Commonwealth v Cigamatic Pty Ltd

Commonwealth v Cigamatic Pty Ltd - [1962] HCA 40 - HCA 1962 case summary — Zoe

[3]

In the first instance the Commonwealth rests its claim on the right at common law of the Crown to priority of payment when in any administration of assets debts of equal degree due to the Crown and due to subjects of the Crown come into competition. This right arose from the sovereignty of the Crown and was accordingly expressed in terms of prerogative but it is today one of the fiscal rights of government and of course it clearly attaches to the Commonwealth. The claim of the Commonwealth in the present case resting on this right is, however, denied on the ground that by force of the State Companies Act it is excluded. This conclusion is doubtless supported, if not completely at all events to no inconsiderable degree, by the judgments of the majority in Uther v. Federal Commissioner of Taxation [1] , but it seems to me now as it seemed to me then to imply a fundamental proposition about the power of legislatures of the States which ought not to be entertained. The proposition that is implied is that an exercise of State legislative power may directly derogate from the rights of the Commonwealth with respects to its people. It is a proposition which must go deep in the nature and operation of the federal system. There can be no doubt as to the nature or the source of the right of the Commonwealth in an administration of assets to be paid in preference to subjects of the Crown if there is a competition among debts of equal degree. It springs from the nature of the Commonwealth as a government of the Queen. Therefore to treat those rights as subject to destruction or modification or qualification by the legislature of a State must mean that under the Constitution there resides in a State or States a legislative power to control legal rights and duties between the Commonwealth and its people. Indeed in Uther's Case [1] Rich J. actually says: "In so far as the right of the Crown in the right of the Commonwealth to rank as a preferential creditor is based merely on the prerogative of the Crown as such, I see no reason why the State legislature cannot validly abridge or abolish it just as it could any other Crown prerogative of this sort" [2] . Except by adopting such a doctrine I cannot see how it could be thought that State legislative power could directly deprive the Commonwealth of the priority to which it is entitled under the law derived from the prerogative. Believing, as I do, that the doctrine thus involved is a fundamental error in a constitutional principle that spreads far beyond the mere preference of debts owing to the Commonwealth, I do not think we should treat Uther's Case [1] as a decisive authority upon that question which we should regard as binding. It is not a question, as it appears to me, of interpreting some positive power of the State over a given subject matter. It is not a question of making some implication in favour of the Commonwealth restraining some acknowledged legislative power of the State. If you express the priority belonging to the Commonwealth as a prerogative of the Crown in right of the Commonwealth, the question is whether the legislative powers of the States could extend over one of the prerogatives of the Crown in right of the Commonwealth. If, as in modern times I think it is more correct to do, you describe it as a fiscal right belonging to the Commonwealth as a government and affecting its Treasury, it is a question of State legislative power affecting to control or abolish a federal fiscal right. It is not a question of the authority of the power of a State to make some general law governing the rights and duties of those who enter into some description of transaction, such as the sale of goods, and of the Commonwealth in its executive arm choosing to enter into a transaction of that description. It is not a question of the exercise of some specific grant of power which according to the very meaning of the terms in which it is defined embraces the subject matter itself: for it is not the plan of the Constitution to grant specific powers to the States over defined subjects. It is, I think, a question which cannot be regarded as simply governed by the applicability of the principles upon which Melbourne Corporation v. The Commonwealth [1] depended. In truth it imports a principle which if true would apply generally with respect to the legal rights of the Commonwealth in relation to its subjects. I do not speak of legal rights which are the immediate product of federal statute and so protected by s. 109 of the Constitution. But because it imports such a principle I think we ought not to give effect to the view taken in Uther's Case [2] that s. 297 of the Companies Act, 1936 of New South Wales operated directly to nullify the priority to which the Commonwealth might have been entitled. I shall not recapitulate the reasons against this conclusion which I gave in Uther's Case [2] . But I should add that in that case the view was rejected that, assuming that s. 297 could not operate of its own legislative force to deprive the Commonwealth of its right to priority (an assumption, of course, which I think is completely correct), yet Pt X of the Companies Act, 1936 established a definite plan of winding up of which s. 297 formed a part and that the Crown in right of the Commonwealth could either stand outside the plan altogether and enforce its claim independently of the winding up or else at its election could come in voluntarily but on terms of accepting the whole plan. That would mean that the Commonwealth must come in on the footing that it accepted the plan as an entirety including the order of priority set out in s. 297.

