New South Wales Supreme Court CITATION : Stein v Torella Holdings Pty Ltd ACN 086 346 614 [2010] NSWSC 1445 HEARING DATE(S) : 9 December 2010 JUDGMENT DATE : 16 December 2010 JUDGMENT OF : Hallen AsJ DECISION : 1. I direct the parties to bring in short minutes of order. 2. I stand the proceedings over to a date in the new Law term, to enable the calculations by each side to be agreed. CATCHWORDS : CONTRACTS - joint venture - previous taking of an account before different Associate Justice who had retired - method of calculation of interest previously determined - interest should be simple interest - Additional question raised by parties - how payments made and received by creditor should be applied - whether first to loan and then to interest payable thereon or otherwise in accordance with manner in which receipt of payment had been treated by creditor or directed to be treated by creditor - determination based upon construction of deed - Upon construction of Deed payments received credited to loan first and then to interest payable thereon - PAYMENT OF INTEREST on moneys found to be payable - interest calculated from 25 June 2008 until payment at rate prescribed by Practice Note - COSTS of application for accounts and for the hearing Civil Procedure Act 2005 LEGISLATION CITED : Ritchie's Uniform Civil Procedure NSW Uniform Civil Procedure Rules 2005 CATEGORY : Principal judgment Australian Broadcasting Commission v Australasian Performing Right Assn Ltd (1973) 129 CLR 99 Brennan v Brennan (1953) 89 CLR 129 Carra v Hamilton [2001] VSC 215; (2001) 3 VR 114 Falk v Haugh (1935) 53 CLR 163 Franklins Pty Ltd v Metcash Trading Ltd (2009) 264 ALR 15 French v Smith [2005] VSCA 114 Healey v Commonwealth Bank [1998] NSWSC 678 Hexiva Pty Limited and Ors v Lederer and Ors (2) [2007] NSWSC 49 Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2 Morlines Maritime Agency Ltd v Skulptor Vuchetich (Tamberlin J., 29 August 1997, unreported) CASES CITED : Orr v Holmes (1948) 76 CLR 632 Re Consolidated Fertilizers Ltd v Deputy Commissioner of Taxation [1992] FCA 224 Re Mangan; Ex parte Andrew (1983) 123 ALR 633 Re: The Farm Security Act 1944 of the Province of Saskatchewan (1947) SCR 394 R W Miller & Co Pty Ltd v The Ship Patris [1975] 1 NSWLR 704 Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97 Re Walsh; Ex parte Deputy Commissioner of Taxation (NSW) (1982) 42 ALR 727 Stein v Torella Holdings Pty Limited [2009] NSWSC 971 Thomas v SMP (International) [No 6] [2010] NSWSC 1311 Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 1106 Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Wentworth v Rogers (No 3) (1986) 6 NSWLR 642 TEXTS CITED : Collins English Dictionary (Australian Edition) (1982) The Oxford English Dictionary, 2nd Ed. (1980) Vol VII Rothrewel James Donald Stein (Plaintiff) Torella Holdings Pty Limited (first Defendant) PARTIES : Kevin Norman Smith (second Defendant) Roma Vera Velic (third Defendant) Marion Mitchell (fourth Defendant) FILE NUMBER(S) : SC 2007/254979 Mr M Meek SC (Plaintiff) COUNSEL : Mr R Tregenza (first-third Defendants) Mr D Jay (fourth Defendant) Matthews Folbigg Pty Ltd (Plaintiff) SOLICITORS : Klimt & Associates Lawyers (first - third Defendants) E. Phillips & Company (fourth Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION HALLEN AsJ 16 DECEMBER 2010 2007/254979 STEIN v TORELLA HOLDINGS P/L ACN 086 346 614 JUDGMENT Background Facts 1 HIS HONOUR: These proceedings were instituted by summons filed on 16 May 2007. By that summons, the Plaintiff claimed relief in respect to a joint venture known as the SMS Joint Venture. The Defendants named in the summons were Torella Holdings Pty Limited, Kevin Norman Smith, Roma Vera Velic and Marion Mitchell. The fourth Defendant, Marion Mitchell, was the wife of Grant Lee Mitchell ("Mr Mitchell") who died before the institution of the proceedings. 2 By the summons, the Plaintiff claimed, substantively, relief by way of a declaration that the joint venture be dissolved, an order for an account, and an enquiry as to the assets of the joint venture and as to the respective interests of the parties in those assets. 3 On 25 June 2008, the Court made orders by consent (which were entered on 14 July 2008). Those orders included a declaration that the joint venture was dissolved on 25 June 2008 and orders in respect to the taking of an account of the joint venture. Whilst the relief granted did not accord precisely with the relief sought by the Plaintiff in the summons, it is fair to say that the Plaintiff, achieved, in substance, what he had sought by way of principal relief. 4 Following the making of the orders, an account was prepared on behalf of the Plaintiff. Although the form of the account did not comply, strictly, with the order of the Court made on 25 June 2008 (since the items are not numbered, either consecutively, or at all), the Defendants treated what had been prepared as the account of the joint venture contemplated by the order. 5 A notice of falsifications was filed on behalf of the Defendants on 19 December 2008. Essentially, the only falsification asserted on behalf of the Defendants was in respect to the calculation of interest made on behalf of the Plaintiff. In the account, the Plaintiff had calculated interest on a compounding basis, whilst the Defendants, by their notice of falsification, asserted that any interest to which the Plaintiff was entitled should be calculated on a simple interest basis. 6 The Defendants, by their notice of falsification, asserted as follows: "1. The Defendants set out hereunder their objections to the non-itemised statement of account, being annexure "A" to the affidavit of Bradley Ross made 13 August 2008, namely: as to every interest calculation in the account on the basis that the interest has been calculated: (a) on a compounding basis, whereas it should be on a simple interest basis; and (b) with the principal compounding on the occurrence of each transaction. 2. The Defendants do not object to the statement of account annexed to the affidavit of Rothrewel James Donald Stein made 13 August 2008 and marked "A", being items 1 to 54 of the Receipts and items 1 to 23 of the Disbursements. 3. The Defendants object to the claim for interest on a compounding basis in the sum of $598,228.15 as sought in paragraph 4 of the affidavit of Rothrewel James Donald Stein made on 13 August 2008." 7 McLaughlin AsJ, conducted the taking of accounts in April 2009. His Honour delivered his reasons for judgment in September 2009, which bears the citation Stein v Torella Holdings Pty Limited [2009] NSWSC 971. 8 His Honour concluded that, since the Plaintiff had not established an entitlement to interest upon a compound basis, the only interest to which the Plaintiff was entitled from the joint venture was simple interest, calculated in accordance with the provisions of Clause 3.3 of the Deed of Joint Venture and Partition dated 24 December 1997 ("the Deed"). 