Elsinora Global Ltd v Healthscope Ltd

Federal Court of Australia|2006-02-03|Before: Edmonds J

THE COURT ORDERS THAT: 1. The parties have leave to make submissions as to the orders, if any, consistent with the reasons for judgment, to be made in respect of the application. 2. The cross-claim be dismissed. 3. The third respondent pay the costs of the applicants and the first and second respondents of the proceedings.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

GLOSSARY PARTIES NAME PLACE OF INCORPORATION OR ADDRESS ABBREVIATION First Applicant/First Elsinora Global Limited British Virgin Islands Elsinora Cross-Respondent Second Applicant/Second Cross-Respondent Tioga Worldwide Limited British Virgin Islands Tioga Third Applicant/Third Cross-Respondent Perlette Overseas Limited British Virgin Islands Perlette Fourth Applicant/Fourth Cross-Respondent Peter Armstrong London, England Mr Armstrong Fifth Applicant/Fifth Cross-Respondent Jonathan Berger London, England Mr Berger Sixth Applicant EC Medical Investments NV Belgium ECMI First Respondent/Sixth Cross-Respondent Healthscope Limited Victoria Healthscope Second Respondent/Seventh Cross-Respondent ANZ Nominees Limited Victoria ANZ Nominees Third Respondent/ Cross-Claimant Deputy Commissioner Victoria Deputy Commissioner of Taxation

NON-PARTIES NAME ABBREVIATION The Gribbles Group Limited Gribbles The Australia & New Zealand Banking Group Limited ANZ Bank Investec Trustees (UK) Limited Investec Trustees Carr Sheppard Crosthwaite Limited CSC Commissioner of Taxation Commissioner

Introduction 1 This case concerns the construction of s 255 of the Income Tax Assessment Act 1936 (Cth) ('the ITAA 1936') and s 260-5 of Schedule 1 to the Taxation Administration Act 1953 (Cth) ('the Administration Act') and the application of those provisions to various parties by service of notices by the Deputy Commissioner in reliance on them. 2 Section 255 of the ITAA 1936 provides a regime for the collection of income tax from non-residents by empowering the Commissioner to require a person having the receipt, control or disposal of money belonging to a non-resident to pay the tax due and payable by the non-resident. Communication of such a requirement to a person triggers an authority and further requirement in the person in respect of money which comes to him on behalf of the non-resident. 3 Section 260-5 of Schedule 1 to the Administration Act provides a regime for the collection of income tax from any entity, resident or non-resident, by empowering the Commissioner to require a third party which owes or may later owe money to the entity to pay to the Commissioner the whole or part of that money. 4 An analysis of the relevant provisions of s 255 of the ITAA 1936 and s 260-5 of Schedule 1 to the Administration Act is undertaken later in these reasons. 5 Underlying the current dispute is the substantive dispute between ECMI and the Deputy Commissioner as to whether ECMI is liable to pay Australian income tax on the capital gain it made on the sales of shares in Gribbles, as the Deputy Commissioner claims, or whether Australia is denied the right to tax that gain by virtue of the provisions of Article 7 of the Double Taxation Agreement between Australia and Belgium (Schedules 13 and 13A to the International Tax Agreement Act 1953 (Cth)), as ECMI claims: See generally 'Treaty Protection from Capital Gains Tax' by Ian V Gzell QC, (2000) 29 Australian Tax Review, 25 - 49; by the same author, 'Treaty Application to a Capital Gains Tax introduced after Conclusion of the Treaty', (2002) 76 Australian Law Journal, 309 - 327. In this regard, objections to the assessment and amended assessment referred to later in these reasons have not been determined and the substantive issue remains live for another day.

The claims and Cross-Claims 6 The applicants in the proceedings, Elsinora, Tioga, Perlette, Mr Armstrong, Mr Berger and ECMI, challenge the validity of: (1) Certain notices issued to each of Healthscope and ANZ Nominees and to each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger in reliance on s 255 of the ITAA 1936 by the Deputy Commissioner; (2) certain notices issued to, amongst others, each of Elsinora, Tioga, Perlette, Mr Armstrong, Mr Berger and ANZ Nominees in reliance on s 260-5 of Schedule 1 to the AdministrationAct by the Commissioner; and (3) an assessment issued upon ECMI by notice dated 1 December 2004 and an amended assessment issued upon ECMI by notice dated 21 January 2005, and seek declaratory relief in relation to the notices, assessment and amended assessment, an order restraining the Deputy Commissioner from issuing any further notices pursuant to s 255 of the ITAA 1936 to Healthscope and ANZ Nominees in relation to the sum of $9,953,426.10 retained by Healthscope on the purchase of shares in Gribbles and declaratory relief and ancillary orders in relation to that sum. 7 In her cross-claim, the Deputy Commissioner seeks declaratory relief: (1) That each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger is, or is upon payment to ANZ Nominees by Healthscope of the amount of $9,953,426.10 - (a) authorised and required by s 255(1)(b) of the ITAA 1936 to retain out of the moneys which he or it is liable to pay to ECMI the amount of $9,953,426.10; and (b) obliged, in accordance with s 255(1)(a) of the ITAA 1936, to pay to the Deputy Commissioner on 1 December 2005 the amount of $9,953,426.10, being the tax due and payable by ECMI on that date. (2) Further, or in the alternative, that Healthscope - (a) is authorised and required by s 255(1)(b) of the ITAA 1936 to retain the sum of $9,953,426.10; and (b) is obliged, in accordance with s 255(1)(a) of the ITAA 1936, to pay to the Deputy Commissioner on 1 December 2005 the amount of $9,953,426.10, being the tax due and payable by ECMI on that date. (3) Further, or in the alternative, that ANZ Nominees is upon payment to it by Healthscope of the amount of $9,953,426.10 - (a) authorised and required by s 255(1)(b) of the ITAA 1936 to retain the sum of $9,953,426.10; and (c) obliged, in accordance with s 255(1)(a) of the ITAA 1936, to pay to the Deputy Commissioner on 1 December 2005 the amount of $9,953,426.10, being the tax due and payable by ECMI on that date. (4) Further, or in the alternative, that ANZ Nominees is, or is upon payment to it by Healthscope of the amount of $9,953,426.10, required by s 260-5 of Schedule 1 of the Administration Act and the notice issued to it in reliance on s 260-5, to pay the said sum of $9,953,426.10 to the Deputy Commissioner. (5) Further, or in the alternative, that each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger is, or is upon payment to ANZ Nominees by Healthscope of the amount of $9,953,426.10, required by s 260-5 of Schedule 1 of the Administration Act and the notice issued to it or him in reliance on s 260-5, to pay its or his proportionate share of the said sum of $9,953,426.10 to the Deputy Commissioner and orders that: (6) The said sum of $9,953,426.10 be paid to the Deputy Commissioner by Healthscope and/or ANZ Nominees and/or each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger in his or its proportionate share - (a) forthwith; (b) alternatively on 1 December 2005. (7) In the alternative, an order that the said sum of $9,953,426.10 currently held by Healthscope - (a) be retained by Healthscope; or (b) be remitted by Healthscope to ANZ Nominees to be retained until 1 December 2005 at which time the party retaining that amount shall pay it to the Deputy Commissioner. By agreement among the parties, the date of 1 December 2005 was, subsequent to the hearing, extended until the date of judgment.

