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Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd

 

[2008] QSC 207

 

SUPREME COURT OF QUEENSLAND

PARTIES:

FILE NO:

Civil

PROCEEDING:

Application

ORIGINATING COURT:

DELIVERED ON:

4 September 2008

DELIVERED AT:

Brisbane 

HEARING DATE:

27 August 2008

JUDGE:

Lyons J

ORDER:

The first defendant pay to the plaintiff the amount of $43,370.68 (including $893.97 interest from 19 June 2008 to this day) and that the first defendant pay the plaintiff’s costs of and incidental to the Application filed on 7 August 2008 to be assessed on the standard basis.

CATCHWORDS:

PROCEDURE – JUDGMENTS AND ORDERS – AMDENDING, VARYING AND SETTING ASIDE – OTHER CASES – plaintiff used Australian V8 Supercar Championship Series licences to secure loans from the first defendant – the plaintiff defaulted on the loans and was ordered to pay a redemption amount which included a capital gains tax liability – the Deputy Commissioner of Taxation ruled that no capital gains tax was payable on the first defendant’s “sale” – Order made by Supreme Court judge that if there was no capital gains tax due on the “sale” the plaintiff was to be repaid “in full” and the parties had liberty to apply – the plaintiff made an application for the interest component of the original calculations to be adjusted as a result of the tax ruling – whether the Orders of 11 September take into account the interest adjustment and should be varied or supplemented

Uniform Civil Procedure Rules 1999 (Qld), r 388, r 667, r 668

Australian Hardboards Ltd v Hudson Investment Group Limited [2007] NSWCA 104, cited

Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors [2007] QSC 32, cited

Fylas Pty Ltd v Vynal Pty Ltd [1992] 2 Qd R 593, applied

Abigroup Limited v Abignano (1992) 39 FCR 74, cited

COUNSEL:

V Brennan for the plaintiff/applicant

P H Morrison QC, with M Alexander, for the first and second defendant/respondent

SOLICITORS:

Hopgood Ganim for the plaintiff/applicant

Worcester & Co Solicitors for the first and second defendant/respondent

[1] LYONS J:  In this application the plaintiff seeks judgment against the first defendant for the sum of $42,476.71, together with interest from 19 June 2008 to the date of judgment.  The applicant submits that the application is brought pursuant to the Liberty to Apply Order in the Orders made by Muir J on 11 September 2007.  The applicant submits that the application for judgment has become necessary because one of the contingencies referred to in the hearing of 6 September 2007 has occurred.

Relevant background facts

[2] The plaintiff owned two licences, which entitled it to participate in the Australian V8 Supercar Championship Series.  The plaintiff used one licence to secure a loan of $750,000 from the first defendant in February 2005 and it used the second licence to secure a further loan of $450,000 from the first defendant in September 2005.  Both those loan amounts were to be repaid on 1 December 2005.  The loans were not repaid on that date.

[3] On 7 December 2005 the second defendants, who owned and controlled the first defendant, transferred ownership and control of the first defendant to Rod Nash Racing Pty Ltd and Rodney David Nash.  The first defendant retained the first licence and continued to use the licence to race V8 Supercars. 

[4] The first defendant then sold the second of the two licences to an independent purchaser for $1.375 million.  When it discovered the sale of the second licence, the plaintiff brought urgent injunctive proceedings which were filed on 19 December 2005 and on 20 December 2005 Fryberg J granted an injunction which restrained the first defendant from selling or otherwise dealing with the licence until trial. 

[5] The trial took place before Muir J in February 2007 and the critical issue at trial was whether the loan transactions were (a) sales with an option to repurchase (as the defendants contended); or (b) mortgages which entitled the plaintiff to redeem the first licence and to seek an account for the first defendant’s unlawful foreclosure of the second licence, as the plaintiff contended.

[6] The court ultimately found in favour of the plaintiff against the first defendant and Muir J’s reasons for judgment were delivered on 22 February 2007.  An account was also ordered to be taken.  On 30 March 2007 Muir J made certain Orders in respect of the February 2007 judgment and the process to be undertaken on the account.

