Westpac Banking Corporation v “Stone Gemini” - [1999] FCA 917

FEDERAL COURT OF AUSTRALIA
Westpac Banking Corp v “Stone Gemini” [1999] FCA 917
PRACTICE AND PROCEDURE – currency of prejudgment interest – purpose of prejudgment interest to compensate plaintiff for detriment suffered in being kept out of his money – whether to follow general rule that interest be in the same currency as the principal judgment amount – consideration of all the circumstances – where judgment in US dollars – where plaintiff an Australian bank but involved in significant US dollar transactions – whether double counting of interest
Federal Court of Australia Act 1977 (Cth) s 51A
Batchelor v Burke (1981) 148 CLR 448, applied
State Bank of New South Wales Ltd v Swiss Bank Corporation (1995) 39 NSWLR 350, followed
Helmsing Schiffahrts GMBH & Co KG v Malta DryDocksCorporation [1977] 2 Lloyd’s Rep 444, cited
Miliangos v George Frank (Textiles) Ltd (No 2), [1976] 2 Lloyd’s Rep 434, cited
Owners of MV Despina R (“The Despina R”)v Owners of MV Eleftherotria [1979] AC 685, cited
State Bank of New South Wales Ltd v Swiss Bank Corporation (1995) 39 NSWLR 350, cited
WESTPAC BANKING CORPORATION v
THE SHIP MV “STONE GEMINI”
NG 557 OF 1996
TAMBERLIN J
SYDNEY
9 JULY 1999

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

IN ADMIRALTY
NG 557 OF 1996

BETWEEN:

WESTPAC BANKING CORPORATION
Plaintiff

AND:

THE SHIP MV "STONE GEMINI"
Defendant

BY FIRST CROSS-CLAIM

NAVALGALAXY SHIPPING LTD,
THE OWNERS OF THE SHIP MV “STONE GEMINI”
Cross-Claimant

JINDALEE TRADING CO PTY LTD
First Cross-Defendant

ROSIE ROSALIND WANG
Second Cross-Defendant

BY SECOND CROSS-CLAIM:

JINDALEE TRADING CO PTY LTD
Second Cross-Claimant

NAVALGALAXY SHIPPING LTD
Third Cross-Defendant

BY THIRD CROSS-CLAIM:

JINDALEE TRADING CO PTY LTD
Third Cross-Claimant

WESTPAC BANKING CORPORATION
Fourth Cross-Defendant

BY FOURTH CROSS-CLAIM:

WESTPAC BANKING CORPORATION
Fourth Cross-Claimant

JINDALEE TRADING CO PTY LTD
Fifth Cross-Defendant

JUDGE:

TAMBERLIN J

DATE:

9 JULY 1999

PLACE:

