Reported Decision : (2000) 34 ACSR 689 New South Wales Supreme Court CITATION : Spedley Securities Notice of Motion filed 8 May 2000 [2000] NSWSC 593 CURRENT JURISDICTION: Equity FILE NUMBER(S) : SC 2070 of 1989 HEARING DATE(S) : 8 and 9 May, 7 and 21 June 2000 JUDGMENT DATE : 30 June 2000 In the matter of Spedley Securities Limited (In Liquidation) ACN 001 460 967 & The Companies (NSW) Code The Application of John Beresford Harkness in his capacity as official liquidator of Spedley Securities Ltd (In Liquidation) (Applicant) PARTIES : Bond Street Investments Pty Limited (First Respondent) Commonwealth Bank of Australia (Second Respondent) State Bank of NSW Limited (Third Respondent) JUDGMENT OF : Windeyer J at 1 Mr J.E. Sexton, SC (Applicant) COUNSEL : Mr G.T. Bigmore, QC (First Respondent) Mr P.W. Wood (Second Respondent) Mr J.S. Marshall with him Mr D.S. Weinberger (Third Respondent) Dibbs Crowther & Osborne (Applicant) SOLICITORS : Freehill Hollingdale & Page (Melbourne) (First Respondent) L E Taylor (Second Respondent) Freehill Hollingdale & Page (Sydney) (Third Respondent) CATCHWORDS : CORPORATIONS - winding up - claims for post-liquidation interest in winding up - preference - litigation for recovery of money paid as preference settled - whether entitlement to claim for post-liquidation interest on moneys paid under deed of settlement - whether releases in deeds of settlement precluded claims for post-liquidation interest - post-liquidation interest rate Bankruptcy Act 1966 (Cth) ss 122, 122(5) LEGISLATION CITED : Bills of Exchange Act 1909 (Cth) s62 Supreme Court Rules Schedule J The Companies (New South Wales) Code ss205, 451 Cook v Fowler [1874] LR7HL 27 David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353. In re Humber Iron Works and Shipbuilding Co, Warrant Finance Co's case [1869] LR 4 ChApp 643 Johnson v Norris (1911) 190 Fed. Rep. 459 CASES CITED : Mackenzie v Rees (1941) 65 CLR 1 Midland Montague Australia Ltd & State Bank of South Australia & Bank of China v Harkness & Rennie (1994) 35 NSWLR 150 National Bank of Greece SA v Pinios Shipping Co (No 1) (The Maria) [1990] 1 AC 637 Re Anderson's Seeds Ltd & The Companies Act [1971] 2 NSWLR 120 In Re Lines Bros Ltd (in liq) [1983] Ch 1 Re Masureik & Allan Pty Ltd & The Companies Act (1981) 6 ACLR 39. DECISION : See paragraphs 40, 41 and 42 1 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION WINDEYER J FRIDAY 30 JUNE 2000 2070/89 APPLICATION OF SPEDLEY SECURITIES JUDGMENT (on Further Amended Notice of Motion filed 8 May 2000) General outline of issues and facts 1 Somewhat to the surprise of many people, all creditors of Spedley Securities Limited (in liquidation) (SSL), whose proofs of debt were accepted by the liquidator, have been paid their admitted claims in full. Four dividends have been paid as follows: 22 December 1992 17.7 cents 18 February 1993 27.3 cents 31 August 1993 7.0 cents 30 September 1999 48.0 cents 100.0 cents 2 The liquidator of SSL, Mr Harkness, holds further funds of approximately $22,400,000. In accordance with prior directions the liquidator sought claims for interest on the admitted debts. Claims received are substantially in excess of the funds available to satisfy interest claims in full. 3 By further amended notice of motion filed in court on 8 May 2000 the liquidator sought certain directions. Some of these related to notice and calling for claims and have already been dealt with. Those remaining sought directions as to the basis of distribution of dividends on claims for interest; the rate of interest to be applied to various classes of claimant; and as to the rejection of proofs for interest arising out of debts admitted as a result of recovery of preference payments made to four banks: namely, Commonwealth Bank of Australia (CBA), Colonial State Bank of NSW (State Bank), Bank of New Zealand (BNZ) and National Australia Bank (NAB). The claims of the latter two banks have been assigned and are now vested in Bond Street Investments Pty Limited (Bond Street). Bond Street, CBA and State Bank were joined as respondents pursuant to an earlier order. All other claimants were given notice of the proceedings but none of the others sought to be joined. 4 During the hearing it became clear that each of the claims of the respondent creditors raised different questions which should be dealt with and answered before the general questions raised by the further amended notice of motion were answered. That was because the liquidator had made a claim against each of the four banks for recovery of a payment alleged to be a preference. These four recovery claims were settled and in each case the settlement was incorporated in a deed which on three occasions incorporated a form of release, giving rise to a question as to whether this barred claims of proof for interest and if not, a question as to the rate of interest applicable and the date from which it became payable. For this reason I ordered that certain questions affecting the claims of the respondents should be answered before the general matters raised by the further amended notice of motion were dealt with. As it turns out even those questions have turned out to be deficient. 