[7] The account hearing occurred in July 2007 with a further hearing on 6 September 2007.  Orders then issued on 11 September 2007.  The first defendant appealed the primary judgment delivered in February 2007 and the Orders of 11 September 2007.  The first appeal was dismissed by the Court of Appeal on 28 September 2007 and the first defendant discontinued its appeal against the Orders of 11 September 2007.  On 1 October 2007 the first defendant applied for special leave to appeal to the High Court of Australia.  On 9 October the first defendant applied for a stay of certain paragraphs of the 11 September 2007 Orders which was granted.

[8] On 8 February 2008 the High Court refused special leave.

The account hearing and the September Orders

[9] At the 6 September 2007 hearing the main issues were the calculation of the redemption amount and the question of whether the first defendant was liable for capital gains tax (“CGT”).  At that hearing a working document was considered by the parties and the judge.  That document was prepared by Counsel for the first defendant, is an exhibit[1] in these proceedings, and records the following:

Judgment-Image

[10] I adopt the plaintiff’s analysis of that document as follows: 

 

The critical amounts may be separated into five categories:

(a) Admitted amounts; in the case of

(i) Longhurst Racing, the Counterclaim - $30,800 plus interest - $4,700

(ii) Team Dynamik, $27,838.80 plus interest - $4,911.83.

(b) The loan principal (on the 1st licence) $750,000;

(c) The balance of the sale price of the second licence, $925,000 ($1,375,000 less the principal on the second licence, $450,000);

(d) Items allowed on the July 2007 account (three items: GST $125,000; transfer fees, $14,000; and, subject to a private ruling, Capital Gains Tax of $240,000) “the account items”;

(e) Interest on the loan principal and the sale proceeds at the rate of 10%.[2]

[11] The amounts which are marked within the boxes in the working document in paragraph 9 are the admitted amounts and took no part in the argument on 6 September 2007.  They are set out in paragraph 10(a) above.

[12] A perusal of the reasons of 6 September 2007, from which the Orders were formulated, indicates how the redemption amount of $198,039.46 was calculated.  The reasons also state that the first defendant could be liable for CGT on the sale of the second licence and that the plaintiff should have the right to seek a private tax ruling on behalf of the first defendant to ascertain if CGT was payable and also to challenge any CGT assessment. 

 

“HIS HONOUR:  In respect of the Capital Gains Tax liability, having further considered the practicalities of the course I initially foreshadowed and the need to achieve finality in these proceedings, and having regard also to the conclusions I have reached as to liability to Capital Gains Tax in respect of the transaction, I propose to order that $240,000 on account of Capital Gains Tax be deducted from the amount payable in respect of the proceeds of sale of the second licence.  In other words, I accept in general terms the submissions made on behalf of the first defendant, generally for the reasons put forward in those submissions, and in particular I accept the characterisation of the subject transaction.

 

It is appropriate, however, that the plaintiff have the right to challenge any Capital Gains Tax assessment and to have the sum of $240,000 accounted for by the first defendant if it becomes apparent that it is accepted by the Commissioner of Taxation that no Capital Gains Tax liability exists.  It is difficult though to frame any order which will give effect to this position save one which obliges the first defendant upon being indemnified in respect of all costs and liabilities by the plaintiff to enable the plaintiff on its behalf to do all that is necessary to make submissions in relation to Capital Gains liability to the Commissioner of Taxation and to prosecute proceedings in respect thereof should it wish to do so.

 

Exhibit 2[3] fails to make provision for interest in respect of the sum of $240,000.  The first defendant wrongfully has had the benefit of those moneys and interest is payable on that sum from 1 December 2005 to 6 September 2007.  There needs to be adjustment to the first defendant’s calculations to take that into account.”

[13] On 11 September 2007 Muir J made Orders however in the following terms:

“…THE COURT FURTHER DECLARES THAT:

5.The amount found upon the taking of the account, as due from the Plaintiff to the First Defendant to redeem the first mortgage (as defined in the Order made on 30 March 2007), is $198,039.46.

AND THE COURT ORDERS THAT:

6.To redeem the mortgage (as defined in the Orders made on 30 March 2007), the Plaintiff shall, on or before 5 March 2008, pay the amount of $198,039.46 to the trust account of the solicitors for the First Defendant (Worcester & Co) and, if the payment is made, redemption shall be effected in accordance with the orders below.

