Suing for interest on a ‘debt or sum certain’
A person who succeeds in recovering a ‘debt or sum certain’ in litigation is entitled to interest on that amount unless there is good cause to the contrary. But what qualifies as a ‘debt or sum certain’? If you sue for an amount in the form of compensation and are paid it before judgment is entered, have you ‘recovered’ that amount? The Victorian Court of Appeal has recently addressed these concepts in the case of Carbone v Melton City Council.[1]
The facts
The applicants were registered proprietors of a large plot of land in Victoria. In June 2010, they entered into a contract for sale of part of that land to a developer which was to be settled subject to registration of a plan of subdivision.
The subdivision entitled the local council, Melton City Council, to acquire part of the land. In June 2013 and once the subdivision was registered, the Council offered to compensate the applicants provided they execute a deed of release and indemnity in favour of the Council.
The applicants rejected the Council’s offer. In August 2013, they demanded the Council pay the compensation it had offered as an advance on the total amount of compensation they considered was owed to them, together with interest. The parties were unable to negotiate an outcome — the Council persisted with its requirement for a deed and the applicants refused.
In February 2014, the applicants commenced a proceeding claiming compensation under the Land Acquisition and Compensation Act 1986 (Vic) and interest pursuant to section 58 of the Supreme Court Act 1986 (Vic). It was only after commencement of the proceeding that the Council paid the applicants the amount it initially had offered. The applicants acknowledged payment of this compensation and amended their statement of claim to seek the difference between it and the full amount to which they considered they were entitled in restitution.
Section 58 of the Act permits a court to award interest in a proceeding where the plaintiff has:
claimed a ‘debt or sum certain’; and
‘recovered’ that debt or sum certain in the proceeding.
Section 58 states that interest is to be calculated from the time the debt or sum certain was ‘payable’ (which, amongst other bases, includes the time at which the plaintiff makes a demand for payment). Although the decision to award interest is discretionary, the provision states that a court must do so unless there is ‘good cause’ to the contrary.
At trial, the judge dismissed the applicants’ proceeding; the judge held that the applicants were not entitled to compensation beyond what the Council had paid and nor any interest.
The applicants applied for leave to appeal on the sole ground the trial judge had erred in dismissing their claim for interest under section 58.
On appeal
The Court of Appeal, constituted by Tate, Kyrou and Niall JJA, considered the parties’ submissions. Tate and Kyrou JJA (Niall JA dissenting) in their joint judgment allowed the appeal and ordered the Council to pay the applicants interest pursuant to section 58.
Looking to the legislative intent behind the provision, their Honours considered that section 58 should be construed in a way that reflects its two-fold ‘beneficial purpose’, namely:
‘to compensate a party who has been obliged to take proceedings to recover a money sum and who in the meantime has been kept out of moneys which could otherwise have been used or upon which interest could have been earned’; and
‘to encourage the early resolution of litigation’.[2]
It was through the lens of this ‘beneficial purpose’ that their Honours addressed the question of the applicants’ entitlement to interest on the compensation they had been paid. Addressing the elements of section 58, their Honours held the following.
Was the compensation a ‘debt or sum certain’?
Their Honours noted, as a starting point, that an amount of compensation cannot be a ‘debt or sum certain’ if it needs to be assessed by a court. However, their Honours held:
‘[T]he mere fact that a further calculation is required may not, in the particular circumstances of a case, alter the characterisation of a claim as being one for a debt or sum certain’.[3]
In the applicants’ case, their Honours considered that the compensation which the applicants sought, and which the Council agreed to pay, was a ‘sum certain’ and became so when the applicants demanded payment of the Council’s offered amount in August 2013. This was because at that time:
‘[B]oth parties accepted that, whatever the amount of compensation that was payable to the applicants, it would be not less than the fixed sum [which the Council had offered].’[4]
Their Honours also noted that the compensation could be characterised as a debt or sum certain notwithstanding the Council’s insistence that the applicants execute a deed of release and indemnity before paying the amount because, in the circumstances, there was no legal basis for the Council to impose such a requirement.
