pursuant to clause 4(b) of the master discount agreement between the first applicant and the respondent dated 2 January 1990 be made in accordance with the joint report of John Richard Cumpston and John Howard Day dated 10 December 1998 and the supplement thereto dated 17 December 1998.

8.         The applicants pay two thirds of the respondent’s costs of the proceeding including reserved costs up to and including the reasons for judgment dated 17 September 1998.

9.         There be no order as to costs after 17 September 1998.

Note:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

Rate of interest

The question arises as to the appropriate rate of interest prior to judgment.  Section 51A(1) of the Federal Court of Australia Act 1976 (Cth) provides:

  “51A.  (a)  In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either:

     (a)     order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, 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 as of which judgment is entered; or

  (b)     without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.

Mr Searle for the applicants argues for the rates payable under the Penalty Interest Rates Act 1983 (Vic).  Depending on the period, those rates are 13.2 per cent or 12.3 per cent.  Mr Hargrave QC argues for the borrowing rate paid by Esanda (5.6 per cent).  In their joint report, the parties’ experts noted (at par 6.6) that one month term deposit rates had been low for some years and their use seems unduly harsh on EMCL. 

“We think it more appropriate to consider that EMCL might have invested spare funds in a range of investments, such as fixed interest, equities and property (through unit trusts).  Such a spread of investments would have offered better returns than short-term deposits, and provided and a spread of risk.  Major industry superannuation funds typically adopt a spread approach, and their results provide some guide as to the likely returns EMCL might have obtained.”

They set out the figures showing the average credit rate in the years 1993 to 1998 as 9.1 per cent.

Mr Searle relies on a line of authority in which the Federal Court has adopted a practice of applying the interest rates specified for the Supreme Court of the State in which the case was being heard.  In Namol Pty Ltd v AW Baulderstone Pty Ltd (No 2) (1993) 47 FCR 388 at 389, Davies J said:

“Interest should be added in accordance with s 51A of the Federal Court of Australia Act 1976 (Cth).  It is the usual practice of the Court when sitting in New South Wales to adopt the rates set out in Sch J to the Rules of the Supreme Court of New South Wales 1970.  This is because those rates reflect commercial rates of interest, which is not the case for the rates prescribed in O 35, r 8 of the Federal Court Rules 1979 (Cth).  The practice has the policy advantage of ensuring that damages are awarded on the same basis, whether a matter be instituted in this Court or in the Supreme Court of New South Wales.”

That decision was followed by Burchett J in Alec Finlayson Pty Ltd v Armadale City Council (unreported, 6 March 1998)and also by the same judge in Kettle Chip Co Pty Ltd v Apand Pty Ltd (1998) 155 ALR 134.  In Western Australia, in Nagy v Masters Dairy Ltd (1996) 150 ALR 273 at 317, R D Nicholson J followed Namol and accepted the submission that the rates for the Supreme Court of Western Australia “(because they reflect commercial rates)” should be applied for calculation of interest.

The only authority to which I have been referred in Victoria is a decision of a judicial registrar of this court, Millane JR, in Embo Holdings Pty Ltd v Gary Sterling (unreported, 19 June 1998).  The judicial registrar referred to the cases I have mentioned and also SEA Food International v Lam (1998) 16 ACLC 552, and applied the Victorian penalty interest rate.

Mr Hargrave QC referred to my judgment in Henderson v Amadio Pty Ltd (No 2) (1996) 62 FCR 221.  After the substantive judgment I delivered a further judgment on 20 February 1996 dealing with some further matters, including the question of interest.  I said (at 239):

“As to the rate, I think rates fixed under the Penalty Interest Rates Act 1983 (Vic) are not appropriate since that legislation is directed to the courts of Victoria.  The alternatives are overdraft rates as suggested by the applicants, and one month term deposit rates, as suggested by Hudson Conway.  Naturally the former are substantially higher.”

I went on to observe that there was no evidence as to whether the applicants had been in credit or overdraft and that in the absence of evidence I thought the fairest course was to apply term deposit rates.

Mr Hargrave argues that I should follow that decision.  He points out that in the present case there was no evidence as to what the applicants, and particularly Finpac’s, financial position was and what it might have done with money now found to be due to it.  However, my recollection is that Namol was not cited to me in Henderson v Amadio.  All of the other decisions were delivered subsequently.

I think there is obvious practical value in having the Federal Court applying the same interest rate as would be applied in litigation in the same State in which the case is being heard.  It would be undesirable for there to be distinctions drawn from State to State, depending on whether it was thought the regime in any particular State did or did not impose a commercial rate of interest. 

So for those reasons I propose to apply the Supreme Court rates.

Costs

As I observed in my principal judgment, this litigation was to some extent provoked by Esanda.  It should have been able to provide timely information to EMCL.  It not only did not do that, but wrongly asserted waiver and alleged agreements which denied the contractual right of EMCL to the 50 per cent under cl 4(b).

However, the litigation was commenced by EMCL and dominated by EMCL’s construction claim which it asserted would result in $64 million being due to it.  That claim, which failed, occupied most of the hearing.

I think that Mr Hargrave takes a sensible and realistic attitude in submitting that after the trial, from judgment onwards, the parties should bear their own costs.  Essentially they have been working out, with the aid of the experts, what should be due.  So I will make no order as to the costs of that.

As to the costs of the trial and judgment I think there should be some reduction for the factors I have mentioned.  I will award two-thirds of Esanda’s costs, including reserved costs, up to and including the judgment on 17 September 1998. 

Associate:

Dated:              18 December 1998