Commissioner of Taxation v Sims

Court of Appeal (NSW)|2008-11-06|Before: Beazley JA, Ipp JA, Macfarlan JA, White J, Palmer J, Hammerschlag J, MacFarlan JA

CITATION: Commissioner of Taxation v Sims [2008] NSWCA 298

JUDGMENT OF: Beazley JA at 1; Ipp JA at 2; Macfarlan JA at 54

(a) Mr and Mrs Maine indemnify the Commissioner against the costs she is obliged to pay the liquidators pursuant to order 2 made on 16 Novembe 2007; DECISION: (b) Mr and Mrs Maine pay the costs of the appeal of the Commissioner; (c) The Commissioner pay the costs of the appeal of the liquidators; (d) Mr and Mrs Maine have a certificate under the Suitors' Fund Act 1951 if otherwise qualified.

CATCHWORDS: COSTS - order obtained against Commissioner under s588FF of the Corporations Act 2001 - Commissioner sought indemnity under s588FGA(2) of the Act - whether indemnity under s588FGA(2) for "any loss or damages" includes recovery for money paid under a costs order.

Acts Interpretation Act 1901 (Cth) Civil Procedure Act 2005 Corporate Law Reform Bill 1992 (Cth) Corporations Act 2001 (Cth) Corporations Law (Cth) LEGISLATION CITED: Income Tax Assessment Act 1936 Insolvency (Tax Priorities) Legislation Amendment Bill 1993 (Cth) Legislative Instruments (Transitional Provisions and Consequential Amendments) Act 2003 (Cth) Suitors' Fund Act 1951 Taxation Administration Act 1953 (Cth) Uniform Civil Procedure Rules 2005

Deputy Commissioner of Taxation v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113 Duncan v Commissioner of Taxation [2006] FCA 885; (2006) 58 ACSR 555 Edington v Clark [1964] 1 QB 367 Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 1126; (2004) 22 ACLC 81 Hillig v Commissioner of Taxation [2000] QSC 403; [2001] 2 Qd R 147 Hornby v Cardwell (1881) 8 QBD 329 CASES CITED: McColl's Wholesale Pty Ltd v State Bank of NSW [1984] 3 NSWLR 365 Ngan v Deputy Commissioner of Taxation (Supreme Court of New South Wales, White J, 22 October 2007, unreported) Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 Sims v Deputy Commissioner of Taxation [2006] NSWSC 305; (2006) 57 ACSR 249 Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (Supreme Court of New South Wales, Palmer J, 13 November 2001, unreported) Superior Press Pty Ltd (in liq) v Deputy Commissioner of Taxation [2004] VSC 111; (2004) 55 ATR 541 Thomas v Times Book Company Ltd [1966] 1 WLR 911 Woodgate v Commissioner of Taxation [2006] NSWSC 778; (2006) 233 ALR 570

Commissioner of Taxation (Applicant) Anthony Milton Sims and Neil Geoffrey Singleton as joint and several liquidators of ACN 087 202 980 Pty Ltd (in liq) (formerly Newsnet.com Pty Ltd) (First Respondent) PARTIES: ACN 087 202 980 Pty Ltd (in liq) (formerly Newsnet.com Pty Ltd (Second Respondent) Anthony Leonard Maine (Third Respondent) Judith Merryn Maine (Fourth Respondent)

M Aldridge SC; P Rodionoff (Applicant) COUNSEL: P Braham (First and Second Respondent) J Clarke (Fourth Respondent)

Australian Government Solicitor (Applicant) SOLICITORS: Purcell Insolvency Lawyers (First and Second Respondent) Home Wilkinson Lowry (Third Respondent) Esplins Solicitors (Fourth Respondent)

LOWER COURT JURISDICTION: Supreme Court

LOWER COURT JUDICIAL OFFICER: Hammerschlag J

LOWER COURT DATE OF DECISION: 16 November 2007

LOWER COURT MEDIUM NEUTRAL CITATION: Sims v Commissioner of Taxation [2007] NSWSC 1359

