DEPUTY COMMISSIONER OF TAXATION v BLUEBOTTLE UK LIMITED and Others [2006] NSWCA 360 | Case summary

DEPUTY COMMISSIONER OF TAXATION v BLUEBOTTLE UK LIMITED and Others [2006] NSWCA 360 | Case summary | Zoe

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14 DECEMBER 2006 DEPUTY COMMISSIONER OF TAXATION v BLUEBOTTLE UK LIMITED and 4 Others Judgment 1 MASON P: I agree with Santow JA and Basten JA and with the orders proposed by Basten JA. 2 SANTOW JA: INTRODUCTION The principal issue in this appeal is whether Virgin Blue Holdings Limited ("Virgin Blue"), having declared but not yet paid a final dividend in favour of its two non-resident shareholders, escaped the application of s255 of the Income Tax Assessment Act 1936 (Cth) ("ITAA") by the two non-resident shareholders agreeing to assign their right to receive that dividend to a third party before it was paid. Section 255 ITAA, speaking broadly, empowers the Commissioner to require a person having control of money of or due to a non-resident, (a) to retain that money to the extent of tax due or to become due by that non-resident, and (b) to pay that tax if so required by the Commissioner and be indemnified accordingly. 3 The Deputy Commissioner of Taxation ("DCT") submitted that its notices, given before the assignments were entered into, triggered s255, so that it prevailed over any interest of the assignee under the assignments. It submitted this was so, whether s255 was triggered before the assignments were entered into and could take effect or concurrently with the assignments. The trial judge, Gzell J, while accepting the validity of the notices under s255 and treating the assignments of the future dividend as effective only in equity, concluded against the DCT. He did so on the basis that the s255 notices and the assignments took effect concurrently only when the dividend was paid with the result that the assignments prevailed over s255. Virgin Blue was therefore held not to be liable under s255 to retain or pay the non-resident shareholders' tax out of any debt owed to them for the dividend monies. The DCT appeals against that decision. 4 Issues arise as to: (a) when the dividend debt arose, whether earlier on declaration or only on payment; (b) whether notices purportedly given pursuant to s255 ITAA actually complied with its provisions; (c) the nature of the assignments, whether legal or equitable, and when they took effect; and (d) whether s255 was validly triggered by the notices before or concurrently with the assignments so as to prevail over them. 5 The trial judge, Gzell J, concluded that: (a) any debt to the non-resident shareholders arose only when the dividend was due to be paid and not earlier when declared; (b) section 255 was triggered by the notices as from the date such debts became due; (c) the assignments were equitable not legal, but only took effect when the debts came into existence which he determined was only on the due date for payment of the dividend; and (d) the assignments prevailed over s255, there being no point of time when the assigning shareholders held the property consisting of the debt due to them free of the assignee's interest. 6 Relating these findings to the parties, the two non-resident Swiss shareholders and now second and third respondents, Cricket SA and Virgin Holdings SA ("Cricket" and "Virgin Holdings") successfully contended against the DCT that: (a) they had assigned their future rights to receive dividends in equity to the first respondent Bluebottle UK Limited ("Bluebottle"); (b) those assignments took effect on the due date for payment of the dividend, being the first time that the resultant debts came into existence; (c) section 255 ITAA could not operate any earlier than that due date either; until then there was no debt owed by Virgin Blue to the non-resident shareholders in respect of the earlier declared dividend as declaration of that dividend was insufficient to create a debt; (d) there was therefore no liability by Virgin Blue to the non-resident shareholders in terms of s255 ITAA to pay money to the non-resident shareholders before the assignments took effect; and (e) the assignments defeated the operation of s255 ITAA, notwithstanding that notices under s255 were given first, there being no point of time when the assigning shareholders held the property consisting of the debt due to them free of the assignee's interest. 7 The DCT challenges the trial judge's conclusion that the effect of the directors' resolution "declaring" the final dividend, though validly done, was not to create a debt owed to shareholders at the date of its declaration, but only upon the date when the dividend was due. In so concluding, his Honour applied ss254U and 254V of the Corporations Act 2001 (Cth) by reference to r63(a) of Virgin Blue's constitution. The latter does not in terms empower directors to "declare" that a final dividend is payable but to "determine that a dividend is payable" as well as fix the amount, time and method of payment. These provisions of the Corporations Act, where applicable, alter the basic rule at general law that the declaration of a final dividend creates a debt in favour of its shareholders as of the date of declaration, though payable later (Marra Developments Ltd v BW Rofe Pty Ltd [1977] 2 NSWLR 616; Industrial Equity Limited v Blackburn (1977) 137 CLR 567 at 572). 8 If the DCT were correct in contending to the contrary that the dividend declaration did create a debt when (or shortly after) first declared, then it submits that because: (a) the s255 notices preceded the two assignments being of a present chose in action (the dividend debts); and (b) each occurred at a time when Virgin Blue was a debtor to the two non-resident shareholders and hence met the description of a "person who is liable to pay money to a non-resident" within s255(2) ITAA, that therefore (i) Virgin Blue was deemed by s255(2) to come within s255(1) as a "person having the receipt control or disposal of money belonging to a non-resident … who is a shareholder … in a company deriving income … from a source in Australia", (ii) these assignments were of existing property and not of a mere expectancy so as to be legal assignments coming into effect upon notice of the assignments being given to the debtor and in the meantime operating as valid equitable assignments, and (iii) the s255 notices being valid when given must prevail over the assignments so (aa) preventing their completion, and (bb) requiring Virgin Blue to pay the tax said to be owing to the two non-resident shareholders. 9 In response, the respondents challenge the validity of the s255 notices, contending that they never validly triggered s255 ITAA or only did so after the assignments took effect. By Notice of Contention, the respondents rely on two further bases as independently supporting the trial judge's conclusion: (a) The notices served by the DCT on 12 December 2005 did not comply with s255(1) of the Income Tax Assessment Act 1936 (Cth) in that they did not require the recipient of those notices (Virgin Blue) to pay to the DCT tax due and payable by Cricket or Virgin Holdings; and (b) The notices served by the DCT on 12 December 2005 did not comply with s255(1) of the Income Tax Assessment Act 1936 (Cth) in that the dividend payable by Virgin Blue to Cricket and Virgin Holdings was not money which came to Virgin Blue on behalf of Cricket and Virgin Holdings, within the meaning of subs255(1)(b). (Discussed by the trial judge at [92] to [101] without expressing a concluded view.) 10 If, as the DCT contends in his amended grounds of appeal, the debts were created on 11 November 2005 when the dividend was declared (or at the latest 16 November 2005), then the respondents submit that: (a) On 14 December 2004 Cricket and Virgin Holdings' legal right to such debts and all of their legal and other remedies for those debts were assigned to Bluebottle in law (completed by the giving of the notice of assignment to the debtor Virgin Blue), subject only to equities having priority over the rights of Bluebottle, pursuant to s199 of the Property Law Act , 1974 (Qld); and (b) There were at the time of the assignments no equities having priority over the rights of Bluebottle as assignee. 11 The appellant takes issue with each of these contentions.

