In the Matter of Australian Company Number 007 764 249 (In Liquidation) formerly Adelaide Industrial Equipment Pty Ltd (ACN 007 764 249) Smith, Tony v Deputy Commissioner of Taxation
[1996] FCA 1022
•22 NOVEMBER 1996
CATCHWORDS
CORPORATIONS - Deed of Company Arrangement - effect of appointment of administrator on contractual rights - whether appointment can amount to repudiation.
Corporations Law - Part 5.3A
Roder Zelt-Und Hallenkonstruktionen GMBH v Rosendown Park Pty Ltd & Another (1995) 57 FCR 216
Re Tru-Grain Co Limited [1921] VLR 653
Re Federal Building Assurance Company Limited (1934) 34 SR (NSW) 499
Re Yurong Street Motors Ltd; Ex parte Neal and Fough (1932) 32 SR (NSW) 296
Freeth v Burr (1874) LR 9 CP 208
Laurinda Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623
IN THE MATTER OF AUSTRALIAN COMPANY NUMBER 007 764 249 (IN LIQUIDATION) formerly ADELAIDE INDUSTRIAL EQUIPMENT PTY LTD
(ACN 007 764 249)
BETWEEN:
TONY SMITH Appellant
-and
DEPUTY COMMISSIONER OF TAXATION Respondent
NO SG 37 OF 1996
FOSTER, O'LOUGHLIN, MANSFIELD JJ
ADELAIDE
22 NOVEMBER 1996
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No. SG 37 of 1996
)
GENERAL DIVISION )
On appeal from a Judge of the Federal Court of Australia
IN THE MATTER OF AUSTRALIAN COMPANY NUMBER 007 764 249 (IN LIQUIDATION) formerly ADELAIDE INDUSTRIAL EQUIPMENT PTY LTD (ACN 007 764 249)
BETWEEN:TONY SMITH
Appellant
AND:DEPUTY COMMISSIONER OF TAXATION
Respondent
CORAM: FOSTER, O'LOUGHLIN and MANSFIELD JJ
DATE: 22 November 1996
PLACE: ADELAIDE
MINUTES OF ORDER
THE COURT ORDERS THAT:
The parties bring into Court short Minutes of Order in terms consistent with these reasons.
The respondent pay the appellant's costs of and incidental to this appeal and in the Court below. These costs are to be taxed in default of agreement.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules
IN THE FEDERAL COURT OF AUSTRALIA )
)
SOUTH AUSTRALIA DISTRICT REGISTRY ) No. SG 37 of 1996
)
GENERAL DIVISION )
On appeal from a Judge of the Federal Court of Australia
IN THE MATTER OF AUSTRALIAN COMPANY NUMBER 007 764 249 (IN LIQUIDATION) formerly ADELAIDE INDUSTRIAL EQUIPMENT PTY LTD (ACN 007 764 249)
BETWEEN:TONY SMITH
Appellant
AND:DEPUTY COMMISSIONER OF TAXATION
Respondent
CORAM: FOSTER, O'LOUGHLIN and MANSFIELD JJ
DATE: 22 November 1996
PLACE: ADELAIDE
REASONS FOR JUDGMENT
THE COURT: This is an appeal from a decision of Branson J given on 6 May 1996. The appeal relates to a single aspect of her Honour's judgment. In order to expose the question for our decision it is necessary to set out briefly certain matters by way of background.
BACKGROUND
The appellant is the liquidator of Australian Company Number 007 764 249 Pty Ltd, having been so appointed on 9 May 1995. The company prior to 17 November 1994 carried on business in South Australia under the company name Adelaide Industrial Equipment Proprietary Limited. On that date it changed its name to its present name.
On 25 October 1994 the company was indebted to the respondent, the Deputy Commissioner of Taxation ("the Commissioner") in the amount of $300,747.90 (the original debt). This amount was owing in respect of unpaid tax instalments, sales tax and additional tax for late payments.
