Resilient Investment Group Pty Ltd v Barnet and Hodgkinson as liquidators of Spitfire Corporation Limited

Grounds of Appeal

1. Resilient contends that the primary judge erred in: 1. finding that the R&D Refunds are "personal property" of Spitfire for the purpose of s 340(1) of the PPSA; 2. finding that the R&D Refunds are circulating assets pursuant to s 340(1)(a) of the PPSA; 3. finding that Spitfire was the true employer of the "named employees" for the purposes of Pt 5.6, Div 6 of the Corporations Act; and 4. ordering that Resilient pay the liquidators' costs of the hearing before the primary judge.
2. The active parties on appeal on the substantive issues were Resilient and the Commonwealth. The liquidators took a neutral role with respect to those issues and limited their submissions to seeking to uphold the costs order against Resilient.

Corporations Act

1. Section 561 of the Corporations Act relevantly provides: 561 Priority of employees' claims over circulating security interests So far as the property of a company available for payment of creditors other than secured creditors is insufficient to meet payment of: (a) any debt referred to in paragraph 556(1)(e), (g) or (h); (b) any amount that pursuant to subsection 558(3) or (4) is a cost of the winding up, being an amount that, if it had been payable on or before the relevant date, would have been a debt referred to in paragraph 556(1)(e), (g) or (h); and (c) any amount in respect of which a right of priority is given by section 560; payment of that debt or amount must be made in priority over the claims of a secured party in relation to a circulating security interest created by the company and may be made accordingly out of any property comprised in or subject to the circulating security interest.
2. The three categories of priority debts due to employees referred to in s 561(a) are:

• the debts due to employees for wages, superannuation contributions and the superannuation guarantee charge (s 556(1)(e));
• amounts in respect of leave of absence (s 556(1)(g)); and
• amounts in respect of retrenchment payments (s 556(1)(h)).

1. The Corporations Act, s 556(2) defines the word "employee", in relation to a company, to mean a person (a) who has been or is an employee of the company, whether remunerated by salary, wages, commission or otherwise; and (b) whose employment by the company commenced before the relevant date, which in this case is the appointment date.
2. The amounts referred to in s 561(c) are advances of money by a person (whether before, on or after the relevant date) for the purpose of making the payment by a company on account of wages, superannuation contributions or in respect of leave of absence or termination of employment under an industrial agreement: s 560. It is not in dispute on appeal that the Commonwealth made such advances to Spitfire as recorded in par [39] of the statement of facts.
3. The expression "circulating security interest" is defined in the Corporations Act, s 51C as meaning a security interest that is a "PPSA security interest" if that security interest has attached to a "circulating asset" within the meaning of the PPSA and the grantor has title to the assets, or a floating charge. The term "PPSA security interest" is defined in the Corporations Act, s 51 as meaning a security interest within the meaning of the PPSA.

PPSA

1. The expression "personal property" is broadly defined in the PPSA, s 10 to include property other than (a) land; or (b) a statutory right that is declared by the relevant statute not to be property for the purposes of the PPSA. It is not suggested that either exclusion applied.
2. PPSA, s 340 defines a "circulating asset" as a security interest in personal property that falls within either of two groups of assets in s 340(1): 340 Meaning of circulating asset General definition (1) For the purposes of this Act, if a grantor grants a security interest in personal property to a secured party, the personal property is a circulating asset if: (a) the personal property is covered by subsection (5) (unless subsection (2) or (3) applies); or (b) in any other case - the secured party has given the grantor express or implied authority for any transfer of the personal property to be made, in the ordinary course of the grantor's business, free of the security interest. … Current assets (5) This subsection covers the following personal property: (a) an account that arises from granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided); (b) an account that is the proceeds of inventory; (c) an ADI account (other than a term deposit); (d) currency; (e) inventory; (f) a negotiable instrument. Example: An example of an account mentioned in paragraph (a) is an account that is a credit card receivable. (Emphasis added.)
3. The term "account" referred to in s 340(5) is in turn defined in PPSA, s 10: "account" means a monetary obligation (whether or not earned by performance, and, if payable in Australia, whether or not the person who owes the money is located in Australia) that arises from: (a) disposing of property (whether by sale, transfer, assignment, lease, licence or in any other way); or (b) granting a right, or providing services, in the ordinary course of a business of granting rights or providing services of that kind (whether or not the account debtor is the person to whom the right is granted or the services are provided); but does not include any of [specified matters]. (Emphasis added.)
4. In RCR Tomlinson at [31], Black J observed that s 340 of the PPSA is directed to two groups of assets, being those specified in s 340(1)(a) and (b), and that the assets falling under s 340(1)(a) are the "Current Assets" listed in s 340(5), subject to the exclusions in s 340(2)-(3). Paragraph 340(5)(a) provides, as an instance of those Current Assets, an account that (i) arises from (ii) granting a right or providing services (iii) in the ordinary course of a business of granting rights or providing services of that kind.
5. Although raised below, it is not suggested on appeal that s 340(1)(b) has any application in this case. Nor do the exclusions in s 340(2)-(3) s 340 apply in this case, as the primary judge observed at J[38].

