AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2024] NSWSC 999 | Case summary

Supreme Court of NSW|2024-07-30|Before: Black J, Gleeson JA, Rees J

Solicitors: Macpherson Kelley (Plaintiff) Craddock Murray Neumann (Defendant) File Number(s): 2023/458239

Nature of the application

By Amended Originating Process dated 29 April 2024, Mr Kugel in his capacity as liquidator ("Liquidator") of C88 Project Pty Ltd (in liq) (controller appointed) seeks directions from the Court as to, broadly, whether he would be justified in retaining or returning an amount of $364,267 ("Relevant Amount") to the Deputy Commissioner of Taxation ("DCT") which was mistakenly paid to the Company by the Australian Taxation Office ("ATO") in the course of the liquidation. The DCT was joined as a Defendant in the proceedings and appeared at the hearing.
The first and second orders sought by the Liquidator are alternative directions under s 90-15 of the Insolvency Practice Schedule (Corporations) ("IPSC"), or in the Court's inherent jurisdiction, that he would be justified in retaining the Relevant Amount and in treating the DCT or the ATO as an unsecured creditor in respect of any liability for repayment of that amount, or alternatively that he would be justified in paying that amount to the ATO. That section relevantly provides that the Court may make such orders as it thinks fit in relation to the external administration of a company, including determining any question arising in the external administration. The Liquidator has standing to bring an application for such a direction under s 90-15 of the IPSC, and I have addressed the principles applicable to such a direction in Re Octaviar Administration Pty Ltd (in liq) [2017] NSWSC 1556 at [7]-[9]; Gleeson JA has also reviewed those principles in Re Hawden Properties Group Pty Ltd (in liq) (2018) 125 ACSR 355; [2018] NSWSC 481; and those decisions were noted, with approval, by Rees J in Re Maitland Benevolent Society Ltd (in liq) [2020] NSWSC 1284 at [13] to which I will refer below. The case law recognises that such a direction can properly be made where a legal issue is raised by a liquidator's proposed course of action; where there is a risk of attack on the propriety or reasonableness of the liquidator's decision; and the making of such a direction will protect the liquidator from liability for breach of duty for that action or decision if full disclosure is made to the Court.
The third and fourth orders sought by the Liquidator are alternative orders that the DCT and/or the ATO pay the Liquidator's costs of the proceedings or that those costs be costs in the liquidation of the Company. The parties agreed that the question of costs should be determined after the Court had delivered its judgment in respect of the substantive application.
At the opening of the hearing, the DCT indicated that it sought a declaration that the Relevant Amount was held by the Company on constructive trust for the DCT, although I note that it would likely not be necessary to characterise the trust in that form in any declaration that a trust existed. The DCT also sought an order that the Liquidator and the Company must effect payment of the Relevant Amount (including any interest accrued on it) to the DCT within 14 days of these orders and an order that the Liquidator pay the DCT's costs of the proceeding. The Liquidator did not object to the DCT seeking such relief, without first filing an Interlocutory Process and the hearing proceeded on the basis that the relief sought by the DCT was largely or entirely consistent with the second direction sought by the Liquidator, if he did not obtain the first direction noted above. After I had reserved judgment, the Liquidator's solicitors requested a further opportunity to be heard as to the orders to be made consequential on the judgment. I will hear any application to reopen the matter to address that question following the delivery of this judgment.

Affidavit evidence

I will briefly refer to the affidavit evidence led in the proceedings, although less turns on that evidence where there is no substantive factual contest between the parties, and they were able to agree the relevant facts which I set out below.
The Liquidator read his affidavit dated 18 December 2023 which refers to his appointment as liquidator to the Company and notes that the Company was a special purpose vehicle established to purchase, develop and sell land situated at Carlingford in New South Wales and that it was placed in administration and subsequently passed into liquidation. He also refers to the appointment of a controller to the Company on 7 June 2022, to the sale of properties by a mortgagee in possession and by the Company and to the circumstances in which the Company received a payment from the ATO in the amount of $465,417. It is now common ground that the Relevant Amount, being part of that payment, was referable to the sale of the Company's properties by the mortgagee in possession and should not have been paid to the Liquidator. The Liquidator also relies on a voluminous exhibit to that affidavit.
The DCT in turn read the affidavit dated 6 March 2024 of Ms Wiggins, who is an Australian public servant employed in the "lodge and pay" section of the ATO. She outlines the manner in which the DCT maintains its accounting and computer system and noted that, from 14 April 2022 to date, by reason of the appointment of Mr Kugel as voluntary administrator of the Company and subsequently as liquidator of the Company, and the appointment of a controller to the Company, the Company was an "incapacitated entity" within the meaning of s 195-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth). She addresses the circumstances in which GST is payable in connection with a supply or acquisition engaged in by a representative or multiple representatives of an incapacitated entity. She also addresses the position in respect of sale of the Company's property, the circumstances in which payments were made to the Liquidator and the error which had occurred in respect of that payment. The DCT in turn relies on a substantial exhibit to Ms Wiggins' affidavit (Ex D1).
By a second affidavit dated 21 March 2024, the Liquidator identified the contracts for the sale of the properties and GST withholding forms for two companies and exhibited those documents to that affidavit. Again, there appears to be no dispute in that respect. The Liquidator also tendered a bank statement maintained in respect of the Company (Ex P3) which records a payment of $433,294 by the ATO to the Company, received on 1 February 2023.

