Markets Nominees Pty Ltd v Commissioner of Taxation

BETWEEN: MARKETS NOMINEES PTY LTD (ACN 115 665 257)

ACN 116 378 931 PTY LTD (ACN 116 378 931) (RECEIVERS & MANAGERS APPOINTED) (IN LIQUIDATION)

JUDGE: TRACEY J DATE: 27 March 2012 PLACE: MELBOURNE

REASONS FOR JUDGMENT 1 This is a priority dispute over the proceeds of the sale of certain child care businesses. There are the competing claims from the applicants and the Commissioner of Taxation ("the Commissioner"). The applicants found their claim on a charge given by the second applicant (which was formerly called Local Kids Pty Ltd) ("Local Kids") in favour of the first applicant ("Markets Nominees"). The Commissioner asserts his priority under a notice issued pursuant to s 260-5 of the Taxation Administration Act 1953 (Cth) ("the Act"). 2 The third and fourth applicants are the receivers and managers of Local Kids. In that capacity they have authorised Local Kids to bring this proceeding against the Commissioner. 3 The resolution of the dispute depends, to a large extent, on whether, at relevant times, the charge was a fixed or a floating charge.

THE FACTS 4 The facts, for the most part, are not disputed. 5 Local Kids was established in 2005. At relevant times its directors included Mr Douglas Lomas and Mr Salvatore Catalano. 6 Markets Nominees was also established in 2005. It formed part of the Chimaera group of companies. Mr Catalano has been a director of Markets Nominees since the company's inception.

The business acquisition contract 7 On 24 May 2010 Local Kids entered into a business acquisition contract under which Local Kids sold six child care businesses to Early Learning Services Ltd (which is now known as G8 Education Ltd ("G8"). The six businesses were identified in the contract by reference to the addresses at which they were located. They were: 3-5 Rellum Road, Greenacres SA; 17 Alexander Street, Victor Harbour SA; 62-64 Anzac Highway, Everard Park SA; 26 Wireless Road West, Mt Gambier SA; 73 Suttontown Road, Mt Gambier SA; and 15 Fordingbridge Road, Daveron Park SA. 8 The purchase price was not fixed in the contract. Rather it was provided that the purchase price was to be an amount equal to the aggregate of four times the actual earnings before interest and taxation of each of the six businesses for the twelve months ending on 31 December 2010 up to a maximum of $4,478,916. 9 The purchase money was to be calculated after the end of the calendar year and was payable on 28 February 2011. 10 The business acquisition contract was varied in September 2010. The variations had to do with the method of calculating the purchase price. Nothing turns on the detail of these variations.

Litigation funding 11 In May 2010 Local Kids wished to participate, as plaintiff, in litigation against the ANZ Bank. To this end it borrowed $1,750.000 plus fees and interest from Markets Nominees to invest in a unit trust which had been established to fund the litigation. Local Kids also engaged Markets Nominees to conduct the litigation on its behalf. 12 In order to secure its debts to Markets Nominees, Local Kids charged all its assets pursuant to a charge deed. It also executed an irrevocable authority to which Markets Nominees was a party.

