FEDERAL COURT OF AUSTRALIA

Walsh, Liquidator of D&R Community Services Pty Ltd (Receivers & Managers Appointed) (In Liq) v Commissioner of Taxation [2018] FCA 1739

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to r 2.02 of the Federal Court Rules 2011 (Cth), this proceeding be transferred to the New South Wales Registry of the Federal Court of Australia.

2.    The costs of and incidental to the application are reserved to be determined at the conclusion of the proceedings.

3.    Pursuant to s 23 and s 37P of the Federal Court of Australia Act 1976 (Cth), rule 1.32 and rule 1.36 of the Federal Court Rules 2011, these orders and the reasons for judgment in support of these orders are made and published from Chambers.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GREENWOOD J:

1    These proceedings are concerned with an application by the Commissioner of Taxation (the “Commissioner”) heard on 1 November 2018 by which the Commissioner seeks to have this proceeding transferred to the New South Wales Registry of the Federal Court of Australia. The Commissioner also seeks orders, pursuant to r 30.11 of the Federal Court Rules 2011 (Cth), that this proceeding be heard together with proceeding NSD 1555 of 2017 and that the evidence in proceeding NSD 1555 of 2017 be evidence in this proceeding.

2    This proceeding and proceeding NSD 1555 of 2017 concerns a group of companies collectively known as “the D&R Group”. That group consists of three companies, D&R Community Services Pty Ltd (“D&R Community Services”), D&R Care Limited (“D&R Care”), and DRCS Investments Pty Ltd (“DRCS Investments”). D&R Care provided aged care and disability services, and employed staff involved in the provision of those services. D&R Community Services provided management and administration services to D&R Care. DRCS Investments provided support functions to D&R Care, such as deliveries, logistics and accounts payable, as well as holding investments for the D&R Group.

3    On 11 November 2015, Kathleen Vouris and Blair Pleash were appointed as Receivers and Managers of D&R Community Services pursuant to a registered security interest held by CashFlow Finance Australia Pty Ltd (the “Receivers”). Also on 11 November 2015, Justin Denis Walsh and Adam Paul Nikitins were appointed joint and several administrators of D&R Community Services.

4    On 7 June 2016, Mr Walsh and Mr Nikitins were appointed as joint and several Liquidators of D&R Community Services (the “Liquidators”).

5    On 8 September 2017, the Receivers filed an application in the NSW Registry of the Federal Court of Australia seeking a declaration that they hold an equitable interest in “payments” purportedly made by D&R Community Services to the Commissioner in satisfaction of taxation liabilities owed by two other companies in the D&R Group, namely, D&R Care and DRCS Investments, in an amount of $651,602.21. Those payments, apparently made in discharge of a debt due to the Commonwealth in respect of particular tax liabilities, are said to be impressed with a constructive trust arising between the Commissioner as trustee and the Receivers as beneficiaries. Alternatively, the Receivers seek an order for the return to the Receivers as money had and received (the “Receivers’ proceeding”) of either a sum of money of $651,602.21 or the particular amount of $651,602.21 represented by the particular payments made to the Commissioner. That proceeding was allocated the matter number NSD 1555 of 2017.

6    The dates of the relevant payments and the corresponding amounts are set out below:

7    In the statement of claim dated 7 September 2017 filed in the Receivers’ proceeding, the Receivers claim that the monies listed above were transferred from D&R Community Services’ bank account and paid to the Commissioner “with no reason or basis”. The Receivers claim that these transfers resulted in the Commissioner receiving a benefit to the detriment of D&R Community Services and its creditors; that the monies were not owed to the Commissioner by D&R Community Services; and that “there was no valid reason” for the transfers.

8    On this footing, the Receivers claim that they have an equitable interest pursuant to a remedial constructive trust in the money transferred and they seek a declaration to that effect and an order for the recovery of the payments.

9    The Receivers, alternatively, claim that the payment of the monies to the Commissioner gives rise to an action for money had and received on the footing that the Commissioner has been unjustly enriched as there was a total failure of consideration by D&R Community Services to the Commissioner; that the Commissioner “acted without authority in receiving the Monies”; and that “there [was] no reason or basis for the [Commissioner] to receive the Monies or the benefit of the Monies”.

