Deputy Commissioner of Taxation (NSW) v Brown - [1958] HCA 2 - HCA 1958 case summary — Zoe

CTHHCA

Deputy Commissioner of Taxation (NSW) v Brown

[1958] HCA 2

High Court of Australia|1958-07-01|Before: Taylor JJ

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Court

High Court of Australia

Decision date

1958-07-01

Before

Taylor JJ

Source

Original judgment source is linked above.

Judgment (59 paragraphs)

[1]

High Court of Australia Dixon C.J. McTiernan, Williams, Kitto and Taylor JJ. Deputy Commissioner of Taxation (NSW) v Brown [1958] HCA 2

[2]

ORDER Judgment upon the demurrer for the defendant. The suit to be dismissed. Costs of the demurrer to be paid by the plaintiff.

[3]

In this suit, brought in this Court in the name of the Deputy Commissioner of Taxation for the State of New South Wales of the Commonwealth of Australia, it is sought to recover amounts of tax ascertained by an assessment and by amended assessments duly notified. It is sought to recover it against the defendant in a personal judgment. The defendant is not the person assessed, nor the person notified. The assessment is upon the executors of a deceased person. They had fully administered the estate before the assessment and amended assessments were made. The claim against the defendant is based upon the fact that as a person entitled in a distribution of the deceased's estate she received from the executors in various forms enough to cover the tax assessed upon the executors. It is not alleged that when she did so she had notice of any impending assessment or claim by the commissioner. The proceeding is not one to follow a fund in her hands. It is a suit based on the equitable liability under which a beneficiary may come, in an appropriate case, when an unpaid creditor of the estate is able to show that a distribution of assets has been made to the beneficiary without due provision for the debt, the assets being no longer traceable and the debt being otherwise incapable of recovery. In other words the defendant is sued upon an alleged equitable debt.

[5]

I am clearly of opinion that s. 79 of the Judiciary Act 1903-1955 does not impose the liability. That provision says that when this Court is exercising federal jurisdiction in a State then (in the absence of federal law) the law of that State shall be binding upon it. The Court, as it happens, heard the present demurrer in Sydney. If we deliver judgment in Sydney it will be the law of New South Wales that for the purposes of the case will receive the application contemplated by the section. But the law of New South Wales does not and could not impose liability for federal tax. Section 51 (ii.) with its prohibition of discrimination may not be the same as art. 1, s. 8 of the Constitution of the United States requiring uniformity but what the Supreme Court has said about State law in the collection of federal taxes seems to me to be true of our system. "The provision" of the Constitution "exacting uniformity throughout the United States itself imports a system of assessment and collection under the exclusive control of the general government": United States v. Snyder [1] . In the administration of s. 79 the rule is that you take the whole law governing the case of the State in which you sit, that is to say the rules of private international law, as well as the rules of municipal law of the State: Musgrave v. The Commonwealth [2] . Otherwise you would make nonsense of the provision and change the basis of decision by changing the place of sitting. It is but taking the absurd as a demonstration of the insufficiency of s. 79 as a source of liability to tax; but suppose this case had been heard and determined for convenience in Adelaide. Presumably, although that does not appear, there is no element of the case connecting it with South Australia. Does the hypothesis on which the plaintiff invokes s. 79 mean that pro hac vice South Australia would in that event provide the law of liability? The rules of the law of South Australia governing the extra-territorial recognition of rights do not extend to the rights to payment of tax under the law of another country. Yet why should the municipal law of South Australia provide the rule of liability? This is only another way of saying that liability to pay federal tax is a matter of federal law and that the function of s. 79 is not to provide from State law a new source of liability for federal tax.

