Jacks - v - Jakimowicz
[2015] VCC 1226
•8 September 2015
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE COMMERCIAL DIVISION | Revised |
Case No. CI-11-01385
| JOHN MICHAEL JACKS | Plaintiff |
| V | |
| PATRICIA ANNE JAKIMOWICZ | Defendant |
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| JUDGE: | HER HONOUR JUDGE KENNEDY | |
| WHERE HELD: | Melbourne | |
| DATE OF HEARING: | 12 August 2015, further submissions filed by plaintiff (on 21 August 2015) and by defendant (on 28 August 2015) | |
| DATE OF JUDGMENT: | 8 September 2015 | |
| CASE MAY BE CITED AS: | Jacks – v – Jakimowicz | |
| MEDIUM NEUTRAL CITATION: | [2015] VCC 1226 | |
REASONS FOR RULING
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Catchwords: INTEREST – whether interest award excluded under s116 Bankruptcy Act 1966 – whether interest payable outside statutory provisions – whether interest payable on equitable principles – date of commencement of accrual of interest – rate of interest – amount of interest
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr E. Moon | Thomas Egan |
| For the Defendant | Mr J. Isles | Stephen Byrne |
HER HONOUR:
1 In reasons delivered on 12 August 2015, the Court determined that there should be judgment for the plaintiff in the amount of $270,771.42 by way of equitable compensation for breach of trust. The parties were directed to provide a proposed form of order to finalise the proceeding and to exchange submissions.
2 This has now occurred with the result that the only issue before the Court is the appropriate award of interest. The parties have further agreed that this matter may be resolved “on the papers” without the need for a further oral hearing.
3 The plaintiff sought an order for interest from 20 December 2008 to 30 March 2011 at a trustee rate of 8 per cent, and from 31 March 2011 (the date of filing) pursuant to s60 of the Supreme Court Act1986 (Vic). Alternatively the plaintiff sought interest under s58 of the Supreme Court Act1986 (Vic).
4 The defendant submitted that payment of interest went beyond the definition of exempt money in s116 of the Bankruptcy Act 1966 (Cth) such that any entitlement to interest vested in the plaintiff’s trustee in bankruptcy. The defendant also challenged the rate of interest sought. Otherwise, the defendant did not generally challenge an award of interest.
5 There are therefore three issues. Firstly, whether any entitlement of the plaintiff to interest vested in the plaintiff’s trustee in bankruptcy such that the plaintiff is unable to recover any amount of compensation in the nature of interest; secondly, if such entitlement did not vest in the plaintiff’s trustee in bankruptcy, whether the plaintiff is entitled to interest outside the statutes (as claimed); and thirdly, if yes, what should be the interest period and the interest rate which should apply.
Did any entitlement of the plaintiff to interest vest in the plaintiff’s trustee in bankruptcy?
6 In the reasons delivered on 12 August 2015, it was decided that the plaintiff’s rights under the declaration of trust dated 29 August 2002, including particularly the plaintiff’s right to sue for non-compliance with clause 2 of that declaration of trust “in truth represent his protected monies”.[1] This followed the decision of Neave J in Re Iskenderian; Ex parte Iskenderian Bros Pty Ltd & Ors[2] in which it was decided that sections 116(2)(g), 116(2)(n) and 116(3) of the Bankruptcy Act 1966 (Cth) prevented not only damages or compensation of the kind referred to in s116(2)(g) from vesting in the trustee in bankruptcy, but also any property which can be fairly characterised as representing such damages or compensation.
[1]Jacks v Jakimowicz [2015] VCC 1067 particularly at paragraphs 181-200.
[2](1989) 87 ALR 294 at pages 303-304.
7 The defendant submits that an award of interest is beyond such a characterisation. The defendant refers to Wallersteiner v Moir (No 2)[3] and Hungerfords v Walker[4] and submits that the claim for interest “goes beyond” the “tracing exercise” required to ascertain the quantum of the protected money as it is compensatory in nature.
[3][1975] QB 373.
[4](1989) 171 CLR 125.
8 The fact that interest may be compensatory in nature is not to the point. Rather, the real issue is whether s116 operates so that the claim for interest is property divisible amongst the creditors or, whether, alternatively, such a claim is protected by reason of s116(2)(n) and (3).
9 In this case, it has already been decided that the monies used in the acquisition of the rights under the trust was protected money.[5] Moreover, that the plaintiff’s rights to sue for breach of trust in truth represented his protected monies.[6] It thereby followed that s116(1) did not extend to those rights given the provisions of s116(1)(n) and s116(3).
[5]Jacks v Jakimowicz [2015] VCC 1067 particularly at paragraph 182.
6Ibid, particularly at paragraph 199.
10 It would be of no utility to allow the plaintiff the right to sue for breach of trust, but to then deny an appropriate remedy. Given then that the claim was not divisible amongst the creditors, s116 has no application and the court is entitled to award a remedy which, if appropriate, includes an award of interest, in respect of that claim.