10    On 24 August 2018, the Liquidators brought an application in the Queensland Registry of the Federal Court for a declaration that nine payments totalling $815,429.75 constitute uncommercial transactions and insolvent transactions and are therefore voidable transactions recoverable by the Liquidators under the provisions of the Corporations Act 2001 (Cth) (the “Act”). The Liquidators also seek an order under s 588FF of the Act that the Commissioner pay the second plaintiff the sum of $815,429.75, together with interest and costs. The nine payments that are said to be uncommercial transactions or insolvent transactions are these:

11    It is uncontroversial that six of the nine payments listed above are the same payments that are the subject of the claim in the Receivers’ proceedings.

12    On 28 November 2017, Mr Vuong, a lawyer at the Australian Government Solicitor, acting on behalf of the Commissioner, wrote to Mr Taylor, the Liquidators’ legal representative and invited Mr Taylor to consider the Commissioner’s invitation for the Liquidators to be joined as a party to the Receivers’ proceeding. This invitation was on the basis that the relief sought by the Liquidators and the Receivers “arise out of the same transactions and involve a common substratum of fact” and therefore “it would clearly be beneficial for both matters to be heard and determined together”.

13    On 15 February 2018, Mr Taylor responded to Mr Vuong’s letter asserting that his client’s position was that there was little merit to the Receivers’ argument, and that the claim by the Receivers “appears ambitious”. Mr Taylor expressed the view that the Court would need to consider complex arguments in the Receivers’ proceeding and that he considered it unnecessary for the Liquidators to be involved in those arguments. Mr Taylor asserted his view that the Queensland Registry of the Federal Court was the most appropriate forum for the proceeding commenced by the Liquidators. Mr Taylor also stated that his client would suffer prejudice from increased costs in the event that the Liquidators were forced to litigate in Sydney.

14    On 2 March 2018, Mr Vuong wrote to Mr Taylor saying that the Commissioner would not apply to join the Liquidators to the Receivers’ proceeding but in the event that the Liquidators applied themselves to be joined to the Receivers’ proceeding, the Commissioner would oppose any application by the Liquidators to transfer the New South Wales proceeding to the Queensland Registry.

15    On 12 July 2018, Mr Taylor informed Mr Vuong that in his view, the Commissioner has not provided a satisfactory response that displaces the Liquidators’ view that the Queensland Registry of the Federal Court is the most appropriate forum, and accordingly the Liquidators intended to file the draft pleadings attached to that correspondence within 14 days in the Brisbane Registry of the Federal Court.

16    It is convenient to consider the relief sought by the Commissioner’s interlocutory application in two stages. First, whether this proceeding should be heard together with the Receivers’ proceeding and second, whether this proceeding should be transferred to the New South Wales Registry. Although these two limbs of the application are, strictly speaking, distinct enquiries, the issues here are interrelated as the primary basis upon which the Commissioner seeks to transfer the Queensland proceeding to the New South Wales Registry is to enable common questions of fact in controversy in both proceedings to be determined in the one place so as to avoid the possibility of multiple findings of fact in different proceedings and potentially inconsistent findings of fact. The transfer of the Queensland proceeding is accordingly the mechanism that facilitates the two proceedings being available to be heard together.

17    Rule 30.11 of the Federal Court Rules 2011 provides:

30.11 Consolidation of proceedings before trial

If several proceedings are pending in the Court and the proceedings:

  (a)    involve some common question of law or fact; or

(b)    are the subject of claims arising out of the same transaction or series of transactions;

any party to any of the proceedings may apply to the Court for an order that the proceedings be:

  (c)    consolidated; or

  (d)    heard together; or

  (e)    heard immediately after one another; or

  (f)    stayed until after the determination of any of the other proceedings.

18    The precursor of r 30.11 under the former Federal Court Rules, O 29 r 5, was considered by Besanko J in Humphries v Newport Quays Stage 2A Pty Ltd [2009] FCA 699. His Honour at [11] in that case set out nine factors to be considered by the Court when making an order for proceedings to be heard together:

 1.    Are the proceedings broadly of a similar nature?

 2.     Are there issues of fact and law common to each proceeding?

3.     Will witnesses (lay and expert) in one proceeding be witnesses in one or more of the other proceedings?

4.     Has there been an alternative proposal put forward that there be a test case and have the parties agreed to abide the outcome, or, at least, the determination of common issues of fact and law?

5.     Is there a prospect of multiple appeals with substantial delays if the proceedings are not tried at the same time?

