Smith v Boné, in the matter of ACN 002 864 002 Pty Ltd

IN THE MATTER OF ACN 002 864 002 PTY LTD (IN LIQ) FORMERLY KNOWN AS PETROLINK PTY LTD BETWEEN: MICHAEL JOHN MORRIS SMITH IN HIS CAPACITY AS LIQUIDATOR OF ACN 002 864 002 PTY LTD (IN LIQUIDATION) FORMERLY KNOWN AS PETROLINK PTY LTD

ACN 002 864 002 PTY LTD (IN LIQUIDATION) FORMERLY KNOWN AS PETROLINK PTY LTD ACN 002 864 002

JUDGE: GLEESON J DATE: 24 APRIL 2015 PLACE: SYDNEY

REASONS FOR JUDGMENT 1 The parties have submitted competing versions of the final orders to be made following the delivery of my judgment in this matter on 7 April 2015: Smith in his capacity as liquidator of ACN 002 864 002 Pty Ltd (in liquidation) formerly known as Petrolink Pty Ltd v Boné [2015] FCA 319. These short reasons should be read in conjunction with that judgment. The terms as defined in that judgment are adopted in these reasons. 2 As well as orders for the payment of money, the plaintiffs seek various declarations set out below. The defendants argue that the declaratory relief sought is unnecessary and, in relation to Mr Boné, punitive. 3 There are also arguments about interest on the amount recoverable under s 588M of the Corporations Act 2001 (Cth) ("Corporations Act") and costs, and the defendants seek a stay of the orders made pending lodgement of a notice of appeal.

Declaratory relief 4 The plaintiffs seek the following declarations: 1. A declaration that the plaintiff, ACN 002 864 002 Pty Ltd (in liquidation) formerly known as Petrolink Pty Ltd ("Company") was insolvent at all times from 12 May 2010. 2. A declaration that the first defendant contravened section 588G(2) of the Corporations Act 2001 (Cth) by failing to prevent the Company from incurring debts in the sum of $726,536.86 in the period from 12 May 2010. 3. A declaration that pursuant to section 588M(2) of the Corporations Act that the first plaintiff is entitled to recover from the first defendant, as a debt due to the Company, the loss or damage suffered by the creditors whose debts are referred to in Order 2, less the amount of $56,954.00 to be set off pursuant to section 553C of the Corporations Act, together with interest in the amount of $82,624.69. 4. A declaration that the payment of $95,065.41 from the second defendant to the second plaintiff is an unfair preference within the meaning of section 588FA of the Corporations Act and is void pursuant to sections 588FC and 588FE(4) of the Corporations Act. 5 Section 1317E of the Corporations Act provides that the Court may make a declaration of contravention of provisions including s 588G(2). However, by s 1317J(1) and (4), only the Australian Securities and Investments Commission may apply for a declaration of contravention of this kind. In contrast, by s 1317J(2), the relevant corporation has standing to apply for a compensation order. Thus, the Corporations Act specifically denies the plaintiffs the right to seek relevant declaratory relief under that Act. 6 The Court has power to make "binding declarations of right" pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act"). The remedy of a declaration of right is "intended to state the rights of the parties with respect to a particular matter with precision, and in a binding way. The remedy of a declaration is not an appropriate way of recording in a summary form, conclusions reached by the Court in reasons for judgment. This is even more strongly the case when the conclusion is not one from which any right or liability necessarily flows": Warramunda Village Inc v Pryde [2001] FCA 61; (2001) 105 FCR 437 at [8]. 7 In Edenden v Bignell [2007] NSWSC 1122 ("Edenden"), Barrett J considered a claim for declarations to the effect that the directors of the relevant company failed to prevent the incurring by the company of certain debts and thereby contravened s 588G(2) of the Corporations Act. He declined to make the declarations sought, saying (at [45]): A finding that s 588G(2) has been contravened represents part only of the totality of the findings that must be made if the statutory cause of action is to be successfully pursued by a creditor. A free-standing and isolated declaration by the court as to the existence of s 588G(2) contravention leads nowhere and is of no utility. 8 Barrett J referred to the judgment of Brereton J in Commonwealth of Australia v BIS Cleanaway Limited [2007] NSWSC 1075, in which his Honour identified established categories of case in which the Court will generally decline, as a matter of discretion, to exercise its undoubted power to make a declaration. At [28], Brereton J referred to the category: … where no good purpose would be served by granting declaratory relief [Buck v Attorney-General [1965] Ch 745; Blackburn v Attorney-General [1971] 2 All ER 1380; Gardner v Dairy Industry Authority (declaration if otherwise appropriate would have been declined where it had no foreseeable consequences, not leading to damages or other consequential relief but at best somehow prompting possible administrative or legislative action that that might improve the position of the appellants and others in their position); Rivers v Bondi Junction-Waverley RSL Sub-Branch Ltd [1986] 5 NSWLR 362 (declaration that election of directors involved irregularities refused where they did not affect the result)]. In this respect, it is generally inappropriate to grant declaratory relief if it will be inconclusive, in the sense that the proposed declaration would leave unresolved issues, with the parties still in dispute as to the consequences so that further litigation would be required to resolve the controversy [; Integrated Lighting& Ceilings Pty Ltd v Phillips Electrical Pty Ltd (1969) 90 WN (Pt 1) (NSW) 693, 702]. 9 The second proposed declaration falls squarely within the reasoning of Barrett J in Edenden. I decline to make that declaration for the reasons given by his Honour. I decline to make the other proposed declarations because there is no evident good purpose for making them. In particular, concerning the first proposed declaration, it was not explained how making that declaration could advance the plaintiffs' position in relation to other void transaction proceedings presently on foot in the winding up and I am not satisfied that it could do so: cf Evidence Act 1995 (Cth), ss 91 to 93.

