Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 3)
[2003] VSC 244
•3 July 2003
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMON LAW DIVISION
No. 5538 of 2001 (1) and (2)
| JOHNSON TILES PTY LTD | Plaintiffs |
| (ACN 004 576 103) | |
| - and – GREGORY ALAN DEAN | |
| - and – | |
| NANDO’S AUSTRALIA PTY LTD | Claimant (1) |
| - and - | |
| BARRETT BURSTON MALTING CO PTY LTD | Claimant (2) |
| v | |
| ESSO AUSTRALIA PTY LTD | Defendants |
| (ACN 000 018 566) and | |
| ESSO AUSTRALIA RESOURCES PTY LTD | |
| (ACN 091 829 819) | |
| - and - | |
| STATE ELECTRICITY COMMISSION OF VICTORIA and ORS | Third Parties |
| - and - | |
| QBE INTERNATIONAL INSURANCE LIMITED and ORS | Fourth Parties |
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JUDGE: | GILLARD J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 20 June 2003 | |
DATE OF JUDGMENT: | 3 July 2003 | |
CASE MAY BE CITED AS: | Johnson Tiles Pty Ltd and Ors v Esso Australia Pty Ltd and Ors (No. 3) | |
MEDIUM NEUTRAL CITATION: | [2003] VSC 244 | |
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INTEREST ON JUDGMENT FOR DAMAGES – Section 60 of Supreme Court Act 1986 – Group proceeding claims – Jurisdiction to award interest where original claim in Federal Court – Penalty component of interest – Commencement of proceeding and date when rate is applied.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs and Claimants | Mr D. Collins S.C. and Mr K. Lyons | Slater & Gordon, Maurice Blackburn Cashman, Phillips Fox and Lander and Rogers |
| For the Defendants | Mr J. Middleton Q.C. Mr M. Derham Q.C. and Mr A.J. Kelly | Middletons |
| For the First to Sixteenth Third Parties | Mr S. Anderson | Freehills |
| For the Seventeenth to Twenty‑Sixth Parties | No appearance |
| For the Fourth Parties | No appearance |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Relevant dates and date of loss....................................................................................................... 2
Interest in the Federal Court............................................................................................................ 3
Interest on the Supreme Court proceeding................................................................................... 5
Effect of Consolidation and the Transferred Proceeding........................................................... 7
Date when interest runs and at what rate?.................................................................................... 9
Conclusion......................................................................................................................................... 17
HIS HONOUR:
Introduction
Two members of the “Business Users” in the group proceeding have been granted permission pursuant to s.33R of the Supreme Court Act 1986 (“the Act”) to take part in the proceeding for the purpose of determining a question that relates to them, namely, compensation for damages suffered as a result of the gas stoppage. The court has heard each claimant’s claim and has adjudged that each is entitled to damages. The first claimant, Nando’s Australia Pty Ltd (“Nando’s”), is entitled to damages in the sum of $1,465.65. The second claimant, Barrett Burston Malting Co Pty Ltd (“Barrett Burston”), is entitled to damages in the sum of $1,101,150. Each claimant seeks damages in the nature of interest on the judgment. The power of this court to award damages in the nature of interest on a judgment for damages is found in s.60 of the Act. Usually after judgment for damages is pronounced, there is no contest as to the entitlement to interest on the judgment and the parties usually agree on the amount. In the present claims, there are a number of matters that complicate what is usually a straightforward exercise.
The original group proceeding was commenced in the Federal Court, transferred to this court, was stayed, and a new group proceeding was commenced in this court. At the time when the Federal Court proceeding was instituted, there was no jurisdiction in this court to hear a representative group proceeding of the type provided for by Part 4A of the Act. Because of the special nature of a group proceeding, a claimant, unless a party to the proceeding, does not institute his or its claim until after the common questions of law and fact are decided, with the result that the defendants are not in a position to consider and seek to compromise the claim until permission is granted under s.33R to that claimant to participate in the proceeding. The defendants argued that in that situation they should not have to pay interest at the penalty interest rate, because a component of the rate is a penalty which has no application to a group proceeding since the reasons for the penalty are not applicable.