Agreed facts

I now set out the agreed facts as agreed by the parties, and should record my thanks to the parties' legal representatives for their efforts in reaching agreement as to these matters, which has facilitated a prompt judgment in the proceedings.
On 14 April 2022, pursuant to s 436A of the Corporations Act 2001 (Cth), the directors of [the Company] resolved to appoint Andrew Barnden and Joanne Keating as joint and several voluntary administrators of the Company.
On 28 April 2022, Global Galaxy Holdings III Ltd ("GGH") submitted a proof of debt claiming $14,089,601.34. That debt was secured by a mortgage granted by the Company over eight properties owned by the Company.
On 29 April 2022, at the first meeting of creditors, it was resolved that Mr Barnden and Ms Keating be removed as administrators of the Company and be replaced by Steven Kugel.
On 31 May 2022, at the second meeting of creditors, it was resolved that the Company be wound up in insolvency and Mr Kugel be appointed as liquidator.
On 7 June 2022, the solicitors for GGH, Clayton Utz, sent a letter to the Company, which enclosed a notice issued under s. 57(2)(b) of the Real Property Act 1900 (NSW).
On 8 June 2022, GGH appointed a controller as GGH's agent in respect of the eight mortgaged properties (the "Controller").
Between 30 August 2022 and 9 August 2023, the mortgaged properties were sold by the Controller. Six of the eight properties were sold between 30 August 2022 and 21 December 2022 and, in respect of those six properties, GST withholding payments totalling $364,267 were paid by the purchasers to the [DCT].
Between 5 October 2022 and 26 October 2022, [the Liquidator] caused the sale of two lots owned by the Company. Upon sale of those properties, the purchasers paid GST withholding payments totalling $101,150 to the [DCT].
On or around 25 January 2023, the [ATO] applied credits totalling $433,294 to the Company's "Client Activity Centre 5" ("CAC 5"), which is a running balance account ["RBA"] maintained by the Commissioner that is connected to [the Liquidator]. The credits were associated with the GST withholding payments made in respect of the six properties sold by the Controller and two properties sold by [the Liquidator] (the "GST Credits").
On 25 January 2023, the CAC 5 was in credit to the extent of $433,294.00.
On or around 27 January 2023, the credit of $433,294.00 was paid by the ATO to a National Australia Bank ("NAB") account in the name of the Company ("Refund"). The Refund was receipted in the NAB account on 1 February 2023.
On 28 March 2023, [the Liquidator's] solicitors, Macpherson Kelley Pty Ltd ("MK"), sent a letter to the ATO asking why the [Relevant Amount] had been paid to the Company.
On 10 August 2023, the ATO debited CAC 5 in the amount of $365,267 and issued correspondence to the Company notifying that sum had been paid to the Company due to an administrative mistake. The letter enclosed a notice to the Company under s 8AAZN of the Taxation Administration Act 1953 (Cth) ["TAA"] and required that the amount be repaid to the [DCT] by 12 September 2023.
On 6 September 2023, Desley Firth, of the ATO, sent an email to Scott Howell, a colleague of [the Liquidator], which: (a) recorded advice from James Sekhas, of Newport Advisory, the firm associated with the Controller, "that all of the 6 relevant sales by the Controller…we [sic] conducted under CAC 6"; and (b) stated that "[t]he GST property credits totalling $364,217 [sic] have been transferred from the CAC 5 to the CAC 6 account".
On 27 September 2023, MK sent a letter to the ATO, requesting that the ATO identify any legal basis upon which [the Liquidator] would be justified in returning the funds to the ATO.
On 4 October 2023, Mr Howell sent an email to Ms Firth, referring to a conversation between Mr Howell and Ms Firth during which Mr Howell requested Ms Firth forward MK's letter of 27 September 2023 to the ATO's legal team.
On 12 and 19 October 2023, [the Liquidator] followed up the ATO, seeking a response to MK's letter of 27 September 2023. The ATO did not respond to that correspondence prior to the commencement of these proceedings.
On 18 December 2023, [the Liquidator] commenced these proceedings.
The GST Credits in relation to the six properties sold by the Controller were allocated to the CAC 5 by the ATO by mistake. Accordingly, [the Relevant Amount being part] of the Refund was paid by the ATO to the Company by mistake ("Mistaken Payment"). The [Relevant Amount] has not been expended and is held in a trust account of [the Liquidator's] solicitors.
On 27 February 2024, Craddock Murray Neumann Lawyers on behalf of the [DCT] requested repayment of the Mistaken Payment on the basis of the principles set out in Wambo Coal Pty Ltd v Ariff [(2007) 63 ACSR 429] [2007] NSWSC 589 ["Wambo Coal"].

