Bluebottle UK Limited & Ors v Deputy Commissioner for Taxation & Anor

[2007] HCATrans 466

[2007] HCATrans 466

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S302 of 2007

B e t w e e n -

BLUEBOTTLE UK LIMITED

First Applicant

CRICKET SA

Second Applicant

VIRGIN HOLDINGS SA

Third Applicant

BARFAIR LIMITED

Fourth Applicant

and

DEPUTY COMMISSIONER OF TAXATION

First Respondent

VIRGIN BLUE HOLDINGS LIMITED

Second Respondent

GLEESON CJ
GUMMOW J
KIRBY J
HAYNE J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON WEDNESDAY, 29 AUGUST 2007, AT 11.22 AM

Copyright in the High Court of Australia

__________________

MR D.F. JACKSON, QC:   If the Court pleases, I appear with my learned friends, MR A.J. SULLIVAN, QC, MR S.H. STEWARD and MR S.A. GOODMAN, for the appellants.  (instructed by Clayton Utz)

MR A. ROBERTSON, SC:   May it please the Court, I appear with my learned friends, MR S.W. GIBB, SC and MR J.H. MOMSEN for the first respondent.  (instructed by Australian Government Solicitor)

GLEESON CJ:   Yes, Mr Jackson.

KIRBY J:   Mr Jackson, there is a minimalist matter that I should mention, that I have a participation in the Frequent Flyer programme of Virgin Blue and occasionally and with pleasure fly with them.  I thought I should just put that on the record.

MR JACKSON:   It causes us no problem, your Honour.

KIRBY J:   No, I am sure it does not, nor, I would think, Mr Robertson.

MR JACKSON:   Your Honours, as is apparent from the parties’ written submissions, the appeal is concerned with ultimately three questions arising under the Income Tax Assessment Act 1936, on the one hand, and arising, I suppose, in relation to provisions of the Corporations Act.

Your Honours, may I try to identify the questions a little more exactly after referring to the basic facts and they can be shortly stated.  The shareholders of the respondent, Virgin Blue, included two of the appellants, Cricket and Virgin Holdings.  The Commissioner contends that those companies are liable for tax in large sums, larger sum to Cricket and smaller sum to Virgin Holdings.

The amounts, your Honours, are referred to in our written submissions at paragraph 10 on page 3 and they were amounts $61-odd million and $17-odd million which were the subject of a default assessment under section 167 of the Income Tax Assessment Act.  The assessment relates to capital gains tax on sales of shares in Virgin Blue in 2003.

Could I in that regard take your Honours to the two relevant parts of the appeal book. In relation to Cricket, page 221, you will see in the third paragraph of the text a reference to a notice of assessment and a reference to a general interest charge. You will see a position paper on page 222 and at about line 33 there is a reference to the disposition of shares. Then at page 223 your Honours will see, about line 28, a reference to section 167(c) of the Income Tax Assessment Act and then about line 43, “In view of the fact that Cricket has not furnished a return of income” the Commissioner has made a default assessment, to put it shortly under section 167.  Your Honours will see then a notice of assessment at page 225.

Similar documents can be seen in relation to Virgin Holdings at pages 227 and following.  Until that point – and that point is one which occurred in December – and I will come to the dates a little more specifically in just a moment – there had been no assessment of tax by the Commissioner and, of course, no notice of assessment.  Your Honours, the default assessments, if I could come back to the question of date, were dated 14 December 2005.  May I, of course say, your Honours, that, as is apparent from our written submissions in‑chief at paragraph 71, we do not contest the validity of the notices of assessment in the present proceedings.  There were challenges to them in other proceedings but they are not contested as such here.

Your Honours, two days prior to the service of the notices of assessment on 14 December 2005, the Commissioner had issued notices purporting to be under section 255 of the Income Tax Assessment Act to Virgin Blue.  May I come to the detail of those in just a moment.  They required Virgin Blue to retain sums rather larger than those to which I have already referred.  That is, in the case of Cricket, it was a sum not of $61‑odd million but of $72½ million.  In the case of Virgin Holdings it was not $17.7, but rather $20.8.

Now, those two notices may be seen at pages 215 and 219.  May I go to page 215.  That is in relation to Cricket.  It says in recital A that Cricket is a non‑resident who is a shareholder in a company deriving income, et cetera, from a source in Australia, whereas the following companies, which it lists – you will see Virgin Blue is the first of them in recital B:

could have the receipt, control or disposal of money belonging to the Taxpayer.

TAKE NOTE THAT

The Companies shall, when required by the Commissioner, pay the tax due and payable by the Taxpayer . . . to retain the aggregate sum of –

which I mentioned before –

being the amount of tax that is due or will become due by the Taxpayer, from the amount the Companies have receipt, control or disposal of belonging to the Taxpayer.

Your Honours, a similar document in respect of Virgin Holdings as I have said is page 219.  At that point there was no assessment of the tax payable by either Cricket or Virgin Holdings. 

No doubt underlying the purported section 255 notices was the fact that at that point Cricket and Virgin Holdings were likely, if I could put it perhaps neutrally, to receive money a few days later, namely, on 15 December, by way of a dividend from Virgin Blue in accordance with a resolution which had been passed by that company on 11 November 2005. Your Honours will see that resolution referred to at page 20.

Your Honours, the document commences at page 19 and I will come back to page 19 in a moment.  It is minutes of a meeting of directors held on 11 November.  Your Honours will see at page 20:

IT WAS FURTHER RESOLVED THAT in accordance with the Dividend Policy and subject to the Auditors signing an unqualified audit report and the sub-committee confirming it, the directors declared a final, fully franked dividend of 25 cents per ordinary share.  The record date for the dividend will be 28 November 2005 with payment being made on 15 December 2005.

HAYNE J:   What is the significance of the reference to record date as 28 November?

MR JACKSON:   It indicates, your Honours, the – it is the point at which the identity of the shareholders, persons then shareholders, is worked out.

HAYNE J:   Why is a record date fixed?

MR JACKSON:   Well, a record date is fixed, your Honour, really for administrative purposes in a sense.

HAYNE J:   Is it not fixed pursuant to obligations incurred under listing rules?

MR JACKSON:   Well, to a degree, your Honour, but could I just say in relation to it, what you have is a situation where the fact that the record date was one that was fixed a date ahead, of course, does tend to indicate that the declaration of the dividend is not at that point creating a debt.

HAYNE J:   Well, at a convenient point I would be glad if you would come back to examine the significance of the record date, in particular to examine whether the record date and its fixing has any statutory support or origin, and in that regard you might take account of such matters as the Listing Rules, Appendix 6A to the Listing Rules, and those provisions of Chapter 7 of the Corporations Act which make I think Listing Rules norms of behaviour with which a listed entity like Virgin Blue Holdings must comply.

MR JACKSON:   Yes.  Your Honour, we will do that.  May I perhaps respond to that after lunch because ‑ ‑ ‑

HAYNE J:   Of course.

MR JACKSON:   ‑ ‑ ‑ it is a point that I think has not previously been raised in the matter.

HAYNE J:   Yes.

MR JACKSON:   Your Honours, what I was going to say was the resolution at page 20 refers to the dividend policy.  That can be seen on the previous page, and your Honours, it simply says that in a sense if there is money available we will seek to provide it by way of dividend in appropriate circumstances.  Now, your Honours, there is, of course, an issue, a substantial issue, as to the effect of the resolution at page 20, but may I come back to that?

If I could just return to the course of events in December, your Honours, the purported section 255 notices were issued to Virgin Blue on 12 December. On the next day, the 13th, each of Cricket and Virgin Holdings assigned its rights to the yet to come dividend to the appellant, Bluebottle.

Your Honours will see the assignment by Virgin Holdings at page 188, and may I invite your Honours to note a number of features about it?  First of all, in page 188 in the definitions in clause – I am sorry, your Honours, I should start at page 189 – clause 2.1.  Your Honours will see that it says in paragraph (a):

On the date of this Deed the Assignor transfers and assigns to the Assignee in equity all Rights of the Assignor which are capable of assignment.

Now, if I could pause there, your Honours, to say, the term “rights” is defined by clause 1.1 at about line 40 on page 188.  It means “all right, title and interest to receive the Dividend”, a term itself defined on about line 28 on page 188 and I will come back to that.  Going back to clause 2.1(a):

(b)On the date fixed for payment of the Dividend, the Assignor transfers and assigns to the Assignee absolutely all Rights of the Assignor -

which, to put it shortly, have not gone under 2.1(a), so your Honours will see two different dates referred to in those two provisions.

GUMMOW J:   The governing law is the law of Queensland, is it not, 3.1? 

MR JACKSON:   Yes, your Honour, yes. The relevant law governing assignments is section 199 of the Property Law Act.

GUMMOW J:   Property Law Act 1974?

MR JACKSON:   Yes.  Your Honours, may I just say, going back to page 188, that your Honours will see in clause 1.1 the definition of “Dividend” which refers to, in effect, the determination which is at page 20.  Could I refer also to clause 2.2, and your Honours will see that clause 2.2 provides for various ancillary matters, in effect.  Your Honours, the Cricket deed of assignment is in similar terms at page 204.

Now, your Honours, on the day of the assignments, which was 13 December, the assignee, Bluebottle, also executed a direction to Virgin Blue to pay the dividends not to itself but to the third appellant, Barfair.  Your Honours will see that at page 209.

HAYNE J:   What is the consequence, do you say, of that direction in face of, first, the fixing of a record date and, second, provisions of the kind found in the constitution of Virgin Blue Holdings in clause 6?

MR JACKSON:   And 67, your Honour.  First of all, could I just say this.  If the position be, and may I put it broadly first, if the position be that the events of November, the dividend resolution, was to create at that point, or perhaps at a later point such as the record date, a debt as at one of those two points ‑ ‑ ‑

HAYNE J:   Or even at the payment date.

MR JACKSON: May I come to the payment date in a moment, your Honour, because in between those are the section 255 matters. If one looks at the position of the resolution as creating a debt and if the consequence is that the debt, as at that point – and if one then has a situation, your Honours, where there is an assignment on which notification has been given – I do not know that we have given ‑ ‑ ‑

GUMMOW J:   It is not notification of the assignment though, is it?

MR JACKSON:   I am sorry, your Honour?

GUMMOW J:   Page 209.  It is a mandate.  It is not a notification of an assignment.

MR JACKSON:   I am sorry, your Honour.  Your Honours will see that it attached – is your Honour looking at page 209 or 210?

GUMMOW J:   Page 209.

MR JACKSON:   At 209 is the mandate, if I can put it that way, but could I also say, your Honours, that at page 210 you will see the advice of the notification of the assignments.  You see particularly about line 32 the documents are actually enclosed with it.

GUMMOW J:   Yes, I see.

MR JACKSON:   If I can just go back to what your Honour Justice Hayne was asking me.  If the position is that there was a declaration of the dividends creating a debt from one of the earlier points prior to the date of payment of the dividend, which is 15 December, then there was an effective legal assignment presently existing, right.

HAYNE J:   The assertion of effective legal assignment is the assertion that I seek to explore with you.  Effective for the PLA I understand but it is the relationship between the PLA and the corporation’s regime which is the subject matter that interests me.

MR JACKSON: Your Honour, may I just say one more thing before coming back to your Honour. What we would seek to say about it is that if that is the situation that there was a legal assignment of which notice had been given of the right to the dividend which had been declared, if I can use that expression, to indicate the creation of a legal right to payment albeit at a future date of the dividend, then, in our submission, that was effective in relation to the company and it was also, your Honours, one which would be effective if the purported section 255 notices were not themselves effective.

GLEESON CJ:   When you are using the word “effective” in the first sense there, are you looking at how the company could have discharged its obligation and, in particular, whether the company could have discharged its obligation by making a payment to Virgin Holdings, for example?

MR JACKSON:   I am in one sense, your Honour, yes.  What I am saying is that if one is looking at it from the point of view of there being a legal assignment and that would only come about, we would accept, if there was the creation of a debt, meaning in the sense of a present obligation albeit not payable for the future, debitum in praesenti solvendum in futura.

GLEESON CJ:   But at some point, and there is a big argument about what point, presumably one asks oneself, could the company have discharged its obligations in relation to this dividend by making a payment to X?

MR JACKSON:   Yes, it could have, your Honour, but if one goes to, for example – there are two provisions of the constitution of the company which seem germane in that regard, and they are rules 6 and 67.  Could I go first to rule 6, which is the more general provision.  It is at page 149.  Rule 67 deals specifically with the dividends.  Rule 6 is at page 149.  It says in a fairly common form:

(a)Except as required by law, the company is not bound to recognise a person as holding a Security on any trust –

for example.  Your Honours will see also the terms of rule 6(b).

HAYNE J:   Rule 6(b)(ii) would be the specific provision which presently is relevant, would it not, a “right in respect of a security”?

MR JACKSON:   If one is looking only at rule 6.

HAYNE J:   I understand that, but do you ‑ ‑ ‑

MR JACKSON:   Yes, I think so, your Honour.  Your Honour will see it says “the company is not bound to recognise”.  It accepts the possibility in terms that it may do so ‑ ‑ ‑

HAYNE J:   May, but need not.  The question is ultimately, is the company bound to pay only the assignee or may the company pay the shareholder of record on record date?

MR JACKSON:   Your Honour, could I say that that is, with respect, a question but it is not in the end the question, if I may say so, your Honour. The reason I say that is because one comes in the end to section 255(2) of the Income Tax Assessment Act. I will come back to that in a moment. What it requires for it to be operative is that there be a liability to pay. In a sense, that is what part of the case comes down to; is there a liability to pay? Now, if there is not a liability to pay, albeit that there may be an entitlement to pay, then section 255 is not engaged. Your Honours, I need to come back to that and may I do so in a moment?

Your Honours, could I come then to rule 67, which is at page 174?  It says that:

(a)Any Dividend, interest or other money payable in cash in respect of Securities may be paid by any of the following means, in the company’s discretion, at the sole risk of the intended recipient:

(i)by cheque sent through the post directed to:

(A)the address of the security holder or, in the case –

and your Honours will see the provision for joint holders.  Then 67(a)(i)(B):

(B)to any other address as the Security holder or joint holders in writing directs or direct; or

(ii)by electronic funds transfer to an account with a bank or other financial institution nominated by the Security holder and acceptable to the company; or

(iii)by any other means determined by the Directors; or

otherwise be disposed of according to law.

Your Honours will see that that gives an ability to direct where money is to be paid and your Honours will see that it accepts a situation that there may not be a payment to the person on the record as the shareholder person.  So those are the two provisions of the constitution of the company that deal directly with that question.

Your Honours, could I say that I think I referred your Honours to page 209, which is the document which gave a direction described as a direction to pay Barfair. Then your Honours will see the documents at page 210. There were then notifications, again purportedly using section 255, which appear at pages 133 and 134. Your Honours will see that that gave - at 133 there was a requirement for payment which purported to pick up the earlier document. The similar document is at page 134. At page 349 and page 350 you can see those documents.

Could I just say, your Honours, in relation to the order of events, at page 352, in the Court of Appeal there was a document which was provided to the court in which – your Honours will see in the second paragraph it was said:

I am now instructed to advise the Court that, for the purposes of this appeal only, the Commissioner admits that Virgin Blue received the letter at Blue 80 –

it should be page 210 of this book –

and its attachments on 14 December 2005 –

and that is the letter containing the advice of the assignments and so on – 

before it received the Commissioner’s letters –

and the references in the present appeal book should be 133 and 134 in lieu of 135 and 134.

GUMMOW J:   Instead of 135 it is?

