Deputy Commissioner of Taxation v Conley, John Patrick

[1998] FCA 1321

FEDERAL COURT OF AUSTRALIA

TAXATION – whether “money” in s 218 of the Income Tax Assessment Act is limited to Australian currency –– whether s 218 contains an implied mechanism for conversion when recipient of a notice under s 218 has obligation to a taxpayer denoted in foreign currency – whether procedure under s 218 is distinguishable from garnishment proceedings.

Income Tax Assessment Act 1936 (Cth), ss 20, 177(1), 218
Federal Court Rules, O 37 r 7
Income Tax Assessment Act 1915 (Cth), ss 50A, 66
Currency Act 1965 (Cth), ss 8, 9, 11

Commissioner of Taxation v Donnelly (1989) 25 FCR 432, applied
Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1, applied
Choice Investments Ltd v Jeromnimon [1981] 1 QB 149, distinguished

DEPUTY COMMISSIONER OF TAXATION V JOHN PATRICK CONLEY & ORS

NG 408 of 1998

WILCOX, TAMBERLIN & EMMETT JJ
SYDNEY
21 OCTOBER 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 408  of  1998

ON APPEAL FROM A SINGLE JUDGE OF THE
FEDERAL COURT OF AUSTRALIA

BETWEEN:

DEPUTY COMMISSIONER OF TAXATION
Appellant

AND:

JOHN PATRICK CONLEY
First Respondent

AUSTALIAN AIRCRAFT SALES (NSW) PTY LTD
Second Respondent

NATIONAL AUSTRALIA BANK LIMITED
Third Respondent

JUDGES:

WILCOX, TAMBERLIN AND EMMETT JJ

DATE OF ORDER:

21 OCTOBER 1998

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:

1. The appeal be dismissed with costs.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG408 of 1998

ON APPEAL FROM A SINGLE JUDGE OF THE
FEDERAL COURT OF AUSTRALIA

BETWEEN:

DEPUTY COMMISSIONER OF TAXATION
Appellant

AND:

JOHN PATRICK CONLEY
First Respondent

AUSTRALIAN AIRCRAFT SALES (NSW) PTY LTD
Second Respondent

NATIONAL AUSTRALIA BANK LIMITED
Third Respondent

JUDGES:	WILCOX, TAMBERLIN & EMMETT JJ
DATE:	21 OCTOBER 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

WILCOX J:  I have had the advantage of reading in draft form the reasons of Tamberlin and Emmett JJ.  I agree with their reasons and that the appeal should be dismissed with costs.

When, in 1918, s 50A was added to the Income Tax Assessment Act 1915, it is unlikely Parliament contemplated the possibility it would apply to debts in foreign currency; foreign currency transactions were then tightly controlled and relatively rare. But Parliament chose a term “owing money” that, literally, is apt to refer to debts in foreign currency. Accordingly, if there was no inherent problem in treating s 218 of the 1936 Act as extending to foreign currency obligations, I would construe it in that way; the more especially because it is now easy and commonplace for Australians to hold foreign currency bank accounts and deposits. However, as my colleagues demonstrate, such a construction would occasion significant practical difficulties, not least for the recipient of the notice who will ordinarily be a stranger to the Commissioner’s claim on the taxpayer and who faces penal consequences for failure to comply with the notice. These practical difficulties may be capable of resolution, but it seems to me only by amendment of the legislation. Until that is done, it is preferable to confine the operation of the section to Australian currency obligations.

I certify that this and the preceding one (1) page are a true copy of the Reasons for Judgment herein of the Honourable Justice Wilcox

Associate:

Dated:             21 October 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 408 of 1998

ON APPEAL FROM A SINGLE JUDGE OF THE
FEDERAL COURT OF AUSTRALIA

BETWEEN:

DEPUTY COMMISSIONER OF TAXATION
APPELLANT

AND:

JOHN PATRICK CONLEY
FIRST RESPONDENT

AUSTRALIAN AIRCRAFT SALES (NSW) PTY LTD
SECOND RESPONDENT

NATIONAL AUSTRALIA BANK LIMITED
THIRD RESPONDENT

JUDGES:	WILCOX, TAMBERLIN & EMMETT JJ
DATE:	21 OCTOBER 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

Tamberlin J:

I agree with the reasons given by Emmett J and the suggested orders.  However, I wish to make a few additional remarks.

