Elsinora Global Limited v Healthscope Limited

the principles 6 I recently stated the principles to be applied on a summary dismissal application, as follows (Seven Network Ltd v News Ltd (No 4) [2005] FCA 244, at [14]): 'It is only a very clear case indeed that will justify the summary intervention of the Court, since litigants are not to be deprived the right to submit genuine controversies for determination: Dey v Victorian Railways Commissioners (1949) 78 CLR 62, at 91-92, per Dixon J. Accordingly, the power to order summary judgment should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, at 129-130, per Barwick CJ; Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, at 99, per curiam. A Full Court of this Court in Australian Building Industries Pty Ltd v Stramit Corporation Ltd [1997] FCA 1318, approved the formulation of Millett J in Lonrho Plc v Fayed (No 2) [1992] 1 WLR 1 (Ch D), at 5 as follows: "A plaintiff is entitled to pursue a claim in these courts however implausible and however improbable his chances of success. Unless the defendant can demonstrate shortly and conclusively that the plaintiff's claim is bound to fail or is otherwise objectionable as an abuse of process of the court, it must be allowed to proceed to trial." (Emphasis added.)'

the pleaded case 7 The following facts are pleaded in the ASC. I have set them out in chronological order, although they are not necessarily pleaded chronologically: (i) Prior to 3 November 2004, ECMI held 194,516,455 shares in Gribbles (par 8, referring to 9 November 2004, but it is common ground that ECMI held the shares prior to 3 November 2004). (ii) On 3 November 2004, Healthscope acquired 44,000,000 shares in Gribbles from ECMI pursuant to a 'Share Acquisition Agreement' (par 9). (iii) On 8 November 2004, the ATO issued a notice to Healthscope, purportedly pursuant to s 255(1)(b) of the ITAA requiring it to retain the Withholding Sum allegedly in respect of capital gains tax payable by ECMI in relation to the sale of shares in Gribbles (par 24). The notice was in evidence and in fact reads as follows: 'Information available to me indicates that you have or will have the receipt, control or disposal of money belonging to a non-resident from the sale(s) by [ECMI] of 194,516,455 shares in [Gribbles]. On the material available, I have found that the shares belong to a non-resident and that you are, or will be the purchaser of those shares. On the material available, I have also found that the non-resident will derive income, or profits or gains of a capital nature, and that such income has its source in Australia. … Pursuant to s 255(1)(b) of the [ITAA], you are hereby authorised and required to retain from time to time out of any of the net proceeds from the sale(s) of the shares so much as is sufficient to pay the tax which is or will become due by the non-resident. On the information available to me that amount is no more than $9,953,426.10. Retention of that amount will satisfy your obligations under this notice. Failure to comply with the above requirements will result in you becoming personally liable for the tax that should have been retained (section 255(1)(c) of the [ITAA]).' (iv) On 9 November 2004, Healthscope made a takeover offer to the shareholders of Gribbles offering to acquire their shares in the company (par 7). (v) On 17 November 2004, pursuant to five 'Share Sale Agreements', ECMI sold 150,576,455 shares in Gribbles to each of the Elsinora applicants (par 10). (vi) ANZ is the sub-custodian of the shares acquired by the Elsinora applicants and holds legal title to the shares (par 11). (vii) By reason of the Share Sale Agreements, ECMI was no longer the beneficial owner of the shares it sold to the Elsinora applicants (par 12). (viii) On 18 November 2004, the Elsinora applicants accepted the Healthscope takeover offer and under the terms thereof 'became beneficially entitled to the proceeds of the takeover offer and the money payable under the takeover offer thereafter belonged to [the Elsinora applicants]' (par 13). (ix) On or about 1 December 2004, the ATO issued a notice of assessment to ECMI pursuant to s 168 of the ITAA assessing tax of $9,953,426.10, payable on 1 December 2005 (par 17). (The covering letter stated that the ATO understood that ECMI had disposed of all its shares in Gribbles and that capital gains had been made on the sale. The letter further stated that the tax due and payable was at risk because 150,516,455 shares had been transferred to associated entities of ECMI for less than market value and ECMI was a non-resident taxpayer.) (x) On 21 December 2004, the Healthscope takeover offer became unconditional, whereupon each of the Elsinora applicants became entitled to be paid the proceeds thereof on 21 January 2005 (pars 18, 19). (xi) The sum payable by Healthscope to ANZ as sub-custodian for the Elsinora applicants was $94,825,366.65, of which Healthscope paid $84,871,940.55 on 21 January 2005, leaving $9,953,426.10 unpaid (pars 21-23). (xii) On 24 December 2004, the ATO issued a second notice under s 255 of the ITAA to Healthscope (par 24). It was in identical terms to the first. (xiii) On 7 January 2005, the ATO issued a notice under s 255 of the ITAA to ANZ (par 25). 8 The ASC further pleads that: · ECMI ceased to be the beneficial owner of the shares in Gribbles on 17 November 2004 (par 27). · No part of the purchase consideration for the shares under the Healthscope takeover offer belonged to ECMI (par 28). · The Elsinora applicants, by reason of the Share Sale Agreements, became the beneficial owners of the shares in Gribbles purchased by them and consequently the proceeds under the takeover offer belonged to them (par 29). · In the circumstances, the s 255 notices were void and of no effect (par 30).

