One common issue that arises, particularly in cases involving loan contracts, is whether a party that is successful in litigation is entitled to continuing interest after judgment at a rate stipulated in a contract or under the interest rate set out under relevant court rules and legislation. This is the issue that arose in Multispan v Portland (No 2) [2001] NSWSC 1047, which centred around s 95(1) of the Supreme Court Act 1970 (NSW).

Facts

14 Portland Street Limited and CVC Communication & Technology Pty Limited were seeking an order that the interest rate on the judgment sum of $2,353,525.25 handed down on 17 October 2001 accrue at a rate of 25% per cent per annum, compounded monthly from the date of judgment until the date of payment of the judgment sum and interest. The 25% interest rate was the rate in the relevant financing and security documents between the parties – the contractual interest rate.

Issues

Section 95(1) of the Supreme Court Act 1970 (NSW) provided that interest shall be payable at the prescribed rate unless the court utilises its discretion to order otherwise. This section has since been repealed and replaced with s 101 of the Civil Procedure Act 2005 (NSW) which confers the same power on the courts that interest be ‘calculated, at the prescribed rate or at such other rate as the court may order’. The prescribed rate for s 101 is found in r 36.7 of the Uniform Civil Procedure Rules 2005 (NSW) and is the amount 6% above the cash rate last published by the Reserve Bank of Australia before the specific time period for each case.

One of the questions in the case was whether or not the promise to pay interest had merged with the judgment made on 17 October 2001. Barrett J noted that the key issue in the case concerned how the court should exercise its discretion under s 95 of the Supreme Court Act 1970 (NSW) (now s 101 of the Civil Procedure Act 2005 (NSW)).

Judgment

Barrett J referred to the joint judgment of Gibbs CJ and Wilson, Brennan and Dawson JJ in Gould v Vaggelas (1985) 157 CLR 215 at 271 where their Honours affirmed that s 95(1) confers on the court the flexible discretion to impose an interest rate higher or lower than the prescribed ‘as the interests of justice in a particular case may require’. Barrett J found that in a typical commercial situation where interest continues to run, a creditor would have a ‘legitimate expectation’ that that interest would accrue at the contracted rate until payment. Further, it would not be in the interests of justice if a creditor was required to receive an interest rate lower than the contracted rate simply because they have been forced to pursue the debtor to judgment. Barrett J distinguished this from cases where the due date for the payment of the principal has passed and interest no longer accrues and noted that these are not cases where interest accrues at the contractual rate.

Barrett J referred to Mercantile Credits Limited v McDowell [1982] NSWLR 101 where Rogers J noted that the court should enforce an agreement between the parties where there are no facts that displace the prima facie effect of what was agreed on between the parties. However, Barret J noted that there are limits to this and the court will look at the reasonableness of the parties’ bargain. Barrett J ultimately found it was appropriate in the circumstances to order that interest accrue at a rate of 25% per annum compounded monthly from date of judgment until the payment of the judgment sum and interest.

Impact

This case acts as a reminder that the court is not limited to ordering that the interest rate be payable at the prescribed rate found in r 36.7 Uniform Civil Procedure Rules 2005 (NSW). Additionally, in situations where interest would have continued to accrue had it not been for a judgment being handed down, the court can impose an interest rate that better reflects the parties’ interest at the time they entered into the contract.