In the matter of C88 Project Pty Ltd (in liq) (controller appointed)

By Amended Originating Process dated 29 April 2024, Mr Kugel in his capacity as liquidator (“Liquidator”) of C88 Project Pty Ltd (in liq) (controller appointed) seeks directions from the Court as to, broadly, whether he would be justified in retaining or returning an amount of $364,267 (“Relevant Amount”) to the Deputy Commissioner of Taxation (“DCT”) which was mistakenly paid to the Company by the Australian Taxation Office (“ATO”) in the course of the liquidation. The DCT was joined as a Defendant in the proceedings and appeared at the hearing.

The first and second orders sought by the Liquidator are alternative directions under s 90-15 of the Insolvency Practice Schedule (Corporations) (“IPSC”), or in the Court’s inherent jurisdiction, that he would be justified in retaining the Relevant Amount and in treating the DCT or the ATO as an unsecured creditor in respect of any liability for repayment of that amount, or alternatively that he would be justified in paying that amount to the ATO. That section relevantly provides that the Court may make such orders as it thinks fit in relation to the external administration of a company, including determining any question arising in the external administration. The Liquidator has standing to bring an application for such a direction under s 90–15 of the IPSC, and I have addressed the principles applicable to such a direction in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [7]–[9]; Gleeson JA has also reviewed those principles in Re Hawden Properties Group Pty Ltd (in liq) (2018) 125 ACSR 355; [2018] NSWSC 481; and those decisions were noted, with approval, by Rees J in Re Maitland Benevolent Society Ltd (in liq) [2020] NSWSC 1284 at [13] to which I will refer below. The case law recognises that such a direction can properly be made where a legal issue is raised by a liquidator’s proposed course of action; where there is a risk of attack on the propriety or reasonableness of the liquidator’s decision; and the making of such a direction will protect the liquidator from liability for breach of duty for that action or decision if full disclosure is made to the Court.

The third and fourth orders sought by the Liquidator are alternative orders that the DCT and/or the ATO pay the Liquidator’s costs of the proceedings or that those costs be costs in the liquidation of the Company. The parties agreed that the question of costs should be determined after the Court had delivered its judgment in respect of the substantive application.

At the opening of the hearing, the DCT indicated that it sought a declaration that the Relevant Amount was held by the Company on constructive trust for the DCT, although I note that it would likely not be necessary to characterise the trust in that form in any declaration that a trust existed. The DCT also sought an order that the Liquidator and the Company must effect payment of the Relevant Amount (including any interest accrued on it) to the DCT within 14 days of these orders and an order that the Liquidator pay the DCT’s costs of the proceeding. The Liquidator did not object to the DCT seeking such relief, without first filing an Interlocutory Process and the hearing proceeded on the basis that the relief sought by the DCT was largely or entirely consistent with the second direction sought by the Liquidator, if he did not obtain the first direction noted above. After I had reserved judgment, the Liquidator’s solicitors requested a further opportunity to be heard as to the orders to be made consequential on the judgment. I will hear any application to reopen the matter to address that question following the delivery of this judgment.

I will briefly refer to the affidavit evidence led in the proceedings, although less turns on that evidence where there is no substantive factual contest between the parties, and they were able to agree the relevant facts which I set out below.

The Liquidator read his affidavit dated 18 December 2023 which refers to his appointment as liquidator to the Company and notes that the Company was a special purpose vehicle established to purchase, develop and sell land situated at Carlingford in New South Wales and that it was placed in administration and subsequently passed into liquidation. He also refers to the appointment of a controller to the Company on 7 June 2022, to the sale of properties by a mortgagee in possession and by the Company and to the circumstances in which the Company received a payment from the ATO in the amount of $465,417. It is now common ground that the Relevant Amount, being part of that payment, was referable to the sale of the Company’s properties by the mortgagee in possession and should not have been paid to the Liquidator. The Liquidator also relies on a voluminous exhibit to that affidavit.

