IN THE FEDERAL COURT OF AUSTRALIA  )

                                   )

NEW SOUTH WALES DISTRICT REGISTRY  )     No NG441 of 1995

                                   )

GENERAL DIVISION                   )

              BETWEEN:      HALGIDO PTY LIMITED

                            Applicant

                  AND:      D.G. CAPITAL CO LIMITED

                             Respondent

CORAM:    HILL J

PLACE:    SYDNEY

DATED:    11 AUGUST 1995

                    REASONS FOR JUDGMENT

          The applicant, Halgido Pty Limited, moves the Court for an order under O8 r1 of the Federal Court Rules that the originating process issued by it in this Court be served outside the Commonwealth and in Hong Kong upon the respondent to the proceedings, D.G. Capital Company Limited.

          The applicant and the respondent are parties to a credit facility agreement which it is alleged was entered into between them in Hong Kong in 1989.  Pursuant to that agreement it is alleged that the respondent agreed to lend to the applicant the sum of twenty-nine million Swiss francs, which loan was drawn down pursuant to a notice dated 24 January 1989.  Under the facility agreement, interest was payable by the applicant to the respondent.

          Because the respondent is a person outside Australia, s221YL(2A) of the Income Tax Assessment Act 1936 (Cth) required the borrower before the time of paying interest to deduct from the interest withholding tax effectively at the rate of ten per cent.  As a result, the borrower claims to have been required to forward amounts of withholding tax to the Commissioner pursuant to s221YN of the Income Tax Assessment Act. Section 221YQ of that Act provides as follows:

          "(1)Where a person has refused or failed to make a deduction from a dividend, from interest or from a royalty in accordance with section 221YL or has contravened subsection 221YP(1), (2) or (3A) in relation to a dividend or interest, that person is liable, in addition to any other penalty to which he may be liable, to pay to the Commissioner -

          (a)  an amount equal to any unpaid withholding tax payable in respect of that dividend, interest or royalty; and

          (b)  an amount equal to any unpaid additional tax payable under subsection 128C(3) in respect of that withholding tax.

          (2)  Where a person has paid to the Commissioner an amount payable by virtue of paragraph (1)(a), that person may recover an amount equal to that amount from the person liable to pay the withholding tax to which that first-mentioned amount relates.

          (3)  Where an amount payable under subsection (1) has been paid to the Commissioner, the person liable to pay the withholding tax to which the amount relates is entitled to a credit equal to that amount.

          (4)  Where a person has paid to the Commissioner an amount payable by virtue of paragraph (1)(b) of this section and the additional tax or any part of the additional tax to which the amount relates is remitted by the Commissioner under subsection 128C(4) -

          (a)  any credit under subsection (3) that relates to the amount shall be reduced by an amount equal to the additional tax that is remitted; and

          (b)  the Commissioner shall pay to the person who paid the amount to the Commissioner an amount equal to the additional tax that is remitted."

          Because the applicant refused or failed to make the deductions required of it under s221YL, it became pursuant to s 221YQ(1) liable to pay, inter alia, to the Commissioner, an amount equal to the withholding tax which it should have deducted.  It has now made that payment.  In the result, on its face, it becomes entitled under s221YQ(2) to recover from the respondent the amount which it has paid to the Commissioner.  That entitlement clearly creates in it a right of action to payment by the respondent, assuming the facts all to be as I have indicated earlier and assuming in particular that there was a real liability to withholding tax arising, notwithstanding that the loan was made outside Australia.

          I have not addressed these matters at this stage.  It seems to me in these circumstances that the cause of action, that is to say, the statutory right of recovery created by s221YQ(2), arises in Australia either because its origin is in an Australian Act and it may be treated as a debt of record or because the right is a right to be paid in Australia.  Either way, it seems to me that it is appropriate to say that the cause of action is one which arises in Australia.  It may also come within other paragraphs of O8; it is not necessary to decide that now.  There is an alternative cause of action based upon unjust enrichment.

          Given that there is a statutory right, the alternative claim hardly seems of great significance and, for present purposes at least, I would regard it as incidental to the main cause of action.  However, arguably it too would arise in Australia as the place of enrichment.  In these circumstances, I am required by O2 to be satisfied that the applicant does have a prima facie case for the relief which is sought.  I am so satisfied because, at least on a prima facie basis there is a statutory cause of action, all the terms of which have on the evidence before me been satisfied.

          In particular there has been produced to me copies of the loan agreement and evidence on affidavit has been given by the applicant's solicitors.  Although there is no direct evidence of payment of interest under the facilities that, no doubt, is readily to be inferred.  It is alleged in correspondence and certainly not denied.  I would accordingly grant leave to the applicant to serve the application and
statement of claim outside the Commonwealth pursuant to O8 r2 of the Federal Court Rules.

I certify that this and the

preceding four (4) pages

are a true copy of the Reasons

for Judgment herein of his Honour

Justice Hill.

Associate:

Date:  12 March 1996

Counsel and Solicitors       WG Hodgekiss instructed by

for Applicant:               Verekers

Counsel and Solicitors       (No appearance)

for Respondent:             

Date of Hearing:             11 August 1995

Date Judgment Delivered:          11 August 1995