Deputy Commissioner of Taxation v New South Wales Insurance Ministerial Corporation

[1994] HCATrans 332

..

4

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl59 of 1993

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION

Applicant

and

NEW SOUTH WALES INSURANCE

MINISTERIAL CORPORATION

First Respondent

and

HUSSEIN DAOUI

Second Respondent

Application for special leave

to appeal

Daoui 1 13/5/94

MASON CJ
DEANE J

McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 13 MAY 1994, AT 11.15 AM

Copyright in the High Court of Australia

MR D.H. BLOOM, QC:  May it please the Court, I appear with

my learned friend, MR S.W. GIBB, for the applicant.

(instructed by the Australian Government Solicitor)

MR D.E. GRIEVE, QC:  May it please Your Honours, I appear

with MR B. SLOWGROVE for the second respondent.

(instructed by Dennis & Company)

MASON CJ:  The Court has received information that the first

respondent will not appear at the hearing and will submit to any order of the Court save as to costs.

Mr Bloom.

MR BLOOM: 

Your Honours, it goes without saying that if ever

the importance of a case can lie in the amount of
money involved, this is not that case, but there is

an important point of principle, involving as it

does a provision which appears not just in the

Income Tax Assessment Act but in a dozen other

statutes both State and federal.

In its simplest form, our argument is this, that in reliance upon the words of section 218

themselves, when a notice is served upon a person
in the position of the first respondent, then that

notice is immediately effective and it is

unaffected by the bankruptcy and discharge of the
second respondent, the taxpayer, intervening
between the date of service of the notice and the
date upon which the moneys become held for the
account of that person.

The facts are here that that is what happened. A notice was served at a time before moneys became

due by the first respondent to the second
respondent and then bankruptcy and discharge

intervened and the moneys then became due. But
within the specific words of section 218, the

obligation to pay those moneys to the Commissioner

existed simply because the notice had been served

at the time which preceded the bankruptcy and

discharge.

We rely, Your Honours, in this regard upon what various Judges of this Court said in Clyne's

case, 150 CLR 1, firstly, in the judgment of

Sir Harry Gibbs at page 11. About point 6 of the

page there is a reference to section 218:

The conditions for the giving of a valid

notice are laid down ins 218(1). If those

conditions exist at the time when the notice

is given there is a valid requirement in

respect of the money to which the notice
refers, which, in a case under par (a), will

be money which is due or accruing or may

become due by the person to whom the notice is

Daoui 2 13/5/94

given to the taxpayer. 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.

Subsequent actions by the taxpayer cannot
render the requirement nugatory or

ineffective.

And the question, of course, is whether subsequent

actions of somebody other than a taxpayer - here,

intervening bankruptcy and discharge - have any

different effect and it is our submission they do

not.

So, too, in Your Honour the Chief Justice's

judgment at pages 22 to 23. At the bottom of

page 22:

Here the suggested answer to the

application of this rule is that the moneys,

the subject of the notice, were not at
maturity moneys then due and payable to the

first appellant (the taxpayer) and that the

statutory obligation attaches only to moneys

which satisfy the general description. I do

not agree. 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 time

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 to 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.

Justices Aickin and Wilson agreed with Your Honour

the Chief Justice.

Then at page 25, in the judgment of

Justice Brennan, the middle of the page:

The appellants' submission was pressed in

argument with the support of some observations

made by Jenkinson Jin Sicree and Watt v

Deputy Federal Commissioner of Taxation.

His Honour there considered the operation of

s 38 of the Sales Tax Assessment Act (No 1)

1930 (Cth), a provision similar to s 218 but

Daoui 13/5/94

not identical with it, upon money subject to a

floating charge created before the notice was

given. His Honour expressed the view that
service of a notice "does not impose on a

debtor whose debt is not at the time of

service due and payable any immediate

obligation, nor attach to the debt any

immediate right or interest in favour of the

Commissioner or of the Crown in right of the

Commonwealth." This approach construes

s 218(l)(a) as imposing an obligation no wider

than that imposed by sub-s (2), namely, to pay
to the Commissioner the money due to the

taxpayer when the time for compliance with the

notice arrives, and it necessarily predicates

of the statutory obligation that it arises
only when the time for payment to the

Commissioner arrives. Again, if this approach be right, an assignment by the taxpayer before

the money becomes due and payable to him

avoids the effect of the requirement in the

notice, for the taxpayer ceases to be entitled

to payment before the statutory obligation

arises.

