Bluebottle UK Limited v Deputy Commissioner of Taxation

Bluebottle UK Limited v Deputy Commissioner of Taxation - [2007] HCA 54 - HCA 2007 case summary — Zoe

[14]

GLEESON CJ, GUMMOW, KIRBY, HAYNE AND CRENNAN JJ. The second respondent, Virgin Blue Holdings Limited ("Virgin Blue"), is a listed public company, limited by shares. Its constitution provides that the replaceable rules contained in the Corporations Act 2001 (Cth) ("the Corporations Act") do not apply to the company. Its constitution gives the directors power "from time to time [to] determine that a Dividend is payable".
On 11 November 2005, the directors of Virgin Blue resolved that, subject to receiving an unqualified audit report, the directors "declared" a final, fully franked dividend of 25 cents per ordinary share. The directors fixed the "record date for the dividend" as 28 November 2005 "with payment being made on 15 December 2005". On the record date of 28 November 2005, the second appellant (Cricket SA - "Cricket") held 23.00 per cent of the issued capital of Virgin Blue[1]; the third appellant (Virgin Holdings SA - "Holdings") held 2.08 per cent; the fourth appellant (Barfair Limited - "Barfair") held 0.48 per cent. The dividend attributable to the shareholdings of Cricket and Holdings was about $65 million.
The Deputy Commissioner of Taxation ("the Commissioner"), the first respondent in this Court, alleges that Cricket and Holdings each became liable to pay income tax on the capital gain made on disposal of shares each held in Virgin Blue. Those disposals were said to have occurred in the one case on or about 30 June 2003, and in the other on or about 4 November and 8 December 2003. This litigation concerns attempts made by the Commissioner to intercept Virgin Blue's payment of the dividend that the directors resolved was to be paid on 15 December 2005, and have the amounts attributable to the shares held by Cricket and Holdings applied in satisfaction of the tax liabilities of Cricket and Holdings.
Cricket and Holdings contend that on 13 December 2005 each made a valid and effective deed of assignment assigning its rights in respect of the dividend to the first appellant (Bluebottle UK Limited - "Bluebottle"), and that Bluebottle gave Virgin Blue an irrevocable direction to pay the sums in question to Barfair. On 15 December 2005, Bluebottle, Cricket, Holdings and Barfair commenced a proceeding in the Supreme Court of New South Wales seeking declarations (in effect) that the various transactions described were effective and that certain notices issued by the Commissioner had "no force or effect in relation to" the dividend.
At first instance, Gzell J made declarations of the kind sought by the plaintiffs[2]. The Commissioner's appeal to the Court of Appeal was allowed[3]. That Court (Mason P, Santow and Basten JJA) set aside the principal orders of the primary judge and ordered Virgin Blue to pay the Commissioner the dividends that had been declared. By special leave, Bluebottle, Cricket, Holdings and Barfair appeal to this Court. Virgin Blue has filed a submitting appearance.

[25]

In the courts below, attention was directed principally to the proper construction and application of the relevant provisions of the 1936 Act, and particularly s 255. Before dealing with those issues, however, it is necessary to consider what was the effect of the several steps taken by Virgin Blue in connection with the fixing and payment of a final dividend and the several steps taken by Cricket and Holdings (as shareholders of Virgin Blue) in relation to that dividend. It is not useful to examine the questions about the engagement of s 255 of the 1936 Act without first considering the effect of the transactions described earlier.
Questions about the effect of those transactions were raised in the course of the oral argument of the appeal. After the completion of the hearing the parties, by leave, filed further written submissions directed to those questions. Subsequently, the appellants sought amplification of the leave that had been granted to permit them to rely on additional written submissions then filed in response to some matters raised in the Commissioner's written submissions. That leave should be granted.
Two premises underpinned much of the appellants' arguments about the effect of the transactions. First, they submitted that Virgin Blue did not "incur a debt merely by fixing the amount or time for payment of [the] dividend"[5] and that the debt arose "only when the time fixed for payment" (15 December 2005) arrived[6]. Secondly, the appellants submitted that the deeds of assignment, of which notice had been given to Virgin Blue, operated according to their terms. In consequence, so the argument proceeded, at no time was Virgin Blue a person of the kind described in s 255(1) - a "person having the receipt control or disposal of money belonging to a non‑resident, who derives income, or profits or gains of a capital nature, from a source in Australia or who is a shareholder, debenture holder, or depositor in a company deriving income, or profits or gains of a capital nature, from a source in Australia".
The first premise underpinning the appellants' arguments assumed that the relevant "debt" is sufficiently identified by identifying its amount, who owes it, and when it is due. That is, the first premise assumed that the identity of the creditor is unimportant, even though the "debt" is a company dividend. Whether that is so will require consideration of important questions of company law. The validity of the second premise depends upon the correctness of the first.