6.     Will there be a substantial saving of time if the proceedings are tried at the same time, compared with each proceeding being tried separately?

7.     Will an order that the proceedings be tried at the same time create difficulties in terms of trial management, complexity of procedural issues and difficulties in determining cross-admissibility of evidence?

8.     Is one proceeding further advanced in terms of preparation for trial than the others?

9.     Are there parties to one or some only of the proceedings who will be inconvenienced if all of the proceedings are tried at the same time?

19    While the Receivers and the Liquidators both assert different causes of action, the proceedings are of a similar nature insofar as they both assert an entitlement to the same payments and each proceeding gives rise to a controversy of fact about many of those same payments.

20    A fundamentally important consideration in an application of this kind is the question of whether there is a real risk of inconsistent findings being made on contested questions of fact common to both proceedings if each proceeding is not heard together (Smit v J Smit & Sons Contracting Pty Ltd, in the matter of J Smith & Sons Contracting Pty Ltd [2018] FCA 581 at [24]; Traditional Values Management Ltd v Taylor & Ors [2012] VSC 299 at [10]).

21    The Commissioner submits that there is a substantial overlap between the Liquidators’ proceedings and the Receivers’ proceedings as both proceedings arise out of the same transactions and involve a common substratum of fact. The Commissioner submits that separate trials would give rise to a risk of inconsistent findings of fact and involve an unnecessary duplication of work done, and the incurring of unnecessary costs.

22    The Liquidators contend that their claim is based on different causes to those asserted by the Receivers and therefore distinct factual and legal enquiries are involved. However, the Liquidators concede that if the Liquidators’ claim and the Receivers’ claim are both made good, there will be inconsistent judgments regarding which party is entitled to recover the payments. In answer to that difficulty, the Liquidators submit that the risk of inconsistent findings or inconsistent judgments is so low as to be “negligible” and that is said to follow because the causes of action pleaded in the Receivers’ proceedings have “no reasonable prospects of success” and are “doomed to fail”.

23    In response, the Commissioner says that it is not appropriate on this application to consider the merits of the Receivers’ claim. The Commissioner says that even if there are serious difficulties confronting the claim by the Receivers, the proceeding remains extant and should the Court embark upon a determination of those claims (whatever the merits might be), common questions of fact will necessarily be alive in both proceedings.

24    The Commissioner correctly submits that it is not appropriate on an application of this kind to examine aspects of the merits of either proceeding. The pleadings in each proceeding determine the scope of the controversy and it can be seen that substantial common contested questions of fact arise. No application has been made to strike out the proceeding commenced by the Receivers. It remains to be heard and determined. There is thus a real risk of inconsistent findings of fact arising out of a consideration of whether the Receivers are entitled to the recovery of the payments on the one hand, and a consideration of the Liquidators’ right to recover the payments, on the other hand, in the separate proceeding. This factor weighs heavily in favour of the Court exercising its discretion to transfer the Queensland proceedings to New South Wales to be heard together with the New South Wales proceedings.

25    Both the Receivers’ Claim and the Liquidators’ claim are likely to involve common witnesses, an example of which is the former director of D&R Community Services and the Chief Financial Officer of the Group, Karen Smith. The Liquidator submits that there are some witnesses that will be unique to the Liquidators’ claim, in particular witnesses that will give evidence on the company’s solvency.

26    The Liquidators contend that there will be little saving of time or costs if the proceedings are heard together due to the unique nature of the different claims. While there may be an element of truth in that position, an order that the proceedings be heard together is very likely to avoid some duplication of work and unnecessary additional costs arising from conducting two separate proceedings.

27    In response to a subpoena issued by the Commissioner, the Liquidators have produced what is said to be a large amount of material subject to an implied undertaking by the Commissioner not to use that material for any purpose other than the proceedings commenced by the Receivers. The evidence of Ming-Jung Hsieh sworn 31 October 2018 is that the Liquidators would not oppose that material being used by the Commissioner in the Queensland proceeding. If the documents are relevant to the issues in the Queensland proceeding commenced by the Liquidators, those documents will no doubt become available for admission into evidence to test the issues alive in that proceeding. I do not regard this issue about the earlier production of documents in the New South Wales proceeding as being a material consideration in the exercise of the discretion on the transfer question.

