FEDERAL COURT OF AUSTRALIA Commissioner of Taxation v Grimaldi (No. 8) [2009] FCA 769 COMMISSIONER OF TAXATION v PHILLIP GRIMALDI, GARRY BONACCORSO, IFTC BROKING SERVICES LTD, MGG CAPITAL PTY LIMITED AS TRUSTEE FOR WEBTEL MANAGEMENT SUPER FUND and INTERNATIONAL FINANCE TRUST COMPANY LTD (FIFTH RESPONDENT ON THE NOTICE OF MOTION FILED IN COURT ON 11 MAY 2009) NSD 407 of 2009 GRAHAM J 13 JULY 2009 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY general division NSD 407 of 2009 BETWEEN: COMMISSIONER OF TAXATION Applicant AND: PHILLIP GRIMALDI First Respondent GARRY BONACCORSO Second Respondent IFTC BROKING SERVICES LTD Third Respondent MGG CAPITAL PTY LIMITED AS TRUSTEE FOR WEBTEL MANAGEMENT SUPER FUND Fourth Respondent INTERNATIONAL FINANCE TRUST COMPANY LTD Fifth Respondent (on the Notice of Motion filed in Court on 11 May 2009) JUDGE: GRAHAM J DATE OF ORDER: 13 JULY 2009 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Order 4 of the orders made on 9 July 2009 be varied to read: Orders 1, 2 and 3 may be entered forthwith. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 407 of 2009 BETWEEN: COMMISSIONER OF TAXATION Applicant AND: PHILLIP GRIMALDI First Respondent GARRY BONACCORSO Second Respondent IFTC BROKING SERVICES LTD Third Respondent MGG CAPITAL PTY LIMITED AS TRUSTEE FOR WEBTEL MANAGEMENT SUPER FUND Fourth Respondent INTERNATIONAL FINANCE TRUST COMPANY LTD Fifth Respondent (on the Notice of Motion filed in Court on 11 May 2009) JUDGE: GRAHAM J DATE: 13 JULY 2009 PLACE: SYDNEY REASONS FOR JUDGMENT 1 By a Notice of Motion filed 11 May 2009 the applicant sought freezing orders against the assets of the four respondents to the proceedings and also a 'third party', International Finance Trust Company Limited. As it transpires, freezing orders were made by consent as against the first and fourth respondents, represented by one solicitor, and as against the second respondent, represented by another. The third and fifth respondents were represented by a third solicitor, but they resisted the making of freezing orders against them. Part of their case was that the freezing orders that were sought were supplemental to orders which had a like effect made by Hislop J on 25 October 2008 in the Common Law Division of the Supreme Court of New South Wales. 2 The third and fifth respondents or at least one of them has, as I understand it, challenged the relief ordered by Hislop J in the New South Wales Court of Appeal and challenges have also been made to the Supreme Court's power in respect of the making of such orders in the High Court of Australia on a Constitutional challenge. At 6.30 pm on 13 July, 2009, as I am dealing with the current question of costs, I do not have the complete details of those challenges in mind. My recollection is that earlier orders of Hoeben J may have been the subject of the Constitutional challenge. Be that as it may, the application for freezing orders against the third and fifth respondents came before me as the docket judge on 19 May, 20 May, 22 May, 1 June and 5 June 2009, when available time permitted. 3 I delivered my judgment in respect of the application for freezing orders against the third and fifth respondents on 9 July 2009. I ordered that the applicant's application for relief against the third respondent in terms of paragraph 4 of the Notice of Motion filed 11 May 2009 be dismissed, and I also ordered that the applicant's application for relief against the fifth respondent in terms of paragraph 6 of the Notice of Motion filed 11 May 2009 be dismissed. I made an order as to costs in these terms: 'Order that the third and fifth respondents pay one quarter of the costs of the applicant of the Notice of Motion filed 11 May 2009'. I ordered that orders 1 and 2 may be entered forthwith, but that order 3 (the costs order) should not be entered before 17 July 2009, and I granted liberty to apply in respect of order 3. 4 Pursuant to that liberty to apply, I have before me an application by counsel for the third and fifth respondents, who did not appear on the hearing of the Motion for the freezing orders, except on 19 May 2009, when he appeared with Mr G J Jones. 5 When I declined to make the freezing orders on 9 July 2009 I said at [75] of my reasons for judgment (Commissioner of Taxation v Grimaldi (No. 3) [2009] FCA 740): '75 In the exercise of my discretion, I do not consider that further freezing orders should be made in respect of the assets of the third and fifth respondents at this stage. I am mindful of the terms of Mr Stewart's email to Aaron Lyne of 17 October 2008, but, since then another restraining order has been made which has been registered in the High Court of New Zealand, the third and fifth respondents have each appeared unconditionally in these proceedings and they have each given undertakings to this Court in the terms indicated above.' 