H2 Migration & Education Pty Ltd v Gu
[2023] WASC 199
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: H2 MIGRATION & EDUCATION PTY LTD -v- GU [2023] WASC 199
CORAM: SEAWARD J
HEARD: 16 MARCH 2023
DELIVERED : 9 JUNE 2023
FILE NO/S: CIV 2015 of 2022
BETWEEN: H2 MIGRATION & EDUCATION PTY LTD
Plaintiff
AND
JIANQING GU
Defendant
Catchwords:
Corporations - Procedure - Insolvent trading - Application to set aside writ of summons - Failure to commence action using correct originating process - Whether a proceeding is commenced 'under the Corporations Act' - Strike out application - Summary judgment application - Declaratory relief - Whether GST debt correctly pleaded - Whether a conditional appearance constitutes an appearance for a summary judgment application - Whether a liquidator can assign the right to bring an insolvent trading claim and the fruits of that claim
Legislation:
Corporations Act 2001 (WA)
Rules of the Supreme Court 1971
Supreme Court (Corporations) (WA) Rules 2004
Supreme Court Act 1935 (WA)
A New System (Goods and Services Tax) Act 1999 (Cth)
Taxation Administration Act 1953 (Cth)
Result:
Writ of summons treated as if it were an originating process filed under the Supreme Court (Corporations) (WA) Rules 2004
Application to strike out allowed in part
Application for summary judgment dismissed
Application for declaratory relief dismissed
Category: B
Representation:
Counsel:
| Plaintiff | : | J Winton |
| Defendant | : | M Crowley |
Solicitors:
| Plaintiff | : | Williams & Hughes |
| Defendant | : | Tan & Tan Lawyers |
Cases referred to in decision:
Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27
Anderson v Federal Commissioner of Taxation [2015] AATA 167
Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) 33 WAR 82
Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) WAR 82
Bass v Permanent Trustee Co Ltd (1999) 198 CLR 334
City Clock (Australia) Limited v Primesite Outdoor Advertising Limited, unreported 950293, 9 June 1995
Commissioner of State Tax (WA) v Pollock (1993) 11WAR 64
Cook v Italiano Family Fruit Company Pty Ltd (in liq) (2010) 190 FCR 474
Copeland v Murace [2023] FCA 14
Corruption and Crime Commission of Western Australia v McCusker AO QC [2009] WASC 44
D'Ath v TNT Australia Pty Ltd [1992] 1 Qd R 369
Destec Pty Ltd v Mineral Resources Limited [2020] WASC 95
Devine v Liu [2018] NSWSC 1453
DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2022] WASCA 97
Elfic Ltd v Macks (2003) 2 Qd R 125
Emanuel Exports Pty Ltd v Department of Primary Industries and Regional Development [2023] WASCA 36
English v Vantage Holdings Group Pty Ltd [2021] WASCA 47
Eskdale South Cattle Company Pty Ltd v Deputy Commissioner of Taxation [2013] FCA 1125
Fenato v Chief Commissioner of State Revenue (2010) 78 NSWLR 20
Garms v Birnzwejg (1990) 2 Qd R 336
Gerovich v Gerovich [2018] WASC 153
Hawkins v Bank of China (1992) 26 NSWLR 562
Healy v Chopping [2021] WASC 328
Litmus Australia Pty Ltd (in liq) v Canty [2006] NSWSC 196; (2006) 57 ACSR 71
Mitchell Warren Ball (in his capacity as official liquidator of Wealthfarm Group Services) v Nicholas Quinn Sinclair [2015] NSWSC 2103
Mohammadi v Bethune [2018] WASCA 98
Monteleone v The Owners of the Old Soap Factory & Ors [2007] WASCA 79
NRW Contracting Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2020] WASCA 107
Pisano v South Metropolitan Health Service [2023] WASCA 80
Powell v Fryer (2001) 159 FLR 433
Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355
Re Banning; Ex Parte Banning [2018] WASC 313
Re Movitor Pty Ltd (in liq) (1996) 64 FCR 380
Re Salfa Pty Limited (in liquidation) (ACN 082 308 101) [2014] NSWSC 1493
Re Tosich Construction Pty Ltd (1997) 73 FCR 219
Re Watch Works Australia Pty Ltd (In Lia) Ex Parte Francis & Ors [2020] WASC 6
Roche v Douglas [2000] WASC 22
State Government Insurance Commission v Teal (1990) 2 WAR 105
SZTAL v Minister for Immigration and Border Protection (2017) 91 ALJR 936
Tardiani v Steele [1943] QWN 48
Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398
Victorian WorkCover Authority v Baldwin & Ors (No 2) [2022] VSC 208
Wily v King [2010] NSWSC 352
Zaghloul v Bayly [2021] WASCA 125
Table of Contents
Procedural Background
Pleadings - overview
Insolvent trading - legal principles
Issue 1 - conditional appearance - process irregularity
Overview of parties' positions
Relevant rules
Under the Corporations Act
Application to plaintiff's case
Disposition of issue 1
Issue 2 - strike out application
Overview of parties' positions
Legal principles - strike out
Entitlement to the fruits of the assignment
GST pleading
Fenato v Chief Commissioner of State Revenue
Provisions of the GST Act
Provisions of TA Act
Loss and damage
Issue 3 - summary judgment
Preliminary question
Legal principles - summary judgment
Defendant's application
Basis 1 - failure to comply with s 260-45 of Schedule 1 to the TA Act
Basis 2 - fruits of the litigation unassignable
Basis 3 - no debt incurred
Basis 4 - the Commissioner has suffered no loss or damage
Summary judgment - conclusion
Issue 4 - declarations
Conclusion
SEAWARD J:
This matter concerns a claim of insolvent trading. The plaintiff alleges that the defendant, being a director of a company called Smartlink Corporation Pty Ltd (in liquidation) (Smartlink) permitted Smartlink to trade whilst insolvent. The plaintiff alleges that in so doing the defendant breached certain provisions of the Corporations Act 2001 (Corporations Act), such breaches giving rise to the ability of the liquidator to recover from the defendant, as a debt due to Smartlink, an amount equal to the loss suffered by the creditors of Smartlink. The liquidator has purported to assign that chose in action to the plaintiff, who now sues the defendant.
The defendant filed a conditional appearance and then a chamber summons seeking a number of alternative orders including that the writ and statement of claim be struck-out, summary judgment and a series of declarations.
Procedural Background
The plaintiff filed a writ of summons indorsed with a statement of claim on 27 September 2022 in which the plaintiff claims as against the defendant the payment of $730,608.46 in respect of a series of debts (plus interest and costs).
On 7 October 2022, the defendant filed a conditional appearance. The basis for doing so is recorded as being:
Irregular form of application and no subject-matter jurisdiction
In his written submissions, the defendant clarified that he does not press the lack of subject-matter jurisdiction.[1]
[1] Defendant's submission fn 2.
By chamber summons dated 8 November 2022 the defendant seeks the following orders:
1.Pursuant to O2.1(2) of the Rules of the Supreme Court 1971 (WA), the writ indorsed with statement of claim filed 27 September 2022 be struck out, and service thereof be set aside.
Alternatively:
2.Pursuant to O16.1(1) of the Rules, there be summary judgment for the defendant in that:
2.1.the purported assignment of the liquidator's right to sue under s 588M(2) of the Corporations Act2001 (Cth) is invalid and the plaintiff has neither standing nor a cause of action, or;
2.2.the assignment is valid but what was assigned was the liquidator's right under s 588M(2) of the Corporations Act to sue for recovery 'as a debt due to the company', or;
2.3the company's tax-related liability to the Commissioner of Taxation was a nett 'RBA deficit debt' liability recorded on a 'Running Balance Account' established by the Commissioner under Part IIB of the Taxation Administration Act 1953 (Cth) which is not 'incurred' by the company within the meaning of s 588G(1)(a) of the Corporations Act.
3.Further or alternatively, pursuant to s 25(6) of the Supreme Court Act 1936 (WA), declarations that:
3.1.the liquidator's purported assignment to the plaintiff of 'the Liquidator's right, title and interest in, and benefit arising from … any [c]laim for insolvent trading under sections 588G and 588M of the Corporations Act' was invalid because:
3.1.1.the defendant was a security holder in the unit trust of the trustee company (in liquidation), therefore was a creditor of the company, but the liquidator had not given notice to the defendant of the proposed assignment as required under s 100–5 of the Insolvency Practice Schedule (Corporations) at Schedule 2 to the Corporations Act, and/or;
3.1.2.the Commissioner had not given the liquidator permission under s 260–45 of Schedule 1 to the TAA to part with the company's assets, which includes any rights vested in the liquidator under ss 588M or 477 of the Corporations Act, alternatively;
3.2any valid assignment to the plaintiff of the liquidator's right to sue under s 588M(2) of the Corporations Act, conferred a right to sue for recovery 'as a debt due to the company', but:
3.2.1.in point of law, on a proper construction of s 588M(2) of the Corporations Act, conferred no right to the fruits of the recovery proceedings, and/or;
3.2.2.in fact, on a proper construction of the instrument of assignment, conferred no right to the fruits of the recovery proceedings, alternatively;
3.3any purported assignment of a cause of action under s 477(2)(c) of the Corporations Act to recover a company's (in liquidation) tax-related liability accruing as a debt due to the Commonwealth but recoverable by the Commissioner is incapable of assignment as a recoverable other than by the Commissioner.
4.Alternatively, pursuant to O 20.19(1) of the Rules, the writ and statement of claim be struck out in whole, or as to the following paragraphs, on the basis that it discloses no reasonable cause of action, or that it is embarrassing:
4.1.Prayer [A], and;
4.2.paragraphs [5], [12], and [13].
5.Under s 1335 of the Corporations Act, the action be stayed unless and until the plaintiff pays into court security for the defendant's costs in an amount to be determined.
The issue of security for costs was resolved prior to the hearing of the chamber summons, and therefore the defendant did not press order 5.
The defendant's chamber summons raises a number of procedural and substantive issues, many of them alternative claims and some containing overlapping grounds. The separate issues raised in the chamber summons can be summarised as follows:
1.Whether the proceedings should be struck out pursuant to O 2 r 2(1) of the Rules of the Supreme Court 1971 (SCR) on the basis that they have been irregularly commenced, having been commenced by a writ of summons as opposed to an originating process accompanied by an affidavit, pursuant to r 1.3(2) of the Supreme Court (Corporations) (WA) Rules 2004 (Corporations Rules);
2.Whether the writ and statement of claim should be struck out in whole or in part pursuant to O 20 r 19(1) of the SCR, on the basis that the pleadings reveal no reasonable cause of action and/or are embarrassing, in so far as they concern one of the debts claimed by the plaintiff (being the alleged GST tax-related liability);
3.Whether summary judgment should be granted to the defendant pursuant to O 16 r 1(1) of the SCR; and
4.Whether declaratory relief should be granted to the defendant pursuant to s 25(6) of the Supreme Court Act 1935 (WA) in the terms sought in order 3 of the chamber summons.
Pleadings - overview
By way of overview, the basis of the plaintiff's claim is that the defendant was, at all material times, a director and shareholder of Smartlink.[2] The plaintiff alleges that from 31 January 2018 at the latest, Smartlink was unable to pay all of its debts as and when they become due and payable and was insolvent pursuant to s 95A(2) of the Corporations Act.[3]
[2] Statement of claim [2(b)].
[3] Statement of claim [3(d)].
The plaintiff pleads that notwithstanding this, Smartlink incurred the following unsecured debts:[4]
[4] Statement of claim [5].
