Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Commissioner of Taxation

Federal Court of Australia|2020-07-02|Before: Mr P, Middleton J

The name of the Respondent be amended by removing the word 'Deputy'.
The Respondent pay the third Applicant the claim sum of $304,722.15.
The Respondent pay interest on the claim sum from 24 January 2018 until the date of this judgment determined by reference to the Court's Interest on Judgments Practice Note (GPN-INT).
The Respondent pay the Applicants' costs of the proceeding until 11:00am on 20 June 2019 on a party-party basis.
The Respondent pay the Applicants' costs of the proceeding after 11:00am on 20 June 2019 on an indemnity basis. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

INTRODUCTION 1 On 15 May 2020, I handed down my reasons for judgment in Yeo, in the matter of Ready Kit Cabinets Pty Ltd (in liq) v Deputy Commissioner of Taxation [2020] FCA 632. 2 The parties are in agreement as to the form of order reflecting the reasons for judgment, save for two matters. First, the basis on which the Applicants are entitled to costs. Second, the period over which the Applicants are entitled to interest. 3 The form of order the Applicants say should be made is: 1. The name of the Respondent be amended by removing the word "Deputy". 2. The Respondent pay the third Applicant the claim sum of $304,722.15. 3. The Respondent pay interest on the claim sum from 24 January 2018 until the date of this judgment determined by reference to the Court's Interest on Judgments Practice Note (GPN-INT). 4. The Respondent pay the Applicants' costs of the proceeding until 11:00am on 20 June 2019 on a party-party basis. 5. The Respondent pay the Applicants' costs of the proceeding after 11:00am on 20 June 2019 on an indemnity basis. 4 The form of order the Respondent says should be made is: 1. The name of the Respondent be amended by removing the word "Deputy". 2. The Respondent pay the Applicants the claim sum of $304,772.15. 3. The Respondent pay interest on the claim sum from 24 January 2018 until the date of this judgment determined by reference to the Court's Interest on Judgments Practice Note (GPN-INT), save for the period between 23 November 2019 and 4 February 2020 when no interest is payable. 4. The Respondent pay the Applicants' costs of the proceeding on a party-party basis. 5 At the outset, I observe that the Applicants issued two offers of compromise in the proceedings: (1) the first being an inclusive of costs offer of $275,000 dated 18 June 2019; and (2) the second being an inclusive of costs offer of $200,000 dated 14 February 2020.