MR JACKSON:   Instead of 135 and 134 it should be 133 and 134. Your Honours, the question which in a sense then arises is how do the issues arise and they arise because of the terms of section 255. Your Honours will see that attached to our written submissions as annexure A where it is set out in full.

GLEESON CJ:    It seems to be common ground, is it, Mr Jackson, that 255 is only capable of applying because of subsection (2)?

MR JACKSON:   Yes.

GLEESON CJ:   If it were not for subsection (2), for example, the Commissioner could not satisfy subsection (1)(b) because there was no money coming to the company.

MR JACKSON:   Your Honour, may I say simply that it does appear to have been common ground that the provision which was germane to bring into operation subsection (1) is subsection (2). Your Honours, I think I do need to go to the opening words of section 255. Your Honours will see that the opening words of section 255(1) cover, in a sense, a multitude of situations. Your Honours will see that it says:

With respect to every person -

Now, the person there described as being “every person” appears to be the person described as “he” in the opening words of each of the subparagraphs of subsection (1).  If one goes to the opening words of subsection (1), the command contained in the provisions is directed to:

every person having the receipt control or disposal of money belonging to a non-resident –

in certain circumstances, and they are if the non-resident –

derives income, or profits or gains of a capital nature, from a source in Australia or who is a shareholder, debenture holder, or depositor in a company deriving income, or profits or gains of a capital nature, from a source in Australia ‑ ‑ ‑

GLEESON CJ:   Does that include a bank?

MR JACKSON:   It could, your Honour, yes. Now, I was going to say, your Honours, none of those provisions, as we understand it, is contended to apply to the relationship between Virgin Blue and its shareholders. One then goes to section 255(2). It says that:

Every person who is ‑

and, your Honours, these are some of the critical words –

liable to pay money to a non-resident shall be deemed to be a person having the control of money belonging to the non‑resident, and, subject to subsection (2A) –

which does not seem to matter for present purposes –

all money due by him –

and your Honours will see again that expression “all money due by him” which is, again, an important phrase –

shall be deemed to be money which comes to him on behalf of the non‑resident.

Your Honours, the terms of that provision give rise, in a sense, to what is the first question.  Was Virgin Blue liable to pay money to Cricket or Virgin Holdings when the notices were given on 12 or 14 December.  Your Honours, the resolution of that question depends on the effect to be attributed to the November resolution providing for the dividend.  Did it create a debt payable on 15 December?  Did it create an immediate or present debt, or perhaps a debt of coming into being, at some point payable on 15 December? 

The second issue arises in relation to section 255(1) itself. It is whether section 255(1)(b) is, as the Court of Appeal held, what we have described as a freestanding provision. I use that expression, your Honours, because it raises the question whether notices can be given under section 255(1)(b) even though no notice has been given under section 255(1)(a), and, secondly, there has been no assessment, default or otherwise, of any tax otherwise payable.

Your Honours, out contention in relation to section 255(1)(b) is that that provision, like paragraphs (c) and (d) of the same provision, is one which is ancillary and, more particularly, that when the way in which the provision works, to put it shortly, is that when the Commissioner gives a notice under paragraph (a), you then have paragraph (b) being an authority and requirement to retain the money until the date for payment.

GLEESON CJ:   It refers to “the tax” and if you asked yourself what tax, presumably you would find the answer in paragraph (a)?

MR JACKSON:   That is our submission, your Honour, yes.  We would say that paragraph (c) creates a personal liability for the tax payable and then paragraph (d) gives an indemnity for payments which have been made under paragraph (a).  Our contention is that there was not, in respect of the position on the first notice, at that time any notice given under paragraph (a) and paragraph (b) was not a provision which allowed its operation without there being a paragraph (a) notice.

Your Honours, when one comes to 14 December when notices can be treated as applying as being given pursuant to paragraph (a), the situation which then obtained was, we would submit, that there was nothing upon which they could operate.  I will come back to that, your Honours.

Your Honours, the third issue is that raised by our learned friend’s notice of contention which is at page 430 and it is, to put it shortly, that the section 255 notice in any event prevailed over the assignments. Our contention is that following the giving of the notices of assignment, Virgin Blue may have been able to satisfy its obligations to shareholders in respect of the dividend by paying it to Cricket or Virgin Holdings, but those companies were no longer entitled to require that the dividend be paid to them because they had given the notices of assignment and the irrevocable direction to pay to Barfair. In those circumstances it is not possible to say that Virgin Blue was, in terms of section 255(2) liable to pay money to those companies. The money was due to them in that sense.

Your Honours, could I come then to the question of the liability of Virgin Blue to Cricket and Virgin Holdings before 15 December 2005.  That is the issue – if I can just give your Honours a reference – with which we have sought to deal in our written submissions in paragraphs 15 and 17 to 52.

May I just say something briefly about the legislative provisions in section 254U and V of the Corporations Act concerning the payment of dividends.   Prior to the Company Law Review Act 1998 the position in relation to the provision of dividends was that stated shortly, if I can put it this way, by Justice Mason with three other members of the Court agreeing in Industrial Equity Limited v Blackburn (1977) 137 CLR 567 at page 572. Your Honours will see at the top of page 572 his Honour said in the second sentence:

There is a well recognized distinction between a power to declare a final dividend and a power to pay an interim dividend.  One consequence of the distinction is that although the declaration of a final dividend gives rise to a debt payable by the company to the shareholder immediately or from the date stipulated for payment, a resolution for the payment of an interim dividend does not create such a debt in favour of the shareholder.

Now, your Honours, a consequence of that view was that in the case of declaration of a final dividend a debt arose at the time of the declaration of the dividend, albeit that the date fixed for payment might not be until a later date.  The Company Law Review Act 1998 introduced into the then Corporations Act ‑ ‑ ‑

GLEESON CJ:   Before you pass from that, debt to whom, assuming the register might change?  If shares are sold come dividend, to whom is the debt owed?

MR JACKSON:   Well, the person, your Honour, who is the shareholder on the date when the dividend is paid.  I appreciate the point your Honour is making, that there is some – sorry, I will start again, your Honour.  In the ordinary course of events the dividend declaration in that form would usually say the final dividend is declared in respect of the persons who are shareholders at a certain date and it is payable for a certain time.  Now, in the ordinary course of events, your Honour, that would depending on the construction of it mean that the dividend was payable to persons who satisfied that criterion on that date and ‑ ‑ ‑

GLEESON CJ:   Which date?

MR JACKSON:   The date as at which it said the person ‑ ‑ ‑

HAYNE J:   The record date.

MR JACKSON:   The record date.

HAYNE J:   In the case of listed entities it has long been a requirement, has it not, to fix a record date?

MR JACKSON:   Well, your Honour, they have to identify who they are, that is why.

HAYNE J:   Yes, exactly so.

MR JACKSON:   Yes.  So, your Honour, the debt really whilst it is expressed generally could not arise until then, one would think, or was one that was defeasible in some way, although it may have arisen at the earlier point.

GLEESON CJ:   Well, there is no identifiable creditor until the record date, is there?

MR JACKSON:   Well, your Honour, in a sense there is a possibility.  One knows who the persons are at a particular time, some of them will, most of them will, some of them will not be.

GLEESON CJ:   You have a listed public company and on 1 September it declares a dividend payable to people who are shareholders on 15 September, then those shares will be traded on the stock exchange between 1 and 15 September.

MR JACKSON:   Yes.

GLEESON CJ:   So to say the company on 1 September has a debt accepts the possibility that the identity of the creditors will change between 1 and 15 September.

MR JACKSON:   Yes, your Honour, the proposition is no doubt put a little too broadly - broadest shortly but perhaps too broadly in what was said in that passage that I quoted from Industrial Equity v Blackburn.

HAYNE J:   The concept of record date was supported, was it not, by provisions of the kind now found in I think it is section 822B, is it - no, sorry, it is the wrong reference - supported by provisions permitting the closure of the register of members for specific dates.  Section 822B is that which gives the operating rules force.  The reference is wrong, but the idea is right, is it not?

MR JACKSON:   Yes, that is so, yes.  Now, what I was going to say was that the Company Law Review Act introduced the provisions which are now section 254U and 254V, and your Honours will see – if I could just say this – they are in the same terms.  I said they are now – they were the same in the earlier Corporations Act from which the corporations laws were derived.

Your Honours will see if I could go to section 254U that section 254U is stated to be a replaceable rule, whereas 254V states the law.  Section 254V is not a replaceable rule, it simply states the legal position, and in a sense it alters it.

If I could go to section 254U first of all, your Honours will see that it provides that the directors may determine that a dividend is payable and fix the amount, the time for payment, the method for payment – and it indicates the methods that may be used.  You will see then that section 254V(1) says: 

A company does not incur a debt merely by fixing the amount or time for payment of a dividend.  The debt arises only when the time fixed for payment arrives and the decision to pay the dividend may be revoked at any time before then.

(2)However, if the company has a constitution and it provides for the declaration of dividends, the company incurs a debt when the dividend is declared.

GLEESON CJ:   Incurs a debt to whom?

MR JACKSON:   Presumably it incurs a debt to the persons who are the beneficiaries of the declaration of the dividend.  I am sorry to put that in a round form, but if they are not capable – it presumably intends to convey the notion that that occurs when they are persons who are capable of identification, or they are classed that way. 

GLEESON CJ:   I just wondered if it produced the consequence that if, between the date of the declaration of the dividend and the arrival of the time for payment of the dividend, the shares are sold to become dividend, that involves an assignment of the debt referred to in section 254V(2).  I do not know.

MR JACKSON:   If one looks at section 254V(2) it says that, if the two conditions are satisfied, the company incurs a debt when the dividend is declared.  Presumably, your Honour, if the declaration takes effect as a debt immediately, the persons who have the entitlement, although it may not be payable until a future time, are those who are the then shareholders.  If they sell their shares, then it may well be that if there is not a notification to the company of the effect of the sale, they are the persons who have to receive the dividend.  If there is a notification of the sale to the company, presumably that would operate, one would expect, as an assignment of the debt.

GUMMOW J:   Section 254W obscures the profit in a way.  It talks about the share having a dividend right, does it not?  Each share has the same dividend rights.  Then subsection (4) talks about dividends being payable to shareholders and no liability company, et cetera.

MR JACKSON:   Could I say, your Honour, that ‑ ‑ ‑

GUMMOW J:   It seems to be that the debt is owed to the shareholder and it somehow rose out of - as it were, is appurtenant to the share.  That is why the debt is owed to the shareholder.

MR JACKSON:   Section 254W is perhaps dealing with a number of things.  One of them is to get rid of the notion, in effect, which itself had been put down under the general law that if you had shares of a particular class, the fact that some were not fully paid did not disqualify them from getting the same dividend as those that were.  That is Oakbank Oil Company v Crum in the House of Lords.  I will give your Honours a reference to that in a moment.  But, your Honour, there is no doubt, in a sense, that when section 254W(4) says dividends are payable to the shareholders in a no liability company it is speaking of that type of company.  But 254W(1) is simply saying each share in a class of shares in a public company has the same dividend rights unless various other things are provided for.  Your Honours will then see ‑ ‑ ‑

GUMMOW J:   Objects and articles do not ordinarily have rights.  Incorporeal chattels do not normally have rights.

MR JACKSON:   No, I am sorry, your Honour, I did not catch what your Honour was referring to when saying that.

GUMMOW J:   The section talks about shares having rights, which is an odd notion.

MR JACKSON:   Yes, I understand that, your Honour.  What I am seeking to say in response to it is simply this, that in speaking of classes of shares, classes of shares in companies tend to carry with them different rights.  Our learned friend’s submissions refer to the congeries of rights which are referred to as a share and some of the rights are those given by the contract which is provided for by the company’s constitution.  No doubt the person, prima facie, entitled to any dividend is the shareholder.  That is the ordinary course of events.  Your Honours, could I say that section 254V(1) provides that:

A company does not incur a debt merely by fixing the amount or time for payment of a dividend.

The constitution of a company is – and your Honours will see this in section 140(1)(a) – a contract between the company and its members and the general law had provided the rule that a company could not pay a dividend except as provided for by its constitution.  Your Honours will see that in Oakbank Oil Company v Crum (1882) 8 App Cas 65 at 71. I do not think I need to take your Honours to it. It was there held there could not be a differential dividend as between fully‑paid and partly‑paid shareholders because as a matter of construction of the articles of association all the shares were to be treated equally.

Your Honours will see that referred to also specifically in the Full Court in Victoria in BTR Nylex Ltd v Churchill International Inc (1992) 9 ACSR 361 at page 378 by Justice Tadgell with Justice Southwell agreeing. One looks then to see where the dividend power, the power to provide for, if I could use a neutral term, dividends is found in the constitution of Virgin Blue and that power can be seen in rule 63 and rule 63 is at page 172. Your Honours will see that paragraph (a) provides:

The Directors may from time to time determine that a Dividend is payable.  The Directors may fix the amount –

et cetera.  Although the punctuation is slightly different and the order of the words is changed very slightly, it uses the language of section 254U.  Your Honours will see it does not use the expression “declare”, rather, it speaks of determining that a dividend is payable.  Your Honours will see a reference to “determining” also in the opening words of rule 66.

HAYNE J:   Does it follow from that submission that you say that the company has no power or the board has no power to declare a dividend and that the resolution using that term is using the term inappropriately?

MR JACKSON:   Yes, your Honour, yes.  What it was saying was to determine, it was determining, it was an exercise of the power under rule 63.  Your Honours, could we say that in view of the similarity between the terms of rule 63 and section 254U our submission is that the better view is that rule 63 adopted the distinction which the legislature had drawn between determination and declaration.  Your Honours, there are two matters of which I need to deal.  The first is that the constitution does in some places refer to declaration of a dividend and there are three such references which are relied upon by Justice Basten in the Court of Appeal at pages 400 to 401.  Your Honours, they are, with respect, trivialities.  The first is rule 5(c)(ii) which is at page 148.  Your Honours will see in dealing with preference shares that rule 5(c)(ii) speaks of:

the preference shares may participate with the ordinary shares in Dividends declared by the Directors.

However, your Honours, one should read that with rule 5(d)(i)(B) which speaks of:

Dividends accrued (whether determined or not) –

We accept there is some looseness of language, but both phrases have been used.  The second provision, your Honours, is rule 14(c), which is at page 152.  We are speaking of “Lien on Shares”.  Your Honours will see that rule 14(c) says:

(c)The lien extends to all Dividends and entitlements declared in respect of the shares –

Your Honours, a comprehensive and global reference but not one which is definitive.  Finally, your Honours, rule 73(a)(i)(B) which is at page 182 about line 30 where it is said:

The Directors may, subject to the Listing Rules:

(i)establish 1 or more plans under which some or all shareholders may elect . . . 

(B)that Dividends from the company not be declared or paid and that instead –

et cetera.

GLEESON CJ:   Mr Jackson, what was the legislative purpose in sections 254U and 254V in distinguishing between determination and declaration?

MR JACKSON:   Well, fundamentally, your Honour, to, I suppose, do a number of things.  One was to bring about a situation where a determination that a dividend is payable at a time in the future does not have the consequence that any debt is created giving at that point so that if the company situation alters and alters in between the time of the determination to make the dividend on the one hand and the time for payment on the other that the company is not obliged to carry on with the situation of paying the dividend when it may not have the money to do so.  So it was in that sense to equate all dividends, put all dividends in that situation, not just interim ones.  That is the first thing.

Your Honours, the second thing, in a sense, was to say and to make clear by section 254V the time at which there did become a debt and that is probably the total of it in a sense.  That is what we are seeking to do.  I can give your Honours a reference to the explanatory memoranda which seem to say those things.

