HANIBRIDGE PTY LTD (IN LIQUIDATION) v TOOMEY & ORS

Members:
Bryson J

Tribunal:
Supreme Court of New South Wales

Decision date: Judgment handed down 12 March 1992

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Bryson J

This judgment relates to the cross- claim brought by the fourth defendant the Commissioner of Taxation against all other parties seeking:

• (1) a declaration that Mr Peter Brook (formerly the receiver of the Company) at all relevant times was a trustee for the purposes of s 6(1) and s 221P of the Income Tax Assessment Act 1936; and
• (2) an order that the sum of $86,187.37 paid into Court by Mr Brook be paid to the Commissioner.

The Commissioner also sought a number of consequential orders. The issues in the Summons are no longer significant having regard to the events which have overtaken the Company. No other defendant participated in the hearing of the cross-claim, either to support or to oppose, and in particular Mr Peter Brook the former receiver is a submitting party. At an early stage in the cross-claim he paid $86,187.37 into Court, and in effect (although not in form) he has interpleaded the parties who are really interested in the money.

The evidence on the cross-claim was given on affidavit and there was no cross- examination. This evidence shows that the Company was registered as a group employer with effect from 1 June 1989 and became indebted to the Commissioner for $86,187.37 for group tax; the Commissioner has submitted a proof in the liquidation for that amount.

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ATC 4111

Before the liquidation the Company gave a Deed of Charge dated 12 June 1990 to Mrs Toomey, who is a defendant and a cross- defendant, over all the company's undertaking and assets, and according to the Deed of Charge it was given to secure $251,855.00 which was owed by Mr John Moyle, who was a director, to Mrs Toomey. Mrs Toomey on 27 December 1990 appointed Mr Brook to be receiver, but he was not appointed receiver of all the assets charged; the appointment related to moneys held for the Company on deposit, moneys held by the company in cash and debts due to the Company. Then on 10 January 1991 Mrs Toomey made another appointment appointing Mr Brook to be receiver over all the undertaking and assets of the Company.

On 17 January 1991 Mr M.C. Donnelly was appointed Provisional Liquidator of the Company by order of this Court. On 29 January 1991 Mr Brook resigned both his appointments as receiver. On 11 February 1991 this Court ordered that the Company be wound-up and appointed Mr Donnelly to be its official liquidator.

Evidence given on affdavit of Mr Moyle on behalf of the defendant shows that the Company carried on business as a retailer of motor vehicle parts and accessories under the name ``Super Auto'' and leased ab Osborne out 12 shops in New South Wales and in the Australian Capital Territory. A winding-up summons was filed against the Company on 9 October 1990. On 14 January 1991 Mr Moyle handed Mrs Toomey a document signed by him on the behalf of the Company which, according to its terms, declared that the Deed of Charge was void as being in contravention of s 129 of the Companies (New South Wales) Code.

The evidence before me is extremely sparse and contains no indication whether or not the Company was entitled under s 130 of the Code to avoid the Deed of Charge, and I assume in the absence of any evidence showing otherwise that it was not so entitled.

I turn to address the terms of subs 221P(1) and the extent to which the Commissioner's claim is supported on the facts. I understand that the Company as employer made a deduction or deductions from salary or wages paid to employees and failed to deal with the amount so deducted in the manner required by Pt VI Div 2 of the Income Tax Assessment Act. The manner in which the case was conducted on both sides has made it quite plain that this happened; the presentation of each case proceeded on that assumption and in a way it is testified by the fact that Mr Brook had the money available and paid it into Court. That being understood, the Commissioner contends that the Company, and also Mr Brook, fall within the concluding phrases of the subsection thus: ``... he'' (that is the employer, the Company) ``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''. ``Trustee'' is defined in s 6 and it was not disputed that Mr Brook became a trustee by virtue of one or the other or both of his appointments as receiver.

