BCI Finances Pty Limited (in liq) v Binetter

BCI Finances Pty Limited (in liq) v Binetter - [2017] FCA 1524 - FCA 2017 case summary — Zoe

[30]

Costs of windings up

The first, second, fourth and sixth respondents pay the costs of winding up the first applicant, such costs to be determined by a Registrar of the Federal Court of Australia pursuant to r 30.41 of the Federal Court Rules 2011 ("Rules") and/or s 23 of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act").
The first, second, fourth and sixth respondents pay the costs of winding up the second applicant, such costs to be determined by a Registrar of the Federal Court of Australia pursuant to r 30.41 of the Rules and/or s 23 of the Federal Court Act.
The second and fourth respondents pay the costs of winding up the third applicant, such costs to be determined by a Registrar of the Federal Court of Australia pursuant to r 30.41 of the Rules and/or s 23 of the Federal Court Act.
The fourth respondent pay the costs of winding up the fourth applicant, such costs to be determined by the Registrar of the Federal Court of Australia pursuant to r 30.41 of the Rules and/or s 23 of the Federal Court Act. Costs of proceeding
Each of the first, second, fourth, sixth, seventh, eighth, ninth and tenth respondents pay the first applicant's costs on the ordinary basis, as agreed or taxed, with such liability to be joint and several.
Each of the first, second, fourth, sixth, seventh, eighth, ninth and tenth respondents pay the second applicant's costs on the ordinary basis, as agreed or taxed, with such liability to be joint and several.
Each of the second, fourth, sixth, eighth and tenth respondents pay the third applicant's costs on the ordinary basis, as agreed or taxed, with such liability to be joint and several.
Each of the fourth, sixth, eighth and tenth respondents pay the fourth applicant's costs on the ordinary basis, as agreed or taxed, with such liability to be joint and several.
The first applicant pay the costs of the third respondent on the ordinary basis, as agreed or taxed, with that amount to be set off against the costs liability arising as against the second respondent by reason of orders 5, 6 and 7 above.
The first and second applicants pay the costs of the fifth respondent on the ordinary basis, as agreed or taxed, with that amount to be set off against the costs liability arising as against the first respondent by reason of orders 5 and 6 above.

[34]

Evidence 5 The liquidators relied on an affidavit of Nicholas Lewis Fryer affirmed 10 February 2017 and the accompanying exhibit marked "confidential exhibit NF1". 6 Mr Fryer is an employee of Sheahan Lock Partners, working under the direction of the liquidators. He gave evidence of his analysis of the liability judgment "with the aim of allocating each component of the applicants' losses to the appropriate respondents' liability in a manner consistent with" the liability judgment. In November 2016, Mr Fryer prepared spreadsheets based upon that analysis and he explained those spreadsheets in his affidavit. On 10 February 2017, Mr Fryer prepared updated spreadsheets which principally contain updated interest calculations. The updated spreadsheets form "confidential exhibit NF1". 7 An application on behalf of the liquidators to tender four certificates under s 350-10(3) of Schedule 1 to the Taxation Administration Act 1953 (Cth) ("TAA") was withdrawn. The certificates, each dated 10 February 2017, purport to certify the amounts payable to the Commissioner of Taxation by each of the applicants as at 2 March 2015 for EGL, Ligon 268 and Binqld and as at 5 March 2014 for BCI. The certificates are for amounts different from the amounts in respect of which the liquidators sought judgment. 8 The liquidators also sought to tender worksheets prepared by the Australian Taxation Office ("ATO"). The tender related only to line items which were claimed to support documents already in evidence. In the case of EGL, the document sought to be supported was a statutory demand. The documents were sought to be tendered "out of abundant caution", not to prove quantum, but to explain the liquidators' calculations in response to submissions received from the fourth, eighth and tenth respondents ("Andrew Binetter parties") on 2 February 2017. The tender was opposed by Mr Williams SC, senior counsel for the Andrew Binetter parties, on the ground that it was not supported by an application for leave to re-open the applicants' case. In the absence of an explanation for why leave to re-open was not required, I rejected the tender.

[38]

