Deputy Commissioner of Taxation v Chemical Trustee Limited

JAGOT J: 1 These reasons for judgment explain why I made orders as set out above on 15 December 2017 in response to an interlocutory application filed by Chemical Trustee Limited. By paragraph 1 of a further amended interlocutory application filed in Court by leave on 15 December 2017, Chemical Trustee sought an order that the receiver appointed by the Court's orders of 23 June 2017 not be permitted to sell the security interests as defined in those orders for the purpose of satisfying judgment interest on the judgment debt from earlier orders of 23 May 2013. According to Chemical Trustee, an order to this effect reflected the proper construction of the orders of 23 June 2017, which were made with the consent of the parties. 2 Chemical Trustee sought other orders, two of which as set out in paragraphs 2 and 3 of the further amended interlocutory application were unnecessary because of an agreement the parties reached, as reflected in the note to the above orders. Otherwise, orders which Chemical Trustee sought to reduce the amount of the debt it owes the Commissioner of Taxation by various unspecified amounts of withholding tax alleged to have been paid, were not pressed. As I noted during the course of argument, this aspect of Chemical Trustee's claim involved an attempt to vary entered orders without regard to the principles which would apply to that exercise or the applicable rule, r 39.05 of the Federal Court Rules 2011 (Cth). 3 The facts relevant to the remaining paragraph 1 of the further amended interlocutory application are these. 4 On 23 May 2013, for the reasons given in Deputy Commissioner of Taxation v Chemical Trustee Limited (No 8) [2013] FCA 494; (2013) 302 ALR 634, Perram J made an order as follows: There be judgment for the Applicant in the sum of $28,617,596.68. 5 As his Honour's reasons disclose, this amount represents unpaid income tax. 6 On 30 May 2016, I made the following orders in the same proceeding, with the consent of the parties: BY CONSENT, THE COURT ORDERS THAT: 1. The security interests listed in the Schedule of Security Interests Held by the Judgment Debtor annexed to these orders and marked "A" are charged in favour of the judgment creditor to the extent necessary to satisfy the judgment in these proceedings, costs in these proceedings and costs in the appeal proceedings NSD 1027 of 2013 (the Charging Orders). 2. The Applicant cannot enforce the Charging Orders until 28 days after judgment is handed down in the High Court appeal S134 of 2016. 3. The Applicant will give the Respondent 14 days' notice of any steps to enforce the charging orders, but it is acknowledged that notice can be given during the 28-day period identified at Order 2 4. The Respondent's application for a stay in respect of the Charging Orders is discontinued. 5. The hearing of the Respondent's application for a stay and the Applicant's application for charging orders, listed at 11.00am on 1 June 2016, be vacated. 6. Each party to bear its own costs of the stay application. THE COURT NOTES THAT: 1. The discontinuance of the stay application is without prejudice to the Respondent's rights or ability to bring an application in the future 7 On 23 June 2017 I made these orders, again with the consent of the parties: THE COURT ORDERS BY CONSENT THAT: 1. The hearing schedule for 26 June 2017 be vacated. 2. The respondent's interlocutory application, filed 22 December 2016, is dismissed with no order as to costs. 3. With respect to the charging orders made on 30 May 2016, the Court appoints David Young of Young Business RIT Pty Limited as receiver to the security interests listed in Schedule 1 herein ("the security interests") for the purposes of: (a) taking in the security interests; (b) receiving all and any dividends or share issues pursuant to a dividend reinvestment plan; (c) selling the security interests; and (d) forwarding the net proceeds of sale to the applicant to apply as against the judgment debt, costs in these proceedings and costs in the appeal proceedings NSD 1027 of 2013. 4. The receiver is not permitted to sell any of the security interests until 14 days after the completion of a mediation between the applicant and the respondent. 5. Notwithstanding order 4, the receiver is permitted to sell the security interests if the respondent does not agree to a date for a mediation (and then attend) being a date within two (2) calendar months of the making of these orders, or within such longer period as the applicant may specify. 6. Notwithstanding orders 4 and 5, the receiver is permitted to sell the security interests if the respondent does not provide a position paper for the purposes of the mediation within one (1) calendar month of the making of these orders. 7. The receiver may only sell the security interests to the extent necessary to satisfy the judgment debt, costs in these proceedings, costs in the appeal proceedings NSD 1027 of 2013, and the receiver's remuneration and expenses. 8. The receiver is prohibited from selling certain security interests unless and until all the other security interests have been sold and the proceeds from sale of those other security interests are not sufficient to satisfy the judgment debt, costs in these proceedings, and costs in the appeal proceedings NSD 1027 of 2013. The security interests that may only be sold after sale of the other security interests are as follows: (a) security interests in the company, Vita Life Sciences Ltd; and (b) if the sale of security interests in the company Vita Life Sciences Ltd is not sufficient, the security interests in the company CVC Limited; and (c) if the sale of security interests in the company CVC Limited is not sufficient, then security interests in the company Cyclopham Limited. 