[9]

Although there is no judicial decision to that effect, it has, I think, been generally assumed that under the Constitution liability for tax cannot be imposed upon the subject without leaving open to him some judicial process by which he may show that in truth he was not taxable or not taxable in the sum assessed, that is to say that an administrative assessment could not be made absolutely conclusive upon him if no recourse to the judicial power were allowed. This is not the occasion to go into the basis of this view. All that is necessary is to note that it exists and that hitherto the legislature has respected it. The present is not a case where the deceased was assessed in his lifetime and received a notice of assessment which was unpaid. It is perhaps possible that in such a case s. 217 (1) applies. If it does apply it is because it opens with a double condition, viz. "where at the time of a person's death, tax has not been assessed and paid". Possibly to fall outside this double negative condition tax must not only have been assessed but paid, before the deceased's death. But unless this be right, the Assessment Act leaves the situation arising from the death of a taxpayer who has been assessed to the law relating to debts due to the Crown where the debtor dies. Whether State statutes cutting down the rights of the Crown under the common law apply to the Crown in right of the Commonwealth in this regard is a question into which we shall not enter. Perhaps the Assessment Act assumes that they will. But if that is not so I am still of the opinion I expressed in In re Foreman & Sons Pty. Ltd; Uther v. Federal Commissioner of Taxation [1] ; see The Commonwealth v. Bogle [2] , per Fullagar J. It is not however a question that arises in the present case. For it is a case where the death of the taxpayer occurred before assessment and the assessment has been made on the executor under s. 217 (1) of the Assessment Act, or possibly s. 216, as affected by s. 254 particularly par. (b). There was always difficulty, in the absence of express provision, in imposing liability upon the legal personal representatives of a taxpayer who at the time of his death had not been assessed whether in respect of income fully derived or received by him in his lifetime or in respect of income earned by his efforts but received only after his death. Curiously enough one of the first amendments of the federal income tax law was by the insertion of a provision on the subject, viz. s. 46A of the Assessment Act of 1915 (see No. 47 of 1915, s. 10); see further In re Carden [3] and on appeal sub nom. Commissioner of Taxes (S.A.) v. Executor Trustee & Agency Co. of South Australia Ltd. [4] . The difficulty was overcome by the provisions now standing as s. 216 and s. 217 which in effect took their source in ss. 46A and 46B of the Assessment Act 1915-1918. These provisions give a remedy against the personal representatives under the name of "trustees" (which by definition, s. 6 (1), comprises executors and administrators). The provisions of ss. 216, 217 and 254 are specific: they do not in terms extend beyond the "trustees". They are interpreted as imposing a liability upon the executors only quoad assets and as meaning by assessment to impose a debt owing by the estate: see Stapleton v. Federal Commissioner of Taxation [1] . They provide no positive foundation for any implication importing a liability upon anybody else and nothing to suggest the creation or incorporation of any equitable remedy against beneficiaries. Indeed it would be right to go further and say that if it were possible, which in my opinion it is not, to find elsewhere any ground for such an implication, the terms of these provisions would go far to repel the inference or the implication. They would do so on the principle which is embodied in the third of the categories of Willes J. in Wolverhampton New Waterworks Co. v. Hawkesford [2] : "where a liability not existing at common law is created by a statute which at the same time gives a special and particular remedy for enforcing it. The remedy provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class" [3] . That of course is a very general statement of principle and the particular application was remote from this case. It operates however over the whole field of statutory liabilities and it can hardly have a safer application than in a taxing measure.

[19]