Although there are a number of decisions on the meaning and effect of s 218 of the Income Tax Assessment Act 1936 (Cth) (“the Act”), we have not been referred to, nor have I been able to find, any authority in point as to the meaning of the expression “money” in the context of s 218. The legislative history is of no real assistance in this respect.

As pointed out by Gibbs CJ in Clyne v Deputy Commissioner for Taxation (1981) 150 CLR 1 at 11, the section is designed to confer exceptional powers on the Commissioner to facilitate the collection of tax, particularly where it is anticipated that the taxpayer might otherwise escape payment. The relevant section is cast in wide terms. This is exemplified by the references in s 218(1) to “any person by whom any money is due” and to “any person who holds or may subsequently hold money for or on account of a taxpayer.” The reach of the section is further illustrated by reference to s 218(6)(A), which deems that money stated to be due on condition is due notwithstanding that the condition has not been fulfilled. Thus, a s 218 notice can be given when no money is presently due to the taxpayer but where it may become due and where it may be held by the recipient on account of the taxpayer.  It extends to any person with authority from a third party to pay money to a taxpayer.

In Clyne’s case, Mason J (with whom Aickin and Wilson JJ agreed) decided that the effect of the service of a s218 notice was to prevent an assignment by the taxpayer of so much of the money held as was sufficient to pay the amount of tax due by the taxpayer. He also indicated that, in his view, the sections operated to create a charge on that amount. This latter view was shared by the Full Federal Court in Commissioner of Taxation v Donnelly (1989) 25 FCR 432 at 436 and 457 per Lockhart and Hill JJ.

If the expression “money” in s 218 is interpreted to include money held in foreign currency, significant uncertainty may arise as to the amount of that money which is affected by the notice consequent upon fluctuations in exchange rates from time to time. As the past few years illustrate, rates of exchange can experience substantial volatility over a relatively short period of time. For example, problems may arise in circumstances where money is held on a term deposit and that term has not expired at the time the s 218 notice is served.

It is not in contest, in the present case, that the amount due under a tax assessment is expressed in Australian currency or that the underlying obligation to pay the amount due by the taxpayer to the Commissioner is an obligation to pay in Australian dollars: see s 20 of the Act and s 9 of the Currency Act 1965 (Cth).

The operation of s 218 was summarised by Mason J in Clyne’s case at 23 as follows:

“The section relates to moneys owing to the taxpayer when the notice is given, it imposes an obligation to pay forthwith moneys which are then payable; it imposes an obligation to pay moneys which become payable at a future time when that arrives.  It does not explicitly prescribe as a condition preliminary to the creation of the obligation to pay that the moneys owing to the taxpayer at the date of the notice shall continue to be owing to him when they become payable.  It merely requires the recipient to pay the Commissioner when they become payable moneys owing to the taxpayer at the date of the notice.  The obligation attaches to the recipient on service of the notice, though it cannot be performed until a future date.  The effect of imposing the obligation is to make it unlawful for the recipient to pay the moneys to anyone but the Commissioner after service of the notice.” (Emphasis added)

In Clyne’s case and Donnelly’s case the difficulties which might arise if the expression “money” were interpreted to include foreign currency did not arise.  On its face, the reference to “money” is literally capable of including money in whatever currency.  However, it is necessary to consider more closely the question whether the section was intended to have such a literal interpretation.  In my view, it was not.

Where the money in question is held in a foreign currency it becomes necessary to calculate the amount of that currency or its equivalent sufficient to pay the Australian dollar amount of the tax debt due from the taxpayer to the Commissioner.  This calculation must be made at some point in time by reference to the exchange rate which prevails at that point in time.  Because the requirement of the notice is to pay the Commissioner forthwith upon the money becoming payable, it seems to me that the appropriate point of time for such a calculation to be made is when payment is made and not when the notice is received.

