Bruton Holdings Pty Limited (In Liquidation) v Commissioner of Taxation & Anor

[2009] HCATrans 185

[2009] HCATrans 185

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S158 of 2009

B e t w e e n -

BRUTON HOLDINGS PTY LIMITED (IN LIQUIDATION)

Appellant

and

COMMISSIONER OF TAXATION

First Respondent

THE PERSONS NAMED IN SCHEDULE ‘A’ TRADING AS PIPER ALDERMAN

Second Respondent

FRENCH CJ
GUMMOW J
HAYNE J
HEYDON J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON TUESDAY, 4 AUGUST 2009, AT 10.16 AM

Copyright in the High Court of Australia

MR S.D. ROBB, QC:   May it please the Court, I appear with MR D.R. STACK for the appellant.  (instructed by Nash O’Neill Tomko Lawyers)

MR A.H. SLATER, QC:   If the Court pleases, I appear with my friends, MS R.L. SEIDEN and MS E. BISHOP, for the first respondent and there is a submitting appearance for the second respondent.  (instructed by Australian Government Solicitor)

FRENCH CJ:   Yes, Mr Robb.

MR ROBB:  Your Honours, the appellant, in substance, supports the reasons for decision of the primary judge in this matter, albeit that his Honour Justice Allsop only gave his reasons briefly. If I may, by way of opening, I would seek to encapsulate our submissions to put them in their full context and to put them briefly. This Court is called upon to consider the proper interpretation of section 500(1) of the Corporations Act (Cth) which, of course, was enacted in the year 2001. In the appellant’s submission it is important to consider that Act as having been enacted at that time and looking back for its effect on relevant history before then.

As it is effectively the first general corporations legislation of the Commonwealth, its possible effect on the operation of section 260‑5 of Schedule 1 of the Taxation Administration Act does not raise any constitutional questions or any questions of power that may previously have been relevant when the corporations legislation was effectively the legislation of the States.

In the appellant’s submission, section 500(1) is part of a suite of provisions dealing with the distribution of the assets of the corporation in its winding‑up in insolvency. Those provisions have the general intent of ensuring that, in respect of all of the property of the company which it has at the commencement of its winding‑up, that property will be distributed in accordance with the scheme provided for specifically in the corporations legislation. For that purpose, there is found in section 500(1) a provision which has its equivalent in section 468(4) which says:

Any attachment, sequestration, distress or execution put in place against the property of the company after the after the –

passing of the resolution for voluntary winding‑up is void.  That is the section that applies in the context of a voluntary winding‑up.  Section 468(4) is in relatively identical terms but applies in the context of a winding‑up by the Court in insolvency and, in our submission, the purpose of those two provisions is to complement section 468(1) which prevents dispositions by the company itself after the commencement of its winding‑up subject to any order of the Court. 

In our submission, for the purpose of determining the proper interpretation of section 500(1), the court should start with the meaning of the words of that subsection, which as we will submit is something that the Full Court in the present case did not really do, and the Court should interpret that section in its own statutory context. When that happens, one finds that there is the clearest, general and, indeed, absolute statutory statement that the assets of the company are to be divided between the creditors and, if appropriate, members, that dispositions by the company after the commencement of the winding‑up are to be void, that dispositions affected by third parties of the nature listed in section 500 are to be void and, ultimately, insofar as the unsecured creditors are concerned, they are to share equally and pro‑rata in accordance with the value of their debts.

GUMMOW J:   What section do we see for that?

MR ROBB:   Section 555 and 556.  In due course, after I finish this summary, your Honour, I will take your Honours to the provisions.

HAYNE J:   You need to add to that, do you not? 

MR ROBB:   Section 501 in the case of section 500.

HAYNE J:   Yes.

MR ROBB:   Yes, your Honour.

HAYNE J:   Although you describe the immediate question as turning on the proper construction of section 500, is not the relevant intersection that is to be determined, the intersection between the Taxation Administration Act, and the provisions for winding‑up, the central provision of which in a voluntary winding‑up like this, is 501?

MR ROBB:  That is so, your Honour. We do not at all dissent from that proposition. We submit it is significant for it to be appreciated that the scheme for all windings‑up in insolvency is essentially the same, albeit it is the case that in a voluntary winding‑up it is sections 500 and 501 which are primary, albeit, in our submission, when your Honours come to sections 555 and 556, you will see that they apply to all winding‑up in the sense that the order for priorities set out in particular in section 556 applies in the voluntary winding‑up context.

HAYNE J:   But this is a voluntary winding‑up, is it not?

MR ROBB:   It is, your Honour.

HAYNE J:   It is a creditors voluntary?

MR ROBB:   Correct, your Honour.

HAYNE J:   Through the operation of 439C which leads you on into 446A which leads you on, I think, into 513B(b), whereas I think your subs refer to 513A(b).  That is neither here nor there.

MR ROBB:   Yes, I apologise for that.

HAYNE J:   That is the statutory chain, is it not, that gets us to the winding‑up with which we are concerned?

MR ROBB:   Yes, your Honour.

FRENCH CJ:   The way that the intersection works between 500 and 260‑5, on your submission, must be, must it not, that 500 effects a limit on the scope of 260‑5?

MR ROBB:   Yes.

FRENCH CJ:   It is not avoiding something which is done under 260‑5.  It is rather confining the scope of the power itself.

MR ROBB:   Yes. 

HAYNE J:   Well, is that right?

MR ROBB:  Well, in our submission, insofar as section 500(1) refers to an attachment, the word “attachment” is not a description of any particular process, like a garnishee order or a section 260‑5 notice. Attachment is a legal effect that may be caused by various different processes and insofar as section 501 avoids an attachment, it does not avoid the notice per se. What it avoids is the legal effect of the notice insofar as it may otherwise have affected an attachment of the debt, an attachment being a particular species of legal result. This, of course, is debatable, but may, depending upon the circumstances, be less than a full charge giving a proprietary interest in the property but is a manner by which the law prevents both the debtor and the creditor in relation to the debt attached dealing with it, but rather keeps that debt available to satisfy the entitlement of the attaching party.

To come back to the question, we would have to submit, and we do, that the effect of section 501 is to avoid the legal effect of the section 260‑1 notice in circumstances where the Commissioner gives the notice after the commencement of the winding‑up, but in any other circumstances it would not affect the validity of that notice. So we submit that section 500, and in a different case, section 468(4) in an ordinary winding‑up and insolvency, would have the result not, as we say, of actually avoiding the notice and whatever might flow from the service of the notice, but avoiding the attachment and the entitlement of the Commissioner, the first respondent here, to retain money received as a result of the of that attachment.

GUMMOW J:   The intersection then is through the words “is void”, is it not?

MR ROBB:   Yes.

GUMMOW J:   So it assumes that the other section has done its work.

MR ROBB:   Yes.

GUMMOW J:   But then operates upon it.

MR ROBB:   That is what we would submit.

HAYNE J:   But that analysis is one which focuses and confines attention to section 500(1) and section 260‑5.

MR ROBB:   In the context of what a section like section 500(1) tells the court the other provisions are designed to achieve.

HAYNE J:   But once winding‑up has intervened, the Commissioner is a creditor of the company, is that right?

MR ROBB:   Yes.

HAYNE J:   Entitled to prove for the full amount of the Commissioner’s debt.

MR ROBB:   And share pro rata now.

HAYNE J:   But it is that point, is it not, that after winding‑up the effect of the insolvency provisions of the corporations legislation is that the Commissioner, as any other creditor, has a right to the due administration of the winding‑up and has a right ultimately to pro rata participation in the net assets of the company.

MR ROBB:   Yes.

HAYNE J:   How can one then answer the question about the effect of a section 260‑5 notice without regard to the fact that, on its face, there is an Act which is providing for an administration insolvency with the outcome that the Commissioner is entitled only to a pro rata entitlement on proof.

MR ROBB:   Yes.  If I understand – if I do not it is my own fault, your Honour – what your Honour has said, we respectfully agree with it.  It is important to note that in the period from 1980 to 1993 the entirety of the Commissioner’s priority in relation to tax debts was dismantled and abrogated.  So when the Commonwealth enacted the Corporations Act in 2001, it was doing so looking backwards against the fact that literally and legally the Commissioner at that point stood in the shoes of an ordinary unsecured creditor and had the legitimate expectation of the due administration of the winding‑up and a pro rata share with other unsecured creditors, but no more.

HAYNE J:   And where, before abolition of Crown priority, it had been necessary to provide in section 221 for a variation on the insolvency regimes dictated otherwise by State or Commonwealth legislation.

MR ROBB:   Yes, your Honour.  Indeed, the earlier Income Tax Assessment Act had – in the section I will take the Court to a little bit later – in 221, enacted a statutory priority for the Commissioner and, as I recall it, provided a sanction if liquidators did not ensure that they retained the money sufficient to meet the Commissioner’s statutory priority.  Further, in section 215 there was provided for a mechanism whereby that had to occur.

The effect of the Taxation Debts (Abolition of Crown Priority) Act 1980 was to repeal section 221 so that the special priority regime benefiting the Commissioner in an insolvent winding‑up provided in the Income Tax Assessment Act was simply repealed and, what is more, a new formula was, so to speak, inserted in the Act which specifically required the liquidator to set aside the Commissioner’s pro‑rata share as an unsecured creditor. So it is not simply a matter of looking at the effect of section 500(1) of the Corporations Act in this case, but when one looks back to the way, what one might call the Commissioner’s special provisions within the Income Tax Assessment Act had worked, they have been amended ultimately by a few steps to abolish the Commissioner’s priority.

FRENCH CJ:   I think some of the history of this is set out by Justice Hill in his judgment in Donnelly’s Case, is it not?  In the context of bankruptcy.

MR ROBB:   Yes.  It is, with respect, interesting, if not more, that the very provisions that follow the part of section 1 of the Taxation Administration Act which contains section 260‑5, contain the new, so to speak, special purpose Commissioner’s entitlements in the insolvency of a company in winding‑up which specifically enact the entitlement of the Commissioner to the pro‑rata share with other unsecured creditors and the obligation of the liquidator to ensure that funds are provided to meet but meet no more than the Commissioner’s share as an unsecured creditor.

GUMMOW J:   Is this 260‑45?

MR ROBB:   Yes.  I think that is right, from memory.

GUMMOW J:   I keep jumping ahead, but is 260‑45 an echo of the old section 215?  The setting aside a fund.

MR ROBB:   As I understand it, it is an echo of the section 215 after it was amended in 1980 to change the Commissioner’s special arrangement to a pro‑rata arrangement, whereas before the abolition of Crown priority, the equivalent section provided that the Commissioner got 100 per cent in accordance with his priority.  Frankly, the tax provisions are not my strength, but it appears that what was in the original amendment has now found itself into 260‑45 and, as I have read it, it is the same structure.

What the Court finds when it is looking at the intersection of section 500 of the Corporations Act with the relevant provisions of the taxation legislation, one does have section 260‑5, which is the equivalent of the former section 218 of the Income Tax Assessment Act.  One has following that in 260‑45 the latest statement or enactment of the new regime applicable to the Commissioner and, in our submission, that is a telling indication of what it is that the Commonwealth Parliament expected that the Commissioner could achieve with his section 260‑5 notices.

GUMMOW J:   It would be helpful to know what you say would be the regular course of administration in this case if there be no notice given by the Commissioner.

MR ROBB:   I am not sure ‑ ‑ ‑

GUMMOW J:   What would happen?  There seems to be this big tax debt.  There do not seem to be any other creditors.  It would come down to 260‑45, would it?

MR ROBB:   Ultimately, yes.  I hesitate for the following reason.  In the judgment below and in the primary judge’s judgment there are inconclusive statements concerning the possible position of this winding‑up, given that it has not finished, that there have been no formal requests for proofs of debt.  This probably is a relatively simply administration and so one could make a good stab at what might happen at the end of it, but the reality of it is ‑ ‑ ‑

GUMMOW J:   I am not seeking any admissions from you.  I am just trying to understand how the system works, that is all.

MR ROBB:   No.  I am trying to explain why I do not know, your Honour.

GUMMOW J:   How you say the system should work.

MR ROBB:   Yes. What should happen is, in our submission, section 500(1) simply avoids the attachment and, accordingly in this case, the debt would simply be paid to the company in liquidation. That would be an asset available to the liquidator. He could use that asset subject to an issue that is raised in this case, I believe, by the Commissioner about whether his remuneration can be paid out of it. In the ordinary course of the winding‑up and at the completion the money will be distributed between unsecured creditors pro‑rata and if it should turn out that the Commissioner of Taxation was then the only unsecured creditor, he would get whatever was left, as would happen in any ordinary administration.

Your Honours, when one considers the judgment under appeal, in our submission, it has to be kept in mind that, just as in the Full Court in Donnelly their Honours recognised that “attachment” was a word of general legal meaning that was capable of applying to a then section 218 notice, the issue was whether the word “attachment” in section 118 of the Bankruptcy Act, or here section 500(1), only was intended to apply to a confined class of attachment, being attachments affected by curial process, the best example being garnishee orders.

That distinction was recognised by the Full Court in the present case and we, with respect, make the point that none of these cases have decided that a section 260‑5 notice is not an attachment.  They have recognised that the word “attachment” describes a general legal effect or consequence, but for particular reasons the Court decided – largely historical – that attachment was intended to be confined to attachment by curial process and so it did not pick up a section 260‑5 notice or its predecessor.

Now, one obvious, with respect, and immediate thing to say about that is that section 500(1) talks about “attachment, sequestration, distress or execution” and it is a simple matter that that distress is not a curial process and we point to that, in part, for the following reason. What has happened in this case, as is made, with respect, transparent in paragraph 72 of the Full Court’s judgment in this case, is that section 500 of the Corporations Act has been interpreted to make it work equivalently to section 118 of the Bankruptcy Act. 

In our respectful submission, it is fair to say that the Full Court in this case did not really embark upon the process of interpreting section 500 at all, let alone to consider whether or not section 500, together with the other provisions dealing with corporations insolvency, is, as it were, the primary provision to which bankruptcy conception should be regarded as subsidiary. However, the submission we make is that provisions such as section 500(1) and section 468(4) have been in the corporations legislation essentially unchanged since the 1862 United Kingdom Corporations Act. The equivalent of section 500(1) was there found in section 163. The equivalent of section 468(1), which your Honours will recall avoids dispositions by the company itself after the commencement of the winding‑up, was found in section 153.

The fact is that provisions of essentially identical terms have been included in the United Kingdom and Australian corporations legislation not only unchanged, but largely, if not entirely, uncommented upon judicially for that entire period and for that entire period the corporations provisions have included reference to distress.  In our submission, to say the least, if the issue that is in mind is whether these provisions are limited to the effects of curial processes, the fact that distress is provided for in the corporations legislation is distinctly inconsistent with that result. 

A further proposition that flows from that is that, while it is no doubt true that as of 1862 there were particular types of attachment, particular types of sequestration or distress or execution that may then have been possible, and it is, with respect, a relevant consideration as to whether when the Commonwealth Parliament spoke in 2001 it intended there to be implied limitations in the words it was using by reference to history, there has been no judicial determination in the corporations law area which has ever confined attachment to curial process.

GUMMOW J:   I have been looking at the child support legislation in the Family Law Act which we considered in Luton v Lessels 210 CLR 333. If you look at page 348, you will see that that was the creation of an obligation by a registration system with a garnishee provision attached to it. So there are garnishee systems that do not necessarily arise from curial determinations. There may be some system of administrative review of the registration system which creates the liability, but that does not mean it is “curial” in the sense that that term seems to assume the meaning in this debate, which is rather a meaning which is too narrowly focused to permit of an understanding of what goes on in modern legislative systems.

MR ROBB:   Yes, your Honour

HAYNE J:   It may also be necessary to take account, may it not, of section 500(2) because subsection (2) precludes proceeding with or commencing against a company any action or other civil proceeding after the resolution. So that, if one is to confine section 500(1) to curial processes put in force after passing of the resolution, how does that sit with 500(2) which says that after resolution you may not proceed with or commence any curial process against the company?

MR ROBB:   In our submission, your Honour, subsection (2) supports, in a general way, the underlying submission we make that the statutory scheme in relation to corporations is intended not to leave gaps. There is no reason at all, in our respectful submission, to think if one starts where one should in interpreting section 500 and related provisions and the intersection of those provisions with the relevant taxation sections, why the legislature would only wish to avoid curial or any other confined type of attachment. Because if the avoidance is limited to specific types of attachment, in those cases to which the section does not apply, the entire purpose of trying to ensure that the company’s assets are available to be divided in accordance with the statutory priority will be undermined, as indeed is what has happened in this case. Very briefly, whatever might happen in relation to the various statutory provisions ‑ ‑ ‑

GUMMOW J:   Just stopping there for a minute, we have to try and stop playing with words.  Is the debtor safe in making the payment in accordance with the system?  In other words, is it a good answer to an action against him?  The answer is, yes, if it is pursuant to a curial order.  Even more so, it is even safer, if it is pursuant to a statutory system.

MR ROBB:   Yes.  It may be that the recipient of that money cannot keep it because his legal right to do so is avoided.  We, for instance, do not submit ‑ ‑ ‑

GUMMOW J:   You have to think about the position of the debtor.  The debtor wants to be sure that the debt is not going to be harassed again.

