Sands & McDougall (Wholesale) Pty Ltd (in liq) v Commissioner of Taxation
[1999] VSCA 36
•17 March 1999
SUPREME COURT OF VICTORIA
COURT OF APPEAL Not Restricted No. 4234 of 1995
SANDS & MCDOUGALL (WHOLESALE) PTY.
LTD. (IN LIQ.) AND ANOR
Applicants
v
THE COMMISSIONER OF TAXATION
Respondent
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JUDGES: BROOKING, CHARLES and CHERNOV, JJ.A. WHERE HELD: MELBOURNE DATE OF HEARING: 17 March 1999 DATE OF JUDGMENT: 17 March 1999 MEDIA NEUTRAL CITATION: [1999] VSCA 36 ---
PRACTICE - Order - Slip rule - Accidental slip or omission - Successful appeal against refusal to order repayment of alleged preferential payments made by insolvent company - Offer of compromise made by applicants at first instance - Appeal resulting in their success for substantially greater amount - Offer not brought to attention of Court of Appeal - Award by it of party and party costs of proceedings below and appeal - Whether solicitor and client costs should later be awarded under slip rule.
PRACTICE - Offers of compromise - Effect of rules of court where appeal later.
RULES OF THE SUPREME COURT - Chapter I, r.26.11.
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APPEARANCES: Counsel Solicitors For the Applicants Mr P.G. Nash, Q.C. and Cornwall Stodart Mr S.P. Gardiner For the Respondent Ms J. Davies Australian Govt. Solicitor BROOKING, J.A.:
In 1995 the liquidator of Sands & McDougall (Wholesale) Pty Ltd and the company itself applied for an order for repayment by the Commissioner of Taxation for the Commonwealth of six amounts of sales tax paid by the company to the Commissioner during the six months immediately preceding the commencement of the winding-up on the ground that the payments were, under the Corporations Law, unfair preferences and voidable transactions. The application was heard by Nathan, J., who on 29 November 1996 dismissed it. The applicants appealed to this Court, constituted by Brooking, Charles and Kenny, JJ.A., which on 14 October 1998 allowed the appeal and ordered that the six amounts be paid by the respondent to the appellants together with interest. The appeal was allowed with costs and the order made in substitution for the order below required payment by the respondent of the appellants' costs below. The six payments assailed as preferences totalled more than $878,000 and the order made on appeal for payment of interest required interest to be paid on each sum at the appropriate rate under s.2(1) of the Penalty Interest Rates Act 1983 from the date of the payment to the Commissioner - the dates range between January 1994 and June 1994 - until the date of repayment.
In fact, by an offer of compromise made on 9 August 1996 and remaining open for 14 days, the appellants had offered to accept the sum of $395,185.43 in satisfaction of their claim, interest and costs. That offer was rejected on 23 August 1996. It is manifest that the substituted order resulting from the successful appeal is very much more favourable to the appellants than the terms of their offer of compromise.
Because the appellants' claim failed at first instance, no consideration was given to the offer of compromise when Nathan, J. made his order dismissing the application and when he subsequently made an order requiring the appellants to pay the respondent's costs of the application except the costs relating to the issue of insolvency, which were awarded to the appellants. When the reserved decision of the Court of Appeal was given last October, neither the appellants' counsel nor their solicitors adverted to the fact that the offer of compromise had been made.
The Court of Appeal's order of 4 October 1998 was authenticated on
27 October.
Having adverted to the making of the offer of compromise, the appellants' solicitor swore an affidavit on 29 October and sought to file a summons on 30 October seeking an order under the slip rule, rule 36.07, whereby:
"The Court may at any time correct a clerical mistake in a judgment or order or an error arising in a judgment or order from any accidental slip or omission."
For administrative reasons it was not possible for the summons to be filed until 7 December, when it was made returnable on 19 February 1999. Some doubt having been entertained about the number of judges by whom the application should be heard, and whether it was preferable that Brooking and Charles, JJ.A. should sit (Kenny, J.A. no longer being a member of the Court of Appeal), it was found possible to convene a court to hear the application today comprising two of the members of the original court together with Chernov, J.A. It is plain that the application could have been dealt with by a differently constituted court.
I have said that the offer of compromise was made on 9 August 1996. This was the date that had been fixed for the hearing of the proceeding. That date had been vacated on or about 27 June 1996 on the application of the appellants, who wished to augment their evidentiary material. The offer having been made on 9 August 1996 and rejected 14 days later, in the months of September and October 1996 the appellants served on the respondent eight further affidavits in support of the application. Some of the affidavits dealing with insolvency which had been served by the appellants before they made their offer of compromise were not relied upon by them at the hearing. The hearing took place between 22 and 29 October 1996.
The application made by the appellants by this summons is for an order correcting, as it is put by the appellants, the order of the Court of Appeal disposing of the appeal by adding the words "on a solicitor client basis" to the order for the costs of the appeal and by adding the words "to be paid on a solicitor client basis on and from 9 August 1996" to the substituted order dealing with the costs below.
The offer of compromise was made under rule 26.11, whereby: "26.11 Costs consequences where other claim by plaintiff
(1) Where in a proceeding in which the plaintiff makes a claim
not of the kind referred to in Rule 26.02(1)-
(a) the plaintiff has made an offer in writing to the defendant (whether or not expressed to be without prejudice) to compromise the claim on the terms specified in the offer;
(b) the offer was open to be accepted for a reasonable time;
and
(c) the plaintiff obtains a judgment on the claim no less
favourable to him than the terms of the offer -
the Court shall take those matters, and also the stage of the proceeding at which the offer was made, into account in determining what order for costs to make in respect of the claim.
(2) The Court may, in exercising its discretion as to costs in accordance with paragraph (1), order that the defendant pay the costs of the plaintiff in respect of the claim, taxed on a solicitor and client basis, from the commencement of the proceeding, from the day the offer was made or from such other time as the Court thinks fit."
The application is opposed by the respondent, who says that the case does not fall within the slip rule.
It is necessary first to say something about the effect of rule 26.11. The rule applies where an offer of compromise is made by the plaintiff in a proceeding in which he makes a claim not of the kind referred to in rule 26.02(1). Rule 26.02(1) authorises the service of an offer of compromise in a proceeding in which the plaintiff makes a claim for damages for or arising out of death or bodily injury. Rule 26.11(1) requires the court to take into account, in determining what order for costs to make in respect of the claim, the matters mentioned in it and also the stage of the proceeding at which the offer was made. Rule 26.11(2) empowers the court, in exercising its discretion as to costs in accordance with paragraph (1) of the rule, to award solicitor and client costs to the plaintiff in respect of the claim. The terms of rule 26.11 are to be contrasted with those of rule 26.08(2), dealing with the effect on costs of failure to accept an offer of compromise made by a plaintiff under rule 26.02(1). By rule 26.08(2), where the plaintiff obtains a judgment no less favourable to him than the terms of the offer, then, unless the court otherwise orders, he is entitled to an order for solicitor and client costs. This is not what rule 26.11 provides and rule 26.11 is not to be construed as if it did make the same provision as rule 26.08(2). (I ignore for the moment the reference to period in rule 26.11(2) which does not appear in rule 26.08(2).) Rule 26.11 may be contrasted, not only with rule 26.08(2) of the Victorian Rules of Court, but also with the rule considered by the Court of Appeal of New South Wales in Maitland Hospital v. Fisher (No.2) (1992) 27 N.S.W.L.R. 721, whereby a plaintiff obtaining a judgment no less favourable to him than the terms of his unaccepted offer of compromise is entitled to an order for his costs on an indemnity basis from the day on which the offer was made unless the court otherwise orders.
Mr Nash, senior counsel for the appellants, advanced the bold submission that "may" in rule 26.11(2) meant "shall" in the sense that, once the matters mentioned in sub-paragraphs (a), (b) and (c) of rule 26.11(1) were established, solicitor and client costs had to be awarded, the court having a discretion only in relation to the selection of the period. He referred to what was said by Windeyer, J. in Finance Facilities Pty Ltd v. Federal Commissioner of Taxation (1971) 127 C.L.R. 106 at 134-5. But the words both of rule 26.11(1) and of rule 26.11(2) make this an impossible contention. In the alternative, Mr Nash submitted that rule 26.11(2) was to be construed as if it made the same provision as rule 26.08(2) in the sense of providing that the plaintiff should be entitled to an order for solicitor and client costs unless the court otherwise orders. I have already said that the rule is not to be construed as if it made the same provision as rule 26.08(2) in this sense.