7.The Plaintiff shall, within seven (7) days from the date of the payment referred to in Order 6:

(a)Execute the Deed of Accession held by its solicitors (which is in the form of Schedule Two to the Teams’ Licence Agreement, and which names Rod Nash Racing Pty Ltd as ‘the Transferor’ the Plaintiff as ‘the New Party’ and AVESCO and TEGA as ‘the Continuing Parties);

(b)Send the executed Deed of Accession to TEGA with a request that TEGA and AVESCO execute the Deed of Accession on the basis that the Deed of Accession will only take effect from the end of the most recently completed race in the 2008 V8 Supercar Series; and

(c)Request TEGA to inform the Plaintiff and Rod Nash Racing Pty Ltd, within 14 days, whether TEGA and AVESCO have executed, or will execute, the Deed of Accession.

8.The amount paid into the trust account of the solicitors for the First Defendant by the Plaintiff in accordance with Order 6:

(a)Shall remain in that trust account, in any event, unless and until TEGA informs the Plaintiff and Rod Nash Racing Pty Ltd that TEGA and AVESCO have executed, or will execute, the Deed of Accession;

(b)In the event that the Australian Taxation office (“ATO”) issues a ruling or assessment determining that the First Defendant is liable for capital gains tax (“CGT”) upon the sale of the second licence to Nemo Racing Pty Ltd:

(i)May be paid out of that trust account only to discharge the amount of such liability; and

(ii)Must be repaid to the Plaintiff’s solicitors, to the extent that the amount of such liability is less than $240,000.00;

(c)In the event that the ATO issues a ruling or assessment determining that the First Defendant is not liable for CGT upon the sale of the second licence to Nemo Racing Pty Ltd, must be repaid in full to the Plaintiff’s solicitors.”

10. The parties have liberty to apply upon five (5) days’ notice in writing.”

The private tax ruling and the judgment amount

[14] On 19 June 2008, the Deputy Commissioner of Taxation issued a ruling concluding that no CGT was payable on the December sale of the second licence. 

[15] The plaintiff submits that effect of the ruling is that the plaintiff is now entitled to have the first defendant account for the $240,000.[4]  It is uncontentious that the plaintiff owed the first defendant the sum of $883,150.69 representing the principal on the first licence and interest.  It is also uncontentious that the redemption amount is $198,039.46.  The plaintiff contends that it should be uncontentious that $240,000 (the CGT components) should be added back into the equation. 

[16] The plaintiff submits that as a result of the ruling, in the taking of the account it is entitled to the benefit of the sum of $240,000 which in the calculation made by Muir J was taken into account in favour of the first defendant and further that interest should be adjusted accordingly.

The submissions of the first defendant

[17] The first defendant submits that the adjustment is not warranted, even if there was power to make it. 

[18] In relation to the submission that there is no power to make the order the first defendant submits that the application is made by the applicants on the basis of the liberty to apply set out in Order 10 of the 11 September 2007 Order.  The first defendant submits however that liberty to apply is for a limited purpose which is directed to the machinery which arises from the implementation of the Courts Orders and does not allow a party to ask the Court to hear and re-determine a matter which it has already disposed of.  In particular the first defendant relies on the decisions in Australian Hardboards Ltd v Hudson Investment Group Limited,[5] Abigroup Limited v Abignano[6] and Fylas Pty Ltd v Vynal Pty Ltd[7] to argue that when final relief has been granted an Order granting liberty to apply only enables further Orders to be made which are necessary for the purpose of implementing and giving effect to the principal relief.  Furthermore, it was submitted that where there is an Order that a particular sum of money be paid to a party then that Order is a final Order notwithstanding that there is liberty to apply.  The first defendant therefore submits that the 11 September Orders are final perfected Orders and no further Order can be made.

[19] In relation to the argument that the adjustment is not warranted the first defendant relies on the terms of the actual Orders made to submit that the reasons of Muir J are reflected in the final Orders and there is no reason to revisit them.  The first defendant submits that the reasons delivered by Muir J on September 11 2007 indicate that he was aware that the interest needed to be adjusted and this required an adjustment of the calculations to take this into account.

[20] The first defendant submits that the Order of 11 September 2007 already takes into account the interest adjustment and that this appears from the figure in paragraph 5 of the Order, namely $198,039.46 and that the difference between that figure and the net sum of $240,519.17 on the calculation sheet is $42,479.71.  The first defendant submits that this amount is almost exactly the sum which is now calculated by the applicant as being the extra interest for line Item D in those calculations.