HAYNE J:   If a company in its constitution has power to declare a dividend, may it nonetheless determine that a dividend is payable as distinct from declare it?

MR JACKSON:   Your Honour, in our submission, there is no reason why it could not because the significance of the term “declaration” or the significance of the “act of declaration” appears to be the notion that there is to be some debt arise from it.  I am speaking in a sense of the slightly earlier situation because one could determine, I suppose, that there be an interim dividend and perhaps in the ordinary course of events it was the description of it as interim that gave rise to the ability to change.  But there is no reason, in our submission, why a company with power to declare could not determine that a dividend be payable at a certain future time, that the right to the dividend accrued at that time.

HAYNE J:   Why would one read 254U and 254V particularly as providing, in effect, a one‑way street where declaration encompasses determination but determination does not empower declaration?

MR JACKSON:   There is no particular reason at all, your Honour. 

HAYNE J:   That is what troubled me, Mr Jackson, other than forensic convenience.  Why read it in that way?

MR JACKSON:   Your Honour, one has to bear in mind that if you look at section 254V(2), what it says is that, “if the company has a constitution”, that is the first thing.  The second thing is if the constitution “provides for the declaration of dividends” and if the company declares a dividend – I am turning the words around slightly – then the debt is incurred when the dividend is declared.  What it does not say – and, your Honours, if I could go back to 254V(1), what that says is that “A company does not incur a debt merely by fixing the amount or time for payment of a dividend” and then the debt only arises later. 

You will see then in 254U that there is specific power to determine the dividend is payable.  You can adopt the rule or not, Virgin Blue obviously did, but in relation to it, it is difficult to see why the requirements of 254V(2) have the consequence that you cannot have the lesser when you have got power to do the greater.  Your Honour, I do not know if I can take it beyond that.

GLEESON CJ:   A question we have to decide is whether or not within the words of 254V(2) this company “has a constitution and it provides for the declaration of dividends” and you say that this company does not have a constitution that provides for the declaration of dividends.

MR JACKSON:   No, your Honour, why I say that is this.  All that one sees is that there are three provisions to which I have made reference, three provisions, in a sense, in passing, in which the words “declaration of dividends” is used and is used in terms that are not entirely clear on whether it is making a deliberate distinction between declaration and determination, but the principal and the substantive provision dealing with the declaration of dividends in the constitution is rule 63.  It does not speak of declaration at all.  It speaks of determining the dividend is payable.  You see then, your Honours, if one goes to rule 66, the opening words speak of determination to pay a dividend. 

Your Honours, if you got the provision that allows the determination of dividends to be in the terms of section 254U, then, in our submission, it is a situation where that is what the power is.  It is hardly surprising that you find sometimes in a document a few mildly inconsistent things, but surely one looks at the substance of the matter and the substance of the matter is in the power itself.

CRENNAN J:   It is pretty much the replaceable rule.  If you read the sections together, it is suggests that 254V(2) qualifies the alternative position, which is to have the replaceable rule.  You either have the replaceable rule or you have a constitution that provides for a declaration of dividends.

MR JACKSON:   Your Honour, so far as rule 63 is concerned, it is effectively ‑ ‑ ‑

CRENNAN J:   Virtually the replaceable rule.

MR JACKSON:   Yes, it is, your Honour.  It is contemplating, as your Honour says, the determination of dividends and one puts it in to get the benefit of the provision, in a sense.

KIRBY J:   Would one not construe 254V being a part of a public law of general application throughout the nation to corporations with all sorts of constitutions in a way that would help achieve its purposes so that the word “declaration” would be given a broad meaning within that context and could include a declaration by way of determination?  I mean, you cannot read down the statute of the Parliament by reference to any constitution of the corporation.

MR JACKSON:   No, I am not, your Honour, at all.  One of the things that we will complain about shortly is that Justice Santow did something analogous in determining the meaning of rule 63 by the terms of the resolution at page 20.  Coming back to what your Honour is putting to me, there is no especial reason why section 254V(2) is treating a declaration of dividends as including determination.  Could I say that if you look at section 254V(1), your Honours will see that it contemplates that there may be dividends from companies.  It would be odd, your Honour, we would submit, to have provisions such as 254V(2) if it meant determination as well because then, what would be the point, really, of 254V(1)?

GLEESON CJ:   There is a further problem, is there not?  Unless the word “declared”, the last word in subsection (2), means something different from the word “declaration” in subsection (2), if the word “declaration” covers “determination”, then presumably the word “declared” covers “determined”, in which case subsection (2) is inconsistent with the other provisions.

MR JACKSON:   Yes, that is so, your Honour.  We would submit that in relation to the construction of the constitution of the company that, your Honours, there was an adoption as the operative rule of the provisions of 254U and, your Honours, in doing so what is contemplated is determination of dividends.  We accept that in three places you can find the word “declaration” used somewhat loosely and not only related – in two of them, I think – to dividends, but it does not follow that one treats the power under rule 63, which deals with the specific topic, as referring only to declarations in the sense used in 254V(2). 

Your Honours, the other feature with which we should deal is found in the terms of the resolution itself at page 20 and that is that the resolution used the word “declare” rather than “determined”.  In our submission, the power that the directors were exercising was the power under rule 63.  That is where they get power to make dividends, if I can use that term.  The wording of the resolution is apposite to a determination and one sees a reference to an “unqualified audit report” to a “sub‑committee confirming it” to a later payment date, to the future record date – and I will come back to that after lunch if I may, your Honour – which recognises that the shareholders may change in the interim. 

I will take your Honours back to our written submissions in-chief for a moment to page 8 and paragraphs 31 to 33 referring to Justice Basten.  Your Honours, you will see that his Honour noted – I am referring to paragraph 31(a) – that we:

did not adopt the replaceable rule contained in sec.254U, because rule 3 of its constitution provides that the replaceable rules do not apply –

True enough, but the position clearly enough, if one looks at the terms of the rules, the constitution, that was one of the rules that in fact was in not dissimilar terms.  Your Honours, we make the submissions that are set out in paragraphs 32 and 33 of those submissions.

KIRBY J:   Just help me on this.  Is that not a difficulty for you that, when it came to your own directors, they made a declaration by way of determination thereby indicating that you can have a declaration by way of determination?  That is certainly what they appeared to think they were doing under rule 63.

MR JACKSON:   Your Honour, they passed the resolution in the terms in which it is there set out.  It is, with respect, not an appropriate way to construe the constitution to say, well, a constitution must mean this because the people who were directors of the company thought this was the interpretation of it.

KIRBY J:   I just say that it appears to bear out what I put to you earlier, that you do not read down a statute of the Federal Parliament designed to operate across the whole board of companies with different constitutions in a way that gives an overly narrow view to the purpose of the provision which has been there since 1918 I understand and has a large national purpose.

MR JACKSON: Sorry, your Honour is talking about which provision? Is your Honour talking about section 255?

KIRBY J:   Take that out, I am still looking at 254V.

MR JACKSON:   1998.

KIRBY J:   1998, 254V.  Just look at 254V.  I just do not see why you cannot declare by way of a determination or determine by way of a declaration.

MR JACKSON:   Your Honour, 254V says that if you have a constitution and if it provides for the declaration of dividends.  Now, one has to see what is contemplated by a declaration of dividends.  That has some degree of history in the sense that if there was a declaration of a final dividend, there was a debt when that occurred, but what the provisions are seeking to do is to bring about a situation where the company is not in a position where it has to pay the dividend merely because one has been determined to be paid at an earlier point.

The distinction is of some importance because if one goes to the section of the Corporations Law to which we have referred in footnote 5 on page 11, section 588G – I think it is sufficiently summarised there.  It provides:

that, for the purposes of the imposition of personal liability on directors for insolvent trading . . . a debt is incurred in connection with the payment of a dividend when the dividend is paid, except when the constitution of the company provides for the declaration of dividends in which case the debt is incurred when the dividend is declared.

That really contemplates, your Honours, that there will be circumstances in which a constitution provides for dividends to be declared and cases where it does not and significant liabilities can be brought about, both criminal and civil, by the operation of section 588G(1A) and the distinction is drawn and it is one contemplated by the earlier provisions to which I referred.  Ordinarily speaking, the subjective view of a party to a contract, in effect, would not be regarded as determining the interpretation of the contract.

Your Honours, could I move on from that to Justice Santow?  There appeared to be four reasons why he held there had been a declaration of the dividend.  Your Honours will see our submissions in relation to these in paragraphs 34 to 50 of our original submissions in-chief.  May I endeavour to deal with the four aspects relatively briefly.  The first is that which is referred to in our written submissions in paragraphs 34 to 37 and your Honours will see that his Honour said, in effect, what I think your Honour Justice Kirby has been putting to me, in a sense, at page 372 of the record, paragraph 41.  His Honour said:

First, a resolution which in terms declared a dividend could only be empowered by r63(a) . . . if the expression “determine” a dividend in that constitutional rule were synonymous with “declare”.

Your Honours, the proposition that he goes on to say in effect there, that because the directors had purported to declare a dividend, rule 63(a) must provide for a declaration of dividends, rather, in our submission, if I may say so, with respect, does turn interpretation of the constitution a little on its head.  Ordinarily speaking, one looks to see what a constitution permits and then decides whether what has been done complies with that, rather than construing the ambit of the constitution by what has been purportedly done under it.  If one does step back, we would submit, it does seem a little unlikely that in the light of sections 254U and V, rule 63(a) should be treated as one where determine equals declare.  The second approach taken by Justice Santow your Honours will see referred to in paragraphs ‑ ‑ ‑

GLEESON CJ:   Sorry, just before you pass from that first point, I am not suggesting it is correct, but a possible point of view is that if you are right and the constitution does not provide for the declaration of dividends, then the purported resolution was simply invalid and of no legal effect.

MR JACKSON:   Well, your Honour, that was an argument which was advanced by the Commissioner.

GLEESON CJ:   Why would it assist the Commissioner?

MR JACKSON:   That is what Justice Gzell said, with respect, your Honour.

GLEESON CJ:   It would simply mean the whole argument is academic, would it not?

MR JACKSON:   Yes, academic.  We do not make that suggestion, your Honour.

GLEESON CJ:   No, well, it is in the interests of neither party to make that suggestion, but what is the answer to the suggestion?

MR JACKSON:   Your Honour, the position, we would submit, is that the directors were seeking to exercise the power which they had under rule 63 to determine a dividend.  The language that they used may not have been the most apt to do it perhaps because they used “declare” instead of “determine” but it is simply an exercise of that power.

HAYNE J:   I would have thought the more pressing answer would have been there has been a lot of money paid out in accordance with it, Mr Jackson, but that is a touch of politic.  Can I go back, Mr Jackson, to statutory purposes underlying 254.

MR JACKSON:   I am sorry, may I just give a reference?

HAYNE J:   Yes, of course.

MR JACKSON:   I have been reminded, your Honours, this is dealt with by Justice Gzell at pages 278 and 279 at paragraph 43, I think, and following.

HAYNE J:   Can I go back to statutory purposes of the distinction drawn between section 254U and V between “determine” and “declare” and can I do it by reference to that part of the explanatory memorandum for the 1997 Bill that you sent to us at about the time of your reply submissions, I think.  You sent in notice, did you not of intention to rely on that?

MR JACKSON:   Yes.

HAYNE J:   You will need it in front of you and until you have it, I had better delay a moment.

MR JACKSON:   Yes, your Honour.

HAYNE J:   I have in mind particularly clause 9.154.

MR JACKSON:   Your Honour, there appear to be three versions.

HAYNE J:   More EMs going around than you know what to do with.

MR JACKSON:   Yes.  Is it the one that commences, “The Bill will allow”?

HAYNE J:   Yes, clause 9.154.  What I wanted to understand is the relationship between the first sentence and the second sentence of the EM because it seems to be a statement of legislative purposes that, “The Bill will allow companies to avoid the problems that would arise” and then the second sentence says, “Under the Bill, a debt will not arise until”.  What do you say, whether by reference to that statement or more generally, the legislative purpose is revealed to be?  In particular, is it revealed to be more than providing a capacity, a facility, a permission for companies to avoid the spectre of insolvent transactions by determining rather than declaring?

MR JACKSON:   That is the principal purpose, your Honour.  That is one thing.  What it does seem to do also is to equate, in a sense, the position of interim dividends and what used to be interim dividends and final dividends.  It does not seem to draw any distinction between them.  So to call something “interim” may be a convenient way of describing the matter economically but it does not really carry with it the notion that it can, whereas other dividends, final dividends, could not be withdrawn, in effect.  That is paragraph 9.156, I think, your Honour.

GLEESON CJ:   How many shareholders were there in Virgin Blue Holdings Limited?

MR JACKSON:   I do not think I can your Honour an answer straightaway.  I can give your Honour an answer shortly, but not straightaway.  A suggestion of 1,000 is made to me.

HAYNE J:   But it was a listed entity, was it not?

MR JACKSON:   Yes.  Your Honours, I was dealing with Justice Santow’s reasons.  What I was going to say was that the second approach taken by his Honour appears in paragraphs 42 and 43 at page 373.  Your Honours will see there that that appears to amount to this, that the resolution went beyond merely fixing the amount and time for payment of the dividend.  Your Honours will see that he said that that was so because, in paragraph 43 at the bottom of page 373, “They had taken a further critical step.  They had actually declared a dividend, not just fixed the amount and time for payment”.

Your Honours, what we would say is that section 254V(2) states the law.  It requires that the constitution must provide for declaration of the dividend.  We refer to that in our written submissions in paragraphs 39 to 42.  Your Honours, the third approach which Justice Santow took is referred to at page 374 in paragraphs 44 to 46 and especially in paragraph 46 where he said that he concluded:

that a constitution in a substantive sense sufficiently “provides for the declaration of dividends” in terms of s254V(2) if it uses the word “determine”, and then, still mirroring s254U, goes on to provide for the essential mechanical steps –

Could we say in relation to that, if that is right, it does seem to have been rather a work of supererogation for the legislature to introduce sections 254U, V and 588G(1A).

Finally, your Honours, on this point, Justice Santow at page 376 in paragraphs 50 through to 52 said that Virgin Blue was yet a person “liable to pay money to a non‑resident”.  That is, in our submission, 255(2) of the Income Tax Assessment Act.  That is a rather difficult proposition, in our submission, because that provision speaks in terms of a liability to pay money and money due to the non‑resident, yet 254V says that a company does not incur a debt by fixing the time and amount for payment and subsection (2) says that a debt is incurred only if the two conditions there referred to are met.

Your Honours will see at paragraph 50 on page 376 that Justice Santow referred to some observations of your Honour Justice Crennan in Federal Commissioner of Taxation v CityLink Melbourne Ltd (2006) 80 ALJR 1282, but if we may say about that very shortly, it is made perfectly clear at page 1303, paragraph [121] – I will come back to it in a moment, your Honours – and also page 1305, paragraph [134] that the liability in question there was not contingent at all. Could I go to paragraph [121] on page 1303 where it said:

The commercial arrangements embodied in the relevant Project Documents are that the respondent encountered a liability for, and was definitely committed to, the payment of each concession fee as it became due, in each of the years of income. 

At page 1305 in paragraph [134] your Honour said in the third line of the paragraph:

On a semi‑annual basis, the respondent was subjected to a contractual liability to pay the concession fees.  The liability arose as and when each concession fee became due.

His Honour was relying upon the observations in that case which your Honour quotes at paragraph 50 on page 376, but the observations were made in the context of a clear existing liability.

GLEESON CJ:   Is that a convenient time, Mr Jackson?