The rule in New South Wales considered in Maitland Hospital v. Fisher (No.2) was expressly made applicable to proceedings in the Court of Appeal and in that case the Court considered how the words "plaintiff" and "defendant" in the rule should be construed for the purposes of an appeal. In the present case each party's outline of submissions proceeded upon the basis that rule 26.11 applied not only to the costs of the proceedings before Nathan, J. but also to the costs of the appeal. But I do not think that this is so. In Grbavac v. Hart [1997] 1 V.R. 154 the claim was for damages for bodily injury. The plaintiff obtained a verdict for $250,000. The defendant appealed and served with the notice of appeal what purported to be an offer of compromise under rule 26.02, offering the sum of $150,000. That offer was not accepted. The appeal was allowed and a re-trial ordered and on the re-trial the jury found a verdict for $125,000. In dealing with costs, the trial judge treated the offer of compromise as applicable to the re-trial and made an order for costs under rule 26.08(3). But this Court held that rule 26.02 did not authorise the making of an offer of compromise once the cause of action to which it related had merged in a judgment. This merger had occurred when judgment was given in accordance with the first verdict. Tadgell, J.A., who delivered the leading judgment, said at 160:
"I should not doubt that a proceeding by way of appeal might be the subject of an offer of compromise outside O.26 of the rules and that, in an appropriate case, a failure by the offeree to accept the offer might be taken into account on the question of costs. The influence, if any, which non-acceptance should have on the incidence of costs would depend, however, on a range of considerations."
Grbavac v. Hart was a case of personal injuries, where the applicable rule was rule 26.02, and moreover a case in which, the plaintiff having succeeded in obtaining a verdict and judgment, her cause of action had merged in the judgment, so that there no longer existed the "claim" to which the rule referred. The case is not authority for the proposition that an offer of compromise under rule 26.11 can only be made before judgment. But in my opinion the court mentioned in rule 26.11 is the court of trial and does not include the Court of Appeal, and the costs in respect of the claim mentioned in the rule are the costs at first instance and do not include the costs of any appeal. The court the subject of the rule is the court in which the plaintiff has obtained a judgment on the claim, that is to say, the trial judge. The same may be said of rule 26.12, with which we are not directly concerned. No doubt, where the offer of compromise has been made before judgment as contemplated by rule 26.11 and an appeal is taken from that judgment, an offer of compromise outside Order 26 may be made, as Tadgell, J.A. said in considering the effect of the rules dealing with offers of compromise in claims for damages for personal injuries. Quite apart from the possibility of an offer of compromise made outside Order 26, it will be open to a plaintiff who before judgment made an offer answering the requirements of rule 26.11 to contend, in the event of a successful appeal by the plaintiff or an unsuccessful appeal by the defendant, that the making of the offer and its non- acceptance should induce the court, in disposing of the appeal, to award the costs of the appeal on a solicitor and client basis. In doing this the plaintiff would be founding an argument upon the presence in the rules of rule 26.11 but would not be suggesting that it operated of its own force in relation to the appeal. In the end counsel on both sides accepted that, notwithstanding the tenor of their outlines of submissions, the correct view was that rule 26.11 had no direct operation in relation to the costs of an appeal.
Of course if the appellate court determines that the primary judge was wrong in dismissing a claim and if the appellate court is made aware of an offer of compromise under rule 26.11, it will, in determining what order for costs the judge should have made when it comes to substitute a judgment or order for that made by him, take into account the matters required by rule 26.11 to be taken into account if it is satisfied of those matters. It will then be giving effect to the rule in the way the judge should have given effect to it if he had come to the right conclusion on liability. In other words, the rule is applicable to the costs at first instance, whether those costs are being dealt with by the primary judge himself or by the appellate court standing in his shoes. But the costs of the appeal are another matter. Rule 26.11 has nothing directly to say about them, although (as I have said) the existence of the rule may be relied on as affecting the discretion concerning the costs of the appeal, as may the fact that the primary judge made or (in the view of the appellate court) ought to have made an order for solicitor and client costs in consequence of the rule.
