FEDERAL COURT OF AUSTRALIA

P Aker Flowerbulbs Pty Ltd v Coulter [2004] FCA 1486

BANKRUPTCY – validity of bankruptcy notice – alleged overstatement of interest on judgment debt – interest calculated from date of judgment – where stay “on payment” granted for one month – effect of stay on accrual of post-judgment interest – alternative claim of compromise not finally determined

Landsal Pty Ltd (In Liq) v REI Building Society (1993) 41 FCR 421 at 429, referred to

Meadow Gem Pty Ltd v ANZ Executors and Trustees (unreported, Byrne J, Supreme Court of Victoria, 11 June 1996), referred to

Scarborough v Lew’s Junction Stores Pty Ltd [1963] VR 129, referred to

Ellis v Scott [1964] 2 All ER 987, referred to

Clifton Securities Ltd v Huntley [1948] 2 All ER 283, followed

Andrews v John Fairfax & Sons Ltd [1979] 2 NSWLR 184, referred to

Alexander v Cambridge Credit Corp Ltd (Receiver appointed) (1985) 2 NSWLR 685, referred to

Vitous v Tuohill [1964] VR 624 at 630-631, followed

Whitaker v Commissioner of Taxation (1998) 82 FCR 261 at 276, considered

Central Electricity Board of Mauritius v Bata Shoe Co (Mauritius) Ltd [1983] AC 105, referred to

Smart v O’Callaghan (1878) 4 VLR 448, referred to

Deloitte Touche Tohmatsu Trustee Co Ltd v Christchurch Pavilion Partnership (No 1) [2002] 3 NZLR 215, referred to

Scope Data Systems v BDO Nelson Parkhill (2003) 199 ALR 56, discussed

Re Pollack; Ex parte DCT (1991) 32 FCR 40 at 51 and 57, considered

Re Hughes, ex parte Westpac Banking Corporation (unreported, Merkel J, Federal Court of Australia, 28 November 1997), considered

County Court Act 1958 (Vic), s 73(4)

45 Am Jur 2d, Interest and Usury, § 43 (1999)

P AKER FLOWERBULBS PTY LTD (ACN 086 906 336) v DAVID COULTER

V689 of 2004

WEINBERG J

18 NOVEMBER 2004

MELBOURNE

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.                  The appeal be allowed.

2.                  The decision and orders of the Federal Magistrate made on 11 May 2004 be set aside.

3.                  The matter be remitted to the Federal Magistrates Court to be further heard and determined according to law.

4.                  There be no order as to the costs of and incidental to the appeal.

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

ON APPEAL FROM THE FEDERAL MAGISTRATES COURT OF AUSTRALIA

REASONS FOR JUDGMENT

1                     This is an appeal from a judgment of Connolly FM who, on 11 May 2004, ordered that a bankruptcy notice that had been issued and served upon the respondent be set aside:  David Coulter v P Aker Flowerbulbs Pty Ltd [2004] FMCA 297.  The Chief Justice has directed, pursuant to s 25(1A) of the Federal Court of Australia Act 1976 (Cth) (“the Federal Court Act”), that a single judge hear the appeal.

2                     The appellant, P Aker Flowerbulbs Pty Ltd, is, as its name suggests, an importer and supplier of flower bulbs.  In 2001, the respondent, David Coulter, purchased from the appellant, on account, flower bulbs to the value of approximately $77,000.  When the account was not paid, the appellant instituted proceedings against Mr Coulter, in the County Court of Victoria, for breach of contract.  Mr Coulter, in turn, counterclaimed against the appellant.  The proceeding was heard by his Honour Judge Holt. 

3                     On 8 May 2003, Judge Holt delivered judgment in favour of the appellant.  He ordered as follows:

“1.       The defendant pay the plaintiff $68,553.59.

2.                  The defendant’s counterclaim dated 4 December 2002 be dismissed.

3.                  The defendant pay the costs of the plaintiff of the proceeding, including the costs of the application heard on 8 May 2003, on County Court Scale D, in default of agreement.

4.                  The payment of the sum referred to in paragraph 1 hereof and the payment of the costs referred to in paragraph 3 hereof, be stayed for one month from today’s date.”

4                     Notwithstanding the fact that there was a judgment in the appellant’s favour, and that the “stay” which his Honour ordered was for a period of one month only, Mr Coulter at no stage made any payment to the appellant.  Nor did he file an appeal against the judgment.  Rather, he sought to negotiate some form of settlement with Petrus Aker, a director of the appellant company. 

