Supreme Court New South Wales Medium Neutral Citation: In the matter of Bluemine Pty Ltd (in liq) [2019] NSWSC 1474 Hearing dates: 22 October 2019 Date of orders: 22 October 2019 Decision date: 22 October 2019 Jurisdiction: Equity - Corporations List Before: Black J Decision: Release Applicants from implied undertaking to permit their undertaking specified actions. The Notice of Motion filed 20 September 2019 otherwise be dismissed. The Applicants and Eleventh Defendant pay the costs of and incidental to the application, as agreed or as assessed. Catchwords: CIVIL PROCEDURE – implied undertakings – release – where documents the subject of release from implied undertaking are limited to use in settlement discussions with Commissioner of Taxation – whether leave should be granted releasing applicants from the implied undertaking. CORPORATIONS – winding up – liquidators – application for appointment of special purpose liquidators – where special purpose liquidators to be appointed for sole purpose of lodging objection under Pt IVC of Taxation Administration Act 1953 (Cth) – where no merits assessment as to whether objection should be lodged to be made by special purpose liquidators – where funding inadequate for proper merits assessment – whether special purpose liquidators should be appointed. Legislation Cited: - Civil Procedure Act 2005 (NSW) s 56 - Corporations Act 2001 (Cth) ss - Evidence Act 1995 (NSW) s 135 - Insolvency Practice Schedule (Corporations) s 90-15 - Taxation Administration Act 1953 (Cth) Pt IVC Cases Cited: - Allsene Pty Ltd v Federal Commissioner of Taxation (1989) 20 ATR 1688 - GDK Products Pty Ltd, Re Ray Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 - Gusdote Pty Ltd (admin apptd) v North Queensland Land Development Pty Ltd (in liq) (No 4) [2012] FCA 759 - Harman v Secretary of State for the Home Department [1983] 1 AC 280 - Hearne v Street (2008) 235 CLR 125 - Lo v Nielsen and Moller Autoglass (NSW) Pty Ltd [2008] NSWSC 407 - Melhelm Pty Ltd v Boka Beverages Pty Ltd (in liq) [2019] FCA 1184 - Morony v Reschke [2017] NSWSC 544 - Re Ambient Advertising Pty Ltd (in liq) [2015] NSWSC 1079 - Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217 Category: Procedural and other rulings Parties: Mitchell Warren Ball in his capacity as Liquidator of Bluemine Pty Limited (in liq) (1st Plaintiff/ Respondent) Bluemine Pty Limited (in liq) (2nd Plaintiff/ Respondent) LAM Haulage Pty Ltd (3rd Defendant/Applicant) MAL Land Group Pty Ltd (4th Defendant/Applicant) The Great Brothers Pty Ltd (5th Defendant/Applicant) Andre Abou-Antoun (20th Defendant/Applicant) Michael Abou-Antoun (21st Defendant/Applicant) AKA (NSW) Pty Ltd (23rd Defendant/Applicant) AKA (Civil) Australia Pty Ltd (24th Defendant/Applicant) Gino Cassaniti (11th Defendant) Representation: Counsel: I D Faulkner SC/S/v Shepherd (Plaintiffs/Respondents) R L Seiden SC/R Johnson (3rd, 4th, 5th, 20th, 21st, 23rd, 24th Defendants/Applicants) S Golledge SC/I S Young (11th Defendant) Solicitors: Craddock Murray Neumann (Plaintiffs/Respondents) Lionheart Lawyers (3rd, 4th, 5th, 20th, 21st, 23rd, 24th Defendants/Applicants) Kekatos Lawyers (11th Defendant) File Number(s): 2016/256135 (014) Judgment – ex tempore (revised 23 october 2019) Application for release from implied undertaking 1. By Notice of Motion filed on 20 September 2019, the Applicants, LAM Haulage Pty Ltd and others, first, seek orders including a release from the implied undertaking, referred to by reference to Hearne v Street (2008) 235 CLR 125 but also often referred to as originating in Harman v Secretary of State for Home Department [1983] 1 AC 280, in respect of certain documents, for the purpose of engaging in settlement discussions with the Commissioner of Taxation. The Plaintiff, Mr Ball in his capacity as liquidator of Bluemine Pty Ltd (in liq) ("Bluemine") and other companies does not oppose that release from the implied undertaking, limited to discussion of the matters with the Commissioner of Taxation, and applicable both to proceedings 2016/256135 in which the application was sought and also to proceedings 2016/194955. So far as the order sought is substantive in nature, the Court nonetheless needs to be satisfied that it is properly made. 2. It appears, from the evidence led by the parties, that it is at least the Applicants' perspective that there is a logical relationship between claims brought in these proceedings by Mr Ball as liquidator of Bluemine and other companies against Defendants including the Applicants and tax assessments which have now been issued in respect of some of the Applicants. That proposition is advanced in the Applicants' submissions on the basis that any settlement between the Applicants and the Commissioner of Taxation would reduce the claims of the Deputy Commissioner of Taxation in the liquidation of Bluemine and other companies and, by extension, reduce the claims of the liquidators of the relevant companies in the proceedings. It is not necessary to determine for present purposes whether that is correct or not, and I am content to proceed on the basis that the Applicants have that understanding, and it would therefore impact upon any discussions which they seek to undertake with the Commissioner of Taxation in order to settle the tax assessments made in respect of them. I also proceed on the basis that it would be for the benefit of creditors of the companies if claims in the liquidation can be reduced, including by other recoveries by the Deputy Commissioner of Taxation, although I recognise that less may turn upon that proposition if the only creditor in the liquidation is the Deputy Commission of Taxation. 