First issue: whether the R&D refunds were circulating assets of Spitfire

1. Whether the claims of employee creditors of Spitfire have priority over Resilient's claim as the secured creditor depends on whether Resilient's security interest is a "circulating security interest": Corporations Act, s 561. That depends on whether, at the appointment date, the R&D Refunds were a "circulating asset" of Spitfire for the purpose of PPSA, s 340.
2. Before the primary judge and again on appeal the parties approached this issue in two stages. First, as an anterior question of whether the right or claim to R&D Refunds is "personal property" for the purpose of the PPSA, s 340. Second, whether the R&D Refunds are an "account" for the purpose of PPSA, s 340(5)(a) so as to fall within s 340(1)(a). The artificiality of addressing these questions separately is addressed below at [46]f.

Personal property

1. His Honour referred to Resilient's contention that Spitfire's claim to the R&D Refunds was at most a right to require the Commissioner to perform his duties under the tax legislation, enforceable by public law remedies, which does not create a debt or proprietary right in favour of Spitfire, referring to Health Insurance Commission v Peverill (1994) 179 CLR 226; [1994] HCA 8; Commissioner of Taxation of the Commonwealth of Australia v 4 Doonan Street Collinsville Pty Ltd (in liq) [2016] NSWCA 69; (2016) 332 ALR 349; and that Spitfire's interest could be described as a "mere expectancy" only: Re Langdon Forge Group Ltd (in liq) [2017] FCA 170; (2017) 118 ACSR 434.
2. His Honour also referred to authorities dealing with other provisions of the tax legislation that required the Commissioner to make a refund where the taxpayer has paid a greater amount on account of tax than is required by the legislation: Commissioner of Taxation v Official Receiver (1956) 95 CLR 300; [1956] HCA 24 (Travis' case); Re Mondin; Ex parte Bradshaw (1985) 6 FCR 430; Re Evans; Ex parte Sweeney v Evans (1995) 61 FCR 556; (1995) 134 ALR 597 (Re Evans); and the distinction between property, including a chose in action, and a mere expectancy: Norman v Federal Commissioner of Taxation (1963) 109 CLR 9; [1963] HCA 21.
3. At J[37], his Honour summarised his reasons for concluding that the R&D Refunds were "personal property" for the purposes of s 340(1) of the PPSA: … In summary, Spitfire Corporation's right to require those refunds arose under the applicable statutory regime; as Mr Izzo points out, Spitfire Corporation was obliged to bring the research and development offsets to account in calculating its assessable income, and did not have a free choice whether to claim or require the R&D Refunds to which it was entitled; that right was not subject to contingencies of the kind that I addressed in RCR Tomlinson, where the research and development was done prior to the Appointment Date; and the fact that the returns needed to be lodged to require the refunds in money did not deprive the right to them of the character of property; and it is not to the point that the right to the R&D Refunds was not enforceable against the Commissioner of Taxation personally, where it is analogous to the entitlements considered in Mondin and Evans, and (although this is not necessary to this conclusion) they would likely be enforceable against the Commonwealth as a debt owed by the Commonwealth. It is not necessary to address Mr Izzo's further submission as to an analogy with the question when a liability to pay tax arises in order to reach that conclusion.

Account

1. His Honour rejected Resilient's contentions on the "account" issue and concluded that the R&D Refunds were an "account" for the purpose of s 340(5)(a) of the PPSA and therefore, the R&D Refunds were a "circulating asset" for the purposes of s 340(1)(a) of the PPSA at the appointment date: at J[65].