5                     According to Mr Coulter, Mr Aker telephoned him on 23 September 2003 and asked Mr Coulter how he intended to settle the debt.  Mr Coulter told Mr Aker that his dispute with the appellant concerned the poor quality of the flower bulbs that had been supplied.  He claimed that he told Mr Aker that he was willing to resolve the matter by providing the appellant with the same number of flower bulbs as he had been supplied.  He told Mr Aker that, although there was a dispute as to the number of bulbs that had been supplied, he would accept as accurate the number evidenced by consignment notes that had been tendered in the County Court, and as evidenced by any further consignment notes that Mr Aker could locate. 

6                     Mr Coulter claimed that Mr Aker indicated that this proposal was acceptable.  According to Mr Coulter, Mr Aker said that he would see if he could locate any further consignment notes, and that he would get back to Mr Coulter to sort out the arrangements shortly. 

7                     Mr Coulter said that at the conclusion of this conversation, he was satisfied that the debt had been compromised to the satisfaction of the appellant.  However, events took a different turn.  On 30 October 2003 the appellant applied for a bankruptcy notice to be issued. On 9 November 2003 that bankruptcy notice was served upon Mr Coulter.  Relevantly, the bankruptcy notice contained a claim by the appellant that it was owed $72,249.37, which sum was “due and payable”.  The schedule to the bankruptcy notice indicated that this sum comprised an amount of $68,553.59 (being the amount that Judge Holt had found to be owing), together with $3,695.78 as “interest accrued” since the date of judgment. 

8                     Mr Coulter waited until the last day for compliance before applying to have the bankruptcy notice set aside.  He claimed that the judgment debt had been compromised as a result of the “arrangement” that he had reached with Mr Aker during their telephone conversation on 23 September 2003. 

9                     That claim, in turn, led to a dispute between Mr Coulter and Mr Aker as to precisely what had been said during the course of the telephone conversation.  According to Mr Aker, Mr Coulter had told him that the only hope that the appellant had of recovering anything would be if Mr Coulter replaced the flower bulbs that had been purchased.  If that offer were rejected, Mr Coulter “would go broke”.  Alternatively, Mr Coulter would ensure that he repaid the debt in monthly instalments of no more than about $100.00.  Mr Aker said that he felt pressured by Mr Coulter’s remarks, and that he told him that he would discuss the matter with his Melbourne manager.  He categorically denied having given Mr Coulter any indication that he was prepared to accept Mr Coulter’s offer.  He insisted that no arrangement of any kind had been reached.

10                  When the challenge to the validity of the bankruptcy notice came before the Federal Magistrate, Mr Coulter’s contentions took a somewhat different form.  He now claimed to have a “knockout” point.  Although he maintained his submission that the judgment debt had been compromised, his primary argument was that the bankruptcy notice was invalid for another reason.  He submitted that the amount of interest payable on the judgment debt, as set out in the schedule to the notice, had been overstated.  He relied upon the principle, clearly established by the authorities, that a bankruptcy notice that overstates the amount of interest payable is invalid. 

11                  In his reasons for judgment, Connolly FM noted that, in his orders, Judge Holt had made no provision for interest to run on the judgment debt.  However, the Federal Magistrate had also noted that it was unnecessary to make any such provision as section 73(4) of the of the County Court Act 1958 (Vic) (“the County Court Act”) provided that such interest would flow automatically.  The subsection provides:

“Every judgment debt shall carry interest at the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 from the time the judgment is entered or the order made or, in the case of costs to be assessed, from the assessment of those costs or such other day as the court orders, and the amount of the interest shall be stated in the body of and may be seized under a warrant of execution on such judgment.”

12                  There is no dispute that the sum of $3,695.78, identified in the bankruptcy notice as interest accrued since the date of judgment, included the period from 8 May 2003 to 8 June 2003. That was so notwithstanding the fact that Judge Holt had ordered that payment on the judgment debt be stayed for a period of one month. As Connolly FM observed, Mr Coulter’s argument was that by reason of that “stay” there was no debt payable on 8 May 2003 or, indeed, for the following month.  Accordingly, there could be no interest payable for that period.  The appellant, on the other hand, argued that s 73(4) rendered interest payable on the judgment debt from the time that the judgment was entered, namely 8 May 2003. 

