Lawlink NSW: Chapter 2 - Present Law in New South Wales - Its Background

2.1 Money may become payable by one person to another in many ways, for example, as a contract debt that is, as a sum stipulated to be paid, in return for goods supplied or services provided. It may be due as a debt by reason of a liability arising under statute, as in the case of rates, taxes and duties. Again, money may become payable as damages for breach of contract or as damages consequent upon wrongful conduct giving rise to a liability in tort upon the part of the wrongdoer. Our concern in this report is with money payable as a debt.

2.2 In the case of a liability to pay moneys arising under statute, it is usual for an express provision to specify the date upon which payment becomes due. That date is commonly fixed by reference to the time of making or notifying of an assessment.¹ Often the statute fixes or authorizes the charge of an additional sum by way of penalty or interest for non- payment or late payment.² We do not see any need for reform in this area of the law. It is a matter for the legislature to determine whether interest should be payable on such overdue debts, and if so, at what rate, and for what period.

2.3 The general rule at common law is that, in the absence of an express or implied contractual stipulation a creditor is unable to recover interest where there is late payment or non- payment of a contract debt.³ Similarly, in the case of damages for breach of contract interest is not recoverable unless the parties have expressly or by implication otherwise agreed. Subject to certain exceptions,⁴ interest is not recoverable on debts that are actionable in quasi-contract. Finally, at common law, interest is not recoverable in actions arising out of tort either as a component of the damages, or as compensation for delay in payment.

2.4 Equity did not follow the common law. Courts having an equitable jurisdiction commonly awarded interest where moneys had been withheld or misapplied by persons owing fiduciary duties,⁵ or where moneys were obtained or retained by fraud.⁶ Interest has also been awarded by way of ancillary relief in suits for specific performance or for rescission of contracts.

2.5 In admiralty cases too, the rule at common law was not followed. The general rule in admiralty was that a plaintiff entitled to damages arising out of a collision at sea could recover interest where prejudice by delay in meeting the claim could be shown.⁷

2.6 Recovery of interest in respect of certain classes of private debts and certain kinds of damage is permitted by statute. The cases where recovery of this kind is permitted include the right to interest on dishonoured bills of exchange,⁸ and the right of a partner, subject to agreement to the contrary, to interest on moneys advanced f or the purposes of the partnership beyond the amount of capital which he or she has agreed to subscribe.⁹

2.7 The judgments and orders of most courts carry interest by virtue of their constituent statutes from the date on which the judgment or order takes effect until payment, at the rates specified therein or as prescribed by rules of court.¹⁰ Interest payable under such provisions is distinct from interest the subject of this report. In some courts, liability to pay interest does not arise if payment is made within a specified period from the date of the judgment or order.¹¹ Again our report is not concerned with such provisions.

Statutory Alteration of the Common Law- Power Given to New South Wales Courts to Award Interest on Debts

2.8 Some courts in New South Wales have been given power under their constituent statutes to award interest in proceedings for the recovery of money (including debt or damages or the value of goods) in respect of a period prior to judgment. These provisions have given rise to the reference upon which this report is based. The model for this form of legislation is in section 3 of the Law Reform (Miscellaneous Provisions) Act, 1934 (U.K.) (in this report called the United Kingdom Act of 1934). Under this section power is given to courts of record to include an award of interest in the sum for which judgment is awarded in proceedings for the recovery of debt or damages.¹²

2.9 The courts which have been empowered to award interest in New South Wales are the Supreme Court¹³ and the District Court.¹⁴ No such power has been given to Courts of Petty Sessions exercising civil claims jurisdiction, even though their general jurisdiction has been raised to $3,000 and legislation has been passed, although not yet proclaimed further increasing that jurisdiction to $5,000. The Workers’ Compensation Commission has no power to award interest up to the date of award or order.

2.10 The power of awarding interest is discretionary. It allows interest to be included in the sum for which judgment is given 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 date when the judgment takes effect. The provisions do not authorise the award of interest upon interest, nor do they apply in relation to any debt upon which interest is payable as of right. In addition they do not affect the damages recoverable for the dishonour of a bill of exchange.

2.11 Neither the Federal Court,¹⁵ even though sitting in a State where the Supreme Court has such power, nor the High Court,¹⁶ even when applying New South Wales law, has any such power.