This is a demurrer by the defendant to the whole of a somewhat unusual statement of claim. The plaintiff is the Deputy Commissioner of Taxation for the State of New South Wales of the Commonwealth of Australia and the defendant is Edith Doris Brown (formerly Edith Doris May). The statement of claim alleges that the defendant is the widow of Isaac Stevens May who died in New South Wales on 9th July 1952, that probate of his will was granted to the executors named therein William Aubrey Armstrong and William Malcolm Maclean by the Supreme Court of New South Wales in its probate jurisdiction on 15th September 1952, and that the testator did not during his lifetime make full complete and accurate returns of his income tax for the years ended 30th June 1948 to 30th June 1952 inclusive. The statement of claim also alleges that on 16th March 1955 the plaintiff issued amended assessments under the Income Tax Assessment Act 1936-1949, the Social Services Contribution Assessment Act 1945-1949 and the Income Tax and Social Services Contribution Assessment Act 1950-1952 in respect of the income of the testator for these years and an original assessment under the aforesaid Acts in respect of the income derived by the testator for the period 1st July 1952 to 9th July 1952 (that is to the date of his death) and served all these assessments on the executors, and that the total amount of tax due under them is £3,505 19s. 0d. and was payable to the plaintiff according to the notices of assessment on 18th April 1955. The statement of claim also alleges that by his will the testator after directing payment of all his just debts and funeral and testamentary expenses gave and bequeathed two legacies of £1,000 each and devised and bequeathed the residue of his estate to the defendant absolutely, his estate was sworn for probate purposes at £41,665 and included real estate valued at £15,000 part of which being land under the Real Property Act 1900, as amended, was on 8th May 1953 and still is registered by transmission in the name of the defendant and the balance thereof being land under common law title was vested in the defendant by deed of acknowledgement under the Wills, Probate and Administration Act 1898 N.S.W. as amended, on 7th April 1953 and is still registered in her name. The statement of claim also alleges that the assets of the estate of the testator were fully administered and distributed in accordance with his will by the executors before the issue of the assessments and before any notice to the executors of any intention to issue them and that there are now no assets in the hands of the executors. The plaintiff claims a declaration that the defendant is liable to pay the plaintiff the sum of £3,505 19s. 0d. and an order for payment of this sum. The executors are not joined as plaintiffs but it is admitted that they only distributed the estate of the testator after they had given the notices required by s. 92 of the Wills, Probate and Administration Act 1898-1954 N.S.W. and in view of the decision in Hunter v. Young [1] it was not contended that it is not competent for the plaintiff to sue the defendant without first suing the executors or joining them as co-defendants. Section 95 of the Wills, Probate and Administration Act contains a provision corresponding to the proviso to s. 29 of the Act 22 & 23 Vict. c. 35 (commonly called Lord St. Leonard's Act) that nothing the Act contained should prejudice the right of any creditor or claimant to follow the assets or any part thereof into the hands of a person or persons who might have received the same respectively. In Hunter v. Young [1] Bramwell L.J., said: " if an executor is not liable to pay, he ought not to be sued; the legislature cannot have intended that the executor should be joined when no remedy can be had against him; the enactment must mean that the suit shall be maintainable against the legatees without joining the executor" [1] .

[21]

The grounds of the demurrer are (a) that assessments issued after the death of the taxpayer and after the assets of his estate have been fully administered and distributed in accordance with his will by the executors without notice of any intention to issue the same are not sanctioned by the Income Tax and Social Services Contribution Assessment Act 1936-1955; and (b) that assessments issued in the circumstances referred to in the statement of claim impose no obligation on a beneficiary under the will of the taxpayer to pay the sums so assessed either from the assets passing under the will or at all. It is clear that the Assessment Act does not contain any provisions directly authorising the Commissioner of Taxation to sue beneficiaries in estates to recover from them unpaid tax assessed upon income derived by a testator in his lifetime where it cannot be recovered from his trustees because they have distributed the estate in due course of administration without notice of any claims for such tax. If the debt can be recovered from a beneficiary it must be recovered as an equitable debt upon the principle, the classic statement of which appears in the speech of Lord Davey in Harrison v. Kirk [2] . This principle has recently been applied by the House of Lords in Ministry of Health v. Simpson [3] . Lord Davey said: "In the very able argument of the appellant at your Lordships' bar he did not always bear in mind the distinction between the case where there is still remaining in court a residue or fund legally applicable to the payment of debts, and the case where the whole of the estate has been distributed, and it is necessary in order to obtain payment for the creditor to get back from legatees or others who have been paid, the money which has been paid to them. In the first case the creditor is exercising merely a legal right. In the other he is exercising an equitable right which is given him by the equitable doctrines of the Court of Chancery, because he has no legal right against the legatees; he has no legal right against the residuary legatee; his only legal right is against the executor. But the Court of Chancery, in order to do justice and to avoid the evil of allowing one man to retain what is really and legally applicable to the payment of another man, devised a remedy by which, where the estate had been distributed either out of court or in court without regard to the rights of a creditor, it has allowed the creditor to recover back what has been paid to the beneficiaries or the next of kin who derive title from the deceased testator or intestate. In that case, no doubt, equitable defences may be made to the claim" [1] . As a foundation for his claim, the plaintiff relies, in the case of the five amended assessments, upon what is now s. 216 of the Income Tax and Social Services Contribution Assessment Act 1936-1956, and in the case of the original assessment upon what is now s. 217 of that Act. These sections were at all material times in the same form. Section 216 provides: - "The following provisions shall apply in any case where, whether intentionally or not, a taxpayer escapes full taxation in his lifetime by reason of not having duly made full complete and accurate returns: - (a) The Commissioner shall have the same powers and remedies against the trustees of the estate of the taxpayer in respect of the taxable income of the taxpayer as he would have against the taxpayer if the taxpayer were still living. (b) The trustees shall make such returns as the Commissioner requires for the purpose of an accurate assessment. (c) The trustees shall be subject to additional tax to the same extent as the taxpayer would be subject to additional tax if he were still living: Provided that the Commissioner may in any particular case, for reasons which he thinks sufficient, remit the additional tax or any part thereof. (d) The amount of any tax payable by the trustees shall be a first charge on all the taxpayer's estate in their hands." Section 217 provides: - "(1.) Where at the time of a person's death, tax has not been assessed and paid on the whole of the income derived by that person up to the date of his death, the Commissioner shall have the same powers and remedies for the assessment and recovery of tax from the trustees of that person's estate as he would have had against that person, if that person were alive. (2.) The trustees shall furnish a return of any income derived by the deceased person in respect of which no return has been lodged by him. (3.) Where the trustees are unable or fail to furnish a return, the Commissioner may make an assessment of the amount on which, in his judgment, tax ought to be levied and the trustees shall be liable to pay tax as if that amount were the taxable income of the deceased."