Whether Wambo Coal applies

The Liquidator accepts that, in the present circumstances, the Relevant Amount was paid by the ATO "by mistake", although he adds that the ATO's automated system in one sense "intended" (if, I interpolate, an automated system can have an intention) to pay the money to the Company, and he accepts that the relevant misunderstanding concerned the Liquidator's (non) entitlement to receive payment. Mr Neggo, who appears for the Liquidator adds, possibly for completeness, that the ATO intended to part with ownership of the money paid; it did not intend to retain any equitable property in the money paid.
Mr Neggo fairly recognises that the decision of White J (as his Honour then was) in Wambo Coal is authority that a trust can arise over money paid by mistake, once the payee acquires knowledge of the mistake. Mr Neggo noted that there was no issue in that case that monies had been paid by Wambo Coal under a mistake of fact and that the second defendant, Singleton Earth Moving Pty Ltd (in liq) ("Singleton"), was liable to repay the monies, although Singleton was insolvent and Wambo Coal could not prove in the liquidation as its claim did not arise until after the day on which the winding up was taken to have begun.
As Mr Neggo recognises, White J there observed at [40]-[42] that: "The remedial constructive trust is part of the law of Australia. … the High Court has endorsed the remedial constructive trust in Muschinsky v Dodds (1985) 160 CLR 583; 62 ALR 429; 11 Fam LR 930 and Baumgartner v Baumgartner (1987) 164 CLR 137; 76 ALR 75; (1987) 11 Fam LR 915 (and see Bathurst City Council v P W C Properties (1998) 195 CLR 566; 157 ALR 414; [1998] HCA 59 at [40]-[41]). However, I respectfully doubt whether a trust based on the retention of moneys known to have been paid by mistake would be properly categorised as a remedial constructive trust. Where property is stolen, the property is trust property in the hands of the thief and can be traced into the hands of a third party who receives the property otherwise than as a bona fide purchaser of the legal estate for value without notice. The property is trust property in the hands of the thief because the thief is bound in conscience to hold the property on behalf of its true owner. Whether the trust is characterised as a resulting trust (Robb Evans of Robb Evans & Associates v European Bank Ltd (2004) 61 NSWLR 75; [2004] NSWCA 82 at [103]-[117]), or as a constructive trust (Westdeutsche Landesbank v Islington London Borough Council per Lord Browne-Wilkinson at 716), the trust is of an institutional rather than a remedial character. It arises because the conscience of the thief is bound. In the same way, where property is acquired by fraud and there is a complete failure of consideration, the trust arises immediately on the receipt of the property: Orix Australia Corporation Ltd v Moody Kiddell & Partners Pty Ltd [2005] NSWSC 1209 at [155]-[156] and cases cited. So, in Neste Oy v Lloyds Bank plc [1983] 2 Lloyd's Rep 658, referred to with apparent approval in Re Goldcorp Exchange Ltd [1995] 1 AC 74 at 104; [1994] 3 NZLR 385 at 404, where the payee received payment from its principal of moneys which were not impressed with an express trust, but which were to be used in performance of a contract which the payee knew could not take place, the payee held the payment on trust for the payer from the time of its receipt. The circumstances which created the trust in Neste Oy were that the payee knew (as was the fact) that there could be no performance under its contract, so that there was a total failure of consideration for the payment, and the payment could not in conscience be retained. The trust was an institutional trust which attached to the moneys from the time of receipt. I do not see why, in principle, a constructive trust arising from the retention of moneys known to have been paid by mistake, and for which there was no consideration, would not arise from the time the payee acquired such knowledge, if the moneys paid could still be identified at the time such knowledge was acquired. Such a trust is as much an institutional trust as a trust imposed on property in the hands of the thief."
Mr Neggo contends that: "The ratio in Wambo [Coal] is that a constructive trust arises where: (1) through a mistake, a payee receives "something for nothing"; and (2) the payee becomes aware (in the second-limb Barnes v Addy sense) that (a) through a mistake, they have received "something for nothing", and (b) they are not entitled to deal with the money as if they were the beneficial owner, where it would be against conscience for the payee to use the money as their own. Thus, there are two distinct elements to the requisite state of the payee's knowledge. It is essential, but not sufficient, that the payee knows they have received "something for nothing". It is also essential that the payee knows that in conscience they are not entitled to deal with money as if they were the beneficial owner."
