Dean-Willcocks v Commissioner of Taxation

Reported Decision : 49 ACSR 325 (2004) 22 ACLC 1034

CITATION : Dean-Willcocks v Commissioner of Taxation (No 2) [2004] NSWSC 286 HEARING DATE(S) : 29 March 2004 JUDGMENT DATE : 21 April 2004 JURISDICTION: Equity JUDGMENT OF : Austin J DECISION : Direction given that liquidator is justified in relying on certain evidence as sufficient to enable the Court to be satisfied as to insolvency.

CATCHWORDS : CORPORATIONS - winding up in insolvency - recovery of unfair preferences - separate trial against first defendant - first defendant admits insolvency - whether admission is sufficient evidence of insolvency in unfair preference proceeding - whether directors of company should be notified before orders under s 588FF are made LEGISLATION CITED : Corporations Act 2001 (Cth), ss 588E, 588FA, 588FC, 588FE, 588FF, 588FG, 588FGA Supreme Court Rules, Pt 1 r 3, Pt 6 r 4, Pt 26 r 1 Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 Annetts v McCann (1990) 170 CLR 596 Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485 Barker & Taylor Pty Ltd v Cablemakers (ACT) Pty Ltd [1982] 1 NSWLR 719 Cadima Express v Deputy Commissioner of Taxation (1999) 33 ACSR 527 Cameron v Cole (1944) 68 CLR 571 Commissioner of Police v Tanos (1958) 98 CLR 383 Crosbie, in the matter of Trollope Silverwood & Beck Pty Ltd (in liq) v Commissioner of Taxation [2003] FCA 922 Dean-Willcocks v Air Transit International Pty Ltd (2002) 42 ACSR 328 Dean-Willcocks v Commissioner of Taxation (2003) 45 ACSR 298 CASES CITED : Ex parte Merrett (1997) 140 FLR 412 Gramophone Co Ltd v Magazine Holder Co (1911) 28 RPC 221 Hobart v Medical Board of Victoria [1966] VR 292 James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53 Kinch v Wolcott [1929] AC 482 Kioa v West (1985) 159 CLR 550 Minister for Immigration and Multicultural Affairs v Eshetu (1999) 197 CLR 611 Parisienne Basket Shoes Pty Ltd v Whyte (1938) 59 CLR 369 Re GB Nathan & Co Pty Ltd (1991) 24 NSWLR 674 SJP Formwork (Aust) Pty Ltd (in liq) v Deputy Commissioner of Taxation (2000) 34 ACSR 604 Termijtelen v Van Arkel [1974] 1 NSWLR 525 Ronald John Dean-Willcocks (in his capacity as Liquidator of SJP Formwork (NSW) Pty Ltd (in liquidation)) (P1/A) SJP Formwork (NSW) Pty Ltd (in liquidation) (P2) Commissioner of Taxation (D1/R) Big River Timbers Pty Ltd (D2) Boral Formwork and Scaffolding Pty Ltd (D3) Boral Resources (NSW) Pty Ltd (D4) CSRP Apartments Pty Ltd (D5) PARTIES : Fabquip Construction Systems Pty Ltd (D6) Grae Newman Consulting and Pty Ltd (D7) Lubeca Systems International Pty Ltd (D8) Lubeca Systems Australia Pty Ltd (D9) Lumara Timber Pty Ltd (D10) Alleianz Australia Workers' Compensation (NSW) Ltd (D11) Natform Pty Ltd (D12) National Hire Pty Ltd (D13) National Hire Trading Pty Ltd (D14) FILE NUMBER(S) : SC 2883/02 CRC Newlinds SC with M Paynter (P1/A) COUNSEL : M Aldridge SC with P Rodionoff (D1/R) A Loel (Solicitor) (D2) Swaab Attorneys (P1/A) SOLICITORS : ATO Legal Practice (D1/R) Toomey Pegg Drevikovsky (D2)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2883/02 RONALD JOHN DEAN-WILLCOCKS (IN HIS CAPACITY AS LIQUIDATOR OF SJP FORMWORK (NSW) PTY LTD (IN LIQ) & ANOR V COMMISSIONER OF TAXATION & ORS (NO. 2) JUDGMENT 1 HIS HONOUR: The plaintiffs, SJP Formwork (NSW) Pty Ltd ("SJP") and its liquidator, Mr Dean-Willcocks, seek final relief against 14 defendants under s 588FF of the Corporations Act, for repayment of various amounts paid to them by SJP, on the ground that the payments were unfair preferences. 2 By his interlocutory process filed on 5 March 2004, Mr Dean-Willcocks now applies for a direction that he is justified in relying on certain evidence now before the court as sufficient to enable the court to be satisfied, for the purposes of the trial of the plaintiffs' claim against the Commissioner of Taxation ("the Commissioner"), that at the relevant times SJP was insolvent. The evidence consists of his own affidavits made on 26 March and 5 November 2003, and a letter to his solicitors from the Australian Taxation Office dated 19 September 2003. 3 In his affidavits of 26 March and 5 November 2003, Mr Dean-Willcocks gave evidence of the circumstances leading to this proceeding, and subsequent negotiations with the Commissioner. 4 He deposed that he was appointed voluntary administrator of SJP on 28 May 1999. The company's principal assets were money claims in respect of construction work. In his report to creditors as administrator, Mr Dean-Willcocks expressed the opinion that a liquidator might also be able to recover money in respect of unfair preference transactions by SJP. 5 His evidence is that the creditors voted in favour of the company being wound up, and he became liquidator on 8 September 1999. Over the ensuring months, he pursued some of the company's building claims, partly by litigation, and he sold and assigned some of them for valuable consideration. But his winding up of the affairs of SJP was hampered by lack of funds. 