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40846/07 SC 2717/04

BEAZLEY JA IPP JA MACFARLAN JA

26 November 2008 COMMISSIONER OF TAXATION v Anthony Milton SIMS and Neil Geoffrey SINGLETON as joint and several liquidators of ACN 087 202 980 Pty Ltd (in liq) (formerly Newsnet.com Pty Ltd) Judgment 1 BEAZLEY JA: I agree with Ipp JA. 2 IPP JA: This application for leave to appeal and appeal were heard together. The issue raised is one of statutory construction and concerns s 588FGA(2) of the Corporations Act 2001 (Cth)). This section has been the subject of conflicting decisions at first instance and it is desirable that this court should resolve its construction. I would accordingly grant leave to appeal. 3 The liquidators of a company formerly known as Newsnet.com Pty Ltd ("Newsnet") brought proceedings against the Deputy Commissioner of Taxation ("the Commissioner") under s 588FF of the Corporations Act (s 588FF being one of the voidable transaction provisions under that Act). The liquidators sought orders directing the Commissioner to pay them amounts equal to the amounts of payments that Newsnet had made to her. The liquidators contended that the payments by Newsnet to the Commissioner should be avoided under s 588FF. 4 The Commissioner, in turn, joined two directors of Newsnet, Mr Anthony Leonard Maine and Mrs Judith Merryn Maine, as "respondents" in the proceedings and sought an indemnity from them under s 588FGA(2) of the Act. The indemnity claimed included any costs that the Commissioner might be ordered to pay to the liquidators. In the alternative, the Commissioner sought orders against Mr and Mrs Maine in the nature of Sanderson or Bullock orders in respect of the liquidators' costs that the Commissioner had been ordered to pay. 5 The liquidators succeeded against the Commissioner to the full extent of their claim. Hammerschlag J granted judgment in their favour "pursuant to s 588FF" in the sum of $409,074.48 (comprising a capital sum of $285,209 plus interest of $123,865.48) and ordered that the Commissioner pay the liquidators their party and party costs. His Honour then turned to the Commissioner's claims against Mr and Mrs Maine. As against Mr Maine, Hammerschlag J granted judgment in favour of the Commissioner in the sum of $409,074.48 (the same amount as the judgment against the Commissioner in favour of the liquidators). As against Mrs Maine, his Honour granted judgment in favour of the Commissioner in the sum of $114,682.33 (comprising $80,000 plus interest of $34,682.33). The judgment against Mrs Maine was affected by the fact that she succeeded in statutory defences she raised in ten of the fourteen claims brought against her by the Commissioner. His Honour ordered that Mr Maine should pay the Commissioner's party and party costs and that Mrs Maine pay 25% of the Commissioner's party and party costs. 6 The Commissioner sought from Hammerschlag J orders under s 588FGA(2) of the Act requiring Mr and Mrs Maine to indemnify her in respect of her liability for the costs of the liquidators that his Honour had ordered her to pay. The judge refused to make such orders and also refused to make orders in the nature of Sanderson or Bullock orders in respect of the liquidators' costs. The application for leave to appeal and appeal concern his Honour's refusal to make those orders.

7 Section 588FGA provides: "(1) This section applies if the Court makes an order under section 588FF against the Commissioner of Taxation because of the payment of an amount in respect of a liability under any of the following provisions of the Income Tax Assessment Act 1936: … or under a provision of Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953. (2) Each person who was a director of the company when the payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order.

(3) An amount payable to the Commissioner under subsection (2): (a) is a debt due to the Commonwealth and payable to the Commissioner; and (b) may be recovered in a court of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name.

(4) The Court may, in the proceedings in which it made the order against the Commissioner, order a person to pay to the Commissioner an amount payable by the person under subsection (2).

(5) A person who pays an amount under subsection(2) has the same rights: (a) whether by way of indemnity, subrogation, contribution or otherwise; and