13                  Connolly FM reasoned as follows:

“7.       In my view the entitlement to interest pursuant to the statute from the date of judgment is not absolute.  The section clearly provides that every judgment debt shall carry interest at the rate of the time being fixed under section 2 of the Penalty Interest Act 1983 (Vic) from the time the judgment is entered or order made, or such other day as the court orders.  I accept the applicant’s submission that it would be a somewhat absurd situation where interest accrues on a judgment debt which is not payable.  I am satisfied that in all the circumstances the stay of payment must mean the stay of any interest entitlement connected with that payment.  Until the judgment debt is payable there can be no interest accruing on it in accord with section 73(4) of the County Court Act 1958.

8.         Accordingly it follows that there has been an overstatement of interest which in my view invalidates the bankruptcy notice in the same way as Federal Magistrate Driver found in Sussman v Johncorp Industries Pty Ltd [2002] FMCA 58 (26 March 2002).  In all the circumstances I am satisfied that I have no alternative but to set aside the bankruptcy notice.” (emphasis in original)

14                  Having concluded that the bankruptcy notice was invalid, his Honour turned to Mr Coulter’s alternative claim, namely that he had “arranged” with Mr Aker to settle the debt.  He observed that it was not necessary to determine whether any such “arrangement” had been reached, given that the bankruptcy notice was invalid.  Nonetheless, he expressed the view that there were “real difficulties” with Mr Coulter’s argument.  He then quoted from an outline of argument provided by counsel for the appellant, and indicated that, in his opinion, the conversation between Mr Coulter and Mr Aker had gone no further than Mr Aker had suggested.  In other words, he made it clear that he preferred Mr Aker’s account of the telephone conversation to that of Mr Coulter. 

the appeal to this court

15                  By notice of appeal filed on 3 June 2004 the appellant appeals from the judgment and orders of the Federal Magistrate.  The notice of appeal contains five grounds:

“1.      The Court erred in allowing the respondent’s application in No MZ 1351 of 2003 (‘the Application’), in dismissing Bankruptcy Notice VN 1720 of 2003, and in not determining the Application according to law.

2.                  The Court erred and allowed itself to be guided by a wrong principle, in that:

(a)               the Court construed the judgment of Judge Holt of the County Court of Victoria made 8 May 2003 (‘Judgment’) in a manner inconsistent with a proper construction of section 73 of the County Court Act 1958 (Vic); and

(b)               by reason of the error in paragraph 2(a) hereof, the Court concluded in error that the Bankruptcy Notice VN 1720 of 2003 was invalid.

3.                  The Court erred and allowed itself to be guided by a wrong principle in finding that the Judgment provided for interest to accrue from another day ordered by the County Court, within the meaning of section 73(4) of the County Court Act, in circumstances where no costs of the Judgment were required to be assessed.

4.                  The Court erred and allowed itself to be guided by a wrong principle in finding that a stay on payment in the Judgment must mean the stay of any interest entitlement connected with that payment, within the meaning of:

(a)              subsection 73(4) of the County Court Act; and

(b)              where such interest accrues pursuant to the Penalty Interest Rates Act 1983 (Vic).

5.                  The Court further erred and allowed itself to be guided by a wrong principle in that the Court found that it was not necessary to determine the Respondent’s Application on the basis of the Respondent’s affidavit sworn on 1 December 2003.”

16                  As ground 5 was formally abandoned during the course of argument, it is unnecessary to say anything further about it. 

17                  In substance, the appellant’s primary submission was that Connolly FM had erred because he had mistakenly treated the “stay” that Judge Holt had ordered as though it operated as a stay of the judgment as a whole, rather than merely a stay on payment. 

18                  Counsel for the appellant commenced his submissions by contending that, as a general rule, any order made by a court should be given its ordinary and natural meaning: Landsal Pty Ltd (In Liq) v REI Building Society (1993) 41 FCR 421 at 429.  He submitted that order 4 was clear and unambiguous.  It was not expressed as “a stay of the judgment”, or as “a stay of the proceeding generally”.  It was rather expressed as “a stay of payment” which, he submitted, was tantamount to “a stay of execution”.  In other words, it was submitted that the stay that Judge Holt had granted was intended simply to give Mr Coulter a reasonable period of time within which to pay the sum owing.  He did not intend by that order to deprive the appellant of its right, under s 73(4), to interest from the time that the judgment was entered.  

19                  Counsel for the appellant supported this contention by reference to the structure and text of s 73(4).  He noted that the subsection expressly provided that the Court could depart from the general rule that post-judgment interest ran from the time that judgment was entered, “or, in the case of costs to be assessed, from the assessment of those costs” in appropriate circumstances.  He referred to the power vested in the Court, by s 73(4), to nominate “such other day” as the day from which interest runs.  However, he submitted that Judge Holt, by ordering a stay of execution, had not nominated any “other day” within the meaning of the subsection.  Accordingly, the general rule continued to apply. 

