Supreme Court New South Wales

• Medium Neutral Citation: In the matter of Rivercorp Pty Ltd [2012] NSWSC 576
• Hearing dates: Monday 7 May 2012
• Decision date: 07 May 2012
• Jurisdiction: Equity Division - Corporations List
• Before: Brereton J

Decision

Defendant to pay the plaintiffs' costs

• Catchwords: COSTS - Winding up - UCPR r 42.15 - offer of compromise - application of usual rule where matter settles without hearing - claim by liquidator against Commissioner of Taxation - Commissioner joins company's sole director as third party - no contest by Commissioner - director puts liquidator to proof of insolvency - principles on which costs should be awarded where no contest by Commissioner and director declined to admit insolvency ultimately proved
• Legislation Cited: (Cth) Corporations Act 2001, s 588FF, s 588FGA; Uniform Civil Procedure Rules 2005 r 20.26, r 42.15
• Cases Cited: Hiller v Sheather (1995) 36 NSWLR 414; Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Qin [1997] HCA 6; Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87
• Category: Costs
• Parties: Robert Boyce Moodie (liq'r first plaintiff); Rivercorp Pty Ltd (in liq) (second plaintiff); Commissioner of Taxation (defendant)
• Representation: Counsel: DL Cook (Plaintiff); PG Cutler (Defendant); Solicitors: Polczynski Lawyers (Plaintiff); Australian Taxation Office (defendant)
• File Number(s): 2010/ 384069

Judgment (ex tempore)

1 HIS HONOUR: On 2 April 2012 the Court gave judgment by consent in favour of the plaintiffs against the first defendant, the Commissioner of Taxation, for the sum of $1,298,356, on the plaintiffs' application for relief pursuant to (Cth) Corporations Act 2001, s 588FF, and adjourned the hearing of the question of costs, which question now falls for decision.

2 There is no doubt, and it is not in issue, that the plaintiffs substantially succeeded in the proceedings. The issues are whether the Commissioner's liability for the plaintiffs' costs should extend beyond 14 December 2011, on which date the Commissioner indicated that his defence to the plaintiffs' claim would be withdrawn, and whether the plaintiffs' costs should be payable on an indemnity basis after 21 September 2011, on which date the plaintiffs made an offer of compromise in accordance with r 20.26 of the (NSW) Uniform Civil Procedure Rules 2005 (UCPR) for a sum of $1,139,039, exclusive of costs.

3 It will be evident from the facts already recorded that the plaintiffs bettered that offer in the settlement that was ultimately encapsulated in the consent judgment, even allowing for the interest that accrued after the date of offer. In those circumstances, prima facie the plaintiffs are entitled to a special costs order from the day after the offer was made [see Hiller v Sheather (1995) 36 NSWLR 414].

4 It was not suggested that the offer did not amount to a genuine compromise or that the objective reasonableness of defending the claim if established amounted to an exceptional circumstance within r 42.15.

5 The Commissioner advances three reasons why a special costs order should not be made.

6 The first is that it is said that where proceedings are settled without a determination on the merits, the usual position is that there will be no order as to costs, leaving each party to bear their own costs. That proposition derives from the judgment of McHugh J in Re Minister for Immigration and Ethnic Affairs; Ex parte Lai Quin [1997] HCA 6. However, it needs to be observed, first, that in his Honour's judgment in that case it was recognised that there were exceptions. Essentially, the Lai Quin approach to questions of costs recognises that it is usually undesirable and counter-productive for a Court to have to investigate extensively the facts of a case, to decide questions of costs, when the parties had resolved the issues other than the question of costs. To do so would involve the Court traversing ground which the parties had otherwise removed from the area of controversy by their settlement. One exception which was recognised in that case was where it was clear that one party had effectively capitulated, or where it was plain without further investigation that one party had achieved substantial success. This is such a case, and not the usual case described in Lai Quin.

7 The second reason advanced for not applying the prima facie position established under r 42.15 is that it is said that r 42.15 was intended to apply to circumstances of determination after a contested hearing rather than to a settlement. As to this, first, there is nothing in the rule itself which limits its operation in that way. Secondly, to limit the rule in such a way would mean that a party could avoid its consequences by not accepting a reasonable offer of compromise until, for example, the day before trial, but then settling the case on terms less favourable to it and more favourable to the offeror than prevailed at the time when the offer of compromise was made. That illustrates that such a construction of the rule would run entirely counter to its purpose of promoting early settlement. I reject the second submission.

