Cumner v Bird
[2018] VSC 443
•17 August 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
S CI 2018 00147
| VICTOR LESLIE CUMNER | Plaintiff |
| v | |
| JOHN BIRD | First Defendant |
| SHARON BIRD | Second Defendant |
| JSB EQUIPMENT PTY LTD (ACN 093 740 768) | Third Defendant |
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JUDICIAL REGISTRAR: | Matthews JR |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 June 2018 |
DATE OF RULING: | 17 August 2018 |
CASE MAY BE CITED AS: | Cumner v Bird & Ors |
MEDIUM NEUTRAL CITATION: | [2018] VSC 443 |
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PRACTICE AND PROCEDURE – Summary judgment – Defendant admits debt – Civil Procedure Act 2010 (Vic), s 61 – Application for summary judgment allowed.
PRACTICE AND PROCEDURE – Interest on judgment sum – Claim by successful plaintiff for entitlement to be paid interest under the Penalty Interest Act 1983 (Vic) – Supreme Court Act 1986 (Vic), s 58 – Whether a statutory demand constitutes a ‘demand for payment’ –Whether demand need be served on all parties – Whether ‘good cause to the contrary’ shown for not ordering interest from earliest proper demand – Whether four and a half year delay between demand and issuing proceedings constitutes ‘good cause to the contrary’ – Interest period reduced – Whether interest rate should be reduced – Interest rate not reduced.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Corr, solicitor | CBL Business Lawyers, as town agent for Legend Legal Group |
| For the Defendants | Mr M A Black | Sharrock Pitman |
JUDICIAL REGISTRAR:
Introduction
By summons filed 25 May 2018, the plaintiff applies for summary judgment against the defendants (‘Application’) pursuant to s 61 of the Civil Procedure Act 2010 (Vic) (‘CPA’).[1]
[1]By order made on the Court’s own motion, the Application was referred to me for hearing and determination, pursuant to r 84.04 of the Supreme Court (General Civil Procedure) Rules 2015 (‘Rules’).
The plaintiff’s application is supported by two affidavits affirmed by the plaintiff, one on 28 March 2018 (‘First Affidavit’) and a second on 24 May 2018 (‘Second Affidavit’). The plaintiff also relies on an affidavit affirmed on 6 April 2018 by Amira Naomi Ward. Ms Ward is a solicitor in the employ of Legend Legal Group, solicitors for the plaintiff.
This proceeding concerns a debt said to be owed to the plaintiff by the defendants in the amount of $464,372 (‘Debt’).[2] The plaintiff seeks orders for the payment of the Debt, along with interest. The plaintiff claims interest on the Debt pursuant to the terms of a deed of settlement, release and discharge dated 18 January 2012 (‘Deed’),[3] whereby interest is said to accrue, if payments due under the Deed are not made on or before their due date, at a rate of 3% per month on the amount outstanding at monthly rests, within 7 days of written demand being sent to the defendants (‘Contractual Interest Claim’).[4] Alternatively, interest is claimed on the Debt pursuant to s 58 of the Supreme Court Act 1958 (‘Act’) at the penalty interest rate from the date of written demand to the date of judgment (‘Statutory Interest Claim’).[5]
[2]Amended Statement of Claim dated 1 May 2018 (‘ASOC’), [8].
[3]A copy of the Deed is exhibit VLC-1 to the Second Affidavit.
[4]ASOC, [10], [13], [18].
[5]ASOC, [11], [14].
In their defence dated 22 May 2018 to the ASOC (‘Defence’), the defendants admit the Debt.[6] The defendants deny the Contractual Interest Claim, alleging that the contractual term is a penalty which is contrary to public policy and is void.[7] The defendants also deny the Statutory Interest Claim, alleging that good cause can be shown to disentitle the plaintiff to part or all of the interest claimed.[8]
[6]Defence, [8].
[7]Defence, [10], [13], [18].
[8]Defence, [11], [14].
The defendants did not file any material in opposition to the Application. Rather, they relied on the plaintiff’s affidavits and the submissions of their counsel.
Both parties filed written outlines of submissions:
(a) the plaintiff’s outline dated 7 June 2018;
(b) the defendants’ outline dated 7 June 2018; and
(c) the defendants’ supplementary outline filed on the morning of the hearing.
The plaintiff’s outline set out the evidence relied on to establish his entitlement to judgment for the Debt. By their first outline, the defendants did not dispute that the plaintiff was entitled to judgment for the Debt. In all the circumstances, the requirements for summary judgment for the Debt had been met and at the commencement of the hearing on 12 June 2018, I pronounced orders to that effect. I then heard argument as to whether interest on the Debt should be ordered, which included the basis for that interest, the date from when it should accrue, and the interest rate which should be applied. At the conclusion of argument, I reserved my decision in respect of interest. Therefore, this ruling is confined to the question of interest. In the circumstances, it is not necessary for me to deal with the principles associated with summary judgment applications.
For the purposes of this Application, the plaintiff did not press the Contractual Interest Claim.[9] Rather, he sought an order for interest in accordance with his Statutory Interest Claim. It is therefore unnecessary for me to determine whether the contractual provision regarding interest is a penalty which is contrary to public policy and therefore void.
