Jackson v Deputy Commissioner of Taxation

[1990] HCATrans 185

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Adelaide No A"' of 1990

B e t w e e n -

JOHN HENDERSON JACKSON

Applicant

and

DEPUTY COMMISSIONER OF

TAXATION

Respondent

Application for special

leave to appeal

BRENNAN J

TOOHEY J

MCHUGH J

TRANSCRIPT OF PROCEEDINGS

AT ADELAIDE ON THURSDAY, 23 AUGUST 1990, AT 12.12 PM

Copyright in the High Court of Australia

Jackson 1 23/8/90

MR H.C. WILLIAMS, QC:  May it please the Court, I appear

with MR A.C. BAMPTON for the applicant.

(instructed by Olssons)

MR M. ROBERTSON, QC: If the Court pleases, I appear with

MISS A. VICIC for the respondent. (instructed by

the Australian Government Solicitor)

BRENNAN J: Yes, Mr Robertson. Mr Williams.

MR WILLIAMS:  May it please the Court. As a matter of

convenience we have put together a summary of
argument together with the material to which

reference may be made.

BRENNAN J:  Yes, Mr Williams.

MR WILLIAMS:  Thank you, Your Honour. The Court will see

that this is brought as an application of special

leave to appeal from a single judge of the South

Australian Supreme Court on the footing that the
matter has already been before the Full Court on a
case stated and that in these circumstances it

would be in accordance with the principle of Sanofi

v Parke Davis, 149 CLR and the passages are at

pages 153 and 154, that if leave were to be granted

that it would be appropriate to treat the matter on

the footing of coming from a single judge.

In drawing the notice of application we did

cover the question of possibly regarding the matter. as being capable of being treated as an appeal from

the Full Court, but in view of the events before

this Court in the last few months, we prefer to

treat it as an application from a decision of a

single judge, although necessarily, of course, the

single judge has done a task of, first of all

finding the facts; stating a case and then

mechanically applying the decision of the

Full Court, so that our criticisms are essentially

directed at the answers to the case stated.

The matter that we are asking the Court to

consider is essentially not only the decision of the South Australian Full Supreme Court, but the decision of the Supreme Court of Victoria in

Horsburg and the decision in South Australia is in line, in all respects, with Horsburg. However, there was an argument that was not addressed in

Horsburg, which has been rejected before our

Supreme Court, and it is on that footing that we

are asking the Court to consider the grant of

special leave. We are concerned with the question

under section 221P of the Income Tax Assessment Act

which the Court will find, as a matter of

convenience, on page 122 of the copy documents in

the judgment of Justice Perry. Whilst there has

Jackson 23/8/90

been a slight amendment to 221P, it would not, in

any relevant respect, in my submission, affect the

decision of this Court on the question of granting

of special leave.	221P has been now extended to
.	apply to another case as well as group tax, but in

this case the competition arises between priority

claimed by the Commissioner of Taxation for group

tax, where there has been a default and the
receivers' claim for his out-of-pocket expenses and

fees associated with the establishment of the fund.

Now there is no doubt that the fund to which a

receiver is liable to the Commissioner is only a

limited fund. This has been established on two

occasions: first of all in Card's case, 109 CLR

and then confirmed in Barnes' case, 133 CLR. And

my starting point is to simply draw attention to

the ratio of Card as adopted in Barnes' case. This

is in 133 CLR 489. It was decided in Card that a

receiver appointed by a mortgagee of the assets of

a company pursuant to a floating charge which had

crystallized, was not liable to pay a debt of a

company owing to the Commissioner of Taxation

pursuant to 221P, except out of property of the

company which had vested in him or passed under his

control.

Now the issue that still remains, despite the decisions in those two cases, is the extent of the property to which a receiver, or any trustee for

that matter, is required to resort for the purposes

of meeting the Commissioner's claim for unremitted

group tax. And of course, I should pause to note

that, under section 6 of the Income Tax Assessment

Act, a receiver is formally included in the

definition of "trustee", and whilst there might

have been an argument in bygorie days, in particular

prior to Barnes' case, as to whether a mortgagees'

receiver was a trustee, I accept now that it is

settled law that all receivers are caught by 221P

and my submission would be, not only a debenture

holders' receiver, but also any receiver appointed

by the court. And I mention that to show the

breadth of the operation of 221P, when the Court is
considering the generality of the application of

the decision that we are dealing with.