6 Mr Dean-Willcocks delayed the instigation of proceedings for recovery of unfair preferences until 27 May 2002. He did so in the hope that pursuit of the building claims would produce sufficient funds for him to commission a report as to insolvency (which would cost approximately $50,000), and to meet the cost of prosecuting the unfair preference actions. As it happened, he was not able to accumulate sufficient funds for these purposes. 7 When the limitation period for preference recovery actions was about to expire, he took advice from solicitors and instructed them to commence the present proceeding. The originating process and statement of claim were filed in May 2002, but they were not immediately served. Mr Dean-Willcocks said he wished to inspect some corporate records, consult with creditors, and obtain counsel's advice on the prospects of success. After inspecting voluminous records and obtaining advice from counsel, he instructed his solicitors to serve the Commissioner, and service was effected on 7 March 2003. The other 13 defendants were not served at that stage. 8 Mr Dean-Willcocks then made an application to the court for an order for a separate trial of his claim against the Commissioner, under Part 8 rule 6 of the Supreme Court Rules. His intention in doing so was to prosecute the unfair preference claim against the Commissioner first, so that if he succeeded in making recovery under a judgment or settlement, his funding position would be improved with respect to the claims against the other defendants. I made orders for a separate trial of the claim against the Commissioner, and delivered judgment, on 29 April 2003 (Dean-Willcocks v Commissioner of Taxation (2003) 45 ACSR 298), after requiring that the other 13 defendants be notified of the application and given an opportunity to be heard. 9 By his notice of grounds of defence filed on 13 June 2003, the Commissioner admitted that he was at all material times an unsecured creditor of SJP, and that he received the payments referred to in the statement of claim within six months of the relation back day, save for one amount which (as Mr Dean-Willcocks now accepts) was not received by the Commissioner. The total of the payments made to the Commissioner, not including that amount, is $1,773,782.71, exclusive of interest and costs. The Commissioner also admitted that he received a demand by Mr Dean-Willcocks for repayment and refused to repay. The defence asserted the ingredients of the defence in s 588FG(2). 10 There was a process of informal discovery. Then, on 19 September 2003 the Australian Taxation Office wrote to Mr Dean-Willcocks' solicitors saying: "I advise that the Commissioner has reviewed the material provided by your client and will no longer contest the solvency issue in the proceedings. However, the Commissioner continues to rely on the defence available pursuant to section 588FG of the Corporations Act 2001." 11 Mr Dean-Willcocks gave evidence that the payments made by SJP to the Commissioner, which were made in respect of unsecured taxation debts, have resulted in the Commissioner receiving more from SJP than if the payments were set aside and the Commissioner proved for the debts in SJP's winding up. He referred to the report as to affairs of SJP, which declares an estimated deficiency of about $8.4 million as at 28 May 1999. He noted that, as at 5 November 2003, there was no dividend to unsecured creditors in the liquidation, and expressed the opinion that there was no prospect of creditors receiving a dividend of 100 cents in the dollar. He said that at the date of each of the payments made by SJP to the Commissioner, there were unpaid creditors of the company, and that the debts of those creditors remained unpaid at the date of commencement of the winding up. If this evidence and the Commissioner's admission of insolvency are accepted, the ingredients for recovery of the payments as unfair preferences will be established, subject to the defence under s 588FG(2). 