9 The parties agree that his Honour's reasons did not address how repayments made by the joint venturers should be applied between the Stein Loan and interest payable thereon; the date up to which the interest was to be calculated; and what judgments should be entered in respect of each of the loans and the share of loss under the joint venture. 10 His Honour then said: "I propose to stand the matter over to a date to be fixed, by arrangement with my Associate, for the bringing in of short minutes to reflect my conclusions herein, and to enable the parties to perform a calculation of the indebtedness, if any, of the joint venture to the Plaintiff, based upon the liability of the joint venture to pay to the Plaintiff simple interest in accordance with the calculation set forth in clause 3.3 of the original deed." 11 The only order his Honour made was "I stand the matter over to a date to be fixed by arrangement with my Associate, for the bringing in of short minutes, and, if desired, for argument as to costs". 12 His Honour retired on 2 July 2010, by which date, the parties had not had the matter re-listed for bringing in short minutes, or so that any argument on costs could be determined. 13 One of the matters I am requested to determine in these proceedings is the burden of the costs of the prior hearing. I am grateful to Mr Meek SC, for the Plaintiff, and Mr Tregenza of counsel, for the first to third Defendants, for having adopted a practical approach to the submissions on those costs. Thus, not much time was spent on that issue. I shall return to that issue later in this judgment. The Hearing 14 The matter came before me, for the first time, on 22 July 2010. It was adjourned, on that date, and on a number of subsequent occasions, at the request of one, or other, of the parties, by consent of the others. On more than one occasion, the matter was adjourned, at the request of the first to third Defendants, so that mathematical calculations, advanced as part of the Plaintiff's case, could be checked. I had suggested that the parties should calculate the amount the subject of dispute, as it seemed to me that the quantum involved was not very large. 15 At the request of the parties, on 11 October 2010, the remaining arguments on the methodology of calculation of interest and the question of costs was set down for final hearing before me on 9 December 2010. Jurisdiction 16 All parties consented to me hearing the matter and expressly requested that I deal with the remaining issues and claims to finality. Whilst there may be a question whether a new Judge can make orders to give effect to reasons for judgment made by a retired Judge, without hearing all of the evidence (Carra v Hamilton [2001] VSC 215; (2001) 3 VR 114), the parties were content for me to hear the balance of the matter. On the issue of the costs of the proceedings that had already been heard, I was referred to cases in which it has been held that, in certain circumstances, costs orders in a proceeding may be made by a Judge who did not deliver the judgment giving rise to the application for costs: Wentworth v Rogers (No 3) (1986) 6 NSWLR 642; Orr v Holmes (1948) 76 CLR 632. 17 In the circumstances, it seemed to me that I should proceed, but, in so doing, allow any party to rely upon evidence that had been previously filed, or which had been filed on the remaining issues since the matter has been before me, subject, of course, to objection by any other party. To the extent that any party required cross-examination, I was prepared to allow it. (In fact, there was no cross-examination of deponents whose affidavits were read.) In this way, I considered that the interests of justice would be preserved: see, for example, Brennan v Brennan (1953) 89 CLR 129, at 136–7; Wentworth v Rogers (No 3) at 649 and 653. 18 At the hearing, the Plaintiff read parts of affidavits that had been read on the substantive proceedings before McLaughlin AsJ, and an additional affidavit filed in support of the remaining issues for determination. 19 The first to third Defendants relied upon a part of a number of the Plaintiff's affidavits, an affidavit of an accountant, and tendered a copy of the various deeds upon which reliance had been placed at the substantive hearing. 20 No evidence was read on behalf of the fourth Defendant. In fact, after the commencement of the hearing, I was informed that the dispute between the Plaintiff and the fourth Defendant had been resolved. Consent Orders were filed, in accordance with which orders were made. The fourth Defendant was excused from further attendance at the hearing. The matter then proceeded between the Plaintiff and the remaining Defendants only. Background Facts 21 It is necessary, first, to repeat some background facts, which were found by McLaughlin AsJ, which I take from his Honours reasons for judgment: "13 On 24 December 1997 the Plaintiff entered into a deed of joint venture and partition with the Second, Third and Fourth Defendants and Mr Mitchell. That joint venture was known as the SMS Joint Venture, and was established for the purposes of purchasing, developing, and selling certain land at … Castle Hill ("the property"). It was intended that an industrial building would be constructed on the property. 14 That deed of joint venture contemplated that the Plaintiff was to make available or cause to be made available a loan ("the Stein Loan") to enable the joint venturers to purchase the property (clause 3.2). Provision was made for the payment of interest on the Stein Loan, calculated at the rate of 10 per centum per annum "on the balance of such loan as varies from time to time" (clause 3.3). The deed also contemplated the obtaining of another loan from an external lender (the "external loan"). That external loan was subsequently arranged with ING. 15 The property was purchased by the joint venture on 6 February 1998. Subsequently, on 17 September 1998, the joint venture purchased adjoining land, at …, Castle Hill. 16 On 1 October 1998, the joint venturers entered into a deed of variation of joint venture and partition ("the First Variation"). On 18 June 1999 the joint venturers entered into a deed of further variation of joint venture and partition ("the Second Variation"). This second variation reflected agreement concerning, inter alia, the substitution of various entities as joint venturers, and certain guarantees by other persons of the performance of various of the joint venturers. 17 Neither the First Variation nor the Second Variation affected the Stein Loan, or the obligation of the joint venturers to pay interest upon that loan pursuant to clause 3.3 in the deed of 24 December 1997. 