Richard Foreman & , Re; Sons Pty Ltd; Uther v Federal Commissioner of Taxation
(1947) 74 CLR 50821 ALJ 360
8 ATD 348
[1947] ALR 589
(Judgment by: Starke J)
In the Matter of: Richard Foreman
&
Sons Pty Ltd
Between: Uther
And: Federal Commissioner of Taxation
Judges:
Latham CJ
Rich J
Starke JDixon J
McTiernan J
Williams J
Subject References:
Constitutional law (Cth)
Judgment date: 2 December 1947
Judgment by:
Starke J
This was a summons for directions issued pursuant to the Companies Act 1936 of the State of New South Wales. (at p524)
The Supreme Court of that State was of opinion that the summons raised questions as to the limits inter se of the constitutional powers of the Commonwealth and the State and was consequently removed into this Court by force of s. 40A of the Judiciary Act. This Court, without deciding whether the summons did raise such questions, ordered that the summons be removed into this Court pursuant to s. 40 of the Judiciary Act 1903-1946. (at p524)
The questions raised for determination by the summons are:-
- (1)
- Is the Commissioner of Taxation entitled to be paid in priority to all ordinary unsecured creditors amounts owing to him by the liquidator in respect of (a) sales tax and (b) pay-roll tax respectively?
- (2)
- If the answer to question 1 is no, then should the commissioner of Taxation be paid pari passu with the said ordinary creditors when the liquidator is making a final distribution to creditors? (at p525)
Sales tax, when it becomes due and payable, is a debt due to the King on behalf of the Commonwealth (Sales Tax Assessment Act (No. 1) 1930-1942, s. 30). (at p525)
Likewise pay-roll tax when it becomes due and payable is a debt due to the King on behalf of the Commonwealth (Pay-roll Tax Assessment Act 1941-1942, s. 28). (at p525)
Except so far as the legislature has thought fit to interfere, whenever the right of the Crown and the right of a subject with respect to payment of a debt of equal degree come into competition the claim of the Crown must prevail (Commissioner of Taxation for New South Wales v. Palmer [1907] AC 179 ). But the Companies Act of New South Wales has interfered with this prior right of the Crown and the combined effect of the Companies Act 1936, ss. 282, 297, is that Crown debts have no claim to priority of payment other than such priority as is given by the statute: see s. 297, sub-s. (1)(d); Food Controller v. Cork [1923] AC 647 . It is said, however, that the Act only binds the Crown in the right of New South Wales. But, I apprehend that it would preclude the Crown from claiming any priority in respect of debts due to it in right of the Imperial Government or in right of any of the Crown's dominions or possessions other than such priority as is given by the statute. And that is so because the Act is within the constitutional power of New South Wales to make laws for the peace, welfare and good government of New South Wales in all cases whatsoever (Constitution Act 1902 (N.S.W.) s. 5). (at p525)
It is claimed, however, that the position is otherwise in the case of debts due to the Crown in right of the Commonwealth. The Constitution sets up a dual system of government based upon a separation of organs and of powers. And it has been said that neither Commonwealth nor State governments may destroy the other nor curtail in any substantial manner the exercise of its powers or detract or adversely affect each other's rights (Melbourne Corporation v. The Commonwealth (1947) 74 CLR 31 ; Federal Commissioner of Taxation v. Official Liquidator of E.O. Farley Ltd. (1940) 63 CLR 278 , at p 308 ). This conclusion is based upon implications derived from the Federal structure of the government established by the Constitution. (at p525)
But it is necessary to consider the precise right claimed by the Crown in right of the Commonwealth. It is a prerogative right because it is a right which belongs to the Crown "over and above all other persons." It is not expressly conferred upon the Crown by the Constitution but flows, however, from the fact that the executive authority of the Commonwealth is vested in the Crown. It is what Blackstone calls an incidental prerogative and but an exception in favour of the Crown to those general rules that are established for the rest of the community: such as, that no costs shall be recovered against the King; that the King can never be a joint tenant; and that his debt shall be preferred before a debt to any of his subjects (Blackstone's Commentaries (1778), 8th ed., vol. 1, Book 1, c. 7, pp. 239-240, "Of the King's Prerogative"). It is a peculiar right which the King has in enforcing the payment of his debts. It relates to procedural matters and not the substantive right of the King. But procedure is governed by the lex fori. As between subjects "the lex fori determines all priorities which in any administration of assets may be allowed to certain classes of creditors or of unsecured debts, the assets being first cleared of all securities affecting them, for the question of security is one of property" (Westlake's Private International Law, 6th ed. (1922) s. 351, p. 406; The Tagus (1903) P 44 ; The Colorado (1923) P 102 ; Beale, Conflict of Laws (1935), vol. 3, pp. 1599-1601, 1615-1616). (at p526)
In my opinion, the same rule applies in the case of the Crown. The proper method for levy of execution by the Crown must be determined by the law of the forum and so also, I think, must that law govern the determination of priorities among competing creditors including the Crown. And in New South Wales the law of priorities in the case of the winding up of a company under the Companies Act 1936 is determined by that Act. (at p526)
It was not suggested during the argument of this case that the Sales Tax Assessment Act 1930-1942, s. 32, or the Pay-roll Tax Assessment Act 1941-1942, s. 30, conferred any statutory priority upon the Commissioner of Taxation having regard, I suppose, to the decision of this Court in Federal Commissioner of Taxation v. Official Liquidator of E.O. Farley Ltd. (1940) 63 CLR 278 . But that case is not decisive of the proper construction of the section now appearing in the Acts just mentioned. It is to be observed, however, that the liquidator is to set aside the amount of the tax out of "the assets available for the payment of the tax." And that depends, I think, upon a proper and due course of the administration and distribution of the assets. The sections do not confer any new right of priority upon the Commissioner. (at p526)
Consequently the questions submitted for determination should be answered:- 1. No, 2. Yes. (at p526)