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SALIENT FACTS 13 These are essentially undisputed and can be summarised as follows. 14 Virgin Blue had two non-resident shareholders: Cricket and Virgin Holdings (both companies incorporated in Switzerland). 15 On 11 November 2005, Virgin Blue resolved to pay a final fully franked dividend of 25 cents per ordinary share on 15 December 2005. 16 The form of the resolution was as set out at [22] of the judgment. It used the words "the directors declared a final … dividend …". The relevant rule (r63(a)) incorporated in Virgin Blue's constitution empowered the directors to "from time to time determine that a dividend is payable" [emphasis added] as well as entitling the directors to "fix the amount, the time for payment and the method of payment of the dividend". Because its constitution used the word "determine" rather than "declare" the trial judge concluded that the basic rule was not applicable, by reason of ss254U and 254V. There was held to be no debt owed to the shareholders on 11 November 2005, but only when the dividend fell due on 15 December 2005. 17 On 12 December 2005, the DCT issued notices to Virgin Blue purportedly under s255, stating that Virgin Blue was to retain funds in order to pay the tax due and payable by Cricket and Virgin Holdings ($72,518,346.06 and $20,839,554.45 respectively). These claimed tax debts were in relation to capital gains tax said to be payable on Cricket's and Virgin Holdings' disposal of certain shares in Virgin Blue. There was also an additional $2.7 million on account of a general interest charge. Neither Cricket nor Virgin Holdings have lodged a tax return in Australia or paid any amount of the tax liability calculated by the DCT. 18 On 13 December 2005, Cricket and Virgin Holdings executed deeds of assignment that purported to assign each shareholder's right, title and interest to receive the dividend to Bluebottle, the first respondent. The arrangement was that Cricket and Virgin Holdings each lent Bluebottle in Swiss francs the equivalent of the dividend payable on 15 December 2005, with the loan due for repayment on 31 December 2006. Cricket and Virgin Holdings had the option to repay principal and interest without penalty or premium at any time. On the same day, Bluebottle gave Virgin Blue an irrevocable direction to pay the dividends to Barfair Ltd, the fourth respondent. 19 On 14 December 2005, Cricket and Virgin Holdings gave notice to Virgin Blue of the assignments and of the irrevocable direction. Also on that day, the DCT notified Virgin Blue that the amounts specified in his notices with respect to Cricket and Virgin Holdings were required to be paid. There is an issue as to whether Virgin Blue received the former first, as the respondents contend. In what follows I shall assume this order of events. 20 On 15 December 2005, the date the dividend was due, Gzell J granted an injunction at the suit of the four plaintiffs (the intended assignees) restraining Virgin Blue from paying the amount of the dividends with respect to Cricket and Virgin Holdings to the Commissioner. 21 On 16 December 2005, Gzell J dissolved the injunction and ordered Virgin Blue to deposit the amount of the dividends into an interest bearing account, to retain that amount and any interest accrued in the account, and not pay it to any person. 22 Before Gzell J Bluebottle, Cricket, Virgin Holdings and Barfair successfully sought declarations that the deeds of assignment and the irrevocable direction were valid and effective, that the dividends were payable to Barfair, that the notices of the Commissioner had no force or effect, and that payment under the Commissioner's notices would not give Virgin Blue a good discharge of its obligation to pay the dividends. They also sought an order that Virgin Blue pay the dividends to Barfair. By a cross-claim, Virgin Blue sought a declaration that it had created a dividend with payment to be made on 15 December 2005.

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DISPOSITION The first issue: Did a debt only arise owed by Virgin Blue to its shareholders on 15 December 2005, when payment of the dividend was due, or did it arise earlier when that dividend was declared on 11 November 2005 (or by 16 November 2005 at the latest when there was an unqualified audit permitting the dividend to be paid)? If so, what are the consequences in terms of (a) the capacity of Cricket and Virgin Holdings to effect an assignment in law or equity and the time such assignment could take effect, and (b) Virgin Blue answering the description in s255(2) of a "person who is liable to pay money to a non-resident" and in s255(1) of a "person having the receipt, control or disposal money belonging to a non-resident … who is a shareholder … in a company deriving income, or profits or gains … from a source in Australia"? 35 On 11 November 2005 the directors of Virgin Blue Holdings Ltd resolved that: "… in accordance with the Dividend Policy and subject to the Auditors signing an unqualified audit report and the sub-committee confirming it, the directors declared a final, fully franked dividend of 25 cents per ordinary share. The record date for the dividend will be 28 November 2005 with payment being made on 15 December 2005." 36 The Dividend Policy referred to had been adopted earlier in the same meeting. It was as follows: It is the Company's intention to pay a substantial proportion of its after tax earnings as a dividend each year, subject to the Company identifying alternative investment opportunities and taking into account any other factors the Directors may deem relevant at the time. 37 An unqualified audit report was signed by PriceWaterhouseCoopers on 16 November 2005. There is no evidence as to the sub-committee confirming this report, but it appears not to be in dispute that this occurred. It is clear from the ASX release of 16 November 2005 that the dividend was publicly announced by that date (Blue, 136 and 142). Whether a declaration of dividend is sufficiently brought about by a formal resolution with the necessary specification of amount and time of payment, or requires public announcement, it is therefore unnecessary to decide. 38 The Company Law Review Act 1998 (Cth) introduced s254U and s254V to the forerunner of the Corporations Act 2001 (Cth), being identical to the provisions now applicable. They are in the following terms: " 254U Other provisions about paying dividends ( replaceable rule - see section 135 )

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(b) No Dividend bears interest against the company." 40 The trial judge reached the following conclusions: (a) there was no power in the constitution to declare a dividend [21]; (b) nonetheless, by a benevolent approach of the "validating if possible" kind, the resolution of 11 November 2005 could be "given effect as an exercise of power under r63(a) of Virgin Blue's constitution as a determination" [43] and "was a valid exercise of Virgin Blue's power under s63(a) of its constitution" [44]; (c) (i) in terms of s254V(1) of the Corporations Act 2001 (Cth) a debt did not arise from Virgin Blue to its shareholders on 11 November 2005 [44], and (ii) the resolution of 11 November 2005 was not a declaration of dividend with the consequence that s254V(2) did not operate to cause Virgin Blue then to incur a debt [103]; and (d) the debts in respect of the dividend arose only on 15 December 2005 when payment of the dividend was due [45]. 41 There are however a number of difficulties in this reasoning. First, a resolution which in terms declared a dividend could only be empowered by r63(a) (as both sides accept the trial judge rightly so concluded) if the expression "determine" a dividend in that constitutional rule were synonymous with "declare". Here the resolution of the directors not only "declared" a dividend but stated its amount (25 cents per ordinary share), the time for payment (15 December 2005) and, as the trial judge concluded, impliedly the method of payment (being cash). There was nothing left to be done for these steps to cause money to be properly paid away as a dividend so as to have dispositive effect as an obligation owed to shareholders. The only procedural step still to take place was for the auditors to provide a clear report. This they did on 16 November 2005. Quite correctly, the trial judge concluded that there was no invalidity in the steps taken; the dividend was valid. But the trial judge, incompatibly with that conclusion, then held that r63(a) did not, in terms of s254V(2) "provide for the declaration of dividends". 42 Second, s254V, in altering the general law as to when a dividend debt is incurred, makes clear that a company "does not incur a debt merely by affixing the amount or time of the payment of a dividend" [emphasis added]. Here, however, the company did not merely fix the amount and time for payment of the dividend. It went on to "declare" a dividend. This was in terms that made quite clear that the resolution was to have operative effect if not immediately then by the latest when the auditors signed an unqualified audit report (as occurred). It follows that s254V(1) did not deem the debt to arise only when the time fixed for payment arrived. Section 254V(1) therefore had no effect in altering the well-settled position at general law that a final dividend once declared thereafter constitutes a debt owed to its shareholders. 43 There was therefore no need to resort to s254V(2) to preserve the general law position, as s254V(1) never applied to alter it in the first place. This is because the conditions for s254V(1) to operate were never satisfied. This was not a case where the directors had "merely" fixed the amount or times of payment of the dividend. They had taken a further critical step. They had actually declared a dividend, not just fixed the amount and time for payment. I would put the position rather less tentatively than Ford's Commentary on Company Law at 18.06: "if the directors, having authority to do so [as Gzell J earlier concluded] determine that a dividend is 'payable' rather than merely fixing the amount and time for payment of a future dividend, it is arguable that the company becomes bound at the date of the directors determination". It is not just arguable; that is the legal position in my judgment. 44 Thirdly and finally, even if recourse were required to s254V(2), contrary to my view that it is not, I consider that recourse would have been available. Section 254V(2) conditions the availability of that recourse upon the company having a constitution which "provides for the declaration of dividends". The trial judge, finding that r63 used the word "determine" rather than "declare" reached the conclusion that the constitution did not therefore satisfy s254V(2). In my respectful opinion he was wrong in so concluding, for reasons I will elaborate. 45 That conclusion cannot stand when one looks at the immediate textual context. The immediately preceding s254U with its title reference to "replaceable rule", provides that the directors may "determine" - not declare - that a dividend is payable, as well as fix the amount, time and method of payment. There is simply no reference to "declare". That strongly suggests that "determine" when here used to refer to the corporate constitution (r63) simply equates to the terminology of s254V, using "determine" synonymously with the word "declare" employed in s254V(2). That s254V(2) uses the word "declare" rather than "determine", in mandating what the constitution must provide to escape the consequences of s254V(1), can therefore have no significance; "declare" in s254V(2) encompasses the synonym "determine" when it comes to empowering the payment of a dividend. 46 I conclude that a constitution in a substantive sense sufficiently "provides for the declaration of dividends" in terms of s254V(2) if it uses the word "determine", and then, still mirroring s254U, goes on to provide for the essential mechanical steps of fixing amount, time and method of payment. That is exactly what r63 did here. To use the words of Farwell J, the directors declare a dividend if they have "determined that the money can properly be paid away"; Bond v Barrow Haematite Steel Company [1902] 1 Ch 353 at 362. 47 I find nothing in the legislative purpose of ss254U and 254V to alter that conclusion. Nor is there anything pointing clearly to the contrary in the Explanatory Memorandum introducing those changes (paras 9.153 to 9.157). In any event the statutory language itself is clear enough not to need explication from the Explanatory Memorandum. The dangers of doing so in such circumstances need no rehearsal. 48 In so adopting a substantive sense for the expression "determine" a dividend, there is a parallel to be found in the reasoning in North Sydney Brick & Tile Co Ltd v Darvall (1989) 17 NSWLR 327. There Mahoney JA at 328-9 and Clarke JA at 339-40, took a similar approach in looking at the substance of what was done. This was in construing a resolution which was intended to be the declaration of a dividend but did not use the word "dividend", merely referring to a resolution to distribute. That was held to suffice. 49 Since writing the above, I have had the advantage of reading what Basten JA says in support of the above conclusion. I agree that replaceable r5 provides some further textual support for treating "determine" as broadly synonymous with "declare" in r63. This is provided the determination concerned specifies as here both amount and time of the dividend payment; the method needs no announcement since it is presumed to be cash unless otherwise stipulated. Thus Griffiths CJ in Regina v Stevenson (1896) 7 QLJ 7 at 9: "Dividend duty is only payable in respect of dividends which are declared payable. What then is the meaning of the word 'declared'? We know - it is matter of common knowledge - how dividends are declared and paid by joint stock companies. At the end of a particular period the accounts of the company are investigated, and it is ascertained that there is a certain amount of profits, and part of those profits or the whole of them are appropriated to be divided amongst the persons who are members of the company. Before that is done it is usual - it is the invariable practice I believe - for a determination to be arrived at either by the directors or the company itself, according to constitution of the company, as to what amount shall be so divided; and when that determination is made and announced, the dividend is said to be declared." 50 Even if I were wrong in these conclusions, such that no debt was created till the due date for payment of the dividend, I consider that it is strongly arguable, and affirmed by recent High Court authority, that from the time the dividend was declared Virgin Blue met the description in s255(2) ITAA of a person "who is liable to pay money to a non-resident". Thus in Federal Commissioner of Taxation v Citylink Melbourne Ltd (2006) 80 ALJR 1282 Crennan J at [136], agreed in by the majority, in the analogous taxation context of when an outgoing is incurred concluded: "… A liability can be encountered in the year of income without the taxpayer knowing the precise date for satisfaction of the liability. The only sense in which it could be said the liability on the Concession Notes is contingent is in the abstract sense that all events in the future are conditional or contingent." [omitting footnotes]