On 31 October 1994 the company and the Commissioner entered into agreement to compromise this debt ("the compromise agreement") whereby the Commissioner agreed to accept payment of a reduced amount in satisfaction of the original debt. This amount was $236,547.25 (the compromise debt). The compromise debt was to be paid as follows:-
(a)$194,000 out of the proceeds of sale of the business conducted by the company (settlement and payment to occur on 1/11/94); and
(b)$41,000 + a specified portion of the unpaid tax for the month of October (the amount by which that tax exceeded $13,500, which was determined on 15/2/95 to be $1,547), to be paid by 15/12/94.
On 3 November 1994 the company's business was sold and at settlement the amount of $194,000 was paid by the company to the respondent. On 31 January 1995, the further amount of $41,000 was paid by the company to the respondent.
On 5 April 1995 the company's directors resolved that the company be placed in voluntary administration pursuant to Part 5.3A of the Corporations Law. On that day the appellant was appointed as administrator of the company. The amount of $1,547 owing to the Commissioner was then unpaid.
On 12 April 1995 the Commissioner lodged an amended proof of debt with the appellant in the amount of $156,621.31.
On 9 May 1995 the company's creditors resolved that the company be wound up pursuant to the Corporations Law. The appellant, as already indicated, was appointed liquidator.
On 22 June 1995 the appellant tendered to the Commissioner on behalf of the company the amount of $1,547.25. However, on 17 July 1995 the Commissioner rejected this tender of payment.
The Commissioner proved in the liquidation for the unpaid balance of the original debt. The appellant allowed the Commissioner's proof in the amount of only $10,253.75. The Commissioner appealed to the Court seeking, as Branson J noted in her judgement, "to have that decision modified so that the proof of debt ... is admitted in the amount of $132,225.04".
THE TRIAL JUDGE'S FINDINGS
Her Honour found that the compromise agreement was an agreement whereby the Commissioner agreed to abandon his claim for $300,747.90 in return for the actual payment of the lesser sum of $236,547.25, and not the mere promise to pay the lesser amount. Thus the debt of $300,747.90 was only suspended during the operation of the compromise agreement, and would only be extinguished upon the completion of the compromise agreement. This finding is not challenged on appeal.
The Commissioner had submitted that time was of the essence in respect of the compromise agreement, and thus that the company had breached a fundamental term of the contract in failing to make payments on time and, in particular, the failure to pay the outstanding $1,547.00. Her Honour rejected this submission, and held that time was not of the essence. Therefore, the contract was still on foot when the company went into voluntary administration. This finding is also not challenged on appeal.
However, her Honour held that the appointment of the appellant as administrator gave rise to a right in the Commissioner to avoid the compromise agreement and that this right had been exercised by the lodging of the proof of debt on 12 April 1995. Her Honour made these findings in the following passage in her judgment:-
"However, by the appointment of an administrator of the Company pursuant to Part 5.3A of the Corporations Law, the directors of the Company acknowledged that the Company was, or was likely to become, insolvent. An effect of the administration was to prevent the applicant from taking steps to wind up the Company or from commencing proceedings against the Company without the written consent of the administrator or the leave of the Court. The administrator did not become liable to make the payment due to the applicant under the agreement of 31 October 1994. Indeed, the administrator's entitlement to be indemnified out of the Company's property for debts for which he was liable and for his remuneration as fixed under s449G of the Corporations Law took priority over the Company's unsecured debts.
In my view, the appointment of the respondent as administrator of the Company amounted to a fundamental breach of the agreement of 31 October 1994 giving rise to a right in the applicant to avoid the contract (see Roder Zelt-Und Hallenkonstruktionen GMBH v Rosendown Park Pty Ltd & Another (1995) 57 FCR 216 at 234). Although the amount then outstanding for payment was small in comparison with the total amount to be paid under the contract, its apparent significance to the applicant was made clear by the terms of the correspondence which evidenced the agreement. This is not, in my view, a situation in which the de minimis principle, or any similar principle, can be invoked.
