Deputy Commissioner of Taxation v ACN 053 318 308 Pty Ltd & Anor M71/1996 [1997] HCATrans 66 (14 February 1997)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Melbourne No M70 of 1996

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

COMCORP AUSTRALIA ACN 053 361 621

First Respondent

DEAN ROYSTON McVEIGH (as Administrator of the Deed of Company Arrangement of ACN 053 361 621)

Second Respondent

Office of the Registry

Melbourne No M71 of 1996

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

ACN 053 318 308 PTY LTD

First Respondent

DEAN ROYSTON McVEIGH (as Administrator of the Deed of Company Arrangement of ACN 053 318 308)

Second Respondent

Office of the Registry

Melbourne No M72 of 1996

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

ACN 053 006 170

First Respondent

DEAN ROYSTON McVEIGH (as Administrator of the Deed of Company Arrangement of ACN 053 006 170)

Second Respondent

Office of the Registry

Melbourne No M73 of 1996

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

ACN 053 006 312 PTY LTD

First Respondent

DEAN ROYSTON McVEIGH (as Administrator of the Deed of Company Arrangement of ACN 053 006 312)

Second Respondent

Office of the Registry

Melbourne No M74 of 1996

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

ACN 053 006 269 PTY LTD

First Respondent

DEAN ROYSTON McVEIGH (as Administrator of the Deed of Company Arrangement of ACN 053 006 269)

Second Respondent

Office of the Registry

Melbourne No M75 of 1996

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

ACN 053 013 255

First Respondent

DEAN ROYSTON McVEIGH (as Administrator of the Deed of Company Arrangement of ACN 053 013 255)

Second Respondent

Office of the Registry

Melbourne No M76 of 1996

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

ACN 057 596 479 PTY LTD

First Respondent

DEAN ROYSTON McVEIGH (as Administrator of the Deed of Company Arrangement of ACN 057 596 479)

Second Respondent

Applications for special leave to appeal

DAWSON J

GUMMOW J

KIRBY J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 14 FEBRUARY 1997, AT 9.29 AM

Copyright in the High Court of Australia

____________________________________

MR D.R. MEAGHER, QC: If the Court pleases, I appear with my learned friend, MS J. DAVIES, for the applicant in each of the first seven matters. (instructed by the Australian Government Solicitor)

MR J.D. MERRALLS, QC: If the Court pleases, I appear with my learned friend, MR P.J. BOOTH, for the respondent companies in the seven matters. (instructed by Deacon Graham & James (formerly Sly & Weigall)

MR G.T. BIGMORE, QC: If the Court pleases, I appear with my learned friend, MR M.E. LHUEDE, for the second respondent in each of the seven matters. (instructed by J.M. Smith & Emmerton)

DAWSON J: They can all be heard together, I take it?

MR MEAGHER: Yes, they can, your Honour. The applicants' written submissions express fully and, from the applicants' point of view, satisfactorily the reasons why special leave should be granted in this matter. I wish to use this time to deal with some matters that have been raised in answer to those submissions.

Dealing with my learned friend Mr Merrall's submissions, at paragraph 7 he refers to "The meaning of `substantial compliance' with section 445G(3) as being clear and puts it in the last sentence:

That exercise does not raise a special leave point unless the departure is of such a kind or character that what was done cannot constitute substantial compliance.

It is our submission that what was done here cannot constitute "substantial compliance".

KIRBY J: But even if we took the view that Justice Sheppard's view was the preferable one, at the end of his judgment he says, "Every case will depend on its own facts and circumstances", so that it does not seem to attract any fundamental principle. It is simply a matter of applying the statute to the facts and circumstances.

MR MEAGHER: It may well be in many cases but in this particular case the lack of compliance is at an extreme level. If it reaches that point then it becomes a question of law as to whether, in those circumstances, one can say there is substantial compliance.

KIRBY J: It may be a question of law but it is not one that is easily elucidated to a point that it helps the next case. "Every case will depend on its own facts and circumstances". That is the end of Justice Sheppard's opinion.

MR MEAGHER: Yes, but in this particular instance the two matters of which complaint is made, namely, that there were not the three opinions that the statute demands and that all the details of the deed were not supplied and those omitted were of a significant nature, are such that, in our submission, the matter could not be one on which the conclusion of substantial compliance could arise.

Now, in my learned friend, Mr Merrall's submission there appears to be an underlying contention which perhaps we have assumed and ought not and that is that the conditions that you find in section 445G(3), namely, one of substantial compliance, is a condition that is a precursor to the exercise of any judicial discretion. That is what we would say it was and unless there is substantial compliance, then there is no judicial discretion to be exercised.