12 If a preference recovery order is made against the Commissioner, he may in some cases seek recoupment from the directors of the company under s 588FGA. In the present case the Commissioner has not yet commenced any separate proceeding or filed any cross-claim against the directors of SJP. There is as yet no order for recovery against the Commissioner, and there will never be if the Commissioner's defence is successful. There is nevertheless the prospect that, if the Commissioner's defence fails and orders are made against him, he may make a claim against the former directors under s 588FGA. 13 Mr Dean-Willcocks now wishes to proceed to the separate trial of the plaintiffs' unfair preference claim against the Commissioner. But he does not wish to go to the expense of commissioning an insolvency report, given that the Commissioner no longer contests the insolvency issue and that the only remaining contest between them relates to the s 588FG defence. He wishes to rely on the Commissioner's admission. The Commissioner does not object to his doing so. A problem is thought to have arisen, however, out of some observations by Finkelstein J in Crosbie, in the matter of Trollope Silverwood & Beck Pty Ltd (in liq) v Commissioner of Taxation [2003] FCA 922 (2 September 2003). 14 In Crosbie, as in the present case, a company in liquidation and its liquidators sued the Commissioner for recovery of certain taxation payments as unfair preferences. In that case, unlike the present case, the Commissioner had already brought a cross-claim against the directors of the company for indemnity under s 588FGA. When the Commissioner indicated that he had decided not to contest the plaintiffs' claim, an application was made by directors of the company for leave to defend the plaintiffs' action, for the purpose of challenging the assertion that the company was insolvent at relevant times. As his Honour pointed out (at [4]), the institution of a cross-claim by the Commissioner against the directors did not create an issue between the directors and the plaintiffs: Barker & Taylor Pty Ltd v Cablemakers (ACT) Pty Ltd [1982] 1 NSWLR 719. In that sense the directors were "third parties" in the proceeding between the plaintiffs and the Commissioner, notwithstanding the cross-claim. 15 Finkelstein J adopted the following two propositions: · since s 588FF requires the court to be satisfied that a transaction of the company is voidable, the court cannot make an order under that section merely by consent and without first examining the facts ("the consent order point"); · the directors should be given the opportunity to appear to defend the plaintiffs' claim, because they would suffer grave injustice if leave were refused ("the third party point"). 16 Since the application before his Honour was an application by the directors for leave to defend the unfair preference claim, the third party point was clearly necessary to the decision. It seems to me that the consent order point was obiter. 17 As his Honour pointed out, referring to Australian Securities Commission v Marlborough Gold Mines Ltd (1993) 177 CLR 485, a single judge in one court has a duty to follow the decision of a single judge in another court on a point arising under the national Corporations Act, unless the interpretation is plainly wrong. In the present case, the liquidator, the Commissioner and the other defendant who was represented at the hearing of the application all made persuasive submissions to the effect that Finkelstein J's observations on the consent order point should not be followed. They have persuaded me, with great respect to his Honour, that his observations on that point are plainly wrong, and also that their application would interfere with the efficient and cost-effective administration of the liquidation of insolvent companies. Therefore I would not follow Crosbie on the consent order point, even if the observations were part of the ratio decidendi. I respectfully agree with his Honour on the third party point. The consent order point 18 In the present case, both the plaintiffs and the two defendants who were represented at the hearing of the application made submissions critical of Finkelstein J's observations on the consent order point. They submitted that his observations should not be followed. 19 Finkelstein J observed that the court cannot be "satisfied" that a transaction is a voidable transaction, as required by s 588FF, unless it has before it the facts which will establish that conclusion. In his Honour's view, the court cannot be so satisfied when it is asked to make orders by consent without the tender of any evidence other than evidence of the consent of the parties and the defendant's admission. His Honour's reasoning implies that there must be some substantive investigation of the facts, beyond the mere fact that the defendant admits the plaintiff's claim. He referred to two lines authority, which he regarded as supporting his view. 20 First, he said that the "satisfaction" that is required by s 588FF is akin to a "jurisdictional fact", the existence of which must be determined before the court can exercise its power to avoid a transaction (citing 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). In