8 The third submission is essentially that the Commissioner is bound by his own policy as to when he settles matters such as these. Reference was made to Practice Statement Law Administration 2011/16, which outlines the ATO's internal procedures in a voidable transaction claim commenced against the Commissioner, and includes in paragraphs 63 and 64 the circumstances in which the Commissioner will satisfy such a claim without litigation. It is doubtful whether those paragraphs apply, even in their terms, to the present case, because they speak of settling such claims without requiring a liquidator to apply to the Court for an order under s 588FF or without an order of the Court. In this case, an application was made to the Court and ultimately an order was made by the Court, so it is at least questionable whether those paragraphs apply in their terms.

9 Next, it is said that the Commissioner will not voluntarily settle a voidable transaction claim where he will be seeking director indemnity pursuant to s 588FGA. The Commissioner may, if he wishes, impose such a restriction on his practices, but I am unable to see why that should operate adversely to the entitlements of any other parties, whether substantive or in respect of costs. Indeed, it is difficult to see why the Commissioner's self imposed policies are of any relevance to the position of external parties that choose to sue the Commissioner; and, in particular, why the Commissioner should not suffer those consequences of not accepting a reasonable offer of compromise that any other party would, in like circumstances, suffer. If anything, the Commissioner's avowed status as a model litigant points in the opposite direction.

10 Accordingly, none of the reasons advanced for exempting the Commissioner in this case from the prima facie consequences of not having accepted an offer which was ultimately bettered by the offeror apply.

11 The other issue is whether the Commissioner's liability for costs should conclude on or about 14 December 2011, when the Commissioner openly announced that he would withdraw his defence as against the plaintiff, or whether it should extend until judgment was eventually given on 2 April 2012. The time which intervened was attributable to the circumstance that the Commissioner had brought a cross-claim against one Anthony Gerard Rowe, a director of the corporation, for indemnity pursuant to s 588FGA which Mr Rowe defended, including on the ground that he disputed insolvency.

12 The Commissioner, adopting the position that Mr Rowe in those circumstances stood in the Commissioner's shoes to contest the question of in solvency against the liquidator, submits that as costs incurred after 14 December were attributable to the necessity to prove the case against Mr Rowe, Mr Rowe and not the Commissioner should be responsible for the plaintiffs' costs after that date.

13 In support of that submission, the Commissioner invokes an observation of Barrett J, as his Honour then was, in Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 in which, in a context not dissimilar to the present, his Honour said:

The final matter to be addressed is costs. On the basis that costs follow the event, the plaintiffs should have a costs order against the Commissioner and Mr Soong. As between the Commissioner and Mr Soong, however, it should be recognised that the Commissioner would have brought the proceedings to an end on 4 July 2006 had it not been for the continuing opposition of Mr Soong. I accept the submission made on behalf of the Commissioner that the Commissioner should be ordered to pay the costs of the plaintiff up to and including 4 July 2006 and that Mr Soong should be ordered to pay the costs of the plaintiffs after 4 July 2006.

14 It is difficult to suppose that in that passage, exercising a costs discretion in the particular circumstances of the case, his Honour was seeking to lay down a rule of law. Any such rule would have the unusual consequence of making the primary recourse of the plaintiff for costs a party with whom the plaintiff was not in suit, namely the cross-defendant, while exonerating the party who was in suit with both the cross-defendant and the plaintiff and who had chosen to involve the cross-defendant in the proceedings and who was responsible for the prosecution of the case against the cross-defendant.

15 It was argued that the Commissioner's position was hamstrung because he was not in charge, so to speak, of proving the case on insolvency. But if - recognising that he cannot or is unlikely to succeed in resisting the plaintiffs' claim - the Commissioner needs to prove insolvency against the cross-defendant, then the position is quite clear and orthodox: the Commissioner must find and adduce such evidence as is necessary - which may include evidence already served by the plaintiff or could be obtained on subpoena - to prove that case against the cross-defendant. It seems to me that the need to prove the case against the cross-defendant is not a sufficient reason to keep the plaintiffs' proceedings on foot and require the plaintiff to incur further costs which may well be irrecoverable for impecuniosity on the part of the cross-defendant.

16 In my view, there is no rule that in cases such as the present the Commissioner should be liable for a plaintiffs' costs only until he indicates that he will not maintain the defence any further, and, thereafter, that the cross-defendant should be liable for those costs. On ordinary principles, the unsuccessful defendant Commissioner should be responsible for the successful plaintiffs' costs, including those incidental to the Commissioner's cross-claim for indemnity.

17 I order that the defendant pay the plaintiffs' costs, such costs to be assessed on the ordinary basis until and including 20 September 2011, and thereafter on an indemnity basis.

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Decision last updated: 20 June 2012