Akers (as joint foreign representative) v Saad Investments Company Limited; In the matter of Saad Investments Company Limited

Cayman Islands law as to proof of foreign tax debts 14 Under s 139(2) of the Companies Law (2011 Revision) (the Companies Law) of the Cayman Islands, foreign taxes, fines and penalties are only admissible to proof against a company in liquidation if, and to the extent that, a judgment in respect of the tax, fine or penalty would be admissible against the company pursuant to the Foreign Judgments Reciprocal Enforcement Law (1996 Revision) (the Foreign Judgments Law) or another law permitting such enforcement. The Governor of the Cayman Islands had power under s 3(1) of the Foreign Judgments Law to extend recognition to certain judgments of superior courts of a foreign country where the Governor was satisfied that substantial reciprocity of treatment would be assured in respect of the enforceability of judgments of the Grand Court. Critically, s 3(2)(b) provided that such recognition could be given to judgments of a superior court of a foreign country for payment of a sum of money "not being a sum payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty" . 15 Thus, the debts the subject of the Commissioner's two notices of assessment could not be admitted to proof in the liquidation of Saad Investments in the Cayman Islands because of the prohibition in s 3(2)(b) of the Foreign Judgments Law read with s 139 of the Companies Law. The same result would apply to a judgment of an Australian superior court in favour of the Commissioner for the whole or any part of the amounts of the notices of assessment for income tax and penalty. Accordingly, the Commissioner cannot prove his debts in the foreign main proceeding in the Cayman Islands. 16 The Cayman Islands' legislation reflects the rule of public (or private) international law that claims by or on behalf a foreign state to recover taxes are unenforceable. The rule of public (or private) international law is that domestic courts will not enforce a foreign penal or public law: Attorney-General (United Kingdom) v Heinemann Publishers Australia Pty Ltd (1988) 165 CLR 30 at 40-42 per Mason CJ, Wilson, Deane, Dawson, Toohey and Gaudron JJ; Permanent Trustee Co (Canberra) Ltd v Finlayson (1968) 122 CLR 338 at 345-346 per Barwick CJ, McTiernan, Kitto, Menzies, Windeyer and Owen JJ. The rule has existed for centuries. Lord Mansfield CJ said: "One nation does not take notice of the revenue laws of another", Planché v Fletcher (1779) 1 Doug. 251 at 253; see too Government of India v Taylor [1955] AC 491 at 504, 506-508 per Viscount Simonds with whom Lords Morton of Henryton, Reid and Keith of Avonholm agreed and see too per Lord Somervell of Harrow at 513; Peter Buchanan Ltd and Macharg v McVey [1955] AC 516 (Supreme Court of Ireland); Pasquantino v United States 544 US 349 (2005) at 360-361 per Thomas J giving the opinion of the majority; cf: Tanning Research Laboratories Inc v O'Brien (1990) 169 CLR 332 at 339 per Brennan and Dawson JJ with whom Toohey J agreed at 354; see too: M Davies, AS Bell, PLG Brereton: Nygh's Conflict of Laws in Australia (8th ed) at [18.2]-18.17].

The Australian cross-border insolvency legislative scheme 17 The Act provided that the Model Law had the force of law in Australia with the modifications set out in Pt 2 (s 6). Relevantly, the Preamble and Arts 1, 6, 8 and 13 (as modified by s 12), 20, 21 and 22 of the Model Law provided: "PREAMBLE The purpose of the present Law is to provide effective mechanisms for dealing with cases of cross-border insolvency so as to promote the objectives of: (a) Cooperation between the courts and other competent authorities of this State and foreign States involved in cases of cross-border insolvency; (b) Greater legal certainty for trade and investment; (c) Fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested persons, including the debtor; (d) Protection and maximization of the value of the debtor's assets; (e) Facilitation of the rescue of financially troubled businesses, thereby protecting investment and preserving employment. ... Article 6 Public policy exception Nothing in the present Law prevents the court from refusing to take an action governed by the present Law if the action would be manifestly contrary to the public policy of this State. … Article 8 Interpretation In the interpretation of the present Law, regard is to be had to its international origin and to the need to promote uniformity in its application and the observance of good faith. … Article 13 Access of foreign creditors to a proceeding under [identify laws of the enacting State relating to insolvency] 1. Subject to paragraph 2 of the present article, foreign creditors have the same rights regarding the commencement of, and participation in, a proceeding under [identify laws of the enacting State relating to insolvency] as creditors in this State. 