The charge deed 13 On 28 May 2010 Markets Nominees and Local Kids executed a charge deed under which Local Kids (as Chargor) charged the "secured assets" to Market Nominees (as Chargee) for payment of the "secured money" and to secure performance of the obligations imposed on Local Kids under what were termed "the transaction documents". 14 These terms were defined in cl 13.1 of the charge deed as follows: "Secured Assets" relevantly meant "the whole of the undertaking property and assets of the Chargor both present and future and includes any part of the Secured Assets." "Secured Money" meant "all money (and any part of that money) which directly, indirectly, actually or contingently, or otherwise at any time is or becomes due by the Chargor (whether alone or not) to the Chargee for any reason." It included, among other things, any money due "pursuant to this document [or] any other Transaction Document." "Transaction Documents" relevantly meant the Charge Deed, the "Facility Agreement between the Chargor and the Chargee", the "Unit Subscription Agreement between the Chargee and Special Situations (LFF) Pty Ltd", the "Irrevocable Authority granted by the Borrower in favour of the Lender" and the "Call Option Agreement between the Borrower and the Lender." 15 By cl 2.2 of the charge deed it was provided that: "This charge constitutes a fixed and specific charge over the Secured Assets comprising any of the following: (a) Real estate of any kind. (b) Any contracts relating to real estate including without limitation leases, licences, purchase and sale contracts, building contracts, development and building consents, plans, drawings and specifications. (c) … (d) Money which becomes payable as compensation, purchase money, or otherwise in respect of the Secured Assets. … (o) All of its property (if any) specified in Item 2." 16 Item 2 of the Schedule to the charge deed referred to "Property specifically charged". Relevantly it identified "[a]ll rights of the Chargor under the Contract of Sale (including, without limitation) the right to receive the proceeds of sale at completion of the Contract of Sale together with all the right, title and interest of the Chargor to the Contract of Sale itself as well as all assets and businesses which are the subject of the Contract of Sale." 17 "Contract of Sale" was defined, in cl 13.1, to mean: "an executed contract of sale to sell the childcare centres operated by the Borrower at: (a) 3-5 Rellum Road, Greenacres, South Australia; (b) 17 Alexander Street, Victor Harbour, South Australia; (c) 62-64 Anzac Hwy, Everard Park, South Australia; (d) 26 Wireless Road West, Mt Gambier, South Australia; (e) 15 Fordingbridge Road, Daveron Park, South Australia." 18 Clause 2.4 dealt with a floating charge. It provided: "(a) As to all of the Chargor's other Secured Assets, this charge constitutes a floating charge which in no way hinders or prevents the Chargor from selling, leasing, paying dividends, or otherwise disposing of or dealing with that property in the ordinary course of its business." 19 Clause 2.5 provided that: "The floating charge referred to in clause 2.4 automatically converts to a fixed charge immediately, if: (a) the Chargor deals or attempts to deal with the Secured Assets other than in the ordinary course of its business; (b) any of the Events of Default specified in clauses 7(c), 7(d) or 7(f) occur; (c) the Chargor breaches clause 11; or (d) any notice is issued under which any Government Agency or other person may rank ahead of the Chargee; or (e) the Chargee gives a notice converting the charge to a fixed charge (which the Chargee may do in respect of all or part of the Secured Assets)." 20 "Government Agency" was defined, in cl 13.1, to mean "a government or government department, a governmental, semi-governmental or judicial person or a person (whether autonomous or not) charged with the administration of any applicable law." 21 Clause 2.6 provided that "[t]he Chargee may by written notice to the Chargor cause the charge to become floating as to the whole or any nominated part of the Secured Assets with effect from the date specified in that notice." 22 Clause 3(b) required that the Chargor: "Not sell, assign, let, part with possession, mortgage, charge, encumber, or otherwise dispose of or deal with the Secured Assets despite any power implied by statute or otherwise without the Chargee's prior written consent. Unless an Event of Default occurs, the Chargor may retain possession of the Secured Assets and may use, operate, maintain, and control the Secured Assets in the ordinary course of its business." 23 Clause 3(c)(i) required that the Chargor: "Maintain the Chargor's rights to and under the Secured Assets and maintain the Secured Assets in good order, substantial repair and condition, and free from damage or destruction. The Chargor must not cause or permit anything to be done by which any part of the Secured Assets may be rendered void, voidable, unforceable, or of limited or reduced force, effect, or value." 24 The term "Event of Default" was defined in cl 13.1 to mean "any one or more of the events described as or defined as an event of default in the Transaction Documents." 25 Clauses 7 and 8 of the deed dealt with default. They provided: "7. If an Event of Default occurs under any one or more of the Transaction Documents then an Event of Default at the Chargee's option will have occurred under this document. A determination by the Chargee in its absolute discretion that an Event of Default has occurred will be final and binding on the Chargor. 8. Despite any other provision of this document, at any time after an Event of Default occurs how and when the Chargee in its absolute discretion decides, the Chargee may sign anything and do anything the Chargee considers appropriate to recover the Secured Money and deal with the Secured Assets. The Chargee may do this with or without taking possession of the Secured Assets, whether or not in conjunction with other property, despite any omission, neglect, delay and without liability for loss or need to account as chargee in possession." It will be noted that, despite what appeared in cl 2.5(b) (above at [19]), cl 7 contained no sub-clauses. 26 The charge created by the charge deed was registered under s 265 of the Corporations Act 2001 (Cth) on 6 July 2010.