(a)a debt of $126,182.23 due to Centaur Property Holdings Pty Ltd comprised of:
(i)a loan of $82,500 from Centaur Property Holdings Pty Ltd to Smartlink entered into in March 2018; and
(ii) default interest totalling $43,682.23 arising from an existing loan agreement between Centaur Property Holdings and Smartlink which accrued, and was due and payable, from 31 August 2018;
(b)a debt of $584,563.93 due to the Deputy Commissioner of Taxation comprising:
(i) $583,927.73 for unpaid goods and services tax and associated interest and charges, which accrued, and was due and payable, from 26 April 2018 (GST Debt);
(ii) $636.20 for unpaid superannuation guarantee charge, which accrued, and was due and payable, from 1 February 2019;
(c)a debt of $16,863 due to Newyear Holdings Pty Ltd (in liquidation) incurred on 8 November 2018;
(d)a debt of $2,999.30 due to Mutare Pty Ltd as trustee for Lark Lawyers Trust incurred from about October 2018
TOTAL: $730,608.46
(together the Debts).
The plaintiff then pleads further facts about the GST debts (which I will return to later in these reasons). In relation to each of the Debts, the plaintiff alleges that:[5]
(a)the defendant knew that Smartlink was insolvent; or
(b)further and alternatively, the defendant had reasonable grounds for suspecting Smartlink was insolvent; or
(c)further and alternatively, a reasonable person in a like position to the defendant would have been aware that there were reasonable grounds for suspecting that Smartlink was insolvent.
[5] Statement of claim [8].
The plaintiff pleads that the defendant failed to prevent Smartlink from incurring the Debts and in all the circumstances the defendant contravened s 588G(1) and s 588G(2) of the Corporations Act.[6]
[6] Statement of claim [9] - [10].
The plaintiff pleads that as at the date of commencement of the proceedings Smartlink does not have sufficient assets to satisfy the Debts, and the creditors of the Debts have suffered loss and damage because of Smartlink's insolvency.[7]
[7] Statement of claim [11].
The plaintiff pleads that the breach of s 588G(1) and s 588G(2) of the Corporations Act entitles the liquidator of Smartlink (Mr Shaun Boyle of BRI Ferrier who was appointed on 26 February 2019)[8] to recover the Debts, as a debt due to the liquidator, from the defendant, pursuant to s 588M(2) of the Corporations Act.[9] The plaintiff then pleads that the liquidator is entitled to assign this claim as a chose in action pursuant to s 477(2)(c) of the Corporations Act and further and alternatively s 100‑5 of the Insolvency Practice Schedule (Corporations) contained in Schedule 2 to the Corporations Act.[10]
[8] Statement of claim [4].
[9] Statement of claim [12].
[10] Statement of claim [13].
The plaintiff then pleads that a written demand has been made by the plaintiff to the defendant for the payment of the Debts, and despite that demand, the defendant has failed to pay the amount of the Debts to the plaintiff or any amount at all.[11]
[11] Statement of claim [19] - [20].
Insolvent trading - legal principles
In order to consider the various issues raised by the chamber summons, it is first necessary to set out the relevant statutory provisions that underpin the insolvent trading claim pleaded by the plaintiff.
Section 588G of the Corporations Act is headed 'Director's duty to prevent insolvent trading by company' and s 588G(1) and s 588G(2) provide as follows:
(1) This section applies if:
(a) a person is a director of a company at the time when the company incurs a debt; and
(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and
(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and
(d) that time is at or after the commencement of this Act.
…
(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:
(a) the person is aware at that time that there are such grounds for so suspecting; or
(b) a reasonable person in a like position in a company in the company's circumstances would be so aware.
Section 588M of the Corporations Act is concerned with the recovery of compensation for loss resulting from insolvent trading and in so far as it concerns the powers of a liquidator, relevantly provides for the following:
(1) This section applies where:
(a) a person (in this section called the director) has contravened subsection 588G(2) or (3) in relation to the incurring of a debt by a company; and
(b) the person (in this section called the creditor) to whom the debt is owed has suffered loss or damage in relation to the debt because of the company's insolvency; and
(c) the debt was wholly or partly unsecured when the loss or damage was suffered; and
(d) the company is being wound up;
whether or not:
(e) the director has been convicted of an offence in relation to the contravention; or
(f) a civil penalty order has been made against the director in relation to the contravention.
…
(2) The company's liquidator may recover from the director, as a debt due to the company, an amount equal to the amount of the loss or damage.
…
(4)Proceedings under this section may only be begun within 6 years after the beginning of the winding up.
At a high level, these provisions impose a duty on a director of a company to prevent the company from incurring a debt when insolvent, the contravention of which gives the liquidator the power to recover, as a debt due to the company, an amount equal to the loss or damage suffered by (unsecured) creditors.
There are two other provisions relevant to the plaintiff's case, each concerning the powers of a liquidator. Section 477(2)(c) of the Corporations Act provides:
(2) Subject to this section, a liquidator of a company may:
…
(c) sell or otherwise dispose of, in any manner, all or any part of the property of the company;
Further, s 100-5 of the Insolvency Practice Schedule (Corporations) contained in Schedule 2 to the Corporations Act[12] provides as follows:
(1) Subject to subsections (2) and (3), an external administrator of a company may assign any right to sue that is conferred on the external administrator by this Act.
(2) If the external administrator's action has already begun, the external administrator cannot assign the right to sue unless the external administrator has the approval of the Court.
(3) Before assigning any right under subsection (1), the external administrator must give written notice to the creditors of the proposed assignment.
(4) If a right is assigned under this section, a reference in this Act to the external administrator in relation to the action is taken to be a reference to the person to whom the right has been assigned.
[12] Which has effect pursuant to s 600K of the Corporations Act.
The plaintiff relies on each of these provisions in support of its claim that the liquidator has validly assigned his right to recover from the defendant, as a debt due to Smartlink, an amount equal to the amount of the loss or damage suffered by the various unsecured creditors.[13]
[13] Plaintiff's submissions [1].
Issue 1 - conditional appearance - process irregularity
Overview of parties' positions
The defendant submits that the plaintiff ought not have commenced his action by a writ of summons, and instead ought to have commenced the proceedings by way of an originating process accompanied by an affidavit in accordance with r 2.2(1)(a), r 2.2(3)(a) and r 2.4(1) of the Corporations Rules,[14] because the plaintiff's action arises 'under the Corporations Act'. The defendant says that the failure to commence the action using the correct originating process, combined with the matters raised in the strike-out application (paragraph 4 of the chamber summons), lead to the result that the writ and the statement of claim should be struck out in their entirety.[15]
[14] Defendant's submissions [2] - [5].
[15] Defendant's submissions [10] and ts 5- 6.
The plaintiff, on the other hand, says that the originating process is not irregular. The plaintiff submits that its action is a common law action in debt or, alternatively, an action for debt on a speciality and therefore is not an action arising 'under the Corporations Act.'[16]
Relevant rules
[16] Plaintiff's submissions [9] - [10].
Order 4 r 1(a) of the SCR provides that subject to the provisions of any act and the SCR, every action must be commenced by a writ. Rule 1.3(1)(a) of the Corporations Rules is in the following terms:
(1) Unless the court otherwise orders –
(a) these rules apply to a proceeding in the court under the Corporations Act or the ASIC Act that is commenced on or after the commencement of these rules;
(Emphasis added)
Rule 2.2(1)(a) provides that:
(1) Unless these rules otherwise provide, a person must make an application required or permitted by the Corporations Act to be made to the Court —
(a)if the application is not made in a proceeding already commenced in the Court — by filing an originating process;
Rule 2.2(3)(a) goes on to provide that an originating process must be in accordance with Form 2 and pursuant to r 2.4(1) that Form 2 must be supported by an affidavit stating the facts in support of the process and annexing a record of a search of the records maintained by ASIC in relation to the company that is the subject of the application carried out no earlier than 7 days before the originating process is filed.
Accordingly, the question of which originating process is required in the present case involves consideration of first what is meant by the phrase 'under the Corporations Act' in r 1.3 of the Corporations Rules, and second an analysis of the nature of the plaintiff's case.
Under the Corporations Act
In relation to the first issue, both parties referred me to the decision of Hill J Destec Pty Ltd v Mineral Resources Limited[17] in which her Honour considered whether a proceeding commenced by a writ of summons endorsed by a statement claim alleging that a party had breached a shareholders deed, and had engaged in oppressive conduct pursuant to s 232 of the Corporations Act, ought properly to have been commenced by a Form 2 supported by an affidavit in accordance with r 2.4 of the Corporations Rules.
[17] Destec Pty Ltd v Mineral Resources Limited [2020] WASC 95.
In holding that the r 2.4 of the Corporations Rules was applicable, her Honour agreed with and adopted the following views expressed by Barrett J in Litmus Australia Pty Ltd (in liq) v Canty:[18]
A proceeding will be a 'proceeding … under the Corporations Act or the ASIC Act' if the claims made and relief sought have their source wholly within the relevant Act. But a proceeding will not fail to be a 'proceeding … under the Corporations Act or the ASIC Act' just because it also advances claims and seeks relief that have some other source. The first five words of r 1.3(1) are important. If a hybrid proceeding were to arise which, for some reason or other, could not conveniently be conducted in accordance with the Supreme Court (Corporations) Rules, the court itself would exclude those rules as contemplated by those opening words, at the same time making such other arrangements as were conducive to the just, cheap and quick resolution of the particular controversy.
[18] Destec Pty Ltd v Mineral Resources [2020] WASC 95 [14] - [15]; Litmus Australia Pty Ltd (in liq) v Canty [2006] NSWSC 196; (2006) 57 ACSR 71 [43].
Hill J held that once commenced by originating summons, there is no requirement that the plaintiff proceed in any particular manner, and subject to orders being made by the court, the matter can proceed by way of pleadings.[19]
[19] Destec Pty Ltd v Mineral Resources Limited [2020] WASC 95 [12].
I agree with and adopt the views expressed by both Barrett J in Litmus Australia Pty Ltd (in liq) v Canty and Hill J in Destec Pty Ltd v Mineral Resources Limited as to the meaning of the phrase 'under the Corporations Act'.
Application to plaintiff's case
The defendant's case is that the cause of action advanced by the plaintiff is a statutory cause of action available to a liquidator under s 588M(2) of the Corporations Act and therefore is a proceeding in the court 'under the Corporations Act' and the Corporations Rules apply.[20]
[20] Defendant's submissions [2] - [5].
The defendant also relies on the decision of Barrett J in Wily v King[21] in support of his submission. Wily v King involved a claim by the liquidators of a company under s 588M(2) of the Corporations Act against two directors for the payment of a sum of money equal to the loss or damage suffered by various creditors in relation to a number of debts incurred by the company in circumstances where a breach of s 588G(2) by the directors was alleged. The plaintiffs commenced their action by way of a statement of claim, and then sought judgment in default of a defence being filed pursuant to Part 16 of Uniform Civil Procedure Rules2005 (NSW).
[21] Wily v King [2010] NSWSC 352.
In the course of dismissing the application for default judgment, Barrett J held that the proceedings ought not to have been commenced by a statement of claim. Barrett J held that the plaintiff's cause of action was wholly statutory, relying on s 588M(1), s 588M(2) and s 588G of the Corporations Act and therefore was a proceeding 'under the Corporations Act' and should have been commenced by a Form 2 originating process supported by the required affidavit.[22]
[22] Wily v King [2010] NSWSC 352 [19] - [24].
The plaintiff on the other hand, relies on the wording of s 588M(2) of the Corporations Act, which says that (when all conditions are met) the liquidator can recover the relevant amount as a debt due to the company.[23]
[23] Plaintiff's submissions [10].