Interest outside the statute
11 In the decision of Hungerfords v Walker,[7] Mason CJ and Wilson J stated as follows:
“Equity has adopted a broad approach to the award of interest. It has long been accepted that the equitable right to interest exists independently of statute.”
[7](1989) 171 CLR 125 at page 148.
12 This has further been confirmed in the more recent Court of Appeal decision of Giller v Procopets[8] wherein the Court stated that equitable principles permit the award of interest on an award of equitable compensation. Further that, citing Halsburys Law of Australia:
“Interest may be charged on a sum awarded by way of equitable compensation, but only as an element in a proper measure of restitution, not by way of penalty.”[9]
[8](2009) 24 VR 1.
[9]Giller v Procopets (2009) 24 VR 1 at page 128.
13 This position is further confirmed by s60(2)(f) of the Supreme Court Act 1986 which provides that nothing in the section limits the operation of any enactment or rule of law which apart from the section provides for the award of interest.
14 I therefore accept that the plaintiff is entitled to claim interest outside the statute on equitable principles.
15 I do not, however, accept (as the plaintiff appears to be contending) that the plaintiff is entitled to effectively choose the equitable basis prior to the time of issue and thereafter rely upon s60 of the Supreme Court Act 1986 and seek a different rate of interest from the commencement of the proceeding.
16 Section 60 provides a remedy from the commencement of the proceeding. If, as is the case here, the plaintiff wishes to seek a remedy outside s60 on equitable principles, he should be restricted to an appropriate rate of interest applicable under those equitable principles.
17 The issue then becomes from when the interest should be calculated and the appropriate rate.
Commencement date
18 In Wallersteiner v Moir (No 2)[10] Lord Denning MR stated as follows:
“The principles on which the courts of equity acted are expounded in a series of cases of which I would take the judgment of Sir John Romilly M.R. in Jones v Foxall … Those judgments show that, in equity, interest is never awarded by way of punishment. Equity awards it whenever money is misused by an executor or a trustee or anyone else in a fiduciary position. … The reason is because a person in a fiduciary position is not allowed to make a profit out of his trust: and, if he does, he is liable to account for that profit or interest in lieu thereof.
In addition, in equity interest is awarded whenever a wrongdoer deprives a company of money which it needs for use in its business.”[11]
[10][1975] 1 QB 373.
[11]Wallersteiner v Moir (No 2) [1975] QB 373 at page 388.
19 There appears, therefore, to be two bases on which equity awards interest outside the statute: firstly; to strip the fiduciary of profits earned as a result of the breach; and, secondly to compensate the beneficiary for any lost income.
20 The second of the principles is not applicable in the present case. Thus there is no evidence to suggest that the plaintiff derived any income from his asset.
21 The first principle, however, is applicable. Thus, I consider that by reason of the discharge of their mortgage obligations (from the proceeds of the property which properly belonged to the plaintiff), the trustees received the benefit of something which they were not entitled to receive.
22 I therefore consider that interest should be calculated from the time when the property settled and the mortgage obligations were discharged. This occurred on 3 February 2009 pursuant to the settlement statement[12] and also the Transfer of Land (which was also dated 3 February 2009).
[12]Exhibit F.
23 Interest is therefore to be calculated from 3 February 2009.
Rate of interest
24 There was no issue as to compound interest as only simple interest was sought, although no rate was agreed.
25 It has been stated that there is no universal and inflexible principle which dictates the rate of interest to be applied in any given instance.[13]
[13]LexisNexis, Halsbury’s Laws of Australia, online edition (at 8 September 2015) 430 Trusts “(IV) Breach of Trust (1) Liability (C) Liability for Breach of Trust (II) Liability for Interest” [430-5345] Rate of interest.
26 However, in Halsburys Laws of Australia,[14] the authors note that, as a matter of policy, the trustee rate adopted until the mid-1970s was 4 per cent but that 8 per cent per annum more accurately represented the trustee rate thereafter. In Giller v Procopets,[15] the Court of Appeal also applied a trustee rate of 8 per cent as the appropriate rate.
[14]Ibid, [430-5345] Rate of interest.
[15](2009) 24 VR 1 at page 128.
27 I therefore conclude that interest should be allowed at 8 per cent consistent with the above authority.
28 It is unnecessary in these circumstances to consider the plaintiff’s alternative submission that s58 of the Supreme Court Act 1986 should be applied. In any event, I do not consider that the amount awarded was a “debt or sum certain” given the amount awarded required an assessment by this court.
Conclusion
29 The plaintiff is entitled to simple interest at 8 per cent on the sum of $270,771.42 calculated from 3 February 2009. This equates to $142,914.80.[16]
[16]3 February 2009 until 8 September 2015 is 2,408 days. Applying an interest rate of 8% to the sum of $270,771.42, interest accrues at $59.35 per day ((270771.42 x .08)/365). Over 2,408 days, this gives a total figure of $142,914.80 (59.35 x 2408).
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