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

[2007] HCATrans 256

[2007] HCATrans 256

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S27 of 2007

B e t w e e n -

BLUEBOTTLE UK LIMITED

First Applicant

CRICKET S.A.

Second Applicant

VIRGIN HOLDINGS S.A.

Third Applicant

BARFAIR LIMITED

Fourth Applicant

and

DEPUTY COMMISSIONER OF TAXATION

First Respondent

VIRGIN BLUE HOLDINGS LIMITED

Second Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 25 MAY 2007, AT 9.39 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 and MR S.A. GOODMAN, for the applicants.  (instructed by Clayton Utz)

MR A. ROBERSTON, SC:   May it please the Court, I appear with my learned friend, MR S.W. GIBB, SC, for the first respondent.  (instructed by Australian Government Solicitor)

GLEESON CJ:   Yes, Mr Jackson.

MR JACKSON:   As your Honours will have seen from the material, the application concerns the operation of an important provision of the Income Tax Assessment Act and also the effect of a provision of the Corporations Act picked up in a constitution of a company.  Your Honours, the Income Tax Assessment Act provision is section 255.  Your Honours will see it in the first pages of the book of materials.  It commences at the page numbered 3 at the top of the page. 

Your Honours, what has been held by the Court of Appeal is that section 255(1)(b) is a freestanding provision – or is, in effect, a freestanding provision – meaning by that that it operates, not in aid of or in consequence of the making of a requirement under section 255(1)(a), but rather that notices, a term not expressly contained in the provision one notes, might be given requiring retention of money. 

Your Honours, the contention that we would seek to advance, but on which we failed in the Court of Appeal, was that the provisions of section 255(1) operate in the circumstances referred to in section 255(1)(a).  May I explain just what I mean by that?  That is they operate when, to put it shortly, a person has control of money belonging to a non-resident deriving income from a source in Australia.  That person, the person described as “he” in the opening words of section 255(1)(a), is, “when required by the Commissioner”, to “pay the tax due and payable by the non-resident”.  The succeeding provisions of section 255(1) then deal with the consequences of receipt of such a notification.

GLEESON CJ:   Mr Jackson, in the present case, was the invalidity of the section 255(1)(a) notice crucial to the argument about the operation of paragraph (b)?

MR JACKSON:   Well, your Honour, in a sense.  When I say “the invalidity”, your Honour, the position that appears to have been held by the Court of Appeal and accepted relevantly in our favour is that the document that was given on 12 December, which is the first document – there were two documents - was one which did not comply with, in the sense of bringing – it was not the section 255(1)(a) notice.

GLEESON CJ:   Is that because of the point about declared and determined?

MR JACKSON:   No, your Honour.  It is because it did not specify any date to pay the tax due.  It was not a document that required compliance in that term.

GLEESON CJ:   What was the significance to the outcome of the case of this argument about when dividends are declared and when they are determined?

MR JACKSON:   Well, it comes about, your Honour, because the contention ultimately on behalf of the Commissioner was that the dividend was something that had been declared, it was said, at a point earlier than that and that the declaration then created, in effect, a present liability to pay on a future day, whereas the contention on our side is that there was no entitlement to dividend until the day when it came.

GLEESON CJ:   Is it essential to your argument for that contention to succeed?

MR JACKSON:   No.  There are two separate strands, your Honour.  The first strand is, we contend, that if one looks at the terms of section 255(1)(b), it gives authority for and also requires the retention of money to satisfy a section 255(1)(a) requirement.  Paragraph (c) then provides for the sanction which is to apply if the requirement to retain is not complied with and 255(1)(d) indemnifies the person for doing the thing the person was required to do by the notice under section 255(1)(a).  Your Honours, we refer to that aspect more fully in our summary of argument at page 119 of the application book, paragraphs 11 through to 16.

Your Honours, the Court of Appeal’s view appears to be – when I say “the Court of Appeal’s view” I mean by that that the Court of Appeal held, if I may use the term again, that section 255(1)(b) - or notices could be given having an effect requiring retention under 255(1)(b) otherwise than in aid of or in consequence of a notice under subparagraph (a).