MR JACKSON:   Yes, your Honour.

GLEESON CJ:   We will resume at 2.00 pm.

AT 12.48 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.02 PM:

GLEESON CJ:   Yes, Mr Jackson.

MR JACKSON:   Thank you, your Honours.  Your Honours, may I deal immediately with two matters raised before lunch.  The first your Honour the Chief Justice asked me about numbers, how many shareholders were there.  It does not fully appear from the material, but there is some indication given, and at page 138 of the appeal book you will see it lists I think the top 20 shareholders and they have 96.8 per cent of the votes.  It is page 138 – of the shareholders, I am sorry.  You will see there are the top 20 listed and then a summation at the bottom of that table.

GLEESON CJ:   That gives me the general impression I wanted.  Thank you.

MR JACKSON:   Thank you, your Honour.  Your Honours, the second matter concerns the issue your Honour Justice Hayne was raising with me.  There is a bundle of material which I think – it has not got to the Court yet, I do not think, but could I give your Honours these documents now?  Your Honours, I am sorry, they are in some funny order.

But could I just say the first document to which I take your Honours is section 822B of the Corporations Act – it should be on the second page of the extracts from the Act itself which refers to the legal effect of – there is a heading “LEGAL EFFECT OF OPERATING RULES”.  You will see that it says:

The operating rules of a licensed CS facility –

your Honours, and that does seem to include what one might have put shortly as being formerly stock exchange and so on –

have effect as a contract under seal:

(a)between –

now, there are a number of persons –

the licensee and each issuer of financial products in respect of which the facility provides its services; and

(b)between the licensee and each participant in the facility; and

“participant” is defined on the preceding page.  It refers in paragraph (a):

(a)in relation to a clearing and settlement facility, means a person who is allowed to directly participate in the facility under the facility’s operating rules and, when used in any of the following provisions, also includes a recognised affiliate in relation to the facility.

Now, your Honour, that does not seem to include shareholders, but the persons who are the participants in it, and the highest one would get really from section 822B is that there may be a:

contract under seal:

(a)between the licensee and each issuer of financial products.

and if one assumes, perhaps making an assumption and it may be large, that Virgin Blue would be treated as an issuer of financial products.  That is the first thing.  However, if one goes to see what the rules do provide, your Honours will see a document which contains a number of definitions commencing with “Proceeding” and describe the bottom as the ASTC settlement rules, and they contain a definition of “Record Date” and it:

means 5.00 pm . . . on the date specified by an Issuer as the date by reference to which the Issuer will establish Cum Entitlement Balances for the purposes of identifying the persons entitlement to the benefit of a Corporate Action.

Then your Honours will see a document, the first page of which says Appendix 6A.  If one goes to the document, the page immediately behind that, it has a listing rule 6.24:

An entity must comply with Appendix 6A.

The relevant part of Appendix 6A is on the preceding page under the heading “Timetables.”  Your Honours will see in relation to it, it is said that:

1.An entity must follow the time limits set out in this timetable when paying a dividend or distribution.

Your Honours will see that first there is to be the announcement of the dividend and what is to be the record date.  That is the first of the events under the heading “Event” in the table.  You will see then the purpose of the record date is identified in the next block.  That is:

Record date to identify security holders entitled to the dividend (distribution).

The time limits are referred to in the column headed “Time limits.”  Then, your Honours, one has the date of the dividend or the date of the payment and then the dispatch date of it.  The provision for a record date may mean if there is a declaration of a dividend – and working on that assumption there is a declaration of a dividend – that the debt contemplated by section 254V is – if I could divide shareholders into two classes - first, in the case of shareholders at the time of the announcement, it would have to be subject to a contingency, namely that they will still be on the register at the record date.

The second class would be in the case of persons who become shareholders between the date of announcement of the dividend and the record date, the debt would arise on the date of acquisition.  Now, there could be a third class, your Honours, of persons who become shareholders after the date of declaration of the dividend and sell their shares before the record date, but one can satisfactorily divide them up into two classes. 

Your Honours, that is when the section 254V debt might arise or its nature where there has been a declaration of a dividend. But these provisions do not seem to touch on the question whether there has been a declaration or a determination. I do not know, with respect, that they really go further than I have so far suggested. Your Honours, could I add that if the effect of the provisions is to mean that the debt did not arise until the record date, but that there was then a debt, the position of course was that there was an assignment of that debt prior, in our submission, to there being a valid section 255 notice.

GLEESON CJ:   But did that assignment put an end to the liability of the company to the assignor?

MR JACKSON:   In our submission, it would, your Honour, because you have a chose in action which had been created.  It was something that of its nature is capable of assignment and it was capable of assignment to some other person ‑ ‑ ‑

GLEESON CJ:   To put it another way, the company could not have discharged its liability by making a payment to the assignor?

MR JACKSON:   No. 

HAYNE J:   How is that consistent with the legal obligation imposed on the corporation by the Corporations Act to comply with the operating rules?

MR JACKSON:   Your Honour, the operating rules do not, in our submission, affect that question.  I am not sure if it was a particular provision your Honour was referring to but they do not ‑ ‑ ‑

HAYNE J:   I would be grateful ultimately of some assistance about the possible engagement of Subdivision B of Division 3 of Part 7.2, which concerns the operating rules of a licensed market as distinct from a CS facility, in particular whether the ASX is relevantly a licensed market.  In particular then, whether 793B gives legal effect to the operating rules which include, relevantly, the listing rules of ASX:  see, I think, the definitional chain.  Surprise, surprise, you have to go through about 27 steps to get to that point, but I think you can do it and then, particularly, 793C:  see 793C(3) where the listed entity is bound.  Section 793C(1) coupled with 793C(5) gives, in effect, any person aggrieved the right to go to court and have the rules enforced.

MR JACKSON:   Your Honour, it is a question of what the rules say.

HAYNE J:   The operating rule is enforced?

MR JACKSON:   Yes.

HAYNE J:   And if the operating rule relevantly provides that an entity must follow certain time limits when paying a dividend or distribution and one of those elements is to state a date which is to identify security holders entitled to the dividend, why, consistent with the law, Virgin Blue cannot satisfy its obligation by paying the shareholder a record on the record date?

MR JACKSON:   Your Honour, what is done, in our submission, is to identify security holders entitled to the dividend, but having done that, there is the creation of a right which is capable of disposition.  If the right is one capable of disposition and if the constitution of the company permits it to do so, it is a little difficult, with respect, to see what it is in the listing rule or in the timetable which mandates that the payment must be to the person who received the entitlement.

HAYNE J:   Not “must be”, “may be” when the market is trading either X or cum dividend according to the record date fixed.

MR JACKSON:   Your Honour, one thing is that it “may be,” but the relevance of the “may be” takes one to section 255(2) of the Income Tax Assessment Act because what one is talking about – section 255(2) is engaged not where there is a power to do something or an entitlement to do something, but where there is a liability, an obligation, to do it. Now, your Honour, it may be that there can be satisfaction of an obligation by – it is possible that there may be an entitlement to pay the dividend. It does not follow there is a liability payment. It may seem a narrow point, but it is critical to the operation of section 255(2). Your Honours, unless one gets the obligation or the liability to pay to the person, 255(2) is not engaged.

GUMMOW J:   There is another problem too, maybe, and that is the intersection between the Queensland statute, which permits this form of disposition of law, and these two sets of federal laws, the corporation structure that Justice Hayne has been referring to, and section 255.

MR JACKSON:   Your Honour, if there were some inconsistency between those two things of course the Queensland law would suffer the fate contemplated by section 109. But having said that, one does have a situation where the provision of the Queensland Act is simply a provision which is in, I will not say a common form, but in a relatively common form and which allows the assignment of chose in action. In relation to the Corporations Act, there is nothing in our submission to say that it prevents that occurring. When one comes to the requirements of section 255, it operates according to its terms.

GUMMOW J:   What is the Queensland section again?

MR JACKSON:   It is attached, I think, to our written submissions. But it had taken effect, in our submission, before there was a relevant notice. I should say, your Honours, of course if the first purported section 255 notice was efficacious, that is the end of the case. What I am seeking to say, your Honours, was this. If it be that the 12 December purported section 255 notice was of no effect, then there was an assignment effective under section 199, if it be that there was a then existing debt. Now, if it be, contrary to what I just said, that the purported section 255 notice was good, that is the end of the case, because we would accept that one could not assign in the face of the notice under that provision.

GUMMOW J:   Why would that be?  Because of the force of the Federal Act?

MR JACKSON:   Yes, your Honour, and by analogy to the views expressed in the Court in relation to section 280 in Clyne.

GUMMOW J:   That talks about a charge.  Justice Brennan anyway talked about a statutory charge.  I am not sure the Commissioner has to go so far as that.

MR JACKSON:   No, your Honour.  Your Honour, the provisions of section 218 were also dealt with in a case Bloemen v The Commonwealth which is not reported, I think, in the Commonwealth Law Reports, but it is in 49 ALJR.   I do not think it touches on the matters, your Honour, that we are concerned with, but there was some discussion of the provisions. 

HAYNE J:   If instead of effecting the assignment they did, Cricket and Holdings had sold their shares on the date of the assignment, what would the effect of that sale have been in respect of an entitlement to dividend?

MR JACKSON:   Your Honour, the position would be that so far as the company was concerned, the company would – I am assuming that the Cricket shareholders remained shareholders ‑ ‑ ‑

HAYNE J:   Let it be assumed they sell their shares and at once tender to the company notice of transfer to give effect to the sale they have made.  They do all that on, whatever it is, 12 or 13 December.

MR JACKSON:   If that were so, your Honour, then that would be effective to have the result that there would not then be a liability in the company to those persons.

HAYNE J:   Would the transferee of the share have been entitled to the dividend?

MR JACKSON:   Yes, your Honour.  If one is talking - it depends between which ‑ ‑ ‑

HAYNE J:   As against the company.

MR JACKSON:   First of all, your Honour, of course as against the vendor, presumably, that was the term of the sale.  As against the company, it would depend.  I do not mean to put that – it would depend on the notification, for example, it was given.  Now, the company would be no doubt entitled to pay the shareholders, but would not necessarily be obliged to.

HAYNE J:   The entitlement of which you speak is one which I think would require close attention to the operating rules, because it is not immediately apparent to me why entitlement to pay the transferee would not fly in the face of the operating rules.  But that is perhaps a matter that you might wish to give some consideration to and submit a note about.

MR JACKSON:   Yes, your Honour.  I would be happy to do that if your Honour were prepared for us to do so.  Your Honours, I had been mentioning before the adjournment at lunch – just dealing with what was said by Justice Santow about contingent liabilities and the point I was seeking to make was that it was not correct to treat every contingent liability as relevantly a liability.  Could we refer also to our reply submissions, paragraph 4, where we elaborate upon that point.

Your Honours, could I come then to section 255 and this aspect of our argument is dealt with in our written submissions in paragraphs 52 to 71. As we have submitted earlier, at the heart of the matter, we would submit, is the question whether section 255(1)(b) is a provision ancillary to 255(1)(a) or a provision which has a separate, and as we submitted earlier, freestanding operation.

Your Honours, our submission is that the structure and the logic of the provision suggests that section 255(1)(b) is a provision which is ancillary. Could we say in that regard, if one looks at subsection (1) and the opening words of subsection (1) – really the line of it just above paragraph (a) – what it says is:

the following provisions shall, subject to this Act, apply:

That takes one to what appears to be the principal provision of section 255(1), that is section 255(1)(a). That creates an obligation to pay to the Commissioner:

tax due and payable by the non-resident -

Now, paragraphs (b), (c) and (d), in our submission, deal with matters which, prima facie, appear related to paragraph (1) and ancillary to it.

KIRBY J:   Has the section been relevantly amended in any way over the course of its history?

MR JACKSON:   It has a little, your Honour.  I will give your Honour a reference to that ‑ ‑ ‑

GLEESON CJ:   It was amended by Act No 108 of 1981 and by Act No 52 of 1986.

MR JACKSON:   Yes.  Your Honour, I think subsection (2), for example, was added and, of course, there has been the amendment of subsection (2A) and some amendments dealing – subsection (4).  Your Honours will see that there have been some amendments since December 2005, which we have referred to in the second page of annexure A to our written submissions.  I will give your Honours a better reference to the earlier amendments.

KIRBY J:   The layout in the copy that you have put into the compilation from 1936 is a different style of layout and presentation of federal statute, so it has a look of antiquity about it.  I mean, they have an indented paragraph.  The way they have started the first paragraph in a particular – Mr Ewens would never have approved.

MR JACKSON:   Perhaps a fine italicised hand, your Honour.  I will see if I can find a reference where it sets out the history.  Your Honours, what I was going to say about it was this – could I just say one thing in defence of that.  It is simply that most of the places where you find it, it is on two pages, half of it on the front page, half of it on the back page and not altogether easy to read.

KIRBY J:   We have had a case, I think a migration case, where the question was whether you read the statute chronologically or whether you simply try to make the whole section operate together, within the last two years, about how one reads apparently integrated provisions in a Federal Act.

MR JACKSON:   Yes.  Your Honour, one of the difficulties, we would submit, with the approach taken by the Court of Appeal, was that they looked at it in a sense chronologically when really logically it would have been, with respect, more appropriate ‑ ‑ ‑

KIRBY J:   The case that I am thinking of concerned the provisions in the Migration Act about natural justice equivalence and whether you, as it were, look at it as a process chronologically or whether you try to make them all operate at the one time.  I think different views were expressed about that because, as you point out, the layout depends a bit on how you get it and Parliament amends things from time to time.  It is not always logical.

MR JACKSON:   Your Honour, there does not really seem to be, so far as section 255 is concerned, any great difficulty occasioned by the form of it. As I have said, I will endeavour to give your Honour the part which I think is in the appeal book, which sets out what has happened, maybe in Justice Gzell’s reasons, but I will come back to that.

Your Honours, could I just say, coming back to the terms of section 255(1), you will see that paragraph (a) establishes a requirement to “pay the tax due and payable by the non‑resident”. Your Honours will then see that paragraph (b) speaks of there being an authorisation of the person described as “he” and a requirement upon that person:

to retain from time to time out of any money which comes to him on behalf of the non-resident so much as is sufficient to pay the tax which is or will become due by the non-resident ‑ ‑ ‑

GLEESON CJ:   There is a rather important difference, is there not, between (a) and (b).  Subparagraph (a) talks about a requirement by the Commissioner, (b) uses the words “hereby” and “required”.  So there is no occasion for any further requirement by the Commissioner in relation to (b).

MR JACKSON:   No, your Honour, not at all.  Really, that is because paragraph (b) is speaking in a context where paragraph (a) has spoken of tax.  Paragraph (b) speaks of paying the tax.

GLEESON CJ:   “The tax”.

MR JACKSON:   “The tax”.

GLEESON CJ:   That is why I have wondered how, on the approach taken by the Court of Appeal, paragraph (b) would operate in relation to an ordinary bank - the situation of Rio Tinto’s bank in Australia.  Money goes in and out of accounts, liabilities for tax come and go and so forth.  If this is a statutory requirement, independent of any notice by the Commissioner, to retain from time to time the amount of tax payable to the Commissioner of Taxation, then the section presumably operates to make the bank liable for the tax debt.

MR JACKSON:   That is paragraph (c), your Honour, yes.  The thing about paragraph (b), your Honours, is that it does not contain a requirement for notice.  The word “hereby” applies not just to “authorized” but also to “required”, as your Honour has pointed out, and it is money which comes to him.  Now, how do you know?  Well, we say we will give you a notice.  But it operates without any of those things if the Commissioner’s argument is right.  The retention of money is expressed by paragraph (b) to be for the purpose of paying “the tax which is or will become due by the non‑resident” and that seems to refer back to paragraph (1)(a).  Where else does it refer back to?  Nothing, really. 