Evidence 16 The applicants claim amounts of GIC based on the BCI proof of debt and creditor's statutory demands issued by the DCT to the other three applicant companies. 17 The BCI proof of debt is signed by a person whose occupation is stated as "Australian Government Officer". Omitting the particulars of the debt, the proof of debt states relevantly: 1. This is to state that the company was on 5 March 2014, and still is, justly and truly indebted to the Deputy Commissioner of Taxation for Division 284 Penalty, Failure to Lodge penalty - Income Tax, Income Tax and a Running Account Balance Account deficit in respect of BAS amounts and Legal Costs. Particulars of the debt are: … 2. To my knowledge or belief the creditor has not, nor has any person by the creditor's order, had or received any satisfaction or security for the sum or any part of it. 3. I am employed by the creditor and authorised in writing by the creditor to make this statement. I know that the debt was incurred for the consideration stated and that the debt, to the best of my knowledge and belief, remains unpaid and unsatisfied. 18 In the particulars of the debt, amounts for GIC are included under each of the headings "Division 284 Penalty", "Failure to Lodge penalty" and "Income Tax". Under the heading "Income Tax", there are separate amounts for GIC for each of the years ended 30 June 1997 to 30 June 2009 inclusive. 19 For EGL, the statutory demand is accompanied by an affidavit of Lynne Kennedy which verifies the debt specified in the statutory demand. Ms Kennedy's signature appears to be the same as the signature on the BCI proof of debt. The statutory demand states that EGL owes the DCT the amount of $39,687,712.87, being the total of the amounts of the debts described in the schedule to the demand. The schedule includes figures that are identified as "general interest charge" pursuant to specified legislative provisions and calculated, in each case, up to and including 27 October 2014. 20 The liquidators relied on the liquidators' narrative referred to at [189] of the liability judgment. Paragraph 431 of the liquidators' narrative states: "As at 28.10.2014, the aggregate of the liabilities of EGL for unpaid tax, inclusive of penalties and general interest charges, was AUD 39,687,712.87". 21 Paragraph 431 was admitted by the Andrew Binetter parties and the second and third respondents ("Margaret Binetter parties"), but not by Michael Binetter. 22 For Ligon 268, the statutory demand is dated 31 October 2014. The statutory demand states that Ligon 268 owes the DCT the amount of $29,163,164.98, being the total of the amounts of the debts described in the schedule to the demand. The schedule includes figures that are identified as general interest charge pursuant to specified legislative provisions and calculated, in each case, up to and including 30 October 2014. The demand states that it is accompanied by an affidavit of Ms Kennedy verifying that the amount is due and payable by Ligon 268, but there is no such affidavit in evidence. 23 Paragraph 517 of the liquidator's narrative, under the heading "Tax debt and winding up of Ligon 268", states: "As at 31.10.2014, the aggregate of the liabilities for unpaid tax, inclusive of general interest charge, was AUD 29,163,164.98". 24 Paragraph 517 was admitted by the Andrew Binetter parties and the Margaret Binetter parties, but not by Michael Binetter. 25 For Binqld, the statutory demand states that Binqld owes the DCT the amount of $24,541,338.59, being the total of the amounts of the debts described in the schedule to the demand. The schedule includes figures that are identified as general interest charge pursuant to specified legislative provisions and calculated, in each case, up to and including 26 October 2014. The demand states that it is accompanied by an affidavit of Ms Kennedy verifying that the amount is due and payable by Binqld but, as with Ligon 268, but there is no such affidavit in evidence.

[39]

Submissions 26 The Andrew Binetter parties contended that the applicants had failed to establish their liability for any particular GIC charges. They noted that there have been no assessments issued for GIC charges, although they did not dispute that the underlying entitlement to GIC arose from statute. 27 Orally, Mr Williams SC contended that the BCI proof of debt and the statutory demands are not evidence of the underlying entitlement to make the demand in the particular amounts. Mr Williams SC submitted that the demands prove that a demand was made of that amount but they do not prove that the amounts contained in the demand were due and payable. Mr Williams SC submitted that the statement in the proof of debt is a mere assertion of indebtedness. He argued that the statement in para 1 of the proof of debt does not state a true indebtedness in relation to GIC, there is no evidence of the authority of the person who signed the proof of debt or what knowledge that person had to make the statements in the proof of debt and that para 3 appeared to be a pro forma statement that is not meaningful in relation to GIC. 28 Mr Williams SC accepted that his clients' position was weakened by the effect of the admissions concerning the liabilities of EGL and Ligon 268. 29 The written submissions on behalf of the Andrew Binetter parties referred to suggested anomalies in the figures contained in the proof of debt and the statutory demands. An example given was the GIC charge for BCI for the year ended 30 June 2000 of $267,617.15, compared with the charge for the year ended 30 June 2001 of $572,642.19 despite a lower unpaid income tax liability than the liability for the previous year. 30 The suggested anomalies were addressed in the applicants' written submissions in reply. Those submissions explained that there was a change in the relevant law. The short point was that the effective date for the 2000 income year tax liability is 10 January 2010, while the effective date for the 2001 income year tax liability is 8 April 2002. As a result, GIC liability for the year ended 2001 is calculated over a substantially longer period of time. 31 Mr Williams SC did not take issue orally with the explanations given by the applicants for the suggested anomalies. However, he submitted that the figures were flawed because no credit had been made for payments in respect of withholding tax. Mr Williams SC referred to the amended statement of claim in the BCI third party proceeding, and noted an allegation that BCI incurred withholding tax obligations which were paid. Mr Williams SC suggested that the liquidators should seek to recover the relevant withholding tax from the ATO. 32 Mr Marshall SC submitted that there was no evidentiary basis for the Andrew Binetter parties' submission concerning payment of withholding tax, which was raised for the first time in oral submissions. Mr Marshall SC also submitted that the allegation in the amended statement of claim in the BCI third party proceeding, that BCI had incurred withholding tax obligations, was irrelevant to the GIC calculations in the present proceeding, as any withholding tax "would have been paid, by its nature, to a foreign bank".