my opinion, the "satisfaction" required by s 588FF is not a jurisdictional fact in this sense. Section 588FF confers jurisdiction on the ordinary superior courts of the Commonwealth and the States. It is distinguishable from a provision that requires a Minister or a Refugee Review Tribunal to be satisfied a certain matters (as in Eshetu). In Parisienne Basket Shoes, Dixon J (at 391) contrasted a provision that makes the jurisdiction of a court contingent on the actual existence of facts, and a provision that makes jurisdiction depend on the court's opinion or determination that facts exist. He continued: "Conceding the abstract possibility of the legislature adopting such a course, nevertheless it produces so inconvenient a result that no enactment dealing with proceedings in any of the ordinary courts of justice should receive such an interpretation unless the intention is clearly expressed." 21 Section 588FF requires the court to make a determination, to its satisfaction, that the relevant transaction is voidable because of s 588FE, but the existence of jurisdiction to make the order is not expressed to depend upon the correctness of the court's determination. In light of Dixon J's observation, there is no basis for construing the section as a provision that limits the jurisdiction of the court to cases where satisfaction has in fact been attained in reliance upon sufficient evidence. That being so, it seems to me unhelpful to have recourse to the law of jurisdictional facts in some merely analogical way. 22 Secondly, Finkelstein J referred to cases which, he said, "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" (at paragraph [2]). He gave two examples, Hobart v Medical Board of Victoria [1966] VR 292 (which concerned medical legislation requiring a judge to be satisfied that a medical practitioner had been guilty of infamous professional conduct to cause his removal from the register of medical practitioners), and Ex parte Merrett (1997) 140 FLR 412 (which involved s 596B of the Corporations Law, under which the court could issue a 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). These cases are authorities for the proposition that the court must hear evidence before it can be "satisfied" of the relevant matters. But neither of them raises the question whether it is sufficient for the court to receive evidence that the defendant admits the relevant matters, and there is nothing in their reasoning to prevent the court from accepting an admission as sufficient for the statutory purpose. 23 In reaching his decision on the consent order point, Finkelstein J referred to two cases in this court, Cadima Express v Deputy Commissioner of Taxation (1999) 33 ACSR 527 and SJP Formwork (Aust) Pty Ltd (in liq) v Deputy Commissioner of Taxation (2000) 34 ACSR 604. He said that these cases stand as authority for the proposition that the court may be satisfied for the purposes of s 588FF by entering judgment by consent, without examining the facts. He refused to follow the cases because, he said, they suffered from "patent error". 24 I respectfully disagree with Finkelstein J that the two cases are authorities for any proposition about the efficacy of consent orders under s 588FF. The former case was about the appointment of a receiver to initiate a damages claim on behalf of the company. In the latter case, the question was whether an order under s 588FF was defective because it required payment to "the plaintiffs" rather than the company alone. In each case consent orders had previously been made under s 588FF, as recorded in the judgments, but no issue was raised about the fact that the orders had been by consent, and the cases proceeded on the assumption that the orders had been regularly made. As far as I am aware, there was no authority on the consent order point before the Crosbie case was decided. 25 If Finkelstein J's approach were correct, the court would become committed to undertaking an inquiry into the facts without any guidelines as to the type of evidence that should be required, in circumstances where there is no relevant contest between the parties. Such an approach would, to say the least, be unusual in our adversary system, where it is normally up to the parties to nominate the issues for determination, and the court resolves those issues on the basis of the evidence presented by the parties. 