9. The appointment of the receiver terminates upon the giving of a written notice to the receiver by the applicant. 10. Subject to the approval of the Court, the receiver is to be remunerated on a time basis at the hourly rates set out in Schedule 2 herein. 11. Subject to the approval of the Court, the remuneration of the receiver and expenses properly incurred by the receiver are to be paid out of the proceeds of sale of the security interests in priority to any payments to the applicant. 12. In applying for the orders set out in order 3, pursuant to ss 22 and 23 of the Federal Court of Australia Act 1976 (Cth), and to the extent that it is necessary, the applicant is relieved of any obligation to join to these proceedings the chargees as per the attached Schedule 1. 13. The chargees as per Schedule 1 are permitted to pay to the Deputy Commissioner of Taxation pursuant to (or in compliance with) any notices issued by the Deputy Commissioner of Taxation to the said chargees under s 260-5 of Schedule 1 of the Taxation Administration Act 1953 (Cth) the dividends that are payable to the respondent. 14. The freezing orders made in these proceedings on 28 September 2012 are varied to the extent necessary to permit the receiver to carry out the tasks specified in these orders. 15. The matter be listed for case management hearing at 9.30am on 19 September 2017. THE COURT NOTES THAT: 1. The respondent gives an undertaking to the Court that the respondent will satisfy any remuneration and reasonably expenses the receiver may incur in the event the receiver does not realise sufficient funds from the actions authorised by order 3 to cover the expenses incurred by the receiver. 2. The respondent gives an undertaking to the Court that the respondent will satisfy any reasonably expenses that the receiver may incur and also the receiver's remuneration during the period commencing with the appointment of the receiver and ending 14 days after the completion of the mediation between the applicant and the respondent. 8 The dispute relates to order 7. Chemical Trustee contends that order 7 excludes from the receiver's power of sale amounts by way of judgment interest on the judgment debt. The Deputy Commissioner contends that the receiver's power includes sale to satisfy judgment interest. 9 I accepted the Deputy Commissioner's construction. 10 Although it is permissible to construe ambiguous court orders by reference to extrinsic material (see, for example, Wende v Horwath (NSW) Pty Limited [2014] NSWCA 170; (2014) 86 NSWLR 674 at [60] and the cases there cited), I consider that the proper construction of the orders to be clear once they are understood as a whole. 11 Order 3 commences with the words "With respect to the charging orders made on 30 May 2016…". These are the orders set out above at [6]. It is common ground between the parties that the amount "necessary to satisfy the judgment in these proceedings" is the amount of the judgment debt and interest which accrues on the judgment debt in accordance with s 52 of the Federal Court of Australia Act 1979 (Cth), which is in these terms: (1) A judgment debt under a judgment of the Court carries interest from the date as of which the judgment is entered. (2) Interest is payable: (a) at such rate as is fixed by the Rules of Court; or (b) if the Court, in a particular case, thinks that justice so requires--at such lower rate as the Court determines. 12 Chemical Trustee's case is that order 7 of the 23 June 2017 means that the receiver's power of sale excludes amounts necessary to satisfy judgment interest. Otherwise, order 7, it was submitted, would be redundant as order 3 has precisely the same effect. 13 I disagree. Order 3 appoints the receiver for the purposes identified in orders 3(a) to 3(d). By order 3(c), the receiver's purpose is to sell all of the security interests. By order 3(d), the receiver's purpose is to remit the proceeds of sale to the Deputy Commissioner "to apply as against the judgment debt, costs in these proceedings and costs in the appeal proceedings…". Even if Chemical Trustee is correct, and the opening words "With respect to the charging orders made on 30 May 2016…" function as a limit on the power of sale as necessary to satisfy the "judgment" as referred to in the charging order (inclusive of interest, as Chemical Trustee accepts) and the costs, order 3 concerns the purposes for which the receiver may act. Those purposes, on any view given the terms of order 3(c), include selling the security interests to the full extent of the charge on those interests (which includes judgment interest, as accepted by Chemical Trustee). Order 3(d), the remittal purpose, is to be construed consistently with the power of sale. The receiver's purpose is to remit to the Deputy Commissioner the net proceeds of sale to apply against the "judgment debt, costs in these proceedings and costs in the appeal…". There is no reason to read the words in order 3(d) as excluding judgment interest. To do so would be inconsistent with the charging order which Chemical Trustee accepts extends to judgment interest and the purpose of the receiver specified in order 3(c) even if order 3(c) is read as confined by the opening words. 14 On this same basis (assuming order 3(c) is confined by the opening words, as Chemical Trustee would have it), order 7 uses the same formula of words as order 3(d), that is, "judgment debt, costs in these proceedings and costs in the appeal…". Unlike order 3, however, order 7 is not concerned with the receiver's purposes. It is concerned with the extent of the receiver's power. The power is expressed in the same terms as the purpose in order 3(d) which, as noted, must be construed as applying to judgment debt and judgment interest, as well as the identified costs. 