In the matter of C88 Project Pty Ltd (in liq) (controller appointed)

By my judgment delivered on 12 August 2024 ([2024] NSWSC 999) (“Principal Judgment”), I determined an application brought by Mr Kugel in his capacity as liquidator (“Liquidator”) of C88 Project Pty Ltd (in liq) (controller appointed) (“Company”), by which he sought directions from the Court as to, broadly, whether he would be justified in retaining or returning an amount of $364,267 (“Relevant Amount”) to the Deputy Commissioner of Taxation (“DCT”) which was mistakenly paid to the Company by the Australian Taxation Office (“ATO”) in the course of the liquidation.

The Liquidator joined the DCT as Defendant in the proceedings and, at the hearing on 30 July 2024, the DCT sought a declaration that the Relevant Amount was held by the Company on constructive trust for the DCT, although I note that it would likely not be necessary to characterise the trust in that form in any declaration that a trust existed. The DCT also sought an order that the Liquidator and the Company must effect payment of the Relevant Amount (including any interest accrued on it) to the DCT within 14 days of these orders and an order that the Liquidator pay the DCT’s costs of the proceeding. The Liquidator did not object to the DCT seeking such relief, without first filing an Interlocutory Process and the hearing proceeded on the basis that the relief sought by the DCT was largely or entirely consistent with the second direction sought by the Liquidator, if he did not obtain the first direction noted above.

After I reserved judgment, the Liquidator’s solicitors requested a further opportunity to be heard as to the orders to be made consequential upon the judgment, but the Liquidator ultimately did not pursue that application or an application to reopen the proceedings to deal with later developments in the Company’s tax affairs.

In paragraph 37 of the Principal Judgment, I outlined the orders that I was likely to make as follows:

I then allowed the parties an opportunity to submit agreed short minutes of order, including as to costs, or, in the event of disagreement, their respective short minutes of order and short submissions as to the differences between them. I now determine a disagreement, although in limited scope, as to the orders that should be made to give effect to the Principal Judgment and as to costs.

The Liquidator reads the affidavit dated 30 August 2024 of his solicitor, Mr Roche, which identifies the Liquidator’s costs incurred in respect of the proceedings and point to fact that the Liquidator has already paid the Relevant Amount to the Australian Taxation Office on 30 August 2024. The DCT reads the affidavit dated 29 August 2024 of its solicitor, Mr Olthof, who refers to correspondence exchanged between the respective solicitors in relation to the issues in the proceedings.

The first order proposed by the parties is an order pursuant to r 6.24(1) of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), that the Company be joined as a party to these proceedings, as the Second Defendant. I make that order where it is by consent and will have the result that the Company is bound by the determination of the proceedings.

The second order proposed by the liquidator is an order, under s 90-15 of the Insolvency Practice Schedule (Corporations) (“IPSC”) or in the Court’s inherent jurisdiction, that the Plaintiff, as liquidator of the Company, would be justified in paying the Relevant Amount to the DCT, being the repayment of the amount paid by the Australian Taxation Office to the Company. The DCT accepted that such a direction should be made. That order reflects the result of the Principal Judgment and should be made, under s 90-15 of the IPSC and without need to rely on any inherent jurisdiction.

The DCT also sought a further direction that the Liquidator would not be justified in not paying the Relevant Amount to the DCT. The Liquidator submits that that direction is not required in the circumstances. While I had referred to the possibility of a direction of that kind in the Principal Judgment, it is not necessary where the Liquidator has already repaid the relevant amount.

The DCT also seeks a declaration, presumably in addition to the direction sought by both parties, that the Relevant Amount of $364,267 paid to the Company on or about 27 January 2023, is held by the Company on trust for the DCT. The Liquidator took issue with that proposed declaration on the basis that it added nothing of substance to the direction sought by the Liquidator, particularly where the Relevant Amount has already been paid to the DCT and the parties had reached agreement as to the accounting and administrative treatment of that payment. It seems to me that that declaration is not necessary, where that amount has been repaid, and could not properly be made, where that repayment has the consequence that that amount is no longer held by the Company for the DCT, whether on trust or at all.

The DCT also seeks an order that the Liquidator and the Company must effect payment of the Relevant Amount (including any interest accrued thereon) to the DCT within 14 days of the date of these orders. The Liquidator submits that that order was unnecessary, where the Liquidator had previously indicated that he would abide by the Court’s decision. That order should also not be made, where the Liquidator has already repaid the Relevant Amount and there is no reason now to order him to do what he has already done. The DCT rightly did not press the claim for interest, where that amount has been in a solicitor’s trust account or controlled monies account for all or most of the relevant period, and any interest earned on it was not likely to have been sufficiently material, to warrant the legal costs in respect of that question.

The Liquidator proposes that each party pay their own costs of the proceedings. The DCT seeks an order that the Liquidator pay the DCT’s costs of the proceedings. It is common ground that, if such an order is made, those costs should be ordered on the ordinary basis and the Liquidator’s right of indemnity against the Company’s assets would not be affected. It is common ground that the Liquidator’s costs of this application should be costs in the liquidation of the Company.

I should briefly address the applicable principles. The Court has power to make an order for costs under s 98(1) of the Civil Procedure Act 2005 (NSW) (“CPA”) and r 42.1 of the UCPR. A successful party in proceedings has a “reasonable expectation” of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 at [22], [134]. In Commonwealth of Australia v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that:

The case law has addressed the application of these principles where an issue arises as to the distribution of a fund. In BE Australia WD Pty Ltd (subject to a Deed of Company Arrangement) v Sutton (2011) 285 ALR 532; [2011] NSWCA 414 at [213], Campbell JA (with whom McColl JA agreed) observed that:

In Re Anglican Development Fund Diocese of Bathurst Board (recs and mgrs apptd) [2015] NSWSC 59 at [10], I observed that:

I have here drawn on my summary of these principles in Re Munja Bakehouse Pty Ltd [2024] NSWSC 17 at [4]ff and Re Sirrah Pty Ltd (in liq) [2024] NSWSC 857 at [4]ff.

The Liquidator here advances several submissions as to why he acted properly in bringing the application and points to the desirability, as a general matter, of a liquidator seeking directions as to an issue as to which he was in doubt. The Liquidator submits that he has not been unsuccessful in the “event” and that he sought orders in the alternative to cater for the Court’s ultimate determination. He also submits that the joinder of the DCT as a Defendant in the proceedings was appropriate but did not create an issue on which the Liquidator was unsuccessful, where the Liquidator had sought orders in alternative. While I accept that orders were sought in the alternative, the Liquidator advanced the position that the DCT did not have a proprietary interest in the relevant funds at the hearing and the DCT advanced the contrary position as to which it succeeded. Alternatively, the Liquidator submits that the “usual cost rule in UCPR 42.1 is subject to a limited public interest qualification, which may extend to test cases”. It does not seem to me that this matter had the character of a test case, where it involved the application of orthodox restitutionary principles, although in the context of s 8AAZN of the Taxation Administration Act 1953 (Cth). It seems to me that an order is properly made that the Liquidator pay the DCT’s costs of the proceedings, either on the basis that the DCT was successful in the relief which it sought, which contemplated that the Relevant Amount be paid to it, or alternatively on the basis that the DCT acted as a proper contradictor in the proceedings, and should not be left to bear its own costs of doing so, quite apart from its success in establishing the position for which it contends.

I therefore make the following orders: