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SUPREME COURT OF QUEENSLAND

Hillig v Federal Commissioner of Taxation

White J

8 November 2000 - Brisbane

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White J.    There are 2 applications before the court. The plaintiff (the liquidator) seeks summary judgment pursuant to r 292 of the Uniform Civil Procedure Rules against the defendant (the Commissioner) pursuant to s 588FF of the Corporations Law for moneys paid to the Commissioner which are alleged to be voidable transactions. In the event that judgment is given against the Commissioner on the liquidator's claim, the Commissioner seeks an order that the third parties, who were the directors of the company now in liquidation, indemnify the Commissioner against the liquidator's claim pursuant to s 588FGA of the Corporations Law. An application for leave to make amendments because of the company's name change is not opposed and neither is a minor amendment to the statement of claim.

  2  In July 1993, the company was registered as a group employer pursuant to Div 2 of Pt VI of the ITAA 1936 and was obliged to remit tax instalments deducted from the wages and salaries of its employees to the Commissioner by the seventh day of the following month. In October, November and December 1998, the company failed to remit the deductions made as required. In December 1998, the representatives of the Commissioner and the company discussed the outstanding liabilities.

  3  From January to May 1999, the company made payments to the Commissioner in respect of those liabilities in the amount of $72,149.40 including a late payment penalty of $1149.40 on 27 January 1999. On 24 March 1999, agreement was reached between the company and the Commissioner to pay the outstanding indebtedness. On 3 May 1999, the plaintiff was appointed administrator of the company and on 18 June 1999 he became its liquidator after its creditors resolved to wind it up.

  4  On 12 January 2000, the liquidator issued the present claim against the Commissioner in the sum of $72,149.40 as an unfair preference paid to the Commissioner. The Commissioner, in turn, issued a notice of intention to defend and a third party notice on 31 January 2000 claiming $71,000 as an indemnity from the third parties being the amount of the alleged preference payments less the late payment penalty.

  5  The Commissioner does not positively defend the liquidator's application for summary judgment, accepting that provided the evidence establishes all the elements of s 588FE it cannot be resisted. The exact dates of some of the payments to the Commissioner by the company are in dispute but even so, all were made within the relation-back period. The issue for decision concerns the Commissioner's claim for indemnity from the third parties. Although not immediately apparent on their defence to the Commissioner's claim, Mr Coulsen for the third parties submitted that either the Commissioner is not the proper party to the liquidator's claim and they are therefore not liable under s 588FGA(2) to indemnify the Commissioner or, if the Commissioner is the proper party, being a mere collecting agent of the Commonwealth, he cannot have suffered "any loss or damage resulting from the order" as required by s 588FGA(2) before an indemnity order can be made. In the event that a finding is made that the Commonwealth and not the Commissioner is the proper defendant, the liquidator seeks leave to amend the claim.

The liquidator's claim against

  6  The payments made by the company to the defendant were clearly unfair preferences within s 588FA of the Corporations Law, insolvent transactions within s 588FC and therefore voidable transactions within s 588FE(2). The material shows that as a result of the payments the Commissioner has received 31.78% of the debt owed to it by the Company when it would receive not more than 5% of the debt as an unsecured creditor in the winding up. The payments were made at a time when the company was insolvent. The Commissioner has advanced no positive defence to the claim. The liquidator is entitled to summary judgment whether the defendant be the Commissioner or the Commonwealth.

The Commissioner's claim against the third parties

  7  Section 588FGA(2) of the Corporations Law provides that each person who was a director of the company when the voidable payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from an order made under s 588FF. That provision applies:

   

… in respect of a liability under any of the following provisions of the Income Tax Assessment Act 1936 (Cth):

 (a)  section 221F (except subsection 221F(12)) … .

The relevant provision of s 221F of the ITAA 1936 was s 221F(5). It provided:

   

An employer must pay to the Commissioner the amount of any deductions that the employer makes:

 (a)  if the deductions were made during the first 14 days of a month and the employer is an early remitter (see section 221EC) in relation to that month - not later than the 21st day of that month; and

 (b)  if paragraph (a) does not apply and the employer was a small remitter (see section 221EDA) when the deductions were made - not later than the 7th day after the end of the quarter in which the deductions were made; and

 (c)  in any other case - not later than the 7th day after the end of the month in which the deductions were made.