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See also in Orica Ltd v CGU Insurance Ltd (2003) 59 NSWLR 14 per Santow JA at [98] and [127]-[128]. 51 Thus while the resolution determining to pay a dividend could have been revoked on this assumption, that eventuality was analogous to a contingency by way of condition subsequent whose likelihood of occurrence was remote. That protean expression "liability" used in s255(2) was therefore apt to include Virgin Blue's revocable (if such it were) future obligation to pay a dividend; cf McHugh J in Crimmins v Stevedoring Industry Finance Committee (1999) 200 CLR 1 at [137]-[138]. [137] The precise meaning to be given to the word "liabilities" depends on its context. In Tickle Industries Pty Ltd v Hann , Barwick CJ pointed out: The use of the word "liable" can cause difficulty in construction because of the various senses in which the word is or has been from time to time employed. The word takes its particular significance, however, from the context in which it appears and the subject matter and evident policy of the legislation in which it is found. This is so, even though some judges have expressed the opinion that the "ordinary or natural meaning" of the word is limited to "actual" (rather than "potential") liability. [138] In some contexts, the meaning of "liabilities" will be wide enough to embrace a "contingent" or "inchoate" liability. Thus, Jowitt's Dictionary of English Law defines "liability" as: … the condition of being actually or potentially subject to an obligation , either generally, as including every kind of obligation, or, in a more special sense, to denote inchoate, future, unascertained or imperfect obligations, as opposed to debts, the essence of which is that they are ascertained and certain. Thus when a person becomes surety for another, he makes himself liable, though it is unascertained in what obligation or debt the liability may ultimately result." [footnotes omitted] 52 That conclusion is not at odds with the obligation which s255(1)(a) can impose on the party to pay the non-resident's tax when so required by the Commissioner. This is because that obligation is predicated under s255(2) on there being "money due by him to the non-resident". Thus in the case of a dividend declared, but due for payment only at a later date, there is no hardship in treating Virgin Blue as liable to pay money to the non-resident shareholders from the date the dividend was declared. This is because no obligation on Virgin Blue actually to pay the tax could arise before the due date for payment of the dividend. 53 I therefore conclude, as submitted by the DCT, that as of 11 November 2005, or at the latest as of 16 November 2005: (a) the dividends were debts in the category of debita in praesenti, solvenda in futuro , payable in the future because of a present obligation: see J G Starke "Assignments of Choses in Action in Australia" (1972) para 110; Industrial Equity Ltd v Blackburn (supra) at 572 per Mason J (with whom Stephen, Murphy and Aickin JJ agreed); (b) the right of each of Cricket and Virgin Holdings to receive payment of the dividend from Virgin Blue on 15 December 2005 was therefore a present chose in action capable of legal assignment completed by notice to the debtor; Starke (above) at para 8; also Bakewell v Deputy Federal Commissioner of Taxation (S.A.) (1937) 58 CLR 743 at 745 per Latham CJ and at 768 per Dixon and Evatt JJ and, as to the necessity for notice, Anning v Anning (1907) 4 CLR 1049; (c) Virgin Blue answered the description of a "person who is liable to pay money to a non-resident", within the meaning of that expression in s255(2), and was, therefore, deemed to be a person having the control of money belonging to the non-resident referred to in s255(1); the word "liable", in this context, even if restricted to its narrowest meaning of an "actual" (rather than "potential") liability is apt to encompass a present debt payable in the future, as here; Crimmins v Stevedoring Industry Finance Committee (supra) at [137] per McHugh J though as I have said, it is strongly arguable on the authority of Federal Commissioner of Taxation v Citylink Melbourne Ltd (supra) that even a revocable dividend debt would be accommodated by the word "liable" in s255; (d) in any event the ordinary meaning of the word "debt" which s254V(2) of the Corporations Act employs encompasses the obligation that Virgin Blue incurred when it declared its dividend for payment at the stipulated future date; it constitutes "a sum of money which is now payable or will become payable in the future by reason of a present obligation"; see Webb v Stenton (1883) 11 QBD 518 (CA) at 527 per Lindley LJ; and (e) Virgin Blue also answered the description of a "person having the receipt control or disposal of money belonging to a non-resident … who is a shareholder … in a company deriving income, or profits or gains of a capital nature, from a source in Australia" within the meaning of that expression in s255(1), the non-residents being each of Cricket and Virgin Holdings, and the company being Virgin Blue. 54 On 14 December 2005, the date on which express notice of the assignment was given to Virgin Blue, each deed of assignment was for the first time effective as a legal assignment to Bluebottle (cl 2.1(a) and cl 3.1 at Blue, 75 and 76 and Blue, 59 and 60 and s199 of the Property Law Act 1974 (Qld)). Meantime from the date of their execution on 13 December 2005, each assignment operated as an assignment in equity. However, notices purporting to trigger s255(1)(b) ITAA were given a day earlier, namely 12 December 2005. If such notices were effective to do so, then s255 requires retention of the relevant monies and the pre-existing debts, so prevailing over the later assignments, whether equitable or legal. However, if the only notices which could trigger s255 to oblige that retention were those subsequently given on 14 December 2005, purportedly pursuant to s255(1)(a) (requiring payment of the tax) then there is potentially a different result; it would depend on which was received first, the notices triggering s255(1)(b) or the assignment notices. I shall deal with that proposition under the second issue below. 55 But it certainly could not be put against the application of s255 that Virgin Blue failed to answer the description of a "person who is liable to pay money to a non-resident", prior to 15 December 2005. Virgin Blue met that description and in that respect complied with s255(1) from 11 November 2005 (or 16 November 2005 at the latest). 56 These questions therefore remain. Was s255 validly triggered: (i) on 12 December 2005 by the notices given on that date; (ii) on 14 December 2005 by the further notification given by the DCT to Virgin Blue that the amounts earlier specified in the notices of 12 December 2005 were required to be paid; or (iii) not at all by reason of s255 being incapable of application, as Virgin Blue did not receive any money from a third party in respect of the dividend. And, in the events that happened, did s255 prevail over the assignments so to prevent them taking effect? That brings me to the second issue.

