Decision impact statement

Hansen Yuncken Pty Ltd v Ian James Ericson trading as Flea's Concreting & Anor

Venue: Supreme Court
Venue Reference No: 7864/2009
Judge Name: McMurdo J
Judgment date: 14 March 2012
Appeals on foot: No
Decision Outcome
Adverse

Impacted Advice

Relevant Rulings/Determinations:

• N/A

Subject References:
Garnishee notice
Statutory charge
Moneys paid into court by recipient of garnishee notice pending resolution of dispute over moneys
Compliance with garnishee notice
Commissioner's entitlement to the moneys paid into court

Précis

Outlines the ATO response to this case concerning the effect of a garnishee notice and a payment into Court of funds where the Commissioner claimed an entitlement, and in circumstances where priority was the subject of competing claims by other creditors.

Brief summary of facts

Hansen Yuncken the recipient of a notice issued under section 260-5 in Schedule 1 to the Taxation Administration Act 1953 ("garnishee notice") paid moneys into Court pending the determination of competing claims to the moneys. The Commissioner expressly reserved his rights to the moneys.

The Commissioner's application to the Supreme Court for payment of the moneys out of Court was unsuccessful.

The Commissioner filed an appeal to the Queensland Court of Appeal from the Supreme Court decision on 11 April 2012, which was subsequently dismissed by consent on 23 July 2012.

Decision to withdraw appeal to QLD Court of Appeal

A sequestration order was made against the tax debtor, Mr Ericson, and consequently all the property of Mr Ericson vested in the trustees, including the debt owed to Mr Ericson by Hansen Yuncken. The garnishee notice was issued after the commencement date of the bankruptcy and accordingly the Commissioner could not on this basis seek to enforce the obligations under the garnishee notice in any event.

Issues decided by the Queensland Supreme Court

1. The effect of the statutory charge created by the garnishee notice

His Honour McMurdo J at first instance held that the garnishee notice conferred upon the Commissioner a statutory charge over the relevant debt. However, it was a charge in a limited sense, in that it was not a charge which provided the Commissioner with a proprietary interest in the subject debt.

Consequently, when that debt was extinguished, the Commissioner could claim no proprietary entitlement to what was paid to extinguish that debt, that is to say, the moneys held by the court.

2. The extinguishment of the debt owed by Hansen Yuncken to Mr Ericson

His Honour determined that, by the payment into court, Hansen Yuncken had extinguished its liability to Mr Ericson. Consequently, Hansen Yuncken was no longer a person who owed or might owe money to Mr Ericson for the purposes of the garnishee notice.

Furthermore, his Honour considered that the fact that the Commissioner agreed to the payment into court only on the basis of his express reservations that his rights under the garnishee notice were not prejudiced, could not provide the Commissioner with rights in respect of the moneys which the statute had not conferred on the Commissioner.

Issues decided by the Queensland Court of Appeal

Nil. Appeal dismissed by consent without a hearing on its merits

ATO view of Decision

1. The effect of the statutory charge created by the garnishee notice

In so far as his Honour decided that the Commissioner did not have any proprietary interest in the money, the decision is consistent with settled authority.

His Honour's conclusion that the garnishee notice created a statutory charge over the debt is also consistent with the authorities: Clyne v Deputy Commissioner of Taxation (Cth) (1981) 150 CLR 1 ("Clyne"), Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238 ("Macquarie Health") and Federal Commissioner of Taxation v Donnelly (1989) 25 FCR 432 ("Donnelly"). Those authorities establish that the effect of a garnishee notice is to create a statutory charge over any debts then due, or at some later time due, by the recipient of the notice to the taxpayer.

Specifically, Hill J. in Donnelly at 456, found that the service of a garnishee notice creates:

•

negative rights to prevent the taxpayer accepting payment of the debt or disposing or it; and

•

positive rights for what is owing under the notice, being the right to give a valid receipt and discharge for the money by the notice recipient; and

•

in the case of non-payment by the notice recipient, the right to obtain judgment and execution as against the notice recipient: see also Commissioner of Taxation v Barnes Development Pty Ltd [2009] FCA 830 ("Barnes Developments").

Thus, the effect of the garnishee notice is that the Commissioner has a secured interest in the chose of action that accrues to the extent of the amount required to be paid under the garnishee notice.

2. Extinguishment of the debt by the payment into court

His Honour's view that the payment of monies, which is the subject of a garnishee notice, into court extinguishes the obligation of the recipient of the notice to comply with the notice is inconsistent with the earlier authorities of Commissioner of Taxation v Government Insurance Office of New South Wales (1992) 36 FCR 314 ("GIO") and Macquarie Health Corp Ltd v Commissioner of Taxation (1999) 96 FCR 238 ("Macquarie Health").

