FEDERAL COURT OF AUSTRALIA
Smith v Boné, in the matter of ACN 002 864 002 Pty Ltd (in liq) (No 2) [2015] FCA 389
Citation: Smith v Boné, in the matter of ACN 002 864 002 Pty Ltd (in liq) (No 2) [2015] FCA 389 Parties: MICHAEL JOHN MORRIS SMITH IN HIS CAPACITY AS LIQUIDATOR OF ACN 002 864 002 PTY LTD (IN LIQUIDATION) FORMERLY KNOWN AS PETROLINK PTY LTD and ACN 002 864 002 PTY LTD (IN LIQUIDATION) FORMERLY KNOWN AS PETROLINK PTY LTD ACN 002 864 002 v BARRY BONE and VALVELINK PTY LTD ACN 053 332 808 File number: NSD 1030 of 2013 Judge: GLEESON J Date of judgment: 24 April 2015 Catchwords: BANKRUPTCY AND INSOLVENCY – where director caused company to trade while insolvent – whether declaratory relief ought to be awarded – amount of pre-judgment interest to be awarded – costs – no declaration made – interest under s 51A(1) of the Federal Court of Australia Act 1976 (Cth) not payable on so much of the amount recoverable under s 588M(2) of the Corporations Act 2001 (Cth) as is calculated by reference to interest on unpaid tax Legislation: Corporations Act 2001 (Cth), ss 588M, 588FF, 1317E, 1317J
Evidence Act 1995 (Cth), ss 91, 92, 93
Supreme Court Act 1970 (NSW), s 94(2)(a)
Federal Court Rules 2011 (Cth), r 36.08(2)
Federal Court of Australia Act 1976 (Cth), ss 21, 51ACases cited: Bans Pty Ltd v Bing (1995) 36 NSWLR 435
Commonwealth of Australia v BIS Cleanaway Limited [2007] NSWSC 1075
Cretazzo v Lombardi (1975) 13 SASR 4
Dr Martens Australia Pty Ltd v Higgins Holdings Pty Ltd (No 2) [2000] FCA 602
Edenden v Bignell [2007] NSWSC 1122
Kazar v Kargarian [2011] FCAFC 136; (2011) 197 FCR 113
Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589
Smith in his capacity as liquidator of ACN 002 864 002 Pty Ltd (in liquidation) formerly known as Petrolink Pty Ltd v Boné [2015] FCA 319
Warramunda Village Inc v Pryde [2001] FCA 61; (2001) 105 FCR 437Date of hearing: 8, 9, 10, 11, 15, 16 September 2014, 21 April 2015 Date of last submissions: 23 April 2015 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 30 Counsel for the Plaintiffs: Mr S Golledge Solicitor for the Plaintiffs: Watson Mangioni Lawyers Pty Ltd Counsel for the Defendants: Mr F Assaf Solicitor for the Defendants: Sparke Helmore
Table of Corrections 21 January 2016 In paragraph 14, the phrase “a Full Court of this Court” has been replaced with “ the Supreme Court of South Australia Full Court”.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 1030 of 2013
IN THE MATTER OF ACN 002 864 002 PTY LTD (IN LIQ) FORMERLY KNOWN AS PETROLINK PTY LTD
BETWEEN: MICHAEL JOHN MORRIS SMITH IN HIS CAPACITY
AS LIQUIDATOR OF ACN 002 864 002 PTY LTD
(IN LIQUIDATION) FORMERLY KNOWN AS
PETROLINK PTY LTD
First PlaintiffACN 002 864…
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Details
- AGLC
- Smith v Bone (No 2) [2015] FCA 389
- Case
- [2015] FCA 389
- Decision Date
CaseChat Overview and Summary
In Smith v Bone (No 2), the plaintiffs sought a declaration that the defendants had caused the company to trade while insolvent, thereby contravening section 588G of the Corporations Act 2001 (Cth). The case was heard in the Federal Court of Australia. The plaintiffs also sought damages for insolvent trading and pre-judgment interest. The defendants, Mr Bone and Valvelink, contested the claims, with Valvelink arguing that it was not liable for any insolvent trading.
The primary legal issues involved determining whether the court should make certain declarations regarding insolvent trading, the calculation of pre-judgment interest, and the allocation of costs. The court had to decide if there was a benefit in making the proposed declarations and whether the defendants were liable for pre-judgment interest. The court also considered the plaintiffs' request for an order for interest from the date of the liquidator's appointment, as per the precedent set in Powell v Fryer.
The court declined to make the proposed declarations as there was no evident good purpose for doing so. The court reasoned that the first declaration would not advance the plaintiffs' position in other void transaction proceedings, and the second declaration was within the reasoning of Barrett J in Edenden. Regarding pre-judgment interest, the court held that Mr Bone was liable for interest under section 51A(1) of the Federal Court of Australia Act 1976 (Cth), while Valvelink was not liable for interest on unpaid tax. The court ordered that the defendants pay the plaintiffs the specified amounts, along with interest and costs. The proceedings were dismissed otherwise.