[9]Specifically, at paragraph 10 of his written outline, the plaintiff’s solicitor stated: “If this Honourable Court is prepared to award summary judgment for the [Debt] and interest pursuant to Statute (for such period and at such rate as the Court in its discretion deems appropriate) and costs, the plaintiff will elect to accept such award of interest in lieu of its [sic] claim to interest pursuant to contract (and will abandon such contractual interest claim); thereby allowing the entirety of this proceeding to be finalised without necessity for a Trial of the claim to interest pursuant to contract.” See also Second Affidavit, [9].
For the reasons set out below, I will order summary judgment for the plaintiff against the defendants in the amount of $464,372 plus interest at the penalty interest rate from 5 June 2017.
Background
The parties entered into the Deed on 18 January 2012, in which the defendants acknowledged that they owed the plaintiff $614,372.[10] In the recitals to the Deed, it was recorded that the defendants had entered into a loan agreement to borrow certain funds from the plaintiff. As at 17 January 2012, that is, the day prior to executing the Deed, the amount owing was recorded in the recitals as $614,372, comprising the debt and interest under the loan agreement, and the plaintiff’s costs of a proceeding brought by the third defendant to set aside a statutory demand dated 7 October 2011 for the debt. It was also recorded in the recitals that interest accrues at the rate of 11% per annum on the amount of $614,372.[11]
[10]Clause 1 of the Deed.
[11]Recital F of the Deed.
It was agreed that the defendants would pay the amount of $614,372 in instalments: $50,000 on or before 18 January 2012, $50,000 on or before 13 February 2012, $400,000 on or before 13 March 2012, and the balance of $114,372 plus interest on that figure at a rate of 11% per annum commencing 13 April 2012 in 12 equal monthly instalments of $10,579.41.[12]
[12]Clauses 1 and 2 of the Deed.
It was common ground that only $150,000 was paid by the defendants to the plaintiff: a payment of $50,000 was made by electronic funds transfer on or around each of 1 February, 22 February, and 27 March 2012.[13] Thereafter, the defendants were in default under the Deed.
[13]ASOC, [5]; Defence, [5].
The plaintiff says that on 29 November 2012, a written statutory demand was served on the third defendant (‘First Notice’), which the defendants admit was served on the third defendant.[14] The First Notice demanded the payment of $453,612.59, which was described as ‘Moneys due and payable to [the plaintiff] by [the third defendant] pursuant to an agreement in writing dated 18 January 2012’[15] (that is, the Deed). As at the date of the First Notice, the defendants had paid only $50,000 of the $400,000 payment due by 13 March 2012 and none of the monthly instalments due thereafter, however the First Notice appears to incorrectly attribute a payment of $10,759.41 as being received from the defendants.[16]
[14]ASOC [9]; Defence, [9].
[15]Exhibit VLC-5 to the Second Affidavit.
[16]Exhibit VLC-5 to the Second Affidavit.
On 23 July 2013, the plaintiff’s then solicitor wrote to the defendants’ then solicitors.[17] That letter (‘Second Notice’)[18] stated that the defendants were indebted to the plaintiff in the amount of $446,372. It also stated that interest calculated according to clause 4 of the Deed, being compounding interest calculated at a rate of 3% per calendar month at monthly rests from 6 December 2012 was payable,[19] which as at the date of the letter was $119,078.69. Further, the letter claimed costs pursuant to clause 11 of the Deed which to date were said to be $3,410 (including GST). In the Second Notice, the plaintiff demanded payment of $568,860.69 (being the total of these three elements). The defendants admit receipt of the Second Notice.[20]
[17]The Deed provided for how notices were to be served, and this notice was served in accordance with those provisions.
[18]Exhibit VLC-7 to the Second Affidavit.
[19]Clause 4 of the Deed provided that interest was payable in this way from 7 days of written demand being sent to the defendants. In the Second Notice, the plaintiff stated that the statutory demand served on the third defendant on 29 November 2012 was a demand within the meaning of clause 4 of the Deed, so that interest at the rate specified in clause 4 was to be calculated from that date.
[20]ASOC [12]; Defence [12].
Clause 8 of the Deed requires the plaintiff to give notice to the defendants of default under the Deed and an intention to commence proceedings. The Second Notice included notice pursuant to clause 8 of the Deed.
Such notice was also included in a letter dated 5 December 2017 (‘Third Notice’), which was sent by the plaintiff’s solicitors by email to the defendants’ solicitors named in the Deed for the receipt of notices, being Taylor Splatt & Partners Lawyers (‘TSP’).[21] The Third Notice demanded payment of the Debt plus interest of $849,800.[22] After receiving notification the next day from TSP that they did not hold instructions to act on behalf of the first and second defendants, the plaintiff’s solicitor sent the Third Notice to the defendants via the first defendant’s email address.[23] Two days later, the first defendant sent an email to the plaintiff’s solicitor advising he had received the earlier email and requested that all correspondence be copied to the second defendant, who he had copied on his email to the plaintiff’s solicitors.[24] Receipt of this correspondence was subsequently confirmed to the plaintiff’s solicitors on 11 December 2017 and 8 January 2018, by solicitors acting for the defendants at those times.[25] The defendants admit receipt of the Third Notice.[26]
[21]Second Affidavit, [20]; exhibit VLC-8 to the Second Affidavit.
[22]This was calculated at the rate of 3% per month at monthly rests, and it was said that there were 62 interest periods.
[23]Second Affidavit, [21]–[22]; exhibits VLC-9 and VLC-10 to the Second Affidavit.