2.12 There is power in an arbitrator to award interest in respect of the period prior to the making of an award where interest is payable at law or in equity and the question of interest is referred. The arbitrator may also award interest where the parties agree expressly or by implication that he or she may do so. It is now established, at least in mercantile arbitrations and possibly in every arbitration that a term will be implied that an arbitrator might award interest upon the same principles as apply to awards of interest by the Supreme Court,¹⁷ and may do so even where the arbitration arises out of a Scott v. Avery clause.¹⁸ This is a matter which was the subject of our Report on Commercial Arbitration¹⁹ and for which provision is made in the Commercial Arbitration Bill, 1982.²⁰

2.13 The rate of interest awarded up to judgment under the provisions mentioned in paragraph 2.9 above need not be the same as that payable after judgment In the former case the rate is left to the discretion of the court (subject to practice direction), while in the latter it is at the rate prescribed from time to time.

2.14 Save in the special cases we have mentioned²¹ a debtor paying out a monetary claim before proceedings are instituted, may do so without paying interest. This is a result of the rule of common law to which reference has been made. No account is taken by the law of the respective circumstances in which debtor and creditor find themselves, nor of the relationship between them nor of the fact that the debtor has kept the creditor out of his or her money and has had the use of it without justification. It was this which Lord Denning described as the basis upon which an award of interest should be made under the United Kingdom Act of 1934.²² The debtor, in other words, is able to have a period of interest- free credit In times of high interest rates, this can cause substantial hardship to a creditor.

2.15 If interest is to be claimed by a creditor for the period up to judgment a statement to that effect must be made in the statement of claim.²³ Suggestions have been made to the effect that it may be desirable for procedures to be prescribed, probably by rule of court for the supply of particulars in the statement of claim to ensure that adequate notice is given of a proposed claim for interest,²⁴ or that evidence is placed before the trial judge of any special facts relevant to the exercise of his discretion.²⁵ We agree with these suggestions and recommend that the rules be amended accordingly.

2.16 In certain circumstances tender of payment of a debt by a debtor to the creditor before the commencement of proceedings will constitute an answer to the creditor’s claim. A defence of tender is available to a debtor who has "been always ready and willing to pay the debt and [has] tendered it before action to the plaintiff [creditor] who refused to accept it".²⁶ In other words, where a creditor sues for a liquidated amount the defence of tender may be pleaded by the defendant if the latter made a valid tender of the amount before the commencement of proceedings. The essence of the defence is that because the defendant has always been ready to pay the debt claimed, the proceedings are unjustified. Except for certain special cases²⁷ the significant date is the last moment before commencement of proceedings. It is not relevant that for a considerable time the defendant may have been unwilling to pay, or that demands had been made upon him or her which were not met. Nor is it relevant that prior to the tender the creditor was forced to borrow a sum of money at a substantial rate of interest or lost the opportunity of investing the sum owed.

2.17 The defence of tender is not available in answer to a claim for unliquidated damages.²⁸ Further, a defendant pleading this defence in the Supreme Court or the District Court must bring into court the amount alleged to have been tendered.²⁹ It seems that such a defendant would not need to pay into court any sum on account of interest claimed under the relevant statutory provisions³⁰ allowing recovery of interest to judgment because if the defence of tender is successful the defendant will normally be entitled to judgment including judgment for the costs of the action.³¹ The defence of tender, if successful, is a "complete defence".³² In such a case it will be held that "the plaintiff had no right to bring his action".³³

2.18 The defence of tender presents certain problems even when successful because until payment is made the plaintiff remains entitled to the amount of the debt. As mentioned, it is necessary when the defence of tender is raised in the Supreme Court or District Court for the defendant to pay the amount tendered into court. If the plaintiff accepts the amount paid in, he or she may take it out only with a court order.³⁴ If the plaintiff does not accept the amount paid into court then, under the rules as presently framed, it seems that the defendant may have the right to take the money out of court and still leave the issue of tender to be tried.³⁵ It may be open to the defendant to argue that by making the payment there has been compliance with the rules and that the issue raised by the plea must be tried. To overcome this argument we recommend that Part 22, rule 12 of the Supreme Court Rules be amended so that a defendant who has pleaded tender and has paid money into court may not take it out of court without an order. If the defence of tender f ails then the court’s power to award interest under section 94 will be available, since the plaintiff will be entitled to a judgment for a sum of money. On the other hand, if the defence of tender succeeds the plaintiff should not recover interest for the period after tender because the defendant will have established that “the plaintiff had no right to bring his or her action”. So far as the plaintiff s merits in relation to a claim for interest for the period prior to tender is concerned, this question raises the same issues as are raised by the payment in full of a debt prior to action.³⁶