20                  Counsel for the appellant recognised, however, that there might be a textual difficulty with this submission given that the expression “or such other day as the court orders”, in s 73(4), seemed to refer only to interest on costs, and not to interest on a judgment debt. 

21                  Counsel for the appellant relied upon Meadow Gem Pty Ltd v ANZ Executors and Trustees, an unreported decision of Byrne J in the Supreme Court of Victoria given on 11 June 1996.  In that case his Honour considered the meaning of r 63.18 of the Supreme Court Rules, which deals with notices to admit facts.  The rule provides that where a party serves a notice disputing a fact and, afterwards, the fact is proved in a proceeding, the party shall pay the costs of proof “unless the Court otherwise orders”.  He concluded that the stipulation “otherwise” required an order that was directed to the specific matter contemplated by the reservation of power. 

22                  Counsel for the appellant submitted that in the present case, there was no “other day” specified by Judge Holt in any of his orders.  He submitted that this was sufficient on its own for concluding that his Honour did not intend, by the “stay” that he granted, to indicate that no judgment debt would come into existence until after the period of one month had passed.  In other words, where there was a rule of general application, such as that contained in s 73(4), it would require special circumstances to displace that rule.  That, in turn, would at least require advertent conduct on the part of the judge before it could be said that he had “otherwise ordered”.

23                  Finally, counsel for the appellant challenged Connolly FM’s observation that it would be a “somewhat absurd situation” for interest to accrue on a judgment debt that was not payable.  Once Judge Holt’s order was understood to mean nothing more than “payment … be stayed”, any absurdity vanished.  Had his Honour stayed the judgment as a whole, the position might have been different.  However, absent any language that indicated that a stay of that breadth was contemplated, it should not be inferred that his Honour intended to deprive the appellant of the statutory benefit to which it would otherwise be entitled. 

24                  Counsel for Mr Coulter commenced his submissions by agreeing that Judge Holt’s order that there be a stay was clear and unambiguous.  However, his interpretation of that order did not accord with that of counsel for the appellant.  He submitted that the effect of the “stay”, in order 4, was to suspend or postpone Mr Coulter’s obligation to meet the judgment debt for a period of one month.  He contended that, for practical purposes, this meant that there was no judgment debt in existence during that period. 

25                  Counsel for Mr Coulter sought to bolster that submission by referring to an affidavit sworn by Mr Rawle Watson-Jones, the appellant’s solicitor.  Mr Watson-Jones exhibited to his affidavit a set of notes that had been prepared by his principal, Mr Paul Holdway, during the course of Judge Holt’s judgment.  According to the notes, when Mr Coulter asked for a stay after the judgment had been delivered, Judge Holt merely said “stay of one month”.  It was only later, when the orders came to be drawn and authenticated, that order 4 was expressed as staying “payment”. 

26                  Counsel for Mr Coulter submitted that it was trite law that interest could not run on a non-existent principal debt.  He submitted that, on its proper construction, the stay granted meant that there was no judgment debt “payable” for a period of one month after the date that the judgment was entered.  It followed that the inclusion in the bankruptcy notice of an interest component calculated from the date that judgment was entered had been erroneous, and that the bankruptcy notice was therefore invalid. 

27                  Counsel for Mr Coulter submitted that to construe the “stay” in any other manner would lead to absurd consequences.  Logically, it would follow that the day after the judgment, the judgment creditor would hold an immediately enforceable right to one day’s interest in relation to a principal sum to which that judgment creditor had no presently enforceable right.  Alternatively, the judgment creditor would have no right to any interest after, say, twenty-eight days, but would be entitled to thirty-five days’ interest one week later.  It hardly made sense that a default of five days on payment of a judgment debt would be “punished” with an interest penalty accrued over five weeks. 

28                  Counsel for Mr Coulter submitted that it was plain that Judge Holt had the power to prevent interest from running by ordering that payment of the judgment debt be stayed.  There was nothing in s 73(4) that ran counter to this proposition.  A court’s power to stay a judgment, or proceeding must include the power to stay part only of a judgment or proceeding, including execution thereof.

conclusion

29                  Both parties submitted that the first question to be determined in this appeal was the proper interpretation of the “stay” granted by Judge Holt on 8 May 2003.  Did his Honour intend to stay the judgment as a whole so that there would be no debt in existence for a period of one month?  Or did he intend simply to stay the execution of the judgment so that no proceeding to enforce payment could be brought until, for example, Mr Coulter had an opportunity to consider whether to lodge an appeal against the judgment?  If his Honour intended only a stay of execution, did he contemplate that Mr Coulter would have the benefit of that stay without any interest accruing to the appellant for that period? 