MR ROBB:   Yes, and to take the situation of a garnishee order, we do not submit that section 500 avoids the court order that something happened. There is no reason to believe that would be what was intended, nor is there any reason to believe that section 500 avoids the other provisions connected with garnishee orders which provide the debtor, who pays in accordance with it, protection. What is avoided is the attachment which is the legal consequence that enables ‑ ‑ ‑

GUMMOW J:   No, I was trying to get you to grapple with the meaning of the word “attachment” and this notion that it is limited to curial activity.  Why should that be so if the object, namely, the provision of a good answer, follows from statute as well as curial systems?

MR ROBB:   We submit it would not be so and, with respect, your Honour is right in pursuing – this is my way of putting it – the distinction between the process of the attachment ultimately placing obligations on the debtor and giving the debtor a good relief against payment of good discharge.

GUMMOW J:   Of good discharge.  He can plea a discharge, can he not?

MR ROBB:   Yes.  It is just that the person who gets the money as a result of the process cannot keep it because the attachment is void and that is so far as the corporations legislation would wish to go.  We had gone on to make the point that if in some way the word “attachment” is limited to curial or other processes in a way such that the section 260‑5 notice falls outside, in our submission, it is relevant that introduces an extraordinary and what must be considered unintended lopsidedness to the administration of companies in insolvency.

GUMMOW J:   It is more complicated than that, is it not?  The notion of garnishee did not exist at common law.  It had to have a statute.

MR ROBB:   Yes.  It think it was 1956 ‑ ‑ ‑

GUMMOW J:   Because you could not attach debts at common law.

MR ROBB:   Yes.

FRENCH CJ:   1854, I think.

GUMMOW J:   The 1854 Act which brought it all about.  So from the beginning the notion of garnishee was a statutory creature.  It was always treated as an attachment and the statute of 1854 which creates it talks about attachment.  So the question then is, the statutory creature that has been created, is it necessary for the statutory creature to have within it a new jurisdiction for curial involvement?  When we talk about curial involvement in relation to garnishee, we are not talking about something that comes out the common law, because it does not, it has to come out of the statute.

MR ROBB:   Correct, your Honour, and one might for some reasons wish to distinguish courts from the Commissioner, but in both cases they are statutory processes are requiring debtors to do things and giving debtors discharges and, indeed, it is worth noting.  I think it is section 77M of the Judiciary Act provides that if in such case as it should ever happen in this Court, the Court would grant relief in accordance with the law of a relevant State or Territory, which in this case appears to be section 117 of the Civil Procedure Act (NSW). It is more interesting, perhaps, than significance, but it says in subsection (1) “Subject to the uniform rules, a garnishee order operates to attach” a debt, simply making obvious the fact that there is a statutory process which in that case involves a court order which has an effect upon service of causing an attachment to happen.

Now, in our submission, for reasons we will develop a little while later briefly, what happens in the case of a section 260‑5 notice is a statutory attachment and ultimately there is no good reason why the general words of section 500 should be read down to exclude one form of statutory attachment and encompass another.

FRENCH CJ:   You have been to this before, but I just want to understand precisely the way in which you say the avoiding of the attachment works.  In this case you do not say, or do you, that it effectively removes from Piper Alderman any obligation to pay the Commissioner or is it rather a question that the Commissioner, having received money pursuant to his notice, cannot retain it as against the liquidator?

MR ROBB:  It is the latter, although in practical terms it is possible, and I think it happened in this case, that the parties may litigate in advance of the actual payment the entitlement of the Commissioner to keep the money. To go to the garnishee context, we would submit that section 500 does not by itself avoid a court order and all other things being equal, that order must be complied with and, as Justice Gummow says, the result will be a good discharge to the debtor.

GUMMOW J:   These notices were dated 8 May, were they not?

MR ROBB:   Yes.

GUMMOW J:   How long did they have for compliance?

MR ROBB:   Immediate.

GUMMOW J:   And then the originating process was 30 May and that sought declaratory relief and mandatory interlocutory relief too, at page 3?

MR ROBB:   Yes.

FRENCH CJ:  But it is in relation to the entitlement to the fund or the money rather than the obligation imposed upon the debtor that the avoiding provision of section 500(1) operates, on your submission?

MR ROBB:   Yes, in our submission, yes.  It may be that a recipient of a garnishee order could move to have it set aside, being aware of the commencement of a winding‑up.  All of that is separate and would depend upon its individual facts.

FRENCH CJ:   Yes, I am just looking at the juristic analysis of how, yes.

MR ROBB:   Yes, that is our position, your Honour.

GUMMOW J:   What relief did you succeed in getting from the primary judge?

MR ROBB:   We succeeded in getting relief in this case that the notices were void.

FRENCH CJ:   What does that mean then?

MR ROBB:   There is scope for argument about whether – I think my friend says sotto voce that I was just ‑ ‑ ‑

FRENCH CJ:   That would suggest Piper Alderman has no obligation.

MR ROBB:   Yes.

GUMMOW J:   Well, the orders are at 173.  There was an injunction against the Commissioner really, order 2.

FRENCH CJ:   Order 1 is a declaration.

GUMMOW J:   Order 1one is a declaration, as the Chief Justice says.  It rather throws up the point the Chief Justice is putting to you, does it not?

MR ROBB:   It does, your Honour.  It is a question of the appropriate formulation of the relief as to whether one sets aside the notice and makes a declaration that any attachment affected under it would be void.

FRENCH CJ:   You are simply seeking in this appeal the reinstatement of those orders, are you not?

MR ROBB:   Yes, your Honour.

FRENCH CJ:   In effect, given the orders you seek at 234.

MR ROBB:   Yes.

HAYNE J:   Can I come at the same problem from a different end. The liquidator under the creditors voluntary winding‑up may but need not take possession of the assets of the company. I think that is the effect of the combination of section 506(1)(b) of the Corporations Act enabling the liquidator to exercise any of the powers that the Act confers on a liquidator in a winding‑up in insolvency or by the court.

MR ROBB:   Yes. 

HAYNE J:   Plus section 474(1) which in a winding‑up in insolvency or by the court obliges the liquidator to take custody of the property.

MR ROBB:   To get any assets, yes.

HAYNE J:   Piper Alderman holding the funds are in a position where they may be subject to competing demands, are they not?

MR ROBB:   Yes.

HAYNE J:   A demand by the liquidator to take control of the money and demand by the Commissioner, is that right?

MR ROBB:   Yes, your Honour.

HAYNE J:   The demand by the Commissioner does not engage the notion of an attachment that was obtained before winding‑up and does not engage section 569. If it engages anything, it engages section 500(1).

MR ROBB:   Yes.

HAYNE J: When it is said that any attachment is void, does it mean that Piper Alderman may treat the demand by the Commissioner as answered by the statute in section 500(1)?

MR ROBB:   In our submission, strictly not, because the process is not the attachment, the legal consequence is.  I have already made the point in relation to the garnishee order.  The recipient of a garnishee order just cannot treat the order of the court as being void, particularly where that court happens to be a superior court of record.  But in advance of the time for payment, there must be juridical processes for there to be a stay, the validity of the order determined and, if appropriate, it is set aside, which in this case may well have just been collapsed informally between the parties.

HAYNE J:   I can understand the wisdom of Piper Alderman not wishing to act without the backing of a court order. That is a matter of prudent practice. But is the consequence of the curial process that Piper Alderman was party to the consequence that Piper Alderman may answer the Commissioner’s notice by saying section 501 is engaged and I need not meet your demand?

MR ROBB:   After the completion of the curial process that determines that result, yes.

GUMMOW J:   So they have always got to go to court, not as a matter of prudence but as a matter of necessity?

MR ROBB:   Yes. It is easier, I perhaps should say personally, to contemplate why that should be so in the case of a court order, but that is our submission and we do however submit that if that is wrong, the ultimate argument we put still runs, that is to say, that if section 500(1) and cognate provisions relevantly have the effect of simply avoiding the process which would lead to the attachment, then that would be the result of the application of the corporations legislation.

FRENCH CJ:   Would their safest course be simply to pay the Commissioner and then leave the Commissioner and the liquidator to fight it out?

MR ROBB:   Correct, your Honour.

FRENCH CJ:   They do not have to go to court at all.

MR ROBB:   Yes.  The third party or what happens in an individual case may be susceptible to the facts.  I do not know whether paying of the money into the court would in some cases be satisfactory, but, yes.

FRENCH CJ:   Otherwise they have got to run a kind of interpleader every time.

MR ROBB:   Yes, but the answer is yes.  In our submission, the clearest case ‑ ‑ ‑

HAYNE J:   If that is the position, I am not sure what the Commissioner has received on this hypothesis can then be recovered by the liquidator.  You may be right, but I just do not for the moment grasp how if Piper Alderman pay the whole over to the Commissioner, the Commissioner is then liable to disgorge that, hold some or part of it.

GUMMOW J:   Are you able to say the Commissioner received to the use of the liquidator?

FRENCH CJ:   This is your earlier submission, that it was the entitlement to the money rather than the obligation of Piper Alderman upon which section 500(1) operated.

MR ROBB:   Yes.

FRENCH CJ:   I understood you to be saying that it was a question of who had the right to recover the money.  So if the Commissioner has it, he has perhaps, as Justice Gummow suggests, holds it to the use of the liquidator, on your submission.

MR ROBB:   Yes.  May I put this briefly.  When one looks at the cases about the effect of an attachment, there seems to be clear statements that when a process of attachment is served, from that point the recipient only has a right to pay the attaching party.  The attaching party is the only party that can grant a discharge.  As this Court in Clyne’s Case held, any purported assignment by the creditor – in this case the company in liquidation – is simply ineffective.  Little seems to be said of the fact that when the money is actually paid to the attaching party, if the attachment is valid, the attaching party has the right to keep it.  That is put in various ways.

Sometimes it is said the attachment affects a charge of the bankruptcy type. But, anyway, at the end of the day it is obvious that the purpose of a garnishee order and the purpose of a section 260‑5 order is that at some point, whether it be at the time of service of the notice or receipt of the money, if everything is valid, the attaching creditor is entitled to the money, it seems to be implied and it is an obvious, with respect, implication. But if a section like section 500 in the context of an insolvent winding‑up of a voluntary nature says the attachment is void, then ‑ ‑ ‑

GUMMOW J:   That is right.  Now, just look at order 2.  Why therefore can you not get an injunction against the Commissioner from carrying out that which if carried out will be void?

MR ROBB:   No reason.  There is nothing we ‑ ‑ ‑

GUMMOW J:   That is what order 2 is doing.

MR ROBB:  It does and we stand by order 2 and it was a legitimate order to seek and it has the desired effect because it prevents the carrying out of something which if done would be legally ineffective so should not be done. Your Honour, further in the vein of trying to encapsulate the submissions, may we put the following shortly about the bankruptcy equivalent of section 569 of the Corporations Act. Section 569 of the Corporations Act is materially identical to section 118 of the Bankruptcy Act as it was introduced in 1966.  I will not go into the changes that were subsequently made, but they are expounded very clearly in the judgment of Justice von Doussa in Donnelly.

GUMMOW J:   This is McQuarrie v Jaques territory, is it not?

MR ROBB:   Yes.  With respect, that is an area that is difficult ‑ ‑ ‑

GUMMOW J:   It is the old section 92, is it not?

MR ROBB:   Yes.

GUMMOW J:   Old, I mean 1924 Act.

MR ROBB:  Yes, correct, your Honour, with respect. In our submission, and, with respect, these are obvious statements but important, there are ways in which bankruptcy and the winding‑up of companies are structurally different. The winding‑up of a company, the property is retained by the company and it is not vested in the liquidator and, in our submission, that is why sections like section 500 and sections 468(1) and (4) are necessary, because, given the simple fact that after the commencement of the winding‑up the property resides in the company, in theory the company can dissipate its assets by entering into transactions and third parties who have rights like attachment or distress or execution can obtain the company’s property by a process that acts upon the company’s property.

In the bankruptcy context that just does not happen, because from the commencement of the bankruptcy, title to the property is vested in the trustee.  So any attachment like a section 260‑5 attachment just will not work in the bankruptcy context after the commencement of the bankruptcy.  That is a little bit of a generalisation, if I may permit it to leave it that way for the moment, but in short, section 260‑5 is predicated on the proposition that a debt is owed to the bankrupt or the company winding‑up.  In the bankruptcy context, a debt is owed to the trustee, even on a relation‑back principle to the commencement of the bankruptcy at the time of occurrence of the first available act of bankruptcy.

GUMMOW J:   Your point is that it is no longer the property of the bankrupt?

MR ROBB:   Yes, and so the sections the court is called upon to consider in this case just do not have an equivalent in bankruptcy because they are not needed. On the other hand, there is a peculiar problem in the bankruptcy context because of the relation‑back period and in the present corporations law, the winding‑up commencement commences in the ordinary case when the winding‑up order is made. In this case it commences earlier, at the time of the appointment of the administrators, but section 500 only operates from the time of the passing of the winding‑up resolution.

When one then transfers the consideration to bankruptcy, one finds a problem because acts of bankruptcy in the ordinary course can be committed and no one knows that they have been committed and no one at all knows that there will subsequently be a sequestration order made in bankruptcy within a given time of a particular act of bankruptcy. 

That introduced a problem, as is explained in McQuarrie v Jaques, that even the sheriff effecting execution orders could find that ex post facto his title to act in relation to particular chattels are, so to speak, evaporated because of a subsequent sequestration order or prior former process and the relation‑back period.  So creditors and the sheriff could properly but innocently act in circumstances where it retrospectively occurred, the debtor did not own the property, his subsequently appointed trustee did.  It is dealt with in depth in McQuarrie v Jaques and is very difficult to summarise, if I might respectfully say.  But the law was faced with the problem of what should happen in those circumstances.

Creditors normally might diligently pursue recovery of their debts using proper processes and then find, six months later or within six months, a bankruptcy commences and that their actions subject them to, in the sheriff’s case, an action for trover.  As, in particular, Justice Dixon explains in McQuarrie v Jaques, the Parliament then, in a sense, intervened from time to time enacting the earlier equivalence of section 118 to cause the balance to change.

When your Honours look at section 92 of the Bankruptcy Act which was introduced in 1924, which I think was introduced sometime in the 1880s in its then present form, that section was protective of creditors in the sense that at common law and under certain statutes attachments and garnishee orders and executions took effect at a particular time, being service or delivery of a writ of fi fa to the sheriff, but they could be undermined by subsequent bankruptcy of the debtor.  Section 92, and I put this very generally, had the effect that provided the process of execution was completed before the making of the sequestration order or notice of an act of bankruptcy, the process would be valid as against the trustee.  So the effect of section 92 was to increase the rights of creditors in relation to proper and innocent attempts to execute judgments prior to bankruptcy or notice of an act of bankruptcy. 

There then comes in 1962 the Clyne Report commissioned by the Federal Attorney‑General into bankruptcy and that report, among other things, recommended that the protections to creditors inherent in section 92 of the Bankruptcy Act should be removed.  The legislature acted upon that advice and enacted section 118 which, in very simple terms, perhaps over simple, has the result that any creditor who completes an execution or the like within six months prior to the commencement of the bankruptcy has to disgorge the money. 

Now, in a sense this is just history, but the fact is as between section 92 and section 118 the balance decided upon by the legislature as between the rights of execution creditors on the one hand and the bankruptcy creditors on the other was, so to speak, reversed.  The Clyne Report mentioned the proposition that upon reversal of the execution or attachment, the creditor should be able to have his taxed costs of the process retained, so the creditors should only have to give to the trustee in bankruptcy the balance. 

The short point is, in section 118 of the Bankruptcy Act as enacted in 1966 for the first time there was reference to an attachment instituted by proceedings and for the first time there was a reference to the execution or attaching creditor having a right to retain the taxed costs of the process.  Prior to that there had not been in these bankruptcy provisions anything that would have indicated that attachment, sequestration or execution was necessarily limited in any way, let alone to the results of court proceedings. 

I come to the end, your Honour.  The fact that section 118 had been enacted in those terms was, in our respectful submission, instrumental in the decision of the Full Court of the Federal Court in Donnelly in deciding that section 118 only applied to attachments that were affected by curial process.  In the case of Justice von Doussa, that consideration appears to be quite dominant, although it is true that Justice Hill considered other matters, including the history of the situation.

The result ultimately come to is that in the bankruptcy context the reference in section 118 was given a limited meaning insofar as it concerned attachment.  It was done substantially because of a change to the bankruptcy side of the equation introduced without particular explanation as a result of the Clyne Committee Report in 1962.

GUMMOW J:   What do you say about section 569 of the Corporations Act?

MR ROBB: Section 569 of the Corporations Act, as it happens, is in identical terms to the 1966 Bankruptcy Act, not the later 1980 amendment which actually removed the reference to court proceedings. The fact is section 569 does contain references to court proceedings.

GUMMOW J:   Where do we see that?

MR ROBB: Section 569(1) reads:

Where:

(a)A creditor has issued execution against property of a company, or instituted proceedings to attach a debt ‑

So there is a reference to proceedings there, which is the same reference in the 1966, section 118.  Then certain consequences flow.  It says after subparagraph (b):

the creditor must pay to the liquidator an amount equal to the amount (if any) received by the creditor as a result of the execution, attachment or enforcement . . . less an amount in respect of the costs of the execution, attachment or enforcement of the charge or the charging order, being an amount agreed between the creditor and the liquidator or, if no agreement is reached, an amount equal to the taxed cost of that execution, attachment or enforcement.

