Deputy Federal Commissioner of Taxation v. Westpac Savings Bank Ltd. & Ors.

Judges:
Bryson J

Court:
Supreme Court of New South Wales

Judgment date: Judgment handed down 1 May 1987.

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Bryson J.

These proceedings relate to the effectiveness of notices purportedly given under sec. 218 of the Income Tax Assessment Act 1936.

The litigation was commenced by summons on 10 November 1986, and the plaintiff claims an order "that the first defendant comply with the notice pursuant to sec. 218 of the Income Tax Assessment Act 1936 dated 3 November 1986 which was issued in relation to each of the second defendants and served on the first defendant on 3 November 1986, by paying the sum of $161,967.99 to the plaintiff". Other claims are ancillary to this claim and include claims for interlocutory and permanent injunctions restraining conduct inconsistent with it. By interlocutory injunction of 10 November 1986 I restrained the first defendant from conduct inconsistent with the plaintiff's claim and this has been continued in effect from time to time. The first defendant appeared at all material stages. The second defendants have never appeared; the plaintiff tendered evidence of communications with them relating to these proceedings, as well as other matters.

The second defendants are not at least in form the subject of any of claims 1, 2 and 3 in the summons; however their interest in the relief claimed is obvious and the need in procedural justice to give them an opportunity to resist it is very clear and it seems to me that the proceedings would not have been well constituted if they had not been joined as parties; in particular the position of the bank might become difficult if it were bound by a judgment in litigation in which the plaintiff was the only other party and an order in the nature of claim 3 were made against the bank and complied with by it without the second defendants having become estopped or otherwise bound by the decision. The second defendants did not choose to appear in the proceedings, but this in my understanding does not diminish the binding effect of my decision on them.

The second defendants live in Papeete in the French territory of Tahiti. As customers they conduct an account at the Sydney Square branch of the first defendant, a savings bank, that branch being at 483A George Street, Sydney. The account is referred to as Advantage Saver Account Number 507 280. On opening the account the second defendants lodged an Account Authority Card dated 19 November 1982, a copy of which is in evidence. They gave their address as 57A Beaconsfield Road, Chatswood 2067, N.S.W. On the back of the account was a statement which each of them signed and the statement appears to set out the only express contractual rules governing the relationship between them and the bank; or rather I should say that no other contractual rules are in evidence. They were in these terms:

"FOR JOINT ACCOUNT ONLY

Please Note that

• (a) This is a joint account and on the death of any of us the moneys at credit thereof (so far as your Bank is concerned) will be a debt due to the survivor(s).
• (b) This account may be operated on by any one of us.
• (c) Any one of us is authorised to endorse cheques, etc., payable to us or any one or more of us or to our order or to the order of any one or more of us.
• (d) Your Bank is hereby authorised to accept for credit of this account any cheque, etc., made payable to any one or more of us."

Of course there must be something more to the parties' relation defining the circumstances in which the account may be operated; if the bank conducts its business according to any savings bank rules they were not put in evidence but the inference is obvious that the account was to be operated in the manner customary for savings bank accounts, in which there are usually no cheques which customers may draw and withdrawals can be effected only by producing a signed withdrawal form at a branch of the bank accompanied by a passbook, card or some other token identifying the customer.

The rules which I have quoted show that in every sense for the purposes of the relationship between customer and banker the account was joint; only the three customers together could demand payment of any or all of the moneys on deposit in a way which would support a right of action against the bank to enforce the demand. All three of them are still alive. Rule (b) entitling any one of them to operate on the

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account does no more than constitute any one of them to be the agent to the other two; the bank is no doubt empowered and required to recognise that agency but no one of the customers having attempted to operate the account and being refused payment by the bank could bring an action on his own. The evidence about the relationship among the second defendants, very little of which was admitted in evidence against the bank, suggests that they may have some rights among themselves to an equal division of the moneys in the account; these rights whatever they were were not well defined by the evidence admitted against them and there is no evidence of any kind suggesting that the bank was on notice that any of them had any right to the account other than a joint right with the others. It has not been established that the bank is on notice of any equitable interest in the account held by individual second defendants, or for that matter by anybody else. There was no evidence admissible against the first defendant was on notice that it was the fact that the second defendants held the chose in action which was the bank account on trust for each of the second defendants as owners in common in equal shares; or on any trust. Nor is there any evidence of any facts from which it would appear that the first defendant held the account as trustee for the second defendants as owners in common in equal shares; or that there was any trust interest at all with which the first defendant was affected. Its obligations were those of a debtor to joint creditors in a banker and customer relationship; they were legal obligations.

