Cunningham v Commissioner of Taxation [2010] QDC 277

DISTRICT COURT OF QUEENSLAND CITATION: Cunningham v Commissioner of Taxation [2010] QDC 277 PARTIES: JOHN WILLIAM CUNNINGHAM AS LIQUIDATOR OF MCINTOSH CIVIL CONSTRUCTION PTY LTD (IN LIQUIDATION) ACN 119 587 754 Plaintiff/Applicant/Respondent v COMMISSIONER OF TAXATION Defendant/Respondent/Applicant FILE NO: 337 of 2009 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: District Court at Maroochydore DELIVERED ON: 19 May 2010 DELIVERED AT: Maroochydore HEARING DATE: 30 April 2010 JUDGE: K S Dodds, DCJ ORDER: The defendant’s application is dismissed. I give judgment for the plaintiff against the defendant for $143,173. CATCHWORDS: PRACTICE AND PROCEDURE – SUMMARY JUDGMENT – where liquidator claimed in District Court against the defendant for payment of money paid by company in liquidation in discharge of tax liability PRACTICE AND PROCEDURE – COURTS – TRANSFER OF PROCEEDINGS – where defendant Commissioner applied to District Court to transfer proceeding to Supreme -- 1 of 8 -- 2 Court on basis that having regard to the interests of justice it was more appropriate for the matter to proceed in Supreme Court – where defendant unable to pursue statutory indemnity against director of the company in District Court Corporations Act 2000 (Cth) s 58AA, s 588FF, s 588FG, s 588FGA, s 588FGB, s 1337K Uniform Civil Procedure Rules 1999 r 292 Cases cited: Commissioner of Taxation (NSW) v Simms [2008] NSWCA 298 Crosbie v Commissioner of Taxation [2003] FCA 922 Harris v Commissioner of Taxation [2006] QSC 108 Scott v Commissioner of Taxation & Anor [2003] VSC 50 COUNSEL: C D Coulsen for the plaintiff C J Conway for the defendant SOLICITORS: Sajen Legal for the plaintiff Australian Taxation Office Legal Services Branch for the defendant [1] This matter concerns two applications in a proceeding in this court: ƒ An application by the plaintiff filed on 7 April 2010 for summary judgment pursuant to rule 292 of the Uniform Civil Procedure Rules 1999 (UCPR). Such an application may succeed where this court is satisfied that: “(a) the defendant has no real prospect of successfully defending all or a part of the plaintiff’s claim; and (b) there is no need for a trial of the claim or the part of the claim”; ƒ An application by the defendant pursuant to section 1337K of the Corporations Act 2001 (Cth) (the Act) filed on 9 April 2010 for this court to transfer the proceeding in this court to the supreme court. The section empowers this court to do that where it appears to this court that “having regard to the interests of justice, it is more appropriate” for the proceeding or an application in the proceeding to be determined by that court. [2] The proceeding in this court was originally commenced by claim and statement of claim filed 4 December 2009. An amended statement of claim was filed on 9 February 2010 correcting an error in a date in the original statement of claim. -- 2 of 8 -- 3 [3] The claim concerned payments of money received by the defendant between 18 February 2008 and 1 July 2008 totalling $143,173 and applied to indebtedness of McIntosh Civil Constructions Pty Ltd to the defendant. It was that sum, which by the claim in this court, the plaintiff sought, pursuant to section 588FF of the Act, to recover from the defendant as an unfair preference and voidable transaction within the meaning of section 588FA(1) and section 588FE(2) of the Act. [4] On 5 January 2010 the defendant filed a conditional notice to defend, disputing this Court’s jurisdiction on the basis that if the claim proceeded in this Court, section 588FGA(2) of the Act, would have no application. That section exposes the director of McIntosh Civil Constructions Pty Ltd (in liquidation) (the company) to liability to indemnify the defendant in respect of any loss or damage resulting from an order made pursuant to section 588FF against the defendant. [5] A misnomer in the conditional notice to defend was corrected by the filing of an amended conditional notice to defend on 14 January 2010. No application for an order under rule 16 UCPR was, however, made. [6] Later, on 17 February 2010, the defendant filed a defence. [7] It was not in dispute that, on 17 July 2008 following a resolution of the company’s creditors, the plaintiff was appointed as liquidator of the company. [8] The defendant brought an application in the supreme court pursuant to section 83 of the District Court of Queensland Act 1967 to transfer the proceeding to the Supreme Court. Such an application can only succeed if the supreme court is satisfied some important question of law or fact was likely to arise. On 19 February 2010 the supreme court refused the application. The Defendant’s Application [9] Pursuant to section 1337K of the Act this court may order the transfer