The plaintiff says that its cause of action is debt or a debt on a speciality, in this case being a debt on a statute.[24] In this regard, the plaintiff relies on the decision of Mr Commissioner D R Williams QC in State Government Insurance Commission v Teal.[25] This case concerned an application made by the Insurance Commission under s 7(5) of the Motor Vehicle (Third Party Insurance) Act 1943 (WA) against the defendant to recover amounts paid by the Insurance Commission (as the defendant's compulsory insurer under that act) in settlement of a claim by a third party against the defendant driver in a motor vehicle accident. By way of defence, the defendant raised a limitation issue, and (relevantly) the following question of law was referred to the court:[26]
Is the plaintiff's claim one to which s 38(1)(a)(i) [actions for penalties, damages for sums given by any enactment to the party aggrieved] or s 38(1)(e)(i) [actions of covenants or of debt upon any bond other speciality] or any other provision of s 38 of the Limitation Act [1935] applies?
[24] ts 38.
[25] State Government Insurance Commission v Teal (1990) 2 WAR 105.
[26] State Government Insurance Commission v Teal (1990) 2 WAR 105, 109.
In the course of that decision, the Commissioner engaged in a detailed review of the relevant provisions of the Limitation Act 1935 (WA) and of the history of the treatment of the various causes of action. See in particular the detailed analysis of the difference between an action for a debt on a statue (which is an action on a speciality) and action for a debt which a statute enables to be brought (which is not an action on a speciality).[27]
[27] State Government Insurance Commission v Teal (1990) 2 WAR 105, 114 - 118.
The plaintiff also submits that his claim is not wholly sourced within the Corporations Act, and in particular the plaintiff does not seek any remedy under the Corporations Act.[28]
[28] Plaintiff's submissions [11].
In all the circumstances, I am satisfied that the plaintiff's cause of action is one which arises 'under the Corporations Act'. All elements of the plaintiff's cause of action have their source in s 588G and s 588M of the Corporations Act. The remedy sought by the plaintiff is also contained within the Corporations Act, being compensation for the loss or damage suffered by the creditors, recovery of which is provided for in s 588M(2) of the Corporations Act. Further, in so far as the plaintiff relies on the assignment of that statutory cause of action by the liquidator, the plaintiff relies on s 477(2)(c) and s 100-5 of Schedule 2 to the Corporations Act as the source of the power of the liquidator to assign the right to recover as a chose in action to the plaintiff.[29] In these circumstances, consistent with the reasoning in the decisions of Destec Pty Ltd v Mineral Resources Limited,[30] Litmus Australia Pty Ltd (in liq) v Canty[31] and Wily v King,[32] I am satisfied that the proceeding is a proceeding 'under the Corporations Act'.
[29] Plaintiff's submissions [1].
[30] Destec Pty Ltd v Mineral Resources Limited [2020] WASC 95.
[31] Litmus Australia Pty Ltd (in liq) v Canty [2006] NSWSC 196; (2006) 57 ACSR 71 [43].
[32] Wily v King [2010] NSWSC 352.
The question of whether the plaintiff's cause of action may be a debt or a debt on a specialty does not alter my above conclusion. Even if the cause of action is characterised as a debt or a debt on a speciality, that does not alter the fact that the pleaded cause of action arises wholly under the Corporations Act and is therefore a proceeding in the court 'under the Corporations Act'. The characterisation of the cause of action as a debt or a debt on a speciality may be relevant for other purposes (such as the applicable limitation period) but that characterisation is not, of itself, determinative of the question posed by the Corporations Rules.
Disposition of issue 1
Having concluded that the proceeding ought properly to have been commenced by way of a Form 2 originating process and a supporting affidavit pursuant to r 2.4 of the Corporations Rules, the question becomes what is the result of the failure to commence in this manner.
The defendant's application to strike out the writ and statement of claim is made pursuant to O 2 r 1(2) of the SCR.[33]
[33] Defendant's submissions [10].
Rule 1.3(2) of the Corporations Rules provides that:
(2) The other rules of the Court apply, so far as they are relevant and not inconsistent with these rules -
(a) to a proceeding in the Court under the Corporations Act or the ASIC Act that is commenced on or after the commencement of these rules;
Therefore, in the absence of any equivalent provision in the Corporations Act or the Corporations Rules, r 1.3 of the Corporations Rules applies to O 2 of the SCR to these proceedings.
The Corporations Rules are silent as to the consequence of commencing an action by the incorrect originating process and as to strike out proceedings.
Section 467A of the Corporations Act provides that an application must not be dismissed merely because of a defect or irregularity in connection with the application. However, s 467A only applies to applications made under Part 5.4 or Part 5.4A of the Corporations Act and therefore has no relevance to the present case.
Section 1322 of the Corporations Act, is headed 'Irregularities' and provides:
(1) In this section, unless the contrary intention appears:
(a) a reference to a proceeding under this Act is a reference to any proceeding whether a legal proceeding or not; and
(b) a reference to a procedural irregularity includes a reference to:
(i) the absence of a quorum at a meeting of a corporation, at a meeting of directors or creditors of a corporation, at a joint meeting of creditors and members of a corporation or at a meeting of members of a registered scheme; and
(ii) a defect, irregularity or deficiency of notice or time.
(2)A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.
…
If proceedings commenced by the incorrect originating process are a procedural irregularity within the meaning of s 1322(1)(b)(ii), then I am satisfied the proceeding is not invalidated by virtue of s 1322(2) of the Corporations Act as there is no evidence in the present case of any substantial injustice that cannot be remedied by court order.
However, on the assumption that O 2 of the SCR applies to the present case, then any failure to commence the action by the correct originating process shall be treated as an irregularity and shall not nullify the proceedings. O 2 r 1(2) goes on to provide as follows:
Subject to subrule (3) the Court may, on the ground that there has been such a failure as is mentioned in subrule (1), and on such terms as to costs or otherwise as it thinks just, set aside either wholly or in part the proceedings in which the failure occurred, any step taken in those proceedings, or any document, judgment or order therein or exercise its powers under these rules to allow such amendments (if any) to be made and to make such order (if any) dealing with the proceedings generally as it thinks fit.
However, O 2 r 1(2) is expressed to be subject to O 2 r 1(3), which expressly provides that:
The Court shall not wholly set aside any proceedings or the writ or other originating process by which they were begun on the ground that the proceedings were required by any of these rules to be begun by an originating process other than the one employed.
Order 2 r 1 of the SCR specifically requires the court to adopt a remedial approach rather than a technical approach to the question of form.[34]
[34] Corruption and Crime Commission of Western Australia v McCusker AO QC [2009] WASC 44 [12] ‑ [13]. See also Re Banning; Ex Parte Banning [2018] WASC 313 [19] - [24].
The defendant accepts that, in accordance with O 2 r 1(3) of the SCR, the commencement of a proceeding by way of an incorrect or irregular process will not ordinarily warrant setting aside the entire writ and statement of claim.[35] However, the defendant says that in this case there are a number of other difficulties with the statement claim such it is otherwise defective and therefore submits that the irregularity is not capable of being cured.[36] In oral submissions, the defendant clarified that the other difficulties and deficiencies relied upon by the defendant are the matters raised by order 4 of the chamber summons, being the application to strike out the writ and statement of claim in whole or in part pursuant to O 20 r 19(1) (issue 2).[37]
[35] Defendant's submissions [9].
[36] Defendant's submissions [10].
[37] ts 5 - 6.
However, the defendant did not refer me to any authorities which supported this proposition. To proceed in this manner would be contrary to the plain wording of O 2 r 1(3) of the SCR[38] and potentially also contrary to s 1322 of the Corporations Act.
[38] Corruption and Crime Commission of Western Australia v McCusker AO QC [2009] WASC 44 [12] - [13]. The facts of Healy v Chopping [2021] WASC 328 being so fundamentally different to the present case that I do not consider it can be said that case is authority for the alternative proposition.
Accordingly, I do not consider it appropriate to grant the orders sought by order 1 of the chamber summons, and instead consider it appropriate to order that the writ of summons stand as a Form 2 originating process nunc pro tunc and that the plaintiff be ordered to file a supporting affidavit in accordance with r 2.4(1) of the Corporations Rules. I also consider that it is appropriate for this matter to proceed by way of pleadings.
Issue 2 - strike out application
Overview of parties' positions
The defendant seeks an order that the writ and statement of claim be struck out in its entirety on the basis that it discloses no reasonable cause of action, or that it is embarrassing. In the alternative, the defendant seeks an order that [5], [12], [13] of the statement of claim and the prayer for relief be struck out. During oral submissions, the defendant also included [11(b)] of the statement of claim.[39]
[39] ts 22.
The defendant relies upon the following alleged deficiencies in the statement of claim as the basis for his strike-out application:
(a)at best the plaintiff has only been assigned a bare right to recover from the defendant an amount as a debt due to Smartlink. However, the plaintiff has pleaded an entitlement to the proceeds of the assignment and therefore the prayer for relief should be struck out; [40]
(b)the plaintiff has failed to plead all required elements of the GST debt;[41] and
(c)the plaintiff has failed to adequately plead the loss and damage suffered by creditors.[42]
[40] Defendant's submissions [67] - [68].
[41] Defendant's submissions [69] - [75]. Although [76] refers to an RBA deficit debt, the defendant accepted in oral submissions that this issue is not relevant for the purposes of the strike out application: ts 13, 19 - 20.
[42] Defendant's submissions [77].
The defendant accepts that the strike out is primarily concerned only with the GST debt, and not any of the other debts pleaded by the plaintiff. The defendant submits that nonetheless, if he is successful on the strike out application then the entire statement of claim should be struck out, as the plaintiff's case is for a debt in a specific sum, and if the paragraphs in relation to the GST debt are struck out, then the prayer for relief should also be struck out and the plaintiff will need to start again,[43] and leave to re-plead is not appropriate.[44]
[43] ts 12 - 13.
[44] ts 67.
The specific response of the plaintiff to each of the above bases for the strike out application are set out below. However, by way of overview, the plaintiff submits that all required elements of the plaintiff's cause of action have been set out in sufficient detail to enable the defendant to understand the case that he has to meet, and there is no affidavit evidence to the contrary.[45]
[45] Plaintiff's submissions [78] - [81], [83].
The plaintiff also relies on the decision of Martin CJ in Barclay Mowlem Construction Ltd v Dampier Port Authority[46] for the proposition that the adequacy of the pleadings in this respect must also be considered in the context of contemporary case management techniques and pre-trial directions.[47]
[46] Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) 33 WAR 82 [4] - [7].
[47] Plaintiff's submissions [82].
Finally, the plaintiff says that if there are any deficiencies in the pleadings, then the appropriate order is that the plaintiff be entitled to re-plead those paragraphs.
Legal principles - strike out
The legal principles governing strike out applications are well established. They were summarised by Smith J in Vantage Holdings Group Pty Ltd v Donnelly [No 4][48] and approved by the Court of Appeal in English v Vantage Holdings Group Pty Ltd[49] and DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd:[50]
[48] Vantage Holdings Group Pty Ltd v Donnelly [No 4] [2019] WASC 398 [60(a)] - [60(j)].
[49] English v Vantage Holdings Group Pty Ltd [2021] WASCA 47 [56].
[50] DFD Rhodes Pty Ltd v Hancock Prospecting Pty Ltd [2022] WASCA 97 [226].