HAYNE J:   Does both the “is” expression and the “will become due” expression refer back to (a)?  What is the operation you are giving to “will become”?

MR JACKSON:   Your Honour, I am about to say that, if I may.  What I was about to say was this, that something has been sought to be made against us in the Court of Appeal and my learned friends of the expression “to pay the tax which is or will become due by the non‑resident”.  That simply reflects the fact that while the tax may be due, the time for payment of it may not have arrived.

We have referred to this in our written submissions in paragraphs 63 to 67 and your Honours will see we seek to give an illustration in paragraph 64 if you assume a non‑resident entertainer and paid per performance a Commissioner can, (a) on 1 February 2007 issue a notice of assessment for the year ended 30 June 2005, but specify 9 March 2007 as the date the tax is due and payable; and (b) two months later issue a notice of assessment for the next year with 15 May being the date tax is due and payable; and then paragraph (c), on 2 April 2007, that is the day after the second of those things, notify B that it is liable to pay on 30 June 2007 the tax due and payable under the notices of assessment.

Now, your Honours, we set out our contention in paragraphs 65 and 66 and what we seek is the Court should conclude is that the phrase “will become due” reflects the intention to allow the Commissioner to issue a notice in respect of tax which is assessed but not yet become due and payable before the date specified but will become due and payable at some time in the specified period.  So what I am seeking to say, your Honours, is that so much is of sufficient to pay the tax which is due or will become due refers to the time for payment fundamentally.

GLEESON CJ:   Correct me if I am wrong, but unless paragraph (a) is, as it were, the trigger, to use an expression that has been used, how is the person who is subject to the requirement referred to in paragraph (b) going to know how much he is required to retain?

MR JACKSON:   Your Honour, the Commissioner’s answer would be to say, “We give you a notice”.

GLEESON CJ:   But it says “hereby required”.

MR JACKSON:   I know, your Honour. Yes. That is the difficulty with it. It does not do that. Your Honours, could I just interpolate to say that the history of section 255 and the changes to it can be seen in Justice Gzell’s reasons at pages 295 to 298, paragraphs 93 to 101. We have a suspicion that that is not entirely a complete history. May we give your Honours a note if there is anything further we want to add to that?

GLEESON CJ:   Thank you.

MR JACKSON:   Your Honours, if one goes to section 255(1)(c) ‑ ‑ ‑

KIRBY J:   The “hereby” is not explained in any way by the constitutional provision about levying tax – that it has to be in a statute.

MR JACKSON:   Your Honour, of course taxation has to be effected by a law, under section 51(2).  This is not itself taxation, one would think, but a law which provides for – that are ancillary to it.  I am sorry; I am putting it badly.  It is not taxation perhaps within the meaning of the term “a law imposing taxation” which might attract other provisions of the constitution.

KIRBY J:   Paragraph (c) says “is hereby made personally liable for the tax”.

MR JACKSON:   Yes, your Honour.  But it seems to be a provision that is one that perhaps comes within the “with respect to taxation” parts of things or perhaps comes within section 51(xxxix), a law which is one to effectuate, to put it shortly, other provisions about taxation.  There have been provisions held valid in the court under the unpaid company tax legislation – I have just forgotten the name of the case - I think it is McCormack – in which the provisions required company directors to pay the company tax and things of that kind were held to be valid.

GUMMOW J:   The bottom of the harbour.

MR JACKSON:   Yes, your Honour.  So the requirement that someone else pay the tax is certainly something that seems to be validly done.  We have not challenged it, of course, in these proceedings.  But it does seem to be a requirement which the statute imposes of its own force:  see paragraph (b) – and then, if I could go to paragraph (c), with the exception referred to in subsection (3) of polities and their authorities, you will see that the person involved is “hereby made personally liable for the tax”.  Now, what is the tax?  Surely the tax is that referred to in the notice referred to in paragraph (a).  Then, your Honours, at paragraph (d) you are “indemnified for all payments which he makes in pursuance of this Act or of any requirement of the Commissioner”.  “Requirement of the Commissioner” appears to refer back to “required by the Commissioner” in paragraph (a). 

Your Honours, the Court of Appeal treated paragraph (b) as being the primary or dominant provision.  Your Honours will see that referred to in Justice Basten’s reasons commencing at page 402.  The relevant paragraphs appear to be paragraphs 114, 118, 122 and 123.  I will not take your Honours to the detail of those paragraphs, but could we say that there are some difficulties, in our submission, with the views there expressed.

First, it said that it is only true that – I am sorry, one thing that is said, and this is the position I am now seeking to attack – one thing that is there said is that chronologically paragraph (b) comes first.  Well, your Honours, I submitted perhaps flippantly before, it is only true chronologically if one makes the assumption that the provision is freestanding, that is paragraph (b), and also surely one should look at the matter, with respect, logically in terms of reading the provisions together.

Your Honours, in that regard the concepts of authority and requirement in paragraph (b), of a new personal liability in paragraph (c) and an indemnity provided for by paragraph (d) seem related to the obligation in (a).

GLEESON CJ:   If paragraph (b) were freestanding, where would it leave a solicitor who receives money on trust for a non‑resident?

MR JACKSON:   Well, your Honour, it would leave him in a situation where the statutory mandate of 255(1)(b) would require him to hold whatever money comes to pay whatever tax might at some stage be due by the client.  Now, assume, for example, that a house was sold, the solicitor settles the sale, money comes in consequence of that, and is paid into the solicitor’s trust account, or paid into some account which he is holding.  Well, now, as money which comes to him on behalf of the non‑resident living overseas, the person has left Australia to go overseas, and that is he would have to hold onto it.

Now, your Honour, it is very difficult to know how much to hold on to, and there is a little strange difficulty involved too because the concept which appears somewhere in our learned friend’s submission that the Commissioner could, in the exercise of powers and - where the Commissioner could exercise a power under section 8 to general administration of the Act to do this, but the Commissioner cannot just go around telling people about other people’s affairs.

GLEESON CJ:   But if the solicitor had to hold onto the money for the – to be held on trust for the non-resident, how long would he have to hold on to it?

MR JACKSON:   Well, that is it, your Honour, indefinitely, and in circumstances where here no notice of assessment and no notice given under paragraph (a).  Until the cows come home really.

KIRBY J:   Well, it is not quite that.  I mean, it is like a lien, is it not?  He has to hold on to it until the debt for the tax has been extinguished.  That is the purpose of it, is it not?  And if there is a dispute then that has to be resolved in the normal way, but that is not unusual.

MR JACKSON:   Well, your Honour, in the first place the solicitor does not know the amount of the tax which will become due, does not know the ‑ ‑ ‑

KIRBY J:   Well, this is a very typical federal legislation saying, you may not know but it is there, and until it is determined you bear the risk.

MR JACKSON:   Your Honour, if that is the interpretation of it, that is the interpretation of it, but one really should not lean towards a situation where statutes are interpreted like that particularly when paragraphs (a), (b), (c) and (d) can be read together perfectly well.

The third feature to which we would refer in relation to the Court of Appeal’s approach is that we have set out in our written submissions in paragraph 68 at page 16 and that is that if one of the consequences of the Court of Appeal’s reasoning is that there has to be a means of invoking section 255(1)(b). That court said we could do it simply by a notification, but, your Honours, of course section 255(1)(b) does not speak of notices and the only notification provision is paragraph (a) and the terms of paragraph (b), unless it relates back to (a) ‑ ‑ ‑

GLEESON CJ:   Paragraph (b) is self‑executing in its terms, is it not?

MR JACKSON:   It is, your Honour, that is what I have to say, yes.

HAYNE J:   On the construction you are urging, how does that differ from the operation of section 218?

MR JACKSON:   Your Honour, for example, a significant difference is the creation of a personal liability in (c).  We have referred to the difference in our submissions in reply in ‑ ‑ ‑

HAYNE J:   Paragraph 16, I think.

MR JACKSON:   Yes, your Honour, it relates to two paragraphs of our learned friend’s submission which are referred to in footnote 9.  So it is the creation of personal liability, on the one hand, then we refer to the statutory changes, if there was no subsection (2) and at subsection (2) which gives a power similar to that in 218 and we refer to the discussion by the primary judge and the specific concern about the collection of royalties which led to it.  Of course there is some similarity between the provisions but they are not the same and there are differences.

Your Honours, could we say that the fourth feature is that if the Court of Appeal is correct, a requirement for retention can be made under section 255(1)(b) without there being any requirement to pay the money. It is payable, in effect, in the never‑never.

There are two single judge decisions in the Federal Court which are consistent with the relationship between 255(1)(a) and 255(1)(b) for which we contend.  The first is Commissioner of Taxation v Wong (2002) 121 FCR 60 at pages 63 through to 66, a decision of Justice Lindgren. Your Honours will see at paragraph 14 on page 63 he set out the issue before him in italics:

Is it required, in order for pars (b), (c) and (d) to operate that:

(a)      a notice under s 255(1)(a) be first given –

and the second part of the question.

He set out, your Honours, at page 64 a history in a sense of the differences of view that have existed from time to time in the Commissioner’s office.  At paragraph 17 the view was expressed in, as your Honours will see, paragraphs 2, 3 and 4 which was in a sense in favour of us.  Then paragraph 18 a change:

the correct interpretation is that paragraph 255(1)(b) can have effect before an assessment has issued and that it operates of its own force without requiring any notification –

Then paragraph 19, it was thought that might have gone too far and that resulted in paragraph 13, the ruling at the bottom of page 64.  His Honour then expressed his own view at paragraph 23 on page 65.  He said:

In my opinion, the notice provided for in par (a) is the “trigger” which activates the operative provisions of s 255(1).

He elaborated upon that.  Then paragraph 29:

Having received a notice under par (a), a Controller will, at his peril, fail to retain –

et cetera.  Your Honours, the other case is a decision of Justice Edmonds in Elsinora Global Ltd v Healthscope Ltd (2006) 227 ALR 570 at page 582 and perhaps I could simply refer to paragraph [53] of those reasons where his Honour said:

However, in Wong, Lindgren J made it quite clear . . . that, in his view, notice or other communication of requirement pursuant to para (a) is the “trigger” which activates the operative provision of s 255(1), in particular that without that requirement, the provisions of paras (b), (c) and (d) are not activated. I entirely agree with his Honour’s view in this regard.

May I just ask your Honours to hold that case for a moment because your Honours will see at paragraph [52] his Honour referred to a quotation from Justice Lindgren in which he referred to:

require the recipient to pay not only tax that is already due and payable, but tax which may become due and payable in the future.

Your Honours, the view seems to have been taken in those two cases that it is not necessary that all the tax be due and payable.  On the views in those cases it does seem that there must at least be some tax which is due and payable for there to be a 255(1)(a) notice because the expression in relation to tax of tax which is due does seem to refer to tax which has been assessed.

Your Honours, could we in that regard refer to the passage which is actually quoted in our reply submissions at paragraph 11 from Batagol v Commissioner of Taxation (1963) 109 CLR 243 at pages 251 and 252 from Justice Kitto that:

no step that the Commissioner may take, even to the point of satisfying himself of the amount of the taxable income and of the tax thereon, has under the Act any legal significance.  But, if the Commissioner, having gone through the process of calculation serves on the taxpayer, a notice that he has assessed the taxable income and the tax at specified amounts, the tax becomes by force of the Act due and payable on the date specified –

That passage was adopted by five Justices in Commissioner of Taxation v Prestige Motors (1994) 181 CLR 1 at 13 and could we refer also to Justice Brennan – I will simply give your Honours the reference to it at the moment – in Commissioner of Taxation v Richard Walter Pty Ltd (1995) 183 CLR 168 at 191.

KIRBY J:   Neither Wong nor Elsinora went on appeal to the Full Court.

MR JACKSON:   No, they were single Justice cases and remain so, your Honour.  I am sorry, Elsinora, not on that point.

KIRBY J:   In fact, as I read the special leave transcript the disparity between the Court of Appeal of New South Wales and the single justices in the Federal Court created the problem of diversity of opinion in the court system.

MR JACKSON:   Yes, your Honour, I cannot say that the Court of Appeal should have followed the single judge decision, of course, but there is that difference.

GLEESON CJ:   There is another connection between paragraphs (c) and (a).  Paragraph (c) uses the expression “the tax payable by him on behalf of the non-resident”.

MR JACKSON:   Yes, your Honour.

GLEESON CJ:   That only makes sense if you look at paragraph (a) ‑ ‑ ‑

MR JACKSON:   Yes, your Honour, that is ‑ ‑ ‑

GLEESON CJ:   ‑ ‑ ‑ because otherwise there is no tax payable by him.

MR JACKSON:   No, your Honour, that is so, and it would be a very odd situation for there to be a liability for tax payable in the air, as it were, and that is a difficulty with it.

KIRBY J:   Well, there is no doubt that the paragraphs are potentially interrelated.  The question is whether they can have a life of their own, just standing on their own, because of the emphatic use of the words, “he is hereby authorised”, and by the structure of the section.  For example, it does not follow the usual Commonwealth style which is to have an “and” in between the last semi-colon and the last paragraph, which at least on one view perhaps overly minute is that each one is expected to have its own legislative force.

MR JACKSON:   Well, except that, your Honour, the opening words of (1) say “the following provisions shall have effect” so it is not saying you pick and choose, it is just saying these are the provisions that apply so there is no need to say “and” really.

KIRBY J:   No, but at least the argument, as I understand it, is that once the pre-conditions which are in the chapeau are satisfied, then each of the following provisions has force.

MR JACKSON:   Well, your Honour, we accept that.  The question is what force do they have?

KIRBY J:   Yes.

MR JACKSON:   Now, in dealing with that one really sees paragraph (b) probably as being a provision which has a very close relationship to paragraph (a).  It has a close relationship because paragraph (a) says when you are required by the Commissioner you have to pay - the non‑residents, you have to pay to the Commissioner tax which is due and payable by a non‑resident.  The very next thing is that it says, you are hereby authorised and required to retain the money which comes to you on behalf of a non‑resident, so much as is sufficient to pay the tax.  What is the tax?  That tax, the tax in paragraph (a).  That is our submission about it.

KIRBY J:   Well, I take the force of that, and I mean, there is no doubt there is an ambiguity here because we have one stream of authority in the Court of Appeal and one stream of authority in single judges, and therefore normally one seeks to resolve that by reference to, well, what makes this provision work to achieve its purpose, and then, of course, that merely hides the question of what is its purpose, but given that as, for example, provisional taxation ‑ ‑ ‑

MR JACKSON:   I remember that vividly, your Honour.

KIRBY J:   ‑ ‑ ‑ is a means of gathering in matter which may ultimately have to be refunded later on, but the scheme of federal taxation legislation has often been to protect the revenue and leave the fighting till later.

MR JACKSON:   Your Honour, we accept that, but to do it – but one thing, and reverting to something your Honour put to me earlier, one thing that does appear is that if – and without any really pre-conceptions about how one interprets taxing statutes – one thing that is apparent is that if there is to be an obligation to do something in relation to tax it should be expressed with reasonable clarity.

Now, your Honours, I appreciate one can describe in Codelfa terms ambiguity as occurring when there are two views open – or two views may be taken as to the meaning of provisions.  To describe it as such, with respect, is one way.  Another way of saying it is that one of them is wrong, and our submission is that the decision in the Court of Appeal is erroneous, that is why the Court is here, to determine those things.