30                  Judge Holt formulated the stay that he ordered as a stay on “payment”.  That suggests that his Honour contemplated nothing more than a stay of execution.  There is nothing to indicate that he intended that the judgment debt in favour of the present appellant would only come into existence after the expiration of the period of one month.

31                  The matter is complicated somewhat by the fact that his Honour also ordered that Mr Coulter pay the appellant’s costs of the proceeding “on County Court Scale D, in default of agreement”.  Section 73(4) deals separately with judgment debts (which carry penalty interest from the time the judgment is entered, or the order made) and “costs to be assessed” (which carry penalty interest from the assessment of those costs, or such other day as the court orders).  It is difficult to see how a stay on payment of one month can be an order as to “such other day” when, as it appears, there was no assessment of costs to which a nomination of the “other day” could attach. 

32                  There is no doubt that Judge Holt had the power to grant a stay of execution.  A court may stay the execution of its own judgment or order under rules of court, or pursuant to inherent or implied jurisdiction: Ellis v Scott [1964] 2 All ER 987. 

33                  The County Court is not a superior court of record.  Nor is it a court of unlimited jurisdiction.  It has no inherent powers.  This is of little consequence as it plainly has implied powers.  These include the power to grant a stay of execution.  Section 49 of the County Court Act, which confers jurisdiction upon the Court in civil matters, is couched in the broadest of terms.

34                  Most courts have a general power to grant stays of execution of their judgments.  See, for example, O 63 r 1 of the present High Court Rules, O 37 r 10 of the Federal Court Rules, Pt 44 r 5 of the Supreme Court Rules of NSW, and r 66.16 of the Supreme Court Rules of Victoria.  However, it should be noted that not all courts have the power, express or implied, to order that the execution of a judgment be stayed pending appeal.  For example, s 29 of the Federal Court Act provides that the Federal Magistrates Court cannot make such an order pending an appeal to the Federal Court.  The County Court, however, is not under any such statutory constraint.

35                  If, as I think, the stay granted was in effect a stay of execution, the principal issue to be determined is whether it had the effect of depriving the appellant of its right to interest for the period of one month after judgment had been entered. 

36                  Contrary to the conclusion reached by Connolly FM, I do not think that the stay had that effect.  I can see no reason, in principle, why a judgment creditor should be deprived of interest that would otherwise automatically accrue from the time that judgment is entered, by reason of s 73(4), merely because the judgment debtor has been granted the indulgence of a stay of execution.

37                  It is worth spending a moment or two at this point considering the nature of a stay.  Typically, a stay of execution is granted where a defendant appeals against a judgment for the payment of money, and there is a significant risk that the defendant will not be able to recover the money if the appeal is successful: Scarborough v Lew’s Junction Stores Pty Ltd [1963] VR 129.  The granting of a stay is a discretionary matter and can be subject to terms, a common condition being that security be given for the amount of the judgment.  Most applications to stay execution are based upon the stated intention of a party to appeal: Andrews v John Fairfax & Sons Ltd [1979] 2 NSWLR 184.  In most jurisdictions, filing an appeal does not act as an automatic stay of the original order.  A separate application for a stay must be made to the judge who made the order appealed from, or if that judge is not available, another judge of the court.  An appellate court can also grant a stay of execution of an order of a lower court.

38                  The filing of an appeal does not usually operate as an automatic stay.  However, there is no rule that a stay will not be granted unless exceptional circumstances are shown.  It is sufficient if the applicant demonstrates a reason or an appropriate case to warrant the exercise of discretion in his or her favour: Alexander v Cambridge Credit Corp Ltd (Receiver appointed) (1985) 2 NSWLR 685.

39                  In the case of a judgment for the payment of money, the general rule that an appeal does not operate as a stay of execution represents a balance between two competing considerations, namely that the successful plaintiff should not be deprived of the fruits of the judgment, and that an appeal, if successful, should not be rendered nugatory.

