FEDERAL COURT OF AUSTRALIA

Suzlon Energy Ltd v Bangad (No 2) [2014] FCA 1173

SECOND CROSS CLAIM

THE COURT ORDERS THAT:

1. There be judgment for the first second cross-claimant (Suzlon Energy Ltd (Suzlon Energy)) against:

(a) the seventh and ninth second cross-defendants (Rajagopalan Sridhar (Mr Sridhar) and Sunshine Trade Services Ltd (STS)) in the sums of:

(i)    USD5,850,584.72 (inclusive of interest of USD963,524.72);

(ii)    €13,107,173.02 (inclusive of interest of €2,394,195.02); and

(iii)    jointly with the eleventh second cross-defendant (BIP Holdings Ltd (BIP)), €2,514,698.29 (inclusive of interest of €514,698.29) that forms part of the judgment sum in order 1(a)(ii) above;

(b) the third second cross-defendant (Sanjeev Bangad (Mr Bangad)), Mr Sridhar and BIP in the sums of;

(i)    USD3,719,334.44 (inclusive of interest of USD692,043.44); and

(ii)    jointly with the tenth second cross-defendant (S Raam Kumar also known as Kummar (Mr Kummar)), USD1,257,044.93 (inclusive of interest of USD257,044.93) that forms part of the judgment sum in order 1(b)(i) above;

(c) Mr Bangad, Mr Sridhar and the eighth second cross-defendant (Bluewind Enterprises (UK) Ltd (Bluewind)) in the sum of €2,525,874.52 (inclusive of interest of €525,874.52);

(d) Mr Bangdad and Mr Sridhar in the sums of:

(i)    USD2,950,983.50 (inclusive of interest of USD569,894.50);

(ii)    AUD146,879.35 (inclusive of interest of AUD45,913.28).

2. There be judgment for the third second cross-claimant (Suzlon Infrastructure Limited, now known as Aspen Infrastructure Limited) against:

(a) Mr Bangad, Mr Sridhar and the sixth second cross-defendant (Genus Shipping Services Pvt Limited (Genus)) in the sum of USD1,685,896.13 (inclusive of interest of USD306,896.13);

(b) Mr Bangad, Mr Sridhar and STS in the sum of USD1,277,622.74 (inclusive of interest of USD277,622.74);

(c) Mr Bangad and Mr Sridhar in the sum of USD409,709.16 (inclusive of interest in the sum of USD70,542.87).

3. There be judgment for the sixth second cross-claimant (SE Shipping Pte Limited) against Mr Bangad and Mr Sridhar in the sum of USD9,753,138.63 (inclusive of interest of USD1,606,230.93).

4. Not later than 7 days after service of these orders on him, Mr Sridhar cause to be given to Suzlon Energy each document necessary, duly signed by him or the respective corporate second cross-defendant in whose name the account is held, to authorise and direct:

(a) the thirteenth cross-defendant (Frankfurter Bankgesellschaft (Schweiz) AG (LB Swiss)) to pay Suzlon Energy forthwith the total sum standing to the credit of each of the following bank accounts:

(i)    account number 100.994 in the name of Sunshine; and

(ii)    account number 94.648 in the name of Rodney Marsh;

(b) the fourteenth second cross-defendant (Merrill Lynch Bank (Suisse) SA (Merrill Lynch)) to pay Suzlon Energy forthwith the total sum standing to the credit of each of the following bank accounts:

(i)    account number 469 244 in the name of Sunshine;

(ii)    account number 477 214 in the name of Bluewind; and

(iii)    account number 495 158 in the name of Manning Limited (Manning);

(c) the fifteenth second cross-defendant (Credit Suisse AG (Credit Suisse)) to pay Suzlon Energy forthwith the total sum standing to the credit of each of the following bank accounts:

(i)    account number 0835-1490-6 in the name of BIP; and

(ii)    account number 0835-1357788-8 in the name of Manning.

