Poonon v DCT

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3627/99 - POONON PTY LTD V DEPUTY COMMISSIONER OF TAXATION

1 HIS HONOUR: On 30 September 1999 Deputy Registrar Howe made orders that the defendant be wound up under the Corporations Law and that Stephen Allan Jay be appointed as liquidator. 2 On 5 October 1999 the defendant's solicitors made an ex parte application to me as duty judge for abridgment of time for service of an application by notice of motion for orders setting aside or staying the Deputy Registrar's orders. The application was far short of what was needed for that relief, disclosing no substantial grounds. I declined to order abridgment of time for service. 3 A further ex parte application was made to Hodgson CJ in Eq on 30 October 1999 for abridgment of time for service of a similar notice of motion, on the ground that an appeal had been lodged. His Honour held that the application to set aside the orders was misconceived in light of the appeal, and while an application for a stay may be appropriate, it would need to be supported by material showing that there might be substance to the appeal. Clearly his Honour had in mind that an application for a stay would be related to the hearing and determination of the appeal. He refused leave. 4 The defendant subsequently filed and served a notice of motion seeking to set aside or stay the Deputy Registrar's orders, returnable on 26 October 1999. Bergin J heard the application on that day. The plaintiff appeared and opposed it. Her Honour held that the evidence before her was insufficient to justify a stay of the orders, noting that Hodgson J CJ in Eq had rejected a similar application to set the orders aside as misconceived. She denied the application. 5 The case came back to me on 1 and 2 November 1999 when the defendant moved on a notice of motion filed on 8 October 1999. This curious document purported to be both a further application for a stay of the Deputy Registrar's orders and an appeal. Although cast as a notice of motion rather than a notice of appeal, I take it that, to the extent that the documents gave notice of an appeal, the appeal was intended to be brought under Pt 80A r 21, which causes Pt 60 r 11 - 15A to apply to an appeal from the Registrar's decision to make a winding up order as if the Registrar were a Master. On that basis such an appeal is heard by a single judge of this Division. 6 On 12 October 1999 the defendant filed a 'Notice of a Constitutional Matter' which purported to be a notice to Attorneys-General for the purposes of s 78B of the Judiciary Act 1903 (Cth) and also a notice of intention to apply to the High Court of Australia for removal of the part of the present proceedings into that Court under s 40 of that Act. 7 By virtue of an affidavit filed and read in Court this morning, which provides evidence to support what was submitted to me from the Bar table at the hearing, I am satisfied for the purposes of s 78B that notice of the constitutional matter, which is said by the defendant to arise in these proceedings, has been given to the Attorneys-General of the Commonwealth and the States and a reasonable time has subsequently elapsed. The Attorneys-General for the Commonwealth and each State and Territory have responded signifying they do not intend to intervene at this stage. I do not know whether the application to the High Court under s 40 has proceeded. 8 In my opinion, the defendant's appeal from Deputy Registrar Howe's orders must fail for two reasons which I shall explain. I do not base my decision on the procedural irregularities of the appeal, but rather on matters of a more substantial kind. The further application for a stay must fail because there are no new grounds not before Bergin J on 26 October 1999 and no arguable basis for a stay once the appeal has failed. 9 The first substantive reason arises out the s 471A of the Corporations Law. That section states that while a company is being wound up in insolvency or by the Court, a person cannot perform or exercise, and must not perform or exercise, a function or power as an officer of the company except (relevantly) as liquidator, or with the liquidator's written approval, or with the approval of the Court. The making and prosecution of an appeal against the orders of the Court for the winding up of a company involves a function or power exercisable on the company's behalf. But for the liquidation that function or power would be exercised by the directors of the company, who are its officers. But in view of the liquidation s 471A is a barrier to their taking that step. 10 I was informed from the bar table that Mr Geale is the sole director of the defendant and is providing instructions to the defendant's solicitor. I was also told, though there is no evidence of this, that the liquidator has been informed of the proceedings and does not wish to intervene. Of course, that falls well short of the written approval of which s 471A speaks. I see no ground for the Court to grant its approval to allow the director to bring and prosecute an appeal in the present circumstances. It follows that this appeal has not been competently brought. This conclusion assumes, of course, that the Corporations Law is valid; that is a subject to which I shall return. 