[40]

Consideration 33 The BCI proof of debt is evidence of BCI's liability for GIC. There is no evidence which casts doubt on the accuracy of the figures in the proof of debt or the authority of the signatory. I do not accept that it is fairly characterised as a mere assertion of indebtedness: it is a written statement directed to BCI's administrators, on behalf of the DCT, and identifying multiple elements said to comprise the debt claimed. 34 I also do not accept that the statement in para 1 of the proof of debt does not state a true indebtedness in relation to GIC: the GIC forms part of the indebtedness for each of the headings "Division 284 Penalty", "Failure to Lodge penalty" and "Income Tax". I accept Mr Williams SC's criticism of the inaptness of the language in para 3 of the proof of debt, but not that this is sufficient to cast doubt on the accuracy of the figures in the document concerning BCI's liability for GIC. 35 The creditor's statutory demands are evidence of the liability of each of EGL, Ligon 268 and Binqld for GIC. In the cases of EGL and Ligon 268, that evidence is supported by the admissions in the liquidator's narrative and particularly the admissions by the Andrew Binetter parties, who can be taken to have knowledge of the relevant facts. As for the BCI proof of debt, there is no evidence which casts doubt on the accuracy of the figures in the statutory demands or the authority of Ms Kennedy, who is identified on each demand as the person who affixed the facsimile signature of the DCT to the demand. 36 For these reasons, I am satisfied that the liquidators have sufficiently proved the amounts of the applicants' GIC liabilities as specified in the BCI proof of debt and the EGL, Ligon 268 and Binqld statutory demands. 37 Each of the applicants claims GIC only to the date of the commencement of the liquidation, having regard to their respective claims for interest, considered below, calculated at lower rates pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act") from that date to the date of judgment.

[41]

Pre-judgment interest 38 The applicants claim interest pursuant to s 51A(1) of the Federal Court Act. Section 51A(1) provides: (1) In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either: (a) order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks 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 as of which judgment is entered; or (b) without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest. 39 The Andrew Binetter parties submitted that, as this is not a case where the applicants have been kept out of their monetary entitlements, interest is not required to be awarded to compensate the applicants for that reason, citing Kazar (liq) v Kargarian; re Frontier Architects Pty Ltd (in liq) [2011] FCAFC 136; 197 FCR 113 at [97] and Smallacombe, BW v Lockyer Investment Co Pty Ltd [1993] FCA 257; (1993) 42 FCR 97 at 103. They submitted that any loss suffered by the company is a liability to the ATO, which does not include a liability to pay s 51A interest to the ATO. Accordingly, the Andrew Binetter parties argued, an award of pre-judgment interest would over compensate the applicants. 40 Relying on the observations of Bathurst CJ in McGrath v Sturesteps [2011] NSWCA 315; (2011) 81 NSWLR 690 at [76], the liquidators submitted that funds received from the respondents by way of compensation are likely to be used to make payments to the ATO, which will in turn rise to an obligation to pay interest under s 563B of the Corporations Act 2001 (Cth) ("Corporations Act"). They contended that the applicable interest rate under s 563B has been 8% per annum at all times: Corporations Regulations 2001 (Cth) r 5.6.70A. 41 The liquidators submitted that rather than claiming GIC or interest under s 563B from the date of the commencement of their respective windings up to the date of judgment, each applicant claims pre-judgment interest for that period under s 51A of the Federal Court Act in accordance with the Reserve Bank of Australia cash rate plus 4% (being the rate identified in para 2 of the Court's Practice Note GPN-INT ("Interest on Judgments Practice Note")) out of an abundance of caution. The liquidators submitted that the applicants cannot be overcompensated by an award of s 51A interest and are instead likely to be undercompensated. 42 Section 563B of the Corporations Act provides: (1) If, in the winding up of a company, the liquidator pays an amount in respect of an admitted debt or claim, there is also payable to the debtor or claimant, as a debt payable in the winding up, interest, at the prescribed rate, on the amount of the payment in respect of the period starting on the relevant date and ending on the day on which the payment is made. (2) Subject to subsection (3), payment of the interest is to be postponed until all other debts and claims in the winding up have been satisfied, other than subordinate claims (within the meaning of section 563A). (3) If the admitted debt or claim is a debt to which section 554B applied, subsection (2) does not apply to postpone payment of so much of the interest as is attributable to the period starting at the relevant date and ending on the earlier of: (a) the day on which the payment is made; and (b) the future date, within the meaning of section 554B. 43 The liquidators also submitted that if they do not obtain sufficient funds to pay out 100 cents in the dollar on the debts that they currently owe, the applicants will nevertheless incur debts under s 563B(1) when they make payments to creditors. The fact that those debts are postponed under s 563B(2) does not prevent them arising, or prevent them from being compensable loss. 44 Subject to the matters addressed below concerning interest on interest, I am satisfied that pre-judgment interest should be awarded on the basis calculated by the liquidators and for the reasons articulated by the liquidators, including that the applicants will incur debts in respect of interest under s 563B of the Corporations Act upon making payments to the ATO that are higher than the interest calculated under s 51A of the Federal Court Act. No good cause has been shown why pre-judgment interest should not be awarded on that basis.

