DFC of T v CHANT

Judges:
Brownie J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 2 March 1992

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Brownie J

By a deed dated 21 July 1988 Ryda Car Radios Pty Limited (``the company'', later called RCR Radios Pty Limited) charged its assets and undertaking in favour of State Bank

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of New South Wales (``the bank'', later called State Bank of New South Wales Limited). Subsequently, the bank exercised its powers under the deed to take possession of the assets of the company, and on 18 December 1990 it appointed the defendant as its agent in that connection. He took possession of the assets of the company on behalf of the bank and sold them; and he now holds $125,601.77 being the net proceeds of sale.

Prior to 18 December 1990, the company had been registered as a group employer under s 221F of the Income Tax Assessment Act 1936 (Cth), and had made deductions from the salaries or wages of various employees, pursuant to s 221C, but had failed to remit to the Commissioner the amount so deducted as required by s 221F. The plaintiff now claims to be entitled to the moneys held by the defendant, pursuant to the provisions of s 221P. The question to be decided is whether the defendant is a ``trustee'', as defined in s 6(1), i.e. a person ``acting in any fiduciary capacity'', and if so, whether ``the control of [the company's] property has passed to'' the defendant as trustee.

S 6(1) defines ``trustee'' in these terms, unless the contrary intention appears:-

```trustee' in addition to every person appointed or constituted trustee by act of parties, by order, or declaration of a court, or by operation of law, includes-

• (a) an executor or administrator, guardian, committee, receiver, or liquidator; and
• (b) every person having or taking upon himself the administration or control of income affected by any express or implied trust, or acting in any fiduciary capacity, or having the possession, control or management of the income of a person under any legal or other disability;''

So far as relevant, s 221P(1) provides:-

``Where an employer makes a deduction for the purposes of this Division... from the salary or wages paid to an employee and... fails to deal with the amount so deducted in the manner required by this Division... 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.''

Ss 221C, 221F and 221P are all in the same Division.

The Deed of 21 July 1988, made between the company and the bank, provided in cl 23 that the charge thereby created should be a fixed charge in respect of certain assets, then identified, but not including ``those assets acquired and disposed of in the normal course of business'', and a floating charge over all of the company's other assets. By cl 25(ii) the bank was empowered to appoint a receiver of ``the mortgaged premises'', i.e. all of the company's assets the subject of the charge, with the receiver having the powers conferred on him by the Conveyancing Act 1919, and such of a list of powers as the bank might deem expedient, including a power to take possession of, collect and get in the mortgaged premises and to sell them. Cl 27 provided that the bank might itself exercise all of the powers which any receiver appointed by it might have. Cl 30 provided that all money received by any receiver or by the bank under the deed should be applied in a particular order: generally speaking, to pay certain expenses and outgoings, and then to pay to the bank the moneys secured by the deed; and any excess was to belong to the company.

By an instrument dated 18 December 1990, the bank appointed the defendant:-

``to transact all business and do all acts required to be done under the Security [i.e. the deed] which relate to all stock-in-trade, plant and equipment, other personalty, realty and all the other assets and undertaking of the Company whatsoever and wheresoever both present and future subject to the provisions of the Security with all the powers conferred on and/or which may be conferred on an Agent by virtue of the Security...''

In an affidavit sworn on 13 February 1992 the defendant said that, pursuant to that power: ``I took possession of all the assets of'' the company; and then he set out information about the net proceeds of sale, the plaintiff's claim upon him, and other claims made upon him by former employees of the company for wages, holiday pay and retrenchment pay. Earlier, by letter dated 30 January 1991, the defendant advised that ``the stock has been realised'', and the hearing proceeded on the assumption that

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the only assets realised had been the company's stock.

The plaintiff relies upon only one fragment of the definition of a ``trustee'', contending that the defendant was acting in a fiduciary capacity, and upon only one fragment of s 221P, contending that the control of the company's property had passed to the defendant.

In
DFC of T v General Credits Ltd & Ors 87 ATC 4918; (1988) VR 571, the Full Court of the Supreme Court of Victoria held that a mortgagee in possession is not a trustee for the purposes of ss 6 and 221P. The present plaintiff submitted that that case had been incorrectly decided, but accepted that I should treat it as binding. The defendant argued that if, in the present case, the bank had received the fund in question, it would not be a trustee, and therefore it would be incongruous if the defendant, as the bank's agent, were held to be a trustee; to which the plaintiff responded that that was what the Act required, and what authority required.

The plaintiff argued that, once the defendant had taken possession of the stock and had sold it, control of the assets of the company has passed to the defendant, citing
FC of T v Barnes 75 ATC 4262; (1975) 133 CLR 483, particularly at ATC 4266; CLR 492: what the defendant has done is to exercise control over the assets of the company, reducing those assets into a fund out of which there is to be paid the debt owed by the company to the bank, so far as the fund extends.

