Jones, John Charles v South British Insurance Co Ltd

[1984] FCA 90

Re: JOHN CHARLES JONES
And: THE SOUTH BRITISH INSURANCE COMPANY LIMITED
No. NTG41 of 1983
Appeal - Insurance - Practice 53 ALR 408 / 71 FLR 98

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NORTHERN TERRITORY OF AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Muirhead(1), Toohey(2) and McGregor(3) JJ.

CATCHWORDS

Appeal - claim under policy of marine insurance - damages in the nature of interest - rate of interest appropriate - relation to commercial rates - compensatory aspect of interest - relevance of rate of interest on judgment debts - failure to take account of practice of court or actual rates - practice of Supreme Court of Northern Territory

Supreme Court Act 1979 (N.T.) ss. 84, 85 3 and 4 Will. IV., c.42 - Civil Procedure Act, 1833 (Imp.)

Insurance - Marine insurance - Practice and procedure - Award of interest on judgment for insured against insurer.

Practice - Northern Territory (Supreme Court) - Interest on judgment - 1980, June 24, 25. DATE 25:6:1980
prescribed in the Supreme Court Act - Material to which court may have regard in assessing appropriate rate - Civil Procedure Act 1833 (Imp. 3 & 4 Will. IV, c.42), s. 29 - Supreme Court Act 1979 (N.T.), ss 84(1), 85.

HEADNOTE

In proceedings in which the appellant claimed under a policy of marine insurance for the loss of a fishing boat, the trial judge awarded him the amount of his claim together with damages in the nature of interest pursuant to s. 29 of the Civil Procedure Act 1833 (Imp.) at the rate of eight per cent per annum beginning six weeks after the cause of action accrued and ending at the date of judgment. The appellant appealed on the grounds that that rate of interest was too low.

Held: (1) It is appropriate to allow interest from a date after the accrual of the cause of action which would have given a reasonable time for adjustment and payment of the claim had there been no dispute as to legal liability.

Macbeth & Co. Ltd v. Maritime Insurance Co. Ltd (1908) 24 T.L.R. 559, referred to.

(2) An award of damages in the nature of interest is designed to compensate for the damage suffered from non-payment of money.

Webster v. British Empire Mutual Life Assurance Company (1880) 15 Ch.D. 169, dicta of Cotton L.J. applied.

(3) The measure of that loss is the amount that could have been earned by way of interest on a deposit of the money for the relevant period.

Macbeth & Co. Ltd v. Maritime Insurance Co. Ltd (1908) 24 T.L.R. 559, applied.

(4) In assessing the appropriate rate of interest, the trial judge erred in having regard only to the rate of interest prescribed in s. 85 of the Supreme Court Act 1979 and not to either the practice of the court or to actual rates prevailing during the relevant period.

(5) In the absence of evidence, the court is entitled to assess the commercial interest rate prevailing from time to time having regard to: (i) judicial statements and pronouncements, and (ii) its own knowledge.

(6) The order of the trial judge should be varied by substituting a rate of interest of 10 per cent from 1 November 1978 to 20 November 1979 and 12 per cent from 1 December 1979 to 14 October 1983.

Lawrence v. Mathison (1981) 11 N.T.R. 1, referred to.

Cullen v. Trappell (1980) 146 C.L.R. 1, referred to.

HEARING

Darwin, 1984, April 9, 13.

#DATE 13:04:1984

APPEAL.

M. Maurice Q.C. and P. Bracher, for the appellant.

O. Downes, for the respondent.

Solicitors for the appellant: McCormack & Co.

Solicitors for the respondent: Mildren Silvester and Partners.

A.J.H.M.

ORDER

1. The appeal be allowed.

2. Paragraph 5 of the order made by the Supreme Court of the Northern Territory on 23 November 1983 be set aside and in lieu thereof it be ordered that the respondent pay to the appellant damages in the nature of interest on the sum of $100,000 calculated at 10% per annum from 1 November 1978 to 30 November 1979 and at 12% per annum from 1 December 1979 to 14 October 1983.

