Award of Interest on Benefits not Paid when Due

The award of interest on a benefit due but not paid was considered by Smart AJ in:

Tuftevski v Total Risks Management Pty Ltd as Trustee of the BHP Billiton Superannuation Fund (No 2) [2009] NSWSC 1021

A benefit of $260,049 was due in November 1999.

Smart AJ stated:

I propose to allow interest for the period 15 November 1999 to 30 September 2009 as follows:

($260,049.81 x 8% divided by 365) x 3603 = $205,371.00 (rounded to dollar)

(8% of $260,049.81 = $20,803.98 per annum or $57.00 (rounded) per day: 15 November 1999 to 30 September 2009 = 3,603 days: $57.00 x 3,603 = $205,371.00)

Smart AJ ruled at [61]:

I make the following declarations and orders:

1. a declaration that the plaintiff is entitled to be paid by the defendant as Trustee of the BHP Billiton Superannuation Fund and out of that Fund a lump sum benefit of $260,049.81, pursuant to Rule 1.8 Section B of that Fund’s Rules, by reason of his Disablement;

2. a declaration that the plaintiff is additionally entitled to be paid by the defendant as Trustee of the BHP Billiton Superannuation Fund and out of that Fund as equitable compensation simple interest at the Trustee rate of eight (8) per centum per annum on the principal sum of $260,049.81 from 15 November 1999 to 30 September 2009, namely $205,371.00;

3. order that the defendant pay to the plaintiff out of the Fund $465,420.00 ($260,049.00 and $205,371.00). Interest is not payable on the amount of the order if the amount is paid in full within 28 days of 30 September 2009. If the amount is not paid in full within 28 days of 30 September 2009 interest is payable at the rate prescribed under the UCP Rules on so much of that amount as for the time being remains unpaid;

4. order the defendant to pay the plaintiff’s costs of the proceedings out of the Fund on the ordinary basis; and

5. liberty to both parties to apply on 2 days’ notice within seven days to correct any arithmetical error of more than $200.00.

Simple or Compound Interest?

A defaulting trustee is normally charged with simple interest only, although compound interest will be charged in certain circumstances.

One circumstance is where the trustee has been fraudulent, or has otherwise acted so grossly as to warrant the imposition of compound interest{ Gordon v Gonda [1955] 1 WLR 885 at 896 per Evershed MT; Southern Cross Commodities Pty Ltd v Ewing (1987) 11 ACLR 818 at 848; Wilkinson v Feldworth Financial Services Pty Ltd (1998) 29 ACSR 642 at 708; Stambulich v Ekamper (1998) 42 ATR 169 at 185-186( on Appeal (2210) 48 ATR 163 -167); Reid v Hubbard [2003] VSC 387 at [41]; Lewis v Nortex Pty Ltd (in Liq) [2006] NSWSC 480 at [11]}

Lewis v Nortex Pty Ltd (in Liq) [2006] NSWSC 480 at [11]}

11 As to the first of these questions, a person committing a breach of trust may be made liable to compound rather than simple interest entirely in the discretion of the court: Jacobs’ Law of Trusts in Australia (6th ed, 1997) [2209]. Mr Ventry Gray, of counsel for the Liquidator, submitted that two circumstances in which courts of equity have exercised their discretion in favour of compound interest in cases of breach of trust are: (1) where the breach is of a particularly wilful or heinous kind; (2) where the trust has been engaged in a business income earning activity, so that, had the misappropriation not occurred, the amount misappropriated would have earned income for the trust. In general terms, this submission is correct: see Ford and Lee, Principles of the Law of Trusts (3rd ed, 1996, looseleaf) [17140].

Reid v Hubbard [2003] VSC 387 at [41]

The plaintiffs have succeeded in establishing that John Hubbard is guilty of a gross breach of duty as executor and trustee. In the circumstances it is appropriate that compound interest be paid at a rate at or about the long term government bond rate, which for the sake of convenience I fix at 8 per cent, and that it be computed from the date of grant of probate until payment or discharge.