[5]

In a unitary system it seems that the Crown, if not bound directly by the companies legislation, has not been considered to be in this position. And there is no sound ground for treating the question as any different when the question is between the Crown in right of the central authority in a federal system and the plan of liquidation set up by one of the other political units in the system; at all events there is no reason for departing from the view expressed in Uther's Case [1] upon that matter. Nor is there any compelling reason for reconsidering the views expressed by the majority in Uther's Case [1] concerning the meaning and effect of s. 32 of the Sales Tax Assessment Act (No. 1) 1930-1953. But I have had the advantage of reading the judgment prepared by Taylor J. on the subject of the operation of such a provision and the many statutes passed under the taxation power as incidental thereto which contain provisions in a like form. The inconsistency of operation which on their face they appear to exhibit in the case of a liquidator of an insolvent company owing taxes of two or more different descriptions if he holds assets insufficient to pay more than one description of tax, arises from the unqualified terms in which they are expressed. But I would not resolve that difficulty by treating the statutory provisions as impliedly repealing one another in order of date. That appears to me to be contrary to the intention of the statutes. The inconsistency occurs only in the actual operation of the statutes and then only when in one liquidation more than one of the statutory provisions applies and the assets are insufficient to meet the demands of both statutes. In such a case I would rather imply a duty to hold the assets to meet both or all demands pari passu. After all, ultimately the creditor is the same, viz. the Crown in right of the Commonwealth, and at bottom the question is simply of the proper application, so to speak, among the accounts of the Commonwealth of the fund the liquidator must hold. However, it may be said that on the view adopted by the majority of the Court in Uther's Case [1] , all the liquidator need do under the provisions is to hold the assets or fund until from other sources of authority the proper application of the same be ascertained or determined. Certainly what is shown by the judgment of Taylor J. makes it manifest that the operation of these various statutory provisions as an entirety calls for the consideration of the Legislature.

[11]

I am not prepared to agree that it is an absolute proposition that the Commonwealth enjoys under the Constitution immunity from State legislation on a matter which is within the residue of legislative power left after the grant of power which s. 51 of the Commonwealth of Australia Constitution Act grants to the Parliament with respect to the subjects enumerated therein - the winding up of companies is, of course, an example of such State legislation. But I think this question is not one which should again be canvassed in this case, and the decision in Uther's Case [1] , even though it is debatable, should not be struck down. I feel urged by a number of reasons not to review that decision in the present case. The first is one of a practical kind: the winding up of companies has for some fifteen years proceeded in reliance on the validity of that decision, and its reversal might have a disturbing effect in business circles. Mr. Williams in his able argument gave a number of instances illustrating this point. A second reason seems to me to be compelling: when the present case was being argued, it was pointed out as the fact was, that the Companies Act, 1936 as amended was about to expire and a new Act had been passed to take its place; the latter was in fact proclaimed as from 1st July 1962. The new Act is uniform with the Companies Acts passed by other States and includes, of course, provisions parallel, if not in identical terms, with the legislation of New South Wales which was in dispute in Uther's Case [1] . The "new uniform Companies Act ", as it has been called, is the product of consultations which went on for a long time between the States and the Commonwealth. The order of priority of debts is obviously an important feature of the new Companies Act of each of the States which has passed it: it occurs in s. 292 (1) of the New South Wales Act. A decision overruling Uther's Case [1] would result in the disruption of this order of priorities. In my view, the decision should not be overruled without hearing the Attorneys-General of the States. It is within the constitutional power of the Commonwealth to enact legislation giving debts due to the Commonwealth the priority which the Commonwealth thinks fit if it is dissatisfied with the order of priority accorded such debts under State law. In Uther's Case [1] , it was decided that s. 32 of the Sales Tax Assessment Act does not require the liquidator to pay sales tax in preference to other debts. It is within the constitutional power to amend that section so that it would require the liquidator to give preference to the tax. In all the circumstances, it seems to me that it would be a sound exercise of the Court's discretion to decline to review Uther's Case [1] . I think that the demurrer should be allowed.

[15]