SYDNEY

REASONS FOR JUDGMENT

Judgment was delivered in this matter on 14 April 1999, with further reasons handed down on 7 May 1999. On those dates I made no orders. The issue for present consideration concerns the appropriate orders to be made in respect of interest arising from a dispute between the plaintiff, Westpac Banking Corporation (“Westpac”), and Navalgalaxy Shipping Ltd (“Navalgalaxy”), the owner of the defendant ship MV “Stone Gemini”.
The judgment requires that the currency of the principal sum awarded be in United States dollars (“USD”). That was the currency of the sale and the contract of carriage, which were the underlying transactions. However, Navalgalaxy contends that if the Court determines that Australian dollar (“AUD”) interest rates should apply, then judgment for the principal amount should also be entered in AUD.
The dispute arises from Westpac’s contention that pre-judgment interest should be calculated in AUD by reference to rates of interest applicable in Australia over the period from the date of conversion of the cargo, which occurred on the days preceding and including 14 July 1995, to the date of judgment.
Navalgalaxy, however, contends that the relevant interest should be calculated in USD, and that the appropriate rate is the US Federal Reserve Bank Rate. Navalgalaxy points out that whichever measure of pre-judgment interest is accepted, there will be a double-counting on the figures advanced by Westpac because the judgment amount sought already includes an interest component in respect of the period fixed for payment under the letter of credit. This submission as to double counting of interest is not seriously contested by Westpac and it is clear that an appropriate adjustment must be made when formulating final orders.
It is common ground that the purpose of an award of pre-judgment interest is to compensate a plaintiff for the detriment suffered by being kept out of his or her money, and not to punish the defendant for having being dilatory in settling the plaintiff’s claims: see Batchelor v Burke (1981) 148 CLR 448 at 455 per Gibbs CJ. Further, it is not in dispute that generally speaking where judgment is given in a foreign currency, interest should be calculated at rates applicable to that currency. The appropriate rate must, however, depend on all the circumstances: see State Bank of New South Wales Ltd v Swiss Bank Corporation (1995) 39 NSWLR 350 at 360-361.
Westpac submits that the Court has a broad discretion under s 51A of the Federal Court of Australia Act 1977 (Cth) (“the Act”), and that in the circumstances of this case it is appropriate to make an exception to the general principle.
Section 51A relevantly reads:
“s 51A(1) In any proceedings, for the recovery of any money … , the Court … 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 … thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the dates as of which judgment is entered; or
(b)…order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.
(2) Subsection (1) does not :
(a)authorise the giving of interest upon interest or of a sum in lieu of such interest;
…”
In support of its submission that USD interest rates should apply, Westpac relies on the judgment of Kerr J in Helmsing Schiffahrts GMBH & Co KG v Malta DrydocksCorporation [1977] 2 Lloyd’s Rep 444. That was a case where judgment was given in Maltese pounds in circumstances where there was a dispute between German shipowners, carrying on business in Germany, and a Maltese ship builder. The contract was for the building of ships in Malta. The shipbuilding contracts were governed by English law. English law was also the law of the forum. The currency of the account due under the contract was Maltese pounds. It was contended that the appropriate currency for calculation of interest was sterling, on the basis of English commercial borrowing rates during the relevant period. These rates were substantially higher than the rates applicable in Malta. Kerr J held that the Court should award interest to the German shipowners at German commercial interest rates from 1972 to 1976. However, he considered that the giving of judgment in Maltese pounds was correct because that was the currency of account. His Honour’s reasoning on the interest was as follows (at 448):
“If this sum had … been paid [when due], the plaintiffs would have had the use of it since then. Since their business was in Germany, they would accordingly then have had the equivalent of this sum in Deutschemarks. Indeed, when payment was ultimately made in September, 1976, under the terms of settlement, it was received by the plaintiffs in Deutschemarks converted from Maltese pounds. The prima facie loss to the plaintiffs due to the failure by MDC to pay this sum in 1972 was that they had to find the equivalent sum from other sources in Germany.”
His Honour referred to the statement of principle by Bristow J in Miliangos v George Frank (Textiles) Ltd (No 2) [1976] 2 Lloyd’s Rep 434, where it is said (at 435):
“In my judgment the approach in English law should be: if you opt for a judgment in foreign currency, for better or worse you commit yourself to whatever rate of interest obtains in the context of that currency.”
Kerr J in Helmsing distinguished Miliangos, because in that case the plaintiff was a Swiss national carrying on business in Switzerland, and the contract was governed by Swiss law and it expressed the price in Swiss francs. Accordingly, the plaintiff’s currency and the currency of account were both Swiss. The House of Lords decision was that payment be made in Swiss francs. Kerr J also referred to the wide discretion of the Court and observed that it would be a capricious result in the case before him if interest was to be awarded at English rates when the English currency had no real nexus with the transaction or the loss.
I was also referred to the House of Lords judgment in the case of Owners of MV Despina R (“The Despina R”)v Owners of MV Eleftherotria [1979] AC 685. That case concerned a collision between two Greek ships. The House of Lords decided that, on the basis that the claim was in tort, it was fairer to give judgment in the currency in which the loss was sustained than in the sterling equivalent at the date of the breach or loss. Their Lordships decided that the Court should give judgment in the plaintiff’s currency being currency of the country in which it normally conducted its business. That case was not concerned with interest, but rather with the underlying question as to the appropriate currency in which the judgment itself should be awarded.
The New South Wales Court of Appeal considered the question of the appropriate interest rate on a judgment awarded in a foreign currency in State Bank of New South Wales Ltd v Swiss Bank Corporation (1995) 39 NSWLR 350. In that case, the Court held that interest rates should be calculated by reference to USD rates and not AUD rates. The Court accepted that the normal rule was that interest should be calculated by reference to the rates applicable to the currency of the judgment. In response to an argument that the AUD rates should apply, their Honours said at 360:
“He [Counsel for State Bank] said that Swiss Bank’s submission that until judgment State Bank of New South Wales did not have to borrow to repay the principal or lose the earnings from that sum at Australian interest rates, assumed that State Bank of New South Wales’ position was to be judged on that basis. There was no evidence that the purchase of United States dollars to pay the principal would be at a cost measured in Australian interest rates and this could not be assumed because the Bank had international branches.” (Emphasis added)