[24]

Counsel for the plaintiff relied upon the following passage relating to s. 216 of the Assessment Act in the judgment of this Court in Stapleton v. Federal Commissioner of Taxation [1] : "That section applies in any case where, whether intentionally or not, "a taxpayer escapes full taxation in his lifetime by reason of not having made full, complete and accurate returns" and for the purposes of considering the validity of this contention it may be assumed that this is such a case. It is, therefore, a case in which the respondent has the same powers and remedies against the trustees of the estate of the deceased in respect of the taxable income of the deceased as he would have had against the deceased if he were still living. By the relevant provisions of s. 216 (a) the respondent was, as we understand them, authorised for all purposes relating to the assessment and recovery of tax to regard the trustee or trustees of the deceased's estate as if they were the deceased himself. He might assess the trustees of the estate and proceed against them for the recovery of tax though he could not, of course, recover from them anything in excess of the value of the assets in their hands at the time of the assessment or coming to their hands thereafter (cf. Patterson v. Federal Commissioner of Taxation [2] ). In addition, the respondent, by virtue of s. 216 (d) is given a first charge "on all the taxpayer's estate in their hands". It was said in the course of argument that the liability of the trustees in such a case is an original and independent liability and, therefore, that it does not constitute a debt provable in the course of a bankruptcy administration but this view must be rejected. The section contemplates the imposition of a liability upon the trustees who represent the deceased taxpayer, the amount of the assessment is enforceable only to the extent of the trust estate in their hands and payment to this extent is secured by a charge on the estate. The liability is one which is imposed upon them in a representative capacity and is truly one which fastens on the estate itself. These considerations dispose entirely of the suggestion that an assessment validly made under s. 216 does not constitute a debt owing by the estate" [3] . But there is nothing in this passage which throws any light on the present question. It establishes of course that the debt for unpaid tax is a debt owing by the estate and charged upon the estate but it has nothing to say upon the question whether the debt can be recovered not from the trustees or out of the estate whilst it is still in their hands but from a beneficiary to whom the estate or part of the estate has been distributed in due course of administration. In my opinion this question should be answered in favour of the defendant. I venture to repeat, mutatis mutandis, what I said in Federal Commissioner of Taxation v. Official Receiver [1] to the effect that the Assessment Act is an Act which provides a complete and exhaustive code of the rights and obligations of the commissioner and other officers of his department to members of the general public who are subject to its provisions and of those members of the general public to his department. In my opinion the whole scheme of the Act, to be gathered from its general structure and its specific provisions, is to confine the liability to pay income tax to persons who can be assessed under the Act and upon whom is conferred the right of appeal against the assessment either by way of reference to a board of review or by appeal to the Court at their option. Reference to some of the more important provisions of the Act make this apparent. Section 6 provides that in the Act, unless the contrary intention appears - taxpayer "means a person deriving income". Part IV which is headed "Returns and Assessments" contains ss. 161 to 177 inclusive. Section 166 provides that "From the returns, and from any other information in his possession, or from any one or more of these sources, the Commissioner shall make an assessment of the amount of the taxable income of any taxpayer, and of the tax payable thereon". Section 167 provides: - "If - (a) any person makes default in furnishing a return; or (b) the Commissioner is not satisfied with the return furnished by any person; or (c) the Commissioner has reason to believe that any person who has not furnished a return has derived taxable income, the Commissioner may make an assessment of the amount upon which in his judgment income tax ought to be levied, and that amount shall be the taxable income of that person for the purpose of the last preceding section". Section 169 provides: - "Where under this Act any person is liable to pay tax, the Commissioner may make an assessment of the amount of such tax". Section 174 provides: "As soon as conveniently may be after any assessment is made, the Commissioner shall serve notice thereof in writing by post or otherwise upon the person liable to pay the tax". Section 177 (1) provides: "The production of a notice of assessment, or of a document under the hand of the Commissioner, Second Commissioner, or a Deputy Commissioner, purporting to be a copy of a notice of assessment, shall be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct". All these provisions, it will be seen, operate and operate only between the commissioner and some particular member of the public. Section 169 confers on the commissioner a power to make an assessment additional to the power to make an assessment conferred upon him by s. 166 but it is only a power to make an assessment "where any person is liable to pay tax".