2. Paragraph 1 of the present article does not affect the ranking of claims in a proceeding under … or the exclusion of foreign tax and social security claims from such a proceeding. Nevertheless, the claims of foreign creditors other than those concerning tax and social security obligations shall not be ranked lower than the unsecured claims of other creditors solely because the creditor concerned is a foreign creditor. … Article 20 Effects of recognition of a foreign main proceeding 1. Upon recognition of a foreign proceeding that is a foreign main proceeding: (a) Commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities is stayed; (b) Execution against the debtor's assets is stayed; (c) The right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended. 2. The scope, and the modification or termination, of the stay and suspension referred to in paragraph 1 of the present article are subject to [refer to any provisions of law of the enacting State relating to insolvency that apply to exceptions, limitations, modifications or termination in respect of the stay and suspension referred to in paragraph 1 of the present article]. 3. Paragraph 1 (a) of the present article does not affect the right to commence individual actions or proceedings to the extent necessary to preserve a claim against the debtor. 4. Paragraph 1 of the present article does not affect the right to request the commencement of a proceeding under [identify laws of the enacting State relating to insolvency] or the right to file claims in such a proceeding. Article 21 Relief that may be granted upon recognition of a foreign proceeding 1. Upon recognition of a foreign proceeding, whether main or non-main, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including: (a) Staying the commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities, to the extent they have not been stayed under paragraph 1 (a) of article 20; (b) Staying execution against the debtor's assets to the extent it has not been stayed under paragraph 1 (b) of article 20; (c) Suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent this right has not been suspended under paragraph 1 (c) of article 20; (d) Providing for the examination of witnesses, the taking of evidence or the delivery of information concerning the debtor's assets, affairs, rights, obligations or liabilities; (e) Entrusting the administration or realization of all or part of the debtor's assets located in this State to the foreign representative or another person designated by the court; (f) Extending relief granted under paragraph 1 of article 19; (g) Granting any additional relief that may be available to [insert the title of a person or body administering a reorganization or liquidation under the law of the enacting State] under the laws of this State. 2. Upon recognition of a foreign proceeding, whether main or non-main, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor's assets located in this State to the foreign representative or another person designated by the court, provided that the court is satisfied that the interests of creditors in this State are adequately protected. 3. In granting relief under the present article to a representative of a foreign non-main proceeding, the court must be satisfied that the relief relates to assets that, under the law of this State, should be administered in the foreign non-main proceeding or concerns information required in that proceeding. Article 22 Protection of creditors and other interested persons 1. In granting or denying relief under article 19 or 21, or in modifying or terminating relief under paragraph 3 of the present article, the court must be satisfied that the interests of the creditors and other interested persons, including the debtor, are adequately protected. 2. The court may subject relief granted under article 19 or 21 to conditions it considers appropriate. 3. The court may, at the request of the foreign representative or a person affected by relief granted under article 19 or 21, or at its own motion, modify or terminate such relief." (emphasis in original, emphasis in bold added) 18 For the purposes of Art 20(2), s 16 of the Act, relevantly, provided that the scope and modification of the stay or suspension referred to in Art 20(1) were the same as would apply if the stay or suspension arose under Ch 5 (other than Pts 5.2 and 5.4A) of the Corporations Act. Importantly, s 471B, which is in Pt 5.4B of the Corporations Act provided: "471B Stay of proceedings and suspension of enforcement process While a company is being wound up in insolvency or by the Court, or a provisional liquidator of a company is acting, a person cannot begin or proceed with: (a) a proceeding in a court against the company or in relation to property of the company; or (b) enforcement process in relation to such property; except with the leave of the Court and in accordance with such terms (if any) as the Court imposes."

