Federal Court of Australia
Cooper as Liquidator of Runtong Investment and Development Pty Ltd (In Liq) v CEG Direct Securities Pty Ltd (Costs) [2024] FCA 120
ORDERS
NICHOLAS DAVID COOPER AS LIQUIDATOR OF RUNTONG INVESTMENT AND DEVELOPMENT PTY LTD (IN LIQ) Plaintiff | ||
AND: | Defendant | |
DATE OF ORDER: |
THE COURT ORDERS THAT:
1. Pursuant to s 51A(1) of the Federal Court of Australia Act 1976 (Cth), the defendant pay to Runtong Investment and Development Pty Ltd (In Liq), interest on the judgment sum of $1,983,100.40 in the amount of FIVE HUNDRED AND TWENTY EIGHT THOUSAND, SEVEN HUNDRED AND TWO DOLLARS AND SEVENTY TWO CENTS ($528,702.72).
2. The defendant pay the plaintiff’s cost of the proceedings:
(a) Before 11.00am on 25 June 2021 on a party and party basis; and
(b) After 11.00am on 25 June 2021 on an indemnity basis.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
O’SULLIVAN J:
1 On 12 January 2024, I delivered judgment in this matter: Cooper as Liquidator of Runtong Investment and Development Pty Ltd (In Liq) v CEG Direct Securities Pty Ltd [2024] FCA 6 in which I ordered that pursuant to ss 588FF(1)(c) and 588FF(4) of the Corporations Act 2001 (Cth), CEG pay to Runtong Investment and Development Pty Ltd (In Liq) the sum of $1,983,100.40 (judgment sum).
2 I adjourned the questions of interest and costs.
3 The parties have been unable to agree interest or costs.
Interest
4 Runtong seeks interest pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) (FCA) from the date the Liquidators were appointed (18 June 2018) in the amount of $605,513.90.
5 Section 51A(1) of the FCA provides:
(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.
6 An award of pre-judgment interest under s 51A is mandatory unless good cause is shown to the contrary. CEG did not suggest that good cause existed such that pre-judgment interest should not be awarded.
7 There is no dispute between the parties as to the rate of interest, rather it is from the date upon which interest should run.
8 CEG submits the ordinary rule in a claim for relief under s 588FF of the Act is that that interest should be allowed from the date of demand by the Liquidators – 7 March 2019, or alternatively the date the claim was issued – 12 June 2019.
9 In support of that submission, CEG refers to Ferrier & Knight v Civil Aviation Authority [1994] FCA 1019; (1994) 55 FCR 28, a decision of the Full Court dealing with preference claims.
10 The Court referred: at p 92, to the observations of McLelland J in Spedley Securities Ltd (In Liq) v Western United Ltd (In Liq) (No 2) (1992) 10 ACLC 887, that a preference is void only as against the liquidator so that until a liquidator is appointed there can be no cause of action. The Court continued by referring to his Honour’s conclusions at pp 887-888 of Spedley that:
As a matter of principle and logic it is very difficult to see any proper basis for an award of interest in respect of a period prior to the accrual of any relevant cause of action.
11 Before continuing: at p 888:
I am not proposing any inflexible rule, but in the ordinary run of cases, particularly in the present case, it seems to me that it would not be proper to allow interest in respect of any period prior to a demand by the liquidator that any particular payment was in fact recoverable as a preference.
12 The Court preferred the reasoning of McLelland J in preference to two decisions of Hodgson J: Maurice Drycleaners Pty Ltd (In Liq) v National Australia Bank Limited (1990) 8 ACLC 798 and Hamilton v Commonwealth Bank of Australia (No 2) (1992) 10 ACLC to the effect that the appropriate commencement date in those matters, which were both preference claims, is the commencement of the winding up on the basis that a preference, once avoided, is treated as void from the commencement of the winding up.