Background 8 To a large extent, the factual background is not in dispute. 9 Prior to 2 November 2004 ECMI beneficially owned 194,516,455 ordinary shares ('the Shares') in Gribbles, representing 43.05 per cent of the issued ordinary shares in Gribbles. At the time, the ordinary shares in Gribbles were listed on the Australian Stock Exchange ('ASX'). ANZ Nominees was the registered holder of the Shares as trustee for ECMI and ANZ Bank was mortgagee of the Shares. 10 Prior to 2 November 2004 Healthscope announced that it proposed to make a takeover bid for all the shares in Gribbles at $0.60 per share. 11 On or about 2 November 2004 ECMI announced that if - (1) by 5.00 pm on 3 November 2004 Healthscope agreed to acquire 44 million Gribbles shares (representing 9.8 per cent of all the Gribbles shares) from ECMI at $0.63 per share; (2) as a consequence, Healthscope increased the amount of its takeover bid price from $0.60 to $0.63 per Gribbles share; and (3) Healthscope commenced despatch of its bidder's statement to Gribbles shareholders by 12 November 2004, ECMI would procure the acceptance of Healthscope's takeover bid for all the remaining 150,516,455 Gribbles shares beneficially owned by ECMI on 17 November 2004. 12 On 3 November 2004 Healthscope acquired 44 million shares in Gribbles from ECMI at $0.63 per share pursuant to a share acquisition agreement. That agreement acknowledged ECMI's public announcement relating, inter alia, to 'the proposed dealing by [ECMI] with the remainder of the [Gribbles] shares of which [ECMI] is the beneficial owner' (cl 6(b)). 13 On 3 November 2004 ECMI's mortgage to the ANZ Bank was discharged from the proceeds of sale of the 44 million Gribbles shares. 14 By letter dated 8 November 2004 the Australian Taxation Office ('ATO') sent to the Public Officer of Healthscope a notice under s 255 of the ITAA 1936 ('the 8 November 2004 Notice'). 15 On 9 November 2004 Healthscope issued a takeover offer to the shareholders of Gribbles. 16 On 15 November 2004 ECMI entered into a nominee agreement with Investec Trustees providing for securities to be registered in the name of Investec Trustees or in the name of a sub-custodian appointed by Investec Trustees. 17 On 15 November 2004 Investec Trustees instructed ANZ Nominees to transfer 150,515,455 ordinary shares in Gribbles to the account of CSC 'with a trade and settlement date of 16 November, 2004'. 18 On 16 November 2004 ANZ Nominees confirmed that the transfer of the 150,515,455 ordinary shares in Gribbles to the account of CSC had been completed as instructed. 19 On 17 November 2004 five share sale agreements were entered into between ECMI, on the one hand, and each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger, on the other. Those agreements included the following conditions: (1) Each of Elsinora, Tioga and Perlette agreed to purchase from ECMI part of the remaining 150,516,455 Gribbles shares at $0.6237 per share (cl 1.1.5), that is, 0.63 cents per share less than the price of $0.63 per share to be paid by Healthscope to ANZ Nominees. (2) Each of Mr Armstrong and Mr Berger agreed to purchase from ECMI part of the remaining 150,516,455 Gribbles shares at $0.625 per share (cl 1.1.5), that is, 0.5 cents per share less than the price of $0.63 per share to be paid by Healthscope to ANZ Nominees. (3) Completion was to occur after Healthscope had paid for the remaining 150,516,455 Gribbles shares (cl 1.1.3). (4) Each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger agreed to purchase the remaining 150,516,455 Gribbles shares for the purpose of selling on to Healthscope (Recital C) and agreed forthwith to accept Healthscope's bid for Gribbles shares (cl 2.5 and Third Schedule in which instructions are given to Investec Trustees as custodian, and CSC and ANZ Nominees as sub-custodian for Investec Trustees to accept Healthscope's bid for the Gribbles shares the subject of the agreement). (5) On completion each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger agreed to pay the consideration to ECMI by such method as the parties agreed (cl 3.3). 20 At the same time ECMI and Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger entered into put option agreements, the effect of which was to grant power to Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger to require ECMI to re-purchase the Gribbles shares if Healthscope did not proceed with the takeover. 21 On 17 November 2004 Mr Armstrong and Mr Berger opened trustee accounts with Investec Trustees. Investec Trustees became the custodian of the Gribbles shares acquired by each of Mr Armstrong and Mr Berger. Investec Trustees appointed CSC as sub-custodian of the shares which Investec Trustees held as custodian for each of Mr Armstrong and Mr Berger. 22 On 17 November 2004 each of Elsinora, Tioga and Perlette passed resolutions to appoint CSC as custodian of the Gribbles shares acquired by each of them and to open an account with CSC. The shares were transferred into the relevant CSC account on 17 November 2004. 23 By virtue of these events:

(a) Investec Trustees ceased to hold any shares as custodian or nominee for ECMI.

(b) CSC held 90 million shares as custodian for Elsinora, Tioga and Perlette.

(d) Investec Trustees held 60,576,455 shares, in an account with CSC, as custodian for Mr Armstrong and Mr Berger.

(a) Mr Armstrong and Mr Berger instructed Investec Trustees to contact CSC to release the shares to accept the takeover offer.

(b) Investec Trustees instructed CSC to release the shares to Healthscope's custodian in acceptance of Healthscope's takeover offer.

(c) Elsinora, Tioga and Perlette instructed CSC to release the shares to Healthscope's custodian in acceptance of Healthscope's takeover offer.

25 On 23 November 2004 the Australian Government Solicitor ('AGS'), as solicitors for the Deputy Commissioner, wrote to Healthscope acknowledging that 'subsequent information obtained from the Australian Stock Exchange suggests that ECMI has sold its beneficial interest in the 150,516,455 ordinary shares in Gribbles to the following parties [Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger]'. The letter goes on to state in par 5: 'Our client considers any monies to be paid by Healthscope to the above named parties [being a reference to Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger] will be subject to the operation of the section 255 Notice. Accordingly, Healthscope continues to be a person having the receipt control or disposal of money belonging to ECMI and is expected to comply with the terms of the section 255 Notice.' 26 On 25 November 2004 Healthscope responded indicating its view that the 8 November 2004 Notice might be invalid. On 29 November 2004, the AGS replied expressing the view that the Notice was valid and pointing out: 'Our client has formed the view that any monies to be paid by Healthscope Limited for the acquisition of the 150,516,455 ordinary shares in The Gribbles Group Limited belongs to ECMI, a non-resident.' 27 On 1 December 2004, the Commissioner assessed ECMI to income tax of $9,953,426.10 by issue of a notice of assessment under s 168 of the ITAA 1936, assessing tax payable by ECMI, said to be capital gains tax in the amount of $9,953.426.10 payable on 1 December 2005. ECMI received the notice of assessment on or about 15 December 2004. 28 On 9 December 2004 the Board of Directors of Investec Trustees resolved that 'an account for Investec Trustees (UK) Limited be opened with Investec Bank (UK) Limited'. It was further resolved that 'Accounts specifically entitled "Investec Trustees (UK) Limited re EC Medical Investments NV" be established with Investec Bank (UK) Limited'. 29 On 21 December 2004 the Healthscope takeover offer became unconditional. It thereupon became liable to pay ANZ Nominees $0.63 per share for the remaining 150,516,455 Gribbles shares, being the sum of $94,825,366.65. 30 By letter dated 24 December 2004, the ATO sent to the Public Officer of Healthscope a further 'notice in respect of section 255 of the Income Tax Assessment Act 1936' ('the 24 December 2004 Notice'). 31 By letter dated 7 January 2005, the ATO sent to the Public Officer of ANZ Nominees a 'notice in respect of Section 255 of the Income Tax Assessment Act 1936' ('the 7 January 2005 Notice'). 32 On 19 January 2005 an account was opened for Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger with Investec Bank (Channel Islands) Limited to receive the proceeds of the sale by those persons of the Gribbles shares to Healthscope. This account was designated 'Investec Trustees (UK) Limited 81/S4513000'. 33 On 20 January 2005 the Deputy Commissioner wrote to ANZ Nominees informing it that Healthscope had agreed to retain the sum of $9,953,426.10 and that ANZ Nominees did not need to retain that amount under the 7 January 2005 Notice. 34 Under cover of letter dated 21 January 2005 from Allens Arthur Robinson, Melbourne, to ANZ Nominees two cheques were sent on behalf of Healthscope in payment of the consideration payable by Healthscope under the offer for the acquisition of the remaining Gribbles shares less the amount of $9,953,426.10 retained by Healthscope. 35 On 21 January 2005 CSC received from ANZ Nominees an amount of $84,871,940.55. This amount represented the proceeds of sale of the remaining Gribbles shares less the sum of $9,953,426.10 retained by Healthscope. The amount of $84,871,940.55 was credited to four accounts: one for each of Elsinora, Tioga, Perlette and one for Investec Trustees, for Mr Armstrong and Mr Berger. 36 On 21 January 2005 a notice of amended assessment was issued to ECMI. The amounts of taxable income, tax payable pursuant to the assessment and due date did not change from those in the notice of assessment issued on 1 December 2004 ([27] supra). 37 On 24 January 2005 Investec Bank (Channel Islands) Limited received an amount of $84,871,940.55 from CSC into the account named Investec Trustees (UK) Limited 81/S4513000. 38 The following amounts were paid out of the account on the following dates, leaving a balance of $20,000:

· 24 January 2005 - $84,093,634.73 to Investec Trustees re ECMI.

· 27 January 2005 - $165,161.45 to each of Elsinora, Tioga and Perlette.

· 27 January 2005 - $131,410.74 and $131,410.73 (Mr Armstrong and Mr Berger).