of the proceeding in this court to the supreme court if it appears to this court that having regard to the interests of justice it is more appropriate for the matter to be determined in that court. [10] The plaintiff’s position is that transfer to the supreme court will expose the liquidator to delay and increased costs. I accept that. The liquidator’s duty is to realise assets, get in debts owing to the company, in short, accumulate funds and contain costs as far as responsibly possible to maximise the return to creditors who prove. Allied to that the liquidator’s duty extends to completing the winding up as quickly and as economically as possible. [11] The evidentiary material before me offers estimates of increased costs and potential delay if transfer is ordered. It is not necessary to determine whether they are entirely accurate. There would, I think, be a not inconsiderable increase in costs and potential for delay. The defendant, perhaps -- 3 of 8 -- 4 understandably, is apparently not prepared to indemnify the plaintiff for the increased cost to the winding up if transfer were ordered. [12] The defendant’s position is that if a transfer is not ordered and the district court makes the orders sought in the proceeding by the plaintiff, the defendant will not be able to seek the statutory indemnity against the director of the company legislated for in section 588FGA(2) of the Act because the district court is not a capital C court as defined in section 58AA of the Act. [13] In support of its contention that the interests of justice favoured its application, the defendant referred to what it submitted was the lack of any apparent reason for confining the availability of the statutory indemnity to proceedings in a superior court or the federal court. See the remarks of Dodds-Streeton J in Scott v Commissioner of Taxation & Anor [2003] VSC 50 at paragraphs 78 and 80 where Her Honour suggested it may have resulted from a typographical error. The defendant also pointed to the Explanatory Memorandum (EM) to the Bill which introduced the current section 588FGA Insolvency (Tax Priorities) Legislation Amendment Bill 1993 (Cth). The EM referred to the new section providing for the commissioner to be indemnified by the directors of an insolvent company against loss or damage resulting from a court ordering the Commissioner to disgorge money paid in satisfaction of a company’s tax liability but made no reference to a monetary limit affecting the Commissioner’s access to the statutory indemnity, to such an indemnity being confined to proceedings in a superior court or the federal court. Regarding the EM, the defendant referred to the judgment of Ipp J, with whom Beazley and McFarlane JJ agreed, in Commissioner of Taxation (NSW) v Simms [2008] NSWCA 298 where His Honour referred to the EM describing the Commissioner being made equivalent to a guaranteed creditor to the extent the Commissioner was given an indemnity under section 588FGA(2) of the Act. It was submitted also that not to order transfer would result in the director not being able to be joined in the proceeding in the district court thus affecting the director’s ability to be heard. That, it was submitted, may result in an insolvent transaction presumption being raised against the director pursuant to section 588E of the Act without the director being afforded an opportunity to be heard. [14] Reference was made to Crosbie v Commissioner of Taxation [2003] FCA 922 In that case the plaintiff was the liquidator of a company in liquidation. Recovery of money was sought from the Commissioner of Taxation on the basis that the payment of the money was an unfair preference. The Commissioner indicated he would not contest the claim but sought from the former directors an indemnity should the liquidator succeed and brought a cross claim against the former directors. The former directors (third party) sought leave to defend the liquidator’s proceeding to challenge the assertion the company was insolvent when the payment were made. Finkelstein J said at paragraph 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 plaintiff’s and the defendant’s especially where as in this case the defendant will not take steps to protect its possible liability to the plaintiffs.” -- 4 of 8 -- 5 [15] Reference was also made to Harris v Commissioner of Taxation [2006] QSC 108. In that case liquidators for a company brought a claim seeking an order pursuant to section 588FF that the Commissioner repay money alleged to constitute unfair preference. Third party notices were filed against the former directors of the company but they were not served with the notices until after a Deputy Registrar had made an order in the liquidators claim based upon a consent to judgment signed by the solicitors for the liquidator and the