2.19 If payment is sought to be made after proceedings for recovery of a debt or damages have been commenced, then the question of recovery of interest up to judgment is to some extent affected by the rules of court relating to payment of money into court. Payment into court is simply an offer to dispose of a claim upon terms,³⁷ which may affect the ultimate liability to costs. It does not constitute a defence which may be pleaded by way of payment or tender, or otherwise.³⁸

2.20 In the Supreme Court, the rules provide that a defendant may bring money into court in answer to any one or more causes of action on which a plaintiff claims³⁹ and where an order for interest to the time of judgment is claimed under section 94 of the Supreme Court Act, 1970 in respect of the interest which is the subject of the claim. The rules⁴⁰ also provide that where such an order for interest to judgment is claimed on any debt or damages and money is brought into court in answer to, or allotted to, the cause of action for the recovery of the debtor damages, the money shall be presumed to include the interest which is the subject of the claim.

2.21 These provisions have not been included in the District Court Rules, although that court was given jurisdiction in 1978 to award interest to the time of judgment.⁴¹ It is accordingly not entirely clear whether that court should take into account interest to the time of judgment in determining whether the amount paid in is greater than the amount recovered,⁴² and in exercising the discretion as to costs in the action.⁴³ We recommend that the rules be amended to resolve this doubt and further recommend that the approach taken in the Supreme Court be adopted.

2.22 Later we discuss in detail the consequences of a defendant attempting to make payment to a plaintiff after action is brought without making payment into court.⁴⁴ For the moment it suffices to observe that if such a payment is made and accepted the law presently does not permit recovery of interest since such recovery is dependent upon a judgment being given for the debt claimed. Accordingly, such a payment or offer of payment is likely to pose a substantial dilemma for the plaintiff.

2.23 The Supreme Court Act 1970 and the District Court Act, 1973 based on the United Kingdom Act of 1934⁴⁵ went part of the way in meeting the problem of the dilatory debtor. The law, however, provides no solution for the plaintiff who finds it necessary to institute proceedings in a court or tribunal not vested with discretionary power to award interest up to judgment. The law does not afford any redress in any court where a debt becomes overdue but is paid without any sum for interest before proceedings are commenced. Further, the law does not afford any redress where the debt is paid after proceedings have been commenced but before judgment is obtained.

Terms of Reference | New South Wales Law Reform Commission | Participants
Letter of Submission | Summary of Recommendations | CHAPTER 1. COMMUNITY LAW REFORM PROGRAM AND THIS REFERENCE | CHAPTER 2. PRESENT LAW IN NEW SOUTH
WALES - ITS BACKGROUND - UNITED KINGDOM ORIGINS | CHAPTER 3. RECOMMENDATIONS
FOR REFORM IN THE UNITED KINGDOM - CONCLUSIONS IN RELATION TO NEW SOUTH
WALES | CHAPTER 4. REASONS AND RECOMMENDATIONS | APPENDIX I. SUPREME COURT
(INTEREST) AMENDMENT BILL 1983 | APPENDIX II. INTEREST ON COSTS

1. See, for example, Land Tax Management Act 1956, s39; Local Government Act 1919, s. 143; Pay- Roll Tax Act 1971, s.17: Income Tax Assessment Act 1936 (Cth), s.204.

2. Byway of illustration an additional sum is made payable by way of penalty under the Land Tax Management Act 1956, s.40, and the Pay- Roll Tax Act 1971, s.22. An additional charge in the nature of interest may become payable upon overdue rates under the Local Government Act 1919, s.158, and on overdue income tax under the Income Tax Assessment Act 1936 (Cth), s.207.

3. Page v. Newman (1829) 9 B. & C. 378; 109 E. R- 140: London, Chatham and Dover Railway Co. v. South Eastern Railway Co. [18931 AC. 429. The basis of the rule of Lord Ellenborough C.J. in De Havilland v. Bowerbank (1807) 1 Camp. 50, was that unless the creditor stipulated for the payment of interest he was presumed to have agreed not to require it

4. A purchaser of land may recover the return of his deposit together with interest where the vendor has failed to make title: De Bernales v. Wood (1812) 3 Camp. 258. A surety who has become liable to make payment to a principal creditor may recover the amount paid together with interest. in a quasi-contract claim for indemnity. Petre v. Duncombe (1851) 20 L.J.Q.B.. 242.