BRENNAN J:  Why is not the fund constituted as described in

the passage that you just referred to from Barnes'

case?

MR WILLIAMS:	In my submission, the fund has been described conveniently as the "available fund", and that is
how it was so described in Card's case by
Mr Justice Owen.  In my submission, the costs of
establishing the fund should not be taken into
account in determining the trustee's liability to
Jackson	23/8/90

account. To take, in this case, one example:

Amadio Builders, which was the company in

receivership, was found to have a jewellery shop.

It took the receiver a lot of research to find that

such a shop existed, but it had new jewellery, so

· he then had to turn around; he had to sell the

jewellery, which meant getting someone in to sell

it on commission; he then had to pay the sales tax,

because it was new stock and he had to do a lot of

running around in order to get that property in.

In my submission, the amount that should be

available to the Commissioner, to establish the

fund to which he is entitled to resort, is the

amount that is established after paying the

commission, the sales tax and logically also, the

costs of the receiver, because whether he does a

lot of this work himself and employs staff, or

whether he employs others to do it, in my

submission, really it comes down to the same thing.

BRENNAN J:  I understand that that is what your argument is,

but I am seeking to discover what the foundation

for the argument is, because it comes down to this,

does it not: if your argument be right, then the

benefit of your argument goes in relief of the

debenture holders.

MR WILLIAMS: In my submission, no.

BRENNAN J:  Does the receiver not have a right to

indemnity?

MR WILLIAMS:	We have a right to indemnity, if in fact that right is worth anything, and of course, this
argument - - -
BRENNAN J:	How do you mean if it is worth anything?

MR WILLIAMS: Well, clearly a receiver would be expected to have a right of indemnity, I suppose, under the terms of his appointment against the debenture.

BRENNAN J:	Against the person who appointed him?
MR WILLIAMS:	That is, if the right is worth anything. I

make that point because, in this particular

instance, it so happens that the right is not worth

anything to Mr Jackson, and so - - -

BRENNAN J:	But do you mean if the receiver goes in, takes possession and discovers that the assets of the
company are not equal to the costs that he incurs,
he has no right against the party who appointed
him?
MR WILLIAMS:	He certainly has a right, that is, if the party who appoints him has any worthwhile assets.

Jackson 4 23/8/90

I mean it is a question as to whether it is worth

anything in the sense of whether the debenture

holder is worth powder and shot.

BRENNAN J: 

Well then, does it not follow, and I put the

question to you again, that your argument goes in
relief of the debenture holder?

MR WILLIAMS: 

It does go in relief of the debenture holder

to that extent, but our argument would be put this

way: that he who establishes a fund, that is a

trust fund, in the ordinary course, can be expected

to be indemnified out of the fund for the cost of

setting it up. Whether he sets it up - - -

BRENNAN J:  That is for the benefit of a cestui que trust.

In other words a cestui que trust then bears the burden. In this case the debenture holder.

MR WILLIAMS: Well we would say that - of course we are

dealing only with a situation in which there are no

funds available for the benefit of the debenture

holder. It we have got a surplus then, of course,

the question does not arise.

BRENNAN J:  But it does. Let us assume that there is a

tax liability of $100,000 , and there is $120,000

realized, and the cost of the receivership is say

$50,000. On your argument, $50,000 for the

receiver is taken out first; that leaves $70,000

which then goes in the first place to the tax

liability.

MR WILLIAMS: Well there may be two stages in it,

Your Honour. We would say, certainly the costs of

the receivership which are associated with getting

in the particular assets are taken out. I mean,

there may be two stages as to whether the general
costs of the receivership are taken out or not, but

certainly I am comfortable with the first stage,

charged against the fund, because whether - - - that the costs of getting in the asset should be

BRENNAN J:What is the principle of law which takes you

outside the passage at 489 to 490 of Barnes' case?