39 By letter dated 15 February 2005 the ATO sent to the Public Officer of Healthscope a 'notice in respect of Section 255 of the Income Tax Assessment Act 1936' ('the 15 February 2005 Notice'). 40 By letters dated 2 June 2005 the ATO sent to the Public Officers of each of Elsinora, Tioga and Perlette and to each of Mr Armstrong and Mr Berger a 'notice in respect of Section 255 of the Income Tax Assessment Act 1936' ('the 2 June 2005 Notices'). 41 By letter dated 28 June 2005, the ATO sent to the Public Officer of ANZ Nominees a 'notice in respect of Section 255 of the Income Tax Assessment Act 1936' ('the 28 June 2005 Notice'). 42 By letters dated 30 June 2005 the Deputy Commissioner sent notices in reliance on s 260-5 of Schedule 1 to the Administration Act ('the s 260-5 Notices') to:

(a) each of the Public Officers of Elsinora, Tioga and Perlette and to each of Mr Armstrong and Mr Berger;

The Notices 43 The 8 November 2004 Notice sent to Healthscope provided: 'Information available to me indicates that you have or will have the receipt, control or disposal of money belonging to a non-resident from the sale(s) by E C Medical Investments NV of 194,516,455 shares in The Gribbles Group Limited. On the material available, I have found that the shares belong to a non-resident and that you are, or will be the purchaser of those shares. On the material available, I have also found that the non-resident will derive income, or profits or gains of a capital nature, and that such income has its source in Australia. In such circumstances, s.255 of the Income Tax Assessment Act 1936 (the Act) authorises the Commissioner of Taxation to impose certain duties and liabilities upon persons in relation to the tax that is, or will become due by the non-resident. The powers and functions of the Commissioner under s.255 have been delegated to me. Pursuant to s.255(1)(b) of the Act, you are hereby authorised and required to retain from time to time out of any of the net proceeds from the sale(s) of the shares so much as is sufficient to pay the tax which is or will become due by the non-resident. On the information currently available to me that amount is no more than $9,953,426.10. Retention of that amount will satisfy your obligations under this notice. Failure to comply with the above requirements will result in you becoming personally liable for the tax that should have been retained (section 255(1)(c) of the Act).' 44 The 24 December 2004 Notice also sent to Healthscope provided: 'Information available to me indicates that you have the receipt, control or disposal of money belonging to a non-resident, E C Medical Investments NV, in relation to the sale of 194,516,455 shares in The Gribbles Group Limited ("the shares"). On the material available, I have found that the shares belong to a non-resident and that you are, the purchaser of those shares. On the material available, I have also found that the non-resident will derive income, or profits or gains of a capital nature from a source in Australia. In such circumstances, s.255 of the Income Tax Assessment Act 1936 (the Act) imposes certain duties and liabilities upon persons in relation to the tax that is, or will become due by the non-resident. The Commissioner is also authorized to act under that provision. The powers and functions of the Commissioner under s.255 have been delegated to me. Pursuant to s.255(1)(b) of the Act, you are authorised and required to retain from time to time out of any money belonging to the non-resident, including the net proceeds from the sale(s) of the shares, so much as is sufficient to pay the tax which is or will become due by the non-resident. On the information currently available to me that amount is no more than $9,953,426.10. Retention of that amount will satisfy your obligations under s.255 of the Act as described in this notice. Failure to comply with the above requirements will result in you becoming personally liable for the tax that should have been retained (section 255(1)(c) of the Act).' 45 The 7 January 2005 Notice sent to ANZ Nominees provided: 'Information available to me indicates that you have or will have the receipt, control or disposal of money belonging to a non-resident, E C Medical Investments NV, in relation to the sale of 150,516,455 shares in The Gribbles Group Limited ("the shares") for which ANZ Nominees Limited accepted Healthscope Limited's takeover offer on 18 November 2004. On the material available, I have found that the proceeds from the sale(s) of the shares belong to a non-resident and that you will have the receipt, control or disposal of these proceeds. On the material available, I have also found that the non-resident will derive income, or profits or gains of a capital nature from a source in Australia. In such circumstances, s.255 of the Income Tax Assessment Act 1936 (the Act) imposes certain duties and liabilities upon persons in relation to the tax that is, or will become due by the non-resident, The Commissioner is also authorised to act under that provision. The powers and functions of the Commissioner under s.255 have been delegated to me. Pursuant to s.255(1)(b) of the Act, you are authorised and required to retain from time to time out of any money belonging to the non-resident, including the net proceeds from the sale(s) of the shares, so much as is sufficient to pay the tax which is or will become due by the non-resident. On the information currently available to me that amount is no more than $9,953,426.10. Retention of that amount will satisfy your obligations under s.255 of the Act as described in this notice. Failure to comply with the above requirements will result in you becoming personally liable for the tax that should have been retained (section 255(1)(c) of the Act).' 46 The 15 February 2005 Notice sent to Healthscope provided: 'We refer to the section 255 notices dated 8 November 2004 and 24 December 2004 given to Healthscope and previous correspondence in that regard. The Commissioner has issued a notice of assessment to E. C. Medical Investments NV ("the non-resident") that imposes a liability to tax which is due and payable on 1 December 2005. NOTICE Healthscope Limited, you are a person having the receipt control or disposal of money belonging to E. C. Medical Investments NV, who derives income, or profits or gains of a capital nature, from a source in Australia. Pursuant to s. 255(1)(a) of the Act, you, Healthscope Limited, are required by the Commissioner to pay the tax due and payable by E. C. Medical Investments NV in an amount of $9,953,426.10 on 1 December 2005. You are indemnified under section 255(1)(d) of the Act for all payments which you make in pursuance of this Act or of any requirements of the Commissioner …' 47 The 2 June 2005 Notices sent to each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Burger provided, in the case of the letter to Elsinora - the other letters being in relevantly the same terms: 'The Commissioner has issued a notice of assessment to E. C. Medical Investments NV that imposes a liability to tax which is due and payable on 1 December 2005. On the basis of the facts alleged in the Second Further Amended Statement of Claim dated 26 April 2005 filed on behalf of yourself and the other Applicants in Federal Court of Australia proceeding No. NSD 96 of 2005, including in particular paragraphs 10, 11, 12, 13, 19, 21 and 29 thereof, the Commissioner considers s. 255 of the Act applies to you and all other Applicants except the Sixth Applicant E. C. Medical Investments NV. Please find below a notice under section 255 requiring you to pay the tax due and payable by E. C. Medical Investments NV. NOTICE Elsinora Global Limited, you are a person having the receipt, control or disposal of money belonging to E. C. Medical Investments NV, who derives income, or profits or gains of a capital nature, from a source in Australia. Pursuant to s. 255(1)(a) of the Act you, Elsinora Global Limited, are required by the Commissioner to pay the tax due and payable by E. C. Medical Investments NV being an amount of $9,953,426.10 on 1 December 2005. You are indemnified under section 255(1)(d) of the Act for all payments which you make in pursuance of this Act or of any requirements of the Commissioner …' 48 The 28 June 2005 Notice sent to ANZ Nominees provided: 'We refer to the section 255 notice dated 7 January 2005 issued to you and correspondence in that regard. The Commissioner has issued a notice of assessment to E. C. Medical Investments NV that imposes a liability to tax which is due and payable on 1 December 2005. Please find below a notice under section 255 requiring you to pay the tax due and payable by E. C. Medical Investments NV. NOTICE ANZ Nominees Limited, you are a person having the receipt, control or disposal of money belonging to E. C. Medical Investments NV, who derives income, or profits or gains of a capital nature, from a source in Australia. Pursuant to s. 255(1)(a) of the Act you, ANZ Nominees Limited, are required by the Commissioner to pay the tax due and payable by E. C. Medical Investments NV being an amount of $9,953.426.10 on 1 December 2005. You are indemnified under section 255(1)(d) of the Act for all payments which you make in pursuance of this Act or of any requirements of the Commissioner. …' 49 The s 260-5 Notices to Elsinora, Tioga, Perlette, Mr Armstrong, Mr Berger, Investec Trustees, ANZ Nominees and CSC were in common form and it suffices to set out the letter to ANZ Nominees: 'NOTICE TO PAY MONEY TO THE COMMISSIONER OF TAXATION UNDER SECTION 260-5 OF SCHEDULE 1 OF THE TAXATION ADMINISTRATION ACT 1953. E.C. MEDICAL INVESTMENTS NV This document is a notice under section 260-5 of Schedule 1 of the Taxation Administration Act 1953 (TAA 1953) requiring you to pay money to the Commissioner of Taxation. A copy of the relevant Legislation is enclosed. Below are the procedures you must follow to ensure that you comply with this notice. Payments Payments in compliance with this notice should be forwarded to the attention of the contact officer at the address shown at the top of this notice. Indemnity In complying with this notice, you are legally protected by section 260-15 of Schedule 1 of the TAA 1953 which provides that any payment made under subdivision 260-A is taken to have been authorised by E.C. MEDICAL INVESTMENTS NV. Expiration of this notice This notice will remain in force until the full amount due is paid to the Commissioner or until you are notified in writing that it is withdrawn. … Notice ANZ NOMINEES LIMITED, YOU are a third party who owes, or may later owe, money ("the available money") to E.C. MEDICAL INVESTMENTS NV ("the debtor"), of (or previously of) C/- T M F TERVUKENLAAN 13A 1040 BRUSSELS, BELGIUM, who, in terms of section 260-5 of Schedule 1 of the Taxation Administration Act 1953 has a debt payable to the Commonwealth of $9,953,426.10. In exercise of powers conferred on me as Deputy Commissioner of Taxation by delegation from the Commissioner of Taxation under section 8 of the Taxation Administration Act, YOU, ANZ NOMINEES LIMITED, ARE REQUIRED TO PAY TO THE COMMISSIONER OF TAXATION the sum of $9,953,426.10 or, if the available money is less than $9,953,426.10, the whole of the available money. If you now owe the available money to the debtor, the payment to the Commissioner of Taxation is to be made IMMEDIATELY. If you do not owe the available money to the debtor but you will later owe it to the debtor, the payment to the Commissioner of Taxation is to be made immediately the money becomes owing to the debtor. For the purpose of section 260-5 of Schedule 1 of the Taxation Administration Act, a third party is taken to owe money (the available money) to the debtor if the third party: (a) is an entity by whom the money is due or accruing to the debtor; or (b) holds the money for or on account of the debtor; or (c) holds the money on account of some other entity for payment to the debtor; or (d) has authority from some other entity to pay the money to the debtor. The third party is so taken to owe the money to the debtor even if: (e) the money is not due, or is not so held, or payable under the authority, unless a condition is fulfilled; and (f) the condition has not been fulfilled. If the debt (or any part of the debt) is paid by the debtor or another entity before a payment is made by you under this notice, I will notify you of that fact and any amount that you are required to pay under this notice will be reduced by the amount so paid.'