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Per Frank Saliba 64 That notice required payment of the earlier quantified tax "now". 65 Section 255 makes no express reference to notices as such. The nearest s255 comes to making such express reference is in s255(1)(a); "he shall when required by the Commissioner pay the tax due and payable …". That implies some written signification of such a requirement; that is impliedly a notice. Requirement to retain, on the other hand is by s255(1)(b) "hereby authorized and required". But impliedly s255(1)(b) requires a notice to retain, as how else does the person concerned know how much "is sufficient to pay the tax which is or will become due by the non-resident", in terms of s255(1)(b). 66 I agree therefore with Basten JA that paragraph (b) should be understood as requiring notification to the person concerned of the identity of the non-resident and the amount of the tax liability, as here occurred. I also agree that paragraph (c) is consequential upon the obligation to retain monies (though not on the obligation to pay them) whereas paragraph (d) is consequential upon the making of payments, implicitly pursuant to the obligation triggered under paragraph (a). 67 Section 255 could not sensibly operate without some triggering notice. One has only to think of all the multifarious situations in which a person has "receipt control or disposal" of money belonging to a non-resident. With no notice whatsoever, how could s255 without being grossly oppressive, render such a person automatically liable for the non-resident's tax absent any notice whatsoever? 68 It is the first notice or notification under s255(1)(a) which Lindgren J in Commissioner of Taxation v Wong (2002) 121 FCR 60 at [23] (followed by Edmonds J in Elsinora Global Ltd v Healthscope Ltd 2006 ATC 4061 at [53]) described as constituting the "trigger" which activates the operative provisions of s255(1): "In my opinion, the notice provided for in par (a) is the "trigger" which activates the operative provisions of s255(1). The word "he" at the beginning of par (a) refers back to the prefatory words "a person having the receipt control or disposal of money belonging to a non-resident". It seems to me that the fallacy in the Commissioner's construction is to link the prefatory words of the subsection directly with pars (b), (c) and (d) and thus to ignore what I perceive to be the key role of par (a)." 69 What actually happened here in the sequence of notices is the following. The first pair of notices of 12 December 2005 given to Virgin Blue stated that "when required" by the DCT, Virgin Blue was to pay the tax due and payable respectively by Cricket and Virgin Holdings; the notice also required Virgin Blue to retain respectively $72,518,346.06 and $20,839,554.45 to pay the tax due and payable by Cricket and Virgin Holdings. 70 Certainly that notice did all that was necessary to enable Virgin Blue to know what it needed to do to retain the amount for tax thereby quantified in terms of s255(1)(b) including identification of the amount to be retained. 71 Did however the notice then go on to say when Virgin Blue was to pay the tax so as to also constitute a notice in terms of s255(1)(a)? The notice said the tax was to be paid "when required by the Commissioner", though no specific date was specified. Here the entity concerned (Virgin Blue) is told; "you are required to pay the tax when I require you to pay it". 72 Though the answer is not free from doubt, I would with some hesitation answer that question in the negative. The Commissioner on 12 December 2005 chose not to specify an immediate or indeed any specific date for payment. He instead stipulated that payment was to be on such future date as he determines. The situation might be argued to be analogous to an on-demand loan. The lender who says it is payable on-demand has in one sense said when the loan is payable; it is "when demanded". I prefer however the other view. I consider that s255(1)(a) requires the actual date to be specified and not merely the means of its ascertainment by reference to what the Commissioner requires in an unspecified future. 73 But accepting that view is correct, so that the notices of 12 December 2005 did not satisfy s255(1)(a), in my opinion such conformance is not necessary to trigger s255(1)(b). To the extent Wong (supra) and Elsinora (supra) decided otherwise I would not follow them on that point; see Lindgren J in Wong at [23], being dictum only, and Edmonds J in Elsinora at [53] and [66]. 74 In any event in Wong the notice in question was solely under s255(1)(a), so that whether a notice solely under s255(1)(b) would suffice to trigger an obligation to retain was not directly before Lindgren J. 75 In Elsinora, the principal issue before Edmonds J was the effect of notices served in advance of their recipient having "the receipt, control or disposal of money belonging to a non-resident". That was discussed at [51] in the context of a s255(1)(a) notice which was (at [53] and [66]) held to be "essential" to trigger s255, following Wong. The same result could however have been reached by concluding that a notice conforming to s255(1)(a) was essential to trigger the obligation on the recipient to pay the non-resident's tax but sufficed to trigger the obligation to retain. That would have left open the possibility, thrown up in the present case, that a notice would suffice to trigger the retention obligation under s255(1)(b) if it identified the amount to be retained and the amount of tax assessed to be paid but without necessity to have the notice also then specify a specific date for payment of the tax. 76 I agree with Basten JA's observations as to why there is here no binding decision of a court of co-ordinate jurisdiction in respect of a statute (the Tax Act) having national application. I also agree that in a chronological and practical sense, the primary provision of s255(1) is not para (a) but ordinarily para (b). It is para (b) which requires retention of money sufficient to pay the tax "which is or will become due by the non-resident". The potential futurity of that obligation may preclude then specifying a date for payment; there may be other reasons to refrain from doing so. As Basten JA observed: "Accepting the conclusion in Elsinora that the Commissioner may give notification of the existence of a tax liability to a person who does not at the time have control of money belonging to a non-resident, it is quite likely that the Commissioner may be unable to specify a time at which it is reasonable to require payment. The best that could be done would be to state that payment is to be made at a specified time after the money comes into the control of the recipient of the notification. But because the Commissioner may not have forewarning, or immediate subsequent knowledge, of money coming into the control of the recipient, the Commissioner may be unwilling to require payment at a particular time thereafter when the Commissioner may be unaware of the point at which the obligation crystallises." 77 The Commissioner may therefore trigger s255(1)(b) at an earlier point of time to when payment is required, in order to compel retention, pending there being a specified date to pay the tax by further notice. There could likewise be situations where a date for payment can be specified from the outset, so that the first and only notice requires both retention and payment of quantified tax, the latter on a specified date. Such a notice would then trigger both s255(1)(a) and s255(1)(b). 78 I would therefore adopt what is said by Basten JA, which for convenient reference I quote below: "It is only the order of the paragraphs which gives rise to an implication that, because paragraph (a) should be understood as involving written notice of a requirement to pay, that a valid notice given for that purpose, is seen as a precondition to the obligation to retain moneys, pursuant to paragraph (b). However, that implication need not be drawn. Paragraph (a) obliges the person to "pay the tax": the person cannot be required to pay the tax unless and until it is due and payable by the non-resident. The express language of paragraph (b) envisages that the obligation to retain funds will be engaged in relation to tax which "will become due". Of course, notification could (and perhaps usually would) be given for the purposes of paragraph (a) before the time for payment arrived, but the variation in language nevertheless envisages that the obligation under paragraph (b) may arise before any requirement to pay the tax due and payable is made under paragraph (a). That conclusion makes practical sense because it envisages an obligation to retain funds out of which a payment may be required in the future, not just to retain moneys which have already been demanded in payment of the tax.