So it is a fact that what might be described as the habit of those drafting corporations Acts to engraft onto the Act the “from time to time” equivalent of section 118 of the Bankruptcy Act has led in this case to the Commonwealth 2001 corporations legislation containing section 569(1) which does have textual references to proceedings.

GUMMOW J:   Does it come to this?  If the Commissioner had acted earlier, even within six months before the commencement of the winding‑up, 569 would not interfere with the consequences?

MR ROBB:   If the decision in Donnelly applies, the answer is, yes.

GUMMOW J:   Forget about other decisions. Just tell me how, in your submission, the Act works. Just assume the Commissioner had acted in this way, what would happen, on your submission? Section 569 could not speak to the situation, could it?

MR ROBB:   Applied expressly, yes, because there would not be proceedings for an attachment and there would be a question as to whether the reference to the proceedings and taxed costs was intended to have the result, no proceedings, no attachment, or whether the language just must be taken to be a relatively loose translation of the bankruptcy provision into the Corporations Act without ‑ ‑ ‑

GUMMOW J:   On the face of it, the Commissioner as a creditor would not have to pay anything under 569.

MR ROBB:   Correct, on the face of it, and, yes, that proposition cannot be escaped.  There is a question as to whether Donnelly was correct ‑ ‑ ‑

GUMMOW J:   Just a minute. If that is right, does that impede or is it neutral for your case on section 500 where the Commissioner acts as he does after the winding‑up?

MR ROBB:   Yes. Our submission is that it is not a proper way to interpret section 500 and related provisions to have the outcome driven by the words that happen to be section 569. That whatever might be thought to be good or bad in the pre‑winding‑up circumstances, which has its own separate history in the law, after winding‑up all of the provisions in the statute exhibit an intention to be absolute and exhaustive in their effect and that there is no type of attachment which the law wishes to excuse so that a creditor can get 100 per cent of the debt by the use of a particular process, notwithstanding other explicit statutory indications that the creditor is not entitled to that result.

FRENCH CJ:   You say the Commissioner is just left in the position of any other creditor, he does not have any statutory advantage?

MR ROBB:   Yes.  What we submit in terms of what this Court said in Project Blue Sky 194 CLR 355 in paragraph 70, page 382, the Court was there concerned with reconciling provisions within Acts where there may appear to be some sort of inconsistency. At about line 6:

Reconciling conflicting provisions will often require the court “to determine which is the leading provision and which the subordinate provision, and which must give way to the other”.  Only by determining the hierarchy of the provisions will it be possible in many cases to give each provision the meaning which best gives effect to its purpose and language while maintaining the unity of the statutory scheme.

Recognising, as I have tried to explain, how section 569 finds itself into the corporations legislation, acknowledging that on its face it appears not to apply to attachments that do not involve court process, we point to the history of how it seems to have ended up that way and how, for whatever reason, that is concerned with doings of creditors before the commencement of the winding‑up process.

In our submission, if it comes to it, all of the provisions of the Act dealing with what happens after a winding‑up read together cannot be thought to have been intended to leave this gap, which actually has the extraordinary result that the Commissioner can get a result, that is, if it just fortuitously happens that the assets of the insolvent company include debts owed by third parties of a sufficient aggregate value, if the Commissioner’s argument is right in the present case, then a section 260‑5 attachment can get all of that money to the Commissioner, notwithstanding that the very provision after section 260‑5, that is, relevantly 260‑45, makes it clear within the income tax context that the Commissioner is intended only to be an unsecured creditor sharing with the others.

In our submission, what has happened in the Full Court is – to use, I am sorry, a cliché, the tail has wagged the dog – that when your Honours actually go to the paragraphs leading up to and immediately before paragraph 72 – we come to that very shortly – your Honours will see that the basis upon which the Full Court departed from Justice Allsop’s reasoning in this case was the argument that the interpretation of section 118 made in Donnelly did not seem to have led to – it is page 217 of the appeal book – does not seem to have led to any problems in practice, and that:

Proper regard for earlier decisions and the need for certainty in the law can best be recognized by applying the decision in Donnelly to s 500. The terms of s 569 are also of some importance. We hold that the process prescribed by section 260‑5 is not an attachment for the purposes of s 500.

In our respectful submission, respectful of the Full Court, if your Honours look in that judgment for any explanation about what section 500 means, what it means in its context, particularly subsection (2) and section 501 or the provisions in section 555 and 556 which specifically and exhaustively mandate how the assets of the insolvent company are to be distributed, your Honours see none of those considerations in the Full Court judgment, but it is ultimately the proposition that Donnelly seems to have worked for bankruptcies. There are no practical problems. A concept of precedent justifies applying that consideration to section 500. In our submission, the Full Court did not grapple with the presence of the word “distress” in section 500.

GUMMOW J:   Did they deal with Project Blue Sky at all?

HEYDON J:   It was cited.

MR ROBB:   I think they cited it.  I am not sure it was developed.

GUMMOW J:   It is in the list of cases at the front, but I cannot find it in the text at the moment.

MR ROBB:   Yes, 76.  That was dealt with – your Honours may recall that the Commissioner served three section 260‑5 notices in identical form, however, describing Bruton, the trustee, differently.  Before your Honours’ Court there is no issue about that.

GUMMOW J:   We only have to worry about one, do we not?

MR ROBB:   Yes.  Before the Full Court Bruton made an issue of the matter and I am simply saying that if your Honour looks at page 217, there is the heading “NOTICE OF CONTENTION”.  There was an argument before the Full Court, no longer of any application here, as to whether one or other of the notices was the correct one.  I say all of that only because the citation of Project Blue Sky was in that context.  So the proper answer to Justice Gummow’s question may be, relevantly it was not dealt with.

GUMMOW J:   There is a discussion of Project Blue Sky in its application to two statutes of the one legislature, which is what we have here, in the Maritime Union Case (2003) 214 CLR 397 at 411 to 412. Project Blue Sky itself was about a simpler situation, in a way.  It is all in the one statute.  Here it is a bit more complicated because you have two statutes of the one Parliament.  Somehow you have to read them together.

MR ROBB:   Yes. But ultimately our submission at its heart is simple. The place to start is section 500 and its contextual statutory provisions. In our submission, in the real world, the winding‑up of companies is a fundamentally important issue. The question, what happens in the enforcement of process before the making of a sequestration order in a bankruptcy context is important, but a subordinate matter in ultimate legal and commercial terms, and it is not, with respect, a satisfactory outcome for the fact that Donnelly just happened to have been decided in the bankruptcy context after the Clyne Committee happened to have had an input which introduced the precise language of section 569. To have all of that dominate the outcome and leave a gap in section 500 is, with respect in our submission, inappropriate.

HEYDON J:   Can I go back to a question that was debated earlier this morning, and I am still not clear – it may be my fault entirely – what your position is on it. We have a conflict between section 260‑5 and section 500. Do you resolve it by reading 260‑5 down or do you resolve it by letting it operate, as it were, amply and then letting section 500 operate on its consequences and declaring them void? Which approach do you take?

MR ROBB:   Working backwards, because section 500 only applies to attachments put in force after the passing of the resolution to wind up, factually there will be no overlap. Section 269 only applies to attachments effected before the commencement of the winding‑up. So in terms of actual application, as we would respectfully read it, there is no overlap. However, as a matter of statutory interpretation we have to accept that section 569 is there containing the words that it contains. That was enough for the Full Court to effectively read down section 500 to conform to the words that were not there but were in section 569 and also caused the Full Court to ignore the existence of the word “distress” in section 500.

HEYDON J:   Let us not worry about the tragic failings of the Full Court. Assuming this was an entirely open question freed of any cases at all, do you give 260‑5 some narrower construction so as to allow section 500 to, as it were, take the priority that on your argument it must have or do you let 260‑5 operate amply and then have section 500 operating as a kind of invalidating or nullifying factor in relation to what has happened under section 260‑5?

MR ROBB: Section 500 will never invalidate what has happened under section 569.

FRENCH CJ:   That is section 260‑5?

MR ROBB:   I am sorry. I may have misunderstood your Honour’s question. We submit that section 500 invalidates the attachment that would otherwise follow from the service of a section 260‑5 notice after the passing of the winding‑up resolution. If some other section 260‑5 notice had been served by the Commissioner before that time, at a time when section 500 had no application, on the face of it, its fate would depend upon section 269 of the Corporations Act. I am sorry – section 569.

GUMMOW J:   This transcript is going to be a real delight.

MR ROBB:   Yes. I apologise, your Honour. It is section 569. We have not taken on the issue or the burden, because we would respectfully submit it is not necessary for the Court to decide it in this case, as to whether or not section 569 is confined to curial processes because of the presence of the words it contains. It does not matter.

HAYNE J:   Either your point is that 500 and 569 are directed to radically different subject matters or the point fails. Section 569 is concerned with enlarging the estate available to the liquidator by looking backwards at transactions that have occurred by compulsive process in the period up to six months before commencement of the winding‑up. Section 500 is concerned with the entirely different subject matter of what is to occur after the resolution for voluntary winding‑up is passed.

MR ROBB:   Yes.

HAYNE J:   Why do we keep saying, we need not look at 569, there may be dragons over there, but we are not concerned to decide them?

MR ROBB:   I think the direct reason for that is that somebody in the position of the appellant is always inclined to deal with the reasoning of the Full Court which, in our submission, wrongly and, counter to what your Honour has just said, followed the path that I have been dealing with.  In our submission, that is the wrong path and I have probably made the point.

GUMMOW J:   I know that, but you then have to show what the right path is, you see.

MR ROBB:   Correct, your Honour.

GUMMOW J:   Then you have to get somewhat out of the valley and start climbing up the mountain, because we are on the mountain, not in the valley.

MR ROBB:   Yes.

HEYDON J:   I just raise, in view of the fact that there will now a little lull, one other matter of detail.  You, in your earlier submissions, pointed out that the Corporations Act was the first Commonwealth statute and it looks back to a past time, but of course it was not really the first Commonwealth statute.  There was a Commonwealth statute that was invalid and there has been intense Commonwealth interest in the field, at least since the least since the late 1960s, has their not?

MR ROBB:   Yes.

HEYDON J:   All those latter State – or 1981 code ‑ ‑ ‑

MR ROBB:   Yes.  I perhaps should have said that this particular Act is the first general Commonwealth Act that was effective.  I do not have them to hand, but I had checked the Act that was ineffective contained the self same provisions.  That is to be checked, but I can recall looking at it myself.

HEYDON J:   This is a not a satisfactory method of statutory construction, but you have been talking about the intention of Parliament and the intention of Parliament is really the intention of the Executive and if you look hard enough, you will find a group of eternally unchanging public servants who have idea they push back into the 1970s.  You will find on the one hand a movement to get rid of the Crown priority, on the other hand a movement to retain the other provisions as they had been for more than a hundred years.  Do you adopt anything like that or spurn it?

MR ROBB:   We are not aware of anything more than what we have put to the Court that might affect the outcome of this argument. 

GUMMOW J:   As I understand your submission, it is that the relation between the two sections and this expression “is void” can produce a result that in anticipation of what would be an ineffective attachment, the Commissioner may be enjoined.

MR ROBB:   Yes, that is our submission.

GUMMOW J:   That is what happened here.

MR ROBB:   Yes.

GUMMOW J:   If the Commissioner is not enjoined, I do not know quite what happens.  I think we are back to where we were before when the Chief Justice and Justice Hayne were putting questions to you.

MR ROBB:   Well, it is our primary submission that if the Commissioner is not enjoined and/or the notice set aside equivalently to comparable arrangement in a garnishee situation, it can and should be complied with and the consequence will be that the Commissioner or the creditor does not get good title to the money and it has to be paid to the liquidator as money he had not received and that the law, at the end of the day, has no trouble with all of that. It just has to be worked out perhaps a little bit more minutely, depending upon the circumstances, as to what the process is at what time to deal with the invalidity that will be caused or has been caused by the application of section 500.

GUMMOW J:   Consideration treated closely of process and remedies is essential to construing these sections because it is what they are about really.

MR ROBB:   Yes.

FRENCH CJ:   Just coming back for a moment to the operation of 260, we are told in 260‑5 of the circumstances in which a notice may be sent and the requirements that may be expressed in the notice, but then the substantive effects are 260‑15, the indemnity, and the obligation itself, does it arise other than under 260‑20(1):

The third party must not fail to comply with the Commissioner’s notice.

MR ROBB:   Our submission is, yes, and in this respect the decision of this Court in relation to the preceding section 218 is relevant.

HAYNE J:   Try the Act for a start, Mr Robb.  Section 260‑5(3) is the relevant provision, is it not?

MR ROBB:   Yes.

FRENCH CJ:   That is taken to owe the money to the debtor.

HAYNE J:   “The Third party is taken to owe money”.  So the statute on its engagement creates a debt.  Now, the propositions you have been putting about the effect of 500(1) seemed to contemplate that section 260‑5 permits the giving of a notice, has the consequence prescribed by statute under 260‑5(3), namely, the third party, here the firm of solicitors, he is taken to owe money to the debtor, is it not?  Is that right?

MR ROBB:   It is to the debtor and not the Commissioner.

FRENCH CJ:   That is a condition.

HAYNE J:   That is the condition, is it?

FRENCH CJ:   That is the condition, yes.

HAYNE J:   Right.  I withdraw my strictures upon you and apply them wholly to myself, Mr Robb, which is something that you would dearly love to say.

FRENCH CJ:   Graciously done.

MR ROBB:   No, your Honour.  It is always a dangerous business to think or say such things to anybody.

FRENCH CJ:   Elsewhere than 260‑20?

MR ROBB:   Yes, my answer was that, as this Court ‑ ‑ ‑

FRENCH CJ:   I am just looking for the words.  You started talking about a case.  I just wanted to ask where in the section, other than 260‑20, is the Piper Alderman obligation to comply with a notice to be found?

MR ROBB:   There is not.

FRENCH CJ:   All right.  So it is that surely upon which 500(1) must operate, is it not?

GUMMOW J:   Section 260‑20 is a criminal offence.

MR ROBB:   Yes.

FRENCH CJ:   There is an obligation sanctioned by a criminal penalty.

MR ROBB:   Yes. That is why we say that if there is a notice given and it remains on foot and is not interfered with by a court order, it needs to be complied with. Once it has been complied with, the Commissioner cannot keep the money because the attachment that was effected by it is void. That is why we say, it being slightly different in the garnishee situation, that section 500 just does not have the effect of disappearing court orders or authorising people to ignore them.

Very shortly, what this Court said in Clyne’s Case was that there were implied consequences of section 118 and, specifically on the facts of that case, an implied consequence of the statute that any purported subsequent assignment by the debtor of the debt would be ineffective.  It is when you look at the express terms of section 260‑5, the operative part being 260‑20 and what we would submit are the implied effects by analogy flowing from this Court’s decision in Clyne’s Case, what is effected by a section 260‑5 notice in relation to ownership of the debt is an attachment.

GUMMOW J:   How does 260‑15 work on your theory?  There is no injunction and the notice is obeyed.  The third party, that is Piper Alderman, will be indemnified for its payment, will it not?

MR ROBB:   Yes.

GUMMOW J:   There is a deemed authorisation by your client, but it now turns around and says it wants the money back, on a money had and received count.

MR ROBB:   Yes, in our submission, the effect of the avoidance of the attachment in this context and a garnishee context does not mean that the debt revives so that it can be pursued by the original creditor against the party who has complied with the order.  What has been avoided is the entitlement of the attaching party to the money and that the various machinery provisions which exist in relation to garnishee orders no, relevantly, less than in relation to section 260‑5 notices work according to their terms.

GUMMOW J:   I think the problem is that there is the term “attachment” which in its ordinary meaning did apply to seizing chattels and once you got through the garnishee system and into intangibles, you get the sort of problems we have now got which are exaggerated and exacerbated when you have a linkage of the two statutory systems that we have here with section 500.

MR ROBB:   Yes.  In the broad, your Honour, I cannot gainsay any of that. 

GUMMOW J:   I am not sure at the moment how one works it all out.

FRENCH CJ:   The Commissioner’s entitlement has no source, does it, other than as a consequence of the obligation imposed on the recipient of the notice, the debtor?

MR ROBB:   Yes.

FRENCH CJ:   So one really, in the end, is reduced to talking about the obligation. You do not construct the entitlements out of it. You go back to the obligation. That is the source provision here upon which the operation of which, in conjunction with section 500(1), is what concerns us.

MR ROBB:   Yes, that is correct.  When there is an obligation that the debtor pay to the attaching party, when that obligation is fulfilled, the implication is that the money then becomes the property of the attaching party in discharge of whatever obligation it was that led to the attachment in the first place.  Your Honours, I have substantially covered the field that I needed to cover.  I have left out some of the detail in relation only to some of the points that I had intended to put before your Honours.

I believe that the detail is in our written submissions.  May I be permitted, just in relation to some of the points, to give your Honours some very specific citations in elaboration of what we have said?  We have touched upon the fact that commencing in 1980 various legislation not only abrogated the Commissioner’s priority, but in very specific terms provided an alternative taxation regime governing the Commissioner’s entitlement to share in the assets of an insolvent company.

The first of the legislation is the Taxation Debts (Abolition of Crown Priority) Act 1980. That may be thought to be the principal legislation. Section 5(1) repealed section 221 of the ITAA, which his Honour Justice Hayne mentioned earlier. Section 4(1) is the section that introduced the new formula which made it clear that the liquidator was required to retain and pay to the Commissioner his pro rata share.

