Ward v Dillon
[2021] VSC 541
•1 September 2021
IN THE SUPREME COURT OF VICTORIA
AT MELBOURNE
COMMON LAW DIVISION
TESTATORS FAMILY MAINTENANCE LIST
S CI 2015 01408
IN THE MATTER of the Estate of Trevor Allan Ward, deceased
| OLIVIA WARD | Plaintiff |
| v | |
| GEOFFREY JOHN DILLON (in his capacity as administrator of the estate of the late Trevor Allan Ward, deceased) | Defendant |
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JUDGE: | Ierodiaconou AsJ |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 14 July 2021 |
DATE OF RULING: | 1 September 2021 |
CASE MAY BE CITED AS: | Ward v Dillon |
MEDIUM NEUTRAL CITATION: | [2021] VSC 541 |
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CONTRACTS – Remedies – Contractual Interest – Whether contractual interest recoverable after judgment – Whether contractual interest displaces statutory interest - Subsection 101(1) Supreme Court Act 1986 (Vic) – Subsection 2(1) Penalty Interest Rates Act 1983 – Down Town Visuals v Panorama Investments [2018] VSC 427 – Statutory interest applicable.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Hill, solicitor | Armstrong Legal |
| For the Defendant | Mr G Dillon, solicitor | Geoff Dillon & Co Lawyers |
TABLE OF CONTENTS
Evidence............................................................................................................................................... 1
Background......................................................................................................................................... 1
Submissions........................................................................................................................................ 3
Mr Dillon’s submissions............................................................................................................... 3
Ms Ward’s submissions............................................................................................................... 4
Analysis................................................................................................................................................ 5
Conclusion........................................................................................................................................... 7
HER HONOUR:
The parties are in dispute as to what interest rate applies to a judgment debt. The question for determination is whether the interest rate is governed by terms of settlement or by the Supreme Court Act 1986 (‘Supreme Court Act’) and the Penalty Interest Rates Act 1983 (‘Penalty Interest Rates Act’).
Evidence
The plaintiff, Ms Olivia Ward, relies on the affidavit of her solicitor Alun Leslie Hill affirmed 12 July 2021 (‘Hill 12 July 21 affidavit’).
The defendant, Mr Geoffrey John Dillon, relies on his affidavit sworn 13 July 2021 (‘Dillon 13 July 21 affidavit’).
Background
The late Trevor Alan Ward (‘the deceased’) died on 30 March 2014, leaving a will dated 26 June 2007 (‘the Will’).[1]
[1]Hill 12 July 21 affidavit [4].
Nicole Louise McDonough was initially appointed as the executor of the deceased estate.[2]
[2]Hill 12 July 21 affidavit [5].
On 30 March 2015, Ms Ward, commenced proceedings seeking relief under Part IV of the Administration and Probate Act 1958 for her proper maintenance and support.[3]
[3]Hill 12 July 21 affidavit [7]; Dillon 13 July 21 affidavit [3].
On 13 October 2016, Ms McDonough, in her then capacity as the executor of the deceased estate, agreed to settle Ms Ward’s claim. Ms Ward and Ms McDonough signed terms of settlement agreeing to settle Ms Ward’s claim for the sum of $235,000 (‘settlement sum’) payable by 10 February 2017.[4] The settlement sum was not paid by that date.
[4]Exhibit ‘ALH-1’, Terms of Settlement dated 13 October 2016 (‘terms of settlement’), to the Hill 12 July 21 affidavit, 2.
On 6 March 2017, Ms Ward filed a summons seeking the following orders:
1.The Plaintiff be granted an order to enforce payment and recovery of the amount of $235,000.00, being the “settlement sum” as agreed in the Terms of Settlement dated 13 October 2016 (“the Terms”) and as signed between the Plaintiff and Defendant;
2.The Plaintiff be paid interest on the settlement sum accrued in accordance with Item 2 of the Terms;
…
On 29 March 2017, orders were made by consent (‘the 29 Mar 17 orders’). Importantly, they included an order that: “The defendant shall pay the plaintiff the sum of $236,481”.
Other Matters of the 29 Mar 17 orders record:
These orders are made to enforce Terms of Settlement made between the parties on 13 October 2016. Those terms in substance obliged the defendant to take all reasonable steps to pay to the plaintiff a settlement sum of $235,000 inclusive of her legal costs. The payment was required by 10 February 2017. There was no default clause in the terms. However, clause 2 obliged the defendant to pay interest at 5% on any unpaid amount of the settlement sum until payment.
