Dexcam Australia Pty Ltd & Ors v Deputy Commissioner of Taxation [2004] HCATrans 19 (13 February 2004)

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Dexcam Australia Pty Ltd & Ors v Deputy Commissioner of Taxation [2004] HCATrans 19 (13 February 2004)

Last Updated: 19 February 2004

[2004] HCATrans 019

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Melbourne No M227 of 2003

B e t w e e n -

DEXCAM AUSTRALIA PTY LTD (IN LIQUIDATION) AND DAVID NEIL LOCKWOOD AND KENNETH STEWART SELLARS (AS LIQUIDATORS)

Applicants

and

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Application for special leave to appeal

GUMMOW J
HAYNE J
HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 13 FEBRUARY 2004, AT 10.03 AM

Copyright in the High Court of Australia

MR B.J. SHAW, QC: If the Court pleases, I appear with my learned friend, MR S.A. GLACKEN, for the applicant. (instructed by Middletons Lawyers)

MR C.M. MAXWELL, QC: May it please the Court, I appear with my learned friend, MR S.P. GARDINER, for the respondent. (instructed by the Australian Government Solicitor)

GUMMOW J: Yes, Mr Shaw.

MR SHAW: If the Court pleases. The application is for leave to appeal from the.....decision of the Full Federal Court, which decision itself overturned the decision of the primary judge, Justice Heerey. The ultimate question which arose in the case concerned.....which has now appeared. Nevertheless, we will submit.....which I will come to, this is an appropriate case for special leave because not only is it arguable and strongly arguable, we submit, that the decision of the primary judge was correct, but the decision which was reached by the Full Court and the way in which the primary judge reached his decision turned on the effect of the now repealed section and its proper construction of sections of the Corporations Law and of the Income Tax Assessment Act, all of which are still operative.

GUMMOW J: Justice Heerey seems to have fixed upon section 222ARA, did he not, at the top of page 9 of the application book?

MR SHAW: Yes, he did.

GUMMOW J: I am not sure he was giving full force to that section and the concluding words of the section, insofar as “Chapter 5 of the Corporations Law . . . can operate concurrently with this Part”. It is a question of the cart and the horse, I suppose.

MR SHAW: Your Honour, I suppose the first thing one can say about the section is that it is expressed to be made to avoid doubt and it is expressed to make a provision which makes clear that the Income Tax Assessment Act is not to be regarded in relation to insolvency matters as a code.

HAYNE J: Do you accept what Justice Finn said about the operation of ARA at the top of page 42 of the application book in paragraph 5 of his Honour’s reasons?

MR SHAW: No.

HAYNE J: In particular you would dispute, would you, the proposition that ARA “subordinates the Corporations Law to the Assessment Act in the event if inconsistency”?

MR SHAW: Your Honour, we would say two things about it. One is that the section clearly accepts the operation, to some extent at any rate, of the Corporations Act in Chapter 5 in relation to the Commissioner. The question then becomes a question of the construction of the words “tax payable” and their Honours Justices Ryan and Dowsett - - -

HAYNE J: Just before you come to that question, I understand that that is a question that arises, what do you say ARA tells us about the relationship between Chapter 5 of the Corporations, then, Law and the Assessment Act?

MR SHAW: That the provisions of the Corporations Law are (a) to be looked at, and (b) not to be thought necessarily to be inconsistent with the provisions of the Income Tax Assessment Act and what the Full Court seems to have done is to have said that when the section spoke of a “tax payable” it meant tax payable under the Act, ignoring all other provisions of the law. In our submission, the words, on the face of them, do not say that and it seems a very surprising conclusion, it is submitted, that tax payable includes tax which is not payable, which is the conclusion they came to.

GUMMOW J: What do you say about this point made by Justice Finn at page 41, paragraph 3, focusing on the actual words of 221YHG(1), namely, the amount of a credit to which the person is entitled is a debt, his Honour’s point about accounting and credit balances?

MR SHAW: I am not sure which sentence your Honour is referring to.

GUMMOW J: Paragraph 3 of the judge’s reasons at page 41, namely, whether it is really in the right universe of discourse to talk about statutory set-off, given the way YHG operates, to produce a debt after finding a credit.

MR SHAW: In our submission, the effect of the section, if it is taken without having regard to any other provisions of any other law, is to require the Commissioner to apply credits which he holds against other liabilities and that is, in our submission, a classic case of set-off. What the authorities do is - - -

GUMMOW J: You say a classic case of set-off; what, a legal set-off under the statutes of set-off?

MR SHAW: It is a statutory set-off, yes, your Honour, not a legal set-off.

GUMMOW J: Yes, a new species of set-off, really.