The plaintiff came to learn in some way of the existence of the account and of a number of payments made into it and on 3 November 1986 the plaintiff directed notices of assessment of income tax to the second defendants at the address at Beaconsfield Road, Chatswood which they gave in the Account Authority Card. These notices assessed each of them under sec. 167 of the Income Tax Assessment Act on the basis that one-third of the deposits made to the credit of the account was income of each of them. This led to an identical notice of assessment directed to each of them for each year of tax ending on 30 June 1983, 1984, 1985 and 1986; for each year an identical taxable income was assessed being one-third of the deposits to the account for that year and an identical amount of tax was assessed against each of them. Whether or not the notices of assessment were correct was not and could not be open to question before me. The effect of all these notices of assessment was that each one of the three second defendants incurred a liability for tax of $53,989.33. The notices directed to the first defendant on 3 November 1986, copies and covering letters being directed to each of the second defendants on the same day, are annexed to the affidavit of Anthony Benedict Barry sworn 10 November 1986 and marked annexures N, O, P and Q; the annexures are more than a little confused and there is no copy of the sec. 218 notice relating to Mr Leon Devon but it is plain from annexure T that the first defendant received one and I infer that it was in the same terms in substance as the other two. The first defendant replied promptly to the notices saying in each case "... We are unable to comply with the order as we do not conduct an account in the name of Robert Von" (or the appropriate name) "solely".

The litigation then arose from the facts, which are not disputed, that the savings bank account upon which the Commissioner contends that each of his sec. 218 notices should operate is an account held on behalf of each taxpayer jointly with two others. What is said to make this case different from any other is that each of the taxpayers has an identical interest in the account with the other two joint owners and has an identical liability for tax, apparently arising out of participation of all three in the same activities.

It is necessary now to set out the whole of subsec. 218(1) in the form which it has taken at the material times:

"Commissioner may collect tax from person owing money to taxpayer

218(1) The Commissioner may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner), require -

• (a) any person by whom any money is due or accruing or may become due to a taxpayer;
• (b) any person who holds or may subsequently hold money for or on account of a taxpayer;

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• (c) any person who holds or may subsequently hold money on account of some other person for payment to a taxpayer; or
• (d) any person having authority from some other person to pay money to a taxpayer,

to pay to the Commissioner, either forthwith upon the money becoming due or being held, or at or within a time specified in the notice (not being a time before the money becomes due or is held) -

• (e) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of tax or, if the amount of the money is equal to or less than the amount due by the taxpayer in respect of tax, the amount of the money; or
• (f) such amount as is specified in the notice out of each payment that the person so notified becomes liable from time to time to make to the taxpayer until the amount due by the taxpayer in respect of tax is satisfied,

and may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice."

I also notice subsec. (4):

"(4) Any person making any payment in pursuance of this section shall be deemed to have been acting under the authority of the taxpayer and of all other persons concerned and is hereby indemnified in respect of such payment."

Subsections (6A) and (6B) deal with the contractual need arising in various cases for a demand if moneys are to be repayable. Subsection (6A) appears to cover the first defendant's position and this need gave rise to no debate.

In my opinion, the first defendant at the time of delivery of the notices was a person (and I will call such a person the holder) falling within para. (a) and (b) of subsec. (1), subject to the matters I will mention. It is necessary to consider whether, when those paragraphs refer to "a taxpayer" the identification of the holder extends in any circumstances to a holder of moneys due to or on account of a taxpayer as one of several persons for whom the moneys are held jointly.

It was not suggested that any interpretation provision requiring references to a taxpayer or words generally in the singular to include the plural had any operation. In my view it was appropriate that no such contention was made, as the references to a taxpayer throughout the subsection and indeed throughout sec. 218 show that what is referred to is a single person, individual or incorporated, who is under a liability to pay tax; in the nature of things such liability is personal and several to each taxpayer.

The plaintiff's senior counsel offered the following as a summary of the issue: "The point in the proceedings is whether or not a section 218 notice can run as against a joint account where there are served simultaneously another notice in respect of each of the other proprietors of the joint account claiming an equal sum in each case." He made the proper concession that sec. 218 notice would not usually run against one of several holders of a joint account. He drew my attention, as was proper, to the judgments in the Court of Appeal of England in
Hirschorn v. Evans (1938) 2 K.B. 801 and to observations of Wallace P. in the Court of Appeal of New South Wales in
D.J. Colburt & Sons Pty. Ltd. v. Ansen & Ors, Commercial Banking Co. of Sydney Ltd. Garnishee (1966) 85 W.N. [Pt 1] 64. At p. 66 Wallace P. referring to Hirschorn v. Evans said "the correctness of this decision is, if I may respectfully say so, so obvious as not to require further attention."; whilst Walsh J.A. agreed and the judgment of Asprey J.A. is not inconsistent with this view. Both those cases dealt with garnishment proceedings and are not in strictness authorities on the operation of sec. 218 but the exposition of the rights of one of the joint owners of a bank account given by Slesser L.J. and the conclusion reached by the majority in Hirschorn v. Evans are obviously of considerable importance when I approach sec. 218.