Monetary obligation

1. His Honour approached the question of whether the R&D Tax Refunds were a "monetary obligation" as being substantially similar to the question of whether the R&D Refunds were "property". At J[47]-[48], his Honour referred without apparent disapproval to the statements made by the New Zealand Court of Appeal in Strategic Finance Ltd (in liq) v Bridgman [2013] NZCA 357; [2013] NZLR 650, in relation to the term "monetary obligation" in the definition of "account receivable" in s 16 of the Personal Property Securities Act 1999 (NZ) (PPSA NZ), including the summary (at Strategic at [83]) that a "monetary obligation" is: … an existing legal obligation on another party to pay an identifiable monetary sum to the company on an ascertainable date. The obligation must be legally enforceable by the company [at the relevant date] on the basis that the other party has an existing liability to make the payment.
2. At J[49]-[50], his Honour distinguished Strategic and Re Langdon on the ground that in those cases the assets found not to be available for the benefit of priority creditors were characterised as effectively arising wholly from post‑liquidation (Strategic) or post‑receivership (Re Langdon) circumstances.
3. At J[51]-[56], his Honour referred to other cases involving post-insolvency receipts: Hammersley Iron Pty Ltd v Forge Group Power Pty Ltd (in liq) (Recs and Mgrs Apptd) (2017) 52 WAR 90; [2017] WASC 152 (Forge 1); Hammersley Iron Pty Ltd v Forge Power Pty Ltd (2018) 53 WAR 325; [2018] WASCA 163 (Forge 2); Commonwealth v Byrnes (2018) 54 VR 230; [2018] VSCA 41 (Amerind); and RCR Tomlinson at [77]-[78].
4. His Honour gave the following reasons at J[58] for rejecting Resilient's characterisation of the R&D Refunds as not being a "monetary obligation" at the appointment date: … I do not accept this submission, given the case law to which I have referred in paragraphs 47-56 above, where Spitfire Corporation's claim against the Commonwealth for research and developments offsets arising prior to the Appointment Date was such a claim. Resilient also submits that any obligation on the part of the Commissioner of Taxation to make payment to Spitfire Corporation in respect of the R&D Refunds was dependent on the Commissioner of Taxation issuing the relevant assessment, and this had not occurred at the Appointment Date. I also do not accept that submission, given the statutory provisions to which Mr Izzo referred, and the fact that the obligation in respect of the R&D Refund is properly treated as enforceable against the Commonwealth although not the Commissioner of Taxation personally for the reasons I noted above. Mr Burnett also submits that the R&D Refunds are analogous to the "surplus proceeds" identified in RCR Tomlinson above at [77], being an entitlement "which might or might not arise depending on the actions of a third party" and "which had no element of obligation about it". I do not accept that submission, where Spitfire Corporation had both a statutory entitlement to the R&D Refunds, enforceable against the Commonwealth as noted above, and an obligation to claim that entitlement in its returns.

