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The complexity of interest in retail leasing disputes

The complexity of interest in retail leasing disputes

Published on August 29, 2022 by Alex CollieAlex Collie

Disputes relating to retail leases can be complex enough on their own, but determinations of interest can throw a further wrinkle in these already complicated matters.

Generally, after a dispute is resolved by a Court or Tribunal, if damages are payable by one party to another, interest may also be payable on top of the damages. The recent Victorian Supreme Court decision of Ajaimi v Giswick Pty Ltd (No 3) [2022] VSC 447  serves as a reminder of the different forms that interest can take and the importance of correctly including interest when seeking orders in a dispute.

This decision is the latest of a number relating to a dispute over a tenant’s claim against the lessor due to loss sustained from defects in the property in which a newsagency operated. The tenant was successful at the first instance in the Victorian Civil and Administrative Tribunal (“VCAT”) and secured an order for compensation of $399,405.68 inclusive of interest. The lessor appealed this decision in the Supreme Court, where the compensation amount was reduced to $207,650.

The question in this matter was when did the clock begin ticking for any interest owed on the compensation amount? Was it from the date of the VCAT order or the date that the Supreme Court revised the amount? Unsurprisingly, the tenant argued the former while the lessor claimed the latter. The surprising result was neither: the Supreme Court ordered that no interest was payable.

In arriving at that outcome, Osborne J distinguished between three different kinds of interest:

  • Post-judgment interest: This is interest on the judgment amount dating from the date of the judgment until the date of payment;
  • Pre-judgment interest: This is interest included in the order and is referable to any interest-bearing components in that order;
  • Hungerford’s damages: Derived from Hungerford’s v Walker (1989) 171 CLR 125, these damages represent loss sustained due to being deprived of money that could have otherwise been invested to accrue interest or used to pay debts in order to reduce interest owing.

Hungerford’s damages and pre-judgment interest appear similar in their nature, however, Osborne J explained that they are distinct: Hungerford’s damages are “in effect interest as damages” whereas pre-judgment interest are “interest on damages”.

The Retail Leases Act 2003 (Victoria) includes the following:

91(2)        In ordering the payment of a sum of money by a party, the Tribunal may order the payment of interest on that sum by the party at the rate fixed from time to time under section 2 of the Penalty Interests Rates Act 1983 or at any lesser rate it thinks appropriate.

In this matter, the tenant had included Hungerford’s damages as part of their claim but did not seek any order pursuant to s91(2) of the Retail Leases Act 2003 (Vic) for either pre-judgment interest or post-judgment interest. Interest could not be awarded under the Supreme Court Act 1986 (Vic) as the compensation was a tribunal order rather than a Court order.  Osborne J confirmed that had an order for post-judgment interest been made by VCAT, post-judgment interest would be applicable on  the reduced amount commencing from the date of the VCAT order rather than the date of the appeal order. However, as this was not the case, Osborne J could not make any further order save for releasing the lessor for his undertaking to the Court as he had paid the compensation amount in full.

The important lessons to take form this decision are:

  • Be aware of the complexity of interest and the various forms of interest that exist; and
  • When making a claim, be sure to include all remedies available to avoid losing out later.

If you have questions about your own leasing arrangements – as a lessor or tenant – please contact Carroll & O’Dea Lawyers on 1800 059 278.

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