The irrevocable authority 27 On the same day that the charge deed was executed the same parties, Markets Nominees as lender and Local Kids as borrower, executed an "Irrevocable Authority". The authority recorded that it had been executed in "order to better secure the obligations of the Borrower under the Facility Agreement, and in consideration of the Lender entering into the Facility Agreement." 28 Clause 6.2 of the irrevocable authority referred to the charge. It read: "The charge over the Contract of Sale is a fixed charge created by the Fixed and Floating Charge and not this document. This document serves to augment the terms of the Fixed and Floating Charge and, to the extent of any inconsistency, the terms of this document will apply." 29 By Clause 7 of the irrevocable authority it was provided that: "In addition to the obligations of the Borrower under the Transaction Documents, the Borrower during the continuance of this document (and where appropriate from time to time) must comply with the following provisions: (a) Not sell, mortgage, charge, encumber or otherwise dispose of or deal with the Contract of Sale or the Sale Assets without the Lender's prior written consent. (b) Maintain the Borrower's rights to and under the Contract of Sale …" 30 Various terms used in these provisions were defined in cl 15.1 of the irrevocable authority: "Contract of Sale" was defined in the same way as it appeared in cl 13.1 of the charge deed. "Sale of Assets" meant "the assets to be transferred pursuant to the Contract of Sale". "Fixed and Floating Charge" meant "the Fixed and Floating Charge granted by the Borrower in favour of the Lender on or about the date of this document to secure the obligations of the Borrower under the Transaction Documents." "Transaction Documents" meant the Irrevocable Authority, the "Unit Subscription Agreement" between the Borrower and Special Situations (LFF) Pty Ltd, the "Fixed and Floating Charge granted by the Borrower in favour of the Lender", the "Facility Agreement between the Borrower and the Lender", the "Litigation Management Deed between the Borrower, Chimaera Capital Markets Pte [sic] Ltd and the Lender" and the "Call Option Agreement between the Borrower and the Lender".

The South Australian notice 31 In August 2010 the Commissioner of State Taxation in South Australia alleged that Local Kids was liable for unpaid payroll tax totalling $950,320.47. The Commissioner issued a notice under s 43 of the Taxation Administration Act 1996 (SA) to G8 requiring G8 as "a person from whom money is due or accruing or may become due to [Local Kids]", to pay to the Commissioner forthwith "any such money due to [Local Kids] … or so much thereof as is sufficient to pay the sum of $950,320.47."

The Commissioner's notice 32 In December 2010 a delegate of the Commissioner determined that Local Kids had a tax related liability to the Commonwealth totalling $3,777,612.92. On 23 December 2010 the delegate gave a notice under s 260-5 of Schedule 1 to the Act to G8 requiring that G8, as "a third party who owes, or may later owe, money … to [Local Kids]", to pay to the Commissioner the sum of $3,777,612.92 or, if the available money [was] less than [that amount], the whole of the available money. The notice further stated that, if the money available was then owed to Local Kids, it was to be paid to the Commissioner immediately and if the available money was not then owed to Local Kids, but would be so owed later, it was to be paid to the Commissioner immediately after it became owing. 33 In March 2011, acting in accordance with the notice, G8 paid $1,573,216 to the Commissioner. This amount was part of the proceeds of the sale payable by G8 to Local Kids under the Business Acquisition Contract. Shortly afterwards G8 paid a further $345,329 to the Commissioner. This sum was also part of the proceeds of sale payable by G8 to Local Kids under the contract. 34 It is the aggregate of these two sums ($1,918,545) to which the applicants assert an entitlement in their present application. This money is insufficient to satisfy either Local Kids' indebtedness to Markets Nominees or the outstanding tax obligations asserted by the Commissioner.

The collapse of Local Kids 35 On 14 January 2011 Local Kids appointed the third and fourth applicants as administrators. 36 On 18 January 2011, liquidators were appointed to the company under a court order. 37 On 22 February 2011 the third and fourth applicants were appointed as receivers and managers in respect of the charge deed.

LEGISLATION 38 Section 260-5 of the Act relevantly provided: (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; … (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. (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 … (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 … (5) The notice must require the third party to pay an amount under paragraph (4)(a) …: (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. . . . (6) The Commissioner must send a copy of the notice to the debtor. …" Section 260-15 indemnifies a third party in respect of payments made to the Commissioner under s 260-5. A third party who fails to comply with a notice commits a criminal office: see s 260-20.