The Commissioner's possible avenues for recovery in Australia 19 It was common ground that there is no present jurisdiction to wind up the Australian affairs of Saad Investments under the Corporations Act. That was because, first, although Saad Investments is a foreign company there was no evidence that the power to wind it up under s 583 was available. That section applied if the foreign company carried on business in Australia so as to bring it within the definition of a Part 5.7 body. There was no evidence that Saad Investments "carried on business in Australia" within the definition of that expression in s 21. That was because s 21(3)(g), (h) and (j) excluded isolated transactions or mere investment activity from the definition. There was no evidence that Saad Investments had any presence in Australia other than by reason of its investments in Sunshine and later QGC. Secondly, Saad Investments could not be wound up under s 601CL(14) because it was not registered in Australia. That section allowed the Court to appoint a liquidator of a registered foreign company on the application of its liquidator appointed in its place of origin, or the Australian Securities and Investments Commission. Thirdly, there was no letter of request for an Australian court to act in aid of the Grand Court so as to enliven jurisdiction to appoint a local liquidator under s 581 of the Corporations Act. 20 The Commissioner is also unable, because of the current operation of the 2010 orders, to avail himself of his statutory remedy of attachment under s 260-5 of Sch 1 of the Taxation Administration Act 1953 (Cth) (TAA). That is because of the recognition of the foreign main proceeding, the consequence of the stay of proceedings under s 471B and the avoidance of any attachment under s 468(4) of the Corporations Act by force of Arts 20(1)(a) and (b) and (2) of the Model Law: cf Bruton Holdings Pty Ltd (In Liq) v FCT (2009) 239 CLR 346 at 353-354 [18]-[20] per French CJ, Gummow, Hayne, Heydon and Bell JJ. The scope, modification and termination of the stays imposed by Art 20(1)(a) and (b) are the same as would apply if the stay or suspension were under, relevantly, ss 468(4) and 471B of the Corporations Act, by force of s 16 of the Act. 21 Under s 260-45 of Sch 1 of the TAA the Commissioner can give a notice to a liquidator of a company of the amount that the Commissioner considers sufficient to discharge the company's outstanding tax-related liabilities (such as amounts payable under a notice of assessment: see the definition in s 255-1(1) of the TAA). After receiving such a notice the liquidator must set aside and discharge, out of the assets available to pay unsecured debts not entitled to priority, the pari passu value of the company's tax related liabilities calculated in the same way as in s 555 of the Corporations Act: Bruton 239 CLR at 352-353 [16] (s 260-45(6) and (7)). 22 The Commissioner did not seek to rely directly on s 260-45. Rather, he sought that the 2010 orders be modified so that he would achieve a similar result as he would obtain if the winding-up had occurred in Australia under s 555 of the Corporations Act. The latter section provides that all debts and claims proved in a winding-up rank equally, and, if the property of the company is insufficient to meet them in full, they must be paid proportionately. The parties did not explain why the ordinary and natural meaning of the words "company" and "liquidator" in s 260-45 of the TAA did not apply to Saad Investments and the foreign representatives. It may be that they were defined out of their ordinary and natural meanings somewhere in the unmarked obscurities of the TAA or some other taxation legislation. 23 The Commissioner can require every person in receipt, control or able to dispose of money belonging to a non-resident who derived, relevantly, profits or gains of a capital nature from a source in Australia, subject to the Act, to pay the tax due and payable by the non-resident by force of s 255(1)(a) of the Income Tax Assessment Act 1936 (Cth) (the 1936 ITAA). The reasoning in Bruton 239 CLR at 352-354 [16]-[21] suggests that the specific provisions in s 260-45 dealing with a company in liquidation could preclude the Commissioner using his more general powers in s 255 of the 1936 TAA and its related provision, s 254. The latter applied directly to make agents and trustees directly answerable as taxpayer for payment of tax in respect of, inter alia, capital gains and income derived by the agent or trustee in his or her representative capacity or by the principal by virtue of the agency. The Commissioner relied on the foreign representatives' broker holding the proceeds of realisation of Saad Investments' Australian assets in support of the potential application of ss 254 and 255. 24 It is not necessary or appropriate to decide which possible remedy the Commissioner might be, or have been, able to use to collect a pari passu distribution had he sought to do so. That is so for two reasons. First, the Commissioner has not attempted to use any power or other means that may be available to him to achieve that position outside his application for a modification under Art 22. Secondly, the interposition of the 2010 orders has had the effect, subject to their modification or termination under Art 22, of changing the landscape of potential remedies available to the Commissioner as a creditor of Saad Investments. His complaint is that if the 2010 orders are permitted to operate unmodified, he will not be entitled to be treated as he would have been had Saad Investments been wound up in Australia.

The foreign representatives' submissions 25 The foreign representatives contended that the Commissioner's application for a modification of the 2010 orders under Art 22(3) should be rejected because either it had no legitimate purpose or, if it did, if the modification sought were made, the interests of creditors and other interested persons, including Saad Investments, would not be adequately protected for the purposes of s 22(1). They contended that those consequences followed because: the Commissioner has no right to a pari passu distribution of Saad Investments' Australian assets because no Australian court has jurisdiction to wind up that company; if, contrary to their first argument, an Australian court did have jurisdiction to wind Saad Investments up, the principle of "modified universalism" in private international law affecting corporate insolvencies (cf: In re HIH Insurance Ltd [2008] 1 WLR 852 at 861-862 [30] per Lord Hoffmann) does not require that claims for tax should be ranked equally with other creditors' claims; the principle of "modified universalism" would be promoted by permitting Saad Investments' Australian assets to be remitted to its centre of main interest, the Cayman Islands, to be distributed in accordance with its law (the modified universalism issues); allowing the 2010 orders to operate without the variation sought by the Commissioner will not be "manifestly contrary to the public policy of" Australia within the meaning of Art 6 (the public policy issue); by lodging a proof of debt on 3 December 2009 with the liquidators the Commissioner had elected to submit the determination of his claims to the jurisdiction of the Grand Court and could no longer seek relief here (the election issue).