MR WILLIAMS:  The principles of law would be this, that

generally speaking anyone who establishes a fund

can expect to be indemnified out of that fund,

whether he be a liquidator or a receiver. I mean

there would be cases, for example, where a

liquidator does the receiver's work for him and in

those circumstances the liquidator will be held to

be entitled to his fees as a first charge. That is
the case of Universal Distributing Co., 48 CLR.

The other principle is that one would expect, as a

matter of statutory construction, when one is

Jackson 23/8/90

dealing with an Act of Parliament dealing with

insolvency, that the same result should be brought

about so far as creditors are concerned,

irrespective of fortuitous happenings along the

~y.

So whether there should be a getting in of these assets by a liquidator or whether there

should be a getting in by a receiver, in my

submission the principle is that the same result

should accrue. Now there is no doubt that under

221P that the subsection (3) protects a liquidator

for his costs and expenses. That is clear and the

argument which goes against me and as adopted in Horsburg and in this case, is an expressio unius

est exclusio alterius argument. Now my answer to

that is, if we look at the law before the

introduction of the amendment to section 221 to

introduce subsection (3), which was introduced in

1959, the situation then would have been that a

receiver, whether he be a debenture holder's
receiver or one appointed by the court in the

course of an action, would be entitled to be

protected, so far as his out-of-pocket expenses and costs were concerned, before the fund was set up to

which people would have access. A liquidator

clearly at that stage did not have that protection,

because he only gets his protection within the

administration and it may be that he is not always

first cab off the rank. The court would usually,

in a matter of its discretion, make him in that

position, but we say the reason for amending 221P

to insert subsection (3), was to remove the

disadvantage which a liquidator suffered prior to

1959, whereas the decision in Horsburg is that the

effect of the amendment is to put a liquidator in a

preferred position.

Now that is the argument in a nutshell. If

one recognizes that a receiver has always been

entitled to, what I will call, a salvage lien, his

position was protected prior to 1959 and we see the

reason for the introduction of the amendment that
was made in that year. But Horsburg's case does

not deal with that argument at all and it is for

that reason that it is our submission that it is

appropriate that this matter should be ventilated

before this Court. There are a lot of cases, in

our submission, that appear to turn on it.

Mr Jackson has got three further cases himself, according to the affidavit. Mr Mount, the

president of the Insolvency Practitioners'

Association has one, and we see, looking at the

affidavit, that, whilst there is no formal

concession made, there has been a further 15 cases

in South Australia where recovery action has been

Jackson 6 23/8/90

stayed at the request of the receivers, pending the

litigation of this particular matter.

It is a matter, in our submission, that has

got very wide application and, of course, it is

· unfortunately, in this day and age, becoming more

and more common for receivers to find themselves in

the position that Mr Jackson finds himself in, that

is, getting into a company; finding that there is a
liability for group tax; disclosing it, of course,

to the Commissioner, and then having to go through

all the rigmarole of getting in the assets, only to
be met with the situation where, if this case

stands, he is simply doing his work gratis for the

benefit of the Commissioner. Certainly if there is

any further moneys coming in, and there is any

surplus, then there is no doubt that other people

then get a benefit, but at this stage the only
person who directly gets the benefit from the work

done by the receiver is the Commissioner of

Taxation and it would appear odd, in my submission,

that whether the work is done by the liquidator or

whether it is done by the receiver, as to whether

or not the Commissioner gets a gross amount, or

whether he gets a net amount. Now that is in a

nutshell the argument for which I am advocating, if
the Court pleases.

I have drawn attention to the fact that the

textbooks are divided on the question as to the
order of application of assets and in the affidavit

we have simply quoted two textbooks, Francis and

Blanchard, where they make the point that the question appears to be not free from doubt, and

each expresses a different order as to whether the

receiver comes first for his costs, or whether the

Commissioner comes first for group tax. So the

matter is a matter which is the subject of ongoing

debate.

In the case of The Taxation Commissioner v AGC

(Advances), (1984) 1 NSWLR 29, I note there that in

the Court of Appeal it was Mr Justice Mahoney who

made the point at page 33, dealing with the

Commissioner's argument, this is at line D:

the Commissioner's submission suggests, there

is as yet no determination by the High Court

of the precise property to which the trustee

may and should resort for the purpose of

meeting the Commissioner's claim. And it is

to this that the Commissioner's submissions

are directed.