Now, if the instruction of the Parliament has expressed that there be three opinions delivered, with reasons, can be flouted by the mere delivery of a recommendation and if the instruction of Parliament that there be details provided can be ignored if some details are provided but not all, then the instructions of Parliament as expressed in this statute are set at nought. That is why, in our submission, this raises a fundamental matter that this Court should consider.

DAWSON J: Accepting your argument, they are set at nought in this case but the next case will be different.

MR MEAGHER: Well, the next case would be different.

DAWSON J: I mean, what is the point of principle, Mr Meagher?

MR MEAGHER: The point of principle is whether it is permissible for the Court to find there is substantial compliance when the statute is simply not complied with.

DAWSON J: If it went wrong in this instance, it did, but that does not raise a point of principle. The argument will be there on another set of facts that the statute is not complied with in another case.

MR MEAGHER: Your Honour, if this decision is allowed to stand then it would mean that in any case a recommendation by an administrator would be seen as substantial compliance - - -

DAWSON J: No, a recommendation in particular circumstances in this case, the circumstances of this case.

KIRBY J: It is a decision which is divided with a very powerful dissenting opinion by Justice Sheppard which, presently, I am minded to think has a lot of force in it, but this is a law that would ordinarily be left for the Full Court of the Federal Court to interpret and this Court simply cannot deal with every issue that comes up under the law. It is just not possible.

MR MEAGHER: I accept that without reservation, your Honour, but the issues that are raised here go directly to whether a recommendation can possibly satisfy the requirement that there be three opinions and that is a view that can prevail only if one interprets the purpose lying behind that provision in the law as being to do no more than to have the administrator recommend a particular course. That, we say, is fundamentally wrong. It is not what it is there for. It is there for the administrator to provide three opinions, an opinion on each of the courses, so that the creditors can make up their minds as to what should be done.

Now, that is a fundamental difference between the majority and minority in this case. Likewise, with the provision of the details of the deed. What the majority have said is if they are omitted the only issue that raises itself for consideration is whether or not the items omitted would have influenced the vote. That is not the purpose for which details have to be provided. The details have to be provided so that the creditors can make a decision as to what the terms of the deed should be.

KIRBY J: That is obvious.

MR MEAGHER: You would not think so from reading the majority case because what they put in their judgment was the only issue to be raised is whether or not it would have influenced the vote. Since, in their view, it did not - would not have influenced the vote, it could therefore be seen as substantial compliance.

KIRBY J: In the facts and circumstances of this case.

MR MEAGHER: No, that is going to apply in any case. In any case, hereafter, lower courts will follow that and say, "If details are omitted, the only question we have to consider is whether it would have influenced the vote for the deed" and that would be, in our submission, quite wrong and would involve a departure from what this Act is all about. Now, those are, in our submission, both fundamental matters.

KIRBY J: But what is a "detail"? The word "detail" is itself a word of variable content and every member of the court acceded to the fact that it would not require every fact to be presented. The word "detail" obviously implies some sort of summary or summation.

MR MEAGHER: Yes.

KIRBY J: So, that is just going to differ from case to case.

MR MEAGHER: No, no. You must, in that circumstance, look at what its purpose is. Its purpose is to allow the creditors to determine what the terms of the deed should be. So, obviously, sufficient detail should be supplied for them to be able to discharge that power.

KIRBY J: But in every case that is going to be different.

MR MEAGHER: In this case they found material terms were omitted, were not given, and that did not matter, not because it affected the creditors in determining what the terms of the deed would be but because it would have influenced their vote and that was wrong, in our submission. What they should have said - and if they had asked the right question, what they would have said - is that since there were significant terms omitted, the creditors were deprived of the opportunity of exercising their power to determine the terms of the deed. That will be consistent in every case of administration, if that test is wrong. That raises, in itself, a very significant matter for this Court to look at if it is wrong.

If we go back to the opinions: if the purpose of the opinions is to empower the creditors to make a decision of choice between them, if that is its purpose, then it cannot be said, as the majority said, that a mere recommendation would be sufficient. If that decision is allowed to stand then in the future we will find in cases of administration that a recommendation by an administrator will be put forward and they will not trouble to go into opinions, the three opinions, they will simply put forward a recommendation and say, "You can draw from that recommendation the inferences that the administrator does not think much of the other two courses", not recommend it and that, on the basis of this Full Court decision, is sufficient, and that will be so no matter what the facts of the cases are. That inference will be drawn and it will be said that passes.

Now, in our submission, those are two fairly fundamental matters which go to the very heart of the operation of this scheme. If the decision is allowed to stand, the creditors will have lost very substantially the powers that this legislation is designed to give them to make for themselves a decision as to not only what should happen but if it is to be done by way of a deed, to decide what the terms of that deed should be. They are fundamental matters, in our submission, that ought to be corrected immediately.