40                  Conceptually, a stay of the type granted by Judge Holt is an order of a court that has the effect of suspending the operation of an earlier judgment or order.  A stay of execution prevents the person entitled under the judgment from immediately enforcing the judgment.  However, it does not necessarily affect the right of that person to exercise any rights against the person bound by the judgment that he or she might have apart from the process of the court: see Clifton Securities Ltd v Huntley [1948] 2 All ER 283, a case to which I shall return.  Execution may issue to enforce the judgment immediately after the period of the stay has expired.

41                  The question of post-judgment interest during a stay of execution is generally governed by legislation or rules of court.  I have already dealt at some length with s 73(4) of the County Court Act.  Section 101 of the Supreme Court Act 1986(Vic) is in similar terms.  So too are various provisions governing this issue in other States, including s 95 of the Supreme Court Act 1970(NSW); s 48 of the Supreme Court Act 1995(Qld); and s 114 of the Supreme Court Act 1935(SA).  A similar result is achieved by r 887A of the Supreme Court Rules 2000(Tas). 

42                  The same is true of the position in England, where s 17 of the Judgments Act 1838(UK) is in the following terms:

“(1) Every judgment debt shall carry interest at the rate of 8 per cent per annum from such time as shall be prescribed by rules of court, until the same shall be satisfied, and such interest may be levied under a writ of execution on such judgment.

(2) Rules of court may provide for the court to disallow all or part of any interest otherwise payable under subsection (1).”

Rule 40.8 of the Civil Procedure Rules 1998 (UK) provides:

“(1) Where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838 or section 74 of the County Courts Act 1984, the interest shall begin to run from the date that judgment is given unless—

(a) a rule in another Part or a practice direction makes different provision; or

(b) the court orders otherwise.

(2) The court may order that interest shall begin to run from a date before the date that judgment is given.”

43                  The position in Canada is governed by s 50 of the Supreme Court Act, R.S. 1985, c. S-26, which states:

“Unless otherwise ordered by the Court, a judgment of the Court bears interest at the rate and from the date applicable to the judgment in the same matter of the court of original jurisdiction or at the rate and from the date that would have been applicable to that judgment if it had included a monetary award.”

44                  By way of contrast, there are a number of jurisdictions in which it appears that no discretion is conferred upon any court to make an order that would deprive a successful judgment creditor of post-judgment interest.  See, for example, s 77N of the Judiciary Act 1903 (Cth); s 52 of the Federal Court Act; s 142 of the Supreme Court Act 1935(WA); s 70 of the Supreme Court Act 1933 (ACT); and r 538 of the High Court Rules (New Zealand).

45                  Surprisingly, the case law on the subject of whether post-judgment interest accrues during a stay of execution appears to be sparse.  There are, however, some cases that have addressed this issue, albeit peripherally.  In Vitous v Tuohill [1964] VR 624, judgment for £7,085 had been pronounced in favour of an infant plaintiff on 20 October 1960.  It was ordered that £6335 be paid into court within 14 days and, together with £750 already in court, be invested for the plaintiff until he was 21 years of age.  The plaintiff’s solicitors failed to enter judgment and the defendant did not pay the money into court.  On 3 January 1963, the plaintiff turned 21 and then discovered that the money had not been paid into court.  On 22 February 1963, he filed a formal judgment that was dated 20 October 1960.  He claimed interest on his judgment under s 161 of the Supreme Court Act 1958(Vic) from 20 October 1960.  The Full Court of the Supreme Court held that although not filed until 22 February 1963, the judgment was properly dated 20 October 1960, and interest under s 161 was payable from that date. 

46                  Relevantly, for present purposes, the Full Court observed at 630-631:

“Consistently with the view with which we have taken of the operation of s. 161, the question remains open whether, having regard to the terms of the judgment and order of 20 October 1960, interest is carried by the judgment debt as from that date or only from 14 days thereafter. 

Smith, J., had allowed a period of 14 days for satisfaction of the judgment by payment into court, so it is arguable at least that interest should not commence to run until default in compliance with the order.  The answer we think depends on the proper interpretation of the judgment and order.  As we construe it, it was intended to do no more for the defendant than to give him immunity from execution for 14 days and, as we would think, to entitle him to pay the money into court within such period without liability for interest.  We do not construe it as intended to confer any benefit on the defendant should he, for any reason, fail to comply with the conditions on which the grant of such privileges depended; so that in the event of default he was remitted to the same position, so far as interest is concerned, as if no such period for payment into court had been allowed.”

47                  In other words, the Full Court held that an order tantamount to a stay on execution for a period of 14 days did not prevent interest from running during that 14-day period. 

