Re Locktronic Systems Pty Ltd (No 1) - [2008] VSC 626

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION
CORPORATIONS LIST

No. 10001 of 2005

RE LOCKTRONIC SYSTEMS PTY LTD (in liquidation) (receivers appointed) (ACN 005 724 149)
GEORGE GEORGES AND JOHN ROSS LINDHOLM (in their capacities as joint and several liquidators of LOCKTRONIC SYSTEMS PTY LTD (in liquidation)(receivers appointed) and LOCKTRONIC SYSTEMS PTY LTD (in liquidation)(receivers appointed)	Plaintiffs
v
THE COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA	Defendant
and
PETER KING	First third party
MICHAEL DAVID WALSH	Second third party
JOHN ANDREAS NISSEN	Third third party

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JUDGE:	ROBSON J
WHERE HELD:	Melbourne
DATE OF HEARING:	11 March 2008
DATE OF RULING:	11 March 2008
CASE MAY BE CITED AS:	Re Locktronic Systems Pty Ltd (No 1)
MEDIUM NEUTRAL CITATION:	[2008] VSC 626

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CORPORATIONS – preferences - claim by plaintiffs against the Commissioner of Taxation under application to recover preferential payments of tax – third party claims by the Commissioner of Taxation against the directors to be indemnified in respect of liability to defendant – defence by third parties filed in response to plaintiffs’ statement of claim against the Commissioner of Taxation under r 11.09(2) – third parties deny insolvency of the company at the time of the alleged preferential payments - whether Commissioner able to consent to judgment in favour of plaintiffs – held Commissioner not entitled to do so while defence of third parties maintained - third party defence withdrawn including denial of insolvency of plaintiff company – consent judgment ordered – whether third party able to deny insolvency in third party proceedings – held that third party bound by admissions to plaintiffs’ claim against the Commissioner of Taxation including insolvency of the company at the time of alleged preferential payments - r 11.09(2) of the Supreme Court (General Civil Procedure) Rules 2005; ss 588FF and 588FGA of the Corporations Act 2001

PRACTICE AND PROCEDURE – defence to plaintiffs’ statement of claim filed by third parties – effect of defence on issues as between the defendant and the third parties – r 11.09(2) of the Supreme Court (General Civil Procedure) Rules 2005

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr P D Crutchfield	Middletons
For the Defendants	Mr M Sifris SC with Mr S D Hay	Legal Services Branch, Australian Taxation Office
For the Firstnamed & Thirdnamed Third Party	Mr G T Bigmore QC with Mr P Fary	McDonald Partners
For the Secondnamed Third Party	In person

Cases cited

Barclays Bank Ltd v Tom (1923) 1 KB 221; [1922] All ER Rep 279
Crosbie v Commissioner of Taxation [2003] 130 FCR 275
Young v Commissioner of Taxation [2006] 56 ACSR 654

HIS HONOUR:

By an originating process of 19 December 2005, the first and second plaintiffs, the liquidators of Locktronic Systems Pty Ltd (in liquidation)(receivers appointed) and the third plaintiff, Locktronic, applied under s 588FF of the Corporations Act 2001 for orders and declarations that certain alleged preferential payments entered into between Locktronic and the defendant, the Commissioner…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2008] VSC 626
Decision Date: 11 March 2008

CaseChat Overview and Summary

In the case of Re Locktronic Systems Pty Ltd (No 1), the plaintiffs sought to recover preferential payments made by their company to the Commissioner of Taxation. The Commissioner, in turn, filed third-party claims against the company's directors for indemnity in respect of any liability to the plaintiffs. The defendants, the company's directors, responded with a defence under r 11.09(2) of the Supreme Court (General Civil Procedure) Rules 2005, denying that the company was insolvent at the time of the alleged preferential payments. This defence raised complex issues around the insolvency status of the company and the ability of the Commissioner to consent to a judgment in favour of the plaintiffs.

The court had to determine whether the Commissioner could consent to a judgment in favour of the plaintiffs while the defence of the third parties was maintained. The court found that the Commissioner could not consent to such a judgment while the third-party defence, including the denial of the company's insolvency, remained in place. Subsequently, the third parties withdrew their defence, including the denial of the company's insolvency. This withdrawal led to the court ordering a consent judgment in favour of the plaintiffs. The court also considered whether a third party could deny the insolvency of the company in third-party proceedings, ruling that the third party was bound by the admissions made in the plaintiffs' claim against the Commissioner.

The court's reasoning hinged on the interplay between the provisions of r 11.09(2) of the Supreme Court (General Civil Procedure) Rules 2005 and the relevant sections of the Corporations Act 2001, specifically ss 588FF and 588FGA. The court's decision underscored the importance of the timing and content of defences filed in third-party proceedings and their impact on the overall litigation process. The final orders included the consent judgment in favour of the plaintiffs and a determination that the third parties were bound by the insolvency admissions made in the initial claim.

Orders