GUMMOW J:   Where do we see that in the text, pro rata notion?

MR ROBB:   Sorry, your Honour, I misheard your Honour.

GUMMOW J:   Where do we see the pro rata reference in the new 215?

FRENCH CJ:   It is (3B), is it?

MR ROBB:   Yes, it is (3B).  I have looked at this before and mentally done the arithmetic and I think it does what I say it does.

GUMMOW J:   Yes, I see.

MR ROBB:   My learned friend says he accepts that.  It is a verbal formula which achieves the result I mentioned as opposed to a numerical one which makes it harder to follow.  The Crown Debts (Priority) Act 1981 in section 3 by way of the form of words abrogated the prerogative priority of the Crown and, for example, put the Commissioner in the same position in relation to preferential payments as would have been ordinary unsecured creditors. So whatever the effect of section 569 of the Corporations Act may be, payments to the Commissioner that would in other circumstances be a preference ‑ ‑ ‑

GUMMOW J:   It says, “Subject to any provision of any law of a State or Territory”.

MR ROBB:   Yes.

GUMMOW J:   It does not say “law of the Commonwealth”.

MR ROBB:   No.  Frankly, I am not sure exactly where you would end up in a given circumstance applying those provisions.  It is sufficient for completion to note that the Insolvency (Tax Priorities) Legislation Amendment Act 1993 in a series of sections, sections 3 to 10, if I may use this expression, mopped up some isolated remaining circumstances where the Commissioner may have had a priority, a de facto priority, for example, in relation to tax instalment deductions that had already been received by him.

It is our understanding that, as a legal and practical matter by means of that series of legislation, not only was the Commissioner’s priority for payment of income tax removed but there was within the income tax law framework positive obligations on liquidators created which matched the new parliamentary intention that the Commissioner would share with other unsecured creditors. Whatever else must be said, if our position is wrong in relation to section 500(1), that result is likely to be fundamentally undermined wherever the assets of the corporation in winding‑up consist of substantial debts.

GUMMOW J:   Does section 5A of the Corporations Act have anything to say on this, in particular, section 5A(2)?

MR ROBB:   Your Honour, it does insofar as it confirms the intent that the sections we have been dealing with are to bind the Crown.

GUMMOW J:   If you read the provisions of Part 5.6 of Chapter 5, that has the structure Justice Hayne was putting to you earlier this morning, that binds the Crown in the right of the Commonwealth.

MR ROBB:   Yes, correct, your Honour.

GUMMOW J:   As well as the States.

MR ROBB:   Yes.  With respect, we accept that, your Honour.  May I give the Court three authorities without taking the Court to them.  I will say in advance that these authorities go to the proposition, which may not turn out not to be controversial in this case, that the word “attachment” is not a reference to the process but the legal outcome of service of the attachment. 

We have provided copies of these in loose form to your Honours.  Blacktown Concrete Services Pty Ltd v Ultra Refurbishing and Construction Pty Ltd (In Liq), a decision of Justice Santow at first instance, (1998) 43 NSWLR 484, particularly at 496. Relwood Pty Ltd v Manning Homes Pty Ltd (No 2) (1992) 2 QLDR 197 in the judgment of Justice McPherson at 198, and particularly 201.  Finally, in the judgment of Justice Burchett in Donnelly at first instance in (1988) 84 ALR 547 at 559. I think there is only one other particular set of authorities, your Honour. Your Honours, I mentioned the decision of this Court ‑ ‑ ‑

GUMMOW J:   To my mind, I am not familiar with these cases, you will have to explain how the point arose and why it was material and what they said.

MR ROBB:   May it please the Court.

FRENCH CJ:   Before you do that, when you speak of the legal outcome rather than the process, in the statutory context in which we are operating, going back to the point we were discussing before, the legal outcome is the creation of the obligation to pay on the part of the debtor, that is to say, on the part of Piper Alderman, is it not?

MR ROBB:   Yes.

FRENCH CJ:   That is the only legal outcome with which we are concerned in the statutory setting?

MR ROBB:   As well the entitlement of the Commissioner to keep the money, that is, the title of the Commissioner to the money that is paid to him in extinguishment of the debt that he asserts.

GUMMOW J:   That is 260‑15, is it?

FRENCH CJ:   That is the release to the debtor, is it not?

MR ROBB:   Yes.

FRENCH CJ:   It is really a derivative or incidental from the obligation.  It all comes out of the obligation.  You talk about entitlement, but there is nothing separate in the section saying the Commissioner is entitled.  It just says there is an obligation to pay.  You can call that entitlement if you like.

MR ROBB:   Yes, but from the perspective of the section 500 within the Corporations Act, that is concerned with the title of the company to the assets that it had at the relevant point.  The issue is whether the liquidator can say against the Commissioner or some other creditor, “Give me the money back”.  We acknowledge that the same question may arise in advance, as it did in this case, but, ultimately, in our submission, what the provisions of the Corporations Act are concerned with is the entitlement of the liquidator of the company in winding‑up to insist upon repayment of money to which some recipient does not have a title which is good against the liquidator.

FRENCH CJ:   So what useful point does your distinction between process and outcome lead to in the statutory context?

MR ROBB:  As Justice Gummow said, whatever we might submit about the ultimate legal position concerning the entitlement of assets that arises in the context of people having statutory power to give notices, whether through a court or otherwise, requiring other people to do things and then there are statutory consequences on that, the ultimate question is, what is it that section 500 is intended to avoid? Section 500 is really only concerned with protecting the assets of the company and not undermining the position of third parties who have acted in accordance with the apparent commandment of the law.

So we submit that, when one looks into this, section 500 does not retrospectively undermine the discharge that the third party gets and does not permit the corporation to get the money back from the debtor who paid in accordance with the order. What relevantly it does, it avoids the title of the attacher and the process may be prevented, as it was in this case, by the seeking of an injunction to prevent the Commissioner proceeding and that achieved the desired result. assuming, of course, the appeal succeeds.

FRENCH CJ:   So you get the release or the indemnity even if you have paid over without any obligation to do so in the face of an apparently valid notice, which turns out ‑ ‑ ‑

MR ROBB:   Our primary submission would be yes, but our submission would be that even if that was not the case, the appeal would still succeed on the basis of the submissions we have made.  Whatever one might think about the position of the Commissioner, in our respectful submission, the circumstances and the questions that arise under the comparable statutory process of the garnishee order is not much different.  One hesitates to say that a statute is intended to avoid the order of a superior court of record or the consequences that under statute flow from it. 

GUMMOW J:   Are you going to take us to Justice McPherson’s decision?

MR ROBB:   Yes.  May I make our position clear.  The principal reason why we cited those authorities is that they are situations where the relevant judicial officers have discussed in principle how attachments work.  In each case the underlying facts and the issues are probably of little assistance to this Court.

In the Blacktown Case the facts were in a sense quirky.  A garnishee order was served under the Local Court Act on a debtor and before the garnishee order was complied with there was a move to set aside the underlying judgment and the Local Court made an order requiring the money to be paid into court.  So the truth of it was, as his Honour finally held, the money that had been paid had not been paid under a garnishee order and that fact had consequences when it came to considering the priority for entitlement to that money as between the garnishee and the liquidator of the creditor which subsequently went into liquidation.

Your Honours, what Justice Santow had to say about the legal effect of an attachment, which your Honours will find starting at page 495 at about point C and going over to 496 to his Honour’s numbered paragraph 4, is a treatment of the history of garnishee orders which we respectfully adopt in lieu of our trying to put those submissions anew ourselves.  Your Honours see on page 496 at paragraph 4:

Thus the only right the judgment creditor obtains from the making of the garnishee order is a statutory right, which may be described as a lien conferring the right to prevent the garnishee from paying over the debt to the judgment debtor.

Then his Honour refers to Relwood.  Down about the middle of the page, towards the right –

The only effect of a garnishee order is that from the time it is first taken out, neither the judgment debtor nor the garnishee can dispose of the debt the subject of the attachment –

Again, a reference to Relwood –

only in that sense does a garnishee “have the property secured”, or is the debt “bound” by the attachment.  Thus, in Homes v Tutton (1855) 5 El & Bl 65 at 80; 119 ER 405 at 411, describes the word “bind” in this context as meaning:

“... that the debtor, or those claiming under him, shall not have power to convey, or do any act, as against the right of the party in whose favour the debt is bound; and we construe it as not giving any property in the debt, in the nature of a mortgage or lien, but a mere reference to have the security enforced.”

Now, at the end of the day his Honour held that in that case the money was not paid under a garnishee order but was paid into court under the supervening order designed to protect the status quo pending the resolution of the challenge to the original judgment.  Once again, when one goes to Relwood v Manning Homes, the actual issue before the Court would not be of assistance in the present context. 

In that case there was a floating charge which was granted before the issue of a garnishee order but crystallised after service and the discussion by, in particular, Justice McPherson of the effect of the garnishee order was but a step along the way of determining whether whatever title or property the attaching party got in the debt had priority over the holder of a floating charge which subsequently crystallised and the Court found in favour ‑ ‑ ‑

GUMMOW J:   A well drawn floating charge might provide for an attempt at garnishee as a crystallising event.  It would all depend on the floating charge, I suppose.

MR ROBB:   It might, your Honour.  Frankly, I am concerned about detaining this Court ‑ ‑ ‑

GUMMOW J:   On the other hand, if you are drawing a floating charge, you do not want a floating charge which is continually in the process of crystallisation which may not always be what your client wants.

MR ROBB:   Yes.

GUMMOW J:   Were you going to take us to Hall v Richards 108 CLR 84 at 92?

MR ROBB:   I was not.

GUMMOW J:   It is an explanation by Sir Frank Kitto of how a garnishee order works.  As far as I am concerned, that is a starting point.

MR ROBB:   Yes, your Honour.

GUMMOW J:   It was referred to, actually, by Justice Santow, I think, and Justice McPherson as well.

MR ROBB:   Yes, your Honour.

GUMMOW J:   What his Honour said was:

Such an order, though not working an assignment or giving the judgment creditor any proprietary interest in the debt, yet gives him positive rights with respect to it which a creditor having no more than a judgment does not possess; not merely a negative right to prevent the judgment debtor from accepting payment of the debt or disposing of it, but positive rights for the recovery of what is owing on the judgment, namely a right to give a valid receipt and discharge for the money, and a right in a case of non‑payment to obtain execution against the garnishee.

You accept that, do you not?

MR ROBB:   Yes, I am indebted to your Honour.  I do.  There is an issue about whether – if I may, it is a matter for your Honours – the extent to which I deal with some questions raised by the Commissioner to the effect that on the Commissioner’s case ‑ ‑ ‑

GUMMOW J:   Just going back to Hall v Richards for a minute, do you say that the system under the taxation legislation answers the description or is close enough to the description of the garnishee by Justice Kitto?

MR ROBB: Yes, we do, your Honour. That leaves, your Honours, what one might call the particular points raised by the Commissioner in his response to the effect that – and I hope I do the argument justice – even if otherwise the Court were persuaded that the section 260‑5 notices in the present case were attachments capable of falling within section 500(1), they do not operate on the property of the appellant and a second ‑ ‑ ‑

GUMMOW J:   You deal with this in your reply, do you not?

MR ROBB:   I do.  To be frank, I am hesitant about embarking upon an anticipation of that argument and I am concerned that if I do so, I will not use, with respect, this Court’s time wisely.  We deal with it in reply.  I do not mean any offence in this, but in part I am not sure exactly how the argument is put and I am concerned that if I anticipate it, I might flannel somewhat on the issue.  I am perfectly in a position to do so, but it could be dealt with briefly in reply in all of the circumstances, and naturally I am in the Court’s hands.

GUMMOW J:   You will have adequate time to reply.  If we do not finish today, well, so be it.

MR ROBB:   Yes.  Well, I imagine everything that needs to be done in this case can be dealt with today and the most efficient way to deal with it will be not for me not to anticipate the argument in detail.

FRENCH CJ:   Yes, thank you, Mr Robb.

MR ROBB:   Thank you.

FRENCH CJ:   Yes, Mr Slater.

MR SLATER:   Your Honours, my learned friend began by describing the issue in the case as being the interpretation of the word “attachment” in section 500. We respectfully prefer the formulation put forward by Justice Hayne that it is the intersection of Subdivision 260‑A and Chapter 5 of the Corporations Act and, in particular, section 500, which is the matter before the Court. On the facts of this particular case, the question being whether on these facts those provisions are in conflict and if so, how they should be resolved.

I put the emphasis on the facts of this particular case because our friend’s argument has proceeded on the assumption that this is a case about the assets of a company, but, in our submission, section 500 has nothing to say to the amount held by the solicitors in this case because that amount was not property of the company in any material sense, certainly not for the purposes of Chapter 5. So that, in our submission, section 500 is not engaged at all.

GUMMOW J:   Just a minute.  It is not a question of the amount held by the solicitors.  The question is whether their rights in relation to what was held by the solicitors which amounted to property of the company within the statutory sense.

MR SLATER:   Yes. May I address that in more detail a little later. The other thing I wanted to say about our friend’s case is that in large part as it evolved orally it was predicated on a proposition that the question is not whether the notice given by the Commissioner under section 260‑5 itself was effected by section 500, but rather about whether the Commissioner was entitled to retain the proceeds of compliance with the notice. That is not the way the case was conducted either at first instance or in the court below, so that our written submissions are not responsive to that question.

In the matter at first instance, as your Honours will see from the originating process on page 2 of the appeal book, the contention advanced by the applicant was that the notice was void and unenforceable.  The argument was squarely directed to whether the notice itself was ineffective, not as to the consequences of compliance with the notice.  With great respect to my learned friend, I find it difficult to see where the argument ‑ ‑ ‑

GUMMOW J:   The claim as originally framed at page 2 did not seem to include the injunction eventually granted by the primary judge at page 173, did it?

MR SLATER:   No.  The injunction, as his Honour formulated, was largely his Honour’s invention.

GUMMOW J:   Maybe none the worse for it.

MR SLATER:   I am not suggesting otherwise, your Honour.

GUMMOW J:   Yes, I understand.

MR SLATER:   I am merely explaining why our written submissions do not engage the case as it has been presented this morning.

HAYNE J:   Paragraph 1 of Justice Allsop’s order is a declaration that the notice is void.  It seems to match the first declaration sought on page 2.  There does not seem to be any novelty.

MR SLATER:   Yes, that the notice is void, but void in the sense of being ineffective as a notice, not void in the sense of not entitling the Commissioner to retain the proceeds.

FRENCH CJ:   To be void as a notice means nothing other, does it, than that the recipient of the notice does not have an obligation to pay money under it?

MR SLATER:   That is right. That was the ground upon which the matter was contested. With all respect to my friend, I find it difficult to see the argument which he has mounted this morning articulated in his written submissions and that is why we had not responded to it in writing. It rather seems to us, your Honours, that the case advanced orally really belongs in the territory of section 569 rather than section 500, but that is not an area into which I wish to venture, dragons or otherwise.

The legal outcome of Subdivision 260‑A is to be found in section 260‑15 and in section 260‑20.  We have not descended in the way in which our friends have into the valley of the sequence of judgments of the Full Court concerning the operation previously of section 218 and now of Subdivision 260‑A.  I am mindful that your Honour Justice Gummow has told us before that this Court sits on a mountain, so that we have endeavoured to formulate our case in terms of what the outcome is rather than what the previous decisions of the Full Court mandate.

May I endeavour to articulate the structure of our argument at the outset. We seek first to address the operation of the statute in Subdivision 260‑A. May I pause there for a moment to say I refer to Subdivision 260‑A because, as the Chief Justice pointed out, it is really sections 260‑15 and 260‑20 which create the obligations with which we are concerned. We seek first to address the operation of the section, second, to address the question, what was the property of the company for section 500 purposes and what operation a notice under Subdivision 260‑A could have upon it, third, to address the proper construction of section 500 which in a sense is what the argument so far has been concerned with and fourth, to address the question whether if Subdivision 260‑A and section 500 do indeed come into conflict, one or the other should be given priority.

Before I turn to those, may I very briefly draw attention to some factual matters which set the context in which this particular case arises?  I do so because we do see it respectfully as important that this is a case about a company which formerly was a trustee and not a case about a company with assets that are not in its own right.  The evidence which was led below, none of which was contested, was that the only activity of the appellant company was to act as trustee.  May I take the course of giving your Honours some transcript references without taking your Honours to them? 

Your Honours will find that at line 30 on page 9 of the appeal book.  On the appointment of the administrators the only trust asset was an amount of some $470,000 in the trust account of Piper Alderman.  Your Honours will find that at line 11 on page 55 in the administrator’s report as to fees.

GUMMOW J:   Line 11?

MR SLATER:   On page 55, your Honour.  Your Honours will see that the only assets disclosed were “Assets Cash Held on Trust $470,000”. 

FRENCH CJ:   There was the potential of some recovery mooted, was there not, from a third party, Sydney University?

MR SLATER:   There was mention of it, your Honour, but this is a case in which – two things can be said about that.  The first is that this is a case in which the money had, in accordance with the terms of the instrument and disregarding the Commissioner’s claims, been paid over to the university.  The question whether an amount can be recovered from a beneficiary who has been paid in error by the trustee is not one which has received any significant judicial consideration that we could find.  But the burden of authority just seems to be that it is not recoverable.

