Pacreef Investments Pty Ltd v GTW Investments (Aust) Pty Ltd (No 2)
[2022] VSC 111
•8 March 2022
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2020 00673
| PACREEF INVESTMENTS PTY LTD (ACN 602 608 891) | Plaintiff |
| v | |
| GTW INVESTMENTS (AUST) PTY LTD (ACN 161 035 909) | Defendant |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | On the papers |
DATE OF JUDGMENT: | 8 March 2022 |
CASE MAY BE CITED AS: | Pacreef Investments Pty Ltd v GTW Investments (Aust) Pty Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2022] VSC 111 |
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INTEREST – Interest on judgment sum – Whether penalty interest rate or a lesser rate should apply – No comparison of penalty interest rate with prevailing commercial interest rates - Interest awarded at statutory rate from commencement of the proceeding to the date of judgment – Supreme Court Act 1986 (Vic), s 60(1) – Penalty Interest Rates Act 1983 (Vic) – Cargill Australia Ltd v Viterra Malt Pty Ltd (No 30) [2022] VSC 80 considered.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr T North QC with Mr C Salpigtidis | Fitzpatrick Legal |
| For the Defendant | Mr B Ryde | Gilbert + Tobin |
HIS HONOUR:
On 17 February 2022, I delivered judgment for the plaintiff in this proceeding in the sum of $15,000,000 (‘the Principal Judgment’).[1]
[1]Pacreef Investments Pty Ltd v GTW Investments (Aust) Pty Ltd [2022] VSC 56. The defined terms for the documents and parties in that judgment are employed again here.
I stated in the Principal Judgment that I would hear the parties as to interest (including the calculation of the relevant amount) and as to costs (including any costs reserved in the proceeding).[2]
[2]Ibid, [567].
On handing down the judgment, I asked that the parties advise me whether any party wished to make submissions for a special costs order, or as to the plaintiff’s entitlement to interest or the amount in the Court’s provisional interest calculation (that is, $3,032,887.42).[3]
[3]A provisional calculation of interest on the judgment sum was sent to the parties by my chambers shortly after the judgment was handed down, by which calculation $3,032,887.42 of interest was owing.
Subsequently, the plaintiff, Pacreef, advised that it sought the usual costs order (that is, that GTW pay its standard costs in the proceeding including reserved costs); that it sought interest on the judgment sum pursuant to s 60(1) of the Supreme Court Act 1986 (Vic), for the period from the commencement of the proceeding until the date judgment was entered; and that it agreed with the Court’s provisional interest calculation.
By contrast, the second defendant, GTW, advised that it wished to file written submissions in relation to the questions of costs and Pacreef’s entitlement to interest on the judgment sum, including as to the Court’s provisional interest calculation.
Accordingly, on 21 February 2022 orders were made as follows:
1 There be judgment for the plaintiff against the second defendant in the sum of $15,000,000.
2 Kay Mitris, Nick Mitris and Maria Mitris-Honos be forthwith released from the undertakings provided to this Honourable Court, referred to in ‘Other Matters’ of the order of Judicial Registrar Matthews made 10 September 2020.
3 The parties file and serve submissions on the question of costs and interest (of no more than 10 pages) as well as any affidavits in support of the submission as follows:
(a) in the case of the second defendant, by 4:00pm on Monday 28 February 2022; and
(b) in the case of the plaintiff, by 4:00pm on Thursday 3 March 2022.
4 Subject to further order, the Court shall determine the questions of costs and interest on the papers.
5 Liberty to apply.
On 28 February 2022, GTW filed written submissions by which, in summary, it submitted that:
(a) an order that GTW pay interest at the rate of 10% per annum (being the rate fixed by the Attorney-General pursuant to s 2 of the Penalty Interest Rates Act 1983 (Vic)) is unjust and punitive; and that interest ought be ordered in the amount of the Reserve Bank of Australia’s cash rate target (‘the RBA Cash Rate’) at the relevant time plus 2%, on which basis Pacreef would be entitled to interest in the sum of $658,699.25 (rather than $3,032,887.42);
(b) if, contrary to GTW’s principal submission, the Court finds that the appropriate interest rate is 10% per annum, the interest payable is $3,029,227.49 (rather than $3,032,887.42); and
(c) the appropriate costs order be that GTW pay Pacreef’s costs of the proceeding including any reserved costs on a standard basis, with such costs to be taxed if not agreed.
Pacreef submitted that interest should be awarded at the rate prescribed under the Penalty Interest Rates Act, and that it agreed with the Court’s provisional interest calculation. Accordingly, Pacreef sought interest on the judgment sum in the amount of $3,032,887.42.
The parties’ respective submissions are to be assessed in light of the relevant principles which pertain to the grant of interest in a proceeding for debt or damages pursuant to s 60(1) of the Supreme Court Act.