[42]

Interest on interest 45 In some instances, the applicants have been subjected to shortfall interest charges ("SIC") which replace the GIC applied to income tax shortfalls for the period before assessments are amended. The amounts claimed by EGL, Ligon 268 and Binqld include both GIC and SIC 46 The Andrew Binetter parties submitted that, by claiming interest under s 51A, the applicants are seeking to claim "interest on interest" to the extent that s 51A interest is claimed on amounts of GIC or SIC which are analogous to an interest charge. Section 51A(2) provides that s 51A(1) does not authorize the giving of interest upon interest or of a sum in lieu of such interest. 47 In Smith v Boné, re ACN 002 864 002 Pty Ltd (in liq) (No 2) [2015] FCA 389; (2015) 233 FCR 568 (Smith v Boné) at [21], I concluded that interest under s 51A(1) was not payable on so much of an amount recoverable under s 588M(2) of the Corporations Act that was calculated by reference to interest on unpaid tax. The Andrew Binetter parties argued that I should reach a similar conclusion in this case. 48 Mr Marshall SC argued that my conclusion in Smith v Boné was wrong and was based upon a misapplication of the decision of Bryson J in Bans Pty Ltd v Ling (1995) 36 NSWLR 435. In the latter case, Mr Marshall SC argued, the Court was not dealing with a question of interest on an award of damages or equitable compensation but rather a question of the joint and several liability of a director for insolvent trading under s 556 of the Companies (New South Wales) Code 1981. Mr Marshall SC also drew attention to authorities in which pre-judgment interest was awarded on damages which included interest paid or foregone, namely Hexiva Pty Ltd v Lederer (2) [2007] NSWSC 49; Bushwall Properties Ltd v Vortex Properties Ltd [1975] 2 All ER 214; Harvey v Rogers (1983) 32 SASR 247; Duffy v Hepron Pty Ltd [2007] QSC 106; Zografakis v McCarthy [2007] NSWSC 144; (2007) 13 BPR 24,365; Stuart Earle (Real Estate) Pty Ltd v Baines [1988] NSWCA 149. 49 In the light of those authorities, I accept that the applicants' claims for GIC and SIC are in the nature of claims for equitable compensation, and that an award of s 51A(1) interest on those amounts does not amount to "the giving of interest upon interest" prohibited by s 51A(2). 50 The Andrew Binetter parties also contended that s 51A(3) applies to preclude the award of interest on the applicants' claims for GIC and SIC. Section 51A(3) provides: (3) Where the sum for which judgment is given (in this subsection referred to as the relevant sum) includes, or where the Court in its absolute discretion, or a Judge in that Judge's absolute discretion, determines that the relevant sum includes, any amount for: (a) compensation in respect of liabilities incurred which do not carry interest as against the person claiming interest or claiming a sum in lieu of interest; … interest, or a sum in lieu of interest, shall not be given under subsection (1) in respect of any such amount or in respect of so much of the relevant sum as in the opinion of the Court or the Judge represents any such amount. 51 I do not accept that s 51A(3)(a) has any relevant application because the liabilities of the applicants carry interest under s 563B of the Corporations Act. 52 I accept the liquidators' submissions. The GIC and SIC comprise components of equitable compensation and accordingly an award of pre-judgment interest on total principal liabilities calculated to include GIC and SIC will not give interest on interest. Further, I accept the liquidators' submission that s 51A(3) has no operation in the circumstances of this case for the reasons given by the applicants. 53 It follows that my earlier conclusion, that pre-judgment interest should be awarded on the basis calculated by the liquidators and for the reasons articulated by the liquidators, remains unaffected by the respondents' arguments concerning interest on interest.

[45]

Ancillary matters raised by Andrew Binetter parties 60 The BCI proof of debt includes amounts for costs in Federal Court proceeding NSD626/2011 ("NSD626/2011 costs") and for a running account balance deficit ("BCI RAB deficit"). Those amounts are not claimed against the respondents in this proceeding. 61 The Andrew Binetter parties submitted that BCI is impermissibly claiming interest calculated on the amounts of the NSD626/2011 costs and the BCI RAB deficit. 62 The liquidators accept that there should be no such claim for interest, and say that their calculations do not include amounts for any such interest. The liquidators contend that the submission made by the Andrew Binetter parties is based upon a misunderstanding of the relevant spreadsheet prepared by Mr Fryer. In summary, the liquidators say that the amounts included in the spreadsheet, which form the basis of the Andrew Binetter parties' submissions, are included for reconciliation purposes only and in the hope of pre-empting a complaint that the calculations are opaque. 63 I accept the liquidators' submissions. The Andrew Binetter parties' submissions are directed to another issue, addressed below, namely the correct treatment of BCI's partial recovery of $4 million from a third party in respect of a claim for the amounts set out in the BCI proof of debt. Interest on the NSD626/2011 costs and the BCI RAB deficit formed part of the liquidators' calculation of their claim in the BCI third party proceeding. I accept that these figures feature in the spreadsheet only for the purpose of elucidating the effect of BCI's proposed treatment of the BCI recovery. 64 As the Andrew Binetter parties observe, if BCI is permitted to account for the recovery in the manner proposed in the spreadsheet, then the respondents will receive very little benefit from the recovery. In effect, it will be counted as a recovery by BCI of its claims in the BCI third party proceeding for the NSD626/2011 costs and the BCI RAB deficit (and interest on those claims), leaving the claims against the respondents substantially unpaid. This issue is addressed below.

