Commissioner of Taxation v Macquarie Health Corp & Ors [1998] FCA 910

EX TEMPORE REASONS FOR JUDGMENT HIS HONOUR: I have before me an application for security for costs under the Corporations Law and under the Federal Court of Australia Act 1976 Cth and the Federal Court Rules. The proceedings are unusual from a number of points of view as I will indicate shortly. The applicant in the proceedings is the Commissioner of Taxation ("the Commissioner"). The respondents in the proceedings are four companies, Macquarie Health Corporation Limited, Business and Professional Leasing Pty Limited, Randell Pty Limited and Cesana Holdings Pty Limited ("the Debtors"), Richard Walter Pty Limited ("the Taxpayer"), Morlea Professional Services Pty Limited ("Morlea") and AT Holdings Pty Limited ("AT"). The Taxpayer has a liability to the Commissioner for tax. For the purposes of this application it is common ground that some moneys are owing to the Taxpayer by the Debtors. The Commissioner has served notices under section 218 of the Income Tax Assessment Act 1936 (Cth)on the Debtors in respect of amounts said to be owing by the Debtors to the Taxpayer. Section 218 provides, relevantly, that the Commissioner may require any person to whom any money is due or accruing or may become due to a taxpayer to pay to the Commissioner so much of the money as is sufficient to pay the amount due by that taxpayer in respect of tax. The Commissioner, having served notices under section 218, now seeks to recover from the Debtors the amounts of money owing by the Debtors to the Taxpayer ("the Debts"). When the proceedings were first constituted AT was not a party to the proceedings. The Taxpayer, however, raised in its defence to the Commissioner's claim the alleged beneficial interest in the Debts of AT and Morlea. For reasons which are not at all clear to me at this stage, the Taxpayer abandoned that position and AT and Morlea have now been joined as parties. In its defence to the amended statement of claim, AT says, in substance, the following: (a) all monies payable by the Debtors to the Taxpayer are payable to the Taxpayer in its capacity as trustee for Morlea and AT; (b) all the monies payable by the Debtors to the Taxpayer are beneficially owned by two trusts, of which Morlea and AT respectively are the trustees; (c) all the moneys the subject of the section 218 notices constitute beneficially owned property of the beneficiaries of those trusts of which Morlea and AT respectively are the trustees and are not the beneficially owned property of the Taxpayer; (d) the Taxpayer is not the true beneficial owner of the moneys the subject of the section 218 notices and therefore does not have a good title to the same. In its defence AT denies each of the allegations made in the amended statement of claim which is inconsistent with the rights of the beneficiaries of the two trusts. The defence then goes on to make the following allegations: 1. All of the moneys payable by the Debtors to the Taxpayer are held by the Debtors for and on behalf of the beneficiaries of the two trusts of whom Morlea and AT respectively are the trustees. 2. The section 218 notices are ineffective because the Taxpayer is not the beneficial owner of the moneys sought to be charged by the notices. 3. The Commissioner is not entitled to payment to it by the Debtors of the moneys owing to the Taxpayer. 4. The moneys payable by the Debtors which are the subject of the claim by the Taxpayer are payable to Morlea and AT. If the matter remained there, it is common ground that there would be no entitlement on the part of the Commissioner to seek an order for security for costs against AT, either under section 56 of the Federal Court Act or under the Corporations Law. However, AT has filed a cross-claim in the proceedings in which it seeks to assert positively the claims raised in the defence. The relief sought in the cross-claim is as follows: (a) a declaration that the Debts are held on trust for the beneficiaries of the two trusts; (b) an order that, when the Debts are repayable to the Taxpayer, they be paid to the Taxpayer; and (c) an order restraining the Debtors from paying the Debts to any person other than the Taxpayer. It is common ground that the issues which are raised in that cross-claim do not go beyond the issues which are raised in the defence filed by AT to the amended statement of claim. The evidence before me shows that AT was incorporated on 13 May 1997 as a limited liability company with a paid up capital of $2. In the annual return lodged by AT with the Australian Securities Commission on 24 March 1998 the principal activities are stated to be "investments, acting as trustee". No auditor has been appointed. The evidence also indicates that the only asset of the trust of which AT is trustee is moneys owing by the Taxpayer. In other words, the evidence indicates that if the claims made by AT in these proceedings