1.1 This is the second report in the Community Law Reform Program. The Program was established by the Attorney General by letter dated 24 May, 1982 addressed to the Chairman of the Commission The letter included the following statement:

This letter may therefore be taken as an authority to the Commission in its discretion to give preliminary consideration to proposals for law reform made to it by members of the legal profession and the community at large. The purpose of preliminary consideration will be to bring to my attention matters that warrant my making a reference to the Commission under s.10 of the Law Reform Commission Act 1967.

1.2 The Commission wrote on 9 June, 1982 seeking its first Community Law Reform references. By letter of reply dated 28 July, 1982 the Attorney General referred three matters to the Commission the first of which is the subject of this report.¹ The reference requires the Commission to inquire and report in the following terms:

(1) Interest on Certain Debts

Whether the courts of New South Wales or any one or more of them, should be empowered to award interest on debts where payment is made, whether in whole or in part before judgment.

. . .

(4) Any matter incidental to the foregoing matters or any of them.

The background of the Community Law Reform Program is described in greater detail in the Commission’s Annual Report for 1982.

1.3 The immediate reason for the Commission giving preliminary consideration to the subject matter of this report was the receipt of a letter from a member of the Supreme Court of New South Wales suggesting that section 94 of the Supreme Court Act, 1970 is deficient in that it permits the award of interest only where the court gives a judgment for a "sum" of money. The letter was written by Mr. Justice Rogers who is a part-time member of the Commission. The deficiency is illustrated by cases where a debtor, prior to judgment, discharges the debt or sum claimed. In such a case, the court will be unable to give judgment for a sum of money and will therefore be unable to award interest to the creditor, unless there is a contractual right to it. Section 94 provides as follows:

(1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods), the Court may order that there shall be included, in the sum for which judgment is given interest at such rate as it 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 date when the judgment takes effect.

(2) This section does not -


(a) authorise the giving of interest upon interest

(b) apply in relation to any debt upon which interest is payable as of right whether by virtue of any agreement or otherwise; or

(c) affect the damages recoverable for the dishonour of a bill of exchange.

1.4 In England the Law Commission dealt with the subject of interest on debts in June 1978 in its "Report on Interest”' and recommended reform of the relevant law of England upon which the provisions presently in force in New South Wales are based.² A Bill in partial implementation of the recommendations of the Law Commission was introduced into the English Parliament in February 1982.³

1.5 As part of its preliminary inquiries the Commission held discussions with a number of firms of solicitors in Sydney, examined judicial criticism of the present law in recent reported decisions of English courts,⁴ and came to the conclusion that the subject is one on which a reference to the Commission is warranted.

The Problem and Need for Reform

1.6 The problem is not difficult to describe, although it has several aspects. First the general rule is that overdue debts do not carry interest. Specific exceptions have been made by statute and, of course, the parties to any transaction may agree that interest will be payable. However, usually no such agreement is made as the parties do not contemplate the possibility of default or delay in payment. As a consequence unpaid creditors may suffer substantial loss while kept out of money which is due to be paid. This may present particular difficulties in times of economic uncertainty and fluctuations in interest rates. Secondly, the law at present allows courts to award interest in a variety of cases but this power has not been given to all courts concerned with debt recovery. Thirdly, as mentioned in paragraph 1.3 above, the exercise of the power in a claim for debt depends on the award to the plaintiff of a judgment for a" sum' of money. Where full payment is made before judgment no interest can be recovered.

The Scope of this Reference and of this Report

1.7 Our concern is with moneys payable byway of debt for it is to “debts” that our terms of reference are directed. It should be noted that the power to award interest conferred upon the Supreme Court by section 94 of the Supreme Court Act, 1970 and the power conferred upon English courts under the English legislation,⁵ extends to the award of interest in any proceedings for the recovery of " debt or damages”. The restriction of our terms of reference to "debts" is due to the fact that the critical problems addressed by this report are likely to arise only in proceedings for recovery of a debt or liquidated sum.

Underlying Principle

1.8 The principle upon which we have based our recommendations is this: persons to whom money is properly owed should, when it is just to do so, be compensated for being deprived of or "kept out of" their money. The courts are suitable institutions to be entrusted with power to award such compensation (in the form of interest).

Summary of Our Recommendations

1.9 We have formed the view that all courts having jurisdiction in debt claims should be able to award interest. We have also formed the view that interest should be recoverable in certain cases where overdue debts are paid before judgment, and that a number of procedural changes should be made to facilitate recovery of interest. Accordingly, in this report we recommend enlargement of the powers of the Supreme Court and the District Court, and amendment of certain procedural rules. We also recommend that like jurisdiction be given to Courts of Petty Sessions. Draft legislative provisions reflecting our recommendations are submitted with this report. We have not drafted amendments to the rules as we consider that the question of procedural reform and alteration of rules of court is more appropriately the province of Standing Rules Committees.

Parliamentary Counsel

1.10 We record our thanks to Parliamentary Counsel Mr. D.R. Murphy for his assistance and advice on the form and content of the draft legislation submitted with this report in Appendix I.

FOOTNOTES

1. See p.2 above.

2. Law of Contract Report on Interest H.M.S.O , Cmnd 7229 (1978), (Law Corn No.88).

3. Administration of justice Bill 1981, cl.15 and Sch.l. See also paras 3.1-3.9 below.

4. Tehno-Impex v. Gebr. Van Weelde ScheepvaartkantoorB.V. [198011 Lloyd’s Rep.484, at p.489, per Parker J.; Tharros Shipping Co.Ltd. v. Mitsubishi Corporation [19811 1 Lloyd's Rep. 166.

5. See para.2.8 below.