[27]

The liability of the defendant in the present case is said to flow from the assessment and service of the notices of assessment upon the trustees of the estate of the testator. It was submitted that if the notices had been served prior to the distribution of the estate the trustees could have accepted the amounts assessed as correct, and paid these amounts out of the assets, and need not have appealed. But they would certainly have been under the duty at that stage to satisfy themselves that the amounts assessed were correct and, unless they were so satisfied, to have appealed after having taken judicial advice if necessary whether to appeal or not. To recoup themselves for any expenditure incurred by them for this purpose they would have had an indemnity against the estate. But the position is radically different once they have distributed the estate. They no longer have any assets in their hands wherewith to recoup themselves. It was submitted that they would still be under a duty to notify the beneficiaries that the assessments had been received, that the commissioner might seek to recover the amounts assessed from the beneficiaries, and that the trustees would be willing to examine the correctness of the assessments, and if necessary to appeal, if they were properly indemnified. But this would be imposing a duty on trustees of a novel kind and in my opinion no such duty exists. Trustees who have completed their administration are under no duty to protect the interests of beneficiaries to whom the assets have been distributed. Between such trustees and such beneficiaries the relationship of trustee and cestui que trust no longer exists. The trustees are under no duty to protect beneficiaries in respect of any claim by a creditor to follow the assets into their hands. In the case of an ordinary debt, the beneficiaries could avail themselves of every defence which would have been available to the testator if he had been sued in his lifetime or to his trustees if they had been sued after his death. But in the case of a debt for unpaid income tax the beneficiaries would have no means of challenging the assessment and therefore no defence because the Assessment Act only confers rights of appeal upon the person assessed. Section 177 of the Act, as has been seen, makes the production of a notice of assessment conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct. If the plaintiff is right, all that the commissioner would have to do, in order to succeed against a beneficiary, would be to produce the notice of assessment, to prove it had been served on the trustees, that the time for payment had expired, and that the estate had been distributed in due course of administration before the trustees had been notified of the claim. The defendant beneficiary, upon whom no right of appeal against the assessment is conferred by the Act, would then be defenceless. He could not challenge the due making of the assessment however wrong the amount assessed might be. In my opinion the liability of any person to pay a debt for unpaid income tax is conditional upon the right of the commissioner to assess that person and upon the correlative right of that person to appeal against the assessment. This flows from the structure of the Act as a whole and is made apparent by the provisions of the many sections which have already been referred to. It is also made apparent by s. 220 of the Act which contains provisions enabling the commissioner to make an assessment where, in respect of the estate of any deceased taxpayer probate has not been granted or letters of administration have not been taken out within six months of his death, and tax has not been assessed and paid on the whole of the income derived by that person up to the date of his death. This section provides that in such a case the commissioner shall cause notice of the assessment to be published twice in a daily newspaper circulating in the State in which the taxpayer resided, and that any person claiming an interest in the estate of the taxpayer may, within sixty days of the first publication of notice of assessment, post to or lodge with the commissioner an objection in writing against the assessment stating fully and in detail the grounds on which he relies, and the provisions of this Act relating to objections and appeals shall thereupon apply in relation to the objection as if the person so claiming an interest were a taxpayer.