15 This is sufficient to answer the question of construction against Chemical Trustee. 16 Apart from this, however, there is another reason why Chemical Trustee's construction must be rejected. If, as both parties assumed, order 3 is an empowering and not a mere purpose provision, then there is real doubt as to whether the opening words of order 3 operate to confine the receiver's purposes in order 3. While the charging order operates on the security interests to the extent necessary to satisfy the "judgment" and costs, all of the security interests are charged to that extent. But for order 8, the receiver would be free to sell the interests as the receiver might choose to satisfy the "judgment" and costs. As noted, Chemical Trustee accepts that by the charging order the security interests are charged to the extent of not only the judgment debt, but also judgment interest (and the identified costs). The structure of order 3, in particular the distinction drawn between the purpose of sale of "the security interests" in order 3(c) and that of remittal to the extent identified in order 3(d), indicate that but for orders 7 and 8, the receiver would be able to sell all of the security interests. The amount remitted would be confined to that necessary to satisfy the Deputy Commissioner (that is, judgment debt, judgment interest and the costs as identified), any surplus being held on trust by the receiver for Chemical Trustee. 17 On this construction, order 7 ensures that the otherwise unfettered power of sale in order 3 is confined so that the receiver may only sell the interests to the extent necessary to satisfy the Deputy Commissioner (that is, judgment debt, judgment interest and the costs as identified). Order 8 then operates to dictate the order of sale. 18 Another problem with Chemical Trustee's contention is that if one thing is apparent it is that the meaning of the opening words of order 1 is open to debate. Chemical Trustee would have it that the opening words confine the power of sale to the extent identified in the charging order. The Deputy Commissioner would have it that the opening words are merely a cross reference to the charging order, but the power of sale is as set out in order 3(c) (albeit subject to orders 7 and 8). Either way, the relevant point is that there is ambiguity about the effect of order 3. As a result, even if order 7 does no more than clarify what is already the case in order 3, clarification is itself a valid function. And thus it is not the case, as Chemical Trustee would have it, that order 7 is redundant on the Deputy Commissioner's construction. In any event, mere potential redundancy, accordingly, is no reason to construe the orders as if they limited the power of sale, for reasons unknown, to only part of the debt which Chemical Trustee owes the Deputy Commissioner and for which the security interests are charged. 19 Two other points should be noted. Chemical Trustee identified no reason to support the proposition that the orders reflected an agreement between the parties that the security interests, while charged with judgment interest, would not be the subject of sale to that extent other than the assertion that this is what Chemical Trustee negotiated. Chemical Trustee did not suggest any extrinsic material supported this assertion. To the contrary, Chemical Trustee considered extrinsic material documenting the negotiations leading up to the consent orders to be neutral. It relied on the face of the 23 June 2017 orders, construed with those of 30 May 2016 as referred to in order 1. On that basis, as indicated, Chemical Trustee's contention must be rejected. 20 Chemical Trustee also did not suggest, by affidavit or otherwise, that it or those representing it believed at the time the orders were agreed that the orders were intended to operate in the manner for which Chemical Trustee now contends. The argument was one of construction only. If it failed in its construction argument, Chemical Trustee did not seek that the orders be set aside or varied on any other ground. The fact is, if relevant to construction, none of the extrinsic material would have supported any argument that the orders, as I have construed them, did not reflect Chemical Trustee's intention at the time. If it were necessary to consider that material, it is plain that the legal representatives (who remain unchanged) contemplated that the judgment debt of $28,617,596.68 was increasing as a result of judgment interest. So much is plain from the letter of 23 December 2016 and is consistent with all of the other communications leading up to the consent orders. In other words, the extrinsic material is not neutral. It shows that, at the time, Chemical Trustee and its legal representatives must be inferred to have intended, as did the Deputy Commissioner, that the power of sale would be to the extent of the judgment debt, the judgment interest which the parties treated as increasing the judgment debt, and the identified costs. This, I presume, may explain why the argument was pitched at the level of construction only, and no suggestion was made that the orders did not reflect Chemical Trustee's intention. 21 It is unnecessary to explore the issues raised in the submissions of the parties in any greater detail. The orders are clear. The receiver is empowered to sell the security interests to the extent necessary to satisfy the judgment debt (which includes judgment interest) and the costs as identified, subject to the terms of order 8. I certify that the preceding twenty-one (21) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.