Section 60 of the Supreme Court Act states:
The Court, on application in any proceeding for the 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 section 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.
The relevant principles have recently and conveniently been set out by Elliott J in Cargill Australia Ltd v Viterra Malt Pty Ltd (No 30),[4] with reference to, among others, Australian Kunqian International Energy Co Pty Ltd v Flash Lighting Co,[5] Euromark Ltd v Smash Enterprises Pty Ltd (No 2),[6] Clarke v Foodland Stores Pty Ltd,[7] and Hartley Poyton Ltd v Ali.[8] I extract the relevant portions of his Honour’s reasons below:[9]
[4][2022] VSC 80 (‘Cargill’).
[5][2020] VSCA 259.
[6][2021] VSC 393.
[7][1993] 2 VR 382.
[8][2005] VSCA 53.
[9]Cargill (n 4) [6]-[7], [13]-[16].
The beneficial purpose of awarding interest pursuant to section 60 is twofold. First, it is designed to compensate a plaintiff for being kept out of its money; not because it has lost the opportunity to invest it because it has been deprived of its use. Interest is not to be awarded to penalise the defendant for failing to pay the plaintiff earlier, however it has been acknowledged that awarding interest may indirectly have this effect.
Secondly, the award of interest is intended to encourage the early resolution of disputes.
…
The words ‘as the Court thinks fit’ contained in s 60(1) grant the court a discretion to determine the rate at which interest is to be awarded. This discretion is not limited to situations in which the defendant can show ‘good cause’, rather, the court retains the ability to choose the appropriate interest rate at all times. A determination on a rate must be made judicially based on the facts and circumstances of the particular case so as to achieve justice between the parties. The discretion is not to be constrained by determinations of what must or must not be taken into account.
There are two further matters relevant to the Court’s discretion. The first is contained in s 60(1) itself. The phrase ‘at such rate not exceeding’ which indicates that the Court cannot award interest above the statutory penalty rate contained in s 2(1) of the Penalty Interest Rates Act.
The second is a matter of custom. It has been repeatedly confirmed that, when exercising the discretion, the practice in Victoria is to treat the statutory penalty rate as a ‘starting point’ or benchmark.
For example … in Johnson Tiles Pty Ltd v Esso Australia Pty Ltd (No 3) [[2003] VSC 244], Gillard J stated [at [46]]:
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.
Importantly, where a defendant contends that a lower rate is warranted, it must present evidence as to what the lower rate should be and why it is more appropriate. The mere fact that the statutory penalty rate is higher than the market rate is not sufficient in itself for adopting a lower rate. The courts have routinely reiterated the position despite the fact that commercial interest rates have diverged significantly from the statutory penalty rate in recent years.
Submission
GTW submitted that in the present circumstances, the rate fixed pursuant to the Penalty Interest Rates Act contains a penalty component over and above the compensatory function of the award of interest.
GTW submits that the RBA cash rate plus 2% for the period from the commencement of the proceeding on 11 February 2020 to the date of judgment would fairly compensate Pacreef for being ‘out of the money’ while avoiding the imposition of any penalty on GTW.
Further, GTW submitted that the Court will be aware that the economic climate since around the time this proceeding commenced has been extraordinary given the COVID-19 pandemic, and with the RBA Cash Rate at record lows. GTW notes that the RBA Cash Rate is presently 0.1%, and further submits that the penalty rate of 10% is well above the prevailing mortgage and overdraft rates (in contrast to the Court of Appeal’s reasoning in Hartley Poynton v Ali, where the penalty rate of 10% was at some points below then-current mortgage and overdraft rates).
Relatedly, GTW submits that had Pacreef been ‘in the funds’ as at the commencement of the proceeding, the highest rates achievable under the RBA Cash Rate across the relevant period were:
(a) 0.75% per annum as at February 2020;
(b) 0.25% per annum between April 2020 and October 2020; and
(c) 0.10% per annum between November 2020 and February 2022.
As to the applicable rate, Pacreef submits that it is appropriate that interest be awarded at the rate of 10% per annum. It asserts that any alternative rate is contrary to current authority and that moreover does not accord with the interest rate agreed by the parties in the transactions the subject of the Principal Judgment: under both the Implementation Deed and the Facility Agreement, the parties fixed agreed rates at above 10% per annum.[10] Insofar as GTW relied upon the extraordinary circumstances of the COVID-19 pandemic, Pacreef notes that the Parliament of Victoria saw fit to pass the COVID-19 Omnibus (Emergency Measures) Act 2020 which temporarily modified numerous Acts in Victoria in response to the COVID-19 pandemic, yet did not modify the Penalty Interest Rates Act.