[32]

The principle of equity upon which the plaintiff relies is part of the law of New South Wales, and he claims that it is applicable as between the defendant and himself by virtue of ss. 64 and 79 of the Judiciary Act 1903-1955 Cth.. It is a principle developed by the English courts of equity in order to meet a situation for which, without it, there was no remedy. A creditor of a deceased person's estate who has to resort to the courts to recover his debt must, prima facie, proceed against the personal representative. If a personal representative has paid or transferred assets of the estate to beneficiaries, the mere fact that he has done so in good faith and without notice of an outstanding claim against the estate does not excuse him from the payment or satisfaction of it: Williams on Executors and Administrators, 13th ed. (1953), vol. 2, p. 751. But the creditor may nevertheless fail to obtain payment from the personal representative, for a variety of reasons. The personal representative's own assets, together with any assets still remaining in the estate, may be insufficient to satisfy the debt. The distribution to beneficiaries may have been made under an order of a court of equity in the administration of the estate, so that the representative is protected from personal liability. Or it may have been made after sufficient notices given under s. 92 of the Wills, Probate and Administration Act 1898 N.S.W., so that he is protected in respect of claims of which he had no notice at the time of distribution. If it happens for any of these or other reasons that the creditor cannot get his debt paid by the personal representative, equity will come to his assistance. The rule which it applies is that when, and only when, the creditor has exhausted his remedy against the personal representative, "so that there is no other way", he may obtain a sufficient refund by direct suit against the beneficiaries who have received the assets: Orr v. Kaines [1] ; In re Diplock; Diplock v. Wintle [2] and (on appeal) Ministry of Health v. Simpson [3] - unless, of course, he has so conducted himself that to exercise such a right would be inequitable: Blake v. Gale [4] .

[42]

To show that they were, the plaintiff relies upon ss. 216 and 217. On the assumed facts, the conditions for the application of s. 216 were satisfied with respect to the deceased's income of the five years to 30th June 1952, and the conditions for the application of s. 217 were satisfied with respect to his income of both the five years and the ensuing nine days. It will suffice for the moment to refer to s. 217, which applies where, at the time of a person's death, tax has not been assessed and paid on the whole of the income derived by that person up to the date of his death. The section, when it applies, gives the commissioner the same powers and remedies for the assessment and recovery of the tax from the trustees of the deceased person's estate as he would have had against that person if that person were alive. "Trustee" is defined by s. 6 to include an executor. It is clear that, if the deceased person with whose estate we are now concerned had been alive at the date of service of the notices of assessment he would have been the person "liable to pay the tax". The effect of s. 217 seems clearly to be to substitute the executors for the deceased: see Mortimer Kelly's Case; Commissioner of Stamps (W.A.) v. West Australian Trustee, Executor & Agency Co. Ltd. [1] and Corbett's Case; Commissioner of Stamps (W.A.) v. West Australian Trustee, Executor & Agency Co. Ltd. [2] . On its very terms it deals with the liability of persons and not of property, though of persons in a representative capacity only. It makes trustees liable to be assessed to tax without regard to the question whether they have any trust assets in their hands available to satisfy the tax when assessed. It is nothing to the point that an executor may be able to protect himself when sued, by pleading plene administravit or plene administravit praeter, or by relying upon s. 92 of the Wills, Probate and Administration Act or an order made by a court of equity in the administration of the estate. The point is that s. 217, clearly as I venture to think, makes the executors as such the persons "liable to pay the tax". In the present case, therefore, the service of the notices of assessment upon the executors was required by s. 174, and the tax assessed became due and payable by them by virtue of s. 204.