COSTS 6 The Respondent accepts that the Applicants are entitled to their costs of the proceedings on a party-party basis. However, the Respondent's position is that an order for indemnity costs should not be made from 20 June 2019 (or any other date). 7 The principles relevant to the exercise of the costs discretion in circumstances where an offer is made in accordance with the Federal Court Rules 2011 (Cth) (the 'Rules') and not accepted were explained by Katzmann J in Specsavers Pty Ltd v The Optical Superstore Pty Ltd (No 4) [2012] FCA 652 ('Specsavers') at [10] as follows (citations omitted): In the event that the conditions triggering the operation of the rule are made out, despite the terminology the rule creates a rebuttable presumption in favour of, rather than an entitlement to, indemnity costs. The reason is that the Court may make an order inconsistent with the Rules (see rule 1.35), which is equivalent to the "otherwise orders" provision that appeared in O 23 r 11(6) of the former Rules. The onus is on the party resisting the order to show why it should not be made. 8 Although Katzmann J's comments were made in the context of the operation of r 25.14(1) of the Rules, in my view they accurately summarise the position under r 25.14(3). 9 It was submitted by the Respondent that certain matters provide proper reasons for departing from the rebuttable presumption that is created by r 25.14(3) of the Rules in the current proceedings. 10 It was argued by the Respondent that this was the first case to give consideration to the proper interpretation of s 588FE(2B) of the Corporations Act 2001 (Cth) (the 'Act'). It was then contended that while the Respondent's view as to how that provision properly operates was rejected by the Court, the Respondent's position on the statutory construction question was not unreasonable or untenable, and there were strong policy reasons in support of the Respondent's view. 11 Then it was argued that the outcome to the question of whether the payments sought to be recovered by the Applicants were made "under the authority" of the deed administrators was a binary one. The Applicants were either entitled to the entirety of the amount claimed, or they were entitled to nothing at all. As a consequence, the issues as raised by the proceedings did not lend themselves to being settled by the Respondent accepting an offer that provided for only a relatively small discount from the total claim. 12 Then the Respondent submitted that of relevance was the background to the execution of the deed of company arrangement ('DOCA') pursuant to which the control of Ready Kit Cabinets Pty Ltd (in liquidation) (the 'Company') was passed back to Marion Posadowski, the sole director of the Company (the 'Director'). At the second meeting of creditors of the Company held on 22 November 2013: (1) Andrew Reginald Yeo, as chairperson, was informed by a representative of the Respondent that the Respondent had concerns over the business being able to continue to operate and requested that automatic default clauses be inserted into any proposed DOCA requiring tax payments to be made within seven days of the due date for each payment; (2) in response, Mr Yeo noted that the DOCA could not automatically default but that he could make an amendment to the DOCA to deal with any such breach; (3) Mr Yeo then stood the meeting down to contact the solicitors for the Director to confirm the Director's acquiescence to additional clauses being inserted into the DOCA; (4) the meeting was reconvened and it noted that the Director had accepted additional clauses being inserted into the DOCA; (5) the representative of the Respondent then enquired as to the capacity of the business to move forward given it had failed to that point; (6) the Respondent, the major unsecured creditor in the administration, opposed the DOCA with the additional clauses; and (7) the resolution that the Company should execute a DOCA was only passed by reason of Mr Yeo exercising his casting vote in favour of the DOCA. 13 It was then submitted that had the Company been wound up in accordance with the Respondent's vote at the second creditor's meeting, the payments the subject of the Applicants' claim would have never been made and this litigation would never have arisen. 14 I do not regard these matters (individually or in combination) as providing a basis for not ordering indemnity costs as sought by the Applicants. 15 The Respondent was provided on 28 February 2018 with a legal advice from the Applicants, and the opinion expressed therein has been effectively found by the Court to be correct. The Respondent had ample opportunity to consider this advice, and resolve the issues in dispute. There were no factual or credit issues to be resolved at trial. The offers of compromise provided a discount on the amount claimed. The nature of the dispute was susceptible to resolution by the payment of a lesser amount than that claimed. If the Respondent wished to seek to have the issue of the construction of s 588FE(2B) of the Act determined (for reasons extraneous to the payment of the actual claim in this proceeding) there would have been procedures which could have been employed in the course of the litigation to have that occur. 16 As to the background to the execution of the DOCA, I do not see this as of any relevance to the issues in the proceedings or the question of costs. There has been no suggestion that Mr Yeo in exercising his casting vote in favour of the DOCA was acting improperly or unlawfully. The DOCA was duly entered into, and it was during its operation the relevant payments the subject of the dispute occurred. As to the circumstance that the Company would have been wound up, and the payments would never have been made, this has no relevance to the dispute or the question of costs. The Company was not wound up, the DOCA was entered into, and the law applicable to that circumstance was applied by the Court in favour of the Applicants. The Respondent may have opposed the terms of the DOCA, but in the end this opposition was to no avail. 17 Therefore, I do not accept the Respondent's argument on costs, and will order indemnity costs in favour of the Applicants in the terms sought.

INTEREST 18 It is not in dispute that the interest rate to be applied in the current circumstances should be fixed in accordance with the Interest on Judgments Practice Note (GPN-INT). 19 However, the Respondent relies on the affidavit of Mr Joe Giacco dated 18 June 2020 in respect of its position that the Applicants should not be awarded interest for the period between 23 October 2019 and 2 February 2020. 20 I do not accept the Respondent's argument on interest. 21 Interest is awarded to compensate a party for being kept out of the funds it was always entitled to, principally being the period from the date of the accrual of the cause of action to the date of judgment: Haines v Bendall (1991) 172 CLR 60 at 66 (per Mason CJ, Dawson, Toohey and Gaudron JJ). 22 On 24 January 2018, Mr Yeo issued a demand to the Respondent in respect of the voidable transaction claim. That demand dealt with the claim and the basis for it. The Respondent did not pay the amount demanded or any part thereof. 23 The Respondent seeks that no interest be payable for the period between 23 November 2019 and 4 February 2020 on the basis that the Applicants did not comply with the deadline for filing affidavits set out in the orders of the Court of 16 August 2019. That the affidavit material was late, and that the deadline ought to have been complied with by the Applicants, is not disputed. 24 However, as to the payment of interest, I consider this late filing of affidavits to be of no consequence. The important point is that the delay in filing the relevant affidavit material did not delay the proceeding as the pre-existing trial date of 31 March 2020 was maintained. 25 The Applicants were deprived of the funds to which they were entitled, and no relevant delay can be attributed to them.

DISPOSITION 26 I will make the orders sought by the Applicants. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.

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