5. Not later than 7 days after service of these orders on him, Mr Bangad cause to be given to Suzlon Energy each document necessary, duly signed by him or the respective corporate second cross-defendant in whose name the account is held, to authorise and direct Credit Suisse to pay Suzlon Energy forthwith the total sum standing to the credit of bank account number 0835-1490-6 in the name of BIP.

THE COURT DECLARES THAT:

6. Each of the sums standing to the credit of the bank accounts referred to in orders 4 and 5 is held by the respective account holder on constructive trust for Suzlon Energy absolutely.

THE COURT ORDERS THAT:

7. In default of compliance with orders 4 and 5, the Registrar execute all documents necessary or required by the respective bank, being the thirteenth, fourteenth or fifteenth second cross-defendant, as the case requires, to authorise that bank to pay to Suzlon Energy the whole of the moneys standing to the credit of each bank account referred to in orders 4 and 5 and to receive all statements of account and other documents that the account holder is entitled to receive from the bank.

8. Each of Mr Bangad, Mr Sridhar, Mr Kummar, STS, Genus, Bluewind, BIP and Manning pay the second cross-claimants’ costs of these proceedings.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

SECOND CROSS CLAIM

REASONS FOR JUDGMENT

1    On 15 October 2014, I found that the Suzlon parties were entitled to judgment in very substantial sums in United States dollar and euro amounts: Suzlon Energy Ltd v Bangad [2014] FCA 1105. I directed the Suzlon parties to file evidence as to interest rates in those currencies for the purpose of establishing an appropriate basis on which an award of pre-judgment interest could be made under s 51A of the Federal Court of Australia Act 1976 (Cth) in respect of the judgment sums.

Background

2    One of the Suzlon parties’ solicitors, Kristin Hibbard, said in her affidavit of 29 October 2014 that she searched the official website of the Reserve Bank of Australia and obtained a spreadsheet of international official interest rates from January 1980 to September 2014. She also searched the official website of the Board of Governors of the Federal Reserve System of the United States. There, she obtained details of the Federal Reserve’s data for “bank prime loan” monthly rates, being one of several base rates used to price short term business loans on an investment basis posted by “a majority of top 25 (by assets in domestic offices) insured U.S.-chartered commercial banks”.

3    The website search yielded data for United States’ bank prime loan rates from January 1949 to September 2014. Ms Hibbard used that data for the period from May 2007 to September 2014 to calculate that, on average, the bank prime loan rate exceeded the Federal Reserve’s official United States dollar interest rate by 3.13% over that time.

4    Next, Ms Hibbard searched the official website for the European Central Bank that is responsible for the single currency issued as the euro and obtained data for interest rates applied by “monetary financial institutions” (called MFI’s) for euro-denominated deposits and loans by households and non-financial corporations (i.e. ones other than insurance companies, banks and financial institutions) resident in the Eurozone. She accessed the European Central Bank’s data for MFI interest rates for the period from May 2007 to August 2014 and calculated that, on average, the MFI interest rates on loans to non-financial corporations with an agreed maturity of up to one year exceeded the official euro interest rate by 2.7% over that time.

5    Ms Hibbard then calculated sums for pre-judgment interest on the components of the principal amounts from the time of their individual misapplications in United States dollars and euros that I had identified in Suzlon [2014] FCA 1105 at [80] using the uplifts of 3.13% and 2.7% respectively on the published official rates over the periods that the respective data had revealed. She used the latest published monthly official rates in 2014 to calculate interest up to the present time in the more recent periods subsequent to those for which the rates had been published. On 4 November 2014, Ms Hibbard filed a supplementary affidavit that updated the earlier figures and corrected some errors.

Consideration

6    The ordinary practice of the Court for awards of pre-judgment interest is that in Practice Note CM 16, issued by the Chief Justice on 1 August 2001, conformably with the recommendations of the Discount and Interest Rate Harmonisation Committee that was established by a referral from the Council of Chief Justices of Australia and New Zealand. The Practice Note provides that, ordinarily, the Court will have regard to an interest rate of 4% above the cash rate last published by the Reserve Bank of Australia immediately before the commencement of half yearly rests of 1 January and 1 July for the period in those rests.

