Bluebottle UK Limited & Ors v Deputy Commissioner of Taxation & Anor
[2007] HCATrans 469
•30 August 2007
Replacement Transcript
[2007] HCATrans 469
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 THURSDAY, 30 AUGUST 2007, AT 10.17 AM
(Continued from 29/8/07)
Copyright in the High Court of Australia
__________________
GLEESON CJ: Yes, Mr Robertson.
MR ROBERTSON: Thank you, your Honour. Your Honour the Chief Justice asked yesterday whether there was any special regime in the Income Tax Assessment Act concerning dividends. The answer is in two parts; the section 44, which was considered by this Court in Norman’s Case at 109 CLR 9 by Chief Justice Dixon at page 16 and by Justice Menzies at page 23 and the other part of the answer is that, so far as concerns dividends paid by residents to non residents, the relevant part of the Act is Part III Division 11A which was recently considered by Justice Lindgren in a decision called ABB Australia v the Commissioner of Taxation [2007] FCA 1063.
Your Honours, yesterday in relation to section 255 I had taken the Court to Justice Lindgren’s decision in Wong and in particular to paragraph 28. For completeness, the corresponding paragraphs or the paragraphs in Elsinora, the judgment of Justice Edmonds, where his Honour agreed with what Justice Lindgren had there said, is Elsinora 227 ALR 570 at 582, which is paragraph [52], and 590, which is paragraph [98]. Your Honours have our written submissions in relation to the interrelation of section 255(1), section 255(1)(a) and section 255(1)(b) at paragraphs 28 to 45.
One of the points there made is the relationship construing together 218 on the one hand and 255 on the other and, in particular, that is dealt with at paragraph 42. The appellants in their reply submissions, if I could touch on them for a moment on that point, paragraphs 16 primarily and also 17 which I should mention, their paragraph 16 makes the point that the origin of section 255(2) lay in a concern in relation to royalties. That was a matter that Justice Gzell dealt with in his reasons for judgment at pages 295 to 298 of the appeal book.
KIRBY J: Could I just ask you this to clarify my thinking, if Mr Jackson wins on the construction of section 255(1)(b), which has been preferred by Justice Gzell, Justice Lindgren and Justice Edmonds over the opinion of the majority in the Court of Appeal, what is the consequence for the disposition of the appeal of that outcome?
MR ROBERTSON: First of all, your Honour, if I could just qualify what your Honour has put to me. I do not think Justice Gzell dealt with the question at all because your Honour may recall that yesterday I said that the point about 12 December notices did not arise in this litigation until the Court of Appeal.
KIRBY J: Yes, thank you for clarifying that. This is the trigger theory of section 255(1)(b). That is how Justice Lindgren, I think, described it.
MR ROBERTSON: When his Honour was using the metaphor of a trigger, his Honour was looking at the question of, really, 255(1)(a).
KIRBY J: Yes, 255(1)(a) triggers what is otherwise provided in the later paragraphs.
MR ROBERTSON: Yes. To answer your Honour’s question directly if I can, if the 12 December notices did not operate and subject perhaps to the other point about the Corporations Act, then one comes to the Commissioner’s notice of contention which is, what happened on the 15th? One comes to that question because there is no doubt that the relevant sequence of events on the day before was that there was a section 199 Property Law Act notice, whatever the effect of that might be, then the notices of assessment and then the 255(1)(a) notice. So one comes to the point, what is the effect, as we would see it, of those matters – and I will come to these in relation to those contentions – but, in particular, what was the property that was the subject of the notice under section 199? That is why I said that depends in part on the Corporations Act point because that in turn tells one whether one is dealing with an existing debt or ‑ ‑ ‑
KIRBY J: Have all those points been fully dealt with by the courts below, in your submission, notice of contention point?
MR ROBERTSON: No.
KIRBY J: Why would we get into that? We do not have the advantage of an intermediate court’s decision on the matter.
MR ROBERTSON: That is so. The Court of Appeal did not get to that.
KIRBY J: The losing party has lost then an opportunity of suggesting error on the part of the court that makes the first decision on those points, which is a very important right.
MR ROBERTSON: The matter was ventilated in ‑ ‑ ‑
KIRBY J: I realise that, but if it was not decided, it has not been decided, then it would be being decided for the first time in this Court.
MR ROBERTSON: Not for the first time because Justice Gzell dealt with these matters.
KIRBY J: A first appellate decision.
MR ROBERTSON: Yes, and the Court of Appeal having reached the decision that it did reach in relation to the Corporations Act point and the 255(1)(b) point did not need to get to the notice of contention. But your Honour may recall from the transcript of the special leave application that there was on my part a proposition that it would be or may be necessary for this Court to deal with those matters which would go to what form of relief, if any, would be available to the present appellants.
KIRBY J: Yes, thank you for clarifying that, as usual very clearly, but you will prudently leave enough time to deal with the notice of contention point?
MR ROBERTSON: I hope so, yes, your Honour. Perhaps I can say this, your Honour. Time may be a problem. One of the issues which, as I heard it, arose yesterday for the first time and not so far in writing in terms of submissions is what I will call in a rolled up way the substantive operation, if any, of section 199 of the Property Law Act and it may be, depending on how time permits, that we will have to ask your Honours for leave to put in a written document about that. But, your Honour Justice Kirby is quite right, if I may say so, that one of the complexities of this case is how the different permutations work themselves out in terms of what one is looking at a particular point of time depending on the Corporations Act point, the construction of 255 point, and the nature of the property that one is concerned with on 15 December on this hypothesis.
Your Honours, there are just two or three short matters I would like to deal with in relation to paragraphs 16 and 17 of the appellant’s reply submissions. The point that I had got to was the collection of royalties point at the top of page 5 of the appellant’s submissions in reply. That point, as I think I earlier submitted, was dealt with by Justice Gzell at 295 to 298 of the appeal book in his Honour’s judgment. His Honour not only reasoned in the alternative that 255(2) was limited to royalties, or had its history in royalties, but then derived from that the proposition that 255 did not apply at all except to money coming to the controller from third parties. That was dealt with at length by Justice Santow in ‑ ‑ ‑
GLEESON CJ: I do not think that point is pursued against you because of subsection (2) I assume.