Commissioner. An application was then brought in the liquidator’s proceeding by the Commissioner seeking orders that the directors were liable to indemnify the Commissioner in respect of loss and damage suffered by the Commissioner resulting from the consent judgment. Judgment in that sum was sought from the directors. The directors filed affidavits asserting a belief based upon information from the company accountant at relevant times that the company was solvent when the payments were made to the Commissioner. If these assertions were able to be made out, the directors would have a defence under section 588FGB(3) or (4) of the Act. Mackenzie J considered the directors should have an opportunity to be heard on the liquidator’s claim providing an opportunity to avail themselves of the defences in section 588FGB(3) or (4) of the Act. He set aside the order of the deputy registrar and made further orders to facilitate this opportunity. [16] The legislation under discussion enables a liquidator’s claim like the present to be brought in any court subject only to the monetary limit of an inferior court. The legislation in its present form has been in force for a number of years. There has been ample time to correct any inadvertent legislative slip resulting in an unintended restriction in the Commissioner’s ability to utilise the statutory indemnity provided for in section 588FGA(2). Counsel for the defendant said from the bar table that it had not presented as a problem in the past because liquidators at the Commissioner’s request would either commence the proceeding in the supreme court or if commenced in the district court, agree to transfer to the supreme court. [17] When a proceeding is in a capital C court, a court where the Commissioner can seek the statutory indemnity from directors pursuant to section 588FGA, directors can avail themselves of the defences in section 588FGB. The decisions referred to above and other decisions referred to therein were decisions in capital C courts. I do not think it necessarily follows that where, in accordance with the legislation, a proceeding may be and is commenced in a court other than the supreme court or the federal court, the interests of justice make it appropriate to transfer the proceeding to a capital C court so that may occur. The Summary Judgment Application [18] The pleadings supplemented by the affidavits read on the application established that the plaintiff was entitled to sue, that the defendant was a creditor of the company and that during the period 18 February 2008 to 30 June 2008, the payments set out in the statement of claim totalling $143,173.00 were paid to the defendant. -- 5 of 8 -- 6 [19] It was not admitted in the defence that the payments were made by the company nor that the payments resulted in the defendant receiving more than it would have received if the payments were set aside and it was required to prove in the winding up. [20] The defendant denied that the payments amounted to an unfair preference within the meaning of that term in section 588FA of the Act, that they amounted to an insolvent transaction within the meaning of section 588FC of the Act and that they amounted to a voidable transaction within the meaning of section 588FE of the Act. Apart from those denials it did not plead any defence based upon section 588FG(2) and (5). [21] In his affidavit filed in the application, the liquidator deposed to his investigations. He deposed to his detailed examination of the company’s books and records. He further deposed that the company made the payments the subject of the claim, that to the best of his knowledge and belief, at the time the payments were made, the company was insolvent and that the payments resulted in the defendant receiving more from the company in respect of the debt than it would have received if it was required to prove its debt in the winding up of the company. He deposed to his belief that the defendant had no defence to the claim and that there was no need for a trial of the claim. No evidence was provided by the defendant in this application to contradict these matters except in one respect; it was asserted that financial documentation had not been provided supporting that three payments made in June 2008 totalling $21,974 (part of the total of $143,173) had been made by the company. [22] The only evidentiary material filed by the Commissioner consisted of two affidavits, one by Charles Tannous (Tannous), employed in the debt collection section of the Australian Taxation Office (ATO) and another by Duy Phong Dam (Dam), a senior litigator employed by the Commissioner. Tannous’ affidavit confirmed receipt of the amounts totalling $143,173.00 each of which constituted payments in discharge or partial discharge of debts owing by the company to the