48                  To similar effect is the decision of the Full Court of the Federal Court in Whitaker v Commissioner of Taxation (1998) 82 FCR 261.  There it was held that an amount payable as post-judgment interest under s 95(1) of the Supreme Court Act 1970(NSW) had the character of “income” for tax purposes notwithstanding the fact that there had been a number of appeals, during which, it appears, the judgment at first instance was stayed. Importantly, Lockhart J observed at 276:

“In one sense counsel for the appellant is correct in saying that the appellant’s entitlement to payment of interest upon the amount of the judgment was conditional, because, until the High Court delivered its judgment, it was not known whether the appellant would be finally entitled to any sum at all.  But the judgment entered by the Supreme Court gave rise to an immediate entitlement in the appellant to the benefit of the judgment.  The fact that appeals intervened or that there may have been a stay of execution of the judgment granted or that it would have been very difficult for the appellant to have resisted such a stay because there was a real dispute on liability, does not determine the character of the judgment itself.  That the appellant’s cause of action was for damages or personal injury is highly relevant in determining the true nature of the pre-judgment interest.  But, once the plaintiff has succeeded and judgment has been entered for a sum which includes the pre-judgment interest, the cause of action which led to the judgment has merged in the judgment.  Interest is payable under s 95(1) upon the amount of the judgment as a judgment debt.  Post-judgment interest is payable to a successful plaintiff.”  (emphasis added)

49                  There are several other cases in which courts have implicitly accepted that a stay of execution does not suspend interest.  See generally Central Electricity Board of Mauritius v Bata Shoe Co (Mauritius) Ltd [1983] AC 105, where the Privy Council held that although there was no statutory provision in Mauritius that provided for post-judgment interest, an order to that effect could be made.  Importantly, their Lordships ordered that, although the judgment below had effectively been stayed pending the hearing and determination of the appeal, interest should be paid from the date of that judgment.  See also Smart v O’Callaghan (1878) 4 VLR 448; Deloitte Touche Tohmatsu Trustee Co Ltd v Christchurch Pavilion Partnership (No 1) [2002] 3 NZLR 215.

50                  In broad terms, this approach accords with the underlying rationale of post-judgment interest.  That rationale is conveniently stated by American commentators in 45 Am Jur 2d, Interest and Usury, § 43 (1999):

“The purpose of post-judgment interest is not to punish the defendant, but to encourage prompt payment and to compensate the plaintiff for another’s use of his or her money.”

51                  The current position in England is regulated by statute or delegated legislation.  In relation to the County Court, if an order of that Court were to “stay” payment of a judgment debt until a certain date, interest would not begin to accrue on that debt until after that date had passed.  However, as noted, that position derives not from any case law, but directly from reg 3 of the County Courts (Interest on Judgment Debts) Order 1991, a statutory instrument made under s 74 of the County Courts Act 1984 (UK).  So far as I can tell, there is no equivalent provision in Victoria in either the County Court Act, or the County Court Rules.

52                  The position at common law was different.  At common law, a stay of execution only operated to prevent the judgment creditor from putting into operation the legal processes of execution, and did not affect rights acquired independently of the process stayed.

53                  In Clifton Securities Ltd v Huntley [1948] 2 All ER 283, the lessees of a workshop that formed part of a factory had a right of way to it through the factory and received their electricity, gas and water supplies through pipes laid in the factory.  The lessors, the owners of the factory, obtained judgment for possession of the premises in the High Court on a notice to quit, the validity of which was disputed.  A stay of execution was granted pending an appeal.  The lessees did not give up possession.  Shortly thereafter, and before the Court of Appeal delivered judgment affirming the judgment of the court below, and while the stay of execution was still in force, the lessors cut off the supply of electricity, gas and water and barricaded the right of way.  The plaintiffs sued for mesne profits.  The defendants counterclaimed on the ground that they were entitled to undisturbed possession while the stay was in force, and sought damages for the cutting off of these supplies.  Denning J, as his Lordship then was, held that the stay of execution only prevented the lessors from putting into operation the legal processes of execution on the judgment and did not affect the exercise of any rights and remedies they might have independent of the process of the court. 