MR ROBERTSON: Well, I understand not.
GLEESON CJ: The deeming provisions of subsection (2) deal with that point, do they not?
MR ROBERTSON: We would so submit, and I just wish to guard myself against the idea that it was creeping in through some reference to the collection of royalties in my learned friend’s paragraph 16, but I will ‑ ‑ ‑
GLEESON CJ: But if you just looked at subsection (1) alone that would be an obvious, I should have thought, fatal difficulty with your argument but, as I read the section, it is covered by subsection (2).
MR ROBERTSON: Yes, and as your Honour asked yesterday, was it common ground that 255(2) was the entry point to this, and the answer is yes, so I will not spend further time on that. On the same page 5 of my learned friend’s reply submissions, I do not want to detain your Honours, but there is a battle of footnotes, the appellant’s footnote 10 which deals with our footnote 6, but it is about 218 in its present form rather than 218 as it was when enacted, but our short proposition is that sections 260-5 and
255-1 deal with the issue with a notice whether or not the tax is due and payable and that is clear from the words and that is what we intended by our footnote 6.
Lastly, and perhaps most importantly on these points, on 255 generally, is our learned friend’s paragraph 17. Your Honours will recall that yesterday I asked your Honours to note an amendment to paragraph 14 of the first respondent’s written submissions to delete the words in brackets, which perhaps gave rise to a misconception on our learned friend’s part but, in my submission, the sequence of events on 14 December was, first of all, relevantly the sequence of events was after the notice of assignment, whatever the effect of that was, the assessments and then the notice, and one can see that from appeal book pages 225 and 227 on the one hand where one can see at the top of each page a time of “11:25” am and “11:28” am compared to page 133 where the time for the 255(1)(a) notice is 3.44 in the afternoon. There is no more direct evidence about it because the point was never ventilated before, but if your Honours compare, as I said, 225 on the one hand and 133 on the other, that time sequence becomes clear.
Then, if I may go to the notice of contention point, and I realise that contains an element of vagueness about it. It is dealt with in our written submissions in paragraphs 46 through to 61. It deals with the position on 15 December and it assumes on this aspect of the case that the Court of Appeal was incorrect about the Corporations Act point, that is, we assume that the resolution for the dividend was revocable. Your Honours will recall the Court of Appeal held that it was not a date in November. The
concentration on the 15 December arises on the basis that was wrong for the reason that, of course, it affects the nature of the property that was the subject of the notices of assignment on 14 December.
HAYNE J: As to the significance of revocability of dividends and as to the significance also of 254U and V and their references to debt, account may have to be taken on section 588G of the Corporations Act with its provisions about director’s duties to prevent insolvent trading. Section 588G creates offences, 588G(3) unsurprisingly. Section 588G is concerned with fixing times, fixing times for incurrence of debt because in certain circumstances the incurrence of a debt causes commission of an offence. The references to debt which we find in the dividend provisions and in 588G are references to debt at least for particular statutory purposes. They may also bear the character that is considered by the court’s decision in Commonwealth of Australia v SCI Operations 192 CLR 285.
GUMMOW J: You will be familiar with that.
MR ROBERTSON: I recall that unfortunately, or some of it anyway.
HAYNE J: In the hands of competent counsel, Mr Robertson, was the usual advice, was it not? I have in mind particularly page 313 where reference to debt, particularly in statutes, is intended to indicate the nature of the action that may be brought. When we come to the Corporations Act and we speak of debts following declaration of dividend or the arrival of time for payment of a dividend that has been determined, the expression is cast impersonally. The impersonal casting of the expression masks the problem because it does not identify the character or all of the features of the debt, one of which may be – I do not say must be but may be – that it is a debt capable of suit by the member. That leads us back to this question of interaction between the general assignment provisions and the Corporations Act, questions of some depth, I think.
MR ROBERTSON: Yes. Could I say this, your Honour, that in your Honour’s reference to the general law, that would include, as I would understand it, section 199 of the Property Law Act.
HAYNE J: There is no doubt a member may sue a company for a dividend that has been declared. So much was established mid-19th century. That action would take the form of action for debt – so far so good – but is it a debt capable of suit only by the member who is on the register? That is the area for debate. Because the assumption which underpins the whole of this litigation seems to be that, oh, it is just another debt, regardless of the state of the register of members as against the company; rights and obligations can be created. I can understand the creation of rights and obligations intercede between the parties to the assignment plainly, but rights and obligations are created as against the company.
MR ROBERTSON: Why I referred your Honour to section 199 – and I think this goes back to something his Honour Justice Gummow was raising yesterday – is whether the effect of that section is to override the membership relation established by the Constitution with the background, no doubt, of the Corporations Act. That is perhaps an example of what your Honour Justice Hayne had in mind.
HAYNE J: It is not just the background of the Corporations Act, the Corporations Act is the creation of the relationship. It is the heart and soul of it.
MR ROBERTSON: Yes, I put that badly. Certainly the constitution as having its existence under – perhaps is a better expression – the Corporations Act. That is what, in part, I was adverting to when I was giving a long answer to what Justice Kirby was asking, that certainly the pointy end of that is, or part of it is, section 199. As we understand the appellants’ position, they now say that it is not a question of the shareholders being trustees for the property for the assignees. They say that either the shareholders have disappeared or the corporation has a choice about who to pay and therefore the company is not liable in terms of section 255(2) to the shareholders.
GUMMOW J: It seems to be that the shareholder would drop from the record in the action for the “debt”.
MR ROBERTSON: That is a question. If that is all it means – and if I could put that in my terms – if 199 has a largely procedural effect, which certainly was the position that people used to take about that provision, then in a sense the substance does not matter. It does not destroy the question that, in my submission, your Honours are concerned with which is the relationship between the corporation and its shareholder. To say that the shareholder drops from the record or, to put it slightly differently, the assignee can sue the corporation without making the assignor as a party. If that is all that happens, we would submit ‑ ‑ ‑
GUMMOW J: There is another question, whether the shareholder can drop from the record by reason of the considerations.....the corporations structure.