(a) the essential functions of a pleading are to define and limit the issues for decision, to provide the basis for determining discovery and the admissibility of evidence for trial, and to ensure a fair trial by putting the other side on notice of the case it must meet;
(b) a statement of claim must not plead allegations at too high a level of generality. A pleading must be sufficiently particular to conform with one of the primary objects of pleadings, to inform the opposing party of the case that it must meet;
(c) a statement of claim must state specifically the relief or remedy claimed;
(d) the court should proceed with caution before striking out a pleading on the ground that it does not disclose a reasonable cause of action. While the court may determine a difficult question of law on such an application, it would usually be appropriate to leave the determination of such questions for trial;
(e) in alleging no reasonable cause of action:
(i) the question to be decided is not whether the facts pleaded are in themselves sufficient to give rise to a cause of action. Rather, the question is whether it would be open to the party (on its pleadings) to prove facts at the trial which would constitute a cause of action; and
(ii) 'reasonable' means reasonable according to law. If the facts pleaded conceivably give rise to relief, then the cause of action should be held to be reasonable;
(f)the mere fact that a case appears weak is not of itself sufficient to strike out the action;
(g) in considering a strike out application, it is now necessary to consider the role of pleadings in the context of case management techniques. Case management considerations are not, however, necessarily antithetical to the observance of pleading rules. The objects of O 1 r 4A and 4B of the Rules of the Supreme Court 1971 (WA) are often promoted by a clear and precise statement of the issues for decision;
(h) provided a pleading fulfils its basic functions of identifying the issues, disclosing an arguable cause of action (or defence), and apprising the parties of the case that has to be met, the court ought properly be reluctant to allow the time and resources of the parties and the limited resources of the court to be spent extensively debating the application of technical pleading rules that evolved in, and derive from, a very different case management environment;
(i) pleadings may be struck out on the ground that they may prejudice, embarrass or delay the fair trial of the action because they are evasive, they conceal or obscure the real questions in controversy, they are ambiguous or not reasonably intelligible, they raise immaterial or irrelevant issues, they fail to confine the issues or state the case of the party in question with reasonable particularity, or they raise a case in terms which are simply too general; and
(j)irrelevant or unnecessary pleas in a statement of claim will be struck out on the grounds that they will prejudice, embarrass or delay the fair trial of the action where the defendant must traverse the allegations and, thereby, raise false issues.
(footnotes omitted)
In Barclay Mowlem Construction Ltd v Dampier Port Authority,[51] Martin CJ observed that contemporary case management techniques and processes leave very little opportunity for ambush at trial. At the time Barclay Mowlem was decided, the evidence of witnesses was generally contained in a witness statement filed prior to trial. Now, the evidence is usually adduced orally. However, an outline of the evidence-in-chief of lay witnesses must be disclosed pre-trial, reducing the risk of ambush in a similar manner to witness statement. There are also other pre-trial case management directions that may reduce the risk of ambush.
[51] Barclay Mowlem Construction Ltd v Dampier Port Authority (2006) 33 WAR 82 [4].
In Mitchell Warren Ball (in his capacity as official liquidator of Wealthfarm Group Services) v Nicholas Quinn Sinclair (Ball v Sinclair),[52] Brereton J outlined the critical elements of a cause of action under s 588M of the Corporations Act as follows:
[2]On an application under s 588M in respect of a contravention of s 588G, the plaintiff liquidator must establish that the company incurred a debt at the time the defendant was a director; that at the time the debt was incurred, the company was insolvent or became insolvent by reason of incurring the debt; and that at that time, the director was aware that there were grounds to suspect insolvency, or that a reasonable person in a like position would have been so aware. Having established those matters, the liquidator is entitled, pursuant to s 588M, to recover from the director as a debt due to the company an amount equal to the amount of loss or damage suffered by the creditor by reason of the company's insolvency.
[3]In such a case, it is necessary to plead when each debt relied on was incurred, and to plead when the company is said to have become insolvent, so that it can be seen that insolvency is established at the date when each relevant debt was incurred.
[52] Mitchell Warren Ball (in his capacity as official liquidator of Wealthfarm Group Services) v Nicholas Quinn Sinclair [2015] NSWSC 2103 [2] - [3].
In the present case the plaintiff, not being the liquidator, is also required to plead how the plaintiff asserts that it has standing to bring the action.
In the decision of Devine v Liu,[53] Parker J considered the adequacy of a liquidator's pleading in a claim made under s 588M and held that:
[37]…The date on which the debt is incurred is an essential aspect of the claim. Unless that date is known, it is impossible to evaluate whether the Company was insolvent or whether the elements of contravention in s 588G are made out.
[38]The question of when a debt is incurred may be a complex and contestable one. It is in my view essential that the Statement of Claim plead not only when it was that each debt was allegedly incurred but also how it was that the debt was incurred. The relevant contractual terms and the facts which give rise to the relevant debt should be pleaded so that they can be admitted or issue can be joined.
[53] Devine v Liu [2018] NSWSC 1453.
In Copeland v Murace,[54] Halley J, citing Devinev Liu held as follows:
The practical difficulties confronting liquidators in pleading and providing adequate particulars of insolvent trading cases, given the often incomplete and limited financial records of companies provided to them, are readily understandable. It is not sufficient, however, to identify only the creditor and the amount of the debts the subject of the alleged insolvent trading. As Parker J made clear in Devine at [37] ‑ [38], if a liquidator seeks to bring proceedings for insolvent trading, it is essential for them to identify the date or dates at which the debt was incurred and how it is alleged the debt arose. In my view, the degree of specificity to satisfy the second requirement depends on the nature of the debt. A loan from a related party may well require a more fulsome explanation than a debt incurred to a supplier for the acquisition of goods or services in the usual course of trading.
Entitlement to the fruits of the assignment
[54] Copeland v Murace [2023] FCA 14 [20].
The defendant raises the extent of the rights assigned to the plaintiff both in relation to his strike out and summary judgment applications. There are two aspects to this ground. First a legal question as to whether a liquidator can assign both the right to bring an insolvent trading claim against a director under s 588M of the Corporations Act as well as the fruits of that claim, and second what has, in fact, been assigned in the Deed of Assignment.
For the purposes of the defendant's strike out application, I have considered the first issue only. The second issue, being one that relies on the evidence of the Deed of Assignment, is considered in the context of the summary judgment application.
The key elements of the defendant's submission on this ground is that unless the assignment from the liquidator to the plaintiff is authorised by statute, then the plaintiff's proceedings are champertous.[55] The defendant accepts that s 100-5 of the Insolvency Practice Schedule (Corporations) confers on a liquidator the power to assign the liquidator's right to sue.[56] However, the defendant submits that neither s 477(2)(c) or s 100-5 authorise the liquidator to assign the fruits (or proceeds) of that litigation. In this regard, the defendant relies on the wording of s 477(2)(c) which empowers a liquidator to 'sell or otherwise dispose of, in any manner, all or part of the property of the company.' Property is defined in s 9 of the Corporations Act as:
any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or persona property of any description and includes a thing in action.
[55] Defendant's submissions [11], [32].
[56] Defendant's submissions [34].
The defendant submits that the plaintiff does not assert an assignment of any cause of action of the insolvent company (e.g. a breach of fiduciary duty, or breach of contract). Rather, the plaintiff relies on the assignment of the liquidator's right to sue under s 588M. Accordingly, there is no 'thing in action' of the insolvent company and therefore s 477(2)(c) cannot authorise the assignment of the fruits of the litigation.[57]
[57] Defendant's submissions [37], [43].
In addition, the defendant submits that the content of the liquidator's right to sue under s 588M is the right to recover damage and loss suffered 'as a debt due to the company' (and not the liquidator). Therefore, s 100-5 does not authorise the assignment of the fruits of the litigation.[58]
[58] Defendant's submissions [40] - [42].
Accordingly, the defendant says that the plaintiff pleads an entitlement to the fruits or proceeds of litigation which the plaintiff does not have and therefore prayer for relief A should be struck out.
In response, the plaintiff says that the courts have already determined that the fruits of litigation are 'property' of the company within the meaning of s 477(2)(c) of the Corporations Act and therefore it is within the power of a liquidator to assign those fruits.[59] Further, the plaintiff says that the authorities establish that the proceeds of an action in insolvent trading, which are recoverable by the liquidator as a debt due to the company, are 'property' of the company that are therefore capable of being sold or otherwise disposed of by the liquidator.[60]
[59] Plaintiff's submissions [41].
[60] Plaintiff's submissions [43].
In this regard, the plaintiff relies on the following cases (considered in chronological order).
In Re Movitor Pty Ltd (in liq)[61] Drummond J considered whether the proceeds of an action for insolvent trading were property of the company capable of being sold by the liquidator under s 477(2)(c) of the Corporations Act. Drummond J concluded that the proceeds were 'property' of the company because under s 588M and s 588W the liquidator recovers the money 'as a debt due to the company'. The reasoning of Drummond J was approved by Lindgren J in Re Tosich Construction Pty Ltd.[62]
[61]Re Movitor Pty Ltd (in liq) (1996) 64 FCR 380, 390 - 392.
[62]Re Tosich Construction Pty Ltd (1997) 73 FCR 219 at 235.
Elfic Ltd v Macks[63] is a decision of the Queensland Court of Appeal arising in the context of unfair preference claims brought by a liquidator, who had signed a funding agreement. The appellant sought a declaration that the funding agreement was void, which was dismissed at first instance. The appeal was dismissed. In the course of doing so, the court considered whether the proceeds from unfair preference claims under s 565 and insolvent trading claims under s 588M were 'property' of the company for the purposes of s 477(2)(c). The court concluded that they were.[64]
[63] Elfic Ltd v Macks (2003) 2 Qd R 125.
[64] Elfic Ltd v Macks (2003) 2 Qd R 125 [84] - [98] (McMurdo P) [199] - [206] (Davies JA, Cullinane J agreeing).
In Cook v Italiano Family Fruit Company Pty Ltd (in liq)[65] Finkelstein J considered the question of whether the proceeds from two unfair preference claims were to be distributed to a secured creditor or only to unsecured creditors. In so doing, Finkelstein J considered the question of whether the liquidator has the power to sell the proceeds of preference claims. Finkelstein J canvassed (amongst others) the cases referred to above and concluded that the Australian position is that preference proceeds are property of the company and the liquidator can sell the proceeds.[66]
[65] Cook v Italiano Family Fruit Company Pty Ltd (in liq) (2010) 190 FCR 474.
[66] Cook v Italiano Family Fruit Company Pty Ltd (in liq) (2010) 190 FCR 474 [33] - [44].
Finally, the plaintiff relies on the decision of Re Watch Works Australia Pty Ltd (In Liq) Ex Parte Francis & Ors,[67] which concerned an application by the liquidators for a pooling order pursuant to s 579E(1) of the Corporations Act and an ancillary order under s 579G(1)(d) to modify the ordinary operation of s 579E(2)(b) so as to enable particular assets to be used to meet debts payable. In considering whether to make a particular ancillary order, Vaughan J held that the prevailing view is that unfair preference proceeds are property of the company.[68]
[67] Re Watch Works Australia Pty Ltd (In Lia) Ex Parte Francis & Ors [2020] WASC 6.
[68] Re Watch Works Australia Pty Ltd (In Liq) Ex Parte Francis & Ors [2020] WASC 6 [100].
The plaintiff has pleaded that the liquidator is entitled to assign the claim under s 588M of the Corporations Act as a chose in action pursuant to s 477(2)(c) of the Corporations Act and further and alternatively s 100-5 of the Insolvency Practice Schedule (Corporations). In light of the above authorities, I am satisfied for the purposes of the strike out application, that the pleadings disclose a reasonable cause of action that the plaintiff is the recipient of an assignment by the liquidator of both the cause of action under s 588M of the Corporations Act and the proceeds of that litigation.
GST pleading
It is not in dispute that the GST debt as pleaded by the plaintiff in [5(b)] and [7] of the statement of claim is an aggregation of various alleged GST debts.