KIRBY J:   Three Judges of Appeal of New South Wales, and two of them for very detailed reasons, give the contrary view.  I do not think one can say it is wrong.  You earlier said “the preferred interpretation”.  I can understand that argument.

MR JACKSON:   Your Honour, I am happy to put my submissions in the most appealing way, with respect.

GLEESON CJ:   How did the Court of Appeal deal with the question of the temporal connotation of the words, “the tax which will become due by the non-resident”, if it is a freestanding provision?  Will become due over the next 100 years?  Will become due so long as he lives?  Will become due when?

MR JACKSON:   At some stage, your Honour, at some stage.  I will give your Honour the particular reference in just a moment, if I may.  Your Honour, can I give you the reference in just a moment to the particular passage that comes as close as one does to that, because I do not think it is entirely clear.  Could I just say something further in response to your Honour Justice Kirby?  One of the purposes of paragraphs (b) to (d) is to facilitate the collection of the tax, no doubt, but the tax that is the subject of those provisions, in our submission, is the tax referred to in (a).  I do not think I can take that – page 389, your Honour the Chief Justice, paragraph 81.

What seems to have been said there, your Honours, by Justice Santow is that there is tax which will become due and payable from the sale of the shares ‑ ‑ ‑

GLEESON CJ:   No, I meant as a question of construction of the statute, not as a question of its application to the facts of this particular case.

MR JACKSON:   Your Honour, that is why I used the expression before “the closest.”  I think that is the closest one gets to what your Honour was putting to me.  There does not seem to be, I do not think, something that defines the majority or the court’s view of what is contemplated by “due and payable” “which is or will become due”.

One of the difficulties, of course, is that even with a default assessment, whilst because of the operation of section 204 you may be liable for general interest charges and so on from a much earlier date, until the point at which there is some assessment, then you do not know what is the amount that is due.  The fact that there has to be an assessment under the default provisions is referred to, I think, in the cases of George and Dalco we have referred to in paragraph 11 of our submissions in reply.  Your Honour, I really cannot give an answer to your Honour of what the court thought about it, but it is obvious that they must have thought that it did not really matter all that much.

GLEESON CJ:   The approach for the Commissioner, looking at that history of the tax ruling, seems to be that in some way the Commissioner can reign in the apparently remarkable operations of these provisions by giving sensible notices.

MR JACKSON:   Yes.  Your Honour, what seems to have happened is that a narrow view, then a more adventurous view was taken and then the adventurous view was a bit too much and then it was reigned in a bit, but if the provision does not allow you to say to someone “Hold on to this money until we are ready to make an amount due”, then you cannot do it.

Your Honours, could we just say that in short in relation to this issue, in the absence of a 255(1)(a) notice and also, your Honours, in the absence there being an assessment of tax, the notice of 12 December was ineffective.

Your Honours, could I move to, in a sense, the third issue, and that is that raised by the notice of contention . Subject to the Court, of course, I would propose to deal with this by way of reply, but may I just say something to put in context what we would say about it. May we just put in context our case. It is not essential to our case, your Honours, that we persuade the Court that there was no declaration of dividend on 11 November or maybe the record date. Even if there were a dividend declared on 11 November, we would submit that for the reasons that we have already referred to, 12 December 2005 purported section 255 notice was invalid or ineffective. On that premise, there was an existing debt as at 11 November 2005 capable of assignment, both in law and equity.

The assignment of 13 December had immediate effect and, because notice was given to the company on 14 December before the section 255 notice of that date was served on the company – your Honours, if I could just interpolate. Your Honours will remember page 352 which sets out the agreement as to timings - a legal assignment was effected before the section 255 notice on 14 December was good. It came too late.

Your Honours, if there was not a declaration of the dividend, no entitlement to the dividend, if one makes this assumption, arose until 15 December, and on that basis, unless our learned friend were to succeed on the notice of contention, the appellants should succeed because if there was no declaration of the dividend then Virgin Blue was not a person to whom section 255 applied at any time prior to 15 December, because prior to that, it was not liable to pay money to Cricket or Holdings, there being no debt.

Your Honours, the assignment on 13 December predated the notices given on 14 December and, in our submission, prevailed over them.  Notice having been given to Virgin Blue, it was no longer liable to pay the money to Cricket and Virgin Holdings.  It might do so.  Rules 6 and 67, it was not obliged to do so.  There was no liability to do so.  Your Honours, if I could test it in this way, if Virgin Blue had paid Bluebottle or, at its direction, Barfair on 15 December 2005, then, in our submission, in the circumstances neither of the shareholding companies could have sued Virgin Blue in respect of the non‑payment of the dividends to them. 

Your Honours, it is in those circumstances that our learned friend’s argument seeks to say that an entitlement to dividend cannot be dealt with separately from the share itself and because those two companies were the shareholders, any payment of dividend, despite what happened, must be to them.  Your Honours, subject to your Honours’ views we would propose to deal with that further by way of reply.

GLEESON CJ:   Thank you, Mr Jackson.

GUMMOW J:   Mr Jackson, I am still a little puzzled by section 199, the Queensland Act, how it works.

MR JACKSON:   Yes. 

GUMMOW J:   Putting aside section 109 of the Constitution for the minute and assume that the corporation structure was entirely Queensland law as well, the phrase in 199(1) is effectual – the first phrase, “any debt or other legal thing in action”, which one are we talking about here?

MR JACKSON:   It could be either, your Honour, bearing in mind a debt contemplating present obligations payable in the future.

GUMMOW J:  

other person from whom the assignor would have been entitled to claim such debt or thing in action, is effectual in law . . . to pass and transfer from the date of such notice –

(a)      the legal right to such debt or thing in action; and . . . 

(c)      the power to give a good discharge -

Now, it may be on one construction of the ASX, the regulations of the company and the Corporations Law, that this is not a debt in an ordinary common law sense.  It is some creature that has special characteristics that come from that statutory scheme, in particular its attachment to the share and the registration of ownership of the share at a particular date.  I may be completely wrong about that, but that is what has troubled me.

MR JACKSON:   Yes, your Honour.  Could I just say first of all, there is ‑ ‑ ‑

GUMMOW J:   If I could just interrupt for a minute. Section 199 is expressed in terms of generality, but I am not sure it was ever really drafted with a view to picking up other statutory regimes, if I can put it that way.

MR JACKSON:   Your Honour, could I just say that the terms “debt or other legal thing” or “chose in action” are expressions which are capable of catching things which would commonly be called debts that arise by reason of statutory provisions.  Also, “legal thing in action” is not particularly limited.  It is not just a common law thing, “things in action,” and there is no reason, your Honour, why it would not.

GUMMOW J:   But the phrase “is effectual in law,” does that mean is effectual under the Corporations Law?

MR JACKSON:   Is effectual to – your Honour, what I am seeking to say is it says is effectual to pass and transfer those things.  Now, of course, if there were a provision of the Corporations Act that said that in some way expressly or by implication excluded the effect of that, then it could not operate.  Could I just say that if one looks, for example - Norman v Commissioner of Taxation was a case which dealt with, amongst other things, an assignment of future dividends.

GUMMOW J:   That is so, yes.

MR JACKSON:   It was held that that could happen.  It could occur if there were consideration.

GUMMOW J:   There was not much analysis though as to what it was that produced the dividend.  In other words, there was not much analysis of the Corporations Law structure at that time.

MR JACKSON:   No, your Honour.  I agree.  I would accept that.  But, having said that, there does not seem to be – in Miranda, another case – my friends have referred to Miranda and these two cases are referred to in our written submissions in reply at paragraph 18. That case seems to work on the assumption that a dividend is something that can be the subject of an assignment or a dealing with it. If you have a provision such as section 199, which says that, as I say, first of all, as between the persons who are the assignor and assignee that there is something which is a debt or a legal thing in action, then there is a transfer of the legal right to it from A to B.

There is no point in doing that unless it is a tripartite thing, in a sense, and it has an effect upon the person who is liable. There is no reason, your Honour, why one would read down section 199. It may be that there is something one can find – not really, with respect, something that has been identified in the Corporations Act which in some way says something different.  Bear in mind, your Honour, section 254V speaks in the language of debt.  It uses the expression. 

GUMMOW J:   It does. 

MR JACKSON:   So the concept of debt does not seem remote from the ‑ ‑ ‑

GUMMOW J:   No, but it may be a debt of a peculiar character.  That is what I am trying to get at.  Most debts may have two legs; this debt may have one leg and four arms and it is still called “the debt”.  That is the problem, it seems to me ‑ ‑ ‑

MR JACKSON:   Your Honour, the nature of a dividend when declared, to take the simple historical case, is simply something that can be sued for as a debt once declared, and once the time for payment has passed, of course. 

HAYNE J:   It is the impersonality of the proposition which masks the difficulty.  A share is sometimes described as the congeries of rights.  The congeries of rights are defined within the statute of the instruments which the statute contemplates.  The debt of which you speak in 254U and V is one of this congeries of rights.  But at least in its primary operation – you say not its exclusive operation – it is a debt that is owed to a member who is on the register.

MR JACKSON:   Quite, your Honour.

HAYNE J:   Once one depersonalises the description and speaks only of a debt without identifying the debt further, are you masking the problem that stems from the fact that corporations are creatures of statute and the rights that members have are creatures, ultimately, of the statute?

MR JACKSON:   No, your Honour, we are not, because one accepts, to use the phrase again, that a share is a congeries of rights.  One of the aspects of a share is that it gives an entitlement to dividends and an entitlement to dividends which are payable to the shareholder.  However, what is the nature of the entitlement?  The Act speaks of it as being a debt.  Ex hypothesi, it is a debt which is due from the company to the shareholder.  That does not, however, mean that once the debt exists, to take the simple case, that there cannot be a dealing in relation to that debt because it has ceased to be, in a sense, something forming part of the congeries of rights.  It is part of the congeries that has now matured and become separate from it.

Your Honours, that was adverted to by Justice Rath in Federal Commissioner of Taxation v Miranda (1976) 11 ALR 85 and I wanted to refer to page 95. You will see at line 29 on page 95, it says:

This analysis shows that the legal rights which constitute a share are not static, but may vary from time to time.  But the variation is always referable to the contract inter socios that came into being on the allotment of the shares . . . contingently entitled to dividends, and to participation in distributions of capital . . . The legal right then takes the place of the contingent right, and is one of the rights in the “congeries” of rights that then constitute the share.

Then if one goes over to the next page, your Honours, page 96, the third line, his Honour says:

But this identity or “equivalence” between the property acquired and the property sold seems to me to exist only whilst there is no severance in the congeries of rights that constitute the share.  If a dividend is declared and paid, that dividend is not the share, or part of it, though the right to the dividend was such a part.  If a share or bonus dividend is declared . . . the bonus shares are not portion of the bundle of rights of the old shares, but are distinct and separate property. 

Your Honours will see the “right to the dividend” is part of the share but one of the aspects of the “right to the dividend” is that it is a right which either is, because there has been a declaration entitlement to be paid or because it is a right to be paid, contingently at least, in the future and is something which itself is property which can be dealt with.  Your Honours, to give it the description of part of the congeries of rights that constitute the share is true but it is not the end of the matter and that is particularly so when you find 254V speaking of it as a debt.  Your Honours, I am sorry, that took a while to answer your Honour’s question.

GLEESON CJ:   Thank you, Mr Jackson.  Yes, Mr Robertson.

MR ROBERTSON:   Thank you, your Honours.  Your Honours have been taken already to page 210 of the appeal book where there is a letter to Virgin Blue from the Chairman of the Board for and on behalf of Cricket and Virgin Holdings.

GUMMOW J:   Where are you, Mr Robertson?

MR ROBERTSON:   Page 210, and your Honours will see between lines 30 and 40 – this letter being dated 14 December – the language of section 255. This is said to be the effect of what happened:

Consequently, when the monies comprising the Dividend become payable on 15 December, they will belong and will have always belonged to Bluebottle UK Limited and will not be monies held or controlled by VBHL for Cricket SA and VHSA.

Then there is a reference to the next page.

GLEESON CJ:   He probably had his fingers crossed when he wrote that.

MR ROBERTSON:   The ultimate question is whether the steps that were taken on the 14th to avoid the either actual or impending operation of 255 were effective. I do not think I would saying anything different to what my learned friend said about the possible permutations but perhaps I might put them in this way. As we would see it, if the Court of Appeal was wrong about rule 63 and right about section 255(1)(b), then the Commissioner would succeed. I am just putting these propositions so your Honour can see where it all works out.

KIRBY J:   Can I just ask a question – I should know the answer to that – why did the appeal go from Justice Gzell to the Court of Appeal of New South Wales and not to the Full Federal Court?  I thought there was an arrangement that matters arising under the Income Tax Assessment Act go on appeal to the Full Federal Court.  That is a mistake on my part, is it?

MR ROBERTSON:   I think there may have been in the very early days perhaps some provision to that effect.

KIRBY J:   Anyway, whatever was the provision it is not so now?

MR ROBERTSON:   Yes.  I think there was a provision in the early days for tax appeals – maybe even a transitional provision for tax appeals which were in the – this is going back to the 1970s, I think, your Honour.

GLEESON CJ:   This was not a tax appeal.  This was an application for declaratory relief.

MR ROBERTSON:   Quite so, but I am trying to identify what Justice Kirby may have had in mind and I think there was a class of tax appeal that in those days went from a single judge of the Supreme Court to a Full Federal Court but that is, I think, long gone, your Honour.  So, as your Honour the Chief Justice says, that is not in this category anyway.

GLEESON CJ:   You are just explaining to us the possible alignments of the issues?

MR ROBERTSON:   How we see the permutations. So I have dealt with the first one. The second one is that if the Court of Appeal is right about rule 63 of the constitution but wrong about 255(1)(b), then it would appear, as my learned friend put it, that existing property was assigned before the 255(1)(a) notice, so the appellants would succeed. This is the third permutation, if the Court of Appeal was wrong about rule 63 of the constitution and wrong about 255(1)(b), then one gets to the notice of contention points which really turns on, in effect, whether the appellants are right or wrong to say they were never a controller for the purposes of section 255.

GLEESON CJ:   Where does that leave the issue that has been raised with you by Justice Hayne and Justice Gummow concerning the effect of the date of closing the register, the record date?

MR ROBERTSON:   We refer to this in our submissions but only in passing, I regret to say.  We note at the top of page 3 of our submissions in paragraph 8 that 11 November directors passed the dividend - at the top of the page - to shareholders on the register on 28 November 2005 because - I think this is in answer to your Honour the Chief Justice’s question – 28 November was before all the December activity, then – this may be too simplistic a view – but if the debt arose at the end of November as opposed to on the 11th when the resolution was made or the 16th, which is when the conditions precedent happened, but not till 28 November, that would not affect the order in which things were done in – or the effect of the things that happened in December.  That is as we see it at the moment, if the point is whatever it was could not be a debt before 28 November 2005.

GLEESON CJ:   You might like to come back to that.

MR ROBERTSON:   Yes.

GLEESON CJ:   Could I ask you a general question before you get on to develop your submissions on the various issues.  What other areas of the application of the Income Tax Assessment Act are affected by the kind of issue that we have been exploring in this case, that is, what is the nature of the right to a dividend and when and in whose favour does that right arise?  That is a problem that arises in relation to many areas of income tax law, is it not?

MR ROBERTSON:   Yes, I am not sure whether this issue of the date has ever been given any attention, but I will certainly look at that question.

GLEESON CJ:   Could you just check on that?

MR ROBERTSON:   Yes, I will, your Honour.

GUMMOW J:   There was some discussion of Miranda in McNeil.

