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 mortgage.

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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