28    The Liquidators submit that the Receivers’ claim is significantly more advanced than the Liquidators’ claim which is said to still be in “its infancy”. While the transfer of the Queensland proceeding might be said to potentially prejudice the quick resolution of the Receivers’ claim because it is more advanced, this is not an insurmountable hurdle to the application, and something which can be effectively dealt with by case management by the docket judge.

29    It was submitted for the Liquidators that there is a small amount of funds in the Liquidation and accordingly, the Liquidators are highly sensitive to costs being incurred. On this basis, it was submitted that the Liquidators would be prejudiced by the hearing of the proceedings together because of the additional legal costs in respect of the likely extended trial, and the resultant increased hearing fee. Additionally, if hearing the matters together results in the hearing being conducted in Sydney, the Liquidators say that prejudice will arise because they and their lawyers are based in Brisbane and they will have to incur travel costs, accommodation costs and the costs of the retention of agents in Sydney.

30    While I accept that there is likely to be some additional costs incurred by the Liquidators, I am not satisfied that this consideration rises above the difficulty of potential inconsistent findings of fact if the proceedings are heard and determined separately. Additionally, I am reasonably satisfied that the likelihood of additional costs can, to a great extent, be ameliorated by Thawley J as the docket judge of the Receivers’ proceeding and also that of the Liquidators’ proceeding. The availability of video-conferencing facilities and telephone links can assist the Liquidators by obviating the need to incur the costs associated with legal representatives appearing in person (such as airfares, accommodation etc).

31    Having regard to the above considerations, I am satisfied that the interests of justice are served by hearing both proceedings together.

32    The mechanism for achieving that outcome is to transfer the proceeding commenced in the Queensland Registry to the New South Wales Registry of the Court to be case-managed by Thawley J. Section 48 of the Federal Court of Australia Act 1976 (Cth) gives the Court the power, at any stage of the proceeding, to direct that the proceeding be continued at a place specified in the order, subject to such conditions (if any) as the Court imposes. The Federal Court is Australia’s national Court exercising both original and appellate jurisdiction. The Court is organised according to National Practice Areas. A transfer of a proceeding from one Registry to another Registry is not in the same nature as a transfer of a proceeding from one Court to another Court. Proceedings in any of the National Practice Areas are conducted according to the National Practice Notes for each area. A proceeding in any of the National Practice Areas will be conducted by specialist judges in each Registry experienced in the particular aspects of the discipline in issue. The national character of the Court means that a proceeding in the relevant practice area will be conducted in the same way (subject to the particular demands of the matter as determined by the docket judge) notwithstanding that the proceeding is conducted in Perth, Melbourne, Adelaide, Brisbane or Sydney. The same principles apply in relation to proceedings in the Hobart and Darwin Registries although in proceedings commenced in those Registries, judges from other Registries are likely to be heavily involved in the particular matter. The national character of the Court neither tells in favour of, or against, a transfer of a matter because the conduct of the proceeding, either way, will be the same.

33    That being so, the real issue to be determined in a transfer application is whether there are factors relevant to each of the proceedings which warrant one proceeding being transferred to another Registry where it is likely to be heard together with another proceeding so as to address common questions of fact or law. In this case, the critical matter is the need to avoid the risk of inconsistent findings on common questions of fact. The extent of the commonality in the contested substratum of fact can readily be seen from the pleadings.

34    In the result, the proceedings commenced by the Liquidators ought to be transferred to the New South Wales Registry of the Court to be heard and determined before Thawley J together with the proceeding commenced by the Receivers.

35    Accordingly, the order will be that pursuant to r 2.02 of the Federal Court Rules 2011 (Cth), this proceeding be transferred to the New South Wales Registry of the Federal Court of Australia.

36    I am not willing to make an order that the proceeding commenced by the Liquidators be heard together with the proceeding commenced by the Receivers. My own view is that both proceedings ought to be heard together. However, ultimately that is a matter for the docket judge. Similarly, I am not willing to make an order that evidence in the New South Wales proceeding be evidence in the proceeding commenced by the Liquidators. That is a matter for the docket judge. My own view is that such an order makes sense but I do not wish to tie the hands of the docket judge as to the way in which procedurally the matter ought to proceed.

37    As to the costs, I will simply reserve the question of the costs of this application to the ultimate determination of the proceedings.

Associate:

Dated:    12 November 2018