IN THE SUPREME COURT OF VICTORIA	Not Restricted	
AT MELBOURNE
Commercial Court
COMMERCIAL List

S ECI 2019 04252

AUSTRALASIA DEVELOPMENT (M) PTY LTD (ACN 141 337 288)	Plaintiff	
		
v  		
		
GLENWOOD ESTATE (VIC) PTY LTD (ACN 143 432 393) & ORS	Defendants	

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JUDGE:	Riordan J	
WHERE HELD:	Melbourne	
DATE OF HEARING:	3 December 2021	
DATE OF RULING:	14 December 2021	
CASE MAY BE CITED AS:	Australasia Development (M) Pty Ltd v Glenwood Estate (Vic) Pty Ltd (Interest)	
MEDIUM NEUTRAL CITATION:	[2021] VSC 831	

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INTEREST – Statutory interest under s 58(1) of the Supreme Court Act 1986 (Vic) – Whether there is good cause not to award interest for the period marked out by the section – Whether interest should be awarded at the rate fixed under s 2 of the Penalty Interest Rates Act 1983 (Vic) – Whether the prescribed rate is the starting point in making an award of interest under the section. 
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APPEARANCES:
	Counsel	Solicitors	
For the Plaintiff	T Mitchell	Lincolns Lawyers & Consultants	
			
For the Defendants	J Evans QC with A Purton	Madgwicks Lawyers	

Contents
Background
Competing contentions
Submissions
Plaintiff’s submissions
Defendants’ submissions
Principles
Conclusion