26 There is a particular practical concern in cases under s 588FF. The court is required to be satisfied that a transaction of the company is voidable because of s 588FE, under which the transaction is voidable if, inter alia, it is an insolvent transaction. As senior counsel for the Commissioner pointed out, the timing of the company's insolvency, for the purposes of a preference recovery, is frequently a difficult and complicated issue, particularly where the records of the company have not been satisfactorily kept. Where insolvency must be fully proved, it is likely that the report of an expert will be required, at significant expense. The selection, preparation and collation of documents for the expert can also be a difficult and expensive task. While the Crosbie case does not provide direct guidance as to the extent and nature of the proof that the court will require, a liquidator preparing an application for orders under s 588FF may well conclude, as a practical matter, that a report should be prepared in spite of the defendant's consent, if the approach in Crosbie is correct. In my opinion, it would be unfortunate if the law were to have the practical result of causing very substantial expenditure to be made to procure an expert's report, at the expense of unsecured creditors, where the report addresses a matter that was no longer in contest when it was commissioned. 27 In my opinion there is no general principle preventing a court from being "satisfied" of the matters that it is required by statute to address before making orders, where there is an admission between parties; nor is there any principle requiring a court in those circumstances to undertake its own factual inquiry when the parties invite it to do no more than act upon their consent. That is not to say that the court should simply act on consent orders without any independent thought. There being no jurisdictional bar to acting on admissions under s 588FF, it is up to the court to consider, in the circumstances of the instant case, whether admissions are sufficient to warrant its being "satisfied". 28 This conclusion is consistent with the courts' general approach to admissions. A court is never bound by admissions made inter parties or in the pleadings: Termijtelen v Van Arkel [1974] 1 NSWLR 525. It may decline to act on admissions if, for example, they are made so as to attract a jurisdiction that is not naturally present. However, in most cases it is appropriate to allow and even encourage parties to simplify litigation by making admissions so as to achieve the just, quick and cheap resolution of their dispute: Supreme Court Rules, Part 1 rule 3; and see Gramophone Co Ltd v Magazine Holder Co (1911) 28 RPC 221, 225, per Lord Loreburn. A judgment or order by consent may determine conclusively the defendant's liability (James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53), and may be res judicata (KR Handley, Spencer Bower, Turner and Handley on the Doctrine of Res Judicata (3rd ed, 1996), p 21, citing Kinch v Wolcott [1929] AC 482, 493 per Lord Blanesborough). 29 In the present case, it is relevant that the Commissioner has had access to the company's books and records on informal discovery, and has reviewed them with the assistance of legal advisers before concluding that an admission ought to be made with respect to insolvency. 30 Another relevant consideration is whether any third party may be prejudiced by the court's decision under s 588FF. Other defendants to unfair preference claims may be affected, because of the presumptions that arise out of s 588E. The main presumption for present purposes is contained in s 588E(8), which says (relevantly) that if, for the purposes of another application under s 588FF by the company's liquidator, it has been proved that the transaction was entered into at a time when the company was insolvent, or that the company became insolvent because of entering into the transaction, it must be presumed that this is the case. 31 In the present case various unfair preference claims have been brought in a single proceeding, following the procedure adopted in Dean-Willcocks v Air Transit International Pty Ltd (2002) 42 ACSR 328. There is some room for doubting whether s 588E(8) operates to create a presumption against other defendants if the plaintiffs obtain orders against one defendant in a separate trial: see Dean-Willcocks v Commissioner of Taxation (supra), at [19]. It is unnecessary and inappropriate to resolve the question now. It is sufficient for present purposes that, in my view, the other defendants have been put on notice of the issues arising in the present application and have been given an opportunity to be heard. 