[47]

Allowance for BCI recovery 70 As noted above, BCI has received a partial recovery of $4 million for claims connected to the claims made by it in this proceeding. 71 The liquidators accepted that they must account for the $4 million in this proceeding so as to avoid double recovery by BCI for the same, or at least overlapping losses. 72 The BCI third party proceeding was based on a claim for the entirety of the debt stated in the BCI proof of debt plus pre-judgment interest calculated at Federal Court rates. As previously noted, the BCI proof of debt includes amounts for NSD626/2011 costs and BCI RAB deficit which are not claimed against the respondents in this proceeding. As at 30 September 2016, the amount claimed by BCI in this proceeding was $3,139,848 less than the amount claimed in the BCI third party proceeding. 73 On the liquidators' calculations, applying the liquidator's interpretation of the reasoning in the liability judgment and ignoring any adjustment to account for the recovery of $4 million, certain respondents are liable to BCI for amounts substantially less than the total amount claimed in this proceeding while others would be liable for the full amount, or nearly the full amount. 74 While the liquidators accept that they must account for recoveries, they submit that the following principles apply: (1) BCI ought not be deprived of the opportunity to recover all of its relevant losses; (2) to the extent that BCI has received monies in the BCI third party proceeding, it is entitled to account for those recoveries as a reduction of the amount owed by that respondent in order to determine the amount BCI remains out of pocket; (3) BCI ought not be denied the opportunity to recover from the respondents in this proceeding against whom it has a judgment except to the extent that such recoveries would in aggregate exceed its total loss, including pre- and post-judgment interest, which continue to accrue; and (4) it follows that the calculation of the judgment to be entered against the respondents in this proceeding need only be adjusted to give credit to reflect settlement recoveries for those respondents whose liability is greater than the amount by which BCI remains out of pocket. Those with judgment liabilities less than BCI's remaining loss ought not obtain any benefit. 75 The liquidators submitted that the appropriate arithmetic procedure to calculate the quantum of judgment in this proceeding is therefore as follows: (1) The principal debt, as at the date of the BCI proof of debt (5 March 2014) be calculated for each respondent consistent with the findings in the liability judgment. (2) Pre-judgment interest be calculated on those principal debts to give the liability for each respondent as at 30 September 2016 (the settlement date in the BCI third party proceeding). (3) A similar calculation be carried out on the claim in the BCI third party proceeding to derive the "liability" for the settling party as at the settlement date, and the settlement sum be subtracted therefrom, to give the amount BCI remained out of pocket as at the settlement date (which the liquidators call the "residual loss"). On the liquidator's calculations, the residual loss is $12,313,824.49. (4) If a respondent's liability as at the settlement date is less than $12,313,824.49, then no adjustment is made. (5) If a respondent's liability as at the settlement date is more than $12,313,824.49, the liability is reduced to the "residual loss". (6) Interest at pre-judgment rates continues to accrue after the settlement date until the entry of judgment. To allow for the proper calculation of interest after the settlement date, the settlement adjustment be made first against accrued pre-judgment interest up to the settlement date with any residue subtracted from the principal debt as calculated in (1) above. 76 In their written submissions, the Andrew Binetter parties submitted that the $4 million recovery should be allocated as a deduction from the principal loss amount "rather than interest as the recovery of this amount reduces the overall loss suffered by" BCI. The Andrew Binetter parties argued that the $4 million recovery was apparently received on the basis that the payer is a joint wrongdoer causing the same losses sought to be recovered in this proceeding. 77 The liquidators contended that this allocation would operate to the disadvantage of BCI and would leave BCI with an unrecoverable amount (of $3,139,848). They rejected the contention that the $4 million was received on the basis that the payment is a joint wrongdoer causing the losses sought to be recovered in this proceeding, saying there is no evidence for it. Rather, the claim in the partial recovery proceeding was for a greater amount and the payment was received to settle that whole larger claim. In support of their approach, the liquidators relied on the following decisions: (1) Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd (No. 2) [1988] 2 All ER 880, in which the Court held that, where a plaintiff had a claim against two defendants and settled with one, he was entitled to deduct the costs of his action against the defendant against whom he had settled from the settlement amount before giving credit in the action against the other defendant for the amount received under the settlement, since the costs incurred against the defendant who settled represented an additional and separate claim by the plaintiff against that defendant. (2) RACV Insurance Pty Ltd v Unisys Australia Ltd [2001] VSC 300, in which Hansen J referred to Banque Keyser and said, relevantly, at [555]: In short, when a plaintiff sues two defendants and settles with one but continues to judgment against the other, in the calculation of damages payable by the latter the plaintiff is entitled to treat the settlement sum as allocated first to any claim separate and additional to any claim that was common to the defendants, and the costs of that separate claim, and, secondly, any excess of the settlement sum necessarily referable to the common or overlapping claim is to be credited in favour of the second defendant. (3) Morris v Riverwild Management Pty Ltd [2011] VSCA 283; (2011) 38 VR 103 ("Morris"), in which Nettle and Redlich JJA (Weinberg JA agreeing) said, relevantly, at [56]: [W]here several defendants are severally liable for parts of a plaintiff's claim, the general principle is that one such defendant is not entitled to credit in respect of payments made by other defendants unless and until the total of payments made by the other defendants exceeds the difference between the plaintiff's claim and that part of the claim for which the defendant seeking credit is liable: The Morgenry, The Blackcock [1900] P 1, 12; Banque Keyser v Skandia (UK) Insurance Co Ltd & Ors (No 2) [1988] 2 All ER 880, 883; cf Boncristiano v Lohmann [1998] 4 VR 82, 89; RACV Insurance Pty Ltd v Unisys Australia Ltd [2001] VSC 300, [555]. 78 Orally, Mr Williams SC referred to the amended statement of claim in the BCI third party proceeding. He noted similarities between the allegations in this proceeding and allegations contained in the amended statement of claim. Mr Williams SC also noted the allegation, previously mentioned, that BCI incurred withholding tax obligations which were paid and the claim based on those payments. Based on that allegation, Mr Williams SC submitted that the claim in the BCI third party proceeding was colourable. He also submitted that this is a case of joint rather than several liabilities, so that the general principle identified above in Morris would have no operation.

