Multispan v Portland (No 2)

[2001] NSWSC 1047

CITATION:	MULTISPAN v PORTLAND (NO 2) [2001] NSWSC 1047
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 2869/00
HEARING DATE(S):	30/10/01
JUDGMENT DATE:	16 November 2001
PARTIES :	Multispan Constructions No 1 Pty Limited - First Plaintiff Stipo Lovrinovic - Second Plaintiff Vlatko Rasic - Third Plaintiff Mark Komadina - Fourth Plaintiff Stipo Kasalo - Fifth Plaintiff 14 Portland Street Pty Limited - First Defendant CVC Communication & Technology Pty Limited - Second Defendant Broadway Developments Pty Limited - Third Defendant Ronald Charles Dunkley - Fourth Defendant St Helens Broadway Pty Limited - Fifth Defendant Sam Zdrilic - Sixth Defendant Gavin Solomon - Seventh Defendant
JUDGMENT OF:	Barrett J

COUNSEL :	Mr M. Komadina (director) - First Plaintiff Mr A.M. Colefax - First to Third Defendants Mr G.L. Turner - Sixth Defendant
SOLICITORS:	Coudert Brothers - First to Third Defendants Alan Brown & Company - Sixth Defendant
CATCHWORDS:	PROCEDURE - interest after judgment - whether debt merged in judgment - whether interests of justice require that interest continue at higher contracted rate - order for such interest as necessary to ensure contracted interest continues
LEGISLATION CITED:	Supreme Court Act 1970
CASES CITED:	Gould v Vaggelas (1985) 157 CLR 215 Mercantile Credits Limited v McDowell [1982] NSWLR 101 State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587 Asia Pacific International Pty Ltd v Dalrymple [2000] 2 Qd R 229 Ex parte Fewings (1883) 25 ChD 338 Economic Life Assurance v Usbourne [1902] AC 147 London Borough of Ealing v El Isaac [1980] 1 WLR 932
DECISION:	Refer paragraph 10

4

IN THE SUPREME COURT REVISED
OF NEW SOUTH WALES
EQUITY DIVISION

BARRETT J

FRIDAY, 16 NOVEMBER 2001 2869/00 - MULTISPAN CONSTRUCTIONS NO 1 PTY LTD v 14 PORTLAND STREET PTY LTD & ORS (NO 2)

JUDGMENT HIS HONOUR:

1 The cross-claimants to the second cross-claim, 14 Portland Street and CVC Communications, seek an order that interest on the judgment sum continue to accrue at a rate of 25 per cent per annum compounded monthly from 17 October 2001 until the date of payment of the judgment sum and interest. This follows the order on 17 October 2001 that a verdict in the sum of $2,352,525.25 be entered for those cross-claimants. The interest rate of 25 per cent per annum which the cross-claimants seek to have continued is the rate applicable under the relevant financing and security documents between the parties.

2 The application is founded on s.95(1) of the Supreme Court Act 1970 which causes interest to run on a judgment debt at the prescribed rate, unless the court makes some other order.

3 A question addressed in submissions is whether or not the promise to pay interest has, in the circumstances of this case, merged in the judgment of 17 October 2001. Often, of course, the right of action which is the debt is discharged by judgment and there is nothing left which attracts interest in the sense of being a principal sum upon and in respect of which interest is payable: hence the rationale of s.95(1) which displaces what would otherwise be the conclusion that a judgment debt does not bear interest.

4 The argument that the debt and therefore the obligation to pay interest have not merged in the judgment in this case arises from the circumstance that, according to the findings the court made, that debt is secured by the mortgage of the Wollstonecraft property created in 1997. This argument is based on observations of Templeman LJ in London Borough of Ealing v El Isaac [1980] 1 WLR 932 that merger does not occur where there is an independent covenant or where there is a security as distinct from a contract. In the end, the question will always be whether, once the contractual promise represented by the debt itself is seen to be satisfied by the judgment, there nevertheless remains alive some undertaking or instrument which continues as a source of an obligation to pay interest. And as is shown by the passage in the judgment of Fry LJ in Ex parte Fewings (1883) 25 ChD 338, admired for its precision and accuracy by the Earl of Halsbury LC in Economic Life Assurance v Usbourne [1902] AC 147, this always comes down to a question of construction. The most obvious case in which the promise to pay interest remains alive is where it is expressed to operate after judgment as well as before.

5 It seems to me, however, that a close analysis of the loan and security documents to discover whether or not there has been merger or discharge of the relevant promise is, in a sense, somewhat beside the point in a case such as the present. The real issue is how the court should exercise its discretion under s.95. The parameters of that discretion emerge from the joint judgment of Gibbs CJ and Wilson, Brennan and Dawson JJ in the second part of Gould v Vaggelas (1985) 157 CLR 215 at 271. It was there confirmed that the Queensland equivalent of s.95(1) permits the court to determine a rate of interest higher or lower than the prescribed rate. Their Honours also said:

“The discretion confided to the court introduces flexibility which enables such other lower or higher rate of interest to be determined as the interests of justice in a particular case may require.”

6 In a normal commercial situation where interest continues to run, the creditor’s legitimate expectation will be to have interest at the contracted rate until payment. The interests of justice are not served by an outcome which sees such a creditor suffer the substitution of some lower prescribed interest rate for the contracted rate just because he has been forced to pursue the debtor to judgment. I distinguish a case in which the due date for payment of principal has passed and it is clear that interest ceased to accrue at that point. That is not a case in which the legitimate expectation to which I have referred can be seen to exist.

7 The present case is, however, within that legitimate expectation and the comments I have made in relation to it are supported by the observations of Einstein J at paragraph 924 of his judgment in State Bank of New South Wales Ltd v Chia. The case is reported at (2000) 50 NSWLR 587 but with paragraph 924 and related paragraphs omitted. His Honour said, quite simply:

“It would not be consonant with the requirements of justice for Dr Chia to obtain a commercial advantage in the way of a lower interest rate than he would otherwise have paid, because he elected to unsuccessfully defend the action in court rather than discharge his debt without recourse to litigation.”

8 In saying this, his Honour was influenced by the remark of Rogers J in Mercantile Credits Limited v McDowell [1982] NSWLR 101 that,

“… where there are no facts placed before the court to displace the prima facie effect of what was agreed on between the parties, I think it is proper that the court should lend its aid to enforce the agreement.”

9 There may, of course, be limits to this approach. The court will obviously pay some attention to the reasonableness of the parties' bargain. As is shown by the decision of Shepherdson J in Asia Pacific International Pty Ltd v Dalrymple [2000] 2 Qd R 229, there are limits beyond which a court will not enforce a covenant to pay interest. That case involved interest at 20 per cent per month compounding monthly. Notwithstanding that the parties contracted at arm's-length and with their eyes open, the court regarded the case as one of unconscionability attracting the intervention of equity. But no such excess has been suggested here.

10 The appropriate order in the present case is an order under s.95(1) of the Supreme Court Act that interest be payable on so much of the judgment sum of $2,352,525.25 as is from time to time unpaid at such rate and compounded in such manner as to ensure that when that interest is added to such interest, if any, as accrues to the cross-claimants to the second cross-claim under and by virtue of any subsisting and continuing contractual provision for interest upon the debt for which judgment was given, there accrues to the cross-claimants, in the aggregate, interest at the a rate of 25 per cent per annum compounded monthly from 17 October 2001, being the date of judgment, until payment of the judgment sum and interest.

11 That is the order which I now make.

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Last Modified: 11/20/2001