That decision has also been followed in subsequent cases. For example, in Westpac Banking Corp v Ollis [2007] NSWSC 956 at [20], Einstein J treated that decision as authority that "where a payee receives money paid under a mistake for no consideration, the recipient's conscience is bound upon being aware of the mistake and a proprietary remedy is appropriate." In Focus Metals Pty Ltd v Babicci [2014] VSC 380 at [112], Sloss J similarly observed that "Wambo Coal is also authority for the proposition that a proprietary remedy is appropriate "once the recipient is aware that, by a mistake, he has got something for nothing." Mr Livingston also points out that the analysis of White J in Wambo Coal was approved by the Court of Appeal of the Supreme Court of Victoria in AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd [2020] VSCA 235 at [30], where the Court (Kyrou, Kaye and Sifris JJA) observed that: "A constructive trust of the type upon which [the respondent in the appeal] relied in the present case is an institutional trust which arises from the retention of funds known to have been paid by mistake. Such a trust will arise at the point in time when the person who received the funds acquired knowledge of the mistake. The recipient's conscience is bound at that time and it would be against conscience for the recipient to use the funds as his or her own." Their Honours there also referred, with apparent approval, to the last paragraph from Wambo Coal that I quoted above. Since that decision, I have also followed Wambo Coal, albeit in a case where fraud was established, in Re DCA Enterprises Pty Ltd (2023) 166 ACSR 156; [2023] NSWSC 11, varied in the Court of Appeal on another point in Care A2 Plus Pty Ltd v Pichardo [2023] NSWCA 156.
The Liquidator does not contest the correctness of Wambo Coal, as distinct from seeking to distinguish it where s 8AAZN of the TAA applies, or at least where the DCT has issued a notice to trigger the application of the general interest charge under that section. Mr Neggo submits that the position here "may not" be able to be resolved by the application of Wambo Coal, and that that case is distinguishable because s 8AAZN of the TAA did not apply in that case, and there was no statutory debt in that case. This submission turns on the application of s 8AAZN of the TAA which relevantly provides: Overpayments made by the Commissioner under taxation laws (1) An administrative overpayment (the overpaid amount): (a) is a debt due to the Commonwealth by the person to whom the overpayment was made (the recipient); and (b) is payable to the Commissioner; and (c) may be recovered in a court of competent jurisdiction by the Commissioner, or by a Deputy Commissioner, suing in his or her official name. (2) If: (a) the Commissioner has given a notice to the recipient in respect of the overpaid amount, specifying a due date for payment that is at least 30 days after the notice is given; and (b) any of the overpaid amount remains unpaid at the end of that due date; then the recipient is liable to pay the general interest charge on the unpaid amount for each day in the period that: (c) started at the beginning of that due date; and (d) finishes at the end of the last day on which, at the end of the day, any of the following remains unpaid: (i) the overpaid amount; (ii) general interest charge on any of the overpaid amount. (3) In this section: "administrative overpayment" means an amount that the Commissioner has paid to a person by mistake, being an amount to which the person is not entitled.
Mr Neggo in turn submits that: "The effect of s 8AAZN [of the TAA] is that where the Commissioner, by mistake, has paid a person an amount to which that person is not entitled (the "overpayment"), the amount becomes a debt due to the Commonwealth. The statutory debt exists immediately by operation of law. Nothing further is required. Although an overpayment under s 8AAZN is not a loan, there are similarities with a loan. First, it involves a transfer of money, the act of which enlivens an obligation to repay. Secondly, if a s8AAZN(2) notice is given (as occurred here), the overpayment accrues interest. The reference to "debt" in s.8AAZN should be read in this context. As has been said, Wambo [Coal] did not involve s 8AAZN."
In oral submissions, Mr Neggo made clear that he was not contending that s 8AAZN of the TAA operated as a code or necessarily excluded other relief available to the DCT, but only that the structure of that section was inconsistent with the existence of a proprietary remedy available to the DCT.
Mr Livingston, with whom Mr Josifoski, appears for the DCT, responds that s 8AAZN of the TAA is not inconsistent with the DCT's entitlement to recover the relevant funds on the basis identified in Wambo Coal. He draws attention to the review of the legislative history of that section by the Full Court of the Federal Court in Commissioner of Taxation v Auctus Resources Pty Ltd [2021] FCAFC 39 ("Auctus Resources"), where Davies J observed (at [3]) that: "…. Section 8AAZN was enacted in 1999 and is contained in Part IIB of the TAA. Part IIB is headed "Running account balances, application of payments and credits and related matters" and is comprised of four divisions. Division 4 is headed "Miscellaneous provisions about tax debts" and s 8AAZN is headed "Overpayments made by the Commissioner under taxation laws". Section 8AAZN was enacted at the same time as the introduction of the Running Balance Account system (RBAs), as one of the consequential measures supporting that system, which also included making outstanding tax debts subject to the general interest charge. The purpose of s 8AAZN, as explained in the explanatory memorandum to the Taxation Laws Amendment Bill (No. 5) 1998 (Cth) at para 1.3, was to have debts that arose as a result of administrative overpayments by the Commissioner registered as tax debts and also subject to the new general interest charge as debts due to the Commonwealth and recoverable by the Commissioner." Mr Livingston also refers to Thawley J's observation in Auctus Resources (at [97]) that an action by the Commissioner to recover money paid mistakenly as money had and received might exist "whether or not s 8AAZN applied."