[27]

Before the enactment of the Company Law Review Act 1998 (Cth) some propositions about company dividends were well established. Some of those propositions directly reflected provisions of the applicable companies legislation; others depended upon the particular terms of commonly adopted forms of the constituent documents of companies.
A distinction was drawn[7] between a power given in the constituent documents of a company to declare a final dividend and a power to pay an interim dividend. The distinction between interim and final dividends reflected two related considerations - that a dividend could be paid only out of profits and that profits were determined according to annual statements of accounts that were to be laid before the company in general meeting. A final dividend thus reflected the results of a completed year of trading; an interim dividend reflected what was anticipated to be the position at the end of the relevant year of trading[8]. The distinction between the two forms of dividend was also reflected in the description usually applied to the decision to make the dividend payment. A final dividend was "declared" and the power to declare a final dividend was often vested in the company in general meeting. By contrast, the power with respect to interim dividends (usually vested in the board of directors) was commonly described as a power to "pay" interim dividends.
A decision to pay an interim dividend, even if described as a "declaration", was revocable until the dividend was paid[9]. By contrast, "the declaration of a final dividend [gave] rise to a debt payable by the company to the shareholder immediately or from the date stipulated for payment"[10]. And in the case of a final dividend, it was clear from at least the end of the nineteenth century that, absent particular provision to the contrary in the company's constituent documents, a shareholder could not sue to recover a dividend unless and until it had been declared[11].
The Company Law Review Act made radical changes to company law. The provisions of what was then the Corporations Law on a number of subjects were rewritten. The changes that were then made have, for the most part, continued to apply following the change from the national scheme rooted in the Corporations Act 1989 (Cth) and separate State Corporations Laws[12] to the 2001 federal Act - the Corporations Act. For present purposes, it is necessary to notice some of the changes made by the Company Law Review Act in relation to the constituent documents of companies and in relation to dividends. It is only with an understanding of those changes that the effect of the dividend resolution passed by the directors of Virgin Blue can be determined.

[42]

Rule 63 cannot be construed in isolation from its context. First and foremost, it cannot be construed as if, despite the general provision that the replaceable rules do not apply, it simply incorporated the replaceable rule set out in s 254U. Of course, it is important to recognise that r 63 of Virgin Blue's constitution used the same words as s 254U, but those words sit in a context provided by the whole of the constitution and the Corporations Act, not in a context provided only by the Act. It is, therefore, important to notice other provisions of the constitution that spoke of "declaration" of a dividend and other provisions of that document that used the word "determine" or cognate words.
Rule 5 concerning preference shares provided in par (c)(ii) that, "in addition to the preferential Dividend, the preference shares may participate with the ordinary shares in Dividends declared by the Directors ...", but the same rule also provided in par (d)(i)(B) for "the aggregate of any Dividends accrued (whether determined or not) but unpaid" (emphasis added). Rule 14 provided for the company having a lien on every share and on the proceeds of sale of every share and, by par (c), that "[t]he lien extends to all Dividends and entitlements declared in respect of the shares" (emphasis added). Rule 73 provided for the establishment of Dividend Reinvestment Plans, and in par (a)(i)(B) spoke of some or all shareholders electing "that Dividends from the company not be declared or paid and that instead a payment or distribution other than a Dividend ... be made" (emphasis added).
The uses of the word "declared" in these particular provisions point against reading r 63 as using the word "determine" in a way that distinguishes determination from declaration. It may readily be accepted that, as the appellants submitted, care must be taken before placing too much weight upon use of the word "declared" or cognate terms elsewhere in the constitution. But the care that must be taken stems ultimately from the recognition of the possibility that "declared" and "determined" were used interchangeably by those who drafted the constitution of the company, without the drafters adverting to the distinction between determination to pay a dividend and declaration of a dividend which the companies legislation has made since the Company Law Review Act. And contrary to the appellants' submissions, that possibility does not mean that the uses in the constitution of the word "declared" and its cognate forms may be set aside as irrelevant to the proper construction of r 63. In particular, it does not entail that attention may be confined to the way in which the Corporations Act uses the words "determine" and "declaration". Rather, the uses made in Virgin Blue's constitution of both "declared" and "determined" (and their cognate forms) point towards reading "determine" as being used in r 63 to convey no narrower or more precise a meaning than "decide".
That view of r 63 is supported by references, made in other rules dealing with the subject of dividends and distributions to members, to matters being "determined" by the directors. Thus, r 64(a) provided that, "[s]ubject to any special rights or restrictions attached to any shares, every Dividend on a share in the company is to be paid as follows, unless otherwise determined by the Directors" (emphasis added). Rule 66 provided that "[i]f the Directors have determined to pay a Dividend or to return capital by a reduction of capital, a buy‑back or otherwise", certain provisions were engaged. The provisions thus engaged included that "if a difficulty arises in regard to that distribution, [the directors may] settle the matter as they determine", and further provisions for the directors "to appropriately adjust the rights of all shareholders as the Directors determine in their discretion" (emphasis added). Similarly, r 67 provided that where payment of dividends and of other distributions is to be made in a currency other than Australian dollars, "the Directors may determine in their discretion the appropriate exchange rate and the time of calculation"; these determinations of the directors were said to be final, in the absence of manifest error (emphasis added).
All of these uses of the words "determine" and "determined", in combination with the several other considerations mentioned earlier in these reasons, lead to the conclusion that the better construction of r 63 is that the word "determine" means "decide". The rule should not be construed as confining the directors' power over dividends to making only what s 254U identifies as a "determination" as distinct from a "declaration" of dividend. So understood, the rule would empower the directors to declare a dividend or to determine that one is to be paid.
This understanding of the rule leads to no inconsistency with applicable provisions of the Corporations Act. To demonstrate why that is so, it is necessary to say something further about those provisions, their purposes and their operation.