The defendant raised a number of submissions in answer. First, it was said that the only powers the defendant had exercised were the bank's powers, and not his own powers, and that it would be incongruous if, although the bank was not a trustee, the defendant was. However, if the defendant holds the fund in question on behalf of the bank, or on behalf of the former employees of the company, and therefore in a fiduciary capacity, then the definition in s 6 attracts the operation of s 221P, and the supposed incongruity means only that the result in General Credits is incongruous with the evident Parliamentary intention. That is, the wording of the legislation permitted the decision in General Credits to be reached, but the Parliamentary intention was to make those persons within the definition of ``trustee'' liable, in the circumstances mentioned in s 221P.

Accepting that if a fund of money such as that now held by the defendant is held by a mortgagee in possession, that mortgagee is not liable under s 221P, it is an odd result that an agent of the mortgagee is liable, but that odd result comes from applying the plain words of the statute, and to construe those plain words otherwise than in the manner just mentioned would be, in effect, to repeal them, whilst supposedly construing them.

It does not seem to me to matter how one categorises the powers of the defendant as the agent of the bank, that is, to work out whether those powers arose under the deed, or under the Conveyancing Act, or under the general law. What matters is that the defendant acted as agent for the bank, and that the money he now holds, the proceeds of the sale of the stock, are held by him on behalf of either the bank or the former employees of the company.

The defendant also argued that when the defendant took possession of the company's stock, he was a bailee of the stock, having contractual but not fiduciary obligations towards his principal, the bank. I do not think that his obligations were purely contractual, in the sense that he had no fiduciary obligations. See Finn: Fiduciary Obligations, paras 194-195. But in any event, once the stock was converted into a fund of money, the relationship was plainly a fiduciary one:
In re Hallett's Estate (1879) 13 Ch D 696 at 708 and 710-711.

The defendant submitted that the definition of trustee can be traced back, at least as far as the Income Tax Assessment Act 1922 (Cth), s 4; and that in that Act the definition did no work, except in connection with the imposition, by virtue of s 31, of a liability upon trustees to pay income tax, i.e. income tax in respect of money received as income, and as trustees. Then, this submission was linked with another submission that cl (b) of the definition of trustee in the 1936 Act contained 3 branches: a person taking upon himself the administration, etc of income; a person acting in a fiduciary capacity; and a person having the possession, etc of certain income; and it was argued that since the first and third branches related to income, so did the second branch.

As a matter of grammar, I find this submission unattractive. If that is what was intended, the second branch would have ended with some expression such as: ``every person... acting in any fiduciary capacity concerning

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income'', or ``... in respect of income'', and without some form of words along these general lines, the words ``acting in any fiduciary capacity'' are not limited to a situation involving income as distinct from assets.

However, if that view is wrong, it would follow that
James v DFC of T 88 ATC 4812; (1988) 19 ATR 1752 was incorrectly decided. See particularly at ATC 4818-4820; ATR 1759-1761. Whilst the argument that the words ``in any fiduciary capacity'' dated back to a time when there was no equivalent to s 221P, the other argument advanced was rejected by the Court of Appeal, and the two arguments are really two variants of the one theme, or two different ways of putting the same argument; and it seems to me that the Court of Appeal has rejected that argument. It may be that not every proposition urged before me in support of that argument was put to the Court of Appeal, but it remains the position that the Court of Appeal rejected that argument.

The defendant also argued that what had been done by him did not mean that the control of the property of the company had passed to him; rather, the control of the property had passed to the bank, and he was simply the agent of the bank, just as it was said that the powers that he had exercised were the powers of the bank, and not his powers. I do not accept these arguments, for as the defendant said in his affidavit: ``Pursuant to my appointment as the agent of [the bank under the deed] I took possession of all of the assets of'' the company; and then he sold them, and he now holds the net proceeds of sale. Whilst for some purposes the bank is vicariously liable for his conduct, and his conduct may be taken to be the bank's conduct, his conduct is not wholly treated as the bank's conduct, and not his own conduct. Once again, if the proposition contended for was correct, James would have been decided differently.

Finally, it was said that the defendant was not a ``trustee'' unless he had been acting in a fiduciary capacity at the time of his appointment, i.e. on 18 December 1990, before he took possession of the stock or sold it. Again, this does not seem to me to be correct. The relevant part of s 221P operates when the control of an employer's property has passed to a trustee, and in this case, at the moment when it could be said that the assets of the company had passed to the defendant, he was acting in a fiduciary capacity. And once again, if this point was correct, James would have been decided differently.

I therefore conclude that the plaintiff is generally entitled to succeed. However, subject to what might now be submitted, I do not think that there is any point in making the declaration sought, although I propose to make an order in terms of para 2 of the Summons, and an order that the plaintiff's costs be paid out of the fund in the defendant's hands, to the extent that that fund is sufficient for that purpose.