[24]Second Affidavit, [23]; exhibit VLC-11.
[25]Second Affidavit, [24]–[25]; exhibits VLC-12 and VLC-13 to the Second Affidavit.
[26]ASOC [16]; Defence [16].
This proceeding was commenced by writ on 17 January 2018.
Applicable principles
Section 58 of the Act provides as follows:
(1)If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
(2)Subsection (1) does not authorise the computation of interest on any bill or exchange or promissory note at a higher rate than the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 if there has been no defence pleaded.
(3)A debt or sum payable or a date or time is to be taken to be certain if it has become certain.
The relevant case law regarding s 58 of the Act will be considered below, when relevant to a particular issue.
Consideration
The plaintiff contended that this was a proceeding for the recovery of a debt or a sum certain, which the defendants did not dispute. As mentioned above, the plaintiff sought interest pursuant to s 58 of the Act from the date of written demand at the penalty interest rate.
In the context of the way in which the claim to interest was run, the issues which arise for consideration are as follows:
(a) Is the First Notice, the Second Notice and/or the Third Notice a ‘demand for payment’ within the meaning of s 58 of the Act?
(b) What is the earliest date from when interest pursuant to s 58 of the Act may accrue?
(c) Has ‘good cause to the contrary’ been shown for not ordering interest to accrue from that date? If so, and in all the circumstances of this case, from what date should interest accrue?
(d) Should the penalty interest rate apply or should some other interest rate be applied in this case?
Is the First Notice, the Second Notice and/or the Third Notice a ‘demand for payment’ within the meaning of s 58 of the Act?
The First Notice
Plaintiff’s submissions
The plaintiff submits that a demand for the purposes of s 58 of the Act need not be in a particular form or specify the exact sum due, so long as it contains a distinct demand for payment.[27]
[27]Relying on A J Lucas Drilling Pty Ltd v McConnell Dowell Constructors (Aust) Pty Ltd) [2009] VSCA 310, [179] ‘(A J Lucas Drilling’).
The plaintiff notes that the Deed defined the first, second and third defendants collectively as ‘the Debtor’,[28] and says that demand was made collectively on the defendants by issuing the First Notice on the third defendant. The ASOC alleges that the First Notice constituted written notice of the default on all defendants: the defendants do not admit this, but do admit that the third defendant was served with the First Notice on or about 29 November 2012.
[28]Second Affidavit, exhibit VLC-1.
The plaintiff further says that if the Court determines that demand ought to have been made on the defendants individually, then:
(a) the third defendant received the First Notice;
(b) the first defendant received the First Notice, as the sole director of the third defendant; and
(c) it can be reasonably inferred that the second defendant became aware, or ought to have become aware, of the demand for payment at the time of the First Notice. This is said to be due to the liability of the defendants under the Deed being joint, the first and second defendants being married, and the second defendant being a 50% shareholder in the third defendant.[29]
Defendants’ submissions
[29]An ASIC search of the third defendant confirms that at the material times, the first defendant was the sole director of the third defendant and the second defendant held 50% of the shares in the third defendant: exhibit ANW-1 to Ms Ward’s affidavit.
The defendants submit that the service of a statutory demand, which they describe as a specific mechanism under the Corporations Act 2001 (Cth) which has as its purpose an expeditious method of establishing a presumption of insolvency of its recipient and which is a precursor to the winding up of a company and not a debt recovery process, cannot constitute a demand for the purposes of s 58 of the Act.
The defendants also submit that even if the First Notice could constitute a relevant demand, it could only be a demand made upon the third defendant, since it is addressed to the third defendant. Since the debt is a joint liability, the defendants say that any demand must be made jointly to all defendants. Further, the defendants say that even if it was a demand on all defendants, the plaintiff would have to establish that all three defendants were served with or given a copy of the First Notice, and that the inferences the Court is invited by the plaintiff to draw are not sufficient to discharge that onus.
Analysis
I do not accept the defendants’ submission that a statutory demand cannot be a demand for the purposes of s 58 of the Act. While a statutory demand may have the purpose described by the defendants, I do not accept that it cannot serve as a demand for payment of a sum certain. A statutory demand is a demand for payment, of a specific sum. That it may be required to be in a specified form so as to constitute a statutory demand within the meaning of the Corporations Act 2001 (Cth) does not mean that it cannot be a demand for the purposes of s 58 of the Act.
The First Notice was not addressed to the first and second defendants, and so was therefore not a demand made of them.
Even if it was a demand made of all three defendants, I do not accept the plaintiff’s submission that the First Notice was received by all of them. While it may be reasonable to infer that the first defendant, as the sole director of the third defendant, received the First Notice, I am not prepared to draw the inferences urged upon me by the plaintiff in respect of the second defendant’s purported receipt of the First Notice.
Therefore, while the First Notice could constitute a demand under s 58 of the Act, I do not regard the First Notice as a demand made of all of the defendants within the meaning of s 58 of the Act.
The Second Notice
Plaintiff’s submission
The plaintiff submits that if the Court rejects the proposition that the First Notice constitutes a demand for the purposes of s 58 of the Act in this case, then the Second Notice should be regarded as the relevant demand. In that case, the plaintiff says that the relevant date is the date the Second Notice was given (23 July 2013) or 7 days from the date of the demand (30 July 2013), such that the latest possible date for the demand is 30 July 2013.