If the date of service of the s 218 notice is taken to be the appropriate time for calculating the amount of Australian tax, which is to be the subject of a charge or restriction against assignment, exchange rate fluctuations may significantly vary the amount which is “quarantined” under the section either by way of charge or restriction against assignment where the money is in foreign currency. The section contemplates that the amount required to be paid to the Commissioner under s 218 is so much of that foreign currency amount as is sufficient to pay the Australian tax, and not the amount which may, at the time of service of the notice, be the Australian equivalent of that currency. In the case of foreign currency accruing due or on fixed term deposit, it may not be known at the time of service of the notice what amount of foreign currency will be required to be paid to the Commissioner when the money becomes payable to the taxpayer. There will be a substantial element of prediction or speculation in estimating the amount of foreign currency which is the subject of the charge or restriction on assignment.

Given the wide-ranging circumstances in which the s 218 notice can be issued, a substantial period of time may, in some circumstances, elapse between the date when the notice is served and the time when the money becomes due by the recipient to the taxpayer. In that period exchange rates may well fluctuate substantially. Accordingly, the foreign currency equivalent of the Australian tax at the time of service of the notice may be significantly higher or lower than the amount of tax calculated in the foreign currency as at the time the money becomes payable to the taxpayer. Consequently, the amount of foreign currency which is affected by the notice and to which the charge will attach, will not be known with any certainty until the time arrives for payment of money to the taxpayer. This is to say the least, a curious result.

By way of illustration, suppose that as at the date of service of notice, a Bank holds a term deposit for the taxpayer in an amount of USD200,000, which will become due to the taxpayer in six months time. Also, suppose that the amount due to the Commissioner by way of tax in Australian dollars is AUD100,000. Exchange rate variations over the six month period may cause the US dollar equivalent of the Australian tax amount to fluctuate substantially. In those circumstances neither the recipient nor the taxpayer can know the amount of foreign currency which will be required to be paid to the Commissioner when the six month period expires. The notice calls, in such circumstances, for a prediction or speculation as at the date of service of the notice, with respect to the extent of currency fluctuations over the ensuing six months in those two currencies. This is an important consequence because failure to comply with the notice exposes the recipient to conviction for an offence under the Act with a penalty of $1,000. This consequence will not arise if the expression “money” is read to mean Australian currency because there is no fluctuations in the Australian dollar amount of the tax. Having regard to the above, it seems to me that if the legislature had intended to include foreign currency it would have made specific provision to spell out, in some detail, the way in which the section was intended to operate. No such mechanism is provided for in s 218.

Although the cases refer in general terms to the strong similarities between a garnishment order and a notice under s 218, the Courts in those cases were not called upon to consider the present question, which raises the anomalous consequences referred to above. I agree with the submission that the present case is quite different from a garnishment case because of the penal nature of the provision and the lack of any Court supervision to control the operation of the notice.

For these reasons, in my view, the expression “money” in s 218 should not be interpreted to mean foreign currency.

I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Tamberlin

Associate:

Dated: 21 October 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 408 of 1998

ON APPEAL FROM A SINGLE JUDGE OF THE

FEDERAL COURT OF AUSTRALIA

BETWEEN:

DEPUTY COMMISSIONER OF TAXATION
Appellant

AND:

JOHN PATRICK CONLEY

First Respondent

AUSTALIAN AIRCRAFT SALES (NSW) PTY LTD

Second Respondent

NATIONAL AUSTRALIA BANK LIMITED
Third Respondent

JUDGES:	WILCOX, TAMBERLIN AND EMMETT JJ
DATE:	21 OCTOBER 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

EMMETT J: Section 218 of the Income Tax Assessment Act1936 (Cth) (“Assessment Act”) provides, inter alia, that the Commissioner of Taxation may require a person by whom money is due to a taxpayer to pay to the Commissioner so much of the money as is sufficient to pay the amount due by the taxpayer in respect of tax. The question raised by this appeal is whether section 218 applies in circumstances where money due by a person to a taxpayer is denominated in a foreign currency.

On 26 August 1997, the appellant, a Deputy Commissioner of Taxation (“the Commissioner”) delivered to National Australia Bank Limited (“the Bank”) two notices purporting to be notices under section 218 (“the Notices”). The Notices asserted that the Bank is a person by whom money is due to Australian Aircraft Sales (NSW) Pty Ltd, the second respondent (“the Taxpayer”) and that the amount of $52,125,547.60 is due by the Taxpayer in respect of tax. Covering letters stated that each of the Notices applied to a different account with the Bank.