13 The Court also considered: at p 92, that the cause of action in that matter arose, within the meaning of s 51A, only upon the appointment of the liquidators, however it also accepted: at p 93 that in the ordinary course, interest should be allowed only from the date of demand by the liquidators. The Court concluded that in all the circumstances there was nothing to displace the ordinary proposition that interest should run from the date of the demand.
14 The second decision relied upon by CEG is Kazar v Kargarian [2011] FCAFC 136; (2011) 197 FCR 113 at [88]-[94] (Greenwood, Rares and Foster JJ) is a decision dealing with, amongst other things, unreasonable director-related transactions.
15 In Kazar Foster J, (Greenwood and Rares JJ agreeing) observed that the general rule explained in Ferrier & Knight that interest should run from the date upon which the relevant demand is made by the liquidator is sound. However, Foster J considered: at [93], that a putative defendant to a liquidator’s statutory cause of action is entitled to know whether any particular action by the liquidator will, in fact, be pursued is entitled to know the basis upon which the cause of action will be pursued. It was on that basis that Foster J held that pre-judgment interest pursuant to s 51A(1)(a) should commence to run from the date when the proceeding was commenced.
16 Runtong refers to three authorities, each of which involved a claim against directors for insolvent trading: Fryer v Powell [2001] SASC 59; (2001) 159 FLR 433, a decision of the Full Court of the Supreme Court of South Australia; Smith v Bone (No 2) (2015) 233 FCR 568, [2015] FCA 389 and Aquisite Pty Ltd v Moss (No 2) [2023] FCA 727.
17 In Fryer at [115], Olsson J (Duggan and Williams JJ agreeing), observed that the making of a demand is not a pre-requisite to a cause of action arising for the recovery of compensation for loss resulting from insolvent trading pursuant to s 588M of the Act and that as a matter of convenience, interest was allowed to run from the date of appointment of a liquidator.
18 In Smith, Gleeson J (when a member of this Court) referred to Kazar and Fryer in the context of a contention by the defendants, that no interest should be awarded in respect of the plaintiff’s claim against the defendants for insolvent trading under s 588M of the Act.
19 Aquisite was also an insolvent trading claim where McElwaine J awarded pre-judgment interest pursuant to s 51A from the date of appointment of the liquidators.
Consideration
20 Although Full Court authority, it seems to me that the reason the Court departed from the general principle in Kazar from that in Ferrier & Knight and which it described as sound, is because of the particular facts in Kazar.
21 No matter the particular cause of action pursued by the liquidator, the question for the purposes of s 51A(1)(a) as to the commencement date for the calculation of pre-judgment interest is when the cause of action arose.
22 An action for recovery of an unreasonable director-related transaction is brought on the application of a company liquidator: s 588FF of the Act. It follows that until such time as a liquidator is appointed, no cause of action could arise.
23 As I have noted, the award of pre-judgment interest pursuant to s 51A(1)(a) is mandatory and its good cause is shown to the contrary. Nonetheless it seems to me that the date from which that interest should run is discretionary.
24 The benefit in this case was the reduction in the amount contingently owed by two of Runtong’s Directors personally by reason of personal guarantees those Directors had given to CEG in relation to loans to other companies. Runtong had provided a mortgage over its Land to CEG. That benefit was not reflected in monetary terms, and therefore the reduction of the Director’s personal liability, until such time as CEG exercised its security over Runtong’s Land.
25 The Liquidators were appointed on 18 June 2018. It was an agreed fact at trial that settlement on the sale of the Land by CEG occurred on 19 October 2018 and it was at that time that CEG received the proceeds of sale.
26 In the judgment, I concluded that the calculation of the benefit to be recovered pursuant to s 588FF(4) of the Act was not to be assessed as at the time the transaction is entered into: cf s 588FDA(2)(b): at [167] and following.
27 The Land was sold shortly after the appointment of the Liquidators. Had the Liquidators challenged the mortgage in question shortly after their appointment, is unlikely the matter would have been resolved in the time between their appointment and the sale of the Land by CEG.