Defendants’ submission
The defendants say that the Second Notice is predicated on the statutory demand constituting a sufficient demand in accordance with clause 4 of the Deed, and that for the reasons already set out, it was not. Consequently, the defendants say that the Second Notice is based on a faulty premise and so is insufficient to amount to a demand under s 58 of the Act.
The defendants submit that because the Second Notice demands interest at the default rate from the time of the First Notice, it overstates the amount capable of being payable at that time, so that it is not a demand under s 58 of the Act. They say it needs to be a demand for a debt or sum certain in the amount that is recovered.
The defendants also submit that the plaintiff appears to have accepted this ‘deficiency’ in the Second Notice, because the Third Notice sets out a further demand for payment without reference to or reliance upon the Second Notice. The Third Notice purports to also give notice as required under clause 8 of the Deed, yet the same notice was set out in the Second Notice. The defendants say that the plaintiff has thereby accepted the invalidity of the Second Notice.
Analysis
I accept the plaintiff’s submission, summarised in paragraph 22 above, as to what is required for the purposes of s 58 of the Act for a demand for payment.
The Second Notice contains a distinct demand for payment, in that it demands payment of $568,860.69 within 7 days of the date of the letter. While the amount claimed as the principal debt in the Second Notice is $446,372, which is less than the Debt claimed in these proceedings, that does not detract from it constituting a distinct demand for payment.[30] As the Court of Appeal stated in A J Lucas Drilling, the demand does not have to be for a specific dollar amount or use the language of the statute, being a ‘debt or sum certain’. It ‘is sufficient if the plaintiff recovers a debt or sum certain and there has been a demand for payment.’[31]
[30]As the Second Notice included in error a payment of $18,000 from the defendants, which the plaintiff explained related to a business the plaintiff conducts with the defendants, and was not a payment under the deed, the defendants did not dispute this: Second Affidavit, [19].
[31]A J Lucas Drilling, [179].
The calculation of interest in the Second Notice is on the basis of 3% per month from 6 December 2012 at monthly rests, which is the date of the First Notice. Given my findings in respect of whether the First Notice could constitute a demand under s 58 of the Act (leaving aside the question of whether it was issued to all defendants), it follows that I do not accept the defendants’ submission that the Second Notice is based on a faulty premise and so cannot be a demand under s 58 of the Act. I will note for completeness that even if the defendants’ submission about the relationship between the First and Second Notices had been accepted, it does not follow that the Second Notice cannot be a demand under s 58 of the Act. It may merely affect whether interest was payable from the earlier date.
The Third Notice
Neither party made submissions about whether the Third Notice constitutes a demand for the purposes of s 58 of the Act. Given my findings in respect of the Second Notice, it is not necessary for me to consider this question in any detail. However, I will indicate for completeness that I consider that the Third Notice meets the requirements for a demand under s 58 of the Act: it clearly sets out a demand for payment of a sum certain.
What is the earliest date from when interest pursuant to s 58 of the Act may accrue?
It follows from my findings in respect of the notices that the earliest date from when interest pursuant to s 58 of the Act may accrue is 23 July 2013.
Section 58 of the Act states that interest must be allowed (unless good cause is shown to the contrary) from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, from the time when demand of payment was made.
Under clause 4 of the Deed, interest at the rate of 3% per month was to accrue from 7 days after a written demand for overdue payments under the Deed. Here, the plaintiff is not seeking interest pursuant to the terms of the Deed, but pursuant to s 58 of the Act. Accordingly, and subject to consideration of the ‘good cause to the contrary’ element, interest can accrue from 23 July 2013.
Has ‘good cause to the contrary’ been shown for not ordering interest to accrue from 23 July 2013? If so, and in all the circumstances of this case, from what date should interest accrue?
The plaintiff’s evidence
Given the length of time between the date of the first demand (29 November 2012) to the date this proceeding was commenced (17 January 2018), the Second Affidavit and the written submissions filed on behalf of the plaintiff anticipate delay as an issue which will need to be addressed.
In the Second Affidavit, the plaintiff offers an explanation for the time taken to issue the proceeding. He states that:[32]
I had asked the defendants to make payment several times during the period 3 June 2015 – 23 November 2015. I was advised by the second defendant that the third defendant was up for sale.
[32]Second Affidavit, [31].
In this regard, the plaintiff refers to paragraph 6 of the First Affidavit and exhibit VLC‑3 to that affidavit. There, he describes (and exhibits) correspondence during the period 3 June 2015 to 23 November 2015 (‘2015 Correspondence’) from the first and second defendants advising him that the third defendant was up for sale on the foreign market.
In the Second Affidavit, the plaintiff goes on to say:[33]
I do not believe I have delayed issuing proceedings in a way that would give the [d]efendants good cause to not have to pay statutory interest from the date of the first demand, because my delay in issuing proceedings was at their request and on the basis that proceedings would not be necessary because they were going to make payment in full, from the proceeds of sale. I have in fact responded to the second [d]efendant’s requests for extra time. I have given [t]he [d]efendants as many opportunities I think is fair and reasonable in which to make payment.
[33]Second Affidavit, [32].
