Companies fail to have judge recused in $8.5m tax dispute case

The Deputy Commissioner of Taxation issued formal payment demands – called statutory demands – in the amount of $4,387,419.33 for Macrolend and $4,120,289.78 for Paladin. The amounts comprised penalties for allegedly failing to withhold tax from interest payments plus general interest charges.

The interest had been paid to Great Southland Ltd (GSL) and Paladin Coal International Ltd (PCIL), both of which were incorporated in Belize. All four companies were controlled at the relevant times by former Queensland director David Hodgson.

The plaintiffs have contended that there is a genuine dispute about the existence or amount of the tax liabilities. In particular, part of that dispute concerns an allegation by the plaintiffs that GSL and PCIL were residents in Australia as per the Income Tax Assessment Act 1936 because each carried on a business in Australia and had its central management and control here.

This is said to be supported by evidence of Hodgson, who has sworn affidavits as to his control over GSL and PCIL from Queensland.

The judge assigned to this case is Justice Roger Derrington, who is the husband of Justice Sarah Derrington. In the applicant’s case, this is allegedly pertinent to this case because Justice Sarah Derrington was the judge in an earlier Federal Court case involving Macrolend.

In September 2025, the Federal Court disqualified Hodgson from managing corporations for five years and permanently restrained him from engaging in financial services without an Australian financial services licence in an action brought by ASIC against Hodgson and Paladin Group companies Macrolend and GSL. Hodgson was the sole director.

The court found that Hodgson, Macrolend and GSL each conducted an unlicensed financial services business between 2015 and 2023. It also found that Hodgson and Macrolend engaged in very serious misleading or deceptive conduct in claims they made in material provided to investors for investments in another company in the Paladin Group, Kradle Software PTY Ltd.

Hodgson and Macrolend made a misleading claim that Kradle Software held intangible assets of over $1.0 billion when its balance sheet recorded intangible assets of only $11,180. The court found Hodgson’s valuation of $1.02 billion was “entirely fanciful”.

Justice Sarah Derrington ordered Hodgson, Macrolend, and GSL to pay ASIC’s costs.

In the plaintiffs’ current tax dispute case, the application to set aside the statutory demands was docketed to another judge and listed for hearing on 3 August 2026. However, in the course of submissions in that hearing, that judge identified a conflict and ordered reallocation of the proceedings, after which they were allocated to Justice Roger Derrington.

The plaintiffs’ interlocutory application alleged apprehended bias arising from Justice Sarah Derrington’s decision as Hodgson was the principal witness for the defendants in those proceedings.

“Relevantly, the plaintiffs contend that her Honour made a number of findings in relation to his credit, as well as the conduct of the affairs of Macrolend and GSL in and from Australia,” Justice Roger Derrington said in his judgment.

“They submit that the existence of those prior findings, which are said to be relevant to the present proceedings, creates a reasonable apprehension of bias in circumstances where Sarah C Derrington J is my wife.”

The plaintiffs wanted to rely on some of her earlier findings because they believed that those findings supported their claim that management and control of their companies occurred in Australia as related to the tax implications.

They argued that her husband might be influenced by her adverse findings about Hodgson’s credibility, and “overcorrect” to demonstrate his independence by rejecting findings that would help them.

The legal question was whether a fair-minded, reasonably informed member of the public might reasonably think the judge could fail to decide the case impartially.

Argument of bias shot down

However, Justice Roger Derrington rejected the plaintiffs’ application for two primary reasons. First, the earlier findings could not be used as proof in the new case as the Evidence Act 1995 typically prevents someone from using another judgment’s factual findings to provide those same facts in another proceeding.

“Therefore, no opportunity would arise in these proceedings to have regard to those findings or descend into a consideration of their veracity,” the judgment said.

Secondly, reasonable apprehension of bias cannot be established just by reading the earlier judgment or being married to its author, as judges commonly read and consider inadmissible and prejudicial evidence before determining its admissibility.

“It follows that the plaintiffs have failed to demonstrate a logical connection between the decision of Sarah C Derrington J in ASIC v Macrolend (No 3) and any apprehended deviation from deciding the plaintiffs’ substantive applications on their merits,” the judgment said.

As such, Justice Roger Derrington declared that the interlocutory application should be dismissed, and ordered the plaintiffs to pay the Commissioner of Taxation’s costs of the application as assessed or agreed.

The underlying tax dispute case was listed for hearing earlier this month.