11 The second reason relates to the defendant's substantive case on the appeal. The application to wind up the defendant was brought under s 459P(1)) as an application for the company to be wound up in insolvency. The Court's power to make an order under that section is found in s 459A. Section 459Q sets out an additional requirement which had to be satisfied in cases where an application for a company to be wound up in insolvency relies on the company's failure to meet a statutory demand. It has not been contended that the requirements of s 459Q were not complied with in the present case. 12 The significance of complying with s 459Q is that the Deputy Registrar had before him on 30 September 1999 evidence of service of a statutory demand and failure by the defendant to comply with it, as well as evidence verifying the debt. Under s 459C(2) the Court is required to presume that a company is insolvent if, during or after the three months ending on the day when the application was made, the company failed to comply with a statutory demand. By s 459C(3) the presumption of insolvency operates except so far as the contrary is proved. 13 Before me in the appeal is an affidavit by Mr Levick of 13 October 1999 which gives an account of his submissions to Deputy Registrar Howe on 30 September 1999. Mr Levick says: 'On that occasion I made submissions to Deputy Registrar Howe that: a. No Statement of Claim had ever been issued against or served upon Poonon Pty Ltd by either the Australian Taxation Office or any Commissioner or Deputy Commissioner of Taxation. b. No lawful judgement had been obtained against Poonon Pty Ltd by either the Australian Taxation Office or any Commissioner or Deputy Commissioner of Taxation. c. That the Plaintiff in this matter, being a Deputy Commissioner of Taxation, was only a contingent or prospective creditor as no judgement had been entered. d. That there were Appellent judgements [sic] of the Court of Appeal in New South Wales and from other jurisdictions where it was declared that it is an abuse of process to use a Statutory Demand procedure as a debt collection device.' 14 There was nothing in these submissions to challenge in any factual way the presumption which arose out of the plaintiff's evidence under s 459C(2). On the available factual evidence the Deputy Registrar had no option but to make the winding up order, unless the material upon which the defendant relied could properly be taken into account at that stage. 15 Section 459S is an obstacle to taking such material into account. That section states that insofar as an application for winding up in insolvency relies on failure by the company to comply with a statutory demand (as in this case) the company may not, without the leave of the Court, oppose the application on any ground that company could have relied on in an application by it for the demand to be set aside, if the company did not rely on the ground at that stage. In the present case there is no evidence to indicate that any application was made to set aside the statutory demand. If the grounds which Mr Levick advanced before Deputy Registrar Howe on 30 September 1999 were grounds upon which his client could have relied in an application to set aside the statutory demand, then s 459S prevented those grounds from being raised at the hearing before Deputy Registrar Howe in the absence of the leave of the Court. No such leave was granted. Sub-section 459S(2) adds to the defendant's hurdle by stating that the Court is not to grant leave unless it is satisfied that the ground is material to proving that the company is solvent. 16 In my opinion each of the matters referred to in paragraph 3 of Mr Levick's affidavit is a matter which could have been raised in an application by his client to set aside the statutory demand. It follows that in the absence of the leave of the Court, the defendant was not able to rely on those matters at the hearing of the application for winding up. This conclusion is supported by powerful considerations of public policy to which I referred recently in my judgment in Chief Commissioner of Stamp Duties v Paliflex (1999) 17 ACLC 467, paragraphs 35-48. I need not repeat what I said there. In my opinion this is a case where there is no proper basis for departing from the prima facie rule which s 459S sets up. 17 It is not necessary for me to comment substantially on most of the grounds which the defendant raises in the appeal, since in my view the appeal is answered against the defendant by provisions of the Corporations Law to which I have referred. However, it is appropriate to comment briefly on those grounds and one ground, which alleges that the Corporations Law is invalid, must be dealt with. 18 The grounds of appeal are to be found in the notice of motion filed on 8 October 1999, in the 'Notice of a Constitutional Matter' to which I have referred, and in the defendant's oral and written submissions. It emerges there are six grounds in all, though in the various ways in which they have been articulated there is no consistency of expression, nor much clarity of thought. 