One Notice related to account numbered AAIRSUS DO1 in the name of the Taxpayer at the international operations branch of the Bank, located at 200 Elizabeth Street, Sydney.  The other Notice related to account numbered 5150-4000572 in the name of the Taxpayer at the New York branch of the Bank. It is common ground that the amounts standing to the credit of the two accounts are denominated in United States currency.  That is so, notwithstanding that one of the accounts was with a Sydney branch of the Bank.  The balance of each account is payable by the Bank on demand.

By its amended application, the Taxpayer sought a declaration that the contents of those two accounts do not constitute money for the purposes of section 218 of the Assessment Act.  The application was brought under the Administrative Decisions (Judicial Review) Act 1977 (Cth) and under section 39B of the Judiciary Act 1903 (Cth). The Bank submitted to such order as the Court sees fit to make but the declaration was opposed by the Commissioner. A judge of the Court made the declaration sought and ordered the Commissioner to pay the Taxpayer’s costs of the proceedings. The primary judge also ordered the Commissioner to pay the Bank’s costs of and incidental to the proceedings on an indemnity basis. The Commissioner appealed from all of those orders.

Section 218 of the Assessment Act relevantly provides as follows:

218(1) The Commissioner may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner), require:

(a)any person by whom any money is due or accruing or may become due to a taxpayer;

(b)any person who holds or may subsequently hold money for or on account of a taxpayer;

(c)any person who holds or may subsequently hold money on account of some other person for payment to a taxpayer; or

(d)any person having authority from some other person to pay money to a taxpayer;

to pay to the Commissioner, either forthwith upon the money becoming due or being held, or at or within a time specified in the notice (not being a time before the money becomes due or is held):

(e)so much of the money as is sufficient to pay the amount due by the taxpayer in respect of tax or, if the amount of the money is equal to or less than the amount due by the taxpayer in respect of tax, the amount of the money; or

(f)such amount as is specified in the notice out of each payment that the person so notified becomes liable from time to time to make to the taxpayer until the amount due by the taxpayer in respect of tax is satisfied;

and may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice.

218(2)  Any person who refuses or fails to comply with any notice under this section is guilty of an offence.

218(3)  Where a person (in this subsection referred to as the “convicted person”) is convicted before a court of an offence against subsection (2) in relation to the refusal or failure of the convicted person or another person to comply with a notice under this section, the court may, in addition to imposing a penalty on the convicted person, order the convicted person to pay to the Commissioner an amount not exceeding the amount or the aggregate of the amounts, as the case requires, that the convicted person or the other person, as the case may be, refused or failed to pay to the Commissioner in accordance with the notice.

218(4)  Any person making any payment in pursuance of this section shall be deemed to have been acting under the authority of the taxpayer and of all other persons concerned and is hereby indemnified in respect of such payment.

218(5)  If the Commissioner receives any payment in respect of the amount due by the taxpayer before payment is made by the person so notified he shall forthwith give notice thereof to that person.

218(6)  Where:

(a)money has been paid by a person to a building society in respect of the issue of withdrawable shares in the capital of the society; and

………………………………
[emphasis added]

The question which arises on the appeal is whether the term “money” when used in paragraph (a) and paragraph (e) refers only to Australian currency or whether it refers to money as a medium of exchange, irrespective of the currency involved.  The Taxpayer contends for the former construction and the Commissioner contends for the latter.

The origin of section 218 of the Assessment Act can be traced to section 50A of the Income Tax Assessment Act 1915 (Cth). Section 50A was inserted by Act No. 18 of 1918 and relevantly provided as follows:

50A(1)  ...the Commissioner may… declare any person… making payments or owing money to the taxpayer to be his agent and may require the agent –

(a)to deduct from any payment which is or will become due to the taxpayer such an amount as will be sufficient to pay the tax which the Commissioner may assess to be paid by the taxpayer; and

(b)to pay the amount to the Commissioner forthwith, and for any default in so doing the agent shall be liable, in addition to the tax, to a penalty…

In the course of the debate on the Bill which introduced section 50A, the relevant minister said that, by the proposed amendment, the Commissioner would be empowered:

…to call upon any employer of a taxpayer, who is in arrears in payment of his tax, to deduct the amount due from any salary, wages, or other payments due to the taxpayer by the employer.  …Power is also taken by this clause to require any person who holds money payable to another person, who is in arrears with his income tax, to deduct the tax from that money, and to pay the tax to the Commissioner.  This is a healthy provision that will prevent evasion of payment.