Pre-judgment interest 10 Section 51A of the Federal Court Act provides relevantly: (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. (2) Subsection (1) does not: (a) authorize the giving of interest upon interest or of a sum in lieu of such interest; (b) apply in relation to any debt upon which interest is payable as of right whether by virtue of an agreement or otherwise;… 11 The parties are agreed as to the pre-judgment interest payable by Valvelink. However, Mr Boné's liability to pay pre-judgment interest is disputed. 12 The plaintiffs seek interest under s 51A(1) on the amount recoverable from Mr Boné for the period from the commencement of the proceedings until the date of the Court's final orders. 13 Section 51A is "designed to compensate a successful applicant for the fact that he or she has been kept out of his or her due monetary entitlements …while his or her claims are made, litigated and determined": Kazar v Kargarian [2011] FCAFC 136; (2011) 197 FCR 113 at [97]. In Kazar, Foster J expressed the view that "good cause" why pre-judgment interest is not payable will only be shown rarely and in exceptional circumstances. In that case, the Full Court rejected an appeal from an award of interest under s 51A on a claim made under s 588M(3). 14 In Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 at [115] to [116], [119] and [120], the Supreme Court of South Australia Full Court held that interest was payable on a liability under s 588M running, as a matter of convenience, from the date of appointment of the liquidator. 15 In Bans Pty Ltd v Bing (1995) 36 NSWLR 435 ("Bans"), a company accrued a debt for unpaid rent and interest under a lease whilst insolvent. Bryson J allowed recovery against the directors of a company who had engaged in insolvent trading of the unpaid rent and interest until the winding up, but did not allow interest on the accrued interest because allowance of interest upon interest was expressly forbidden by s 94(2)(a) of the Supreme Court Act 1970 (NSW). 16 The defendants contend that no interest should be awarded in respect of the plaintiffs' claim under s 588M for the following reasons: (1) s 588M does not provide that interest can be awarded for a contravention of s 588G; (2) an award of interest in this case would be punitive; (3) the liquidator delayed in commencing the proceeding; (4) the plaintiffs seek interest upon interest insofar as a substantial amount of the debt owed to the Commissioner of Taxation for which Mr Boné has been found liable comprises an interest component of approximately $111,443.94. 17 I do not accept that there is anything in the language of s 588M that affects the operation of s 51A in the manner that it was applied in Kazar and Powell v Fryer. Accordingly, the fact that s 588M does not provide for the award of interest in this case has no significance. 18 The contention that interest in this case would be punitive was not explained and, with the exception of the question of interest on interest, I reject it as baseless. 19 I do not accept that there was any relevant delay by the liquidator in commencing the proceeding. Under s 588M(4), the liquidator has six years from the date of the beginning of the winding up to bring proceedings under s 588M. In this case, the winding up commenced on 7 December 2011 and the proceedings were commenced on 21 June 2013. There was no evidence identified to me that the liquidator could or should have commenced the proceeding earlier. 20 As to the question of interest upon interest, the plaintiffs note that the amount recoverable under s 588M is an amount of compensation due to the company and not to the Commissioner of Taxation: Edenden at [30]. They assert that s 51A is directed towards preventing a successful plaintiff who has recovered a judgment sum which itself includes an interest component from recovering interest on a compound basis. In this case, the Commissioner of Taxation, whose claim in the winding up of Petrolink includes an amount payable to it by way of interest on unpaid tax, is not the direct beneficiary of the judgment sum and will not, by an award of interest in favour of the company, be given "interest on interest". 21 In my view, I should adopt the approach taken by Bryson J in Bans so that interest under s 51A(1) is not payable on so much of the amount recoverable under s 588M(2) that is calculated by reference to interest on unpaid tax. I do not accept that s 51A(2)(a) is directed only to precluding a particular plaintiff from recovering compound interest. Rather, the provision directs attention to the nature of the monetary judgment and whether an award of interest on that sum would amount to the giving of interest upon interest. Although the judgment under s 588M(2) is not a judgment for the tax debt, but rather a judgment for an amount calculated by reference to the amount of the tax debt, the judgment sum includes an amount which represents interest incurred by Petrolink for non-payment of its tax obligations. 22 The plaintiffs disputed that the amount of $111,443.94 represented the amount of interest included in the amount recoverable under s 588M(2). The plaintiffs noted that in April 2011, the company received a remission of general interest charge ("GIC") in the amount of $66,598.57 and submitted that the relevant amount is $111,443.94 less $66,598.57 equals $44,845.37. 23 A letter from the ATO to Petrolink dated 6 April 2011 refers to a remission of $66,003.90 in relation to GIC accrued to 25 March 2011. The letter describes the remission as a 50% remission of GIC accrued to 25 March 2011. Petrolink's ATO portal itemised account shows a credit of $66,598.57 on 6 April 2011. On the basis of these documents, in my view, the amount of interest included in the amount recoverable under s 588M(2) is $111,443.94 less 50% of the amount of GIC accrued up to 25 March 2011. Using the defendants' figures, that is an amount of $111,443.94 less $30,517.01 equals $80,926.93. Accordingly the sum on which interest under s 51A will be allowed is $669,582.86 less $80,926.93 equals $588,655.93.