The offer of compromise made in this case was an offer made under rule 26.11 to compromise "the claim", which was the claim for repayment of some $870,000. Unlike the situation which obtained in Grbavac v. Hart [1997] 1 V.R. 154, there was no offer served after the conclusion of the proceedings at first instance, leading to the issue of its intended effect which was considered in that case. I think it plain that, once the proceedings at first instance have been finally determined by way of judgment or order, a plaintiff who has made a claim not of a kind referred to in rule 26.02(1) and who wishes to make an offer to compromise a pending appeal cannot make an offer under rule 26.11 but must make an offer of compromise outside Order 26.
We have heard a good deal of argument about what is and what is not comprehended by the slip rule, to which I now return. One of the difficulties - and it is a difficulty often encountered in considering what was said in previous decisions - lies in determining whether the court, in describing the state of affairs which in its view existed, is formulating a test which must be met or merely speaking of the facts of the given case, which in its view are enough to warrant relief. For example, in Hatton v. Harris [1892] A.C. 547 Lord Herschell said at 558 "I cannot doubt that the correction would at once have been made" if the matter had been drawn to the attention of the judge who made the decree. In Storey & Keers Pty.Ltd. v. Johnstone (1987) 9 N.S.W.L.R. 446 at 453 McHugh, J.A. accepted this as laying down what was in general the test.
In L. Shaddock & Associates Pty.Ltd. v. Parramatta City Council (No.2) (1983) 151 C.L.R. 590 at 593 the Court said:
"We have no doubt that, if the matter had been adverted to in this Court and this Court possessed power to make such an award of interest, it would have made it."
In Tak Ming Co. Ltd. v. Yee Sang Metal Supplies Co. (1973) 1 W.L.R. 300 at 304 the Judicial Committee referred to the determination of the primary judge ("I am in no doubt whatever ... that I would have made an award of interest") and observed that on the basis of that explanation the slip rule had been brought into operation.
In The Commonwealth of Australia v. McCormack (1984) 155 C.L.R. 273 at 277 the
Court said:
"If the matter had been raised on the hearing of the appeals, such an
order would have been made as of course ... ".In Elyard Corporation Pty. Ltd. v. DDB Needham Sydney Pty. Ltd. (1995) 61 F.C.R. 385 Lockhart, J., with whose judgment Black, C.J. concurred, said at 390-1:
"The slip rule applies where the proposed amendment is one upon which no real difference of opinion can exist. It does not apply where the amendment is a matter of controversy ... ".
Counsel for the appellants and for the respondent invited us to adopt that test. The test commends itself to me and I think it should be adopted.
The respondent refers to the discretion as to period given by rule 26.11 and relies on what was said by the Full Court in Brew v. Whitlock (No.3) [1968] V.R. 504 at 506-7:
"It is impossible, in our view, to apply the rule to a case where, on the application to correct the judgment, it is necessary to exercise an independent discretion, not only as to whether interest should have been awarded but also as to the rate at which it should run and as to the time from which it should run."
The Court was there concerned with the predecessor to s.58 of the Supreme Court Act
1986, s.78 of the Supreme Court Act 1958. By s.78(1) of the Act of 1958:"78(1) Upon all debts or sums certain hereafter recovered in any action the Judge at the hearing shall upon application unless good cause is shown to the contrary allow interest to the creditor at a rate not exceeding eight per centum per annum or (in respect of any bill of exchange or promissory note) at a rate not exceeding twelve per centum per annum from the time when such debt or sum was payable (if payable by virtue of some legal instrument at a date or time certain) or if payable otherwise then from the time when demand for payment has been made ... ".