GLEESON CJ:   Is that the point of departure between the Court of Appeal and Justices Lindgren and Edmonds?

MR JACKSON:   Yes.  Your Honours will have seen words - “trigger”, for example.  It is said 255(1)(a) is the trigger.  Now, your Honours, that view can be seen in the Court of Appeal, page 93, paragraph 114, where there is a – I am sorry, your Honours, I should have said this.  The Court of Appeal’s view appears to be founded on an impression that 255(1)(b) is the primary provision and it is put in a chronological and practical sense.  Your Honours will see references to that at page 93, paragraph 114, and your Honours will see the opening words of that and then page 96, paragraph 122, where it is said:

It is only the order of the paragraphs which gives rise to an implication -

If I could go back for a moment to Justice Santow as well at page 78, paragraphs 76 and 77 and you will see, for example, in paragraph 77 that his Honour said:

The Commissioner may therefore trigger s255(1)(b) at an earlier point of time to when payment is required, in order to compel retention, pending there being a specified date to pay the tax by further notice.

Now, your Honours, the basis of that view appears to be the use in section 255(1)(b) of the expression “will become due”, not just “which is” – or “will become due by the non-residents”.  But, your Honours, that is a ‑ ‑ ‑

GLEESON CJ:   Do they interpret that to mean may become due?

MR JACKSON:   Yes, your Honour.  Yes, and that is, if I may so, with respect, a father faint indication.  The Commissioner’s requirement under paragraph (a) will establish when the amount is payable.  The terms of paragraph (b) are looking to that future time.  Now, your Honours, what that means, if our contentions were right, is the notices given on 12 December 2005 were not effective because there had not been a notice under paragraph (a).  Now, a notice under paragraph (a) was given a couple of days later on 14 December, but by that time there had been an assignment on 13 December of the right to the dividends when paid.

GLEESON CJ:   What is the relevance of this argument about declaring and determining dividends?

MR JACKSON:   Well, your Honour, the relevance is this, that it is said – in the Court of Appeal, in effect, what is said is that there was – although the provision of rule 63 of the constitution of the company said that you could determine dividends and the Corporations Act draws a distinction now between “determination” and “declaration”, it is said that there was, in fact, a declaration at an earlier point and that when there was a declaration that had the effect that there was at that point a right to obtain the dividend – an accrued right, in effect – on the date which was later fixed for payment.

GLEESON CJ:   If the view of section 255 preferred by Justices Lindgren and Edmonds is correct, what did that point matter?

MR JACKSON:   Well, your Honour, in one sense, it did not.  I will accept that, but it mattered only because they would say at some point there was the notice given and the notice in terms of section 255(1)(a) was given at a time before the dividend actually became payable, there having been a declaration before that time, and that is at paragraph 33 of our written submissions, your Honour.

GLEESON CJ:   We might be assisted by hearing what Mr Robertson has to say, Mr Jackson.  Yes, Mr Robertson?

MR ROBERTSON:   Your Honours, in relation to what I will call “the dividend point”, if I can just deal with that shortly first, the significance of that point, if it had any significance, was really no more than were the assignments dealing with present property or future property because if, as the Court of Appeal held, there was a debt due by the company to the shareholders on or about the date of the declaration of dividend, then that meant that the assignments were a present existing chose in action, whereas if there was no debt until the date for payment of the dividend, then the assignments were in relation to a future chose in action.

GLEESON CJ:   I am just trying to satisfy myself that the point of difference or departure between the Court of Appeal, on the one hand, and Justices Lindgren and Edmonds, on the other, is decisive.  We want to be sure that if we give special leave to appeal in this matter, we are not going to be deciding a point that will not determine the outcome of the case.