The plaintiff does not, in the Second Affidavit, make any attempt to explain why proceedings were not issued in the period between the First Notice and 3 June 2015 (which is the beginning of the 2015 Correspondence). The plaintiff’s First Affidavit was not made in support of this Application: it was made in support of an application to join the third defendant as a defendant in this proceeding. While the plaintiff in his Second Affidavit refers to paragraph 6 of the First Affidavit (set out above), he does not refer to or purport to rely on paragraph 5 of that earlier affidavit. In that paragraph, he described a letter from the first defendant to him dated 30 July 2013[34] (’30 July 2013 Letter’) which he said stated, amongst other things, that the third defendant’s repayment of monies pursuant to the Deed had left it with ‘operating capacity to the zero funds level’.
[34]Exhibit VLC-2 to the First Affidavit.
In the First Affidavit, the plaintiff says that based on this information and the 2015 Correspondence, he formed the view that the third defendant ‘may not have been in the financial position to make any payments pursuant to a judgment debt’.[35]
[35]First Affidavit, [7].
From the Second Affidavit, therefore, it would appear that only the 2015 Correspondence is relied upon as an explanation for the plaintiff’s delay in issuing proceedings, and that it was only the prospect of recovering the Debt and interest from the proceeds of the possible sale of the third defendant that was the basis for the delay.
However, the written submissions filed on behalf of the plaintiff also appear to rely on the 30 July 2013 Letter, which counsel says also refers to plans to sell the third defendant for $3.6 million.
The defendants did not appear to object to the plaintiff relying on the other aspects of the First Affidavit, despite that not being stated in the Second Affidavit. Indeed, the defendants relied on parts of the First Affidavit themselves, as shall be seen.
The plaintiff also deposes that had he received payment of the Debt, he could have applied it to other investments and he has therefore been denied the benefit of investing that money.[36]
[36]Second Affidavit, [33].
Plaintiff’s submissions
The plaintiff submits that unless good cause to the contrary is shown, interest must on application be allowed to the creditor on the debt or sum certain. So much is clear from the terms of s 58 of the Act. The plaintiff relies on Clarke v Foodland Stores Pty Ltd,[37] wherein it was stated that good cause to the contrary is to be determined on the fact of each case.
[37][1993] VR 382 (‘Clarke v Foodland’).
The plaintiff referred to the case of David Leahy (Aust) Pty Ltd v McPherson’s Ltd,[38] where Tadgell J considered a submission by the defendant in that case that the delay of some 11.5 months between the plaintiff’s demand for payment (in the form of issuing an invoice) and the issue of the writ was unexplained and that, for that reason, the plaintiff should not have interest during any of that period. His Honour went on to say:[39]
Remembering that the onus lies on the defendant to show cause under s.58(1), I cannot conclude that mere unexplained delay between demand and writ is sufficient to do so, at least in the circumstances of this case. That is to say, it does not appear to me, as a general proposition, to be unjust to the defendant to allow the section to take its course, or to be just to the plaintiff to say that it should not take its course, merely because the plaintiff took [11.5] months to issue proceedings after sending its invoice.
[38][1991] 2 VR 367 (‘David Leahy’).
[39]David Leahy, 382.
In that case, his Honour considered that immediate payment upon issuing the invoice was probably not required or even expected, and so on that basis he regarded it as unreasonable to allow interest over that 11.5 month period. His Honour stated that he took a broad brush approach and allowed interest for a 9 month period up to the issue of the writ and then until his reasons for judgment were published.
The plaintiff also referred to PGA Group Pty Ltd v Idameneo (No 789) Limited (formerly Symbion Health Limited) (No 2); Peter Gunn v Idameneo (No 789) Limited (formerly Symbion Health Limited) (No 2),[40] where Davies J applied the test in Clarke v Foodland referred to in paragraph 52 above, finding that interest pursuant to s 58 applied to one period of time in which there was delay by the plaintiff but not to another period of delay. That latter period did not attract interest because good cause was shown, with her Honour basing that decision on not being satisfied that the plaintiff had a ‘satisfactory explanation’ for the delay in issuing proceedings.
[40][2011] VSC 420 (‘PGA v Idameneo’).
The plaintiff submits that he has a satisfactory explanation for the delay and that the delay was reasonable in the circumstances. He says that the 30 July 2013 Letter and the 2015 Correspondence led him to believe that the third defendant was going to be sold and that he would be paid in full from the proceeds of sale. He submits that it was reasonable for him to give the defendants sufficient time to negotiate and complete the sale of the third defendant, and that that his decision to delay commencing the proceeding was ‘solely in response’ to the defendants’ requests.[41]
[41]Plaintiff’s written outline, [42] (emphasis added).
The plaintiff’s written outline goes on to ask the Court to consider the impact of statements by the first and second defendants in the 30 July 2013 Letter and the 2015 Correspondence respectively[42] that the third defendant was almost insolvent and unable to make payment and that it was in the process of being sold. The impact is said to be that an inference can be drawn that payment would be made from the proceeds of sale.
[42]Specifically, the email from the second defendant of 5 November 2015.
The plaintiff also relies on the following statements by Vickery J in Hodgson v Amcor (No 9):[43]
15.It is for the defendant to show good cause. Good cause must be referrable to the statutory power, it is not a discretion at large. As Habersberger J said in Hosking v Ipex Software Services Pty Ltd (No 2): ‘good cause has to be measured against the purposes of the statutory power to award interest’.
