Brown v Brown

Case [2007] FCA 2073

FEDERAL COURT OF AUSTRALIA

Brown v Brown [2007] FCA 2073

TAXES AND DUTIES – Income tax and related legislation – Collection and recovery of tax – Collection of tax due and payable by a tax debtor from a third party – Effect of a third-party tax notice issued pursuant to s 260-5 of Sched 1 to the Taxation Administration Act 1953 (Cth) – Whether a third party holds money for or on account of a tax debtor

CORPORATIONS – Effect of winding up order on prior statutory charge such as third-party tax notice – Surrender of security interest – Doctrine of election – Whether lodgement of a proof of debt which does not refer to any security interest constitutes unequivocal conduct evincing election to surrender security interest

EVIDENCE – Whether court may draw inferences from statement of agreed facts

Corporations Act 2001 (Cth) ss 468, 477, 554E
Evidence Act 1995 (Cth) s 191
Income Tax Assessment Act 1936 (Cth) s 218
Taxation Administration Act 1953 (Cth) ss 8AAZH, 260-5 and 260-15 of Sched 1

Corporations Regulations2001 (Cth) s 5.6.49(2)

Australian Competition and Consumer Commission v Visy Industries Holdings Pty Limited (No 3) [2007] FCA 1617 cited
Brown v Brown & Ors [2007] FMCAfam 793 cited
Champtaloup v Thomas [1976] 2 NSWLR 264 cited
Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 cited
Commissioner of Taxation v Donnelly (1989) 25 FCR 432 cited
Commissioner of Taxation v Macquarie Health Corp (1998) 88 FCR 451 followed
Deputy Commissioner of Taxation v Westpac Savings Bank Ltd (1987) 87 FLR 130 distinguished
Elsinora Global Ltd v Healthscope Ltd (No. 2) (2006) 61 ATR 482 discussed
Foley v Hill (1848) 9 ER 1002 cited
Goodger v Ayre (1988) 88 FLR 188 cited
Goodin v Commissioner of Taxation (2002) 169 FLR 282 cited
Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238 cited
Moor v Anglo-Italian Bank (1879) 10 Ch D 681 discussed
Re International Tyre Co Pty Ltd (in liquidation) (1979) 4 ACLR 553 distinguished
Sargent v ASL Developments Ltd (1974) 131 CLR 634 cited
Surfers Paradise Investments Pty Ltd (in liquidation) v Davoren Nominees Pty Ltd [2004] 1 Qd R 567 applied

TREVOR JOHN BROWN v ANNE-MAREE BROWN, LAWRENCE MCALLION, A CHAID PTY LTD AND DEPUTY COMMISSIONER OF TAXATION
VID 924 OF 2007

GORDON J
18 DECEMBER 2007
MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA

VICTORIA DISTRICT REGISTRY

VID 924OF 2007

BETWEEN:

TREVOR JOHN BROWN
Applicant

AND:

ANNE-MAREE BROWN
First Respondent

LAWRENCE MCALLION
Second Respondent

A CHAID PTY LTD
Third Respondent

DEPUTY COMMISSIONER OF TAXATION
Intervener

JUDGE:

GORDON J

DATE OF ORDER:

18 DECEMBER 2007

WHERE MADE:

MELBOURNE

THE COURT ORDERS THAT:

1.BJT Legal Pty Ltd pay first from the moneys held in account number 633/000 128949658 in the name of BJT Legal Pty Ltd at Bendigo Bank Limited, 407 Sturt Street, Ballarat the sum of $244,248.45 in compliance with the Notice to Pay Money to the Commissioner of Taxation of the Commonwealth of Australia under s…

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AGLC
Brown v Brown [2007] FCA 2073
Case
[2007] FCA 2073
Decision Date

CaseChat Overview and Summary

This case involved the Commissioner of Taxation and the liquidator of A Chaid Pty Ltd, a company in liquidation, along with the firm of solicitors holding the proceeds of a hotel sale in trust. The dispute centred around the allocation of remaining funds after a statutory demand had been issued against A Chaid, leading to its winding up, and the Commissioner's notice to the solicitors to pay the outstanding debt. The court was tasked with determining whether the funds held in trust should be paid to the Commissioner or if they should be distributed to other creditors of the liquidated company.

The primary legal issue before the court was whether the Commissioner, having issued a notice to the solicitors to pay the outstanding debt, had a superior claim to the funds held in trust compared to other creditors of A Chaid Pty Ltd. This involved interpreting statutory provisions and understanding the obligations of trustees and solicitors in holding and distributing trust funds. Additionally, the court needed to consider the effect of the Commissioner's notice on the distribution of the trust funds and whether the proof of debt lodged by the Commissioner affected the priority of the claim.