It has been established by judicial authority that the references to ``his property'' are references to the whole of the property of the employer, but this holding may be subject to an exception where trivial or insubstantial parts of the property are not vested in or do not pass to the control of the trustee. If the repeated references to ``his property'' could be thought of as applying distributively to the property of the employer and also to any part of it which became vested in or control of which passed to a trustee, the Commissioner would have no difficulties in this case as it is obvious that control passed to Mr Brook of the money which he has paid into Court. However that distributive construction is not available; I must accept that the decision of the High Court of Australia in
FC of T v. Barnes 75 ATC 4262; (1975) 133 CLR 483 establishes that it is not available, having regard to observations in the Court of Appeal in
DFC of T v. AGC (Advances) Ltd & Ors 84 ATC 4177; [1984] 1 NSWLR 29 and to distinct holdings in the Court of Appeal in
DFC of T v. Chant & Ors 91 ATC 4734; (1991) 103 ALR 387. There is no room for different interpretations of the references to ``his property'' in the branches of the subsection referring to vesting and to the passing of control; in Chant's case the branch relating to the passing of control was under the Court of Appeal's consideration.

The issue of substance before me is whether the Commissioner has established an entitlement under the branch relating to the passing of control. In carefully developed submissions, the Commissioner's counsel contended that the passing of control refers to

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ATC 4112

the passing of a legal right to control the property, while the Company's counsel contended to the effect that there must be a passing to the trustee of control as a matter of fact of substantially the whole of the property.

In subsidiary submissions the Com- missioner's counsel contended that the onus of proof that control of the relevant property had not passed was on the Company, or had shifted it to the Company having regard to the state of the evidence, and further contended that on the test put forward by the Company's counsel the Commissioner was entitled to a finding that control of the whole of the Company's property had passed to Mr Brook.

I would not think of Mr Brook as particularly identified with either active party to the cross- claim so that I should look to one party or the other as having to call him to avoid adverse inferences; either party could have called him. The evidence is very sparse, does not clearly identify when the Company had an automotive parts business or twelve shops, and does not establish whether the Company had, during Mr Brook's appointments, any property apart from the money which he paid into Court. Nor does the evidence establish that it had no other property. The Commissioner, who asserts a right to the money and seeks declaratory relief, bears the onus of proof of all facts constituting his claim including the passing of control over the whole of the property to Mr Brook, and has not discharged that onus. There is no need to address the question whether there are trivial or insubstantial exceptions; I do not know whether there are any exceptions.

To my mind there is not in the judgments in Barnes' case a clear exposition of what is involved in the concept of the passing of control. At a number of points the judgments seem to contemplate that control passes at the point of time when a receiver is appointed, but there is no address to the possibility that the appointment night be ineffective to carry control as a practical matter.

In
DFC of T v. AGC (Advances) Ltd & Ors 84 ATC 4177 at 4178; [1984] 1 NSWLR 29 at 30 Hutley JA accepted, for the purpose of that judgment, that control is de facto control; acceptance related to de facto control in this sense:

``... in that if the holder of a crystallised charge, which was originally a floating charge over the whole of the assets of a company, takes no action and permits the liquidator to collect the assets, the control of the assets has passed to him...''

Hutley JA said ``No serious attack on this approach was advanced in argument...'' and his acceptance must be understood to have been given only for a limited purpose and was not a considered adherence. At ATC page 4179; CLR page 33 Mahoney JA said of ``control'':

``That term may mean, e.g., the right to control or the actual physical control, depending on the context in which it is used. It is not necessary for present purposes to determine whether the term is used in the same sense in the two sections.''

Mahoney JA also said [at ATC page 4180; CLR page 33]:

``The control of the employer company's property within sec 221P passed to the liquidator, in my opinion, either at the date of his appointment or subsequently upon his reducing the debts into his physical control.''

Priestley JA did not adhere to or endorse any particular exposition of the concept of passing of control in s 221P, and did no more than consider at length and repel a submission made on behalf of the Deputy Commissioner that [at ATC page 4185; CLR page 40]: ```control' spoken of in sec 221P(1) included the control which the liquidator in fact exercised in the present case over the book debts by himself collecting and receiving them from the company's debtors and then placing them to the credit of an account in his own name'' (see 40D). Proposition 4 with which page 40 commences is not such an exposition.