Mr Livingston also points to the observation of Judge Marks in Deputy Commissioner of Taxation v MWB [2019] BCC 1516 at [78] that: "There is nothing in the way s8AAZN(3) was introduced to suggest that it was intended to be a statutory way of encapsulating the whole of the common law doctrine of mistake (including fraud), simply by defining administrative overpayments as 'payments made by mistake'. If s8AAZN incorporated the whole of the common law of mistake, it might then extend to many different scenarios involving third parties who physically receive money which the Commissioner intends to pay a different taxpayer. Tax agents and banks are obvious examples. One would expect there to have been some discussion before such an extensive - and far reaching - change to the law was introduced."
Mr Livingston points out that the rights and remedies available to the DCT in respect of a claim for recovery of money paid under a mistake are to be determined "as nearly as possible" in the same manner as an action pursued between ordinary litigants by reason of s 64 of the Judiciary Act 1903 (Cth). He also submits and I accept that a clear legislative intent would be required before a statutory provision such as s 8AAZN of the TAA would deprive the DCT of its general law rights, where there is an alternative construction available: Berowra Holdings Pty Ltd v Gordon (2006) 225 CLR 364 at [23]; [2006] HCA 32.
Mr Livingston submits that, for several reasons, the text, context and purpose of s 8AAZN of the TAA do not indicate that it operates to deny the DCT a proprietary remedy, where a payment is made by mistake, for no consideration, the payee is aware of the mistake and the funds have not been expended. He submits, in a dense submission, that: "First, there are no textual indications that the provision confines the Commissioner to claim as an unsecured creditor of the payee. Rather, defining an administrative overpayment by reference to money "paid…by mistake" indicate a consciousness of the general law relating to mistaken payments and that the provision complements, rather than removes, existing rights. Second, the explanatory memorandum indicates that the purpose of s8AAZN was to permit the Commissioner to register a mistaken payment as a tax debt in the Commissioner's accounting records. The significance of recognising the administrative overpayment as a tax debt include that the mistaken payment may be allocated to an RBA (s8AAZD), the Commissioner can recover the mistaken payment as part of an RBA deficit debt as a single debt (s8AAZH), and the Commissioner may issue evidentiary certificates as an aide to recovery (s8AAZJ). Accordingly, section 8AAZN is an enactment which is part of a scheme dealing with the Commissioner's system of accounting and recovery of tax debts. That is, the provision is facilitative of recovery by the Commissioner rather than restrictive of rights. Third, the [TAA's] broader legislative purpose is to provide for the efficient collection of tax debts to benefit of the revenue. This machinery (of which s8AAZN is part) complements other provisions in the [TAA] which effect a clear and long-standing legislative policy to assist in the collection of revenue. It would be incompatible with the context of the provision to ascribe an intention that in the enactment of s8AAZN parliament sought to limit or exclude rights of recovery for the benefit of the revenue. Fourth, the imposition of [the general interest charge ("GIC")] on an administrative overpayment is indicative of the legislature's intention that the Commonwealth should be compensated for any delayed repayment of a mistaken payment: that is, in permitting GIC to be collected, s8AAZN is directed to benefiting the revenue. Fifth, the consequences which would flow from a contrary construction tells against its correctness: absent a proprietary remedy being available, the Commissioner's rights of recovery (either at general law or under s8AAZN) would not be admissible to proof in the winding up of the Company, the mistaken payment having been after the "relevant date" identified in s553 of the [TAA]. Further, unsecured creditors of the Company would share in an unwarranted windfall. There is no basis to conclude that s8AAZN was enacted to improve the entitlements of the creditors of an insolvent entity at the expense of the revenue. Sixth, the further matters posited by the Liquidator … afford an insufficient basis to distinguish Wambo Coal or to deny the operation of a trust in this instance. There is no basis to equate an administrative overpayment as being in any way analogous to a loan: a payment made by mistake is antithetical to a money voluntarily advanced by a lender to a borrower on a promise to repayment. Further, in so far the provision deems a mistaken payment to be a debt recoverable by the Commissioner, section 8AAZN is a provision of automatic operation: no election in its engagement is made by the Commissioner save as to the imposition of GIC. Even if the operation of s8AAZN could be characterised as an act of "self-help", it is not inconsistent with the Commissioner's rights at general law such that no doctrine of election arises.