[57]

This conclusion is significant in relation to the complaints by the Respondents that the notices given on 12 November 2005 were not valid notices under s 255(1)(a): relevantly for the obligation to retain moneys, they did not need to be. So long as they provided a sufficient notification of the identity of the non-resident taxpayer and the amount of the tax, the obligation under paragraph (b) was engaged." 79 Here the amount of future tax was known and was made known by the 12 December 2005 notice as was the identity of the non-resident taxpayer. It was made known to the person in control of the money, namely Virgin Blue. Without such making known, as Basten JA earlier observes "It would not be a reasonable construction of the provision to treat [s255(1)(b)] as being engaged by the objective existence of the fact of a tax liability and the holding of money payable to the non-resident. Both a temporal connection between those facts and knowledge on the part of the person holding the money must be treated as essential elements of the obligation. Were it otherwise, every individual or business having financial dealings with persons who were non-residents of Australia, would be at risk of contravening this statutory obligation." 80 There is therefore no manifest absurdity in such a construction nor does it operate oppressively. One simply implies the necessity for a notice that sufficiently informs its recipient of the action required in terms of s255(1)(a) or (b) or both, and the identity of the non-resident taxpayer. 81 That is of course only true where, in terms of s255(1)(b) there is tax "which is or will become due and payable". Here the tax liability of Cricket arose from the disposal by Cricket on or about 30 June 2003 of shares in Virgin Blue (see ATO letter and position paper, Blue 91-94 and notice of assessment, Blue, 95, referred to in para 10 of the affidavit of Jeffrey Robert Flick sworn 15 December 2005 ("the Flick affidavit") at Blue 4D-F). The tax liability of Virgin Holdings arose from the disposal by Virgin Holdings on or about 4 November and 8 December 2003 of shares in Virgin Blue (see ATO letter and position paper, Blue, 97-100 and notice of assessment, Blue, 101 also referred to in the Flick affidavit at Blue, 4D-F). 82 There was thus tax "due" in the sense of "owing" on 12 December 2005 when the notices were served, as there had to be for s255(1)(b) to be capable of operation. Clyne v Deputy Commissioner of Taxation (supra) dealt with s218(1)(a)(i) of ITAA which, as it then stood, empowered the Commissioner to serve a notice upon any person by whom any money was due or accruing or might become due to a taxpayer. It therefore, in its reference to "might become due", had a reach beyond s255. Nonetheless directly applicable here is what was said as to the meaning of "due" in Clyne. That is, that "due" means equivalent to "owing" (per Gibbs CJ) or "legally liable to pay" (per Mason J at 15 with whom Aickin and Wilson JJ agreed) and similarly per Brennan J at 24.

[59]

Implications for the efficacy of the Assignments 85 It follows, subject only to the second ground of the Notice of Contention, that the assignments, whether legal or equitable, being subsequent in time to the triggering of s255(1)(b), could not prevail over the statutory command to retain the monies in question, or the statutory charge upon those monies thereby created. The basis for s255 imposing a charge is well established and itself uncontroversial. Thus s255 operates to impose a charge. In this respect, it has the same effect as the former s218 of ITAA had: Clyne; Commissioner of taxation v Donnelly (1989) 25 FCR 432 (FC) per Hill J at 457, and at 459-460, Lockhart J agreeing at 436, and as its corresponding current equivalent, s260-5 of the Taxation Administration Act 1953 (Cth) now has. See also Commissioner of Taxation v Government Insurance Office of New South Wales (1993) 45 FCR 284 (FC) per Hill J at 295, with whom Beazley J agreed at 300. 86 In the result, the statute, s255 itself, defeated the purported assignments, in the same way that in Clyne the statute s218, itself, defeated the purported assignment in that case; see Gibbs CJ at 11-12 and Brennan J at 26-27. 87 Alternatively, an assignee of a chose in action takes subject to all the equities that the debtor or fund-holder has against the assignor, as at the time of notice of the assignment, and subject also to all the infirmities and defects in title of the assignor: Southern British National Trust Ltd v Pither (1937) 57 CLR 89 at 105 per Rich J and at 108-114 per Dixon J; Clyne at 19 per Mason J, with whom Aickin & Wilson JJ agreed at 23; see also Starke at [38], [41]-[41A]. 88 The effect of the rule is that an assignee acquires no greater right than was possessed by his assignor and simply stands in the shoes of the latter; the assignee cannot expect to be in a better position than his assignor was prior to notice of the assignment. The term "equities" in this connection does not connote interests of an equitable nature in the subject-matter or fund concerned so much as equitable claims, remedies, defences, and priorities which may have been duly opposable against the assignor: Starke, at [38]; Clyne, at 20-22 per Mason J. See also Commissioner of Taxation v Government Insurance Office of New South Wales (supra) at 299-300. 89 Bluebottle took under the deeds of assignment, but subject to the Commissioner's charge under s255. That charge, following service of the notices, attached to the debts which came into existence on 11 November 2005 when the dividend was declared (or at the latest 16 November 2005). Bluebottle by the assignments could acquire no greater right than Cricket or Virgin Holdings. This original defect in title to the debt, being the money belonging to Cricket and Virgin Holdings, constituted by the charge over the dividend once it constituted a debt, affected also the title of Bluebottle as an intermediate assignor under the irrevocable direction to pay. That defect in title was in turn transmitted, with the result that the ultimate assignee, Barfair, is also subject thereto. 90 Thus each of Bluebottle and Barfair did no better than Cricket and Virgin Holdings, and took subject to the equities, which included the relevant notice and the charge imposed by the notice. Alternatively, their assignments could not be specifically performed, as the statutory command given upon the triggering of s255(1)(b) precluded performance. 91 This conclusion is however subject to the second ground of the Notice of Contention not being made out. It seeks to imply a limitation in s255. That limitation is said to restrict Virgin Blue's obligation to withhold, or retain, to monies paid to it by a third party on behalf of Cricket and Virgin Holdings so excluding monies generated by Virgin Blue itself. For reasons which I will elaborate, I find no basis for such a limitation. 92 The trial judge, while not expressing a concluded view, relied on an historical analysis of the predecessor provisions to s255, to derive this limitation as a possible one. 93 To quote from the judgment: "[93] This limitation accords with the original purpose of the provision. The Income Tax Assessment Bill 1935 contained a cl 256 in similar terms to the present s 255. It was as follows: '(1) With respect to every person having the receipt control or disposal of money belonging to a non-resident, who derives income from a source in Australia or who is a shareholder, debenture holder, or depositor in a company deriving income from a source in Australia, the following provision shall, subject to this Act, apply: (a) he shall when required by the Commissioner pay the tax due and payable by the non-resident; (b) he is hereby authorized and required to retain from time to time out of any money which comes to him on behalf of the non-resident so much as is sufficient to pay the tax which is or will become due by the non-resident; (c) he is hereby made personally liable for the tax payable by him on behalf of the non-resident to the extent of any amount that he has retained, or should have retained, under the last preceding paragraph; but he shall not be otherwise personally liable for the tax; (2) Every person who is liable under any contract to pay money to a non-resident shall be deemed to be a person having the control of money belonging to the non-resident, and all money due by him under the contract shall be deemed to be money which comes to him on behalf of the non-resident.' [94] The explanatory memorandum showing alterations contained in the Bill of 11 March 1936 contained the following note: 'Subsection (2) has been inserted for the protection of the revenue in cases where persons are liable under contracts to pay money to non-residents. See also note on clause 257.' [95] Clause 257 was in the following terms: '(1) Every person who is liable under any contract to pay money as or by way of royalty to a non-resident shall, before making any payment to or on behalf of that non-resident, furnish to the Commissioner a statement of the amount of royalty due to the non-resident, whether such royalty became due either before or after the passing of this Act, and ascertain from the Commissioner the amount, if any, to be retained in respect of tax due, or which may become due, by the non-resident. (2) The last preceding section shall apply in respect of payments of royalty referred to in this section.' [96] There was a note to that clause as follows: 'Difficulty has been experienced in the past in issuing assessments and collecting the tax on royalties received by non-residents from persons in Australia. Large sums are paid to non-residents in respect of royalties on copyrights, machinery, etc, used by taxpayers in Australia in the production of their income. These royalties form part of the manufacturing expenses of the taxpayer using that machinery, etc, and are frequently not shown separately in the accounts submitted to the Department. Clause 257 will ensure that particulars of royalties payable to non-residents are notified to the Commissioner so that where tax is payable assessments may be issued.' [97] It is clear that the primary focus of cl 256 of the Income Tax Assessment Bill 1935 was directed to royalties payable to non-residents on moneys received for the exploitation of intellectual property rights. Hence the limitation to contractual rights of non-residents to royalty payments from moneys received from end-users of the intellectual property. What was contemplated was a flow of moneys on behalf of the non-resident to the Australian licensee of the intellectual property. That is the concept still recognised by the Income Tax Assessment Act 1936 (Cth), s 255(1)(b). [98] By 1942, the provision had become the Income Tax Assessment Act 1936 (Cth), s 255. The Income Tax Assessment Bill (No 2) 1942 by cl 27 proposed the deletion of the words "under any contract". The explanatory memorandum to the bill stated that the amendments were consequent upon the amendment of s 256. It was formerly s 257. The following explanation was given for the deletion of the words "under any contract" from that provision as well: 'Under section 256 of Principal Act every person who is liable under any contract to pay royalty monies to a non-resident is required to furnish to the Commissioner a statement of the royalties due to the non-resident and to retain the amount of income tax due by the non-resident in respect of those monies. As the use of patents for war purposes may be authorized notwithstanding the terms of the patent laws or any relevant contracts, patents may now be used in Australia otherwise than under contract. As it is customary in such cases to require the user to pay to the patent owner any royalties due under the patent, cases will arise where royalty monies will be payable to non-residents otherwise than under contract. The proposed amendment is designed to bring these patent users within the terms of section 256.' Section 256(2) still provided that s 255 applied in respect of payments of royalties referred to in s 256(1). [99] There is a lot to be said for the view, therefore, that the requirement for retention of money under the Income Tax Assessment 1936 (Cth), s 255(1)(b) is limited to moneys coming to the person served with a notice on behalf of the non-resident and that this is integral to the structure and purpose of the provision notwithstanding the repeal in 1986 of s 256." 94 I find this argument unconvincing. Let it be accepted that these predecessor provisions were, at least in part, directed to "royalties payable to non-residents on monies received for the exploitation of intellectual property rights". Take then the classic example of an Australian licensee of intellectual property owned by a non-resident. Such licensee need not necessarily receive monies from third party end users of the intellectual property out of which royalties are to be paid. Royalties may be payable by the Australian licensee whether or not there be third party end users. It may for example be an annual royalty fee payable irrespective of revenue received from any third party. 95 Nor is the reference in the old s256(2) to "every person who is liable under any contract" of any special significance. We know from the legislative history that the reference to "under any contract" was deleted by 1942. What is significant is the continued reference to the words "liable to pay money to a non-resident" in s256(2) and now s255(2), and their deeming effect for purposes of sub-section (1). That deeming effect includes that all monies due by him to the non-resident "shall be deemed to be monies which come to him on behalf of the non-resident". "Come to him" does not mean only come to him from a third party; it can encompass self-generated monies owing to the non-resident as for example a dividend declared in favour of that non-resident.