The DCT in turn read the affidavit dated 6 March 2024 of Ms Wiggins, who is an Australian public servant employed in the “lodge and pay” section of the ATO. She outlines the manner in which the DCT maintains its accounting and computer system and noted that, from 14 April 2022 to date, by reason of the appointment of Mr Kugel as voluntary administrator of the Company and subsequently as liquidator of the Company, and the appointment of a controller to the Company, the Company was an “incapacitated entity” within the meaning of s 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth). She addresses the circumstances in which GST is payable in connection with a supply or acquisition engaged in by a representative or multiple representatives of an incapacitated entity. She also addresses the position in respect of sale of the Company’s property, the circumstances in which payments were made to the Liquidator and the error which had occurred in respect of that payment. The DCT in turn relies on a substantial exhibit to Ms Wiggins’ affidavit (Ex D1).

By a second affidavit dated 21 March 2024, the Liquidator identified the contracts for the sale of the properties and GST withholding forms for two companies and exhibited those documents to that affidavit. Again, there appears to be no dispute in that respect. The Liquidator also tendered a bank statement maintained in respect of the Company (Ex P3) which records a payment of $433,294 by the ATO to the Company, received on 1 February 2023.

I now set out the agreed facts as agreed by the parties, and should record my thanks to the parties’ legal representatives for their efforts in reaching agreement as to these matters, which has facilitated a prompt judgment in the proceedings.

The Liquidator accepts that, in the present circumstances, the Relevant Amount was paid by the ATO “by mistake”, although he adds that the ATO’s automated system in one sense “intended” (if, I interpolate, an automated system can have an intention) to pay the money to the Company, and he accepts that the relevant misunderstanding concerned the Liquidator’s (non) entitlement to receive payment. Mr Neggo, who appears for the Liquidator adds, possibly for completeness, that the ATO intended to part with ownership of the money paid; it did not intend to retain any equitable property in the money paid.

Mr Neggo fairly recognises that the decision of White J (as his Honour then was) in Wambo Coal is authority that a trust can arise over money paid by mistake, once the payee acquires knowledge of the mistake. Mr Neggo noted that there was no issue in that case that monies had been paid by Wambo Coal under a mistake of fact and that the second defendant, Singleton Earth Moving Pty Ltd (in liq) (“Singleton”), was liable to repay the monies, although Singleton was insolvent and Wambo Coal could not prove in the liquidation as its claim did not arise until after the day on which the winding up was taken to have begun.

As Mr Neggo recognises, White J there observed at [40]-[42] that:

Mr Neggo contends that:

That decision has also been followed in subsequent cases. For example, in Westpac Banking Corp v Ollis [2007] NSWSC 956 at [20], Einstein J treated that decision as authority that “where a payee receives money paid under a mistake for no consideration, the recipient’s conscience is bound upon being aware of the mistake and a proprietary remedy is appropriate.” In Focus Metals Pty Ltd v Babicci [2014] VSC 380 at [112], Sloss J similarly observed that “Wambo Coal is also authority for the proposition that a proprietary remedy is appropriate “once the recipient is aware that, by a mistake, he has got something for nothing.” Mr Livingston also points out that the analysis of White J in Wambo Coal was approved by the Court of Appeal of the Supreme Court of Victoria in AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 235 at [30], where the Court (Kyrou, Kaye and Sifris JJA) observed that:

The Liquidator does not contest the correctness of Wambo Coal, as distinct from seeking to distinguish it where s 8AAZN of the TAA applies, or at least where the DCT has issued a notice to trigger the application of the general interest charge under that section. Mr Neggo submits that the position here “may not” be able to be resolved by the application of Wambo Coal, and that that case is distinguishable because s 8AAZN of the TAA did not apply in that case, and there was no statutory debt in that case. This submission turns on the application of s 8AAZN of the TAA which relevantly provides:

Mr Neggo in turn submits that:

In oral submissions, Mr Neggo made clear that he was not contending that s 8AAZN of the TAA operated as a code or necessarily excluded other relief available to the DCT, but only that the structure of that section was inconsistent with the existence of a proprietary remedy available to the DCT.