In [5(b)], the plaintiff pleads that a total amount of $584,563.93 is due to the Deputy Commissioner of Taxation, that total amount comprising $583,927.73 for unpaid goods and services tax and associated interest and charges, which accrued, and was due and payable, from 26 April 2018.
In [7] of the statement of claim, the plaintiff goes on to plead the following further facts about the GST debt:
[7]In respect of the GST Debt:
(a) the Subdivided Lots were the subject of contracts of sale between Smartlink and members of the public (Sale Contracts);
(b) the Sale Contracts provided, relevantly and in effect, that settlement of the sale of the Subdivided Lots would take place 21 days after the day on which the buyer was notified that a separate certificate of title had been issued for the lot by the Registrar of Titles;
(c) the Registrar of Titles commenced registering certificates of title for the Subdivided Lots on and from December 2017;
(d) buyers under the Sale Contracts were notified that certificates of title for the Subdivided Lots had been issued by the Registrar of Titles after 10 January 2018;
(e) by virtue of the matters pleaded at paragraphs 7((a)) - ((d)), sales of the Subdivided Lots were settled after 31 January 2018;
(f) payment was received by Smartlink for those sales after 31 January 2018;
(g) by virtue of the matters pleaded at paragraphs 7((a)) - ((f)), Smartlink became liable to pay goods and services tax to the Deputy Commissioner of Taxation on or around 26 April 2018; and
(h) Mr Gu knew of the matters pleaded at paragraphs 7((a)) - ((g)).
The defendant's case is that the plaintiff has not properly pleaded the material facts necessary to establish that a GST debt is owed by Smartlink. The defendant submits that the style of pleading adopted by the plaintiff is not usual and that the plaintiff is required to plead:
(a)the making of each individual GST assessment (since it is the assessment itself that creates the tax liability), the service thereof, and the non-payment;[69] and
(b)each of the taxable supplies in a particular GST period, the corresponding input tax credits, any increasing or decreasing adjustments (under Part 2-4 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act)) and the applicable relevant tax period at the end of which the nett GST liability becomes due.[70]
[69] Defendant's submissions [71].
[70] Defendant's submissions [75].
In support of these propositions, the defendant:
(a)relies on the decision of the NSW Court of Appeal in Fenato v Chief Commissioner of State Revenue;[71]
(b)relies on the following provisions of the GST Act: s 9-5, 7-5, 7‑10, 7-15, 27-5, 33-3, 33-5 and Part 2-4; and
(c)submits that it is not clear that the plaintiff (being a person taking a purported assignment from the liquidator) can rely on the 'conclusive evidence provisions' in the Taxation Administration Act 1953 (Cth) (TA Act) that would ordinarily be relied upon by the Commissioner of Taxation in any tax recovery proceedings being: Part IV, s 14ZZK, 14ZZO, division 155 of Schedule 1, s255-5 of Schedule 1, s 350-10 of Schedule 1.[72]
Fenato v Chief Commissioner of State Revenue
[71] Fenato v Chief Commissioner of State Revenue (2010) 78 NSWLR 20 [23], [63]. See ts 14 - 17.
[72] Defendant's submissions [69] - [76]; ts 14 - 17.
Fenato v Chief Commissioner of State Revenue concerned an application for leave to appeal from a decision of the New South Wales District Court to enter judgment in default of a defence in an application by the Chief Commissioner to recover unpaid land tax. Gzell J (Beazley and MacFarlan JJA agreeing) upheld the appeal on the basis that the statement of claim in the matter failed to plead the various matters required by the relevant legislation. In particular, s 14(1) of the Land Tax Management Act 1956 (NSW) provided that the Chief Commissioner was required to cause an assessment to be made of the taxable value of land owned by any taxpayer and of the land tax payable thereon.[73] Further, s 39 set out that land tax payable by a taxpayer is due and payable as required by the relevant notice of assessment served on the taxpayer and that no payment of land tax is required earlier than 30 days after service of the notice of assessment on the taxpayer.[74] Gzell J held that the statement of claim failed to plead the essential elements of the cause of action as required by s 14(1) and s 39. In particular, the statement of claim failed to plead service of the notice of assessment, the due date for payment in the notices of assessment.[75] Accordingly, the appeal was upheld and the default judgment set aside.
[73] Fenato v Chief Commissioner of State Revenue 78 NSWLR 20 [17].
[74] Fenato v Chief Commissioner of State Revenue 78 NSWLR 20 [23].
[75] Fenato v Chief Commissioner of State Revenue 78 NSWLR 20 [39] - [44].
Accordingly, Fenato v Chief Commissioner of State Revenue is not authority for the proposition that the making of each individual GST assessment and/or each of the GST taxable supplies must be pleaded. Rather, Fenato v Chief Commissioner of State Revenue is authority for the proposition that the essential elements of a pleading for a statutory cause of action are to be determined by the wording of the relevant statute upon which the cause of action is based. In the present case, that involves consideration of the relevant provisions of the GST Act and the TA Act.
Provisions of the GST Act
The defendant has identified a number of provisions of the GST Act and the TA Act which he says bear upon the pleading requirements in relation to the GST debt. Accepting that the statutory provisions are detailed and complex, the key provisions and their requirements can be summarised as follows:
(a)GST is payable on 'taxable supplies' (s 7-1 of the GST Act). A taxable supply is incurred when the taxpayer makes the supply for consideration and the supply is done in the course of the business (s 9-5 of the GST Act). A supply includes the supply of goods and services (s 9-10 of the GST Act);
(b)the amounts of GST and the amounts of input tax credits are set off against each other to produce a net amount for a tax period (s 7-5 of the GST Act);
(c)provision is also made for various adjustments to be made to those amounts (Part 2-4 of the GST Act);
(d)the amount payable to the Commonwealth is assessed as the 'net amount for a tax period' (s 7-15 of the GST Act);
(e)generally, the tax periods are each period of 3 months ending on 31 March, 30 June, 30 September or 31 December in any year (s 27-5 of the GST Act);
(f)a registered taxpayer must give to the Commissioner a GST return for each tax period. For a quarterly tax period, the GST return must be provided on or before 28 October, 28 February, 28 April and 28 July (as applicable) (s 31-5 and 31-8 of the GST Act);
(g)if a taxpayer has been registered to pay GST instalments quarterly, the assessed net amount of GST for a tax period must be paid to the Commissioner on or before 28 October, 28 February, 28 April and 28 July (as applicable) (s 33-1, 33-5 and162-70 of the GST Act); and
(h)the Commissioner is treated as having made an assessment under s 155-5 of the TA Act of a net amount of GST when the taxpayer provides the Commissioner with their GST return for the relevant tax period (s 155-15 of the TA Act).
The result of the above provisions is that the GST liability arises on the date of the taxable supply (in this case the settlement of the various subdivided lots),[76] but does not crystalise until the end of the relevant tax period when the taxpayer provides the Commissioner with their GST return, and it does not become payable to the Commissioner until 28 days after the end of the relevant GST instalment quarter.[77]
[76] See Re Salfa Pty Limited (in liquidation) (ACN 082 308 101) [2014] NSWSC 1493 [16].
[77] See Eskdale South Cattle Company Pty Ltd v Deputy Commissioner of Taxation [2013] FCA 1125 [20] ‑ [22]; See, also Anderson v Federal Commissioner of Taxation [2015] AATA 167 [21] - [22].
Whilst none of these provisions proscribe what must be pleaded in an insolvent trading claim pursuant to s 588M, I consider these provisions are relevant to the issue of when the GST debt was incurred.
The plaintiff has not pleaded this level of detail in the statement of claim. Rather, the plaintiff pleads that the GST debt relates to the sale of subdivided lots, and pleads that settlement for those sales, and payment to Smartlink, occurred after 31 January 2018. The plaintiff goes on to plead that Smartlink became liable to pay the GST on or around 26 April 2018. The plaintiff does not plead each individual sale of a subdivided lot which has occurred or the settlement date for each individual lot.
Whilst pleading that the GST liability arose after 31 January 2018 may enable the defendant to understand whether the alleged debt arose after the pleaded date of insolvency, the lack of a specific pleading in relation to each individual sale denies the defendant the opportunity to understand and plead in relation to each specific sale and admit, join issue or plead any other relevant material facts for each sale. For example, it may be that the defendant does not accept that all the subdivided lots settled after 31 January 2018.
Further, the lack of a pleading as to a GST assessment being made raises the question of whether all necessary elements exist for the purposes of when the GST debt crystalised and became due and payable. I do not consider it is necessary for the purposes of s 588M for the plaintiff to plead each input tax credit and/or adjustment in circumstances where the making of a GST assessment is pleaded.
Therefore, in all the circumstances I am satisfied that the plaintiff's pleading in [5(b)] and [7] of the statement of claim is embarrassing in that it is pleaded at too high a level of generality and therefore obscures the case which the defendant has to meet in relation to the GST debt.
Provisions of TA Act
The defendant also relies on several 'conclusive evidence provisions' of the TA Act. Broadly speaking, these provisions deal with matters of proof in actions to recover unpaid taxes. The defendant submits that it is not clear that the plaintiff, being only a person taking a purported assignment from the liquidator, and not being the Commissioner, is able to rely on these provisions.[78] Whether this is correct or not, this is not a matter which goes to the adequacy of the pleadings and which is relevant for the purposes of the strike out application. Rather, this is a matter which goes to how the plaintiff may seek to prove the matters pleaded in his statement of claim.[79]
Loss and damage
[78] ts 14 - 15.
[79] See also the exchange at ts 14 - 15.
An element of the cause of action for insolvent trading is that the creditors of the company have suffered loss or damage.[80] The plaintiff pleads in [5] of the statement of claim the various debts which it alleges are owed by Smartlink. In [11] the plaintiff then pleads:
[11]As at the date of commencing these proceedings:
(a)Smartlink does not have sufficient assets to satisfy the Debts; and
(b)the creditors of the Debts have suffered loss and damage because of Smartlink's insolvency.
[80] Corporations Act, s 588M(2).
The plaintiff also pleads that a written demand for the debts was made to the defendant on 16 September 2022, and that the defendant failed to pay the amount of the debts to the plaintiff or any amount at all.[81] In the prayer for relief, the plaintiff claims as against the defendant the payment of $730,608.46 in respect of the various debts.[82] This figure is the total of all debts pleaded in [5] of the statement of claim.
[81] Statement of Claim [19] - [20].
[82] Statement of Claim, Prayer A.
The defendant submits that this is an inadequate pleading as it does not specify the amount of loss and damage suffered by each individual creditor. The defendant says that the amount of loss and damage is not necessarily the same as the amount of each debt. The defendant says that it may be the case that payments have been made to the various creditors, or in the case of the GST debt, that the Australian Taxation Office has issued director penalty notices[83] and that these may affect the amount of the loss or damage. The defendant submits that these matters need to be pleaded in order for there to be a reasonable cause of action and for the pleadings to be sufficiently clear so that he is able to plead to the statement of claim. In this regard, the defendant relies on the decisions of Re Salfa Pty Limited (in liquidation) (ACN 082 308 101),[84] Powell v Fryer[85] and Ball v Sinclair.[86]
[83] See s 269-20 and s 269-40 of Schedule 1 to the TA Act.
[84] Re Salfa Pty Limited (in liquidation) (ACN 082 308 101) [2014] NSWSC 1493 [21] - [25].
[85] Powell v Fryer (2001) 159 FLR 433 [72].
[86] Mitchell Warren Ball (in his capacity as official liquidator of Wealthfarm Group Services) v Nicholas Quinn Sinclair [2015] NSWSC 2103 [14] - [15].
The plaintiff says that when the statement of claim is read as a whole it is clear that the amount of loss and damage suffered by the creditors is sufficiently identified as being the amount of each debt.[87]
[87] ts 62.