FRENCH CJ:   Anyway, it is not an issue for us in this case.

MR SLATER:   And the second point is that this company was in no position to institute such proceedings.  So we would say that that is not a relevant asset.  I described it as an amount on deposit with Piper Alderman.  As Justice Allsop correctly points out, it is really a set of rights arising under the Legal Profession Act, but for practical purposes we would submit that that makes no particular difference.  The next factual matter of materiality is that the only trust liability – and I emphasise the word “trust liability” – was the liability to the Commissioner.  There is an issue which has vexed the courts over a very long time as to whether a liability tax accrues at the end of the year of income or accrues on service of a notice of assessment.

The answer seems to be that it depends upon the context in which that question is asked.  If it is asked in a death duty context where the issue is liability, then it appears that there is a liability.  If it is asked in a context which turns on recoverability or on the application of a provision such as section 218, it appears that the answer is that the liability exists or comes into enforceable being when the notice of assessment is served.  The notice of assessment in this case is to be found at page 40 of the appeal book.

There was a liability for legal fees to the solicitors for which they, as solicitors holding a sum in trust, had a lien over the sum in trust.  There seems to be an implicit contention in our friend’s reply that the trial judge found that there were other trust expenses.  In our submission, when one goes to the parts of the appeal book referred to in footnotes 15 and 16 of our friend’s reply, one finds that the trial judge’s findings do not go so far but only to show that the appellant had or may have itself incurred liabilities, not that they are incurred for trust purposes.

GUMMOW J:   Where is the relevant finding by the primary judge which you say is ‑ ‑ ‑

MR SLATER:   His Honour was not concerned with the point.

GUMMOW J:   Does his Honour advert to the question at all as part of a narrative?

MR SLATER:   Yes, your Honour.  It is as part of a narrative, your Honour.  My learned friend directs my attention to page 154 of the appeal book, in particular to paragraph 29.  His Honour there records that “proofs have been lodged in the winding up” by “Mr Scott for legal fees for $183.14”.  His Honour does not find that that is a trust liability and when one looks at the proof itself, one finds that it is not so described and, moreover, it was lodged after and in respect of events after the appointment of the administrators.  We have given your Honours the references to those matters in our written submissions.  Unless your Honours wish me to do so now, I will not take time to go back to them. 

The next thing to notice factually is that upon the appointment of the administrators the appellant company ceased to hold office as trustee.  That is a consequence of clause 10.2, paragraph (b) of the trust instrument which is at line 25 on page 35 of the appeal book.  I articulate as being “ceased to hold office” because, of course, it did not cease to hold its rights against Piper Alderman as trustee.  It remained a trustee of those rights for the purposes expressed in the instrument but it no longer had the authority of the office of trustee to take any steps in respect of them.  So that it became, in effect, a bare trustee.

HEYDON J:   Yes, it would have duties as trustee.

MR SLATER:   It would have duties as a bare trustee and, of course, it still had title, but it not longer had the office or the authority to do things in respect of them and, in particular, it no longer had authority to commit the trust fund to expenses.

FRENCH CJ:   That was the same day that the amount was paid into the Piper Alderman trust account, was it not, 28 February?  It is shown as an entry on 1 March, I think, but it is shown as received on 28 February.

MR SLATER:   I am sorry, your Honour, I cannot recall that off the cuff, but that sounds correct.

FRENCH CJ:   They appointed the administrators and also paid the money over.  Presumably the money was paid before the administrators were appointed.

MR SLATER:   One would assume so, your Honour, yes.

FRENCH CJ:   Although it does not say so.

MR SLATER:   On the same day the amount was paid to the University of Sydney.  The administrator’s report gives a brief summary at page 53 of appeal book at about line 30 of the circumstances in which the administration commenced.  It was a voluntary act of the sole director.  The justification was said to be the costs of the proceedings under Part IVC of the Administration Act contesting the Commissioner’s refusal to grant endorsement.  That seems a curious thing, since those proceedings were not forced upon the company.  But the consequence of the appointment of the administration was that the appellant was displaced from the office of trustee and the trust fund was left effectively without a trustee.

The next factual matter to which I wish to draw your Honours’ attention is that there had been no disbursements on account of the trust fund from the appellant’s own funds.  The appellant’s own funds only ever constituted its paid‑up capital of $2.  Your Honours will find that at line 42 on page 17 of the appeal book which is an extract from the record of the Australian Securities and Investment Commission. 

The Commissioner was a creditor of the trust fund and thus of the appellant because the fund was not exempt from income tax it having not been given an endorsement under the provisions of the Administration Act.  That is referred to at line 22 on page 10 of the appeal book.  The fund was disclosed as being presently entitled to the net income of two other trust funds, one being the Gas Infrastructure Trust and the other being the Pipeline Rehabilitation Trust.  A summary of those facts is set out in an affidavit filed on behalf of the respondent on page 141 of the appeal book at line 30.  The supporting documents are not included in the appeal book, but there is no contest about them.

The taxable income which resulted from the present entitlement under those trusts was an amount exceeding $147 million.  The actual receipts of the trust fund appear to have been considerably less than $1 million.  So far as they are disclosed, they are set out at page 141 of the appeal book.  The amount expended on the purposes for which the fund was established, that is, the provision of scholarships, was some $165,000 and that appears on pages 105 and 106 in an affidavit of the administrator.  There are other transactions which are obliquely referred to in that affidavit concerning a Woolstore Trust at page 103.  Those were not explored in the proceedings.  They were relevant to the exemption case, but not relevant to the contest over the notice.

The consequence of all that was that the sole asset held for the benefit of the trust fund was the rights against Piper Alderman in respect of the $470,000 subject to that firm’s lien for its costs up to the point at which the administration commenced.  The sole creditor was the Commissioner in an amount exceeding $7 million under the assessment which had been made for the only year in the period of the present entitlement which had been assessed. 

I think, perhaps, those circumstances answer the question which your Honour Justice Gummow asked as to who the contest was.  Those and one other circumstance, perhaps, and that is that it appears from page 55 of the appeal book that the liquidator’s fees which the liquidator seeks to recover out of the sum held in the solicitor’s trust account were put at $380,000, which Justice Allsop found to be a rather generous allowance for the work which the trustee had to do in collecting money from the solicitors and paying it over to the Commissioner.

FRENCH CJ:   Was this a combination of the administrator’s fees and the winding‑up fees?

MR SLATER:   Yes, your Honour.

GUMMOW J:   Where do we see that figure?

MR SLATER:   On page 55 of the appeal book, your Honour.  Your Honour will see at line 20, Administrators Fees 77,000, Administrators Disbursements 5,000, Liquidators Fees 165,000 and Disbursements $10,000, a total of $257,000 for Bruton.  The liquidator estimated $41,000 for each of the other three companies which he proposed to administer as a single group, making a total of $380,000.  Over the page at about line 13 on page 56 he records that that allowance did not include any costs of litigation.

Now, it is our respectful submission that those fees cannot be charged to the account of the trust fund.  First, the company no longer held office and had no right to prosecute actions or investigations using trust funds because of clause 10 on page 35.  The only collection that was to be undertaken was to receive the money from Piper Alderman and that required no material action on the part of the administrator or liquidator.  The only liability was to the Commissioner.  Even if the liquidator were authorised to expend trust funds on administration of the trust fund, those costs could not rationally be $380,000.

So that the underlying factual contest really here is between the winding‑up costs of the company not as trustee, but as a company and the Commissioner’s claim to income tax.  In practical terms, the question is whether the liquidator’s fees for winding‑up the former trustee take priority over the Commissioner’s assessment to tax.  Your Honour, having put that factual context to the matter, may I then turn to the four alternative bases.

GUMMOW J:   That debate has not yet be sorted out.

MR SLATER:   I am sorry, your Honour?

GUMMOW J:   Is it attempt at priority?  There is no adjudication of that yet.

MR SLATER:   I beg your Honour’s pardon, I am not quite sure which ‑ ‑ ‑

GUMMOW J:   You say there is a conflict between the liquidator wants $380,000 and the Commissioner wants to come first.

MR SLATER:   Yes.

GUMMOW J:   That has not yet been adjudicated.

MR SLATER:   No, it has not yet been adjudicated, but that is the ‑ ‑ ‑

GUMMOW J:   There is no proof in yet.

MR SLATER:   That is the underlying ultimate factual context in which this case comes to be litigated. I do that for no other purpose than to set a factual context in which to consider the issues. May I then turn to the four alternative bases upon which we say that the operation of Subdivision 260‑A is not in this, or for that matter, in any other case defeated by section 500.

GUMMOW J:   There is another question I wanted to ask you too.  Have any steps been taking in accordance with section 260‑45?

MR SLATER:   No, your Honour.

GUMMOW J:   That seems to impose an obligation on the liquidator.

MR SLATER:   Yes.  I cannot, from memory, tell your Honour whether the liquidator has given written notice of his appointment to the Commissioner.

GUMMOW J:   There is no evidence of it.

MR SLATER:   There is no evidence of it, your Honour, no.  Your Honours, may I turn first to the terms of the statute.  They are as they were at the relevant time and I do not think there has been any change since.  Attached to our outline of submissions, and if it is convenient, I will refer to them by reference to what is there set out.  May I begin with Subdivision 250‑B on page 26 of our submissions.  It sets out in section 250‑25 the object of this Part.  This Part is Part 415 which includes Division 260:

The object of this Part is to ensure that unpaid amounts of tax‑related liabilities and other related amounts are collected or recovered in a timely manner.

The expression “tax‑related liability” is defined in section 255‑1 on page 27 of our submissions:

A tax‑related liability is a pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable).

The note takes your Honours back to the summary which is on the preceding pages in that lengthy table which I whether take your Honours through.  Then section 260‑5 itself is on page 28 of the written submissions:

This Subdivision applies if any of the following amounts (the debt) is payable to the Commonwealth by an entity (the debtor) (whether or not the debt has become due and payable) –

The first is an amount of a tax‑related liability.  I do not need to take your Honours any further than that because here there was an assessment.  May I diverge momentarily to the expression “entity”.  The tax statute takes the innovative approach of defining “entities” to include a variety of non‑entities.  Your Honours will find that on page 30 in section 960‑100 of the 1997 Act.  Just to tell your Honours why that is relevant, section 3AA of the Administration Act tell us that an expression has the same meaning in Schedule 1 as in the 1997 Act.  Your Honours will see that “entity” means not only an individual and a body corporate and a body politic but also a partnership, an unincorporated association, a trust and various funds.

FRENCH CJ:   What does that mean?  It is a relationship.

MR SLATER:   At some point, your Honour, I hope to vex your Honour with that question but at the moment I do not know the answer, but for the purposes of the statute, it tells us that a trust is an entity.  Subsection (2) elaborates upon it:

The trustee of a trust . . . is taken to be an entity consisting of the person who is the trustee . . . at any given time.

The trust itself is taken to be an entity, even though it is a relationship.  However, for present purposes that has the consequence that an assessment was levied on the trust and the entity for the purposes of section 260‑5 is the trust.

GUMMOW J:   Where do we see the assessment, again?  At page 40?

MR SLATER:   The assessment is at page 40.  Your Honours will see it is addressed to the trustee for Bruton Educational Trust.  It is so addressed because of your Honour’s decision in Prestige Motors v Federal Commissioner of Taxation about 10 years ago.  I am sorry, your Honour.  I have forgotten the citation.

GUMMOW J:   That came to this Court, did it not?

MR SLATER:   It came to this Court on precisely that point, what was an assessment in the case of a notice addressed to the trustee of, in that case the Prestige Motors Trust.  The Subdivision in this case is applicable because there is a debt owing by the Bruton Educational Trust to the Commissioner for an amount being the subject of an assessment.  Subsection (2) also authorises the Commissioner to give a written notice to a third party – the third party in this case is Piper Alderman – if the party owes or may later owe money to the debtor. 

In this case the third party owed money to the debtor because of the definition provisions in subsection (3).  If I may respectfully say so, I sympathise with Justice Hayne in getting tangled in these provisions because they tend to confuse the third party and the debtor.  The notice is served on a debtor to the taxpayer but the debtor is actually the taxpayer not the third party.  So the third party is taken to owe the available money to the taxpayer debtor if the third party:

(b)holds the money for or on account of the –

taxpayer‑debtor, and that criterion is here satisfied.  Subsection (4):

A notice under this section must –

and the word “must” is significant –

(a)require the third party to pay to the Commissioner the lesser of, or a specified amount not exceeding the lesser of:

(i)the debt; or

(ii)the available money –

or paragraph (b) in the where there are amounts falling due from time to time.  Subsection (5) deals with when the requirement to pay is to be effective.  Subsection (6):

The Commissioner must send a copy of the notice to the debtor.

Subsection (7):

If an entity other than the third party has paid an amount to the Commissioner that satisfies all or part of the debt:

(a)the Commissioner must notify the third party of that fact; and

(b)any amount that the third party is required to pay under the notice is reduced by the amount so paid.

Section 260‑10 deals with notices given to a body politic.  Section 260‑15:

An amount that the third party pays to the Commissioner under this Subdivision is taken to have been authorised by:

(a)the debtor; and

(b)any other person who is entitled to all or a part of the amount –

So that someone who had a floating charge over the assets of the third party, for example, would be taken by paragraph (b) to have authorised the payment to the Commissioner.  That question does not arise in this case.  Significantly, the last part of the section:

the third party is indemnified for the payment.

We draw attention particularly to the words in section 260‑20:

The third party must not fail to comply with the Commissioner’s notice.

Section 260 is a rewritten version of a statutory provision which has its origin in a Tasmanian statute of the 19th century.  It was adopted as part of the Commonwealth legislation in response to a recommendation of the commissioners of taxation in 1917.  It found its form in the 1915 to 1918 Act as section 50A, in the 1922 Act as section 65, in the 1936 Act as section 218.

FRENCH CJ:   Mr Slater, we might leave the expiration of that ‑ ‑ ‑

MR SLATER:   I am sorry, your Honour.  I get carried away.  I do apologise.

FRENCH CJ:   We will adjourn until 2.15 pm.

AT 12.49 PM LUNCHEON ADJOURNMENT

UPON RESUMING AT 2.16 PM:

FRENCH CJ:   Yes, Mr Slater.

MR SLATER:   Thank you, your Honour.  Your Honours, before lunch I gave your Honours a reference to Prestige Motors v Federal Commissioner of Taxation. I did not give your Honours the citation. It is (1994) 181 CLR 1. I apologise to Justice Gummow. Your Honour was not sitting on this Court. Your Honour was the trial judge.

Your Honours, I was dealing with section 260‑15.  There is one further point I wish to make about that.  If the third party pays in accordance with a notice, he is discharged and in particular that means he is discharged against the liquidator as well as against the company.  Whether the Commissioner can keep the money paid to him pursuant to performance of the obligations imposed by Subdivision 260‑A is not the present question, but if it were, it seems to us that paragraph (b) of section 260‑15 has the effect that the company and in consequence the liquidator is taken to have authorised the payment to the Commissioner. 

In those circumstances, it seems to us very difficult to mount a case that the company or the liquidator was entitled to recover the money from the Commissioner. It is difficult, in our submission, to say that Subdivision 260‑A operates to require the payment, that is, that the operation of the notice is not avoided by section 500, but that the retention of the money is avoided by section 500. That seems to us to amount to an approbation and reprobation of the Subdivision. Section 500 does not strike at part only of Subdivision 260‑A.

In our submission, section 260‑15 is not by any stretch an attachment.  So that, in our submission, the basis upon which our friends put their argument that the notice stands but the retention does not, cannot be sustained in the face of those provisions.

HEYDON J:   You said that section 260‑15 does not constitute an attachment.

MR SLATER:   Yes, your Honour.  That is the indemnity provision.

HEYDON J:   You are concentrating just on that.  You are not running ‑ ‑ ‑

MR SLATER:   I was just speaking of that subsection.

HEYDON J:   You are not contending, in other words, that the conflict that has been postulated does not arise, in other words, that the word “attachment” in section 500 has nothing to bite on because there was no attachment of any kind?

MR SLATER:   Not at this point of the argument, your Honour.  I am saying something to that effect later on, but I have not come to that part of the argument as yet.  Section 260‑20 is, in one sense, the obligatory or operative provision of the Subdivision:

The third party must not fail to comply ‑

That is an obligation to comply with the notice.  The terms of the notice are as set out in section 260‑5(4):

A notice under this section must:

(a)require the third party to pay to the Commissioner the lesser of, or a specified amount not exceeding the lesser of:

(i)the debt; or

(ii)the available money ‑

That is an obligation to pay a sum of money.  It is not an obligation to assign the debt to the Commissioner.  Nor is it a seizure or arrest of the debt.  There is no prohibition in the section against payment to anybody else, only a prohibition against failure to make the required payment to the Commissioner.  In that sense, in our submission, there is no binding of the debt.  It is not like an attachment of goods where the goods are bound by the writ.  It is a requirement here to make a payment to the Commissioner.

Now, there may be circumstances in which compliance with that obligation would prevent the third party from making payment to anybody else.  The third party cannot make a payment to somebody else such that he cannot comply with the obligation imposed by section 260‑20, but that is not an attachment.  It is simply a consequence of the obligation to make a payment. 