In oral submissions, Mr Livingston submitted, and I accept that, in the context of Pt IIB of the TAA which deals with RBAs, s 8AAZN is a machinery provision which provides a mechanism for recording, within the RBA system, a debt arising from an administrative overpayment, and attaching the incidence of the RBA system to that debt, and providing for a mechanism for the general interest charge to be triggered, by service of the relevant notice. It seems to me that nothing in that process is inconsistent with the availability of a claim of the kind recognised by Wambo Coal. More generally, I accept that the structure and legislative history of s 8AAZN of the TAA indicates that it was intended to establish a means for addressing an overpayment, within the RBA regime, and I can see no basis to read that section as exclusive of alternative rights that may be available to the DCT at general law, and no public policy that would be advanced by reading the section in that way.
Mr Neggo also relies on the proposition that the DCT and the Commonwealth are two separate legal personalities. Mr Livingston responds that: "… the Liquidator's discernment between the money having been paid by the Commissioner, but an administrative overpayment being due to the Commonwealth is an unhelpful distinction: the prospect of recovery by both the Commissioner and the Commonwealth each asserting claims against the Company for repayment of the Funds is implausible. Administrative overpayments to which s8AAZN applies are made from consolidated revenue: the Commissioner, who is charged with the general administration of the taxation laws, acts in his own name, but recovers for the benefit of the Commonwealth."
I accept that, as Mr Livingston points out, the distinction which Mr Neggo seeks to draw between an administrative overpayment being due to the Commonwealth and a proprietary claim being available to the DCT is undermined by the fact that a claim by the DCT for repayment of the Relevant Amount would be brought in his own name but for the benefit of the Commonwealth. It seems to me that there is no inconsistency between the statutory debt created by s 8AAZN, which is in terms due to the Commonwealth under s 8AAZN(1) of the TAA and may be recovered by the DCT as a debt payable in a Court of competent jurisdiction, and a trust in favour of the DCT, which would in turn operate for the benefit of the Commonwealth. There exists, in those circumstances, an overlap but not an inconsistency in the relevant provisions. Conversely, a payment made by the Liquidator to the DCT would both discharge his obligation under the relevant trust and extinguish (or, where interest has accrued, reduce) the statutory debt which arose under s 8AAZN of the TAA. I do not accept that this submission advances the position for which the Liquidator contends.
Mr Neggo also submits that the DCT's right to treat the payment of the Relevant Amount as giving rise to a statutory debt, capable of bearing statutory interest, under s 8AAZN of the TAA, is inconsistent with a right to treat the overpayment as trust money in the hands of the Company, or as beneficially held for the DCT. I do not accept that submission, where it is not apparent that a trust of the kind that arose in Black v S Freedman & Co (1910) 12 CLR 105; [1910] HCA 58 ("Black v Freedman") and Wambo Coal cannot co-exist with a debt owed by the thief or the recipient of a mistaken payment. Mr Neggo's submission would prove too much, so far as it would also exclude the co-existence of a restitutionary claim and a trust claim, where the co-existence of those claims has been recognised by the case law. It does not seem to me that there is any reason to treat a statutory debt under s 8AAZN of the TAA as any different from a debt that arises at general law in that respect.
In reply, Mr Neggo responds that the recognition in Auctus that the cause of action under s 8AAZN of the TAA co-exists with the cause of action to recover money had and received says nothing as to the question whether the DCT retains a proprietary claim to the relevant funds. I do not accept that submission, where the recognition of the continuance of a general law action for money had and received supports a recognition of other general law actions, including an action by analogy with the claim in Black v Freedman, as recognised in Wambo Coal. Mr Neggo also repeats his submission, in reply, that if the beneficial interest in the relevant funds was with the DCT rather than the Company, for recovery of the funds by the DCT, then the recovered funds could not reduce the Company's corresponding statutory debt to the Company. That submission seems to me, with respect, unduly technical, where the recognition that a cause of action in debt and a trust may co-exist has the consequence that monies may be repaid in discharge of the trustee's obligation, and in repayment of the debt, at the same time.
In summary, notwithstanding that s 8AAZN of the TAA applied, and the DCT gave notice to trigger the obligation to pay interest, it seems to me that the Liquidator plainly came to realise that the Relevant Amount was paid by mistake; there was no consideration given for that payment; the moneys paid could still be identified at the time that knowledge was acquired; and, even if the payment could be analogised to a loan as Mr Neggo contends, that loan was itself made by mistake. I can see no reason why, applying the approach taken in Wambo Coal, an institutional trust does not then attach to the Relevant Amount in the Liquidator's hands.