Relevant dates and date of loss
The negligent act which commenced the chain of events causing each claimant’s loss occurred on Friday 25 September 1998. As a result the natural gas supply to many business users was terminated.
During the period of the gas stoppage the plaintiffs, as applicants, instituted the Federal Court group proceeding on 29 September 1998.
The gas supply was resumed for most business users on and shortly after 5 October 1998.
A group proceeding within the meaning of Part 4A of the Act could not have been commenced in the Supreme Court of Victoria until 1 January 2000.
The Federal Court proceeding was transferred to this court by an order of Merkel J made 17 May 2001.
A separate proceeding, being a group proceeding instituted pursuant to Part 4A of the Act, was commenced in this court on 26 April 2001.
On 8 June 2001, I ordered that the transferred Federal Court proceeding be stayed. The proceeding instituted in this court continued.
On 20 February 2003, I published my reasons in the group proceeding and answered six questions ordered to be considered and determined. See Johnson Tiles Pty Ltd and Anor v Esso Australia Pty Ltd and Anor.[1]
[1][2002] VSC 27.
On 26 June 2003, the court made orders giving effect to the answers given in the group proceeding and in respect of costs, and gave directions concerning the future conduct of the proceeding.
On 16 June 2003, I found that Nando’s was entitled to judgment in the sum of $1,465.65 damages and was entitled to recover damages in the nature of interest. I reserved the question of interest and the costs of the first to sixteenth third parties in relation to that claim.
On 20 June 2003 I published my reasons in the claim made by Barrett Burston and held that it was entitled to the sum of $1,101,150 damages together with damages in the nature of interest. See Johnson Tiles Pty Ltd (Barrett Burston Malting Co Pty Ltd) v Esso Australia Pty Ltd and Anor.[2] Nando’s claims interest from 1 November 1998 to the date of judgment. Barrett Burston claims interest from 1 November 1998 in respect of property damage and from 1 April 1999 for loss of profit. These dates were discussed and fixed during the course of submissions. Nando’s would not have suffered loss in relation to its spoilt stock until approximately 30 days after the gas stoppage and it was agreed by counsel for Nando’s, and not disputed by counsel for Esso, that 1 November 1998 was the appropriate date. Barrett Burston would have suffered damage in respect of its spoilt stock within a period of 30 days from the gas stoppage, and 1 November 1998 was put forward as the appropriate date. So far as its loss of profit was concerned, although the loss of profit was consequent upon the property damage being the spoilt stock, in fact the evidence established that the actual loss of profit would not have been suffered until the end of the malt year which was 31 March 1999 and accordingly, the loss was suffered at 1 April. I did not understand Esso’s counsel disagreeing with those dates, although it was pointed out that the original statement of claim did not seek damages for property damage. This was not claimed until the statement of claim was amended on 30 November 1998, although notice was given of the claim on 4 November 1998. Esso submitted that interest on the property damage should date from 1 December 1998 at the earliest.
[2][2003] VSC 211.
Interest in the Federal Court
Section 51A of the Federal Court of Australia Act 1976 provides –
“(1)In any proceedings for the recovery of any money (including … damages) in respect of a cause of action … the court or a judge shall, upon application, unless good cause is shown to the contrary, either:
(a)order that there be included in the sum for which judgment is given interest at such rate as the court or the judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of a period between the date when the cause of action arose and the date as of which judgment is entered; or
(b)without proceeding to calculate interest in accordance with paragraph (a) order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.”
Sub-section (2) contains various rules relating to the grant of interest.
It is noted that the power to award interest in the Federal Court is different to s.60 of the Act governing this court. First, interest can be awarded at any date on and after the cause of action arises; secondly, the actual interest rate is a question for determination by the court; and thirdly, the court is empowered to calculate interest in the form of a lump sum.