THE PARTIES' CONTENTIONS 39 In broad terms, the central issue in the proceeding is whether the applicants have or the Commissioner has priority in making a claim for the sum paid to the Commissioner by G8 pursuant to the notice issued under s 260-5 of the Act. 40 The applicants found their priority claim on what they contend is the fixed charge created in Markets Nominees' favour by the charge deed. In a series of alternative and cascading submissions they further contend that they enjoyed priority even if the charge is properly to be characterised as a floating charge. 41 The Commissioner, on the other hand, contends that, at the time at which the s 260-5 notice was given, any charge over the proceeds of the sale of the childcare centres or the right to receive those proceeds pursuant to the charge deed was a floating charge which had yet to crystallise. The notice created a charge in favour of the Commissioner which gave him priority over other claimants including the applicants. 42 The Commissioner made what he termed "three principal submissions". They were that: The Commissioner's interest pursuant to the notice given under s 260-5 of the Act took priority in relation to the proceeds of the sale unless the charge deed created a fixed charge over the proceeds or a floating charge that had crystallised before the service on G8 of the notice. The issue was said to relate "to the nature of the charge over the proceeds, rather than the nature of the charge over the right to receive the proceeds [of the sale]." Pursuant to the terms of the charge deed, any charge over the proceeds was a floating charge unless and until there was an event of default under cl 7 of the charge deed and Markets Nominees exercised its rights on default pursuant to cl 8 of the deed. This was because, so it was submitted, until that time, Local Kids could use the proceeds, when received, in the ordinary course of its business. It followed that the charge over the proceeds did not become a fixed charge until Markets Nominees appointed receivers on 22 February 2011. In any event, because the charge over the proceeds was floating when the notice was issued, the charge over the right to receive the proceeds was also floating at that time. 43 The applicants submitted that none of these contentions could be maintained consistently with authority. 44 They contended that the first of the Commissioner's principal submissions misstated the question for determination. They submitted that the real issue to be determined was whether, at the time at which the notice was served on G8, thereby giving the Commissioner a statutory charge over the right to receive the proceeds of sale under the business acquisition contract (ie a charge on a debt), there was in existence a fixed charge on that debt or a floating charge on that debt which had crystallised before the service of the notice, to which the Commissioner's charge was subject. 45 The applicants objected that the Commissioner's second principal submission was founded on the same misstatement of the real issue in dispute which had been relied on in the Commissioner's first submission and that, in any event, there was nothing to be found in the charge deed to support the proposition that Local Kids was free to use the proceeds of sale, when received, in the ordinary course of its business. 46 The applicants challenged the Commissioner's third principal submission on the ground that it was founded on a false premise, namely, that Markets Nominees' charge over the proceeds of the sale was floating when the notice was issued. The notice fixed on the debt then owing under the business acquisition contract. The Commissioner received that debt subject to all charges which attached to it. At the time the notice was served Markets Nominees had a prior fixed charge such that, when the debt was realised (when G8 paid the debt to the Commissioner), the Commissioner received that payment subject to Markets Nominees' charge.

