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: McTiernan J)
In the Matter of: Richard Foreman
&
Sons Pty Ltd
Between: Uther
And: Federal Commissioner of Taxation
Judges:
Latham CJ
Rich J
Starke J
Dixon J
McTiernan JWilliams J
Subject References:
Constitutional law (Cth)
Judgment date: 2 December 1947
Judgment by:
McTiernan J
I am of opinion that the liquidator must pay the sales tax and the pay-roll tax before the ordinary unsecured debts. (at p534)
The taxes are due and payable by the company to the Commonwealth in accordance with the provisions of the Sales Tax Assessment Act (No. 1) 1930-1942 and the Pay-roll Tax Assessment Act 1941-1942. Each tax is, under the Act creating the obligation to pay it, a debt due to the King on behalf of the Commonwealth; and each tax is expressed to be payable to the Commissioner of Taxation. The winding up, which is voluntary, was instituted under the Companies Act 1936 (N.S.W.). The company's property is insufficient to satisfy the taxes and the ordinary unsecured debts. The Commissioner of Taxation came in under the liquidation and proved for the taxes. In s. 282 of the Companies Act the legislature of New South Wales has indicated that in a winding up, the company's liabilities, except the liabilities enumerated in s. 297, must be paid pari passu. In s. 199(3) the legislature has said specially that this rule in s. 282 relating to the priorities of debts shall bind the Crown. In s. 297 the legislature has enumerated the debts that must be paid in priority to all other debts. Among these debts there are certain classes of Crown debts, including debts due to the Crown in right of the Commonwealth, but sales tax and pay-roll tax are omitted. It seems from these provisions that the Companies Act purports to draw into the winding up all the debts of the Crown in any right and to supersede the prerogative of the Crown in any right to be paid debts due to it in priority to other debts of equal degree. In Giles v. Grover (1832) 9 Bing 128 (131 ER 563) , the judges give a full account of the prerogatives which the King had at common law with respect to debts: See, for example, per Taunton J. (1832) 9 Bing, at p 184 (131 ER, at p 584). (at p535)
The Crown in right of the Commonwealth has certain of the King's prerogatives under the common law with respect to debts (Federal Commissioner of Taxation v. Official Liquidator of E.O. Farley Ltd. (1940) 63 CLR 278 ). If it were necessary to define these prerogatives it would be necessary to ascertain what the common law was at the time they accrued to the King in right of the Commonwealth. At common law the Crown has a right to come in under an administration of the assets of a company and claim that its debt should be preferred in payment to any debt of equal degree of a subject (In re Henley & Co. (1878) 9 Ch D 469 ) - See also Food Controller v. Cork [1923] AC 647 . It is established by Farley's Case (1940) 63 CLR 278 that the Crown in right of the Commonwealth has this special right beyond the common right of subjects whose debts are in competition with the debts of the Crown in that right in a winding up; and unless the Commonwealth Parliament has indicated an intention that any debt due to the Crown in right of the Commonwealth is to be preferred in payment to a debt due to the Crown in right of the State, which is in competition with the Commonwealth debt, the prerogative right of the King in right of the Commonwealth does not prevail over the prerogative right of the King in right of the State, and the debts are payable pari passu. However, the rights of the State do not enter into this case. (at p536)
The sales tax and the pay-roll tax are debts due and payable to the King on behalf of the Commonwealth: See s. 30(1) of the Sales Tax Assessment Act (No. 1) 1930-1942 and s. 28(1) of the Pay-roll Tax Assessment Act 1941-1942. The effect of each Act is that when the tax which is levied under it is due and payable, the tax is a debt to which the prerogative priorities of the King in right of the Commonwealth are appurtenant. But the provisions of the Companies Act 1936 of New South Wales purport to strip the debt of these incidents which it has under Commonwealth law. It follows, in my opinion, that these provisions are inconsistent with the provisions of the Commonwealth Acts which give force and obligation to the tax as a debt and in consequence of which it is to be preferred in an administration of assets to the debts of equal degree due to private creditors. (at p536)
Section 109 of the Constitution therefore comes into play. The inconsistency must be resolved upon the principle that the Commonwealth law is paramount (Amalgamated Society of Engineers v. Adelaide Steamships Co. Pty. Ltd. (1920) 28 CLR, at pp 156-157 ). It follows, in my opinion, that the provisions of the Companies Act 1936 are invalid to the extent to which they purport to supersede the prerogative priority of the Crown, that is, the Crown in right of the Commonwealth, with respect to the sales tax and pay-roll tax. (at p536)
The first question should be answered: Yes; it is unnecessary to answer the second question. (at p536)