Slesser L.J. at p. 811 referred to previous authority in the Court of Appeal:
Macdonald v. Tacquah Gold Mines Co. (1884) 13 Q.B.D. 535 and to the following passage in the judgment of Lord Esher, then Brett M.R. at p. 538, referring to a debt owed to two jointly "That cannot be said to be either a legal debt or a liquidated sum owing in equity to Fitzgerald,

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for equity would never have entertained an action for it brought by Fitzgerald alone without making Horton a party". Slesser L.J. also referred to the following statement by Bowen L.J. at p. 539 "Where money is due on a covenant made with two persons jointly by which it is to be paid to such two jointly, no one of those two has any right to that money without the other of them," as well as to a passage from the judgment of Fry L.J. Slesser L.J. went on to deal with the implications of each of the joint owners having authority to operate on the account at p. 812 in these terms:

"Now what is said here is this, that in so far as each of these persons has the right to demand payment of the money in the account under the specific authorization to accept the signature of either of them, that this account is in its nature several as well as joint. I am unable to accept that view. It seems to me that it amounts to no more than this; the bank are under an obligation to meet the demand at any time of either the husband or the wife, and to that extent when that demand is dishonoured the bank would be responsible for failure to meet that payment. If the argument here for the judgment creditor be well founded, it would follow that the bank would be in this dilemma, that the whole account being sterilized owing to the operation of this Order, they would be unable to meet the demands of the wife which she is entitled under the contract with the bank to make, because that would be prevented by an order which, on the face of it, applies only to the husband. I cannot think that any such position arises merely because each party may, as regards a specific cheque, create a specific debt in relation to that matter.

I think one has to look at the account as a whole, and, looking at the account as a whole, I think it is in the nature of a joint account on which the bank are jointly liable to both parties and, consequently, the garnishee summons is misconceived in stating that the bank are indebted to the said judgment debtor in the sum there stated, whereas, in reality, they are jointly indebted both to the judgment debtor and to his wife."

The conclusion reached by Slesser L.J. appears to me if I may respectfully say so to express the plain consequences of the fact of joint ownership of a debt. It is not surprising therefore that Mackinnon L.J. expressed himself with such emphasis in the same case, opening his judgment with this statement: "Rather more than 24 hours ago, I felt satisfied that on principle and on the application of pure law, the judgment appealed from in this case was wrong, and that no authorities need be cited to establish that proposition" without giving posterity a statement of the principle and pure law which he had in mind. I have already set out the emphatic form of words with which Wallace P. endorsed this decision.

Dealing with the law established by these decisions, the plaintiff's counsel submitted that central to the approach taken by the courts is that a creditor of one joint owner in his own right in some transaction divorced altogether from the property the subject of joint ownership or the joint venture cannot attach the assets of all joint owners in garnishment proceedings. The interest protected by this attitude of courts is not actually protected, as the submission ran, in the present facts when it is understood that the creditor has several claims against each joint holder for the same amounts; the courts' abhorrence of action which by freezing as it were the assets of one of the joint owners freezes with it assets of the other joint owners should not be raised by the present facts because the attachments which the plaintiff is effecting will take out a proportional share from each of the joint owners at the same time.

In my opinion there are no reasons of substance for reaching any different conclusion to that of Slesser L.J. when determining whether on the true construction of subsec. 218(1) in any of its extensions in relation to the facts, the first defendant held money which was due to any one of the taxpayers. The position plainly was that no money was due to any one of the taxpayers; nor held for any one of them; it was only the three of them who could require the bank to make a payment to anyone other than the three of them, including payment to any one of them; and this is no less so because rule (b) on the Account Authority Card created an agency in each of them for the making of such a requirement. Agency is not assignment. What was said in the plaintiff's submission to be the distinguishing facts were that notices were served simultaneously, the liability of each was for an identical amount and the notices of assessment creating liabilities were