5 Although the claims of NAB and BNZ were assigned by those banks to Dalcom Asset Management Pty Limited (Dalcom) which in turn assigned them to Bond Street, it is convenient to deal with them by referring to them as the NAB claim and the BNZ claim. Both of these creditors had claims in the liquidation in addition to those which arose as a result of the claims of the liquidator to recover preferential payments; it is however only the latter claims which are the subject of additional questions, as the non preferential claims do not raise questions which would not be answered by the general directions sought in the further amended notice of motion. General position as to claims for post-liquidation interest 6 Debts provable in the liquidation were those existing at the date of winding up, namely 25 May 1989. However, if there is a surplus - meaning moneys available after debts at date of winding up are paid in full - then creditors are entitled to prove for post-liquidation interest because they are returned to their contractual rights. The liquidator must discharge those rights, so far as he is able, if and after provable debts have been paid in full: In re Humber Iron Works and Shipbuilding Co; Warrant Finance Co's case [1869] LR 4 ChApp 643; Mackenzie v Rees (1941) 65 CLR 1; Midland Montague Australia Ltd & State Bank of South Australia & Bank of China v Harkness & Rennie (1994) 35 NSWLR 150; Re Lines Bros Ltd (in liq) [1983] Ch 1. If there was no contractual right to interest on the debt proved in the liquidation then there can be no claim for post-liquidation interest. The right to interest depends upon contract. 7 As a matter of equitable adjustment if there are insufficient funds to pay all claims for post-liquidation interest in full these should be paid pro rata to the total of the interest claims and not pro rata to the debts proved in the liquidation plus the contractual interest claims. There was no dispute about this at the hearing. Bank of New Zealand claim 8 This was the most complicated of the claims for interest of the four respondents. What has to be determined is whether a deed of settlement between the liquidator and the bank precluded a claim for interest and if not, whether interest can be claimed, and if so at what rate. The facts relevant to this claim are set out in the following paragraphs and for the most part can be gleaned from a judgment of Cole J in proceedings in the Commercial Division of this Court No. 50492 of 1990. 9 On 10 November 1988 BNZ made available a $25 million loan facility to SSL. On 11 November 1988 BNZ purchased from SSL for $25 million what was described as a portfolio of receivables, including book debts owing to SSL by Beveridge Holdings Pty Limited, Caldring Pty Limited, Enan Holdings Pty Limited, Kylnine Pty Limited, Leepard Pty Limited, Magrim Pty Limited, Mr R.B. Potts, Pluteus (102) Pty Limited and Cethana Pty Limited. At the same time the parties entered into an agreement under which BNZ had the option to put those receivables back to SSL for the sum of $25 million. Also on 11 November 1988 SSL executed a guarantee in favour of BNZ under which it was obliged to pay any amounts of principal and interest which any of the debtors failed to pay in accordance with their obligations under the various assigned agreements. On 17 November 1988 SSL paid $12.5 million to BNZ and BNZ applied those moneys in partial repayment of the debts owed in the portfolio of receivables rateably across those debts. 10 The liquidator commenced the proceedings which I have mentioned by summons filed on 21 August 1990. Eventually the proceedings continued on a further amended statement of claim filed on 4 March 1992, under which the liquidator claimed: (a) that the purported sale of receivables on 11 November 1988 was an assignment of such receivables to BNZ by way of security for an advance made on 10 November 1988 for $25 million and was a transfer amounting to a preference; (b) that insofar as the assignment was in satisfaction of obligations to repay the advance made on 10 November 1988, it was void as against the liquidator; (c) that the assignment was void by virtue of s205 and s451 of the Companies (New South Wales) Code; (d) orders that BNZ account for the receivables and any proceeds thereof and in addition a declaration that the payments of $12.5 million made by SSL to BNZ on 17 November and additional payments of $625,000 and $745,178.08 made by SSL to BNZ on 11 November 1988 or thereafter were void as against the liquidator pursuant to s451 of the Code. In those proceedings BNZ by cross-claim sought judgment for amounts due pursuant to the guarantee of the receivables transaction. 11 On 25 March 1992, Cole J gave judgment in favour of the defendant BNZ on the liquidator's claim and against the liquidator on the cross-claim of BNZ and stood the matter over for some days to enable calculations of the amounts for which judgment should be entered on the cross-claim to be calculated. In summary Cole J held that the receivables transaction should be characterised as financing by sale and re-purchase and thus in the absence of a relationship of debtor and creditor no question of preference arose in respect of that transaction or in respect of the payment of the sum of $12.5 million which had been wrongly characterised as partial repayment of the loan. This was also the case with the payment of $745,178.08, but not the $625,000 which was held to be a fee. Cole J further held that SSL was liable under its guarantee. He found that payments of the sum of $12.5 million and $745,178.08 were payments made as a mistake of law and thus irrecoverable, but held that the sums together with sums recovered from the receivables debtors of $7,288,030 must be credited by BNZ before the liability of SSL to BNZ under the guarantee could be determined. 12 Final orders and judgment were entered by Cole J on 5 August 1992 for BNZ on the liquidator's claim and for BNZ against SSL on the cross-claim in an amount of $13,346,774.34. The evidence before me does not disclose how that amount was calculated. No doubt it included interest to the date of judgment. 