(c) of the liability referred to in subsection(1); and (d) under which the person and every other person who was a director of the company as mentioned in subsection(2) were jointly and severally liable as guarantors." 8 It is common ground that the order that Hammerschlag J made directing the Commissioner to pay the liquidators $409,074.48 was in respect of a liability under "a provision of [s]ubdivision 16-B in Schedule 1 to the Taxation Administration Act 1953" as provided by s 588FGA(1). Hence, s 588FGA was relevantly of application. 9 In giving reasons for refusing to order an indemnity under s 588FGA(2) Hammerschlag J said (at [25]): "In my view, on the plain language of the section, the indemnity given to the Commissioner by s 588FGA(2) … does not cover the legal costs which the Commissioner has been ordered to pay the successful plaintiffs." 10 His Honour pointed out that "the order" referred to in s 588FGA(2) is an order of the kind referred to in s 588FGA(1) which in turn is an order made under s 588FF(1). His Honour observed (at [31]-[33]): "The damage or loss to the Commissioner which results from that order can only be the amount of money which the Commissioner must pay under it. That damage or loss cannot extend to costs which the Commissioner must, because of a further order (the costs order), pay to the plaintiffs. Section 588FF(1) says nothing about orders as to costs. The costs liability of the Commissioner to the plaintiffs is not damage or loss resulting from the order under s 588FF(1) for the further reason that it resulted rather from the Commissioner having defended the claim." 11 Section 588FGA(2) has been applied on a number of occasions by courts in New South Wales and elsewhere. 12 In Hillig v Commissioner of Taxation [2000] QSC 403; [2001] 2 Qd R 147 White J made an order under the section requiring a director of a company in liquidation to indemnify the Commissioner against the costs and interest that the Commissioner had been ordered to pay the plaintiff in an action based on a voidable preference. Her Honour did not, in so doing, give any reasons for this order and the parties do not appear to have raised any issue as to the reach of s 588FGA(2). 13 In Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (Supreme Court of New South Wales, Palmer J, 13 November 2001, unreported), Palmer J made an order under s 588FGA requiring a director of the company in liquidation to indemnify the Commissioner in relation to the costs that his Honour had ordered the Commissioner to pay in respect of the liquidator's successful claim against the Commissioner under s588FF. His Honour's judgment was taken on appeal and is reported as Deputy Commissioner of Taxation v Clark [2003] NSWCA 91; (2003) 57 NSWLR 113. This Court accepted that s 588FGA applied to the costs that the Commissioner might be ordered to pay to the liquidator in an action under s 588FF and ordered that the two directors of the company indemnify the Commissioner in relation to those costs. No mention is made in the reasons of the Court's power to make such an order and this does not seem to have been an issue that was argued. 14 In Gibbons v Deputy Commissioner of Taxation [2003] NSWSC 1126; (2004) 22 ACLC 81, Nicholas J accepted that an indemnity under s 588FGA(2) could cover interest and costs. His Honour referred to Deputy Federal Commissioner of Taxation v Clark and said (at [30]): "It seems that the question whether under s 558FGA(2) liability for loss or damage resulting from the Court's order includes the liquidator's interests and costs was neither argued nor referred to in the judgments. However, it is clear from the terms of the orders made by the Court of Appeal para 170 that Palmer J interpreted the subsection correctly, and that the indemnity covers such interests and costs." 15 In Superior Press Pty Ltd (in liq) v Deputy Commissioner of Taxation [2004] VSC 111; (2004) 55 ATR 541 Byrne J accepted that s 588FGA empowered the court to order a director of the wound-up company to indemnify the Commissioner in respect of costs the Commissioner incurred in defending a liquidator's claim under s 588FF. Again, it seems that no party took any issue as to the Court's power to make such an order. 16 In Sims v Deputy Commissioner of Taxation [2006] NSWSC 305; (2006) 57 ACSR 249 Campbell J accepted that s 588FGA(2) empowered the Court to include interest in an order for an indemnity. His Honour noted (at [35]): "An argument seems to me to be fairly open about whether the quoted portion of the Explanatory Memorandum [in respect of The Insolvency (Tax Priorities) Legislation Amendment Bill 1993 (Cth) which introduced s 588FGA into the Corporations Law ] gives rise to that conclusion about the intention with which the legislation was passed. Instead, it might be argued that it leads simply to a conclusion that the intention was that the disadvantage which the Commissioner was at, by comparison with practically every other creditor, of having intimate knowledge or means of knowledge of the state of the company's financial health, and so being inhibited in making out a defence under s 588FG(2) of being a bona fide recipient of a payment which was in fact preferential, should be made up for by giving the Commissioner a different right altogether, namely a right to be indemnified by a director." 17 As the Commissioner in Sims did not seek an indemnity order in relation to the costs of the preference proceedings, it was not necessary for Campbell J to take the matter further. 18 In Duncan v Commissioner of Taxation [2006] FCA 885; (2006) 58 ACSR 555 Young J (of the Federal Court), relying on Superior Press Pty Ltd v Deputy Commissioner of Taxation, said (at [127]): "I reject the argument that the Commissioner has not suffered any recoverable loss or damage resulting from the order I propose to make in each proceeding under s 588FF. To the extent that the Commissioner is ordered to pay an amount to the liquidator in each case, representing the amount of payments it received … , and amounts in respect of interest and costs, those amounts can properly be the subject of an indemnification order." 19 In Woodgate v Commissioner of Taxation [2006] NSWSC 778; (2006) 233 ALR 570 Palmer J said (at [83]): "The court can order indemnity only in respect of 'loss or damage resulting from' an order against the [C]ommissioner under s 558FF. A costs order made against the [C]ommissioner in proceedings instituted by a liquidator can properly be said to be a loss 'resulting from the order'." 20 In Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 Barrett J said (at [49]): "I agree that, if a costs order is made against the Commissioner in respect of recovery of the kind with which s 588FGA is concerned, those costs form part of the 'loss or damage' referred to in the section. This has been recognised in several cases; see, for example, Superior Press Pty Ltd v Deputy Commissioner of Taxation and Duncan v Commissioner of Taxation. "