The authorities establish that the liquidator is entitled to recover the amount of loss and damage suffered by the creditor because of the debtor's insolvency. The starting point for calculating that loss and damage will be the amount of the unpaid debt, but it may not be the same amount and may also depend on (for example) what, if any payments, are made to creditors in the winding up.[88]
[88] Re Salfa Pty Limited (in liquidation) (ACN 082 308 101) [2014] NSWSC 1493 [24].
In the cases of Re Salfa and Ball v Sinclair, Brereton J was satisfied that the plaintiff in each case had been able to establish a breach of s 588G of the Corporations Act. However, in calculating the loss or damage that the liquidator was entitled to recover, Brereton J stressed the importance of considering not only the amount of each debt, but also whether any payments had been made to creditors as part of the winding up proceedings, or would likely be made. Brereton J did not strike out or dismiss either action (although no strike out application had been made in either case). Rather, in Re Salfa,[89] Brereton J considered that he did not have any information before him as to payments to creditors (actual or anticipated) and therefore was unable to be satisfied what if any loss had been suffered by the creditor. Brereton J adjourned the originating process to permit the liquidator to adduce further evidence. In Ball v Sinclair,[90] after reviewing the evidence filed in the application, Brereton J calculated the amount which would prima facie be available to fund a dividend for creditors. That sum was then deducted from the total amount of the debts to calculate the amount of the loss or damage suffered by the creditors by reason of the company's insolvency.
[89] Re Salfa Pty Limited (in liquidation) (ACN 082 308 101) [2014] NSWSC 1493 [25] and [29].
[90] Mitchell Warren Ball (in his capacity as official liquidator of Wealthfarm Group Services) v Nicholas Quinn Sinclair [2015] NSWSC 2103 [15] - [16].
I do not accept the defendant's criticisms of this aspect of the statement of claim. I accept that the loss or damage suffered by the creditors is not necessarily the same as the amount of the debts incurred (although in any one case it may be). When the statement of claim is read as a whole, I am satisfied that the statement of claim discloses a reasonable cause of action in this respect. The plaintiff has pleaded the details of the various debts owed (including the amounts), when those debts accrued, that the creditors have suffered loss and damage and then the amount claimed in the prayer for relief. Whether the plaintiff will be able to prove that loss and damage is a separate matter. In the course of proving that loss or damage the plaintiff will need to account for any payments made to the creditors and director penalty notices. To the extent discovery identifies any such payments, it is open to the defendant to plead those facts in his defence if so chooses.
However, in light of my conclusion as to the inadequacies of the plaintiff's pleadings in relation to the GST debt, the amount of loss or damage as pleaded in the prayer for relief is now incorrect and will require amendment.
Issue 3 - summary judgment
Preliminary question
Prior to addressing the defendant's application for summary judgment, there is a preliminary question as to whether the court has jurisdiction to consider the application at all.
The defendant's application for summary judgment is made pursuant to O 16 r 1(1) of the SCR, which provides:
Any defendant to an action may within 21 days after appearance or at any later time by leave of the Court, apply to the Court for summary judgment … (emphasis added)
In the present case the defendant has filed a conditional appearance and the question is therefore whether a conditional appearance constitutes an appearance for the purposes of O 16 r 1(1) of the SCR.
I am of the opinion that it does not. In this regard, I note that in accordance with O 12 r 6(1) a conditional appearance is filed by a defendant:
denying the jurisdiction of the Court or reserving the right to apply to the Court to set aside the originating process, or the notice thereof, or the service of the originating process, or notice thereof, on the ground of any informality or irregularity which renders the originating process or the service thereof invalid, and shall not thereby be deemed to have submitted to such jurisdiction, except as to the costs occasioned by the appearance or by any application under this rule. (emphasis added)
A defendant filing a conditional appearance is required to apply to have the question raised by the conditional appearance decided, and if such an application is not made within 14 days from the entry of the conditional appearance (or if the application is dismissed) the conditional appearance shall, unless the court otherwise orders, become and operate as an unconditional appearance.[91]
[91] O 12 r 6(2) of the SCR.
A conditional appearance is filed where the defendant disputes the jurisdiction or authority of the court to decide the matter before it for some reason.[92] Whilst the defendant no longer presses the subject matter jurisdiction complaint, the defendant does press that aspect of the conditional appearance that the writ is irregular and should be struck out as invalid.
[92] Monteleone v The Owners of the Old Soap Factory & Ors [2007] WASCA 79 [24].
In the decision of Roche v Douglas,[93] Master Sanderson also formed the view that a defendant could not bring a summary judgment application when only a conditional appearance had been filed as follows:
In relation to the summary judgment application there is a difficulty. Order 16 allows an application to be made "within 21 days after appearance". The requirements of an appearance are set out in O 12 r 2. In particular, the appearance must be in accordance with the specified form. In my view, a conditional appearance is not an appearance as that term is used in O 16. Under O 12 r 6(2) a conditional appearance becomes unconditional when an application to set aside the originating process is dismissed. This means the application for summary judgment can only be considered after an application to set aside the originating process has been heard and dismissed. Furthermore, any application for summary judgment made prior to determination of whether or not the originating process should be set aside is premature and must fail…
[93] Roche v Douglas[2000] WASC 22 [3].
In City Clock (Australia) Limited v Primesite Outdoor Advertising Limited,[94] Master Bredmeyer considered an application to set aside judgment entered in default of filing a defence. A question arose as to the status of a conditional appearance and whether it constitutes an appearance for the purposes of O 20 r 1 and r 4 of the SCR. Master Bredmeyer held that a conditional appearance did not constitute an appearance for the purposes of O 20 r 1 and r 4 of the SCR and that it was only once the conditional appearance became unconditional that there was an appearance for the purposes of O 20 r 1 and r 4 of the SCR.
[94] City Clock (Australia) Limited v Primesite Outdoor Advertising Limited, unreported 950293, 9 June 1995, 5 - 7.
See also Tardiani v Steele[95] and D'Ath v TNT Australia Pty Ltd.[96]
[95] Tardiani v Steele [1943] QWN 48.
[96] D'Ath v TNT Australia Pty Ltd [1992] 1 Qd R 369, 381 - 382.
The parties submitted that I could proceed to hear the application to strike out the writ and statement of claim, and if I decided that the writ should not be struck out, that I could make an order that the conditional appearance stand as an unconditional appearance nunc pro tunc. I was not referred to any authority in support of this submission, and it appears contrary to the wording of O 12 r 6(1) of the SCR whereby a conditional appearance becomes unconditional upon the expiry of 14 days after it is filed (if the defendant does not make an application to have the question raised by the conditional appearance decided) or the date of the court determining the defendant's application.
I am therefore of the view that it is not open to the defendant to bring an application for summary judgment at this stage of the proceedings as he has only filed a conditional appearance. However, in the event that I am wrong in this respect I would not have exercised my discretion to grant summary judgment for the following reasons.
Legal principles - summary judgment
Order 16 r 1 of the SCR provides that the court may order summary judgment on the application of the defendant, if satisfied that the action is frivolous or vexatious, that the defendant has a good defence on the merits, or that the action should be disposed of, summarily or without pleadings. In substance, each of those three matters amounts to the same thing, being that the plaintiff's action is so clearly untenable that it could not possibly succeed at a trial in the ordinary way.[97]
[97] NRW Contracting Pty Ltd v Cliffs Asia Pacific Iron Ore Pty Ltd [2020] WASCA 107 [52]; Pisano v South Metropolitan Health Service [2023] WASCA 80 [50].
The principles applicable to an application for summary judgment under O 16 r 1(1) of the SCR are well known and were summarised by the Court of Appeal in Pisano v South Metropolitan Health Service[98] as follows:
[98] Pisano v South Metropolitan Health Service [2023] WASCA 80 [52].
1.The power to order summary judgment is one that should be exercised with great care (sometimes expressed as 'exceptional caution'). A party should not ordinarily be denied the opportunity to have its case determined following trial. It is only in the clearest of cases, where there is a high degree of certainty about the ultimate outcome of the proceedings if they were to go to trial, that summary judgment ought properly to be granted. Accordingly, summary judgment will be granted only where it is clear there is no real question to be tried.
2.Put alternatively, the relevant question for summary dismissal is whether, on the materials before the court, it has been demonstrated that the plaintiff's action should not be permitted to go to trial in the ordinary way because it is apparent that it must fail.
3.At all times the defendant retains the legal onus of demonstrating that the application for summary judgment ought to succeed. The defendant must establish that there is no real question to be tried on any cause of action raised by the plaintiff.
4.If a defendant's affidavit material establishes the basis for the summary judgment application, the plaintiff may assume an evidentiary onus to show why summary judgment should not be given. The plaintiff may, by an affidavit to show cause pursuant to O 16 r 2(1) RSC, seek to demonstrate the existence of a triable issue. The plaintiff's affidavit must condescend to particulars - it must set out facts which establish that it is reasonable to allow the plaintiff to pursue the action.
5.Actions should not be disposed of summarily where the material factual issues between the parties are in dispute. Similarly, summary dismissal should not be awarded simply because the court has formed the view that the plaintiff is unlikely to succeed on the factual issues. Unless the evidence is inherently incredible, where there is a conflict in the affidavit evidence the court should approach the summary judgment application on the basis that the facts set out in the affidavits of the party resisting judgment will be accepted at trial. But the court is not bound to accept uncritically, as raising a factual dispute calling for further investigation, every statement in an affidavit however inherently improbable in itself or equivocal, lacking in precision or inconsistent with undisputed contemporary documents or other statements by the deponent.
6.Where a plaintiff's claim depends on propositions of law apparently precluded by existing authority that may not always be the end of the matter. The court should be careful not to risk stifling the development of the law by summarily rejecting a claim if there is a reasonable possibility that the law is developing. Summary processes must not be used to stultify the development of the law where existing authority may be overruled, qualified or further explained.
7.It is not the case that summary judgment will only be given where the action is so hopeless as to not require argument. Extensive argument may be necessary to demonstrate that the plaintiff's case is so clearly untenable that it cannot possibly succeed.
8.On an application under O 16 r 1(1) RSC the plaintiff is confined to the causes of action pleaded in the statement of claim (although the statement of claim will be construed broadly and generously, with ambiguities assumed in favour of the plaintiff, and a reasonable application to amend will be permitted). It is not for the court to identify or accept possible causes of action which are arguably available on the evidence but are not pleaded.
(citations omitted)
See also Gerovich v Gerovich[99] for the same principles in relation to applications for summary judgment.
Defendant's application
[99] See also Gerovich v Gerovich [2018] WASC 153 [26] - [33] (Pritchard J).
The defendant's chamber summons advances the following three bases for the summary judgment application:
(a)the purported assignment of the liquidator's right to sue under s 588M(2) of the Corporations Act is invalid as the liquidator failed to first comply with s 260-45 of Schedule 1 to the TA Act in that he parted with Smartlink's property without first obtaining the Commissioner's permission or receiving the relevant Commissioner's notice; or
(b)the assignment by the liquidator is valid, but what was assigned to the plaintiff was only the liquidator's right under s 588M(2) of the Corporations Act to sue for recovery 'of a debt due to the company' and not the fruits of that litigation; or
(c)Smartlink's tax-related liability to the Commissioner was actually a nett 'RBA deficit debt' liability recorded on a 'Running Balance Account' established by the Commissioner under Part IIB of the TA Act, which is not a debt 'incurred' by Smartlink within the meaning of s 588G(1)(a) of the Corporations Act.
The defendant also advanced a fourth reason, being that the Commissioner has suffered no loss or damage in relation to the GST debt for the purposes of s 588M of the Corporations Act.