Section 255 of the ITAA 1936 and its construction 50 Section 255 of the ITAA 1936 relevantly provides: 'Person in receipt or control of money from non-resident (1) With respect to every person having the receipt control or disposal of money belonging to a non-resident, who derives income, or profits or gains of a capital nature, from a source in Australia or who is a shareholder, debenture holder, or depositor in a company deriving income, or profits or gains of a capital nature, from a source in Australia, the following provisions 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 paragraph (b); but he shall not be otherwise personally liable for the tax; (d) he is hereby indemnified for all payments which he makes in pursuance of this Act or of any requirement of the Commissioner. (2) Every person who is liable 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, subject to subsection (2A), all money due by him to the non-resident shall be deemed to be money which comes to him on behalf of the non-resident.' 51 The first question of construction which arises is whether the prefatory words of subs 255(1): 'With respect to every person having the receipt control or disposal of money belonging to a non-resident', require the person to have that receipt, control or disposal at the time of being served with a notice of requirement pursuant to par (a), or whether it is sufficient that the person subsequently has that receipt, control or disposal even though he did not have that receipt, control or disposal at the time of service of the notice. While the matter is not free from doubt, I have come to the conclusion that it is not necessary for the person to have the receipt, control or disposal of money belonging to the non-resident at the time of service of the notice and that the operative provisions of pars (b), (c) and (d) will be triggered if and when the person, subsequent to service of the notice of requirement pursuant to par (a), has that receipt, control or disposal. Such a construction promotes the section's undoubted legislative function and purpose as a tax collection mechanism. The contrary view would mean that the Commissioner would have to know when a person had the receipt, control or disposal of money belonging to the non-resident and serve him with a notice of requirement pursuant to par (a) before he ceased to have that receipt, control or disposal. In many cases the Commissioner will know that a person will, or is likely to, have the receipt, control or disposal of money belonging to the non-resident, but not when he will have it. The conclusion to which I have come avoids that dilemma. This question was left open by Lindgren J in Commissioner of Taxation v Wong (2002) 121 FCR 60 where his Honour said at [24]: 'In order to decide the present case, I need not, and therefore I do not, decide whether, in order for parts (b), (c) and (d) to be enlivened, a person served with a notice under s 255(1)(a) must satisfy the description in the prefatory words at the time of service, or whether it suffices that he does so later and before action is brought. The reason is that in my opinion the recipient of a notice is required to satisfy that description (be a Controller) either at the first, or at either of those two times, but Mr Wong did not satisfy either formulation of the requirement.' Although, a little later his Honour said at [27]: 'The prefatory words are themselves indefinite in point of time. Is see no reason why notional words such as "at any time and from time to time" should not be understood to qualify "having" and "derives" in the prefatory words.' which suggests, in my view, that his Honour may well have come to the same conclusion as I have. 52 His Honour went on to say at [28]: 'Consistently with this view, par (a)'s reference to "the tax due and payable by the non-resident" is a reference to the tax due and payable by the non-resident on the "income, or profits or gains of a capital nature" derived by him at any time and from time to time. In other words, a notice given under par (a) can be expressed to have an ambulatory or ongoing 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. This construction apparently treats "when" not as referring to a time for payment, but as meaning "if". The construction is supported by par (b).' I agree that a notice given under par (a) can be expressed to have an ambulatory or ongoing 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. As his Honour says, such construction is supported by par (b). 53 However, in Wong, Lindgren J made it quite clear (at [23]) that, in his view, notice or other communication of requirement pursuant to par (a) is the 'trigger' which activates the operative provision of subs 255(1), in particular that without that requirement, the provisions of pars (b), (c) and (d) are not activated. I entirely agree with his Honour's view in this regard. 54 One issue which arises from the terms of subs 255(1) is, in what circumstances, outside circumstances which attract the deeming operation of subs 255 (2), will money in the receipt, control or disposal of a person belong to another person, being a non-resident. 55 The concept of money 'belonging to' someone is a reference to money as a form of property; either coins and notes as chattels in possession; alternatively in the case of bank notes they may also be choses in action; negotiable instruments as choses in action; commercially acceptable forms of payment such as bank transfers, credit cards and debit cards, although not charge cards; and even deposits and credit balances to current accounts with banks and comparable institutions: See generally Mann on the Legal Aspect of Money, Sixth Edition, by Charles Proctor, 2005, Oxford University Press, Chapter 1: The Concept of Money. See too Conley & Anor v Commissioner of Taxation & Anor (1998) 81 FCR 24 at 27, 28 per Davies J; on appeal (1998) 88 FCR 98 at 104, 105 per Emmett J. 56 The concept of 'belonging' in the context of property, being plant and machinery, has been held in a different statutory context, to require absolute ownership of the property in law or in equity: Melluish v BMW (No. 3) Ltd (1996) AC 454. However, having regard to the different forms money can take as an item of property and to its peculiar characteristic of fungibility, there may be, depending on the circumstances, an inherent tension in referring to money in the receipt, control or disposal of one person being owned by another person; in some forms, the money will be owned by the person having the receipt, control or disposal of the money even though that person may be under some obligation to account for that money to another person; and that may explain why the legislature chose to use the phrase 'belonging to' rather than 'owned by'. The phrase 'belonging to' is a more elastic concept and better accommodates a situation where a person having the receipt, control or disposal of money is under an obligation to account for that money to another person. 57 However, outside the deeming afforded in the circumstances described in subs 255(2), for money (the relevant money) to qualify as 'belonging to' a person (the first person) where another person has the receipt, control or disposal of it, there must be an obligation annexed to the relevant money itself in favour of the first person; it would not be sufficient, in my view, that the only obligation of the person having the receipt, control or disposal of the relevant money is to pay to the first person a sum equivalent to the relevant money because, for example, the first person is a creditor of the person having the receipt, control or disposal of the relevant money. In that situation the relevant money, in the hands of the person having the receipt, control or disposal of it, would not belong to the first person, but for the deeming provided by subs 255(2). 58 Subsection 255(2) of the ITAA 1936 is a deeming provision; it deems a person who is liable to pay money to a non-resident to be a person having the control of money belonging to the non-resident; it also deems all money due by him to the non-resident to be money which comes to him on behalf of the non-resident. Without the first deeming, the person who is liable to pay may not have control of any money and, if he does, the money may not belong to the non-resident; it may well belong to the person liable to pay. Without the second deeming, the retention mandated by par (b) may not operate. These deeming provisions are obviously designed to overcome such problems. 59 But like all deeming provisions, they have to be construed strictly and only for the purpose to which they are resorted: Ex parte Walton; re Levy (1881) 17 Ch D 746 per James LJ at 756; Federal Commissioner of Taxation v Comber (1986) 10 FCR 88 at 96 per Fisher J. In other words, it does not operate to deem a person to have the control of money belonging to a non-resident save where the person is liable to pay money to that non-resident. So if a person [A] is liable to pay money to a non-resident [B], and B is liable to pay the same amount of money to another non-resident [C], A is not, by virtue of subs 255(2), deemed to have the control of money belonging to C. Nor, in such a case, will A have the control of money belonging to C on the analysis in [57] supra.

