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When someone wants to make a civil claim against someone the question of interest always arises. You cannot just pick your own rate of interest and add it to the claim. Essentially, you need a contract or law that gives you a reference point for claiming interest.

1. Your terms and conditions (or contract)

A well drawn set of terms and conditions will provide for interest to be paid on outstanding debts. Personally, I like to keep it to simple interest, clauses that reference bank overdraft rates and so forth add unnecessary complexity.

2. Legislation

All of the states have legislation that provides for interest. In Queensland, the Civil Proceedings Act 2011 (Qld) lets you have interest from the date of the Claim until judgement at the Reserve Bank cash rate + 4%. Currently, the default rate is 5.5% PA. After judgement you add 6% and it is currently 7.5% PA.

There are other Acts that prescribe interest, of course. Eg ATO’s General Interest Charge.

3. Equity

Where there are trustees and other fiduciaries involved,it may be appropriate for the court to award compound interest to ensure that no profit remains in the defaulting fiduciary’s hands and this normally will occur where the defaulting fiduciary has used the money for his own commercial purposes, and also is guilty of fraud or serious misconduct. (Southern Cross Commodities Pty Ltd (in liq) v Ewing(1988) 91 FLR 271). (Shout out to David Purcell for the case reference).

4. The Court

The Court always retains a discretion as to what interest will be allowed.