MR SHAW: One created by the section, yes, your Honour. The centre of the decision of the majority is in paragraph 23 on page 29. At the bottom of the page their Honours say:

The test prescribed . . . required only that the amount be payable “...under, or by virtue of ...” the Assessment Act, leading us to conclude that, if such amount had become payable pursuant to the terms of that Act, then it was an amount to which the subsection applied, regardless of the operation of any other legislation.

That seems to be regardless of the operation of any other legislation to make the amount not payable and, in our submission; the words simply do not bear that meaning on their face. His Honour Justice Heerey, the presiding judge, looked at section 222ARA as the principal indicator in favour of the conclusion to which he came - - -

HAYNE J: It is the mechanism for resolving what was then the intersection between one Commonwealth law and a series of State laws?

MR SHAW: Yes, that is so, your Honour.

HAYNE J: Absent ARA, and necessarily absent the consequences of the 2001 Corporations Act, where would the argument stand?

MR SHAW: One would start off with - - -

GUMMOW J: ARA started out life as a section 109 inspired provision, you might say.

MR SHAW: In a kind of a way, yes.

GUMMOW J: Yes.

MR SHAW: But one starts off, your Honour, with the Corporations Law and it was transformed by the Corporations Act, but the provisions are the same, and the provisions of that law provided in section 5A, that the Crown in the right of the Commonwealth, was to be bound by Chapter 5 of the Corporations Law, and that - - -

HAYNE J: Yes, but the Federal Parliament had spoken in the Tax Act with all that perspicuous clarity that it always brings to the occasion about what was to happen.

MR SHAW: But, your Honour, it is clear enough that it was intended that, amongst other things, the Commissioner should be affected and, indeed, it was accepted that the Commissioner was affected because it was accepted below on all hands that the Commissioner was a participating creditor in the scheme and bound by it, but the effect of clause 13 of the scheme, which is set out in his Honour Justice Heerey’s judgment at page 3, was that a participating creditor was not to exercise any right of set-off to which he would not have been entitled had the company been wound up.

That brings into effect the provisions of section 553C about set-off and it was accepted that those provisions were inapplicable in the circumstances. Nevertheless, it was held that, in effect, that provision of the scheme was ineffective in the face of section 221YHG. So what one has is, on the one hand, the provisions of section 221YHG and, on the other hand, one has the provisions of section 5A of the Corporations Law; the provisions of that part of Part 5 of the Corporations Law which makes the scheme of arrangement binding on the Crown, including the Commissioner.

One has the provisions of that part which requires insertion in the scheme of clauses dealing with a number of matters, and in the absence of express provision they include the provisions of 553C about set-off, and one has the provisions of section 222ARA – all of them pointing to the fact that the insolvency provisions are intended, to a substantial extent, it is submitted, to have effect in respect of the Crown, including the Commissioner. All those provisions are still in effect, although section 221YHG has gone.

The case, accordingly, raises an important question of how, in the light of those provisions, the provisions of insolvency law relate to the provisions of the Income Tax Assessment Act and the provisions of it conferring powers on the Commissioner in relation to what he is to do with these credits. It is submitted that in those circumstances the obvious reading of tax payable was the reading which his Honour Justice Heerey adopted and that the difference between the Full Court and his Honour turned on the existence of a series of statutory provisions which are still in operation.

HAYNE J: What has happened to ARA?

MR SHAW: It is still there, your Honour.

HAYNE J: Assumedly, there has been some change to it to accommodate the 2001 Corporations Act, I assume, because the print we have is the print in operation.

MR SHAW: Yes, my learned junior says the words have changed so it refers to the Corporations Act instead of - - -

HAYNE J: Chapter 5 of the Corporations Law of a State or Territory was as it stood at the time relevant.

MR SHAW: Nobody so far has drawn any distinction between the provisions of the old law and the new law because the new law sort of took over retrospectively.

HAYNE J: Yes, the text which you just picked up.

MR SHAW: His Honour Justice Heerey deals with that at page 2 of the application book, in paragraph 6. It is submitted that despite the fact that the immediately operative section is now repealed, the case does raise questions of continuing importance and substantial importance for the proper interpretation of the Income Tax Assessment Act and the effect of the insolvency law in respect of it. It is further submitted that the view which his Honour Justice Heerey took is, prima facie, a correct view and probably right. In those circumstances it is submitted that special leave should be granted. If the Court pleases.

GUMMOW J: Yes, Mr Maxwell.