Section 260-5 of Schedule 1 to the Administration Act and its Construction 60 Section 260-5 of Schedule 1 to the Administration Act relevantly provides: '260-5Commissioner may collect amounts from third party Amount recoverable under this Subdivision (1) This Subdivision applies if any of the following amounts (the debt) is payable to the Commonwealth by an entity (the debtor) (whether or not the debt has become due and payable): (a) an amount of a *tax-related liability; (b) a judgment debt for a *tax-related liability; (c) costs for such a judgment debt; (d) an amount that a court has ordered the debtor to pay to the Commissioner following the debtor's conviction for an offence against a *taxation law. Commissioner may give notice to an entity (2) The Commissioner may give a written notice to an entity (the third party) under this section if the third party owes or may later owe money to the debtor. Third party regarded as owing money in these circumstances (3) The third party is taken to owe money (the available money) to the debtor if the third party: (a) is an entity by whom the money is due or accruing to the debtor; or (b) holds the money for or on account of the debtor; or (c) holds the money on account of some other entity for payment to the debtor; or (d) has authority from some other entity to pay the money to the debtor. The third party is so taken to owe the money to the debtor even if: (e) the money is not due, or is not so held, or payable under the authority, unless a condition is fulfilled; and (f) the condition has not been fulfilled. How much is payable under the notice (4) A notice under this section must: (a) require the third party to pay to the Commissioner the lesser of, or a specified amount not exceeding the lesser of: (i) the debt; or (ii) the available money; or (b) if there will be amounts of the available money from time to time - require the third party to pay to the Commissioner a specified amount, or a specified percentage, of each amount of the available money, until the debt is satisfied. When amount must be paid (5) The notice must require the third party to pay an amount under paragraph (4)(a), or each amount under paragraph (4)(b): (a) immediately after; or (b) at or within a specified time after; the amount of the available money concerned becomes an amount owing to the debtor. Debtor must be notified (6) The Commissioner must send a copy of the notice to the debtor …' 61 The words or terms asterisked are defined in s 995-1 of the Income Tax Assessment Act 1997 (Cth) ('the ITAA 1997'). 62 Sections 260-15 and 260-20 of the Administration Act provide: '260-15 Indemnity An amount that the third party pays to the Commissioner under this Subdivision is taken to have been authorised by: (a) the debtor; and (b) any other person who is entitled to all or a part of the amount; and the third party is indemnified for the payment. 260-20 Offence (1) The third party must not fail to comply with the Commissioner's notice. Penalty: 20 penalty units Note 1: Chapter 2 of the Criminal Code sets out the general principles of criminal responsibility. Note 2: See section 4AA of the Crimes Act 1914 for the current value of a penalty unit. (2) The court may, in addition to imposing a penalty on a person convicted of an offence against subsection (1) in relation to failing to pay an amount under the notice, order the person to pay to the Commissioner an amount not exceeding that amount.' 63 Subsection 260-5(3) of Schedule 1 to the Administration Act is a deeming provision. It provides when a person (the third party) is taken to owe money to another (the debtor). In its form and context it is exhaustive and extends to situations where, but for the deeming, the third party may not, or would not, be regarded as owing money to the debtor. Paragraph (a) is concerned with the standard situation where the third party is indebted to the debtor whether the debt is due or accruing due to the debtor. To attract the deeming operation, par (b) requires the third party to hold money for or on account of the debtor. Unless there is a holding of money by the third party, the deeming cannot operate. Paragraph (c) also requires the third party to hold money, not for or on account of the debtor, but on account of some other entity for payment by the third party, not the other entity, to the debtor. Finally, par (d) operates to deem the third party to owe money to the debtor if the third party has authority from some other entity to pay the money to the debtor.

The Grounds of Challenge to the Section 255 Notices 64 The s 255 notices are impugned on a number of grounds, many of which are common to each notice. The notices are said to be invalid and of no effect. It seems to me that what most, if not all, of these grounds put in issue is the operative effect of the notices rather than their validity; in other words, whether, in the relevant circumstances, the relevant notice operates to impose a statutory obligation on the addressee of the notice, in accordance with its terms.

The 8 November 2004 Notice 65 The addressee of this notice is Healthscope. 66 The notice did not purport to be, and could not be construed as, a notice under subs 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 pars (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 pars (b), (c) and (d) are not triggered and do not operate: See [53] supra. 67 It follows, in my view, that the 8 November 2004 Notice did not impose any statutory obligation on Healthscope in accordance with its terms. Senior Counsel for the Deputy Commissioner conceded as much when he said the 'section 255(1)(b) notices … have no operation'. 68 The other grounds of challenge relied upon are considered below at [96] - [106].

The 24 December 2004 Notice 69 The addressee of this notice is also Healthscope. 70 The terms of this notice are sufficiently similar to the 8 November 2004 Notice to make the observations and conclusion with respect to the 8 November 2004 Notice ([65] - [67] supra), equally applicable to this notice.

The 7 January 2005 Notice 71 The addressee of this notice is ANZ Nominees. 72 The terms of this notice are sufficiently similar to the 8 November 2004 Notice to make the observations and conclusion with respect to the 8 November 2004 Notice ([65] - [67] supra), equally applicable to this notice.

The 15 February 2005 Notice 73 The addressee of this notice is Healthscope. It is common ground that at the time of the giving of this notice, Healthscope had retained and was, and still is, in control of $9,953,426.10 of the purchase price payable for the remaining Gribbles shares. 74 Unlike the earlier notices, this notice was given to Healthscope pursuant to subs 255(1)(a) of the ITAA 1936. It referred to the fact that the Commissioner had issued a notice of assessment to ECMI that imposed a liability to tax due and payable on 1 December 2005 and required Healthscope to pay the tax due and payable by ECMI being an amount of $9,953,426.10 on 1 December 2005. The terms of the notice would trigger the operation of pars (b), (c) and (d) of subs 255(1) if the other requirements of the subsection are satisfied. Not surprisingly, it is the alleged failure to satisfy these other requirements which grounds the applicants' case for impugning this notice. 75 It is said that Healthscope did not have the receipt, control or disposal of money belonging to a non-resident; it only ever had, both before and at the time of the giving of the notice, and has control of money belonging to a resident, namely, ANZ Nominees. 76 It was not contended on behalf of the Deputy Commissioner, correctly in my view, that Healthscope was liable to pay money to ECMI at the time of the giving of the notice, or is now so liable, so as to attract the operation of the deeming of subs 255(2) of the ITAA 1936. 77 For the Deputy Commissioner it was contended that between 17 November 2004 and 21 January 2005 the applicants and Investec Trustees agreed that the liability of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger to make payment to ECMI under cl 3.3 of the five share sale agreements (see 19, supra) should be discharged by ANZ Nominees paying to Investec Trustees the proceeds of the sale of the remaining Gribbles shares to Healthscope and Investec Trustees disbursing the proceeds as to 0.63 cents per share to each of Elsinora, Tioga and Perlette, as to 0.5 cents per share to each of Mr Armstrong and Mr Berger, and the balance to ECMI. By reason of this agreement, it is said, part of the proceeds of sale payable by Healthscope belongs to ECMI. Accordingly, Healthscope is a 'person' having the receipt, control or disposal of money belonging to ECMI. 78 A threshold difficulty with this contention is that if such an agreement came into existence, and there is certainly evidence to suggest it did, neither Healthscope nor ANZ Nominees was a party to it. Certainly, neither were bound by it nor did it vary or modify Healthscope's pre-existing obligation to ANZ Nominees nor, although not presently relevant, ANZ Nominees' pre-existing obligations to CSC. 79 The only entity which could have accepted Healthscope's offer for the remaining Gribbles shares was ANZ Nominees as the registered shareholder (cl 7.1 of the Offer). The contract formed upon acceptance of the offer was a contract between Healthscope and ANZ Nominees. Any moneys payable by Healthscope pursuant to that contract were payable to ANZ Nominees. As against Healthscope, no one other than ANZ Nominees had any claim or entitlement to those moneys representing as they did, the purchase price of the shares. This applies as much to that part of the purchase price retained by Healthscope, $9,953,426.10, as it does to the part paid, $84,871,940.55. 80 But a notice pursuant to subs 255(1)(a) of the ITAA 1936 will not trigger the operation of the subsection unless the money belongs to a non-resident. It is common ground that ANZ Nominees is a resident. From the point of view of the person, Healthscope, having the control of money belonging to another, that money, if it belongs to anyone in the sense referred to above, belongs to ANZ Nominees; and following completion of the takeover by the transfer by ANZ Nominees of the remaining Gribbles shares to Healthscope, it is clear, in my view, that the money representing the purchase price of the shares, including the $9,953,426.10 retained by Healthscope, is money belonging to ANZ Nominees. The fact that ANZ Nominees, when it receives the $9,953,426.10 from Healthscope, will have the receipt, control or disposal of money belonging to a non-resident is not the point; that is a consideration which arises under the 28 June 2005 Notice. 81 It follows, in my view, that the 15 February 2005 Notice did not and does not impose any statutory obligation on Healthscope in accordance with its terms. 82 The other grounds of challenge relied upon are considered below at [96] - [106].

