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Davies v Chicago Boot Co Pty Ltd (No 2)

Davies v Chicago Boot Co Pty Ltd (No 2)

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SUPREME COURT OF SOUTH AUSTRALIA
(Civil)
DAVIES & NICOL AS JOINT & SEVERAL LIQUIDATORS OF HARRIS SCARFE LTD v CHICAGO BOOT CO PTY LTD (No 2)
[2011] SASC 197
Judgment of The Honourable Justice Sulan
11 November 2011
CORPORATIONS - WINDING UP - CONDUCT AND INCIDENTS OF WINDING UP - EFFECT OF WINDING UP ON OTHER TRANSACTIONS - PREFERENCES
PROCEDURE - COSTS - DEPARTING FROM THE GENERAL RULE - CONDUCT OF PARTIES - DEMAND, OFFER AND CONSENT
Application by plaintiffs for costs to be ordered on a solicitor/client basis - whether judgment award more favourable for plaintiffs than offers made to defendant - whether interest should be calculated at time of offer or time of judgment award - whether Judge could have regard to offers made in respect of separate proceedings.
Held: Application refused - costs awarded on party/party basis.
Corporations Act 2001 (Cth) s 588FA, s 588FG; Supreme Court Rules 1987 (SA) r 6A, r 41; Supreme Court Civil Rules 2006 (SA) r 8, r 33, referred to.
Davies & Nicol as Joint & Several Liquidators of Harris Scarfe Ltd v Chicago Boot Co Pty Ltd [2011] SASC 27; Chicago Boot Co Pty Ltd v Davies & Nicol as Joint and Several Liquidators of Harris Scarfe Ltd [2011] SASCFC 92; Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721; Whitehead v Maas (1991) 56 SASR 362; Pirrotta v Citibank Ltd (1998) 72 SASR 259, considered.

DAVIES & NICOL AS JOINT & SEVERAL LIQUIDATORS OF HARRIS SCARFE LTD v CHICAGO BOOT CO PTY LTD (No 2)
[2011] SASC 197
Civil

SULAN J: In my judgment dated 1 March 2011,[1] I found that the defendant, Chicago Boot Company Pty Ltd (“Chicago Boot”), had received unfair preferences within the meaning of s 588FA of the Corporations Act 2001 (Cth). Chicago Boot was ordered to pay to the plaintiffs the whole of their claim in the sum of $316,801.33 plus interest in the amount of $201,047.33. This decision was appealed to the Full Court of this Court. Prior to the Full Court hearing, an application for costs was made by the plaintiffs. The application was heard by me on 28 April 2011.
[1] Davies & Nicol as Joint & Several Liquidators of Harris Scarfe Ltd v Chicago Boot Co Pty Ltd [2011] SASC 27.
On 23 August 2011 the Full Court set aside the judgment of 1 March 2011 in respect of two transactions only.[2] The Full Court ordered that of the amount of $517,848 ordered to be paid to the plaintiff, $78,566 was to be returned to Chicago Boot. Further, an order was made that the defendant pay 80% of the plaintiffs’ costs of the trial to be taxed or agreed, reserving to me, the basis upon which the costs are to be paid.
[2] Chicago Boot Co Pty Ltd v Davies & Nicol as Joint & Several Liquidators of Harris Scarfe…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2011] SASC 197
Decision Date: 11 November 2011

CaseChat Overview and Summary

Davies v Chicago Boot Co Pty Ltd (No 2) involved the plaintiffs, who were liquidators of Harris Scarfe Wholesale Ltd and Harris Scarfe Limited, applying for costs on a solicitor-client basis against Chicago Boot Co Pty Ltd. The plaintiffs sought to recover payments they considered to be unfair preferences made by the Harris Scarfe Group to Chicago Boot. The case raised several legal issues, including whether the plaintiffs had proved insolvency at the relevant time, whether Chicago Boot acted in good faith, and whether the retention of title clause applied. The primary judge had ruled in favour of the plaintiffs, but the Full Court overturned this decision on some points.

The court was required to decide whether the plaintiffs were entitled to costs on a solicitor-client basis due to the defendant's failure to comply with pre-action procedure rules. Additionally, the court needed to determine the appropriate method for calculating interest on the award, whether at the time of the offer or the judgment, and whether it was appropriate to consider offers made in separate proceedings. The plaintiffs argued that the judgment award was more favourable than the offers made to the defendant, but the court found that this comparison was not valid due to the separate nature of the proceedings and the inability to apportion the awards between the entities.

The court concluded that the plaintiffs' application for costs on a solicitor-client basis should be refused. The reasoning was that the offers made to the defendant were not genuine offers of compromise, particularly given the negligible difference in interest forgone. Furthermore, comparing the offers with the final judgment awards was deemed inappropriate without a basis for apportioning the amounts between the entities. The court found no reasonable basis for departing from the usual practice of awarding costs on a party/party basis, and thus the application was refused.

