FEDERAL COURT OF AUSTRALIA Commissioner of Taxation v Macquarie Health Corp Ltd [2000] FCA 1603 PRACTICE & PROCEDURE – money paid into Court – applications for payment out COMMISSIONER OF TAXATION v MACQUARIE HEALTH CORP LTD & ORS NG 118 OF 1996 EMMETT J 7 NOVEMBER 2000 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 118 OF 1996 BETWEEN: COMMISSIONER OF TAXATION APPLICANT AND: MACQUARIE HEALTH CORPORATION LIMITED FIRST RESPONDENT BUSINESS AND PROFESSIONAL LEASING PTY LIMITED SECOND RESPONDENT RYNDALE PTY LIMITED THIRD RESPONDENT SARZANA HOLDINGS PTY LIMITED FOURTH RESPONDENT RICHARD WALTER PTY LIMITED (IN LIQUIDATION) FIFTH RESPONDENT MORLEA PROFESSIONAL SERVICES PTY LIMITED SIXTH RESPONDENT AT HOLDINGS PTY LIMITED SEVENTH RESPONDENT JUDGE: EMMETT J DATE OF ORDER: 7 NOVEMBER 2000 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The notices of motion filed 6 November 2000 be stood over for directions Friday 10 November 2000 at 9.30 am. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 118 OF 1996 BETWEEN: COMMISSIONER OF TAXATION APPLICANT AND: MACQUARIE HEALTH CORPORATION LIMITED FIRST RESPONDENT BUSINESS AND PROFESSIONAL LEASING PTY LIMITED SECOND RESPONDENT RYNDALE PTY LIMITED THIRD RESPONDENT SARZANA HOLDINGS PTY LIMITED FOURTH RESPONDENT RICHARD WALTER PTY LIMITED (IN LIQUIDATION) FIFTH RESPONDENT MORLEA PROFESSIONAL SERVICES PTY LIMITED SIXTH RESPONDENT AT HOLDINGS PTY LIMITED SEVENTH RESPONDENT JUDGE: EMMETT J DATE: 7 NOVEMBER 2000 PLACE: SYDNEY REASONS FOR JUDGMENT 1 I have before me two applications by notice of motion, brought in proceedings that have, at least on one view, been completely disposed of. On 29 October 1998, I gave reasons for reaching certain conclusions in proceedings NG 812 of 1998, NG 118 of 1996 and NG 445 of 1998 ("the Proceedings"). The Proceedings involved entitlement of the Commissioner of Taxation ("the Commissioner") under s 218 of the Income Tax Assessment Act 1936 (Cth) in respect of debts owing to Richard Walter Pty Limited (in liquidation) ("the Taxpayer"), by Macquarie Health Corporation Limited ("MHC") and three other companies. I shall use the terms that I defined in my reasons delivered in the Proceedings. So far as the Proceedings were concerned, there was no issue as to the indebtedness of the Debtors to the Taxpayer. 2 On 27 November 1997, the parties to the Proceedings, together with other parties, entered into a Settlement Deed pursuant to which a substantial sum of money was paid into Court on 4 August 1998. Part of that fund has now been paid out to the Commissioner. The two applications before me are competing applications for payment out of the balance of the money in Court. 3 One application has been brought by the Taxpayer and the other application has been brought by MHC. MHC actually paid the money into Court. MHC asserts that there has been no change in the ownership of the money and that none of the orders made in the Proceedings affect its entitlement to the balance of the money in Court. 4 Appeals from my orders were dismissed by the Full Court and applications for special leave to appeal the High Court were also dismissed. There is no longer before the Court any issue raised in the Proceedings. There is nevertheless remaining in Court a substantial sum of money. 5 The Taxpayer asserts that the money was paid into Court with the intention that that payment would discharge the indebtedness of the Debtors to the Taxpayer. The Taxpayer asserts that therefore the money in Court belongs to it as its property. The Taxpayer also asserts that the conduct of the Debtors, and MHC in particular, in relation to the Proceedings is such as to estop the Debtors from asserting any interest in the fund in Court. 6 MHC, on the other hand, says that the money which it paid into Court was not intended to be a payment to the Taxpayer. The precise character of the payment is not entirely clear on the submissions on behalf of MHC, other than that there was never any intention on the part of MHC to divest itself of ownership of the fund. MHC says that the question of whether or not MHC and the other Debtors are indebted to the Taxpayer is a different question entirely from the ownership of the fund. 7 The Settlement Deed to which I have referred is a complex instrument. It contains a recital that, by reason of the currency of the Proceedings, MHC, the Debtors and the other parties to the Settlement Deed had agreed to institute an arrangement whereby the rights of the Commissioner to recover any moneys owing under s 218 notices would not be prejudiced and whereby all moneys owed by the Debtors to the Taxpayer would be repaid on or before 1 July 1999. 8 Clause 2.7 of the Settlement Deed provided that, subject to a requirement to pay any amount ascertained by the final determination of the Proceedings, the Debtors would repay their indebtedness to the Taxpayer on or before 1 July 1999. Clause 2.10(a)(i) relevantly provided that if there was a "default event" as defined, before 1 July 1999, then the Debtors including MHC must apply to the Federal Court to pay into Court, pending the final determination of the Proceedings, the amount of their indebtedness to the Taxpayer. 