The 2 June 2005 Notices 83 The addressees of these notices are Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger. It is common ground that at the time of the giving of these notices, neither Elsinora, Tioga, Perlette, Mr Armstrong nor Mr Berger had 'receipt control or disposal of money belonging to [ECMI]'. 84 These notices were also given to their respective addressees pursuant to subs 255(1)(a) of the ITAA 1936. They also referred to the fact that the Commissioner had issued a notice of assessment to ECMI that imposed a liability to tax due and payable on 1 December 2005 and required each addressee to pay the tax due and payable by ECMI being an amount of $9,953,426.10 on 1 December 2005. The terms of the notices would trigger the operation of pars (b), (c) and (d) of subs 255(1) if the other requirements of the subsection are satisfied. Again, it is the alleged failure to satisfy these other requirements which ground the applicants' case for impugning the notices. 85 It is said that at the date of service of the notices, none of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger had the receipt, control or disposal of money belonging to ECMI. So much is common ground. However, for the reasons canvassed at [51] supra, I do not think the fact that none of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger had the receipt, control or disposal of money belonging to ECMI at the time of service of their respective notices rendered the notices incapable of operation; on the contrary, if and when any one or more of them subsequently came to have the receipt, control or disposal of money belonging to ECMI, the operative provisions of pars (b), (c) and (d) would be triggered. 86 To date, none of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger has had the receipt, control or disposal of money, being the $9,953,426.10 retained by Healthscope on the purchase of the remaining Gribbles shares. The Deputy Commissioner contends that if and when Healthscope pays ANZ Nominees the retained moneys, each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger will have the receipt, control or disposal of money belonging to ECMI and the requirement in their respective 2 June 2005 Notices will operate with respect to each. The basis of this contention is that upon payment of the retained sum to ANZ Nominees each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger is liable under the share sale agreements to pay his or its proportionate part of the retained sum to ECMI and in that event each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger is a person having the receipt, control or disposal of money belonging to ECMI by virtue of the deeming worked by subs 255(2). In my view, this argument is flawed because it is quite clear from the share sale agreements, in particular cl 4 of each, that any liability on the part of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger to ECMI only arises '[U]pon the unconditional release of any Withholding Tax to the Purchaser …', that is, Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger. Until that occurs, and it certainly does not occur upon payment of the retained sum by Healthscope to ANZ Nominees, none of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger has any liability to ECMI for his or its proportionate part of the retained moneys. Indeed, the term 'Consideration' is defined in the share sale agreements so as to exclude 'Withholding Tax', as defined. It follows, in my view, that there is no scope for the operation of the deeming worked by subs 255(2) upon payment by Healthscope of the retained sum to ANZ Nominees. 87 If further follows, in my view, that the 2 June 2005 Notices did not impose any statutory obligation on Elsinora, Tioga, Perlette, Mr Armstrong or Mr Berger at the time of their issue and will not impose any statutory obligation on any of them if and when Healthscope pays the retained sum to ANZ Nominees. 88 The other grounds of challenge relied upon are considered below at [96] - [106].

The 28 June 2005 Notice 89 The addressee of this notice is ANZ Nominees. It is common ground that at the time of the giving of this notice, ANZ Nominees did not have 'receipt control or disposal of money belonging to [ECMI]'. 90 This notice was also given to ANZ Nominees pursuant to subs 255(1)(a) of the ITAA 1936. It also referred to the fact that the Deputy Commissioner had issued a notice of assessment to ECMI that imposed a liability to tax due and payable on 1 December 2005 and required ANZ Nominees to pay the tax due and payable by ECMI, being an amount of $9,953,426.10, on 1 December 2005. The terms of the notice would trigger the operation of pars (b), (c) and (d) of subs 255(1) if the other requirements of the subsection are satisfied. Again, it is the alleged failure to satisfy these other requirements which ground the applicant's case for impugning the notice. 91 It is said that at the date of service of the notice, ANZ Nominees did not have the receipt, control or disposal of money belonging to ECMI. I have already dealt with this ground in relation to the 2 June 2005 Notices (see [85] supra). Suffice it is to say, I do not think the fact that ANZ Nominees did not have the receipt, control or disposal of money belonging to ECMI at the time of service of the 28 June 2005 Notice, would vitiate the triggering of the terms of the notice if and when ANZ Nominees, at a later date, has the receipt, control or disposal of money belonging to ECMI. While the notice might remain dormant until such time as ANZ Nominees has the receipt, control or disposal of money belonging to ECMI, if and when that occurs the provisions of subs 255(1) will be activated and pars (b), (c) and (d), in particular, will be triggered. 92 The Deputy Commissioner contended that upon payment of the sum of $9,953,426.10 by Healthscope to ANZ Nominees, it would be required by s 255 to retain that sum. 93 The submission proceeds on the basis that by reason of the agreement referred to in [77] supra, the withheld sum of $9,953,426.10 received by ANZ Nominees, belongs to ECMI. Accordingly, upon receipt of the money ANZ Nominees will be a 'person' having the receipt, control or disposal of money belonging to ECMI. 94 I cannot accept this submission. When ANZ Nominees receives the $9,953,426.10 from Healthscope, the money will not belong to ECMI. First, it will not belong to ECMI pursuant to the deeming provisions of subs 255(2) of the ITAA 1936; in other words, ANZ Nominees will not have any liability to pay an equivalent sum of money to ECMI. Secondly, nor will it belong to ECMI, otherwise than through the deeming worked by subs 255(2), because there will be no obligation annexed to the money of which ANZ Nominees has receipt, control or disposal, to account for it to ECMI. 95 The other grounds of challenge relied upon are considered below.