Mr Livingston, with whom Mr Josifoski, appears for the DCT, responds that s 8AAZN of the TAA is not inconsistent with the DCT’s entitlement to recover the relevant funds on the basis identified in Wambo Coal. He draws attention to the review of the legislative history of that section by the Full Court of the Federal Court in Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 (“Auctus Resources”), where Davies J observed (at [3]) that:

Mr Livingston also points to the observation of Judge Marks in Deputy Commissioner of Taxation v MWB [2019] BCC 1516 at [78] that:

Mr Livingston points out that the rights and remedies available to the DCT in respect of a claim for recovery of money paid under a mistake are to be determined “as nearly as possible” in the same manner as an action pursued between ordinary litigants by reason of s 64 of the Judiciary Act 1903 (Cth). He also submits and I accept that a clear legislative intent would be required before a statutory provision such as s 8AAZN of the TAA would deprive the DCT of its general law rights, where there is an alternative construction available: Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364 at [23]; [2006] HCA 32.

Mr Livingston submits that, for several reasons, the text, context and purpose of s 8AAZN of the TAA do not indicate that it operates to deny the DCT a proprietary remedy, where a payment is made by mistake, for no consideration, the payee is aware of the mistake and the funds have not been expended. He submits, in a dense submission, that:

In oral submissions, Mr Livingston submitted, and I accept that, in the context of Pt IIB of the TAA which deals with RBAs, s 8AAZN is a machinery provision which provides a mechanism for recording, within the RBA system, a debt arising from an administrative overpayment, and attaching the incidence of the RBA system to that debt, and providing for a mechanism for the general interest charge to be triggered, by service of the relevant notice. It seems to me that nothing in that process is inconsistent with the availability of a claim of the kind recognised by Wambo Coal. More generally, I accept that the structure and legislative history of s 8AAZN of the TAA indicates that it was intended to establish a means for addressing an overpayment, within the RBA regime, and I can see no basis to read that section as exclusive of alternative rights that may be available to the DCT at general law, and no public policy that would be advanced by reading the section in that way.

Mr Neggo also relies on the proposition that the DCT and the Commonwealth are two separate legal personalities. Mr Livingston responds that:

I accept that, as Mr Livingston points out, the distinction which Mr Neggo seeks to draw between an administrative overpayment being due to the Commonwealth and a proprietary claim being available to the DCT is undermined by the fact that a claim by the DCT for repayment of the Relevant Amount would be brought in his own name but for the benefit of the Commonwealth. It seems to me that there is no inconsistency between the statutory debt created by s 8AAZN, which is in terms due to the Commonwealth under s 8AAZN(1) of the TAA and may be recovered by the DCT as a debt payable in a Court of competent jurisdiction, and a trust in favour of the DCT, which would in turn operate for the benefit of the Commonwealth. There exists, in those circumstances, an overlap but not an inconsistency in the relevant provisions. Conversely, a payment made by the Liquidator to the DCT would both discharge his obligation under the relevant trust and extinguish (or, where interest has accrued, reduce) the statutory debt which arose under s 8AAZN of the TAA. I do not accept that this submission advances the position for which the Liquidator contends.

Mr Neggo also submits that the DCT’s right to treat the payment of the Relevant Amount as giving rise to a statutory debt, capable of bearing statutory interest, under s 8AAZN of the TAA, is inconsistent with a right to treat the overpayment as trust money in the hands of the Company, or as beneficially held for the DCT. I do not accept that submission, where it is not apparent that a trust of the kind that arose in Black v S Freedman & Co (1910) 12 CLR 105; [1910] HCA 58 (“Black v Freedman”) and Wambo Coal cannot co-exist with a debt owed by the thief or the recipient of a mistaken payment. Mr Neggo’s submission would prove too much, so far as it would also exclude the co-existence of a restitutionary claim and a trust claim, where the co-existence of those claims has been recognised by the case law. It does not seem to me that there is any reason to treat a statutory debt under s 8AAZN of the TAA as any different from a debt that arises at general law in that respect.