I further conclude that the applicant gave notice of avoidance of the contract by lodging a proof of debt with the administrator of the Company on 12 April 1995. In the circumstances, the tender by the respondent to the applicant of $1,547.25 by letter dated 22 June 1995, which tender was rejected by the applicant, was without legal significance."
It is these findings which are the subject of this appeal.
THE APPELLANT'S SUBMISSIONS
Counsel for the appellant drew the Court's attention to the structure of her Honour's judgment. He pointed out that whatever may have been the position in relation to material filed by the parties, the case ultimately proceeded upon the basis of an agreed statement of facts, which was set out in full at the commencement of the judgment. He submitted, correctly in our view, that these were the only facts which should be considered in this appeal as, obviously, they were the only facts considered by her Honour. The parties had chosen and set out the factual material upon which the Court was asked to proceed.
After setting out the agreed statement of facts her Honour moved directly to the portion of her judgment under the heading "Issues". Under this heading it was noted that the "principal contention" of the Commissioner was "that the agreement of 31 October 1994 to compromise the debt ... was an accord executory in its terms and therefore the original debt was not discharged until all obligations were performed". As already indicated, this issue was resolved in favour of the Commissioner.
The second issue was whether the times for payment of the amounts provided for in the compromise agreement were of the essence of the contract, an issue resolved against the Commissioner.
The final issue, being the one considered in this appeal, was stated by her Honour to be as follows:-
"... it is contended on behalf of the applicant that the action of the Company in resolving on 5 April 1995 to appoint an administrator was a repudiation of the agreement giving rise to a right in the applicant to terminate the agreement."
It is to be noted that this formulation contains no qualification such as "in the circumstances". We are satisfied that the reason for this lies in the fact that the Commissioner's submission to her Honour was that the appointment of an administrator under Part 5.3A of the Corporations Law amounted, in law, to a repudiation of the compromise agreement. In fact, it was conceded before us that the Commissioner had made this case before her Honour.
In these circumstances, the main thrust of the appellant's submission was to the effect that her Honour had erred in law in making the findings set out in the passage cited above. It was contended that the appointment of the appellant as administrator could not and did not carry with it, as an inevitable consequence, the repudiation by the Company of the compromise agreement.
Counsel relied upon the structure of Part 5.3A as providing a clear indication that a company, by appointing an administrator in accordance with its provisions, should not be taken as thereby renouncing contractual obligations previously undertaken by it. On the contrary the Part operates to create a moratorium or "breathing space" in respect of creditors' claims against the company. It is significant that s 435A states as an "object" of Part 5.3A:-
"to provide for the ... affairs of an insolvent company to be administered in a way that:-
(a)...
(b)if it is not possible for the company or its business to continue in existence - results in a better return for the company's creditors and members than would result from immediate winding up of the company".
Accordingly, it was submitted that the appointment of the appellant as administrator could not be said, ipso facto, to evince an intention on the part of the company not to be bound by its contracts.
Reference was also made to other sections in the Part. However, as the accuracy of the proposition was conceded in argument by the Commissioner, we do not find it necessary to refer to those sections.
It was also conceded, as is the case, that an administrator appointed under this Part has the authority in his or her discretion to pay the company's debts during the administration.
In relation to her Honour's view, stated in the passage set out, that the appointment of the appellant as
administrator amounted to a fundamental breach of the compromise agreement giving rise to a right in the Commissioner to avoid it, it was submitted that her Honour's apparent acceptance of the submission that the decision in Roder Zelt-Und Hallenkonstruktionen GMBH v Rosendown Park Pty Ltd & Another (1995) 57 FCR 216 ("Roder") governed the decision in the instant case involved an error of law. The passage relied upon was no more than a statement of factual finding in the context of that case. It did not purport to apply any principle law to the effect that the appointment of an administrator by a company necessarily amounted to a repudiation of the company's existing contracts.
We are satisfied that Roder (supra) does not embrace any such general principle. Accordingly, if her Honour felt constrained to follow Roder (supra) on that basis then we would respectfully consider that her Honour had fallen into error.