32 The other 13 defendants were notified of the plaintiffs' application for a separate trial of their claim against the Commissioner, and three of them made submissions in respect of that application. They said that their concern was to ensure that findings made against the Commissioner would not be binding upon them, and that the evidence relied upon against the Commissioner would not necessarily be admissible against them, but they acknowledged that the plaintiffs would seek to invoke the s 588E presumption of insolvency against them. The plaintiffs did not contend that any order or finding against the Commissioner would be binding on the other defendants, or that evidence adduced against the Commissioner would automatically be admissible against them. On that basis, and for the reasons set out in my judgment in Dean-Willcocks v Commissioner of Taxation, I made the order for a separate trial under Part 8 rule 6 of the Supreme Court Rules. 33 The plaintiffs served a copy of their present application on each of the other 13 defendants, with a covering letter explaining that the Commissioner had conceded that the company was insolvent at the time that it made payments to the Commissioner, and that in the circumstances the liquidator wished to avoid the substantial expense of commissioning an insolvency report. The letter referred to the perceived difficulty arising out of the Crosbie case. It invited the defendants to appear to make written submissions on the application. Only one defendant, Big River Timbers Pty Ltd, has responded. It was represented at the application and made written submissions. Big River Timbers submitted that the court should make an order under Part 26 rule 1 to the effect that any order made against the Commissioner under s 588FF after the separate trial of the claim against the Commissioner is not to give rise to any presumption under s 588E against other defendants. 34 If the presumption under s 588E(8) will arise in this case, it is not clear to me that it could be removed by the court making a direction under Part 26 rule 1. Assuming, however, that the court has the power to remove the presumption by some appropriate order or direction, it is not a power that I would exercise on this occasion. As I recorded in my judgment in Dean-Willcocks v Commissioner of Taxation, at [11], the solicitor for Big River Timbers was in communication with the plaintiffs' solicitors before the application for an order for a separate trial was heard. He said his client had no objection to "the cases being split", but would want to be heard on the issue of insolvency and would not want to be bound by any finding made in the case against the Commissioner. By letter dated 22 April 2003, the plaintiffs' solicitors wrote to the solicitor for Big River Timbers saying that if the orders sought with respect to a separate trial were made, the issues decided in the claim against the Commissioner would not bind the other defendants, but statutory presumptions would arise under s 588E, referring especially to s 588E(8). The letter said that Big River Timbers might theoretically be prejudiced to the extent that it may wish to contest the insolvency of the company, but that would be no different from any preference claim where the case against one defendant is heard earlier than the cases against the other defendants. Subsequently the solicitor for Big River Timbers telephoned the plaintiffs' solicitor, saying that on the basis of the matters stated in the letter, his client would not attend the hearing and would neither consent to nor oppose the application. I see no reason to make a direction now, which would alter the basis upon which the separate trial application was heard. 35 In cases where the unfair preference claim is made against the Commissioner in respect of certain taxation liabilities, there is another class of persons whose interests may be affected by the making on an order under s 588FF against the Commissioner. These are the directors of the company, who are exposed to liability under s 588FGA. Finkelstein J was concerned about procedural fairness to this class, in the Crosbie case. The third party point 36 Having reached the conclusion that the court cannot be satisfied for the purposes of s 588FF on the basis of admissions and without examining the facts, Finkelstein J turned to questions that arise where, as in the case before him, the defendant to an unfair preference recovery proceeding is the Commissioner and the payment in question was made to the Commissioner in respect of a liability under one of the provisions of the Income Tax Assessment Act 1936 (Cth) listed in s 588FGA(1). In such a case, s 588FGA has the effect that if the court makes an order against the Commissioner under s 588FF because of the payment of such an amount, each 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. 