[49]

Liability of corporate respondents 81 A third party may be liable in relation to a breach of fiduciary duty if "they assist with knowledge in a dishonest and fraudulent design on the part of the trustees": Barnes v Addy (1874) LR 9 Ch App 244 at 251-252 per Lord Selbourne LC. Equitable compensation is an available remedy for such third party liability: Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries (1996) 39 NSWLR 143 at 153 ("Greater Pacific"). 82 As a general rule, the amount of equitable compensation is assessed as at the time of the trial with the benefit of hindsight: Greater Pacific at 154. The assessment is of the loss to the victim caused by the breach on a commonsense view of causation: Greater Pacific at 154. Equitable compensation seeks to provide restitution for the value of the loss or damage suffered by the breach of duty: Daniels v Anderson (1995) 37 NSWLR 438 at 491. 83 In Lifeplan Australia Friendly Society Ltd v Ancient Order of Foresters in Victoria Friendly Society Ltd [2017] FCAFC 74, a Full Court comprising Allsop CJ, Middleton and Davies JJ stated, relevantly (at [62] and [63]): [62] The correct approach to questions of causal connection in Equity between an equity and a relevant remedy depends upon the nature and character of the relevant rule of responsibility, and of the remedy sought … [63] The remedial rules concerning breaches of fiduciary duty are structured to enforce, not undermine, the strictness of the duty. 84 At [983] of the liability judgment, I found that conduct of the corporate respondents amounted to participation in the various directors' breaches of fiduciary duty in procuring drawdowns and in procuring payments to Israeli banks in furtherance of the scheme. At [982], I found that the knowledge of Erwin, Emil and Andrew Binetter about the scheme, to the extent that they were directors of the corporate respondents, must be imputed to those companies. 85 In the case of BCI, the corporate respondents' knowing participation in the directors' breaches of fiduciary duty included the provisions of guarantees and reaffirmations of guarantees which were an integral part of the arrangements by which funds were procured from Bank Hapoalim. The drawdowns pursuant to which the funds were procured were events without which BCI would not have lent the funds on which it earned assessable interest income and on which it is now liable to pay income tax. On that basis, I am satisfied that the corporate respondents are liable to compensate BCI to the extent of its losses suffered in the form of income tax liabilities (including penalties and GIC). For the seventh respondent ("Milgerd") and the ninth respondent ("Ligon 159"), the liability is for the same amount as BCI is entitled to judgment against Emil Binetter. For Erma and Ligon 158, the liability is for the same amount as BCI is entitled to judgment from, cumulatively, Erwin and Andrew Binetter. 86 In the case of EGL, Erma and Milgerd provided guarantees which were an integral part of the arrangements by which it procured funds from IDB. Further, the evidence was that funds procured from IDB were on-lent to Erma and Milgerd (see, for example, Erwin Binetter's 8 June 1999 letter on behalf of EGL to IDB and EGL's statement of facts, issues and contentions ("SOFIC")). Without that on-lending, EGL would not have earned the assessable interest income on which it is now liable to pay income tax. Accordingly, I am satisfied that Erma and Milgerd should compensate EGL for its losses suffered in the form of income tax liabilities (including penalties, GIC and SIC). 87 For Milgerd, the liability is for the same amount as EGL is entitled to judgment against Emil Binetter. For Erma, the liability is for the same amount as EGL is entitled to judgment from, cumulatively, Erwin and Andrew Binetter. 88 Each of the corporate respondents participated in the breaches of duty by the directors of EGL to the extent that those companies received funds procured by EGL from IDB as identified in EGL's SOFIC, and were therefore the beneficiaries of the scheme as implemented by EGL. 89 If my conclusions at [86] to [87] are wrong, then Milgerd and Erma are liable to compensate EGL to the extent that their respective benefits are referrable to EGL's tax liabilities, if that can be determined from the evidence. Similarly, Ligon 158 and Ligon 159 are liable to compensate EGL to the extent that their respective benefits are referrable to EGL's tax liabilities. 90 In the case of Ligon 268, I am satisfied that Erma and Ligon 158 participated in the breaches of duty by Erwin and Andrew Binetter to the extent that those companies received funds procured by Ligon 268 from IDB, and were therefore the beneficiaries of the scheme as implemented by Ligon 268. At [919] of the liability judgment, I found that Ligon 268 principally on-lent funds from IDB to Ligon 158. On the reasoning above, Erma and Ligon 158 are liable to compensate Ligon 268 to the extent that their respective benefits are referrable to Ligon 268's tax liabilities. 91 For Binqld, Erma and Ligon 158 similarly participated in the breaches of duty by Andrew Binetter to the extent that those companies received funds procured by Binqld from IDB, and were therefore the beneficiaries of the scheme as implemented by Binqld. As for Ligon 268, Erma and Ligon 158 are liable to compensate Binqld to the extent that their respective benefits are referrable to Binqld's tax liabilities.

