Otis Elevator Co Pty Ltd v. Guide Rails Pty Ltd (in liq) & Ors [2004] NSWSC 468

New South Wales Supreme Court

CITATION : Otis Elevator Co Pty Ltd v. Guide Rails Pty Ltd (in liq) & Ors [2004] NSWSC 468 HEARING DATE(S) : 26 May 2004 JUDGMENT DATE : 26 May 2004 JURISDICTION: Equity Division JUDGMENT OF : Palmer J DECISION : Plaintiff to pay 25% of Defendant's costs.

CATCHWORDS : COSTS - How costs should be apportioned where successful defendant failed on significant issue. LEGISLATION CITED : Corporations Act 2001 (Cth) - Beoco Limited v Alfa Laval Co Limited [1995] QB 137 CASES CITED : - Cherry v Boultbee: 4 Myl & Cr 442; (1839) 41 ER 171 - Leeds & Hanley Theatres of Variety, Re [1904] 2 Ch 45 - Peruvian Railway Construction Company Ltd, Re [1915] 2 Ch 144 Guide Rails Pty Ltd (in liq) - Applicant (First Defendant/Second Cross Defendant) Wood Parsons Pty Ltd - First Respondent (Third Cross Defendant) PARTIES : Otis Elevator Co Pty Ltd - Second Respondent (Plaintiff/First Cross Defendant) East Coast Rail Systems - Second Defendant/First Cross Claimant Colorado Elevators Inc - Third Defendant/Second Cross Claimant FILE NUMBER(S) : SC 4383/00 R.K. Eassie - Applicant COUNSEL : D.T. Kell - First Respondent M. Addison (Sol) - Second Respondent Coudert Bros - Applicant SOLICITORS : Baker & McKenzie - First Respondent Dibbs Barker Gosling - Second Respondent