16.Delays in the litigation on the part of a defendant do not generally constitute good cause: Marsh v Ruby and Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 3). This is because the defendant suffers no disadvantage while continuing to have the use of the money to which the plaintiff has been held entitled. As Gillard J said in Johnson Tiles: ‘… delay is rarely a justifiable basis for refusing interest for any period, because of the self-evident observation that the defendants have had the use of the money since the commencement of the proceeding.’
[43][2012] VSC 205, [15]–[16] (citations omitted) (‘Hodgson v Amcor’).
Defendants’ submissions
The defendants submit that the plaintiff’s delay in commencing this proceeding means that he should not receive interest pursuant to s 58 of the Act. They say that if the plaintiff’s contentions are accepted, then the demand for payment was made in 2012 or 2013 yet the proceeding was not commenced until 2018. In other words, the defendants say that the plaintiff’s delay in commencing the proceeding constitutes ‘good cause to the contrary’ under s 58 of the Act.
The defendants did not appear to disagree with the cases relied upon by the plaintiff, but did disagree with how some of them were to be applied to the circumstances of this case.
The defendants say that the delay in this case is lengthy, ‘almost to the point where the Limitations of Actions Act would provide the defendants with a defence to the claim.’[44] The plaintiff’s response to this is that the limitation period was not almost reached since the Debt is owed pursuant to the Deed, and there is a longer period in which to bring proceedings in relation to a deed.[45]
[44]Defendants’ supplementary outline, [12].
[45]Limitation of Actions Act 1958, s 5(3).
The defendants submit that the plaintiff elected to defer issuing proceedings, as he states that he formed the view that the third defendant may not have been in a financial position to make any payments pursuant to a judgment debt.[46] They say that he has chosen not to pursue the funds owed to him and should not now be able to claim interest at a rate of around 10% per annum by claiming he has been kept out of his money. They say that the plaintiff should not be put in the same position as he would have been had he obtained judgment earlier (which would incur interest at the penalty interest rate from the time of judgment), given that he has elected not to pursue it earlier.
[46]The defendants rely on the First Affidavit, [7], for this submission.
The defendants also submit that the plaintiff says he has delayed issuing proceedings because they had requested such delay. The defendants say that the 30 July 2013 Letter and the 2015 Correspondence do not ask him to delay issuing proceedings. Rather, they say that by that correspondence, they had pointed out that they would have difficulty in paying the plaintiff.
The defendants refer to the plaintiff claiming interest partly on the basis that he has been kept out of his money and that he should therefore be compensated for the loss of use of the money. The defendants say that had the plaintiff commenced the proceeding at an earlier time, he would have obtained judgment earlier. They point out that they have not opposed the plaintiff’s claim to the Debt and admitted that the Debt was due in the Defence. They say that the main point taken in the Defence is that the Contractual Interest Claim was excessive and a penalty at law.
In oral submissions, the defendants said that any delay in sending the notice required by clause 8 of the Deed[47] means that interest should not be permitted to run. I do not accept this submission: there is no link between the notice required by that provision of the Deed and the ability to claim statutory interest. Given my findings as to the Second Notice constituting a demand pursuant to s 58 of the Act, which included the notice required by clause 8 of the Deed, even if I accepted this submission it would have no practical effect.
[47]See paragraph 15 above.
Analysis
I agree with the defendants’ submission that the delay in this case is lengthy, but I do not consider the submission about the limitation period to be relevant, in light of the plaintiff’s submission in response.
I do not accept the plaintiff’s submission that by the 30 July 2013 Letter, the defendants requested he delay commencing this proceeding. The 30 July 2013 Letter sets out the history of the debt as the defendants see it, along with an explanation of why they had not yet repaid it. It then refers to conversations between the plaintiff and first defendant about plans to sell the third defendant for $3.6 million, without mentioning any delay in issuing proceedings. The 30 July 2013 Letter concludes by referring to the letter of demand dated 23 July 2013 from the plaintiff’s solicitor and says ‘we need to agree on something affordable that will allow us to repay Vic Cumner. The option of liquidating [the third defendant] would achieve nothing for the payments to Vic, the Bank would get it all and legal costs would take all else.’ At best, this is a request for negotiations for dealing with the plaintiff’s demand for payment.
Even if the 30 July 2013 Letter could be construed as a request to delay the issuing of proceedings, there is no evidence as to what (if anything) occurred between the parties between July 2013 and 3 June 2015. One can only assume that if anything of substance had occurred, evidence would have been led about it. There is no explanation as to why the plaintiff did not take steps to commence proceedings in that period.
The 2015 Correspondence comprises the following:
(a) an email from the second defendant dated 3 June 2015 to the plaintiff stating that the third defendant has been put up for sale on the foreign market and attaching some information about the sale. The second defendant stated that the brokers were keen to do business and claim to have significant investors, and she would keep the plaintiff informed as the sale progressed;
(b) an email from the plaintiff dated 2 November 2015 to the second defendant querying the status;
(c) an email from the second defendant dated 5 November 2015 to the plaintiff, apologising for the delay in responding to his previous email. The second defendant stated that they had a company who looked like they were going to make a genuine offer and the defendants were providing final figures to them next week. The second defendant said she would keep the plaintiff informed;
(d) an email dated 20 November 2015 from the plaintiff’s daughter to the plaintiff, asking whether in light of the second defendant’s 5 November email, ‘should I try and put a hold on the winding up proceedings or just let them progress’;
(e) an email from the plaintiff dated 20 November 2015 to the second defendant, asking her what she thought of his daughter’s proposal; and
(f) an email from the second defendant dated 23 November 2015 to the plaintiff, responding to his previous email to say that the broker seems confident and there was a meeting later this week regarding a potential sale, and saying ‘Can we say 180 days “stay of execution”?’