18 During the existence of the joint venture loans were made to the Second Defendant and to Mr Mitchell pursuant to the Stein Loan. 19 At the hearing the Plaintiff foreshadowed the filing of an amended summons (an unsealed copy whereof was annexed to the written outline of submissions prepared on behalf of Counsel for the Plaintiff), by which the Plaintiff claims the sum of $598,228.15 plus 10 per centum per annum compounding from the First Defendant as the surviving entity obliged to repay the Stein loan (given that Starconia Pty Limited, which by the Second Variation was substituted for Mr Mitchell and the Fourth Defendant as a joint venturer, was deregistered on 7 September 2005). The Plaintiff also claims payment of $598,228.15 plus 10 per centum per annum compounding from the Second and Third Defendants as the guarantors of the obligations of the First Defendant and from the Fourth Defendant as the guarantor of the obligations of Starconia Pty Limited in respect to the repayment of the Stein Loan. 20 The Plaintiff has made payments or has caused payments to be made pursuant to the Stein loan, from time to time in the period 1 December 1997 to 21 January 2005. As at 26 March 2007 (that being the most recent date in calculations of receipts and expenditure detailed in the affidavit of the Plaintiff) and pursuant to the Stein Loan, the Plaintiff had lent to the joint venture a total sum of $4,638,040.10. 21 It has been calculated on behalf of the Plaintiff that interest at 10 per centum compound on the moneys loaned under the Stein Loan totals $1,204,997.86. The Plaintiff has received repayments of the Stein Loan totalling $5,244,809.81 (part of those repayments being represented by the transfer to him of units at … Castle Hill). Thus the Plaintiff has upon the principal sums received the amount of $606,769.70 by way of repayments in excess of the amounts of loans made by him. 22 However, when that figure is deducted from the Plaintiff's foregoing calculation of interest at 10 per centum compound, totalling $1,204,997.86, there remains the foregoing figure of $598,228.15. That is the amount presently claimed by the Plaintiff from the Defendants." 22 It is necessary, next, to refer to some parts of the Deed (Ex. A). Firstly, I note the definitions and interpretations in Clause 1.1: "Equity Ratio" means the equity in the joint venture held by the Joint Venturers and being:- Stein as to fifty percent (50%) the Mitchell Trustee as to twenty-five percent (25%) the Smith Trustee as to twenty-five percent (25%). "External Loan" means the loan to be obtained by the Joint Venturers from an external lender to finance the Construction of the Building. "Stein Loan" means the loan to be made by Stein, or caused to be made by him, to the Joint Venturers, sufficient to purchase the Property and pay for stamp duty and other costs of purchase plus such other funds as the parties may agree to borrow from Stein from time to time." 23 It is important to note that the definition of each loan does not make any reference to interest which is payable. (However, as will be seen, interest paid on the External Loan may have formed part of the Stein Loan.) It follows, in my view, that the parties differentiated between "the Stein Loan" and "the interest payable thereon". 24 Clause 3.3 of the Deed provided: "The Joint Venturers shall pay interest on the Stein Loan calculated at the rate of ten per centum (10%) per annum on the balance of such loan as varies from time to time." 25 Clause 5.2 of the Deed provided: "It is intended that the External Loan shall provide for interest to be payable in arrears on discharge and that interest be accrued during the term of the loan. In the event that such deferred interest cannot be negotiated with the provider of the External Loan then Stein shall meet such interest payments as required by the provider of the External Loan and such payments shall form part of the Stein Loan." 26 Clause 10.1 of the Deed provided: "10.1 The proceeds of sale of the industrial units shall be applied in the following order and priority: (a) the repayment of the External Loan; (b) the payment of the costs of sale; (c) the payment of any outstanding debts of the joint venture project to third parties; (d) the repayment of the Stein Loan and interest payable thereon; (e) the concurrent payment from available funds of the balance of the Project Manager's Fee of One Hundred and Fifty Thousand Dollars ($150,000) payable to the Joint Venturers as profit. If there is less than Three Hundred Thousand Dollars ($300,000) available then such amount as is available shall be paid equally to the Project Manager and to the Joint Venturers; (f) the balance of the profit to the Joint Venturers." 27 There is no definition of "proceeds of sale of the industrial units" anywhere in the Deed. (There is no dispute, however, that "the industrial units" are the strata lots to which reference will be made.) 28 It is also necessary to refer to Clause 10.3 of the Deed, which Clause provides: "10.3 In the event that there are insufficient funds to pay in entirety the payments referred to in sub-paragraph 10.1(1)-(d) inclusive above then such loss shall be contributed to and paid by each of the Joint Venturers in proportions equivalent to the Equity Ratio." 29 Finally, it is necessary to refer to Clause 11.1 of the Deed, which provided: 11.1 It is the intention of the Joint Venturers to sell only so many of the industrial strata units in the Building as is necessary to pay the costs of the project and the payments referred to in Clause 10.1(e) above and that any units remaining unsold shall be divided amongst the Joint Venturers so that the value of the units transferred equates as closely as possible to the Equity Ratio held by each Joint Venturer by way of partition. The Mitchell Trustee shall be entitled to own the two units coloured green and marked "X" on the plan annexed hereto, the Smith Trustee entitled to own the two units coloured red and marked "Y" and Stein entitled to own the two units coloured blue and marked "Z". 30 A further Deed of Partition was entered into on 22 June 2001 (Ex. 3). In that Deed of Partition, it was recited that the parties had sold 23 of the strata lots, and had agreed to partition the remaining 6 strata lots. As a result, the Plaintiff received 4 of the strata lots. How to treat the notional value of the strata lots that were transferred arises as an issue in these proceedings. 31 The Plaintiff's evidence, which was not the subject of challenge, was that the strata lots transferred to him, as a result of the Deed of Partition, were treated by the joint venturers as a part repayment of the Stein Loan and that he "obtained independent valuations in relation to each of the units to calculate the repayment sum". 