3. I reviewed the circumstances in which the Court can make such an order in Morony v Reschke [2017] NSWSC 544, on which I drew for the purpose of this judgment. The implied undertaking, as recognised in Harman v Secretary of State for the Home Department above was in turn considered by the High Court in Hearne v Street above to which the Applicants referred. There are uncertainties as to the point at which an exception to the implied undertaking will be available where evidence is read in Court, although those uncertainties likely do not arise here because the affidavits of Mr Zafiriou as to which the release is sought have not yet been read at the substantive hearing, which is due to take place early next year. A release from the implied undertaking may also be granted where there are "special circumstances" involving a special feature of the case which affords a reason for releasing the undertaking that is not usually present: Springfield Nominees Pty Ltd v Bridgelands Securities Ltd (1992) 38 FCR 217. That approach has been applied in subsequent cases, including Morony v Reschke above to which I have referred. What would ordinarily be required is not extraordinary factors but simply that good reason be shown that, contrary to the usual position, the documents should be able to be used in another way. 4. It seems to me that such good reason exists here. The proceedings plainly involve complex dealings amongst a number of parties; the Applicants, rightly or wrongly, perceive that there is a logical connection between the claims brought by the liquidator and the further tax assessments upon themselves; and, where the Applicants have that perception, a settlement between them and the Commissioner of Taxation is unlikely to be practicable without their having the opportunity to address that proposition, and the basis of the claims in the proceedings, in any settlement discussions with the Commissioner of Taxation. Plainly, there would also be a significant degree of artificiality in such discussions, if the evidence in these proceedings could not be addressed. It would be anticipated that the Commissioner of Taxation is aware of the evidence given by its own officer, Mr Zafiriou, in these proceedings and the Applicants are also aware of that evidence, so far as they are parties to the proceedings. It seems to me that those matters, combined with the desirability of promoting settlement of disputes wherever it is practicable to do so, is sufficient to support the leave sought, and I more readily grant that leave where there is no opposition by the liquidator to that course. 5. For those reasons, I make the following order, modifying paragraph 6 of the Applicants' Notice of Motion, in each of proceedings 2016/194955 and 2016/256135: 1. For the purposes of engaging in settlement discussions with the Commissioner of Taxation, each of the Applicants and their legal representatives be released from the undertaking the subject of Hearne v Street (2008) 235 CLR 125 with respect to the following materials, so far as is necessary for them to discuss those materials with the Commissioner, its officers or representatives: (a) The pleadings of the First and Second Plaintiffs and of the Applicants in proceedings 2016/194955 and 2016/256135; (b) The affidavits of Aris Zafiriou sworn 9 March 2017 and 21 June 2018 in proceedings 2016/256135 and the exhibits thereto; (c) The affidavits of Aris Zafiriou sworn 9 March 2017 and 20 June 2018 in proceedings 2016/194955 and the exhibits thereto. Application for appointment of special purpose liquidator Nature of the application 1. By their Notice of Motion filed on 20 September 2019 the Applicants, LAM Haulage Pty Ltd and others, also seek orders under s 90-15 of the Insolvency Practice Schedule (Corporations) appointing Mr Tayeh and Ms McCallum as additional liquidators, or special purpose liquidators, to Bluemine for specified purposes. Those specified purposes were to object under Pt IVC of the Taxation Administration Act 1953 (Cth) to income tax and penalty assessments dated 24 November 2016 issued to Bluemine in respect of the 2012-2013 financial year and attend to matters incidental to that objection; review any reasons for decision in respect of a disallowance of the objection to the assessment; and obtain and consider legal advice in respect of those matters. 