13 BNZ proved in the liquidation by proof dated 12 October 1992 for various debts. The relevant claim was the debt due under the guarantee the subject of the cross-claim. The amount claimed as due on 25 May 1989 in the proof of debt was $8,205,798.88 calculated in accordance with Schedule G to the proof of debt which is in evidence. In summary the Schedule set out the total of the guaranteed loans plus interest to 25 May 1989 and gave credit for the challenged payments (made under mistake of law) of $12.5 million and $745,178.08 together with some recoveries from receivables debtors and a recovery from a security provider. How that figure equated with the judgment debt on the cross-claim was not explained, although adjustments for interest between the two relevant dates would have had some bearing on the calculations. What is clear from the judgement however is that it was intended to be for the amount of the "ultimate loss" after taking into account amounts received after exercise of power of sale over the securities. In other words liability under the guarantee merged in the judgment. 14 SSL appealed against the judgment of Cole J and in particular his finding that the payments of $12.5 million and $745,178.08 were not recoverable. Before the appeal was heard the High Court of Australia gave judgment in David Securities Pty Limited v Commonwealth Bank of Australia (1992) 175 CLR 353. Although the evidence is quite sketchy it is apparent that BNZ and SSL then agreed to settlement, the agreement being contained in a deed of settlement between SSL, the liquidator and BNZ dated 23 November 1995. The relevant provisions of that deed so far as they affect the questions for determination in this matter are as follows: 1. INTERPRETATION 1.1 Definitions … "BNZ Claims" means any present or future action, proceeding, claim or demand, which BNZ has brought or may bring against SSL or the Liquidator, whether or not the action, proceeding, claim or demand is identified or known at the date of this Deed with certainty or at all, and whether or not the action, proceeding, claim or demand also involves or may involve some other party, arising directly or indirectly in any way from or referable to any matter the subject of the Proceedings (including without limitation any matters referred to in the Summons, the Further Amended Statement of Claim, the Defence and the First Cross-Claim) or of the Appeal Proceedings (including without limitation any matters referred to in the Notice of Appeal and the Notice of Contention); but does not include any action, proceeding, claim or demand arising from or under a provision of this Deed. … 2. PAYMENT BY BNZ TO SSL 2.1 In consideration of the execution by SSL and the Liquidator of this Deed and the mutual promises contained in this Deed: (a) BNZ has, upon the execution of this Deed, paid by bank cheque to SSL (the receipt of which is hereby acknowledged) the sum of $7 million; and (b) As to a further amount of $2,379,786.34 BNZ hereby irrevocably authorises and directs the Liquidator and SSL and the Liquidator agree and undertake to apply the sum of $2,379,786.34 to which BNZ shall become entitled pursuant to clause 3.1 of this Deed, by way of further payment to SSL. 3. BNZ TO BE ADMITTED TO PROOF IN THE WINDING UP OF SSL 3.1 The Liquidator shall admit BNZ to proof in the winding up of SSL in respect of the sum of $4,576,512.21 and, subject to clause 2.1(b) of this Deed, BNZ shall be entitled to immediate payment, out of the funds set aside by the Liquidator, of the sum of $2,379,786.34, representing a dividend of 52 cents in the dollar in respect of the admitted sum of $4,576,512.21. 3.2 Upon its admission to proof pursuant to clause 3.1 of this Deed, BNZ shall withdraw the BNZ Proof in respect of the sum of $3,629,286.67, being the balance of the sum claimed in it. 3.3 In addition to its entitlement to prove as provided in clause 3.1 of this Deed, the Liquidator shall admit BNZ to proof in the winding up of SSL for the sum of $7 million referred to in clause 2.1(a) of this Deed and for any further amounts calculated in accordance with clause 4.9 of this Deed, PROVIDED THAT in respect of those amounts BNZ shall not be entitled to receive any amount by way of equalising dividend and shall only be entitled to receive a dividend or dividends in the event and to the extent only that a further dividend is or further dividends are declared by the Liquidator in SSL in excess of the dividends totalling 52 cents in the dollar previously declared by the Liquidator. … 3.5 BNZ declares and acknowledges that it is not entitled to and shall not make or lodge any proof of debt or claim in the winding up of SSL in relation to the BNZ Claims other than in respect of the amounts for which it is entitled to be admitted to proof pursuant to clauses 3.1 and 3.3 above or may be entitled to be admitted to proof pursuant to clause 4.9 of this Deed. 3.6 The Liquidator declares and acknowledges that his decision to admit BNZ to proof in the winding up of SSL in respect of the amounts set out in clause 3.1, 3.3 and 3.4 above is irrevocable and shall not be reversed or, subject only to clause 4.9 of this Deed, amended. … 4.9 In the event that BNZ receives dividends in the windings up of P102 and of Kylnine in amounts less than $2,806,825.22 and $710,000.00 respectively, the Liquidator shall adjust his admission of BNZ to proof in the winding up of SSL pursuant to clause 3.3 of this Deed by further admitting BNZ to proof, subject to the terms of clause 3.3, in respect of the difference between the abovementioned amounts of $2,806,825.22 and $710,000.00 and the amounts which BNZ actually receives in the windings up of P102 and Kylnine respectively … 8. RELEASE OF SSL AND THE LIQUIDATOR BY BNZ 8.1 In consideration of the execution by SSL and the Liquidator of this Deed, BNZ releases and discharges SSL and the Liquidator and SSL on trust for all present and past directors, officers, employees, servants and agents and related bodies corporate of SSL in respect of the BNZ Claims. 