Herbert v Commissioner of Taxation
[2006] WASC 302
HERBERT & ANOR -v- COMMISSIONER OF TAXATION & ANOR [2006] WASC 302
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2006] WASC 302 | |
| Case No: | CIV:1287/2006 | 18 DECEMBER 2006 | |
| Coram: | MASTER SANDERSON | 20/12/06 | |
| 10 | Judgment Part: | 1 of 1 | |
| Result: | Set-off allowed | ||
| B | |||
| PDF Version |
| Parties: | JEFFREY LAURENCE HERBERT SIMON ANDREW READ as Trustees of the CARR CIVIL CONTRACTING CREDITORS' TRUST COMMISSIONER OF TAXATION CARR CIVIL CONTRACTING PTY LTD |
Catchwords: | Corporations Act 2001 (Cth) Right to set-off mutual claims when corporation insolvent Turns on own facts |
Legislation: | Corporations Act 2001 (Cth), s 553C |
Case References: | Community Development Pty Ltd v Engwirda Construction Company (1969) 120 CLR 455 Day & Dent Constructions Pty Ltd (In liq) v North Australian Properties Pty Ltd (Provisional Liquidator Appointed) (1982) 150 CLR 85 GM & AM Pearce & Co Pty Ltd v RGM Australia Pty Ltd [1998] 4 VR 888 Gye v McIntyre (1991) 171 CLR 609 Re ACN 007 537 000 Pty Ltd; Ex parte Parker (1997) 25 ACSR 560 Stein v Blake [1996] 1 AC 243 Federal Commissioner of Taxation v Gosstray [1986] VR 876 Hiley v People's Prudential Assurance Co Ltd (In liq) (1938) 60 CLR 468 Sandell v Porter (1966) 115 CLR 666 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- SIMON ANDREW READ as Trustees of the CARR CIVIL CONTRACTING CREDITORS' TRUST
Plaintiffs
AND
COMMISSIONER OF TAXATION
First Defendant
CARR CIVIL CONTRACTING PTY LTD
Second Defendant
Catchwords:
Corporations Act 2001 (Cth) - Right to set-off mutual claims when corporation insolvent - Turns on own facts
Legislation:
Corporations Act 2001 (Cth), s 553C
(Page 2)
Result:
Set-off allowed
Category: B
Representation:
Counsel:
Plaintiffs : Mr T O Coyle
First Defendant : Mr L A Tsaknis
Second Defendant : No appearance
Solicitors:
Plaintiffs : Lavan Legal
First Defendant : Deputy Commissioner of Taxation
Second Defendant : No appearance
Case(s) referred to in judgment(s):
Community Development Pty Ltd v Engwirda Construction Company (1969) 120 CLR 455
Day & Dent Constructions Pty Ltd (In liq) v North Australian Properties Pty Ltd (Provisional Liquidator Appointed) (1982) 150 CLR 85
GM & AM Pearce & Co Pty Ltd v RGM Australia Pty Ltd [1998] 4 VR 888
Gye v McIntyre (1991) 171 CLR 609
Re ACN 007 537 000 Pty Ltd; Ex parte Parker (1997) 25 ACSR 560
Stein v Blake [1996] 1 AC 243
Case(s) also cited:
Federal Commissioner of Taxation v Gosstray [1986] VR 876
Hiley v People's Prudential Assurance Co Ltd (In liq) (1938) 60 CLR 468
Sandell v Porter (1966) 115 CLR 666
(Page 3)
1 MASTER SANDERSON: The issue in this case is whether the statutory set-off provided for in s 553 of the Corporations Act 2001 (Cth) is applicable in respect of an energy credits entitlement totalling $329,582.53 accrued to the second defendant, Carr Civil Contracting Pty Ltd ("Carr Civil"), for the purchases of fuel made by Carr Civil between 3 May 2002 and 7 March 2004. Carr Civil was placed in voluntary administration on 8 March 2004. The claim for payment of the energy credit was made by the plaintiffs, then the administrators of Carr Civil, after the date the administration commenced.
2 The parties agreed a statement of facts. It is appropriate that I simply quote what was agreed:
Agreed statement of facts
"1. At all material times immediately prior to 3 May 2002 and subsequent to that date the second defendant, Carr Civil Contracting Pty ltd (Carr Civil) traded and continues to trade as an earthmoving contractor in the mining and construction industries in the Pilbara region of Western Australia.
2. In the course of its business as an earthmoving contractor, Carr Civil purchased diesel fuel between the period from 3 May 2002 to 7 March 2004.
3. If, on or before 30 November 2003, Carr Civil had applied for a diesel fuel rebate, Carr Civil would have satisfied the conditions and requirements in the Customs Act 1901 or the Excise Act 1901 for the grant of the rebate.