28 Since the benefit in cash terms did not arise until CEG received the funds on completion, it seems to me that at the earliest, it was not until that time that any benefit to the creditors was able to be recovered by the Liquidators.
29 Nonetheless, no demand was made by the Liquidators until 7 March 2019.
30 Applying the Full Court’s reasoning in Ferrier & Knight, I consider that pre-judgment interest should run as from the date of demand being 7 March 2019 such that there will be an award of pre-judgment interest in the sum of $528,702.72.
Costs
31 Pursuant to r 25.01 of the Federal Court Rules 2011 (Cth) (FCR), on 23 June 2021, the plaintiff served a notice of offer to compromise (offer) on CEG.
32 The offer was in the sum of $900,000 together with costs of the action to be taxed in default of agreement. The offer provided that the offer was exclusive of costs.
33 The offer was not accepted and on that basis the plaintiff claims costs:
(a) Before 11.00am on 25 June 2021 on a party and party basis; and
(b) After 11.00am on 25 June 2021 on an indemnity basis.
34 The defendant submits that the offer did not comply with FCR 25.01 in that the offer did not say whether it was for an amount of money “plus costs” or an amount of money with the Court to decide costs. I do not accept that submission for the following reasons.
35 FCR 25.01 provides:
(1) A party (the offeror) may make an offer to compromise by serving a notice, in accordance with Form 45, on another party (the offeree).
(2) The notice must not be filed in the Court.
36 FCR 25.03 provides:
25.03 Offer to compromise—content
(1) The notice must state whether:
(a) the offer is inclusive of costs; or
(b) costs are in addition to the offer.
(2) If the offer is of a sum of money, the notice may separately specify the amount that represents:
(a) the offer in respect to the claim; and
(b) interest (if any).
37 FCR 25.05(3) provides:
25.05 Timing of offer
…
(3) An offer may be limited in time for which it is open to be accepted, however the time must not be less than 14 days after the offer is made.
38 The offer stated that:
… the Defendant pay to the Plaintiff the amount of $900,000 together with his cost of action to be taxed in default of agreement, in full and final settlement of all claims that the plaintiff may have against the Defendant in this proceeding.
And that:
… this offer is exclusive of costs.
39 In my view the notice clearly stated that the offer was in addition to costs.
40 Next, CEG submits that since the offer was only open for 30 days, it was not a valid offer within the meaning of the FCR.
41 Runtong submits that the minimum period for acceptance of the offer pursuant to FCR 25.05(2) is 14 days, which is less than the 30 days stated in the offer such that the offer is one that comes within the FCR.
42 I accept Runtong’s submission. FCR 25.05(3) provides that an offer may be limited in time for which is open to be accepted provided that time is not less than 14 days after the offer is made. Since the offer remains open for acceptance for 30 days, it was one which clearly came within the provisions of FCR 25.
43 Next, the defendant submits that notwithstanding the validity of the offer, the Court can still make an order inconsistent with the offer and in the circumstances it was reasonable not to accept the offer.
44 Those circumstances are that at the time the offer was made, the plaintiff’s claim was for approximately $12 million and the parties were exchanging communications about particulars.
45 I do not consider that any of those circumstances are such as to cause the Court not to apply the consequences of CEG not accepting the offer: FCR 25.14.
conclusion
46 There will be orders:
(1) Pursuant to s 51A(1) of the Federal Court of Australia Act 1976 (Cth), the defendant pay to Runtong Investment and Development Pty Ltd (In Liq), interest on the judgment sum of $1,983,100.40 in the amount of $528,702.72.
(2) The defendant pay the plaintiff’s cost of the proceedings:
(a) Before 11.00am on 25 June 2021 on a party and party basis; and
(b) After 11.00am on 25 June 2021 on an indemnity basis.
I certify that the preceding forty-six (46) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice O'Sullivan. |
Associate:
