Leslie, P. v Commissioner of Taxation

[1995] FCA 499

IN THE FEDERAL COURT OF AUSTRALIA)No. NG 805 OF 1994
NEW SOUTH WALES DISTRICT REGISTRY)
GENERAL DIVISION                )

ON APPEAL FROM A JUDGE
             OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:  PHILLIP C LESLIE

Appellant

AND:COMMISSIONER OF TAXATION

Respondent

CORAM:    WILCOX, WHITLAM & NICHOLSON JJ
PLACE:    SYDNEY
DATE:     29 MAY 1995

EXTEMPORE REASONS FOR JUDGMENT

THE  COURT:  This appeal arises out of a decision of a judge of the Court, Tamberlin J, rejecting a point raised by a debtor, Phillip Leslie, in opposition to a bankruptcy petition filed by the Deputy Commissioner of Taxation.  The debtor's notice of opposition put the point in this way:

"Notwithstanding the judgment, the debtor is not indebted to the judgment creditor in the sum of the judgment, by reason of the fact that the debt due to the judgment creditor is not due by Phillip C Leslie, but due by Messrs Kelly and Cooke, acting as receivers appointed by CBFC Limited for Leslie's Omnibus Services on 12 October 1992."

The debtor carried on business, as an individual and in his own name, as proprietor of an omnibus service.  In April 1989 he mortgaged his business and the land on which it was conducted to a finance company known as CBFC Limited.  This was done to secure moneys loaned by the finance company to him.  At the same time, by way of further security, he entered into a bill of sale and equitable mortgage over the business. 
         In August 1989 supplementary securities were executed over the same assets to secure further advances.  It appears that the debtor suffered financial difficulties.  In February 1992 CBFC commissioned a report by accountants.  On receipt of that report, CBFC served a notice of demand on the debtor.  Following other events which it is unnecessary to detail, receivers, Messrs Kelly and Cooke, were appointed.  They took the business out of the control of the debtor and subsequently sold both the business and the land.

The evidence showed that the debtor also had interests in two other items of real estate:  land at Meurants Lane, Parklea and a house at Junee.  Messrs Kelly and Cooke were not appointed receivers of either of these properties.  When the receivers were appointed, Mr Leslie was indebted to the Commissioner of Taxation in respect of group tax deducted by him from wages paid to his employees.  The amount involved was apparently about $156,685, this being the amount for which the Commissioner recovered judgment against Mr Leslie in the
Supreme Court of New South Wales on 30 October 1992. The liability arose under s.221P(1) of the Income Tax Assessment Act 1936, which provides:

"Where an employer makes a deduction for the purposes of this Division, or purporting to be for those purposes, from the salary or wages paid to an employee and refuses or fails to deal with the amount so deducted in the manner required by this Division, or to affix tax stamps of a face value equal to the amount of the deduction as required by this Division, as the case may be, he shall be liable, and 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."

The Commissioner claims that the section continues to apply to Mr Leslie, notwithstanding the appointment of Messrs Kelly and Cooke as receivers and the sale of the business and land. Mr Leslie contests this claim. He argues that, on its proper construction, s.221P(1) terminates, or at least suspends, the liability of an employer to the Commissioner where all the assets of the employer become vested in, or come under the control of, trustees. Recognising that the Meurants Lane and Junee properties never vested in, or came under the control of, the receivers, his counsel submitted to Tamberlin J that he should disregard these two properties, because their value was de minimus.

His Honour rejected both aspects of the debtor's case, in our view rightly so.  The evidence in relation to the Meurants Lane and Junee properties was extremely scanty.  It was agreed between the parties that the interest of Mr Leslie in the Junee property, an expectancy on termination of a life estate, was worth about $20,000.  There was no agreement on the value of the Meurants Lane property and no evidence of this.  There was evidence that, in November 1991, the property was submitted to auction and that the highest offer received was $425,000.  It also appeared that a mortgage over the property of $400,000 was transferred to a financier, Suhuta Pty Limited, in about March 1992 and that the loan was subsequently increased to $500,000 in April 1993.  This evidence suggests that the financier thought the property was worth at least $500,000 at that time.  There is no other evidence, nothing that would justify the Court inferring that Mr Leslie's interest in the property was valueless at the date of appointment of the receivers or at any other material time. 

In any event, it seems to us that the appellant's premise is wrong. Contrary to counsel's submission, s.221P(1) does not terminate or suspend the liability of an employer upon the transfer of assets to a trustee. The section does impose a liability on a trustee, to the extent of the assets coming under the trustee's control: see Commissioner of Taxation v Card (1963) 109 CLR 177. But it does not absolve the employer from liability. The liability of the trustee is cumulative on that of the employer. The section says: "He" ‑ the employer - "shall be liable and" ‑ emphasised - "where his property has become vested in ..... a trustee".
The drafter of the section has not used the conjunction "or", as would have been appropriate if the intention had been to absolve the employer from liability where a relevant occurred.  This is not a case where "and" should be read as "or"; compare Pearce and Geddes Statutory Interpretation in Australia, (3rd ed.) (1988) at para. 2.12.

Counsel for the appellant informed us that there are about 25 reported cases concerning s.221P(1), but none of them support the construction he puts. Possibly the point has not previously arisen. But we think the intention is clear. We read the word "and" as bearing its ordinary meaning. It imposes a liability on a trustee in the stipulated circumstances that is cumulative on that of the employer. It does not exonerate the employer from liability.

Counsel for the appellant submitted that the primary judge should have exercised his discretion in favour of his client.  We pointed out to him that no such submission appeared to have been made to his Honour and the matter was not the subject of a ground of appeal.  Counsel made no application to amend his grounds of appeal and did not thereafter pursue the point. 

The appeal should be dismissed with costs.  The Court so orders.

I certify that this and the preceding four (4) pages
are a true copy of the Reasons for Judgment
of the Court.

Associate:

Dated:       29 May 1995

APPEARANCES

Counsel for the Appellant:       R M Gordon

Solicitor for the Appellant:     Monte Gildea

Counsel for the Respondent:      S J McMillan

Solicitor for the Respondent:        Australian Government Solicitor

Date of hearing:                 29 May 1995