Whether an issue as to election arises and the suggested release of the Company's conscience

In the alternative, Mr Neggo points to the Liquidator's "concern" that the DCT's acts of debiting the amount of the payments to an RBA connected with the Liquidator and the Company on 10 August 2023, and issuing a notice under s 8AAZN(2) of the TAA, which would cause interest to run on the statutory debt, extinguished any trust. Mr Neggo raises the possibility that the DCT elected between two alternative rights, with knowledge of the facts giving rise to the inconsistent rights, in exercising its remedy under s 8AAZN of the TAA. He refers to the authorities relevant to election in that respect and submits that: "An election occurs where a person has two truly alternative rights and with knowledge of the facts giving rise to the inconsistent rights acts in a manner consistent only with the exercise of one of those rights and inconsistent with the exercise of the other: Sargent v ASL Developments Ltd (1974) 131 CLR 634 ["Sargent'] at 641, 645-6 (Stephen J) and 655-6 and 658 (Mason J); Commonwealth v Verwayen [1990] HCA 39; 170 CLR 394 at 407-8 (Mason CJ) and 421 (Brennan J); Khoury v Government Insurance Office (NSW) [1984] HCA 55; 165 CLR 622 at 633-4 (Mason, Brennan, Deane and Dawson JJ). Even if, contrary to the primary argument put above, a constructive trust arose (or was capable of arising) between the Company as trustee and the [DCT] as beneficiary, by: (1) issuing the s 8AAZN notice; and (2) debiting of Integrated Client Account 5, the Deputy Commissioner elected between the inconsistent rights, in favour of the debt obligation. An election, once made, exercises and exhausts the power in respect of the same facts."
In Sargent v ASL Developments Ltd (1974) 131 CLR 634; [1974] HCA 40, Stephen J (with whom McTiernan J agreed) observed (at 642) that, for the doctrine of election to operate, "there must be both an element of knowledge on the part of the elector and words or conduct sufficient to amount to the making of an election as between the two inconsistent rights which he possesses". His Honour pointed to a variance in the authorities as to the nature of the knowledge which the elector must possess, and then observed that: "An elector must at least know of the facts which give rise to those legal rights, as between which an election must be made."
His Honour also addressed the knowledge that is necessary for an election. Mason J in turn observed (at 658) that: "If a party to a contract, aware of a breach going to the root of the contract, or of other circumstances entitling him to terminate the contract, though unaware of the existence of the right to terminate the contract, exercises rights under the contract, he must be held to have made a binding election to affirm. Such conduct is justifiable only on the footing that an election has been made to affirm the contract; the conduct is adverse to the other party and may therefore be considered unequivocal in its effect. The justification for imputing to the affirming party a binding election in these circumstances, though he be unaware of his alternative right, is that, having a knowledge of the facts sufficient to alert him to the possibility of the existence of his alternative right, he has acted adversely to the other party and that, by so doing, he has induced the other party to believe that performance of the contract is insisted upon. It is with these considerations in mind that the law attributes to the party the making of a choice, though he be ignorant of his alternative right. For reasons stated earlier the affirming party cannot be permitted to change his position once he has elected."