Costs 24 The plaintiffs seek an order that the defendants (jointly and severally) pay the plaintiffs costs. 25 The defendants contend that appropriate orders are that Mr Boné pay 79% of the plaintiffs costs in respect of the claim for relief under s 588M, and that Valvelink pay the plaintiffs' costs of the claim for relief under s 588FF of the Corporations Act. 26 The defendants were jointly represented and did not seek to make separate submissions on the particular claims against each of them. The question of when Petrolink was insolvent was the main issue in the proceeding, and was relevant to each claim. Accordingly, it is not obvious that the costs of the proceeding can be readily divided into the costs of the respective claims. On the other hand, the claim against Valvelink was discrete and, in particular, only required identification of whether Petrolink was insolvent at the time of the relevant "transaction". 27 Counsel for the plaintiffs submitted orally that a possible approach might be to apportion the costs payable by the defendants. In my view, it is appropriate to make orders apportioning the costs payable by the defendants to reflect the fact that the case principally concerned the claims made against Mr Boné. I consider that Valvelink should be ordered to pay 20% of the plaintiffs' costs. 28 The ordinary rule, that costs follow the event, does not require the achievement of success in every aspect of the case: cf Cretazzo v Lombardi (1975) 13 SASR 4 at 12. "A court should not be too ready to disallow costs simply because a party has failed upon an issue, unless it be quite a separate and distinct issue from the issues in respect of which it succeeded or unless there be some element of unreasonableness or inappropriate conduct in relation to that issue": Dr Martens Australia Pty Ltd v Higgins Holdings Pty Ltd (No 2) [2000] FCA 602 at [55]. 29 The figure of 79% is said to correspond with the extent to which the plaintiffs were successful in their claim for relief against Mr Boné. I do not accept that this figure is a fair reflection of the extent that the plaintiffs are entitled to be compensated for their costs of the proceeding. In my view, the plaintiffs were substantially successful in their claims against Mr Boné and that degree of success warrants an order for payment of the whole of the plaintiffs' costs of the proceeding, assessed on the usual party party basis. Taking into account that Valvelink will be ordered to pay 20% of those costs, it follows that Mr Boné should be ordered to pay 80% of the plaintiffs' costs.

Stay of orders 30 The defendants' application for a stay was not elaborated by an identification of the statutory basis for the application, and was not supported by evidence. Rule 36.08(2) of the Federal Court Rules 2011 (Cth) permits an appellant or interested person to apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined. In the absence of an appeal and any particular identified need, I will not stay the orders. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson.