Bluehaven Transport Pty Ltd v Deputy Commissioner of Taxation [2000] QSC 268

SUPREME COURT OF QUEENSLAND CITATION: Bluehaven Transport Pty Ltd v Deputy Commissioner of Taxation [2000] QSC 268 PARTIES: BLUEHAVEN TRANSPORT PTY LTD (applicant) v DEPUTY COMMISSIONER OF TAXATION (respondent) FILE NO/S: No 5070 of 2000 DIVISION: Trial Division PROCEEDING: Application pursuant to s 458G of the Corporations Law ORIGINATING COURT: Supreme Court at Brisbane DELIVERED ON: 11 July 2000 DELIVERED AT: Brisbane HEARING DATE: 3 July 2000 JUDGE: Williams J ORDER: Application dismissed with costs. CATCHWORDS: CORPORATIONS – WINDING UP – WINDING UP BY COURT – GROUNDS FOR WINDING UP – INSOLVENCY – APPLICATION TO SET ASIDE DEMAND – FOR DEFECT OR “SOME OTHER REASON” – application pursuant to s 458G of the Corporations Law to set aside a statutory demand – whether statutory demand validly issued – whether Corporations Law unconstitutional and void on basis of s 51(xx) of Constitution – whether use of statutory demand as a “debt collection device” constitutes an abuse of process – whether s 459E(5) of Corporations Law is inconsistent with provisions of Income Tax Assessment Act such that by operation of s 109 of Constitution it is void to the extent of the inconsistency – whether s 209 of the Income Tax Assessment Act empowers the Commissioner to issue a statutory demand in order to recover unpaid tax – meaning of “recover” in s 209 – whether Commissioner must sue the taxpayer to judgment before he can “recover” unpaid tax – power to “recover” unpaid tax entitles the Commissioner to obtain satisfaction of the debt through any available legal proceedings. -- 1 of 13 -- 2 Constitution of the Commonwealth of Australia, s 51(xx) Corporations Law (Qld), s 458G, s 459E (5) (6) Income Tax Assessment Act 1936 (Cth), s 208, s 209 Judiciary Act 1903 (Qld), s 78B Land and Income Tax Assessment Act 1895 (NSW), s 51 Landlord and Tenant Act 1851 (U K) Workmen’s Compensation Act 1906 (UK) D Thomas & Company Pty Ltd v Deputy Commissioner of Taxation (No 9895 of 1999, judgment 6 December 1999). Deputy Commissioner of Taxation (Vic) v Boxshall (1988) 19 ATR 1822 Re: Finlayson; Ex parte Finlayson (1997) 72 ALJR 73 at 74 Haines v Welch (1868) L R 4 CP 91 at 93 Hoare Bros Pty Ltd v DFC of T (1995) 95 ATC 4156 Howard v Baillie (1796) 2 H Bl 618 at 620; 126 E R 737 at 738 James v Deputy Commissioner of Taxation (1957) 97 CLR 23 at 35 Kalis Nominees Pty v DFC of T (1995) 95 ATC 4519 New South Wales v Commonwealth of Australia (1990) 169 CLR 482 Page v Burtwell (1908) 2 K B 758 Re St Thomas’ Dock Company (1876) 2 Ch D 116 Re The Gilbert Machinery Company (No 1) (1906) 26 NZLR 47 Re W CarterSmith: Ex parte The Commissioners of Taxation (1908) 8 S R (NSW) 246 Spencer v Deputy Commissioner of Taxation (1990) 21 ATR 546 COUNSEL: A Julian–Armitage for the applicant C Coulsen for the respondent SOLICITORS: Georgeson & Co as town agents for Rea & Sockhill for the applicant Australian Tax Office for the respondent -- 2 of 13 -- 3 [1] Williams J: This is an application pursuant to the provisions of s 458G of the Corporations Law by Bluehaven Transport Pty Ltd (“the company”) to have a statutory demand issued by the Deputy Commissioner of Taxation set aside. [2] The affidavit in support of the application relies on a number of grounds, but there is no challenge to the assertion that $371,346.70 is due and owing to the Commissioner on behalf of the Commonwealth pursuant to the provisions of the Income Tax Assessment Act 1936 (“the ITAA”); nor is there any indication whether or not the company could pay that sum if properly owing. [3] The first ground taken by the company is that the statutory demand was not validly issued as there had been no appropriate delegation to J M Prieditis (wrongly described in the affidavit as Anne Louie) to issue the demand on behalf of Stephen Chapman, a Deputy Commissioner of Taxation, and further that there had not been an appropriate delegation by the Commissioner of Taxation to any Deputy Commissioner of Taxation. The contention seek to reagitate a number of issues which were dealt with in my judgment in D Thomas & Company Pty Ltd v Deputy Commissioner of Taxation (No 9895 of 1999, judgment 6 December 1999). Counsel for the company, whilst not abandoning the points, did not elaborate on what was in the affidavit. For substantially the same reasons as I articulated in D Thomas & Company Pty Ltd I reject the submission that the statutory demand was not validly issued because of those considerations. [4] The affidavit also raises the alleged defective appointment of Lord Gowrie as Governor-General at the time he gave Royal Assent to the ITAA as a ground for -- 3 of 13 -- 4 setting aside the statutory demand. Again that submission is utterly rejected for the reasons I formulated in D Thomas & Company Pty Ltd. [5] The next unsustainable ground alleged is that the Corporations Law is unconstitutional and void because the Commonwealth has exclusive power to make such laws under s 51(xx) of the Constitution. That submission is contrary to the decision of the High Court in New South Wales v Commonwealth of Australia (1990) 169 CLR 482 and must be rejected out of hand. [6] The substantive ground argued on the hearing of the application was based on the contention in the affidavit in support of the application that “by using the statutory procedure of a creditor’s statutory demand as a “debt collection device” the respondent is guilty of an abuse of process”. That argument was expanded by the “Notice of Constitutional Matter under s 78B of the Judiciary Act 1903” exhibited to the affidavit of the applicant’s solicitor. The relevant part of that Notice is in the following terms: “The Defendant will raise the following grounds in support of an Application to Set Aside a Creditor’s Statutory Demand served on the Applicant by the Respondent: (a) Section 209 of the Income Tax Assessment Act 1936 applies only to permit any tax unpaid “to be sued for and recovered” in any court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name. (b) 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. (c) It is contended that the Commissioner and Deputy Commissioner, whether as agents for the Commonwealth of -- 4 of 13 -- 5 Australia or not, do not have the authority under the Act to utilise the procedures set out in the Corporations Law. (d) Previous decisions which have averted to this matter (DCT v Boxshall (1988) 19 ATR 1822; Spencer v DCT (1990) 21 ATR 546) have dealt with the authority of the Commissioner or Deputy Commissioner to issue bankruptcy notices and petitioner for sequestration orders. Those matter have proceeded on the premise that the Commissioner or Deputy Commissioner have the authority to issue Bankruptcy proceedings as in order to do so a judgment in a court of competent jurisdiction must first be obtained, thus satisfying the provisions of section 209. (e) In the present case, as judgment has not been obtain (sic), it is submitted that the neither the Commissioner or the Deputy Commissioner have the requisite authority to utilise the provisions of the Corporations Law as a means of recovery. (f) It is further submitted that only if the Commissioner or Deputy Commissioner first obtained a judgment against the taxpayer, in those circumstance, and only those circumstances, can they avail themselves of the provisions of the Corporations Law. (g) The Respondent will seek to rely on the provisions of section 459E(5)(e) of the Corporations Law, which provision expressly provides that a demand may be issued under section 222AHA of the Income Tax Assessment Act 1936 (Cth) which relates to recovery of a liability which has arisen as a result of an estimate of taxation liability by the Commissioner or Deputy Commissioner. (h) The Corporations Law is a state law enacted pursuant to the Corporations (Queensland) Act 1990. The Corporations Act (Cth) and the Corporations (Qld) Act (Qld) provide for the national administration and enforcement of the national scheme laws. (i) The state law is inconsistent with the Commonwealth law, insofar as it is contained in section 209 of the Income Tax Assessment Act 1936 (Cth), in that the state law purports to give a power to the Commissioner or Deputy Commissioner, which is not authorised by the Commonwealth legislation. (j) In summary, the state law cannot give power to the Commissioner or Deputy Commissioner to circumvent the requirements of the provisions of the Income Tax Assessment Act 1936 (Cth), by permitting the Commissioner or Deputy Commissioner to issue a Creditor’s Statutory Demand for Payment of Debt at first instance, without initially “suing for and recovering the debt”. (k) To the extent of the inconsistency, the Commonwealth legislation must prevail pursuant to the provisions of section 109 of the Constitution.” -- 5 of 13 -- 6 [7] I was asked to adjourn the application to enable the various Attorneys to respond to that Notice. However, it is clear that the giving of such a Notice does not disqualify this court from proceeding with the matter. As Toohey J said in Re: Finlayson; Ex parte Finlayson (1997) 72 ALJR 73 at 74 a cause does not “involve” a matter arising under the Constitution merely because someone asserts that it does. I accept that it “must be established that the challenge does involve a matter arising under the Constitution” before any question as to removal might arise. After hearing argument I am satisfied that there is no constitutional issue involved in this case such as would warrant my declining to hear the matter on the merits. [8] Central to the argument of the applicant is the proposition that s 459E(5) of the Corporations Law is inconsistent with s 209 (and perhaps other provisions) of the ITAA and by operation of s 109 of the Constitution is void to the extent of the inconsistency. In my view the submission is misconceived. [9] Section 459E(5) is not concerned with the power of the Commissioner to “sue for and recover” unpaid tax, but is concerned with what constitutes a debt for purposes of the statutory demand procedure pursuant to the provisions of the Corporations Law. Section 208 of the ITAA provides that when income tax becomes due and payable it “shall be a debt due to the Commonwealth and payable to the Commissioner”. Then s 209 says that: “Any tax unpaid may be sued for and recovered in any Court of competent jurisdiction by the Commissioner or a Deputy Commissioner suing in his official name.” In Hoare Bros Pty Ltd v DFC of T (1995) 95 ATC 4156 Olney J expressed some doubt, given those statutory provisions, as to whether the Commissioner could issue a statutory demand in his own name where he had not sued for and obtained a judgment. The concern of -- 6 of 13 -- 7 Olney J was that before judgment the debt remained a debt due to the Commonwealth pursuant to s 208, and in consequence there was before judgment no debt due to the Commissioner which would entitle him to issue a statutory demand. Later, in Kalis Nominees Pty v DFC of T (1995) 95 ATC 4519, after consideration of what the High Court said in James v Deputy Commissioner of Taxation (1957) 97 CLR 23, he concluded that there was no substance in that. It would appear that s 459E was amended to remove any doubt arising from concerns such as those adverted to by Olney J. Subsections (5) and (6) were inserted in 1993, and the latter expressly states that subsection (5) “is to avoid doubt and is not intended to limit the generality of a reference in this Law to a debt”. Subsection (5) is in the following terms: “A demand under this section may relate to a liability under any of the following provisions of the Income Tax Assessment Act 1936: (a) Section 221F (except subsection 221F(12), s 221G (except subsection 221G(4A) or s 221P); (b) Subsection 224YHDC(2); (c) Subsection 221YHZD(1) or (1A); (d) Subsection 221YN(1); (e) Section 222AHA; even if the liability arose before the commencement of this section.” [10] In my view by inserting that subsection the Queensland Parliament legislated to clarify the definition of “debt” for purposes of the Corporations Law. That was clearly within power and does not conflict with anything in the ITAA. If the Commissioner does not have the power pursuant to the ITAA to issue a statutory demand pursuant to the provisions of the Corporations Law, s 459E(5) does not confer that power. It may well be that s 459E(5) is based on an assumption that the Commissioner has the power to issue a statutory demand, but that is beside the -- 7 of 13 -- 8 point; if that assumption made by the Queensland Parliament is incorrect, then the subsection would be devoid of operation. [11] Thus it follows that there is no inconsistency between s 209 of the ITAA and s 459E of the Corporations Law. In consequence there is no matter arising under the Constitution calling for the intervention of the Attorneys-General. I refuse the application for an adjournment and will deal with the other submissions on the merits. [12] The real question then becomes does s 209 of the ITAA, by providing that the Commissioner may sue for and recover unpaid tax, empower him to issue a statutory demand and proceed to have the taxpayer company wound up in order to recover the unpaid tax? [13] The Landlord and Tenant Act 1851 (U K) provided that in certain circumstances the landlord should “be entitled to recover and receive of the tenant … a fair proportion of the rent for the period …”. Speaking of that provision Willes J said in Haines v Welch (1868) L R 4 C P 91 at 93: “With respect to the second point, that the words “recover and receive of the tenant” do not include the right to distrain, it is true that in strict legal language recover means recover by action. The Court might at one time have so construed it in a case like the present; but it is now often used in the larger sense of obtaining in any legal manner, and that is the sense in which it should be interpreted here …”. [14] The meaning of the term “recover” when used in a statute will undoubtedly depend upon context, but it has generally been given a wide interpretation as evidenced by the language used by Willes J. To similar effect are the observations of the -- 8 of 13 -- 9 members of the Court of Appeal in Page v Burtwell (1908) 2 K B 758. That case was concerned with the expression used in the Workmen’s Compensation Act 1906 (UK) that the injured workmen “shall not be entitled to recover both damages and compensation”. Cozens-Hardy M R said at 762: “I decline to limit the word “recover” to recover by virtue of legal proceedings.” Kennedy L J at 764 observed that “it appears to me a narrow and unjustifiable view to hold that “recover” means recover in the course of and as a result of some litigious proceedings”. Farwell L J agreed with that reasoning. [15] Such statements are but perhaps an application of the proposition, to use the phraseology of the Lord Chief Justice in Howard v Baillie (1796) 2 H Bl 618 at 620; 126 E R 737 at 738: powers “are to be so construed as to include all the necessary means of executing them with effect”. He then went on to say, relevantly for present purposes, that “an authority to receive and recover debts includes a power to arrest”. A creditor’s powers with respect to debt collecting have changed somewhat over the last 200 years and winding up a company because of its inability to pay its debts is as common now as the resort to a debtor’s prison was then. [16] Against that review of background authorities I turn to the two cases of most relevance for present purposes. In Re W CarterSmith: Ex parte The Commissioners of Taxation (1908) 8 S R (NSW) 246 Street J was concerned with a bankruptcy petition presented by the Commissioners of Taxation constituted pursuant to the Land and Income Tax Assessment Act 1895 (NSW). Section 51 of that Act provided that any tax “may be sued for and recovered by action in any Court of competent jurisdiction by the Commissioners”. A number of submissions therein rejected by that learned judge bear similarity to the submissions addressed to this -- 9 of 13 -- 10 court on behalf of the applicant. Relevantly for present purposes Street J said at 249-250: “Unless then it is clear that the Act has limited the powers of the Commissioners in this respect, I see no reason why in a proper case they should not present a bankruptcy petition. Mr Armstrong contended that their powers are so limited, and that on its true construction s 51 shows that their remedies for the recovery of the tax are restricted to the right of bringing that form of proceeding which is popularly known as an action at law. I am unable to agree with this view of the meaning of the section. … Whatever the popular significance of the word “action” may be it is clear … that in its proper legal sense it is a generic term or nomen generale, and includes every sort of legal proceeding. When used by the legislature it must, in my opinion, be construed according to its true legal meaning unless it is apparent on the face of the Act, in which it is used, that it is intended to bear a more restricted meaning. As used in s 51, it was, in my opinion, intended by the legislature to bear and must be construed as bearing, its proper legal meaning, and as referring to all legal proceedings which may be available for the recovery of unpaid taxes. It stands alone in the section, no other words descriptive of legal proceedings being associated with it, and looking at the Act as a whole, it is clear to me that the intention of the legislature was not to limit the available remedies for the recovery of the tax, but to clothe the Commissioners with powers to resort to any tribunal competent to assist them in recovering amounts which might be owing.” [17] The weight to be attached to those statements is enhanced by the fact that the High Court in James v Deputy Commissioner of Taxation at 35 said: “We agree, however, in the general view of provisions like sections 208 and 209 which Street J took in Re W CarterSmith: Ex parte Commissioner of Taxation at 248-250. We think that the Commissioner or Deputy Commissioner is empowered to take the proceedings in bankruptcy for the recovery of the tax as a Crown Debt.” It seems to me that the High Court there was generally endorsing the liberal construction which