The practice in the Federal Court is to apply the rates of interest applicable to proceedings brought in the Supreme Court of the State in which the Federal Court is then sitting. In Namol Pty Ltd v A.W. Baulderstone Pty Ltd (No. 2),[3] Davies J held that the practice was to adopt the rates awarded in the State Supreme Court. His Honour observed –
“The practice has the policy advantage of ensuring that damages are awarded on the same basis, whether a matter be instituted in this court or in the Supreme Court of New South Wales.”
[3](1993) 47 FCR 388 at 389.
In McCormick v Riverwood International (Australia) Pty Ltd,[4] Weinberg J discussed the cases and confirmed the practice of the Federal Court.
[4][2002] FCA 32.
Counsel for Esso did not submit anything to the contrary, and accordingly I will proceed on the basis that that is the practice in the Federal Court, and if this proceeding had remained in that court the probabilities are that the court would have awarded interest on the judgment at the rate applicable in this State.
Interest on the Supreme Court proceeding
At common law the rule was that a successful litigant was not entitled to recover interest on the damages awarded. However, in certain circumstances the plaintiff could prove that it suffered damages as a result of a breach of contract or the commission of a tort measured by the lost opportunity to use the money. See Hungerfords v Walker.[5]
“At common law, in the absence of any agreement or statutory provision for the payment of interest, the court has no power to award interest, simple or compound, as compensation for the late payment of a debt; … for a long time the decision was regarded as applying to any form of damages, including special as well as general damages.”[6]
[5](1990) 171 CLR 125, 127 at 141.
[6]Per Mason CJ and Wilson J, supra, at p.138.
Their Honours also referred to the dissenting judgment of Latham CJ in Marine Board of Launceston v Minister for the Navy.[7] His Honour said –
“The loss of the use of the money ultimately awarded as damages is not part of the loss occasioned by the tort or breach of contract itself. It is a loss due entirely to delay in the payment of money ultimately held to be due, and is not recoverable as part of the damages.”
[7](1945) 70 CLR 518 at 525.
As early as 1833 in England, statute qualified the common law by granting the court a discretion to award interest on debts or sums certain in certain torts. Sections 78 and 79 of the Supreme Court Act 1958 allowed interest on all debts or sums certain recovered in an action, interest on an assessment of damages in an action for trover or trespass and also interest on money receivable in all actions on any policies of insurance.
It was not until the Supreme Court (Interest on Judgments) Act 1962 that the court was empowered to award interest on damages recovered.
Division 7 of Part 5 of the Act deals with interest on, inter alia, damages recovered. Section 60, which was passed in 1962, provides –
“60(1)The court, on application in any proceeding for recovery of debt or damages, must, unless good cause is shown to the contrary, give damages in the nature of interest at such rate not exceeding the rate for the time being fixed under s.2 of the Penalty Interest Rates Act 1983 as it thinks fit from the commencement of the proceeding to the date of the judgment over and above the debt or damages awarded.”
Sub-section (2), like its equivalent in the Federal Court, provides rules which govern the award of interest on the damages.
When the provision was first introduced, then s.79A, the court fixed the rate of interest “not exceeding eight per centum”.
In 1983 the Penalty Interest Rates Act was passed. It amended s.79A, resulting in the maximum rate being the amount fixed pursuant to that Act. As the name of the Act indicates, there is a penalty component included in the rate.
Subject to good cause being shown to the contrary, and any factor relevant to the exercise of the discretion, the claimants in the present proceeding would be entitled to recover damages in the nature of interest at the interest rate not exceeding the rate prescribed under s.2 of the Penalty Interest Act 1983 from the commencement of the proceeding in this court, namely, 26 April 2001 to the date of judgment. Mr D. Collins S.C., who appeared with Mr K. Lyons for the two claimants submitted that each claimant should recover damages in the nature of interest from dates preceding the institution of the proceeding in this court. Counsel for Esso, Mr M. Derham QC, who appeared with Mr J. Middleton QC and Mr A. Kelly of counsel, submitted that the claimants were not entitled to any interest prior to the date when the proceeding was instituted in this court.