3. The parties have liberty to apply to enter judgment in a sum determined in accordance with the preceding paragraph.

4. The respondent pay the costs of this appeal. The appeal is upheld.

Paragraph 5 of the order made by the Supreme Court of the Northern Territory on 23 November 1983 is set aside and in lieu thereof it is ordered that the respondent pay to the appellant damages in the nature of interest on the sum of $100,000 calculated at ten per cent per annum from 1 November 1978 to 30 November 1979 and at twelve per cent per annum from 1 December 1979 to 14 October 1983.

The parties are to have liberty to apply to enter judgment in the sum determined in accordance with this Order.

The respondent is to pay the costs of the appeal.

JUDGE1

I have had the opportunity of reading the reasons for judgment of Toohey and McGregor JJ. with which I agree.

I also agree with the orders they propose.

JUDGE2

On 14 October 1983 in the Supreme Court of the Northern Territory judgment was entered in favour of the appellant against the respondent in the sum of $100,000.

The appellant had claimed under a policy of marine insurance for the loss of his fishing boat. The appellant's claim against certain other defendants was dismissed. According to the terms of the formal judgment the learned trial judge adjourned the question of costs sine die. When the hearing was resumed, his Honour heard argument not only on the question of costs but also as to whether the appellant was entitled to an award of interest on the amount of the judgment from the accrual of his cause of action until 14 October 1983 when judgment was entered on his behalf. It is with the question of interest that this appeal is concerned.

In arguing for an award of interest, the appellant relied on s.29 of the Imperial Statute 3 and 4 Will. IV, c.42 (the Civil Procedure Act 1833) as being in force in the Northern Territory at the relevant time. His Honour accepted that contention.

Section 29 reads:

"That the jury on a trial of any issue, or any inquisition of damages, may, if they shall think fit, give damages in the nature of interest . . . over and above the money recoverable in all actions on policies of assurance made after the passing of this Act".

In reliance on this provision and on what his Honour described as "the trial Judge in his jury role", the Court held that the appellant was entitled to damages in the nature of interest for a period beginning 6 weeks after the cause of action accrued and ending with the date of judgment. The significance of the period of 6 weeks may be found in the judgment of Walton J. in Macbeth & Co. (Ltd) v. Maritime Insurance Co. (Ltd) (1908) 24 TLR 559 at p.560 that:

". . . it was an ordinary practice in cases of this kind . . . to allow interest from a date which would have given a reasonable time for adjustment and payment of the claim if there had been no dispute as to legal liability".

His Honour fixed a rate of 8% for the calculation of interest and it is in respect of that part of his Honour's judgment that this appeal is brought. Put shortly, it was the appellant's submission that the rate was too low. There was a cross-appeal by the respondent challenging the finding that it was liable to pay interest; but when this appeal began the respondent obtained leave to discontinue the cross-appeal. Thus the point at issue is a short one.

In approaching the question of an appropriate interest rate, the learned trial judge said:

"I see no reason why an insurance company should not pay interest at a rate which bears some relation to commercial rates of interest; however as a touchstone, I note that s.85 of the Supreme Court Act, which came into force on 1 October 1979, fixed interest on judgment debts at 8% per annum and that rate remained unchanged until 15 September 1983".

His Honour continued:

"In the light of the foregoing, I order that the plaintiff recover from South British over and above the money recovered in this action, damages in the nature of interest, calculated at the rate of 8% per annum from 1 November 1978 to 14 October 1983 on the sum of $100,000".

It was the appellant's submission that, although his Honour acknowledged that interest should be fixed at a rate bearing relation to commercial rates, he failed to do this and did no more than apply the rate of interest on judgment debts. The notice of appeal seeks an increase in the rate from 8% to 14% but, in argument before this Court, counsel for the appellant contended for a rate of 12%.

As his Honour noted, s.85 of the Supreme Court Act now in force provides that a judgment debt carries interest from the date of judgment. The section prescribes "such rate as is fixed by the Rules" and, until a rate is so fixed, interest at 8% per annum.

Sub-section 84(1) of the Act provides that, in any proceeding in respect of a cause of action arising after the commencement of the Act, the Court:

"may order that there shall be included in the sum for which judgment is given interest at such rate as it thinks fit on the whole or any part of that sum for the whole or any part of the period between the date when the cause of action arose and the date of the judgment".