Street J placed on a statutory provisions empowering a tax commissioner to recover tax. -- 10 of 13 -- 11 [18] Even more directly in point is the reasoning of Stout CJ in Re The Gilbert Machinery Company (No 1) (1906) 26 NZLR 47. The point argued in that case was that the power of attorney granted by the petitioning company did not authorise the attorney to sign the winding up petition. The power was in terms that the attorney was “for us and in our name to demand, sue for, and recover all and every sum of money that are or is due and owing to us …”. It was submitted that a winding up petition was not “a demand or a suit”. That led his Honour to consider whether the term “recover” was limited to suing. He went on at 50: “The word “recover” has been held to mean something more than suing. … Now, the proceeding by petition is a mode of recovering a debt, for it is often successful without the proceeding to wind up being continued, and the petition may be withdrawn.” [19] It is clear from his reasoning on that page that he regarded a petition to wind up a company as a mode of obtaining in a legal manner the payment of a debt. [20] In my view the term “recover” in s 209 should be given the wide meaning ascribed to it in the authorities to which I have referred. It is not limited, as contended for by counsel for the applicant, to some recovery process consequent upon a judgment having been obtained. In other words, the Commissioner does not have to sue the taxpayer to judgment before he can “recover” the unpaid tax. The power to “recover” unpaid tax entitles the Commissioner to obtain satisfaction of the debt through any available legal proceedings. Payment consequent upon winding up proceedings is obtaining satisfaction in a permissible legal manner. [21] I am comforted in the conclusion I have reached by the fact that most Supreme Court Judges (at least of this Court if not in Australia) since 1936 have wound up a -- 11 of 13 -- 12 company upon a petition or application presented by the Commissioner without for one moment doubting the Commissioner’s power to bring the proceeding. That does not mean that the applicant’s submission must be wrong, but it does mean that a judge at first instance should be clearly satisfied that the contention is correct before holding that so many judges have unwittingly been in error for such a long period of time. [22] Reference was made in the course of argument to Deputy Commissioner of Taxation (Vic) v Boxshall (1988) 19 ATR 1822 and Spencer v Deputy Commissioner of Taxation (1990) 21 ATR 546. Counsel for the applicant sought to distinguish each of those cases on the basis that a bankruptcy petition was involved, and in each case there was an antecedent judgment obtained by the Commissioner. It must be accepted that neither decision directly addresses the particular point raised in this case, but nevertheless the reasoning in each generally supports the proposition that the Commissioner’s powers extend to recovering unpaid tax through either the bankruptcy or winding up procedures. [23] The applicant contended that the use of a statutory demand as a debt collection device was an abuse of process. That is too sweeping a generalisation. Clearly one of the objects of the winding up procedure is the realisation of the company’s assets and the distribution of them in discharge of its liabilities. It has long been recognised that the winding up procedure may properly be used with the aim of at least getting paid in part. What is equally clear is that the winding up procedure must not be used for any indirect or improper motive. Those basic principles have been clear at least since 1876 when Jessell M R delivered judgment in Re St Thomas’ Dock Company (1876) 2 Ch D 116. The use of winding up proceedings -- 12 of 13 -- 13 where the debt is clearly the subject of a bona fide dispute would be an abuse of process of the type in question. But where the debt is large, and there is some reason to believe that the company is not in a position to satisfy it, there is no element of abuse of process in seeking a winding up order though the only real interest of the creditor is in being paid. [24] As the Commissioner and his delegates have power to issue a statutory demand, s. 459E(5) operates to make the amount of unpaid tax in this case a liability on which the demand may be based. [25] Here there is no substance in any of the grounds relied on by the company in support of the application to set aside the statutory demand. It follows that the application should be dismissed with costs. -- 13 of 13 --