HIS HONOUR:
1	On 18 November 2021, I published my reasons following the trial in this matter.  On 3 December 2021, I gave judgment for the plaintiff in the sum of $5,980,000 plus costs.  I reserved the question of interest payable on the judgment sum.
Background
2	The facts relevant to the determination of the question of interest are as follows.
3	By a Joint Venture Development and Unitholders Agreement dated 30 August 2011 and executed in November 2011 (‘the JV Agreement’), the plaintiff, the defendants and others proposed the subdivision and development of two lots of land with a total area of 92.56 hectares at Baranduda, Wodonga (‘the Property’).  Pursuant to cl 4.3 of the JV Agreement, the first, second and third defendants (among others) warranted to the plaintiff that the sum of at least $6 million would be paid to the plaintiff on or before 15 September 2018 (‘the guaranteed profit’).
4	Under the terms of the executed Deed of Indemnity & Guarantee, which was attached as an appendix to the JV Agreement, the fourth defendant (‘Mr Matthews’), Mr Christos Batzios and Mr Lou Garita (who were all directors of the first defendant and respectively directors of various parties to the JV Agreement) guaranteed to the plaintiff the performance by the first defendant of the terms of the JV Agreement, including the guaranteed profit.
5	In around December 2012, the parties to the JV Agreement, including Mr Huck Lee Beh on behalf of the plaintiff, agreed that the joint venture would not proceed with the acquisition and development of one of the two lots, which resulted in an approximate 60% reduction in the area of the proposed development.
6	In the Principal Reasons, I found that, on 2 January 2013, Mr Beh, Mr Matthews and Ms Chee Fun Yeong (then a director of the plaintiff) had a conversation in which Mr Beh stated, in substance, that after an updated feasibility of the development (now reduced in scope) was provided:
(a)	he was ‘going to look at’ the guaranteed profit; and
(b)	the guaranteed profit may need to be reviewed.  
7	For the reasons set out in the Principal Reasons, I found that the conversation on 2 January 2013 did not:
(a)	constitute a legally enforceable agreement to release the defendants from their obligation to pay the guaranteed profit; or
(b)	give rise to an estoppel against the plaintiff enforcing its right to the guaranteed profit.
8	However, on 3 January 2013, Mr Matthews indicated to Mr Batzios and Mr Garita (being representatives of parties to the JV Agreement other than the plaintiff) that he understood that the issue arising from the guaranteed profit may be resolved, as indicated by the following emails:
(a)	By email of 3 January 2013 at 1:48 pm to Mr Batzios and Mr Garita, with the subject line ‘meeting with Beh and Lisa’, Mr Matthews stated:
got agreement in principal [sic] subject to provision of an undated feaso [sic] on Lot 12 only to the following
a) 	AD release us (by variation to agreement) from the guaranteed $6m minimum profit share
b) 	we repay AD $1m by august 2013 and $1m by oct 2013
c)	the forfeit AWC deposit comes from our 75% share of the profit and doesn’t effect [sic] AD profit share (this isn’t as bad as it sounds when you do the actual numbers)
(b)	By email of 3 January 2013 at 3:30 pm to Mr Matthews and Mr Batzios, Mr Garita replied to the email of 1:48 pm, relevantly stating:
Good News on the variation agreement
In relation to the other comments I will finalise the proposed feasibility for Lot 12 over the next few days and issue to you for comment
We can also draw up a draft variation document in due course
(c)	By email of 3 January 2013 at 4:28 pm to Mr Garita and Mr Batzios, Mr Matthews replied, relevantly stating:
Yep he (beh) is very reasonable and a big picture type … still wants to diversify out of malaysia and sees us as a partner … have no reason to disbelieve him 
Feaso [sic] yep leave with you.
9	By April 2013, Mr Beh was provided with a document titled ‘Glenwood Land Sales Feasibility’ and dated 26 January 2013, which showed a projected gross margin for the reduced scope development as $14,083,634, which was down from the initial profit forecast of $40,435,698, attached as Appendix 4 to the JV Agreement.
10	There was no further discussion at all with respect to the guaranteed profit until 7 March 2019, when Mr Beh told Ms Yeong that the plaintiff would pursue litigation against the first defendant with respect to the guaranteed profit.
11	The first communication to the defendants was by letter of demand dated 12 June 2019, in which the plaintiff’s solicitors demanded (among other things) payment of the guaranteed profit. 
12	By writ filed 18 September 2019, the plaintiff claimed the guaranteed profit from the defendants.
Competing contentions
13	The plaintiff claims interest under s 58 of the Supreme Court Act 1986 (Vic) (‘the Supreme Court Act’) and contends that:
(a)	interest should be payable from the date the guaranteed profit was due under the JV Agreement, being 15 September 2018, until judgment on 3 December 2021; and
(b)	the rate of interest should be 10%, being the rate fixed under s 2 of the Penalty Interest Rates Act 1983 (Vic) (‘the Maximum Rate’).
14	The defendants contend that:
(a)	there is good cause to reduce the period for which interest is payable, such that it should commence on 12 June 2019, being the date it was demanded; and
(b)	the rate of interest should be 5%, rather than the Maximum Rate. 
Submissions
Plaintiff’s submissions
15	In support of its contentions, the plaintiff submitted as follows:
(a)	Interest should be payable from the date it was due under the JV Agreement because the debt was owed from that date and, since that date, the defendants have had the benefit of not having paid the money to the plaintiff.
(b)	The interest rate applied for the entire period should be 10% because that is the starting point in Victoria and there is no evidence that the defendants could have borrowed the money at a lesser rate.
Defendants’ submissions
16	In support of their contentions, the defendants submitted as follows:
(a)	Interest should not be awarded prior to the demand for payment of the guaranteed profit on 12 June 2019 because, until that time, the defendants genuinely believed that they had been released from the obligation to pay the guaranteed profit.
(b)	The Maximum Rate is significantly higher than ‘commercial rates’, and the Court retains a discretion to award interest at a lower rate than the Maximum Rate.
(c)	The purposes of an award of interest under s 58(1) of the Supreme Court Act do not include punishment of defendants.  While such purposes may include discouraging tardiness in payment of debts, that principle has no application in a case such as this where the claim was defended on a proper basis.
(d)	An award of interest at 10% is greater than that required to compensate the plaintiff.  The observation of Ormiston JA in Hartley Poynton Ltd v Ali, to the effect that the maximum rate under the Penalty Interest Rates Act 1983 (Vic) ‘has usually been some points below the current mortgage and overdraft rates’, is no longer true, as the Reserve Bank of Australia’s ‘retail deposit and investment rates’ for the period September 2018 to October 2021 were between 2.45% and 0.3%.