The modified universalism issues 26 In HIH Insurance [2008] 1 WLR 852, the House of Lords acceded to a letter of request from the Supreme Court of New South Wales to return to Australia assets of an Australian insurance company. Those assets consisted principally of reinsurance proceeds due to the failed Australian insurer for claims for which it was liable. The consequence was that those assets would be distributed preferentially to insurance creditors here under s 562A of the Corporations Act rather than pari passu to all unsecured creditors who proved in England. The Model Law did not apply in those proceedings. Lord Hoffmann, with whom Lords Phillips of Worth Matravers and Walker of Gestingthorpe agreed, held that the English statutory equivalent of s 581 of the Corporations Act, gave the Court power to direct a liquidator to remit assets and to leave their distribution to the Courts and liquidators of the country whence the letter of request issued: HIH Insurance [2008] 1 WLR at 861 [26]-[27], 864 [43]-[44] and 872 [63]. 27 Lord Hoffmann explained that the English courts had power, under the English statute, to decide that there was a foreign jurisdiction more appropriate than the forum for the purpose of dealing with all outstanding questions in the winding-up ([2008] 1 WLR at 861 [28]). He and Lord Walker (but with Lord Phillips reserving his opinion) held that this was also a power that the courts had as a result of the principle of private international law called "(modified) universalism". He described that as a golden thread running through English cross-border insolvency law since the 18th century. The principle requires that English courts should co-operate with the courts of the country of the principal liquidation so as to ensure that all the insolvent company's assets are distributed to its creditors under a single system distribution ([2008] 1 WLR at 861-862 [30]). 28 Lord Hoffmann considered that the application of Australian law to the distribution of all of the assets was more likely to give effect to the expectations of the creditors as a whole, rather than the distribution of some of the assets according to English law. He continued ([2008] 1 WLR at 862-863 [33]-[36]): "Policy holders and other creditors dealing with an Australian insurance company are likely, so far as they think about the matter at all to expect that in the event of insolvency their rights will be determined by Australian law. Indeed, the preference given to insurance creditors may have been seen as an advantage of a policy with an Australian company. As for UK public policy, I cannot see how it would be prejudiced by the application of Australian law to the distribution of the English assets. There is no question of prejudice to English creditors as such, since it is accepted that although section 116(3) of the Insurance Act 1973 (Cth) gives creditors whose debts are payable in Australia a first call upon Australian assets, this provision will not in practice prejudice the interests of creditors in the English assets. Furthermore, if there were to be a separate liquidation of the English assets in England, all creditors would be entitled to prove. Those Australian (or other foreign) creditors who see an advantage in proving in England after bringing into hotchpot their dividends in Australia would no doubt do so. But UK public policy does not require them to be afforded this facility. The fact that there are assets in England is principally the result of the companies having placed their reinsurance business in the London market. For the purposes of deciding how the assets should be distributed, that seems to me an entirely adventitious circumstance. Indeed, it may not be to the advantage of London as a reinsurance market if the distribution of the assets of insolvent foreign reinsurance companies is affected by whether they have placed their reinsurance business in London rather than somewhere else. In my opinion, therefore, this is a case in which it is appropriate to give the principle of universalism full rein. There are no grounds of justice or policy which require this country to insist upon distributing an Australian company's assets according to its own system of priorities only because they happen to have been situated in this country at the time of the appointment of the provisional liquidators." (emphasis added) 29 Here, creditors of Saad Investments would be likely, if they thought about it, to expect that the company would meet its local tax obligations, in accordance with local law, in each jurisdiction in which it had earned income or made taxable gains or profits before its creditors were entitled to receive dividends in the Cayman Islands. It is highly unlikely that they would expect that a local sovereign could not, let alone should not, be able to collect the tax due, or any of it, before funds were remitted from its jurisdiction to the Cayman Islands where the tax would be irrecoverable. If a foreigner trades or makes profits or gains in a local jurisdiction, he, she or it must obey the laws of general application in that forum, including its taxation and criminal laws. The insolvency of the foreigner should not be a reason to exclude him, her or it from an accrued liability to pay tax or a penalty in circumstances where a local person who became insolvent would remain liable to pay the tax or penalty. 