4. Because of the circumstances set out in paragraphs 1 to 3 above, as at 7 March 2004, Carr Civil satisfied the conditions prescribed in Parts 3 and 4 of the Energy Grants (Credits) Scheme Act 2003 relating to entitlements to on-road and off-road credits pursuant to the Energy Grants (Credits) Scheme (Scheme) in respect of fuel purchased during the period from 3 May 2002 to 7 March 2004, save that at 7 March 2004 Carr Civil had not applied to be and was not registered under section 9 of the Product Grants and Benefits Administration Act 2000.
(Page 4)
- 5. On 8 March 2004 the plaintiffs were appointed as joint and several administrators of Carr Civil under section 436A of the Corporations Act 2001.
6. On around 19 March 2004 the administrators applied to the Australian Taxation Office (ATO) for registration of Carr Civil for entitlement to energy grants pursuant to subsection 9(1) of the Product Grants and Benefits Administration Act 2000. No previous application was made by Carr Civil for registration.
7. On 19 March 2004 Carr Civil was registered for entitlement to energy grants pursuant to subsection 9(2) of the Product Grants and Benefits Administration Act 2000, having satisfied the requirements and conditions for registration.
8. On 5 April 2004, at a meeting of Carr Civil's creditors held pursuant to section 439A of the Corporations Act 2001, a majority of Carr Civil's creditors resolved that it should enter into a deed of company arrangement in the terms approved at that meeting.
9. On 8 April 2004, the plaintiffs, Carr Civil, Mark William Blayney and Enriwa Pty Ltd executed a deed of company arrangement in relation to Carr Civil.
10. On 8 April 2004, the plaintiffs and Carr Civil executed a creditors' trust deed (Trust Deed) in relation to Carr Civil.
11. The Trust Deed came into effect on execution on 8 April 2004.
12. Pursuant to clause 6.2 of the Trust Deed, Subdivision A of Division 6 of Part 5.6 of the Corporations Act 2001 (which contains section 553C relating to mutual credit and set-off) applies to the Trust Deed as if the references to winding up were references to the Trust Deed and references to the liquidator were references to the trustees, and with such other modifications as are necessary to give effect to the Trust Deed.
(Page 5)
- 13. On 4 May 2004, the plaintiffs on behalf of Carr Civil submitted a claim to the ATO under the Scheme in relation to diesel fuel purchased by Carr Civil in the period 1 June 2002 to 7 March 2004.
14. On 21 June 2004, the plaintiffs on behalf of Carr Civil submitted an amended claim to the ATO under the Scheme in relation to diesel fuel purchased by Carr Civil in the period 3 May 2002 to 7 March 2004.
15. Pursuant to section 17 of the Product Grants and Benefits Administration Act 2000, the Commissioner of Taxation was required to make an assessment of the amount of the fuel grant to which Carr Civil was entitled in respect of the claim period 3 May 2002 to 7 March 2004.
16. On or about 22 June 2004, the Deputy Commissioner of Taxation submitted a proof of debt against Carr Civil (Proof of Debt) in the amount of $438,464.15, comprising:
16.1 $371,922.45 claimed as Running Balance Account deficit debt in respect of BAS amounts owing as at 8 March 2004;
16.2 $62,914.97 claimed as superannuation guarantee charge liabilities for the period from 1 October 2003 to 31 March 2004;
16.3 $3,626.73 claimed as general interest charge on superannuation guarantee charge to 8 March 2004.
17. The amounts set out at subparagraphs 16.2 and 16.3 above have been paid, as a priority claim, in full.
18. On 1 July 2004, the Commissioner of Taxation made an assessment under the Scheme for the amount of the fuel grant to which Carr Civil was entitled in respect of the claim period 3 May 2002 to 7 March 2004 and issued to Carr Civil an Energy Grants Credits Scheme Claim Assessment and energy credits entitlement of $329,582.53 (Credits Entitlement).
(Page 6)
- 19. The amount of the Credits Entitlement was calculated in accordance with section 57 of the Energy Grants (Credits) Scheme Act 2003.
20. As a result of payments and amounts credited in reduction of Carr Civil's Running Balance Account, the ATO updated its Running Balance Account records in relation to Carr Civil to show a nil balance.
21. On or about 29 August 2005, the ATO gave notice to the plaintiffs of the ATO's withdrawal of the proof of debt.
22. On or about 4 October 2005, the ATO deposited the sum of $58,329.97 into the account created pursuant to the Trust Deed, representing the net amount payable by the ATO to the Plaintiffs upon setting off the amount of the Proof of Debt, which set off is disputed by the plaintiffs."