Mr Collins SC relied upon the fact that this court had ordered that the transferred Federal Court proceeding and the separate Supreme Court proceeding be consolidated.[8]
[8]See reasons [2003] VSC 212.
I ordered consolidation because the two proceedings were between the same parties, raised exactly the same issues, and justice demanded in my opinion that the represented parties should not be at any disadvantage arising because the proceeding was instituted in the Federal Court, and transferred to this court and stayed.
The group proceedings were commenced by three applicants in the Federal Court and three plaintiffs in this court, and were subsequently reduced to two applicants and two plaintiffs. The claimants gave evidence in the group proceeding. In June 2003 each was granted permission to participate pursuant to s.33R. No argument was advanced by Esso that the claimants’ right to interest should run from the date when they were given permission to participate in the proceeding. In my opinion, each is entitled to damages in the nature of interest from an earlier date, and to confine a successful claimant’s claim in a group proceeding to interest dating from the order made pursuant to s.33R would defeat one of the objects of group proceedings.
Effect of Consolidation and the Transferred Proceeding
In Holden v The Silkstone and Dodworth Coal and Iron Company,[9] Fry J was dealing with a case where two proceedings were consolidated, and he made the following observation at p.532 –
“These two actions were consolidated, and the two sets of plaintiffs were therefore placed in the same position as if they were originally co‑plaintiffs.”
[9](1881) 45 LT 531.
It follows that the proceeding, when consolidated, was deemed to have commenced on the date when the first proceeding was instituted. In this case, this is 29 September 1998, being the date when the Federal Court application was instituted. In my opinion, that is the effect of the consolidation.
The Federal Court proceeding was transferred to this court by order made on 17 May 2001 pursuant to the provisions of the Jurisdiction of Courts (Cross-Vesting) Act (Cth). The effect of the transfer is dealt with by s.11(3) of the Commonwealth Act, and by the same provision in the Jurisdiction of Courts (Cross-Vesting) Act 1987 of this State. Section 11(3) provides –
“(3)Where a proceeding is transferred or removed to a court (in this sub‑section referred to as the ‘transferee court’) from another court (in this sub-section referred to as the ‘transferor court’), the transferee court shall deal with the proceeding as if, subject to any order of transferee court, the steps that had been taken for the purposes of the proceeding in the transferor court (including the making of an order) or similar steps, had been taken in the transferee court.”
The operation and effect of s.11(3) is amply demonstrated by summarising the provisions as follows –
(i)Where a proceeding is transferred to the transferee court,
(ii)from a transferor court,
(iii)the transferee court shall deal with the proceeding,
(iv)as if the steps that had been taken for the purposes of the proceeding in the transferor court or similar steps,
(v)had been taken in this transferee court,
(vi)subject to any order of the transferee court.
In my opinion, s.11(3) makes plain that this court, on transfer, is to deal with the transferred proceeding as if the proceeding had been instituted in this court and the various interlocutory steps had occurred in this court. For all intents and purposes the transferred proceeding is treated as a Victorian Supreme Court proceeding. Of course, as s.11(3) makes clear, the effect of steps already taken in the transferred proceeding by the transferor court are subject to any order of the transferee court. This gives flexibility to the transferee court to make orders which are consistent with its procedures and where justice requires it. See observations by Branson J in Abrook v Paterson.[10]
[10](1995) 58 FCR 293 at 296.
Further, in my opinion, the validity of the proceeding is to be determined by the law applicable in the transferor court. To conclude otherwise would defeat one of the objects of the legislation. See Abrook v Paterson, supra, at p.296.
I therefore treat the transferred proceeding as a proceeding in this court, commenced on 29 September 1998, and give effect to the steps taken in the Federal Court, unless overtaken by the steps taken and orders made in the Supreme Court proceeding.