The defendant relies on the following affidavit evidence in support of its application for summary judgment:
(a)affidavit of Yi Hua Tan, sworn 16 November 2022;
(b)affidavit of Yi Hua Tan, sworn 8 February 2023; and
(c)affidavit of Yi Hua Tan, sworn 7 March 2023.
The plaintiff relies on the affidavit of Xio He, sworn 17 February 2023.
I have considered the four bases raised for the summary judgment application, separately from my conclusions in relation to the defendant's strike out application.
Basis 1 - failure to comply with s 260-45 of Schedule 1 to the TA Act
The defendant's first basis for summary judgment is that the liquidator's assignment of the cause of action under s 588M is invalid for the reason that the assignment was contrary to s 260-45 of Schedule 1 to the TA Act, which relevantly provides as follows:
(1) This Subdivision applies to a person who becomes a liquidator of a company.
(2) Within 14 days after becoming liquidator, the liquidator must give written notice of that fact to the Commissioner.
(3)The Commissioner must, as soon as practicable, notify the liquidator of the amount (notified amount) that the Commissioner considers is enough to discharge any *outstanding tax-related liabilities that the company has when the notice is given.
(4) The liquidator must not, without the Commissioner's permission, part with any of the company's assets before receiving the Commissioner's notice.
(5) However, subsection (4) does not prevent the liquidator from parting with the company's assets to pay debts of the company not covered by either of the following paragraphs:
(a) the *outstanding tax-related liabilities;
(b) any debts of the company which:
(i) are unsecured; and
(ii) are not required by an *Australian law, to be paid in priority to some or all of the other debts of the company.
(6) After receiving the Commissioner's notice, the liquidator must set aside, out of the assets available for paying amounts covered by paragraph (5)(a) or (b) (the ordinary debts), assets with a value calculated using the following formula:
where:
amount of ordinary debts means the sum of the company's ordinary debts other than the *outstanding tax-related liabilities.
(7) The liquidator must, in his or her capacity as liquidator, discharge the *outstanding tax-related liabilities, to the extent of the value of the assets that the liquidator is required to set aside.
(8) The liquidator is personally liable to discharge the liabilities, to the extent of that value, if the liquidator contravenes this section.
The defendant's evidence is that the Commissioner of Taxation had not issued the notice referred to in s 260-45(3) prior to the liquidator purporting to assign the cause of action to the plaintiff. Rather, the notice was not given until on or after 5 September 2022.[100] As the plaintiff has not controverted that evidence, it is to be accepted for the purpose of this application. The defendant's evidence does not address the question of whether the Commissioner has otherwise provided the liquidator with permission to part with any of Smartlink's assets before receiving the Commissioner's notice pursuant to s 260-45(4). The plaintiff has not filed any evidence addressing this issue, and therefore accepts that it is open to this court to draw an inference that no such permission was granted. However, the plaintiff also submits that he is not the liquidator and therefore some caution should be exercised by the court in drawing that inference.[101] For the purposes of the summary judgment application I will proceed on the basis that no permission was granted by the Commissioner.
[100] Affidavit of Yi Hua Tan sworn 16 November 2022, attachment JT4.
[101] ts 42.
It is not in dispute that the proceeds of the insolvent trading claims assigned by the liquidator to the plaintiff formed part of the assets of Smartlink within the meaning of s 260-45(4).[102]
[102] Plaintiff's submissions [23]; Defendant's submissions [25] - [26].
The question is therefore whether the failure of the liquidator to wait until he received the Commissioner's notice (or other permission from the Commissioner) prior to assigning the insolvent trading claim to the plaintiff, results in the assignment being invalid, with the consequence that the plaintiff does not have a cause of action against the defendant pursuant to s 588M of the Corporations Act.
The answer to this question is a matter of statutory construction of the TA Act. In Project Blue Sky v Australian Broadcasting Authority,[103] the High Court held that an act done in breach of a condition regulating the exercise of statutory power is not necessarily invalid and of no effect. Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition. The High Court also held that a finding of such a legislative purpose (or not as the case may be) often reflects 'a contestable judgment' and whilst cases may identify relevant factors, there is no decisive rule that can be applied or even a ranking of relevant factors or categories to give guidance.[104]
[103] Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 [91].
[104] Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 [91].
Ascertaining that purpose is to be undertaken by applying the ordinary principles of statutory interpretation, which do not need to be repeated in detail here, other than to say that statutory construction requires attention to the text, context and purpose of the legislation. The primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute.[105]
[105] See Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue (2009) 239 CLR 27 [4], [47]; SZTAL v Minister for Immigration and Border Protection (2017) 91 ALJR 936 [14], [37]; Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 [59]; Mohammadi v Bethune [2018] WASCA 98 [31] - [36].
In this case, the defendant has identified a number of factors in support of his construction. These include that the language of the prohibition contained in s 260-45(4) is both imperative and is a clear rule-like quality, which is consistent with an intention that a failure to comply results in invalidity.[106]
[106] Defendant's submissions [26] - [27] citing Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 [95].
The defendant also relies on s 260-50 which provides that it is an offence for a liquidator to file to comply with s 260-45(2) and (4) ‑ (7).[107]
[107] Defendant's submission [29].
The defendant also relies on the importance of the liquidator being informed of the notified amount under s 260-45(3), as unless this occurs, the liquidator cannot know the amount of Smartlink's assets to set aside in accordance with the formula contained in s 260-45(6) and cannot fulfil their obligation to pay outstanding tax-related liabilities in accordance with s 260-45(7).[108]
[108] Defendant's submissions [28] - [31].
In response, the plaintiff accepts that the language of s 260-45(4) is drafted in clear, imperative language which possess a rule-like quality, which is a factor in favour of the defendant's construction.[109]
[109] Plaintiff's submissions [26].
However, the plaintiff submits that there are two contextual features which mitigate against a construction that a failure to comply with the obligation in s 260-45(4) results in the invalidity of the assignment.
First, the plaintiff says that the scheme of the TA Act to which s 260-45 is part, does not depend on invalidity to achieve its purpose. In this regard, the plaintiff relies on the fact that s 260-45 is located within Part 4-15 of Chapter 4 of Schedule 1 to the TA Act, which deals with the Commissioner recovering tax liabilities from entities other than the taxpayer and s 260-45 itself is concerned with liquidators. The plaintiff submits that the provisions of s 260-45 deal with how the Commissioner is to go about ensuring tax debts are recovered in proportion to other unsecured creditors. The plaintiff specifically relies on s 260-45(8) which provides that a liquidator is personally liable to discharge the liabilities to the extent of the value notified by the Commissioner. The plaintiff submits that if every disposition made in contravention of s 260-45 was intended to be invalidated, then there would be no need for s 260-45(8) as title to the property would never pass from the company. Rather, protection of the Commissioner's interest in recovering tax debts in proportion to other unsecured creditors is protected first by way of the prohibition and second by way of making the liquidator personally liable. [110]
[110] Plaintiff's submissions [29] - [30] citing Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 [94].
Secondly, the plaintiff also submits that, properly construed, s 260-45 regulates the exercise of functions already conferred on the liquidator (being conferred by s 477(2)(c) of the Corporations Act and s 100-5 of the Insolvency Practice Schedule (Corporations), rather than imposing essential preliminaries couched in unequivocal terms to the exercise of those functions, which is an indication that a breach of s 260-45(4) was not intended to invalidate the action in question.[111]
[111] Plaintiff's submissions [31] - [33], citing Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 [94]; ts 43 - 44.
Finally, the plaintiff submits that great inconvenience and injustice would result to entities taking an assignment for valuable consideration in reliance on the conduct of the liquidator if every breach of s 260-45 resulted in the invalidity of the assignment, and that public inconvenience is a factor against a construction of invalidity.[112]
[112] Plaintiff's submissions [34] - [35] citing Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 [97].
In all the circumstances, I do not consider it appropriate to exercise my discretion to grant summary judgment to the defendant on this ground. The ground depends on a question of statutory interpretation, and the plaintiff has put forward several cogent factors in favour of its construction of s 260-45 of the TA Act. The answer to the question is a matter of contestable judgment and arises in circumstances where neither party referred me to any decisions which have considered the question of the effect of a failure of a liquidator to comply with s 260‑45(4). Caution should be exercised before granting summary judgment in these circumstances.[113] I also note that the provisions in question are part of national scheme involving the TA Act and the Corporations Act and therefore resolution of the question of construction will have wider implications.
[113] Garms v Birnzwejg (1990) 2 Qd R 336, 343; Victorian WorkCover Authority v Baldwin & Ors (No 2) [2022] VSC 208 [41]; Zaghloul v Bayly [2021] WASCA 125 [117] - [118].
Accordingly, I do not consider it can be said that the plaintiff's case is so clearly untenable that it cannot succeed at a trial in the ordinary way.
Basis 2 - fruits of the litigation unassignable
As outlined earlier in these reasons, the defendant raises the extent of the rights assigned to the plaintiff both in relation to his strike out and summary judgment applications.
In so far as the defendant relies on the legal question of whether a liquidator can assign both the right to bring an insolvent trading claim against a director under s 588M of the Corporations Act as well as the fruits of that claim, I refer to my reasons when considering this issue in the context of the defendant's strike out application. In light of the various authorities canvassed earlier in my reasons, I do not consider it can be said that the plaintiff's case is so clearly untenable that it cannot succeed at a trial in the ordinary way.
However, the defendant also relies on a second aspect to this ground in the context of his summary judgment application. The defendant submits that when regard is had to the wording of the Deed of Assignment, the liquidator has not in fact assigned the fruits of the litigation, but only the bare cause of action.[114]
[114] ts 25.
In this regard, the defendant refers to the operative provision of the Deed of Assignment,[115] being clause 3.1 which provides as follows:
In consideration for H2 making the Assignment Payment and the ongoing payment of the Liquidator's Statutory Costs and the Liquidator's Assistance Costs, the Liquidator hereby assigns to H2 all of his estate and interest in the Insolvent Trading Claim with effect from the date of this Deed.
[115] Affidavit of Xiao He, attachment XH-1.
Insolvent Trading Claim is defined in clause 1 as:
any Claim for insolvent trading under sections 588G and 588M of the Corporations Act 2001 (C'th) held by the Liquidator against Mr Gu.
The defendant submits that the effect of clause 3.1 is that the liquidator has only assigned his interest in the insolvent trading claim, and the liquidator's interest is limited to the right to bring the insolvent trading claim and recover the loss or damage as a debt due to Smartlink. That is, the liquidator himself does not have any interest in the fruits of the insolvent trading claim and therefore they have not been assigned under clause 3.1.[116]
[116] ts 25.
In response, the plaintiff refers to the definition of 'Claim' in clause 1, which includes:
any allegation, debt, cause of action, liability, cost (including legal costs and expenses), remedy, damage, loss, action, claim, claim for compensation, demand, proceeding, suit, litigation, investigation, notice, judgment or audit of any nature and whether present or future, fixed or unascertained, actual, contingent or prospective, however arising whether in law or equity, under statute or otherwise and whether or not the parties were or are aware of them or could have been aware of them.
The plaintiff submits that this definition is sufficiently broad to cover the fruits of the litigation and in this regard relies on the references to remedy, damage and loss in the above definition, as well as the references to contingent or future.[117]
[117] ts 58.
The plaintiff also relies on clauses 5.5 and 5.6 of the Deed. Clause 5.5 provides that (subject to the payment of all amounts to the liquidator under the Deed) in the event of H2 bringing a successful Insolvent Trading Claim and obtaining judgment or settlement in his favour:
the Liquidator hereby directs:
(a)any Court or competent authority which may make a direction as to whom the Insolvent Trading Claim Proceeds should be transferred to order that the Insolvent Trading Claim Proceeds be transferred directly to H2; and
(b)any third party who receives the Insolvent Trading Claim Proceeds to, without delay, transfer such Insolvent Trading Claim Proceeds to H2.