Section 84 has no application to the present case because the cause of action with which this appeal is concerned arose before the commencement of the Supreme Court Act. However, it is of some relevance in that, unlike s.85, it does not prescribe a particular rate but leaves that to the discretion of the court. In so doing, the legislature has acknowledged that interest is by way of compensation to the plaintiff and that the rate of interest should not be constrained by the rate fixed for judgment debts.

It is, I think, clear from authority that an award of damages in the nature of interest under the Civil Law Procedure Act is designed to compensate for "the damage which the law supposes a man suffers, except under special circumstances, for non-payment of money to him" (Cotton L.J. in Webster v. British Empire Mutual Life Assurance Company (1880) 15 Ch. D. 169 at p.176). The measure of that loss may ordinarily be taken to be the amount the plaintiff could have earned by way of interest on deposit of the money over the period in question. Macbeth & Co. (Ltd) v. Maritime Insurance Co. (Ltd) supra.

It was a ground of appeal that the learned trial Judge had failed to give any or proper regard to the rate of interest paid by the appellant "in respect of his financial obligations he was unable to discharge because of the Respondent's refusal to meet his claim for indemnity".

However counsel for the appellant did not refer the Court to any authority justifying that approach nor did he take the Court to any of the evidence before his Honour that might point to obligations assumed by the appellant by reason of the respondent's refusal to meet his claim. It is therefore unnecessary to look any further at this ground of appeal.

The appellant put his case this way. He said that, in applying the rate of interest on judgment debts, his Honour erred in law. He should have approached the matter, unconstrained by s.85 of the Supreme Court Act, and fixed a rate of 12%, relying upon the decision in Lawrence v. Mathison (1981) 11 NTR 1 as establishing the practice of the Supreme Court of the Northern Territory, or he should have had regard to the short term rates obtainable during the relevant period.

Although his Honour referred to the rate fixed by s.85 as "a touchstone", a reading of his judgment leads to the conclusion that he indeed fixed 8% by reason of that provision and not with reference to any practice of the Court or to actual rates prevailing during the relevant period. In my respectful view, his Honour erred in so doing. He allowed "extraneous or irrelevant matters to guide or affect him". House v. The King (1936) 55 CLR 499 at p.505. The question for this Court is whether there was, in the material before his Honour and in decided cases, enough to permit the fixing of a higher rate or whether the matter should go back to the Supreme Court for the hearing of further evidence and submissions. The latter course is clearly undesirable, having regard to the further time and expense that will be incurred, and should be avoided if any other course is open.

In the course of submissions before the learned trial Judge reference was made to the decision of Muirhead J. in Lawrence v. Mathison in which it was said his Honour had "fixed twelve percent as the going rate". Reference was also made to practice note no. 23 in (1982) 2 NSWLR 358 fixing the rate of interest up to judgment, in the case of a liquidated demand, at rates ranging from 10% to 15.5% from 1 January 1974.

In Lawrence v. Mathison, Muirhead J. assessed damages for a plaintiff injured in a motor vehicle accident. It was necessary for his Honour to consider the application of sub-s.84(1) of the Supreme Court Act, to which reference has already been made. His Honour commented at p.14:

"I have decided, in the circumstances, that the interest, if it is to be assessed with a firm eye on the market place and commercial trends over that period should be 12 per cent. It is not desirable that plaintiffs should be continually expected to call evidence to calculate such interest. I understand this may be the first determination of this court. Speaking for myself only and subject to higher authority, I will continue to apply interest at the rate of 12 per cent to judgments for damages where the causes of action have arisen since 1 December 1979. I will not expect further evidence to be called to justify such a rate. Of course if it is intended to argue that the rate is inadequate and that higher rates should be applied, that may well be a matter of further evidence".

Although his Honour purported to speak only for himself and not to bind other judges of the Supreme Court, it would seem from what we were told by counsel that his Honour's remarks have been acted on by the Court and by the legal profession in the Territory. Lawrence v. Mathison is not concerned to lay down any rule of law but it does enunciate a rule of practice which is a useful guide. The respondent did not attempt, by evidence or argument, to persuade the learned trial Judge that Lawrence v. Mathison was inapplicable.