Whichever way one approaches the issue, whether it be down the consolidation path or the transferred proceeding path, the result is the same, namely, that the proceeding in this court commenced on 29 September 1998.
The relevant date for the commencement of the proceeding within the meaning of s.60 of the Act is 29 September 1998.
Date when interest runs and at what rate?
Esso raised a number of issues concerning the date from which interest should commence and the rate of interest. It was submitted that delay was a relevant matter for the court to take into account under s.60. Esso submitted that the proceeding in the Federal Court was delayed by the conduct of the then applicants, and in particular by reason of the cause of action based upon the Trade Practices Act which was subsequently struck out.
The group proceeding within the meaning of Part 4A of the Act could not have been commenced in this court until 1 January 2000. Esso submitted that this was the earliest date from which interest could run. Although the effect of the consolidation and the transfer of the Federal Court proceeding meant that the proceeding commenced in the Supreme Court on 29 September 1998, at that moment in time, such a group proceeding could not have been brought in this court. It followed that if a proceeding had been instituted in this court prior to 1 January 2000, it would have been invalid and struck out on the ground that the court did not have jurisdiction to hear the proceeding. It was submitted that the plaintiffs and the group members could not have received interest pursuant to s.60 of the Act prior to that date.
This court must give an award of damages in the nature of interest in a proceeding for the recovery of damages, unless good cause is shown to the contrary.
In Clarke v Foodland Stores Pty Ltd,[11] the Full Court considered s.58(1) of the Act, which deals with a proceeding where a debt or sum certain is recovered. The terminology of s.58(1) and s.60(1) is, for all practical purposes, the same and is indistinguishable. Accordingly, the observations made by the Full Court apply equally to s.60.
[11][1993] 2 VR 382.
The phrase “unless good cause is shown to the contrary” qualifies the obligation of the court to grant an award of damages in the nature of interest and indeed, in a rare case, the court could refuse to allow interest at all or allow interest on terms which are less onerous to the judgment debtor than those prescribed by the sub‑section, namely, the date of commencement of the period for interest. On the other hand, the determination of the appropriate rate of interest is a question of discretion for the court and does not depend upon establishing good cause to the contrary. These propositions are supported by what the Full Court said in Clarke’s case, supra.
The practice has evolved in this State to apply as a general rule the rate fixed pursuant to the Penalty Interest Rates Act, but clearly the court does have a discretion to fix a lesser rate. The rate fixed pursuant to the Act contains a penalty component and there may be good reason not to award the total amount of the penalty component, or something less.
Section 60(1) fixes the date from which the interest commences as the date when the proceeding is instituted. See Braeside Bearings Pty Ltd v H.J. Brignell and Associates.[12]
[12][1996] 1 VR 17.
It is open to a judgment debtor to contend that interest should not be awarded at all, or that it should be awarded at a lesser rate and from a date other than the commencement of the proceeding.
Delay is a relevant factor.
In Clarke’s case, supra, at p.400, the court said –
“Nothing put by counsel served to persuade us that delay on the part of the plaintiff, subsequent to the date from which interest might be allowed under s.58, is always irrelevant in allowing interest under the section. If, as we have said, interest is to be awarded, not to punish the defendant, but to compensate the plaintiff for being deprived of his money and the discretion arising out of the words ‘unless good cause is shown to the contrary’ is to be seen as existing in order to relieve against injustice to the defendant, the question will be whether the plaintiff’s delay, such as it is in a given case, is seen as working such injustice, were the plaintiff to be allowed interest for the whole of the period available under s.58. On that issue, each case must turn upon its own facts and circumstances.”
In my respectful opinion, those observations are apposite to an application under s.60(1) for an award of interest. But in practice 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. This was the approach taken by this court in the early years following the introduction of the new power to award interest in damages cases in 1962.