30 The purpose lying behind the principle of (modified) universalism is the achievement of a proper and fair distribution to creditors of a cross-border insolvent. Lord Collins of Mapesbury (with whom Lords Walker of Gestingthorpe and Sumption JJSC agreed) explained why insolvency laws may require adjustment of concluded transactions in Rubin v Eurofinance SA [2013] 1 AC 236 at 269 [94]-[95]. He said (at [94]): "In order to achieve a proper and fair distribution of assets between creditors, it will often be necessary to adjust prior transactions and to recover previous dispositions of property so as to constitute the estate which is available for distribution. The principle of equality among creditors which underlies the pari passu principle may require the adjustment of concluded transactions which but for the winding up of the company would have remained binding on the company, and the return to the company of payments made or property transferred under the transactions or the reversal of their effect. Systems of insolvency law use avoidance proceedings as mechanisms for adjusting prior transactions by the debtor and for recovering property disposed of by the debtor prior to the insolvency." (emphasis added) 31 The Taxation Debts (Abolition of Crown Priority) Act 1980 (Cth) and its analogues now express the public policy of Australia in relation to debts for taxation (including civil tax penalties and penalty tax imposed pursuant to statute). That Act placed taxation debts into the same position as unsecured debts in insolvencies of both corporations and individuals. The policy reflected in that Act is now also found, relevantly, in s 260-45 of Sch 1 of the TAA. Those statutes removed the Commissioner's advantage of Crown priority over unsecured creditors in domestic insolvencies. The consequence was to enlarge the debtor's estate that was available for distribution to unsecured creditors. Part of the scheme of the legislation included giving the Commissioner the statutory right to be paid the pari passu value of a tax debt on the same basis as unsecured creditors would be entitled to a distribution in respect of their debts that were admitted to proof. 32 The States Party to the Model Law recognised in Art 13(2) that foreign tax and social security claims could be excluded from proof in the forum where the debtor's centre of main interests was located. The version of Art 13 that Australia enacted is set out at [17] above. It excludes foreign tax and social security claims conformably (at least for tax claims) with the ordinary principles of public (or private) international law: see [16] above. The agreement of the States Party to the Model Law that each State had power to adapt Art 13 as it saw fit, recognised that foreign tax and social security claims could be dealt with separately from the Model Law by States in which a foreign cross-border insolvency arose. For example, some States, unlike Australia, would retain a system of sovereign priority for taxation debts that would remove the amount necessary to satisfy those debts from any sum which a foreign representative would be able to remit to the jurisdiction of the debtor's centre of main interests. Such a result would not be contrary to the purpose of the Model Law. This is because the Model Law is silent on how domestic taxation, social security claims and other legislation may operate to diminish the debtor's estate that will become available for remission to the debtor's centre of main interests. 33 In Rubin [2013] 1 AC at 279-280 [141]-[144], Lord Collins observed that the Model Law said nothing about the enforcement of foreign judgments against third parties. He reasoned (at [143]) that it "would be surprising if the Model Law was intended to deal with judgments in insolvency matters by implication". Yet, as he observed (at [142]), Lord Mance JSC had pointed out in argument in the Supreme Court, recognition and enforcement are fundamental in international cases. Thus, the Model Law should be taken not to affect the rules of private or public international law in respect of judgments in insolvency or their enforcement except in respect of the matters for which it makes express provision, such as the recognition of a foreign or foreign main proceeding. 34 The Model Law must be interpreted having regard to its character as an international convention, as required by Art 8. That imports the rules of interpretation in Arts 31 and 32 in the Vienna Convention on the Law of Treaties done at Vienna on 23 May 1969 ([1974] ATS 2) which provide: "SECTION 3: INTERPRETATION OF TREATIES Article 31 General rule of interpretation 1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: (a) any agreement relating to the treaty which was made between all the parties in connexion with the conclusion of the treaty; (b) any instrument which was made by one or more parties in connexion with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 3. here shall be taken into account, together with the context: (a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions; (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; (c) any relevant rules of international law applicable in the relations between the parties. 4. A special meaning shall be given to a term if it is established that the parties so intended. Article 32 Supplementary means of interpretation Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: (a) leaves the meaning ambiguous or obscure; or (b) leads to a result which is manifestly absurd or unreasonable." 35 The Vienna Convention is an authoritative statement of customary international law for the purposes of construing the Model Law: Victrawl Pty Ltd v Telstra Corporation Ltd (1995) 183 CLR 595 at 622 per Deane, Dawson, Toohey and Gaudron JJ; Chiropedic Bedding Pty Ltd v Radburg Pty Ltd (2008) 170 FCR 560 at 568-569 [34]-[36] per French, Rares and Besanko JJ. Article 8 of the Model Law also imports the provisions of the Vienna Convention. The parties did not argue that any other jurisdiction had considered the issues in this application under the Model Law. 36 Lord Collins' approach to construing the Model Law, and in taking account what implications could, and could not, be made from its terms, reflected the rule in Art 31(1) of the Vienna Convention. The Supreme Court of the United Kingdom was not concerned with the interpretation of Art 22 of the Model Law in Rubin [2013] 1 AC 236. Nonetheless, it is significant that the Model Law is silent about the fundamental subject of how the local forum deals with the treatment of taxes and penalties owed by the insolvent to the local sovereign. In contrast, the Model Law expressly accepts that the local forum can exclude taxation and social security claims by foreign sovereigns from participating in the local distribution of the insolvent's estate. 