Orders

Orders of the court

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Background

Background to the litigation

Following this decision I heard further argument on the issue of costs. The plaintiffs reaffirmed their application based upon offers made to Chicago Boot prior to trial. They submit that the defendant should pay costs on a solicitor-client basis. Though the terms ‘indemnity costs’, and ‘solicitor-client costs’ have been used interchangeably throughout the course of submissions, the plaintiffs confirmed that they are seeking costs on a solicitor-client basis. The plaintiffs’ submissions are founded on a claim that the defendant’s failure to comply with pre-action procedure, pursuant to the Supreme Court Rules,[3] entitles them to costs on this basis. [3] Supreme Court Rules 1987 (SA).Background The plaintiffs were the Joint and Several Liquidators of Harris Scarfe Wholesale Ltd (“HSW”) and Harris Scarfe Limited (“HSL”). An order was sought requiring Chicago Boot to pay the sum of $316,801.33, being the total of various payments made by HSW and HSL to Chicago Boot between 2 January 2001 and 22 February 2001, which the plaintiffs contended were unfair preferences. Three issues arose before me at trial. First, whether the plaintiffs had proved that the Harris Scarfe Group was insolvent at the time the payments were made. Second, whether Chicago Boot acted in good faith when it received the payments, and whether it had no reasonable grounds for suspecting that either HSL or HSW was or would become insolvent. Third, whether the payments did not result in a decrease in the net value of the assets of Harris Scarfe by reason of a retention of title clause on each invoice tendered to HSL and HSW. I found for the plaintiffs in relation to each of the above issues. First, I was satisfied that the Harris Scarfe Group was insolvent during the relevant period. Second, I was not satisfied that Chicago Boot could rely on the good faith defence. Third, I found that the circumstances surrounding the trading relationship between the parties was such that they did not act in accordance with the retention of title terms. I concluded that they conducted their business on the basis of a creditor and debtor relationship. An order was made for Chicago Boot to repay the payments with interest. This decision was partially overturned by the Full Court. The Full Court scrutinised the circumstances surrounding each individual transaction separately at the time of each payment. It was held that, in respect of the payments made on 4 October 2000 and 2 January 2001, it could not be concluded that Chicago Boot had reasonable grounds for suspecting Harris Scarfe to be insolvent and it was thereby erroneous to find that Chicago Boot had not discharged the onuses under s 588FG(2).[4] These payments were made prior to the issue of the statutory demand on 16 January 2001. [4] Corporations Act 2001 (Cth).The applicable rules Although the action was commenced before 2006, the transitional provision[5] of the Supreme Court Civil Rules 2006 (SA) allows for Chapter 12 (Costs) of the 2006 Rules to apply to this application. Nevertheless, the plaintiffs have relied on r 6A of the Supreme Court Rules 1987 (SA), which has as its equivalent, r 33.[6] It is submitted that the terms of r 6A,[7] as operative when the liquidator’s pre-action offers were made, are applicable. [5] Supreme Court Civil Rules 2006 (SA) r 8.[6] Supreme Court Civil Rules 2006 (SA). [7] Supreme Court Rules 1987 (SA).

Evidence

Evidence Before The Court

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Decision

Reasons for decision

The Court’s discretion to award costs is very wide. The writing of a Calderbank letter, or letter pursuant to the Rules, is one of many factors, albeit a significant factor, to be weighed by a court when considering whether to order indemnity costs.[13] [13] Pirrotta v Citibank Ltd (1998) 72 SASR 259. Conclusion The plaintiffs’ submissions are predicated upon Chicago Boot accepting the offered amounts in satisfaction of both the Chicago Boot and Windsor Smith claims. It is founded upon postulated amounts in respect of an award made in accordance with the Chicago Boot action. It is further premised on the notion that interest would ordinarily continue to run up until the date of judgment delivery. That proposition is correct. Nevertheless, when considering the offer and its rejection, it is my view that one should consider the interest as calculated at the date of the offer and not, at the date of the judgment. If calculated at the date of judgment, a defendant would be required to make an assessment about the rate of interest to be used, and the length of time that would elapse between the offer and the date of judgment. Such an assessment would be subject to great uncertainty, varying according to factors such as the ability of the Court to list a matter and the period of time before delivery of judgment. Furthermore, I find that it is not appropriate to compare the offered amounts made to Chicago Boot, to the judgment award received in the Chicago Boot claim in addition to an estimated amount to be received in the Windsor Smith claim. To do so would be to hypothesise as to how the proceedings in the Windsor Smith action might result. As already noted, this is an entirely separate action from the Chicago Boot action. Chicago Boot and Windsor Smith have separate corporate identities. One cannot assume that the plaintiffs will be wholly successful in the action against Windsor Smith. Each case turns upon its own facts and circumstances. I find that the first offer of 13 August 2002 could not form a basis for which costs should be awarded on a higher scale. The judgment award of $268,737.30 falls well short of the offer made to Chicago Boot of $316,801.33. Further there is force in the submission that it may not be appropriate to characterise the first offer as a genuine offer of compromise. When one considers the substance of the offer, the interest forgone calculated consistently with the interest award ultimately made by this Court is negligible. It follows that the second offer of 14 April 2003 in the amount of $285,000 relating to Chicago Boot must also be compared with the final award. This amount again falls above the final award and interest. The third and fourth offers were combined offers in respect of Chicago Boot and Windsor Smith. It is a futile exercise to seek to compare these offers to the final judgment awards without a basis for apportioning the amount in relation to each entity. In my opinion the plaintiffs’ application must fail. It was not an unreasonable response for the defendant to refuse the offers at each stage of the proceedings. I can find no sound basis for departing from the usual course of ordering costs on a party/party basis. I would refuse the application.

Ratio Decidendi

Legal Principle Established

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