The Other Grounds of Challenge 96 The notices issued in reliance on s 255 of the ITAA 1936 were impugned on a number of other grounds which should be addressed, even if only for completeness. 97 The 8 November 2004 Notice was also impugned on the additional grounds that: (1) If Healthscope did have the 'receipt control or disposal of money belonging to a non-resident', the non-resident was not ECMI. For the reasons advanced in relation to the 15 February 2005 Notice (see [73] - [81] supra), Healthscope did not have at the time of the issue of the notice, and does not now have, the 'receipt control or disposal of money belonging to a non-resident'. (2) ECMI was not a non-resident 'who derives income or profits or gains of a capital nature, from a source in Australia'. In the case of a non-resident, the general law notion of source as a jurisdictional criterion of liability to income tax is, in the case of a profit or gain of a capital nature, totally irrelevant. The only nexus is whether the relevant profit or gain arises from a CGT event in respect of a CGT asset having the necessary connection with Australia: see ss 136-10, 136-25 of the ITAA 1997. If it does then, in my view, the profit or gain of a capital nature has a source in Australia for the purposes of s 255 of the ITAA 1936. In the hands of ECMI, the Shares in Gribbles were clearly a CGT asset having the necessary connection with Australia (Item 5 of the Table in s 136-25 of the ITAA 1997); equally clear, in my view, the source of the profit or gain of a capital nature is, in those circumstances, in Australia. (3) There was no 'tax due and payable by the non-resident' (ECMI) at the time of the issue of the subs 255(1)(b) notice or at all. No notice of assessment had been issued. For the reasons given at [52] supra, this ground of challenge cannot be sustained. (4) Even if Healthscope did have 'receipt control or disposal of money' that money was not 'money which comes to him [Healthscope] on behalf of the non-resident'. It is not in dispute that the amount payable in respect of the takeover was payable by Healthscope to ANZ Nominees for the first to fifth applicants, who are admitted to be the beneficial owners of the respective shares in Gribbles and are not the 'non-resident' for the purposes of the notice. 98 The 24 December 2004 Notice was also impugned on the same additional grounds. What is said at 97, (2) and (4) is equally applicable to this notice. The other ground of challenge at 97 is different. It is still contended that there was no 'tax due and payable by the non-resident' at the time of the issue of the s 255(1)(b) notice or at all, however, this time it is put on the basis that the notice of assessment dated 1 December 2004 was not a valid assessment within the meaning of the ITAA 1936. I deal with the validity of this assessment and the amended assessment issued by notice dated 21 January 2005 at [109] - [114] inclusive, infra, however, for the reasons given at [52] supra, and repeated at 97, this ground of challenge cannot be sustained. In my view, the fact that at the time of the issue of a notice under subs 255(1)(a) a notice of assessment had not issued or, had issued but was not a valid assessment, with the consequence that no tax was due and payable by the non-resident at the time of the issue of the s 255(1)(a) notice, is not a bar to its validity as a notice. It can have an ongoing or ambulatory operation with respect to tax which may become due and payable in the future. 99 The 7 January 2005 Notice was also impugned on the additional grounds that: (1) Even if the section is capable of operating in the absence of any notice under subs 255(1)(a), ANZ Nominees was not, at that time, a person 'having the receipt control or disposal of money belonging to a non-resident'. ANZ Nominees did not receive any moneys until 21 January 2005, when it received the proceeds of sale of the Gribbles shares, less the withholding sum. It could not be deemed to be a person 'having the receipt control or disposal of money' belonging to a non-resident, pursuant to subs 255(2), because it was not 'liable to pay money' to ECMI. I have already dealt with this matter at [51] supra. On the view I take, the validity of the notice cannot be impugned on the basis that at the time of the issue of the notice ANZ Nominees was not a person 'having the receipt control or disposal of money belonging to a non-resident'. (2) If ANZ Nominees did have the 'receipt control or disposal of money belonging to a non-resident', the non-resident was not ECMI. I have previously addressed this ground of challenge at 97, supra. (3) ECMI was not a non-resident 'who derives income, or profits or gains of a capital nature from a source in Australia'. I have previously addressed this ground of challenge at 97, supra. (4) There was no 'tax due and payable by the non-resident' at the time of issue of the subs 255(1)(b) notice or at all. The notice of assessment dated 1 December 2004 was not a valid assessment within the meaning of the ITAA 1936. I have previously addressed this ground of challenge at 97 and [98], supra. (5) Even if ANZ Nominees did have receipt control or disposal of money', that money was not 'money which comes to him [ANZ Nominees] on behalf of the non-resident'. It is not in dispute that the amount payable in respect of the takeover was payable by ANZ Nominees to the first to fifth applicants who are admitted to be the beneficial owners of the respective shares in Gribbles and are not the 'non-resident' for the purposes of the notice. Rather, ECMI is the 'non-resident'. I have previously addressed this ground of challenge at 97, supra. 100 The 15 February 2005 Notice was also impugned on the same additional grounds as at 99 - (5) inclusive and the observations there made are equally applicable to the grounds of challenge in respect of this notice. 101 The 2 June 2005 Notices were also impugned on two further additional grounds: (1) That s 255 does not have extraterritorial operation; and (2) That they purport to require the recipients (Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger) not to pay so much of the tax as assessed against ECMI to the extent of any amount received by each of them respectively, but rather the entirety of the tax as assessed. 102 As to the first of these grounds of challenge, one can readily dismiss any argument, which is predicated on a construction of the word 'person' as being confined to a 'resident' or as a person, resident or non-resident, 'in Australia'. If a 'person' was to be confined to a 'resident' then that latter word would have been used, cf., the use of the word 'non-resident' rather than 'person', and if a 'person' was to be confined to a person 'in Australia', the words 'in Australia' would have appeared after the word 'person', cf., s 18A of the Income Tax Management Act (NSW) 1912. 103 However, having regard to what the Commissioner concedes is the undoubted purpose of s 255 of the ITAA 1936 - 'to prevent the possibility of overseas dissipation by prescribing the retention of "money belonging to a non-resident"', in the face of the principle that the courts will not recognise or enforce, directly or indirectly, a foreign revenue claim: Rosanno v Manufacturers' Life Insurance Co [1963] QB 352; Government of India v Taylor [1955] AC 491 - the construction of subs 255(1) which reads the word 'person' as being a resident or non-resident, whether in or out of Australia, can only have an effective operation in terms of its legislative purpose, if the person's receipt, control or disposal of the money (belonging to a non-resident) is in Australia. 104 It follows, in my view, that a requirement, in terms of par (a) of subs 255(1) of the ITAA 1936, by the Commissioner of a person who does not have the receipt, control or disposal of money (belonging to a non-resident) in Australia, will not be operative in accordance with its terms. 105 As to the second of these grounds of challenge, the terms of the notices, in my view, must be read and construed having regard to the provisions of par (c) of subs 255(1). If that construction of the notices is not to be adopted, then I would agree that the terms of the notices, at least to the extent that they require the recipients to pay to the Commissioner an amount in excess of the amount that the recipient has retained, or should have retained, under par (b) of subs 255(1), does not impose a statutory obligation on the recipient. 106 The 28 June 2005 Notice was impugned on the same additional grounds as the 7 January 2005 Notice - see [99] supra - and the observations there made at 99 - (5) inclusive are equally applicable to the additional grounds of challenge to this notice.

The Grounds of Challenge to the Section 260-5 Notices 107 The s 260-5 Notices to each of Investec Trustees and CSC are not the subject of a claim for relief in this proceeding although, for some reason, they are referred to and challenged at [56] and [57] of the applicants' written outline of submissions. In the circumstances, I do not propose to deal with them further. 108 The s 260-5 Notices to each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger and to ANZ Nominees were each challenged on the basis that there is no debt or tax related liability payable because the assessment issued to ECMI by notice dated 1 December 2004 and the amended assessment issued to ECMI by notice dated 21 January 2005 were invalid. The same ground of challenge was raised in relation to the s 255 notices from and including the 24 December 2004 Notice, namely the 7 January 2005 Notice, the 15 February 2005 Notice, the 2 June 2005 Notices and the 28 June 2005 Notice. As the merit of this ground of challenge is not dependent on the particular notice, it is appropriate to deal with the ground on a comprehensive basis with respect to all relevant notices.

Validity/Invalidity of Assessments 109 This ground of challenge is predicated on the basis that neither the assessment, issued by notice dated 1 December 2004, nor the amended assessment, issued by notice dated 21 January 2005, are 'assessments' protected by ss 175 and 177(1) of the ITAA 1936 for one or more of the following reasons: (1) They are relevantly tentative or provisional; (2) they are made for the purpose of supporting the various s 255 and s 260-5 notices, rather than genuinely assessing tax payable; and (3) there was no attempt to carry out an 'ascertainment' or 'assessment' at the time of issue of either the assessment or the amended assessment. The preferable inference to draw, so it was said, was that the assessment and amended assessment were issued for a purpose which was not authorised or was not reasonably capable of reference to the power to assess. 110 In reply submissions, this argument was advanced in the following way: 'That which is impermissible in issuing an assessment pursuant to s 168 (and section 166), is the failure on the part of the Commissioner to ascertain the "components" necessary for the calculation and the impermissible fixing of a "final figure" without having performed that calculation. There is, in those circumstances, no assessment at all.' 111 In further submissions on this issue it was put: (1) A genuine and bona fide exercise of the statutory powers conferred requires 'the ascertainment of … the amount of taxable income … and of the tax payable on the taxable income …'. Unless, the 'minimum requirements' for such an assessment are met, s 175 does not apply. (2) The assessment (and amended assessment) purport to be assessments 'for the period 1 July 2004 to 30 June 2005'. (3) Yet neither assessment purports to record any attempt to ascertain such other relevant matters as: · Capital losses; or · Allowable deductions. Both purport to assess the 'total amount payable' solely by reference to the asserted 'capital gain'. However perfunctory - or mathematically flawed - there must be some consideration - or assessment - of deductions and, in the case of a capital gain, of capital losses as only the net capital gain for the period is brought into the assessable income. (4) The only available inference is that the assessments were issued to cover the entirety of the asserted tax payable on the capital gain without consideration being given to generally assessing the taxable income for the period. 112 But if there are no capital losses and no allowable deductions to be taken into account in ascertaining taxable income and the tax payable thereon, why should the Commissioner have to go through a notional exercise of computation to give his ascertainment of taxable income the standing of an 'assessment' for the purposes of ss 175 and 177(1) of the ITAA 1936. It has not been suggested that there are such losses or deductions, but even if there were, it would always be open to the taxpayer to deal with such matters by way of objection. 113 It has not been suggested, nor could it, that the Commissioner has not made a definitive, as distinct from a provisional or tentative, ascertainment of ECMI's taxable income for the year ended 30 June 2005 and the tax payable thereon. As an exercise of the power to assess, it has been asserted that it is not a bona fide exercise of the power but the only basis which has been put forward for this assertion is that the assessments were made for the purpose of supporting the various s 255 notices and s 260-5 notices, rather than generally assessing tax payable. I cannot accept this submission. The s 260-5 Notices were issued long after the issue of the assessment and amended assessment and, on the view I take of s 255 of the ITAA 1936, the validity of the s 255 notices is not dependent upon the existence of a valid assessment to the non-resident, in this case, ECMI. 114 This ground of challenge cannot be sustained.

