Commissioner of Taxation v Moodie
Document type: Decision Impact Statement
Venue: Supreme Court (2012/174957)
Judgment date: 14 March 2014
Date published: 7 August 2014

Summary of decision:
Costs in unfair preference payment proceedings where Commissioner joins a director to the proceedings to seek indemnity under s588FGA of the Corporations Act. Confirms the Court's discretion to order the Commissioner to pay the Liquidator's costs even if the Commissioner does not defend the claim.

Overview of facts:
This was a concurrent hearing of the Commissioner's application for leave to appeal an order for costs against him in an unfair preference claim commenced against him by the Liquidator of Rivercorp Pty Ltd in the Supreme Court of NSW. | The Commissioner exercised his right of indemnity under section 588FGA of the Act and joined the director of Rivercorp (Mr Rowe) to the Liquidator's proceedings. Both Mr Rowe and the Commissioner filed defences to the Liquidator's claim which challenged the issue of Rivercorp's insolvency during the relation back period. | On 20 September 2011, the Liquidator served an offer of compromise under Rule 20.26 of the UCPR 2005 on the Commissioner, which excluded a claim for interest on the principal amount and legal costs. The Commissioner rejected the offer. | The Commissioner then withdrew his defence on 14 December 2011 and Mr Rowe withdrew his defence on 30 March 2012. Consent judgment orders were entered in favour of the Liquidator against the Commissioner in respect of the preference claim; and in favour of the Commissioner against Mr Rowe in respect of the indemnity claim. | On 7 May 2012, Justice Brereton ordered the Commissioner to pay the Liquidator's costs of the entire proceedings. Costs after 21 September 2011 were payable on an indemnity basis premised on Rule 42.16 of the UCPR 2005. | The issue to be determined on appeal was the extent of the Commissioner's exposure to costs in circumstances where he withdrew his defence and Mr Rowe's defence kept the proceedings on foot after 14 December 2011. The Commissioner submitted that it was appropriate for the Liquidator to seek his costs after 14 December 2011 from Mr Rowe. | Issues Decided by the Court | The Court granted the Commissioner leave to appeal but dismissed the appeal with costs. The decision reflects that it is within the discretion of the Court to order that the Commissioner must bear the entire costs incurred by the Liquidator, as a consequence of the director's stance in challenging the Liquidator's claim, even if the Commissioner concedes the Liquidator's claim. The Court determined that the decision in Noxequin did not seek to establish a principle of general application as to when the Commissioner's liability for costs in a case should cease (para 76). | The liquidator's proceedings are a claim made by the liquidator against the Commissioner. The director is treated as a third party and is entitled to defend the liquidator's claim as against the Commissioner as if joined by cross-claim (para 90). However, the liquidator has no interest in the controversy between the Commissioner and the director. The liquidator's only remedy is as against the Commissioner (para 91).

Issues decided:
The Court granted the Commissioner leave to appeal but dismissed the appeal with costs. The decision reflects that it is within the discretion of the Court to order that the Commissioner must bear the entire costs incurred by the Liquidator, as a consequence of the director's stance in challenging the Liquidator's claim, even if the Commissioner concedes the Liquidator's claim. The Court determined that the decision in Noxequin did not seek to establish a principle of general application as to when the Commissioner's liability for costs in a case should cease (para 76). The liquidator's proceedings are a claim made by the liquidator against the Commissioner. The director is treated as a third party and is entitled to defend the liquidator's claim as against the Commissioner as if joined by cross-claim (para 90). However, the liquidator has no interest in the controversy between the Commissioner and the director. The liquidator's only remedy is as against the Commissioner (para 91).

ATO view of decision:
The decision may affect other unfair preference matters where an indemnity is sought from the directors of the company. There is a potential for adverse costs implications for the Commissioner in such matters, particularly where the liquidators utilise an offer of compromise or 'Calderbank offer'.

