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The Commonwealth v Cigamatic Pty Ltd (In Liquidation)

The Commonwealth v Cigamatic Pty Ltd (In Liquidation)

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Case Copied 2 August 1962 30 min read

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HIGH COURT OF AUSTRALIA

Dixon C.J., McTiernan, Kitto, Taylor, Menzies, Windeyer and Owen JJ.

THE COMMONWEALTH v. CIGAMATIC PTY. LTD. (IN LIQUIDATION)

(1962) 108 CLR 372

2 August 1962

Constitutional Law (Cth)

Constitutional Law (Cth)—Powers of Commonwealth and States—Companies—Liquidation—Debts due to Crown in right of Commonwealth—Prerogative right to priority of payment—Power of State to control or abolish priority—Debts due to Commonwealth for sales tax and postal charges—Sales Tax Assessment Act (No. 1) 1930-1953 (Cth), s. 32—Post and Telegraph Act 1901-1961 (Cth)—Companies Act, 1936-1960 (N.S.W.), ss. 199, 282, 297.

Decisions

August 2.
The following written judgments were delivered:-
DIXON C.J. In this suit the Commonwealth and the Commissioner of Taxation as plaintiffs seek against a company in liquidation and the liquidator as defendants declarations of right in respect of two descriptions of debt owing by the company to the Commonwealth. One description of debt is sales tax and additional tax payable under the Sales Tax Assessment Act (No. 1) 1930-1953 (Cth). The other description of debt is telephone charges payable under the Post and Telegraph Act 1901-1961 (Cth) and the Regulations thereunder. Under the former description the debt is a large one. According to the pleading, the company is insolvent. The declarations of right claimed are to the effect that as debts to the Crown in right of the Commonwealth the sales tax, additional tax and telephone charges must be paid in the liquidation in priority to debts owing to ordinary creditors not being debts secured over assets of the company. The winding up - a compulsory one - is under the Companies Act, 1936-1957 of New South Wales and s. 297 of that Act prescribes an order of priority which is incompatible with the priority claimed by the Commonwealth. The intention of the legislation to subject debts due to the Commonwealth to this order of priority is clear. (at p376)

2. In the first instance the Commonwealth rests its claim on the right at common law of the Crown to priority of payment when in any administration of assets debts of equal degree due to the Crown and due to subjects of the Crown come into competition. This right arose from the sovereignty of the Crown and was accordingly expressed in terms of prerogative but it is today one of the fiscal rights of government and of course it clearly attaches to the Commonwealth. The claim of the Commonwealth in the present case resting on this right is, however, denied on the ground that by force of the State Companies Act it is excluded. This conclusion is doubtless supported, if not completely at all events to no inconsiderable degree, by the judgments of the majority in Uther v. Federal Commissioner of Taxation (1947) 74 CLR 508 , but it seems to me now as it seemed to me then to imply a fundamental proposition about the power of legislatures of the States which ought not to be entertained. The proposition that is implied is that an exercise of State…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1962] HCA 40
Decision Date: 2 August 1962

CaseChat Overview and Summary

The Commonwealth of Australia sought to recover from Cigamatic Pty Ltd (in liquidation) an amount of £1,000,000 which it had paid to Cigamatic in 1951 as a subsidy under the *Wool Industry Act 1946* (Cth). The Commonwealth alleged that Cigamatic had breached a condition of the subsidy, namely that the company would not pay dividends to its shareholders until it had repaid the subsidy to the Commonwealth. The Commonwealth sought to recover the subsidy on the basis that it was a debt due and owing by Cigamatic. The High Court of Australia was required to determine whether the Commonwealth was entitled to recover the subsidy as a debt.

The central legal issue before the High Court was whether the payment of the subsidy by the Commonwealth to Cigamatic created a debt that was recoverable by the Commonwealth upon breach of the stipulated condition. This involved an examination of the nature of the payment, the terms upon which it was made, and the legal consequences of a breach of those terms. Specifically, the Court had to consider whether the condition imposed a contractual obligation or whether it was a statutory condition, and what remedies were available to the Commonwealth in either event.

The High Court held that the subsidy was not a debt recoverable by the Commonwealth. The majority reasoned that the payment was made under a statutory scheme, and while the condition regarding the payment of dividends was binding, its breach did not transform the subsidy into a debt. Instead, the breach constituted a failure to comply with a statutory requirement, and the remedy for such a breach was not the recovery of the subsidy as a debt, but rather other potential remedies available under the *Wool Industry Act 1946* or general law, which were not the subject of this particular claim. The Court distinguished between a debt arising from a loan or a contractual obligation to repay, and a statutory payment made subject to conditions.

The High Court dismissed the Commonwealth's claim for the recovery of the subsidy as a debt.

Orders