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

[2009] HCATrans 138

[2009] HCATrans 138

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S68 of 2009

B e t w e e n -

BRUTON HOLDINGS PTY LIMITED (IN LIQUIDATION)

Applicant

and

COMMISSIONER OF TAXATION

First Respondent

PERSONS NAMED IN SCHEDULE ‘A’ TRADING AS PIPER ALDERMAN

Second Respondent

Application for special leave to appeal

GUMMOW J
HEYDON J
BELL J

TRANSCRIPT OF PROCEEDINGS

AT CITY ON FRIDAY, 19 JUNE 2009, AT 9.56 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 applicant.  (instructed by Nash O’Neill Tomko Lawyers)

MR A.H. SLATER, QC:   May it please the Court, I appear with my friend, MS R.L. SEIDEN, for the respondent.  (instructed by Australian Government Solicitor)

GUMMOW J:   I think there is a submitting appearance for the second respondent?

MR SLATER:   Yes, your Honour.

GUMMOW J:   We would be assisted to hear first from you, Mr Slater.

MR SLATER:   Your Honours, in our submission, this is not an appropriate case for special leave for two reasons and they are really quite short reasons.  The first is that the question of importance advanced by the applicant does not arise in this case.  The question of importance concerns the relationship between the provisions of the Corporations Act concerning distribution of the property of the company and provisions of the Income Tax Assessment Act and the Taxation Administration Act concerning payment of tax liabilities.  There is here, in our submission, no relevant property of the company upon which an attachment could be effected within the meaning of the relevant tax provisions.

The second reason why this is not an appropriate case for special leave is that the question of the relationship between the provisions of the Corporations Act and the provisions of the tax legislation is not by the decision below left uncertain.  There are two firm and decisive judgments of the Full Federal Court which, as this Court has many times said, is the final court of appeal except in exceptional circumstances.

GUMMOW J:   I do not believe any court is the final court of appeal in anything, Mr Slater, and that idea that was once around I can assure you is no longer around.

MR SLATER:   The taxpayer will be happy to hear that, your Honour.

GUMMOW J:   No one is immune from our possible gaze and attention.

MR SLATER:   I was not suggesting an immunity, your Honour, but the taxpayer will definitely be happy to hear that we have a freer access.

GUMMOW J:   Let alone revenue matters which are of enormous importance to the country as a whole and therefore to this Court.

MR SLATER:   I hear what your Honour says.  Nonetheless, there are two firm decisions ‑ ‑ ‑

GUMMOW J:   I thought it was good news for you.  Go on.

MR SLATER:   I am confronted with a conflict of interest on that point, your Honour.  There are, nonetheless, your Honours, two firm decisions – clear decisions of the Full Federal Court as to the position in relation to bankruptcy and the Corporations Act.  The position is not by them left uncertain. 

Your Honours, as to the first point, the relationship between the Corporations Acts and the Tax Assessment Acts turns relevantly on the distribution of the property of the company.  This is not a case where the company had any property to be distributed.  It is a $2 company.  At incorporation it never acquired any property of its own.  The only property, title to which was ever vested in it, was property held for the benefit of the trust fund.

The real substance of the claim here is that the company wishes to appropriate property which it held on trust to the satisfaction of its personal obligations.  It is to be remembered that the liquidator does not, like the trustee in bankruptcy, stand outside the company.  The liquidator is simply an officer of the company and when the liquidator says, “We want to take the money and apply it to payment of the costs of winding‑up, or, in substance, a payment of our own fees” ‑ ‑ ‑

GUMMOW J:   Could you just look at Mr Robb’s argument in reply at page 108, paragraph 6, where he sets out what he says is the essence of your argument and then in paragraph 8 says what he says lays out the flaw in it, as he sees it.  Does that identify an issue between you?

MR SLATER:   Except to this extent, your Honour, that at the time at which the notice was served the company was no longer occupant of the office of trustee.  It had by force of the instrument, been discharged from that office.  Such rights as were vested in it by the Legal Profession Act were still vested in it but it held them as a bare trustee, so that at that time, in our submission, the only relevant rights were the rights of the Commissioner to be paid the tax.

The trustee, the company Bruton, remained under such obligation as was imposed upon it by section 254 but the scope of that obligation was no greater than to pay to the Commissioner that property which it held and had not yet paid over to the Commissioner in satisfaction of the tax debt, so that the only property which could be paid over was property which upon payment over would discharge any right of exoneration.  The exoneration was to pick up what Mr Einfeld said to your Honours earlier, somewhat illusory.  It was an exoneration which only subsisted in respect of a liability, the payment of which would discharge the entitlement to exoneration, but apart from that, your Honour, yes, we accept that that the issue between the parties.