The issues
3 There are two issues that arise in this case. First, is the Australian Taxation Office ("ATO") entitled to set-off amounts owing to Carr Civil under the Scheme against amounts owed by Carr Civil to the ATO for various tax liabilities pursuant to s 553C(1) of the Corporations Act? Second, did the ATO have notice of the insolvency of Carr Civil at the time payment was made so that it is not entitled to the benefit of the set-off under s 553C(2)?
Entitlement to set-off
4 Section 3A of the Energy Grants (Credits) Scheme Act 2003 (Cth) ("EGCS Act") provides that the purposes of the Scheme is to provide active encouragement for the move to the use of cleaner fuels. Part 3 of the EGCS Act provides for entitlement to on-road credits. Part 4 of the EGCS Act provides for entitlements to off-road credits. The credits entitlement, the subject of this application, comprises both on-road and off-road credits. For present purposes there are no material differences between Pt 3 and Pt 4 of the Act. It is important to note that by paragraph 4 of the agreed statement of facts both parties accept that Carr Civil had an entitlement to a rebate but was not registered under the Product Grants Benefits Administration Act 2000 (Cth) ("PGBA Act") and had not made any application for any credit.
5 By s 41(2) of the EGCS Act a claim can be made before or after registration. If a claim is made after or at the same time as registration is
(Page 7)
- applied for but before registration occurs the claim is taken to have been immediately after registration. By s 56 of the EGCS Act if an applicant is entitled to an on-road credit or an off-road credit, the applicant is entitled to an energy grant. The calculation of the amount of the energy grant is set out in s 57 of the EGCS Act. The amount of the energy grant is not in dispute: see agreed fact 19.
6 The administration of any entitlement under the EGCS Act is dealt with by the PGBA Act. Section 9(1) of that Act makes provision for the making of an application for registration for entitlement to a specific grant or benefit in such form and with the inclusion of such information as is required in the regulations. By s 9(2) of the PGBA Act the Commissioner must register an applicant for entitlement to the grant or benefit if the Commissioner is satisfied of the matters specified in the subsection. It is important in the context of this case to note that the Commissioner has no discretion as to registration. If the requirements of the regulations are satisfied then the Commissioner must register.
7 Section 9(4) of the PGBA Act provides as a specific requirement of registration for the energy grant that the Commissioner be notified that the grantee is purchasing or importing or proposing to purchase or import energy grant scheme fuel into Australia for a particular use or uses that, when the grantee becomes registered, will entitle the grantee to the grant in respect of the fuel. The section contemplates that registration will result in an entitlement to a grant in respect of purchases made before registration. By s 12 of the PGBA Act a claim may be made for any period that is specified in the claim.
8 By s 15 of the PGBA Act there is no entitlement to a grant or benefit under the EGCS Act unless a claim is made for payment of the grant or benefit in respect of a claim period during which the entitlement arose. That is to say, entitlement depends on making a claim. By s 17 of the PGBA Act if a claim is made in respect of a claim period the Commissioner must make an assessment of the claim amount. By s 23 of the PGBA Act if an applicant is entitled to a grant or benefit in respect of a claim period the grant or benefit is a debt due by the Commissioner on behalf of the Commonwealth and may be recovered in a court of competent jurisdiction.
9 The genesis of s 553C of the Corporations Act is set out in some detail in the decisions of Mansfield J in Re ACN 007 537 000 Pty Ltd; Ex parte Parker (1997) 25 ACSR 560 at 565 and by the Court of Appeal in Victoria in GM & AM Pearce & Co Pty Ltd v RGM Australia Pty Ltd
(Page 8)
- [1998] 4 VR 888 at 899 – 900. The set-off provided in s 553C of the Act constitutes a statutory directive which operates at the date of the commencement of the administration. It is self-executing in the sense that its operation is automatic and not dependent upon the option of either party: see Gye v McIntyre (1991) 171 CLR 609 at 622; Stein v Blake [1996] 1 AC 243 at 255.
10 Section 553C of the Act adopts the concepts underlying s 86 of the Bankruptcy Act 1966 (Cth). It is in terms more appropriate to corporations but it is clear that it should be given the same generous construction: see Re ACN (supra) at 565. In Day & Dent Constructions Pty Ltd (In liq) v North Australian Properties Pty Ltd(Provisional Liquidator Appointed) (1982) 150 CLR 85 Mason J accepted that s 86 of the Bankruptcy Act was a protective provision that should be given "the widest possible scope". His Honour said the object of the section was to prevent the injustice of a person who has had mutual dealings with a bankrupt from having to pay in full what he or she owes while only receiving a dividend in respect of what is owed to him or her.