The judgments in the Court of Appeal in Chant's case do not expound the concepts of control or of the passing of control; close attention was given to the meaning of ``his property'' and it is for that expression that the judgments are authoritative.

I was also referred to the leading judgment of Mahoney JA in
James v. DFC of T 88 ATC 4812. His Honour dealt with the matter presently important at page 4819 in these terms:

``During the period of the Scheme of Arrangement, the property of the company here in question was under the control of Mr James. It is not necessary to attempt a formal definition of `control' for this purpose. The powers detailed in cl. 3(d) (of

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ATC 4113

the Scheme of Arrangement) allowed Mr James to do things which together constituted control in the relevant sense. And at that time, there was no one else who, in respect of that property, was able to determine that the property be dealt with in a manner contrary to the manner which Mr James might determine.''

Mahoney JA's judgment did not deal authoritatively with the choice between the two submissions before me. Mr James had a right of control conferred on him by the Scheme of Arrangement, and he was not in fact opposed by anyone whose wish could be effective. This is the same in substance as his in fact being in control of the property and able to determine what would happen to it; he had much more than a right to determine what should happen to it.

I was also referred to the judgment of Marks J in
Russell & Anor v. AGC (Advances) Limited 87 ATC 4392; (1987) 12 ACLR 78. The judgment is not binding on me but as a decision of a court of co-ordinate jurisdiction on the same legislation it has more than the ordinary and pressing claims for my respectful consideration. At ATC page 4398; ACLR pages 85 and 86 Marks J said:

``In any event, I am persuaded that `control' within sec 221P means de facto control or at least control to a greater extent than any achieved by the applicants.... (and his Honour referred to authority) While it may well be that a thoroughly definitive meaning of `control' has not yet emerged it is clear that in no sense have the applicants exercised control over the Queensland assets. I find as a fact they have not exercised any. In my view, the presence or otherwise of `control' is ordinarily a question of fact. Its meaning in sec 221P is not technical but refers to what is actual or `de facto'....''

Marks J went on to refer to authority including the AGC (Advances) case.

In my opinion ``control'' in the subsection refers to control which is actually exercised in fact over the relevant property, being the whole of the employer's property. A complete exposition of ``control'' in the abstract is not possible, and questions of fact must be addressed in relation to the evidence in each particular case. To understand the meaning of ``control'' and of the reference to control passing to a trustee it is important to observe that the first branch relates to the vesting of property, and the second branch exists to extend what was dealt with in the first branch and deals with matter which the first branch had not covered or had not completely covered. The second branch does not deal with a formal concept such as the vesting of property, but uses language which is less formal and is appropriate for a more extensive provision; not terms of art relating to vesting of property, but general expressions relating to the passing of control in it, which are appropriate for a reference to the facts and circumstances and for a general conclusion about whether a factual test of the passing of control has been satisfied. Like Marks J, I see these words as not technical but as referring to what is actual, what exists as matter of fact. In my opinion the bare conferral of a right to control property on a receiver pursuant to the Deed of Charge is not necessarily enough; that is to say, in the absence of some other facts, it is not enough. It may be that the receiver is entirely unopposed and can do as much or as little with the property as he chooses to exert himself to do; of such a receiver it would be readily found, I would think, that the control of all the property had passed to him. On the other hand it may be that a receiver has good legal rights conferred under the documents but was at all times forcibly resisted in respect of all the property or substantial parts of it by directors, or by other creditors who irrespective of their rights kept the property out of his hands, hidden or locked in a warehouse; whatever his rights were, it would not be a correct finding of fact to say of a receiver in those circumstances that control of the property had passed to him.

On the evidence before me I cannot know what Mr Brook's situation was in the brief period between his being fully empowered by his second appointment and his resignation late in January. On the facts before me I do not find that control of the company's property passed to Mr Brook. Accordingly, the cross-claim fails.