Arise from providing services

1. At J[59]-[62], his Honour referred to the competing submissions as to whether the "account" "arises from" "providing services … in the ordinary course of providing services of that kind". Resilient submitted that any entitlement to receive the R&D Refunds arises from processes under the relevant taxation legislation, which have no necessary connection with any "services" provided by Spitfire. The liquidators submitted that the entitlement to the R&D Refunds arose from Spitfire's ordinary business of providing services in that those research and development activities are central to the development of the services to be utilised by the customers of the Spitfire group, for example, by using the Merlin platform. The Commonwealth supported that submission and further submitted that the "account" here arose from the provision by Spitfire of services to its customers in the 2018-19 and 2019-20 financial years.
2. His Honour summarised the evidence of the rights and services which the Spitfire group provided to its customers at J[60]: The Commonwealth points to the evidence that the rights and services which the Spitfire Group provided to its customers included access to software which was marketed as innovative, and refers to references in the application for the R&D Refunds to Spitfire Group's business objectives of providing cutting edge technology solutions and innovation (Ex L6, 7); references in that application to the continued development of the financial platform with the inclusion of new features as part of the Merlin technology offering (Ex L6, 7-8); the fact that the Spitfire Group used Merlin software as its wealth management platform (Johnson 19(i)(C); 19(i)(A)); and a press release (Ex R1) which refers to Spitfire Corporation's dedication to transforming technology solutions available to the financial services industry, providing a "core solution" which was a total wealth and single ecosystem digital platform and continually innovating; and the duties of employees including championing the continuous improvement of the company's software development process and practices (Ex L1, 384).
3. His Honour gave the following reasons for rejecting Resilient's contentions at J[62]-[63]: … Mr Izzo submits and I accept, that Resilient's submission that the refund did not arise because Spitfire Corporation granted rights or provided services, but rather because it became entitled to claim a deduction, neglects the fact that it was claiming that deduction because it was undertaking research activities in order to provide services to its customers. Mr Izzo also points out that s 340(5)(a) of the PPSA does not require that the refund itself arise in the ordinary course of business, where the relevant services are provided in the ordinary course of providing services of that kind. He observes that, in Forge 2 above at [198], the Western Australian Court of Appeal rejected an argument that the proceeds of a wrongful call on bank guarantees did not arise in the ordinary course of business because Forge was in the business of construction work and not deriving income from the provision of bank guarantees. He submits and I accept that Spitfire Corporation's obligation to pay tax (and its entitlement to refunds of tax) as a result of conducting business and earning income in the ordinary course is analogous to Forge's need to provide bank guarantees in the course of doing construction work. He also points out that, in Commonwealth v Byrnes above at [415], the Victorian Court of Appeal accepted that money owed to the taxpayer company by the Commissioner of Taxation as a result of overpayments of tax before the appointment date was an account arising from providing services in the ordinary course of business within the meaning of ss 10 and 340(5)(a) of the PPSA, and Resilient's approach is inconsistent with that decision. I am satisfied, on the agreed facts and the evidence to which I have referred, that the "account" constituted by the R&D Refunds at least "arise[s] from" the provision of research and development services that were conducted by the subsidiaries that undertook research within the Spitfire Group for the benefit of all companies within the Spitfire Group, in the business of providing services of that kind for the benefit of the companies in the Spitfire Group that traded with customers, and the ultimate benefit of external customers of the Spitfire Group who used its products and services. I also accept that the R&D Refunds arose in the ordinary course of Spitfire Corporation's business, although it seems to me that the point may be put more precisely by recognising that the relevant research and development services were provided in the ordinary course of the business of the subsidiaries that undertook research, again for the benefit of the companies within the Spitfire Group that traded with customers, and the ultimate benefit of external customers of the Spitfire Group who used its products and services.

Grounds 1 and 2: Whether the R&D Refunds were an "account" for the purposes of s 340(5)(a) so as to fall within "personal property" in s 340(1)(a)?

1. The expression "personal property" appears throughout s 340, including in pars 340(1)(a) and 340(5). Subject to contrary indication, it is presumed that the words "personal property" has the same meaning whenever they appear in the PPSA: Regional Express Holdings Ltd v Australian Federation of Air Pilots (2017) 262 CLR 456; [2017] HCA 55 at [21]. There is no suggestion of any contrary indication in s 340.
2. As a general proposition there is some artificiality in treating the concept of "personal property" for the purpose of s 340 as conceptually distinct from the two groups of assets specified in s 340(1)(a) and (b). The question of whether a right or claim to a tax refund is "personal property" for the purpose of s 340(1) is best addressed in context. Here, the relevant context is whether, at the appointment date, the R&D Refunds were personal property for the purpose of s 340(1)(a) because the R&D Refunds were an "account" within s 340(5)(a).
3. This question has two aspects: first, whether the R&D Refunds were a "monetary obligation" at the appointment date; and second, if so, was the entitlement to the R&D Refunds an obligation that "arises from" the provision of services "in the ordinary course of a business of providing services of that kind".
4. So much was acknowledged by Resilient in oral argument. It accepted that if it failed on the "personal property" issue raised by ground 1, then the Court would find on ground 2 that "there is an obligation that arose on the part of either the Commissioner or the Commonwealth to pay money to the taxpayer", that is, the R&D Refunds were a "monetary obligation" at the appointment date.

Whether the R&D Refunds were a "monetary obligation" at the appointment date so as to fall within "personal property" in PPSA, s 340(1)(a)

1. It is assistance first to refer to the operation of the tax legislation giving rise to the entitlement to the R&D Refunds.