32 The evidence read on the hearing clearly demonstrates that amounts were repaid to the Plaintiff, being proceeds of sale of some of the strata lots, notional amounts identified as the value of strata lots transferred, and other miscellaneous amounts that were treated as repayments. All of these were treated by the accountant for the joint venture in the accounts, as payments towards outstanding interest on the Stein Loan, first, and then as payments of the Stein Loan itself. Whether this was the correct way of dealing with the repayments arises as the principal issue for determination by me. 33 It also seems clear, from the evidence, that the transfer of some of the strata lots to one, or other, of the joint venturers, occurred before the "the costs of the project and the payments referred to in Clause 10.1(e)" had been made. This was not in accordance with Clause 11 of the Deed. However, that, of itself, was not an issue raised by either party and I shall ignore it. Issues 34 The principal issue in the case now relates to how repayments made should be allocated. There were three alternatives advanced by the parties: (a) The repayments were to be applied in reduction of interest on the Stein Loan, first, and then in reduction of the Stein Loan; (b) The repayments were to be applied equally between the Stein Loan and interest thereon; (c) The repayments were to be applied proportionately (pro rata) between the Stein Loan and interest thereon. 35 The Plaintiff submitted that the court should determine the matter in accordance with (a); if not so satisfied, then, in accordance with (b); and then, as a last resort, in accordance with (c). 36 It was also submitted by the Plaintiff that interest should be paid, after 25 June 2008, calculated on the part of the Stein Loan that remained outstanding, as well as on the interest thereon, that had not been paid at that date, until the date of payment. 37 The first to third Defendants submitted that the court should determine the matter in accordance with (c); if not so satisfied, then, in accordance with (b); and then, as a last resort, in accordance with (a). 38 It was also submitted on their behalf, that interest should be paid, after 25 June 2008, calculated only on the part of the Stein Loan that remained outstanding, and not on any interest thereon that was unpaid at that date, until the date of payment. 39 The evidence revealed that the real difference was between calculations based on (a) and (c). The difference, in each case, between calculations based on (a) and (b) was small (less than $10,000). Whether interest should be payable on interest resulted in some, but not a substantial, difference. 40 There was a further issue raised as to the quantum of judgments that should be entered against the first to third Defendants regarding each of the loans, the share of loss under the joint venture and interest. It seemed to me that the determination of this issue would depend, almost entirely, upon the first issue. 41 The final issue was which party, or parties, should bear the burden of costs of the hearing before McLaughlin As J and the one before me. It was accepted that would be determined depending upon the view to which I came on the other issues. I have earlier referred to the issue of the costs of the hearing before McLaughlin AsJ. 42 The parties were not in dispute as to the arithmetic or calculation of figures in the Plaintiff's evidence. The dispute was as to the principles on which the arithmetic and calculation had been done. The parties agree that calculations may have to be redone once the court determines the principles. Determination Appropriation of Repayments 43 As is clear, there is nothing specific in the Deed, in the Deed of Partition, or in the Deeds of Variation, which provides the manner in which repayments made, were to be applied between the Stein Loan and the interest thereon. 44 Nor is there any specific reference as to how any strata lots transferred to one, or other, of the joint venturers, should be treated. Presumably, this was because the transmission of the strata lots was to follow the repayment of all amounts referred to in Clause 10.1 of the Deed. In this regard, Clause 11 of the Deed specifically referred to the costs of the project and the payments in Clause 10.1(e), and "any units remaining unsold". The allocation of strata lots to the joint venturers was, in effect, in substitution for a cash share of profits. 45 However, the parties agree that the first task of the court is to construe the written documents that the parties entered into, including the Deed and the Deed of Partition. 46 In so doing, the primary duty of a Court is to endeavour to discover the intention of the parties from the words of the instrument in which the agreement between them is embodied and that the meaning of a clause may be revealed by other parts of the document: Australian Broadcasting Commission v Australasian Performing Right Assn Ltd (1973) 129 CLR 99, per Gibbs J (as his Honour then was) at 109. 47 In this case, the documents should be read as a whole and given a commercial and businesslike interpretation: see Franklins Pty Ltd v Metcash Trading Ltd (2009) 264 ALR 15 at 25-27 ([19]-[23]) per Allsop P and at 29 ([361]-[362]) per Campbell JA, Giles JA agreeing with Campbell JA at 29 ([42]-[43]) and with Allsop P at 33 ([63]). 48 I also remember that the process of interpreting terms of an agreement is a pragmatic process, and "no narrow or pedantic approach is warranted, particularly in the case of commercial arrangements": Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, per Barwick CJ at [35]–[36], [40]–[42]. Commercial contracts should be construed "fairly and broadly, without being too astute or subtle in finding defects" per Lord Wright in Hillas & Co Ltd v Arcos Ltd [1932] UKHL 2, cited with approval by Gibbs J in Australian Broadcasting Commission at 109–110. 49 In considering the terms of the Deed, there is available an alternative construction, not adverted to by the parties, but raised during submissions, which, in my view, has considerable attraction, primarily because it relies upon the ordinary and natural meaning of the provisions of Clause 10 and because it seems to be in accordance with what the parties appear to have objectively intended. 50 By Clauses 10.3 and 11 of the Deed, the parties had in mind that the proceeds of sale of the strata lots, were to be applied, first, to "the costs of the project" (which, it was accepted, incorporated Clause 10.1(a) to (d)) and then to the payments referred to in Clause 10.1(e). In the event that there were insufficient funds to pay all of the costs set out in Clause 10.1(a) to (d), then the loss would be contributed, and payments would be made, to any balance not so paid, by the joint venturers in proportions equivalent to the Equity Ratio. 51 As stated, there is nothing in the Deed that states how the strata lots transferred to the Plaintiff, should be treated. However, it is clear, from the evidence to which I have referred, that the parties treated the value of the strata lots as a notional repayment towards "the Stein loan and interest payable thereon". 