Where a lender obtains judgment against a debtor the normal
rule is that contractual rights merge in the judgment and from
that time the right to contractual interest ends and the
statutory rate of interest (currently 7.5%) applies to the
judgment amount. However, there are exceptions to this rule. In
ASB Bank Ltd v Teng, ASB tried to argue that it fell within one
of those exceptions.
ASB obtained judgment against Mr Teng for $1.2 million.
Interest was included in the judgment on the principal amount
at the contractual rate of 21.75% up until the date of
judgment. From then on, interest on the judgment amount was
allowed at the statutory rate of 7.5%. Shortly after the
judgment was issued, ASB sought to have it recalled so that it
could be varied to provide for interest to continue at the
contractual rate despite entry of judgment.
Associate Judge Doogue accepted without issue the
proposition that contractual rights merge in judgment. His
Honour then reviewed relevant English and New Zealand
authorities and summarised the type of contractual provisions
that would displace the normal rule and allow contractual
interest to continue post-judgment. These were:
Where the contractual provisions specifically refer to
the instance in which judgment is entered against a party and
provides for interest to be paid from the date of judgment
until the judgment sum is paid.
Where the contractual provision can be construed as an
independent covenant to pay interest so long as there is
money owing on the principal sum.
Where there is a continuing security, for example under a
His Honour concluded that the relevant interest charging
provisions in ASB's loan and security agreements did not
meet any of the above criteria. Therefore, ASB was not entitled
to contractual interest post-judgment.
This decision is a reminder to lenders who want to charge
the contractual interest after judgment, to include a term to
that effect in the lending and security documents.
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reference and should not be relied on as a substitute for
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