(e)	The plaintiff’s loss was in the nature of an expectation loss rather than the repayment of moneys advanced, and this justifies reducing the rate payable under the Supreme Court Act.
Principles
17	Section 58(1) of the Supreme Court Act provides for interest to be allowed when debts or sums certain are recovered and relevantly provides:
If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 … from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.
18	Where the section is applicable, the Court:
(a)	is required to award interest for the period from: 
(i)	the date provided in a written instrument; or (if there is no such provision)
(ii)	the date of demand,
unless good cause is shown to the contrary, in which case it may allow interest for a lesser period than that marked out by the section; and
(b)	may fix the rate of interest at a rate not exceeding the Maximum Rate, which is determined within the discretion of the Court. The proviso ‘unless good cause is shown to the contrary’ does not affect the Court’s discretion in fixing the rate of interest; and it cannot be applied to award a rate greater than the Maximum Rate.
19	The purposes of the section are:
(a)	to compensate the creditor for being kept out of its money, and deprived of its use; and
(b)	to encourage the early resolution of litigation and discourage tardiness on the part of debtors/defendants.
20	With respect to the period for which interest is awarded:
(a)	The expression ‘good cause to the contrary’ has been held to mean ‘no more and no less than good reason, according to the justice of the case, for not allowing interest at all or, if interest is to be allowed, then for not allowing interest for the whole of the period marked out by the section’.  
(b)	As was observed by the Court of Appeal in Clarke’s case:
What is ‘good cause’ in any given case will therefore depend upon the particular facts and circumstances and it would be unwise to attempt to put any gloss on the expression. … In essence, therefore, it may be said that s 58(1) operates simply to confer upon the court a general discretion to depart from the terms according to which interest is required otherwise to be allowed. The question of interest cannot be said to be wholly a matter of discretion, as is the case with costs; for the injunction laid down by s 58(1), to allow interest according to its terms, must be followed unless good cause is shown otherwise. But this should be understood as meaning no more than that the course charted by the section should be followed unless, for good reason, the court is satisfied that some other and lesser course should be followed.
…
Good cause may be shown in many ways and not only by evidence led on behalf of the defendant. Thus, having heard all of the evidence at trial, the court might be satisfied, for instance, that in all of the circumstances it would be unjust to allow interest to the creditor from the date of demand.
(c)	In David Leahey (Aust) Pty Ltd v McPherson’s Ltd, Tadgell J considered a claim for interest under s 58 of the Supreme Court Act, in the following circumstances:
(i)	A broker and a client entered into an agreement in respect of which the client agreed to pay a commission on the successful acquisition of a business introduced by the broker.  The broker introduced a business to the client, but ultimately negotiations were not successful.  
(ii)	Some five years later, the client acquired the business when it took over a public company in 1987.
(iii)	On 6 July 1987, the broker made a demand for its commission under the agreement.
(iv)	On 21 June 1988, the broker filed a writ claiming the commission.
Tadgell J found that there was good cause not to allow the broker interest for the whole of the period from the date of demand because he considered ‘it not unreasonable, as a matter of commerce, to say that immediate payment was probably not required or even expected’.  His Honour allowed interest for nine months of the approximate 12 month period between the date of demand and the filing of the writ.
21	With respect to the rate at which interest is awarded:
(a)	The rate of interest is always a matter in the discretion of the Court.  Of course, the discretion must be exercised judicially, but it ‘may not be circumscribed by attempts to define what must or must not be taken into account when the discretion falls to be exercised’.
(b)	Although the rate under the section is set as the ‘maximum’, it is well established that the practice in Victoria is to treat the maximum rate as the starting point for the exercise of the Court’s discretion.  As the Court of Appeal observed in Australia Kunqian International Energy Co Ltd v Flash Lighting Company Ltd: 
Nevertheless, the practice in Victoria is to treat the maximum rate as the starting point for the exercise of the discretion. Where a defendant contends that the facts and circumstances of the case warrant adopting a lower rate, evidence is required as to an appropriate lower rate. Mere reliance by a defendant in broad terms on the fact that the PIRA rates are higher than market rates is not in itself a sufficient reason to apply a lower rate.
Conclusion
22	With respect to the period of interest, in my opinion, there is good cause why the plaintiff should not be awarded interest for the period between 15 September 2018, when the guaranteed profit became due under the JV Agreement, and 12 June 2019, being the date of demand.
23	At the time that the parties agreed that the development should proceed with a substantially reduced scope, the plaintiff said that the guaranteed profit would be reviewed.  While I have found that the relevant conversation did not constitute a variation to the JV Agreement, at no time prior to the demand for payment of the guaranteed profit did Mr Beh, on behalf of the plaintiff, communicate to the defendants that he had changed his mind, and that he was no longer prepared to review the guaranteed profit.  
24	In the circumstances, the plaintiff should not have reasonably expected that the defendants would have paid the guaranteed profit at least until they were informed that the plaintiff no longer intended to review the guaranteed profit.  I consider the justice of the case requires that the plaintiff should only be entitled to interest under s 58 of the Supreme Court Act from the date that it demanded payment from the defendants.
25	With respect to the rate of interest, I do not consider there is any reason to depart from the starting point, being the Maximum Rate.  I reject the defendants’ submissions that the interest rate should be reduced the basis that:
(a)	the defendants had a bona fide, albeit unsuccessful, defence;
(b)	the plaintiff’s loss was in the nature of an expectation loss; and/or
(c)	the investment rates available to the plaintiff were substantially lower than the Maximum Rate.  
26	As was stated by the Court of Appeal in Australia Kunqian: 
[T]he mere fact that the PIRA rates are higher than market rates – which has been the case over recent years – has never been treated as sufficient in itself for not adopting the PIRA rates.
27	Accordingly, I propose to award the plaintiff interest calculated at the rate of 10% for the period from 12 June 2019 until the date of judgment.
28	I will hear the parties as to the calculation of interest. 
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