37 However, there is nothing in the Model Law to suggest that domestic legislation should be construed to deny or diminish the rights of the local sovereign power to collect its taxation and social security (or other monetary) claims from an insolvent debtor's estate before that estate is remitted to the debtor's centre of main interests for distribution to creditors under that jurisdiction's laws. 38 The preamble to the Model Law stated that one of its objectives was "fair and efficient administration of cross-border insolvencies that protects the interests of all creditors and other interested persons, including the debtor" (objective (c)). This objective is given effect partly by Art 22(1). Importantly, there is nothing in the Model Law that seeks to discriminate against the operation of domestic laws imposing tax and penalties, as laws of general application, on the debtor's estate before it is remitted to the debtor's centre of main interests. It would not be fair to a domestic sovereign, its taxpayers or others doing business in its territory, or to the international body of the debtor's creditors, for a debtor's estate to be freed of any taxation obligation except in the debtor's centre of main interests, merely because the debtor was subject to a cross-border insolvency governed in another jurisdiction wholly or principally by the Model Law where, conformably with the rule of public (or private) international law, foreign taxes and penalties could not be recovered or admitted to proof. Nor is there any reason in principle to exempt a debtor in a cross-border insolvency from all taxation liability in every jurisdiction other than that of its centre of main interests. 39 I am of opinion that the interests of the Commissioner, as an unsecured creditor of Saad Investments, are not adequately protected under the 2010 orders. That is because the 2010 orders would allow the whole amount of Saad Investments remaining Australian assets, of about USD7 million, to be remitted to the Cayman Islands, as its centre of main interests, where the Commissioner could not prove for any distribution from its estate. Even if the Commissioner is entitled to be paid the whole of Saad Investments' assets in Australia, he will receive far less than the estimated 20 to 24 cents in the dollar that all other unsecured creditors will receive in a pari passu distribution based on the total tax debt of AUD83,271,545.70. If the Commissioner's debt were ranked pari passu with other creditors and paid at 20 cents in the dollar, he would receive about AUD16.6 million. Yet, the USD7 million available here is less than half of the lower end of the foreign representatives' estimated distribution to Saad Investments' unsecured creditors of between 20 and 24 cents in the dollar. 40 Moreover, if the Australian assets of Saad Investments were remitted without the Commissioner being allowed to prove for his unsecured debt here or be paid here his pari passu entitlement, the other unsecured creditors will receive a windfall to the extent that his bona fide claim is irrecoverable outside Australia. That result would be contrary to the fair or efficient administration of Saad Investments' insolvency. That is because, effectively, Saad Investments would benefit from its insolvency since it would cease to be subject to the incidents of Australian taxation and insolvency laws in respect of taxable capital gains and penalties imposed in respect of its profit making activities in this country. 41 The foreign representatives' argument that Saad Investments cannot be wound up here reinforces why, for the purposes of Art 22(1), the Commissioner's interests are not adequately protected. The Commissioner cannot, or may not be able to, avail himself of a number of statutory remedies if the 2010 orders are not modified. Those orders are the existing relief operating under Art 21 that currently confer a benefit on all other creditors of Saad Investments. That relief was available to the foreign representatives because Saad Investments, first, operated in Australia and not only had assets but made capital gains here that were taxable, before the Grand Court ordered it to be wound up in the Cayman Islands, and, secondly, it was insolvent both here (given the deficiency in its total assets of USD7 million as against its liabilities of over AUD83 million) and internationally. If the foreign representatives had not been granted relief under the Model Law, such as that in the 2010 orders, then the Commissioner could have used the remedies available to him under the taxation laws to obtain the equivalent of what would have been his pari passu entitlement to a distribution had he been entitled to prove in Saad Investments' liquidation here or in its centre of main interests in the Cayman Islands. 42 For these reasons, I consider that Art 22(1) gives the Court of the forum jurisdiction to make orders enabling the payment of taxation and penalty liabilities to be made from the debtor's assets held by it or a foreign representative appointed under Arts 19 or 21 before those assets are removed from the local forum and sent to the debtor's centre of main interests or elsewhere at the direction of the foreign representative.