submissions 9 The Commissioner appeared to advance three contentions in support of the summary dismissal application. They were, as I understood them, as follows. 10 First, it was said that the Commissioner is entitled as a matter of law to issue a notice under s 255(1)(b) of the ITAA to a person who has the control of money belonging to a non-resident, regardless of whether any notice has previously been given to that person under s 255(1)(a) requiring the person 'to pay the tax due and payable by the non-resident'. Thus even though the s 255 notices in the present case were issued pursuant to s 255(1)(b), and no notice was ever issued under s 255(1)(a), Healthscope and ANZ were obliged to retain the Withholding Sum, being an amount which 'is sufficient to pay the tax which is or will become due by the non-resident [ECMI]'. 11 The Commissioner acknowledged that in Commissioner of Taxation v Wong (2002) 121 FCR 60, Lindgren J held (at [23]) that: 'the notice provided for in par (a) is the "trigger" which activates the operative provisions of s 255(1).' His Honour rejected the Commissioner's contention in that case that s 255(1)(b) of the ITAA can take effect before an assessment has issued and that it operates of its own force without the need for a notice from the ATO. Although the Commissioner in the present case made a formal attempt to distinguish Wong, argument on the motion proceeded on the basis that the Commissioner could not succeed unless I concluded that Wong was plainly wrong and should not be followed. 12 Secondly, the Commissioner argued that the s 255 notice to Healthscope of 8 November 2005 imposed a statutory obligation on Healthscope that attached to the moneys due by it to ECMI. No subsequent action by ECMI, in particular the sale of its remaining shares in Gribbles to the Elsinora applicants pursuant to the Share Sale Agreements, could detract from Heathscope's obligation. 13 Thirdly, in the alternative, the Commissioner had avoided the purported transfer of the shares by ECMI to the Elsinora applicants by invoking s 172(1) of the Property Law Act 1958 (Vic) (which provides that every alienation of property made with intent to defraud creditors shall be voidable at the instance of any person thereby prejudiced). The Commissioner pointed to evidence that he had written to Healthscope on 17 January 2005, advising that he had determined to avoid the purported sale of shares by ECMI to the Elsinora applicants. 14 The applicants contended that they plainly have an arguable case that each of the various notices was invalid, on the following grounds: (i) The notice of 8 November 2004 issued to Healthscope was given at a time when no tax was due and payable (since the shares had not then been sold); no notice had been issued under s 255(1)(a) of the ITAA; and the recipient of the notice (Healthscope) did not have 'the receipt, control or disposal of money belonging to [ECMI]'. (ii) The notice of 24 December 2004 issued to Healthscope was given at a time when no tax was due and payable by ECMI (the assessment of 1 December 2004 not being valid); no notice had been issued under s 255(1)(a) of the ITAA;and Healthscope did not at the time have 'the receipt, control or disposal of money belonging to [ECMI]'. (iii) The notice of 7 January 2005 issued to ANZ suffered from the same defects as the notice of 24 December 2004 issued to Healthscope. 15 The applicants submitted that it is clearly arguable that any money held by Healthscope or ANZ did not belong to ECMI but to the Elsinora applicants. The resolution of that issue had to depend on the effect of the Share Sale Agreements. Accordingly, any consideration of whether Wong was incorrectly decided, or otherwise inapplicable to the facts of the present case, should await determination of the facts. 16 The applicants further submitted that the Commissioner's reliance on s 172 of the Property Law Act for the purposes of a summary dismissal application was misconceived. On any view, the allegation that the transfer of the shares by ECMI to the Elsinora applicants was made with intent to defraud creditors was a matter for pleading in a cross-claim. In any event, the allegation raised factual issues that should be resolved at a trial.

reasoning 17 In my view, subject to one matter, the applicants' submissions should be accepted. If the facts pleaded by the applicants are assumed to be true (as they must be on a summary dismissal application), the applicants have an arguable case. It is true that in certain circumstances it may be appropriate to resolve a pure question of law on a summary dismissal application. Perhaps it might even be appropriate to resolve the question of whether a previous decision should be followed on a summary dismissal application. But here it may not prove to be necessary to consider whether Wong should be followed, depending on the factual findings made at the trial. On the applicants' case, for example, neither Heathscope nor ANZ ever received or held money on behalf of ECMI. If that claim is upheld, it presumably will not be necessary to address the question of construction presented by Wong. 18 The qualification to which I have referred is that the ASC does not plead that the notice of assessment issued on behalf of the Commissioner under s 168 of the ITAA on 1 December 2004 was void or otherwise ineffective. If the applicants wish to rely on any such a claim they will need to plead it. The absence of such a pleading at present does not, however, affect the conclusion I have reached. 19 I should add that it seems to me clear enough that if the Commissioner wishes to rely on s 172 of the Property law Act,he must plead such a case. I invited Ms Richards QC, who appeared with Mr Sest for the Commissioner, to direct my attention to any authority suggesting to the contrary, but she did not do so. In the absence of such authority it seems to me that it is not a basis for a summary dismissal application that the respondent Commissioner may be able to make out a case under s 172 of the Property Law Act, or similar legislation. In any proceedings under legislation of this kind, the burden of proof is upon those who allege that the disposition of property was made with the requisite intent: Williams v Lloyd; In re Williams (1933) 50 CLR 341, at 361, per Starke J; at 372, per Dixon J; P T Garuda Indonesia Ltd v Grellman (1992) 35 FCR 515, at 522-525, per curiam. 20 Ms Richards took me to evidence which, she argued, showed that ECMI had the requisite intent when it transferred the shares in Gribbles to the Elsinora applicants. That evidence may prove to be telling at the trial, depending on what explanation or answer is provided by the applicants. But it cannot alter the fact that as yet the Commissioner has not invoked s 172 of the Property Law Act in a cross-claim. 21 Given that the applicants have an arguable case, no basis for summary dismissal of the proceedings has been made out. The matter should proceed to trial so that factual findings can be made. If the Commissioner wishes to rely on s 172 of the Property Law Act, he will presumably need to file a cross-claim and properly plead his case.