Now it is my submission that that still

remains the case that, as yet, despite the general

statements that have been made in Barnes and in

Jackson 23/8/90

Card, there has been no statement by the court as

to the property to which the trustee must resort.

Now there is no question that - - -

BRENNAN J: But the whole structure of 221P is not based

upon the level of a fund in anybody's hands, it is

based on the availability of property in their

hands, not the net worth or the balance, but the

property.

MR WILLIAMS: No, I accept that, Your Honour, but what - - -

BRENNAN J: Well how does one get away from what was said in

Barnes' case?

MR WILLIAMS:  Because in 221P(l) there is no question that,

on the face of it, a trustee is liable, -

where his property has become vested in, or
where the control of his property has passed

to, a trustee, the trustee shall be liable, to

pay that amount to the Commissioner.

Now on the face of it, the mere fact that all the property is passed to the trustee, on its face

the trustee would be liable to pay the whole amount

of the claim with no limit on it whatsoever. Of

course, in Card's case, the wide words of 221P were
read down so that they were held to mean only the
property to the extent to which it becomes under

the control of the trustee or - - -

BRENNAN J: And picked up precisely the opening words of

221P that you have just cited.

MR WILLIAMS:  In other words, as was put in Card's case, it

is the available fund is the extent of the

liability. Now we do not have a - - -

BRENNAN J: That is a loose term, is it not? I mean, what

is the extent of the liability is, as you have

pointed out in Barnes'case, the property that has

passed to or is under the control of a trustee?

MR WILLIAMS:  Now, then we have the next question. We have

decided, in this case, that Mr Jackson has a
general control of the company's property. Then we

must ask the question, what is the extent of that

liability? The extent of the liability is the

value of the fund, but the value of the fund is

that the gross amount of the fund, as it stands out

there, unrealized, or is it the value when it has

been reduced into a fund which is available to be

administered.

BRENNAN J: But was not this the whole point of the

discussion about the value of the equity of

Jackson 23/8/90

redemption as being part of the property? In other

words, it is the goods in specie, that are

available. It is not the net realizable worth.

MR WILLI,AMS:  That is a slightly different question. The

equity of redemption clearly is the amount that has

been held to be the amount in question, but they

there is - - -

BRENNAN J: It is the property - that is the property?

MR WILLIAMS:  Yes, but there is a refinement on that in

deciding what is the value of that equity of

redemption, if we can use Your Honour's term, then

we still have got the question, is it the net value

of that amount when it is reduced into a fund, or

is it the raw value of the gross amount of the fund before it has got in, and our submission is, if one

adopts the gross value situation, it means that a

receiver is really being expected to put his hand
in his own pockets to meet the Commissioner's

claim, because once he realizes that the jewellery, for example, he has got to pay the sales tax. Now,

in our submission, that is the first thing that
ought to come off and likewise the other matters,

commission, any other expense that is necessary to

get in the property. Now there may be some

expenses which one would say ought to be charged

against the administration generally and not

against this particular asset, but our submission

is that basically that is a refinement of the

argument. 221P(l) deals with the question as to

when the liability arises; that is when control of

property comes under the control of the trustee.

221P(l) does not expressly say what the property is

that spells out the extent of the liability.

Mr Justice Menzies referred to it as that

incredibly ill-drawn section that made it necessary

case there has been something implied. That has to imply something into the section. Now in Card's	been explained in Barnes, and we are inviting the
Court to take the next step of taking a specific situation and spelling out the extent of the
property to which the trustee must resort. I
cannot take the matter further.

BRENNAN J:	We need not trouble you, Mr Robertson.
MR ROBERTSON:	Thank you, Your Honour.
BRENNAN J:	In the view of the Court there is not sufficient

reason to doubt the correctness of the decision

from which this appeal is sought to be brought to

justify the grant of special leave to appeal from
that decision. Accordingly, special leave will be

refused.

Jackson 9 23/8/90

MR ROBERTSON:  If the Court pleases, we apply for costs in

this matter.

MR WILLIAMS:  I cannot resist that, Your Honour.

BRENNAN J; It will be refused with costs.

AT 12.40 PM THE MATTER WAS ADJOURNED SINE DIE

Jackson 10 23/8/90