Clause 5.6 of the Deed specifies that in the event that the liquidator receives the insolvent trading claim proceeds (or any part of them) the liquidator acknowledges that he holds the insolvent trading claim proceeds on trust for H2, agrees to transfer the insolvent trading claim proceeds to H2 without delay and acknowledges and agrees that the insolvent trading claim proceeds fall outside the scope of any security interest.
The defendant submits that it is not clear on what basis the liquidator can 'direct' the court in the manner proposed by clause 5.5 of the Deed.[118] I accept that there may be issues with the enforceability of that aspect of clause 5.5 of the Deed. However, I also note the very broad definitions of 'Insolvent Trading Claim' and 'Claim' in the Deed. In light of this, and the legal authorities relevant to this issue, I do not consider it can be said that the plaintiff's case that the liquidator has, by the Deed, assigned both the right to bring an insolvent trading claim and the proceeds of that claim, is so clearly untenable that it cannot succeed at trial in the ordinary way such that the plaintiff should be denied the opportunity to run his pleaded case at trial.
Basis 3 - no debt incurred
[118] ts 67.
The defendant's fourth basis for summary judgment is that whilst the plaintiff has pleaded that Smartlink incurred a GST debt, the proof of debt submitted with the liquidator[119] (and which was admitted by the liquidator) was an 'Running Balance Account deficit debt' (RBA deficit debt). The defendant submits that an RBA deficit debt is not a debt 'incurred' by Smartlink for the purposes of s 588M of the Corporations Act.[120] The defendant relies on a number of authorities regarding the meaning of 'incurred'.[121]
[119] Affidavit of Yi Hua Tan sworn 14 November 2022, attachment JT-4, 203.
[120] Defendant's submissions [49] - [57].
[121] Hawkins v Bank of China (1992) 26 NSWLR 562; Commissioner of State Tax (WA) v Pollock (1993) 11WAR 64.
Running balance accounts are established and governed under Part IIB of the TA Act. The TA Act provides that the Commissioner may establish a running balance account for a taxpayer[122] and allocate to it some or all 'primary tax debts' of that taxpayer.[123] A primary tax debt is an amount due to the Commonwealth directly under a taxation law.[124] If there is an RBA deficit debt on a running balance account at the end of a day, the tax debtor is liable to pay to the Commonwealth the amount of the debt. The amount is due and payable at the end of that day.[125]
[122] s 8AAZC of the TA Act.
[123] s 8AAZD of the TA Act.
[124] s AAZA of the TA Act.
[125] s 8AAZH of the TA Act.
The difficulty with this ground for summary judgment, is that the plaintiff does not plead that Smartlink incurred an RBA deficit debt. Rather, the plaintiff pleads that Smartlink incurred a GST debt. The question on the defendant's summary judgment application is whether the plaintiff's pleaded case is so untenable that it cannot succeed at trial in the ordinary way.
The defendant relies on the Australian Tax Office proof of debt as evidence that what the plaintiff claims is a GST debt is actually an RBA deficit debt. The proof of debt document[126] states that Smartlink is indebted to the ATO for RBA deficit debts and then particularises those debts as being:
RBA DEFICIT DEBTS
Running Balance Account deficit debt in respect of BAS amounts as at 26 February 2019
SUPER GUARANTEE CHARGE
Superannuation guarantee charge for the period from 1 October 2018 - 31 December 2018
[126] Affidavit of Xiao He, attachment XH-2.
It then goes on to specify the amounts.
Whilst the proof of debt document refers to the taxpayer's RBA deficit debts, it also goes on to identify and particularise the primary tax liability (which includes a GST debt). This is consistent with the nature of an RBA deficit debt, which arises on the Commissioner's discretion where the taxpayer has already incurred the underlying primary debts. The defendant has not referred me to any statutory provisions or legal authorities which provide that an RBA deficit debt (or a proof of debt for an RBA deficit debt which is admitted) means that the underlying primary tax liability ceases to exist, or that the underlying primary debts cannot be the subject of recovery action.
Accordingly, I do not consider that based on the proof of debt document alone it can be said that the plaintiff's pleaded case that Smartlink incurred a GST debt is so clearly untenable that it cannot succeed at trial in the ordinary way such that the plaintiff should be denied the opportunity to run his pleaded case at trial.
In these circumstances, I do not consider it necessary to go on to the consider the question of whether an RBA deficit debt is a debt which is 'incurred' for the purposes of s 588M of the Corporations Act at this interlocutory stage.
Basis 4 - the Commissioner has suffered no loss or damage
The fourth basis for the defendant's summary judgment application is that s 588M(2) of the Corporations Act limits the amount which a liquidator may recover from the director to the amount of loss or damage suffered by the creditor in question.
The defendant relies on s 255-5(1) of Schedule 1 to the TA Act, which provides that an amount of a tax-related liability that is due and payable is a debt due to the Commonwealth and payable to the Commissioner, and submits that s 588M(1)(b) of the Corporations Act does not accommodate a 'creditor' with such a dual status.[127]
[127] Defendant's submissions [45].
The defendant has not referred me to any authorities which support this proposition. As a general principle, it is not clear to me that the so called 'dual status' of the Commonwealth and the Commissioner in relation to the GST debt and the superannuation guarantee charge debt has a consequence that loss is not suffered by the Commonwealth if tax debts are not paid.
The defendant also submits that neither the Commonwealth nor the Commissioner suffers any 'loss or damage' because of a taxpayer's non-payment of a tax-related liability. In support of this submission, the defendant calls in aid the fact that a company's unpaid GST liability and unpaid SGC liability may trigger the 'director penalty' scheme contained in subdivisions 269A and 269B of Schedule 1 to the TAA.[128] By way of broad summary, s 269-15 of Schedule 1 to the TA Act sets out a number of duties imposed on directors including ensuring that GST instalments and superannuation guarantee charge payments owed by the company are paid.[129] Section 269-20 provides that the Commissioner may give to the directors of a company with outstanding GST and superannuation guarantee charge liabilities a 'director penalty notice' affixing upon the director personally a liability equivalent to the company's liabilities (subject to some other requirements). On this basis, the defendant submits that despite an insolvent company not discharging its tax-related liabilities, the TA Act contemplates that neither the Commonwealth nor the Commissioner is denied any GST or superannuation guarantee charge payments.[130]
[128] Defendant's submissions [46] - [48].
[129] s 269-10 and s 269-15 of Schedule 1 to the TA Act.
[130] Defendant's submissions [48].
Again, the defendant has not referred me to any authorities which support this proposition. The mere existence of the director penalty scheme does not necessarily mean that the Commonwealth will not suffer loss if the debts are not paid. It may be that in any one case, if the director penalty scheme is engaged, then the Commonwealth will not suffer loss, or that the quantum of that loss might be reduced. However, in the present case the defendant has not adduced any evidence that the director penalty scheme has been engaged here, or that the Commissioner or the Commonwealth have recovered any unpaid tax debts from the directors of Smartlink. During oral submissions the defendant accepted that the lack of evidence meant that there could be no summary judgment on this basis.[131]
[131] ts 51 - 52.
Accordingly, I do not consider it can be said that the plaintiff's case is so clearly untenable that it cannot succeed at a trial in the ordinary way.
Summary judgment - conclusion
In all the circumstances, I do not consider that the defendant has established, on any of the four bases advanced, that the plaintiff's pleaded claim is so untenable that that it cannot succeed at a trial in the ordinary way such that the plaintiff should be denied the opportunity to run his pleaded case at trial.
Issue 4 - declarations
The defendant also seeks, as an alternative, declaratory relief in the form set out in order 3 of the chamber summons. The defendant seeks three separate declarations (some with sub-paragraphs) going to the lawfulness of the purported assignment by the liquidator of his right to sue under s 588M(2) of the Corporations Act. Some of the declarations sought traverse similar legal issues to those raised in the application for summary judgment, whilst some are additional issues.
Counsel for the defendant accepted in oral submissions that the defendant 'was not going to die in a dish over the declarations'. The defendant submitted that in the event the plaintiff was ordered to re-plead, some sort of declaration from the court about what the plaintiff can and cannot run as a claim may be useful to the plaintiff. However, the defendant accepted that the declarations are not essential.[132]
[132] ts 7.
The defendant's application for declaratory relief is made at a very early stage in these proceedings. There has only been a writ and a statement of claim filed. There has been no response to the statement of claim by the defendant. There is no agreed statement of facts before me and there is also no agreed bundle of documents. Whilst the parties have between then filed four affidavits, these have been for the purposes of responding to the defendant's chamber summons, and it is not the case that these affidavits contain all the materials or facts relevant to the totality of the dispute between the parties or would be relied on at trial.
A declaratory order is a discretionary remedy. It is also an exercise of judicial power. As the High Court emphasised in Bass v Permanent Trustee Co Ltd,[133] before a declaration is made the court must be satisfied that the declaration will affect a determination of rights by applying the law to facts which are either agreed or determined by reference to the evidence in the case. The lack of such agreed or proved facts in the present case is a factor counting against the exercise of my discretion to grant declaratory in the present circumstances.[134]
[133] Bass v Permanent Trustee Co Ltd(1999) 198 CLR 334 [45] - [56].
[134] See also Emanuel Exports Pty Ltd v Department of Primary Industries and Regional Development [2023] WASCA 36 [37].
In all the circumstances, I do not consider it appropriate, in the exercise of my discretion, to consider the substance of the declaratory relief sought by the defendant because I am not satisfied that it is appropriate for me to exercise my discretion to grant declaratory relief at this stage in the proceedings.
I am not satisfied that I have before me sufficiently certain and comprehensive facts and documents. Due to the stage of the proceedings, the full extent of the issues between the parties are not yet crystalised to the extent necessary for me to be sufficiently certain that I am in a position to either finally resolve the controversy between the parties, or conclude that the declarations sought constitute a step that will in the course of the proceedings necessarily dictate the result of the proceedings, or conclude that it is otherwise appropriate in all the circumstances to grant the declaratory relief sought. Absent such certainty, any declaratory relief granted risks being hypothetical in nature. To the extent the declaratory relief traverses substantive issues covered by the matters raised in the summary judgment and strike out applications, I also refer to and rely on my reasons in relation to that application.
Conclusion
For the reasons set out above, my conclusions in relation to each of the applications contained in the defendant's chamber summons are as follows:
(a)I accept that the plaintiff has commenced the application using the incorrect originating process. I decline to strike out the writ, and rather order that the writ of summons stand as a Form 2 originating process nunc pro tunc and that the plaintiff be ordered to file a supporting affidavit in accordance with r 2.4(1) of the Corporations Rules. I will also order that this matter proceed by way of pleadings;
(b)I accept that that [5], [11(b)], [12] and [13] of the statement of claim are embarrassing in that they are pleaded at too high a level of generality in relation to the GST debt. I otherwise do not accept that the statement of claim fails to disclose a reasonable cause of action or is otherwise embarrassing. However, I note that the prayer for relief will require amendment. I grant the plaintiff leave to file and serve an amended statement of claim which addresses these issues;
(c)I do not consider that it is appropriate to grant the defendant summary judgment on any of the bases advanced in paragraph 2 of the chambers summons; and
(d)I decline to make the declarations sought in paragraph 4 of the chamber summons.
I will hear further from the parties as to appropriate orders to reflect the above.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
CH
Associate to Justice Seaward
9 JUNE 2023
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