11 The concept of "other mutual dealings" was explained by the High Court in Gye v McIntyre (supra). The concept is intended to encompass "dealings" as distinct from credits and debits that are susceptible to immediate set-off. It will be sufficient that dealings exist at the day of administration and subsequently give rise to a mutual claim. Mutuality conveys the notion of reciprocity. It does not mean "identical" or "the same". It will be enough if the credits, debts or claims are contingent so long as they will ultimately mature into pecuniary claims susceptible of set-off. Mutual dealings must exist at the commencement of the administration and ultimately mature into money claims during the course of the administration. It is not necessary that liability must actually have accrued prior to the commencement of the administration.
12 A person will be a contingent creditor if under an existing obligation, the person may or will become subject to a present liability from the happening of some future event or at some future date. This is so even if that future event may not happen: see Community Development Pty Ltd v Engwirda Construction Company (1969) 120 CLR 455 per Kitto J at 459.
13 In the present case all the fuel purchases the subject of the credit entitlements occurred prior to the commencement of the voluntary administration on 8 March 2004. By s 9(2) of the PGBA Act the Commissioner was required to register Carr Civil when it applied to be
(Page 9)
- registered on 17 March 2004 even though Carr Civil was at that date in voluntary administration. By s 17 of the PGBA Act on being registered the Commissioner was required to make an assessment of the claim. The assessment having been made, pursuant to s 23 of the PGBA Act, Carr Civil was entitled to the grant which was a debt due and payable to it by the Commissioner on behalf of the Commonwealth and recoverable in a court of competent jurisdiction.
14 It was the ATO's position that immediately prior to the commencement of the administration Carr Civil had a contingent claim which, when it was registered by the trustees of Carr Civil, "ultimately matured" into a money claim susceptible of set-off. It was said that to permit the set-off involved no alteration of the rights of the parties by a subsequent transaction. Rather it ascertains them by reference to the natural outcome of previous events, namely, the satisfaction of Pt 3 and Pt 4 of the EGCS Act.
15 It was the plaintiffs' position that the entitlement to a diesel fuel rebate did not arise until registration and the submission of a claim. It follows, it was submitted, that the ATO did not come under an obligation to allow a diesel fuel rebate and make any payment pursuant to that rebate until both events had occurred. Thus, it was said, there were no mutual credits, debits or other dealings between Carr Civil and the ATO within the meaning of s 553C of the Corporations Act that could give the Commissioner the right of set-off.
16 On balance, I favour the ATO's argument. I have reached this conclusion for two reasons. First, s 553C is to be given a wide interpretation. The decision of the High Court in Gye v McIntyre (supra) makes that clear. It is consistent with the way that s 86 of the Bankruptcy Act has been interpreted. In my view, it is possible to say that there were dealings between Carr Civil and the ATO. The steps that Carr Civil had to take to claim its entitlements were purely mechanical. There was no question of the claim not being paid. It was not a matter where the Commissioner had a discretion. In effect the EGCS Act had created the entitlement and it was a matter of Carr Civil doing all that was necessary to satisfy that entitlement. In my view, that falls within the wide ambit of the Act.
17 Second, it is a matter of taking one step back and looking at how the liabilities fall in this case. A party such as Carr Civil who has not met tax liabilities has a debt payable to the Commissioner. If that same party has an entitlement under the EGCS Act then it has effectively a debt owed to it
(Page 10)
- by the Commissioner. There is some difference between the two debts but there is that element of mutuality which is the important feature of s 553C. To allow a set-off in this circumstances is nothing more than giving effect to the policy underlying the section.
Knowledge of ATO
18 It was the plaintiffs' position that the first defendant was aware of Carr Civil's insolvency before the liability to make payment arose. The first defendant entered into a repayment plan with Carr Civil in relation to Carr Civil's tax debt with the first payment being made on 2 March 2004. Although counsel for the plaintiffs drew attention to that fact he did not go so far as to suggest that prior to that first payment the ATO had actual knowledge of the plaintiffs' insolvency. In any event, nothing in the evidence established that the ATO did know of Carr Civil's insolvency prior to 24 March 2004.
19 It is true that payment was made by the ATO after 24 March 2004 when they became aware of the insolvency. But all of the product which gave rise to the right of Carr Civil to make a claim was purchased prior to 24 March 2004. As I have indicated, the process of making the claim was mechanical – payment could not be refused. Therefore, when the liability arose the ATO had no knowledge of the insolvency.
Conclusion
20 For these reasons I would dismiss the plaintiffs' application. The plaintiffs should pay the first defendant's costs of the action to be taxed.
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