The primary legal issues involved determining whether the court should make certain declarations regarding insolvent trading, the calculation of pre-judgment interest, and the allocation of costs. The court had to decide if there was a benefit in making the proposed declarations and whether the defendants were liable for pre-judgment interest. The court also considered the plaintiffs' request for an order for interest from the date of the liquidator's appointment, as per the precedent set in Powell v Fryer.
The court declined to make the proposed declarations as there was no evident good purpose for doing so. The court reasoned that the first declaration would not advance the plaintiffs' position in other void transaction proceedings, and the second declaration was within the reasoning of Barrett J in Edenden. Regarding pre-judgment interest, the court held that Mr Bone was liable for interest under section 51A(1) of the Federal Court of Australia Act 1976 (Cth), while Valvelink was not liable for interest on unpaid tax. The court ordered that the defendants pay the plaintiffs the specified amounts, along with interest and costs. The proceedings were dismissed otherwise.
Orders
Orders of the court
1. Pursuant to s 588M of the Corporations Act 2001 (Cth), the first defendant pay the plaintiffs the amount of $669,582.86.
2. Pursuant to s 588FF of the Corporations Act 2001 (Cth), the second defendant pay the plaintiffs the amount of $95,065.41.
3. Pursuant to s 51A(1) of the Federal Court of Australia Act 1976 (Cth), the first defendant pay interest from 7 June 2013 to 24 April 2014 on the amount of $588,655.93 at the rates applied by the Supreme Court of New South Wales from time to time.
4. Pursuant to s 51A(1) of the Federal Court of Australia Act 1976 (Cth), the second defendant pay interest in the sum of $17,792.47.
5. The first defendant pay 80% of the plaintiffs’ costs of the proceeding.
6. The second defendant pay 20% of the plaintiffs’ costs of the proceeding.
7. The proceedings otherwise be dismissed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
The second proposed declaration falls squarely within the reasoning of Barrett J in Edenden. I decline to make that declaration for the reasons given by his Honour. I decline to make the other proposed declarations because there is no evident good purpose for making them. In particular, concerning the first proposed declaration, it was not explained how making that declaration could advance the plaintiffs’ position in relation to other void transaction proceedings presently on foot in the winding up and I am not satisfied that it could do so: cf Evidence Act 1995 (Cth), ss 91 to 93. Pre-judgment interest Section 51A of the Federal Court Act provides relevantly:(1)In any proceedings for the recovery of any money (including any debt or damages or the value of any goods) in respect of a cause of action that arises after the commencement of this section, the Court or a Judge shall, upon application, unless good cause is shown to the contrary, either: (a)order that there be included in the sum for which judgment is given interest at such rate as the Court or the Judge, as the case may be, thinks fit on the whole or any part of the money for the whole or any part of the period between the date when the cause of action arose and the date as of which judgment is entered; or(b)without proceeding to calculate interest in accordance with paragraph (a), order that there be included in the sum for which judgment is given a lump sum in lieu of any such interest.(2)Subsection (1) does not:(a)authorize the giving of interest upon interest or of a sum in lieu of such interest; (b)apply in relation to any debt upon which interest is payable as of right whether by virtue of an agreement or otherwise;… The parties are agreed as to the pre-judgment interest payable by Valvelink. However, Mr Boné’s liability to pay pre-judgment interest is disputed. The plaintiffs seek interest under s 51A(1) on the amount recoverable from Mr Boné for the period from the commencement of the proceedings until the date of the Court’s final orders. Section 51A is “designed to compensate a successful applicant for the fact that he or she has been kept out of his or her due monetary entitlements …while his or her claims are made, litigated and determined”: Kazar v Kargarian [2011] FCAFC 136; (2011) 197 FCR 113 at [97]. In Kazar, Foster J expressed the view that “good cause” why pre-judgment interest is not payable will only be shown rarely and in exceptional circumstances. In that case, the Full Court rejected an appeal from an award of interest under s 51A on a claim made under s 588M(3). In Powell v Fryer [2001] SASC 59; (2001) 37 ACSR 589 at [115] to [116], [119] and [120], the Supreme Court of South Australia Full Court held that interest was payable on a liability under s 588M running, as a matter of convenience, from the date of appointment of the liquidator. In Bans Pty Ltd v Bing (1995) 36 NSWLR 435 (“Bans”), a company accrued a debt for unpaid rent and interest under a lease whilst insolvent. Bryson J allowed recovery against the directors of a company who had engaged in insolvent trading of the unpaid rent and interest until the winding up, but did not allow interest on the accrued interest because allowance of interest upon interest was expressly forbidden by s 94(2)(a) of the Supreme Court Act 1970 (NSW).
Ratio Decidendi
Legal Principle Established
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