The sum to be paid under paragraph 1 of these orders is inclusive of interest until 28 March 2017.
On 8 September 2017, further consent orders were made. Ms McDonough was discharged as executor of the deceased estate. Mr Dillon was appointed as administrator of the Will.[5]
[5]Exhibit ‘ALH-4’, Orders made on 8 September 2017 to the Hill 12 July 21 affidavit.
There followed dispute between the parties about payment of interest on the judgment debt.
By summons filed on 31 May 2021, Mr Dillon seeks a ruling on the question of what interest is properly payable.
Submissions
The parties filed written submissions and made oral submissions.[6] Key submissions are outlined below. Where necessary, the authorities relied upon by the parties are referred to in the analysis.
[6]Ms Ward’s written submissions filed 12 July 2021; Mr Dillon’s written submissions filed 13 July 2021.
Mr Dillon’s submissions
Other Matters of the 29 Mar 17 orders record that the defendant is to pay the sum of $236,481 to be inclusive of interest until 28 March 2017. It also recorded that the orders were to enforce terms of settlement made between the parties on 13 October 2016.
The dispute between the parties concerns the proper rate of interest to be applied to the judgment debt. The rate is 5% based on cl 2 of the terms of settlement. Interest calculated at 5% per annum has been paid and the claim for further interest in accordance with s 101(1) of the Supreme Court Act is misconceived.
The contract constituted by the terms of settlement remains valid and enforceable to this day. Indeed, the contract could conceivably be the subject of an application for an order for specific performance. It has not been repudiated and no steps have ever been taken to terminate or determine it.
The contract should apply because it provides for the interest rate up until the whole of the settlement sum, including interest, is paid in full. The contract triumphs what is in the statute.
Other Matters of the 29 Mar 17 orders refer to the terms of settlement containing no default provision. This supports the interest term in cl 2 of the terms of settlement being construed as a fundamental obligation rather than merely incidental.[7]
[7]Ex parte Fewings; Re Sneyd (1883) 25 Ch D 338 at 355 per Fry LJ.
The Court should not interfere with the interest provision in the contract unless it is a penalty.[8] It is not a penalty.
[8]James Elderman et al, Interest Awards in Australia (LexisNexis Butterworths, 2003).
Ms Ward’s submissions
By the 29 Mar 17 orders, the executor was required to pay Ms Ward $236,481 (inclusive of interest calculated at 5% as per cl 2 of the terms of settlement up to and including 28 March 2017). That amount became a judgment debt. Accordingly, interest should be calculated pursuant to sub-s 101(1) of the Supreme Court Act and sub-s 2(1) of the Penalty Interest Rates Act. The current penalty interest rate is 10% per annum and that is the applicable rate of interest here.
There were no orders or notations, made in respect of interest continuing to accrue at the rate set by the terms of settlement, as it was unnecessary once the judgment debt came into existence on 29 March 2017. The rendering of the final judgment on 29 March 2017 operated to merge the covenant in the terms of settlement to pay interest into the judgment.
The covenant to pay interest in cl 2 of the terms of the settlement is incidental to the covenant to pay the settlement sum. Clause 2 is supportive of payment of the settlement sum. It is a penalty provision that provides a penalty if the settlement sum is not paid by the date set out in the terms of settlement.
If the Court finds that the clause was incidental or ancillary then the next step is to construe the terms of settlement to determine if there is anything express or implied to indicate whether the parties intended that the rates in the terms of settlement would continue after judgment. There is nothing in the terms of settlement which displace the position that interest merged into the judgment.
When judgment was entered into on 29 March 2017, Ms Ward’s rights under the terms of settlement were extinguished. Mr Dillon is proposing that after judgment was entered in favour of Ms Ward that she had two causes of action, one being enforcement of the judgment debt, and the other being Ms Ward’s rights under the terms of settlement. Finality of proceedings is in the interests of justice.[9]
[9]Tomlinson v Ramsey Food Processing Pty Limited [2014] HCA 28; Zetta Jet Pte Ltd v The Ship “Dragon Pearl” (No 2) [2018] FCAFC 132.
Once judgment was entered then only the statutory interest was applicable to the judgment debt.[10] The Court did not have the ability to vary the rate of interest except in accordance with s 101 of the Supreme Court Act.
[10]Hartley Poynton Ltd v Ali (2005) 11 VR 568.
Analysis
Clauses 1 and 2 of the terms of settlement follow:
The defendant agrees to pay out of the estate of the Deceased and the plaintiff agrees to accept in full and final settlement of her claim for provision from the estate of the Deceased, the sum of $235,000 inclusive of her legal costs (‘the Settlement Sum’).