the strike out application 22 The main contention of the Commissioner in support of the strike out application was that the ASC amounts to an abuse of process because it does not plead all facts that may be material to the relief sought by the applicants. Mr Sest submitted that there were some material facts that had been omitted from the pleading. He said that these placed a different complexion on the facts pleaded by the applicants and that the applicants should have referred to the additional facts in the ASC itself. 23 In my opinion, this contention is founded on a misconception. It is, of course, trite law that a pleading must allege all the material facts necessary to support the claim for relief. But this principle does not mean that a pleading which pleads material facts sufficient to support the relief claimed is liable to be struck out because a respondent can point to other facts that may cast a different light on the allegations made by the applicant. It is open to the respondent to adduce evidence of the other facts at the trial. Whether the facts need to be specifically pleaded in the respondent's defence depends on what the facts are. 24 The particular pleading challenged by Mr Sest is the allegation (par 10) that ECMI sold its shares to the Elsinora applicants on 17 November 2004 pursuant to the five Share Sale Agreements. The particulars to par 10 identify the five Share Sale Agreements. The Commissioner is of course entitled to a copy of each document should he require them to be produced: FCR, O 15 rr 10-12. 25 One issue in dispute is apparently whether ECMI effectively transferred its beneficial ownership in the shares to the Elsinora applicants on 17 November 2004 (as the ASC pleads). If it did, subject to any other arguments the Commissioner may raise, it would seem that neither Healthscope nor ANZ held any money on behalf of ECMI in respect of the latter's shareholding in Gribbles. This is because, on the applicants' case, it was the Elsinora applicants who on 18 November 2004 accepted Healthscope's offer to acquire the shares and who thereby became entitled to receive the purchase price. 26 If the applicants establish that the Elsinora applicants (and not ECMI) accepted Healthscope's offer to acquire the shares and if there is no basis for impugning the transactions by which the shares were transferred to the Elsinora applicants and subsequently to Healthscope, presumably the applicants will be entitled to the relief they seek against the Commissioner. 27 It was not entirely clear to me why the material referred to by Mr Sest in his submissions would (as he argued) undercut the applicants' claim that the shares were transferred to the Elsinora applicants on 17 November 2004. Nonetheless, the Commissioner may ultimately be able to point to evidence that rebuts the applicants' claims in this respect. But that possibility, or even likelihood, does not transform pleadings that otherwise comply with the rules into an abuse of process. 28 Mr Sest pointed to what he said were other deficiencies in the pleadings. For example, he pointed out that par 13 of the ASC asserts that the Elsinora applicants accepted the Healthscope takeover offer on 18 November 2004 and thereby 'under the terms thereof' became beneficially entitled to the proceeds of the takeover offer. Paragraph 13 does not identify the terms pursuant to which the entitlement arose. 29 The Commissioner has not to date sought further particulars of par 13, nor has he previously complained specifically about the paragraph. In my view, the sensible course is for the Commissioner, if so advised, to seek further particulars. I expressed the view at the hearing that if such particulars are sought the applicants should respond helpfully. Mr Beaumont QC, who appeared with Mr Thawley for the applicants, indicated that there would be no difficulty with that course. 30 Other minor pleading issues were raised but they were either resolved at the hearing or do not affect the Commissioner.

CONCLUSION 31 The Commissioner's motion must be dismissed. The Commissioner should pay the applicants' costs of the motion. Mr Beaumont sought costs on an indemnity basis, but I do not think such an order is warranted. 32 The Commissioner succeeded at the hearing in obtaining an order setting aside a notice to produce issued by the applicants. That relief was not specifically sought in the notice of motion and, in any event, the argument took up only a very short time. The Commissioner's success on that minor question does not warrant departing from the costs order I have proposed. I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville.

Counsel for the Applicant: FGA Beaumont QC with TM Thawley

Solicitor for the Applicant: Piper Alderman

Counsel for the Third Respondent: A Richards QC with PG Sest

Solicitor for the Third Respondent: Australian Government Solicitor