19 The first ground has three components. It complains that no statement of claim was issued by the plaintiff against the defendant and no lawful judgment was obtained. However, it is clear from Pt 5.4 Divs 2, 3 and 4 of the Corporations Law that the procedure for the issue of a statutory demand, followed by an application to wind the company up in consequence of failure to comply with the demand, is available to a plaintiff who has not sued for or obtained a judgment in debt. For example, s 459Q(c) expressly contemplates that the debt which is the subject of the application for winding up may not be a judgment debt, and Pt 5.4 Div 2 and the Rules made under it make provisions which contemplate that a statutory demand may be made for a debt which is not a judgment debt. 20 The second part of the first ground of appeal is that the correct procedure has not been followed by the Commissioner of Taxation, in that no notice of assessment under s 179 of the Income Tax Assessment Act 1936 (Cth) has been issued. In this submission the defendant relies upon Sunrise Auto Ltd v Deputy Commissioner of Taxation (1994) 124 ALR 425; (on appeal), Deputy Commissioner of Taxation v Sunrise Auto Ltd (1995) 133 ALR 274. The defendant has not sought to introduce new evidence on the appeal with respect to this matter, and relies upon bare assertion. The ground of appeal must fail because this is clearly a matter which could have been raised in an application to set aside the statutory demand and consequently could not be raised without leave under s 459S at the hearing before the Deputy Registrar. In those circumstances it cannot be said that the Deputy Registrar made any appealable error in this respect. 21 The third aspect of the first ground of appeal is an assertion that by using the statutory procedure as a 'debt collection device' the plaintiff was guilty of an abuse of process, compounded when an application to wind the company up was made on the basis of the statutory demand. The defendant relies on Australian Mid-Eastern Club Ltd v Elbakht (1988) 13 NSWLR 697, Soverina Pty Limited v Jackson & Associates Pty Ltd (1987) 12 ACLR 693 and Re Bond Corporation Holdings Pty Ltd (1990) 1 WAR 465. The use of the statutory demand procedure for debt collection may be objectionable as an abuse of process in cases where, for example, the creditor is aware that there is a genuine dispute in respect of the debt. But there is nothing in the law which per se prevents a person who claims indebtedness from using the statutory demand procedure and subsequently making an application for winding up. A creditor may well believe, for example, that there is no point expending time and effort in proceeding to judgment in debt because, in the creditor's view, it is likely that the debtor will be wound up in insolvency and that the appropriate outcome is that each creditor should obtain a rateable distribution out of the debtor's assets. The Corporations Law expressly contemplates, in the provisions to which I have referred, that a creditor who takes that attitude may proceed to issue a statutory demand, and upon failure to comply with it, make an application for winding up. 22 The next ground of appeal relates to an issue of sovereignty which was the subject of the judgments of Hayne J in Joosse v Australian Securities and Investments Commission (1998) 73 ALJR 232 and Helljay Investments Pty Ltd v Deputy Commissioner of Taxation [1999] HCA 56 (7 October 1999). As I understand this ground of appeal, it was expressly considered by Hayne J and rejected by him, and therefore it must fail now. In any event the raising of this matter at the hearing would have been prevented by s 459S, in the absence of leave. 23 The third ground of appeal raises the question whether legislation constituting the Australian Taxation Office was validly gazetted and promulgated as required by law. I was informed by counsel that the issue has also been raised in proceedings before Hill J in the Federal Court of Australia. I am happy for his Honour, or any other judge before whom the issue properly arises, to deal with it on such an occasion. The issue simply does not arise before me since the Australian Taxation Office is not a party to the proceedings or a claimant creditor. The plaintiff creditor in the present case is the Deputy Commissioner of Taxation. Additionally, once again s 459S would have been a barrier to the raising of this argument at the hearing before the Deputy Registrar. 24 The fourth ground of appeal raises an issue of delegation. The question is whether the statutory rights of the Commissioner of Taxation have been properly delegated to the Deputy Commissioner under relevant legislation, having regard to the principles in O'Reilly v State Bank of Victoria Commissioners (1983) 153 CLR 1. The plaintiff contended that a proper delegation had occurred by virtue of s 209 of the Income Taxation Act 1936 (Cth) and ss 8 and 9 of the Taxation Administration Act 1953 (Cth) and referred to James v the Deputy Commissioner of Taxation (1957) 97 CLR 23, Spencer v Deputy Commissioner of Taxation (1990) 21 ATR 546 and Deputy Commissioner of Taxation (Vic) v Boxshall (1998) 19 ATR 1822. 