9 It is common ground that a default event occurred. Accordingly, pursuant to orders made by consent, the money was paid into Court on 4 August 1998 as I have said. The Settlement Deed does not appear to deal expressly with the intended destination of the fund following the final determination of the Proceedings. However, there are two provisions of the Settlement Deed that, on one view, suggest an intention that the payment into Court was not intended to discharge the indebtedness of the Debtors to the Taxpayer. 10 Clause 2.10(a) went onto provide that if the payment into Court was not made, the Debtors, and other parties related to them, were not to object to the Taxpayer commencing proceedings to seek an order that the amount be paid into the Federal Court, as if the amount were payable to the Taxpayer. On the other hand, clause 14.2 of the Settlement Deed provided, inter alia, that if a default event occurs, all of the indebtedness of the Debtor to the Taxpayer was to be due and payable immediately and each of the Debtors, including MHC, would consent to judgment being entered against it in proceedings in a court of competent jurisdiction for the amount of such indebtedness. 11 There is a certain tension between the provisions of clauses 2.10 and 14.2 to which I have just referred. The money was to be paid into Court as if the amount was payable to the Taxpayer. On the other hand, clause 14.2 makes clear an intention to preserve the indebtedness since, if there were no indebtedness, it would not be possible for judgment to be entered in respect of it. Thus it seems to me that it is at least arguable that, whatever might have been the intention of the parties to the Settlement Deed, it did not have the effect that the payment into Court constituted a payment to the Taxpayer such that it was to be taken to be a discharge of the indebtedness. That being so, it is at least arguable that there has been no change in the ownership of the fund and that the fund therefore continues to belong to MHC. 12 On the other hand, the parties must be taken to have intended some juridical consequence to have flowed from the payment into Court. The Proceedings were conducted, I think it is fair to say, on the basis that, to the extent that the Commissioner was successful, the money in Court would be paid out to the Commissioner as pro tanto satisfaction of the debt due by the Debtors to the Taxpayer and that the balance would be paid to the Taxpayer, by way of discharge of the balance of that debt. The Taxpayer asserts, therefore, that it would be unconscionable for the Debtors to assert any entitlement to the fund having regard to the basis upon which the litigation was conducted. 13 As I have said, the Settlement Deed was a complex instrument. It imposed various obligations on the parties, the details of which I have not considered. However, MHC asserts that there has been a failure on the part of the Taxpayer to discharge all of its obligations under the Settlement Deed and that that would affect any entitlement of the Taxpayer to the fund or to payment of the balance of the indebtedness. 14 It is clearly inappropriate to resolve summarily what appear to be somewhat complex issues of substance as to the entitlement of the fund in Court. If this Court has jurisdiction to deal with the question it would be convenient to resolve those questions in this Court. However, they are questions that were not raised in the Proceedings and, in any event, it seems to me that the Court is functus so far as the Proceedings are concerned. Because of the dispute that has been foreshadowed in the argument before me, I consider that it is inappropriate to make any order for the payment out of the fund to either party until the Court is satisfied that there is no longer any justiciable dispute as to entitlement to the fund. 15 The appropriate course, it seems to me, is to adjourn the hearing of both motions, and to give directions to the parties for the commencement of a proceeding in a court of competent jurisdiction to determine the entitlement of the respective parties to payment of the money in Court. It is not appropriate at this stage for me to express any view as to whether this Court would have jurisdiction in relation to such a proceeding. I propose to adjourn the hearing of the motions briefly, to enable the parties to endeavour to agree on directions designed to resolve the issue between them. If the parties cannot agree on directions, then I will give appropriate directions. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 9 November 2000 Solicitor for the Applicant: Mr D W Morris for the Australian Government Solicitor Counsel for the First Respondent: Mr D J Hammerschlag SC Solicitor for the First Respondent: Teece, Hodgson & Ward Counsel for the Fifth Respondent: Mr P L Dodson Solicitor for the Fifth Respondent Blake Dawson Waldron Date of Hearing: 7 November 2000 Date of Judgment: 7 November 2000