[46]

As to the first of these questions, it may be observed that the deceased was at the time of his death under an actual liability, under taxing Acts already in force, to pay tax on all the income to which the amended assessments and the original assessment relate. Even as to the income of the last nine days this was so, by reason of the provision contained in s. 16 (2) of the taxing Act of 1951 (No. 45 of 1951). That provision was eventually superseded by the Act No. 91 of 1952, but the same basic rates of tax were prescribed by the latter as by the former Act. In this state of the legislation, even those members of the Court who, in Mortimer Kelly's Case [2] , dissented from the decision that the income tax which there had been imposed, though not assessed, at the death of a deceased person was one of the "debts due by the deceased person" within the meaning of a Western Australian statute, would have held that there was, at the death of the deceased person to whose estate the present case relates, a liability actually existing. The fact that no debt due and payable could arise from the liability until after assessment and the service of a notice of assessment cannot take the case out of the class to which the equitable rule in question applies. Even in respect of a debt arising out of a liability which at the death was contingent and extremely unlikely ever to mature into a present debt, an executor called upon to pay the debt after it has matured has been held entitled to a refund from a beneficiary to whom he has made a distribution with notice that the contingent liability existed: Jervis v. Wolferstan [3] ; Whittaker v. Kershaw [4] . A fortiori the creditor, having been no party to the distribution, must be entitled to get back enough to pay his debt, assuming that there was nothing to make it inequitable that he should. In Jervis v. Wolferstan [1] itself, Jessel M.R. said, in relation to the particular case of residuary legatees: "I take it that no proposition is better settled than that residuary legatees are liable to refund at the suit of an unpaid creditor, everybody taking a residue must know that he takes it subject to the testator's liabilities, and takes the risk of its afterwards turning out that there are undiscovered liabilities. That has always been the law, and I think there is no unusual hardship in that" [2] .

[48]

It may be mentioned that when Jervis v. Wolferstan [1] was approved by the Court of Appeal in Whittaker v. Kershaw [3] its principle was treated as imposing on a beneficiary a personal liability to refund to an executor an amount paid by the latter in respect of a debt which had arisen after the distribution - not merely a liability to pay out of the assets received in the distribution, or assets into which they could be traced. I mention this because to some it may seem that a rule of equity is being applied inequitably when its aid is invoked in order to compel a beneficiary in an estate, who has received money or property of the estate in good faith and has spent it or disposed of it never thinking or having cause to think that any part of it represents unpaid tax, to meet the estate's liability for such tax. The truth is that the case is only an instance of a class of case in which equity has had to make a hard choice - whether to hold the beneficiary liable to meet an unpaid debt of the estate to the extent of what he has received from the estate, or to leave the creditor with no remedy although money enough to pay his debt has gone to someone whose only title was to participate in the surplus remaining after payment of debts. But the choice has been made and a clear answer given. In the words of Lord Simonds in Ministry of Health v. Simpson [4] : "Upon the propriety of a legatee refusing to repay to the true owner the money that he has wrongly received I do not think it necessary to express any judgment. It is a matter on which opinions may well differ. The broad fact remains that the Court of Chancery, in order to mitigate the rigour of the common law or to supply its deficiencies, established the rule of equity which I have described and this rule did not excuse the wrongly paid legatee from repayment because he had spent what he had been wrongly paid. No doubt the plaintiff might by his conduct and particularly by laches have raised some equity against himself; but if he had not done so, he was entitled to be repaid." [1]

[50]