6 At [77]-[78] I said in respect of costs: '77 However, given the progression of the matter, and the timing of the giving and amplification of the undertakings to the Court by the third and fifth respondents, I consider that the third and fifth respondents should, nevertheless, be ordered to pay one quarter of the applicant's costs of the motion. It will be appreciated that the costs of the motion as between the applicant and the second respondent have been reserved, as have the costs of the motion as between the applicant and the first and fourth respondents. 78 I will delay the implementation of the order as to costs which I have proposed, to allow oral submissions thereon to be made, should any of the applicant, the third respondent or the fifth respondent wish to do so, within the next 7 days. In that regard I reserve liberty to apply.' 7 No application has been made by the applicant for a more favourable order as to costs. However, the third and fifth respondents have sought an order that the applicant pay the costs of the third and fifth respondents as from, as I understand, it the giving of an undertaking to the Court on 20 May 2009, the second day of the hearing of the motion before me. They have sought that the order for costs in their favour should be on an indemnity basis. As I said at [10] - [11] of my earlier reasons for judgment: 10 On 20 May 2009 the third and fifth respondents by their counsel without admissions and without prejudice to any entitlement to resist the making of a freezing order gave to the Court an undertaking that the third and fifth respondents would take no steps which may be open to them to dispose of or otherwise deal with their assets restrained by the orders made by Hislop J in the Supreme Court of New South Wales on 25 October 2008 in proceeding No. 12212 of 2008 in the Common Law Division, without first giving 14 days' notice to the applicant. It was noted that the undertakings proffered were given severally by the third and fifth respondents. 11 At the commencement of the day on 22 May 2009 separate undertakings to the Court were formally given by the third and fifth respondents. These were as follows: (a) The third respondent by its counsel gives the following undertaking to the Court: 'Without admissions, and without prejudice to any entitlement to resist the making of a freezing order, the third respondent will take no steps which may be open to it to dispose of or otherwise deal with the assets restrained by the orders made by Hislop J on 25 October 2008 in Supreme Court of New South Wales proceeding 12212 of 2008, without first giving 14 days' notice to the applicant.' (b) The fifth respondent by its counsel gives the following undertaking to the Court: 'Without admissions, and without prejudice to any entitlement to resist the making of a freezing order, the fifth respondent will take no steps which may be open to it to dispose of or otherwise deal with the assets restrained by the orders made by Hislop J on 25 October 2008 in Supreme Court of New South Wales proceeding 12212 of 2008, without first giving 14 days' notice to the applicant.' On 5 June 2009 each of the third and fifth respondents by their counsel added to their undertakings to the Court the words 'by his solicitor, the Australian Government Solicitor (Attention Denis Stokes/Tanya Sklepic)' after the words 'notice to the applicant'. Later on the same day the undertakings were further extended to be expressed as undertakings to the Court on behalf of the third respondent, its directors and officers and, later still, on behalf of the third respondent, its directors and other officers, servants and agents in the one case and on behalf of the fifth respondent its directors and officers and, later still, on behalf of the fifth respondent, its directors and other officers, servants and agents on the other.' 