Our friends suggest that some observations in Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 is inconsistent with this analysis of Subdivision 260‑A. We would say that that is not so. In the first place, the Court in Clyne was concerned with less explicit legislation.  The text of Subdivision 260‑A has been framed to take into account what was said in Clyne’s Case and, in particular, the observations in Clyne’s Case that the obligation on the recipient of the notice arises by implication.  In Subdivision 260‑A it is not by implication but by express provision.  The second point we make about Clyne’s Case ‑ ‑ ‑

GUMMOW J:   Where do they say by implication in Clyne?

MR SLATER:   On page 11 at about point 7 of the page in the judgment of the Chief Justice:

The words by which the Parliament grants the power to make the requirement necessarily imply that the person to whom the requirement is given will obey it.

I am sorry, your Honour, I thought I had this passage marked, but perhaps I do not.  My recollection – and I cannot do better than recollection at the moment, your Honour – is that there is a similar observation in the judgment of Justice Mason.  Perhaps what I had in mind was the penultimate sentence on page 17, para‑penultimate:

It is evident that sub‑s (1), when it says that the Commissioner may require a person to pay money to him, is giving statutory backing to that requirement so as to impose an obligation on the recipient to pay money that falls within the statutory description.

GUMMOW J:   Is there any equivalent in the old section 218 of the offence provision in 260‑20?

MR SLATER:   Yes, there was, your Honour.

GUMMOW J:   There was, was there?

MR SLATER:   There was discussion in Clyne’s Case as to whether the offence provision of itself imposed the obligation.  May I rest on my juniors to find that reference for your Honours?  I am sorry it does not leap out to me at the moment.  The other thing I wanted to say about Clyne’s Case is that the argument in that case was not directed to the present point and it is not directed to whether there was an attachment.  Nor was it directed to a question concerning the obligations as between the bank and the Commissioner, but rather to the question whether the assignment of the debt, previously owing to the taxpayer, from the taxpayer to somebody else, avoided the operation of section 218.  Your Honours will see that argument articulated in the paragraph first beginning on page 11 at about point 4:

The second submission made on behalf of the appellants was that when the moneys became payable by the Bank (i.e. after the deposits matured) they were, because of the assignment, due to the second appellant and not the taxpayer –

and in consequence the notice did not operate upon them.

GUMMOW J:   Of course, this did not involved a liquidation did it?

MR SLATER:   No.  It was a different context, but ‑ ‑ ‑

GUMMOW J:   But it was at a time when section 221 was in force, was it not?  It is before the repeal of 221, is it not?  It is 1981.

MR SLATER:   The legislation came into effect in September 1980 and, in fact, on 19 September 1980.

GUMMOW J:   The events are in 1979, are they not?

MR SLATER:   The deposits were repayable in September 1979, April 1980 and April 1980, so the events occurred before the abolition of Crown priority.

GUMMOW J:   Now we have not only Subdivision 260‑A, we have 260‑B which deals expressly with liquidators and has a pro‑rating system, does it not, in 260‑45(6)?

MR SLATER:   Yes, your Honour.

GUMMOW J:   If you are correct, the Commissioner is better off, is he not, than he would be if things took their ordinary course under 260‑B?  Does not the presence of 260‑B throw some light upon 260‑A for this liquidation?

MR SLATER:   No more than it did in 1981.

GUMMOW J:   It did then because there was 221.

MR SLATER:   Yes, I accept that, your Honour, but the amendment which corresponds to the text of Subdivision 260‑B was made in 1980 as part of the abolition of Crown priority legislation of that year.

GUMMOW J:   The answer to the question I asked Mr Robb earlier this morning, may be that what the Commissioner is seeking to achieve as a result through use of this notice that he would not otherwise ordinarily achieve, namely, more recovery by avoiding the pro‑rating provision.

MR SLATER:   Yes, and it is our submission which ‑ ‑ ‑

GUMMOW J:   The question, as matter of statutory construction, is that in any way significant?

MR SLATER:   It is our submission, which I will come to in due course if I may, that the operation of section 218 and now of Subdivision 260‑A was one of the things which was recommended it should be written down or written out of the Act in the 1993 reforms and that recommendation was not accepted.  To the contrary, the scope of section 218 was extended so that 218 is a provision which was expressly preserved in the face of the otherwise reduction in Crown priority.

HAYNE J:   But it is the operation of 260‑45, in particular 260‑45(7), is it not, that the liquidator is bound to pay to the Commissioner the amount that is retained?  What is to be retained is determined as the rateable amount that would otherwise be due to the Commissioner, is it not?

MR SLATER:   Yes, your Honour.

HAYNE J:   So that the operation for the provisions that you support is one which would see the Commissioner entitled to recover rateably under 260‑45(7) and, in addition, entitled to recover any amount that the Commissioner can find in the hands of the third party as owed to the taxpayer, is that right?

MR SLATER:   But not to recover twice, your Honour.

HAYNE J:   That is exactly my question, Mr Slater.  He cannot recover more than the total tax debt, but he can recover more than the rateable amount.  He can, if he can find enough third parties owing debts to the taxpayer, recover in full.

MR SLATER:   Yes, your Honour, and that is what the legislature has chosen to do.

GUMMOW J:   Well, that is the question.

HAYNE J:   That is the question.

MR SLATER:   That is one of our submission, I should say.  I thought that was implicit in what I was saying.  I am not in a position to sit where your Honours sit.  So, your Honour, just to conclude on the language of the Subdivision, in summary, in our submission, the language of the Subdivision is not that of attachment or garnishment or assignment.  None of those words are used in the legislation.  The legislation adopts a specific and very precise and clear set of statutory commands.  The command is the Commissioner may give a notice and the notice must take a particular form and the recipient of the notice must comply with it and on compliance, indemnity and authority is deemed to occur.

HAYNE J:  Is one starting point for consideration of the point at issue here recognition of the fact that section 501 of the Corporations Act provides that the property of the company, subject to preferential payments, must be applied rateably between creditors and that that is a provision which binds the Crown and right of the Commonwealth?

MR SLATER:   It does so far as it is not displaced.  So that the question really is whether Subdivision 260‑A displaces that operation or vice versa and that, in a sense, is the ultimate question in a context in which both provisions are engaged.  But, as I said at the outset, one of our submissions and really the threshold issue in this case is whether the provisions are engaged at all.

HAYNE J:   But your proposition about construction of section 260‑5 is a proposition that would apply if there were property of the company?

MR SLATER:   Yes, it would, and my friend’s submissions have addressed the case on that premise, which is why I have addressed it in that fashion rather than just saying we do not have to worry about it at all.  Your Honours, what we do say in our written submissions, and I would re‑emphasise it, is that analysis of a statutory set of provisions by reference to familiar analogies, which is the course with which all lawyers are comfortable, can mislead.  This legislation does not use the language of the common law.  It does not speak of attachments or assignments.  It imposes a set of specific obligations and to construe them as if they used the common law language is, in our respectful submission, apt to lead to the wrong conclusions.  But if an analogy were appropriate, it would be our submission that the more apt analogy than one we have put in our written submissions is that the obligation is akin to the obligation imposed on a guarantor. 

The beneficiary of a guarantee may call upon the guarantor to make payment where the guaranteed party is an insolvent and the trustee or liquidator in insolvency cannot impugn that call or recover the moneys paid under the guarantee.  If the guarantor is entitled to a set off as against the insolvent, then so be it, but the call upon the guarantor is in many ways and in more ways, in our submission, than is a garnishment, similar to the operation of Subdivision 260‑A.  Our primary submission is that analogies of that sort do not really illuminate the operation of the statutory language.  We say that if the Corporations Act was to limit the operation of the Subdivision, it would have to say so in terms and not by implication or analogy. 

Your Honour Justice Gummow asked about the scheme of the Child Support Act and the decision in Luton v Lessels (2002) 210 CLR 333. That was a case which was concerned with section 55 and Chapter III of the Constitution rather than the construction of the particular provisions, but the provisions there in issue in the Child Support Act of 1988 were not garnishment provisions. There was a specific statutory obligation in sections 46 and 47 placed on an employer to make payment into the fund constituted by that Act and there was a deemed statutory discharge of the employers’ obligations to the employee and of the employee’s obligations under the Act upon the making of that payment. It is not more a garnishment than the present case.

Your Honours, may I then move to the second point in our argument which is independent of the first and independent of the third and fourth, and that is that the money on deposit with the solicitors, with Piper Alderman, and the rights of the appellant against Piper Alderman under the Legal Profession Act are not property of the company for the purposes of section 501. In the written submissions we have given your Honours some references to the common law on this issue before legislative declarations in bankruptcy statutes to the effect that property held on trust stands outside a bankruptcy.

Clearly, however, the rights against Piper Alderman are property of the company for other purposes. What we say is that they are not property of the company for the purposes of Chapter 5. They are, for example, for Legal Profession Act purposes. Because they are not property of the company for Chapter 5 purposes, they are not distributable among the company’s creditors, that is, among its non‑trust creditors. They are available only to the creditors of the company in its capacity as trustee.

In our submission, whereas trust assets may only be applied to discharge of trust outgoings, trust liabilities may be claimed on both trust assets and the trustee’s personal assets.  What the courts have long said is that for the purpose of defraying or for the purpose of recouping outlays made in the capacity of trustee for the purposes of the trust, the trustee may, without breach of trust, have resort to trust assets.  But it is our submission that the more correct analysis is to speak in terms of whether the trustee, by acting in that fashion, acts in breach of trust than to speak in terms of lien or indemnity.

Sir Owen Dixon in Vacuum Oil Company Proprietary Limited v Wiltshire (1945) 72 CLR 319 – I will not take your Honours to this passage, but I just remind your Honours that the passage is at pages 335 point 3 to 336 point 1 – uses the language of lien to describe the relationship. The majority or the joint judgment in Octavo Investments v Knight (1979) 144 CLR 360 at pages 367 point 2 to 368 point 2 also adopt that language, so that in putting this proposition I am, in a sense, flying in the face of language which has been endorsed by this Court. But, when it comes to a close analysis, as your Honours are called upon to make in this appeal, we would respectfully submit that the usage of words such as “lien” or ‘indemnity” is apt, again, to lead to a degree of confusion. Lien is a security right involving adverse possession. There is no adverse possession between a trustee and the trust property. Rather, we would submit, that the position correctly stated is that a trustee holds legal title to the assets or where the trust property is equitable property holds ‑ ‑ ‑

GUMMOW J:   Not all liens are possessory liens, are they?

MR SLATER:   No, I accept that, your Honour.  A lien is still a right against somebody, and our submission is that the more correct analysis is that the trustee has title to the trust property – ordinarily legal title, but it may be equitable title – and holds that property on trust for the beneficiaries or purposes named in the trust instrument, or other declaration.  Justice Brennan in D.K.L.R. Holding Co. (No 2) Proprietary Limited v The Commissioner of Stamp Duties (New South Wales) (1982) 149 CLR 431 remarked at page 474 point 5 that a trust is “impressed upon” rather than “carved out” of assets.

In our submission, a trustee does not have rights to possession as against the owner, that is, a lien, and I accept your Honour Justice Gummow’s caveat on that comment.  Rather, the position is that the beneficiaries cannot complain if the trustee applies the assets to meet proper trust outlays.  As your Honours said in CPT Custodian Pty Ltd v Commissioner of State Revenue (2005) 224 CLR 98 at page 121, paragraph 51, until they are met the trust fund is not fully ascertained. These observations, in our submission, extend only to trust outlays which are properly incurred, they do not extend to the trustee’s personal creditors.

We would submit that Justice Needham was correct when he said in Re Byrne Australia Pty Ltd and the Companies Act (1981) 1 NSWLR 394 at 398 B to C that the creditors of the trustee in his personal affairs have no claim on the trust assets. I should add there that we do not adhere to what his Honour later said in the second round of that case in (1981) 2 NSWLR 364 at 366 A to B about a trustee not being entitled to have recourse to the trust assets for the purpose of administration of the trust once the trustee goes into liquidation.

Your Honours, the qualification, in our submission, is that where non‑trust property has been used to meet trust obligations – that is, where the trustee has had recourse to his own personal funds to discharge an obligation which he has contracted or incurred as trustee – then the trustee has the right to recoup his own funds out of the trust property. And the right to do that, which arises only where the trustee has expended personal funds, is itself property of the trustee. It is the right of the trustee, not the assets held on trust, which is property of the trustee for Chapter 5 purposes. That right, or the fruits of it, do fall into the property which is distributable under section 500 and section 501.

The position is otherwise, in our submission, where the trust liability remains undischarged, as is the case in the present appeal. In that case, the trustee’s right is to apply trust property to defray the liability or if the trustee is removed and replaced as trustee, to have the new trustee apply the property to discharge the liability. The right to have that done is also property of the trustee and property of the company in the case of a corporate trustee for section 500 purposes, but that right is the right to have the trust property applied to its proper end. It is not a right to take the trust property into the possession of the present or former trustee and have it used to discharge personal debts.

As to the liquidator’s costs, in our submission, if the liquidator acts so as to benefit the trust creditors or the trust beneficiaries, then the costs he incurs in doing that are properly chargeable on the trust assets.  On the general principle that he who takes the benefit of the trustee’s actions must bear the commensurate burden.  So that if the trustee gets in the assets or settles liability claims, his costs incurred in doing that, if the assets and liabilities are trust asset and liabilities, are a proper charge on the trust fund, but if the trustee does not incur expenses in doing that, then the trustee’s expenses are not a proper charge on the trust fund. 

In the present case, in our submission, the costs incurred by the company in liquidation and the liquidator’s costs of the appellant do not fall into the category of costs which can be visited on the trust property. It is for that reason that we say that section 500 simply does not bite upon the operation of Subdivision 260‑A in any sense because the notice under Subdivision 260‑A is one given in respect of trust property, not the property of the company.

Your Honours, there are passages in the judgment of the Chief Justice and of Justice Lush in the Victorian Court of Appeal decision in Re Enhill [1983] VR 561 which suggest otherwise. I am not sure whether your Honours are assisted at this point by my reading those passages to you. I think they are well enough known. If I can just give your Honours a reference to them. In the judgment of the Chief Justice there at page 563 beginning at around line 38 and on page 564 at around lines 25 to 45. In the judgment of Justice Lush they are on page 567 at about lines 30 to 40, at the top of page 568 and at about line 20 on page 568.

HAYNE J:   Is this branch of the argument, Mr Slater, dependant upon the proposition that section 260‑5 could have applied to the company’s own property?

MR SLATER:   I do not think it is dependant on it, your Honour.  I confess I am not quite sure what your Honour means by that.

HAYNE J:   That is to say, if section 260‑5 could not have been engaged after the resolution for winding‑up in respect of a debt that, to speak loosely, could be described as the company’s own property, where does this branch of the argument stand?

MR SLATER:   If the operation of section 500 were to displace Subdivision 260‑A in relation to the winding‑up of a company and its own property as distinct from trust property, then the effect of this branch of the argument is to say that does no matter because we are not concerned with the company’s own property. So the operation of section 500 is simply not engaged because section 500 only applies in relation to property of the company. It is our submission that the rights against Piper Alderman and the trust deposit with Piper Alderman was not property of the company.

The only property of the company was the right to have the Piper Alderman funds applied to meet the tax debt. In our submission, section 500 simply does not become engaged at all in this appeal. Does that answer your Honour’s question?

HAYNE J:   I think so.  Thank you.

MR SLATER:   Your Honours, I was dealing briefly with Re Enhill.  It has been noted in many places that the decision in Re Enhill has found no subsequent support, even in the Court of Appeal in Victoria.  Our friends referred to a decision of the Court of Appeal in Nolan v Collie (2003) 7 VR 287. May I direct your Honour’s attention to page 313, paragraph 67 of that report, without reading it to your Honours, where the Court found it unnecessary to deal with challenges to Re Enhill?

We would respectfully agree with the current editors of Jacobs’ Law of Trusts in Australia that the decision is wrong, although on this side of the bar table we do not have the authority to pronounce it obviously wrong.  The comment is made at paragraph [2114] in the seventh edition of Jacobs’.  We have not given your Honours that in our list of authorities or in any of the materials handed up.  May I do no more than to give your Honours the reference to it and add that we would qualify the last sentence of what appears in paragraph [2114] by saying that it does not address the present case where the liquidator has no trustee functions to perform?

In such a case where the liquidator has no such functions to perform then neither the trustee nor the liquidator has authority to apply trust assets to its own benefit, and the liquidator stands in no better position than the company.  May I also give your Honours a reference to one of the cases mentioned in that paragraph because it is a convenient summary of the law up to that time?  It is the judgment of Justice Campbell in Re Sutherland (2003) 59 NSWLR 361 at pages 422 to 430, and in particular at paragraph 213.

Your Honour, if I could return to Re Enhill, the fault in the reasoning in that case, in our respectful submission, lies in a confusion of different rights.  There is the right to replace one’s own assets which a trustee has used to meet trust debts from trust assets, sometimes called the right of recoupment, and the right to use trust assets to meet trust debts, sometimes called the right of exoneration.  The trouble with labels such as “recoupment” and “exoneration” and more particularly the label “right of indemnity” is that the use of the label tends to conflate one or more concepts.  The words “right of indemnity” have been used to refer both to the right to replace an outlay of the trustee’s own assets and the right to use the trust assets to discharge a liability.