MR ROBERTSON: Yes, but the point I am making, your Honour, is – on the record or not on the record – does in a sense 199 operate so as to effect a tripartite novation between the corporation, the shareholder assignor and the assignee, and these are, if I might say so, quite – the answers are quite obscure in terms of the learning on 199.
GLEESON CJ: But it is in one sense a question of construing and applying to the circumstances of this case the words “is liable to pay money to” in section 255(2) and if the resolution of that depends upon the application of the provisions of the Corporations Act, a consequence may be that the operation of the provisions of the Corporations Act is that the registry management services company who actually administers the operation of the law to a company is legally obliged to pay the money to the shareholder, the dividend to the shareholder or, to put it another way, cannot discharge the liability by making the payment to somebody else.
MR ROBERTSON: In our submission, it would not be the result of 199 to effect that relationship, if I can use that expression, or that obligation between the corporation and the shareholder. One of the points that I will be coming to about 199, if one looks at its language and why one has to focus on the 15th rather than any other date, is that if one assumes consistently with the dicta or at least the tenancy of the dicta of this Court in Everett’s Case, which is about the applicability of the equivalent New South Wales provision to the assignment of a share in a partnership, when the section says it is effectual in law to pass the transfer from the date of such notice but you are applying that to future property, it could not, in our submission, have the effect that it – on the facts here, if one looks at the days before the property came into existence, if the property is at that point a revocable resolution with respect to a dividend.
GLEESON CJ: But the whole argument against you, right or wrong, has to be that at no relevant time was Virgin Blue, the company, liable to pay money to either of the two Virgin Blue Holdings or Cricket.
MR ROBERTSON: Yes, that is what it is. The end point has to be that, to use the language I was using yesterday, that Virgin Blue never becomes a controller vis-à-vis its shareholders.
GLEESON CJ: Never became a person who was liable to pay money to a non-resident.
MR ROBERTSON: Yes, to use the statutory language.
GLEESON CJ: To these particular non-residents, I should say.
MR ROBERTSON: Yes.
GUMMOW J: These are difficult questions. Are you going to give us any answers or just leave us in torment?
MR ROBERTSON: I am going to attempt some answers, your Honours, by reference to the deed of assignment.
GLEESON CJ: They are not only difficult. They have practical importance that go way beyond the circumstances of this case. If I assign to my wife my entitlement to receive a dividend from a public company in which I hold shares, I know who is going to get the cheque for the dividend and it is not going to be her.
MR ROBERTSON: Quite so.
HAYNE J: That is why I referred to listed companies. We are in the realm of a very important area of commerce in which there are rules.
MR ROBERTSON: Perhaps the way I can deal with it is this, your Honours, and perhaps time is a consideration. If, as I understand my learned friend, Mr Jackson, is going to deal with some aspects of what his Honour Justice Hayne was referring to in a written note, which I understood was what was contemplated yesterday, we can respond to that.
GLEESON CJ: Yes.
MR ROBERTSON: What I want to guard against, as I said in answer to a question Justice Kirby was asking me, is in a sense not assisting the Court in relation to what I will call the substantive operation, if any, of section 199 of the Property Law Act which is only emerging or has emerged in the last little while. So, rather than tormenting your Honours, we may need to assist your Honours by putting a note about that in writing.
GLEESON CJ: Yes. Why do you not do that? You can torment us at leisure instead of in haste.
HAYNE J: Do so perhaps, Mr Robertson, that, if the torment grows too much, there may be at least one member of the Court who is suggesting that it be re-entered for further argument so that counsel might be tormented with that with which they have given us.
MR ROBERTSON: We will leave that in your Honours’ hands.
GLEESON CJ: I just want to get one thing clear about that though in terms of the issues, Mr Robertson. I hope I am not inappropriately persistent about paragraphs 28 and 29 of Justice Lindgren’s judgment in Wong, but assuming Justice Lindgren is right in what he says in paragraphs 28 and 29 of Wong, is it still the case that ultimately it all boils down to the question whether Mr Jackson is right when he says that there was no material time at which his client was a person who satisfied the description of a person who is liable to pay money to Cricket or Virgin Blue Holdings? I have in mind that Justice Lindgren gives an ambulatory operation to both paragraph (a) and to the words in the chapeau.
MR ROBERTSON: Yes. I think the answer to that, your Honour, is, no, because Justice Lindgren was not, your Honours knows, dealing with paragraph (b) and if the only relevant notice before the notices of assignment was a (b) notice and not an (a) notice and if the Court of Appeal was right in what it said about the Corporations Act, then one would not get to that point, I think.
GLEESON CJ: Justice Lindgren denies there is such a thing as a (b) notice. Justice Lindgren says there is only one notice. It is a notice under paragraph (a) but it can be ambulatory in its terms and you can give a notice to somebody before that person becomes liable to pay money to a non‑resident.
MR ROBERTSON: Thus far I think it is common ground, that is, as to the chapeau that your Honour referred to.
GLEESON CJ: Yes, but as I understand Mr Jackson’s argument, it was even so in the present case there never was a time when the Australian company became liable to pay these dividends to Cricket or to Virgin Blue Holdings because of the assignments.
MR ROBERTSON: He may be putting that. I did not understand him to be putting that. I thought that was his position once the deeds of assignment came into existence. I am not sure that he said that Virgin Blue, if there were an irrevocable dividend in November, I am not sure that he says that at that point Virgin Blue did not answer the description in 255(2), but I may be wrong about that.
GLEESON CJ: That is one reason he is concerned to deny that there was a declaration as distinct from a determination.
MR ROBERTSON: Quite so.
GLEESON CJ: So he says, rightly or wrongly, the Australian company never became liable to Cricket or Virgin Blue Holdings in respect of these dividends.
MR ROBERTSON: Because, as I understand it, the Court of Appeal was wrong, so he says in relation to the Corporations Act point you take out the 255(1)(b) notice, then you look at the deeds of assignment and then the effect of the deeds of assignment is that Virgin Blue was never liable to pay to the shareholders. That is as I see it lining up. I do not know whether that answers your Honour the Chief Justice’s question.