2. It was plain enough that that application presupposed that an objection should be made by the special purpose liquidators, because that was the first specified purpose for which their appointment was to be made, rather than contemplating that the special purpose liquidators would be appointed to investigate the merits of such an objection and then determine whether to make it. The Applicants sought to move to a somewhat different position in submissions. The Applicants also sought an order requiring the current liquidator of Bluemine to use reasonable endeavours to assist the special purpose liquidators in respect of those matters. Ancillary orders were also sought including, inter alia, an application that the remuneration of the special purpose liquidators be approved in advance of their appointment and in advance of their undertaking the relevant work. Plainly, there would have been difficulties with making such an order, but it will not be necessary to address that question, which was not addressed in oral submissions, where I am not satisfied that special purpose liquidators should be appointed in any event. 3. Before turning to the evidence in support of the application, I should note that the application had a somewhat unusual character, and was redolent, at times, of an exercise in medieval philosophy. Various assumptions and hypotheses were made and raised by the Applicants, and elegant and complex arguments were developed by reference to those assumptions or hypotheses. The Applicants did not seek to establish that those assumptions or hypotheses were true, which the Applicants expressly did not accept, but on consequences which might follow from them if they were true. That approach gave rise to a fundamental difficulty, because, it seems to me, a Court in appointing a special purpose liquidator will be concerned with the factual basis of the application, not matters of hypothesis. Affidavit evidence 1. The Applicants relied on an affidavit of one of the proposed special purpose liquidators, Ms Suelen McCallum, in respect of the application. Ms McCallum indicated that she made the affidavit in support of the application, and recognised the purpose for which she was proposed to be appointed, as being to bring an objection under Pt IVC of the Taxation Administration Act to the relevant penalty assessments. She gave evidence of consents by her and Mr Tayeh to appointment as special purpose liquidators. She also annexed a draft letter of engagement, which again recited the purposes of the engagement in a form corresponding to the application, commencing with a lodgement of the relevant objection, and not any investigation of its merit. 2. It was notable that Ms McCallum, in her letter of engagement, did not refer to any steps which were proposed to be taken by her and Mr Tayeh to investigate the merits of the objection that would be lodged whether, for example, by review of the extensive documentation relevant to the matter; examinations of persons who may be able to cast light on the matter; inquiries of the Applicants or other persons; or obtaining legal advice, apart from legal advice that was identified as relevant to the review of reasons for decision of a disallowance of the objection, after it was lodged. It was plain enough that, as matters initially stood, Mr Tayeh and Ms McCallum would have little capacity to undertake such wider steps to investigate the merit of the objection, because their engagement letter recognised that their fees were capped at $20,000 including GST, including all necessary disbursements and out-of-pocket expenses, and that the special purpose liquidators would require an upfront payment of that amount. It can be assumed, in the ordinary course, that the special purpose liquidators did not propose to do work which was not funded by that payment or any further indemnity. 3. When the limits to that funding were raised in submissions, the Applicants made an offer of increased funding of $100,000 and the Eleventh Defendant, who had intervened in support of the Applicants' application, offered to contribute a further $25,000 to funding the special purpose liquidators. There seemed to me to be two difficulties at that point. The first is that, having regard to the complexity of the matters in issue, and the seriousness of the matters which it was suggested that the special purpose liquidators might raise in an objection to the assessment, including allegations that transactions in which Bluemine and the Applicants and the Eleventh Defendant were involved were a sham, an amount of $125,000 is still a relatively modest funding for a full documentary review, factual inquiry and taking any necessary advice. Second, the special purpose liquidators had proceeded on the basis that they would be funded to an amount of $20,000 inclusive of GST, and had not identified any work plan which would apply a larger amount of funding in any appropriate way, including to satisfy themselves as to the merits of the objection which the purpose of their appointment assumed they