37 Finkelstein J was dealing with an application by directors ("the third parties") for leave to defend a preference recovery action brought against the Commissioner for the purpose of challenging the assertion that the company was insolvent, notwithstanding that the Commissioner did not wish to do so. He decided that the orders sought by the third parties should be made. He said (at [4]) that "they would suffer grave injustice if that leave were refused". After noting that the application by the third parties was consistent with the third party procedure introduced by the Judicature Act 1873 (UK) and reflected in rules of the Federal Court, and referring to decided cases, he added (at [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." 38 The third party procedure is a vehicle for giving effect to the principles of procedural fairness which are now well established by decisions of the High Court, including Cameron v Cole (1944) 68 CLR 571; Commissioner of Police v Tanos (1958) 98 CLR 383; Kioa v West (1985) 159 CLR 550; Annetts v McCann (1990) 170 CLR 596; and Ainsworth v Criminal Justice Commission (1992) 175 CLR 564. The audi alteram partem rule of natural justice applies, according to these cases, where the exercise of the decision-making power may destroy, defeat or prejudice a person's rights, interests or legitimate expectations. It may require that the affected parties be notified and given an opportunity to be heard, in cases where they have not sought to invoke the third party procedure. 39 In the present case the directors have available various procedural steps for being heard before s 588FF orders are made. For example, as senior counsel for the Commissioner pointed out, if the Commissioner makes a cross-claim against them under s 588FGA and they disagree with the Commissioner's admission, they can put the fact of insolvency in issue under Part 6 rule 4(c) of the Supreme Court Rules, or seek an order that they are not bound by a finding of insolvency made pursuant to the admission of the Commissioner, under Part 6 rule 4(d). The more difficult question is whether they are entitled to receive notification of the Commissioner's admission or the proposal to make orders, if they are not cross-defendants and have taken no such steps to protect their position. 40 The directors of a company in liquidation may be prejudiced by an order for recovery of certain tax payments made against the Commissioner under s 588FF, because the making of the order imposes on them an obligation to indemnify the Commissioner under s 588FGA. Their position is governed by the observations of Dixon CJ and Webb J in Commissioner of Police v Tanos, at 395, where their Honours referred to the "deep-rooted principle of the law that before anyone can be punished or prejudiced in his person or property by any judicial or quasi-judicial proceedings he must be afforded an adequate opportunity of being heard". Prima facie, therefore, the directors are entitled to be notified and given an opportunity to be heard before any recovery order is made against the Commissioner. 41 In Commissioner of Police v Tanos, Dixon CJ and Webb J acknowledged (at 396) that the principle of natural justice can be ousted by legislation. They said that although an intention to do so "must satisfactorily appear from express words of plain intendment", nevertheless "exceptional cases may be imagined in which because of some special hazard or cause of urgency an immediate declaration is demanded". 42 Section 588FGA was part of the package of reforms to taxation and insolvency legislation contained in the Insolvency (Tax Priorities) Legislation Amendment Bill 1993. The Bill was enacted after the enactment of the Corporate Law Reform Act 1992, which reformed the insolvency provisions of the corporations legislation, including the provisions dealing with unfair preferences. The purpose of the Bill was to abolish the priority then allowed to the Commissioner for tax debts in relation to certain unremitted amounts, and to establish a new regime to enable the Commissioner to recover those debts earlier and more effectively. Under the new regime, the Commissioner would be able to initiate recovery action for an unremitted amount on the basis of an estimate, and a penalty would be imposed on company directors equal to their company's actual or estimated unremitted amounts: Explanatory Memorandum, page 1. 