Those observations suggest that an important purpose for the introduction of the provision was to obviate difficulties which were subsequently addressed by the PAYE system introduced into the Assessment Act.  Such difficulties would not have involved any question of foreign currency and there was no reference made by the Minister to any possibility that the new provision might deal with a payment which was due in a foreign currency.

In 1922, section 50A was replaced by section 66 which is closer in its structure to the current section 218. Section 66 was, relevantly, in the following terms:

66(1)   The Commissioner may, by notice in writing…, require –

(a)any person by whom any money is due or accruing due to a taxpayer;

………………………………

to pay to him forthwith… the money or so much thereof as is sufficient to pay the tax due by the taxpayer…

The structure of the current section 218 is based generally on section 66 although there has been some subsequent refinement. However, there is no suggestion that either section 66 or any amendment or refinement of section 66 was intended to address the question which arises in the present appeal.

In The Legal Aspect of Money by F.A. Mann (5^th Edition Oxford 1992), attention is drawn (at page 5) to the distinction between money in its concrete form and the abstract conception of money.  The former is legal tender in the form of coins or bank notes.  The quality of money in its concrete form is to be attributed to certain chattels which, when issued by the authority of the law and denominated with reference to a unit of account, are meant to serve as universal means of exchange in the country of issue.  Money in the abstract sense, on the other hand, is described as purchasing power in terms of wealth in general (Mann at 28).  It is clear that the term “money” when used in section 218 means something more than legal tender and is concerned with the abstract conception.

The expression “due or accruing” in relation to “money” in section 218 indicates that the provision is concerned with the existence of an obligation. A money obligation exists where a debtor is bound to pay a sum certain or a liquidated sum of money. It is clear, therefore, that the term “money” in paragraphs (a) and (e) of section 218 includes an obligation in respect of a liquidated amount. Thus, credit balances at a bank may clearly constitute “money”.

However, money in that sense must still be expressed in an accepted unit of account.  That unit of account will vary from country to country. Within a particular country, money will generally refer to the medium of exchange within that country, namely the currency of the country.  Thus, the Currency Act 1965 (Cth), which repealed Coinage Acts of 1909, 1936  and 1947 (Cth), provides, in section 8, that the monetary unit or unit of currency of Australia is the dollar and that the denominations of money in the currency of Australia are the dollar and the cent, a cent being 100^th part of a dollar.

Section 9 of the Currency Act then provides that every contract, agreement, deed, instrument, transaction, dealing, matter or thing relating to money, or involving the payment of, or a liability to pay, money that is made, executed, entered into or done, shall, unless it is made, executed, entered into or done according to the currency of some country other than Australia, be made, executed, entered into or done according to the currency of Australia. Further, under section 11 of the Currency Act, every payment that is made shall, unless it is made according to a currency of some country other than Australia, be made according to the currency of Australia.

The Assessment Act recognises the necessity for money to be expressed in terms of a unit of account.  The unit of account for the Assessment Act is Australian currency and an assessment made under the Assessment Act will be expressed in Australian currency. Thus, section 20(1) of the Assessment Act provides that, for all purposes of the Act, income wherever derived and expenses wherever incurred must be expressed in terms of Australian currency.

In addition, sections 20(2) and 20(3) require the calculation of the equivalent in Australian currency of amounts of foreign currency. Thus, under section 20(2), where an amount of income of a taxpayer is derived from the carrying on of a business in a foreign country, the amount of income must be expressed in Australian currency at a rate equal to the average of exchange rates applicable from time to time during the relevant year of income. Any amount of foreign tax paid in respect of that foreign income is also to be expressed in Australian currency at the exchange rate applicable at the time when the tax is paid. Under section 20(3) where an amount of foreign income of a taxpayer is derived otherwise than from carrying on of a business in a foreign country, that amount of foreign income, and any amount of foreign tax paid in respect of that foreign income, is to be expressed in Australian currency at the exchange rate applicable at the end of the year of income or, if it is remitted during the year, on the day on which it is remitted.