It is convenient to consider first the

manner in which the statutory obligation is

finally discharged, and then to consider

whether the section imposes any intermediate

obligation upon the third person between the

time when the notice is given and the time

when the obligation is finally discharged.

And then at the bottom of that page, in the last paragraph, second sentence:

When a notice is given pursuant to the

section, it takes effect according to its

tenor. The third person is immediately bound

to comply with it, though his obligation is	not to be discharged until some time later.	Between the time when the notice is given and
the time when the obligation is to be
discharged, the third person is not at liberty
to pay to the taxpayer the money falling
within the terms of the notice; the third
party is obliged to retain it in order to
discharge the obligation to pay the money to
the Commissioner in compliance with the requirement expressed in the notice.

He says, over the page, that that is so:

Whether the money is properly in existence

when the notice is given or -

not.

Daoui 4 13/5/94

Now, to the contrary of that would appear to

be what is said by Mr Justice Hill who gave

judgment for the majority in this case. At page 66

of the application book, line 19, he refers to the

majority view of a decision of the Full Federal

Court in Donnelly and says that it seems to him:

that the majority view in Donnelly is

determinative of the present issue.

And just pausing there, we would have read

Donnelly in its majority as agreeing, of course,

with what the High Court said in Clyne, but

His Honour obviously does not. He said:

Section 218 has no operative effect, whether

that effect be described as creating a lien or

charge, or as working an attachment, or as

working an assignment or merely by reference

to the words of the section itself unless and

until there is actually a debt due from the

addressee of the notice to the taxpayer.

It is there, with respect, that we say the majority

of the Federal Court in this case went wrong and it

is upon that that we found our claim to special

leave.

Your Honours, we have given Your Honours a

reference to Re Lind. We do not say that that is

any sense on all fours with this case but it

provides an example which shows that the result

that we contend for is not so unusual because that demonstrates that a similar result flows in equity

where there has been an assignment of a mere

expectancy for value. Intervening bankruptcy and

discharge no more deprives the pre-bankruptcy

assignee of his entitlement to be paid after

bankruptcy and discharge than it should deprive the

Commissioner, we say, who has before bankruptcy

served an appropriate section 218 notice.

May I deal with two other things,

Your Honours. Firstly - - -

MASON CJ:  Now, just before you do that, is it not necessary

to look at what Justice Hill says at page 67 where

he seems to be founding his conclusion on the

notion that the chose in action is not an

assignable chose in action and therefore the charge

or whatever it may be cannot operate until the

chose in action achieves fruition in the form of a

judgment?

MR BLOOM:  Your Honour, that is to say that we take Re Lind

as not just an analogy but as somehow applicable to

the circumstances of this case. The statutory

Daoui 13/5/94

charge which section 218 effects ought not to be

limited to those things which the law regards as

capable of assignment. Indeed, if one goes to Re

Lind itself, if it is applicable, it is hard to see

that a mere expectancy is something which the law

regards as capable of assignment. Of course, I

think Mr Justice Windeyer in Norman's case says,

quite clearly, it is not, it is really the case

that one has an agreement to assign it. But, none

the less, Re Lind, the authority of that, has never

been doubted, as leading to the situation that the

charge attaches when the debt actually comes into

existence. So, when the fruits of the mere

expectancy which is itself incapable of assignment

come into existence, the charge attaches at that

point in time because of the pre-existing

assignment or agreement to assign for value.

So, with respect to His Honour, he is either

importing too much from Re Lind into the situation.