If one goes beyond that and one says, "Could they have exercised the discretion in any event?", one then finds the court in this instance saying, "You can rely on section 1322" and Mr Justice Heerey in Pddam saying, "You don't even have to worry about the limitations in subsection (3) at all." In both of those instances we submit that the matter is quite contrary to what this Court decided in David Grant and it ought not to be allowed to stand either. That then goes to the question of what powers the courts do have in these matters.

Now, in our submission, those are critical matters to creditors. A very large number of creditors are affected. They have their debts compounded, contrary to their will in many instances; perhaps, where they assent to it, without understanding what the issues are because the administrators do not discharge fully their duties under this Act. It is, therefore, in our submission, a matter of widespread concern throughout Australia that these duties be made clear as to what they are. So far as the two duties are concerned, particularly the first as to the three opinions, in our submission, Parliament could not have made it clearer that there were to be separate opinions on each matter, and to suggest that a recommendation as to one course can satisfy that so as to show substantial compliance, no matter what the facts of the case may be, is, in our submission, to flout the will of Parliament in the most severe manner.

Now, the position that we have reached now is that we have a Full Court decision by a majority. We agree that Justice Sheppard's dissenting judgment is very strong and very powerful but the fact is that he was in the minority.

KIRBY J: In a future case you are going to have different facts and circumstances and there will be other judges of the Federal Court and ultimately a jurisprudence will emerge that may well favour Justice Sheppard's very powerful opinion with which I have a lot of sympathy.

MR MEAGHER: But, your Honour, favour it they may but bound by the majority they will be.

KIRBY J: But the binding principle is confined to the facts and circumstances of this case.

KIRBY J: You come back to the statute every time.

MR MEAGHER: You do, but what you get out of this majority decision is that a recommendation - - -

KIRBY J: You say it sets a standard that will be thought to be a laxer standard than you would like to see.

MR MEAGHER: Yes.

KIRBY J: And that that is the standard that you fear may be applied. Well, the next judge of the Federal Court who reads this decision may well find Justice Sheppard's opinion as powerful as I do.

MR MEAGHER: He may, your Honour, but he will be compelled to say, if a recommendation is made by the administrator and the opinions are not expressed, that the mere fact that it is a recommendation alone is not sufficient to show a lack of substantial compliance. That is the essence of what the majority said and, by that, any single judge in the Federal Court will be bound. Likewise, if significant details of the deed are omitted as the court here found, a single judge of the Federal Court will be bound to ask the question, "Would that have influenced the vote?", because that is the test that the majority applied and that is the test that a single judge will be compelled to apply.

GUMMOW J: In paragraph 16 of his submissions, Mr Merralls says the test applied by the majority is not, in substance, different from that which you propound in paragraph 9 e on page 6 of your submissions, Mr Meagher.

MR MEAGHER: We differ with that. We think that what they put forward was very different to that. The only basis upon which one can take the majority decision and say that it fits with the mandates or the injunctions of the statute is to say that the purpose lying behind the statutory injunctions is for the administrator to express a preference, to make a recommendation. If that is wrong, then the majority decision cannot stand. If the purpose lying behind the requirement for three opinions is not to gain a recommendation but is to place before the creditors a choice between the three courses from which they can exercise an intelligent discretion, then what the majority said is wrong. It is not designed to achieve a recommendation, it is designed to empower the creditors to make a sensible choice between the three courses.

That is a fundamental matter. I am repeating myself, but if that is allowed to stand then every judge in the Federal Court will be compelled to follow it and to say, "The purpose that lies behind this is merely to ascertain the administrator's preference", and if that is achieved then no matter what the facts of the case are, the matter cannot be said to be a lack of substantial compliance. So, there is a discretion on the court and these other issues would have to then be addressed.

I would be repeating myself to simply go over it again. That is what we say of the matter. We do point out that even my learned friend, Mr Merralls, in his submission, paragraph 22, conceded that if this was a case of misinterpretation, it was a case which would warrant special leave. We say it is a case of misinterpretation. The misinterpretation lies in identifying the purpose that lay behind these statutory injunctions. That is going to pervade the law unless corrected by this Court. If the Court pleases.

DAWSON J: Thank you, Mr Meagher. The Court need not trouble you, Mr Merralls or Mr Bigmore.

In the ordinary course in matters such as these the Full Court of the Federal Court must be the final court of appeal. There are no sufficiently exceptional features in these cases, which turn largely on their own facts, to warrant granting special leave to appeal. Special leave is accordingly refused.

MR MERRALLS: I seek costs.

MR BIGMORE: I, too.

DAWSON J: Can you say anything about that, Mr Meagher?

MR MEAGHER: No.

DAWSON J: It is refused with costs.

AT 9.47 AM THE MATTER WAS CONCLUDED