When section 218 and its predecessors, sections 66 and 50A referred to above, were enacted, the currency of Australia was provided for in the Coinage Acts. Similarly, when section 20(1) was enacted, the currency of Australia was provided for by those Acts. Sections 20(2), (3) and (4) were inserted in the Assessment Act in 1986.  Prior to that time, there was no provision of the Assessment Act which provided expressly for the calculation of the Australian currency equivalent of an amount of foreign currency. There is, of course, no provision in section 218 itself which provides a mechanism for such a calculation. If the Commissioner’s contention as to the construction of section 218 is correct, it would be necessary for a mechanism to be implied into the section.

Even if the Commissioner’s contention is correct, the Commissioner could not, by service of a notice under section 218, acquire any greater right as against the recipient of the notice than the relevant taxpayer had. Where the obligation of the recipient to the taxpayer is denoted in a foreign currency, the Commissioner could only be entitled, as against the recipient, to payment in the currency in which the money is payable. The obligation of the recipient could only be to pay to the Commissioner the amount of foreign currency. So much follows from the language of paragraph (e). The paragraph refers to “so much of the money” and “the amount of the money”.

If a notice under section 218 applies to money due to a taxpayer in a foreign currency, a recipient of a notice would be required to pay to the Commissioner the whole of or some part of the amount of that foreign currency due to the taxpayer. The amount of foreign currency to be paid to the Commissioner would depend upon whether the amount of the foreign currency is greater than, equal to or less than the amount due by the relevant taxpayer in respect of tax. If the amount of the foreign currency is greater than the amount due by the taxpayer in respect of tax, the recipient would only be required to pay so much of the money denominated in foreign currency as is sufficient to pay the amount due in respect of tax.

Thus, a comparison must be made between an amount of money in a foreign currency on the one hand and an amount of tax due in Australian currency on the other hand.  A recipient of a notice would not know how much foreign currency was to be paid to the Commissioner until a calculation is made, based on some rate of exchange.  However, the question would then arise as to the time at which that calculation is to be made.  One possibility is that it would be made at the time of receipt of the notice.  The only other possibility seems to be that the calculation would be made at the date of payment of the foreign currency.

The two possibilities may cause no difficulty in a case where the foreign currency is actually payable by the recipient to the taxpayer at the time of service of the notice. In such a case, the recipient of a notice under section 218 would be obliged to pay forthwith after receipt of the notice. Whether the calculation is made at time of receipt or time of payment would not matter because there ought to be very little interval between the two times. However, the position would not be so clear where, at the time of receipt of the notice, the foreign currency is not yet payable to the taxpayer.

One consequence of the service of a notice under section 218, where money is not yet due by the recipient, is that, as from the time of service, the recipient is bound, as and when money becomes due and payable to the taxpayer, to pay some part of that money to the Commissioner - see Commissioner of Taxation v Donnelly (1989) 25 FCR 432 at 459-460. A taxpayer is prevented thereafter from assigning money which is the subject of such a notice – Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 19. Section 218 requires the recipient to pay to the Commissioner, when it becomes payable, some part of the money owing to the taxpayer at the date of service of the notice. The obligation attaches to the recipient on service of the notice, though it cannot be performed until a future date. The effect of imposing the obligation is to make it unlawful for the recipient, after service of the notice to pay the money to anyone but the Commissioner – see per Mason J in Clyne at 23. Further, the service of a notice under section 218 has been held to create a charge over the debt due by the recipient to secure the amount due in respect of tax – see Commissioner of Taxation v Donnelly at 436 and 457.

While section 218 does not in terms create any obligation on the recipient of the notice to comply with the requirement expressed by the notice, it is clear that, when the section says that the Commissioner may require a person to pay money to him, it 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 - see Clyne v Deputy Commissioner of Taxation at 17. In so far as the service of a notice under s 218 creates, in favour of the Commissioner, a charge over money due at the time of service of the notice, that charge must attach at the time of service of the notice. On one view, therefore, if section 218 applies to foreign currency, the recipient would be required to make a calculation of the Australian currency equivalent of the foreign currency at that time. Otherwise the recipient could not know how much of his foreign currency is subject to the charge and restriction referred to above.