fail, there would be no assets available to meet any order for costs in favour of the Commissioner. In those circumstances, the question is whether I should order AT, as cross-claimant, to provide security for the payment of any costs which might be ordered against AT in favour of the Commissioner. I have been referred by counsel for AT to several decisions which are said to bear on this question, although none of them is directly in point. In Willey v Synan (1935) 54 CLR 175, the plaintiff had found silver coins while travelling on a ship from New Zealand to Australia. On arrival of the vessel, officials of the Customs Department took possession of the coins. The plaintiff made a claim for the coins under section 207 of the Customs Act 1901 (Cth). The Collector of Customs then gave notice to the plaintiff requiring him to commence an action for the recovery of the coins and stating that, in default of bringing such action, the coins would be condemned without further proceedings. The plaintiff was not ordinarily resident within the Commonwealth and, after he had commenced proceedings in the High Court, the Collector of Customs applied for security for costs under the rules of the High Court. The matter was heard first by Starke J who ordered security. On appeal, the Full Court came to a different conclusion, allowing the appeal and setting aside the order for security. Latham CJ referred to the decision of Scrutton LJ in Maatschappij Voor Fondsenbezit & Anor v Shell Transport and Trading Company & Ors [1923] 2 KB 166 and said (at page 180): In this case the Collector really initiated legal process by giving a notice under sec. 207 which would result in the exclusion of any right of the plaintiff unless the plaintiff himself took legal proceedings. If the Collector had not acted under sec. 207, it would not have been necessary for the plaintiff, in order to prevent the extinction of his right, to take any proceedings. If, no notice having been given, he took proceedings in conversion or detinue, he would be in the same position as any plaintiff who comes into the jurisdiction to complain of an act which he alleges to be wrongful. But, as the Collector has given him a notice under sec. 207, he is, in effect, forced into legal proceedings, nor merely to enforce his claim, but to prevent his claim from being extinguished. He is therefore really in the position of a defendant. Counsel for AT suggested that AT is in a similar position in that in the proceedings, and in the cross-claim, it is effectively in the position of a defendant because the Commissioner is seeking recovery of a fund to which AT claims to be beneficially entitled. In Maatschappij Voor Fondsenbezit & Anor v Shell Transport and Trading Company & Ors, Scrutton LJ said (at 177): There are however a set of cases in which foreign claimants have come to England to protect property attached in English proceedings, but have not been ordered to give security, because they are only there in defence of property threatened by English proceedings. Such cases are foreign shareholders opposing an English petition to wind up : In re Percy & Kelly Co. 2 Ch. D. 531; a foreign patentee coming to resist an English application to revoke his patent or trade mark : In re Miller's Patent 70 L.T. 270, and In re Société Anonyme des Verreries [1893] W.N. 119. In these cases there is an invitation to come by advertisement, but the position, I think, extends to every case where the person against whom security is sought is really defending himself against attack, even if he be nominally a plaintiff, but really defending himself against defendants' previous action against him. …………………………………………………………………………………………… The Court always, as I understand, endeavours to be guided by the substance and not by the form of the matter and orders security for costs against the foreign attacker, not against the foreigner defending himself or his property from attack. Thus in interpleader the defendant to the issue may be ordered to give security for the plaintiff if the defendant is really the aggressor. Those comments of course were made by way of refusing an order for security against a foreign plaintiff, where in effect it was the defendant who could be properly characterised as the aggressor. In Willey's Case, the plaintiff was faced with extinguishment of his entitlement to the coins by reason of the operation of the Customs Act and again, notwithstanding that he was not a resident of the Commonwealth, the Court declined to order security against him. It is common ground that the Commissioner, in his claim against the Debtors, must stand in the shoes of the Taxpayer. That is to say, the Commissioner can have no greater claim against the Debtors than the Taxpayer had. Thus, if it be the fact that AT is the beneficial owner of the Debts, albeit in its capacity as trustee of a trust, that interest will take priority over any