Adaz Nominees Pty Ltd v Castleway Pty Ltd (No 2)
[2023] VSC 224
•28 April 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2019 02312
| ADAZ NOMINEES PTY LTD (ACN 006 228 119) ATF THE RADO NO 2 TRUST (and others according to the Schedule) | Plaintiffs / Defendants by Counterclaim |
| v | |
| CASTLEWAY PTY LTD (ACN 131 870 481) ATF THE CASTLEWAY TRUST (and another according to the Schedule) | Defendants / Plaintiffs by Counterclaim |
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JUDGE: | NIALL JA |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 10–14, 17 October 2022 |
DATE OF JUDGMENT: | 28 April 2023 |
CASE MAY BE CITED AS: | Adaz Nominees Pty Ltd v Castleway Pty Ltd (No 2) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 224 |
ADDENDUM
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CONTRACT – Item omitted from Reasons published – Cost base for interest in business – Whether legal fees in relation to dispute with former Chief Executive Officer should be included in cost base – Evidence does not establish expenses incurred for purpose of increasing or preserving value of the shares – Expenses not included in cost base.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs / Defendants by Counterclaim | Mr RM Garratt KC, Ms F Cameron and Mr N Guenther | Maddocks |
| For the Defendants / Plaintiffs by Counterclaim | Mr MT Flynn KC and Mr BG Mason | Kyriacou Lawyers |
HIS HONOUR:
On 22 March 2023, the Court published reasons and invited the parties to confer with a view to agreeing on the form of orders conformably with the reasons and, in the absence of agreement, provided a timetable for written submission.[1] What follows assumes a familiarity with the Reasons.
[1]Adaz Nominees Pty Ltd v Castleway Pty Ltd [2023] VSC 129 (‘Reasons’).
The proceeding centres around disputed entitlements said by Castleway to be owed to it under an agreement with the TPC Group known as the ‘Property Development Services Agreement’ (‘PDSA’). One of the entitlements is an annual service fee which was required to be adjusted in the final year to bring to account ‘unrealised capital gains’. The Reasons set out my conclusions on the construction of the PDSA insofar as it deals with the termination adjustment.
Amongst the many issues that the parties tendered to the Court for resolution, one issue concerned an investment in an aged care business called IBIS Care. The investment took the form of a shareholding held by one of the TPC Group entities. The parties agreed that it was to be included in the termination adjustment. However they disagreed on whether two expenses should be included in the cost base for the purposes of calculating the unrealised gain.
It appears that the issue (which it might be noted concerns a disputed adjustment to the cost base of only $54,021)[2] fell through a crack when the Court was dealing with all the issues. By email dated 21 April 2023, the parties noted that this was a matter that had not been addressed in the Reasons and ‘which may need to be determined’. It appears the parties wish the matter to be determined.
[2]$45,591 was said to relate to an expense in 2011/2012 FY and $8,430 in the 2012/2013 FY. The amount claimable arising from this deduction will be a fraction of the deduction.
As explained in the Reasons, the correct quantification of the termination adjustment is a matter for the Court to determine on evidence.
Mr Skinner said that the two amounts were paid for legal fees in relation to a dispute with the former Chief Executive Officer of IBIS Care. He says that the amounts were not deductible at the time. The TPC Group has included the amounts in the cost base of the asset, apparently relying on s 110-25(5) of the Income Tax Assessment Act 1997. That section provides that the cost base includes as the ‘fourth element’, capital expenditure incurred for the purpose or the expected effect of which is to increase or preserve the asset’s value.
In his statement Mr Skinner said with respect to the legal fees:
These costs were added back as not-deductible in FY2012 and FY2013 for tax purposes on the basis they were capital in nature as they were incurred to preserve the value of Tynong Pastoral’s investment in IBIS Care. They were therefore added to the tax cost base of the investment in IBIS Care.
The expert called by TPC Group, Mr Cohilj, said ‘assuming the legal fees were incurred to increase or preserve the value of the shares in IBIS Care’ they should be included in the cost base.
In my opinion, the evidence of Mr Skinner does not establish the facts necessary to make good that assumption. The evidence does not establish that the two items of expenditure were incurred for the purpose of increasing or preserving the value of the shares held by the TPC Group. I am not persuaded that they are properly included in the cost base. The fact that this is how the nominated accountant treated the items and that they were apparently not deducted as an expense at the time provides an insufficient factual base to draw the necessary inference. The evidence of Mr Skinner is entirely conclusionary, and makes no attempt to identify any facts that support the opinion that the expenditure preserved the value of the shares.
The matters were not properly taken into account in calculating the cost base for the IBIS Care asset.
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SCHEDULE OF PARTIES
| S ECI 2019 02312 | |
| BETWEEN: | |
| ADAZ NOMINEES PTY LTD (ACN 006 228 119) ATF THE RADO NO 2 TRUST | First Plaintiff / First Defendant by Counterclaim |
| CORTEK DEVELOPMENTS PTY LTD (ACN 004 997 773) | Second Plaintiff / Second Defendant by Counterclaim |
| ASPHALT ROADS PTY LTD (ACN 005 374 247) | Third Plaintiff / Third Defendant by Counterclaim |
| ROADING GROUP PTY LTD (ACN 097 993 292) ATF THE RADO INVESTMENT TRUST NO. 2 | Fourth Plaintiff / Fourth Defendant by Counterclaim |
| ROADING INVESTMENTS PTY LTD (ACN 104 325 797) ATF THE RADO INVESTMENTTRUST NO 3 | Fifth Plaintiff / Fifth Defendant by Counterclaim |
| LOOILLA PTY LTD (ACN 092 067 322) ATF LOOILLA TRUST | Sixth Plaintiff / Sixth Defendant by Counterclaim |
| BELLONIC PTY LTD (ACN 092 015 828) ATF BELLONIC TRUST | Seventh Plaintiff / Seventh Defendant by Counterclaim |
| TYNONG PASTORAL CO PTY LTD (ACN 060 828 364) ATF TYNONG PASTORAL UNIT TRUST | Eighth Plaintiff / Eighth Defendant by Counterclaim |
| PIP MELBOURNE PTY LTD (formerly PARTNERS IN PROPERTY PTY LTD) (ACN 120 760 125) | Ninth Plaintiff / Ninth Defendant by Counterclaim |
| TYNONG PROPERTY DEVELOPMENTS PTY LTD (ACN 081 950 647) ATF AMARCO SERVICES TRUST | Tenth Plaintiff / Tenth Defendant by Counterclaim |
| - v - | |
| CASTLEWAY PTY LTD (ACN 131 870 481) ATF THE CASTLEWAY TRUST | First Defendant / First Plaintiff by Counterclaim |
| GERARD DAMIEN KEEGHAN | Second Defendant / Second Plaintiff by Counterclaim |