Commissioner of Taxation v Macquarie Health

EX TEMPORE REASONS FOR JUDGMENT 1 On 29 October 1998, I published my reasons for reaching conclusions in relation to various matters which had been argued before me at some length earlier in 1998. I indicated at that stage that I would not make orders, but that I would give the parties the opportunity of further argument. On 8 March 1999, I heard further argument and on that day gave my reasons for reaching certain conclusions as to entitlement to interest. I reserved my decision on the substantial matters which were then argued. On 31 March 1999, I published my reasons for reaching final conclusions which disposed of the proceedings and, on 8 April 1999, orders were entered to give effect to all of the reasons which I had at that stage published. 2 I now have before me a motion brought by the Commissioner of Taxation ("the Commissioner") in which an order is sought for payment out of money which had been paid into court. As I indicated in my reasons of 29 October 1998, a settlement deed entered into on 27 November 1997 ("the Settlement Deed") provided for payment into court of moneys owing by the first to fourth respondents ("the Debtors") to the fifth respondent ("the Taxpayer"). 3 The Settlement Deed provided that, if there was a default event as defined before 1 July 1999 and the proceedings before me had not then been finally determined, the amounts owing by the Debtors to the Taxpayer were to be paid into Court pending a final determination of proceeding number NG 118 of 1996. A default event as defined occurred on 1 July 1998 and, accordingly, on 4 August 1998 the sum of $21,290,886 was paid into Court by the Debtors pursuant to orders made by consent. 4 One of the orders made on 8 April 1999 was for payment out to the Commissioner of the sum of $15,784,701.26. That order was expressed to be made pursuant to Order 23 rule 13 of the Federal Court Rules, which provides that money paid into Court must not be paid out of Court except under an order of the Court or a judge. The Commissioner's present application relates to interest which has accrued on the money in Court. In substance, the Commissioner seeks an order that a proportion of the interest accrued on the money in Court be paid out to him. The proportion which he seeks is the proportion which the sum of $15,784,701.26 bears to the sum of $21,290,886. 5 The application by the Commissioner is opposed by both the Debtors and the Liquidator and the Taxpayer. The application is opposed at this stage on procedural grounds. The Debtors contended that the Court is functus officio. The contention is that the orders entered on 8 April 1999 were prepared and lodged by the Commissioner and that the question of the entitlement of the Commissioner to interest was dealt with in the proceedings. The contention, as I understand it, therefore, is that it is no longer open to me to deal with the question and that the question is a matter that should be raised on appeal. 6 The Taxpayer and the Liquidator, on the other hand, contend that the question of entitlement to the money in Court and interest on that money has not been the subject of any argument before me and was not an issue in the proceedings before me. There were issues in the proceedings before me as to entitlement to interest. Further, I have resolved all of the issues, as I understand it, which have been tendered in the proceedings. However, the question of entitlement to the fund in Court has not, as I understand the position, been the subject of any determination in the proceedings before me. That question was not an issue in the proceedings before me. 7 It appears to me that entitlement to the fund in Court is a question to be determined by the effect of the Settlement Deed. There were many parties to the Settlement Deed including the Debtors, the Taxpayer (referred to in the Settlement Deed as "the Company"), the Liquidator and the Commissioner. By the Settlement Deed, the parties recited the fact that proceedings had been commenced in the Federal Court (referred to as "The 218 Proceedings") and were expected to be determined by 30 June 1999. The Settlement Deed also recited the following matters: "F. The Commissioner is owed approximately $19,000,000 by the Company and claims that he is the largest non-related creditor of the Company. The Commissioner has given an indemnity to the Liquidator to commence the Winding Up Proceedings to recover the assets of the Company. G. The Company proposes to discontinue the Winding Up Proceedings if the Commissioner and other creditors of the Company consent to that action. ……………………………… K. Due to the 218 proceedings, MHC, the Guarantors, the Borrowers and the Mortgagors agree to institute an arrangement whereby the rights of the Commissioner to recover any moneys owing under the 218 proceedings from MHC and the Borrowers is not prejudiced and all moneys owed by the Borrowers to the Company will be repaid on or before 1 July 1999." The "Winding Up Proceedings" are defined by reference to the ninth schedule to the Settlement Deed, which refers to proceedings involving two of the Debtors. The entity referred to as "MHC" in the Settlement Deed is the first respondent. The other Debtors are included in either the definitions of "the Guarantor" or the definition of "the Borrowers". 8 Clause 2.2 of the Settlement Deed relevantly provides as follows: "(a) Subject to satisfaction of the Condition Precedent [which refers to the Liquidator obtaining approval of creditors] the advances to MHC and the Loans to the Borrowers…shall bear interest at the rate of 10 per cent per annum as and from 1 July 1997. ……………………………… (d) If any of MHC or any Borrower is liable to pay an amount to the Commissioner by reason of the final determination of the 218 proceedings ('218 liability to the Commissioner') then any interest which has accrued on the 218 liability to the Commissioner pursuant to clause 2.2(a) will also be paid to the Commissioner." 9 Clause 2.7 provides that: "Subject to [certain other provisions in the deed], the Borrowers shall repay the Loans and MHC shall repay the Advances on or before 1 July 1999 together with any interest." 10 Clause 2.10 provides relevantly: "(a) If (i) there is a Default Event before 1 July 1999 …………………… the 218 proceedings have not been finally determined so that an amount is payable by any or all of MHC, the Borrowers and the Mortgagors ('the Payers') but the issue of whether the amount should be paid to the Company, the Commissioner or otherwise has not been resolved then the Payers must within seven days of that Event of Default or date, as the case may require, apply to the Federal Court to pay the money into that Court pending the final determination of the 218 proceedings. ……………………………… (b) Any application to pay money into the Federal Court contemplated by clause 2.10(a) must (amongst other things) seek the Court's approval for a withdrawal of moneys from the Court by the Liquidator for the purpose of paying the Liquidator's outstanding remuneration, costs and expenses." 