There appears to be no basis for distinguishing GIO and Macquarie Health in this matter. It is the Commissioner's view, conformably with GIO and Macquarie Health, that payment into court provides a practical mechanism for a recipient of a garnishee notice, in the face of competing claims, to allow proper consideration by the Court as to whom his debt is to be paid. Such payment does not extinguish the debt owed by the notice recipient to the taxpayer particularly in circumstances where the Commissioner expressly reserve his rights prior to the payment being made into court. Rather, the money is placed into the temporary custody of the court whilst the parties await judicial determination as to who is entitled to the money. The use of this mechanism simply allows the notice recipient/judgment debtor to avoid exposure to legal claims for its failure to comply with the terms of the Court's order; or the obligations under the Commissioner's garnishee notice.

Furthermore, it is the Commissioner's view that the effect of the decision of Hill J. in Donnelly is such that, by the operation of s260-5, the Commissioner had negative rights which accrued and prevented Mr Ericson from accepting payment of the debt, or otherwise disposing of the debt, owed to him by Hansen Yuncken. Conformably with this view and with due respect, it may have been unnecessary for his Honour to explore whether the Commissioner has proprietary rights in the money that as paid into Court by Hansen Yuncken. Rather, it was open to the Court to proceed on the basis that Mr Ericson was statutorily prohibited from accepting that payment in reduction of the debt owed to him by Hansen Yuncken. The ultimate effect being that the debt owed by Hansen Yuncken had not been extinguished by the payment into Court and as such the Commissioner's statutory rights persisted.

Finally, the effect of his Honour's decision is that the Commissioner would, conformably with the decision in Barnes Developments, have independent rights to bring action in debt against the notice recipient for incorrectly paying amounts into court rather than in accordance with the statutory obligation in s260-5. It is the Commissioner's view that this is a reasonably open consequence of his Honour's decision in this matter.

Administrative Treatment

The Commissioner considers that the decision as it relates to the extinguishment of a debt by payment into court may be inconsistent with the decisions in GIO and Macquarie Health. The Commissioner proposes to raise this issue in future cases to seek clarity on any conflicting authorities.

The Commissioner will continue to permit the payment into court of moneys that is the subject of a garnishee notice and to which there exist competing claims. However, so as to avoid any unnecessary litigation, the Commissioner will only be agreeable to this course of action where all parties expressly agree that the payment into court by the notice recipient is not intended to, nor does it, extinguish the liability owed by the notice recipient to the tax debtor. 

In circumstances where a notice recipient has paid money into court without the knowledge of the Commissioner, the Commissioner reserves his rights in appropriate instances to:

•

seek to enforce his rights under the garnishee notice such that any moneys paid into Court do not affect the Commissioner's statutory rights under s260-5; or

•

institute proceedings in debt as against the notice recipient for incorrectly paying amounts into court rather than in accordance with the statutory obligation imposed by s260-5

List of Rulings and Determinations Affected

N/A

Implications on current Public Rulings & Determinations

N/A

Implications on Law Administration Practice Statements

N/A

Court citation:
[2012] QSC 51
(2012) 260 FLR 151
2012 ATC 20-307
87 ATR 489

Legislative References:
Taxation Administration Act 1953
260-5 of Schedule 1

Case References:
Clyne v Deputy Federal Commissioner of Taxation
(1981) 150 CLR 1
12 ATR 173
81 ATC 4429

Bruton Holdings Pty Ltd (in liq) v Commissioner of Taxation
[2009] HCA 32
72 ATR 856
2009 ATC 20-125

Tricontinental Corporation Ltd v Commissioner of Taxation
[1988] 1 Qd R 474
18 ATR 827

Deputy Commissioner of Taxation (NSW) v Donnelly & Ors
(1989) 25 FCR 432
89 ATC 5071
20 ATR 1331

Commissioner of Taxation v Government Insureance Office of New South Wales
(1992) 36 FCR 314
23 ATR 378
92 ATC 4295

Macquarie Health Corp Ltd v Commissioner of Taxation
(1999) 96 FCR 238
43 ATR 650
2000 ATC 4015

Blacktown Concrete Services Pty Ltd v Ultra Refurbishing & Construction Pty Ltd (in liq)
(1993) 43 NSWLR 484
143 FLR 372

Bond v McClay
[1903] StRQd 1

Emanuel v Bridger
(1874) LR 9 QB 286

Hall v Richards
(1961) 108 CLR 84

Commissioner of Taxation v Barnes Development Pty Ltd
[2009] FCA 830
2009 ATC 20-121
(2009) 76 ATR 570