He goes far beyond treating it as an analogous,

which is what we think Mr Justice Jenkinson was

doing and no more, or he is, with respect,

incorrect because the assignability cannot matter

either because we are dealing here with a statute

and so questions of what is assignable at law or in

equity do not matter or, secondly, because in any

case the principle from Re Lind does not depend for

its operation on having something which is

assignable at law or in equity.

Your Honours, the final paragraph of the

second respondent's submissions suggest that the

solicitor's lien, about which we do not seek to go

further, would somehow eat up the entirety of the

amount. Well that, with respect to him, is not

true. The lien will not exhaust the fund in any

sense. The submission of my learned friend,

Mr Grieve, allows too great an amount for the

solicitor's recoverable costs and includes a loan

which he organized in order to pay them, and takes

no account of the costs payable by the first
respondent.

If one goes to the application book - I will

not take Your Honours to it but I will give

Your Honours the reference - at 29 to 30 and 90, it

is made clear that the lien will certainly not

exhaust the amount available. While we confess

that the amount is small, the principle, we say, is

a very important one.

Furthermore, Your Honours will have seen from

the final paragraph of our written submissions that

we are prepared to submit t.o an appropriate order

for costs if the Court so pleases.	If Your Honours
please.

Daoui 6 13/5/94

MASON CJ:	Mr Grieve.
MR GRIEVE:	Clyne is distinguishable for the very same

reason that Lind is inapplicable. In Clyne there

was a debt due to the taxpayer, Mr Clyne, which was

capable of assignment, and he assigned it. The

issue in Clyne was whether his assignment of it

defeated the section 218 notice.

Now, here, Mr Daoui, had he wished to attempt

to emulate Mr Clyne, could not have done so, save

and except had he obtained value. But if he had

obtained value for the assignment then, arguably, the assignment would have been effectual perforce

Lind.

Our friends, as we understand it, seek to

contend that notwithstanding that it is a
fundamental part of their argument that the
taxpayer remained liable to the Commissioner for
the whole of the tax - notwithstanding his
intervening bankruptcy, notwithstanding his
discharge - somehow or other he, in some notional
sense, obtained value when the notice was served on
the first respondent. In our submission, the

proposition really only has to be enunciated to be

seen to be inherently contradictory.

Mr Justice Jenkinson, in dissent, below, went

down that track at page 48 of the application book

saying, at line 19:

The statutory provisions ins 218 must be

regarded as overcoming the lack of

consideration.

His Honour did not bother to elaborate by offering

any reason for that proposition and, in our

submission, it is at least odd when one has regard

to the fundamental proposition for which the

Commissioner must contend that the taxpayer remain

liable throughout for the whole of the tax.

There is another oddity in the Commissioner's

case to which we have not adverted in our

submissions, and may I do so orally by way of

supplement to what we have put, by first handing up

Bankruptcy Act.
a copy of section 116 of the subsection (1) by effectively providing that the

property of a bankrupt which is divisible amongst

its creditors does not include - and I pass down to

subsection (2)(g):

any right of the bankrupt to recover damages

or compensation -

Daoui 13/5/94

(i) for personal injury or wrong done to the

bankrupt -

et cetera. And it goes on:

and any damages or compensation recovered by

the bankrupt ..... in respect of such an injury

or wrong -

et cetera.

Now, we have this rather strange result as sought by the Commissioner here. First, Mr Daoui's

verdict, had it been recovered either prior to or

during the course of his bankruptcy, would not have

been available to his creditors; would not have
been available to the Commissioner, as one of those

creditors; would not have been available to the

Commissioner, as one of those unsecured creditors.

Yet, somehow, the Commissioner says that perforce

the notice served on the tortfeasor, he, the

Commissioner, is elevated in status to having a

right in the nature of a security, to the exclusion

of all other creditors, which survives the

bankruptcy over property which would not be

divisible within the bankruptcy.