CONSIDERATION 47 It is convenient to deal first with the question of whether Markets Nominees, as the applicants contended, had a fixed charge over the debt owing by Local Kids to G8 when the Commissioner gave his notice on 23 December 2010. 48 There was substantial agreement between the parties as to the meaning of the terms "fixed charge" and "floating charge" and the means by which they are to be distinguished. 49 There was agreement that a "fixed charge" is a charge that "without more fastens on ascertained and definite property or property capable of being ascertained and defined": see United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 at 686. The assets which are subject to a fixed charge are "permanently appropriated to the payment of the sum charged, in such a way as to give the chargee a proprietary interest in the assets. So long as the charge remains unredeemed, the assets can be released from the charge only with the active concurrence of the chargee": see Re Spectrum Plus (in liq) [2005] 2 AC 680 at 729. 50 A "floating charge", on the other hand, does not specifically affect any of the charged assets unless and until it crystallises into a fixed charge: Luckins v Highway Motel (Carnarvon) Pty Ltd (1975) 133 CLR 164 at 173. Such a charge is "not to be put into immediate operation, but [is] such that the company is to be allowed to carry on its business": Illingworth v Houldsworth [1904] AC 355 at 357. A charge will be a floating charge if the intention of the parties is that the chargor "should be free to deal with the charged assets and withdraw them from the security without the consent of the holder of the charge": Agnew v Commissioner of Inland Revenue [2001] 2 AC 710 at 725. 51 In determining whether a charge is fixed or floating, regard must be had to the terms of the charge deed and the effect of the rights and obligations created by that deed. If the rights and obligations so created are inconsistent with a fixed charge, the charge will be a floating charge, notwithstanding that it might be described otherwise in the deed: Agnew at 725. 52 The fixed charges to which the deed applied are identified in cl 2.2. Although paragraphs (b), (d) and (o) were each referred to in argument as being of potential relevance, the applicants placed primary reliance on paragraph (o). That paragraph created a fixed charge over all of Local Kids' property specified in item 2 of the Schedule. That item covered all of Local Kids' rights "under the Contract of Sale" including the right to receive the proceeds of the sale of the child care centres upon completion of the contract. 53 The Commissioner put in issue the question of whether the "Contract of Sale" referred to in item 2 was the business acquisition contract. 54 The term "Contract of Sale" is defined in cl 13.1 of the deed. Its full terms are set out above at [17]. That contract was defined as "an executed contract of sale to sell the child care centres operated by [Local Kids]" at five of the six premises, identified by their addresses, referred to in the definition. 55 The Commissioner's point was that the business acquisition contract provided for the sale of six businesses not five. The definition included five of the six but omitted the business conducted at 73 Suttontown Road, Mt Gambier. 56 The definition could, undoubtedly, have been framed with greater precision. Nonetheless, the business acquisition contract answers the description of an executed contract of sale to sell the five identified centres. This remains so notwithstanding the fact that the contract also provided for the sale of an additional business. Unsurprisingly, there was no evidence to suggest that any other contract or contracts had been entered into to procure the sale of any of the six businesses. 57 Evidence was called from Mr Lomas and Mr Catalano which was directed to establishing that it had been the intention of the parties to the charge deed to include all six businesses within the definition of "contract of sale" in cl 13.1 of the deed. I do not consider it necessary to have regard to this evidence for present purposes. 58 The Commissioner also drew attention to the words appearing in parenthesis ("if any") in paragraph (o) with a view to submitting that the parties to the deed had contemplated the possibility that item 2 might not contain a reference to any relevant property. Be that as it may, property, including rights under the Contract of Sale were, in the event, specified in item 2. 59 In my opinion, the "Contract of Sale" referred to in item 2 is the business acquisition contract. 60 The next issue is whether cl 2.2(o) created a fixed charge and, if so, over what property. 61 When read together cl 2.2(o) and item 2 created a fixed charge over the business acquisition contract. This included a charge over Local Kids' right to receive the proceeds of the sale of the businesses. 62 Under the contract property in the assets which formed part of each of the child care businesses passed to G8 on 31 May 2010. G8 thereupon became indebted to Local Kids for the sale price. At the time at which the charge was granted and at the time when the Commissioner gave his notice under s 260-5 of the Act, the sale price under the contract was (prospectively) ascertainable but unknown. The calculation could not be made earlier than 1 January 2011 or later than 28 February 2011. 63 It is in these circumstances that the nature of Local Kids' property interests under the contract fall to be determined. It is on that interest that any charge (be it fixed or floating) fastened. 64 The Commissioner framed the relevant question as being whether Markets Nominees could assert a fixed charge over the proceeds of sale as distinct from the right to receive those proceeds. He contended that the answer to the question was: No. This was so for a number of reasons. The first was that the proceeds did not become available until they were paid and this had not occurred by the time the Commissioner's notice was given. Implicit in this submission was the assertion that no legal interest on which any charge could fix arose prior to the proceeds becoming available. Alternatively, the Commissioner argued that any charge that might have been created upon the execution of the charge deed could only have been a floating charge unless and until an event of default occurred and Markets Nominees chose to exercise its rights in respect of that default. The charge continued to be a floating charge until Markets Nominees appointed receivers on 22 February 2011. Any such charge was a floating charge because Local Kids remained free, under the charge deed, until 22 February 2011, to use the proceeds, when they were received, in the ordinary course of its business. It followed that, even if the deed created a charge over the right to receive the proceeds that charge was only a floating charge and so too would be the charge over the right to receive the proceeds. 