Crosbie v Commissioner of Taxation

REASONS FOR JUDGMENT 1 The plaintiffs, a company in liquidation and its liquidators, by this action seek to recover $2,054,333.77 from the Commissioner of Taxation. They allege that payments the company made to the Commissioner for "pay as you go" withholding amounts, goods and services tax and fringe benefits tax under Subdivision 16-B of Schedule 1 of the Taxation Administration Act 1953 (Cth), s 33-5 of A New Tax System (Goods and Services Tax) Act 1999 (Cth) and s 90 of the Fringe Benefits Assessment Act 1986 (Cth), respectively which total the amount claimed, are "unfair preferences" under s 588FA of the Corporations Act 2001 (Cth) or "insolvent transactions" under s 588FC which the court can avoid pursuant to s 588FF. In order to succeed on either claim the plaintiffs must prove that at material times the company was insolvent. The Commissioner has indicated that he will not contest the plaintiffs' claim. He does, however, seek from the former directors of the company an indemnity in case the plaintiffs should succeed in the action and has brought a cross-claim against the former directors for that purpose. 2 Sections 588FGA and 588FGB provide that if the court makes an order under s 588FF because of the payment of an amount of liability to taxation under certain statutory provisions (including at least some of the provisions previously mentioned) "[e]ach person who was a director of the company when the payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order", unless that person can make out one of the defences that are available under s 588FGB. The condition which must be satisfied for s 588FGA to operate is that the court has made an order against the Commissioner under s 588FF. The court can only make an order under that section if it "is satisfied that a transaction of the company is voidable" under s 588FE. Two New South Wales cases, Cadima Express v Deputy Commissioner of Taxation (1999) 33 ACSR 527, a decision of Austin J, and S J P Formwork (Aust) Pty Ltd (in liq) v Deputy Commissioner of Taxation (2000) 34 ACSR 604, a decision of Santow J, stand as authority for the proposition that this condition will be satisfied by a consent judgment; that is, a judgment which the court enters without an examination of the facts. With regret, I am unable to agree. A court cannot be "satisfied" that a transaction is a voidable transaction unless it has before it the facts which will establish that conclusion. Indeed, on one view the "satisfaction" that is required by s 588FE is akin to a "jurisdictional fact" the existence of which must be determined before the court can exercise its power to avoid a transaction: Parisienne Basket Shoes Pty Ltd v Whyte (1938) 59 CLR 369, 390-392; Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611, 650-651. There are any number of cases which show (expressly or by implication) that for a decision-maker to reach the required level of "satisfaction" about the existence of a state of affairs the decision-maker must undertake an inquiry into its existence. Two examples will suffice. The first case, Hobart v Medical Board of Victoria [1966] VR 292, was a decision which concerned s 121(1)(b) of the Medical Act 1958 (Vic) pursuant to which a judge had to be "satisfied" that a medical practitioner had been guilty of "infamous conduct in a professional respect" to cause his removal from the register. Hudson J said (at 296) that this required the judge to "enter into the consideration of…the evidence" on that topic. The second case, Ex parte Merrett (1997) 140 FLR 412, involved an application under s 596B of the Corporations Law for the issue of a summons for a public examination. The court could issue the summons if it was "satisfied" that the person to be summonsed had been or may have been guilty of misconduct or may have been able to give information about the examinable affairs of a corporation. Young J said (at 415) that the liquidator was under an obligation to "show to the court [the relevant] facts" in order to enliven the power. 3 Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 explains the duty of a single judge in one court to follow the decision of a single judge in another court on a point arising under national legislation unless convinced that the interpretation is plainly wrong. I would not follow S J P Formwork Pty Ltd and Cadima Express for they suffer from patent error. Each judge appears to have overlooked the relevant words of s 588FF. The likely explanation is that the judges were concerned with the resolution of quite different issues and the s 588FF point with which I am presently concerned only came up incidentally. 4 In this case the plaintiffs do not have the Commissioner's consent to judgment. They must prove the facts which will establish that the payments are voidable. If they succeed then s 588FGA will come into play. The third parties wish to avoid this happening. They ask for leave to defend the plaintiff's action for the purpose of challenging the assertion that the company was insolvent. Strictly speaking, there is no issue created between plaintiffs and third parties simply by the institution of a cross-claim by a defendant: Barker & Taylor Pty Ltd v Cablemakers (ACT) Pty Ltd [1982] 1 NSWLR 719. Nevertheless, it is clear that the order sought by the third parties should be made. They would suffer grave injustice if that leave were refused. And what they seek is consistent with the cases. 5 The Judicature Act 1873 (UK) introduced the third party procedure. The main objects of the procedure were: (1) When relevant, to ensure that the third party is bound by the decision between the plaintiff and the defendant; (2) To have any issue between the defendant and the third party decided as soon as possible after the decision in the case against the defendant; and (3) To avoid the delay and expense of two trials: Barclays Bank v Tom [1923] 1 KB 221. For the new procedure to operate fairly courts recognised that it may be necessary for the third party to play some role in the action against the defendant. So third parties were given the right to appear at the trial (this is now expressly provided for by O 5 r 12(2)(c)), to cross-examine witnesses and sometimes to obtain discovery: Eden v Weardale Iron and Coal Company (1887) 34 ChD 223; Barton v London and North Western Railway Co (1888) 38 ChD 144; In Re Salmon; Priest v Uppleby (1889) 42 ChD 351; Barker & Taylor v Cablemakers; Cojuanco v Routley [1983] 1 NSWLR 723. Often leave was granted on terms that the third party would be bound by the result of the issue which he contested. In Helicopter Sales (Australia) Pty Ltd v Rotar-Work Pty Ltd (1974) 132 CLR 1 Barwick CJ and probably Mason J were of the view that this followed automatically from the order giving the third party leave to defend the plaintiff's action. 6 Even if proceedings had not been taken against the third parties, the interests of justice would demand that they be given permission to intervene in the proceeding between the plaintiffs and the defendant especially where, as in this case, the defendant will not take steps to protect its possible liability to the plaintiffs: Bradvica v Radulovic [1975] VR 434. Indeed, if it were necessary, they might have been added as parties under O 6 r 8, although I need not decide that question. 7 Leave will be given to the third parties to defend the plaintiffs' claim on terms that they will be bound by every decision which is made in that claim, and also that they will be treated as if parties to that claim on any question as to costs. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.