[21] The first defendant submits that Orders 5, 8(b)(ii) and 8(c) of the 11 September Order makes provision for a final adjustment as between the parties if there is no capital gains tax payable.  Order 5 states that the amount of $198,039.46 was found upon taking the account as the amount due from the plaintiff to the first defendant to redeem the mortgage.  Order 6 then stated that to redeem the mortgage that sum had to be paid into a solicitor’s trust account, and if that payment was made, redemption shall be “…effected in accordance with the orders below.”  Those Orders included Orders 8(b)(ii) and 8(c) which operate directly on “…the amount paid into the trust account for the solicitors for the first defendant by the plaintiff in accordance with Order 6.”, which is the sum of $198,039.46.  Order 8(b)(ii) then deals with a situation where CGT was payable.

[22] However, in the event that there was no CGT liability Order 8(c) expressly provided that:

"8.The amount paid into the trust account of the solicitors for the First Defendant by the Plaintiff in accordance with Order 6:

(c)In the event that the ATO issues a ruling or assessment determining that the First Defendant is not liable for CGT upon the sale of the second licence to Nemo Racing Pty Ltd, must be repaid in full to the Plaintiff’s solicitors.”

[23] The first defendant therefore argues that the amount which is to be repaid is $198,039.46 as that is the literal meaning of Order 8(c).  The plaintiff argues that repayment in full means the full amount of $240,000 because this was what was intended by the reasons of 6 September 2007 but was not reflected in the Order of 11 September essentially due to oversight.  It is clear that in his reasons his Honour specifically stated that the plaintiff had the right “…to have the sum of $240,000 accounted for by the first defendant if it becomes apparent that it is accepted by the Commissioner of Taxation that no Capital Gains Tax liability exists.”  His Honour also acknowledged that “…[i]t is difficult though to frame any order which will give effect to this position…”

[24] The plaintiff relies on a decision in Fylas Pty Ltd v Vynal Pty Ltd[8] to argue that the current Orders are necessary to carry into effect the primary judgment.  The plaintiff submits that these Orders are required to allow the decision of 11 September to be carried into effect and achieve its purpose.  In Fylas v Vynal McPherson SPJ held:

 

“‘Liberty to apply’ is sometimes said to be a further exception. It is, however, not a true exception at all, because a judgment or order that expressly reserves to parties a leave or liberty to apply can be varied on an application pursuant to such leave only so far as may be necessary for the purpose of working out the actual terms of the order so as to make it more efficacious in matters of detail. What is meant in this context by ‘working out’ the terms of an order is considered in some of the cases on the point.  In Cristel v Cristel [1951] 2 KB 727 at 728, Somervell LJ said it ‘involves matters on which it may be necessary to obtain the decision of the court.  Prima facie, certainly, it does not entitle people to come and ask that the order itself shall be varied’.  A simple judgment for a money sum requires no ‘working out’ in any sense, so that liberty to apply is quite inappropriate in such a case.  On the other hand, there are many orders, particularly on the equity side, as to which the process of carrying the primary judgment into effect may require supervision, with the consequence that further or supplementary orders or directions may be needed to enable it to achieve its purpose.  An example commonly encountered in practice is specific performance, where, because the consent or approval of some person or instrumentality may be needed to authorise a preliminary step, the judgment sometimes takes the form only of a declaration that the contract be specifically performed, together with subsidiary orders compelling particular acts to be done. …A decree of specific performance in the limited form previously described nevertheless is a ‘final’ order for the purpose of an appeal and otherwise, and so, at least as to issues litigated, cannot be discharged or varied under liberty to apply, notwithstanding that further decisions and orders may yet have to be made in working out its consequences.  What cannot be done under the guise of ‘working out’ an order is to vary it.”