The defendant must take all reasonable steps to ensure payment of the Settlement Sum to the plaintiff’s solicitors, Armstrong Legal, on or before 4pm 10 February 2017 in cleared funds. In the event the Settlement Sum is not paid by the said time, interest at the rate of 5% per annum shall accrue on any unpaid amount of the Settlement Sum until the whole of the Settlement Sum including any interest is paid in full.
In Down Town Visuals v Panorama Investments[11] (‘Down Town Visuals’), the Honourable Justice Digby considered whether interest on a loan agreement should be calculated by reference to statute or the default mortgage rate. Relevantly, there had earlier been judgment in favour of the lender regarding the loan agreement. The lender submitted that there was an enduring contractual interest obligation under the loan agreement, preserved by a contract of guarantee. The lender submitted the obligations in the loan agreement had not fully merged into the judgment. It relied particularly on the terms stating the guarantor’s obligations “are absolute, unconditional and irrevocable”.
[11][2018] VSC 427.
In Down Town Visuals, Digby J outlined the following principles, which I gratefully adopt.
Ordinarily, contractual interest obligations merge in a judgment on the loan under which such interest would otherwise continue to be payable. It may arise, however, that a borrower continues to be liable for contractual interest post-judgment. The default position referred to can be displaced by the terms of the loan agreement or an independent covenant requiring payment of such interest. The relevant principle was stated in Re Sneyd; ex parte Fewings:
The first question is simply one of construction. Where there is a covenant for the payment of a principal sum, and a judgment has been obtained upon the covenant for that sum, it is plain that the covenant is merged in the judgment, and, if there is a covenant to pay interest which is merely incidental to the covenant to pay the principal debt, that covenant also is merged in a judgment on the covenant to pay the principal debt. Of course a covenant to pay interest may be so expressed as not to merge in a judgment for the principal; for instance, if it was a covenant to pay interest so long as any part of the principal should remain due either on the covenant or on a judgment.[12]
[12]Down Town Visuals [21].
Digby J held that the obligations of the borrower under the loan agreement had merged into the judgment. The position was not altered by the fact that judgment had not been entered against the guarantor. The guarantor’s position in the loan agreement was defined by reference to the borrower’s obligations. Digby J held there was:
...no language in the Guarantee, or the underlying Loan Agreement, reflecting an intention that the borrower’s obligation to pay interest will not merge with a judgment on the subject Loan Agreement. Contractual terms to achieve this outcome are not uncommon. No such terms have been included in either the Deed of Guarantee or the Loan Agreement. Instead, the borrower’s obligations to pay interest under the Loan Agreement is incidental to the covenant by the borrower to pay the principal debt…
For these reasons, [the lender] has failed to establish that it is entitled to recover ‘contractual interest’…[13]
[13]Ibid [29]-[30].
Here, the interest obligation in cl 2 of the terms of settlement merged with the judgment. Clause 2 is plainly incidental to the obligation to pay the settlement sum. The terms of settlement do not include any term which would displace the obligation to pay interest being merged into the judgment. Other Matters of the 29 Mar 17 orders state that the judgment amount includes interest.
The submission that the absence of a default provision in the terms of settlement supports the construction of cl 2 as a fundamental obligation must be rejected. It does not change the incidental nature of the interest provision.
The submission that contractual interest is payable because the terms of settlement remain operable is misconceived. The 29 Mar 17 orders enforce the terms of settlement. As discussed above, the interest obligation in cl 2 merged into the judgment.
The submission that as the interest provision here is not a penalty, it should be applied, is contrary to the principles cited above. The issue of whether cl 2 is a penalty is not relevant. Interest has already been calculated according to cl 2 – with the consent of the parties – and merged into the judgment. The issue here is interest on the judgment debt.
Subsection 101(1) of the Supreme Court Act 1986 is applicable:
Every judgment debt carries interest at the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 from the time the judgment was given or, in the case of costs which are assessable by the Costs Court, from the date of the order of the Costs Court stating the result of the assessment or such other date as the Court orders.
The penalty interest rate determined in accordance with s 2 of the Penalty Interest Rate Act is applicable. The penalty interest rate applicable on the judgment debt is 10% per annum.
Conclusion
The statutory interest rate is applicable. I will give the parties an opportunity to provide a form of order giving effect to this ruling.
The Court was informed on 15 July 2021 that each party will bear their own costs, irrespective of the outcome of this ruling.
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