Does the Rejection of a Calderbank Offer Automatically Give Rise to the Award of Indemnity Costs?
Linville Holdings Pty Ltd v Fraser Coast Regional Council (No 2) [2018] QSC 62
On the 6 November 2017, Jackson J of Brisbane’s Supreme Court handed down his decision in the matter of Linville Holdings Pty Ltd v Fraser Coast Regional Council [2017] QSC 252. Ultimately, his Honour concluded that for each of the financial years ending 30 June 2015, 30 June 2016 and 30 June 2017, the Fraser Coast Regional Council (FCRC) failed to validly make and levy rates and charges in accordance with the Local Government Act 2009.
Following this, Linville applied for an order for costs of the proceeding on the basis that on 23 March 2017, FCRC had rejected their offer to compromise. In doing so, Linville relied on the principle in Calderbank v Calderbank to argue that costs should be assessed on the indemnity basis.
However Jackson J contended that the refusal to accept a Calderbank offer did not of itself warrant the exercise of the courts discretion to award indemnity costs. Instead, he argued that a court must also consider whether the rejection of the offer was unreasonable in the circumstances.
Here, the Calderbank offer of compromise required that the FCRC compromise both the present proceeding and the related Magistrates Court proceeding. Although this was unusual, Jackson J concluded that “if FCRC agreed to waive those rates and charges in order to make the declarations sought in the present proceeding unnecessary, it was not unreasonable for Linville to propose the settlement of the Magistrates Court on similar terms.”
Despite this, the court held that just as Linville’s offer was not unreasonable, nor was FCRC’s rejection of it. Specifically, Jackson J contended that it was reasonable for FCRC to take into account that the course proposed by Linville would have favoured Linville over other ratepayers and that FCRC instead sought to have the matter resolved by judgment.
Thus, it was held that while FCRC should be ordered to pay Linville’s costs, the costs should not be assessed on the indemnity basis.
Federal Court: Asset Surplus Not Enough to Save Company from Insolvency
On 25 August 2017, the Deputy Commissioner of Taxation (DCT) filed an application to wind up Tank Sales Sydney Pty Ltd following the company’s failure to comply with a statutory demand issued in June 2017.
The demand related to an account deficit debt under the BAS provisions of the Income Tax Assessment Act 1977 (Cth) and amounted to $269,073.15 as at 16 June 2017. It included administrative penalties and general interest charges under the Taxation Administration Act 1953 (Cth) plus superannuation guarantee charges, and an additional charge for late payment.
Last November the company filed a notice of appearance, contending that it was not insolvent, but suffering a short term cash flow issue. Relevantly, the company argued that its assets outweighed its liabilities.
The matter was heard in the Federal Court on 27 March 2018, where the DCT relied on the judgement of Weinberg J in Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728 to establish its entitlement to a winding up order (unless the Company could rebut the presumption of insolvency.)
In seeking to prove their solvency, the company produced financials in support of their claim - including its 2016 and 2017 tax returns. However the DCT argued that such documents should not be allowed to be admitted to evidence because they were not audited and accordingly amounted to hearsay.
Farrell J accepted the financials, however concluded that little weight could be given to them in the absence of direct evidence to support the values indicated. Moreover, his Honour asserted that where assets cannot be converted into cash within a relatively short time, their disclosure will not prove effective in establishing solvency.
Ultimately, the court ordered that:
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- Tank Sales Sydney Pty Ltd be wound up in insolvency;
- David Lombe of Deloitte Financial Advisory be appointed the liquidator of the defendant corporation; and
- The Deputy Commissioner of Taxation's costs of proceedings be fixed at $2,897.98.
New Laws Urge ASIC to Consider Competition
On March 28, the Federal Government introduced the Treasury Laws Amendment (Enhancing ASIC’s Capabilities) Bill into Parliament, following recommendations of the Financial System Inquiry and the ASIC Capability Review. The Bill seeks to amend the Australian Securities and Investments Commission Act 2001 (“ASIC Act”) enabling ASIC to operate with greater flexibility and consider competition in its decision making processes.
The amendments outlined in Schedule 1 specify that ASIC must consider the effects its functions and powers will have on competition in the financial system. This serves to implement recommendation 30 of the Financial System Inquiry which encouraged the government to consider competition in ASIC's mandate.
According to the Bill’s explanatory memorandum, "an explicit reference to take competition issues into account would oblige ASIC to consciously consider how its actions may impact on competition in the financial system and will enable ASIC to favour one option over another due to its effects on competition."
In promoting competition, ASIC should have regard to;
- whether the decision will create a barrier to entry, making it more difficult for new firms to enter the industry;
- whether the decision will create regulatory advantages for some companies over others competing in the same sector, or generally across the industry as a whole;
- whether the decision will improve consumers’ ability to exert demand-side competitive pressure in a market;
- whether the decision will disproportionately impact small entities (for example by imposing obligations that do not appropriately scale the regulatory risks presented by those entities) and the impact that would have on competition; and
- whether alternative competitively-neutral approaches can be identified.
Schedule 2 amends the ASIC Act and removes the requirement for ASIC to engage staff under the Public Service Act 1999 (PSA). In doing so, the act adopts recommendation 24 of the ASIC Capability Report which endorsed more effective recruitment and retention strategies.
Removing the obligation for ASIC to engage staff under the PSA means ASIC will be able to compete more effectively for suitable staff. It will also allow ASIC to tailor management and staffing arrangements to suit its needs, ensuring it can effectively honour its mandate by recruiting staff with knowledge of financial markets and financial services.
Thus, the amendment serves to promote greater operational flexibility, bringing ASIC in line with Australia's other financial regulators, namely the Australian Prudential Regulation Authority and the Reserve Bank of Australia.
The bill will come into effect on 1 July 2019, at which time ASIC staff will maintain their continuity of service with ASIC, but cease to be employed under the PSA. They will instead be employed under the ASIC Act, subject to the same terms and conditions and will maintain the same accrued entitlements.