Neither party in that case argued that the interest should be calculated by reference to Swiss francs. This is perhaps surprising considering that the plaintiff was a major Swiss bank.
The submission in the present case is that Australian rates should apply because in order to compensate it for the loss, Westpac would be entitled and indeed expected to cover its loss, by being kept out of its funds in the period up to judgment, by raising funds in Australian dollars at Australian rates. This is said to be so because it is a major Australian bank. In support of its contention that the interest loss in the present case was suffered in Australian dollars, the Bank filed an affidavit by Mr John Edwards, a senior Project Manager employed by Westpac for the last twenty years in various senior roles in its International Business Department. Mr Edwards explained that Westpac’s operations are principally conducted in Australian dollars. However, in order to service the requirements of its corporate and retail customer base, Westpac also has foreign currency operations and consequently maintains substantial foreign currency accounts with a number of foreign banks. In relation to USD operations, Westpac’s primary settlement bank for operations has been the Chase Manhattan Bank where it maintains a USD account in New York. This account is used to conduct Westpac’s principal banking operations. In the present case, the funds received from China Metallurgical Import and Export Shandong Company (“CMIE”) in February and March 1996, were received by Westpac into the Chase Manhattan USD account. This is the account to which the funds from the Bank of Communications would have been received had it honoured the letter of credit. It is a non-interest bearing account used as a settlement or clearing account. Apparently it is a busy and significant account because it is said that hundreds of USD transactions may be processed through the account in any one day. A consequence of this is that it is impossible to say on any particular day at any particular time whether it would have been necessary to replenish the account by raising funds in Australian dollars.
The evidence also indicates that the Westpac’s foreign currency accounts are controlled by its Group Treasury in Australia which manages its liquidity position so that it can meet its currency requirements from day to day. Consequently, there is constant movement of currency holdings from account to account to meet onshore and offshore commitments and investment opportunities. Should there be insufficient funds in the Chase Manhattan USD account to meet a USD obligation on any particular day, Treasury might transfer funds from Australia to purchase USD to meet their obligations. The major types of transactions conducted through the USD accounts from day to day include international trade settlements, foreign currency payments, foreign exchange dealing settlements, investments, loans and repatriation of funds to Australia.
Paragraph 8 of the affidavit of Mr Edwards reads:
“As the Chase Manhattan US$ account is run as a ‘current account’, its balance may swing from credit to debit with many transactions being processed through the account throughout the day. It is therefore not possible to say precisely how any particular US$ funds received into the account would be applied or used by Westpac on any particular day. When funds are received, they simply form part of Westpac’s general liquidity position and are therefore available to meet any transaction processed through the account, including those types of transactions listed … above. That having been said, however, Westpac has made provisions for the loss of funds arising from the subject matter of these proceedings in Australian dollars.” (Emphasis added)
As Counsel for Westpac frankly stated, it is not possible to determine at any particular time or date whether funds were raised in Australian dollars to meet shortfall arising from the loss to the bank in US dollars of the funds the subject of the judgment. The position of Westpac in this case is quite different from that of a corporation or individual which may have a few international currency transactions per year, or only a few transactions per day, so that it would be possible to establish how the funds would be replenished. It is simply not possible to establish this fact. Moreover, as the Court of Appeal indicated in the Swiss Bank case (at 360), it cannot be assumed that the purchase of USD to pay the principal would be at a cost measured in Australian interest rates, because the bank has international accounts and the evidence is that it conducts many large transactions in USD.
On the evidence I am not satisfied that it has been established that the loss of interest was suffered by reference to AUD prevailing interest rates over the period prior to judgment. Accordingly, in my view, because the currency of the transaction was USD the usual rule should apply and interest should be calculated by reference to USD borrowing rates. The application of USD rates could not be described as capricious having regard to the fact that it was the underlying currency of the carriage, the sale and the letter of credit, so that there would be no element of commercial uncertainty if that were to be the measure of the interest rates.
It was faintly suggested that interest should be at compound rates but this is clearly not tenable; interest must be calculated at simple interest rates: see s 51A(2).
As to the quantum of interest if calculated on USD rates, Westpac submits that interest should be at Westpac base rates which is comprised of the US Federal Reserve Base Rate plus a product margin. The “product margin” is said to represent the cost to Westpac of administering a USD product, which in this case is the USD overdraft product margin. It is said that the administration cost would include those costs directly associated with providing the product and a fixed variable cost allocation for Westpac’s operation.
In my view, the proper measure of compensation is the amount by which Westpac was out of pocket by not having the amount of the judgment in USD from the relevant date through to the date of judgment. This would include the cost of Westpac borrowing at the US Federal Reserve Base Rate at the time, together with any payments, costs or expenses incurred in procuring the loan and maintaining it in effect up to the date of judgment.
Conclusion
Westpac is entitled to simple interest on the judgment amount measured at USD rates, from the relevant date, after taking into account the double counting referred to earlier, to the date of judgment. The applicable rate is that which will compensate Westpac for the interest it would have had to pay to borrow the amount of the judgment at the relevant date together with any costs and expenses of doing so.
As anticipated during argument, as a consequence of the above conclusions, it will be necessary for the parties to recalculate the appropriate amount to be awarded for interest in USD. Accordingly, I stand the matter over to 16 July 1999 at 9.30 am, at which time the parties are to bring in Short Minutes to give effect to these reasons and my earlier reasons, and to finalise this matter.