[61]

Summing Up 97 The following propositions encapsulate the conclusions earlier and now reached: (1) (a) The declaration of dividend gave rise to a debt by 11 November 2005 (or 16 November 2005 at the latest), and (b) even if no debt were created till 15 December 2005 Virgin Blue was from 11 November 2005 (or 16 November 2005 at the latest) a " person who is liable to pay money to a non-resident " within s255(2) ITAA under the extended meaning of "liable", encompassing a liability to pay the dividend subject only to the dividend not being revoked, revocation being a relatively remote contingency; (2) Effective notices were given on 12 December 2005 triggering an obligation to retain the monies there specified under s255(1)(b) sufficient to meet payment of tax payable by the two non-residents Cricket and Virgin Holdings, such to be paid " when required " by the DCT; (3) It follows that the statutory command imposed by s255(1)(a) and the charge to which s255 gives rise prevail (in the latter case as a prior equity) over the later assignments, whether legal or equitable; the assignments were first effective in equity on 13 December 2005 and in law on 14 December 2005, when in the latter case notices of the assignment were first given to Virgin Blue pursuant to s199(1) of the Property Law Act 1974; (4) The argument that s255 ITAA relates only to money which came to Virgin Blue on behalf of third parties, is without substance; it is certainly capable of applying to the dividends Virgin Blue declared; (5) If the proposition in (2) above were wrong (such that the only notices effective to trigger s255 were those given under s255(1)(a) on 14 December 2005) but the proposition in (1) above correct (such that the dividend gave rise to a debt or liability within s255(2) when declared) the assignments would come into effect on 13 December 2005 as equitable assignments and prevail over any later effect of s255: (6) (a) If the proposition in (1) above were incorrect such that no debt or liability was created in respect of the dividend when declared but only when paid on 15 December 2005, then s255 and the assignments would come into effect concurrently, both on 15 December 2005, subject to (b)(ii) below; (b) On the position predicated in (a) above, the statutory command and charge constituted by s255 ITAA, would prevail over the assignments, notwithstanding the view of the trial judge to the contrary, essentially (i) for the reasons given earlier; that is to say specific performance of the assignments would still be precluded by s255's statutory command and the charge thereby constituted; or (ii) for a further reason, not fully argued before us, namely that, by a version of the doctrine of relation back, following payment of the dividend on 15 December 2005, the notices given by the Tax Commissioner on 12 December 2005 were rendered retroactively effective from 12 December 2005 so that the s255 command and charge is thus taken to pre-date and prevail over the assignments; see Greg Tolhurst "The Assignment of Contractual Rights" (Hart Publishing, 2006) at p98-100 and in particular the discussion of Re Lind [1915] 2 Ch 395, here applied by equating Re Lind's agreement to assign property later coming into existence to s255's charge later perfected, in terms of the retroactive effect of each. (7) However, it is not necessary finally to decide the correctness or otherwise of the propositions in (5) and (6)(b) above, given the conclusions earlier reached as to propositions 1 and 2.

[62]

OVERALL CONCLUSION 98 I consider that this appeal should succeed and agree with the orders, including as to costs, proposed by Basten JA for the reasons he gives. 99 BASTEN JA: Virgin Blue Holdings Ltd ("Virgin Blue") is a publicly listed company incorporated and resident in Australia. Two significant shareholders in the company in November 2005 were Swiss companies, Cricket SA and Virgin Holdings SA. Prior to the public listing of Virgin Blue in Australia, in December 2003, Cricket SA (in about June 2003) had disposed of a large parcel of shares in Virgin Blue to Virgin Holdings. The Commissioner of Taxation considers that a tax liability of approximately $61 million arose on account of the capital gain arising from this transaction. 100 Subsequently, in November 2003, Virgin Holdings SA disposed of a smaller, but still significant, parcel of Virgin Blue shares to Cricket SA. The Commissioner considers that the capital gain resulting from this disposal gave rise to a tax liability of approximately $17.7 million. As at 15 December 2005, the Commissioner calculated an additional $2.7 million on account of a general interest charge, in relation to each transaction. Neither of the Swiss companies has lodged a tax return in Australia, or paid an amount on account of the tax liability calculated by the Commissioner. 101 On 11 November 2005 the directors of Virgin Blue resolved to pay a final fully franked dividend of 25 cents per ordinary share, with payment to be made on 15 December 2005. The total amount payable to Virgin Holdings SA and Cricket SA was in excess of $65 million. However, prior to the payment of the dividend, each assigned its rights in respect of the dividend to Bluebottle UK Limited ("Bluebottle"), which in turn directed Virgin Blue to pay that amount to Barfair Limited. 102 The issue which arose in these circumstances, is whether, pursuant to s 255 of the Income Tax Assessment Act 1936 (Cth), Virgin Blue is required to retain so much of the dividend declared in favour of its non-resident shareholders Cricket SA and Virgin Holdings SA as would be sufficient to pay the tax owing by each of them as a result of the 2003 transactions.

[64]

Was a dividend declared? 105 In terms of the chronology of events, the first question raised on this appeal is whether Virgin Blue declared a dividend on 11 November 2005, when the directors resolved in the terms set out at [35] above. At trial, both parties placed weight on the difference between "declaring" a dividend and "determining" to pay a dividend. Thus, the primary argument for the companies was that, although the resolution purported to declare a dividend, read in the context of the company's constitution, the directors had in fact determined that a dividend was payable. The resolution was thus effective, but did not give rise as to a debt in favour of shareholders until the date for payment: Corporations Act 2001 (Cth), s 254V(1). 106 At trial, the Commissioner relied on the distinction between declaration and determination to argue that the resolution of 11 November 2005 was ineffective. The trial judge noted that the consequence of this argument in relation to the Commissioner's case under s 255, was obscure: at [38] and [39]. The alternative submission of the Commissioner at trial was that the resolution was valid and acted in its terms as a declaration of a dividend. In that event, s 254V(2) operated and the resolution of 11 November 2005 resulted in the company incurring a debt when the dividend was declared. 107 Against the background of these contentions, his Honour understandably treated the difference between a determination and a declaration as significant and concluded that r 63 of Virgin Blue's constitution, which incorporated s 254U of the Corporations Act, provided a power to determine that a dividend was payable, but did not provide for "the declaration of dividends". 108 With respect, his Honour's construction of the constitution of Virgin Blue cannot be accepted. First, it is not entirely accurate to say that Virgin Blue "adopted" the replaceable rule contained in s 254U. In fact, r 3 of the constitution stated that the replaceable rules contained in the Corporations Act "do not apply to the company". This is not a mere matter of pedantry: the point presently in issue turns on the meaning of the word "determine", in relation to a dividend, in r 63 of the constitution. If the relevant rule were s 254U(1) of the Corporations Act, it would be necessary to search for the meaning of the term "determine" (which is undefined) in the Act: as it is, the proper focus of the inquiry as to the meaning of the term "determine" must be the constitution itself. 109 Once that is appreciated, it is clear that the term "determine" is used in a manner which includes "declare". Thus r 5 provides for the issue of preference shares which may carry an entitlement to a preferential dividend "at the rate or of the amount … and on the basis determined by the Directors at the time of issue of preference shares": r 5(c)(i). That rule continues: "(ii) in addition to the preferential Dividend, the preference shares may participate with the ordinary shares in Dividends declared by the Directors … ." (emphasis added) 110 Rule 14 provides for the company to hold a lien on issued shares. Sub-rule (c) provides in part: "(c) The lien extends to all Dividends and entitlements declared in respect of the shares … ." (emphasis added)