Where there is a significant lapse of time between the time of service of a notice and the time when money becomes payable, there could be significant fluctuations in the relevant exchange rate.  If the calculation is to be made as at the date of receipt of the notice, by the time the foreign currency becomes payable, at which time the obligation of the recipient to make a payment to the Commissioner arises, the amount of the foreign currency so calculated could be significantly different from the amount owing by the taxpayer in respect of tax.  A significant fluctuation in exchange rates may have the consequence that the amount of the foreign currency is either substantially greater than or less than the amount owing by the taxpayer in respect of tax.  In the former case, the charge and restriction will apply to more of the foreign currency than is necessary to satisfy the tax.  In the latter case the charge will be eroded.

On the other hand, if the calculation is to be made as at the date of payment, the recipient of a notice would not know, during the period from receipt of the notice to the time when the foreign currency becomes payable and the calculation is made, how much of the foreign currency was subject to the charge and restriction created by the service of the notice.  The recipient would have no way of predicting fluctuations in the exchange rate, yet he would be faced with penal sanctions if he failed to comply with the requirements.

The Parliament could not have intended that such uncertainty should be visited upon a third party who need have no connection with the relevant taxpayer. On the other hand, the anomalies which can result if conversion is to be made at the date of receipt of a notice indicate that such a requirement was unlikely to have been intended by the Parliament. Those considerations indicate that the Commissioner’s construction of section 218 should be rejected.

The Commissioner, however, contended that there is no reason, in principle, for giving section 218 a more restricted operation in relation to debtors of a taxpayer than is given to garnishment proceedings in relation to a judgment debtor. Thus, an order to pay a judgment debt expressed in local currency may be the subject of garnishment proceedings against a person indebted to the judgment debtor where the debt of that person is expressed in a foreign currency – Choice Investments Ltd v Jeromnimon [1981] 1 QB 149.

In that case, the English Court of Appeal outlined the following procedure by which the conversion from the foreign currency to the local currency should occur (at 157):

(1)      So soon as reasonably practicable after the time of service of the order nisi, the bank shall ascertain, at its then normal buying rate of exchange against sterling, the amount of the foreign currency balance of the judgment debtor as would, if converted at that rate, produce an amount equal to the sterling judgment debt and costs, and that amount of foreign currency as ascertained shall be attached.

(2)      So soon as reasonably practicable after service of the order absolute, the bank shall purchase, at its then normal buying rate of exchange against sterling, the attached amount of foreign currency, or so much thereof as will by the application of that rate produce the sterling judgment debt and costs, and pay the same into court or to the judgment creditor.

To which I would add an addendum suggested by Griffiths L.J.  When the garnishee order is made absolute, its wording should be adapted to meet this procedure.  Suppose the garnishee order nisi addressed to the bank was to pay debt and costs of £1,000, it should not then be absolute in the same form because, if this was done, the order to the bank might order them to pay a greater sum than the attached amount of foreign currency would realise.  The order absolute should express the bank’s obligation as an obligation to pay the sterling equivalent of the attached amount of currency or the judgment debt and costs whichever be the lesser.  This paragraph should therefore be added:

(3)      In order that the garnishee order absolute should express the obligation of the bank under the foregoing procedure, the bank should inform the court of the amount of foreign currency attached and the rate of exchange used by the bank.  When the order is made absolute, it should order the bank to pay the sterling equivalent of the foreign currency attached or the amount of the judgment debt and costs whichever be the lesser.

The Commissioner contended that such a procedure could be adapted in relation to a notice under section 218. A good reason for distinguishing between section 218 and garnishment proceedings is that the latter are undertaken by way of enforcement of a judgment debt under the supervision of a court. For example, under Order 37 Rule 7 of the Federal Court Rules, the Court may, in order to enforce a judgment or order of the Court, make an order, issue any writ or take any other step that could be made, issued or taken by the Supreme Court of the State or Territory in which the judgment or order is to be enforced if the judgment or order had been made by that Supreme Court.  The modes of procedure and forms of process of the Supreme Court of the State or Territory in which the judgment or order is sought to be enforced are to be available and followed in the Court so far as practicable, mutatis mutandis, for the enforcement of orders of the Court.