65 The applicants, on the other hand, submitted that the correct characterisation of the property interest charge was an interest in the debt created by the contract which included the right to receive the purchase price when it was ascertained. Clause 2.2(o) granted a fixed charge over this composite interest. 66 This dispute is to be resolved by reference to the terms of the charge deed with a view to determining "the nature of the rights and obligations which the parties intended to grant each other in respect of the charged assets": Agnew at 725. 67 Once the contract was executed G8 became indebted to Local Kids. That indebtedness was to remain until the sale price was calculated and paid. The debt and the right to the receipt of the sale proceeds upon realisation were distinct assets but they were inextricably linked. As the Privy Council explained in Agnew at 729: "While a debt and its proceeds are two separate assets, however, the latter are merely the traceable proceeds of the former and represent its entire value. A debt is a receivable; it is merely a right to receive payment from the debtor. Such a right cannot be enjoyed in specie; its value can be exploited only by exercising the right or by assigning it for value to a third party. An assignment or charge of a receivable which does not carry with it the right to the receipt has no value. It is worthless as a security. Any attempt in the present context to separate the ownership of the debts from the ownership of their proceeds (even if conceptually possible) makes no commercial sense." 68 Under item 2 of the charge deed all Local Kids' rights under the contract formed part of the property which was charged pursuant to cl 2.2(o). Those rights included a chose in action (the debt) and the right to receive the proceeds of the sale of the six child care centres. The charge was created on 28 May 2010. It was expressed to be a fixed and specific charge over those assets. 69 The Commissioner sought to maintain a distinction between the proceeds of a debt and the debt itself by reference to cases which had considered the legal effect of notices issued under s 260-5 of the Act and its precursors. He submitted that the effect of service of a notice under s 260-5 was that he obtained the right to receive the proceeds of any sale of property which might subsequently become payable to the debtor. If the Commissioner could only obtain an interest in proceeds once they were realised a charge could, likewise, only fasten on proceeds once realised: prior to that event, the chargee was unable to assert a property interest under the charge which might have priority over the Commissioner's claims. 70 The authorities relied on by the Commissioner do not support the Commissioner's contentions. They recognise that both charges and s 260-5 notices can attach to both an existing debt and its proceeds even if those proceeds are not realisable until some later time. If the chargee has been given security over the debt prior to the giving of a notice by the Commissioner, that right can be asserted and enforced in priority to any rights which the Commissioner may acquire in relation to the debt upon the issue of a notice under s 260-5. 71 In Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 23 Mason J (with whom Aickin and Wilson JJ agreed) considered the operation of s 218(1)(a)(i) of the Income Tax Assessment Act 1936 (Cth) which was a forerunner of s 260-5. His Honour said that: "The section relates to moneys owing to the taxpayer when the notice is given, it imposes an obligation to pay forthwith moneys which are then payable; it imposes an obligation to pay moneys which become payable at a future time when that time arrives. It does not explicitly prescribe as a condition preliminary to the creation of the obligation to pay that the moneys owing to the taxpayer at the date of the notice shall continue to be owing to him when they become payable. It merely requires the recipient to pay to the Commissioner when they become payable moneys owing to the taxpayer at the date of the notice … There will be cases when a party other than the taxpayer by virtue of an antecedent security asserts in priority to the Commissioner rights to moneys not payable when the notice is served where the security is perfected after service of the notice and before the debt becomes payable." His Honour had earlier (at 19) noted that "the effect of the service of a s 218 notice is to prevent a taxpayer from thereafter assigning a debt, the subject of the notice, so as to defeat the Commissioner's right to payment in accordance with that section." (Emphasis added). 72 These principles have been applied in subsequent cases. 73 In Deputy Commissioner of Taxation v LAI Corporation Pty Ltd [1987] WAR 15 the Full Court of the Supreme Court of Western Australian considered the meaning and effect of s 38 of the Sales Tax Assessment Act (No 1) 1930 (Cth). Section 38 was, as Burt CJ observed (at 21) "for all practical purposes in the same terms as s 218(1)." Having referred to Mason J's reasons in Clyne, his Honour said, at 22, that: "I think it should be held that the Commissioner receives the debt subject to all charges which are then, that is to say at the time of the service of the s 38 notice, attached to it. So if at that time the Bank's security was a floating security which had not crystallized there would be no security attaching to the debt. It would, as they say, be 'hovering' over it. If, on the other hand, the Bank's security over the book debts was at all times fixed or if it was when created floating but as at the time when the s 38 notice was served it had crystallized and so had become fixed, the Commissioner would take the debt subject to that security." 