would make. 4. The Applicants also rely on an affidavit of Ms Cho, a solicitor acting for them, dated 20 September 2019, which again identifies the application for the appointment of a special purpose liquidator for the "limited purpose" of objecting under, relevantly, Pt IVC of the Taxation Administration Act and taking ancillary steps. Once again, the purpose of the application was not formulated in any way which would contemplate the special purpose liquidators undertaking any merits assessment of the objection, as distinct from proceeding to lodge it, on the basis that that was the purpose of their appointment. Ms Cho also identifies several documents sought to be tendered, although a number of those documents were ultimately not tendered and the associated paragraphs of her affidavit were not read. 5. By a further affidavit dated 11 October 2019, Ms Cho indicated those documents which would not be tendered from her earlier affidavit, and referred to several documents now sought to be tendered, being reasons for decision made by the Australian Taxation Office ("ATO") in respect of assessments of several of the Defendants. Those documents were in turn tendered, in heavily masked form, by reference to a claim for self-incrimination made by one of the Applicants, for which no evidence was led. I admitted those documents, over objection by the liquidator by reference to lack of relevance and s 135 of the Evidence Act 1995 (NSW), but on the basis the Court was not a jury and would not give substantial weight to documents if they did not warrant them. Here, the masking of the documents was, particularly in respect of the reasons for decision in respect of AKA (Civil) Australia Pty Ltd and AKA (NSW) Pty Ltd, extensive by volume and appeared to obscure aspects of the facts relied on by the ATO and its reasoning process. It is not possible to draw any inferences as to the totality of the ATO's reasoning, where substantial aspects of the facts referred to, and the conclusions it has drawn from them, are masked. What is left is not meaningful, where potentially relevant factual findings and reasoning are obscured by masking significant parts of the whole. 6. The liquidator in turn relied on the affidavit of Mr Ball dated 2 October 2019, which identified the creditors which had lodged claims in respect of the liquidation of Bluemine and indicated that, given the rejection of several claims, the Deputy Commissioner of Taxation may now be the only creditor of Bluemine. Applicable legal principles 1. Turning now to the matters in issue in the application, I do not understand there to have been any particular controversy as to the circumstances in which a special purpose liquidator may be appointed. Such a liquidator may be appointed to perform a particular task which the existing liquidator is unable to perform by reason of a conflict of interest, if it would be in the interests of creditors and contributories for that task to be performed, and for the existing liquidator to remain in office: see, for example, Lo v Nielsen and Moller Autoglass (NSW) Pty Ltd [2008] NSWSC 407; Re Ambient Advertising Pty Ltd (in liq) [2015] NSWSC 1079. Such an appointment may now be made under s 90-15 of the Insolvency Practice Schedule (Corporations) and such an appointment was made, for example, in GDK Products Pty Ltd, Re Ray Umberto Pty Ltd (in liq) v Umberto Pty Ltd (in liq) [2018] FCA 541 at [32]. 2. Mr Golledge, who appears for the Eleventh Defendant, points out that a special purpose liquidator may be appointed to pursue a claim without establishing a certainty of success of that claim, and that it is likely to be sufficient that there is at least a reasonably arguable case for that claim: see, for example, Gusdote Pty Ltd (admin apptd) v North Queensland Land Development Pty Ltd (in liq) (No 4) [2012] FCA 759; Re Ambient Advertising Pty Ltd (in liq) above; Melhelm Pty Ltd v Boka Beverages Pty Ltd (in liq) [2019] FCA 1184. I proceed on that basis, and the Applicants need not demonstrate that the objection which they seek to have lodged would likely succeed or would certainly succeed. However, it seems to me that these cases proceed on the basis that the nature of the claim to be brought will at least be clearly identified, and its factual basis will be identified, so the Court can form an assessment of whether there is in fact a reasonably arguable case for the claim, or even, at a lesser threshold, that the claim is properly made. The difficulty here is that, as will emerge, the fundamental basis of the Applicants' claim for appointment of a special purpose liquidator was no more than that, if certain facts existed, by reference to their perception of what the liquidator contends in the proceedings, which they did not accept to be true, then certain consequences might follow. That proposition was, it seemed to me, hypothetical, so far as it depended, not only upon the question whether the liquidator's case should be understood as they understand it, but also upon whether those propositions would be established where neither the Applicants nor the Eleventh Defendant accepted that they were correct. 