GLEESON CJ: I think that is right.
MR ROBERTSON: That is what I was referring to when I was answering Justice Kirby about the permutations are quite difficult because there are a number of things in play. I was going to the position on 15 December.
KIRBY J: It is tempting where there are things in play in a busy court to say, well, if the matter has not been considered by the intermediate court because of the view they took, that it should be sent back to them to deal with it because that ensures that we have the advantage of the intermediate court’s opinion and the disaffected party has the very precious right of seeking special leave to appeal to this Court.
MR ROBERTSON: Special leave was granted. The notice of contention point was ‑ ‑ ‑
KIRBY J: I realise that, but mainly on a contingency of fighting out the issues in the Court of Appeal and now we find that, at least it may be, that the matter turns on the notice of contention.
MR ROBERTSON: I suppose it is a matter for your Honours. If your Honours reach the position where, without the assistance of the intermediate court on what I call the notice of contention points your Honours would not wish to deal with it, then I suppose the answer, depending perhaps on the answer of the special leave questions themselves leaving out the notice of contention, then I suppose your Honours have the option of permitting that part of it, although we would not wish to press that course on your Honours at all. But perhaps if I try ‑ ‑ ‑
KIRBY J: I have just signalled a temptation. One does not always succumb to temptation, so perhaps you better just advance what you want to say now on the notice of contention.
MR ROBERTSON: I will try to do that, your Honour. So, 15 December, and I am assuming on this part of the argument that the resolution was revocable so that the Court of Appeal was incorrect in relation to the Corporations Act point. The appellant says your Honour the Chief Justice put to me that Virgin Blue was never a person liable to pay money to its shareholders. That is the end point that they seek to reach. In our submission, the starting point is to focus on the relationship between the corporation, Virgin Blue, and its shareholders, the assignors, not the other way around, that is, to focus on the relationship between the shareholder assignor and the assignee, Bluebottle.
In our submission, the subject of the assignment has to be on analysis the debt. It cannot be, we would submit, the right to the result of a revocable resolution to pay a dividend in the future - which I might call for shorthand an “undeclared dividend” – in the absence of a transfer for the share. That is the point that we seek to make by reference to Archibald Howie and Miranda and those cases that we refer to in paragraphs 49 through to 51 of the submissions.
The consequence of that, in our submission – perhaps I should say this. My learned friend submitted yesterday that Norman’s Case, as I understood his submission, held that there could be an assignment of such property if there was consideration. In our submission, what Norman’s Case decided was that the lack of consideration was fatal. The highest one could put Norman’s Case is that there was perhaps therefore an assumption that, but for the lack of consideration, the property would have been assignable. There was no argument, as we discern it, addressed to that point and no consideration of that point in the judgment. I think Justice Gummow referred to that yesterday as well.
Because of those considerations, if one then turns to the deed of assignment itself, page 189 relevantly of the appeal book, our submission is that clause 2.1(a) on the date of this deed – this is page 189 at line 20 – and these are in the written submissions – cannot be dealing with the right to what I have called an undeclared dividend, that is, one that is subject to a revocable resolution in relation to its payment, because it is not a shareholder right that can be assigned or perhaps because that is too remote from the share.
These two different ways of putting the same thing are dealt with in Justice Mason’s judgment in Booth 164 CLR at 167 and 168, which I will not go to, and in Dr Tolhurst’s book at pages 143, on the one hand, and 129 on the other. Therefore, if 2.1(a) cannot or should not be read as dealing with that right, one goes to 2.1(b), that is, dealing with the debt when it comes into existence, which is, as 2.1(b) says “On the date fixed for payment of the Dividend”.
That takes us to paragraph 55 of our written submissions and I note in passing what I think I have already put which is that it would seem very difficult for section 199 of the Property Law Act to operate from the date of the notice, that is, the date of the notice to Virgin Blue on 14 December, when one on this hypothesis is dealing with property that did not come into existence until the next day. That could not be, in our submission, the effect of 199 to say that that operates at some earlier time in relation to future property.
Looking at 2.1(b) “the date fixed for payment”, one is looking either – what I am about to submit, your Honours, is perhaps a better articulation of what is in our paragraph 56 of the outline. So the position we would submit is that either immediately after the first minute on 15 December or at some other point later in the day, that is, when the directors must be taken to have decided not to revoke the resolution, which is perhaps the time for payment which may be some time later, in the first second on 15 December, then, in our submission, and not before, rights were created in the shareholders and the rights in the shareholders were created against – the rights arose in respect of the company, Virgin Blue, and that would consist of the entire legal and beneficial interest. It is interesting to note, but not, in our submission, of present relevance that rights may also be created in Bluebottle against Cricket and Virgin Holdings.
Then on that analysis Cricket and Virgin Holdings, consistently with the line of authorities Re Lind, Palette Shoes and so on, became the trustees for Bluebottle of their rights against Virgin Blue. But that has the effect, in our submission, that Virgin Blue nevertheless was still liable to pay Cricket and Virgin Holdings its shareholders. So 255(1), in our submission, was satisfied. The legal and beneficial interest, the debt was owed by Virgin Blue to Cricket and the other shareholder whatever their relationship might have been with the putative assignees.
GLEESON CJ: Who was liable to pay tax on the dividend?
MR ROBERTSON: Probably the person derived.
GLEESON CJ: That is what I meant, who derived the dividend?
MR ROBERTSON: The answer derives from Justice Lindgren’s judgment that I gave your Honours a reference to, ABB. I will ask Mr Momsen to turn up the relevant paragraph from that judgment. If I could just say this as well with an eye to 199, that 199 would not be construed so that the post‑1873 decisions, such as Re Lind and Palette Shoes, in saying, as Justice Dixon said in Palette Shoes at pages 27 to 28, relying on what Lord Justice Swinfen Eady said, we would submit that 199 would not have the effect that what had been established that the assignor was the trustee of the legal right or ownership for the assignee would disappear as law, which would be perhaps one effect of adopting what our learned friends say about the disappearance, both procedurally and substantively, of the shareholder.