[43]

As noted earlier, it had been established before the enactment of the Company Law Review Act that the decision to pay an interim dividend differed in important respects from the decision to pay a final dividend. The decision to pay an interim dividend was revocable until implemented by payment. When a final dividend was declared, the company incurred a debt when the declaration was made or from the date on which the dividend was to be paid in accordance with the declaration[15].
The difference between interim and final dividends was critical to the application of those provisions of the companies legislation which governed insolvent trading. Those provisions were then contained in Div 3 of Pt 5.7B of the Corporations Law (ss 588G‑588H) and are now found, in generally similar terms, in Div 3 of Pt 5.7B of the Corporations Act (ss 588G‑588H). (One difference is that the Company Law Review Act provided, in its enactment of s 588G(1A), rules governing when, for the purposes of s 588G, a debt is incurred. In relation to dividends, s 588G(1A) of the Corporations Act now provides that a debt is incurred "when the dividend is paid or, if the company has a constitution that provides for the declaration of dividends, when the dividend is declared".)
If, after deciding to pay an interim dividend, a company's financial position deteriorated to the point where, before or upon payment of the dividend, it could not pay its debts as and when they fell due, and the directors proceeded to make the payment, the directors might be liable to pay the amount of the dividend to the company[16]. A purpose of the bill for what was to become the Company Law Review Act was[17] to "allow companies to avoid the problems that would arise if profits that would have been sufficient to cover the dividend when it was declared have ceased to exist when the time comes to pay the dividend". This was said[18] to be achieved by implementing two propositions - first, that "a debt will not arise until the time fixed for payment has arrived, unless the company has a constitution that provides for the declaration of a dividend" and secondly, that "[d]irectors will be able to revoke a decision to pay a dividend at any time before the time fixed for payment, and thus avoid a debt being incurred". But as the reference to declaration of dividends shows, no absolute rule was imposed. Rather, it was left to companies to decide when a debt was to be incurred.
If, as we would hold to be the better construction of Virgin Blue's constitution, the board of that company was empowered to choose between declaring a dividend and determining that a dividend would be paid, fixing its amount and time for payment, the question of when did the company incur a debt will be decided by applying the relevant branch of s 254V. In this matter, on 11 November 2005, the board of Virgin Blue declared a dividend, and, by operation of s 254V(2), the company incurred a debt when the dividend was declared. Because the declaration made in this case was subject to satisfaction of a condition precedent (receiving an unqualified audit report) the declaration took effect on satisfaction of that condition.
The debt was payable on 15 December 2005, the date stipulated for payment[19]. But the liability to make the payment was complete when the shareholders to whom the liability was owed were identified. Those shareholders were identified on the record date, 28 November 2005.
Whether, and when, the term "debt" can be applied to the relevant obligations may obscure some deeper questions presented by the appellants' arguments. It is to those questions that these reasons now turn.