In Marsh v Ruby,[13] Gowans J said –
“The policy behind the new provisions is that in the cases specified the defendant is, on judgment being pronounced or entered, to be treated as having kept the plaintiff out of his money and in doing so had the use of it himself so that he ought to compensate the plaintiff accordingly. …
Since the rule is that interest is to be allowed the defendant has the onus of showing why he should not be required to pay according to the tenor of the section for the benefit he has derived from his use of the money since it was first claimed against him in the action. As I see it, such discretion as is conferred is not intended to be directed to penalising the plaintiff but to alleviating the defendant in the proper case. He may be able to show that he has been disadvantaged in some way by the plaintiff’s conduct … . But in general the defendant will not establish that he has been disadvantaged by showing that he has had the use of the money for longer than he should have been allowed to keep it. He would need to show collateral effects of the delay to his disadvantage.”
[13][1975] VR 191 at 193.
Although what his Honour said usually provides a good answer to any allegation of delay, there is no doubt that delay may in certain circumstances be a basis for refusing interest for the whole period from the date of commencement of the proceeding.
It was submitted in the present case that the proceeding in the Federal Court had been delayed by reason of the applicants relying upon a cause of action based upon an alleged breach of s.52 of the Trade Practices Act 1974. Application was made successfully by the respondents to strike out the cause of action and the decision was upheld on appeal. Some delay no doubt was occasioned by those steps, but nevertheless the parties were progressing the claim in the Federal Court and I am not persuaded that delay was of such a type in the present matter that the claimants’ entitlement to interest from the commencement of the proceeding should be modified in any way. As Mr Collins SC pointed out, in my view correctly, the interlocutory steps were hard fought and although Esso was successful in having the trade practices cause of action struck out, there was no substantial delay to the proceeding and I reject Esso’s submissions that delay justified a reduction in the period when interest should be paid.
Esso further submitted that the earliest date for the commencement of the period for interest was 1 January 2000. Prior to this date a group proceeding within the meaning of Part 4A of the Act could not have been brought in this court. It was argued that since the court had no jurisdiction to entertain that type of representative proceeding, then damages in the nature of interest could not be awarded prior to 1 January 2000.
The jurisdiction to award damages in the nature of interest is found in s.60. The court does have jurisdiction to award interest from the commencement of the proceeding. That is what s.60(1) states. The commencement of the proceeding is 29 September 1998 by reason of the order for consolidation and s.11(3) of the cross‑vesting legislation. Section 60 gives the court jurisdiction to award interest from that date. The fact that a group proceeding within the meaning of Part 4A could not be instituted in this court prior to 1 January 2000 is not to the point. The court does have jurisdiction under s.60 and there is nothing in the section to exclude or modify that jurisdiction. In awarding interest prior to 1 January 2000 the court is exercising its undoubted jurisdiction.
The effect of the consolidation and the cross-vesting legislation means that the proceeding commenced on 29 September 1998 and in my opinion effect must be given to that conclusion. To reach a contrary conclusion would be unfair and unjust to the claimants, and would give the tort feasor a windfall it does not deserve. If effect was given to Esso’s submission it would defeat the object of s.11(3) of the cross‑vesting legislation. Further, the court was not without jurisdiction to hear and determine a representative proceeding prior to 1 January 2000. Under ss.34 and 35 of the Act, the court did have jurisdiction to hear and determine a representative proceeding. See also Order 18 of the Rules of Court.
In my opinion, the court does have jurisdiction to award interest from a date prior to 1 January 2000. In my opinion, justice demands that conclusion. The claimants have been out of their money and Esso has had the use of that money. Esso has not established any cause to the contrary within the meaning of s.60(1) that the date when interest is to run should not be prior to 1 January 2000.
Finally, Esso submitted that the interest rate should be less than that fixed pursuant to the Penalty Interest Rates Act 1983 because a component of the rate is a penalty and the reasons for the penalty did not apply in this proceeding.