entitlement of the Commissioner to payment pursuant to section 218. That is the issue raised by AT in the proceedings as they are now constituted. In one sense the Commissioner seeks a remedy in rem. The res in question is the Debts. A question may well arise on the hearing of the proceedings as to the nature of the relief to which the Commissioner is entitled under section 218. In other words, any order may have to take account of the fact that the Commissioner's claim is through the Taxpayer and the fact that his claim against the Debtors can rise no higher than the Taxpayer's claim against the Debtors. In the course of argument, having regard to the observations made by Scrutton LJ, analogy was drawn with interpleader proceedings which may give some assistance in the present case. There are two levels at which the interpleader analogy may arise. At one level, there is a dispute between the Taxpayer and AT as to entitlement to the Debts. Notwithstanding that the Taxpayer originally set up the entitlement of AT as a defence, in its defence to the cross-claim it has put AT to proof of its claim to a beneficial interest in the Debts. As I understand it, a significant part, of the Debts is not yet payable. Further, the nature of the dispute as to the amounts which are payable is not yet clear. However, subject to those matters, the Debtors say, in effect, that they acknowledge that they owe money to someone but require that the Court determine, as between the claimants, who is entitled. Thus, the Debtors are the stakeholders, and the dispute is between the Taxpayer and AT. At another level, once the Commissioner stands in the shoes of the Taxpayer, so far as the analogous interpleader claim is concerned, the interpleader analogy might be seen to involve AT and the Commissioner. At that level, the Taxpayer is the stakeholder, acknowledging that it has property, being the Debts, in respect of which there are two claimants. This analogy is not yet perfect because of the Taxpayer's failure to admit the claim to the Debts by AT. However, if that question is resolved in favour of AT, each of AT and the Commissioner has a competing claim in respect of the Debts. Both would prevail over the Taxpayer. It would be appropriate in some circumstances for security for costs to be ordered in interpleader proceedings. While the Federal Court Rules provide for interpleader claims, the power to order security must be governed by section 56 of the Federal Court Act. It may well be that, in an appropriate case, notwithstanding that a stakeholder, as defined in the Rules, would join each of the two claimants as respondents, there may be power for the Court to order one of the respondent claimants to provide security. That question is not one which I need to decide. However, the Court may well do so if one of the respondents is in substance the aggressor. The question for me is whether, in circumstances where AT seeks to vindicate its entitlement as against the Commissioner to a share in the Debts, I should characterise its claim as that of an aggressor, such that, as cross-claimant, it should be ordered to provide security for costs. The analogies of Maatschappij and Willey indicate that where, in substance, the moving party is prompted by the action of the opposing party and is simply defending its interest, the moving party should not be required to provide security for costs. It is not clear at this stage, as I have said, precisely what orders might ultimately be made in these proceedings. Nevertheless, the relief which is sought by the Commissioner is for payment of sums of money by the Debtors to the Commissioner. In one sense, AT is here to defend the claim in rem which is being made against the Debts by the Commissioner. In a sense, it is fortuitous that AT has been joined as a respondent. I have ordered that AT be joined as a party, in order that all issues arising out of the subject matter of the claim by the Commissioner can be resolved. It may be that, in substance, AT is making a claim to the Debts while the Commissioner, on the other hand, simply relies on his statutory entitlement under section 218, whatever that might be. It appears that AT's entitlement to the Debts, if it exists, arose some time ago. Nevertheless, it is the Commissioner who has prompted AT to file its cross claim. What is clear is that the matter which prompted AT's claim at this stage is the Commissioner's pursuit of the statutory claim which he has under section 218. In those circumstances it seems to me that, while the analogy is not complete, it is appropriate to treat the claim by AT as a defensive claim. The cross claim does not raise any issue which is not raised in the defence. Accordingly, I should treat AT as being in the same position as that of Willey in the High Court. In those circumstances I decline to order security for costs. Accordingly, I dismiss the Commissioner's motion with costs.