74 A similar approach is evident in the decision of the Full Court of this Court in Macquarie Health Corporation Limited v Federal Commissioner of Taxation (1999) 96 FCR 238. In this case the Court considered the legal effect of the issuing of a notice under s 218. Having referred to a number of authorities including Clyne and Commissioner of Taxation v Donnelly (1989) 25 FCR 432 their Honours (at 258-9) expressed certain conclusions. They were that: "(i) The service of the s 218 notices on the Debtors created an interest in the nature of a statutory charge over any debts then due by the Debtors to the Taxpayer. The charge was created notwithstanding that the amounts due to the Taxpayer were not payable until a future date. (ii) The Notices were also effective to create a statutory charge over any debts coming into existence (whether or not payable immediately) after the date of service, but before commencement of the winding-up. (iii) To the extent the Commissioner was entitled to a statutory charge over debts due by the Debtors to the Taxpayer, s 471C of the Corporations Law preserves the Commissioner's right to realise or enforce the charge notwithstanding the winding-up of the Taxpayer. (iv) …" 75 As these decisions make clear charges and notices under s 260-5 can both fix on debts and the proceeds of the debts which do not become payable until some later time. I, therefore, accept the applicants' submission that Markets Nominees, upon the execution of the charge deed, held a charge over the debt owed by G8 to Local Kids. That charge was in force at the time at which the notice under s 260-5 was given. 76 The Commissioner further contended that, notwithstanding the express terms of cl 2.2(o) and Item 2, the charge thereby granted was not a fixed charge. He submitted that there were other provisions of the charge deed which were inconsistent with the charge being treated as fixed. He directed attention to cl 3(b) and, in particular, to the second sentence. The clause was headed "Dealings with Secured Assets". It required that Local Kids: "Not sell, assign, let, part with possession, mortgage, charge, encumber, or otherwise dispose of or deal with the Secured Assets despite any power implied by statute or otherwise without [Markets Nominees] prior written consent. Unless an Event of Default occurs, [Local Kids] may retain possession of the Secured Assets and may use, operate, maintain and control the Secured Assets in the ordinary course of its business." 77 The Commissioner submitted that, in the absence of an event of default, Local Kids was free to use and control the proceeds of the sales in the ordinary course of its business. So construed cl 3(b) was inconsistent with the charge granted by cl 2.2(o) being a fixed charge. 78 The first sentence of cl 3(b) imposed stringent obligations on Local Kids. Local Kids could not dispose of or deal with any secured assets without Markets Nominees' consent in writing. The second sentence operated as a qualification on the restriction contained in the first. It is necessary to pay careful attention to the language of the second sentence. 79 It permitted Local Kids to "retain possession" of any of the secured assets, including those charged by cl 2.2(o). It did not contemplate Local Kids disposing of any such assets. What it does qualify is the restriction on dealing with secured assets. Local Kids could, therefore, inter alia, use or control secured assets in the ordinary course of its business. 80 Each of the parties relied on a variety of dictionary definitions of the words "control" and "use" with a view to supporting their positions. It may be accepted that a range of nuanced meanings are conveyed by each of the words. It may also be accepted that some of those meanings are broad enough to permit the disposal of or dealing with secured assets. Clause 3(b) must, however, in my opinion, be read as a whole. There are ordinary and natural usages of both the words "control" and "use" which allow the clause to be read coherently. 81 It is to be borne in mind that cl 2.2 of the charge deed in terms created a fixed charge over a range of assets apart from the property rights identified in paragraph (o). Those assets included real estate, plant equipment and machinery and computer software and computer records. Assets such as these can clearly be controlled or used without being disposed of or otherwise dealt with in a manner inconsistent with the restrictions imposed by the first sentence. To the extent that the proceeds of the sales themselves constituted a secured asset those proceeds could be controlled or used by Local Kids without being disposed of. They could, for example, have been placed in an interest bearing account and been available at call. 82 In seeking to ascertain the intentions of the parties it is also necessary to notice the provisions of cl 3(c)(i) of the deed. Relevantly, it required that Local Kids maintain Markets Nominees' rights to the secured assets and not cause or permit anything to be done by which any part of those assets might be rendered of limited or reduced value to Markets Nominees. The broad reading of the second sentence of cl 3(b), for which the Commissioner contends, would render Markets Nominees' rights under cl 3(c) of little or no utility. 83 There are parts of the irrevocable authority which also have a bearing on the construction of cl 3(b). The irrevocable authority was executed on the same day as the charge deed by Markets Nominees and Local Kids. By cl 6.2 (see above at [28]) it was provided that the charge over the contract of sale was a fixed charge, that the charge was created by the charge deed and that, to the extent of any inconsistency, the terms of the irrevocable authority were to prevail over those of the charge deed. 84 By cl 7 of the irrevocable authority (see above at [29]) Local Kids was prevented from disposing of or dealing with the contract of sale or the sale assets without Markets Nominees' consent and was required to maintain Markets Nominees' rights to and under the contract. 