7    There is, and for some years past has been, a well-known and large interest rate differential between cash rates in Australia as compared with those in the United States and the Eurozone for their respective currencies. Accordingly, the compensatory purpose of an award of pre-judgment interest under s 51A and its analogues would not necessarily be achieved by applying the 4% uplift from the Australian cash rate to the calculation of pre-judgment interest on judgment sums in foreign currencies.

8    The purpose of an award of pre-judgment interest is to compensate the successful judgment creditor for the loss of use of the principal sum in the monetary award over all or such part of the period before judgment that the Court thinks fit: Haines v Bendall (1991) 172 CLR 60 at 66 per Mason CJ, Dawson, Toohey and Gaudron JJ. This rationale explains why, ordinarily, the discretion to award pre-judgment interest is usually exercised by applying a rate of interest that reflects, in a broad brush way, a market rate of simple interest that domestic banks would apply in the ordinary course of business to a loan of that sum.

9    However, that calculus does not take account of the actual financial position of the parties. Rather, it is intended to be a yardstick to provide a generally acceptable means for compensating successful parties, having regard to a notional but reasonable rate of simple interest that banks would have earned on the principal of the judgment award. Thus, the assessment of an appropriate rate of interest to apply in the calculation of an award of pre-judgment interest necessarily involves the Court arriving at a discretionary measure that it will employ.

10    I am of opinion that the methodology used by Ms Hibbard to calculate interest on the United States dollar and euro amounts for the various periods during which the respective Suzlon party was deprived of the use of those moneys to be reasonable and appropriate.

Conclusion

11    Accordingly, the rates that Ms Hibbard’s evidence established and her manner of calculation ought be applied to the award of pre-judgment interest on the foreign currency amounts pursuant to s 51A of the Federal Court of Australia Act. Those amounts will form part of the sums for which I will enter judgments.

Associate:                            Dated:    5 November 2014

SCHEDULE

SECOND CROSS CLAIM

NSD 1670 of 2008

BETWEEN:

SUZLON ENERGY LTD

First Second Cross Claimant

SUZLON ENERGY AUSTRALIA PTY LTD

Second Second Cross Claimant

SUZLON INFRASTRUCTURE LIMITED (NOW KNOWN AS ASPEN INFRASTRUCTURES LIMITED)

Third Second Cross Claimant

SUZLON WIND ENERGY CORPORATION, USA

Fourth Second Cross Claimant

SUZLON STRUCTURES LTD

Fifth Second Cross Claimant

SE SHIPPING PTE LIMITED

Sixth Second Cross Claimant

AND:

SANJEEV BANGAD

Third Second Cross Defendant

SS OCEANWIND PTE LIMITED

Fifth Second Cross Defendant

GENUS SHIPPING SERVICES PVT LIMITED

Sixth Second Cross Defendant

RAJAGOPALAN SRIDHAR

Seventh Second Cross Defendant

BLUEWIND ENTERPRISES (UK) LTD

Eighth Second Cross Defendant

SUNSHINE TRADE SERVICES LIMITED

Ninth Second Cross Defendant

S RAAM KUMAR

Tenth Second Cross Defendant

BIP HOLDINGS LIMITED (BC# 1419807)

Eleventh Second Cross Defendant

MANNING LIMITED (BAHAMAS COMPANY NO 156337)

Twelfth Second Cross Defendant

FRANKFURTER BANKGESELLSCHAFT (SCHWEIZ) AG (A SWISS COMPANY)

Thirteenth Second Cross Defendant

MERRILL LYNCH BANK (SUISSE) SA (A SWISS COMPANY)

Fourteenth Second Cross Defendant

CREDIT SUISSE AG (A SWISS COMPANY)

Fifteenth Second Cross Defendant