Under Part 46 of the Rules of the Supreme Court of New South Wales (and under the Rules of the Supreme Courts of the other States and the Territories), a judgment creditor may, with the leave of the Court, file and serve on a person from whom a judgment creditor claims that a debt is due or accruing a garnishment notice of attachment and of motion for payment.  The Court, however, must not give leave unless it appears to the Court that there is a debt due or accruing to the judgment debtor from the garnishee.  Further, the Court is required to fix an amount for specification in the garnishment notice.

A garnishment notice is to take effect upon its being served on the garnishee.  Upon its being so served, it operates to attach in the hands of the garnishee, to the extent of the amount specified in the notice, all debts which are due or accruing from the garnishee to the judgment debtor at the time of service of the notice.  Provision is made for the Court to hear and determine any question in dispute concerning the liability of the garnishee to pay the debt attached and give such judgment, or make such order, as the nature of the case requires.

Thus, in relation to garnishment proceedings based on a judgment debt for tax owing by a taxpayer, there is adequate mechanism for the court in question to determine the manner in which and time at which conversion of the amount owing in respect of tax by a taxpayer into a foreign currency. The timing difficulties which would arise where the money owing to the judgment debtor in the foreign currency is not yet payable at the time of the attachment, would be the subject of adjudication by the Court. There is no such adjudication, however, in relation to the service of a section 218 notice. Accordingly, the argument based on the analogy of garnishment proceedings should be rejected.

The Commissioner also contended that one consequence of rejecting his contention would be that a taxpayer would be able to escape the reach of section 218 by denominating debts due to the taxpayer in a foreign currency, thereby frustrating the legislative purpose of section 218. However, such a contention ignores the limited effect intended by section 218. A taxpayer could always escape the reach of section 218 by converting money into any other kinds of asset.

A taxpayer may own assets of various kinds, being real property or personal property. Personal property may compromise chattels, choses in action or money. Section 218 has nothing to do with recovery of tax by attachment of chattels or real property. Section 218 does not attach anything other than money. The legislature has left the Commissioner to the ordinary remedies available from a court in relation to non money assets. For example, where tax remains unpaid following the making of an assessment, the Commissioner may obtain a judgment on the basis of the conclusive evidence of the notice of assessment (under section 177(1) of the Assessment Act).  Immediately upon commencement of proceedings, the Commissioner could, where appropriate, seek an order in the nature of a Mareva injunction restraining the taxpayer from disposing of any assets.  Upon obtaining judgment, the Commissioner would be entitled to enforce a judgment by means of a writ of execution or by garnishment proceedings. 

That is the way in which the Commissioner would enforce payment of tax against all assets of a taxpayer other than money denominated in Australian currency. There is no reason why it should not also be the means of enforcement against money denominated in a foreign currency. Accordingly, the fact that section 218 does not extend to money due in a foreign currency leads to no anomaly when considered against the general scheme of recovery of tax under the Assessment Act. Section 218 would still afford significant advantages to the Commissioner in relation to money owing to a taxpayer in Australian currency.

The difficulties as to the time at which a conversion calculation is to be made in order to determine how much of foreign currency is attached by a notice under section 218 indicates, in my opinion, that foreign currency is not intended to be the subject of such a notice. The absence of any indication in section 218 itself that it was intended to apply to foreign currency and the absence of any mechanism for conversion such as is contained in section 20 reinforces the conclusion that foreign currency is not intended to be the subject of a notice under section 218. The appeal should be dismissed with costs.

I certify that this and the preceding eleven (11) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.

Associate:

Dated:             21 October 1998

Counsel for the Appellant:	A.H. Slater QC with S.J. McMillan
Solicitor for the Appellant:	Australian Government Solicitor
Counsel for the Respondent:	R.A. Conti QC with D.K.L. Raphael
Solicitor for the First and Second Respondents:	Blake Dawson Waldron
Solicitor for the Third Respondent:	Mallesons Stephen Jaques
Date of Hearing:	27 August 1998
Date of Judgment:	21 October 1998