MR MAXWELL: If the Court pleases. Your Honours, for the reasons we set out in our summary of argument, it is our respectful submission that there is no basis for a grant of special leave. Your Honours, it is first of importance that the provision, 221YHG, which imposed on the Commissioner the duty to do what he did, has gone. The decision in - - -

HAYNE J: But the base question may be perhaps seen as the operation of ARA, may it not?

MR MAXWELL: With respect, your Honours, there is a question at the end, we would respectfully submit, rather than the beginning, about ARA, because the analysis in Taylor, which in turn applied what Justice Fullagar had said in the Official Receiver Case, answers the question in this case without the need for recourse to ARA because that is a theory now endorsed by two Full Courts of the Federal Court that it was Parliament’s intention that these accounting provisions, as his Honour Justice Finn described them, were to do their work before the amount of the provable debt could be quantified. That is not an answer that turns on ARA.

In our respectful submission, if one gets to ARA, then the answer is, as we have submitted and as their Honours respectively said, unambiguously clear. Your Honour Justice Hayne was, as I understood your Honour’s remark a moment ago, articulating that proposition. That is to say, it is unambiguously clear that in the event of inconsistency the - - -

HAYNE J: I was articulating a question. I was not articulating an answer to it, Mr Maxwell.

MR MAXWELL: With respect, I withdraw such assistance as I sought to gain from your Honours, but your Honour pointed to the fact that the Parliament in the Tax Act had addressed the question and said the provisions of the Corporations Law are intended to be able to operate so far as they can operate concurrently.

Your Honour the presiding judge said it is a 109-type provision. In our respectful submission, that captures its character precisely, that is to say, in the event of inconsistency the Tax Act is to prevail. In our respectful submission, there are far more difficult questions of statutory interpretation that do not get special leave and that is one which was answered so emphatically and succinctly by the respective members of the Full Court that your Honours should not for a moment entertain a grant of special leave on that point.

The real question is, as our learned friends say, the primary issue is whether, on the theory of Taylor and the Official Receiver’s Case, these credit set-off provisions operate in isolation from and antecedent to, as it were, the operation of insolvency provisions. In our respectful submission, the analysis in Taylor is right. The Full Court in this case was correct to find that 221YHG attracted the same analysis by analogy and, accordingly, that the answer was right.

It is important to note that the phrase “tax payable”, which is the subject of much argument in this case, is not in the new provisions which deal with the corresponding obligation under the tax law as it now is, that is, the obligation to set off credits against debts. The provisions, as we have pointed out, that are now in the legislation make the question of payability expressly irrelevant.

What our learned friends are postulating is a question in the abstract about provisions which have materially changed and in respect of which there is already a clear and satisfactory answer of principle, for the reasons given successively by Mr Justice Fullagar, then by Justice Jenkinson in the unanimous Full Court in Taylor and then as carefully examined by the majority in this case.

So far as our learned friends say that what his Honour, the primary judge, said was right, in our respectful submission, on each point his Honour was not correct. Very much of his Honour’s decision at first instance turned on a misreading of the abolition of priorities legislation and, in our respectful submission, the Full Court addressed that and got it absolutely right. His Honour Justice Finn deals with it most powerfully in the passages of his Honour’s judgment dealing with them “as a family of like provisions”. I am referring, your Honours, to the discussion which begins at the foot of application book page 40 and through to the end of 41. His Honour points out at paragraph 3 on page 41:

s 221YHG (as it stood at the relevant time) was one of family of similarly structured provisions of the Assessment Act –

and there were others. As your Honour Justice Gummow noted, his Honour remarks that these are provisions of an accounting character and his Honour makes the point, a submission we had made, that if Parliament had intended to amend those provisions in the priorities legislation, it could have and would have done so expressly.

It did not do so and there was nothing in the amending legislation or the extrinsic materials to suggest that Parliament intended to affect those provisions at all, an explanation being, as the majority point out, that this set-off provision, if it is properly so called, is not about priorities properly understood at all. It has nothing to do with priorities. It has to do with accounting for debits and credits within the tax system which Parliament has mandated, commanded the Commissioner to apply one against the other. It is not about priorities.

The question is what priority should the Commonwealth have for its debt? How is that debt computed? The answer is supplied by Taylor. It is computed by the operation of the self-contained scheme, or credits against tax debts, and the figure which that process produces, as Justice Jenkinson said, is the figure which then is the subject of the Commissioner’s claim in insolvency.

So, yes, the Commissioner and the Commonwealth are bound by the corporations legislation. That operates insofar as it can operate concurrently with the Tax Act. As we say in the outline, they operate concurrently, but on the basis that the Tax Act takes priority over the Corporations Act, that is to say, you work out the amount of the net tax debt, if any - - -

GUMMOW J: Taking the section as it stands for us, that is to say, before the new statute came in, it would have to because it is federal law. Section 222ARA is talking about the relation between a federal law, namely the Tax Act, and Chapter 5 of State laws.

