McEvoy v Commissioner of Taxation, in the matter of Careers Australia Group Limited

O'BRYAN J: Introduction 1 The first plaintiffs (liquidators) are the liquidators of the second to fifth plaintiffs, being Careers Australia Group Limited and its subsidiaries. The liquidators seek orders against the defendant, the Commissioner of Taxation (Commissioner), under s 588FF(1)(a) of the Corporations Act 2001 (Cth) (Corporations Act) to recover sums paid to the Commissioner in a series of transactions which, the liquidators allege, were insolvent transactions within the meaning of s 588FC of the Act and voidable transactions under s 588FE(2) of the Act. 2 The proceeding was commenced by originating process filed on 8 April 2020, accompanied by a statement of claim. It has not progressed far. On 7 May 2020, orders were made for the completion of pleadings by 29 June 2020. In August 2020, orders were made for the filing of an amended defence by the Commissioner. In September 2020, order were made referring the proceeding to mediation to take place by November 2020. The parties sought and were granted further time for mediation. Despite that, the mediation was unsuccessful. 3 On 22 February 2021, the Commissioner filed and served an interlocutory application seeking relief against Patrick McKendry pursuant to s 588FGA of the Corporations Act. Specifically, the Commissioner seeks: (a) a declaration that the Commissioner is entitled to be indemnified by Mr McKendry pursuant to s 588FGA(2) of the Corporations Act in respect of any loss or damage resulting from any order made by the Court in this proceeding against the Commissioner under s 588FF of the Corporations Act, to the extent that such order relates to payments made by the second plaintiff, Careers Australia Group Limited; and (b) pursuant to ss 588FGA(2) and (4) of the Corporations Act, an order that Mr McKendry pay the Commissioner the amount of $4,339,767, or any lesser sum, plus interests and costs, being the amount of the Commissioner's loss or damage resulting from any order made by the Court in this proceeding against the Commissioner under s 588FF of the Corporations Act. 4 Mr McKendry has accepted service of the interlocutory application and takes no objection to its form or the time at which it was served. 5 The proceeding was listed for further case management today. Prior to the hearing, the parties proposed that there be a further adjournment of the proceeding. It is generally unsatisfactory for a proceeding to be commenced in the Court and not progressed, and good reason must be shown for any delay in progressing the matter. At the case management hearing, the Court sought submissions from the parties on two matters: (a) the appropriate procedural orders for the conduct of the interlocutory application; and (b) the filing of evidence by the plaintiffs. Interlocutory application 6 The procedural character of an application for relief under s 588FGA, and particularly the rights of a respondent to such an application in respect of the claims in the principal proceeding, has been the subject of consideration in many cases, including particularly Crosbie v Commissioner of Taxation (2003) 130 FCR 275, Condon v Commissioner of Taxation [2004] NSWSC 481; 207 ALR 676, Hall v Commissioner of Taxation [2004] NSWSC 985; 51 ACSR 173, Re Spec FS NSW Pty Ltd (in liq) (2013) 225 FCR 79, Commissioner of Taxation v Moodie [2014] NSWCA 59; 308 ALR 571 and Fletcher v Anderson [2014] NSWCA 450; 103 ACSR 236. Those authorities establish that a respondent to an application for relief under s 588FGA is in an equivalent position to a respondent to a third party claim, and generally is to be afforded the right to participate in the principal proceeding and to contest the plaintiff's claim against the defendant. 7 Despite that, a practice has emerged whereby applications for relief under s 588FGA(4) are commenced by interlocutory application rather than by notice under the applicable rules of court governing third party claims. The practice was approved by Barrett J (as his Honour then was) in Condon (at [27]). His Honour concluded that Part 6 of the then NSW Supreme Court Rules, which governed cross-claims, was not applicable to an application for relief under s 588FGA(4) because, in Part 6, cross-claims were confined to claims for relief that might be granted in a separate proceeding (as per s 78 of the Supreme Court Act 1970 (NSW), now s 22 of the Civil Procedure Act 2005 (NSW)) (at [15]-[17]). His Honour reasoned that relief sought under s 588FGA(4) could only be sought in the same proceeding as the claim for relief under s 588FF and could not be sought in a separate proceeding (at [18]-[20]). 8 The procedural limitation that was of concern in Condon does not arise under the Federal Court Rules 2011 (Cth) (Rules). Cross-claims are governed by Part 15 of those Rules. The expression "cross-claim" is defined in the Dictionary to the Rules as a counter-claim, cross-action, set-off and third party claim. Those expressions are not further defined and take their ordinary meanings. A claim brought under s 588FGA is undoubtedly a third party claim. 