[50]

Tax returns not lodged by Andrew and ERWIN Binetter 92 The Andrew Binetter parties submitted that no liability should attach to Andrew Binetter in respect of losses arising from the lodgement of tax returns which he himself did not cause to be lodged. They submitted that the following findings in the liability judgment are relevant, and that no liability should attach to Andrew Binetter in respect of years outside of these periods: (1) In relation to BCI, at [376], the finding that Andrew Binetter caused BCI to claim (only) the deductible expenses claimed in the 2002 to 2008 income tax returns. (2) In relation to EGL, at [378], Andrew Binetter signed only the 2001, 2002, 2004, 2005 and 2006 income tax returns. (3) In relation to Ligon 268, at [390], Andrew Binetter caused to be lodged the 2005 to 2007 income tax returns. 93 Concerning BCI, the Andrew Binetter parties also submitted that the orders should reflect the findings in [1001] and [1002] of the liability judgment. 94 The Andrew Binetter parties' submissions also referred to the findings, at [392] and [394], that Andrew Binetter lodged Binqld's 2006 to 2008 income tax returns. However, since his liabilities concerning Binqld relate entirely to those three years, there is no point to be made on Andrew Binetter's behalf under this heading regarding Binqld. 95 The liquidators' reply submissions contended that the implicit submission put on behalf of Andrew Binetter is that he has no liability in respect of amounts unless he was involved in the lodgement of the relevant return. The liquidators referred to other findings that, they contended, indicated that Andrew Binetter's liability is not limited in the manner contended for by the Andrew Binetter parties. For example, in relation to the 1998 income year, at [997] of the liability judgment, there is a finding that the 1998 assessment is a loss that would not have been suffered by BCI apart from various respondents' breaches of duty, including Andrew Binetter to the extent that income was earned after the late 1997 changes. 96 I agree with the liquidators' reply submissions. Andrew Binetter's liability is not limited by reference to his involvement in the lodgement of income tax returns and extends to losses where I have found that the loss would not have been suffered but for Andrew Binetter's breach of duty. 97 On behalf of Erwin Binetter, it was submitted that no liability should attach to Erwin Binetter's estate in respect of losses arising from the lodgement of income tax returns that he did not cause to be lodged. Margaret Binetter, as the representative of the estate, pointed to the following findings in the liability judgment: (1) in relation to BCI, at [376], that Erwin Binetter only caused BCI to claim deductible expenses in the income tax returns for the 1994 to 2001 tax years; (2) in relation to EGL, at [382], that Erwin Binetter only caused EGL to claim deductible expenses in the income tax returns for the 1992 to the 2000 tax years; and (3) in relation to Ligon 268, at [391] and [1022], that Erwin Binetter caused Ligon 268 to lodge its 1999 to 2004 tax returns whereas Andrew and Michael Binetter were responsible for the lodgement of the Ligon 268 2005 to 2007 income tax returns. 98 As with the submissions on behalf of Andrew Binetter, the liquidators' reply submissions contended that this submission is premised on the proposition that Erwin Binetter can have no liability in respect of amounts unless he was involved in the lodgement of the relevant tax return. They referred to other findings that, they contended, indicated that Erwin Binetter's liability is not limited in the manner contended for by the representative of the estate. For example, in relation to the 2005 tax year, there was a finding at [1005] that the 2005 amended assessment and the 2005 penalty assessment are losses that would not have been suffered by BCI apart from various respondents' breaches of duty, including Erwin Binetter. 99 Again, I agree with the liquidators' reply submissions. As with Andrew Binetter, Erwin Binetter's liability is not limited by reference to his involvement in the lodgement of income tax returns. Rather, it extends to losses in respect of which there are findings that the loss would not have been suffered but for Erwin Binetter's breach of duty.

