FC of T v BROOK & ORS

Judges: Sheller JA

Powell JA
Cole JA

Court:
Supreme Court of New South Wales - Court of Appeal

Judgment date: Judgment handed down 2 February 1995

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Powell JA

Although s. 221P of the Income Tax Assessment Act 1936 was amended, with effect from 1 June 1993, by s. 7 of the Insolvency (Tax Priorities) Legislation Amendment Act 1993 so as, in substance, not to apply to deductions made as from the end of the taxation year 1992-1993 from the salary of wages paid to an employee, the fact that the liability cast upon a trustee by s. 221P(1), and the priority in favour of the Commissioner of Taxation, in respect of deductions made prior to the end of the tax year 1992-1993 (see
DFC of T v. Dollymore Pty. Limited 93 ATC 5212 ;
FC of T v. B & G Plant Hire Pty Ltd & Ors. 94 ATC 4692 ) continue should guarantee that the courts, for some time yet, will still be concerned to deal with various questions as to the meaning, and the operation, in particular cases, of the provisions of s. 221P.

If any support for this view be thought necessary, it is readily to be found in the various cases involving s. 221P which have found their way into the law reports since the appeal in this matter was argued ( FC of T v. B & G Plant Hire Pty. Ltd. & Ors. (supra);
FC of T v Prescribing Biochemists Pty Limited & Anor 94 ATC 4702 ;
FC of T v. All Suburbs Car Repairs Pty. Limited & Anor 94 ATC 4712 ;
Chant v. DFC of T 94 ATC 4733 ;
Re Leslie; Ex parte DFC of T 94 ATC 4749 ;
Gagie v. DFC of T 94 ATC 4760 ).

However, while those cases are concerned with such questions as whether an administrator of an insolvent company ( FC of T v. B & G Plant Hire Pty. Limited & Ors. (supra); FC of T v. Prescribing Biochemists Pty. Limited (supra)), or an agent for a mortgagee ( Chant v. DFC of T (supra); Gagie v. DFC of T (supra)), was a ``trustee'' for the purposes of s. 221P, or whether what had passed under the control of the relevant ``trustee'' constituted the whole of an insolvent employer's property ( FC of T v. B & G Plant Hire Pty. Limited & Ors. (supra); FC of T v. All Suburbs Car Repairs Pty. Limited & Anor. (supra); Re Leslie; Ex Parte DFC of T (supra)), the prirnay question for determination in this appeal is whether, by virtue of a Deed of Appointment of Receiver which, relevantly provided: -

``... the Mortgagee... does hereby... appoint the Receiver to be Receiver of the property of the Mortgagor set out in the Schedule hereto with all the powers which may be conferred upon a receiver... appointed under the Charge...

Schedule

All and singular its undertakings and assets whatsoever and wheresoever both present and future including the goodwill of its business and its uncalled and called but unpaid capital (including premiums) for the time being on its shares.

...''

control of the relevant mortgagor's property passed to the relevant receiver, thereby rendering the receiver liable - to the extent to which the property under his control permitted him to do so - to pay to the Commissioner the amount of the deductions which had been made by the mortgagor but which had not been remitted to the Commissioner.

For my own part, I would have thought that what appears to be the continuing debate as to whether the ``control'' contemplated by s. 221P is de jure control or de facto control ought to have been foreclosed by the decision of the High Court in
FC of T v. Barnes 75 ATC 4262 ; (1975) 133 CR 483 ) where, in the course of the joint judgment of Barwick CJ, Mason and Jacobs JJ the following appears ((supra) at ATC 4266; CLR 492): -

``The control which is referred to is that control which enables the receiver to reduce the assets and undertaking of a company into a fund out of which a particular debt or in some cases all the debts of the company, secured and unsecured, are able to be paid if the fund so far extends.

...

Control does not necessarily signify authority in the receiver to pay all debts out of the funds in his hands. Control is directed to possession and realisation of the Company's property and, in determining whether control of the property of the company passed to the receiver, it is not relevant to enquire whether, independently of sec. 221P, the receiver has the authority to make the payment which sec. 221P requires.... Nevertheless, sec. 221P creates the obligation and requires that that obligation be carried out even though thereby the Commissioner receives payment

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ATC 4031

in priority over secured creditors including the mortgagee who appointed the receiver.''

This passage, so it seems to me, makes it clear that the ``control'' which is relevant for the purposes of s. 221P is the legal power to take possession of, and to realise, the assets of the relevant employer in the course of, and for the purposes of, an administration of those assets, be the administration a receivership, or a winding-up, or a scheme of arrangement (
James v. DFC of T 88 ATC 4812 ) or other like form of administration. It should be noted, however, that a provisional liquidator does not have such ``control'', since his primary function is to preserve the status quo (
Re Carapark Industries Pty. Limited (1967) 86 WN (Pt. 1) 165 ;
Re Obie Pty. Limited 84 ATC 4067 Supreme Court of Queensland (Thomas J); sub nom
DFC of T v. A.G.C. (Advances) Limited & Ors. 84 ATC 4776 Supreme Court of Queensland (F.C.)) nor, so it seems ( FC of T v. Prescribing Biochemists Pty. Limited (supra); but cp. FC of T v. B & G Plant Hire Pty. Ltd. (supra)), does an administrator appointed pursuant to the provisions of s. 436A of the Corporation Law have the necessary ``control''.

If this be, as I believe it to be, the correct view of what constitutes ``control'' for the purposes of s. 221P then it follows that, while the ultimate decision of Marks J. in
Russell & Anor v. A.G.C. (Advances) Ltd 87 ATC 4392 ; ( [1988] VR 97 ) upon which much stress was laid, during the course of argument, by counsel for the respondent, was correct - since, because of non-registration in Queensland of the relevant debenture charge, the receivers were not able to take possession of, or to realise in Queensland, assets of the relevant company - His Honour's view that ```control' within s. 221P means de facto control'' ought not to be accepted.

Given the terms of the relevant Deed of Appointment of Receiver in the present case, and given that the powers of a receiver provided for by the relevant debenture charge included power:

``...

• (a) to take possession of collect and get in the whole or any part of the mortgaged premises.
• ...
• (c) to sell or concur in selling (whether such receiver shall or shall not have taken possession as aforesaid) all or any of the mortgaged premises.
• ...
• (m) to do all such other acts and things in relation to mortgaged premises without limitation as such receiver shall think expedient in the interests of the mortgagee.
• ...''

I conclude that the correct view of what happened in the present case is that, upon the execution of Deed of Appointment of Receiver, ``control'' of the whole of the employer's property passed to the receiver, it following that the appeal should be upheld, and that there should be made in favour of the Commissioner the Declaration and Order sought in Prayers I and 2 of the Cross-Claim. The Second Respondent should pay the Appellant's costs of the appeal but, if qualified, should have a certificate under the Suitors Fund Act 1951.