In reply, Mr Neggo responds that the recognition in Auctus that the cause of action under s 8AAZN of the TAA co-exists with the cause of action to recover money had and received says nothing as to the question whether the DCT retains a proprietary claim to the relevant funds. I do not accept that submission, where the recognition of the continuance of a general law action for money had and received supports a recognition of other general law actions, including an action by analogy with the claim in Black v Freedman, as recognised in Wambo Coal. Mr Neggo also repeats his submission, in reply, that if the beneficial interest in the relevant funds was with the DCT rather than the Company, for recovery of the funds by the DCT, then the recovered funds could not reduce the Company’s corresponding statutory debt to the Company. That submission seems to me, with respect, unduly technical, where the recognition that a cause of action in debt and a trust may co-exist has the consequence that monies may be repaid in discharge of the trustee’s obligation, and in repayment of the debt, at the same time.

In summary, notwithstanding that s 8AAZN of the TAA applied, and the DCT gave notice to trigger the obligation to pay interest, it seems to me that the Liquidator plainly came to realise that the Relevant Amount was paid by mistake; there was no consideration given for that payment; the moneys paid could still be identified at the time that knowledge was acquired; and, even if the payment could be analogised to a loan as Mr Neggo contends, that loan was itself made by mistake. I can see no reason why, applying the approach taken in Wambo Coal, an institutional trust does not then attach to the Relevant Amount in the Liquidator’s hands.

In the alternative, Mr Neggo points to the Liquidator’s “concern” that the DCT’s acts of debiting the amount of the payments to an RBA connected with the Liquidator and the Company on 10 August 2023, and issuing a notice under s 8AAZN(2) of the TAA, which would cause interest to run on the statutory debt, extinguished any trust. Mr Neggo raises the possibility that the DCT elected between two alternative rights, with knowledge of the facts giving rise to the inconsistent rights, in exercising its remedy under s 8AAZN of the TAA. He refers to the authorities relevant to election in that respect and submits that:

In Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40, Stephen J (with whom McTiernan J agreed) observed (at 642) that, for the doctrine of election to operate, “there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses”. His Honour pointed to a variance in the authorities as to the nature of the knowledge which the elector must possess, and then observed that:

His Honour also addressed the knowledge that is necessary for an election. Mason J in turn observed (at 658) that:

In Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd (2005) 30 WAR 290; [2005] WASCA 106 at [35]-[39], Steytler P in turn referred to the elements of election as requiring a choice between two inconsistent legal rights, that there be “knowledge on the part of the elector and words or conduct sufficient to amount to the making of the election”, with that knowledge being “full knowledge of the material facts”, on the basis that a party to a contract is taken to know of the rights that it confers; and that unequivocal conduct is required to establish an election that is not consciously made. I also summarised the applicable principles in Re Computer Room Solutions Pty Ltd [2021] NSWSC 845 at [62]ff and Re Sirrah Pty Ltd (in liq) [2024] NSWSC 784 at [70]ff on which I have drawn for these observations.

I do not accept the Liquidator’s submission relying on an election, because it seems to me that there was no inconsistency in the DCT relying, at the same time, on a statutory right available under s 8AAZN of the TAA and the trust for which it now contends.

Mr Neggo also submits that the effect of the DCT’s debiting “Integrated Client Account 5” in the amount of $365,267 is that the balance of the account changed from $56,610 CR to $308,657 DR and that:

Mr Neggo also submits that:

Mr Livingston responds that:

I might have accepted the Liquidator’s submission in this respect, if the consequence of debiting Integrated Client Account 5 was that the Relevant Amount had been repaid, but that was not the case where its consequence was only that the balance of the account was reduced from a modest credit to a significant debit. In those circumstances, the debit to that account did not exclude a finding that it is against conscience for the Company to retain the balance of funds paid to it by mistake, so as to advantage the Liquidator in respect of his remuneration and disbursements or unsecured creditors at the DCT’s expense. While the Liquidator’s conscience would be cleansed once he had repaid the Relevant Amount, it is not apparent to me why anything short of his doing so had that consequence. I do not accept this submission.

For these reasons, I will at least direct the Liquidator that he would be justified in paying that amount to the DCT, and it may well be appropriate to make a further direction that he would not be justified in not doing so. I would, subject to any successful application to reopen made by the Liquidator, make the declaratory orders sought by the DCT, and I will make orders allowing the parties to make brief written submissions as to costs.