That is a fuller version of what is in paragraph 56 of our submissions. Then, in the alternative, which is paragraph 58, you are dealing with an expectancy when it comes into existence. The argument is for the appellants that the interest goes straight to the beneficiary but, in our submission, in the alternative, therefore, to what I have just submitted, even if the beneficial interest went straight to Bluebottle, the legal interest would remain in Cricket and Virgin Holdings as trustee for Bluebottle and that also in the alternative would mean that Virgin Blue had a liability within section 255(2) to Cricket, albeit Cricket as trustee.
Rule 67 of the constitution of Virgin Blue, in our submission, does not alter that position because, in effect, it deals with dividends, which is one of the types of securities within the definition of “securities” and also expressly in rule 67 it deals, in our submission, with dividends payable to the shareholder – this is page 174 – and, in our submission, the rule is no more than a machinery provision as it expressly says that the dividend “may be paid by any of the following means”. So rule 67, in our submission, does not take the shareholder out of the picture, which is what I understood my learned friends to put yesterday, that that was some aspect of their case, that Virgin Blue never became a person liable to pay money to the shareholders, that money being the money derived from the dividend.
So that is, in our submission, why one does not reach the ultimate position that the appellants contend for, that on 15 December, or at any other time, the position was that Virgin Blue never was liable to pay money to its shareholders in respect of the dividend and our submission is that 199 does not alter that conclusion. It does not override the membership relation. It does not mean that the post-1873 law that the assignor was a trustee disappears and, in our submission, even if one accepts the dicta in Everett’s Case, which is that the New South Wales provision did apply to some, anyway, equitable interests, that does not have the effect, at a substantive level, relevantly for this issue of the relationship between the company and its shareholders.
Now, it could be, and I would not wish to foreclose this possibility, that even if there were an existing debt that was the subject of the deeds of assignment, the dividend would not go to the shareholders, Cricket and Virgin Holdings as trustee of the debt. So all of that, your Honours, as I have said, is on the hypothesis that the Court of Appeal was wrong when it said that the resolution was irrevocable, which is the way I would articulate what has been referred to as the Corporations Act point. If I can pass briefly to the Corporations Act point. Where one gets to, in my submission, is really this point. Does the Act prevent a corporation which wishes to provide for an irrevocable dividend, does the Act, or at least when a corporation adopts something in the form of rule 63, mean that the corporation may not do so, or to put it slightly differently, does rule 63 mean that this company cannot resolve to pay an irrevocable dividend?
The reason perhaps that I leave this to last is that the 255(2) answer that we contend for and the effect of the deed of assignment is clearer, perhaps ironically, if the Court of Appeal was wrong in relation to the Corporations Act point. But what his Honour Justice Santow said, in effect, on this point was that he was looking at the matter as a matter of substance. At the very foot of page 373 of the appeal book perhaps the matter is articulated there, and over at the top of page 374, in the most concise way, that is, where Justice Santow says, approving what had been in that edition of Ford’s Commentary on Company Law, paragraph 18.06:
if the directors, having authority to do so [as Gzell J earlier concluded] determine that a dividend is ‘payable’ rather than merely fixing the amount and time for payment of a future dividend –
his Honour says the legal position is –
that the company becomes bound at the date of the directors determination.
Perhaps the question is reduced to the words “having authority to do so” and whether rule 63 did give the directors authority to do so, that is, determine that a dividend was payable rather than merely fixing the amount and time for payment. It is a necessary step to reach that conclusion that, to some extent anyway, one sidesteps the form, that is, the words “determine” on the one hand and “declare” on the other. If one stays at the level of use of that word and there is no overlap and the choice is if you put in the constitution the word “determine” you go down one path and if you put in the constitution the word “declare” you get to a different result, well, then, the Court of Appeal cannot be right in the conclusion which it reached.
But if you look at the matter as a matter of substance, as his Honour did in 46 on page 374 and 48 in 375 and, of course, if one looks at the facts of this case in terms of the corporation making what announcement it did to the stock exchange, the non-revocability in a sense of the basis of the deeds of assignment at a factual level, if that is relevant, then it is equally clear that it was not intended that these dividends be revoked.
Your Honours, subject to the points that we would seek to answer my learned friend’s note about the matters your Honour Justice Hayne raised and subject to the points about the substantive operation of the section 199 of the Property Law Act, those are the submissions for the respondent.
GLEESON CJ: Would it be convenient to the parties if, after we have heard Mr Jackson’s reply, we said that within 14 days the appellant may make further written submissions directed to whether, after notice of assignment had been given to Virgin Blue Holdings, Virgin Blue Holdings was then liable to pay the sum referred to in the assignment to, one, the assignor, two, the assignee and directed to any other matters raised with counsel in the course of argument on 29 and 30 August and within 14 days after service of the appellant’s further written submissions the first respondent file and serve any further written submissions in answer?
MR ROBERTSON: I would accept that, your Honour. I will not detain your Honour. I was looking to see whether there was a short answer to the question about who paid ‑ ‑ ‑
GLEESON CJ: You might in those submissions deal with the question of who would be liable to pay or what legal provisions govern the question of liability for income tax on the dividends.
MR ROBERTSON: And who it was.
GLEESON CJ: Yes. Thank you, Mr Robertson. Yes, Mr Jackson. Are you content with that regime?
MR JACKSON: Yes, I am, your Honour. It seems to me it might be useful for perhaps each party to deal with specifically in those submissions is to set out the various possible permutations of the way in which the case might fall for decision.
Your Honours, the starting point, in our submission, inevitably comes back to section 255(2) where what one has to endeavour to determine is whether the situation was such that there was, in terms of that provision, a liability on the part of Virgin Blue to pay money to either Cricket or Virgin Holdings and whether there was money due by Virgin Blue to either of those companies at a relevant time.
In that regard, the first situation, we would say – and I will come to some cases on this in just a moment – is that leaving aside any particular consequence that there might be by reference to provisions of the Corporations Act and the matters that might be picked up by them – and I will come to that briefly in a moment if I may – that the situation was that a dividend once declared or once the time for payment had arrived, depending on the nature of the “declaration” of the dividend, was something that was in ordinary parlance under the general law a debt – and I will come to something about that in a moment – and it was a debt enforceable by action for debt in the same way, for example, as the passage that was quoted from the case to which your Honour Justice Hayne referred earlier, SCI.