The interest rate fixed by the Attorney‑General of Victoria pursuant to s.2(1) of the Penalty Interest Rates Act 1983 does have a penalty component over and above the compensatory function of the award of interest. As at 29 September 1998, the interest rate was 12.3% and as at today, the interest rate is 11.25% as from 21 June 2003. The rates include a penalty.
There are three main objectives of the award of interest. First, as compensation to the judgment creditor for being out of the funds from the date of commencement of the proceeding until judgment; secondly, to deter judgment debtors from delaying proceedings and thereby having the use of the money for a longer period; and finally, to encourage defendants to make realistic assessments of their liability in a case and to take bona fide steps to compromise the claim.
Speaking of s.79A (the predecessor of s.60), Barwick CJ in Ruby v Marsh[14] had this to say –
“The purpose of giving courts the power to award interest on damage is to my mind twofold, and neither aspect of the purpose should be lost sight of. In the first place, the successful plaintiff, who by the verdict has been turned into an investor by the award of a capital sum, and whose claim in the writ has been justified to the extent of a verdict returned, ought in justice to be placed in the position in which he would have been had the amount of the verdict been paid to him at the date of the commencement of the action. In the second place, the power to award interest on the verdict from the date of the writ is to provide a discouragement to defendants, who in the greater number of actions for damages for personal injuries are insured, from delaying settlement of the claim or an early conclusion of the proceedings so as to have over a longer period of time the profitable use of the money which ultimately the defendant agrees or is called upon by judgment to pay.”
[14](1975) 132 CLR 642 at 652.
His Honour’s comments concerned a section that left the rate of interest up to a maximum to the discretion of the judge and did not involve a penalty. Nevertheless, his Honour’s observations are apposite to s.60.
The interest rate specified by s.60(1) is “the rate for the time being fixed under s.2 of the Penalty Interest Rates Act 1983”. The sub‑section requires the court to fix a rate not exceeding that fixed rate and it is a question of discretion as to what is the appropriate rate. As a general rule, the starting point is that rate.
Section 2 of the Penalty Interest Rates Act 1983 defines “penalty interest rate” as the interest rate fixed by the Attorney‑General from time to time by notice published in the Government Gazette. Section 2(2) deals with the method of calculation and provides –
“(2)The Attorney‑General must determine the penalty interest rate to be fixed by –
(a)obtaining from time to time a recommendation from the Treasurer as to an appropriate institutional rate of interest, which must be a rate –
(i)which is charged for loans or paid for borrowings by a public or commercial institution; and
(ii)which, in the opinion of the Treasurer, reflects prevailing commercial rates of interest; and
(b)determining, after consultation with the Treasurer, whether the recommended institutional rate should be adjusted to include a penalty element, and, if so, the nature and size of the adjustment; and
(c)adding or subtracting the adjustment (if any) to or from the institutional rate.”
(Emphases added).
It is said that the purpose of an award of interest is not to punish the defendant for delaying settling the plaintiff’s claim. See Batchelor v Burke[15] and Neuchatel Swiss General Insurance Co Ltd v Vlasons Shipping Inc.[16]
[15](1981) 148 CLR 448.
[16][2001] VSCA 25.
One may query whether there is not an element of punishment involved. The observations made in Batchelor v Burke at p.455 were dealing with a different provision to that found in s.60 of the Act. See also Clarke’s case, supra, at pp.396-7 referring to Hansard when the Penalty Interest Rates Act was introduced.
There is a penalty component in the rate; is a penalty a form of punishment? No defending litigant in this day and age properly advised by his lawyer could be under any misapprehension about paying a penalty interest component if unsuccessful.
In Grincelis v House,[17] the High Court referred to the Penalty Interest Rates Act 1983 in Victoria and stated –
“As was noted in Gogic:
‘The function of an award of interest is to compensate a plaintiff for the loss or detriment which he or she has suffered by being kept out of his or her money during the relevant period: Batchelor v Burke’
There is no doubt that this is a very important purpose of statutory provisions providing for the award of interest on the amount of a debt or damages in respect to the period between the cause of action accruing (or, in some statutory provisions, the commencement of the proceedings) and the date of judgment. It may be, however, that statutory provisions for interest serve not only that purpose, but also a purpose of encouraging early resolution of litigation.”