The real basis of the decision of the Full Court was that no "application" for interest had been made at the hearing as required by the section, and its decision on this point was upheld by the High Court: Whitlock v. Brew (1968) 118 C.L.R. 445. The decision of the Full Court in Brew v. Whitlock (No.3) was distinguished by the High Court in L. Shaddock & Associates Pty. Ltd. v. Parramatta City Council (No.2) (1983) 151 C.L.R. 590 as depending upon the statutory requirement that an order awarding interest be made "at the hearing ... upon application". In that case the trial judge dismissed the action, holding that no duty of care existed, but went on to assess damages in case he was wrong on the issue of liability. He determined that if liability had existed the plaintiffs would have been entitled to judgment for $173,938, which included interest to the date of judgment (20 March 1978). The Court of Appeal of New South Wales dismissed an appeal by the plaintiffs, but a further appeal by them to the High Court succeeded, the judgment of the trial judge being set aside and in lieu thereof judgment being made for the plaintiffs in the sum of $173,938. That order was made by the High Court on 28 October 1981. By oversight counsel for the plaintiffs did not ask the High Court to award interest on the amount of $173,938 in respect of the period from 20 March 1978 until 28 October 1981. Such an award of interest was made by the High Court under the slip rule on 22 October 1982 in the reported decision. The statute there empowered the Supreme Court, in any proceeding for the recovery of damages, to order that there should be included, in the sum for which judgment was given, interest at such rate as it thought fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date when the judgment took effect. The High Court observed, at 594, that the trial judge possessed that power, that the Court of Appeal possessed that power on the appeal to it and that it possessed a like power on the appeal to it from the Court of Appeal. At 595 the Court observed that it was not disputed on behalf of the Council that, if interest was to be awarded, the appropriate rate was 10%. These two decisions, among others, were considered by McHugh, J.A. in Storey & Keers Pty. Ltd. v. Johnstone (1987) 9 N.S.W.L.R. 446. See too what was said by Gobbo, J. in Mario Piraino Pty. Ltd. v. Roads Corporation (unreported, 8 November 1991).
Then there is Tak Ming Co. Ltd. v. Yee Sang Metal Supplies Co. (1973) 1 W.L.R. 300, where the rules of court authorised the court, in an action for a sum of money due to the plaintiff, to order interest at such rate as the court thought proper to be paid on the principal sum adjudged from the commencement of the action to the date of the judgment. As a result of inadvertence the primary judge made no award of interest. The Judicial Committee held that he had acted rightly under the slip rule in subsequently making an award of interest. The judgment does not refer to the discretion given by the rules with regard to the rate of interest.
As at present advised, and notwithstanding what was said by the Full Court in Brew v. Whitlock (No.3), I should be reluctant to hold that the slip rule may not be invoked in a case in which it is clear that, had the matter been adverted to, the primary judge would have made an award of interest in the exercise of a statutory power merely on the ground that there is room for debate about the rate of interest or the period for which it should be allowed. But I need not pursue this question, for in my opinion it is unnecessary to decide whether in the present case the fact that rule 26.11(2) gives a discretion concerning the period in respect of which solicitor and client costs are to be awarded prevents the application of the slip rule. I consider that the rule cannot be applied for a more fundamental reason. This is the impossibility of saying, with the necessary degree of conviction, that an award of solicitor and client costs would have been made had the matter been drawn to the attention of the Court of Appeal. I am here considering for the moment what I will call the direct application of rule 26.11, by which I mean its application at the trial of the proceeding, and asking myself whether it is clear that the Court of Appeal would, had the matter been raised, have awarded solicitor and client costs below in framing the order to be substituted for that of the judge. It may well be that the Court would have done so, but I do not think that it can be said that there can be no real difference of opinion, no controversy, about whether that was the appropriate order to make. I have referred to the discretion conferred by rule 26.11(2). The respondent says that it is fairly arguable that solicitor and client costs would not have been awarded had the matter been raised before the Court of Appeal. He draws attention particularly to the facts I have earlier summarised concerning the delivery of affidavits, including the fact that some of the affidavits dealing with insolvency that had been delivered by the time of the offer of compromise were ultimately not relied upon. My view is that it is probable that the Court of Appeal would have awarded solicitor and client costs below had the matter been debated at the right time, but, notwithstanding Mr Nash's valiant attempts to persuade us to the contrary, I am not prepared to say that the matter is beyond argument.
So far as the costs of the appeal are concerned, this is an a fortiori case, having regard to the fact that rule 26.11 has no direct application to those costs. I am certainly not prepared to say that it is clear beyond argument that the Court would have awarded costs of the appeal on a solicitor and client basis if those costs had been sought.
I would accordingly dismiss this application, with the usual consequences as
to costs.
CHARLES, J.A.:
I agree.
CHERNOV, J.A.:
I also agree.
BROOKING, J.A.:
The order of the Court is that the application is dismissed with costs.
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