25 It appears to me on balance that the plaintiff's submission would be successful were it necessary for me to resolve the issue. I have some hesitation because s 209, upon which the plaintiff relies, applies only to permit any tax unpaid to 'be sued for and recovered'. There may be an argument that an application for winding up based on failure to comply with a statutory demand is not properly characterised as a proceeding by which an amount is sued for and recovered, but is instead a proceeding for the external administration of an insolvent company for the benefit of its creditors and contributories generally. However, the cases to which the plaintiff refers appear to have rejected that argument in the context of bankruptcy and to have assumed that it is not available in the context of winding up. I would be inclined to follow them were it necessary for me to decide in point. It is not necessary for me decide this point because, once again, this is a matter which could have been raised in an application to set aside the statutory demand and s 459S was a barrier to its being raised before the Deputy Registrar in the absence of leave; there was therefore no appealable error by the Deputy Registrar on this point. 26 The fifth ground of appeal relates to the assertion that the Income Tax Assessment Act 1936 (Cth) was never validly assented to by the Governor-General of the time, Lord Gowrie, because of the absence of letters patent during the interregnum between the reigns of Edward VIII and George VI. If this matter had been raised before the Deputy Registrar it would have been necessary for some evidence to be adduced with respect to it. There is no evidence before me on the appeal, but only the assertions of counsel. In those circumstances, I would not regard the Deputy Registrar as having made an appealable error even if (contrary to the evidence in Mr Levick's affidavit) this specific point had been taken at the hearing. Again, it is unnecessary for me to base my decision in the appeal on this point, because this is also a matter which might have been raised in an application to set aside the statutory demand, and the barrier of s 459S applies to it. 27 The final ground of appeal involves the assertion that the Corporations Law of New South Wales (and presumably the Corporations Laws of each other State and Territory) are invalid. As I understand it, the argument is an extrapolation from the decision of the High Court of Australia in Sue v Hill (1999) 73 ALJR 1016. That case related to whether a person who was a citizen of both Australia and the United Kingdom could validly be certified as elected to the Senate of the Australian Parliament. The election was successfully challenged in the High Court. The judgments of their Honours ranged over a number of matters of broader constitutional significance. However, I find it the impossible to construct any plausible argument which would even suggest the possibility that in light of the judgments in that case the Corporations Laws of the States should be regarded as invalid. No plausible argument was presented to me at the hearing. The notion underlying the ground of appeal seem to be that changes to our domestic law produced the consequence, acknowledged in Sue v Hill , that Australia attained the status of a nation by at least 1986, when the Australia Acts were enacted. That being so, it was somehow unconstitutional for Acts of the Commonwealth and State Parliaments to be assented to by the Governor-General and Governors respectively, because they were representatives of a foreign sovereign. But nothing in Sue v Hill suggests that extraordinary conclusion. According to the law of New South Wales, which I am bound to apply, an enactment takes effect upon proclamation, after it has passed through the Parliament and has been assented to by the Governor. The Corporations Law which is of principal relevance in this case is the Corporations Law of New South Wales, since the defendant was incorporated in this State. Each of the provisions of the Corporations Law to which I have referred is, therefore, a provision of New South Wales law and is valid as such. 28 It follows that New South Wales law validly deprives the director of the defendant of the authority to give instructions to bring the appeal, validly creates barriers to the appeal including s 459S, and validly adopts provisions which make it clear that the statutory demand procedure may be used without the institution of proceedings for recovery or entry of a judgment in debt. The appeal therefore comprehensively fails. Any application for a stay pending the determination of the appeal must necessarily fail, and no other ground for a stay was articulated at the hearing. 29 My orders are: (1) The defendant's application for a stay of the orders of the Deputy Registrar made in paragraph 1 of the notice of motion filed on 8 October 1999 is denied. (2) The appeal from the decision and orders of the Deputy Registrar made in paragraph 2 of the notice of motion filed on 8 October 1999 is dismissed. (3) The defendant to pay the plaintiff's costs of the notice of motion filed on 8 October 1999. * * * * * * * * *

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