3. Ms Seiden, who appears with Mr Johnson for the Applicants, submits that their noncommittal approach is understandable, because they are presently Defendants in the substantive proceedings, and, implicitly, do not wish to commit themselves to any particular factual position in their defence of the proceedings. However, the difficulty of that course is that the Applicants' unwillingness to confirm the factual basis of the objection which they wish to have the special purpose liquidator put, or offer evidence to support it in this application, would deprive the special purpose liquidator of the matters which might support the very objection that they sought to have made. It is, of course, one thing for the Applicants to reserve their position, so far as a defence of substantial civil proceedings is concerned, subject to their obligations under s 56 of the Civil Procedure Act 2005 (NSW). It is, however, quite another thing to reserve their position, and at the same time to submit that a particular version of events should be assumed, without evidence, by a special purpose liquidator who is tasked to lodge an objection on the basis of it. 4. Ms Seiden, doing the best she could within the limitations which she fairly acknowledged arose from these matters, took the Court to the Amended Statement of Claim and the allegations made by the liquidator in the proceedings brought against the several Defendants. She pointed, in particular, to allegations as to the participants in what is described as a "scheme"; to the characterisation of that scheme as a "conspiracy" and a "dishonest and fraudulent scheme" and to the factual elements of the scheme said to have been constituted in a "Scheme Recommendation". That is alleged to have involved that, inter alia, that Bluemine would make or receive payments or purport to provide goods or services, which would either never be provided or be provided at inflated rates or prices, or would receive income or make payments for no genuine provision or acquisition of goods or services; Bluemine would issue purported tax invoices, which is there likely to refer to false tax invoices, for goods or services; recipients of those invoices would pay the relevant tax invoice; and amounts would then be distributed to other parties as part of the implementation of the scheme, so as to allow an opportunity to claim a GST credit or certain expenses as deductions to participants in the scheme. Ms Seiden in turn refers to the pleading of relevant transactions in respect of several of the Defendants in that regard and to the pleading of the purpose and effect of the alleged "fraudulent scheme". Ms Seiden seeks to characterise that pleading, and Mr Golledge also adopted that characterisation for the Eleventh Defendant as involving an allegation of a "sham" in the sense of a transaction which is not what it purports to be or does not create the rights and obligations it appears to create. It is by no means apparent to me that the liquidator pleads a sham in that sense, as distinct from pleading a fraudulent scheme that was intended to have operative, but fraudulent, effect. Ms Seiden made clear that the Applicants did themselves not contend that the transaction was a sham in that sense, and the Eleventh Defendant did not commit himself to any particular factual position in that regard. 5. Ms Seiden in turn contended, by way of an assumption or hypothesis, which the Applicants did not seek to establish as a fact, and the deduction of its consequences, that, if the transaction was a sham (which the Applicants did not accept), then the consequence would be, or might be, that Bluemine had not derived the income as to which the Deputy Commissioner of Taxation had purported to assess it, by reference to the decision of the Federal Court of Australia in Allsene Pty Ltd v Federal Commissioner of Taxation (1989) 20 ATR 1688 at 1784. An obvious difficulty with that conclusion is that it depends upon its premise, and upon the special purpose liquidators' ability to establish that premise in any objection that is taken, if neither the Applicants nor the Eleventh Defendant contend for it, and the liquidator itself pleads the falsity of the transaction, rather than that it did not have effect in accordance with the steps said to constitute the alleged scheme. 