Cook as liquidator of Takema Investments Pty Ltd (in liq) v Tatnell
[2019] FCA 1238
•29 July 2019
FEDERAL COURT OF AUSTRALIA
Cook as liquidator of Takema Investments Pty Ltd (in liq) v Tatnell [2019] FCA 1238
File number: TAD 17 of 2018 Judge: O’CALLAGHAN J Date of judgment: 29 July 2019 Date of publication of reasons: 8 August 2019 Catchwords: BANKRUPTCY AND INSOLVENCY – cross-claim for equitable contribution for liability for loss incurred trading while insolvent Cases cited: Bathurst Regional Council v Local Government Financial Services Pty Ltd (No. 5) [2012] FCA 1200
Burke v LFOT Pty Ltd (2002) 209 CLR 282
Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243
Date of hearing: 29 July 2019 Registry: Tasmania Division: General Division National Practice Area: Commercial and Corporations Sub-area: Corporations and Corporate Insolvency Category: Catchwords Number of paragraphs: 20 Counsel for the Applicant: M Rapley Solicitor for the Applicant: Butler McIntyre & Butler Counsel for the Respondent/Cross-Claimant: C Groves Solicitor for the Respondent/Cross-Claimant: Dobson Mitchell & Allport Pty Ltd Counsel for the Cross-Respondent: The Cross-Respondent appeared in person
Table of Corrections 14 August 2019 Paragraph 3, paragraph 10 of quote – “2018” has been replaced with “2008”. 14 August 2019 Paragraph 3, paragraph 11 of quote – “2018” has been replaced with “2008”. 14 August 2019 Paragraph 3, paragraph 12 of quote – “2018” has been replaced with “2008”. 14 August 2019 Paragraph 3, paragraph 13 of quote – “2017” has been replaced with “2007”. 14 August 2019 Paragraph 3, paragraph 14 of quote – “2017” has been replaced with “2007”. ORDERS
TAD 17 of 2018 BETWEEN: PAUL JOHN COOK AS LIQUIDATOR OF TAKEMA INVESTMENTS PTY LTD (IN LIQUIDATION)
Applicant
AND: KERRY TATNELL
Respondent
AND BETWEEN: KERRY TATNELL
Cross-Claimant
AND: MARIA SAUNDERS
Cross-Respondent
JUDGE:
O’CALLAGHAN J
DATE OF ORDER:
29 July 2019
THE COURT ORDERS THAT:
1.There be judgment for the cross-claimant against the cross-respondent in the amount of $88,053.77, plus pre-judgment interest in the amount of $1,831.04.
2.The cross-respondent pay one half of the cross-claimant’s costs of this application.
3.The cross-respondent pay the cross-claimant’s costs of the cross-claim.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(Revised from transcript)O’CALLAGHAN J:
By application dated 1 June 2018, the applicant, the liquidator of Takema Investments Pty Ltd, brought a proceeding against Mr Kerry Tatnell, the respondent, seeking payment of the sum of $286,356.03, pursuant to subsections 588G(2) and 588M(2) of the Corporations Act 2001 (Cth), plus costs.
It is fair to say that the application against Mr Tatnell had strong prospects of success. The company had accumulated unpaid debts to the ATO between March 2004 and March 2014 of more than $274,000, which sum represented the vast majority of the amount claimed by the liquidator under the insolvent trading provisions upon which the liquidator relied.
In his concise statement, dated 1 June 2018 and filed in this proceeding, the liquidator alleged, and Mr Tatnell never gainsaid, as follows:
10.Between 31 March 2008 and 6 March 2014 the total amount of debt that was accrued by the Company, and which it failed to pay, is $286,356.03 (the Debt).
11.Between 31 March 2008 and 6 March 2014, Kerry Tatnell, being after the time that the Company was insolvent, failed to prevent the Company from incurring the Debt.
12.As from 31 March 2008, a reasonable person in Kerry Tatnell’s position as director of the Company, would have either been aware of the Company’s insolvency or ought to have been aware of the Company’s insolvency.
13.As from 1 July 2007, Kerry Tatnell failed to remain informed as to the financial well-being of the Company in that:
(a)he failed to monitor the Company’s finances for any indication that it might not be able to pay its debts;
(b)failed to ensure that the Company’s records were updated regularly in order to ensure that he could monitor the financial performance of the Company;
(c)did not ensure that the Company regularly invoiced for work that it had performed, or ensured that the Company was paid for the goods and services that it did issue invoices for; and
(d)failed to ensure that there were systems in place that were adequate to confirm to him that the Company was able to pay its debts as and when they became due and payable.
14.As from 1 July 2007, Kerry Tatnell failed to seek appropriate advice to assist him to ensure that the Company was able to pay its debts as and when they became due and payable, and to establish whether at all material times the Company was in fact solvent.
The total amount of the debt was subsequently reduced by the sum of $10,614.77.
Mr Tatnell received legal advice in relation to the liability alleged by the liquidator against him. His solicitor advised him in these terms, in a letter which is in evidence:
In my opinion, you are highly unlikely to defend the claim brought by the liquidator. You are in my opinion entitled to claim against Maria [Mr Tatnell’s wife], to recover half of whatever the liquidator recovers from you...
If this matter advances to trial, there is a significant risk that you may be found liable for the entire amount claimed by the Liquidator.
...if the liquidator succeeds, then not only will the claim of $275,741.26 likely succeed, but he will become entitled to costs – likely to be in the region of $40,000 to $60,000 by the conclusion of the matter – and interest.
A mediation occurred early this year and the proceeding between the liquidator and Mr Tatnell was resolved on terms contained in a letter of agreement, which is in evidence, and which included that the liquidator and Mr Tatnell would seek judgment by consent against Mr Tatnell in the sum of $175,000, inclusive of costs, plus pre-judgment interest of $1,107.53.