54                  The effect of “a stay of execution” was recently considered by Barrett J in Scope Data Systems v BDO Nelson Parkhill (2003) 199 ALR 56.  His Honour cited with approval the key passage from the judgment of Denning J in Clifton Securities Ltd v Huntley, and noted also that the analogous expression “stay of enforcement of the judgment” in the District Court Rules had been approached in the same way by Pincus J in Re Pollack; Ex parte DCT (1991) 32 FCR 40 at 51.  There, Pincus J, dealing with a submission that a debt was payable immediately within the meaning of s 44(1)(b)(ii) of the Bankruptcy Act 1966(Cth), held that the fact that there had been a stay of enforcement of a judgment did not produce the result that the debt ceased to be payable.  As his Honour observed, the judgment creditor could, despite the stay of enforcement, plead the debt as a common law set-off. 

55                  It is relevant to note that Pincus J contrasted s 44(1)(b)(ii) with s 40(1)(g) which has the effect that an act of bankruptcy is committed by failure to comply with a bankruptcy notice.  That provision uses the expression:

“if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed …”

56                  In the same case, Gummow J observed at 57 that a stay of enforcement did not, of itself and without more, deprive the judgment debt of its character of an obligation that was payable immediately.  His Honour also observed that the debt might be payable by the debtor although the means of enforcement were denied to the creditor. 

57                  To the same effect is the judgment of Merkel J in Re Brent Hughes; Ex parte Westpac Banking Corporation [1997] FCA 1324 where his Honour considered the status of a debt arising from a judgment in respect of which the Supreme Court of Victoria had ordered a stay of execution.  Merkel J distinguished between a stay of execution of a judgment and a stay on the operation of the judgment.  He said:

“In principle, a stay of execution relates solely to a stay in respect of the legal processes of enforcement which are available in respect of the judgment but does not, of itself, suspend or otherwise affect the validity or operation of the judgment.”

58                   With respect to the learned Federal Magistrate, and in the light of the authorities cited above, I see nothing absurd in the proposition that interest runs in accordance with s 73(4) of the County Court Act on a debt that is due and payable even though the appellant is precluded for a time from resorting to remedies entailing execution upon the judgment.  The stay of execution does not call in question the existence of the judgment debt. 

59                  Had Mr Coulter been asked on 9 May 2003 whether, by reason of the orders made by Judge Holt on the previous day, he was indebted to the appellant, the only truthful answer that he could have given was an affirmative one.  He might have added that he had a month within which to pay the money that he owed, but he could not credibly have denied the existence of a debt. 

60                  Both sides submitted that in the event that I concluded that the Federal Magistrate had erred in setting aside the bankruptcy notice upon the basis that it had overstated the interest payable on the judgment debt, I should go on to resolve the question whether there had been an “arrangement” of the kind alleged by Mr Coulter.  As previously indicated, that question was addressed by the Federal Magistrate, but not finally determined.  I consider that it would be inappropriate to accede to this joint submission.  The question whether an “arrangement” was reached depends greatly upon findings that would be made on matters of credibility.  It is not a matter to be dealt with on the papers.

61                  It follows that the appeal must be allowed.  The decision of Connolly FM that the bankruptcy notice was invalid because it failed to state correctly the amount of interest payable on the judgment debt should be set aside.  So too should any consequential order that his Honour may have made regarding costs. 

62                  As I understand the position, the bankruptcy notice is therefore revived, subject to any extension of time being granted within which to comply with its terms. 

63                  This matter should be remitted to the Federal Magistrates Court to enable the Federal Magistrate to consider and determine finally whether there had been an “arrangement” of the kind for which Mr Coulter contended. 

64                  Normally the appellant would have its costs given that it has been successful on the one ground that was argued.  However, the present case has several unusual features.  For example, I was informed by counsel for the appellant that one reason that his client had decided to appeal against the decision of Connolly FM, rather than simply issuing a fresh bankruptcy notice, was because it regarded his Honour as having treated some of its submissions below in a peremptory manner.  Of course it must be borne in mind that even if a fresh bankruptcy notice had been issued, in accordance with his Honour’s findings, the argument that there had been an “arrangement” may have been pursued.

65                  Plainly the appellant was entitled to adopt the course that it did.  In the end, its position with regard to post-judgment interest has been proved to be correct.  Nonetheless, that has come at a high cost.  I do not think that Mr Coulter should be required to meet that cost, given that it was incurred primarily because the appellant apparently laboured under a sense of grievance at the treatment that it considered it had been accorded by the Federal Magistrate.  Where a party can achieve a desired outcome by the adoption of a simple and cheap expedient, but chooses instead to make a particular point “on a matter of principle”, that party will not necessarily be entitled to recover the costs of making that point from the other side.  In the particular circumstances of this case, I consider that there should be no order as to the costs of the appeal. 

Associate:

Dated:              18 November 2004