MR MAXWELL: Indeed.

GUMMOW J: It is unlikely that it is going to say the State law prevails over it, you would think.

MR MAXWELL: Just so and, as our learned friend has said, it is not suggested that in its current form any - - -

GUMMOW J: What it is doing is - it is a CMA-type provision and there are provisions in the Trade Practices Act too - it claws back or constricts what otherwise might be thought to be the field covered. That is what it is about.

MR MAXWELL: Exactly so.

GUMMOW J: It now has a new life, when you are comparing federal law and federal law, but we are looking at it in its initial form.

MR MAXWELL: If I could take your Honours to what we have said in paragraph 19 of our outline on this point, page 68 in the book, we have said that in that sense ARA is in substance a replication of the Taylor proposition, that is, work through the tax provisions first, identify if there is any amount provable as a debt by the Commissioner, then that comes into play in the corporations insolvency or, in Taylor, the Bankruptcy Act insolvency setting.

GUMMOW J: Mr Maxwell, before you sit down, can you explain the sentence appearing at the bottom of 42? You seem to have a view of the gender of your client.

MR MAXWELL: I beg your Honour’s pardon?

GUMMOW J: The second last line on 42.

MR MAXWELL: “The Commissioner . . . was a participating creditor . . . for the purposes of the deed. She was as such bound by it”.

GUMMOW J: Yes, all right. Yes, we do not need to call on you any more, Mr Maxwell.

MR MAXWELL: If the Court pleases.

GUMMOW J: Yes, Mr Shaw.

MR SHAW: If the Court pleases. My learned friend relies on Taylor. Taylor was the case about a different section with a different definition of “tax payable”.

GUMMOW J: Yes, that is true.

MR SHAW: It was decided in circumstances in which the Full Court there came to the conclusion that, in effect, the provisions of the Income Tax Assessment Act constituted the code regulating the relevant activities. Here, it is submitted, that is not so because it is the provisions of section 222ARA.

GUMMOW J: We will take a short adjournment.

AT 10.30 AM SHORT ADJOURNMENT

UPON RESUMING AT 10.40 AM:

GUMMOW J: The applicant seeks special leave to agitate questions about the application of section 221YHG of the Income Tax Assessment Act 1936 (Cth) (“the Assessment Act”) and section 13(1) of the Taxation (Interest on Overpayments and Early Payments) Act 1983 (Cth) (“the Overpayments Act”).

The case is one where the taxpayer, the corporation, was subject first to a deed of company arrangement made under Part 5.3A of Chapter 5 of the Corporations Law and later to a voluntary winding-up under Part 5.5 of Chapter 5. The Corporations Act 2001 (Cth) subsequently provided that provisions of that Act applied. The provisions of the 2001 statute do not differ in any material respect from those of the Corporations Law.

The arguments which the applicant seeks to advance in an appeal to this Court depend upon characterising section 221YHG of the Assessment Act as creating a right of statutory set-off, the availability of which was qualified by the operation of Chapter 5 of the Corporations Law, including section 553C. Section 222ARA of the Assessment Act provided that:

To avoid doubt, this Part –

that is to say, Part 6 of the Assessment Act, which included section 221YHG –

is not intended to limit or exclude the operation of Chapter 5 of the Corporations Law of a State or Territory, in so far as that Chapter can operate concurrently with this Part.

As Justice Finn, rightly to our mind, pointed out in the Full Court:

This provision subordinates the Corporations Law to the Assessment Act in the event of inconsistency, not vice versa.

Section 222ARA, in the form it appears as I have just indicated, is a provision familiar in federal legislation: see, for example, section 75 of the Trade Practices Act 1974, construed by this Court in R v The Credit Tribunal; Ex parte General Motors Acceptance Corporation, Australia [1977] HCA 34; (1977) 137 CLR 545.

Further, as Justice Finn also pointed out, there may be a real question whether section 221YHG is “properly described as creating a right of statutory set off rather than the species of running account” requiring the “striking of a balance of account between the taxpayer and the Commissioner before a credit (if any) became due and payable to a taxpayer.”

We are not persuaded that the actual decision of the Full Court that neither the terms of the Deed of Company Arrangement nor section 553C of the Corporations Law precluded the Commissioner from exercising the power given by section 13(1) of the Overpayments Act is attended by doubt sufficient to warrant the grant of special leave. Accordingly, special leave is refused with costs.

We will adjourn to reconstitute.

AT 10.44 AM THE MATTER WAS CONCLUDED