6. Ms Seiden in turn developed elaborate submissions, which were intended to point to the difficulty faced by the Applicants where, in the proceedings brought by the liquidator, the assessment of Bluemine's liability to tax was conclusive, so far as those proceedings might be characterised as tax recovery proceedings in the particular circumstances, and the Applicants did not themselves have the capacity to challenge that assessment in those proceedings. They submitted that Bluemine would have the opportunity to do so by steps taken under Pt IVC of the Taxation Administration Act. Ms Seiden in turn advanced submissions, again in terms that suggested the hypothetical character of the Applicant's case, that, if the liquidator's case as pleaded was made out, then, she contended, Bluemine would have been assessed on funds flowing from the Applicants that were not derived by Bluemine, again on the assumption that the transaction was a sham (as distinct from fraudulent) or that the receipt of those funds by Bluemine in fact could not be characterised as a beneficial receipt by them. Mr Golledge in turn took that submission somewhat further, by suggesting that it could be oppressive for the Defendants in these proceedings to be placed in a position where they are faced by a conclusive assumption as to Bluemine's liability for tax in the proceedings, but have no capacity to challenge that assumption, including by Bluemine objecting to the assessment. 7. It seems to me that that submission turns on a false premise. It was, of course, always open to the Applicants, or indeed the Eleventh Defendant, to seek to establish their account of the true character of the transactions in this application, so as to show that they were in fact a sham, so that there was a proper basis for the special purpose liquidators to bring the objection which they sought to have then brought on that basis, rather than approaching the application on a hypothetical basis. I accept that, for strategic reasons, they may have preferred not to adopt that approach, and that that choice may have been a rational one in the relevant circumstances. It does not follow, however, that they did not have the opportunity to establish the relevant facts that would be available to a special purpose liquidator, in bringing the objection, in order to allow an assessment of whether that objection was properly brought and whether it had a prospect of success. That is not, in my view, any lack of opportunity, but a choice made in the relevant circumstances to adopt one approach and not another. 8. For all of these reasons, I am not satisfied that a special purpose liquidator should be appointed in this case. In summary, it does not seem to me that it has been established that there is in fact a reasonably arguable case for the objection which the applicant seeks to have the special purpose liquidator bring, because all that has been put is a hypothesis based on the liquidator's case in these proceedings, which the Applicants and the Eleventh Defendant do not accept. The Applicants could have, but in fact did not, articulate the factual basis of the reasonably arguable case which might have supported such an objection. Second, and equally important, it seems to me that the application, as framed, assumed, both in its formulation, in the evidence led by Ms McCallum and Ms Cho in support of it, and in the special purpose liquidators' letter of engagement, that an objection would be brought, rather than contemplating a proper and full inquiry to establish whether it had a proper basis and any real prospect of success before it was brought. Third, even if the special purpose liquidators had contemplated such an inquiry, it is difficult to see how they could have carried it out, if each of the Applicants and the Eleventh Defendant continued to remain non-committal as to what the relevant facts were. Fourth, in any event, the application that was initially brought was not sufficiently funded, and the suggested increase in funding does not resolve that difficulty, when the proposed special purpose liquidators have not directed their minds to how they would go about establishing whether the objection had a proper basis, where that was not seen as a purpose of the application, or how they would apply the relevant funding to do so. For all these reasons, the application should be dismissed. 9. Mr Faulkner, who appears with Mr Shepherd for the liquidator, submits that an order should be made that expressly identifies the fact that costs should be paid by the Applicants and the Eleventh Defendant. It is plain enough that costs should be paid by the Applicants, on the basis that costs should follow the event on dismissal of the application. Mr Golledge, for the Eleventh Defendant, fairly recognises the obvious, that the Eleventh Defendant adopted the arguments put by the Applicants, and advanced further arguments in support of the Applicants' position and, on that basis, does not put submissions contrary to the proposition that the Eleventh Defendant should also pay the costs of the application. 10. I therefore make the following orders so far as the application for appointment of the Special Purpose Liquidator and associated orders is concerned: 1. The Notice of Motion filed 20 September 2019 be dismissed. 2. The Applicants, being the Third to Fifth, Twentieth to Twenty-First, and Twenty-Third to Twenty-Fourth Defendants in the proceedings, and the Eleventh Defendant, pay the costs of and incidental to the application, as agreed or as assessed. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 28 October 2019