[67]

Construction of s 255 113 The terms of s 255 are set out above at [12]. The operative provision, sub-s 255(1), is engaged where a person has, relevantly for present purposes, control of money belonging to a non-resident. Pursuant to sub-s (2), if a person is liable to pay money to a non-resident that person will be deemed to have control of money belonging to the non-resident. If Virgin Blue, at any relevant point in time, was liable to pay a dividend to each of Cricket SA and Virgin Holdings SA, s 255(1) was engaged. 114 In a chronological sense, the first operative part of sub-s 255(1) is paragraph (b), which authorises and requires the person to retain "out of any money which comes to him on behalf of the non-resident so much as is sufficient to pay the tax which is or will become due by the non-resident". Subsection (2) has a further deeming provision which operates in relation to paragraph (b): money due from the person to the non-resident is deemed to be "money which comes to him on behalf of the non-resident". Accordingly, if at any time Virgin Blue had control of a dividend payable to Cricket SA or Virgin Holdings SA, that was money which could be the subject of the requirement to retain under paragraph (b). 115 Paragraph (b) has a further element to it, namely that there be an amount of tax "which is or will become" due by the non-resident. Implicit in the reference to "the tax" and in the calculation of the amount which will be sufficient to pay the tax, is an assumption that a particular amount of tax has been identified. Inclusion of the future element, namely tax which "will become due" indicates that the tax may not be due, in the sense of being due and payable, for paragraph (b) to be engaged. Nevertheless, the amount must be known. What is more, the amount must be known to the person in control of the money. It would not be a reasonable construction of the provision to treat it as being engaged by the objective existence of two facts, namely a tax liability of a non-resident and the holding of money payable to the non-resident. Both a temporal connection between those facts and knowledge on the part of the person holding the money must be treated as essential elements of the obligation. Were it otherwise, every individual or business having financial dealings with persons who were non-residents of Australia, would be at risk of contravening this statutory obligation. 116 The purpose of the provision is to permit the Commissioner to obtain moneys (probably within Australia) in the control of a person other than the taxpayer, in order to discharge a tax liability. That purpose would not be promoted by a requirement merely that the circumstance (such as the disposal of an asset) giving rise to a tax obligation had happened, nor, at the other end of the spectrum, by a requirement that all challenges as to the amount or liability for the tax had been resolved, for the obligation to retain moneys to arise. The provision should be construed as satisfied in circumstances where notification of a tax liability in a specific amount in relation to an identified non-resident has been communicated by the Commissioner to a person who may hold moneys belonging to a non-resident: c.f. Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1, 10. It is not necessary to consider whether a formal notice of assessment is required to have issued and its content communicated, because that did happen in this case. 117 A notice of assessment was issued by the Commissioner in respect of each of the non-resident shareholders dated 14 December 2005. In each case, the amount was stated to be due for payment on 1 September 2004, being six months after the end of the company's financial year in relation to which the tax liability arose. The amount of each assessment was notified to Virgin Blue by letter dated 12 December 2005. No point was taken in these proceedings as to whether the amount of the tax had been sufficiently identified by the Commissioner on that date, for the purposes of s 255(1)(b). The argument proceeded on the basis that it had been. The relevant question addressed in argument was whether, as at 12 December 2005, a dividend was due (though not yet payable) by Virgin Blue to each of the non-resident shareholders. 118 Returning to the terms of s 255(1), the next provision relevant in chronological terms is paragraph (a) which imposes an obligation on the person "when required by the Commissioner", to pay the tax due and payable by the non-resident. This obligation is dependent upon knowledge by the person of the amount of the tax due and payable by the non-resident, but also depends upon the Commissioner having "required" payment by the person. Such a requirement may well involve a formal written notification. Whether or not its does was not in issue, there being no suggestion that the requirement was given otherwise than by way of a written notice from the Commissioner. 119 On 12 December 2005, the Commissioner sent a document headed "Income Tax: Notice Pursuant to Section 255 of the Income Tax Assessment Act 1936" to Virgin Blue in respect of the tax liabilities of Virgin Holdings SA and Cricket SA. For reasons noted below, those notices did not require Virgin Blue to pay the tax. Nevertheless, they provided sufficient notification of the tax liability and the amount of the tax for the purposes of engaging the retention obligation in paragraph (b). A further notice headed "Income Tax: Payment Required" was given to Virgin Blue in respect of each of the non-resident shareholders on 14 December 2005. As will be noted below, each of those notices constituted a requirement to pay for the purposes of paragraph (a). 120 Paragraph (c) of sub-s 255(1) rendered the person having control of money belonging to the non-resident personally liable for the tax payable by the non-resident to the extent of the amount "that he has retained, or should have retained" under paragraph (b). Paragraph (d) "indemnified" the person for all payments made in pursuance of "this Act or any requirement of the Commissioner". 121 Before considering aspects of its operation in the present case, a further element of the language of sub-s 255(1) should be noted. Paragraph (a) is expressed to depend upon a requirement by the Commissioner and hence, implicitly, on the giving of a written notice by the Commissioner engaging the operation of paragraph (a). None of the other paragraphs is expressed to depend upon notice or notification. Each states that the person "is hereby" authorised, required, made personally liable or indemnified, respectively. For the reasons given above, paragraph (b) should be understood as requiring notification to the person of the identity of the non-resident and the amount of the tax liability. Paragraph (c) is consequential upon the obligation to retain moneys (though not on the obligation to pay them), whereas paragraph (d) is consequential upon the making of payments, implicitly, pursuant to the obligation contained in paragraph (a). 122 It is only the order of the paragraphs which gives rise to an implication that, because paragraph (a) should be understood as involving written notice of a requirement to pay, a valid notice given for that purpose, is seen as a precondition to the obligation to retain moneys, pursuant to paragraph (b). However, that implication need not be drawn. Paragraph (a) obliges the person to "pay the tax": the person cannot be required to pay the tax unless and until it is due and payable by the non-resident. The express language of paragraph (b) envisages that the obligation to retain funds will be engaged in relation to tax which "will become due". Of course, notification could (and perhaps usually would) be given for the purposes of paragraph (a) before the time for payment arrived, but the variation in language nevertheless envisages that the obligation under paragraph (b) may arise before any requirement to pay the tax due and payable is made under paragraph (a). That conclusion makes practical sense because it envisages an obligation to retain funds out of which a payment may be required in the future, not just to retain moneys which have already been demanded in payment of the tax. 123 This conclusion is significant in relation to the complaints by the Respondents that the notices given on 12 December 2005 were not valid notices under s 255(1)(a): relevantly for the obligation to retain moneys, they did not need to be. So long as they provided a sufficient notification of the identity of the non-resident taxpayer and the amount of the tax, the obligation under paragraph (b) was engaged. 124 There are dicta in the judgment of Lindgren J in Commissioner of Taxation v Wong (2002) 121 FCR 60, which appear to take a different view. In that case the Commissioner was seeking to recover an amount of tax due and payable by a non-resident, Ms Vivian Lee, for the year ended 30 June 1997. On 3 December 1999, the Commissioner issued a notice of assessment and, on 11 January 2000, gave notice to the respondent under s 255, requiring payment by him of the tax payable by Ms Lee. The respondent had not had control of money belonging to Ms Lee since July 1997. For the Commissioner to succeed, it was necessary to establish that an obligation to retain moneys belonging to Ms Lee arose prior to the issue of the notice of assessment and prior to the giving of notice to the respondent. The Commissioner failed to establish liability on the part of the respondent, Lindgren J concluding that the obligation to retain moneys did not arise unless the recipient of the notice had control of moneys belonging to the non-resident at the time of receiving the notice or thereafter. However, Lindgren J also answered in the affirmative the question whether it was necessary, in order for paragraphs (b), (c) and (d) to operate, that "a notice under s 255(1)(a) be first given": at [14]. At [23] his Honour stated: "In my opinion, the notice provided for in par (a) is the 'trigger' which activates the operative provisions of s 255(1). The word 'he' at the beginning of par (a) refers back to the prefatory words 'person having the receipt control or disposal of money belonging to a non-resident'. It seems to me that the fallacy in the Commissioner's construction is to link the prefatory words of the subsection directly with pars (b), (c) and (d), and thus ignore what I perceive to be the key role of par (a)." 125 Although not expressed to be part of the reasoning underlying this conclusion, later, discussing s 255(1) "more generally" - at [26] - his Honour expressed the following views at [28]: "In other words, a notice given under par (a) can be expressed to have an ambulatory or on-going operation and to require the recipient to pay not only tax that is already due and payable, but tax which may become due and payable in the future, and will do so if the non-resident derives further income etc. This construction apparently treats 'when', not as referring to a time for payment, but as meaning 'if'. The construction is supported by par (b)." 126 The manner in which his Honour dealt with construction issues appears to have followed from the way in which the questions were formulated by the parties. Thus the argument before him assumed that paragraph (a) required a 'notice', although none is expressly required. On the other hand, there was apparently no contention that paragraph (b) might also have required a 'notice' in order to engage the obligation to retain money. Indeed, the logic of his Honour's conclusion does not differ significantly from that set out above, namely that some form of reasonable notification is required, at least by implication, in order to engage any obligation to retain and pay money to the Commissioner, rather than the non-resident to whom the money belongs. Furthermore, his Honour's conclusion that a relevant notice could have an ambulatory or on-going operation, is consistent with the conclusion, relevant for present purposes, that the notice need not specify a date for payment. 127 In Elsinora Global Ltd v Healthscope Ltd (No. 2) [2006] FCA 18; (2006) 61 ATR 482, Edmonds J considered a number of issues relating to the operation of s 255. His Honour determined a question only indirectly addressed by Lindgren J in Wong, namely that the obligations under s 255(1) could attach where the recipient of notification did not have control of money belonging to a non-resident at the time of notification: at [51]-[52]. His Honour also affirmed the view expressed in Wong that "notice or other communication of requirement pursuant to para (a) is the 'trigger' which activates the operative provision of s 255(1), in particular that without that requirement, the provisions of paras (b), (c) and (d) are not activated": at [53]. Consistently with the language of s 255(1), his Honour was correct to avoid the precise language of a notice, and refer to "notice or other communication of" the relevant requirement. 128 Elsinora does, however, directly address the inter-relationship of the various paragraphs in s 255(1), referred to above. The notification given in Elsinora did not purport to be a requirement to pay an amount of tax, pursuant to paragraph (a), but rather "authorised and required" the recipient to retain an amount pursuant to s 255(1)(b): see at [43]. Thus, his Honour held, at [66]: "The notice did not purport to be, and could not be construed as, a notice under s 255(1)(a) of the ITAA 1936, namely, a notice by the Commissioner requiring Healthscope to pay tax due and payable by ECMI. The proper construction of the interaction between paras (a), (b), (c) and (d) inter se and between those paragraphs and the rest of the subsection may not be free from doubt but, that said, it is clear that until a person is required by the Commissioner to pay tax due and payable by the non-resident, the provisions of paras (b), (c) and (d) are not triggered and do not operate: see at [53] above." 129 That conclusion is, with respect, inconsistent with the reasoning set out above. Although it is desirable that courts exercising federal jurisdiction should adopt a consistent construction of a statue having national application, wherever possible, in this case there is no binding decision by a court of coordinate jurisdiction. It is true that two judges of the Federal Court have now adopted the view relied upon in Elsinora, but, as noted above, the statement made by Lindgren J in Wong was not necessary for the decision in that case. His Honour's dictum was adopted without further discussion of the statutory context in Elsinora and in circumstances where senior counsel for the Commissioner conceded that "s 255(1)(b) notices … have no operation": Elsinora at [67]. For the reasons also set out above, s 255(1)(b) cannot be engaged without some form of notification as to the identity of the non-resident and as to the amount involved. Once engaged, it operates according to the terms. 130 There is a third approach available between the reasoning set out above and the different approach taken in the Federal Court. On that intermediate approach the statutory obligation would be satisfied if the notification made clear that there was a requirement for payment to the Commissioner under paragraph (a), and provided the information necessary to engage the obligation under paragraph (b), even if the time for payment were not specified. Accepting the conclusion in Elsinora that the Commissioner may give notification of the existence of a tax liability to a person who does not at the time have control of money belonging to a non-resident, it is quite likely that the Commissioner may be unable to specify a time at which it is reasonable to require payment. The best that could be done would be to state that payment is to be made at a specified time after the money comes into the control of the recipient of the notification. But because the Commissioner may not have forewarning, or immediate subsequent knowledge, of money coming into the control of the recipient, the Commissioner may be unwilling to require payment at a particular time thereafter when the Commissioner may be unaware of the point at which the obligation crystallises. Accordingly, although the notice given on 12 December 2005 was not adequate to specify a date for payment, it was adequate to engage the obligation to retain moneys for the purpose of making such a payment, when required by the Commissioner. Such notification would be sufficient to create an enforceable obligation to retain moneys, although not an obligation to pay them across on a particular day. There is no question of the notice being 'valid' or 'invalid': the only question is whether such notification as was given was sufficient to engage the relevant statutory provision. In my view it was.