That subsection was repealed by Taxation Laws Amendment Act (No 3) 1998 (Cth), s 3 and Sch 4, Item 23. Schedule 4 of that Act inserted a new Div 1AAA into the ITAA 1936 that applied to an amount deducted on or after 1 July 1998 (see Item 69). Division 1AAA re-enacted the obligation to remit deductions and, so far as is relevant, s 220AAM of the ITAA 1936 required an employer in the position of the company to pay to the Commissioner the amount of any deductions by the 7th day of the following month.

  8  The effect of s 10 of the Acts Interpretation Act 1901 (Cth) and s 14H of the Acts Interpretation Act 1954 (Qld) is that the reference in s 588FGA of the Corporations Law to s 221F is to be taken to be a reference to s 220AAM of the ITAA 1936.

  9  Finally s 588FGA(3) provides:

   

An amount payable to the Commissioner under subsection (2):

 (a)  is a debt due to the Commonwealth and payable to the Commissioner; and

 (b)  may be recovered in a court of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name.

  10  These provisions concerning the Commissioner were inserted into the Corporations Law in 1993 and sought to put the Commissioner in the same position as other creditors. This involved the abolition of the Commissioner's priority on a winding up and was seen as essential for the smooth and efficient operation of the then proposed voluntary scheme of administration, Explanatory Memorandum on the Insolvency (Tax Priorities) Legislation Amendment Bill 1993. In order to place the Commissioner in the same position as other creditors and to avail himself of the statutory provisions of the Corporations Law prohibiting insolvent trading and providing for voidable transactions, the amendments provide that the liabilities of a company under a remittance provision are to be characterised as debts. Payments in respect of tax liabilities are deemed to be for valuable consideration. The risk that the Commissioner would generally be unable to avail himself of defences under the voidable transactions provisions because of his possession of details of the company's financial health through tax information was sought to be ameliorated by requiring the directors to indemnify the Commissioner against such orders, ibid.

  11  Section 588FA provides that an unfair preference is given by a company to a creditor of the company:

   

… if, and only if:

 (a)  the company and the creditor are parties to the transaction (even if someone else is also a party); and

 (b)  the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor …

Mr Coulsen's submissions distinguish between the Commissioner as a "collecting agent" of the Commonwealth and as a creditor in its own right. Under s 220AAZA of the ITAA 1936, an amount payable to the Commissioner pursuant to s 220AAM is "a debt due to the Commonwealth" and "payable to the Commissioner" and "may be sued for and recovered in a court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his or her official name".

  12  This section, Mr Coulsen submitted, demonstrates that for present purposes the "creditor" referred to in s 588FA of the Corporations Law which defines an unfair preference is the Commonwealth and not the Commissioner and accordingly it is the Commonwealth who should be the defendant to the liquidator's proceedings. Mr Coulsen referred to Sargood Bros v Commonwealth (1910) 11 CLR 258, Barton v Commissioner for Motor Transport (1957) 97 CLR 633 and Mason v New South Wales (1959) 102 CLR 108 to support the proposition that in the absence of a statutory provision allowing it, a public officer in his or her official capacity cannot be sued in an action for moneys received in that capacity. However as Kitto J noted in Barton at 664-5 "… there is nothing novel in an action against an official being treated conventionally as an action against the Crown …". Significantly, in Sargood Bros customs duty was collected in anticipation of a draft tariff being ratified by Parliament. That did not occur and the plaintiff who had paid the duty sought to recover it from the Commonwealth or in the alternative, the Collector of Customs. In Barton and Mason, the Acts under which the moneys were paid to the relevant government officials were subsequently declared invalid. All 3 cases involved common law actions for moneys had and received which had been collected by the government under legislation which was found not to authorise the exactions.

  13  The issue of the proper party arose more relevantly in Commonwealth v Precision Pools Pty Ltd (1994) 53 FCR 183. O'Loughlin J referred to the "crisis of identity" between the Commonwealth and the Commissioner in relation to the recovery of sales tax paid under a provision of the Sales Tax Assessment Act (No 1) 1930 (Cth) which had been held to be invalid. Referring to Sargood Bros, although his Honour thought it unnecessary to do so, he expressed the view that the proper defendant in an action for the recovery of moneys paid under an invalid law may be the Commonwealth. Precision Pools was, like Sargood Bros, Barton and Mason, an action for moneys had and received after payment was made under legislation found subsequently to be invalid.