Counsel for the respondent pointed out that Muirhead J. spoke only of causes of action arising since 1 December 1979 whereas the cause of action the subject of this appeal accrued in 1978. That is of course so but it does not necessarily follow that the rate of interest of 12%, fixed having regard to commercial rates over a period of years, is inappropriate. On the other hand, the interest rates fixed by practice note no. 23 lend some support to the argument that for the period preceding 1 December 1979 a rate lower than 12% is reasonable. See too Cullen v. Trappell (1980-1981) 146 C.L.R. 21 at 23. As well, the Court is entitled to use its own knowledge of commercial interest rates prevailing from time to time.

In all the circumstances, and with a view to avoiding the time and expense that will be incurred if the matter is remitted to the learned trial Judge, I am of the opinion that the judgment obtained by the appellant should include damages in the nature of interest, the rate of interest to be fixed at 10% from 1 November 1978 to 30 November 1979 and at the rate of 12% from 1 December 1979 to 14 October 1983.

The appeal should be allowed with costs. There should be liberty to apply for judgment in a sum to give effect to these reasons.

JUDGE3

JOHN CHARLES JONES (appellant) appeals against part of a judgment delivered on 23 November 1983 by a learned Judge of the Supreme Court of the Northern Territory whereby THE SOUTH BRITISH INSURANCE COMPANY LIMITED (respondent) which had been on 14 October 1983 ordered to pay the appellant the sum of $100,000, was further ordered to pay to the appellant over and above the said amount, damages in the nature of interest calculated at 8% on $100,000 from 1 November 1978 to 14 October 1983.

It is in respect of the award of interest that this appeal has proceeded.

The relevant facts may be shortly stated.

In 1976 the appellant and a partner purchased a vessel of the type known as a low tank landing barge to be used for commercial fishing for barramundi. After extensive refitting and modification, it was successfully used for that purpose in the 1977 fishing season. Somewhere after that time the appellant bought out his partner's interest in the barge. In February 1978 the appellant sought to take out an insurance policy with the respondent for the vessel, though the events leading up to his Honour's conclusion in that regard required of him consideration, selection and analysis of evidence. A cover note was issued on 28 February 1978 holding the "Sea Horse" covered for $100,000 with an excess of $1,000 subject to the terms of "this Company's marine hull Policy". The cover note was later extended on 28 March 1978 and later still a proposal form in respect of the vessel was completed. However, the learned trial Judge found that the respondent purported to enter into a firm and binding contract with the appellant whereby it was agreed that respondent insured him against the loss of the "Sea Horse" due to perils of the sea.

On 16 September 1978 the "Sea Horse" sank, for reasons which are not relevant to discuss for the purpose of this appeal. His Honour found that the loss of the "Sea Horse" was due to perils of the sea. A claim was made on the policy. His Honour, having awarded the appellant the sum of $100,000 for his loss in respect of the vessel, added the interest to which I have referred.

The appellant had included a claim for interest in his Writ. His Honour dealt with this matter in his Reasons for Judgment. There had been, it seems, contention as to whether interest could be awarded and secondly as to what should be the rate if it was awarded. In his Reasons for Judgment, his Honour said -

"Recovery of interest up to judgment is now provided for by s.84 of the Supreme Court Act; this provision, however, does not apply to these proceedings which were on foot before that Act commenced. What was the situation in the Northern Territory before s.84 was introduced? At common law, in an action on a policy of marine insurance, interest upon the sum incurred could not be recovered: Kingston v. McIntosh (1808) 1 Camp.518; 170 E.R. 1042. Mr Ward, however, relied on s.29 of the Civil Procedure Act 1833 (Imp.) 3&4 Will. 4, c.42, as being in force in the Northern Territory at the relevant time. That contention appears to be correct: Fox v. Everingham, unreported cyclostyled decision of the Federal Court of 14 October 1983, pp.30-34 which was concerned with s.28 of the Act.

Section 29 of the 1833 statute, so far as presently relevant provides

"That the jury on a trial of any issue, or any inquisition of damages, may, if they shall think fit, give damages in the nature of interest . . . . over and above the money recoverable in all actions on policies of assurance made after the passing of this Act."

The effect of s.29 is to give the jury (and now the trial Judge in his jury role) discretionary power to award interest by way of damages for the wrongful detention of policy money which should have been paid: Webster v. British Empire Mutual Life Assurance Company (1880) 15 Ch.D.169 at p.174, per James L.J.