8.2 This Deed may be pleaded by SSL and the Liquidator in bar to any claim or proceeding brought by BNZ in respect of any BNZ Claim. 15 The first question to be determined is whether the release in paragraph 8.1 of the deed bars the claim of BNZ for interest. It is probably unlikely that any question of interest being available was present in the minds of the contracting parties when they entered into the deed of settlement. The release is "in respect of any BNZ Claim." Under the definition, "BNZ claim" does not include "any action, proceeding, claim or demand arising from or under a provision of this Deed". I consider a proof of claim for interest would be within this exception. The somewhat extraordinary provisions of clauses 3.1 and 3.3 of the deed entitled BNZ to prove in the liquidation for $4,576,512.21 and $7 million of which it could only receive 48%, namely $3,360,000. In Mackenzie v Rees Dixon J at page 10 referred with approval to a passage in the judgment of Johnson v Norris (1911) 190 Fed. Rep. 459 where it was said: The proof of an interest bearing claim is proof of the interest collectible on such a claim. Interest is an incident of, or a part of, the debt, and no separate proof of it is required. On that basis, albeit that for convenience in this winding up separate proofs have been sought and obtained, as it seems they were in Mackenzie v Rees , the claims for post-liquidation interest which arise from the admitted proofs of debt are claims arising under a provision of the settlement deed and therefore clause 8 does not operate so as to bar them. 16 The next question to be determined is whether or not there is some contractual right to interest on the admitted claims. The deed itself gives no such right. The claim of counsel for Bond Street is that pursuant to the settlement agreement the right of BNZ to interest under the original guarantee and thus to the rates of interest payable from the receivables debtors is preserved. 17 Counsel for Bond Street argues that the payments of $7 million and $2,379,786.34 made pursuant to clause 2 of the settlement deed are properly characterised as a reversal or partial reversal of the crediting by BNZ of $12.5 million to the book debts transferred to BNZ under the receivables transaction, in part restoring BNZ to the position that it held in respect of SSL under the receivables guarantee prior to the payments of the sums of $12.5 million and $745,178.08. The difficulty with this argument is that it is by no means clear that the payments in question should be described as a part reversal of claimed preferential payments, which would be required to bring s122(5) of the Bankruptcy Act 1966 (Cth) as imported by s451 of The Companies (New South Wales) Code into operation. It is just as likely that - Cole J having found that the payments were made by mistake of law and therefore irrecoverable and that conclusion at least being questionable as a result of the decision in David's case - the settlement was made on the basis of repayment of moneys paid by mistake, rather than as repayment of preferential payments. There is no evidence whatsoever to assist in ascertaining the basis on which the settlement came about and how the figures which were obviously carefully calculated were calculated. There would be no reason why BNZ, after repayment of moneys received by it by mistake, could not claim for that amount in the liquidation. However, that would not necessarily mean that the position as to interest under the receivables transaction carried forward in respect of those amounts repaid. It is not possible to infer that about the $7 million and any conclusion as to the amount of $4,576,512.21 is little better than a guess, even though it, together with the amount withdrawn under clause 3.2 of the deed, amount to the figure claimed in the proof of debt. It is to be remembered that the arrangement was a genuine settlement and that the judgment and later the settlement brought the liability under the receivables guarantee to an end, so that it is impossible to infer it was restored in part by the settlement. So far as can be seen by the very small amount of evidence available to me the moneys paid under mistake amounted to $13,245,178. Had that amount been paid back to the liquidator with BNZ being left to prove for that amount, then its position was entirely dependent upon what distributions (if any) by way of dividend the liquidator was able to make. It was by no means certain at that time that he would be paying one hundred cents in the dollar. By repaying an amount less than the total claim, and agreeing to prove for part only of that lesser amount BNZ was, at the time the settlement was reached and certainly in the light of subsequent events in a position of some disadvantage. That is because the amount repaid was $9,379,786 as against proofs to be admitted of $7,936,512 being the total of $4,576,512 plus 48% of $7 million, namely $3,360,000. That is a difference of $1,443,274, to which must be added the sum of $2,379,986, making a shortfall of $3,823,260. Had BNZ repaid the whole of the $13,245,178 it would have been able to prove for and eventually be paid that amount with interest probably from the date of repayment as well as retain its ability to prove for the $8,205,798.88, which was the amount