Administrative treatment:
Implications for impacted ATO precedential documents (Public Rulings & Determinations etc) | Nil | Implications for impacted Law Administration Practice Statements | Nil

Legislative references: Civil procedure Act 2005 (NSW) Corporations Act 2001 (NSW) Supreme Court Act 1970 (NSW) Supreme Court Rules 1970 (NSW) Taxation Administration Act 1953 (Cth) The Act Uniform Civil Procedure Rules 2005 (NSW)
Case references: Barakat v Bazdarova [2012] NSWCA 140 Barclays Bank v Tom [1923] 1 KB 221 Commissioner of Taxation v Sims [2008] NSWCA 298 (2008) 72 NSWLR 716 (2008) 73 ATR 838 Commonwealth of Australia v Gretton [2008] NSWCA 117 Condon v Commissioner of Taxation [2004] NSWSC 481 207 ALR 676 (2004) 56 ATR 171 Cooper as liquidator of Wanted World Wide (Australia) Ltd (in liq) v Commissioner of Taxation [2004] FCA 1063 (2004) 49 ACSR 325 (2004) 56 ATR 615 Crosbie v Commissioner of Taxation [2003] FCA 922 (2003) 130 FCR 275 (2003) 53 ATR 663 Dean-Willcocks v Commissioner of Taxation (No 2) [2004] NSWSC 286 (2004) 49 ACSR 325 (2004) 57 ATR 413 Duncan v Commissioner of Taxation Re trader Systems International Pty Ltd (in liq) [2006] FCA 885 (2006) 58 ACSR 555 Edginton v Clark [1964] 1 QB 367 Financial Wisdom Ltd v Newman [2005] VSCA 110 (2005) 12 VR 79 Georges v Locktonic Systems Pty Ltd [2009] VSC 523 Hall (as liquidators of Reynolds Wines Ltd) v Commissioner of Taxation [2004] NSWSC 985 (2004) 186 FLR 111 (2004) 57 ATR 441 Hall v Poolman (No 2) [2007] NSWSC 1494 Harris v Commissioner of Taxation [2006] QSC 108 [2006] 2 Qd R 445 House v R [1936] HCA 40 (1936) 55 CLR 499 Insurance Exchange of Australasia Group v Dooley [2000] NSWCA 159 (2000) 50 NSWLR 222 Kazar (Liquidator) v Kargarian Re Frontier Architects Pty Ltd (in liq) [2011] FCAFC 136 (2011) 197 FCR 113 New South wales Insurance Ministerial Corp v Edkins (1998) 45 NSWLR 8 Noxequine Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 Olsson v Dyson [1969] HCA 3 (1969) 120 CLR 365 Oshlack v Richmond River Council [1998] HCA 11 (1998) 193 CLR 72 Peake v Carter [1916] 1 KB 652 Peters v Peters (1907) 7 SR (NSW) 398 Rasch Nominees Pty Ltd v Bartholomaeus [2013] SASCFC 105 Re Lockttonic Systems Pty Ltd (No1) [2008] VSC 626 Re Minister for Immigration and Ethnic Affairs Ex parte Lai Qin [1997] HCA 6 (1997) 186 CLR 622 Regency Media Pty Ltd v AAV Australia Pty Ltd [2009] NSWCA 368 Sandtara Pty Ltd v Abigroup Ltd (1997) 42 NSWLR 5 Sims v Commissioner of Taxation [2007] NSWSC 1359 (2007) 25 ACLC 1829 Sims v Deputy Commissioner of Taxation [2006] NSWSC 305 (2006) 57 ACSR 249 Sims v Deputy Commissioner of Taxation [2007] NSWSC 998 (2007) 69 ATR 186 Woodgate (as liquidator of Fairlight ESP Pty Ltd) v Commissioner of Taxation [2006] NSWSC 778 Young v Commissioner of Taxation [2006] FCA 90 (2006) 56 ACSR 654
Subject references: Unfair preference claim Indemnities against directors