I made an order in those terms on 13 March 2019.
Mr Tatnell’s wife, Mrs Maria Saunders, also referred to as Mrs Maria Tatnell, is and was at all material times also a director of the company.
By notice of cross-claim dated 7 December 2018, Mr Tatnell, as cross-claimant, brought a claim against his co-director wife for equitable contribution in these terms:
1.An order that the cross-respondent pay to the cross-claimant equitable contribution of 50%, or such other percentage determined by the Court, of any amount ordered to be paid by the cross-claimant to the applicant (liability for which he has denied) and any of the costs ordered to be paid by the cross-claimant to the applicant;
2. The cross-respondent pay the cross-claimant’s costs of this cross-claim.
When one director of a company is found liable for insolvent trading under the relevant provisions of the Corporations Act referred to above, the director held liable may recover from any other director who was not sued for that same loss or damage. As Palmer J said in Hall v Poolman [2007] NSWSC 1330; (2007) 215 FLR 243 at [467] to [468]:
As was the case under s.556(1) of the Companies Code, joint and several liability of co-directors for insolvent trading, as a matter of law, from the nature of the liability created by the CA, s 588M(2) and (3): each person who was a director during the period of insolvent trading, and who cannot make out a defence, is liable to compensate for the same loss by reason of contravention of the same statutory prohibition in s.588G(2). That is sufficient to attract the doctrine of equitable contribution.
I am unable to accept Mr Stoljar’s next submission that Mr Martini could not be liable for contribution because he has not been sued directly by the liquidators. Ex hypothesi, the doctrine of equitable contribution is applicable where the person from whom contribution is sought has not been sued, although he or she could have been sued. The person claiming contribution must show that, had the co-obligor been sued, he or she would have been liable for the same loss, or a proportionate part of the same loss.
(Emphasis in the original).
It follows in the circumstances of this case that because the cross-claimant and the cross-respondent were at all times directors of the company, the relevant circumstances giving rise to the cross-claimant’s liability to the liquidator also gave rise to a coordinate liability on the part of the cross-respondent for which the cross-respondent could have been sued, but was not, by the liquidator.
I should add that the cross-respondent has never sought to defend the claim, including in circumstances where, at least at the time that the settlement agreement was entered into with the cross-claimant, she was separately represented by a lawyer. Nor did she ever oppose the entry of judgment.
Further, despite having been granted three adjournments of the hearing of this application to enable her, independently, to assess the quantum of the liquidator’s claim or the settlement amount, the cross-respondent has not raised any matter of defence, nor has she sought to rely on any evidence in the defence of this claim. Indeed, on a number of occasions, including when represented by a lawyer and at the hearing today, where the cross-respondent represented herself, she has accepted that she is liable as a co-director, and, as I have already observed, she was granted three adjournments in order to give her a chance to assess the quantum of the underlying debts, but never availed herself of those opportunities.
As a general rule, the principle of equitable contribution requires that those who are jointly or severally liable in respect of the same loss or damage should contribute to the compensation payable in respect of that loss or damage equally, where they are liable in a same amount. See Burke v LFOT Pty Ltd (2002) 209 CLR 282. It is in accordance with that well-established principle that the cross-claimant seeks, among other things, payment of 50 per cent of the settlement sum. In the circumstances of this case, the cross-respondent’s liability is fixed by the court’s judgment entered on 13 March 2019.
There is, in any event, no doubt that a settling party may recover equitable contribution from a person who is liable for the underlying loss the subject of the settlement agreement. For the purpose of establishing whether one party is liable to another for such equitable contribution upon a coordinate liability, the question is the existence of a common obligation. See, by way of example only, Bathurst Regional Council v Local Government Financial Services Pty Ltd (No. 5) [2012] FCA 1200 at [2992]. There is equally no doubt that a settlement agreement making one party liable to another is sufficiently a “common obligation” to make a third-person, who would be liable under statute for the settled claim, liable for the same amount and to the same extent, and to attract the doctrine of equitable contribution. See Bathurst Regional Council v Local Government Financial Services Pty Ltd (No. 5) [2012] FCA 1200 at [2991].
The only remaining question is whether the settlement in this case was objectively reasonable having regard to the material available at the time of settlement. See Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at 608, [6].
As counsel for the cross-claimant submitted, the settlement achieved between the liquidator and the cross-claimant in this case was for an amount considerably less than the debt claimed. Further, the settlement sum was achieved in circumstances where no weakness or flaw in the liquidator’s case had been suggested. Further, as the solicitor’s letter set out above explained, the cross-claimant enjoyed the very real prospect of a judgment against him well in excess of $300,000, a prospect that, of course, would not also include his own costs in defending any such proceeding, which should not be ignored in that equation.
The fact that the cross-claimant was also given such strong advice to settle the claim, though not determinative, is also relevant in the assessment of the reasonableness of a settlement. See Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603 at 608-609, [6].
In those circumstances, it seems to me clear that the cross-claimant’s settlement of the applicant’s claim was objectively reasonable and that, for the reasons I have set out above, the cross-claimant should recover, as equitable contribution from the cross-respondent, one half of that agreed liability.
Accordingly, I will make the orders sought by the cross-claimant, as follows:
(1)There be judgment for the cross-claimant against the cross-respondent in the amount of $88,053.77, plus pre-judgment interest in the amount of $1,831.04.
(2)The cross-respondent pay one half of the cross-claimant’s costs of this application.
(3)The cross-respondent pay the cross-claimant’s costs of the cross-claim.
I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O’Callaghan. Associate:
Dated: 8 August 2019
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