There is no explanation in the affidavit material as to what the ‘winding up proceedings’ were, and nor was there any explanation for it in the submissions. From the chain of emails, I have inferred that the request for a ‘180 day stay of execution’ was in relation to these unspecified winding up proceedings.
As noted, there is no evidence as to what these winding up proceedings were. If it was an application to wind up the third defendant, then it would be reasonable to infer that the second defendant (and presumably the other defendants) were seeking 180 days to deal with the plaintiff’s claims.
Taking this material at its highest, then, it can be taken to be a request by the defendants that the plaintiff delay taking steps in any proceedings by 180 days.
Accordingly, I do not accept the defendants’ submission that the 2015 Correspondence was not a request by them to delay commencing proceedings.
However, and taking the 2015 Correspondence to be a request for a 180 day delay, there is no explanation as to why the plaintiff did not take steps after that period, either by continuing with an existing proceeding (if there was one) or by commencing this or another proceeding.
Further, I do not accept the plaintiff’s submission that the sole reason he delayed commencing this proceeding was in response to the defendants’ requests.[48] This is inconsistent with the statement in his First Affidavit that based on the 30 July 2013 Letter and the 2015 Correspondence he had formed the view that the third defendant ‘may not have been in the financial position to make any payments pursuant to a judgment debt’. From this, it is reasonable to infer that at least part of the plaintiff’s reason for not commencing proceedings earlier was due to his belief that the third defendant would possibly not meet the judgment debt. The defendants’ submission that the plaintiff has chosen not to pursue the funds owed to him and so should not be able to claim interest at around 10% per annum because he has been kept out of his money therefore has some force.
[48]See paragraph 56 above.
Against this, one must balance the fact that the defendants have not paid the Debt to the plaintiff, a debt which is substantial and which they admit is owing. The defendants have had the use of the money constituting the Debt for many years now. That the plaintiff would likely have obtained judgment earlier had proceedings been commenced earlier, given that the defendants admit the Debt, is not a complete answer here. While they admit the Debt, there is no evidence that the defendants took any steps in the period from 23 July 2013 to the time of their response to the Application to either pay part or all of the Debt or consent to judgment for the Debt.
In Hodgson v Amcor, Vickery J explored some of the cases which referred to the purposes of the statutory power to award interest.[49] His Honour stated as follows:[50]
In Hosking v Ipex Software Service Pty Ltd (No. 2), Habersberger J said that the purposes of the statutory power to award interest were recognised as twofold:
(a)to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money and deprived of its use during the relevant period: see too Marsh v Ruby per Gowans J (in relation to the direct predecessor of s 58, s 78 of the Supreme Court Act 1958 (Vic)); Clarke v Foodland Stores Pty Ltd and Batchelor v Burke; and
(b) to encourage the early resolution of litigation.
[49]Hodgson v Amcor, [12]–[14].
[50]Hodgson v Amcor, [12] (citations omitted).
As submitted by the plaintiff, good cause (which is for the defendant to show), is referrable to the statutory power and is not a discretion at large. It is to be measured against the purposes of the statutory power to award interest.[51]
[51]See paragraph 58 above.
Davies J made a similar observation in PGA v Idameneo, and went on to accept that there was substance in the submission of the defendant in that case that there had been undue delay by the plaintiff in pursing the recovery of its debt. Her Honour said that the ‘authorities show that undue delay in commencing or prosecuting the proceeding may be a good cause for not allowing interest or reducing the time for which interest is allowed’.[52] In that case, there was considerable delay on the part of the plaintiff which her Honour held had not been properly or sufficiently explained, both in commencing the proceeding, in serving the writ and statement of claim, and in seeking to amend its statement of claim. Her Honour accepted that this amounted to good cause as to why interest should not be allowed to run prior to the date when leave was given to amend the statement of claim. Her Honour rejected the defendant’s submission that interest should be allowed only from the 12 month period immediately prior to the pronouncement of her orders.[53]
[52]PGA v Idameneo, [5].
[53]PGA v Idameneo, [6]–[10].
In Sutherland v Globe Real Estate Pty Ltd & Ors, Derham AsJ referred to cases regarding ‘good cause’ and delay, stating:[54]
Where the defendant has had use of the money in question, delay by the plaintiff is rarely a justifiable basis for refusing interest for any period, but the plaintiff’s delay after demand may be relevant to the determination of ‘good cause to the contrary’ and may, depending on the facts of the case, justify the exercise of the discretion ‘to relieve against injustice to the defendant’. This may justify disallowance of interest for part of the period prior to the date of the writ, as, for instance, where the plaintiff after demand for payment has delayed unduly in commencing the proceeding.
[54][2018] VSC 408, [39] (citations omitted).
Absent proper or sufficient explanation, the delay of some four and a half years between issuing the Second Notice and the commencement of this proceeding is an undue delay. In my view, the plaintiff has not sufficiently explained this delay, other than for a 6 month period which was requested by the defendants. There are lengthy periods during which there is no evidence to indicate that any steps were being taken to recover the Debt, including by actively monitoring the sale of the third defendant. In his own words, it appears that the plaintiff elected not to commence proceedings due to his belief that a judgment debt would not be met. That he believed it would not be met unless the third defendant was sold, thereby raising funds which could be used to pay the Debt, can be accepted. However, it does not sufficiently explain why he delayed in issuing proceedings for such a lengthy period. Of the four and a half year delay, only a 6 month period has been sufficiently explained. The plaintiff acceding to the defendants’ request for an indulgence in the form of a 6 month delay is not good cause for not giving interest: the plaintiff should not be penalised for meeting that request.
Accordingly, I do not accept the plaintiff’s submission that interest should be payable from 23 July 2013.
Apart from disputing the plaintiff’s entitlement to interest from the time of the First or Second Notice, the defendants did not make any submissions as to what later date interest should be payable from.
Nor did the plaintiff make any submission as to which later date interest should payable from if its primary contentions were not accepted.
In my view, it is consistent with the purposes for which statutory interest is awarded and with the provisions of s 58 of the Act, including the cases which consider that section, to award interest from the date of the Third Notice, being 5 December 2017. As noted in paragraph 16 above, the Third Notice included a demand for payment and I have already indicated that it meets the requirements for a demand under s 58 of the Act.[55] There were no submissions made by the defendant that there had been a delay, let alone one which may constitute ‘good cause’, between the date of the Third Notice and the commencement of the proceeding on 17 January 2018. I see no reason why interest should not accrue from 5 December 2017 or why it should only accrue from the date when the proceeding was commenced.
[55]See paragraph 38 above.
Further, it is also consistent with the purposes of awarding statutory interest and with the principles referred to in paragraph 80 above, for the period for which there is a satisfactory explanation of the delay to be the subject of an award of interest. Accordingly, I will allow interest from 5 June 2017, being 6 months before the date of the Third Notice. In my view, after the lengthy delay in the plaintiff taking any steps to recover his debt, it was reasonable to send a further demand prior to issuing the proceeding in January 2018, which is why I consider the 6 months should precede that date rather than the date of commencement.
Should the penalty interest rate apply or should some other interest rate be applied in this case?
Plaintiff’s submissions
The plaintiff submits that while the rate of interest is within the discretion of the Court (save that it cannot exceed the rate for the time being fixed under s 2 of the Penalty Interest Rates Act 1983), unless good cause to the contrary is shown it is settled practice in Victoria that the statutory maximum rate is used. The plaintiff submits that the defendants bear the burden of showing good cause to exercise discretion to order a lower rate of interest,[56] and they have not filed any material which would justify such a position.
[56]Referring to Hodgson v Amcor [35]–[38]; Titles Strata Management Pty Ltd v Nitra [2015] VSC 187, [127]–[128].
Defendants’ submissions
The defendants submit that by reason of the plaintiff’s long delay in commencing the proceeding, the interest rate should be less than the penalty interest rate, which they say is currently well in excess of current commercial rates of interest. In their supplementary written outline, the defendants say that if interest pursuant to s 58 of the Act is allowed, it should be at the rate of 5% per annum. In oral submissions, the defendants said that there had been a significant delay by the plaintiff and that either the period for interest or the rate of interest should be reduced.
Analysis
In Hodgson v Amcor, Vickery J stated:[57]
… the settled practice in Victoria is that, unless good cause to the contrary is shown, the statutory maximum rate is used.
[57]Hodgson v Amcor, [36].
I do not accept the defendants’ submission that the plaintiff’s lengthy delay in issuing proceedings is good cause to reduce the interest rate. In my view, the lengthy delay in this case is good cause for reducing the period during which interest is payable, but it is not a basis for reducing the interest rate, for the reasons set out below. I would observe that I do not see how this delay can impact upon the interest rate: it is not as if any evidence was led to suggest that the Penalty Interest Rate has changed drastically over that period.
Further, I do not accept the defendants’ submission that a commercial rate of interest should be adopted. First, there was no evidence led as to what such a rate may be. Counsel said in oral submissions that it was well known that home loan rates were around 4 to 5% per annum and so this should be the rate. When I enquired as to the evidentiary basis for this, he repeated that it was well known and I should take judicial notice of it. Even if that was the case, no evidence was led or submission made as to why that should be the appropriate comparator. I do not see how there is any useful comparison to be made between home loan lending, which is usually secured by a mortgage over real property, with commercial business lending which in this instance is unsecured. Second, by the Deed, the parties had previously agreed that the applicable interest rate when there was no default was 11% per annum.[58] While neither party addressed this in submissions, it seems to me that if there is to be any comparison between the penalty interest rate and other commercial rates of interest, the parties’ own agreement would be a starting point. This does not raise issues to do with the Contractual Interest Claim and whether the default interest within that claim was a penalty.
[58]See clauses 1 and 2 of the Deed.
Accordingly, I see no reason to depart from the settled practice referred to by Vickery J in Hodgson v Amcor, and I consider it appropriate that interest payable on the Debt be calculated at the penalty interest rate.
Conclusion
It follows, therefore, that interest on the Debt should be awarded at the penalty interest rate from 5 June 2017.
I will ask the parties to confer as to the appropriate form of orders and as to costs, and to provide a draft form of orders to my Chambers. If the parties are unable to reach agreement as to the form of orders, then they should each provide a short written submission in respect of the disputed aspects, of no more than 3 pages.