21 In Ngan v Deputy Commissioner of Taxation (Supreme Court of New South Wales, White J, 22 October 2007, unreported), White J made an order for indemnity under s 558GA(2) which covered the costs of the Commissioner in defending proceedings brought against her by the liquidator. His Honour noted, in passing (at [6]): "It may be arguable that such costs do not represent loss or damage resulting from the order under s588FF, but are the result of the Court's [sic] exercising its discretion under s 98 of the Civil Procedure Act 2005 (NSW) to order costs against the Commissioner, which in turn, in substantial part, arises from the Commissioner's decision to defend rather than concede the claim against him."

As the respondent in Ngan did not defend the application his Honour made the indemnity order as sought. 22 Thus, although many judges have held that s 588FGA(2) does apply to the costs the Commissioner may be ordered to pay the liquidator, it does not appear that in any of those cases the issue of whether the section empowers the making of such an order was squarely raised. In addition, Campbell J in Sims and White J in Ngan raised the ambit of the section and the power conferred by it. Hammerschlag J, in the present proceedings, held that the indemnity provided for by s 588FGA(2) did not apply to the Commissioner's costs in the main proceedings under s 588FF. 23 The different views expressed on the issue indicate that s 588FGA(2) must be regarded as ambiguous as to whether or not it empowers the making of an indemnity in respect of costs and interest that the Commissioner might be ordered to pay as contemplated by s 588FGA(1). 24 By cl 15 of Sch 1 to the Legislative Instruments (Transitional Provisions and Consequential Amendments) Act 2003 (Cth), s 5C of the Corporations Act was replaced by a provision to the effect that on and after 1 January 2005 the Acts Interpretation Act 1901 (Cth) as in force on that day applies for the purposes of the Corporations Act. Section 15AB of the Acts Interpretation Act as in force on 1 January 2005 provides that consideration may be given to material not forming part of the Corporations Act to determine the meaning of the provision when that provision is ambiguous or obscure. Accordingly, regard may be had to the Explanatory Memorandum to the Insolvency (Tax Priorities) Legislation Amendment Bill 1993, which Bill led to the insertion of s 588FGA in the Corporations Act. 25 The Explanatory Memorandum relevantly provides: "Where the liability of a director is avoided through a preference payment by the company, the position of Commissioner will be made equivalent to a guaranteed creditor.