Commonwealth of Australia in respect of withholding amounts under subdivision 16-B in schedule 1 to the Taxation Administration Act 1953 (Cth) and their allocation; $90,253.69 to the company’s PAYG withholding tax liabilities and $52,919.31 to other taxes. Dam’s affidavit deposed to writing to the liquidator’s solicitors querying a lack of bank statements and journal entries to show that the company made the 3 June 2008 payments, totalling $21,974.00 to the Commissioner. [23] The evidence before the court is that the company was insolvent when the payments were made. As the matter stands the plaintiff is entitled to succeed in his claim. Denials in the defence are sourced in the defendant’s non admission of facts pleaded by the plaintiff, facts which are established by the evidence led in the application by the applicant. [24] Counsel for the defendant during submissions about the summary judgment application said that the Commissioner sought an adjournment of the application for summary judgment to provide an opportunity to speak to the -- 6 of 8 -- 7 director of the company about the company’s insolvency during the period when the payments making up the claim were made. [25] I would not grant such an adjournment. The claim and statement of claim was filed on 4 December 2009 and the first conditional notice of defence filed on 5 January 2010. The plaintiff’s application was filed on 7 April 2010 and the defendant’s application for transfer to the Supreme Court was filed on 9 April 2010. Tannous’ affidavit was sworn on 7 April 2010. It seems to me the defendant has had ample time to avail itself of an opportunity to seek information from the director of the company if it were necessary to do so. [26] It seems to me that the pleadings and the evidence before the court on the plaintiff’s application for summary judgment establish that the defendant has no real (my underlining) prospect of successfully defending the plaintiff’s claim. [27] The remaining matter is whether the plaintiff has shown there is no need for a trial of the claim. [28] In considering whether it is more appropriate in the interests of justice for this court to transfer the matter to the supreme court it is necessary to balance the competing factors. All relevant matters need to be taken into account. [29] On the one hand there is the defendant’s and the Commonwealth’s interest in collecting taxation revenue provided for by the taxation laws of the Commonwealth, the defendant’s interest in accessing the statutory indemnity against the director if required to disgorge to the liquidator payment in discharge of taxation indebtedness it has received, the director’s interest in having an opportunity to be heard if the statutory indemnity is able to be sought by the defendant. It was submitted by counsel for the defendant that if transfer was ordered and the defendant were to succeed in obtaining an order against the director under the statutory indemnity, to that extent the pool available for other creditors would be enlarged. That may be so but is not a certainty. On the other hand the defendant has lodged a proof of debt in the winding up, there are the interests of the liquidator and other creditors who prove in the winding up to preserve and realise assets for the benefit of creditors; to that end completing the winding up and minimising the costs of the winding up as quickly and efficiently as responsibly possible. [30] As observed above, the legislation in its present form has been in force for a number of years. The legislature has seen fit to restrict the statutory indemnity to courts with unlimited monetary jurisdiction. In courts with a limited monetary jurisdiction it has not provided for it. It may be noticed in passing that it has similarly restricted the power to vary an agreement about a voidable transaction and make orders about when it has effect. 1 [31] The defendant made a submission based, as I understand it, on the affidavit of Dam, that the three payments in June 2008 totalling $21,974.00 were not supported by bank statements and/or journal entries supplied by the plaintiff to 1 Section 588FF(1)(i). -- 7 of 8 -- 8 the defendant. However the liquidator has sworn that according to his detailed examination of the books and records of the company, they were so made. [32] In the end I find myself unpersuaded that having regard to the interests of justice it is more appropriate the applicant’s claim be determined in the supreme court. As observed above I am satisfied the respondent has no real prospect of successfully defending the applicant’s claim. In all the circumstances there is no need for a trial of the claim or part of the claim. [33] The defendant’s application is dismissed. I give judgment for the plaintiff against the defendant for $143,173. -- 8 of 8 --