At the outset of the argument it became apparent that the plaintiffs wished us to reconsider the decision of this Court in In re Foreman & Sons Pty. Ltd.; Uther v. Federal Commissioner of Taxation [1] in which it was held that, in a winding up pursuant to the Companies Act, 1936 N.S.W., the prerogative right of the Crown in right of the Commonwealth to be preferred to other creditors of the same degree was restricted by the provisions of ss. 199, 282 and 297 of that Act. The first of these sections provided, inter alia, that the provisions of Pt X of the Act relating to the remedies against the property of a company, the priorities of debts and the effect of an arrangement with creditors should bind the Crown. Section 282 provided that, subject to the provisions of the Act as to preferential payments, the property of a company should, on its winding up, be applied in satisfaction of its liabilities pari passu whilst s. 297 specified the order of priority in which certain debts should be paid. It is unnecessary that these latter provisions should be set out in full but, allowing for the fact that s. 297 was designed to deal with the winding up of companies whereas s. 84 of the Bankruptcy Act 1924-1959 Cth is designed to deal with administration in bankruptcy, there is a marked similarity between each set of provisions in so far as they relate to debts falling within the first three classes prescribed by the Companies Act. None of these classes comprehends any debt owing to the Crown in right of the Commonwealth. But the next class prescribed by the Companies Act consists of - "all land tax and income tax assessed or to be assessed under any Act or Commonwealth Act due from the company at the relevant date and having become due or to become due and payable within twelve months next preceding that date, or to become due and payable thereafter and not exceeding in the whole one year's assessment". The corresponding class prescribed by the Bankruptcy Act is - "all municipal or other local rates due from the bankrupt at the date of the order of sequestration and having become due and payable within twelve months next preceding that date; and all assessed land tax and income tax, assessed under any Act or State Act prior to the date of the order of sequestration and not exceeding in the whole one year's assessment; and in repayment of any advance made to the bankrupt, or in payment of any amount owing by the bankrupt, for goods supplied to him, under any Act or State Act or law of a Territory relating to or providing for the improvement, development or settlement of land, or the aid, development or encouragement of mining". Neither provision purports to confer any priority with respect to any other form of so-called Crown debt, either State or federal. Finally, it should be observed that by s. 5 (3) of the Bankruptcy Act the provisions of the Act relating to the remedies against the property of a debtor, the priorities of debts, the effect of a composition or scheme of arrangement, and the effect of an order of discharge, shall, except as otherwise expressly provided, bind the Crown as representing the Commonwealth or any State. The Act is expressed to apply to all debtors "but a sequestration order shall not be made against any corporation, or against any partnership, association or company registered under any Commonwealth or State Act which provides for the winding-up thereof" (s. 5 (1)). The direct result of the decision in Uther's Case [1] is that the Commonwealth is bound by the State prescribed rules as to priorities in a winding up pursuant to a State Act. Conversely, it would seem that, in a bankruptcy administration a State is bound by the rules prescribed by the Bankruptcy Act and, as appears, the Commonwealth is expressly bound. That being so, there can be no doubt that the rules as to priority in which debts shall be paid in a bankruptcy administration, pro tanto, displaces the prerogative rights of the Crown to be preferred to other creditors of the same degree (cf. Food Controller v. Cork [2] ).

[17]

In Uther's Case [1] the claim to priority was rested, first of all upon the prerogative right of the Crown to be preferred to subjects being creditors of equal degree. It is said to be "an incontrovertible rule of law, that where the King's and the subject's title concur, the King's shall be preferred" (R. v. Wells [3] ) and that "Except so far as the Legislature has thought fit to interfere, the rule is one of universal application, and perhaps not unreasonable, when it is considered that, after all, it only means that the interests of individuals are to be postponed to the interests of the community" (New South Wales Taxation Commissioners v. Palmer [4] ; Food Controller v. Cork [5] ; and see also Uther's Case [6] ). Secondly, the respondents in the lastmentioned case founded their claim on s. 32 of the Sales Tax Assessment Act (No. 1) 1930-1942 and s. 30 of the Pay-roll Tax Assessment Act 1941-1942. These provisions were in similar terms and I quote s. 32 of the firstmentioned Act: "(1) Every person who is liquidator of any company which is being wound-up and which is, or on or after the first day of August, One thousand nine hundred and thirty has been, a manufacturer or wholesale merchant, shall, within fourteen days after he has become liquidator of that company, give notice in writing to the Commissioner of his appointment as liquidator. (2) The Commissioner shall, as soon as practicable thereafter, notify to the liquidator the amount which appears to the Commissioner to be sufficient to provide for any tax which then is or will thereafter become payable by the company - (2a.) The liquidator - (a) shall not without the leave of the Commissioner part with any of the assets of the company until he has been so notified; (b) shall set aside out of the assets available for the payment of the tax, assets to the value of the amount so notified, or the whole of the assets so available if they are of less than that value; and (c) shall, to the extent of the value of the assets which he is so required to set aside, be liable as trustee to pay the tax. (2b.) If the liquidator fails to comply with any provision of this section (or fails as trustee duly to pay the tax for which he is liable under the last preceding sub-section), he shall, to the extent of the value of the assets of which he has taken possession and which are, or were at any time, available to him for the payment of the tax, be personally liable to pay the tax, and shall be guilty of an offence. Penalty: Not less than One pound or more than Fifty pounds. (3) Where more persons than one are appointed liquidators or required by law to carry out the winding-up, the obligations and liabilities attaching to a liquidator under this section shall attach to each of such persons: Provided that where any one of such persons has paid the tax due in respect of the company being wound up the other person or persons shall be liable to pay that person each his equal share of the amount of the tax so paid. (4) Notwithstanding anything contained in this section, all costs, charges and expenses which, in the opinion of the Commissioner, have been properly incurred by the liquidator in the winding up of a company, including the remuneration of the liquidator, may be paid out of the assets of the company in priority to any tax payable in respect of the company. (5) Nothing in this section shall limit the liability of a liquidator under section sixty-nine of this Act in respect of any transactions, acts or operations effected or done by him as liquidator in respect of any goods." The first two sub-sections of this section were substituted for their original counterparts in 1936 and it may not be unimportant to notice that in its original form the section contained no such provision as sub-s. (4), and sub-s. (1) thereof required the liquidator, in terms, to "set aside such sum out of the assets of the company as appears to the Commissioner to be sufficient to provide for any tax that then is or will thereafter become payable". In its ultimate form s. 32 of the Sales Tax Act came into force on 7th December 1936 and s. 30 of the Pay-roll Tax Assessment Act came into operation on 2nd May 1941.