[10]Pacreef Investments Pty Ltd v GTW Investments (Aust) Ltd (n 1) [61], [109]. In the case of the Implementation Deed, Pac Bio covenanted to pay interest to Pacreef at a rate of 15% per annum; in the case of Facility Agreement, in different instances 12,%, 14%, 15% or 20% interest was contracted.
As to the applicable period, Pacreef submits that there is no reason to disallow Pacreef the interest from the date of the proceeding issued to date of judgment.[11] It further notes that Pacreef has been held out of its money since 7 April 2019, when GTW failed to pay the amount required to be paid by it pursuant to the Guarantee Arrangement.
[11]GTW made no submission that Pacreef was now entitled to interest for the whole of the period (cf Cargill (n 4); its submission only concerned the applicable rate.
Determination
Aside from its reference to the COVID-19 pandemic and the allied period of low interest rates, GTW has not distinguished the instant case in any meaningful way. GTW has not demonstrated why a very significant departure from the statutory rate ought to be applied to the judgment sum in the particular circumstance of this case. Whatever the cause of the low rates, GTW’s submissions can ultimately be reduced to an argument that prevailing interest rates are below the rate prescribed under the Penalty Interest Rates Act, such that the application of a substantially lower rate is warranted.
Numerous authorities, including Cargill and the cases discussed therein, make it plain that simply comparing commercial rates with those under the Penalty Interest Rates Act will not ordinarily justify departing from the ‘starting point’ for applying the statutory rates.[12]
[12]The conclusion in that regard is reinforced by the fact that, as submitted by Pacreef, the parties had seen fit in their dealings between themselves to apply a rate higher than 10% per annum.
The calculation issue
In the alternative, GTW submitted that the Court’s provisional interest calculation was deficient in two respects.
First, the Court’s calculation calculated interest in the period between the commencement of the proceeding to the end of the hearing (11 February 2020 to 27 October 2021), and then from the end of the hearing to the date of judgment hand-down (27 October 2021 to 17 February 2022). GTW submitted that there was no basis under s 60 of the Supreme Court Act to calculate interest across two different periods, and that it was not apparent to GTW why the Court had adopted that calculation methodology.
As the parties would be aware, the Court’s provisional interest calculation was made with reference to an interest calculation provided by Pacreef in its closing submissions. That calculation only went to 27 October 2021. The provisional interest calculation allowed the parties to see the further amount from 27 October 2021, which was the subject of the Court’s own calculation and had been added to the amount in Pacreef’s submissions. In any event, provided there is no double counting (and there was not), then the fact that two different calculations were undertaken would make no difference to the ultimate sum.
Second, GTW also points to a minor arithmetical error in the daily rate for 2020. The provisional interest calculation did not take into account the fact that 2020 was a leap year, and thus had a lower daily rate than its equivalent in 2021 and 2022.
I accept GTW’s submission with respect to the leap year. This has resulted in an overstatement in the amount of interest in the Court’s provisional interest calculation by $3,659.93.[13]
[13]Nb. the provisional interest calculation used the date of hand-down, Thursday 17 February 2022, as the final date upon which interest was payable. A consequence of GTW seeking additional time in order to make submissions on interest was that judgment was not formally entered, nor orders made in the plaintiff’s favour, until the following Monday, 21 February 2022. When the leap year is factored in to the original period in the provisional interest calculation (738 days from 11 February 2020 to 17 February 2022), the amount owing is $3,659.93 less than the amount in the provisional interest calculation (that is, $3,032,887.42). However, when the leap year is factored into this longer period (762 days from 11 February 20220 up to 21 February 2022), the amount owing is $12,778.42 greater than the amount in the provisional interest calculation.
In the result, Pacreef will be entitled to interest according to s 60 of the Supreme Court Act from the date of commencement of the proceeding until 21 February 2022, the date on which the Court made orders in Pacreef’s favour for the payment of $15,000,000. That sum is 3,045,665.84.[14]
[14]Given that across the period of 742 days from 11 February 2020 to 21 February 2022, there are 325 leap year days from 11 February 2020 to 31 December 2020 and 417 common year days from 1 January 2021 to 21 February 2022, the correct calculation can be expressed as: (325*(15,000,000*(0.10/366)))+(417*(15,000,000*(0.10/365))) = $3,045,665.84
Costs
Ultimately, GTW accepted that it was appropriate that Pacreef, as the successful party, be entitled to its costs of those interlocutory hearings that were reserved by the Court on a standard basis, as well as its costs of the proceedings on a standard basis, and that those costs would be assessed absent agreement.
Accordingly, the further orders of the Court will be as follows:
1 The second defendant pay damages in the nature of interest in favour of the plaintiff for the period from 11 February 2020 up to and including 21 February 2022 in the sum of $3,045,665.84.
2 The second defendant pay the plaintiff’s standard costs of the proceeding, including any reserved costs (in an amount to be agreed, and if unable to be agreed, then assessed).
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