[50]

By the resolution declaring a dividend the directors of Virgin Blue fixed a record date, 28 November 2005. The better view may well be that the directors were required to fix a record date because Virgin Blue was a public listed company subject to the listing rules[23] of the financial market on whose official list its shares were traded, and the operating rules[24] of a relevant clearing and settlement facility (a "CS facility"). In particular, the ASX Listing Rules may be understood as obliging listed entities to "follow the time limits set out in this timetable [contained in Appendix 6A to the Rules] when paying a dividend". One of the "events" in that timetable was "[r]ecord date to identify security holders entitled to the dividend" (footnote omitted). "[R]ecord date" was defined in Ch 19 of the Listing Rules (in effect) as the date fixed for the purpose of identifying those entitled to dividends or other entitlements.
A "body corporate that is, with its acquiescence, included in the official list of a licensed market ... is taken to be under an obligation to comply with the operating rules of that market to the extent to which those rules purport to apply to the body corporate"[25]. Listing rules are one form of operating rules of a financial market[26]. A person aggrieved by a failure to comply with operating rules may obtain orders for compliance with or enforcement of the rules[27].
It is not necessary, however, to decide whether the directors of Virgin Blue were bound to fix a record date for payment of the dividend now in question. Nor is it necessary to examine further the source or extent of such an obligation. For present purposes, it is important to notice only that a record date was fixed. By fixing a record date the directors identified who were to be the members entitled to participate in the dividend - those who were entitled to be recorded on the register of members on the record date.
It well may be that, as the Commissioner submitted, this result (that the company was obliged to pay dividends to those who were registered shareholders on the record date) follows from the operation of reg 7.11.39 of the Corporations Regulations 2001[28] and r 5.20.5 of the ASTC Settlement Rules[29]. But whether or not those provisions require the conclusion that the company was bound to pay the dividend to those who were shareholders on the record date, that result follows from other, more general, considerations about assignments and company membership.

[59]

The statutory system was not engaged for several reasons. First, par (a) of cl 2.1 was drawn in terms as an equitable assignment for value, to be effective forthwith, with no precondition for the giving of notice as required by the statute. Secondly, par (b) was drawn so as to be effective in the future, namely on the payment date, and was an agreement for value which equity would enforce; it was not drawn as an absolute assignment of presently subsisting rights and as immediately effectual at law.
However, the classification of the species of assignment attempted in cl 2.1 is not determinative of the relevant issue. This turns upon the identification of the nature and content of the rights created by the declaration of dividend and the identity of those parties which enjoyed those rights. The assignments could have no greater efficacy than that given by the rights which provided their subject matter. Here, requirements of the constitution of Virgin Blue and the Corporations Act were of primary importance.
The appellants' argument characterised the obligation of Virgin Blue to pay the dividend as a "debt". That term is apposite but its use may mislead if inquiry stops at asking whether the word may be applied to describe the relevant obligation. A duty or obligation to pay a liquidated sum may be enforced by the action of debt[32]. The availability of that action does not identify, however, either the source, or the full content, of the duty or obligation that is enforced.
In particular, the "debt" which Virgin Blue incurred in respect of the dividend is incompletely described by reference only to its amount, the date on which it would fall (or had fallen) due for payment, and its being a dividend. It is incompletely described because no creditor is identified. The identification of the creditor is an essential element of the description of the kind of debt which is in issue in this case. It is an essential element because the Corporations Act and the constitution of Virgin Blue make it essential. To explain why that is so, it is necessary to begin with some matters of history that found reflection in this Court's decision in Norman v Federal Commissioner of Taxation[33].
One premise for the decision in that case was that the taxpayer was a shareholder, registered in the share registers as such, in the companies declaring the dividends and that[34] "[a]s between him and the companies, he was therefore entitled to the dividends". The Court divided about the effect of a deed purporting to assign future dividends in the companies to another, by way of gift. But the unchallenged premise for the debate appears to have been that absent some enabling provision in the companies' Articles of Association, the companies were bound to pay dividends, once declared, to only the registered shareholders.
This premise reflected what were then long‑established provisions of statutes regulating company law that forbade the entry on a register of members of notice of any trust, expressed, implied or constructive[35]. That rule is no longer absolute. It is qualified in relation to companies that are not listed companies[36] and in relation to trustees, executors or administrators of the estates of deceased, bankrupt or infirm persons[37]. But subject to those qualifications, no other notice of a trust whether express, implied or constructive may be entered on a share register kept within the jurisdiction or be receivable by ASIC[38].
The significance of provisions like s 30 of the Companies Act 1862 (UK) forbidding entry on a register of members of notice of a trust was examined in a number of nineteenth century cases. In Bradford Banking Co v Briggs[39], it was held that the statutory provision (standing alone) relieved the company from taking notice of trusts, but not from the obligation to take notice of an equitable mortgage of the shares made by a shareholder. But, by contrast, where the Articles of Association of the company provided that the company was not bound by, or compelled to recognise (even when having notice thereof), any equitable or other interest in a share, the company was held entitled to disregard notice of equities[40]. The reason for the rule was expressed by Lord Coleridge CJ[41]:

[62]

As noted earlier, Virgin Blue's constitution contained a provision of the kind described. Paragraph (a) of r 6 provided that "[e]xcept as required by law, the company is not bound to recognise a person as holding a Security on any trust". There having been no assignment of the shares or any interest in the shares, this paragraph had no application in the present matter. It may be noticed, however, that the introductory exception ("[e]xcept as required by law") makes plain that the clause does not prevent a person having an equitable interest in the shares procuring the intervention of the court to protect that interest by order[43].
Paragraph (b) of r 6 was engaged. It provided that "[w]hether or not it has notice of the rights or interests concerned, the company is not bound to recognise ... any other right in respect of a Security, except an absolute right of ownership of the Security holder or as otherwise provided by this Constitution or by law". The provision deals expressly with the case where the company has notice of the rights or interests concerned. It provided that whether or not the company had notice it was not bound to recognise "any other right in respect of a Security". Again, an exception is made - by the words "as otherwise provided by this Constitution or by law". But this exception, like the exception to r 6(a), is directed to requirements imposed by law (as, for example, by court order) otherwise than from the bare fact of notice of the rights or interests concerned.
For present purposes, it is important to recognise that the debt which is now in question arises out of and is governed by the contract constituted by Virgin Blue's constitution. By fixing a record date of 28 November 2005, the directors determined the class of those who would be entitled to receive the dividend as those entitled to be registered as members on that day and by fixing a record date the directors determined that it was those and only those members with whom Virgin Blue was to deal with respect to the dividend. (Of course, the fixing of a record date takes on added significance if its fixing was mandatory and if its fixing has significance in the securities market for dividing trading in the shares between trading cum‑dividend and trading ex‑dividend. It is convenient, however, to leave these statutory consequences aside.)

[63]