Was the compensation ‘recovered’ in the proceeding?
A quirk of the applicants’ case was that they received compensation after issuing proceedings and before judgment. After they received the compensation, the applicants amended their statement of claim to seek a higher amount in accordance with the principles of restitution.
Tate and Kyrou JJA held that, consistent with the beneficial purpose of section 58(1), it was not necessary that judgment for that or some other amount of compensation have been entered in the proceeding in order for the amount to have been ‘recovered’. Their Honours cited the decision of the Supreme Court in Melbourne & Metropolitan Board of Works v Bevelon Investments Pty Ltd[5] as authority for this point. (Niall JA in his Honour’s dissent distinguished this case.)
Their Honours found a ‘clear causal relationship’ between the proceeding and the Council’s payment, stating:
‘The Council would not have paid the amount unconditionally if the applicants had not commenced the proceeding and the promptness with which the payment was made after that commencement indicates that the proceeding was the sole reason for the payment’.[6]
Their Honours considered that ‘[t]he purpose of s 58(1) is to provide redress in those circumstances’.[7]
When was the compensation ‘payable’?
A calculation of interest under section 58 is to run from the time at which the debt or sum certain becomes ‘payable’. The provision states that the amount can become payable when demand for payment is made. Tate and Kyrou JJA held that, for the purposes of calculating the interest payable, the amount of compensation was ‘payable’ from the date of the applicants’ demand in August 2013. This was so notwithstanding that the legal obligation to compensate the applicants arose earlier when the part of the subdivision vested in the Council.
Was there any ‘good cause’ to deny interest?
The Council had not argued at trial that there was ‘good cause’ to disallow any award of interest pursuant to section 58. Tate and Kyrou JJA were therefore reluctant to entertain the point on appeal. Their Honours did observe in obiter that, in circumstances where the Council had delayed payment of the amount for nearly two years and had imposed conditions on payment without a legal basis — thereby depriving the applicants of their compensation (or the ability to earn interest on that amount) for that period — there was no ‘good cause’ to refuse to award interest.
The dissenting judgment
Niall JA, dissenting, focused on the applicants’ pleaded case. Noting that the applicants had received compensation before amending their claim to seek an additional amount, his Honour held that there was not a close enough connection between the basis for payment and the applicants’ (amended) pleaded case. (It was, of course, the final and amended version of the applicants case which the trial judge had dismissed in the first instance.) The applicants had therefore not ‘recovered’ the amount which the Council paid.
His Honour also held that what the applicants had been paid was not a ‘sum certain’ because it was for an amount less than what they ultimately sought in their amended statement of claim.
Comment
The decision in Carbone v Melton City Council shows the Court of Appeal’s willingness to construe section 58 of the Supreme Court Act 1986 broadly and in accordance with its ‘beneficial purpose’ in order to do justice in the particular case. Section 58 applies to proceedings in other courts in the Victorian hierarchy and so is relevant beyond Supreme Court proceedings. Whilst the decision to award interest to the applicants turned on the particular facts of the case, those facts satisfied the requirements of section 58 and ultimately pointed towards an award of interest being appropriate.
Postscript, 9 May 2024:
Can interest awardable under section 58 be calculated on a compound basis? What about section 60?
In Merrindale Properties Pty Ltd v AIL C SUB TC Pty Ltd,[8] the Court held that ‘on its proper construction s 58 does not permit compound interest’.[9] The Court also made comments suggesting that there was no basis for any discretion to order differently.[10] Elsewhere, as the Court noted, section 60 — by virtue particularly of section 60(2)(f) — is not so rigid.
[1]: [2020] VSCA 117.
[2]: Ibid [44].
[3]: Ibid [47].
[4]: Ibid [91].
[5]: [1977] VR 473.
[6]: Carbone v Melton City Council [2020] VSCA 117, [103].
[7]: Ibid [95].
[8]: [2024] VSC 222.
[9]: Ibid [95].
[10]: Ibid [96]–[97].