[23]

For myself, I entertain the view that the substantial effect of s. 32, as it stood at the time of that decision, was to require a liquidator, out of the assets of the company, to pay sales tax in priority to all debts other than those specified in sub-s. (4). In justification of this view I find it unnecessary to do more than refer to the observations of Dixon J. (as he then was) in Uther's Case [1] . His Honour discussed at some length the form in which the section stood at that time and, although he found it unnecessary for the purposes of deciding the case, to express any final opinion concerning the effect of the section, he called attention "to considerations affecting the question" of its construction. These considerations, in my view, lead to the conclusion that the effect of the section was as I have already stated. Further - if the enactment of s. 32 in its original form be ignored for the moment - the section in the form which it assumed in 1936 must, to the extent to which it provided a statutory priority in such cases, be taken to have displaced the Crown's prerogative right to priority in relation to the payment of such imposts (Attorney-General v. De Keyser's Royal Hotel [2] ; and Food Controller v. Cork [3] ). Indeed the effect of the section extended somewhat beyond this for, to the extent to which it purported to establish priority for outstanding sales tax, it denied the like right to any other Crown debt. Upon this view concerning the effect of the section the claim to priority in Uther's Case [4] in respect of sales tax depended, as in the present case, wholly and solely upon the provisions of s. 32. But when we bear in mind that the first two sub-sections of s. 32 had been enacted in 1930 in what has been said to be a somewhat wider form there may be some ground for the contention that the prerogative right was, pro tanto, abrogated at that time and that, whatever the effect of s. 32 was in the form which it assumed in 1936, the prerogative right was not revived by the repeal then of the first two sub-sections of the original provision (Acts Interpretation Act 1901-1957, s. 8, and cf. Craies on Statute Law, 5th ed. (1952) p. 323).

[25]

However, it is unnecessary to pursue this question for the formula appearing in the section has been consistently used in Commonwealth legislation. Section 26 of the Flour Tax Assessment Act 1933-1934 and s. 25 of the Flour Tax Assessment Act 1934-1935 expressly adopted s. 32 of the Sales Tax Assessment Act (No. 1) 1930-1934 and s. 26 of the Wool Tax Assessment Acts 1936 contains provisions similar to those originally to be found in s. 32 of the Sales Tax Assessment Act (No. 1). Further, nine different Sales Tax Assessment Acts came into operation on the same day and each of these Acts after the first adopted s. 32 of the No. 1 Act. Whilst these provisions purported to remain in force it might well have been impossible - if each had full force and effect - for a liquidator to comply with each of them. But the matter is now further complicated for many later statutes have adopted the same formula. I do not pretend to give a full list of these later statutes but s. 27 of the Stevedoring Industry Charge Act 1947 made similar provision. As already appears, so did s. 30 of the Pay-roll Tax Assessment Act 1941-1942 and like provisions are to be found in s. 35 of the Wool (Contributory Charge) Assessment Act 1945, s. 12 of the Wool Tax Assessment Act 1952 and s. 27 of the Tobacco Charges Assessment Act 1955. And to add to the general confusion s. 221 of the Income Tax and Social Services Contribution Assessment Act - introduced by Act No. 22 of 1942 and amended by Act No. 6 of 1946 - purported, in relation to outstanding income tax, to alter the order of priority both in relation to administrations in bankruptcy and winding-up administrations. In respect of administrations of the latter character the section provided that "notwithstanding anything contained in any other Act or State Act the liquidator of a company which is being wound-up shall apply the assets of a company in payment of tax due under this Act in priority to all other unsecured debts". This provision was subject to a proviso that where, under the law of any State, relating to payment of debts on the winding-up of a company, debts of the classes specified in paragraphs (a), (d) or (e) of sub-s. (1) of s. 84 of the Bankruptcy Act 1924-1933 are preferred to all unsecured debts due to the Crown in the right of that State, debts of those classes may also be paid in priority to any tax due under the Act.

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Judgment (36 paragraphs)

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