52 Clause 10.1 specifically applies to repayments made from the proceeds of sale of the strata lots (industrial units). In regard to Clause 10.1(d), the order and priority identified was "the repayment of the Stein Loan", and "interest payable thereon". 53 Thus, on this construction of the Deed, and considering the judgment of his Honour, interest would be calculated in the manner found by his Honour, namely, simple interest at the rate of 10 per centum per annum, on the unpaid balance of the Stein loan, as varied from time to time, after taking into account increases in borrowings and deductions by repayment, from the proceeds of sale of the strata lots. The interest, until repayment of the Stein Loan, would be treated separately. 54 Then, once the whole of the Stein Loan was repaid from the proceeds of sale of the strata lots, the interest that had been treated separately, would be repaid from the proceeds of sale of other strata lots, as, and when, those proceeds were received. 55 Assuming that the balance of the proceeds of sale of the strata lots was insufficient to meet the repayment of the costs of the project referred to expenses in Clause 10.1(a) to (d), in their entirety, the joint venturers would be required to contribute and pay the balance. There is no reason to suppose that the parties intended that the order and priority of repayments referred to in Clause 10.1 should be different in respect of such contributions and payments. 56 To the extent that strata lots were transferred to the Plaintiff, the value of those lots was notionally treated as a repayment of the Stein Loan and interest payable thereon in the accounts of the joint venture. The first lot transferred was on 25 June 2001, and the notional value of the transfer was $2,071,300. In the accounts, the amount was appropriated first to interest payable on the Stein Loan and then to the reduction of the Stein Loan. This seems to me to be inconsistent with the order and priority identified in Clause 10.1 of the Deed. 57 Senior Counsel for the Plaintiff submitted that even if the construction of the Deed was as set out above, Clause 10.1 had no relevance to how the notional value of the strata lots transferred should be treated, as that Clause dealt only with the proceeds of sale thereof, rather than how notional repayments made by the joint venturers to the Stein loan and interest were to be applied. 58 I do not accept this submission, because Clause 10.3 refers to the contributions and payments by each of the joint venturers in proportions equivalent to the Equity Ratio, which contributions and payments are identified by reference to Clause 10.1(a) to (d). It follows that contributions and repayments by the joint venturers to the insufficiency of funds to pay, in entirety, the costs of the project referred to, would be made to the joint venture from which repayments would be applied. There is nothing in the Deed that suggests that any such payment, or contribution, was to be applied in any other order or priority. 59 This construction of the Deed gains support from: (a) The definition of the Stein Loan, in the Deed, which, notably, refers only to "loans made or caused to be made…plus such other funds as the parties may agree to borrow from Stein from time to time". There is no reference to "interest" on such loans, or borrowings, being included as part of the Stein Loan. (b) Clause 3.3 specifically provides for the calculation of interest "on the balance of such loan as varies (sic) from time to time". There is no reason, in my view, to treat "as varies (sic)" as being limited to a variation increasing the Stein Loan. The phrase used is sufficiently wide to include variations by reductions in the Stein Loan. (c) Clause 10.3, which requires contributions and payments to be made by each of the joint venturers in proportions equivalent to the Equity Ratio, in respect of any insufficiency of the proceeds of sale of strata lots, refers to Clause 10.1(a) to (d) inclusive. 60 It seems to me that there is another way to look at the transfer of the strata lots which also supports this construction. As I have stated, it is clear from Clause 11 of the Deed, that the intention of the joint venturers was to sell only so many of the strata lots as was necessary to pay the costs of the project and to make the payments in Clause 10(1)(e). Thus, to the extent that those costs had not been paid, the intention of the parties was to continue to sell strata lots. The value of the strata lots transferred could be notionally treated as proceeds of sale, without having associated costs of sale to third parties. In this way, the value of the strata lots transferred would have been applied in the same order and priority as set out in Clause 10.1 (a) to (d). 61 Then, to the extent that the proceeds of sale of the strata lots were insufficient to repay the Stein Loan and the interest payable thereon, the Plaintiff, as one of the joint venturers, was required to pay and contribute, in proportion equivalent to the Equity Ratio to the repayment. As defined, his contribution was as to fifty per cent. Accordingly, he was, himself, liable to repay half of any part of the Stein Loan that was unpaid as well as any accumulating unpaid interest payable on the Stein Loan. 62 In my view, the proceeds of sale of the strata lots and the value of the strata lots transferred should be treated in the same way and should have been applied in the same order and priority set out in Clause 10.1. It follows that those amounts should be treated as having been made as, first to "the repayment of the Stein Loan" and then to "the interest payable thereon". 63 The construction of the Deed advanced is one that also appears to be a commercial and businesslike one. The joint venturers required what were, in effect, costs of the project payable to third parties to be paid in priority (Clause 10.1(a) to (c)) to the Stein Loan and interest payable thereon (Clause 10(1)(d)). Whilst the Stein Loan was not repaid, it would (as found by McLaughlin AsJ) attract simple interest at the rate of 10 per cent per annum. By repaying the Stein Loan in priority to interest payable thereon, the interest (to which the Plaintiff, himself, might have to contribute) would be reduced, whilst the part of the Stein Loan that was being repaid to the Plaintiff itself would occur. (In other words, the Plaintiff would be able to reinvest monies paid to him to reduce the Stein Loan and obtain interest thereon.) 64 The evidence reveals that there were other amounts shown as repayments to the Stein Loan. These were amounts such as refunds (from D A Patterson), reallocations (from BAS refunds from the ATO), and other repayments. These were moneys to which the joint venture would have been entitled to be paid towards the costs of the project. For the same reasons set out above, these amounts should also be treated as being made toward "the repayment of the Stein Loan" and then toward "interest thereon". Again, there is simply no basis to ignore the order and priority of application of monies repaid. 