MR ROBERTSON:   Of the date?

GUMMOW J:   No, that passage from Justice Rath which Mr Jackson took us to.  There is no need to go to it now.  Late last year.

MR ROBERTSON:   Yes, we will have a look at that, your Honour.  The factual matters your Honours have been taken to – there is one matter that I should make sure your Honours have because it was the subject of a specific written submission but nothing my learned friend has put orally, but the order in which things happened on 14 December was the subject of some submissions and I need to make sure that your Honours have in paragraph 14 of our submissions, which was the default assessments, that your Honours know that the default assessments were not after the 255(1)(a) notices but were before.

So if your Honours go to paragraph 14 of our written submissions, there are some words in brackets, or there were some words in brackets, that says “subsequent to the notice referred to in paragraph 13 above”.  Now, that should be paragraph 12.  That appears from the – it was not at issue at any stage in the courts below but one can see that from the times and dates that appear on the documents themselves.

The order in which I would seek to deal with things, your Honours, is first of all the section 255 question, because of course that is – the proper construction of section 255 is a matter of perhaps closer interest to my client than the more remoter questions of the Corporations Act, so I would start with that.  Your Honours should have, at least by way of seeing how the related provisions work, a fairly slim respondent’s legislation bundle.  I should also say this while your Honours are being given that, that in relation to 255(1)(b), and this is only a footnote, in a sense, but your Honour will not find Justice Gzell’s judgment deals with that, 255(1)(b), because at that stage the present appellants accepted that the 12 December notices were valid and operative notices so as to require, if the person was a controller, the money to be retained and the tax to be paid.  So that issue arose for the first time.  Your Honours will only see it in the judgments that your Honours have been taken to in the Court of Appeal.

Your Honours, just looking at that bundle, your Honours can see that – and this will not take more than a minute or two – in 1915, which was the first Act there, there was a definition of “agent” which has some words in it which your Honours will have become familiar with, about point 3 of the page, that is, words not dissimilar to some of the words that are presently in section 255. Turning over two pages your Honours will see a section 52 in the 1915 Act which remains part of the present Act, the 1936 Act, and it is now in a slightly different form, but it is now section 254, the section immediately preceding 255. Your Honours will again see on that page in section 52 in the 1915 Act some familiar language which is still in the present Act. Your Honours will see 52(e):

He is hereby authorized and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay the income tax which is or will become due in respect of the income.

So one can see similar words there.  Of course, with an agent, then and now, as your Honours will see from (a):

He shall be answerable as taxpayer . . . in respect of the income derived by him in his representative capacity –

Going then to the 1918 Act, which was the first time ‑ ‑ ‑

GLEESON CJ:   That section 52 seems to be dealing entirely with income derived by the agent or by the trustee on behalf of the taxpayer.

MR ROBERTSON:   Yes, and that is the same in present section 254.  So just to repeat what I was putting to your Honour, the language in (e) is similar but the circumstances in (a) are different because, as your Honour points out, it is income derived by him in his representative capacity.  Then going to the 1918 Act your Honours will see that section 32 of the 1918 Act, which is on page printed number 44, top left hand corner, 50A is the precursor of what is now section 218 that your Honour Justice Hayne asked a question about.  Perhaps a pale precursor of 218.

GLEESON CJ:   It is like a garnishee provision.

HAYNE J:   Enforceable by penalty, not by recovery of that which was due, like 218?

MR ROBERTSON:   Yes.

HAYNE J:   Section 218 is a penal provision.  The Commissioner gets penalties imposed.  The Commissioner does not get the money.

MR ROBERTSON:   I will come back to that, your Honour, but under 218 there is a power in the Court when you are prosecuted to order the offender to pay the equivalent amount of money, but your Honour is quite right, there is that difference.  Then turning the page, still in the 1918 Act, the precursor or the first time that anything like 255 was included, your Honours will see there section 52A.  I draw your Honours attention to three things.  One is that (b), that is, “hereby authorized to recover the amount” is no longer part of 255.  That is because there is a general provision that covers all those things which is, I think, section 258 in the present Act.  So that is paragraph (b) there. 

Then 52A(d), and this is a change which one can see made in the 1936 Act and in the present version of section 255. Subsection (d) at that point said that the person in receipt control of money is:

hereby made personally liable for the income tax payable by him on behalf of the person resident out of Australia if after the Commissioner has required him to pay the tax he disposes –

So now, of course, that personal liability is expressed anyway in different terms, it now being referable not to a requirement as such. The third difference is, as my learned friend said, at that point there was no subsection (2), no equivalent to section 255(2). So that is how things stood in 1918. One goes from there to 1922 where one gets a more robust version of section 218, and that is in section 65 of the 1922 Act, which is on the printed page 192. I will not dwell on that. A few pages further on in the 1922 Act, the printed page 199, you will see re-enacted section 90, what is presently 255.

Then of greater significance at tab 4 there is the 1936 Act where, I think contrary to a submission from my learned friend about the relationship between 218 and 255, your Honours will see enacted at the same time or re‑enacted at the same time 218 in the form that one can see on page 211 and on page 221 one can see the 254, same numbering as presently, and 255 with a subsection (2) and in what I will call the new form, that is, paragraph (b), the old paragraph (b) has disappeared, the one about recovery, and now in paragraph (c) the personal liability is not linked to a requirement by the Commissioner, but it is said to be to the extent of any amount that he has retained or should have retained under the last preceding paragraph, so it is in the present form, then subsection (2), “Every person who is liable under any contract” to claim money “shall be deemed” – so there was a deeming provision, but the words “under any contract” were taken out in 1942.  I do not think that is in this bundle, but those words were taken out in 1942 and then the last versions at tab 5 are as in force in November/December 2005.

GLEESON CJ:   Presumably the significance of section 257 is related to section 254.

MR ROBERTSON:   If your Honour recalls the early legislation, there was a general power in those days to deem a person an agent.  Section 257 seems to be a manifestation of that.

GLEESON CJ:   Presumably the significance of getting a notice in writing under section 257 is that you are then subject to the liabilities, are you, imposed by section 254?

MR ROBERTSON:   That is as I would see it, yes, your Honour.

GUMMOW J:   It comes from the definition of “agent”, does it not?

MR ROBERTSON:   Is there still a definition of “agent”?

GUMMOW J:   That is what I am wondering.

MR ROBERTSON:   Yes, there is.  It is in section 6 of the present Act.  It is in largely the same terms as it was.  Those are the changes of any substance.

KIRBY J:   What do you get out of those changes, if anything?

MR ROBERTSON: Two things, perhaps, your Honour. One is that it shows that because 218 and 255 were re-enacted at the same time, if one needs that beyond the present co-existence, then one can assume that they were meant to work in a manner that did not entirely overlap the one with the other. That is perhaps the main thing. The second thing is that there was that shift that I have drawn attention to in terms of what is now paragraph (c) of section 255(1) from a personal liability for the amount that he was required by the Commissioner to pay to a personal liability for the amount that he has retained or should have retained but did not retain.

Now, in terms of the words in section 255 to answer your Honour Justice Gummow’s question about “agent”, in the 1936 Act, section 6(1) “agent” still includes:

(a)every person who in Australia, for or on behalf of any person out of Australia holds or has the control, receipt or disposal of any money belonging to that person; and

(b)every person declared by the Commissioner to be an agent or the sole agent of any person for any of the purposes of this Act.

So it is still in the same form. 

GUMMOW J:   Thank you.

MR ROBERTSON: In terms of section 255 itself, the section is to be approached, in our submission, by reference to its purpose and, of course, its language. Its general purpose is to make possible or facilitate the collection of tax. We agree that it is not a section dealing with the imposition of tax. It is to do with the collection of tax from non‑resident taxpayers where another person has the receipt, control or disposal of money belonging to the non-resident.

When I submitted that it facilitates the collection, facilitation plainly by the terms of the section includes imposing an obligation on a creditor of a non-resident taxpayer when taxes all become due by the non-resident but, in our submission, before the tax is payable and, in some cases, before there is a notice of assessment.  We get that out of the words of (b) and I will come back to that in a moment.  But, of course, the background is the difficulties of recovering tax in a foreign jurisdiction.  That is what it is for – to facilitate the collection of Australian tax from somebody who is a non‑resident.

KIRBY J:   Is that any more than the difficulty of suing in a foreign jurisdiction with all of the varieties of such jurisdiction?  Are there some jurisdictions which will not permit a government of another country to sue for tax?

MR ROBERTSON:   Historically, all of them.

KIRBY J:   Yes, I thought so.

MR ROBERTSON:   Because as your Honour will recall, I think it is the name of a best‑known ‑ ‑ ‑

HAYNE J:   The Government of India v Taylor, is it not?

MR ROBERTSON:   I was going to say Government of India v Taylor, so that to put it broadly, a foreign government would not assist revenue collection by, say, an Australian Government attempting to do so, and that of course is now subject to what might be affected by way of treaties between such nations, and there are some, but they are not ‑ ‑ ‑

KIRBY J:   But there was never any Empire‑wide or Commonwealth‑wide general provision in this respect?

MR ROBERTSON:   No.

KIRBY J:   So the general rule even applied within the British Empire?

MR ROBERTSON:   Yes.  As I would submit, your Honour, the private international law rules of non‑assistance – perhaps advisingly – but they seem to flourish in a full rigor even within what was the old Empire or modern Commonwealth.

KIRBY J:   But the aim, you say, of the statute is to get it whilst it is still within the jurisdiction and to fix upon those who are within the jurisdiction obligations protective of the revenue?

MR ROBERTSON:   Yes, and one has to, of course, see how it is done by looking at the precise words, but in terms of the machinery, one can see how it works here – if I can just make this general observation – either the non‑resident can put in an income tax return and get taxed by assessment, or as here, they cannot.  As your Honours will have seen, returns were not in fact put in by Virgin Holdings or Cricket and then one has a default assessment followed by the objection procedure and so on.

GLEESON CJ:   The assessment was for capital gains tax on transactions entered into during the year of 30 June 2004.  Is that right?

MR ROBERTSON:   Yes, I think that is right, your Honour, yes.

GLEESON CJ:   Involving a sale of shares?

MR ROBERTSON:   Yes.  So unrelated to – this is implicit in your Honour’s question – unrelated to the dividend that is ‑ ‑ ‑

GLEESON CJ:   But nothing to do with an attempt to recover tax payable on the dividend?

MR ROBERTSON:   No, that is so and I should say in passing, because something was made of this by my learned friend, that it is true to say that they are big numbers, but it is not true to say that there is a difference between the amounts in what I will call the 255(1) (a) or 14 December notice, and the 12 December notices for a reason which I hope I can explain.

If your Honours go back to page 215, towards the foot of the page between lines 50 and 60, there is a large number of 72 million‑odd, and I heard my learned friend, Mr Jackson, to say there is an unexplained difference between that number in the 12 December notice and the number in the 14 December notice – or the assessment on page 225, but the reason is that the assessment on page 225 has on the back of it a reference to general interest charge. So what appears on 225 on the notice of assessment does not include general interest charge, but 255, and in particular section 255(4) says that tax in section 255 includes the general interest charge under a variety of subsections including relevantly 204(3). That is not to say – which I will come back to – that there may not be a difference between what appears, in our submission, in a (b) notice as opposed to an (a) notice, but on the facts here, there was no such discrepancy.

Now, coming then to the language of 255(1)(b), the central proposition perhaps is that what is to be retained in (b) is distinct from – plainly related to but distinct from – what is required to be paid under 255(1)(a).  So far as (1)(a) is concerned, the Commissioner accepts and contends there is no obligation to pay the non-resident’s tax until so required and it is plain from the words of the section and, furthermore, there is no obligation to pay before any money comes to the putative controller.  We accept that 255(1) in the preamble says it is “With respect to every person” who answers that description that “the following provisions shall . . . apply”.

GLEESON CJ:   And what is this expression in (b) “from time to time” indicate?  Forever?

MR ROBERTSON:   I would construe it as periodically, your Honour.

GLEESON CJ:   Without end?

MR ROBERTSON:   I am sorry, your Honour?

GLEESON CJ:   For all time?

MR ROBERTSON:   No, until ‑ ‑ ‑

GLEESON CJ:   This is a requirement by force of the statute, not by force of any notice that is given by the Commissioner.

MR ROBERTSON:   Yes.

GLEESON CJ:   So it is a requirement that operates on somebody who has receipt, control or money belonging to a non-resident, of which the simplest example I can think is a bank, and it says:

he is hereby authorized and required to retain from time to time out of any money which comes to him on behalf of the non-resident so much as is sufficient to pay the tax which is or will become due by the non-resident –

MR ROBERTSON:   “Which is or will become due by the non-resident”.

GLEESON CJ:   Yes.  Is that a statutory obligation which inures and requires a bank to retain out of any money that comes to the bank on behalf of a non-resident so much money as from time to time is sufficient to pay the tax which will become due by the non-resident?

MR ROBERTSON:   Yes.

GLEESON CJ:   So by what right does he honour the non-resident’s cheque?

MR ROBERTSON:   If I could answer it this way, your Honour, that step one as it were is – which I think your Honour has put to me – that the person is the controller and then one can see the obligation, he must retain where tax is or will become due.  There is no obligation unless and until he is a controller.  So one can assume that the controller knows how much he has on behalf of the non-resident.  Then the question the statute poses is, how much must the controller retain and the answer the section gives is, so much as is sufficient to pay the tax which is then due or, we would say, then due and payable or will become due.

GLEESON CJ:   I am concentrating on the “will become due” aspect of it.

MR ROBERTSON:   Then your Honour says, how can he know – I think this is what your Honour puts to me – whether he has an obligation or the extent of the obligation?

GLEESON CJ:   Yes, assuming the non‑resident has just written a cheque on his bank account and somebody has presented it for payment.  What does the federal law require the bank to do?

MR ROBERTSON:   We would submit there is a parallel between the position of this controller and, for example – or there may be a parallel, a factual parallel, between the position of this controller and, for example, the agent under 254 who comes under a similar obligation.  Then the question becomes, is the obligation so impossible or onerous to perform and the answer that, in our submission, is the correct or preferable answer as a matter of construction is that where as here the controller is told by the Commissioner what his Honour Justice Basten said was the relevant precondition of the operation of the section, that is, who the taxpayer is, the tax is or will become owing and the amount he is to retain, then the section does not operate in an onerous way.

GLEESON CJ:   I am sorry, where does the section require as a condition precedent to the operation of (b), unless, of course, it is in (a), where does the section require that the obligation to retain only arises when the Commissioner has notified the controller of something?

MR ROBERTSON:   The section in its terms, as the Court of Appeal said, has no express requirement for such a notice.

GLEESON CJ:   Unless it is in (a).

MR ROBERTSON:   The Court of Appeal, as your Honour knows, proceeded on the basis that (b) could have an operation not entirely separate from (a) but anterior to (a).  So the Court of Appeal did not proceed on the basis that one could get from the (a) notice anything that informed (b).

GUMMOW J:   The answer may be in section 204, might it not?  Certain things happen after 21 days and so forth and from the words “from time to time”.  If at any time today there is tax which is presently due and payable, that is one thing, today there may be tax with respect to which the clock is running in which you can say it will become payable when the clock runs out in 21 days.  You will not like that.

MR ROBERTSON:   No.

GUMMOW J:   But otherwise you are in real trouble, it seems to me.

MR ROBERTSON:   It certainly can have that operation.  The question is whether it has any wider field of operation and if it only has the operation your Honour has just put to me, in a sense it does not really add anything to what would be implicit in (a) anyway, that is, if you can be required to pay the tax due and payable under (a) when the Commissioner requires you to do it.  It does not take much imagination to realise that there is an obligation there to retain the amounts that come to you in order to do that.