As mentioned above, one of the elements of a successful defence to a recovery action by the liquidator in relation to such dispositions requires the disposition to have been made for valuable consideration. The risk remains, however, flowing from the Commissioner's possible possession of financial details of the company's health (through the receipt of tax information etc), that the Commissioner might still be precluded from asserting a defence under the voidable transactions provisions, on the basis that he or she was aware of the insolvency of the person making the disposition. To ameliorate this result the proposed amendment provides that where a court order is made against the Commissioner (under section 588FF of the Corporations Law , (introduced by the Corporate Law Reform Bill 1992 ) requiring the return of the money paid by the company to discharge its liability under a remittance provision, the directors of the company at the time when the payment was made shall indemnify the Commission for any loss or damage suffered by the Commissioner as a result [ new section 588FGA - inserted by clause 27 ]. The amount recoverable by the Commissioner is a debt due to the Commonwealth and may be recovered in a court of competent jurisdiction by the Commissioner or Deputy Commissioner [ new subsection 588FGA(3)] . " 26 The notion expressed in the Explanatory Memorandum that "the position of Commissioner will be made equivalent to a guaranteed creditor" is made good by s 588FGA to the extent that the Commissioner is given the indemnity under s 588FGA(2). 27 Section 588FGA(5) is in effect a deeming provision. It provides that a person who pays an amount under sub-section (2) has the same rights "as if" the payment had been made under a guarantee "of the liability referred to in sub-section (1)", and "as if" the person paying under sub-section (2) and every other person who was a director of the company concerned "were jointly and severally liable as guarantors". The "liability referred to in sub-section (1)" is the liability of the company for tax (under the legislation mentioned) which the company purports to discharge by paying the Commissioner. Thus, s 588FGA(5) provides for a deemed guarantee by the directors of the debts of the company (in effect, the deemed principal debtor) to the Commissioner. 28 Under the general law, an implied contract arises as between the surety (or guarantor) and the principal debtor whereby the principal debtor undertakes to indemnity the surety in respect of those monies that the surety might pay towards the principal debt. In In re A Debtor [1937] Ch 156 Slesser LJ at 161 referred to the surety's right of reimbursement from the principal debtor as "the implied undertaking of the principal debtor to repay the money paid on her behalf to the creditor". In McColl's Wholesale Pty Ltd v State Bank of NSW [1984] 3 NSWLR 365 Powell J (at 376) referred to this as "the orthodox view". Powell J observed that, on the authorities: "[W]here, in proceedings to enforce the right of indemnity, interest has, or costs have, been allowed, the court has justified its actions upon the basis that the sum or sums allowed is or are in the nature of damages for the principal debtor's failure to honour his contract to indemnify the surety." 29 It is well-settled that a surety may recover, as damages for breach of contract (as between the surety and the principal debtor), its costs incurred in reasonably defending actions brought against it: McColl's Wholesale Pty Ltd v State Bank of NSW; Hornby v Cardwell (1881) 8 QBD 329, 336 - 337 (per Brett LJ with whom Cotton LJ agreed). Section 588FGA(2) cannot be explained as a deemed application of this rule as the Commissioner is not a deemed guarantor of the directors. But the rule does illustrate that the incurring of legal costs in defending a claim for which another is liable may, in certain circumstances, be regarded as damages incurred by the defending party. 30 Section 588FGA(2) provides that the directors of the company at the time stipulated are liable to indemnify the Commissioner "in respect of any loss or damage resulting from" an order of the kind referred to in s 588FGA(1). What possible loss or damage might the Commissioner sustain "resulting from" such an order? The answer to this question casts light on the ambit of s 588FGA(2). 31 By s 588FGA(1), an order of the kind that triggers the right to an indemnity under s 588FGA(2) must be an order made under s 588FF for "the payment of an amount". The question that follows is: what sub-sections of s 588FF empower the making of a payment of an amount? That question arises, as it is only an order for the payment of an amount that may give rise to possible loss or damage incurred by the Commissioner. 32 Section 588FF relevantly provides: "(1) Where, on the application of a company's liquidator, a court is satisfied that a transaction of the company is voidable because of section 588FE, the court may make one or more of the following orders: (a) an order directing a person to pay to the company an amount equal to some or all of the money that the company has paid under the transaction; (b) an order directing a person to transfer to the company property that the company has transferred under the transaction; (c) an order requiring a person to pay to the company an amount that, in the court's opinion, fairly represents some or all of the benefits that the person has received because of the transaction; (d) an order requiring a person to transfer to the company property that, in the court's opinion, fairly represents the application of either or both of the following: (i) money that the company has paid under the transaction; (ii) proceeds of property that the company has transferred under the transaction; (e) an order releasing or discharging, wholly or partly, a debt incurred, or a security or guarantee given, by the company under or in connection with the transaction; (f) if the transaction is an unfair loan and such a debt, security or guarantee has been assigned - an order directing a person to indemnify the company in respect of some or all of its liability to the assignee; (g) an order providing for the extent to which, and the terms on which, a debt that arose under, or was released or discharged to any extent by or under, the transaction may be proved in a winding up of the company; (h) an order declaring an agreement constituting, forming part of, or relating to, the transaction, or specified provisions of such an agreement, to have been void at and after the time when the agreement was made, or at and after a specified later time; (i) an order varying such an agreement as specified in the order and, if the Court thinks fit, declaring the agreement to have had effect, as so varied, at and after the time when the agreement was made, or at and after a specified later time; (j) an order declaring such an agreement, or specified provisions of such an agreement, to be unenforceable. (2) Nothing in subsection (1) limits the generality of anything else in it. … ."