[25] Liberty to apply was specifically granted in the 11 September 2007 Orders.  I consider that the current case comes within the category of case indicated in Fylas which indicated that there are many Orders, particularly on the equity side, as to which the process of carrying the primary judgment into effect may require supervision.  I consider that it is apparent that his Honour in his reasons of 6 September intended that the plaintiffs have the benefit of the sum of $240,000 in the event it became apparent that no CGT liability existed.  It has now been established that that liability did not exist.  However the order only gave the plaintiff $198,039.46. In my opinion that does not reflect the intention of the Court at the time the Order was made.  I consider that further or supplementary Orders are needed to enable the Order of 11 September to achieve its purpose.  In my opinion this is not a case where the order made by Muir J would be varied by the Orders I propose to make.  His Honour ordered that in the event of a ruling that CGT was not payable $198,039.46 should be paid to the plaintiff.  He made no order as to the balance of $240,000 which in the account had been credited to the first defendant, nor about any consequential adjustment of interest.  In my view the liberty to apply provision was apt to deal with these matters.

[26] Accordingly, I am satisfied that an occasion arises for a further Order to be made.

Applicability of r 667

[27] I also consider that r 667 of the Uniform Civil Procedure Rules 1999 (Qld) (“UCPR”) applies.

667 Setting aside

(1)The court may vary or set aside an order before the earlier of the following—

(a)the filing of the order; or

(b)the end of 7 days after the making of the order.

(2)The court may set aside an order at any time if—

(a)the order was made in the absence of a party; or

(b)the order was obtained by fraud; or

(c)the order is for an injunction or the appointment of a receiver; or

(d)the order does not reflect the court’s intention at the time the order was made; or

(e)the party who has the benefit of the order consents; or

(f)for a judgment for specific performance, the court considers it appropriate for reasons that have arisen since the order was made.

(3)This rule does not apply to a default judgment.”

[28] I consider r 667(2)(d) applies because Muir J clearly stated that the plaintiff was to have the sum of $240,000 accounted for by the first defendant if no CGT was found to exist.   I consider that the 11 September Order does not reflect the court’s intention at the time the order was made as indicated in the reasons of 6 September 2007. 

[29] I do not consider that r 668 of the UCPR applies because this rule only applies if facts arise after an Order is made or facts are discovered after an Order is made, in each case entitling the person against whom the Order is made to be relieved from it.  In the present case, the applicant is not a person against whom the Order is made and the facts which gave rise to the adjustment were facts known at the time and referred to by the judge.

 

668 Matters arising after order

(1) This rule applies if—

(a) facts arise after an order is made entitling the person against whom the order is made to be relieved from it; or

(b) facts are discovered after an order is made that, if discovered in time, would have entitled the person against whom the order is made to an order or decision in the person’s favour or to a different order.

(2) On application by the person mentioned in subrule (1), the court may stay enforcement of the order against the person or give other appropriate relief.

(3) Without limiting subrule (2), the court may do one or more of

the following—

(a) direct the proceedings to be taken, and the questions or issue of fact to be tried or decided, and the inquiries to be made, as the court considers just;

(b) set aside or vary the order;

(c) make an order directing entry of satisfaction of the judgment to be made.”

[30] Neither do I consider that r 388 of the UCPR applies because I do not consider that there is any mistake or error which has resulted from an accidental slip or clerical error.  It is clear that the judge expressly referred to the question of interest adjustment and an adjustment has been made.

388 Mistakes in orders or certificates

(1)This rule applies if—

(a)there is a clerical mistake in an order or certificate of the court or an error in a record of an order or a certificate of the court; and

(b)the mistake or error resulted from an accidental slip or omission.

(2)The court, on application by a party or on its own initiative, may at any time correct the mistake or error.

(3)The other rules in this part do not apply to a correction made under this rule.”

[31] The plaintiff should have judgment against the first defendant for the sum of $42,476.71, together with interest from 19 June 2008 to the date of judgment.

[32] I will hear from Counsel as to costs and as to the form of the order which need to be made. 

Footnotes

[1] Exhibit 1.

[2] See Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors [2007] QSC 32 at [65].

[3] Exhibit 1 in this application.

[4] Orders made in Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd by Muir J on 6 September 2007.

[5] [2007] NSWCA 104.

[6] (1992) 39 FCR 74.

[7] [1992] 2 Qd R 593.

[8] [1992] 2 Qd R 593.

Close

Editorial Notes

  • Published Case Name:

    Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd & Ors

  • Shortened Case Name:

    Team Dynamik Racing Pty Ltd v Longhurst Racing Pty Ltd

  • MNC:

    [2008] QSC 207

  • Court:

    QSC

  • Judge(s):

    Lyons J

  • Date:

    04 Sep 2008

Litigation History

No Litigation History

Appeal Status

No Status