[52]

Margaret Binetter 101 The liquidators accepted that BCI should pay Margaret Binetter's costs, in her own capacity as the third respondent, on the ordinary basis as taxed or agreed. 102 In turn, Mrs Binetter accepted that she is liable to a costs order against her, as second respondent, and in favour of BCI, EGL and Ligon 268, with respect to her unsuccessful defence of the estate of Erwin Binetter. However, Mrs Binetter contended that: (1) any order against her as the representative of the estate of Erwin Binetter should not be enforceable against her personally, but should only be claimable from the estate; and (2) there should be no set off as between the costs order in favour of Mrs Binetter and the costs order against her. 103 Mrs Binetter submitted that the Court's broad power in s 43 of the Federal Court Act includes the power to limit or qualify the liability of a party subject to an obligation to pay costs, referring to Cuthbertson & Richards Sawmills Pty Ltd v Thomas (No 2) [1999] FCA 1789 ("Cuthbertson"). In that case, a Full Court considered the liability of a company liquidator in an action concerning the validity of a charge. The Full Court decided that the costs to which the appellant was entitled should be limited to those recoverable out of the company's assets. There was no suggestion of misconduct by the liquidator in connection with the liquidation and the liquidator was a defendant rather than a plaintiff in the proceeding. 104 I accept that the Court's power is as broad as contended by Mrs Binetter. However, the role of the liquidator in Cuthbertson was materially different from Mrs Binetter's role. As the Full Court recognised from its citation of Re Wilson Lovatt & Sons Ltd [1977] 1 All ER 274 at 285, a liquidator cannot protect him or herself against claims arising from the functions of liquidator that have been carried out. In contrast, Mrs Binetter consented to her role as representative of the estate of her deceased husband. 105 Mrs Binetter submitted that the role imposed upon her by an order under r 9.24 of the Federal Court Rules 2011 should not bring with it liability for costs where she has been found completely innocent of all allegations made against her in the proceeding and she had no knowledge of or involvement in the misconduct of her husband. I do not accept this submission: in my view, these matters are not relevant to the question of costs. In any event, in the litigation, Mrs Binetter had access to the evidence against her husband and she defended the proceeding on behalf of the estate in the face of that evidence. Mrs Binetter did not identify any case law to support a contention that, generally speaking, a person who has consented to represent a deceased person's estate should not bear the costs of an unsuccessful defence. 106 Mrs Binetter also submitted that her appointment to represent the estate did not lead to any increase in the costs necessarily incurred by the applicants in the prosecution of its case against the estate. Mrs Binetter noted that she took a very limited role beyond that necessary to defend her own position as third respondent. In my view, this is an argument which goes to the quantum of costs, rather than the question of the appropriate costs order. 107 Accordingly, I am not satisfied that the costs order against Mrs Binetter as the representative of the estate of Erwin Binetter should be limited. 108 As to the question of set off, in Lahoud v Lahoud [2012] NSWSC 284, Ward J considered the Supreme Court's jurisdiction to order a set-off of costs orders. At [75], her Honour cited the following passage from Derham R, Derham on the Law of Set-Off (4th ed, Oxford University Press, 2010) at s 2.103 and 2.104, where a distinction is drawn between the nature of a set-off as between costs and judgments and the nature of equitable set-off as developed in the jurisdiction of the Court of Chancery: In the first place, equitable set-off is a defence to an action to enforce payment of a debt or other monetary obligation, the defence operating in equity as a complete or partial defeasance of the plaintiff's claim. A set-off of judgments and orders, on the other hand, is not a defence in that sense. Essentially, it is a procedural device which determines the amount for which execution may issue, and which may provide a ground for a stay of enforcement. Secondly, the practice of setting off judgments and orders was developed in the common law courts (as opposed to courts of equity) long before the Judicature Acts. It is true that the availability of the set-off has been described as an 'equitable' jurisdiction. However, that expression was used in the sense of justice and fairness, as opposed to the jurisdiction of the Court of Chancery. The true basis of the set-off is the court's inherent jurisdiction. Its purpose is to prevent absurdity or injustice, and to do that which is fair. It has long been accepted that the inherent jurisdiction is confined to judgments in the same action, or the same court, without it being suggested that the claims nevertheless must be closely connected as for an equitable set-off. 109 In Insight SRC IP Holdings Pty Ltd v Australian Council for Educational Research Ltd (No 2) [2012] FCA 1063, Besanko J ordered a set-off in relation to a judgment sum and costs. 110 Mrs Binetter noted that the relevant costs orders are not between the same parties. Mrs Binetter will be ordered to pay the costs of BCI, EGL and Ligon 268, but she will be entitled to a costs order in her favour against BCI. 111 Mrs Binetter also contended that set off should not be ordered, as a matter of discretion because of a lack of mutuality between the two claims. The order for costs in favour of Mrs Binetter as third respondent is one she holds personally and arises from the failure of the case against her personally. However, her liability as representative of the estate of Erwin Binetter arises from her role as representative. 112 In my view, there should be a set-off of the liabilities for costs as between BCI and Mrs Binetter. I am not persuaded that any lack of mutuality should deny BCI the benefit of a set-off in this case.

At a glance

Court

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Judgment (56 paragraphs)

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Legislation Cited (4)

Cases Cited (26)

Cited By (5)