David Olifent v Emwest Products Pty Ltd and Ors (No. 2) No. SCGRG 94/1951 Judgment No. 5388 Number of Pages 5 Corporations Winding up Interest

[1995] SASC 5388

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA ANDERSON J Supreme Court Master

CWDS
Corporations - winding up - interest - In the ordinary course interest is to run from the date upon which the liquidator demands that any particular payment is recoverable as a preference. Ferrier v Civil Aviation Authority (1994/95) 127 ALR 472; Spedley Securities Ltd (In Liquidation) v Western United (In Liquidation) (1992) 7 ACSR 721, applied. Casey Interiors Pty Ltd (In Liquidation) v Specialised Roofing Systems Pty Ltd (1994) 174 LSJS 232; Sheahan v Air Con Serve (Unreported, Judge Burley, 14 December, 1994), not followed.

Interest Rate - No reason shown why appropriate earning capacity was not as set out in the Third Schedule to the Supreme Court Rules.

Costs - Supreme Court Rule 41 - circumstances exist where it is proper not to order solicitor/client costs for the whole of action to successful plaintiff who exceeded offer properly made and not accepted by defendant - partial order made.

HRNG ADELAIDE, 5 December 1995 #DATE 15:12:1995 #ADD 15:1:1996

Counsel for plaintiffs:        Dr R J Baxter

Solicitors for plaintiffs:     Johnson Winter and Slattery

Counsel for defendant :        Mr M N Rice

Solicitors for defendant :     Finlaysons

Counsel for third parties:     Ms C A Mitchell

Solicitors for third parties: Cowell Clarke

ORDER
Orders made

JUDGE1 JUDGE ANDERSON On 30 November, 1995 I published my reasons for decision in this matter (unreported judgment number 5358, available on SCALE). As a consequence thereof the plaintiff succeeded totally in his claim against the defendant in the sum of $136,269.00.

2. Dr Baxter, of counsel for the plaintiff, sought interest from the date of the winding up which is agreed to be 4 June, 1993. He sought that interest in accordance with the provisions of the Third Schedule to the Supreme Court Rules for the relevant period and quantified it at $27,656.81.

3. He further sought an order that the plaintiff have his costs of action on the solicitor/client scale pursuant to the provisions of Supreme Court Rule 41.04 on the basis that on 21 September, 1995 the plaintiff filed an offer to consent to judgment in the sum of $114,000.00 which sum it exceeded at trial.

4. At the request of Mr Rice, of counsel for the defendant, I heard further submissions as to the above three matters on 5 December, 1995.

INTEREST
5. Dr Baxter's application for interest from the date of the winding up was based upon my decision in Casey Interiors Pty Ltd (In Liquidation) v Specialised Roofing Systems Pty Ltd (1994) 174 LSJS 232 where I held that in a preference case such as this interest should run in favour of the liquidator from that time. That view was followed by Judge Burley in Sheahan v Air Con Serve (Unreported judgment delivered 14 December, 1994). My understanding is that of recent times in such matters in this State interest has been held so to run.

6. Mr Rice urged that I adopt the view of McLelland J in Spedley Securities Ltd (In Liquidation) v Western United (In Liquidation) (1992) 7 ACSR 721 at 722 which fixed, in the ordinary course, the time of the demand by the liquidator that a particular payment was recoverable as a preference as the relevant time from which interest was to run. This was a view which I considered and declined to follow in Casey Interiors because of some judicial uncertainty as to the appropriate date as is instanced by the cases referred to therein.

7. Mr Rice submitted that there must be a discretion. He contended for interest to run from the latest date, ie the date of issue of the proceedings, or, in the alternative, from the date of demand.

8. Dr Baxter sought to maintain the status quo as it exists in South Australia as abovementioned.

9. It is self-evident that the date from which interest is to be calculated in such proceedings should be uniform throughout the whole jurisdictional reach of the Corporations Law to the extent possible. It seems that in different places in different years for no consistent reason different relevant dates have been chosen. However, the Full Court of the Federal Court has now considered the issue of from what date, in the ordinary course, interest should be paid on a demand by the liquidator for the repayment of a preference: Ferrier v Civil Aviation Authority (1994/95) 127 ALR 472. At p531 the Court notes that s51A(1) of the Federal Court of Australia Act, 1976, which provides for interest, allows it only to run "between the date when the cause of action arose and the date as of which judgment is entered". This is in similar terms to s94 of the Supreme Court Act, 1970 (NSW) which was the basis of the award of interest in Spedley.

10. Section 30c of the Supreme Court Act of South Australia, 1936 by ss(2)(b), provides that interest to be obtained by a successful party in the case of a liquidated claim "must ... be (for the period) from when the liability to pay the amount of the claim fell due to the date of judgment ...".

11. The liability to pay a liquidated sum such as a preference cannot antedate the creation of the cause of action as the transaction is only "void as against the liquidator" (CL 565(1)). Hence, the effect of s30c(2)b of the Supreme Court Act is similar to that of s51A(1) of the Federal Court of Australia Act and to s94 of the Supreme Court Act (NSW).