Entitlement to tax offset for R&D expenditure

1. Under the ITAA 1997, certain tax offsets - referred to as tax offsets which are subject to the refundable tax offset rules - are to be applied against an entity's basic income tax liability for an income year and in respect of which it is entitled to a refund to the extent that an amount of the tax offset remains unpaid. Thus, item 40 of the table in s 63-10 provides: 63‑10 Priority rules (1) If you have one or more *tax offsets for an income year, apply them against your basic income tax liability in the order shown in the table. To the extent that an amount of a tax offset remains, the table tells you what happens to it. Order of applying tax offsets Item Tax offset What happens to any excess … 40 *Tax offset that is subject to the refundable tax offset rules (see Division 67) You can get a refund of the remaining amount …

1. ITAA 1997, s 67-30 contains the refundable tax offset rules to which an R&D entity is entitled, relevantly: 67-30 Refundable tax offsets - R&D (1) A tax offset to which an R&D entity is entitled under section 355-100 (about R&D) for an income year is subject to the refundable tax offset rules if the amount of the tax offset is worked out in accordance with item 1 of the table in subsection 355-100(1) (disregarding subsection 355-100(3)).
2. The Guide to Division 355 (Research and Development) states in ITAA 1997, s 355-1: • an R&D entity may be entitled to a tax offset for R&D activities. The tax offset may be a refundable tax offset if the R&D entities' aggregated turnover is less than $20 million; • to be entitled to a tax offset, the R&D entity needs one or more notional deductions under Div 355; • there are two main kinds of notional deductions. One is for expenditure on R&D activities. The other is for the declining value of tangible depreciating assets used for R&D activities.
3. An "R&D entity" is defined to include a body corporate incorporated under an Australian law: ITAA 1997, s 355-35(1)(a). Spitfire was an R&D entity registered under the Industry, Research and Development Act 1986 (Cth), s 27A for the income years 2019 and 2020.
4. Section 355-100(1) provides that an R&D entity is entitled to a tax offset for an income year equal to the percentage, set out in the table, of the total of the amounts (if any) that the entity can deduct for the income year under any or all of the following provisions: (a) s 355-205 (R&D expenditure); (b) s 355-305 (decline in value of R&D assets); (c) s 355-315 (balancing adjustment for R&D assets); (d) s 355-480 (earlier year associate R&D expenditure); (e) s 355-520 (decline in value of R&D partnership assets); (f) s 355-525 (balancing adjustment for R&D partnership assets); or (g) s 355-580 (CRC contributions).
5. Item 1 of the table in s 355-100(1) stipulates a percentage of 43.5% which applies where the R&D entity's aggregate turnover for the income year is less than $20 million and item 2 of the table does not apply. Item 2 is not presently relevant.
6. The effect of s 67-30(1) is that a tax offset to which an R&D entity is entitled under s 355-100 for an income year is subject to the refundable tax offset rules if all or part of the tax offset is worked out using the percentage in item 1 of the table in s 355-100(1). That means that if the amount of the offset exceeds the tax liability, the entity is entitled to a refund of the remaining amount.
7. It is not in dispute that the Spitfire group engaged in research and development activities that qualified it to lodge an application for a research and development tax incentive (as it did for each of the 2019 and 2020 income years: see [18] above) and to receive a "tax offset" determined in accordance with ITAA 1997, s 355-100: at J[26].
8. The parties diverged as to whether this entitlement was a chose in action at the appointment date. This depends on the operation of the tax legislation, relevantly item 40 of the table in ITAA 1997 s 63-10, read together with the ordinary taxing provisions in ITAA 1997, s 4-10(1)-(3) and s 5-5 and the provisions in relation to the lodgement and assessment of returns (Income Tax Assessment Act 1936 (Cth) (ITAA 1936), s 161, 161AA, 166, 166A, 170. The relevant provisions of the ITAA 1997 and ITAA 1936 are referred to next.
9. The critical question is whether the right or claim to the R&D Refunds arose upon the making of an assessment (as Resilient contends), or whether it arose at the conclusion of the relevant income year for 2019 and 2020, which was prior to the appointment date of 7 August 2020 (as the Commonwealth contends and the primary judge found: at J[26] and [37]).