The first right, the right to replace one’s own assets, is clearly the trustee’s own property and the proceeds of that right are available in insolvency.  The second right is also in one sense the trustee’s own right, but it is a limited right, in our submission.  It is only a right to use the trust assets to meet trust debts.  The trustee can so use the trust assets and thereby relieve its own assets of liabilities to trust creditors, but it cannot take the trust assets to pay its own creditors. 

The appellant in their written submissions rely on clause 10.3 and on section 254(1)(d) of the 1936 Act as conferring what is referred to in the submissions as a beneficial interest, but, in our submission, all that those provisions do is to entitle the trustee to use trust assets to pay the tax debt.  They do entitle the trustee to use trust assets to meet its own outgoings and, in particular, do not entitle the trustee to use trust assets to defray the liquidator’s costs of liquidating the appellant. 

If I give your Honours an example, it is a simple enough example.  Where the trustee has not discharged its debt or made an outlay, then if the debt or outlay is one for trust purposes, it may use the trust assets for that purpose without breach of trust, but it cannot use them for its own benefit.  So that if the trustee, for example, owed $10,000 to its accountant for performing accounting services, it could not say, “I have a debt which I have incurred as trustee to the accountant for $10,000, so I have a beneficial interest in $10,000 and I can use that $10,000 to pay for my holidays”.  That manifestly would be a breach of trust.  If, on the other hand, the trustee had spent $10,000 of his own money in paying the trust accounts, he could take then $10,000 out of the trust funds and use them to pay for his holidays. 

The present case is one where the trustee has not spent his own moneys. It is a case where there is an undischarged liability. The circumstance of the trustee may use trust assets to discharge the undischarged trust liability, does not give the trustee a beneficial interest in the trust assets in the sense that they are available for the trustee to apply to his own purposes or in the sense that they are property of the company for section 500 purposes. In our submission, it is not truly a question of lien or indemnity, but rather a question of what the trustee, or here liquidator, can without breach of trust do with the assets that he holds.

May I finally mention in this regard, just for completeness, section 96 of the 1936 Act which is on page 31 of our submissions, provides that the extend of the trustee’s liability is only so far as to the Act provides.  The trustee is not liable for tax except to the extent provided by the Act and section 254(1)(e), which is on page 34 of our outline, contains a provision to the same effect.  The trustee is personally liable for tax to the extent of any amount that he has retained or should have retained, but he is not otherwise personally liable for the tax. 

Your Honours, our friends called the argument which I have just put to your Honours, in a sense, a second argument or they described it as a second argument. It is not really a second argument. It is the second stage of our argument. We say that the trustee cannot take the deposit with Piper Alderman and use it to meet the liquidation costs because the deposit is not property of the company. The trustee could, if it had any valuable rights either to recoup itself out of that deposit or to have that deposit applied to meet trust debts, those rights would be property of the company in insolvency, but there are no such rights in this case. The trustee did not apply any of its own property and the only right it has in relation to the deposit is to use it to defray trust debts, the trust debt in this case being the debt to the Commissioner. So that there is no property of the company for section 500 purposes.

For that reason we say that the whole question about attachment and the meaning of the word “attachment” does not necessarily arise in this case. But because it was the focus of the argument below and because much of the argument to date has concerned it, and also because there is the remote possibility that your Honours will not agree with me, I turn next, if I may, to the meaning of “attachment” in section 500 or, more accurately, to whether Subdivision 260‑A operates as an attachment for the purposes of section 500.

If, as we submit it does not, then for this reason, independently of what I have been saying to your Honours about the position of the trustee, section 500 has no operation. Your Honours, for the reasons we have already given, we say that Subdivision 260‑A is a statutory authority and obligation and is not to be either equated with or circumscribed by reference to other relationships or remedies. We also submit that attachment is a concept quite separate from Subdivision 260‑A and its operation.

GUMMOW J:   Do you say that a garnishee, as understood in legislation since 1854, is an attachment?

MR SLATER:   Yes, your Honour.

GUMMOW J:   What is its characteristic that makes it an attachment?

MR SLATER:   I am sorry, I answered your Honour too quickly. It is an attachment for the purposes of section 500 and we say that because we say that section 500 and section 468(4) have a long legislative lineage. When they were enacted, an attachment in the form of a garnishee as it was before the 1854 Act was within this scope.

GUMMOW J:   There were no garnishees before the 1854 Act other than some remedies the Crown had and some customs in the city of London.  That was the whole point of the 1854 Act, to overcome a deficiency with attaching, to use that word, intangibles.

MR SLATER:   Our point is that when the legislation was first enacted and, for that matter, when its antecedents in bankruptcy were first enacted, the concept of attachment was a concept which was recognised as operating in the city of London and the other cities where the courts had royal authority.  We have given your Honours, in the written submissions, references.

GUMMOW J:   All courts had royal authority, Mr Slater.  It is a meaningless statement, if I may say so, unless they were local courts.

MR SLATER:   I put it that way, your Honour, because they are described as customary courts, but ‑ ‑ ‑

GUMMOW J:   Exactly, they are not Royal Courts.

MR SLATER:   But it is recorded in the earlier authorities, and I cannot put it to your Honours any higher than this, that by a statute of the seventh year of the reign of King Richard II the customs and courts of the City of London were given royal authority to operate as courts in the determination of rights and liabilities.  Our researchers have not been able to locate the statute which is referred to, but the courts, including the King’s or Queen’s Courts recognised the London courts as having that authority although subordinate to the Westminster courts.

GUMMOW J:   I think you would have done better to look at the second report of the Commissioners which led up to 1854 legislation.  It is a piece of law reform which was very well thought out in the 1850s.  Anyhow, I will not say any more.

MR SLATER:   If your Honour please.

FRENCH CJ:   Mr Slater, you focussed in your earlier submission in relation to the statute on the particular characteristics that it creates an obligation and it takes it out of any notion of an attachment, however, it seems to me that your submissions are saying that the concept of attachment in 500 is purely curial.  You do not need to go that far if you do say that, do you?

MR SLATER: We make two submissions in relation to that, your Honours. The first is that section 500 refers to curial processes and only to curial processes, and the second is that when the section speaks of an attachment it speaks of something which involves seizing or freezing assets and not of something which merely imposes an obligation to pay.

FRENCH CJ:   Well, those latter characteristics might be answered by some imagined set of statutory provisions, might they not?  There might be a statutory seizure process which has that effect?

MR SLATER:   Yes, your Honour, and if there were then we would not be able to rely upon the second alternative premise for our argument.  As Subdivision 260-A does not contain any seizing or freezing provision we do rely upon it.

FRENCH CJ:   Yes, I understand that.  If “attachment” extends to statutory processes it does not extend to this kind of statutory process.

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

GUMMOW J:   Why?

MR SLATER:   Because, in our submission, Subdivision 260-A does not impose any freezing or holding or binding of assets, it merely imposes an obligation on the third party to pay an amount.  There may be circumstances in which compliance with that obligation will limit.

GUMMOW J:   That is right.  That was described as creating an “attachment” by Lord Justice Bowen In re Combined Weighing and Advertising Machine Co (1889) 43 Ch D 99 at 105, which is what was picked by Justice Kitto when talking about garnishees in Hall v Richards at page 92 of 108 CLR. So this word “attachment” has been used by someone not usually reckless with language, like Lord Justice Bowen in the context of a garnishee under the 1854 Act.

MR SLATER:   I do not have Lord Justice Bowen’s observations here, your Honour, but ‑ ‑ ‑

GUMMOW J:   I referred you to Justice Kitto before lunch.

MR SLATER:   Yes, I have Justice Kitto’s observations but I did not quite pick up where your Honour said that they were.

GUMMOW J:   Page 92.

MR SLATER:   This is Combined Weighing and Advertising Machine, your Honour?

GUMMOW J:   Hall v Richards 108 CLR 92.

MR SLATER:   Yes.  Is your Honour referring to ‑ ‑ ‑

GUMMOW J:   Footnote (2).  The first of those references at 105 is to Lord Justice Bowen, and it is using the word “attachment” to describe this particular characteristic of giving a good discharge.

MR SLATER:   Yes, but that was not the point that I was picking up, your Honour, if I may say so.  The point I was picking up was this, that it has been said of a garnishee order in the House of Lords that it seizes upon the entire debt.  I think, from memory, that was what his Honour Justice Kitto said in this case when he picked up the comments from Holmes v Tutton.  I will just have to look at it for a moment to see whether I am right about that.

The point is this.  When a writ was served on a debtor, the debtor was precluded from making any payment.  The writ bound the debt.  So that in the case which we have given your Honours a reference to in our written submissions, the name does not spring to mind I will find it in a moment, but the point was this.  The judgment debtor had money at bank.  The money at bank was very much greater than the judgment debt.  The judgment debtor drew a cheque on the bank and the bank dishonoured the cheque.  The debtor claimed that the cheque should have been met out of the surplus of the money at bank over the judgment debt, the subject of the garnishee.  The Court said no, the garnishee froze the entire debt and the bank had a good defence to the dishonour claim.  So that even after the 1854 Act, the effect of a garnishment notice was to bind or freeze the debt.  Now, it is our submission that Subdivision 260‑A ‑ ‑ ‑

GUMMOW J:   Freeze is a metaphor for something, Mr Slater.

MR SLATER:   Well quite, your Honour, but ‑ ‑ ‑

GUMMOW J:   For what in terms of legal process and remedy?  When you say “freeze the debt”, what does it mean?

MR SLATER:   What it means is this, your Honour, that the ‑ ‑ ‑

GUMMOW J:   In legal language.

MR SLATER:   The third party, if I may use that language, the recipient of the garnishee order ‑ ‑ ‑

GUMMOW J:   I mean, a Mareva order or an asset preservation order is described as freezing order sometimes, another metaphor, but that is in the context of an injunction.  Now, you are not suggesting that is so here, are you?

MR SLATER:   Yes I am, your Honour, that the effect of the garnishment order is that the recipient of it may not pay anybody ‑ ‑ ‑

GUMMOW J:   At risk of contempt of court?

MR SLATER:   Yes, until the judgment debt has been discharged.  So in that sense – and metaphors, I accept, are dangerous and this entire area of discourse is loaded with unexploded metaphors – but in that sense it precludes the recipient from doing anything until the judgment debt is discharged and that is the attaching of the debt so that nothing may be done with it.  That is the meaning of “attach” in ordinary discourse and the meaning of it in legal discourse for the last 300 years.  Whereas, Subdivision 260‑A does not attach the debt, it leaves it free to a bank who receives a notice under Subdivision 260‑A to pay out either to the holders of cheques drawn by the taxpayer debtor or to the taxpayer debtor the amounts held by the bank on the account of the taxpayer debtor as long as the bank meets the obligation imposed by the notice.

So if the bank has twice as much funds in hand as is the subject of the notice, the bank may use the excess and the bank may use its own funds to pay out without breach of the obligations imposed by Subdivision 260‑A.  The debt is not attached.  There is merely an obligation to pay the Commissioner. 

We accept that there will be circumstances where the third party has no assets other than sufficient to meet the debt due to the taxpayer which the Commissioner has made the subject of his notice and in those circumstances the third party would be in breach of section 260‑20 if he paid money elsewhere.  But the obligation, the statutory command, the word “must” is to make a payment to the Commissioner, not to withhold moneys.  That is our point about attachment.  Your Honours, in the written submissions we have taken your Honours – and I accept that Justice Gummow is against me on this point ‑ ‑ ‑

GUMMOW J:   Do not assume anything, Mr Slater, other than a lack of wit.

MR SLATER:   I accept that all the time, your Honour. We have taken your Honours to the legal history of these provisions. They are both of long lineage, that is, the provisions now found in section 500 in company law go back to 1863 but in insolvency law go back 200 years further. It is our submission that when one has regard to that history it informs the meaning of the phrase “attachment, distress, sequestration or execution” in section 500. Our submission, which we have articulated fairly fully in writing, is that when regard is had to the meaning which the words carried at the time that section 500’s antecedent was first enacted, they were concerned with curial processes.

Our friends orally this morning took issue with that in relation to distress, as did the Full Federal Court in Macquarie Health.  We draw your Honours’ attention to the decision, which we accept is brief, as our friends say, in Re Exhall Coal Mining Co Ltd (1864) 4 De GJ & Sm 377.  Perhaps I should briefly take your Honours to that.  It is in the materials we handed up to your Honours at tab 53.

HAYNE J:   Where is the reference in your submissions, Mr Slater?

MR SLATER:   Paragraph 30, your Honour, on page 14.

HAYNE J:   Thank you.

MR SLATER:  We have also given your Honours the English reports reference there. It is 46 ER 964. That was a liquidator’s appeal where distress had been levied on property of the company. It was argued for the liquidator. Your Honours see this in the report at the beginning of paragraph [378], about halfway down page 964 of the English reports:

it was contended that the distress was void under 163d section of the Companies Act, 1862 . . . For the Respondents, it was contended that, under the 85th and 87th sections of the Act –

gave the court a discretion to allow the distress to proceed and that that was the only way of reconciling those provisions.  The court accepted the respondent’s submission at paragraph [379] of the nominate report.  It is a very brief judgment but the brevity of the judgment is filled out by the terms of the argument on the preceding page.  The point which we make about that, which Justice Needham made much more recently in Daemar v Opeskin (1985) 10 ACLR 627 at page 70 – and that also is in paragraph 30 of our written outline – is that sections in the form of these various provisions have been re‑enacted time after time in legislation in both the United Kingdom and Australia. The inference which his Honour drew from that – and I accept that it is not an inference which your Honours here are bound to draw – is that the legislature accepted the interpretation which had been placed upon them.

The point which we draw from that is that when, in framing section 163, the legislature spoke of distress, it spoke of it in the same context as curial proceedings and the conclusion which the Court of Appeal drew in Re Exhall is one which, in our submission, this Court should draw in relation to the Corporations Act 2001 which uses language which is, as Justice Needham says, not materially different. So that our submission on this branch of the case – and as I said to Justice Hayne this branch is independent of our submission about property of the company – is that when regard is had to the history of the present provisions and to the circumstance that the provisions now found in Subdivision 260‑A have been part of Commonwealth taxation law for over 80 years and the provisions in section 500 have been part of company law for more than twice as long and the two sets of provisions have been re‑enacted time and again, one after the other, that the proper conclusion to be drawn is that the Corporations Act provisions are dealing with curial processes and not with administrative processes, given statutory backing, such as is to be found in Subdivision 260‑A.

Your Honours, the fourth branch of our argument concerns the position which would arise if your Honours were to find that there was a conflict between the operation of the Subdivision and Chapter 5 and had to resolve which prevailed. The basic rule which has been stated on many occasions, and your Honour Justice Gummow this morning pointed out that it had also been stated in Re Maritime Union (2003) 214 CLR 397 at pages 411 to 412, paragraphs 28 to 29 in addition to the citations which we have given in our written outline, the basic premise is that one Act does not repeal, alter, or derogate from another unless the intent that it should do so is to be necessarily implied.

Those are the words, I think, of Justice Gaudron. We would submit that the application of that rule supports our construction of Subdivision 260‑A as standing outside section 500 and Chapter 5. The two provisions, both of which are not only presently enactments of the Commonwealth Parliament, but, as Justice Heydon pointed out this morning, had been part of Commonwealth corporate legislation since at least 1980 under the companies code and the corporations law provisions before the Commonwealth were given full command over the corporations law. Those provisions stand together with Subdivision 260‑A without overlapping. ‑

FRENCH CJ:   I am sorry, how does that work? If you go to the history, you say, well, the concept of attachment does not extend into Subdivision 260‑A and it is just a matter of construction of section 500. What is the premise upon which there is a conflict that has to be resolved?

MR SLATER:   Our premise is that there is no conflict and that the passages that I have referred to in Re Maritime Union – the other passage which picks up, perhaps, earlier authority is in Ferdinands v Commissioner for Public Employment 225 CLR 130 at 137, paragraph 18. What those passages say is that where there are two statutes which appear to be in conflict, they should be read in such a fashion that they are not where that is possible to be done. That supports, in our submission, our argument that section 500 should be read in such a way as not to conflict with Subdivision 260‑A. That is the first point we make.

FRENCH CJ:   Does that require a reading of section 500 that is any different from the reading that you have proposed upon the historical argument?

MR SLATER:   No, it simply, in our submission, supports the adoption of such a reading.

FRENCH CJ:   A little metaphysical circle, I am not quite sure what happens there, anyway.

MR SLATER:   I take your Honour’s point.  Your Honours, I have told your Honours that the Administration Act provisions have a long history.  In the materials which were supplied to the Court together with our list of authorities and together with our submissions, there were copies of earlier versions of the legislation.  May I give your Honours just references to them.  The first is to the material under tab 18 in the supplementary materials.  It is a record of a conference of commissioners in 1917.  I do not propose to read this to your Honours, but just to tell your Honours what is there.  It recommended the adoption of an earlier Tasmanian provision authorising the Commissioner to require an employer to pay tax due by an employee.  That recommendation was in broad terms accepted but it was accepted by way of the enactment in 1918 of the provision which became section 50A, and ‑ ‑ ‑

BELL J:   I am sorry, did you say this was behind tab 18?

MR SLATER:   It should be, your Honour.

BELL J:   I have got the 1961 Companies Act behind my tab 18.

HAYNE J:   So have I.

MR SLATER:   I have given your Honour ‑ ‑ ‑

HAYNE J:   Tab 30, I suspect.