33 The only sub-sections of s 588FF that provide for the "payment of an amount" are ss 588FF(1)(a) and (c); these are the only sub-sections of s 588FF capable of giving rise to an order under s 588FGA(2) against the Commissioner. If the word "benefits" under s 588FF(1)(c) is construed as meaning something other than money (such a construction being likely as s 588FF(1)(a) applies to money the company has paid under the voidable transaction), only s 588FF((1)(a) is capable of giving rise to a s 588FGA order (as, apart from money, the Commissioner would not receive any "benefits" because of the voidable transaction). 34 The question then arises: what loss or damage could possibly result from a payment by the Commissioner ordered under s 588FF(1)(a) (or even under s 588FF(1)(c)). In my opinion, the only possibly conceivable loss or damage that might so result is the legal costs that the Commissioner might be ordered to pay the plaintiff in consequence of reasonably but unsuccessfully defending a claim made against her under s 588FF, or interest on moneys that, by virtue of s 588FF, she is ordered to pay. 35 That answer, in my view, leads to the inference that the phrase "loss or damage" in s 588FGA is intended to apply to such costs and interest. Otherwise, it would have no work to do. 36 That inference is reinforced by the definition of "result" in s 9 (the Dictionary) of the Corporations Act. By s 9, the word "result", unless the contrary intention appears, includes, when used as a verb, "result indirectly". In my opinion, the costs the Commissioner was ordered to pay the liquidators resulted indirectly from the order made by Hammerschlag J requiring the Commissioner to pay the liquidators $409,074.48. Had the latter order not been made, his Honour probably would not have made the order requiring the Commissioner to pay the liquidators' costs. 37 In my opinion, an indemnity under s 588FGA(2) can only be made in respect of those costs that the Commissioner is ordered to pay which were reasonably incurred. In my view, costs that were incurred in consequence of unreasonable conduct on the part of the Commissioner in defending the claim would not be "loss or damage resulting from the order" within the meaning of s 588FGA(2). The unreasonable conduct would breach the chain of causation. 38 The court has the discretionary power to order a third party to pay the costs of the plaintiff: s 98 of the Civil Procedure Act 2005 (NSW) and UCPR 42.1; see also Edginton v Clark [1964] 1 QB 367; Thomas v Times Book Company Ltd [1966] 1 WLR 911. Section 588FGA, however, gives the Commissioner a statutory right to an indemnity that is not dependant on the exercise of a discretion. The qualification of reasonableness referred to in the preceding paragraph is a measure of protection to directors against whom an order under s 588FGA(2) may be made. 39 Mr Clarke, of counsel, appeared for Mrs Maine. He did not expressly contend that any part of the costs that the Commissioner was ordered to pay the liquidators should not form part of the indemnity because they were unreasonably incurred by her. He did, however, submit, in the context of whether a Sanderson or Bullock order should be made, that Mrs Maine should not be ordered to pay any part of the costs incurred in disputing the insolvency of Newsnet. It is convenient at this stage to deal with his submissions in this connection. 40 In the action brought by the liquidators, the Commissioner admitted that Newsnet was insolvent. When Mr and Mrs Maine were joined in that action by the Commissioner, they raised as a defence to the Commissioner's claim the argument that the Commissioner had no liability to the liquidators. They put the question of the insolvency of Newsnet in issue. This they were entitled to do. As Young J in Duncan v Commissioner of Taxation stated (at [23]): "The authorities recognise that directors [sued under s 588FGA(2)] should be able to contest the liquidator's claims against the Commissioner."