originally claimed after the judgment of Cole J, although it was never admitted by the liquidator. What the court is being asked to do is to find that the original position under the receivables transaction and the guarantee was partly brought back into operation so that liability for interest pursuant to the original documentation was reinstated. As Cole J pointed out there was never shown to be any basis for the procedure adopted by BNZ when it apportioned the credit of the $12.5 million rateably among the receivables debtors, apart from the fact that the $25 million was apportioned the same way. It can be taken for granted that there was never any actual reversal. BNZ was left with the receivables and retained its entitlement to proof. The parties had agreed to alter their entitlements or claims against each other in an agreed way. I do not consider it could be said that there was some restoration of a right to contractual interest when the whole of the basis of the claim under the original proof of debt was subsumed by the deed. 18 It is desirable to now refer to some additional matters, although in view of my conclusion just reached it is not strictly necessary to deal with them. The proof of debt submitted for BNZ claimed interest at Supreme Court Schedule J rates. That claim, if pursued at all was pursued only as a fall back position. At the hearing counsel for BNZ claimed interest at the rates payable under the receivables agreements on the basis of distributing, first the sum of $4,576,512 pro rata across the receivables claims, taking the interest rates on that pro rata amount and doing the same thing for the $7 million after its payment on 22 August 1995. That is done on the basis that both amounts related to repayments of preference claims. I do not understand how interest could be claimed on the whole sum of $4,576,512 after the date of settlement, as $2,379,986 of that sum must be treated as having been received when payment of it was made. The most that could be claimed from the date of settlement would be interest on $2,196,526. Nor do I understand that interest can be claimed on the sum of $7 million when BNZ had the use of that amount up until the date of settlement, and dividends for only forty eight cents on that amount were allowed by agreement. The argument of counsel for Bond Street about the basis for this would require the court to accept some inference for which there was no evidence. It would be no more than a guess. Next, if interest ought to be calculated pursuant to the receivables agreements rates, it would be necessary to look at each contract to determine the agreed repayment date as after that dates there could be no right to contractual interest; and finally, the only basis for Schedule J interest would be on the basis that there was a judgment debt carrying interest existing at the date of winding up which there was not. 19 The questions which it was agreed should be answered do not include a question as to whether or not interest is payable on the sum of $11,576,512.21. It is constantly referred to as a preference repayment. It is not clear that it was. I will therefore add question 1.1A and answer the questions as follows: 1. 1.1 Whether the terms of the deed of settlement dated 23 August 1995 preclude a claim for post-liquidation interest in respect of the Bank of New Zealand preference repayment included in the amount of $11,576,512.21 (the BNZ debt). Answer: No, but this does not acknowledge that the repayment was a preference repayment . 1.1A Whether interest is payable on the sum of $11,576,512.21 because there is a contractual entitlement to interest. Answer: No. 1.2 If the claim for interest is not precluded by the deed and there is a contractual entitlement to post liquidation interest, should simple interest be calculated from 23 August 1995: Answer: There is no entitlement to interest. If there were the following answers would apply: 1.2.1 At the applicable Supreme Court Schedule J rates. Answer: No. 1.2.1 At rates set out in Annexure G to the Bank of New Zealand proof of debt dated 12 October 1992. Answer: No. 1.2.3 At rates set out in Annexure G to the Bank of New Zealand proof of debt dated 12 October 1992 subject to the liquidator confirming those rates by reference to the receivables documentation. Answer. If there were any entitlement to interest then subject to the rates being established by the claimant those are the appropriate rates. 20 I should point out that in the calculations annexed to the submissions of counsel for Bond Street, the claim for interest is not one which falls under any of the heads in question 1.2. That is because there is a claim for interest to 22 August 1995, during a time when, first, BNZ had the use of the money and second, it had allocated those moneys in reduction of the receivables debts. The NAB transaction 21 By bill facility letter of offer dated 20 May 1988 NAB extended to SSL the offer of a bill facility to a limit of $5,000,000. This letter provided that the commencement date of the facility was 20 May 1988 and the availability period ended 31 March 1989. The letter further provided that in the event that the drawer should fail to pay to NAB the face value of any bill on its maturity date that the drawer would be liable for interest payments of two percent per annum above NAB's benchmark interest rate for amounts owed over $100,000. On 23 May 1988 NAB sent a bill endorsement facility letter to SSL which referred to the bill facility letter of offer dated 20 May as detailing the terms and conditions of the agreement. It is, I think, agreed the offer was accepted. 