MR ROBERTSON:   It is difficult to answer that directly, your Honour, because the Commissioner would not accept that even if the dividend was not an existing debt, in other words, that it was a future chose in action, that the result would be that he failed because one still has the notices given – both notices, that is, the notice under 255(1)(b) and the notice under 255(1)(a) and the question then becomes or would become it would have to be a notice of contention – but the question would then become, in effect, was Justice Gzell right in the view that his Honour took, that is that there was no moment in time in which the assignees took – the question would then become did the notices operate despite the assignment of the future chose in action or not, which is what his Honour Justice Gzell held.

GLEESON CJ:   What I am trying to work out is whether this case is about the true construction of section 255 of the Tax Act or whether it turns upon the peculiar constitution of the company.

MR ROBERTSON:   In terms of the peculiar constitution, that certainly decides the question that I have indicated which was was it existing or future property?  Your Honour the Chief Justice then says, “Does it throw up, as determinative, the difference between the Federal Court judges and the Court of Appeal?”  In my submission, that may not be determinative for the reason that I indicated, that is, there were, we would submit, before the relevant time, both notices under (1)(b) and under (1)(a), so that although your Honours would have seen that there was a difference in view between the Federal Court judges and the judges of the Court of Appeal, that may not be determinative of the ultimate result. 

GLEESON CJ:   It may be; it may not be.

MR ROBERTSON:   May be; may not be.

GLEESON CJ:   The view for which you contend in relation to section 255 is that you can use this as a kind of standing requirement?

MR ROBERTSON:   In the sense that there may be an obligation to retain in relation to tax which is or will become due, which ‑ ‑ ‑

GLEESON CJ:   Or may become due?

MR ROBERTSON:   No, I heard your Honour say, and my learned friend agree, that the Court of Appeal said “may become due”, but on the facts of this case the tax – in the sense that “due” does not meant due and payable, of course, in subsection (b).

GLEESON CJ:   I am just wondering how you know that tax will become due.

MR ROBERTSON:   Well, on the facts of this case, there was not any dispute.

GLEESON CJ:   I understand the facts of this case, but generally?

MR ROBERTSON:   It is a question of fact.

GLEESON CJ:   Well, suppose an entertainer comes out to Australia, for example, and he is booked to give a performance at a particular place.  He might get sick and not give the performance.  Can he give one of these notices before the performance?

MR ROBERTSON:   There would have to perhaps be some earnings of some sort, some income, but it is perhaps putting it too broadly to say it is a scoping notice that it can be issued in the abstract.  But the fundamental point, your Honour, between the Court of Appeal and the judges of the Federal Court is whether there can be, in a sense, a reading down of paragraph (b) so that if there is a notice or an indication that can impose an obligation to retain, there may be a later obligation to pay once the tax is due and payable, in the Clyne sense.

CALLINAN J:   What about if the non-resident has deductions?  You cannot ascertain the tax payable until, in effect, there is a return.

MR ROBERTSON:   Well, you will not know, perhaps, with any – depending on the facts, you will not know with precision the precise quantity of the tax within subsection (b).

CALLINAN J:   Yes, but (a) refers to the “tax due and payable”.

MR ROBERTSON:   Yes.

CALLINAN J:   It does not refer to an estimate or anything of that kind.

MR ROBERTSON:   Quite so.  So that it is common ground, I think, that (a) only operates when there is tax due and payable and tax would not be due and payable, as in Clyne’s Case, in the absence of an assessment.  So we place some reliance on what we submit is the ‑ ‑ ‑

CALLINAN J:   You have in (b), “sufficient to pay the tax . . . due by the non‑resident”.

MR ROBERTSON:   Yes, “which is or will become due”, which, in our submission, is a wider concept.

CALLINAN J:   It is still the amount due.  It is not an estimate.

MR ROBERTSON:   No, it is owing or ‑ ‑ ‑

CALLINAN J:   “Actual” still means actual tax payable, does it not?