What is the significance of the provisions of Virgin Blue's constitution that have been described for the provision of the subject matter of the assignments set out in cl 2.1 of the deeds of 13 December 2005? That question is best approached by first pointing to what the provisions of the constitution do not do. Virgin Blue's constitution does not purport to prohibit a member alienating any rights the member may have. In particular, the relevant provisions do not purport to make inalienable the right to receive a dividend that has been declared. Questions about applying the doctrine against restraint on alienation that applies in relation to interests in land[44] do not arise. Further, the relevant provisions of Virgin Blue's constitution do not purport to (and do not) render the deeds of assignment void[45] or unenforceable as between the parties to the deeds[46].
The assignments in cl 2.1 of each deed of assignment[47] were expressed to be for value and, as between assignor and assignee, once the dividend was received by the assignor (Cricket or Holdings) equity obliged the assignor to hold it on trust for the assignee (Bluebottle). But as between assignor (Cricket or Holdings) and debtor (Virgin Blue) the terms of the company's constitution which s 140(1) of the Corporations Act provides has effect as a contract between the company and its members stipulated that the company (the debtor) remained free to pay the assignor and, because the record date identified those to whom the dividend was to be paid, was bound to pay the assignor. By that imputed contract, the company remained free to set up equities against the assignor as if no assignment had taken place. That is, the imputed contract stipulated that, regardless of notice of the deeds of assignment, Virgin Blue could look only to its members on the record date for a discharge of the debt and could set up against any member the lien it had under r 14 of the constitution on "all Dividends and entitlements declared in respect of the shares". How is effect to be given to those stipulations?
As R M Goode (later Professor Sir Roy Goode) wrote[48], "If A, when contracting to pay money to B, makes it clear that his undertaking to B is of a personal character and that payment will be made to B alone, there is no reason why he should be compelled to accept a variation of the contract by being required to pay B's assignee, C." And that, in essence, was the nature of the contract that is deemed[49] to be constituted by the constitution of Virgin Blue. The company agreed to deal with its members for the time being, not with the assignees of rights enjoyed by the members.
Insofar as these questions arise (as they do here) in the context of equitable assignments for value of legal and equitable rights, the simple proposition is that equity follows the provisions of company law and the constitution of Virgin Blue which create and define the nature and scope of the rights with which equity deals under the assignments. Insofar as the questions arise in a case where statutory provisions on the Judicature Act pattern apply, the following may be said.
Those provisions have not been construed as permitting assignment of the benefit of a contract involving "personal skill or confidence, such that personal performance by one party can be insisted upon by the other"[50]. As Isaacs J put the point in Bruce v Tyley[51], to permit assignment of the benefit of such a contract "would alter the rights" of the other party to the contract. And once it is observed that there are contracts of a kind where the benefit of the contract cannot be assigned, it follows that the apparently general words of the relevant statutory provision governing assignment (here, s 199 of the Property Law Act) must be read as subject to some relevant qualification or limitation on its operation.
That is not done by grafting some judicially determined exception upon the generality of the provision. There is no textual or other footing upon which that could be done. Rather, the relevant limitation in the operation or engagement of the statutory provision lies in the proper identification of the particular "debt or other legal thing in action" to which it is sought to have the provision apply. In the present matter, the debt or other legal thing in action was the right to receive a dividend. For the reasons given earlier, that right is not completely and accurately identified if no account is taken of those provisions of Virgin Blue's constitution which regulate with whom the company will deal in that regard. Complete and accurate identification of the right requires recognition of the fact that under the company's constitution, by fixing a record date the directors determined the class of those entitled to receive the dividend as those entitled to be registered as members on that record date.
Whether an absolute covenant against assignment would raise any wider or different issues than those that must be considered in this matter need not be examined. Questions about assignment in breach of a covenant against assignment were touched on, but not decided, in Broadcast Australia Pty Ltd v Minister Assisting the Minister for Natural Resources (Lands)[52].
Nor is it necessary to enter the debate about whether the Judicature Act provisions for assignment create what one author has described[53] as a "procedural regime" as distinct from a "substantive regime". Even if, as that author concludes[54], the statutory provisions are substantive in effect, "so that the assignee becomes the owner at law of the subject chose in action", it is essential to recognise, and give full effect to, what is a defining characteristic of the "debt or other legal thing in action" which is the subject of debate in this case. Here the contractual stipulation regulating with whom the debtor (Virgin Blue) will deal in relation to dividends (its members on the record date) is a stipulation that cannot be severed from the "debt or other legal thing in action" which is the subject of the assignment. Any assignments by Cricket or Holdings which attempted to rely upon the Judicature Act provisions could not alter that stipulation or deprive it of force.
For these reasons, it follows that on and from the record date Cricket and Holdings, as members of Virgin Blue on the record date, had rights to receive the dividend which the directors had declared on 11 November 2005 and which was due for payment on 15 December 2005. The assignments each made of those rights created rights and obligations as between each assignor and Bluebottle as assignee. Those assignments did not, however, alter the force of the contractual stipulation deemed to exist between Virgin Blue and each of Cricket and Holdings that Virgin Blue could and in this case would deal with the dividend only with those who were its members on the record date. Virgin Blue therefore was and remained liable to pay the dividend to those who were its members on the record date.
It is only against this understanding of the legal consequences of Virgin Blue's declaration of dividend, and the assignments and other documents passing between Cricket and Holdings, Bluebottle and Virgin Blue, that the application of s 255 of the 1936 Act can be considered. It is with that subject that these reasons will now deal.

[85]