8. Bills of Exchange Act 1909 (Cth), s.62. See also De Havilland v. Bowerbank (1807) 1 Camp. 50: the right to recover damages by way of interest on a dishonoured bill of exchange at common law is a recognised exception to the general rule refusing interest on debts.

10. Supreme Court Act 1970, s.95(1) and Supreme Court Rules, 1970, Pt 40 r.7(2)~ District Court Act. 1973, s.85(1); Courts of Petty Sessions (Civil Claims) Act 1970, s.39(1), and Courts of Petty Sessions (Civil Claims) Rules. r.32; Workers’ Compensation Act 1926, s.62A; judiciary Act 1903 (Cth), s.77N and High Court Rules, 0.43A, Federal Court Act 1976 (Cth), s.52 and Federal Court Rules. 0.35 r.8.

16. Australian National Airlines Commission v. The Commonwealth (1975) 49 A.L.J.R., 338.

17. Government Insurance Office of New South Wales v. Atkinson- Leighton joint Venture (1980) 31 A.L.R. 193, at p.220, per Stephen J; at p.230, per Mason J. (with whom Murphy J. agreed, Barwick C.J. and Wilson J. dissented on this point).

18. Codelfa Construction Pty. Limited v. State Rail Authority of New South Wales (1982) 56 A.L.J.R. 459, at p.471, per Mason J. (Stephen Aickin and Wilson JJ. agreeing with him Brennan J. dissenting).

22. Harbutt's “Plasticine” Ltd. v. Wayne Tank and Pump Co. Ltd. [197011 Q.B. 447. at p.468.

23. Supreme Court Rules, Pt 7 r.1(1); Pheeney v. Doolan [197711 N.S.W.L.R. 601; District Court Rules, Pt 5 r.6(g).

24. Pheeney v. Doolan [197711 N.S.W.L.R. 601, at p.606, per Moffitt P~ and see Callinan v. Borovina [19771 Qd.R. 366, at pp.377-8, per Douglas J.

26. Bullen & Leake & Jacob’s Precedents of Pleadings (12th ed- 1975), p.1314.

27. For example, if a debt is payable on a day fixed, as by the acceptance of a bill (Poole v. Tumbridge (1837) 2 M. & W. 223), or by the making of a promissory note (Dobie v. Larkan (1855) 10 E x. 776), the debtor cannot plead a tender made after the due date.

31. Dixon v. Clark (1847) 5 C.B. 365, at p.377; Griffiths v. School Board of Ystradyfodwg (1890) 24 Q.B.D. 307.

33. See Griffiths v. School Board of Ystradyfodwg (1890) 24 Q.B.D. 307. at p.308.

42. In Murphy v. Murphy [1963] V.R. 610, which the Full Court declined to overrule in East v. Breen [1975] V.R. 19 without being asked to convene a Full Bench, it was held that interest could be paid into court ln Jefford v. Gee [1970]2 Q.B. 130 it was held that since money could only be paid into court “in answer to a cause of action, and since the claim for interest under the Act of 1934 is no part of the cause of action money cannot be paid into court in respect of interest. The rules of the courts concerned are in different terms. In the District Court the rule (Pt 19 r.1(1)) allows a defendant to bring into court the whole of the amount claimed". In the Supreme Court of Victoria. the rule (0.22 r.1(1)) allows the defendant to pay into court a sum of money "in satisfaction of the claim or in satisfaction of any or all of the causes of action'. The English rule (0.22 r.1(1)) only permits payment into court "in satisfaction of the cause of action'. In the Supreme Court of New South Wales the rule (Pt22 r.2(1)) permits the bringing into court of money not only "in answer to any one or more causes of action', but in respect of interest where an order for interest under s.94 of the Supreme Court Act 1970 is claimed. The effect of the decision in Murphy v. Murphy has now been embodied in 0.22 r.6A of the rules of the Supreme Court (Vic). It is suggested that provided the plaintiff claims interest under s.83A of the District Court Act 1973 the defendant is entitled to pay money into court in respect of that interest and that the court is entitled to take into account any sum awarded for interest when exercising its discretion as to costs under Pt 19 r.9~