Your Honours, the Corporations Act in speaking of the liability in respect of a dividend as being a debt is not really adopting a different concept. It may qualify it in some respects but it is not really dealing with a different concept. In relation to that, your Honours, the position, in our submission, is that it has been recognised that the right to a dividend is a right which is capable of assignment at law and in equity.
Could I, in that regard, your Honours, deal with a number of matters. The first is that the contention that the right to a dividend is not capable of assignment does not seem at all consistent with what was said in Commissioner of Taxation v Miranda. I took your Honours to the relevant passages yesterday. Indeed, the distinction appears to be there drawn. Your Honour Justice Gummow referred to some observations in McNeil 2007 ATC 4223, a decision of this Court, if I can put it shortly, but it does not seem to do more than mention, in a sense, Miranda relevantly.
Your Honours, one sees in, for example, if I give your Honours references to two cases, one in Australia and one New Zealand. The first is Re Harry Simpson & Co Pty Ltd and the Companies Act (1963) 81 WN (Pt 1) (NSW) 207, a decision of Justice Jacobs, then a member of the Supreme Court. I am sorry, I thought your Honours had been given that. I will give your Honours copies of that. It is a very brief case. It is a case where a beneficiary had become the person who was then registered, where a beneficiary had become entitled to a shareholding that a trustee had held. Your Honours will see in the second paragraph the headnote:
the appellant gave notice of election to become the beneficiary of the trust fund. The company then transferred to an account in the name of the appellant the amount standing to the credit of the Redeemable Preference Shareholders Account.
Your Honours, if I could deal with it shortly, if one goes to the first new paragraph on page 209, Justice Jacobs said:
There remains, however, the second matter which has been argued on behalf of the appellant, namely, that even if this money retained its character of a dividend nevertheless, because of the assignment that has occurred, it is no longer owing to a member but is owing to the assignee.
Your Honours will see at the start of the next paragraph he said:
In my view there has in this case been a legal assignment of the debt from the trustees to the beneficiary.
The debt being in respect of dividends which had been declared. He went on to say at the bottom of that paragraph that he held, however, “that the moneys” that had been not actually paid over “retain their character of dividends”, but that was for the purpose of determining, your Honours – and one sees thus paragraph (4) of the headnote that “the appellant was in no better position than were the trustees” because the assignment, of course, was subject to priorities in the large sense in which that term was used in that context. But, your Honours, there is recognition in that case that there may be a legal assignment of the right to a dividend.
In a New Zealand decision in GSH Finance Pty Ltd v Chase Securities Ltd (1988) 4 NZCLC 96‑232 – again I apologise to your Honours for not having this – at page 64,503 Justice Henry, in the right column, deals with assignability of dividends. Could I just say, your Honours, this case went to the Privy Council. The appeal was allowed on a different aspect. The reference to the appeal is [1989] 1 NZLR 48. The passage I am about to refer to was not the subject of any adverse comment. If your Honours go to page 64,503 in the right column, his Honour said, at about point 6 of the page:
The dividend is an all important factor in this case, and accordingly it is convenient at the outset to consider its true nature. A dividend is a chose in action.
Your Honours, I hope the more ersatz version in the Queensland Act of “thing in action” will not be treated as being different.
Once a final dividend has lawfully been declared, the amount of the dividend becomes a debt due to the shareholder . . .
Accordingly, subject to the terms of any individual contract as between buyer and seller –
Then he goes on to deal with where dividends go as between the two of them. The point I seek to make about it, your Honours, is the right to the dividend is treated as a chose in action which is capable of assignment.
Needless to say, your Honours, it is subject to any statutory provision to the contrary. That is the point we seek to make if I can just pause there, your Honours, and to say also a little more generally in relation to the position that it always has been the position, in our submission, that as between the company and the member and subject to statutory provision, the declaration of the dividend vests a right of action in the person who at that time is registered as the holder of the share.
Can we give a reference, your Honours, to – perhaps if I could just give your Honours the references without taking your Honours to the documents and I will give your Honours copies of the documents - Palmer’s Company Precedents, Seventeenth Edition, 1956, Part 1, page 612 point 7. Your Honours, may I give the Court copies later and deal with it very briefly. We would also refer your Honours to Bond v Barrow Haematite Steel Company Ltd ‑ ‑ ‑
HAYNE J: The Palmer reference, I think, in the Seventeenth, should extend to include, I think, 600 and following. I suspect you said 612, did you?
MR JACKSON: I did, your Honour, yes.
HAYNE J: Yes. Not to any different effect, but I think you need to go from 600 and 612 is the effect of transfer.
MR JACKSON: Your Honour, what I was particularly going to refer to was a passage at page 612 about point 8 on the page where it refers to a particular article. It says:
as between the company and the member the declaration vests a right of action in the person who at the time of declaration of the dividend is the registered holder of the share.
It then goes on at the next page, page 614, to refer to:
The article allows the shareholder to give special directions, e.g., to pay all dividends to his bankers -
and then we attach a form, No 471, which is an authority to the company to pay all dividends or bonuses now or however payable on all shares in the bank standing in his name to someone else.
HAYNE J: It is the commentary on table A of the 1948 UK Act.
MR JACKSON: That is so, your Honour. Your Honours, what we do submit is that all that one obtains is that there is a right of action when a dividend is declared, and the purpose of having a record date is to identify the persons who then are entitled to the dividend. That appears to be a United States invention. Because of some difficulties with the register in the days before declaration of a dividend, a practice developed there empowering a company to resolve that dividends were to be paid to shareholders on a particular date. Your Honours can see that referred to in Pennington’s Company Law, Fourth edition, 1979, page 367, footnote 4. Again I give your Honours that.
GUMMOW J: What was that page?