The Commissioner, however, contended the provision has a more extensive operation. In particular, the Commissioner submitted (a) that s 255 could be engaged before any assessment of tax due by the non‑resident had issued; (b) that the section "deals separately and differently with the obligation to retain and the obligation to pay" with the consequence that the section should be read as providing for two different kinds of notice: a notice to retain moneys (issued under s 255(1)(b)) and a notice to pay (issued under s 255(1)(a)); and (c) that even without the Commissioner giving a notice to retain moneys (under s 255(1)(b)) a person of the kind described in s 255(1) was bound to retain from moneys of the non‑resident coming into that person's hands sufficient to pay whatever taxation liabilities the non‑resident then had or would have in the future.
The central proposition about which the Commissioner's submissions about the construction of s 255 ultimately hinged was the second of those just identified: that the section deals separately and differently with the obligation to pay and the obligation to retain. In part that question was examined by reference to whether the section provides for two forms of notice: notice to retain and notice to pay. It is not useful, however, to begin by asking whether the section provides for or allows the giving of two kinds of notice. The answer to that last question either would address only a question of form, or its answer would depend upon the answer to the substantive question which underlies the Commissioner's contention that the 1936 Act treats the obligations of retention and payment separately. That substantive question is what are the relevant differences?
It is to be noticed that s 255(1)(a) obliges the person who has "the receipt control or disposal of money belonging to a non‑resident" ("the controller"), "when required by the Commissioner [to] pay the tax due and payable by the non‑resident". By contrast, s 255(1)(b) gives the controller authority to retain (and requires the controller to retain) "so much as is sufficient to pay the tax which is or will become due by the non‑resident". The Commissioner emphasised both the need to give effect to the phrase "the tax which ... will become due" in par (b) and the use of the different phrase in par (a) "the tax due and payable".
There are two principal points to make about these differences between the two paragraphs. First, par (a) concerns payment; par (b) concerns retention. It is, therefore, not surprising that the provision for payment (par (a)) should deal with what is "due and payable", and the provision for retention should acknowledge and deal with the possibility that the time for payment of the tax in question may not have arrived when the controller first becomes liable to pay money to the non‑resident or money of the non‑resident first "comes to him".
Secondly, the amount of money which is to be dealt with in accordance with par (a) (by payment) is readily ascertained. It is the amount of the tax that is due and payable by the non‑resident. The description of the tax as "due and payable" necessarily presupposes that an assessment has been made[55]. The Commissioner submitted that par (b) should be read differently, and as speaking "both of the time of assessment and of a time prior to assessment". It was said that it was sufficient that there should be "an inchoate liability for tax" and that "the tax would become due, whether considered temporally or as a matter of probability". These submissions should be rejected.
When s 255(1)(b) refers to "the tax which is or will become due by the non‑resident" it must be read as referring to an ascertained sum. If the paragraph is not read in that way, the obligation to retain money which is imposed on the controller is an obligation of undefined content. It is undefined because all that may be retained (the controller "is hereby authorised ... to retain") "out of any money which comes to him on behalf of the non‑resident" is sufficient to pay the tax which is or will become due. And it is that amount (and only that amount) which the controller is obliged to retain. And as the facts of the present matter show, if s 255(1)(b) is not read as referring to an ascertained sum, the Commissioner may require the controller to retain more than the amount later assessed as due from the non‑resident. But that would require the controller, as the Commissioner's first notices did in this case, to retain more than sufficient to pay the tax which is or will become due.
Until the tax payable by the non‑resident has been assessed it is not possible to say more than that there may be tax due by the non‑resident. It is not possible to say that tax is due or that tax will become due. The prediction that tax may be due (and any prediction of its likely amount) may be able to be made with more or less certainty by a person who is armed with a deal of information, but there is no reason to suppose that the controller of a non‑resident's money would ordinarily, let alone invariably, have that information and be in a position to make any useful prediction about the taxation affairs of the non‑resident whose money the controller receives. The present case illustrates why that is so. The taxation liabilities of Cricket and Holdings relate to transactions they are alleged to have made on capital account and yielded a tax liability in the year ended 31 March 2004. The sums of money which Virgin Blue is now alleged to have been obliged to retain were payments in a different tax year and owing to its shareholders on revenue account. Neither the holding of shares by Cricket and Holdings, nor the fact that Virgin Blue was bound to pay the dividend that was declared, gave any basis for Virgin Blue knowing anything of the relevant Australian taxation affairs of Cricket or Holdings.
Paragraph (b) of s 255(1) should be read as referring to an amount of tax that has been assessed. The phrase "tax which ... will become due" is to be understood as referring to tax which, although assessed, is not yet due for payment.
This construction of s 255(1)(b) gives proper weight to the language used in that paragraph ("the tax which is or will become due by the non‑resident") when compared with the different expression used in par (a) ("the tax due and payable by the non‑resident"). As Gibbs CJ observed in Clyne v Deputy Commissioner of Taxation[56], "[t]he word 'due' is ambiguous; it can mean owing, although not payable until some future date, or it can mean presently payable". And as the decision in Clyne illustrates, it is necessary to consider expressions like "due", and "due and payable", when used in the 1936 Act, in the context of the Act as a whole. When "due" is used in the collocation found in s 255(1)(b), "the tax which is or will become due by the non‑resident", the requirement for specifying the amount of money that meets that description requires that the word "due" is read as meaning assessed as owing.
Once those steps are taken, the obligations to retain and to pay are seen as intersecting obligations. The point of their intersection is the specification of the tax which under par (a) is to be paid when required by the Commissioner, and which under par (b) is both the amount that may be retained (the controller "is hereby authorised") and the amount that must be retained (the controller "is hereby ... required"). Once this intersection between the operation of par (a) and par (b) of s 255(1) is identified, many of the issues that would otherwise arise on the construction urged by the Commissioner fall away. It is, however, necessary to consider the statutory setting in which s 255 takes its place. Two aspects of the statutory setting for s 255 require consideration: the history of the section and the other provisions of the 1936 Act that relate to the collection of tax from persons other than the taxpayer.