85 If the Commissioner's broad construction of the second sentence of cl 3(b) of the charge deed were to be accepted, it would give rise to an inconsistency with cl 7 of the irrevocable authority which contains no provision equivalent to the second sentence. That inconsistency would, under cl 6.2 of the irrevocable authority, be resolved by the upholding of Markets Nominees' rights under cl 7. 86 It follows, in my opinion, that there was nothing in cl 3(b) of the charge deed which suggested that the charge created by cl 2.2(o) of the deed was not a fixed charge. 87 For these reasons I have concluded that the charge deed granted a fixed charge over the debt and the proceeds of the sale of the six businesses which were formerly owned and operated by Local Kids. I further find that that fixed charge was in existence at the time at which the Commissioner gave his notice under s 260-5 of the Act and that the Commissioner, upon the giving of the notice, secured a charge over the same property but did so subject to Markets Nominees' charge. 88 These findings make it unnecessary for me to examine the alternative bases of the applicants' claims. I would, nonetheless, indicate that I found force in the last of the applicants' series of cascading contentions. 89 That last contention was that, even if Markets Nominees held only a floating charge prior to 23 December 2010, that charge crystallized on that day as a fixed charge to which the Commissioner's interest was subject. 90 The starting point in considering this contention is cl 2.5(d) of the charge deed. It provided for any floating charge granted to Markets Nominees automatically and immediately converting to a fixed charge if "any notice is issued under which any Government Agency … may rank ahead of the Chargee." 91 It was common ground that, if Markets Nominees did not have a fixed charge over the debt and/or the proceeds of sale, it at least held a floating charge over that property. Both parties also accepted that the Commissioner was a "Government Agency" for the purposes of cl 2.5(d). 92 Under s 260-5 of the Act the Commissioner secures an interest over a debt or the proceeds thereof upon the giving of a written notice to a person who is indebted to the taxpayer: see s 260-5(2). It is implicit in the section that the obligation to comply with the notice only arises when it is given to the person who owes money to the taxpayer: see ss 260-5(2); 260-20. The Commissioner is also under an obligation to send a copy of the notice to the taxpayer: see s 260-5(6). 93 Before any notice can be given to the indebted person or sent to the taxpayer it must be prepared, considered and then signed by the Commissioner or one of his delegates. Further steps will then be necessary in order that the signed notice be given to the indebted person. 94 Clause 2.5(d) operates to convert a floating charge to a fixed charge at the time at which the s 260-5 notice is "issued". The word "issue" bears many meanings. Among those meanings, according to the Macquarie Dictionary, are "the act of sending, or promulgation", "to put out" and "to be sent or put forth authoritatively or publicly, as a writ, money, etc." According to the New Shorter Oxford English Dictionary, the word can mean "proceed as from a source; take ones or its origin, be derived, spring"; and "give or send out authoritatively or officially; publish …". When used in these ways, a notice under s 260-5 can be said to have "issued" at the time it was authenticated or published or was despatched from the Commissioner's office prior to the notice being given to the indebted person. If, therefore, the word "issued" bears one of these meanings, cl 2.5 of the deed would have operated to create a fixed charge in favour of Markets Nominees before the Commissioner's notice was "given" to G8. Upon the notice being given to G8 the Commissioner would also have had a charge but it would have been subject to the one already held (albeit for perhaps a very short time) by Markets Nominees. 95 It must be acknowledged that both dictionaries also attribute other meanings to the word "issue" which are synonymous or closely synonymous with "give to". The Macquarie Dictionary, includes "the act of … delivery", "to … deliver for use" and the Oxford Dictionary includes amongst relevant meanings "give (something) out officially (to) a person; supply (a person) officially with." 96 It is unlikely that these alternative meanings were intended by the parties to the deed. Clause 2.5(d) is plainly intended to be pre-emptive; that is to say it is meant to ensure that Markets Nominees' rights are to be protected against the possibility that they might be displaced and subordinated to claims made by a public agency such as the Commissioner. Such an intention would be frustrated if Markets Nominees' charge only became fixed at the same moment that the Commissioner acquired an equivalent interest. It is, therefore, far more likely that the parties to the deed intended that "issued" bore one of the former groups of meanings. 97 For these reasons, I would, had it been necessary, have determined that Markets Nominees obtained a fixed charge over the relevant debt and proceeds thereof, by operation of cl 2.5, which ranked in priority over the interests obtained by the Commissioner upon the giving of the notice to G8. 98 It was common ground that, if the charge was a fixed charge and, as I have held, it was created upon the execution of the deed, any charge which was created in favour of the Commissioner over the debt upon the giving of the notice under s 260-5 of the Act, was subject to the existing fixed charge in favour of Markets Nominees. This agreed position is consistent with authority: see LAI Corporation; Tricontinental Corporation Limited v Commissioner of Taxation (Cth) [1988] 1 Qd R 474. 99 The applicants have made demands of the Commissioner for the return of the full amount of the purchase monies. The Commissioner has failed to comply with those demands.

DISPOSITION 100 The applicants are entitled to orders that the Commissioner pay the sum of $1,918,545 to the third and fourth applicants. Interest should be paid on this sum. 101 The respondent should pay the applicants' costs of the application. I certify that the preceding one hundred and one (101) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Tracey.