65 In the circumstances, I have found that the principal matter for determination can be decided upon the construction of the deeds entered into between the parties. The parties agreed that if the matter were decided in that way, it was unnecessary to rely upon common law principles to which reference was made. 66 In case I am wrong on the question of construction, I should deal with the alternative argument. That argument proceeds upon the basis that Clause 10 of the Deed only referred to the proceeds of sale of the strata lots and that whilst the application of the proceeds of sale in the order and priority set out therein dealt with the four different costs of the project that were to be repaid, the word "and" in Clause 10.1(d) was simply connective. It followed, so it was submitted, that Clause 10.1(d) did not provide any order and priority in respect of the repayment of the Stein Loan and interest thereon. 67 It was then submitted that nowhere else in the deeds, was there any reference to the way how repayments made should be applied between the Stein Loan and the interest thereon, which meant that one turned to common law principles. There was no dispute as to these principles. 68 In Falk v Haugh (1935) 53 CLR 163, Rich, Dixon, Evatt and McTiernan JJ, at 173, said: "It has long been a rule that when payments are received generally on account of a debt, which is in part interest and in part principal, they are treated as applicable to interest in priority to principal. In Crisp v Bluck, a bond creditor received some payments, and afterwards recovered judgment. It was decreed that the payments ought to go in discharge of the interest first. The rule was again enunciated by Lord Keeper Wright in Chase v Box . It has, however, been little discussed. The most recent statement of the rule is contained in Venkatadri Appa Row v Parthasarthi Appa Row . There Lord Buckmaster said:- "There is a debt due that carries interest. There are moneys that are received without a definite appropriation on the one side or the other, and the rule which is well established in ordinary cases is that in those circumstances the money is first applied in payment of interest and then when that is satisfied in payment of capital. That rule is referred to by Rigby L.J. in the case of Parr's Banking Co.v Yates (1898) 2 Q.B. 460, at p. 466. in these words:—The defendant's counsel relied on the old rule that does, no doubt, apply to many cases, namely, that, where both principal and interest are due, the sums paid on account must be applied first to interest. That rule, where it is applicable, is only common justice. To apply the sums paid to principal where interest has accrued upon the debt, and is not paid, would be depriving the creditor of the benefit to which he is entitled under his contract." (See too Bamundoss Mookerjea v Omeish Chunder Raee .) The rule affords only a presumption in the absence of any actual or express appropriation by the debtor or the creditor." (Omitting citations). 69 More recently, in French v Smith [2005] VSCA 114, at [35], that rule was followed: "the amounts paid should be applied in accordance with the well-recognised principle that a sum paid in partial reduction of a debt is appropriated first against interest accrued on that debt and any balance is treated as reducing the capital amount." 70 Whilst these cases spring from facts surrounding mortgages, the principle was said to apply in the circumstances of this case. I was also referred to Morlines Maritime Agency Ltd v Skulptor Vuchetich (Tamberlin J., 29 August 1997, unreported), in which his Honour said, at 6-7: "In order to justify the allocation of funds away from the in rem debts and in payment of the agency commission, Morlines relies on general law principles concerning the entitlement of a creditor to allocate general payments, which are not allocated by the debtor, to pay whichever indebtedness is considered appropriate by the creditor. Neither party submits that the rule in Devaynes v Noble ("Clayton's case") (1816) 1 Mer 572 applies in the present circumstances. The general principle relied on by Morlines is that according to the general law: ".... it is open to the creditor, if the debtor himself in making the payment has not directed an appropriation, to appropriate the payment made by his debtor to any part of the debt he likes, or to whichever of two debts, if there are two debts, he prefers." See In re Thomas Mortimer Ltd [1964] 3 WLR 427 at 431 per Romer LJ; approved In re Yeovil Glove Co Ltd [1963] Ch 528 at 539. See also In re Sherry (1884) 25 Ch D 692 at 702. If the debtor makes an appropriation at the time of payment the creditor is bound by the appropriation made by the debtor. However, if the debtor has not made an appropriation, the creditor has the right of appropriation up to "the very last moment". But, so long as the election rests with the creditor, and he has not determined his choice, there is no room for the application of rules of law such as the rule in Clayton's case: see Corey Bros & Co v Owners of the Turkish Steamship Mecca ("The Mecca ") [1897] AC 286 at 292. Mere entry of a payment by a creditor in a particular account would not amount to an appropriation and the creditor would still be at liberty to appropriate the payment as he pleased: see The Mecca at 292. In Seymour v Pickett [1905] 1 KB 715 the Court of Appeal applied the above principles in relation to a claim for a debt based on dental work. The claimant was not registered under the Dentists Act 1878. He carried out dental work on a patient and supplied him with false teeth and gold. He made a charge of 45 pounds overall and the patient gave him two cheques, for twenty pounds and twenty-five pounds respectively. The latter cheque was post dated. The twenty pound cheque was duly paid but the twenty five pound cheque was dishonoured on presentation, the drawer having stopped payment of it by his bankers. When the dentist brought an action in the County Court against the patient on the twenty-five pound cheque the judge found that twenty-one pounds represented the price of the gold and other materials supplied by the plaintiff. The plaintiff then, when being examined as a witness in the case, claimed to appropriate the twenty pound cheque to the payment of his professional fees. No appropriation had been made by the patient. The Court of Appeal held that the plaintiff was entitled to make the appropriation and to recover twenty-one pounds in the action, notwithstanding that the Dentists Act prohibited a dentist receiving any fee for the performance of any dental operation unless registered. This decision indicates the wide power which a creditor has to appropriate a payment where no express allocation is stipulated by the