[105]

For present purposes, it is necessary to notice that s 52A(d) imposed personal liability on the controller of money belonging to a non‑resident. That liability was imposed if, after the Commissioner had required him to pay the tax, the controller disposed of or parted with any fund or money then in his possession or which came to him from which the tax could be paid.
Neither the provisions of s 52A(d) nor any of the other provisions of s 52A limited the liability of the controller to the amount of money of the non‑resident that came into the hands of the controller. Section 52A(a) obliged the controller (when required by the Commissioner) to pay the tax due and payable by the non‑resident. Paragraph (b) entitled the controller to recover what was paid from the non‑resident or to deduct it from any money in the controller's hands. In this respect, s 52A differs markedly from the presently applicable provisions of s 255 of the 1936 Act where the personal liability imposed on the controller is limited "to the extent of any amount that he has retained, or should be retained" under s 255(1)(b).
The change in provisions relating to non‑residents that has just been identified was effected by the 1922 consolidating and amending legislation - the Income Tax Assessment Act 1922 (Cth) ("the 1922 Act") - s 90 of which was substantially in the form now found in s 255(1). The 1922 Act contained only 100 sections. Apart from s 90, two provisions should be mentioned. Section 89 made provisions about agents and trustees that were generally similar to s 52 of the 1915 Act. Section 65 of the 1922 Act (a predecessor of which had been brought into the 1915 Act in 1918) provided for the Commissioner to collect tax from persons owing money to a taxpayer. Section 65(1) provided for the Commissioner, by notice in writing, to require (a) any person by whom any money is due or accruing due to a taxpayer, (b) any person who holds money for or on account of a taxpayer, (c) any person who holds money on account of some other person for payment to a taxpayer, and (d) any person having authority from some other person to pay money to a taxpayer, to pay the tax due by the taxpayer (as well as fines and costs imposed by a court in respect of an offence against the Act). Failure to comply with such a notice was an offence. A person making a payment in pursuance of the provision was "deemed to have been acting under the authority of the taxpayer and of all other persons concerned"[57]. This latter provision (which it is convenient to refer to as a form of "statutory garnishee provision") was, for many years, found in s 218 of the 1936 Act[58].
The 1936 Act contained the three kinds of provision identified earlier in these reasons as found in the 1922 Act: a provision (s 254) about agents and trustees substantially the same as s 89 of the 1922 Act; a provision (s 255) about non‑residents substantially the same as s 90 of the 1922 Act; and a statutory garnishee provision (s 218) like s 65 of the 1922 Act. What now is s 255(2), deeming certain persons who owe money to a non‑resident to have the control of money belonging to the non‑resident, was first enacted in the 1936 Act. In addition, s 256 of the 1936 Act dealt specifically with persons paying royalties to a non‑resident taxpayer. Section 256(2) provided that s 255 was to "apply in respect of payments of royalty referred to in this section".
Further, s 257 of the 1936 Act provided that:

[109]

Reference was made in argument to only two other decisions in which the construction and application of s 255 has been considered: Commissioner of Taxation v Wong[59] and Elsinora Global Ltd v Healthscope Ltd (No 2)[60]. The analysis of the section made in those cases formed the basis for much of what was said on that subject in the reasons of the primary judge and the Court of Appeal in the present matter. It is necessary to deal with only one aspect of that analysis.
In Wong, argument appears to have proceeded from the premise that s 255 permitted (perhaps even required) the giving of two notices: one under par (a) of sub‑s (1) and the other under par (b). Notice under par (a) was treated as a "trigger" activating the operative provisions of s 255(1)[61] and a generally similar approach was adopted in Elsinora[62]. But the central focus of attention in both cases was upon questions of control of moneys of a non‑resident and whether notice can be given under s 255 at a time when the person to whom the notice is directed does not have control of moneys of the non‑resident. Argument in neither case seems to have been directed to the issue of what is meant by "tax which is or will become due by the non‑resident".
It would be wrong to approach the construction of s 255 piecemeal. In particular, it would be wrong to treat s 255(1)(a) as wholly distinct and separate from s 255(1)(b). In that regard, the "trigger" metaphor adopted in Wong, though useful, should not be allowed to divert attention from recognising that pars (a) and (b) of s 255(1) have an intersecting operation. As noted earlier in these reasons, the point of that intersection is the amount with which both paragraphs deal: the tax which is or will become due by the non‑resident (which defines the amount to be retained) and the amount which is to be paid to the Commissioner when required under par (a) (the tax due and payable by the non‑resident).
Once it is recognised that content can be given to the obligation imposed by s 255(1)(b) only if an assessment has issued, the operation of the provision, as a whole, can be seen to be that described at par [72] of these reasons.

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