8 I should interpolate that when originally proffered the undertakings of the third and fifth respondents given on 20 May 2009 were expressed so as to allow the undertakings to be withdrawn on two days' notice. The transcript of 20 May 2009 at pages 20-24 records an exchange between myself and Senior Counsel for the applicant as follows: 'HIS HONOUR: 'I must confess, Mr McGovern [senior counsel for the applicant], I'm struggling to find out - to think of how a freezing order directed to the same companies can provide you more assistance than the undertakings offered by those companies but no doubt you can persuade me in due course that in some way an injunction would have a higher standing than an undertaking to the court. [SENIOR COUNSEL FOR THE APPLICANT]: Well, your Honour, the undertaking to the court is to give us two days notice of their intention to deal with the assets. … HIS HONOUR: Are you saying that if the two day undertaking became a five day undertaking or something of that nature that would be acceptable? [SENIOR COUNSEL FOR THE APPLICANT]: No, I'm not saying that at all, your Honour. What I'm saying is that we'll deal with each and every offer. If there are any other offers we'll deal with them as they come forward. … HIS HONOUR: … as I would understand it, and the Commissioner would be running the case against the parties who have given the undertaking on the basis that if the Commissioner doesn't do any better presumably an indemnity costs order would be made against the Commissioner for wasting the Court's time. … HIS HONOUR: Well, at the moment I have attempted to make a comment which might have elicited an offer from [counsel for the third and fifth respondents] of more than two days … … HIS HONOUR: … but it has not been forthcoming at the moment.' 9 When invited to have some time to consider the matter, counsel for the third and fifth respondents, then appearing for them, indicated that he would appreciate an opportunity to consider the possibility of a revised undertaking to the court being offered. Later, at page 22, the transcript records my exchange with senior counsel for the applicant continuing with: 'HIS HONOUR: Well, in due course you'll have to explain to me how the expression of your freezing orders provides greater protection than that which is being offered by the undertaking.' …' 10 After the adjournment requested by counsel for the third and fifth respondents, the Court resumed sitting at 3.25 pm on 20 May 2009, whereupon counsel for the third and fifth respondents offered the version of the undertaking to the Court mentioned in paragraph [10] of my earlier reasons for judgment (see [7] above). Whilst a successful party would normally secure an order for costs, costs do not necessarily follow the event and where special circumstances exist, it may be appropriate to make an order that a successful party or a seemingly successful party be ordered to pay costs. 11 Counsel presently appearing for the third and fifth respondent submits that the third and fifth respondents were successful on the Motion filed 11 May 2009, because the application for freezing orders against his clients were dismissed. He did not, however, address the question of what, if any, orders would have been appropriate in the exercise of the Court's discretion if his clients had not proffered the undertakings to the Court which they did, and which were refined to make them more attractive as a substitute for injunctive relief through to the last day of hearing of the Notice of Motion. 12 Senior counsel for the applicant has urged that, as he understood the reasons for judgment, freezing orders would have been made against the third and fifth respondents if the undertakings in the form in which they were ultimately given had not been proffered. 13 In my opinion, the circumstances of this case were special, and whilst I have not made an order that the third and fifth respondents pay all of the costs of the Motion, it seemed to me that it would be inappropriate to make an order for costs in the third and fifth respondent's favour or, indeed, to make no order as to costs. In the exercise of my discretion, it seemed to me appropriate that the order should be made which I proposed in paragraph [78] of my earlier reasons. 14 I have now had the benefit of detailed oral submissions from both parties in relation to the third and fifth respondents' application to have a different order made. I am not persuaded by the matters that have been advanced by counsel for the third and fifth respondents in relation to the matter, and I propose to allow the order which I earlier proposed and which is referred to in paragraph 3 of the Court's orders of 9 July 2009 to stand. In substitution for that part of order 4 which precluded the entry of order 3 before 17 July 2007, I will vary Order 4 of the orders made on 9 July 2009 to read 'Orders 1, 2 and 3 may be entered forthwith.' I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Graham. Associate: Dated: 20 July 2009 Counsel for the Applicant: D B McGovern SC Solicitor for the Applicant: Australian Government Solicitor Counsel for the Third and Fifth Respondents: G A F Connolly Solicitor for the Third and Fifth Applicants: Atanaskovic Hartnell Dates of Hearing: 13 July 2009 Date of Judgment: 13 July 2009