11 The Settlement Deed contains fairly elaborate provisions for the payment of moneys upon the final determination of the 218 Proceedings. It does not, however, as I understand it, refer expressly to all of the circumstances in which the money paid into Court will be paid out of Court. It may well be, nevertheless, that the Settlement Deed has some effect on the entitlement to the moneys which were paid into Court. 12 Order 63 of the Federal Court Rules provides for the establishment of a bank account entitled 'Federal Court of Australia Litigants' Fund'. Rule 3(3) provides as follows: "Subject to subrule 5(1), money paid into Court must be paid to the credit of a Litigants' Fund." 13 Rule 5(1) then provides as follows: "The Court or a judge may at any time order that money paid, or to be paid, into Court be paid, credited or applied in a manner other than by payment into the Litigants' Fund." Rule 5(2) provides: "In the event that any interest is, or is to be earned, on money mentioned in subrule (1) the Court or a judge may give directions as to the disbursement of the interest." 14 It is not clear on the material before me at present whether the money paid into Court was paid into the Litigants' Fund or not. The order which was made by consent was as follows: "(1) Macquarie Health Corporation Limited caused to be paid into Court the sum of $21,290,886 pending the final determination of these proceedings and any appeal from the judgment in these proceedings to the Full Court of the Federal Court of Australia or the High Court of Australia whichever is the latest. (2) the money be deposited by the District Registrar with the bank in an interest bearing account payable at call with interest accruing daily and credited monthly or quarterly." 15 The parties have assumed, in the course of the argument before me today, that the intent of order (2) was to authorise payment otherwise than into the Litigants' Fund. 16 It may not matter for present purposes. Rule 4(1) of Order 63 provides as follows: "Money may be paid out of a Litigants' Fund only in accordance with an order of the Court or a judge." Thus, in whichever account the money presently stands, it can only be paid out in accordance with an order of the Court or a judge. The money was paid into Court pursuant to orders made by me by consent in the proceedings before me. It is for that reason that the application for payment out of part of that money has been made by the Commissioner in these proceedings. 17 The Commissioner sought to put his application on the basis of Order 35 rule 7. Order 35 rule 7(4) provides as follows: "Subrule (2) shall not affect the power of the Court to vary or terminate the operation of an order by a supplementary order." 18 The form of the order sought in the motion presently before me is as follows: "Pursuant to Order 35 rule 7(4) of the Federal Court Rules, the orders made by this Court on 31 March 1999 be varied by a supplementary order 1(a) namely:…" There then followed the terms of the proposed order the effect of which I have outlined above. 19 The Commissioner contended that the order which he sought was, in effect, a variation of an order made in favour of the Commissioner. Rule 7(2) relevantly provides as follows: "The Court, where it is not exercising its appellate or related jurisdiction under Division 2 of Part III of the Act may, if it thinks fit, vary or set aside a judgment or order after the order has been entered where: …………………… (f) the party in whose favour the order was made consents." 20 I do not consider that the proposed order would constitute a variation of any order which I have made in these proceedings. It may well be that the order sought would be a supplementary order if the question of entitlement to the fund in Court was an issue before me. However, as I have said, I do not regard that question as having been raised in the proceedings before me and I do not understand the Commissioner to have contended that it was. Accordingly, I do not consider that I have any power under Order 35 rule 7 to vary or add to the orders which I have already made disposing of the proceedings. There have now been notices of appeal lodged in respect of those orders and those matters in due course will be resolved by the Full Court. 21 Whether it is appropriate for the question which has now arisen to be determined in these proceedings or in a new application may not be of great significance. However, I consider that the question which has been raised is a matter of substance which ought to be determined, not necessarily by fresh application, but in a separate proceeding which enables the parties to adduce such evidence as they are advised in support of their respect contentions as to entitlement to interest on the fund in Court. 22 The Commissioner makes no claim to any part of the principal beyond the sum which has already been the subject of the orders which were entered on 8 April 1999. As I understand the matter, it appears to be common ground that the Liquidator would be entitled to the balance of the principal after payment out of the sum of $15,784,701.26 to the Commissioner. The Debtors have an interest in the matter in that they wish to be satisfied that any application of interest to the Commissioner is a pro tanto discharge of their indebtedness to the Taxpayer. That is a matter of substance and it may well depend upon the true construction to be given to the Settlement Deed. 23 I consider, in the circumstances, that the application presently before me must fail. I make it clear, however, that in dismissing the motion, as I propose to do, I have not, in any way, determined the merits of the question raised by the Commissioner. Whether it is appropriate for those questions to be determined before the hearing of the appeal to the Full Court or not is perhaps a matter for the parties to resolve amongst themselves. 24 I would have thought that it is probably appropriate to deal with it in advance of the Full Court. On the other hand, I can see some merit in awaiting the outcome of the appeal. On certain outcomes, of course, the question does simply not arise. 25 In the circumstances I dismiss the application. I order the Commissioner to pay the costs of the Liquidator and of the Debtors of the notice of motion. I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.