The commencing date from which such interest is to be calculated is a matter of discretion. In Macbeth & Co (Ltd) v. Maritime Insurance Co (Ltd) (1908) 24 T.L.R. 559, Walton J. said at p.560 that he thought -

". . . . it was an ordinary practice in cases of this kind (it was an action on a policy of marine insurance on a ship claimed to be a total loss) to allow interest from a date which would have given a reasonable time for adjustment and payment of the claim if there had been no dispute as to legal liability."

I consider this is a proper case in which to award damages in the nature of interest. I adopt the practice mentioned in Macbeth (supra) and consider that six weeks would have been a reasonable time for the claim to have been paid, if there had been no dispute as to legal liability. I see no reason why an insurance company should not pay interest at a rate which bears some relation to commercial rates of interest; however as a touchstone, I note that s.85 of the Supreme Court Act, which came into force on 1 October 1979, fixed interest on judgment debts at 8% per annum, and that rate remained unchanged until 15 September 1983.

In the light of the foregoing, I order that the plaintiff recover from South British, over and above the money recovered in this action, damages in the nature of interest, calculated at the rate of 8% per annum from 1 November 1978 to 14 October 1983 on the sum of $100,000."

In respect of this portion of his Honour's Order, there is no issue as to the date of commencement of interest - i.e. approximately 6 weeks after the loss of the "Sea Horse"; the appellant's Counsel complained that the rate of 8% was incorrect, to the disadvantage of his client. His submissions were summarised thus -

(i) Damages awarded by way of interest under s.29 of the Civil Procedure Act 1833 (Imp.) should be assessed at commercial rates; Webster v. British Empire Mutual Life Assurance Company (1880) 15 Ch.D. 169 at pp.174, 175 and 176; Macbeth and Co. (Limited) v. Maritime Insurance Company (Limited) (1908) 24 TLR 559 at 560; Ruby v. Marsh (1975) 132 C.L.R. 642 at p.653; Cullen v. Trappell (1980-1981) 146 C.L.R. 1 at p.21; State Government Insurance Office (Qld) v. Biemann (1983) 49 ALR 247 at pp.251-253 and Lawrence v. Mathison (1981) 11 NTR 1 at pp.13-14.

(ii) The learned trial Judge should have either relied upon the practice of the Court as established in Lawrence v. Mathison (supra) of awarding 12% in the absence of evidence on the point; or should have had regard to the short term rates obtainable between 1 November 1978 and 14 October 1983.

(iii) The reason why the trial Judge adopted 8% was because it was prescribed by s.85 of the Supreme Court Act for interest on judgments.

(iv) His Honour was in error in regarding s.85 as a touchstone; or in treating it as establishing a standard or criterion for an award of interest by way of damages up to the time of judgment. Thus, his Honour allowed an extraneous or irrelevant matter to guide or affect him, thereby making that aspect of his decision appellable: House v. The King (1936) 55 C.L.R. 499.

In the Notice of Appeal a rate of 14% was sought by the appellant. In argument senior Counsel sought to support an order for a rate of 12%.

Counsel for the respondent submitted that the learned trial Judge had not failed to pay any or proper regard to Bank or commercial rates of interest. In particular, he pointed to the discussion in argument referable to Lawrence v. Mathison (supra) and the reference to Practice Note 23 (1982) 2 N.S.W.L.R. 358. Further, he submitted that that decision anyway was not applicable to this case because the cause of action arose on 28 February 1978; whereas that decision was given on 10 September 1981 and in respect of a period subsequent to the accrual of the cause of action. I note that Counsel has selected 28 February 1978 as the date the cause of action arose; whereas the "Sea Horse" sank on or about 16 September 1978. That would appear to be the date the cause of action arose. A further submission was that the claim in the instant case was not for interest on a judgment debt; but for interest by way of damages.

During argument a cross appeal which had been initiated by the respondent was formally withdrawn by Counsel.