HAYNE J:   Paragraph (1)(a) says you have to pay, (b) says where you can pay it from and if (a) stood alone, you have to pay, of your own money.

MR ROBERTSON:   It would not stand alone, your Honour, because one, of course, has the opening words of 255(1) ‑ ‑ ‑

HAYNE J:   Just so.  You want to sever (b) from (a)?  You want (b) to stand free, do you not?

MR ROBERTSON:   No, I want to give it a wider field of operation than entirely derivative.

HAYNE J:   Field of operation in respect of which (d) would afford no indemnity because on your construction this is not a payment made in pursuance of the Act and it is not a requirement of the Commissioner, is it, which takes it outside (d)?  So (b) is given an operation that leaves the person concerned without indemnity, is that right?

MR ROBERTSON:   Your Honour is right to say, with respect, that the express indemnity in (d) relates only to payments.

HAYNE J:   Or any requirement of the Commissioner that you would have (b) read as saying that the Act requires retainer, is that right?

MR ROBERTSON:   I am sorry, your Honour, the last two parts of (d), in my submission, relate to payments made pursuant to the Act or requirements.

HAYNE J:   Are we agreed that (d) is not engaged in respect of the operation which you would give to (b)?

MR ROBERTSON:   Yes, because (b) does not involve a payment, it only involves a retention.

HAYNE J:   At (b) the person is obliged to retain, is that right, and is that obligation to retain something that can be pleaded in answer to the non‑resident party’s demand upon the person thus obliged to retain?

MR ROBERTSON:   We would submit it would be, yes.

HAYNE J: The only rights of the non-resident party are rights in specie against the particular funds that have come into the hands of the person obliged to retain, why? It may be necessary, Mr Robertson, to have regard to the particular facts of this case rather than some particular wide and all embracing theory of section 255 which might give it an operation that has some rather odd results.

MR ROBERTSON:   Certainly, the facts of this case, your Honour, if I could go back to them, the 12 December notice preceded by two days the notice requiring payment.  The only question I am dealing with at the moment is whether that 12 December notice imposed an obligation on the controller prior to 14 December because 14 December was, as your Honours know, when the assessment issued and the requirement was made.  So the factual importance of the 12 December notice was, of course, it was after that, but before the 14 December notice, that the assignments or, as we would say, the purported assignments were entered into.

Where the temporal element is dealt with in the Court of Appeal most explicitly is on page 403 in the judgment of Justice Basten at paragraph 115, that is, as his Honour says:

Paragraph (b) has a further element to it, namely that there be an amount of tax “which is or will become” due by the non-resident.  Implicit in the reference to “the tax” and in the calculation of the amount which will be sufficient to pay the tax, is an assumption that a particular amount of tax has been identified.  Inclusion of the future element, namely tax which “will become due” indicates that the tax may not be due, in the sense of being due and payable, for paragraph (b) to be engaged.  Nevertheless, the amount must be known.  What is more, the amount must be known to the person in control of the money . . . Both a temporal connection between those facts and knowledge on the part of the person holding the money must be treated as essential elements of the obligation.

So that is what the Court of Appeal found was implicit in paragraph (b).

KIRBY J:   That is really the Chief Justice’s concern there in the last sentence of 115.

MR ROBERTSON:   Quite so, but that paragraph also ‑ ‑ ‑

KIRBY J:   You accept that concern and you say that Justice Basten’s answer meets it?

MR ROBERTSON:   Yes, and I was also - his Honour the Chief Justice asked whether the Court of Appeal dealt with the temporal element anywhere and that is ‑ ‑ ‑

GUMMOW J:   How will you know the amount on this theory?  What does his Honour mean when he says the amount must be known?  How will it be known?  By what processes of the Act, other than section 204 and that is the sort of thing I was putting to you?

MR ROBERTSON:   Where, as here, the amount was known.

KIRBY J:   That is not really an answer to the question of the operation of the Act.  That is just this particular instance.  We have to look at all statutes as how they are supposed to operate.

MR ROBERTSON:   Yes, quite so, your Honour, but implicit in my answer, how do you know, is the answer that Justice Basten gave which is, when you are told.

GLEESON CJ:   By whom?

MR ROBERTSON:   By the Commissioner.

GLEESON CJ:   Why only by the Commissioner?  What you seem to be saying is do not worry about that, we will administer this in such a way that you will know.

HAYNE J:   We are from the government, we are here to help you, Mr Robertson.

MR ROBERTSON:   The agent under 254 knows relevantly and if the controller in 255 can be assumed, and this is the hypothesis, does not know out of their own resources, then a solution to the problem is that they are told by the Commissioner.

GLEESON CJ:   The argument that is put against you is that all these problems disappear if you construe the section on the basis of reading section (a) and the notice given under section (a) as the triggering device.

MR ROBERTSON:   Yes, I realise that, your Honour, but the starting point in the language of the ‑ ‑ ‑

KIRBY J:   What is so wrong with that interpretation?  If you do not like it and if that is not what was intended, as you assert, well, you can seek the amendment of the Act and you have the inside running in that respect.

MR ROBERTSON:   That may be, your Honour.

KIRBY J:   The trigger metaphor is a pretty vivid one.

HAYNE J:   If you do not like it, can I offer this way of understanding 255, Mr Robertson? Section 255(1)(a) obliges the recipient, the person you call the controller, to pay what is assessed, (b) permits that person to recoup by retaining, (c) limits the amount they have to pay to the amount that they have retained, and (d) gives that person an indemnity. Now, why does that not just give a coherent operation to an otherwise difficult provision?

MR ROBERTSON:   Certainly, as your Honour says, (c) makes the person personally liable for the amount that they retained or should have retained under ‑ ‑ ‑

HAYNE J:   It is a limitation.

MR ROBERTSON:   Yes.

HAYNE J:   The primary obligation is (a), pay.  What do you pay?  Amount assessed.  Paragraph (b) you can retain, (c) we will limit the amount you have got to pay to what you have retained, (d) will indemnify you in respect of what you have paid.

KIRBY J:   All very fair as one expects of the federal statute book.

HAYNE J:   His HonourJustice Kirby is very charitable, as ever.

MR ROBERTSON:   The starting point, your Honours, in my submission, has to be the mischief to which this is directed and there is no doubt that a possible construction is as your Honour Justice Hayne has put to me.  Your Honour Justice Kirby says, well, is not the trigger metaphor a powerful metaphor?  It is, but the question is, is (a) the only trigger or is (b) something that can also and independently ‑ ‑ ‑

KIRBY J:   This legislation came from an earlier and simpler time.  It has been handed down and repeated in successive statutes.  In that earlier and simpler time the structure of the section, one could understand, would appeal to the law maker.  You do not fix people with liabilities that they really cannot know about.  If you adopt the interpretation that Justice Hayne was just putting to you, the whole thing hangs together, as one would expect in earlier and simpler times.

MR ROBERTSON:   I can understand that, your Honour, but the question is, is that its only field of operation?  What I am contending for is that, depending on the facts, it may have a wider field of operation, that is ‑ ‑ ‑

KIRBY J:   The problem with that though is that you are then seeking to get this Court to construe a statute by reference to the particular facts of this case as distinct from what the words used mean in their context, Parliament having chosen those words.

MR ROBERTSON:   Obviously one is dealing with particular facts, but I am attempting to generalise from those facts to see how they fit within a construction which we submit is the preferred construction and which is the construction the Court of Appeal held that it had.  One starting point is that when one looks at the words “the tax which is or will become due”, then consistently with Clyne’s Case, which I will come to in a moment, that is a reference to tax which is or will become owing.  So, in our submission, there is an intended difference between the expression “tax due and payable” in paragraph (a) and the broader notion of what the controller is required to retain from time to time, which is what is sufficient to pay the tax which is or will become due.  Not limited to due and payable and, we would submit, not limited to due in the sense that (b) would only operate in a 20‑day or a 21‑day period, which is the construction for which the appellants contend.

Because if, as Justice Gummow says, one looks at section 204, then what one sees is that the notice of assessment is issued and the period, the general period, between when the tax is due and when the tax is payable is only that short period.  So (b) is then on that construction given only a very limited, as we would submit, field of operation.

I referred your Honour to Clyne’s Case 150 CLR 1. Your Honours will be no doubt familiar with it. It concerned section 218 and, indeed, was a fairly simple case in terms of a sequence of events and your Honours can see the sequence of events in the Chief Justice’s judgment at page 7, that is about point 2 of the page:

On 9 July 1979 . . . Peter Clyne, was served with a notice of assessment . . . The amount assessed was stated to be due and payable on 8 August –

so a month later –

On 10 July 1979 the Deputy Commissioner of Taxation (the first respondent) served –

a notice on the bank and then at point 8 of the page, after all that happened:

Mr Clyne by deed assigned the three deposits to the second appellant, Patricia Peacock –

So it was all relatively straightforward.  If your Honours turn back a page to page 6 one can see there what the argument was and Chief Justice Gibbs specifically – I will come back to the conclusion his Honour came to – but the words that were being construed were in what was then 218(1)(a), the word “due” which was held to mean “due and payable” and in 218(1)(i), that is:

so much of the money as is sufficient to pay the amount due by the taxpayer –

meant owing, that is, whether payable or not.  That is the ordinary meaning of the word “due”.  His Honour the Chief Justice referred, right at the foot of page 9, the last line:

For these reasons when the word “due” is used in the Act, without the accompanying words “and payable”, it will prima facie mean simply owing. This distinction between “due” and “payable” is clearly drawn in s. 255(1) –

and his Honour also refers to 254(d), which I have taken your Honours to. So the starting point is the difference between the tax which is or will become due, in our submission, not limited to that 20 or 25‑day period, but that the obligation is, as I have submitted, not limited to the ancillary obligation to keep only money which comes to the controller to pay the tax due under an assessment, notice of which has been issued under section 255(1)(a).

Now, your Honours have been given a reference to Justice Lindgren’s decision in Wong .

Could I hand up to your Honours – I know your Honour Justice Gummow has referred to it, a copy of section 204 to show two things.  One is the limited effect that would be given to (b).  I have referred, I think, to the 21‑day period and your Honours can see that in section 204(1)(a), that is if the taxpayer’s return is lodged, say, in time then the tax payable becomes due and payable on the later of 21 days after the due date for lodgement or 21 days after the notice of assessment. 

In this particular case, and your Honours may have noticed this in the notice of assessment, and this is the second reason for going to section 204, the foreign shareholders, taxpayers were within 204(1)(a) as full self‑assessment taxpayers and that is why the due date, say on page 231 of the appeal book, of the notice of assessment, the due date was said to be 1 September 2004 because, as your Honour the Chief Justice said, these were assessments raised in respect of past transactions and the taxpayer’s year of income – then one gets to either 1 December on the following year of income or 204(1)(a),(b) on the first day of the six months, et cetera.  But of course I only draw your Honours’ attention to that as to why in this case there was no 21-day period but, in the ordinary case, there would be or may be when a return of income was lodged on the due date.

Turning then to the decisions that your Honours have been taken to briefly, the first of Justice Lindgren in Wong 121 FCR 60, the part of the decision which I think is plainly obiter but is a discussion by his Honour of 255(1), so having used the metaphor of “trigger” – in paragraph (b) the question did not arise, the question was whether there had to be any sort of requirement at all or whether there was an obligation, entirely freestanding, or obligation imposed by section 255 apart from anything the Commissioner did and his Honour said, “No, the section did not work that way”. At paragraph 26 on page 66, his Honour says:

I now proceed to discuss s 255(1) more generally.

One issue that is raised here is whether there is a distinction to be drawn between the time that you give a notice and the time at which a notice may become operative.  It appears to be common ground that a notice may be given, that is issued, before a person answers the description of a controller so that there is no controversy before your Honours that the 14 December notice could issue even though it did not operate until the next day which, on one view, is the day Virgin Blue became the controller.  His Honour Justice Lindgren says that:

words such as “at any time from time to time” should not be understood to qualify “having” and “derives” in the prefatory words.

Consistently with this view, par (a)’s reference to “the tax due and payable by the non-resident” is a reference to the tax due and payable by the non‑resident on the “income, or profits or gains of a capital nature” derived by him at any time and from time to time.  In other words, a notice given under par (a) can be expressed to have an ambulatory or ongoing operation and to require the recipient to pay not only tax that is already due and payable, but tax which may become due and payable in the future, and will do so if the non‑resident derives further income.

Then in 29, again on his Honour’s construction of paragraph (a) as the sole trigger, his Honour says:

Retention is authorised and required by par (b) out of the non‑resident’s money coming to the Controller from time to time in respect of tax becoming due from time to time by the non-resident.

What his Honour says about (a), that is:

have an ambulatory or ongoing operation and to require the recipient to pay not only tax that is already due and payable, but tax which may become due and payable in the future‑

is, in a sense, work that we attribute to paragraph (b) rather than to paragraph (a).  His Honour was plainly exercised by the idea that 255 should be given the widest construction consistent with its purpose.  Justice Edmonds in Elsinora, which your Honours have also been taken to ‑ ‑ ‑

GLEESON CJ:   Just before you go to that, what do you say about paragraph 28 of Justice Lindgren?

MR ROBERTSON:   This is all proceeding on the basis of course that (a) is the only trigger, and his Honour then gives an expanded, if that is the right word, reading to (a).  Now, that is certainly, we would submit, one view.  His Honour does not there discuss Clyne’s Case where it is certainly Chief Justice Gibbs expressly and maybe the other members of the Court implicitly proceeded on the view that (a), the equivalent to (a) could only operate where there was, in fact, a notice of assessment already issued.

GLEESON CJ:   Yes.  But let us take a practical example.  Just suppose, using your imagination in a hypothetical case, that the world’s best tennis player was a resident of Switzerland and he was due to come out to Australia to play in the Australian Tennis Championships in six months time and the promoter of the tennis championships was liable to pay him an appearance fee and then how much extra he would get paid would depend on how far he advanced in the competition.  He may or may not have allowable deductions in Australia.  He may be carrying on another business in Australia which is operating at a loss.  So nobody knows how much taxable income will result from his tennis‑playing activities at the next Australian championships and the parties want a sensible way of accommodating that situation.

Justice Lindgren’s expanded reading of (a), as I would understand it, is directed at that situation.  In other words, you do not have to have a

notice of assessment on the tennis player, and you might not be able to issue a notice of assessment, because you would not know what his assessable income or his allowable deductions would be.

MR ROBERTSON:   To continue with that point, Justice Lindgren would seem to accommodate a requirement under (a) that says the amount that may come to the controller anticipating what it might be - it might be a million dollars and the relevant proportion of that would be $300,000, 30 per cent, being an amount that may be tax that either is already due and payable, not on this hypothesis, but tax which may become due and payable in the future.  So that would involve an (a) notice.  At that point of time one would then wait for the entrepreneur or whoever it was to become the controller and then that notice would operate.

GLEESON CJ:   I am only asking you this question because of the parties in the next case, Mr Robertson, how long do you think you will require to complete your argument?

MR ROBERTSON:   I would have to say an hour to an hour and a quarter maybe.

GLEESON CJ:   Mr Jackson, how long do you think you will be in reply?

MR JACKSON:   I think I will probably be three quarters of an hour, your Honour.

GLEESON CJ:   We will say that the next case will be not before 11.15 and we will adjourn until 10.00 am.

AT 4.25 PM THE MATTER WAS ADJOURNED
UNTIL THURSDAY, 30 AUGUST 2007