Extraterritorial Operation 115 The s 260-5 Notices to each of the Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger are also challenged on the basis that they do not have any extraterritorial operation: Because s 260-5 upon a proper construction does not authorise or permit the issue of a notice upon a person outside Australia; and/or is presumed not to authorise or permit the issue of a notice upon a person outside of Australia and that presumption is not rebutted. 116 This ground of challenge is said to be supported by a number of considerations - common law and statutory presumptions that legislation is not to be construed as having extraterritorial effect; s 21(1)(c) of the Acts Interpretation Act 1901 (Cth) as an example of a statutory presumption and the non-rebuttal of such presumptions by the Commissioner; s 260-5 creates an offence and exposes a person who fails to comply with a notice issued to the prospect of penalties and a liability to pay moneys and therefore should be construed strictly; it is not to be readily presumed that a non-resident of Australia should be made liable to pay tax imposed by Australian legislation - indeed, it would be a surprising - and perhaps unacceptable - conclusion for Commonwealth legislation to be construed as authorising or otherwise permitting a notice to be served or given to a citizen or resident of a foreign jurisdiction requiring that citizen or resident to pay Australian tax or to pay moneys on account of tax assessed in Australia. 117 I am not convinced that any of these considerations should lead me to the conclusion that s 260-5 cannot have an extraterritorial operation in the sense that it does not authorise the Commissioner to give a written notice to an entity which owes or may later owe money to the tax debtor where the entity is not a resident of Australia or is not in Australia at the time of the giving of the notice. I cannot identify any legislative policy underlying the introduction of Division 260, in particular subdivision 260-A in Schedule 1 of the Administration Act, replacing as it were s 218 of the ITAA 1936, nor anything in the context of those provisions, which would so circumscribe the operation of s 260-5. 118 Section 260-5 is not, like s 255 of the ITAA 1936, predicated on the person having the receipt, control or disposal of money belonging to a non-resident. On the contrary, subs 260‑5(2) empowers the Commissioner to give written notice to an entity if the entity owes or may later owe money to the tax debtor. In other words, it is not even necessary for the entity to owe money to the tax debtor at the time of the giving of the notice. Moreover, the tax debtor need not be a non-resident unlike s 255 where the money of which the person has the receipt, control or disposal must belong to a non-resident. 119 This is not to say that the issue of a notice by the Commissioner pursuant to subs 260‑5(2) to an entity that is a non-resident of Australia which owes money to another non-resident of Australia which is a tax debtor will have any utility as a garnishee mechanism. The likelihood, I would have thought, is that the entity served with the notice may well ignore it because the circumstances may be such that if it complies with the notice and pays the Commissioner, it may not be entitled to rely on the indemnity provided by s 260-15. Much will depend on the proper law governing the terms of the indebtedness between the entity served with the notice and the tax debtor. However, that is a totally different matter from the issue as to whether s 260-5 has an extraterritorial operation so as to entitle the Commissioner to give notice to an entity which is domiciled or resident outside Australia and otherwise has no presence in Australia.

Other Grounds of Challenge 120 The s 260-5 Notice to ANZ Nominees is challenged on other grounds: First it is said that, absent the deeming worked by subs 260-5(3), ANZ Nominees did not owe money to ECMI at the time of the issue of the notice, nor will it owe money to ECMI if and when it receives the retained sum from Healthscope. This must be right. At neither time does, or will ANZ Nominees owe money to anyone other than CSC as bare custodian for Elsinora, Tioga and Perlette and for Investec Trustees as bare custodian for Mr Armstrong and Mr Berger. Second, it is said that, even taking into account the deeming worked by subs 260-5(3), ANZ Nominees is not taken to owe money to ECMI at the time of the issue of the notice, nor will it be taken to owe money to ECMI if and when it receives the retained sum from Healthscope. 121 In relation to the second ground of challenge, it is said that at neither time: (1) Is ANZ Nominees an entity by whom money is due or accruing to ECMI: Par (a). Again, that must be right. At neither time does, or will, ANZ Nominees have any monetary obligation to ECMI which is due or accruing due. (2) Does ANZ Nominees hold money for or on account of ECMI: Par (b). Again, that must be right. At neither time does, or will, ANZ Nominees hold money for or on account of ECMI. At both times it will only hold money for or on account of CSC, Investec Trustees or Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger. (3) Does ANZ Nominees hold money on account of some other entity for payment to ECMI: Par (c). Again, that must be right. For the Commissioner it was contended that on its receipt of the retained sum from Healthscope, ANZ Nominees will hold money on account of CSC or Investec Trustees, or on account of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger, for payment to ECMI. In my view, that is not so. What par (c) of subs 260‑5(3) is concerned with is situations where the entity concerned (ANZ Nominees) holds money on account of some other entity (CSC or Investec Trustees, or Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger) for payment by ANZ Nominees to the tax debtor (ECMI); in other words, where the first mentioned entity (ANZ Nominees) itself has a dual or split obligation to hold the money on account of some other entity for payment to the tax debtor (ECMI). It is not concerned with a situation where the first mentioned entity holds money on account of some other entity where that other entity is under some obligation to pay it to the tax debtor. In the present case, ANZ Nominees will not hold money on account of CSC or Investec Trustees, or on account of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger for payment to ECMI; on the contrary, it will hold money on account of CSC or Investec Trustees, or on account of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger, for payment to them. (4) Does ANZ Nominees have authority from some other entity to pay the money to ECMI: Par (d). Again, that must be right.

The Section 255 Notices 122 For the foregoing reasons, I therefore conclude that: (1) None of the s 255 notices addressed to Healthscope, that is, the 8 November 2004 Notice, the 24 November 2004 Notice and the 15 February 2005 Notice, imposes a statutory obligation on Healthscope in accordance with its terms. (2) None of the s 255 notices addressed to ANZ Nominees, that is, the 7 January 2005 Notice and the 28 June 2005 Notice, will impose a statutory obligation on ANZ Nominees in accordance with its terms if and when ANZ Nominees receives from Healthscope the retained sum of $9,953,426.10. (3) None of the 2 June 2005 Notices will impose a statutory obligation on each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger in accordance with its terms unless and until the addressee has, in Australia, the receipt, control or disposal of the money representing the retained sum of $9,953,426.10.

The Section 260-5 Notices 123 For the foregoing reasons, I therefore conclude that: (1) None of the s 260-5 Notices to each of Elsinora, Tioga, Perlette, Mr Armstrong and Mr Berger imposes a statutory obligation on them in accordance with its terms unless and until the addressee owes money to ECMI or, by virtue of subs 260-5(3) of Schedule 1 to the Administration Act, is taken to owe money to ECMI. This will not occur until each has received its proportionate share of the retained sum. (2) The s 260-5 Notice addressed to ANZ Nominees will not impose a statutory obligation on ANZ Nominees in accordance with its terms if and when ANZ Nominees receives from Healthscope the retained sum of $9,953,426.10 because at that point in time ANZ Nominees will not owe money to ECMI nor will it be taken to owe money to ECMI by virtue of the provisions of subs 260-5(3) of Schedule 1 to the Administration Act. 124 Notwithstanding these conclusions, I do not think the applicants are entitled to declaratory relief in relation to the s 255 notices, the s 260-5 Notices or the assessment and amended assessment in the terms sought, that is, that they are invalid. I have found that the assessment, issued by notice dated 1 December 2004, and the amended assessment, issued by notice dated 21 January 2005, are entitled to the protection of ss 175 and 177(1) of the ITAA 1936. I have also expressed the view that the challenges to the s 255 notices and the s 260-5 Notices go not so much to their validity, but whether they impose a statutory obligation on the addressee(s) in accordance with their respective terms. I have found that they do not but I do not think this entitles the applicants to the relief sought, namely declarations that the notices are invalid. 125 Likewise, the order for injunctive relief restraining the Deputy Commissioner from issuing further notices pursuant to s 255 of the ITAA 1936 to Healthscope and ANZ Nominees in relation to the sum of $9,953,426.10 retained by Healthscope on the purchase of the remaining shares in Gribbles and declaratory relief and ancillary orders was not pressed and I decline to make any such orders. 126 However, in view of my finding that none of the s 255 notices and the s 260-5 Notices imposes a statutory obligation on the addressee(s) in accordance with its terms, it follows that the Deputy Commissioner is not entitled to the declaratory relief sought in her cross-claim, namely the relief set out at 7 - (5), supra. It also follows that I decline to make the orders sought in her cross-claim namely the orders set out at 7 and (7) supra. The cross-claim must be dismissed. 127 I am prepared to hear the parties on what orders, if any, consistent with these reasons, they would have me make in respect of the applicant's application. 128 The Deputy Commissioner must pay the costs of the applicants and the first and second respondents. I certify that the preceding one hundred and twenty-eight (128) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edmonds.

Associate: Dated: 3 February 2006 Counsel for the Applicants/First to Fifth Cross-Respondents: Mr D H Bloom QC Dr G A Flick SC Mr T M Thawley

Solicitors for the Applicants/First to Fifth Cross-Respondents: Piper Alderman

Solicitor for the First Respondent / Sixth Cross-Respondent: Allens Arthur Robinson

Counsel for the Second Respondent / Seventh Cross-Respondent: Mr P Wood

Solicitors for the Second Respondent / Seventh Cross-Respondent: Freehills

Counsel for the Third Respondent / Cross-Claimant: Mr G Davies QC Mr P Sest

Solicitors for the Third Respondent / Cross-Claimant: Australian Government Solicitor

Date of Hearing: 15 and 16 September 2005

Date of Judgment: 3 February 2006

International Tax Agreement Act 1953(Cth)

At a glance

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Before

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Judgment (46 paragraphs)

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Legislation Cited (5)

Cases Cited (4)

Cited By (2)