Any question as to the justice of the matter being therefore necessarily put aside, it remains only to consider a suggestion made to us that a consideration of the Income Tax Assessment Act itself should lead to a conclusion that resort by the commissioner to the rule of equity is impliedly excluded. The Act establishes a system for imposing liability upon individuals and their estates to pay tax in situations which are described, and the system includes a procedure for the assessment of the tax payable in particular cases, and for resort to the courts, by those upon whom liability is imposed, in order to obtain decisions as to whether assessments in fact made correctly carry out the provisions of the Act. In respect of these matters, the Act no doubt shows plainly that it intends to cover the field exhaustively. But the procedures of the Act culminate in the final establishment, as between the commissioner and "the person liable to pay the tax", of a debt due and payable (s. 204) - due, that is, to the Crown in right of the Commonwealth and payable to the commissioner (s. 208). It is a debt for which the commissioner is given authority to sue in his official name (s. 209). But in what courts, by what procedure, for what specific relief and against what persons the commissioner may take proceedings are matters which the Act leaves to be governed by the general law as to debts. In particular, the Act shows no intention to place the commissioner in any less favourable a position than that of any other creditor as regards remedies which involve the taking of money or property belonging to third parties. One would hardly expect it to do so. In one respect it gives a special advantage to the commissioner vis-à-vis third parties, namely that as against them it makes a notice of assessment conclusive evidence of the due making of the assessment and that the amount and all particulars of the assessment are correct (s. 177). This means that the third party may have to pay money to the commissioner in respect of an assessment the correctness of which according to the criteria of the Act he has had no opportunity of contesting. But that is no more than a stipulated consequence of an assessment having become conclusive as between the commissioner and the person who is liable under the Act to pay the tax. That person has had a full opportunity of contesting it, and either has exhausted the opportunity or chosen not to take it. In a case like the present he may not have been under any duty to the third person to contest the assessment and may have had no incentive to do so. But the Act exhibits no intention to make a right of objection, of application for review, and of appeal to the courts, a condition of any other liability than that which it creates by its own direct operation. I can see no reason, either in constitutional considerations or in any other, for construing the Act as meaning that when the liability of a "person liable to pay the tax" has become finally settled, and a debt has become due to the Crown and payable to the commissioner, those only of the modes by which ordinary creditors may obtain payment of their debts shall be available to the commissioner which involve no depletion of the assets of a third person. If the ordinary law makes a third person liable to meet a debtor's liability in particular circumstances, I can find nothing in the Act to suggest that that law is not to make a third person liable to meet a debtor's liability for tax in those circumstances. Suppose, for instance, that a person liable under the Act to pay tax has given the commissioner a charge over property to secure the tax. In proceedings to enforce the charge against a stranger into whose hands the property has come, s. 177 will arm the commissioner with conclusive evidence of the tax; but the Act cannot mean that it is to be an objection to the proceedings that the person sued has no opportunity to test the correctness of the assessment. Suppose, again, that a person liable under the Act to pay tax applies under s. 210 for a certificate of no objection to his departure from Australia and procures at the commissioner's request a guarantee of his tax liability from a third person. Is that person not liable to be sued on his guarantee, and to have the tax conclusively proved by the production of the notice of assessment, simply because the Act gives him no right to challenge the assessment? It seems to me that a beneficiary who is sued under the rule of equity to which the plaintiff here appeals is in like case.

[57]

Alternatively the plaintiff seeks to invoke the principle applied in cases such as David v. Frowd [4] ; Sawyer v. Birchmore [5] ; March v. Russell [6] ; Underwood v. Hatton [7] and Harrison v. Kirk [8] and recently reviewed in Ministry of Health v. Simpson [9] . The plaintiff, it is asserted, is in the position of a creditor of the deceased who, having exhausted his remedies against the executor, is now entitled as a matter of "common justice" (Noel v. Robinson [10] ) to recover the amount of his claim from the defendant. In a loose sense it may perhaps be said that the plaintiff was a creditor of the deceased. Indeed, for the purposes of Acts imposing death and probate duties, income tax upon a deceased person's income, though not assessed until after his death, has been held to answer the description of "a debt due by the deceased" (Mortimer Kelly's Case; Commissioner of Stamps (W.A.) v. West Australian Trustee, Executor & Agency Co. Ltd. [11] and cf. Corbett's Case; Commissioner of Stamps (W.A.) v. West Australian Trustee, Executor & Agency Co. [12] ). It may, perhaps, be said that this conclusion depended upon the view that the quoted expression is "apt to include" all sums which might become payable after death in discharge of any legal obligation undertaken by, or imposed by law upon, a deceased person (per Knox C.J. [1] ). But it is not essential for the application of the principle in question that a claim sought to be asserted against a beneficiary should have constituted a debt or liability of the deceased in his lifetime for the principle has been applied where one or more of the next of kin have been excluded in the distribution of an intestate estate and also where a distribution has been made according to the tenor of a will subsequently found to be wholly or partly invalid. Further it seems to have found ready enough acceptance in cases where, subsequently to a distribution, an antecedent contingent liability of the executors has ripened into a debt (Jervis v. Wolferstan [2] and Whittaker v. Kershaw [3] ). Consideration of the authorities induces me to think that the relevant initial condition to be satisfied is that there should be found, extant, a liability which is properly chargeable against the deceased's estate and that it is not necessary that the claimant should answer, strictly, the description of a creditor of the deceased or that the liability should represent a debt or demand due and owing or payable by the deceased in his lifetime.