The real issue in this case, in our submission, goes to a matter of trust law not a matter of corporations law.  It is said in our friend’s submission that we have not cross‑appealed but, in our respectful submission, we do not need to cross‑appeal.  We seek to uphold the order made on a different point and we need to file a notice of contention if your Honours were to grant leave.  Subject to that, your Honour, for those two reasons, in our submission this is not a proper case for special leave.

GUMMOW J:   Yes, Mr Robb.  What do you say about the last point that really depends upon the retirement as trustee?

MR ROBB:   Your Honour, the first proposition is that both at first instance and in the Full Court it was held that the rights of Bruton as trustee, albeit retired, constituted property within the definition of section 9 of the Corporations Act which is a very wide definition.  If your Honours go to page 42 of the application book your Honours will see clause 10.3 of the trust deed set out and it provided in subparagraph (a):

In relation to any change in Trustee:

(a)acts and deeds done or executed . . . 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 –

et cetera.  Now, that had not happened.  The short point is that albeit that Bruton had retired as trustee by operation of the trust deed, because of the very possibility that it would owe tax, which came to pass, it was entitled to retain the assets against its liability to make that payment.  That underpins the firm conclusion reached by the trial judge and the Full Court that the fact of Bruton having retired as trustee was immaterial and in paragraphs 60 and following of the judgment their Honours held, based upon Octavo Investments in this Court, that it was clear that the rights that were available to Bruton were property, whether they were rights of indemnity, rights of exoneration, whether it was just a common law or a statutory right to have repayment of the money from the solicitors, et cetera.

Your Honours have been told that there will be some notice of contention on that point.  In our submission, it would be a very infirm basis to reject special leave if your Honours were otherwise minded to regard that as an appropriate case on the possibility that some argument will arise on a notice of contention which may affect the outcome.  In our submission, for the reasons given in detail in our reply, whatever might be the detail of this foreshadowed notice of contention, it will not undermine the utility of the appeal and that is essentially because, as Justice Mason, as he then was, said in Clyne’s Case, these taxation notices are in effect very much like garnishee orders.  They do affect an attachment of the debt which is owed.

The legal nature of the attachment is the change in rights in relation to the attachment at the time of service.  At the time of service of the taxation notice in this case it is not true as a fact to say, and it was not found, that the only possible rights of indemnity or exoneration of the trustee were in relation to the possible tax debt of the company.  As we submit in paragraph 7 of our reply and give the relevant citations, at that time it was found that the trustee had a potential liability to Piper Alderman for legal fees, to the Commissioner himself in relation to the legal costs of the action in relation to the charitable status of the trust and as well as that unquantified liquidator’s fees.

What all that means, your Honour, is at the instant of attachment being the date of service of the notice there were various rights and obligations as to which the trustee had a right of exoneration or indemnity and ‑ ‑ ‑

GUMMOW J:   All right.  I think we are seized of that now.

MR ROBB:   May it please the Court.

GUMMOW J:   How bulky was the record in the Full Court of the Federal Court?

MR ROBB:   I did not appear, your Honour.  I can show it to you.  My learned junior ‑ ‑ ‑

GUMMOW J:   It does not seem oppressive.

MR ROBB:   No.

GUMMOW J:   If there were to be a grant of special leave it would not be particularly difficult to get it ready for hearing in August, if that was otherwise on the Court’s agenda, would it?

MR ROBB:   There would be no difficulty at all.

GUMMOW J:   As you see it, Mr Slater, is that right?

MR SLATER:   It would pose me a great deal of difficulty, your Honour, but that is a personal difficulty.

GUMMOW J:   Yes.  If you appear in the High Court everything else yields.  When I was at the Bar, that was the rule.  Yes, thank you.  Is there anything you want to say in reply, Mr Slater?

MR SLATER:   It might be puffing in the wind a little bit by the sound of it, your Honour, but only this, your Honour, that much of my friend’s case seems to rest on the existence of other debts but the only other material debt was that of Piper Alderman which was the subject of a lien over property in its hands and does not fall into consideration here.  The plans of the liquidators of the $250,000 for winding‑up a $2 company are, in the first place, ambitious to say the least and were referred by the trial judge to the Master for consideration and, in the second place, not truly a liability of the company but an application by the company of funds to its own purposes but beyond that, your Honour, there is nothing further I want to say.

GUMMOW J:   There will be a grant of special leave in this matter.  It will be a one‑day appeal, I imagine.  The parties will note what I have said about the possibility of an August hearing.

MR ROBB:   May it please the Court.

AT 10.10 AM THE MATTER WAS CONCLUDED