Your Honours, that, in our submission, is

indeed an odd result and one requiring, one would

have thought, the plainest of language in

section 218, by the by, of course, that the

Bankruptcy Act, having been enacted in 1966,
follows section 218. It has been there for a long,

long time and it may be said, arguably, that even

if 218 may have attached to moneys of this kind

prior to that Act, that the Act repealed it to that

extent, the Bankruptcy Act.

DEANE J: That argument is a double-edged sword one, is it

not, in that it takes these moneys right away from
the bankruptcy.	But is not your main point here

that ultimately all that is involved in this case

are questions of statutory construction in the

taxation matter?

MR GRIEVE: That is right, yes.

DEANE J:  I mean, every question of statutory construction

that the Taxation Commissioner does not like, he

can always come along and say how terribly

important this is, "I can find a thousand cases".

MR GRIEVE:  Of course.

DEANE J: And he seems to do it with increasing frequency.

Daoui 13/5/94

MR GRIEVE: Indeed. Finally, Your Honours, on the question

of the practical importance of the issue, the

extent of the solicitor's lien which was regarded

by all four judges below as ultimately decisive of

the issue at least in substantial terms, while it may not have been entirely eroded by the time the matter was heard at first instance, it may fairly

be said to have been well and truly eroded now,

notwithstanding costs orders and the like that have

been made in favour of our client. The

irrecoverable component of the costs which have
been incurred in these proceedings, we would

content to be covered by the same lien in defending

the fund, as it were, from attack. On that basis,

Your Honours, our friends would have to persuade

the Court, to obtain any practical result, that

Their Honours below were wrong on that point.

Demonstrably, we submit, they cannot. The

existence of an equitable lien in circumstances

such as this, we would make so bold as to suggest,

is beyond argument.

MASON CJ:  Now, Mr Bloom, it is, obviously, a question of construction.

MR BLOOM: Certainly.

MASON CJ: It involves no question of principle. It is just

a matter of arriving at what one conceives to be

the proper effect of these provisions.	Why should
we grant special leave?

MR BLOOM:  Your Honour, of the four judges in the Federal

Court, they have split 2:2, if one counts

Mr Justice Wilcox at first instance, and secondly,

as we have submitted to Your Honours, there are

some 12 other statutes in which this same provision

appears, and they are statutes like the Land Tax

Management Act of New South Wales, the Training

Guarantee (Administration) Act, the Wool Tax

Administration Act, the Social Security Act, the

Students Assistance Act. So, it is a question

which goes far beyond just this Income Tax

Assessment Act, but across the board.

DEANE J: But if you look at the 2:2, and there are many

cases where that is the result, but if you do look

at that, reading the judgments carefully seems to

throw up that it is a point of construction about

which there is room for legitimate differences of

opinion. It is not one of those cases where one

looks at it and reads the judgments and thinks,

"That can't be right".

MR BLOOM: But, surely, Your Honour, with respect, what

Mr Justice Hill said at page 66 to which I took

Your Honours is completely at odds with what all

Daoui 9 13/5/94

members of the Court said in Clyne. It is just not

correct, with respect. So, we have a judgment

which is attended with doubt upon that basis on a

section which appears in some 13 statutes, and that

ought to be sufficient, in our respectful

submission, to raise it as a matter of importance.

If Your Honours please.

MASON CJ: The Full Court of the Federal Court is the final

court of appeal in taxation matters subject only to
the exceptional cases in which this Court grants

special leave to appeal. Before special leave is

granted in a taxation matter it must appear that a

question of fundamental principle arises for

decision. The question sought to be raised in the

proposed appeal is a question of statutory

construction which involves no question of general

principle. What is more, it is a question in respect of which there is room for legitimate

differences of opinion. For that reason, the

application for special leave to appeal is refused.

MR GRIEVE:	We ask for costs, Your Honour.
MASON CJ:	You do not oppose costs, Mr Bloom?
MR BLOOM:	No, Your Honour.
MASON CJ:	The application is refused with costs.

AT 11.38 AM THE MATTER WAS ADJOURNED SINE DIE

Daoui 10 13/5/94