MR ROBERTSON:   No, because, your Honour, in the – if I can just take your Honours to the bundle of cases, in particular, to Clyne’s Case which is reproduced at page 51 of that book and, in particular, the statutory provision there, where the point that was in dispute was whether – if your Honours have page 56, which is page 6 of the report – the word “due” first occurring, “any person by whom any money is due”, their Honours construed that as “due and payable” in that context, but in 218(1)(d)(i) – that is, “the amount due by the taxpayer in respect of any tax” – that was held to mean not due and payable and indeed, Chief Justice Gibbs at the top of page 10, which is on page 60, made the precise point by reference to 255, where, in line 2, his Honour said:

This distinction between “due” and “payable” is clearly drawn in s. 255(1) ‑ ‑ ‑

GLEESON CJ:   But how does the recipient of the notice know how much is sufficient?

MR ROBERTSON:   In terms of ‑ ‑ ‑

GLEESON CJ:   If there has not been a notice under (a), for example?  If (b) is a freestanding provision that operates independently of (a), how does the recipient of the notice know how much is sufficient to pay the amount of tax that will become due if, for example, as Justice Callinan says, there are allowable deductions?

MR ROBERTSON:   That was why Justice Basten, if your Honours go to page 94 of the application book, read down, if I could put it that way, 255(1)(b) so as to prevent an obligation being imposed at large and that was why his Honour said in paragraph 115 that:

the amount must be known.  What is more, the amount must be known to the person in control of the money.

That was why the Court of Appeal concluded that although (1)(b) does not refer to a notice as such, nevertheless, there has to be some event occur such as a notice which would indicate to the person that the obligation to retain had been enlivened.

GLEESON CJ:   The taxpayer in question, for example, perhaps being enthusiastic about lowering carbon emissions, might have some forestry interests, entitling the taxpayer to allowable deductions.

MR ROBERTSON:   Yes.  Well, your Honours, it is a question of fact, which does not arise on this case, of course, because there is no dispute that the tax, which – to answer the description “tax which is or will become due by the non‑resident” – was a fixed figure.  Your Honours, just to go back a step, the real difference between the Court of Appeal and the judges of the Federal Court and why the Court of Appeal did not regard the decisions of the Federal Court as, in any sense, binding was because – perhaps it is explained most succinctly by Justice Basten at page 97 and, in particular, in paragraph 129 on page 99, where, considering Elsinora, Justice Basten says:

Although it is desirable that courts exercising federal jurisdiction should adopt a consistent construction . . . wherever possible, in this case there is no binding decision by a court of coordinate jurisdiction . . . the statement made by Lindgren J in Wong was not necessary for the decision in that case.  His Honour’s dictum was adopted without further discussion of the statutory context in Elsinora and in circumstances where senior counsel for the Commissioner conceded that the “s 255(1)(b) notices…have no operation”.

So it is not a case where there is a conflict between intermediate courts of appeal or, indeed, in our submission, conflict between ratio or between ‑ ‑ ‑

GLEESON CJ:   What is going to happen the next time this issue comes before the Federal Court?

MR ROBERTSON:   Well, the Federal Court ‑ ‑ ‑

GLEESON CJ:   Are they going to follow the Court of Appeal or are they going to follow the line that was taken by Justices Lindgren and Edmonds consistently with the concession made by your client?

MR ROBERTSON:   Well, following the approach of this Court in Marlborough Gold Mines – although this is the single statute rather than comparable statutes in different States – in my submission, both the single judges and a Full Court of the Federal Court, unless convinced that what the Court of Appeal had said was clearly wrong, then they would follow what the Court of Appeal had said.

GLEESON CJ:   Then it will be back before us.

MR ROBERTSON:   Well, this is the third time the section has been litigated since 1918, so maybe not, your Honours.  Your Honours, the last point, which I have touched on already, is that, in answer to a question of your Honour the Chief Justice, is that if special leave were granted it would be necessary for my client to revive those points about the effect of the assignments, whether it was present property or future property, whether notice of the assignments was given and, indeed, the crucial point that was decided against my client by Justice Gzell, which is whether the statute operates to prevent the effectiveness of the assignments or whether, as his Honour held, it was the other way around.  If the Court pleases.

GLEESON CJ:   Yes, in this matter there will be a grant of special leave to appeal.

AT 10.04 AM THE MATTER WAS CONCLUDED