Cases that were not, apparently, cited to her Honour make it clear that the appointment of a liquidator by a company in a winding-up, voluntary or involuntary, does not necessarily constitute a breach of a continuing contract or a repudiation of it. The cases cited by the appellant in relation to this proposition, Re Tru-Grain Co Limited [1921] VLR 653; Re Federal Building Assurance Company Limited (1934) 34 SR (NSW) 499; Re Yurong Street Motors Ltd; Ex parte Neal and Fough (1932) 32 SR (NSW) 296, clearly support it. We do no find it necessary to undertake any review of these authorities, as the Commissioner conceded that it was not possible to support the contention that the mere appointment of an administrator inevitably evinced an intention on the part of the company to renounce it contractual obligations.
The question whether, in the passage cited, her Honour was making findings of fact in relation to other matters than the mere appointment of the administrator was canvassed in argument before us. In other words, the question was posed as to whether her Honour's decision did not amount to a finding that, in fact, in the circumstances of this particular case, the appointment of the administrator amounted to a repudiation of the compromise agreement. However, a general consensus was reached that her Honour was merely setting out, in summary form, the effect of other provisions of the legislation which lent support to the proposition upon which she apparently relied that the appointment of an administrator inevitably, as a matter of law, operated, relevantly, as a repudiation.
THE RESPONDENT'S SUBMISSIONS
The respondent, properly, in our view, as already indicated, conceded that insofar as it appeared that her Honour had accepted the submission that the appointment of the administrator, in itself, amounted to a repudiation of the compromise agreement, then the decision was flawed and could not stand. Counsel argued, however, that the matter should not be sent back but should be disposed of by this Court on the basis of the facts that had been before her Honour. In other words, she invited this Court to uphold her Honour's decision on a different basis, namely that the facts required a decision that, in the circumstances of the case, the appointment of the appellant as administrator amounted to a renunciation by the company of the compromise agreement.
The appellant ultimately acquiesced in the Court taking this course.
The Commissioner's main submission was that the appointment by the company of the appellant as administrator in the particular circumstances of the case evinced an intention not to pay the amount outstanding under the compromise agreement, namely $1,547.00. It was emphasised that the compromise agreement had been entered into on the basis that the company's business was to be sold and the compromise debt paid from the proceeds of sale. The business had in fact been sold with the result that the administrator would have had no obligations in relation to the running of the business. There had been some delay in the payment of the major instalments. The appointment of the administrator, in these circumstances, could be properly regarded as an intimation on the part of the company of an unwillingness to be bound by its obligation to pay the final amount.
Whether or not repudiation has occurred depends upon whether "the acts or conduct amount to an intimation of an intention to abandon and altogether refuse performance of the contract". (Freeth v Burr (1874) LR 9 CP 208 at 213; Laurinda
Pty Ltd v Capalaba Park Shopping Centre Pty Ltd (1989) 166 CLR 623 at 647-8)
It is not possible, in our view, to reach a finding that the company's appointment of the appellant as administrator evinced the necessary intention. It was quite consistent with an intention to seek a pause in the company's affairs, a review by an independent professional, and an orderly resolution of the company's obligations. In fact the outstanding amount was subsequently tendered. In our view, the Commissioner was not entitled to reject it on the basis that the compromise agreement to which it related had been already repudiated.
In our opinion, the appeal should be upheld and the respondent should pay the appellant's costs here and in the Court below.
The parties are directed to bring into Court short Minutes of Order in terms consistent with these reasons. Those minutes will, of course, reflect whether the appellant, consequential upon the publication of these reasons, has paid the outstanding amount of $1547.25 to the respondent.
I certify that this and preceding pages are a true copy of the Reasons for Judgment of the Court.
Associate:
Dated:
Counsel for the Appellant : Mr R Ross-Smith
Solicitor for the Appellant : Thomsons
Counsel for the Respondent : Ms S Maharaj with
Mr G Materne
Counsel for the Respondent : Australian Government
Solicitor
Date of Hearing : 11 November 1996
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