22 On 8 September 1988 SSL drew 10 bills of exchange numbered AA0347 to AA0356 accepted by NAB and each in the sum of $500,000. On 7 December 1988 SSL paid to NAB $5,000,000 in respect of the bills of exchange. The liquidator and SSL commenced proceedings by summons number 4524 of 1991 in which the payment by SSL to NAB on 7 December 1988 was alleged to be a preference void against the liquidator. NAB denied this allegation. The liquidator and SSL, and NAB agreed to settle those proceedings and that agreement was embodied in a deed between the parties dated 28 June 1993. 23 Under clause 2 of this deed NAB agreed to pay the sum of $3,375,000 to SSL and SSL undertook to discontinue the proceedings referred to above. The deed further provided that NAB be admitted to proof in the liquidation in the sum of $3,375,000. Clause 6 of the deed provided that, subject to clause 7, NAB undertook to release SSL from all claims, actions, demands and proceedings which NAB has, has had or might have had but for the execution of this document, against either one of SSL and the liquidator in relation to the alleged preference payment or the proceedings commenced by the liquidator. Clause 7 of the deed entitled NAB to all subsequent dividends in respect of the admitted claim of $3,375,000. As I have said when discussing the BNZ claim, any claim for post-liquidation interest on the admitted claim of $3,375,000 should properly be considered as part of that claim and thus should be admitted and paid under clauses 2 and 7 of the deed. The release in clause 6 is subject to the rights of NAB in clause 7 and hence will not operate to exclude such a post-liquidation interest claim. 24 Under s122(5) of the Bankruptcy Act the preference payment recovered is allowed for in winding up as if it had never occurred. The payment by NAB of $3,375,000 to SSL can correctly be characterised as a recovery of such a preference. The fact that the payment was the result of a compromise of a preference claim does not alter that position: Re Masureik & Allan Pty Ltd & The Companies Act (1981) 6 ACLR 39. 25 The rate of interest under the original facility was 2% above the NAB's benchmark rate for overdrafts of $100,000 and over. This is the rate at which post-liquidation interest should be calculated, NAB will have to undertake this calculation to the satisfaction of the liquidator. It will have to establish rates, rests and entitlement to compound interest if claimed. 26 The questions relating to this transaction can now be answered as follows: 2.1 Whether the terms of the deed dated 28 June 1993, preclude a claim for post-liquidation interest in respect of the National Australia Bank preference repayment in the amount of $3,375,000 (the NAB debt). Answer. No. 2.2 If not, whether the claim for post-liquidation interest in respect of the NAB debt should be calculated from 28 June 1993 at the rate of two percent above the Bank's benchmark for overdrafts of $100,000 and over: 2.2.1 as simple interest 2.2.2 as compound interest at quarterly rests, or 2.2.3 as compound interest at such rests as were customarily applied by the NAB from time to time in respect of that period. Answer: Interest should be calculated from 28 June 1993 at the rate of two percent above the Bank's benchmark rate for overdrafts of $100,000 and over. Colonial State Bank of New South Wales (State Bank claim) 27 On 9 November 1988 State Bank lent $876,412.55 to SSL. The repayment date was 10 November 1988 and the interest rate was fifteen percent. The deposit was on 11am call. On 10 November 1988 SSL repaid $876,772.72 constituting a repayment of principal of $876,412.55 and interest of $360.17. 28 On 4 September 1991 SSL and the liquidator commenced proceedings against State Bank for repayment of $876,412.55 as a voidable preference, and for interest and costs. The insolvency of SSL for the relevant period was determined in favour of SSL for the purposes of those proceedings, and inter alia for the purposes of other SSL preference proceedings, on 25 March 1992 by Cole J. Following this determination SSL and State Bank entered into settlement negotiations and reached agreement, embodied in a deed of release, on 14 May 1992. The deed of release provided that: 1. Payment State Bank will pay to the Liquidator the sum of $925,000. Spedley and the Liquidator acknowledge receipt of such sum from State Bank. 2. Proof of Debt (a) Spedley and the Liquidator acknowledge and agree that State Bank is entitled to lodge a proof of debt or claim in the liquidation of Spedley for sums to which it claims to be entitled arising out of or related to any matter arising out of or referred to in the recitals to this deed in the amount of $876,412.55. (b) The Liquidator covenants not to reject any proof of debt by State Bank for the sum referred to in clause 2(a). 3. Release Spedley and the Liquidator release State Bank from or in respect of any claim or action either of them has or may have against State Bank and any damage, loss, liability, cost, charge or expense either of them has or may have incurred, in respect of or in any way connected with or arising out of or related to the Payment, the Repayment, the Proceedings, the Claim or any matter arising out of, related to or referred to in the recitals to this deed. 29 The deed of release further provided that the proceedings be dismissed with no order as to costs of the proceedings and on 18 May 1992 that order was made. 30 State Bank proved in the liquidation for $876,412.55 which has been paid in full. On or about 7 January 2000 State Bank lodged a proof or claim for interest totalling $852,483.95 for the period from 25 May 1989 to 30 September 1999 which was calculated at the rates provided for by Schedule J of the Supreme Court Rules. 