MR SLATER:   Yes, it is 30, your Honour, I apologise for that.  The report the meeting of commissioners is under tab 30.  My notes are imperfect.  We have also give your Honours the second reading speech to the 1918 Act and I think the materials annexed to our list of authorities, and as item 19 in our list of authorities, we have given your Honours a copy of section 50A as enacted in 1918.  What I have not done is to give your Honours the bridge between the 1918 Act and the 1936 Act which was section 65 of the 1922 Act.  May I have your Honours leave to file 10 copies of that in the Registry?  I have not been able to get copies of it today.

FRENCH CJ:   Yes, Mr Slater.

MR SLATER:   Then there is an explanatory memorandum which joins up the 1922 Act with the 1936 Act and then we go from there to the present Subdivision 260‑A.  My point in taking your Honours to that is simply to show that these provisions have been there in one form or another for a long time

GUMMOW J:   Where do we see the reference to the Tasmanian statute?

MR SLATER:   It is in the report of a meeting of the Commissioners of Taxation of the States and the Commonwealth.  It should be under tab 30 in the extrinsic materials provided to your Honours.  The text of the section is in the bottom right‑hand corner of the page.

GUMMOW J:   The 1910 Tasmanian statute.

MR SLATER:   Yes.  I am sorry, I think I told your Honour it was the 1890 statute; it is the 1910 statute.

HAYNE J:   In effect, garnisheeing wages.

MR SLATER:   Yes.  Well, I am sorry, your Honour, I do not want to accept the word “garnisheeing” too readily but I understand what your Honour is saying.  Your Honours, what we say can be deduced from that is that it is not to be presumed that either was intended to displace the other.  They have been re‑enacted several times one after the other so that the Corporations Act has been amended to keep the provisions equivalent to section 500, and the Tax Act has been amended to keep the provisions equivalent to Subdivision 260‑A, and the Corporations Act has been amended again.

There is enough legislative history, in our submission, to indicate that the legislature intended the two to operate together.  If there is a conflict then it is our submission that Subdivision 260‑A is the more specific provision which should be given priority.  Our friends say the opposite, and perhaps that is just a question of perspective.  I accept that tax is my focus and I see that as taking priority, and insolvency is my friend’s focus and he sees that as taking priority.

The assent to the notion that tax has been given a special priority by the Commonwealth Parliament is to be found in the various examples we have given in paragraph 40 of our written outline.  If I can very briefly summarise that and take your Honours to one thing in particular?  We submit that the intention to retain the specific priority in Subdivision 260‑A is manifest in the legislative policies concerning Crown priority.  When Crown priority was abolished in 1980, section 221 was repealed, but section 218 was preserved, as were other provisions such as section 201 which requires payment of tax notwithstanding a dispute about it.

In 1988 the general inquiry into insolvency, chaired by Mr Harmer, recommended that section 218 be amended so the Commissioner had to forgo the advantages obtained.  That is in paragraphs 707 to 709 of the report.  It is at tab 28 of the materials and at pages 287 to 288 of those materials.  Your Honours will see at the top of page 288 in the third line that section 218 is said to be:

capable of giving to the Commissioner of Taxation a priority for the payment of taxation debts ahead of the floating chargeholder and all other creditors (including priority creditors).

The recommendation was that the Commissioner should be required “to give up” that priority.  That recommendation was expressly not adopted.  Instead, what was done – and your Honours see this in the legislation which my friend handed up this morning, the 1993 Act – was to amend section 218 to extend its field of operation.  In section 5 of the 1993 Act section 218 was amended to extend the taxes in respect of which it applied to those stipulated in Subdivisions 3B, 4, 8 and 9 of Part 6.  I can tell your Honours briefly what they were. 

Division 3B was the provision dealing with the requirement of financial institutions to withhold tax where a tax file number was not quoted. Division 4 was the provision requiring the remission to the Commissioner of withholding tax. Division 8 was a provision, which is still part of the Act, dealing with a power given to the Commissioner to obtain prompt recovery by making an estimate rather than an assessment of liability. Division 9 is the provision which dealt with director’s penalties. Section 218 was not, as the Harmer Commission recommended, repealed or cut down. It was extended and, in our submission, that indicates that what Parliament intended in 1993 and again in re‑enacting the Subdivision in 1999 was that section 218 and its effect should be preserved. There were changes made at that time to section 468 or section 500.

When the new general provisions were enacted in 1999 in Part 4‑15 of Schedule 1 to the Administration Act what was done then was to consolidate all tax recovery proceedings and far from cutting down the power which had been there in section 218 it re‑enacted and strengthened it by, for example, the language of section 260‑20 in the new Act.  When the Corporations Act was passed two years later it made no changes to the existing company law, notwithstanding the enactment two years earlier of the gloriously named A New Tax System (Tax Administration) Act 1999 which inserted Division 260.

A conclusion which we invite the Court to draw from that is that Subdivision 260‑A is intended to operate, notwithstanding the provisions of the corporations law and that if contrary to our submission there is a conflict between them, then Subdivision 260‑A is that which should prevail.

GUMMOW J:  Now, you took us – and I can understand why – to section 500 and the notion of attachment and so on, but when you talk about the Corporations Act, is not the critical provision – just assuming you are correct about 500 for the minute – would not a critical provision really be 501 – the word “must” in 501, which on the face of it applies to the Crown?

MR SLATER:   No, your Honour.

GUMMOW J:  Because of section 5A.

MR SLATER:   I accept that it applies to the Crown and it applies to the Crown in respect of all other Crown debts, such as airport levies or debts for services rendered, which are not taxes and so forth.  In all of those respects the Crown is bound but, in our submission, not bound in relation to Subdivision 260‑A.

GUMMOW J:   That is what your submission has to be, I think, yes.

MR SLATER:   Yes it does, your Honour.  If your Honour would grant me just a moment?

GUMMOW J:   If I could just add to the question – in circumstances where the tax law itself has a special regime for liquidations in 260‑45.

MR SLATER:   Your Honour keeps describing it as a special regime in relation to liquidations.  I cavil with that characterisation.  It is a provision which went into the Act in 1922, I think, the antecedent to section 215, and all it did was to enable the Commissioner to say to a liquidator, “Do not pay out until you have paid me.”  When it was amended in 1993, all that was done was to cut down the power to say to the liquidator, “Do not pay out until you have paid me” to a power to say, “Do not pay out until you have paid me my rateable share.”  It is not some special regime which constrains the Commissioner.  It is a regime which empowers the Commissioner.  It is not truly a regime, it is just an empowering provision.  To the extent that it operates, it overrides the Corporations Act.  It happens that this one, in relation to this provision, the recommendations of the Harmer Commission were accepted.  In relation to a provision which then stood three sections later, the recommendations were rejected.

HAYNE J:   But the consequence of your submission is, is it not, that the extent of the Commissioner’s entitlement to recover a tax debt owed by an insolvent company depends upon the extent to which the company’s assets comprised debts owed by third parties and the speed with which the liquidator gathers in those debts, for once gathered in they cannot be the subject of notice.

MR SLATER:   Yes, I accept that, your Honour, and that is what Parliament has chosen to do, in our submission.

HEYDON J:   Why would it choose to do such a thing?

MR SLATER:   Why would it choose to do such a thing?  It chose to do it in 1917 for more efficient administration and your Honours will see in the materials, which I regret that I have failed to provide to your Honours, that in 1936 it is said that section 218 incorporated embellishments in section 65 to make it more efficient.  It is a provision which, like the former section 221P, which was the provision which gave the Commissioner absolute priority over everybody in respect of unremitted instalment tax, was part of a suite of provisions giving the Commissioner priority in relation to tax matters. 

There are a whole suite of other provisions.  We have identified them, in our written submissions, they are things like overriding the privilege against self‑incrimination, provisions about imposing special liabilities on directors, provisions which say that the Commissioner is entitled to be paid, notwithstanding that the claim is hotly disputed.  Provisions that the Commissioner can foreclose any argument about his entitlement by tender of a certified copy of the assessment.  All of those are provisions which give powers or rights which were conferred on the Commissioner for what is called the protection of the revenue.  It is part of a suite of such provisions.  Some of them have been cut down. 

The Crown priority in section 221 was cut down in 1980.  The exclusive priority in respect of instalment tax was cut down in 1993.  The priority in respect of a liquidator was cut down in 1993 to the extent that the obligation of the liquidator was cut down to being a pro‑rata obligation, but section 218 was not cut down.

GUMMOW J:   The old 221 would have cut down 501, would it not?

MR SLATER:   Yes, your Honour, I think it would.

GUMMOW J:   Because it was directed to liquidators in terms.

MR SLATER:   It was.  For those reasons, your Honours, we say that these provisions, unpalatable as it may be, and in, I think it was Broadbeach your Honours referred to asperity of the section.  This is one of those

provisions viewed with that asperity, but it is what Parliament chose to do and it is what we are constrained to obey, in our submission.  If your Honours please.

FRENCH CJ:   Thank you, Mr Slater.  Yes, Mr Robb.

MR ROBB:   Your Honours, it seems from our review of our submissions in reply that we have said in writing in our reply document4 what probably remains in issue between us.

GUMMOW J:   Just assume for a minute that Mr Slater is correct about his construction of 500 and there was no attachment here, is 501 enough to sustain your position?

MR ROBB:   We submit it is, although that is not the way the argument was put below.

GUMMOW J:   What I am worried about has to be put today, it is a pure question of law.

MR ROBB:   No, I have to concede that, yes, that section 501 is an independent statutory injunction as to how the assets of the company should be distributed in a voluntary winding‑up.

GUMMOW J:   I wonder if 500 is more than explanatory or a development or a further statement of the general principle in 501?

MR ROBB:  That is true to a large degree. It is a mechanism for achieving what section 500 requires to happen.

FRENCH CJ: Section 500 is a mechanism for achieving what 501 wants to happen.

MR ROBB:  I am sorry if I did not say that, I apologise, yes. And that, in our submission, section 500 should be interpreted in a way which achieves what section 501 in clear and peremptory language requires.

GUMMOW J:   And 468(4)?

MR ROBB:  Yes, in the general insolvency under the supervision of the court and, indeed, section 555 says something similar to section 501.

GUMMOW J: Section 500 and?

MR ROBB:   Section 555 applies to all windings‑up in insolvency.  It is not as explicit as 501.

GUMMOW J:   Well, 501 picks up 556, does it not?

MR ROBB:   Yes.

GUMMOW J:   Are the preferential payments being spoken of in 501, the priority payments in 556?

MR ROBB:   Yes.  In the circumstances, may I confine the balance of my reply in the following way, given, as I have said, we probably have explicitly said in our reply document all or nearly all of what I would wish to say.  Section 254 of the Income Tax Assessment Act is conveniently set out at page 197 of the appeal book.  Section 254(1)(d) says that the appellant:

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 tax which is or will become due in respect of the income, profits or gains.

Paragraph (e) says that the appellant –

is hereby made personally liable for the tax payable in respect of the income –

et cetera.  The section of the Income Tax Assessment Act which establishes the appellant’s liability authorises it to retain moneys that come to it to pay the tax.  In our submission, in the present case the only apparent source of moneys to be retained is the debt owed by Piper Alderman.  The Income Tax Assessment Act, in terms, authorises and requires the appellant to receive that money in order to pay the tax.  That is just the starting position.  I will not take your Honours to this but by way of reference, the relevant provisions of the trust deed are set out at page 188.  Perhaps I should.  Clause 10.3(a) effectively provides that following the vacation of the trustee’s office things are to happen with the trust fund –

except that an outgoing Trustee who is or may be liable as a Trustee for taxes will not be bound to transfer the Trust Fund unless the ongoing or new Trustee indemnifies from the Trust Fund the outgoing Trustee against any present or future liability incurred by the outgoing Trustee –

et cetera.  There has been no substitute trustee appointed and no indemnity given, so under clause 10.3(a) the present appellant is authorised to retain the trust fund.  Clause 13, which is a bit lower in paragraph 3, creates an express lien, effectively, in favour of the present appellant.  Those matters are before the rights the appellant has as expounded in Octavo Investments. 

In our submission, the effect of section 260‑5 notice is to require Piper Alderman to pay to the Commissioner moneys representing a debt otherwise that would be payable to the appellant and the appellant is entitled to receive that money in order to pay, among other things, tax or any other liabilities that it has incurred as trustee.  In our submission, it simply follows that the section 260‑5 notice operates on the property of the appellant even if that property be considered as some rights of the trustee, necessarily beneficial in nature, which relevantly have priority over the remainder of the rights of the beneficiaries or the purpose.

GUMMOW J:   When you postulate a situation that Piper Alderman pays under the notice moneys which otherwise would have gone to the company in liquidation to be used by the company in liquidation to meet its lien and to pay tax, the tax would be pro‑rated, would it not?

MR ROBB:   Yes.

GUMMOW J:   If the liquidator was to pay.

MR ROBB:   Yes, correct, your Honour.  When one adds to that that these section 260‑5 notices were served some eight days after the resolution to wind up the appellant, when one looks at – I use the word “findings” advisedly.  Perhaps the comments of the primary judge at appeal book 154 at paragraphs 29 to 31 and the Full Court at appeal book 213 at paragraph 62 – there are observations made about the possible course of the winding‑up and the possible existence of other debts, that is, trust liabilities or other liabilities other than any tax debt to the Commissioner.

One of them, which is a clear one, is, your Honours will recall, that Federal Court proceedings were on foot before the commencement of the administration in which the present appellant was trying to establish that it was entitled to some charitable tax exempt status.  The evidence, so far as, with respect, I know, does not say anything about the ultimate outcome over those proceedings, what or any cost orders may be made under them, but the fact is, it seems, with respect, clear, that they were proceedings undertaken by the appellant as trustee before the commencement of the winding‑up.  The reality of it is that there are simply no findings and it was not litigated as to what the outcome of all of that may be.

FRENCH CJ:   These are the proceedings referred to as NSD 1222/2006?

MR ROBB:  Yes. It is our submission that ultimately in a way which is relatively simple, if the section 260‑5 notices are attachments and for that reason they would otherwise be struck down by section 500 or section 501, that is the end of the matter. They are void and the money is then paid to the trustee and the winding‑up is administered according to law. If any issues arise, they are dealt with as may be appropriate.

There is no proper scope for the Commissioner to argue, as we apprehend he does, that at the end of all of that process, that is, if the winding‑up had been allowed to proceed in the ordinary course, it might be found that the amount owed by Piper Alderman was exactly equal to the amount that had to be paid to the Commissioner for Tax.  The two negate each other, so there has been no operation of the notice on the property of the trustee.

In our submission, the system just does not work like that.  At that early point in the winding‑up the issue is simply, is the effect of the notice void as an attachment and if it is, then the debt is paid to the company in liquidation and the law is then complied with as to the proper distribution of the funds.  What should not be put to this Court, that it has to make findings of fact as to what debts may be trust debts. 

May I say very briefly in relation to the additional argument that we submit actually does not in truth arise that any costs and expenses of the liquidator would not be recoverable out of the trust assets.  We adopt the reasoning in Re Suco Gold (1983) 7 ACLR 873 and additionally what was said, apparently – I do not have an extract – about the matter in Jacobs’ Law of Trusts in Australia which is referred to in the Full Court judgment in this matter at page 212 at paragraph 57.

GUMMOW J:   Is there not some discussion of this question in Justice Campbell’s very comprehensive judgment in Caledonia Travel?  All these cases were discussed by his Honour, I think, quite recently.

MR ROBB:   The answer is, yes, your Honour.

GUMMOW J:   Quite recently, I think.

MR SLATER:   If it is of any assistance, I gave your Honour that reference in the course of argument.

MR ROBB:   Yes.  Our understanding is that his Honour supported the Suco Gold result which effectively, if I may risk encapsulating it, is Re Enhill is difficult to support because it treats the insolvent trustee’s right to exoneration in the absence of the trustee having paid trust debts out of his own moneys as property generally available for all the trustee’s creditors.  It seems that what is said in Re Suco Gold and in Justice Campbell’s decision is that the liquidator of the trustee may be entitled to his remuneration and

expenses out of property which is trust property for reasons connected with the fact that there is no other way that the trustee can carry on its business to implement the remainder of its obligations as trustee and it is implicit in all of the circumstances in which the trustee is appointed in the first place that liquidator’s remuneration may ultimately be an expense of the trust. 

In our submission, that is the proper finding to make.  We make the anterior submission that the Court should not have to get to that point in these proceedings because none of the issues of the assets and liabilities and rights to remuneration have been decided in the courts below, it being a premature issue.  May it please the Court, they are out submissions.

FRENCH CJ:   Thank you, Mr Robb.

MR SLATER:   Your Honour, I promised to give the Court a citation from Clyne’s Case and I failed to do so.  May I do so?

FRENCH CJ:   Yes.

MR SLATER:   The reference to the implied obligation in the judgment of Justice Mason in the last paragraph on page 17 at about point 8 of the page and in the judgment of Justice Brennan in the last paragraph on page 24 at about point 9 of the page.  I also address your Honours on a House of Lords case without giving your Honours the reference for which I apologise.  It is Rogers v Whitely [1892] AC 188 and it is referred to in paragraph 27 of our written outline. If your Honours please.

FRENCH CJ:   Thank you, Mr Slater.  The Court will reserve its decision.  The Court adjourns to 9.30 am tomorrow.

AT 3.57 PM THE MATTER WAS ADJOURNED.