Liability to pay tax

1. The source of the taxpayer's obligation to pay income tax for each income year is s 5 of the Income Tax Act 1986 (Cth): Federal Commissioner of Taxation v H (2010) 188 FCR 440; [2010] FCAFC 128 at [43] (Downes, Edmonds and Greenwood JJ) (FCT v H); Undershaft (No 1) Ltd v Federal Commissioner of Taxation (2009) 175 FCR 150; [2009] FCA 41 at [47] (Lindgren J); Addy v Commissioner of Taxation [2021] HCA 34; (2021) 394 ALR 214 at [9].
2. The ITAA 1997 contains the ordinary taxing provisions for taxpayers. A company must pay income tax for each financial year: s 4-10(1). Income tax, payable by a company taxpayer in any income year, is worked out by reference to the company's taxable income (s 4-10(2)), according to the formula in s 4-10(3): "Income tax equals (Taxable income x Rate) - Tax offsets". In the method statement appearing in s 4-10(3), Step 3 refers to the list of tax offsets in s 13-1, which in turn identifies the tax offsets, relevantly, in "R&D Div 355". Step 4 states: Subtract your tax offsets from your basic income tax liability. The result is how much income tax you owe for the financial year.
3. Note 1 in s 4-10(3) states: Division 63 explains what happens if your tax offsets exceed your basic income tax liability. How the excess is treated depends on the type of tax offset.
4. Income tax for a financial year is only due and payable if the Commissioner assesses income tax for the year: ITAA 1997, s 5-5(2). For taxpayers which are a full self-assessment entity, such as Spitfire, the income tax is due and payable on the first day of the sixth month after the end of the income year: s 5-5(4).

The assessment process

1. ITAA 1936 contains the assessment provisions. Every person must, if required by the Commissioner by notice published in the Gazette, give to the Commissioner a return for a year of income within the period specified in the notice: s 161(1). A "full self-assessment taxpayer" includes a company: ITAA 1936, s 6. The contents of returns of a full self-assessment taxpayer are specified in s 161AA. Relevantly, a full self-assessment taxpayer must, in a return for a year of income, specify: (a) its taxable income or its net income for that year of income (or that it has no taxable income or net income for that year); and (b) the amount of the tax payable on that taxable income or net income (or that no tax is payable); and (ba) the total of its tax offset refunds for that year of income (or that it can get no such refund for that year of income); … [Emphasis added.]
2. ITAA 1936, s 6 defines "tax offset refund" to have the same meaning as in the ITAA 1997, s 995-1, namely, "a refund you can get as mentioned in item 40 of the table in sub-sec 63-10(1) (refundable tax offsets) for the income year".
3. Section 166 deals with the making of an assessment. It provides that the Commissioner must make an assessment of the amount of taxable income (or that there is no taxable income) of any taxpayer, as well as the amount of tax payable thereon (or that no tax is payable) and the total of the taxpayer's tax offset refunds (or that the taxpayer can get no such refunds).
4. Section 166A deals with self-assessment. It provides in s 166A(3) for a deemed assessment by the Commissioner on the date a full self-assessment taxpayer lodges a return: (c) the Commissioner is taken to have made an assessment of: (i) the taxable income or net income (or an assessment that there is no taxable income or net income); and (ii) the tax payable on that income (or that no tax is payable); and (iii) the total of the taxpayer's tax offset refunds for the year of income (or that the taxpayer can get no such refunds); in accordance with what the taxpayer specified in the return; (d) the assessment is taken to have been made on the day on which the return is lodged; (e) on and after the day on which the Commissioner is taken to have made the assessment, the return is taken to be a notice of the assessment: (i) under the hand of the Commissioner; and (ii) served on the taxpayer on the day on which the Commissioner is taken to have made the assessment.
5. The Commissioner may amend an assessment pursuant to ITAA 1936, s 170 in the circumstances specified, subject to the qualifications in the table to s 170.