MR JACKSON: Pennington’s Company Law, Fourth edition, 1979, page 367, footnote 4. Your Honours, it would follow, in our submission, that the constitution of the company, if it so permits, and if such a direction is given and there is no statutory provision to the contrary, that direction would supersede any other existing obligation to pay the dividend to the holder of the share at the relevant date. Your Honours, in this case, what one had was not only an assignment, but a direction, not only by the assignee, the Bluebottle company, but also by the registered holders of the shares to pay the dividend to Barfair. Your Honours have seen that at page 210.
Your Honours, if the position be that there was a dividend which was a debt at a time prior to, let us say, December, to put it shortly, then the position was that the obligation in respect of that chose in action was one which passed over – the obligation was one which the company had to pay to the person the subject of the direction. Your Honours, could we say, in relation to the provisions of the Corporations Act, our submission is – I will put this very shortly, your Honours, and we will give your Honours a submission that puts it in more detail, if I may – section 793B of the Corporations Act gives legal effect to operating rules but specifically excludes the listing rules.
So one really goes to section 793C. As a body corporate listed on the stock exchange, Virgin Blue had to comply with the operating rules. That is section 793C(3). If it did not, then a person aggrieved by its failure could apply to the court for orders requiring compliance with the listing rules and shareholders are identified as within that concept as persons agreed by such a failure. That is section 793C(1) and C(5).
Now, your Honours, there are two things that arise from that. The first is that it would be difficult, with respect, to see that, in any substantive sense at least, persons who have assigned the rights and given direction to pay someone else could be aggrieved by a failure to comply with the listing rules if the listing rules required there to be a payment made to the shareholder. Perhaps they could, perhaps they could not, but that is a point, your Honours.
The second thing though, however, is, what is the provision of the listing rules which actually requires there to be such a payment to be made? The closest one ever gets, in our submission, are the provisions to which I referred yesterday, which are provisions for identifying the people who are shareholders as at the recording date. It does not touch, however, in our submission, the question whether persons other than those persons may be persons who are entitled to obtain the dividend at least after that period.
GLEESON CJ: Is the corollary of the argument you put a minute or two ago that if you are right about assignability of a dividend, then far from wanting to resist the proposition that there was an effective declaration of a dividend in November which then created a debt, you would wish to embrace that proposition?
MR JACKSON: Your Honour, we would roll over with joy, provided we succeeded on the section 255 issues. Your Honours, that is, in a sense, from our point of view, the simplest disposition of the case, because if, to put it shortly, the Court of Appeal was correct in its view that there was a declaration of the dividend in November and if we were right in saying that assuming all that that we assume it is so, yet we had assigned the right to it and the assignment was effective before there was a section 255 notice which if it was itself effected, that would have the result that there was no liability on the part of the company to pay the dividend to either of the appellants.
GLEESON CJ: What do you say about Justice Lindgren’s view as to the ambulatory operation of section 255(1)?
MR JACKSON: Probably not correct, your Honour. Probably not correct. May I say, your Honours, it is a little unclear, with respect, precisely what his Honour is saying. Your Honours, I do not mean that in any way offensively, but if one looks at Wong 121 FCR 60 at 66, your Honours will see that he refers in paragraph 28 – he makes a 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.
Your Honours, if one goes to the terms of the opening words, you will see that the opening words of subsection (1) are just - is a general proposition it is true. It speaks of “every person having the receipt control”, et cetera. When one goes back to what his Honour says, he says:
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, your Honour, this is where a little difficulty arises -
and payable, but tax which may become due and payable in the future –
Now, your Honours, a difficulty with that, with respect, is – there are two difficulties with it. The first is that it is not clear whether he is saying that there must now be tax due and payable and then it can pick up further tax that may become due and payable, or whether he is saying that there is no need for tax to be presently due and payable, but it can apply to tax which will become due and payable or ‑ ‑ ‑
KIRBY J: One has to think this through, but it does not seem to fit very comfortably with his metaphor of “trigger”.
MR JACKSON: I am sorry, your Honour, with respect, it does. He is using trigger in a different sense ‑ ‑ ‑
KIRBY J: I mean the ambulatory notion does not seem ‑ ‑ ‑
MR JACKSON: It does not, your Honour, in a sense, because – it does not really for two reasons. The first is that the concept of tax due and payable is not really something that has an aspect of ephemerality about it. It is really speaking about tax which is tax “due and payable”. These are terms used in the statute. I have to come to section 204 in a moment. It refers to tax which is, in our submission, (a) assessed and (b) payable. I appreciate section 204(1)(a) and I will come to that if I may, but, your Honours, that is what it refers to. When it is speaking about that it is speaking about something that is due and payable either now – tax which is due now and payable either now or payable at a time identified. That is why, one sees:
(a)he shall when required by the Commissioner pay the tax due and payable -
and (a) relates to tax which is due and tax which is or will become payable at a time in the future. So that, your Honours, we would say that Justice Lindgren went too far in what he said in paragraph 28, at least to the extent that he said, but we use the words:
but tax which may become due and payable in the future ‑ ‑ ‑
GUMMOW J: If one or other view is taken of what is meant in paragraph 28 of Wong, there is a related question of whether that interpretation, or the wider interpretation, to put it that way, of paragraph 28 has the consequence that the section 255 gives rise on that operation to an equity to which, within the meaning of 199 of the Property Law Act, an assignment is subject. This phrase “equity” has been treated rather loosely, I think. In the section, I mean, it has been treated rather loosely.
MR JACKSON: Yes. “Equity” in that section really seems to refer to any defect or something that is carried on. There was a particular reference to that by Justice Mason in Clyne, your Honour.
GUMMOW J: Yes.
MR JACKSON: Your Honour, the position, in our submission, is that, may I say first, so far as the present case is concerned, the difficulty in the present case is that there was no 255(1)(a) notice at all. Your Honours, if one takes the view that the tax has to be something that is identified as due and payable, then at the time when that notice is served it operates according to its terms, and the terms which are involved are, first of all, paragraph (a) which established an obligation to pay, and then one has the ancillary provisions of (b), (c) and (d).