The public policy issue 43 Accordingly, it is not necessary to address the Commissioner's alternative argument that it would be manifestly contrary to Australian public policy, within the meaning of Art 6 of the Model Law, to permit the 2010 orders to operate without modification or termination. I would only observe that the principle of the rule of law, that all persons are equal before the law, applies ordinarily, in the absence of statutory modification, to taxation and penalties regardless of a person's solvency. In Australia there are variations provided, among other places, in s 555 of Corporations Act, s 260-45 of Sch 1 of the TAA and s 82(3) of the Bankruptcy Act 1966 (Cth) when an insolvency is interposed. The latter section provides that penalties or fines imposed by a court in respect of an offence against a law are not provable in bankruptcy. The foreign representatives argued that s 82(3) showed that such penalties stood outside the administration of a bankrupt's assets. 44 That argument is, however, beside the point. First, s 82(3) makes clear a policy that criminal penalties must be paid in full and are unaffected by a criminal's bankruptcy. Secondly, such penalties, ordinarily, would not be enforceable outside Australia. The taxation legislation relied on by the Commissioner here evinces an indubitable public policy that taxation and civil penalties, first, be paid and, secondly, be recoverable in insolvencies, pari passu with debts owed to other unsecured creditors. 45 It is fundamental to any society that its government be able to require its citizens and others who operate a business or reside within that society, to pay taxation so as to maintain the State. I would simply observe that, without deciding the issue, there is thus considerable force in the Commissioner's reliance on Art 6.

The election: Is the Commissioner estopped from seeking relief under Art 22? 46 The foreign representatives argued that by lodging a proof of debt to them on 3 December 2009, and again on 10 March 2010, the Commissioner submitted or elected to submit to the jurisdiction of the Grand Court. That argument was based on a decision of Bacon CJ in Ex parte Robertson; In re Morton (1875) LR 20 Eq 733 and Lord Collins' use of that decision in Rubin [2013] 1 AC at 283-284 [165]. They argued that by lodging a proof of debt, the Commissioner had "entered into a compact with the body of creditors subject to the foreign main proceeding in the Cayman Islands". They asserted that the Court should not permit the Commissioner to abandon that "compact" by granting a modification of the 2010 orders. The foreign representatives also contended that by submitting the proofs of debt, receiving information from the liquidators and attending the meeting of 24 March 2010, the Commissioner elected to be party to the liquidation in the Cayman Islands. 47 I reject the foreign representatives' argument. The principle explained by Bacon CJ in Ex parte Robertson LR 20 Eq 733 involved a situation in which a Scottish creditor not only proved in the English liquidation (or in a personal bankruptcy administration, as it was then called) but also had received a distribution based on his proof of debt. The creditor had given credit in his proof of debt to the trustees of the debtors' property for a payment by the debtors of ₤120. Bacon CJ rejected the Scottish creditor's argument that the English Court had no jurisdiction to make that order. He said that when creditors "came in under the liquidation they made what is as much a compact as if each of them had signed and sealed and sworn to the terms of it - that the bankrupt's estate shall be duly administered among the creditors." The Chief Judge found that the English legislation cast the administration of the estate on the court which had jurisdiction to decide all questions of fact and law necessary to effect complete distribution of that estate. He held that the Scottish creditor had become an active party and had taken a benefit, and so was subject to the jurisdiction of the English Court. 48 Lord Collins identified the relevant principle as depending on the proposition that by proving in a liquidation or bankruptcy in the forum, the foreign creditor submits to the jurisdiction of the forum's courts. He found that, in one of the two appeals before the Supreme Court, the creditor had participated in an Australian liquidation "by way of proof and receipt of dividends": Rubin [2013] 1 AC at 283-284 [165]-[167]. However, what each of Ex parte Robertson LR 20 Eq 733 and, on this issue, Rubin [2013] 1 AC 236 concerned was "whether there has been a submission for the purposes of enforcement of foreign judgments in England". As Lord Collins held, that question depended on English law ([2013] 1 AC at 283 [161], [164]) and he explained at [161]: "The court will not simply consider whether the steps taken abroad would have amounted to a submission in English proceedings. The international context requires a broader approach. Nor does it follow from the fact that the foreign court would have regarded steps taken in the foreign proceedings as a submission that the English court will so regard them. Conversely, it does not