31 The monies paid pursuant to clause 1 of the deed of release were clearly a repayment of an alleged preference in the sum of $876,412.55 and an amount for interest in the sum of $48,587.45. The deed contains no provision against post-liquidation interest; in fact, there is no release in favour of SSL or the liquidator. It follows that the deed of settlement cannot preclude any claim by State Bank for post-liquidation interest in respect of that amount. 32 Under law, interest upon the repayment of the preference only runs from the date of the demand by the liquidator for repayment. It follows that the $48,587.45 allowed under the settlement agreement for interest, if calculated according to law, can only have been applicable to the period from the date of the demand to the date of payment. Under this analysis there has been no interest allowed for the period from payment of the alleged preference, 10 November 1988, to the date of the demand. However during this period, NAB has had the use of the alleged preference payment and the principle of double satisfaction precludes the recovery of post-liquidation for this period. Thus, if State Bank is to be put into a position as if the preference payment had not been made, then it necessarily follows that if there is a contractual entitlement to interest a formal proof or claim for interest for State Bank should be admitted in respect of interest on the sum of $876,412.55. In the absence of evidence of date of demand, or that interest was calculated from some other date, interest should run from the commencement of the preference recovery action, namely 4 September 1991. 33 The term of lending was overnight to 11am call. The interest rate was 15%. In fact interest at that rate was paid. There is no evidence of any general facility agreement. There is no evidence of a course of conduct between the bank and SSL which would give rise to an implied term that, failing payment as due, the original interest rate would continue. However, there is some general evidence in Exhibit A, being a letter of advice from solicitors to the liquidator, of the practice where money on 24 hour call remained on deposit. Rates were varied quite often and inconsistently between lenders. The question is whether this transaction falls under the principles in Cook v Fowler [1874] LR7HL 27 or whether there was a continuing right to interest. It was submitted by counsel for the liquidator and by counsel for the State Bank that the relationship was one between banker and customer so that there was an implied right to interest, albeit only on simple interest basis: National Bank of Greece SA v Pinios Shipping Co (No 1) (The Maria) [1990] 1 AC 637. I do not consider that argument correct. The transaction in question was not between banker and customer on ordinary account; rather it was between borrower and lender. Nevertheless it is really being argued that there was an implied term that interest would be paid to date of repayment. As that was the position ordinarily adopted for uncalled deposits I consider that term to be implied. There was however no term that interest would remain at 15%. In the absence of any possibility of establishing what might have been the rate I consider it would be reasonable for the liquidator to compromise the claim on Schedule J rates. 34 The questions can now be answered as follows: 3.1 Whether the terms of the deed of release dated 14 May 1992 preclude State Bank from claiming post-liquidation interest. Answer. No. 3.2 If not, whether State Bank's claim for post-liquidation interest should be: 3.2.1 Limited to interest on the sum of $876,412.55 from the date of re-payment by State Bank (14 May 1992). Answer. No. 3.2.2 Limited to interest on the sum of $876,412.55 from the date of re-payment by State Bank together with the sum of $48,587.45. Answer. No. 3.2.3 Interest on the sum of $876,412.55 from the date of liquidation. Answer. No. In further answer to these questions, I advise that the liquidator would be justified in compromising the claim for interest by admitting a proof for interest on the sum of $876,412.55 at Schedule J rates from 4 September 1991. Commonwealth Bank of Australia (Commonwealth Bank claim) 35 In or about December 1988 an obligation under a then maturing bill facility arose for SSL to pay to Commonwealth Bank the sum of $2 million. The full sum of $2 million was paid to Commonwealth Bank on or about the due date. The liquidator sought to recover the amount of that payment as a preference, and Commonwealth Bank and the liquidator reached an agreement whereby $1.5 million of the $2 million was treated as a preference. Pursuant to that agreement, a sum of $1,070,938.00 was paid by Commonwealth Bank to the liquidator on 2 February 1996, the date of settlement. This sum took into account a repayment by Commonwealth Bank of the alleged preference of $1,500,000; a payment by Commonwealth Bank of $350,938 as interest on that amount; a 52 cent dividend to be paid by the liquidator; for a net payment by Commonwealth Bank of $1,070,938. 36 The terms of the deed of settlement included: 2. DIVIDENDS 2.1 Dividends up to 52 cents in the dollar (a) CBA hereby irrevocably undertakes to the Liquidator not to prove or attempt to prove in the winding up of SSL for any dividends or portions of dividends which have been declared or may in the future be declared by the Liquidator to be due and payable to unsecured creditors of SSL reflecting amounts constituting distributions up to and including 52 cents in the dollar calculated by reference to unsecured creditors' proofs of debt. (b) CBA makes the irrevocable undertaking set out in clause 2.1(a) in consideration for the Liquidator and SSL instructing their solicitors on the date of this deed to discontinue the Proceedings in accordance with clause 6. … 4. CBA PROOF OF DEBT 4.1 The Liquidator will admit a proof of debt of CBA for a claim of $1.5 million and shall rank in the winding up of SSL for that amount for any distribution paid to ordinary unsecured creditors in excess of 52 cents in the dollar. 