The court found that the Commissioner had a valid claim to the trust funds as a creditor of A Chaid Pty Ltd. The Commissioner's notice under the Taxation Administration Act 1953 (Cth) was properly issued, and the solicitors were required to comply with it. The court held that the Commissioner's proof of debt, which did not mention the notice, did not affect the validity of the claim established by the notice. Therefore, the court ordered that the solicitors must pay the Commissioner the specified amount from the trust funds. The court also determined that the costs of the application would be borne by the liquidator of A Chaid Pty Ltd.

In conclusion, the court granted the Commissioner's application and ordered BJT Legal Pty Ltd to pay the Commissioner the sum of $244,248.45 from the trust account. The costs of the application were to be costs in the liquidation of A Chaid Pty Ltd, and the Commissioner was directed to serve a copy of the order on BJT Legal Pty Ltd. This decision underscores the importance of following statutory procedures in tax collection and the priority of valid claims issued under the Taxation Administration Act.

Orders

Orders of the court

1. BJT Legal Pty Ltd pay first from the moneys held in account number 633/000 128949658 in the name of BJT Legal Pty Ltd at Bendigo Bank Limited, 407 Sturt Street, Ballarat the sum of $244,248.45 in compliance with the Notice to Pay Money to the Commissioner of Taxation of the Commonwealth of Australia under s 260-5 of Sched 1 of the Taxation Administration Act 1953 (Cth) issued by the Deputy Commissioner of Taxation of the Commonwealth of Australia (“Commissioner”) to BJT Legal on 19 October 2006.

2. The costs of and incidental to this application be costs in the liquidation of A Chaid Pty Ltd (in liquidation) (ACN 109 374 727).

3. The Commissioner serve a copy of this order on BJT Legal Pty Ltd.

Background

Background to the litigation

For the reasons set out below, I propose to grant the application and make the orders requested by the Commissioner.THE FACTS The Commissioner and the liquidator have tendered an agreed statement of facts. They agree that, for the purposes of this proceeding, the facts in this statement are not to be disputed: see s 191 of the Evidence Act 1995 (Cth). I note, however, that “I am not bound to accept facts merely because they have been agreed between the parties. Also I can draw inferences from such of the agreed facts as are accepted”: Australian Competition and Consumer Commission v Visy Industries Holdings Pty Limited (No 3) [2007] FCA 1617 at [1]. The facts that follow, while drawn primarily from the agreed statement, are also drawn from other uncontroverted evidence relied on by the parties. On 24 February 2006, John Brown (“Brown”) commenced proceedings in the FMC (MLM2112 of 2006). On 8 August 2006, the Commissioner instituted proceedings in this Court (VID 884 of 2006) to wind up A Chaid in insolvency on the basis that it had failed to comply with a statutory demand for a debt due under s 8AAZH of the Act. On 13 September 2006, the FMC ordered that A Chaid sell its hotel business and directed that:the proceeds … be applied as follows:(a) First to pay all costs, commissions and expenses of the sale.(b)Secondly, to discharge the mortgage to Yarrmu Pty Ltd on the Leasehold of the Hotel.(c)Thirdly, as to any unsecured creditors of A Chaid … as may be agreed in writing …(d)The balance then remaining be invested in an interest bearing account in the names of the parties under control of their solicitors on the record. On 16 October 2006, the sale of the hotel settled. The proceeds were received and placed in trust by BJT Legal on 17 October 2006. After payment of costs and expenses, as well as discharge in full of the mortgage loan, a balance of $253,693.08 remained in the trust account as at 18 October 2006. I was informed that the moneys are held in account number 633/000 128949658 in the name of BJT Legal Pty Ltd at Bendigo Bank Ltd, 407 Sturt Street, Ballarat. On 19 October 2006, the Commissioner issued the Notice to BJT Legal, stating among other things that: (1) BJT Legal was a third party that owed or might later owe money to A Chaid, which in turn had a debt to the Commissioner in the amount of $244,248.45; and (2) BJT Legal was required to pay the full sum to the Commissioner. BJT Legal acknowledged receipt of the Notice by facsimile dated 24 October 2006. On 26 October 2006, the Court in VID 884 of 2006 ordered that A Chaid be wound up and appointed Sellers as liquidator. On or about 9 November 2006, the Commissioner lodged a proof of debt with the liquidator in the amount of $244,866.96. The proof, which was set out on a standard Form 535 pursuant to sub-regulation 5.6.49(2) of the Corporations Regulations 2001 (Cth) made under the Corporations Act 2001 (Cth) (“the Corporations Act”), made no reference to the Notice and stated in part:To my knowledge or belief the [Commissioner] has not, nor has any person by the [Commissioner’s] order, had or received any satisfaction or security for the sum or any part of it.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

GORDON J

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Ratio Decidendi

Legal Principle Established

Established by: GORDON J

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