Ex tempore on costs

1 In this matter I delivered judgment on 7 May 2004. I indicated that I would make a declaration as to the way in which the rule in Cherry v Boultbee 4 Myl & Cr 442; (1839) 41 ER 171, operated in the circumstances of the present case. I stood the matter over then for the bringing of Short Minutes of Order and for argument as to costs. Argument as to costs has taken place before me today. 2 The liquidator of Guide Rails seeks an order that Wood Parsons be paid only a small proportion of its costs of the proceedings. The liquidators of Wood Parsons seek an order that they have the whole of their costs of the proceedings. The other member of the company, that is, Otis Elevator Co Pty Limited, who is the only other party having an interest in the fund distribution, has appeared today represented by Mr Addison. Mr Addison has advanced no argument and says Otis Elevator Co will abide by whatever order the Court sees fit to make. 3 The circumstances in which the argument as to costs arises are as follows. The liquidator of Guide Rails sought the directions of the Court as to the manner in which he should distribute the surplus funds available in the liquidation of Guide Rails in accordance with the rule in Cherry v Boultbee. The liquidators of Wood Parsons took the view that the rule in Cherry v Boultbee was inapplicable in the circumstances of the case and, if it were applicable otherwise, then the liquidator of Guide Rails had elected against relying upon it by reason of having proved in the liquidation of Wood Parsons. 4 There was a third ground upon which the liquidators of Wood Parsons relied and that was that the Corporations Act 2001 (Cth) excluded the operation of the rule in Cherry v Boultbee. That was a pure argument of law which I did not consider necessary to decide in the circumstances of this case, as it would have made no difference to the result one way or the other. 5 The arguments of the liquidators of Wood Parsons founded upon election failed. The contest between the parties as to the application of the rule in Cherry v Boultbee took a rather curious turn. It seemed that until either the day of the hearing or the day before the hearing both parties had been under a misapprehension, if I can say so with respect, as to what was in reality the content and effect of the rule in Cherry v Boultbee. It had been apparent to all concerned as early as February 2002 that the liquidation of Wood Parsons would produce a nil dividend and that, accordingly, the debt of some $1,200,000 which Wood Parsons had owed Guide Rails would not be paid as to any part thereof out of dividends available in the Wood Parsons liquidation. 6 The liquidator of Guide Rails took the view that the rule in Cherry v Boultbee applied so that the debt owed by Wood Parsons to Guide Rails should be added to the fund available for distribution of members of Guide Rails, forming a notional fund, the amount of the Wood Parsons debt should then be deducted from the notional fund so constituted and the difference, if any, paid out of the cash surplus available in the fund to Wood Parsons. 7 The liquidators of Wood Parsons took the view, for reasons not, so far as I can see, fully expounded in the correspondence, that the rule in Cherry v Boultbee did not apply in the circumstances of the case, both companies being in liquidation. Reliance seems to have been placed on Re Leeds & Hanley Theatres of Variety [1904] 2 Ch 45. It appears that very shortly before the commencement of the trial the legal representatives of the liquidators of Wood Parsons conceived that the proper formulation of their argument should be that the rule in Cherry v Boultbee, in its true application, as explained in the case of Re Peruvian Railway Construction Company Ltd [1915] 2 Ch 144, produced the result that what should be notionally added to and deducted from the fund available for distribution was only the dividend which Wood Parsons could pay in respect of the Wood Parsons debt, namely, nil. The application of the rule thus formulated produced the result that 75% of the cash surplus presently available in the fund should be paid to the Wood Parsons' liquidators. This was the argument which was at the forefront of the submissions for the Wood Parsons' liquidator at the trial and it was the argument which prevailed. 8 As Mr Eassie, who appears for Guide Rails, rightly says, this argument had not previously been foreshadowed either in correspondence between the parties' legal representatives or, so I gather, in the course of exchange of written submissions at least until the very last moment before the trial commenced. Mr Eassie says that if this argument had been brought to the attention of the Guide Rails' liquidator much earlier in the dispute between the parties these proceedings may very well have been completely unnecessary. In these circumstances, Mr Eassie submits that the discretion as to the payment of the parties' costs of the proceedings should be exercised in much the same way as was done in Beoco Limited v Alfa Laval Co Limited [1995] QB 137. In that case, on the first day of the trial the plaintiff obtained leave to amend its Statement of Claim to add a new cause of action. It succeeded on that cause of action and failed on the cause of action which had previously been raised in the Statement of Claim. In those circumstances the Court of Appeal held the plaintiff should not be entitled to recover costs in respect of the cause of action which had been raised prior to the first day of the trial. It was awarded costs only in respect of the cause of action which had arisen by reason of the amendment made on the first day of the trial. 9 Mr Eassie says that in the present case the Wood Parsons' liquidators succeeded on an argument raised for the first time on or shortly prior to the first day of the trial. Therefore, the Wood Parsons' liquidators should not have any costs in respect of issues arising prior to the raising of that particular argument. 10 I should note that a considerable amount of the evidence in the case was devoted to the issue of whether or not the Guide Rails' liquidator had irrevocably elected against reliance upon the rule in Cherry v Boultbee by reason of proof of lodging a proof in the winding up of Wood Parsons. 11 It does not seem to me that the case of Beoco Limited v Alfa Laval is analogous to the present. In that case, what was raised by amendment on the first day of the trial was a new cause of action, apparently depending upon new facts or further facts and circumstances in addition to those which had been previously raised in the Statement of Claim. It was not merely a point of law which was raised for the first time on the first day of the trial in that case: it was a new cause of action. 12 However, in the present case there was no new cause of action raised on the first day of the trial. What happened was that the advisors of the liquidators of Wood Parsons realised for the first time that they had a much better legal argument in support of their proposition than they had previously been aware of. Their argument was founded on the case of Re Peruvian Railways which, by the way, had also been referred to by the Plaintiff's legal advisors in its written submissions. It cannot, therefore, be said that the existence, content and effect of Re Peruvian Railways was unknown to the legal advisors of Guide Rails' liquidators until it was drawn to their attention by the submissions of counsel for the Wood Parsons' liquidators on the first day of the trial. 13 Unfortunately, what seems to have happened in this case is this. In February 2002 both parties were aware of the relevant facts. Both parties knew that the liquidation of Wood Parsons would produce no dividend. Both parties seemed to have misunderstood the true import of the rule in Cherry v Boultbee at that time. The misunderstanding on the part of the liquidator of Guide Rails persisted, as it were, up until and including the trial when his counsel sought to defend the position taken by the Guide Rails' liquidator. The misunderstanding of the Wood Parsons' liquidators was relieved, no doubt, by further researches of counsel shortly before the commencement of the trial. 14 I do not think it is right to say that, but for the late awakening of the representatives of the Wood Parsons' liquidators to the significance of the judgment in Re Peruvian Railways, the liquidator of Guide Rails would have succeeded in his contention that the rule in Cherry v Boultbee applied as he understood it. 15 While the Court is invariably heavily reliant upon the researches of counsel to draw to the Court's attention relevant case authority in support of, or in opposition to, the parties' submissions, the Court nevertheless undertakes its own researches in many cases to ascertain what the law is. In this case, the researches of counsel for the Wood Parsons' liquidators brought to light a not-unknown case in insolvency law (that is, Re Peruvian Railways) and emphasised the way in which it applied in the particular facts of this case so as to produce the result for which the Wood Parsons' liquidators had previously contended. But Re Peruvian Railways really explains the rule in Cherry v Boultbee, as had been enunciated clearly enough in that very case, as I have endeavoured to explain in my reasons for judgment. 16 It seems to me that this is not a case in which a last moment amendment has produced a result for the Wood Parsons' liquidators which they would not have otherwise achieved. Their representatives have simply pointed out what the law, correctly stated, is and how that law, correctly stated, produces the result for which the liquidator have always contended. I do not think that in those circumstances the liquidators of Wood Parsons should be deprived of their costs of the issue as to the effect of the rule in Cherry v Boultbee. 17 The other matter relied upon by the Wood Parsons' liquidators was that even if the rule in Cherry v Boultbee applied in the way asserted by the Guide Rails' liquidator, the Guide Rails' liquidator had elected against reliance upon it. 18 As I have said, a considerable volume of evidence was directed to support that submission. On that submission the Wood Parsons' liquidators failed. I think that the best one can do in the circumstances of this case is to adopt, as is often done, a broad-brush approach as to the way in which costs ought to be apportioned as between the parties. 19 I bear in mind that the argument of counsel on the one day of the trial represents a relatively small proportion of the overall costs incurred by the parties in the whole preparation of these proceedings from their inception. Although the Guide Rails liquidator failed as to the manner in which the rule in Cherry v Boultbee applied, I do not think that he should be required to pay the whole of the costs of the Wood Parsons' liquidators of the proceedings. This is because, as I have said, the issue as to election occupied a great deal of the evidentiary material placed before the Court and of the time spent in argument. 20 In those circumstances, I think that the appropriate apportionment of costs is to order that the Guide Rails' liquidator pay 25% of the costs of the Wood Parsons' liquidators of the proceedings. I think that this proportion probably overall represents, as fairly as one may do in a broad brush approach such as this, the time, cost and expense devoted to the question of the proper understanding of the rule in Cherry v Boultbee. 21 The orders I will incorporate in the Short Minutes of Order, then, are that the Guide Rails' liquidator will pay 25% of the costs of the proceedings incurred by the Wood Parsons' liquidators. – oOo –