  14  The liquidator, unlike the parties in Sargood Bros, Barton and Mason, sues under a statutory provision making certain payments voidable transactions. The finding that a payment to the Commissioner by the company is a voidable transaction does not reduce the liability of the company. The Commonwealth is still owed a debt in accordance with s 220AAZA of the ITAA 1936 and retains rights in respect of the sums recovered including proving in the winding-up of the company. Section 588FF(1) of the Corporations Law provides that a court which is satisfied that a transaction of the company is voidable may make orders against "a person" other than a creditor. Sections 588FG(5) and 588FGA both contemplate an order being made against the Commissioner under s 588FF providing adequate statutory authority permitting the Commissioner to be sued by a liquidator. The "crisis of identity" referred to in Precision Pools is avoided in relation to s 588FF by the possibility of orders being made against either the Commonwealth as the creditor or the Commissioner on behalf of the Commonwealth. The preferred course contemplated by the Corporations Law would seem to be to recover the moneys from the Commissioner, see, for example, s 588FG(5).

  15  The third parties' alternative submission then falls to be considered, that is, whether the Commissioner has suffered "any loss or damage resulting from the order".

  16  Mr Coulsen submitted that even if the Commissioner is the proper defendant for a claim brought by the liquidator pursuant to s 588FF, the Commonwealth is the party in the creditor-debtor relationship with the company so that, notwithstanding an order being made against the Commissioner, it is the Commonwealth and not the Commissioner which suffered the loss. All moneys received by the Commissioner are paid into Consolidated Revenue Audit Act 1901 (Cth), s 22. This view is said to be supported by s 588FGA(3) which provides that the amount payable to the Commissioner pursuant to s 588FGA(2) is a debt due to the Commonwealth and payable to the Commissioner. Mr Coulsen referred to s 588FG(5) to show that the reference to the Commissioner in s 588FGA(2) deliberately does not include a reference to the Commonwealth.

   

For the purposes of paragraph (2)(c), if an amount has been paid or applied towards discharging to a particular extent a liability to the Commonwealth, or to the Commissioner of Taxation, that arose under or because of an Act which the Commissioner has the general administration, the discharge is valuable consideration provided by the Commonwealth, or by the Commissioner, as the case requires, under any transaction that consists of, or involves, the payment or application.

The purpose of that subsection, however, is to clarify the meaning of "valuable consideration" for the purposes of s 588FG(2)(c) and the distinction drawn can be explained by the fact that liabilities to the Commonwealth do not always arise in relation to sums due to the Commissioner.

  17  Although Mr P E Hack for the Commissioner referred to Browne v DCT (1998) 26 ACSR 750 as supporting the proposition that the payment of a sum by the Commissioner under an order pursuant to s 588FF results in the Commissioner suffering "loss or damage", the argument advanced by Mr Coulsen seems not to have been raised before his Honour and is not mentioned in the judgment.

  18  Although the language of s 588FGA(2) suggests that it must be the Commissioner who suffers the "loss or damage" by the use of the phrase "indemnify the Commissioner" the section must be read as a whole. By providing that the amount to be indemnified "is a debt due to Commonwealth and payable to the Commissioner", the intention must be to recognise that the "loss or damage" referred to in subs (2) is not the "loss or damage" of the Commissioner but the "loss or damage" of the Commonwealth which the Commissioner has the responsibility of recovering. To suggest that the Commissioner must have personally suffered the loss or damage is to ignore that the Commissioner for the purposes of s 588FGA is the alter ego of the Commonwealth. The third parties are therefore liable to indemnify the Commissioner for $71,000 of the liquidator's claim against the Commissioner together with any interest and costs as ordered thereon.

  19  Two further orders are sought to amend the claim to reflect the change in the name of the company from Q*Soft Australia Pty Ltd to ACN 060 329 482 Pty Ltd and to amend para 5 of the liquidator's statement of claim so that "Commonwealth of Australia" is inserted for "the defendant" where it first appears.

  20  The orders are:

 1.  The plaintiff be granted leave to amend the statement of claim and application so that "ACN 060 329 482 Pty Ltd" is substituted for "Q*Soft Australia Pty Ltd" as the company of which the plaintiff is the liquidator.

 2.  The plaintiff be granted leave to amend the statement of claim so that "Commonwealth of Australia" is substituted for "the defendant" where it first appears in para 5 of the statement of claim.

 3.  Judgment be entered for the plaintiff against the defendant in the sum of $72,149.40 together with interest pursuant to s 47 of the Supreme Court Act 1995 (Qld) and the costs of and incidental to the claim and the costs of the application for judgment to be assessed on the standard basis on the Supreme Court scale.

 4.  The third parties indemnify the defendant against $71,000 of the plaintiff's claim against the defendant together with interest and costs ordered to be paid by the defendant to the plaintiff.

 5.  The third parties pay the defendant's costs of the third party proceedings and the application for judgment to be assessed on the standard basis on the Supreme Court scale.