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dated and served on the same day in the same manner; but these facts do not make the case any different in substance; nor I should add does the circumstance to which the plaintiff's counsel at times in his submissions referred that the liability to tax arose out of common participation in a common group of transactions. None of these circumstances alone or in any combination made or could make the money in the bank account or any part of it money due or accruing due or which might become due to any one of the second defendants (following para. (a)), or money which the first defendant held or might subsequently hold for or on account of any one of the second defendants (following para. (b)). The various unities to which the plaintiff's counsel was able to point while rather striking did not touch on the essential matter, that is whether there was a several interest of any one of the second defendants in any part of the moneys in the account. The plaintiff's leading counsel having pointed to the unities of the time at which the obligation of each of the second defendants rose, the amount of each of those obligations and the source in the facts out of which it arose and the service of the notices under sec. 218, all directed against the same fund, submitted as a consequence that the situation is as if the second defendants were partners and had conducted a partnership account in which they had funds to the credit of the partnership. There are striking points of resemblance to that situation but the result that they were partners is not produced, nor is the result that the account is a partnership account; the relevant relation among them is not that of partners but that of joint owners of the account and (it may be but is not to the point) of the payments into the account which contributed to the amount to credit at the date of service of the notices, who had joined in some way in the ventures out of which those payments arose. The plaintiff's counsel also developed a demonstration of the respects in which the position of each of the second defendants resembles the position of the sole owner of an account; the authority given to each of them to operate on the account was, he pointed out, created for the mutual convenience of the three customers on the one hand and of the bank on the other hand, operating not only to the advantage of the customers but also to relieve the bank of any obligation to enquire whether or not any operation by one of them had the actual approval of the others, and to relieve the bank of any consequent liability; but as well as existing for the convenience of the parties considered as banker and customer, it existed for the convenience of the third defendants in their relations among each other; it gave each the advantage not only of being able to operate on the account but also of simplifying the attendances necessary for effective operations. However similar the position of each of the second defendants is to the functional position of a sole owner of the account, the position of each remains substantially different from the position of a sole owner; in no way can authorisation to operate be equated with an assignment and this is no less so if, as appears to be the case, it would require all three to join in an effective revocation of the authority in rule (b); unless all acted together the only remedy of any majority of them against an operation by the third on the account in a manner which the majority or all three did not in fact approve of is a remedy against that third.

The analogy with a partnership is to my mind never a successful one; among other points of failure, there is nothing in the nature of a partnership liability in the relation between the plaintiff and each and all of the second defendants; there is no element of a common liability incurred by the three second defendants to the plaintiff, in any joint dealing, any partnership dealing or in anything analogous to either; each incurred his own taxation liability separately and severally; and that would be so even if they had joined (remotely from what they actually did do) in lodging a partnership return or a return of income in which they otherwise all joined.

I cannot accept that the situation of the defendants is any different to the situation in which they would have stood if routine in the plaintiff's office had slowed down one or a few of the notices of assessment so that they were issued and served one day after the others. A telling example was given in argument by the first defendant's leading counsel when he asked rhetorically what the position would be if one of the second defendants had paid all or some of the tax assessed before the notices under sec. 218 were delivered? It would plainly be an injustice to that one if both the notices relating to the other two took effect to cause deduction from a fund in which that one had a joint interest of an amount different to the amount of

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his liability; the more apparent injustice arises from the supposition that each has an equal one-third interest in the account, but this is only an appearance because the supposition is not correct; the more substantial injustice arises because no one of them has any several interest in the money in the account.

The first defendant's counsel submitted to me that the language of sec. 218 should be understood as expressly drawn with a view to limiting the demands which this section authorises to demands made in circumstances where there is no doubt about the right of the taxpayer himself to the moneys. A consideration like this would be significant to resolve ambiguity on the face of sec. 218 if I detected relevant ambiguity; but I do not and hence I did not need to examine the submission closely. In a similar situation is another submission made on behalf of the first defendant to the effect that there would be a need for express language if it were intended that sec. 218 was to take a course which would turn aside from the law as settled, for example, in Hirschorn.

It does seem to me however that as the first defendant's counsel submitted sec. 218 as a whole proceeds on a basis of distinctness of obligation of the taxpayer, and of entitlement of the taxpayer. This accords with the personal and several nature of the obligations to pay tax which the legislation lays on taxpayers. It would be striking anomaly in most people's idea of fairness in taxation legislation and a departure from the principle of certainty which taxation legislation as a matter of philosophy commonly has as one of its objects to serve if the legislation created a situation where one person or one person's assets came under an obligation for payment of tax levied on some other person.

It is necessary to relate my decision to the text of sec. 218 and the substance in my view is that, even when para. (a) and (b) of subsec. (1) are assisted by subsec. (6A), the savings bank account and the moneys in it are not in any of the permutations of expression which can be constructed out of the words in para. (a) and (b) due to or held for any one of the second defendants; and it is necessary that they should be so due or held if any notice under sec. 218 is to be effective.

My orders are:

(1) Proceedings are dismissed.

(2) Interlocutory injunction dissolved.

(3) Plaintiff to pay first defendant's costs including reserved costs.