9 It would therefore appear to be procedurally appropriate, if not necessary, for any claim for relief under s 588FGA in the Federal Court to be commenced by way of notice of cross-claim in accordance with r 15.02. Commencing a claim in that manner would provide all parties to the proceeding with procedural certainty. Amongst other things, r 15.10 provides that: (1) To the extent practicable and not inconsistent with this Part: (a) the parties must conduct a cross-claim in the same way as the principal proceeding; and (b) these Rules apply to the cross-claim in the same way as they apply to the principal proceeding; and (c) the trial or a hearing, or any other step, in relation to the cross-claim is to be carried out at the same time as the trial or hearing, or any other step, in relation to the originating application. (2) For the purpose of giving effect to this rule: (a) a cross-claimant is to be treated as an applicant; and (b) a cross-respondent is to be treated as a respondent. 10 In the present case, Mr McKendry has appeared in response to the Commissioner's interlocutory application and has taken no objection to the procedural form of the application. In those circumstances, and without the benefit of full argument on the procedural matters referred to above, the Court should accept the interlocutory application as properly constituting the third party claim against Mr McKendry. To avoid any procedural doubt going forward, however, I will make an order that rr 15.06, 15.09, 15.10, 15.12 and 15.13 of the Rules shall apply as if the interlocutory application had been commenced by way of cross-claim under Division 15.1 of the Rules. That order was not resisted by any of the parties. 11 I note that the Commissioner filed its interlocutory application outside of the time for filing a notice of cross-claim stipulated by r 15.04. Mr McKendry makes no complaint about the time at which the application has been filed. Accordingly, it is unnecessary to address any question of leave, including any question concerning the interaction between r 15.04 and a claim for relief under s 588FGA(4). 12 Consistently with the requirements of r 15.06, it is appropriate for the Commissioner's claim for relief under s 588FGA to be pleaded in a statement of claim. Such an order was not resisted by the Commissioner. 13 Mr McKendry resisted an order that he file a defence in response to the Commissioner's statement of claim at this time. He noted that: (a) at this time, he has few documents relating to the affairs of the second plaintiff and relevant to the proceeding, which will make pleading difficult; (b) during May 2021, he will be the subject of a public examination by the liquidators in relation to the examinable affairs of the second plaintiff; and (c) given the nature of the allegations arising in the proceeding with respect to insolvent transactions, there is some prospect that he may be exposed to the imposition of a pecuniary penalty. 14 The liquidators submitted that providing Mr McKendry with documents relating to the affairs of the second plaintiff prior to his public examination may interfere with the conduct of the examination. 15 In light of those submissions, I consider that it is appropriate to revisit the issue of a defence at the next case management hearing, which will be after the completion of the public examination. Evidence in the proceeding 16 In the ordinary course, the Court would make orders requiring the parties to take steps to prepare the proceeding for trial, including orders for the filing of evidence. However, the liquidators resisted the making of such orders for the reason that the liquidators will be conducting public examinations in relation to the examinable affairs of the second plaintiff, which examinations are currently listed to commence in early May 2021 and continue until early June 2021. The liquidators submitted that the public examinations will limit the resources available to prepare evidence for this proceeding. They also submitted that the filing of evidence in the proceeding prior to the commencement of the public examinations may interfere with the conduct of the examination, and there is a possibility that matters revealed in the course of the public examinations will affect the evidence to be filed in this proceeding. 17 The Commissioner and Mr McKendry consented to a delay in the making of orders for filing evidence until the completion of the public examinations. 18 In light of those submissions, I consider that it is appropriate to defer the making of orders for the filing of evidence until a further case management hearing at the conclusion of the public examinations. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Bryan.