[17](2000) 74 ALJR 1247 at 1251.
The rate fixed from time to time contains a penalty component determined by the Attorney‑General after consultation with the Treasurer. That is the plain meaning of s.2(2) of the Penalty Interest Rates Act – see Clarke’s case, supra, at pp.396-7.
The rates of interest have varied between 29 September 1998 and today. Evidence was adduced on behalf of Esso by affidavit of Stephen Gerard Meade of the base interest rates charged by the St George Bank on overdrafts to commercial borrowers from 29 September 1998 to 20 June 2003. The rates varied during that period from 7.75% to a peak of 9.25% in August 2000.
The rate of interest and also the period during which the interest is calculated are matters of discretion for the court. In my view, it would be unjust to award the full penalty interest rate in respect of the claims.
Although the defendant, Esso, was aware that property damage claims would be made as early as November 1998, the full details of each claim were not known until the particulars were supplied after each claimant was granted permission to participate in the proceeding. This did not occur until June 2003. The claimants were not parties to the proceeding, and gave evidence in the group proceeding on behalf of the plaintiffs. The quantum of their claims was not in issue in that proceeding. It follows that Esso was not in a position to fully analyse the claims and attempt to compromise either claim earlier than June this year. If the claimants are given interest at a rate which is compensatory, they are compensated for the period during which they were out of their money. The penalty aspect which is aimed at encouraging settlements and deterring defendants from delaying the proceeding in my opinion does not apply in relation to these claims.
Mr Collins SC sought to counter this argument by submitting that the general rule was that the penalty rate was the starting point, and secondly that Esso, by contesting the property damage claim, delayed the resolution of claimants’ claims. But this submission overlooks the facts that the claimants were not parties and the quantum of their claims was not in issue until they were permitted to participate in the proceeding.
In my opinion, justice would be well served if the rate of interest was fixed at a rate which was compensatory and not including a penalty. The only evidence I have is the overdraft rates and I propose to act on that evidence. I invited Mr Collins SC, if he so desired, to place other evidence before me as to the appropriate rate of interest during the period. No other material was placed before the court. Accordingly, I fix the interest rates as follows:
29 September 1998 to 16 April 2001 - 8.75%
17 April 2001 to 3 May 2002 – 8%
4 May 2002 to 24 August 2002 – 8.25%
25 August 2002 to 21 June 2003 – 8.25%
22 June 2002 to the present – 8.25%
Conclusion
In my opinion, the claimants are entitled to damages in the nature of interest pursuant to s.60 of the Act at the rates I have set out above; Nando’s from 1 November 1998 to judgment; Barrett Burston from 1 November 1998 to judgment in respect of its property damage claim of $1,028,349 and from 1 April 1999 to judgment in respect of the economic loss part of its claim of $72,801. Although the property damage claim was made after 1 November 1998, the court’s jurisdiction dates back to the commencement of the proceeding – see Braeside Bearings Pty Ltd v. H J Brignell and Associates, supra. The dates I have chosen accord with the approximate date when the damage was suffered.
The parties can calculate the amount of interest and I will enter judgment in respect of each claim. I will hear the parties on the issue of costs.
I have dealt with the first two claimants in the group proceeding. On evidence presently available, it would appear that there could be up to 700 further claimants. The parties and claimants should not proceed on the basis that interest awarded in respect of future claimants’ claims would not include a penalty component. Each case will depend upon its own circumstances. I repeat what I have said on other occasions, and that is that no litigant in this day and age should commence any hearing for a claim for damages without putting the opposing party at risk on the question of costs by making an appropriate offer. I encourage the claimants and parties to carefully appraise the claims and make bona fide attempts to settle them.
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