I certify that the preceding twenty-three (23) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin

Associate:
Dated: 9 July 1999

Counsel for Westpac Banking Corporation:
Dr A S Bell

Solicitor for Westpac Banking Corporation:
Mallesons Stephens Jaques

Counsel for Navalgalaxy Shipping Ltd and
For The Ship MV “Stone Gemini”:
Mr G Nell

Solicitor for Navalgalaxy Shipping Ltd and for The Ship MV “Stone Gemini”:
James Neill Solicitor

Solicitor for Jindalee Trading Co Pty Ltd and Dr Rosie Rosalind Wang:
Cleary Hoare Solicitors

Solicitor appearing for Jindalee Trading Co Pty Ltd and Dr Rosie Rosalind Wang:
Mr M Craswell

Date of Hearing: 25 May 1999

Date of Judgment: 9 July 1999

BETWEEN:	WESTPAC BANKING CORPORATION Plaintiff
AND:	THE SHIP MV "STONE GEMINI" Defendant
BY FIRST CROSS-CLAIM	NAVALGALAXY SHIPPING LTD, THE OWNERS OF THE SHIP MV “STONE GEMINI” Cross-Claimant JINDALEE TRADING CO PTY LTD First Cross-Defendant ROSIE ROSALIND WANG Second Cross-Defendant
BY SECOND CROSS-CLAIM:	JINDALEE TRADING CO PTY LTD Second Cross-Claimant NAVALGALAXY SHIPPING LTD Third Cross-Defendant
BY THIRD CROSS-CLAIM:	JINDALEE TRADING CO PTY LTD Third Cross-Claimant WESTPAC BANKING CORPORATION Fourth Cross-Defendant
BY FOURTH CROSS-CLAIM:	WESTPAC BANKING CORPORATION Fourth Cross-Claimant JINDALEE TRADING CO PTY LTD Fifth Cross-Defendant

JUDGE:	TAMBERLIN J
DATE:	9 JULY 1999
PLACE:	SYDNEY

Counsel for Westpac Banking Corporation:	Dr A S Bell
Solicitor for Westpac Banking Corporation:	Mallesons Stephens Jaques
Counsel for Navalgalaxy Shipping Ltd and For The Ship MV “Stone Gemini”:	Mr G Nell
Solicitor for Navalgalaxy Shipping Ltd and for The Ship MV “Stone Gemini”:	James Neill Solicitor
Solicitor for Jindalee Trading Co Pty Ltd and Dr Rosie Rosalind Wang:	Cleary Hoare Solicitors
Solicitor appearing for Jindalee Trading Co Pty Ltd and Dr Rosie Rosalind Wang:	Mr M Craswell
Date of Hearing:	25 May 1999
Date of Judgment:	9 July 1999