The only issue with which this Court is concerned is as to the rate of 8% per annum to be used in the calculation of interest awarded by way of damages. It is not contested that the learned trial Judge, pursuant to s.29 of the Civil Procedure Act 1833 (Imp.) had a discretion to give damages in the nature of interest. However, it then became necessary for the learned trial Judge to select the appropriate rate. In doing so he may well have been assisted by evidence, but, in any case, it would have been, in my view, open to him to select a figure within a particular range. In order to decide what was a proper rate, his Honour, in the passage I have already quoted, referred to s.85 of the Supreme Court Act as a "touchstone". Section 84(1) of that Act would not apply; it provides that the Court -

". . . . may order that there shall be included in the sum for which judgment is given interest at such rate as it thinks fit on the whole or any part of that sum for the whole or any part of the period between the date when the cause of action arose and the date of the judgment."

However, it applies to causes of action arising after its commencement; whereas the cause of action here arose before that commencement, i.e. on 1 October 1979. It has not been disputed before this Court that interest should be paid. I am of the view that interest should be fixed at a commercial rate rather than at a rate which merely bears some relation thereto.

In my opinion the selection of 8% was less than the commercial rate of interest available at the relevant time. It follows that this Court may return the matter to the learned Judge at first instance to reconsider the matter or itself fix a rate which is appropriate if this is possible. That a commercial rate should be fixed is consistent with interest being part of damages and thus compensatory - cf. Webster v. British Empire Mutual Life Assurance Company (supra) per Thesiger L.J. at p.173, per Cotton L.J. at pp. 175-176. Lacking evidence, I consider the Court may have regard to judicial statements / pronouncements and use its own knowledge of the commercial rate of interest in the relevant periods. I am of the view that guidance is received from the figure of 12% which is referred to in Lawrence v. Mathison (supra). The passage which appears in the judgment there at p.14 should be set out -

"As to the rate of interest I have considered the authorities I have been referred to including Guley v. Sabbadin (1979) 21 SASR 139; Murphy v. Murphy (1963) V R 610 and Pheeney v. Doolan (1977) 1 NSWLR 4. It should be noted that the reference in Ritchie's Supreme Court Procedure, NSW (Vol 1, s94.2) to the effect that the claim for interest should be pleaded in the statement of claim appears to be erroneous and contrary to the authorities there cited. I have considered the evidence of the witness Mr Buckler and the helpful and careful calculations he prepared to assist me in the exercise. I have decided, in the circumstances, that the interest, if it is to be assessed with a firm eye on the market place and commercial trends over that period should be 12 per cent."

In my opinion that rate of interest, having regard to his Honour's reference to authority and to common knowledge of interest rates over the years, is appropriate at least for 1 December 1979 to the end of the period as fixed by his Honour in the instant case, i.e. 14 October 1983. Some 13 months passed from the beginning of the period fixed by the learned trial Judge, viz. 1 November 1978 to 1 December 1979, in the instant case during which interest would also be payable. In my opinion, the figure of 12% also provides some guidance as to the rate appropriate for that period.

A rate for the period 1 November 1978 to 1 December 1979 ought not to be less than 10%. In Cullen v. Trappell (supra) Gibbs J., as he then was, (with whom Stephen, Mason and Wilson JJ. agreed; and Murphy J. also as to interest) said at p.21 in relation to allowing interest on a portion of the verdict -

"Where interest is aloowed, it should be allowed at ordinary commercial rates."

At p.23, referring to an award of interest by the Court of Appeal, in relation to the years 1974 to 1977 inclusive (ibid pp.24, 26-27 per Murphy J.) Gibbs J. said -

". . . . and it appears from what I have already said that their Honours also erred in the rate at which interest was allowed on this portion of the damages. I would apportion one half of the amount of $40,000 to the period before trial, and would adopt the rate of 10 percent taken by the learned trial judge because no effective challenge was made to its applicability."

From these words there is confirmation for the view that an appropriate rate of interest for the period 1 November 1978 to 1 December 1979 is 10%.

I propose that the Court should make the following orders -

1. The appeal is upheld.

2. Paragraph 5 of the order made by the Supreme Court of the Northern Territory on 23 November 1983 is set aside and in lieu thereof it is ordered that the respondent pay to the appellant damages in the nature of interest on the sum of $100,000 calculated at 10% per annum from 1 November 1978 to 30 November 1979 and at 12% per annum from 1 December 1979 to 14 October 1983.

3. The parties are to have liberty to apply to enter judgment in the sum determined in accordance with this Order.

4. The respondent is to pay the costs of the appeal.