If the position is – this is where difficulties do start to arise – if you take a wider view of 255(1)(a) and say that it speaks of tax which may become due and payable, there are some difficulties with it. The first is that that they are not the words used in paragraph (a). The second thing is that, your Honours, one does have to look to see what is the practical effect and is it the likely effect of that. If you go to 255(1)(b) one then sees that:
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 –
That gives rise, your Honours, to the difficulty adverted to by your Honour the Chief Justice, or the possible difficulty adverted to in some questions yesterday and that is, one has simply put, at one remove, the question of how much, how much is to be held onto, how do you know how to hold onto it, when in fact when, as one sees, 255(1)(b) creates an obligation to hold it. So, your Honours, that is why, we would submit, the issue that your Honour Justice Gummow was putting to me is not one that really arises. I am sorry, I know it is putting it incorrectly. What I am seeking to say is that it is an unlikely construction of the – underlying it is an unlikely construction of the Act.
Your Honours, could I just go back to one thing. Your Honours, I think I said already that even if the Wong analysis was correct, the 12 December notices were ineffective because they did not fix any time for payment and all the members of the Court of Appeal appear to have accepted that, but I just refer to paragraphs 72, 119 and 129 of their reasons.
Your Honours, might I move from that to the second part of our learned friend’s notice of contention and could I put it shortly, your Honours. The position, as we would understand it, is that the argument fundamentally involves the proposition that, assuming that the assignment was effective equitably, the effect of the assignment was such that there being future property it could only take effect at the time when the future property came into being which is the time on 15 December when the dividend was payable. At that point the situation which our learned friend’s argument suggests would obtain, as we would understand it, is that at that point you had the section 255 notices of 14 December, the form of which is not in issue, and that they operated upon the situation as it obtained at that point.
Your Honours, may we say two things about that. It seems clear, in our submission, if one looks at Norman’s Case where it does appear to have been accepted and accepted in a number of cases, or assumed in a number of cases thereafter, that there can be an assignment in equity for consideration of the right to a dividend on a date in the future, the consequence in equity would be that equity would regard as done that which ought to be done, et cetera, and that there would be a transfer of at least the beneficial interest in the property to the assignee immediately eo instanti, as it is put. But, your Honours, that is looking at it in a sense in equity.
One does have to start in this case from the terms of section 255(2) and if one goes to the terms of section 255(2) the ultimate question is, was there a liability to pay money to a non‑resident and was there money due by him at that point? At the moment that a liability to pay Cricket or Virgin Holdings might have arisen, the liability was immediately and eo instanti, if I can use that expression, was immediately to pay Bluebottle or Bluebottle’s nominee not Cricket or Virgin Holdings. It is exactly the same moment that any obligation which might possibly be created pursuant to a section 255 notice came into being. So if one looks at the moment at which the notice is said to attach and one asks the section 255(2) questions, then at that moment there was no obligation, there was no liability to pay money to the non‑resident. So on either version our submission would be that that notice had no effect.
Your Honours, may I come also to section 204 of the Income Tax Assessment Act and, your Honours, we have endeavoured to give your Honours a note about section 204. May I give your Honours a note about this and I will endeavour to put very shortly what we say.
Your Honours will see set out, following paragraph 20 of the document, something called Schedule 1 which shows the development of section 204, and your Honours will see in paragraph 5 of Schedule 1 section 204 as at 1 January 2001 and as it is now.
KIRBY J: Is this a new cunning way of getting around the Court’s limitation on written submissions?
MR JACKSON: No, your Honour, I am happy to take it back and I will do it otherwise.
KIRBY J: No, no, I just wanted to say I was noticing this development. Press on, Mr Jackson.
MR JACKSON: Your Honour, what I am trying to say is that your Honours will see section 204 contains, shortly, provisions which you will see relevantly in section 204(1A). It says, “the tax payable by a full self-assessment taxpayer for a year of income becomes due” and, to put it shortly, six months after the year ends. Now, that is a statement that it becomes due and payable, absent there being an assessment, a notice of assessment, a default assessment, any of those things. So it becomes a question whether that has any and, if so, what effect in relation to section 255?
Your Honours, if I could move on to paragraph 4 of the note, the principal note, your Honours will see that section 204 requires there be some identification of “the tax payable by a taxpayer . . . for a year of income”. Your Honours will see paragraphs 5, 6, 7 and 8 deal with the central provisions about assessment. Then, your Honours, paragraph 9 sets out the three references which I referred to earlier in Batagol, Richard Walter and Prestige Motors dealing with the fact that the proceeds of an assessment is not completed – I am sorry, until an assessment has been made, then you cannot have something which in real or practical terms is due and payable. But as we say in paragraph 10, “Once an assessment of tax has been made” you then see that “s. 204 operates to determine the date on which it is due and payable”, and that has very significant effects for interest, your Honours, interest and any penalties I suppose.
Your Honours, the question which arises is set out in paragraph 12 of the amendment, and that is that the amendment which brought into being section 204(1A) and the automatic date for due and payable, when tax became due and payable, is post the three cases to which I referred, does it make a difference? Your Honours, we set out in the succeeding paragraphs
the reason why that is not the case. Could I refer particularly in that regard to the one we have got in paragraph 15 and following under the heading “Secondly”, and that is that it relates to Division 250 of Schedule 1 to the Taxation Administration Act. It deals with methods of collection and recovery of tax-related liabilities, and then you will see section 250-10(1) at the top of the page, and you will see, your Honours, that it sets out an index of each tax-related liability, key provision, and then you will see in the table item 55:
Income tax, including any liability taken to be income tax for the purposes of s.204.
Then in paragraph 17 your Honours will see:
For some tax-related liabilities, an assessment needs to be made before the amount of the relevant liability becomes due and payable.
Interestingly enough, the example given is Division 1 of Part VI of the Act, which includes section 204. Your Honours, I will not refer to the other matters but we would invite your Honours to refer to those.
Your Honours, those are the principal matters to which I wish to refer and, your Honours, in light of the permission that has been given to deal with any other further matters raised in the case, may we do so in writing to the extent necessary?
GLEESON CJ: Yes, well, the regime in relation to written submissions will be as I indicated earlier and, subject to that, we will reserve our decision in the matter and adjourn for a short time to reconstitute.
AT 11.49 AM THE MATTER WAS ADJOURNED
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