debtor. At 722-723, Vaughan Williams LJ said: "A good many authorities have been cited upon the present appeal upon the question under what circumstances and for how long a creditor, who has received from his debtor a sum of money unappropriated to any particular debt, has a right to appropriate that sum.....Throughout all the authorities it is plain that the right which the creditor has is in the nature of an election, and the question to be ascertained in each case is whether anything has happened to determine that right to elect. Of course, the receiver of the money may make his election before there is any litigation.... But, on the other hand, there may be legal proceedings in which in no sense could the writ or the defence operate as an election, because there is nothing in the action which involves any election.... The first time at which any such question [as to election] was raised was when the action was remitted to the county court judge, and it is beyond dispute the plaintiff did, when he was in the witness-box in the county court, make his election. In my opinion he was entitled to do so then, if nothing had previously happened to determine his right of election." (Emphasis added) The principles applied in The Mecca have been approved and applied by the High Court in Visbord v Federal Commissioner of Taxation (1943) 68 CLR 354 at 371 and Airservices Australia v Ferrier (1996) 185 CLR 483 at 494-495." 71 Giles JA in Healey v Commonwealth Bank [1998] NSWSC 678 put the principle succinctly: "When a debtor who owes distinct debts to a creditor makes a payment to the creditor he may appropriate the money as he pleases, and the creditor must apply it accordingly; if the debtor does not direct an appropriation at the time he makes the payment, the right of application devolves on the creditor." 72 Whilst it was accepted that it is the right of the debtor to direct, in the first instance, how the payment is to be applied, and once the debtor has so directed, the destination of the payment cannot be changed by the creditor: Re Walsh; Ex parte Deputy Commissioner of Taxation (NSW) (1982) 42 ALR 727; Re Mangan; Ex parte Andrew (1983) 123 ALR 633 at 640, it was submitted, in the present case, that there had been no direction by the joint venturers (as debtors). 73 Counsel for the first to third Defendants accepted that this was so. It follows then, that the right of appropriation would be with the Plaintiff (the creditor), who was entitled to declare upon what account he had received the payment. The Plaintiff says that the declaration was made in the way in which the accountant treated the repayments, or, if that is not accepted, that he has declared in these proceedings, that he wishes the repayments appropriated to interest payable first and then to the Stein Loan. 74 If I were wrong in the construction of the Deed and in determining, objectively, what the parties had intended, then it seems to me that I would accept the submission of the Plaintiff. 75 In determining the first issue, I am satisfied that all of the relevant repayments, should be appropriated as to the Stein Loan first, and then to the interest payable thereon. I shall direct the parties to re-calculate the figures to ascertain the amount, if any, that was payable as at 25 June 2008. Interest on Amount found to be outstanding 76 In the event that there is any amount owing to the Plaintiff in respect of the Stein Loan, or on the interest payable thereon, the next question for determination is what interest, if any, is payable on the amount outstanding. The Plaintiff and the first to third Defendants accept that interest should be calculated from 25 June 2008, being the date on which the consent orders determining the joint venture were filed. 77 The question that was then agitated was whether there should be interest paid on any unpaid interest payable on the Stein Loan. There was no dispute that interest should be paid on any unpaid part of the Stein Loan in accordance with the judgment of McLaughlin AsJ. 78 The word "interest" is a term in ordinary English usage. In the context of the payment of money in this case, it means "money paid for the use of money lent (the principal) or for forbearance of a debt, according to a fixed ratio". (The Oxford English Dictionary, 2nd Ed. (1980) Vol VII at 1099), or "a charge for the use of credit or borrowed money; such a charge expressed as a percentage per time unit of the sum borrowed or used". (Collins English Dictionary (Australian Edition) (1982) at 761). 79 A useful definition of "interest" in its common usage, and, at law and in equity, is that given by Rand J. in Re: The Farm Security Act 1944 of the Province of Saskatchewan (1947) SCR 394 at 411: "Interest is, in general terms the return or consideration or compensation for the use or retention by one person of a sum of money, belonging to, in a colloquial sense, or owed to, another ...... But the definition...assumes that interest is referrable to a principal in money or an obligation to pay money". 80 The definitions set out above were referred to, with approval, in Re Consolidated Fertilizers Ltd v Deputy Commissioner of Taxation [1992] FCA 224; (1992) 107 ALR 456; (1992) 36 FCR 1 at [14]. 81 If there is any part of the interest payable on the Stein Loan remaining unpaid as at 25 June 2008, I am satisfied, as a matter of discretion, that the Plaintiff is entitled to interest on the unpaid interest payable, since he has been kept out of receiving that interest. 82 Relevantly, s 100 of the Civil Procedure Act 2005 provides: "(1) In proceedings for the recovery of money (including any debt or damages or the value of any goods), the court may include interest in the amount for which judgment is given, the interest to be calculated at such rate as the court thinks fit: (a) on the whole or any part of the money, and (b) for the whole or any part of the period from the time the cause of action arose until the time the judgment takes effect. (2) … (3) This section: (a) does not authorise the giving of interest on any interest awarded under this section, and (b) does not authorise the giving of interest on a debt in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise, and (c) does not authorise the giving of interest in any proceedings for the recovery of money in which the amount claimed is less than such amount as may be prescribed by the uniform rules, and (d) does not affect the damages recoverable for the dishonour of a bill of exchange. …" 83 Section 100 empowers the court to award interest "calculated at such rate as the court thinks fit". The court must, therefore, make an award of interest that is just. 84 To the extent that there is unpaid interest payable on the Stein loan, as at 25 June 2008, s 100 does not prohibit the granting of interest on the amount of unpaid interest, since interest payable on the Stein Loan is not "interest awarded under this section". Nor is it interest on a debt, in respect of any period for which interest is payable as of right, whether by virtue of an agreement or otherwise. 