[68]

Conclusions 131 The dividend declared on 11 November 2005 created a debt on that date, or at the latest, on 16 November 2005, in favour of the non-resident shareholders (amongst others), pursuant to s 254V(2) of the Corporations Act. From that date the company was liable to pay money to a non-resident and was therefore deemed to be a person having the control of money belonging to the non-resident, pursuant to s 255(2). The notification received from the Commissioner on 12 December 2005, identifying each non-resident taxpayer and the amount of the tax liability, was sufficient to engage the obligation under s 255(1)(b) to retain so much of the dividend due to each non-resident as was sufficient to pay the tax. 132 In the event that the notification given on 12 December 2005 was found not to engage the operation of s 255(1)(b), the shareholders and assignees tendered further evidence from the tax manager of Virgin Blue concerning the times at which that company received the notice of assignments and a further notice given by the Commissioner on 14 December 2005. In the circumstances, it is not necessary to determine the application to admit further evidence on the appeal. 133 It is necessary to determine the appropriate costs orders, both with respect to the costs of the appeal and the costs of the trial. In this Court, the Commissioner was given leave to raise an issue with respect to the operation of s 254V of the Corporations Act, which was not run below. He agreed to pay the costs of the First-Fourth Respondents in respect of that part of the proceedings in any event. His success in that respect has rendered it unnecessary to deal with a number of arguments which would otherwise have arisen for determination. His success in relation to the arguments based on s 255 of the Income Tax Assessment Act would otherwise entitle him to the costs of the appeal, and in the Court below. The difficulty in making separate costs orders with respect to separate issues, and in particular dealing with the costs of issues which did not need to be determined, makes it appropriate that there be no order as to the costs of the trial or the appeal, as between the Appellant and the First-Fourth Respondents. 134 The Fifth Respondent took an active part in the proceedings at trial, because the Appellant challenged the creation of the dividend. That position led the Fifth Respondent to cross-claim against the Appellant for a declaration as to the validity of the dividend. There is no challenge to the declaration. Although the Appellant challenges that costs order, the best position it could obtain would be to have the First-Fourth Respondents pay the costs which it was required to pay to the Fifth Respondent. However, if it had taken the position in relation to the Corporations Act point on which it has succeeded on appeal, it is unlikely that the Fifth Respondent would have cross-claimed or taken an active part in the trial. Accordingly, the orders as to costs as between the Appellant and the Fifth Respondent in the Court below, should not be disturbed. In this Court the Fifth Respondent submitted, save as to costs and no order is sought against it. 135 I would make the following orders:

DEPUTY COMMISSIONER OF TAXATION v BLUEBOTTLE UK LIMITED and Others

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Judgment (72 paragraphs)

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