necessarily follow that because the foreign court would not regard the steps as a submission that they will not be so regarded by the English court as a submission for the purposes of the enforcement of a judgment of the foreign court. The question whether there has been a submission is to be inferred from all the facts." (emphasis added) 49 Here, at the time of lodging his proofs of debt with the liquidators, the Commissioner was unaware whether Saad Investments still had any assets in Australia, as appeared in his enquiries on this issue made of them in his letters of 3 December 2009 and 2 February 2010. There is no evidence that the liquidators enlightened the Commissioner on that matter before either proof was filed. In each letter the Commissioner sought the liquidators' assistance in providing him with information about the existence, location and extent of any assets of Saad Investments that were in Australia and whom, if anyone, the liquidators had appointed here to act for the company or them. The proof of debt form itself was not intituled in the proceedings in the Grand Court. The only "benefit" that the Commissioner appeared to have received from lodging the proofs of debt consisted of any reports the liquidators had issued and the circular letter dated 1 March 2010 from the liquidators addressed to all known creditors informing them of the meeting of creditors called for 24 March 2010. 50 The Commissioner was, in the circumstances, a creditor of Saad Investments. He received information that he would have been entitled to receive were he treated as a creditor here under the Corporations Act and in virtue of his rights under the various taxation statues. Critically in 2009 and 2010 in the period relied on by the foreign representatives, the Grand Court never exercised any jurisdiction over the Commissioner and he did not make, and was not a party to, any application to the Grand Court or that it determined. There is nothing in the evidence that suggested that the Commissioner ever submitted to the jurisdiction of the Grand Court at all. It does not appear that the liquidators had called for proofs of debt for the purpose of making any distribution to creditors. Moreover, the debts that the Commissioner sought to establish in the proofs of debt were not admissible to proof under the law of the Cayman Islands. He was not a creditor with any claim under that law. And, the Commissioner did not appear to have lodged the proofs so as to obtain any distribution from the funds, if any, in the Cayman Islands. 51 I am not satisfied that the Commissioner submitted to the jurisdiction of the Grand Court or entered into a compact with all the creditors of Saad Investments at any time. Nor did the Commissioner elect to be bound by the laws of the Cayman Islands simply because he lodged a proof of debt to obtain information or to attend a meeting of creditors. An election occurs where a person is confronted with the necessity of making a choice between two mutually inconsistent courses of action. In Immer (No 145) Pty Ltd v Uniting Church in Australia Property Trust (NSW) (1993) 182 CLR 26 at 41, Deane, Toohey, Gaudron and McHugh JJ said: "The true nature of election is brought out in this sentence from the seminal work of Spencer Bower and Turner, The Law Relating to Estoppel by Representation [3rd ed (1977), p 313]: It is of the essence of election that the party electing shall be 'confronted' with two mutually exclusive courses of action between which he must, in fairness to the other party, make his choice." 52 Here, at the times relied on by the foreign representatives in 2009 and 2010, the Commissioner was unaware of what, if any, courses of action he had in Australia in respect of Saad Investments. He sought information from the liquidators so that he could be informed of whether, metaphorically, the bird had flown: i.e. whether there were any assets of Saad Investments still left in Australia against which he could seek to recover the whole or part of the debt owed by that company. The foreign representatives did not suggest how, in fairness to them or the creditors generally, the Commissioner could be said to have elected to give up his rights in Australia to seek recovery of the debts owed to him by Saad Investments by the anodyne steps of submitting the proofs of debt (that the liquidators could not admit to proof in the Cayman Islands anyway) seeking information and participating in a creditors meeting. The Commissioner did not have the information necessary for him to be confronted with a choice of pursuing his rights either in the Cayman Islands or Australia.

Conclusion 53 For these reasons, I am satisfied that the 2010 orders should be modified to permit the Commissioner to exercise, within a reasonable time, such rights as he may have to recover from Saad Investments' assets in Australia up to the pari passu amount that he would be entitled to receive as a dividend were he entitled to be admitted to prove for the tax debts as an unsecured creditor in the Cayman Islands liquidation. The parties should bring in short minutes of order to give effect to these reasons. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.