Post Judgment Interest: What rate can be claimed?

Once judgment is granted by the civil court, every judgment creditor shall be entitled to an interest on the judgment sum. If the rate of interest has not been contractually agreed upon by the parties, then the judgment creditor is entitled to claim the interest rate as prescribed by the Court. Under Order 42 rule 12 of the Rules of Court 2012, it is provided that:

“Subject to rule 12A, except when it has been otherwise agreed between the parties, every judgment debt shall carry interest at such rate as the Chief Justice may from time to time determine or at such other rate not exceeding the rate aforesaid as the Court determines, such interest to be calculated from the date of judgment until the judgment is satisfied.”

Pursuant to Practice Direction No. 1 of 2012, the Chief Justice has fixed interest rate at 5% per annum. However, if parties have already agreed to an interest higher than 5% per annum, the court will allow the claim for higher interest rate as agreed by the parties.

Even though there is nothing in the Rules of Court 2012 to prevent the judgment creditor from claiming the agreed interest rate, section 43(6) of the Bankruptcy Act seems to limit the right of judgment creditor in claiming the interest against judgment debtor who has been adjudged a bankrupt. Section 43(6) of the Bankruptcy Act provides:

“(6) Where a debt has been proved upon a debtor's estate and such debt includes interest or any pecuniary consideration in lieu of interest, such interest or   consideration shall for the purposes of dividend be calculated at a rate not exceeding six per centum per annum, up to the date the receiving order is granted by the court.”

Based on the above provision, once judgment creditor has filed a Proof of Debt in accordance with the judgment, the Insolvency Department will quite often issue a Notice of Rejection of Proof of Debt (Form 64) to reduce the claim for interest at the rate of 6% per annum only. The issue now is whether section 43 (6) Bankruptcy Act is applicable to all cases when the said sub section was onlyntroduced through amendment on 1st October 2003.

In the recent case of Omega Securities Sdn Bhd v. Ketua Pengarah Insolvensi Malaysia [2012] 5 CLJ 868, the High Court has had the opportunity of analyzing the applicability of section 43(6) Bankruptcy Act. In this case, pursuant to the judgment obtained on 14/3/2001, the judgment creditor had claimed interest at the rate of 12.8% per annum on the judgment sum in their Proof of Debt. But, on 20/7/2011, the Director General of  Insolvency, had issued the Notice of Rejection of Proof of Debt and refused to admit the debt in the sum of RM65,995.35 as claimed by the judgment creditor and only accepted the Proof of Debt for the sum of RM34,449.89 by imposing interest rate at 6% per annum only.

Being dissatisfied with the said decision, the judgment creditor appealed to the High Court against the decision of the Insolvency Department. The judgment creditor contended that the amendment to section 43(6) Bankruptcy Act does not take effect retrospectively but  prospectively. The High Court agreed with this submission in law as the court is of the view that an amendment to the rate of   interest chargeable under section 43(6) is an amendment to a substantive law and not to a procedural  requirement. The amendment was only made on 1^st October 2003 and it cannot take away the judgment creditor's accrued right under section 43(6) as the amending Act did not clearly and specifically provide that the amendment would have a retrospective  effect. In delivering the judgment, the learned Judge Mah Weng Kwai J (now JCA) held:

“… the judgment creditor is lawfully entitled to claim for interest upon the rate specified in the judgment in   default. The right to claim interest at a specified rate pursuant to the terms of the judgment in default is a substantive right and the amendment ought not to be applied retrospectively. To do so would produce an unjust result as s. 43(6) deals with a substantive right. The judgment creditor had a legitimate expectation that as at 14 March 2001 (the date of the judgment in default) it had the right to interest at the rate of 12.8% per annum on the principal sum and not at 6% per annum until full realisation.”

Based on the aforesaid authority, it appears that section 43(6) Bankruptcy Act is only applicable for judgment obtained after 1^st October 2003. If the judgment creditor has obtained judgment after 1^st October 2003, the judgment creditor will only be entitled to claim interest at the rate of 6% per annum in its Proof of Debt. This provision of section 43(6) Bankruptcy Act will also be applicable for winding up cases by virtue of section 291 of the Companies Act 1965.