12. In Ferrier the Full Court preferred the reasons of McLelland J in Spedley where His Honour said (at p888):
    "I am not proposing any inflexible rule, but in the ordinary
    run of cases, and particularly in the present case, it seems
    to me that it would not be proper to allow interest in
    respect of any period prior to a demand by the liquidator
    that any particular payment was in fact recoverable as a
    preference."

13. As the cause of action in the case at Bar arose in the same way as in Ferrier and Spedley having regard to the similarity of the terms of the relevant legislation the desirability of a uniform approach requires that I follow the more recent Federal Court decision (which was delivered on 21 December, 1994) rather than continue to apply Casey Interiors. Thus the plaintiff is to have interest from the date of the demand by the liquidator that the particular payments were recoverable as preferences. There is no suggestion of anything out of the ordinary course here - nothing like the example given in Ferrier at p531.

INTEREST RATE
14. Mr Rice submitted that the appropriate interest rate was a cash management rate, as evidenced in a supporting affidavit, of between 4.5% to 6.5% for the relevant period rather than the Third Schedule which Dr Baxter had used for his earlier calculation.

15. Of course the Third Schedule is a simple interest basis for calculating the entitlement of a successful party and is not to be ignored just because a party can evidence a lower rate, particularly if it is also a simple calculation. Such a lower rate may not be a true indication of the earning capacity of a fund over time.

16. Although Judge Burley chose 7% in Sheahan I have no sufficient evidence to cause me to depart from the Third Schedule in all of the circumstances. The plaintiff is to have interest at the rates therein from the relevant date of demand by the liquidator until the entry of judgment. COSTS

17. Supreme Court Rule 41 was amended to its present form with effect from 9 July, 1992.

18. Supreme Court Rule 41.01(1) is in these terms:
    "(1) A plaintiff may at any time up to 21 days prior to
    trial lodge with the Registrar and serve on all other
    parties a notice offering to accept a stated amount, or a
    judgment for a stated amount where it is necessary to enter
    judgment, together with his costs of action, in satisfaction
    of the plaintiff's cause of action or where there are more
    causes of action than one, of one, some or all designated
    causes of action."

19. The offer to accept $114,000 was filed on 14 September, 1995. The trial commenced on 16 October, 1995. Pursuant to Rule 41.02 the defendant had until 7 days before trial to accept the plaintiff's offer. It did not do so.

20. Supreme Court Rule 41.04 is in these terms:
    "Where a defendant has not accepted a plaintiff's offer made
    pursuant to this Rule and the sum recovered or, as the case
    may be, the proportion of the debt or damages or the relief
    recovered by the plaintiff is equal to or greater than that
    contained in the plaintiff's offer, the Court, unless it
    thinks proper to order otherwise, shall order the defendant
    to pay the whole of the plaintiff's costs of action to be
    taxed as between solicitor and client."

21. Thus, unless there is some intervening event such as to prevent the proper assessment of the plaintiff's offer by the defendant the Rule is quite straightforward. It matters not, ordinarily, that it was made on the last day allowed by Rule 41.01(1). So long as the offering party complies with the Rule its behaviour in so doing will not be unreasonable.

22. There is a ground upon which the defendant seeks the exercise of the discretion contained within this Rule and it is set out in the affidavit of Mr Haslam sworn on 4 December, 1995. He is a liquidator and was used as an expert by the defendant. His report as to insolvency was dated 8 February, 1995. As a result thereof the defendant refused to concede on this issue. This was the principal defence on the pleadings. It was only at a meeting between the plaintiff and Mr Haslam on 10 October, 1995, after time to accept the offer had expired, that further information was provided to him by the plaintiff which enabled him to advise the defendant's solicitors that insolvency should be conceded. It was, on the day of trial, after instructions had been taken from interstate principals.

23. This was a case where there were problems with discovery on this issue because of the volume of documents, some of which were lost. It was likely to be more disadvantageous to the defendant who did not have custody of the many boxes of documents. A delay in producing or inspecting discovered documents has not been shown to have effected the defendants' ability to consider insolvency and so the plaintiff's offer.

24. By the Rule the defendant was required to consider the plaintiff's offer before he had provided up to date information upon a crucial aspect of the defence, ie: the issue of insolvency. It is hard to see that this was reasonable in all of the circumstances so as to allow the plaintiff to wholly rely upon R41.01(1). The information produced late should have been available before the pretrial conference. It would be unfair to visit such an omission upon the defendant by way of a penal order for costs.

25. However, once the defendant knew the true situation on 10 October, 1995, and had taken advice, there is no reason for the offer not to have been accepted and for the plaintiff to be so told (the time for acceptance pursuant to Supreme Court Rule 41.02 having passed). Such a course would have saved the trial costs for both sides and, at worst, led to a somewhat truncated argument on costs. From the time of the commencement of the trial the defendant must be taken to have been at risk pursuant to Rule 41.04.

26. It seems to have been accepted that I have power to make a partial order for penal costs as suggested by Mr Rice. I decline Dr Baxter's invitation to order whole of action costs for the plaintiff pursuant to Rule 41.04. The plaintiff is to have his costs of action as party/party costs from the defendant up to the commencement of trial. Thereafter, the plaintiff is to have his costs of action on the solicitor/client scale.

27. Minutes reflecting these determinations are to be brought in forthwith.