In Wiltrading (WA) Pty Ltd v Lumley General Insurance Ltd (2005) 30 WAR 290; [2005] WASCA 106 at [35]-[39], Steytler P in turn referred to the elements of election as requiring a choice between two inconsistent legal rights, that there be "knowledge on the part of the elector and words or conduct sufficient to amount to the making of the election", with that knowledge being "full knowledge of the material facts", on the basis that a party to a contract is taken to know of the rights that it confers; and that unequivocal conduct is required to establish an election that is not consciously made. I also summarised the applicable principles in Re Computer Room Solutions Pty Ltd [2021] NSWSC 845 at [62]ff and Re Sirrah Pty Ltd (in liq) [2024] NSWSC 784 at [70]ff on which I have drawn for these observations.
I do not accept the Liquidator's submission relying on an election, because it seems to me that there was no inconsistency in the DCT relying, at the same time, on a statutory right available under s 8AAZN of the TAA and the trust for which it now contends.
Mr Neggo also submits that the effect of the DCT's debiting "Integrated Client Account 5" in the amount of $365,267 is that the balance of the account changed from $56,610 CR to $308,657 DR and that: "in an accounting sense at least [a] the Company's (inchoate) entitlement to be refunded $56,610 was extinguished; and [b] the amount of the statutory debt was reduced to $307,657; and [c] future GST property credits which are credited to the account will not result in a refund to the Company until the DR balance reverts to a CR balance."
Mr Neggo also submits that: "The ultimate result is that if there was a constructive trust prior to 10 August 2023, it has been "de-constructed", and no constructive trust could have arisen after 10 August 2023, in both scenarios because as a consequence of the "self-help" accounting, it could not be said that from 10 August 2023 onwards it was against conscience for the Company to deal with the overpayment as if it was the beneficial owner."
Mr Livingston responds that: "Recovery of the [Relevant Amount] by the Commissioner will be a payment that the Commissioner receives in respect of a tax debt, being the administrative overpayment (even if he relies on the general law principles identified in Wambo Coal to achieve that result). The Commissioner will be obliged to apply the Funds in the manner prescribed by Part IIB of the [TAA] … the Commissioner raising a debt on a system of accounting does not afford the Company a right to treat the Funds as its own beneficial property on the basis of an asserted "de-construction" of the Commissioner's proprietary rights to recover the Funds. To the extent that the allocation of the administrative overpayment altered a pre-existing credit balance on the Company's RBA, recovery of the Funds to the Commissioner will result in a corresponding adjustment to the RBA in favour of the Company and (subject to GIC) any credit properly due to the Company restored."
I might have accepted the Liquidator's submission in this respect, if the consequence of debiting Integrated Client Account 5 was that the Relevant Amount had been repaid, but that was not the case where its consequence was only that the balance of the account was reduced from a modest credit to a significant debit. In those circumstances, the debit to that account did not exclude a finding that it is against conscience for the Company to retain the balance of funds paid to it by mistake, so as to advantage the Liquidator in respect of his remuneration and disbursements or unsecured creditors at the DCT's expense. While the Liquidator's conscience would be cleansed once he had repaid the Relevant Amount, it is not apparent to me why anything short of his doing so had that consequence. I do not accept this submission.
For these reasons, I will at least direct the Liquidator that he would be justified in paying that amount to the DCT, and it may well be appropriate to make a further direction that he would not be justified in not doing so. I would, subject to any successful application to reopen made by the Liquidator, make the declaratory orders sought by the DCT, and I will make orders allowing the parties to make brief written submissions as to costs.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 13 August 2024

(1987) 11 Fam LR 915

AE Brighton Holdings Pty Ltd v UDP Holdings Pty Ltd

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