85 The Defendants did not submit that there was any procedural reason that prevented the grant of interest (e.g. rule 6.12 of the Uniform Civil Procedure Rules 2005) on the unpaid interest. In light of the way the case was presented, both before, and after, the judgment of McLaughlin AsJ, I would have, in any event, rejected a submission to that effect. It was clear, in my view, that interest was being claimed on the Stein Loan and interest thereon. 86 The just outcome in my view is that interest should be paid on any unpaid interest payable on the Stein Loan as at 25 June 2008 until the date of payment. 87 Neither party tendered any evidence relevant to the decision regarding the interest rate to be used in the calculation. Where no rate is prescribed for pre-judgment interest, the starting point is the average commercial rate for the relevant period (Smallacombe v Lockyer Investment Co Pty Ltd (1993) 42 FCR 97, 103; Hexiva Pty Limited and Ors v Lederer and Ors (2) [2007] NSWSC 49 at [16]). 88 However, even though it has no statutory force in respect of claims for prejudgment interest under s 100, there was a conventional practice of adopting the rates prescribed for post judgment interest, without the necessity for calling specific evidence, in the absence of reason to do otherwise: Smallacombe v Lockyer Investment Co, 574; R W Miller & Co Pty Ltd v The Ship Patris [1975] 1 NSWLR 704; Hexiva Pty Limited at [16]. 89 Ritchie's Uniform Civil Procedure NSW, states, at paragraph 100.80, that those rates, ordinarily, will be allowed under s 100, without the necessity for calling specific evidence (see, also Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd [2010] NSWSC 1106 at [12]). 90 Schedule 5 to the Uniform Civil Procedure Rules, which set out rates of interest for the purposes of s 101, was discontinued from 1 July 2010. Until then, UCPR r 36.7, provided that the prescribed rates for the purposes of s 101 were those set out in Schedule 5. The schedule referred to different rates for different periods from 1 July 1972. Since 1 July 2010, however, the rate for s 101 purposes is, in relation to any period at any time (being a period from 1 January to 30 June in a given year or from 1 July to 31 December in a given year) a stated margin over the cash rate last published by the Reserve Bank of Australia before the commencement of the period in question (see, Practice Note 16). 91 It has recently been pointed out by Pembroke J in Thomas v SMP (International) [No 6] [2010] NSWSC 1311 at [21]: "The stated purpose of the Practice Note is to set the rate of pre-judgment interest that may be awarded under s 100(1) and (2) of the Civil Procedure Act , 2005. Practitioners and litigants are informed that the court will "have regard to" the specified rates, which were agreed upon by the Discount & Interest Rate Harmonisation Committee following a referral by the Council of Chief Justices. Although the Practice Note states that its purpose is to "set" the applicable rate, it is not prescriptive. Section 100(1) makes clear that the power in relation to the amount, period and rate of interest is discretionary. The court may include interest "at such rate as the court thinks fit" on the whole or any part of the money and for the whole or any part of the period between accrual of the cause of action and judgment." 92 This means that there is likely to be a difference between interest at the rate calculated on the basis that applied when the claim for interest was made and interest on that basis calculated under the regime that now applies as a result of the change on 1 July 2010. 93 As in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd, I have considered whether the just outcome, in the light of the change to the Rules, is that there should be interest at the rate provided for in UCPR rule 36.5 as it now stands or otherwise. A countervailing matter may be that interest under the Deed was 10 per centum per annum payable on the Stein Loan. 94 However, since I have considered elsewhere in this judgment that the parties intended to differentiate between the Stein Loan and the interest payable thereon, I should, in fairness, adopt the same logic on this aspect also. 95 Accordingly, following the view expressed by Barrett J in Tim Barr Pty Ltd v Narui Gold Coast Pty Ltd at [23], "the just outcome, in the light of the change to the rules, is that there should be interest at the rate provided for in rule 36.5 as it now stands. That rule must be taken to reflect the prevailing view about what is just." 96 Thus, the rates of interest applicable at the date of the order for the purposes of s 101 should also be applied for the purposes of s 100 in calculating the interest payable from 25 June 2008. Costs 97 Dealing firstly with the costs of the proceedings before McLaughlin AsJ, I am of the view that the Plaintiff should have his costs of, and incidental to, the proceedings between the date of commencement and 25 June 2008. The first to third Defendants should pay those costs. 98 I appreciate that there was then a fourth Defendant, but it was accepted that she did not play a very significant role in the proceedings. 99 Thereafter, until the date of the reasons for judgment, the Plaintiff should pay the first to third Defendant's costs of the proceedings because he was unsuccessful in the proceedings. 100 A more difficult question is in relation to the costs of the proceedings before me. Neither party has been completely successful, although, it seems to me that the Plaintiff has been partly successful, at least on the issue regarding interest on the unpaid interest payable on the Stein Loan. In the circumstances, my present view is that he should receive 30 per cent of his costs; otherwise each party should bear his, or its, own costs of the precise proceedings before me. 101 To enable judgment to be entered and the matter to be finally concluded, it will be necessary for further calculations to be done. 102 I direct the parties to bring in short minutes of order. I shall stand the proceedings over to a date in the new Law term, to enable the calculations by each side to be agreed. In this regard, I shall not permit the first to third Defendants any delay in relation to responding to calculations provided by the Plaintiff. They are to respond, within 14 days of receipt of the Plaintiff's statement of calculations, and if they disagree, they are to provide their statement of calculations within that period. If they do not, they will not be permitted to adduce any further statement of calculations, without satisfying me that they should be entitled to do so. ********** 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. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.