41 Mr and Mrs Maine were unsuccessful in disputing the solvency issue. Hammerschlag J found that Newsnet was insolvent at the relevant time. A significant part of the costs that the Commissioner was ordered to pay the liquidators resulted from the fact that the element of insolvency was a live issue at the trial and had to be proved. 42 In dealing with who was responsible for the costs incurred in connection with the insolvency issue, Hammerschlag J said: "[8] Whatever the status of the Commissioner's admissions, she did not consent to judgment, and both the plaintiffs and the Commissioner took upon themselves the burden of proving insolvency before me. [9] Had the Commissioner consented to judgment, or not claimed against Mr Maine and Mrs Maine in the same proceedings, there would have been no issue as to insolvency in the proceedings (or, given the Commissioner's admissions, any issues between the plaintiffs and the Commissioner). The insolvency issue was only in play because of the joinder of the directors." 43 In my opinion, however, the statement that the Commissioner took upon herself the burden of proving insolvency does not accurately reflect what occurred. 44 I repeat that, as between the liquidators and the Commissioner, the Commissioner admitted that Newsnet was insolvent. The Commissioner joined Mr and Mrs Maine and they (not the Commissioner) disputed Newsnet's insolvency. The Commissioner then, as Macfarlan JA observed during argument, acted as if she were interpleading in the case. In reality, the contest as to the solvency or otherwise of Newsnet was between the liquidators and Mr and Mrs Maine. The solvency issue was "in play" because Mr and Mrs Maine raised it. Had Mr and Mrs Maine not raised that issue, the costs incurred in proving that Newsnet was insolvent would not have been incurred. 45 At the trial, counsel then representing the Commissioner took the attitude that, despite the Commissioner's admission of insolvency, should the Court (on the evidence adduced by reason of Mr and Mrs Maine raising the issue of insolvency) determine that Newsnet was solvent, the Commissioner would seek judgment against the liquidators on the basis of that finding (that is, despite the admission she had made). Counsel said that, if necessary he would, at a later stage, seek to withdraw the admission. This forensic stance (which in my view was reasonable) must have contributed to the liquidators' decision to lead evidence to prove that Newsnet was insolvent. The approach the Commissioner and the liquidators adopted was an inevitable consequence of Mr and Mrs Maine's decision to dispute the insolvency issue. 46 Mr Clarke did not submit that the fact that Mrs Maine succeeded in ten of the fourteen claims bought against her by the Commissioner had any affect on her liability to indemnify the Commissioner. His submissions in this respect went to whether a Sanderson or Bullock order should be granted. 47 In my opinion, nothing in the Commissioner's conduct of her defence to the liquidators' claim establishes that she acted unreasonably. 48 Mr Clarke, in his oral argument and late in the day, contended that some of the liquidators' costs were incurred unreasonably (by the liquidators, themselves) and Mrs Maine should not be required to indemnify the Commissioner against them. This argument did not appear in his written submissions. In my view, however, this argument is rebutted by the fact that Hammerschlag J ordered that the Commissioner pay the liquidators' party and party costs without qualification, and Mrs Maine did not challenge that order.

49 Accordingly, I conclude that the costs the Commissioner was ordered to pay the liquidators constitute loss or damage she incurred resulting from the order made by Hammerschlag J requiring her to pay the liquidators the sum of $409,074.48. In my opinion, by s 558FGA(2), the Commissioner is entitled to orders against Mr and Mrs Maine requiring each of them to indemnify her in respect of those costs. 50 Mr Aldridge QC, who together with Mr Rodionoff appeared for the Commissioner, accepted that should this Court order an indemnity as sought, the claims for a Sanderson or Bullock order would fall away. Further, I would note that no claim is made in the notice of appeal for an indemnity in respect of interest. 51 The notice of appeal seeks that various orders made by Hammerschlag J should be set aside but, in my view, once the indemnity as sought is granted, there is no reason to disturb any other order. 52 Mr Braham who appeared for the liquidators did not resist an order for an indemnity by Mr and Mrs Maine. The interest of the liquidators was only in contending that a Sanderson order should not be made, and Mr Braham made submissions against the grant of such an order. The liquidators wished to retain the order for costs made against the Commissioner in their favour. They have succeeded in that. The liquidators were respondents in the appeal at the instance of the Commissioner and the Commissioner should pay their costs of the appeal. 53 I propose the following orders:

(a) Mr and Mrs Maine indemnify the Commissioner against the costs she is obliged to pay the liquidators pursuant to order 2 made on 16 November 2007.

(b) Mr and Mrs Maine pay the costs of the appeal of the Commissioner.

(d) Mr and Mrs Maine have a certificate under the Suitors' Fund Act 1951 if otherwise qualified. 54 MACFARLAN JA: I agree with Ipp JA.

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