43 An essential component of the new regime was to replace the potential criminal liability of directors for failing to pay unremitted amounts with provisions exposing the directors to personal liability for those amounts. The Bill, when enacted, introduced a new Division 9 into the Income Tax Assessment Act 1936 (Cth), which was designed to ensure that a company either meets its obligation to remit amounts deducted for tax, or goes into liquidation or voluntary administration: Explanatory Memorandum, page 32. Division 9 does so by exposing the directors of the company to penalties equivalent to the unremitted amounts, while preventing the Commissioner from recovering those penalties without first giving the directors a written notice setting up their options, and giving them 14 days to respond. The directors' options are to see that the unremitted amounts are paid, or appoint a voluntary administrator, or cause the company to be wound up. It is unnecessary to explore Division 9 in more detail here. 44 If the directors were to pursue the first option and the company later went into liquidation, the Commissioner might be left in the position that the directors had escaped liability by following one of the options allowed to them under Division 9, and yet the Commissioner would be required to repay the remitted amount as an unfair preference. Therefore the corporations legislation was amended to revive, as it were, the directors' exposure to liability, where an order for recovery is made against the Commissioner. According to the Explanatory Memorandum to the Bill, page 49, the intention s 588FGA was to put the Commissioner in a position equivalent to the position of a guaranteed creditor. Evidently this was thought to be fair because the Commissioner might be prevented from maintaining a defence to a recovery action, where he received tax information putting him on notice of the company's poor financial health. 45 It is arguable, when one has regard to the legislative purpose disclosed in the Explanatory Memorandum for the package of amendments made in the Bill, that s 588FGA impliedly excludes any right on the part of the directors to be heard before a recovery order is made against the Commissioner. A contractual guarantor whose guarantee obligation is triggered by the making of such an order is not entitled to notice of the creditor's action against the principal debtor unless the contract so provides: see J O'Donovan and J Phillips, The Modern Contract of Guarantee (English ed, 2003), pp 533, 590. On the other hand, the directors are exposed to liability, not under a true contractual guarantee but by virtue of a statutory indemnity, expressed in unqualified terms save only for the making of a recovery order against the Commissioner, and without recourse to the general law of guarantees. Their direct statutory liability is of a kind that would normally provide a basis for application of the rules of natural justice. 46 Crosbie is authority for the proposition that if the directors apply for leave to be joined to the recovery proceeding, s 588FGA gives them an interest sufficient to warrant the making of an order in their favour. It leaves open the question whether, if the directors do not seek any such relief, the court should ensure that they have been duly notified before making any orders under s 588FF. This question arises whenever the preference recovery action is against the Commissioner in respect of any of the tax liabilities mentioned in s 588FGA(1), regardless of whether the orders are to be made by consent, or upon an admission of insolvency, or after a full contest. 47 It is unnecessary for me to decide that question here. It will arise only if the court comes to make orders under s 588FF, and only if, at that stage, there is no evidence that the directors have been duly notified of the circumstances. 48 At present, I am asked only to give Mr Dean-Willcocks a direction under s 479(3) that he is justified in relying on his two affidavits and the ATO's letter admitting insolvency, as sufficient to enable the court to be satisfied that at the relevant times of SJP was insolvent. A direction of a kind has limited consequences identified in Re GB Nathan & Co Pty Ltd (1991) 24 NSWLR 674. It does not purport to be a binding order inter parties or to bind any third party. It therefore will not prevent the directors from either seeking to be joined in order to agitate the question of insolvency at the hearing of the recovery action, or from arguing that their right to procedural fairness has been denied. 49 Although the court would not ordinarily give a liquidator directions as to how he should present his case, the uncertainty created by Crosbie and the obvious cost and inconvenience that would be suffered if substantial evidence of insolvency were thought to be necessary, make it appropriate for the court to give the liquidator directions as to the proper way forward in this case. Conclusions 50 The direction sought in the application is warranted in the circumstances of this case, for the reasons I have given. Mr Dean-Willcocks will need to give further consideration to the position of the directors of SJP before he comes to seek an order against the Commissioner under s 588FF. **********

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