4.2 CBA hereby undertakes not to lodge with the Liquidator a proof of debt for an amount or amounts representing the payment to the Liquidator of the Agreed sum in accordance with clause 3. 5. RELEASES 5.1 Release by CBA CBA releases the Liquidator and SSL from all claims, actions, demands and proceedings which CBA has, has had or might have had but for the execution of this deed, against the Liquidator or SSL concerning: (a) the Disputed Payments; and (b) the Proceedings. … 6. PROCEEDINGS On the date of this deed the Liquidator and SSL must instruct their solicitors to discontinue the Proceedings and CBA must consent to the Proceedings being discontinued with no order as to costs. … 37 Pursuant to clause 4.1 of that deed Commonwealth Bank lodged a proof of debt for $1.5 million. This contention was not disputed by the liquidator. Commonwealth Bank received distributions in relation to the $1.5 million debt, being an initial 52% ($780,000) paid on 2 February 1996 and the remaining 48% dividend ($720,000) paid on 30 September 1999. 38 On or about 5 May 2000 Commonwealth Bank lodged a formal proof or claim for interest with the liquidator claiming $627,862.17 in respect of interest for the period from 25 May 1989 to 30 September 1999. The calculation of interest in the "Formal Proof or Claim for Interest" was made under Schedule J rates provided by the Supreme Court rules. 39 There is no question before the court as to interest. The liquidator has accepted, rightly, that interest is payable unless the deed of settlement precludes the claim. For the reasons previously given it does not do so. 40 The relevant question should be answered as follows: 4.1 Whether the terms of the deed of settlement dated 2 February 1995, preclude the Commonwealth Bank from claiming post-liquidation interest. Answer. No. General 41 Having answered the specific questions relevant to the claims of the respondents, I now turn to the general questions raised by the further amended notice of motion. These are: Question: Whether the liquidator should distribute dividends pro rata to admitted claims for interest. Answer: Yes. Question: Whether in respect of those creditors who had a contractual right to interest at an agreed rate for a period beyond the date of the winding up order, interest [is] to be calculated in accordance with that contractual right until the end of that period, and thereafter interest to be calculated in accordance with Schedule J of the Supreme Court Rules, such interest to be calculated on a simple basis. Discussion: There is no right to interest after due date for repayment unless there is a contractual right. See Cook v Fowler ; Re Anderson's Seeds Ltd & The Companies Act [1971] 2 NSWLR 120 Answer: No Question: Whether in respect of those creditors who had a contractual right to interest as at the date of the winding up order but not at an agreed rate for an agreed for a period beyond the date of the winding up order, interest to be calculated from the date of the winding up order in accordance with Schedule J of the Supreme Court Rules, such interest to be calculated on a simple basis. Answer: There is no right to interest at such rates but it would be reasonable for the liquidator to compromise claims on that basis. Question: Whether in respect of those creditors who held bills of exchange for which the company was liable as at the date of the winding up order, interest [should] be calculated in accordance with Schedule J of the Supreme Court Rules from the date of maturity of the bill of exchange, such interest to be calculated on a simple basis. Discussion: There is no right to interest on the amount of an unpaid bill unless there is a contract which gives that right. In the absence of such right s62 of the Bills of Exchange Act 1909 provides that the entitlement on an unpaid bill is a claim for damages not interest. Mackenzie v Rees at 13. Answer: No. In the absence of a contractual right to interest. Question: Whether in respect of those creditors who have repaid voidable preferential payments to the Liquidator, interest to be calculated in accordance with Schedule J of the Supreme Court Rules from the date of payment by the creditor to the Liquidator, such interest to be calculated on a simple basis. Discussion: Transactions reversed by repayment of preferences are dealt with by the incorporation of s122(5) of the Bankruptcy Act into The Companies (NSW) Code . No entitlement to interest arises upon repayment of the preference unless the debt carried interest. Any contractual claim for interest does not entitle the creditor to recover interest for any period during which the creditor has had the benefit of the preference payment and not paid interest upon it. Answer: No. Final Orders 42 The solicitors for the liquidator should bring in draft minutes reflecting these answers and directions. A convenient course might be to prepare a second further amended notice of motion incorporating the additional questions. The orders should provide for the costs of the liquidator and the respondents to be paid out of the assets of the company. Last Modified: 09/26/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. 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