Berengo v Amaca Pty Ltd & Anor [2011] VSC 276 - pre-judgment interest rates

The matter of Berengo v Amaca Pty Ltd & Anor [2011] VSC 276 (Berengo v Amaca) was a post-judgment hearing before T Forrest J. The matter was a personal injury claim in which the second defendant was ordered to contribute $150,000 to the first defendant plus $15,000 of contributed costs. The Court said that pre-judgment interest will apply, but it had to determine the appropriate rate as s60(1) of the Supreme Court Act 1986 (Vic) gives the Court a discretion to fix the rate of interest applicable.

I have included a discussion and extracts of this matter below.
S60(1) of the Supreme Court Act 1986 (Vic) provides as follows:

(1) 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.

At [15] His Honour said that the Court has a discretion to fix the rate of interest taking into account all the relevant circumstances with that rate capped by the current penalty interest rate fixed under section 2 of the Penalty Interest Rates Act 1983 (Vic).

T Forrest J said the starting point for fixing a rate was the rate fixed by the Penalty Interest Rates Act 1983 (Vic). T Forrest J then went on at [16] to consider the purpose of an award of interest:

In Johnson Tiles Pty Ltd v Esso Australia Pty Ltd, Gillard J identified three objectives of an award of interest:

(a) as compensation to the judgment creditor for being out of the funds from the date of the commencement of the proceeding until judgment;

(b) to deter judgment debtors from delaying proceedings, and thereby having use of the money for a longer period; and

(c) to encourage defendants to make realistic assessments of their liability in a case and to take bona fide steps to compromise the claim.

17 In Hartley Poynton v Ali [14] the Court of Appeal stated as follows:

The Penalty Act’s object, as I perceive it, has been in part to encourage the early settlement of litigation (cf Grincelis at 329), but it may be seen to have the broader purpose of ensuring that recalcitrant defendants, owing money or otherwise subject to an award of damages, do not withhold payments properly sought by plaintiffs upon the selfish basis that in the meantime they may without risk invest moneys so owed in a manner which will give them not merely sufficient to repay successful plaintiffs with interest under the Act but with an element of profit which might fairly be perceived as wrongfully obtained. This has ordinarily given Victorian courts a degree of flexibility in relation to the payment of interest which may not exist in other jurisdictions where the relevant rates are only broadly sufficient to recompense plaintiffs for being kept out of their money while their actions are fought or delayed, as frequently used to occur. 

Nevertheless the pattern in Victoria has been that, unless good cause be shown, successful plaintiffs are ordinarily awarded interest at the rate prescribed under the Penalty Act without too fine a regard for these distinctions and I would assume that the plaintiff in the present case is entitled, at the least, to interest on the moneys invested and ordered to be repaid, although that would bring in a sum in excess of what it might have been invested at, as the quotation from Clarke suggests. The seemingly more difficult issue is whether the rates prescribed by the Penalty Act should be awarded on top of the damages reflecting the various loss of opportunities which formed a significant part of the primary judgment sum awarded to the plaintiff. Here again I would see no reason ordinarily to deprive a party of interest at the rates prescribed unless it was unfair to do so and in particular unless it could be shown that there was in effect double counting by awarding interest on those damages.

T Forrest J agreed at [18] that 'the power to fix an interest rate lower than the rate fixed under s 2 of the Penalty Interest Rate Act does not depend upon “good cause [being] shown to the contrary” and that the Court is at large below that rate.'

The second defendant then argued that the first defendant was a non-commercial entity earning between 2% and 3% interest on its investments, and by reason of this, the appropriate interest rate should be between this range as this would be the applicable rate had the money been paid when it was due (at [19]):

19 Seltsam argued that Amaca is no longer a commercial entity and its principal function now is to provide compensation to those who suffer from asbestos related illness as a result of exposure to Amaca/James Hardie products. Seltsam further contended that an analysis of Amaca’s affairs demonstrated that its average return on its invested funds was 3.03% for the year ended 31 March 2009 and 2.14% for the year. The argument proceeds that I ought fix interest in this range and no higher as the opportunity cost arising from keeping Amaca “out of the money” is the loss of interest to Amaca that otherwise would have been received had the monies been paid over promptly. 

At [20] T Forrest J disagreed with this submission and said that the Court does not have to conduct an inexpert audit of the successful litigant to determine the appropriate rate, and said that the award of interest should not depend on the trading ability of the successful litigant:

20 I find this submission highly unattractive. It is not the function of this court to conduct an inexpert audit of a successful litigant’s affairs in order to determine their recent commercial acuity. A moment’s consideration only is sufficient to demonstrate the unsustainability of this argument. An unsuccessful litigant could delay payment of a liability with little financial consequence in the case where the successful party has traded with modest success in recent times. If the successful party has traded at a loss is he not entitled to interest at all? Has the loser saved the winner money by not paying the judgment debt? If the winner is highly profitable should the loser pay his share post-haste? These questions answer themselves.

At [21] to [23] T Forrest J considered that the dilatory conduct of the second defendant was sufficient reason to award the full rate under the Penalty Interest Rates Act 1983 (Vic):

 21 A function of an award of statutory interest is to compensate a party for the detriment suffered from being denied its money during the relevant period.[16] Whilst this function is an important consideration in the determination of the appropriate interest rate, it is not the only relevant consideration. Early resolution of litigation ought be encouraged by the courts and judgment debtors ought be deterred from delaying proceedings and thereby having use of the money for a longer period.[17]

22 The plaintiff’s claim was settled on 16 February 2010. At no time after that date and before the delivery of reasons for judgment did Seltsam make any offers to contribute any sum towards the settlement and the plaintiff’s costs. After reasons for judgment were delivered (but not final orders) Seltsam has engaged in what can only be described as dilatory conduct. I stood the matter down on 5 November 2010 for discussions to occur on the overall issue of costs. A full six months later Seltsam, after procrastination[18] and then silence, finally consented to Amaca’s costs on the same basis as originally sought by Amaca.

23 Whilst the Penalty Interest Rate Act 1983 provides a starting point for the setting of an appropriate rate, in this case I consider the narrative set out above demonstrates that there are good reasons to fix that rate as applying to pre-judgment interest in this case. Accordingly, I consider that both pre-judgment and post-judgment interest ought be calculated at the rate fixed under s 2 of the Penalty Interest Rates Act 1983.

Berengo v Amaca is a useful authority because it highlights the appropriate considerations when a Court is faced with a discretion to fix an interest rate. It demonstrates that the considerations under s60(1) of the Supreme Court Act 1986 (Vic) differ significantly from an award of Hungerfords damages under the principles set out in Hungerfords v Walker [1989] HCA 8. In Berengo v Amaca the Court focuses on the conduct of the parties, whereas in an award of Hungerfords damages the Court is concerned with compensation for loss of use of money at a rate which the successful party would have achieved.