Administration Act

1. Schedule 1 to the Taxation Administration Act 1953 (Cth) (Administration Act) includes Part IIB (Running balance accounts, application of payments and credits, and related matters). This provides that the Commissioner may establish one or more system of accounts for primary tax debts, each account to be known as a Running Balance Account (or RBA): s 8AAZC(1) and (2). The Commissioner may allocate a primary tax debt to an RBA that has been established for that type of debt: s 8AAZD(1).
2. Division 3 of Pt IIB deals with the treatment of payments, credits and RBA surpluses and contains s 8AAZL, which provides how the Commissioner must treat payments received, credits that an entity is entitled to under a taxation law, and an RBA surplus of an entity, relevantly, by using either Method 1 in s 8AAZLA or Method 2 in s 8AAZLB. It is not necessary to refer to the detail of the two methods of allocation. There is no evidence that the Commissioner established an RBA with respect to Spitfire.
3. Division 3A deals with refunds of RBA surpluses and credits and contains s 8AAZLF which provides: 8AAZLF Commissioner must refund RBA surpluses and credits (1) The Commissioner must refund to an entity so much of: (a) an RBA surplus of the entity; or (b) a credit (including an excess non RBA credit) in the entity's favour; as the Commissioner does not allocate or apply under Division 3. Voluntary payments only to be refunded on request. …
4. Importantly, the reference to a "credit" in s 8AAZLF(1)(b) includes an amount that the Commissioner must pay to a taxpayer under a taxation law, whether or not described as a credit: s 8AAZA. Thus, as the Commonwealth correctly submitted, s 8AAZLF presupposes the independent existence of obligations under taxation laws, and it concerns obligations of the Commissioner, not the Commonwealth.
5. Part 4-15 (Collection and recovery of tax-related liabilities and other amounts) contains s 250-5 which relevantly provides: 250-5 Some important concepts about tax related liabilities (1) A tax related liability may arise for an entity before it becomes due and payable by that entity. Example: Under Part 2 5, an entity's liability to pay a withheld amount may arise before the amount is due and payable. (2) For some tax related liabilities, an assessment needs to be made before the amount of the relevant liability becomes due and payable. Example: Under Division 5 of the Income Tax Assessment Act 1997, an amount of income tax needs to be assessed before it becomes due and payable. …

Submissions

1. It is of assistance at this point to summaries the competing arguments.

Resilient's argument

1. Resilient contends that, Spitfire had at the most, a right to require the Commissioner of Taxation to perform statutory duties under taxation legislation, enforceable by public law remedies. It is said that such an entitlement does not create a debt or proprietary right in favour of Spitfire. The earliest point in time at which Spitfire could be said to have any "property" arising from the entitlement to receive the R&D Refunds was the date on which the Commissioner issued the relevant assessment under the taxation legislation or a deemed assessment was taken to have been issued: ITAA 1936, s 166, 166A.
2. Thus, it is said that the R&D Refunds are not properly characterised as a "monetary obligation" at the appointment date because any obligation on the Commissioner to make payment to Spitfire only arose after the Commissioner issued the relevant assessment, which had not occurred at the appointment date.
3. The essential propositions upon which Resilient's relies are: 1. Spitfire, as an R&D entity, was entitled to a "tax offset" determined in accordance with s 355-100 of the ITAA 1997, which permits the R&D entity to recover a percentage of the available deductions for the entity in respect of certain expenditure, depreciation of assets and notional deductions: see ITAA 1997, ss 355-205, 355-305, 355-480, 355-520 and 355-580; 2. an R&D entity is entitled to a "tax offset refund" in respect of the tax offset to which the R&D entity is entitled: ITAA 1997, definition of "tax offset refund", s 63-10 and s 67-30; 3. after a tax return is submitted, the Commissioner is required, based on the returns and other information in the Commissioner's possession, to make an assessment of the amounts included in the return, including the total of the taxpayer's "tax offset refunds": ITAA 1936, s 166; and 4. subject to the application of any "credit" in accordance with running account balance rules, the Commissioner is required to refund any "credit" amount to the entity: Administration Act, s 8AAZLF.

The Commonwealth's argument

1. The Commonwealth says that the primary judge was correct to find that Spitfire had a right, which came into existence at the conclusion of the relevant year of income, to receive R&D Refunds. It is said that this right was a chose in action which existed independently of, and anterior to, the making of any assessment.
2. The essential propositions upon which the Commonwealth relies are: 1. Spitfire had a statutory entitlement to receive the tax offset refunds: ITAA 1997, ss 4-10, 63-10, 67-30, 355-100. The existence of that entitlement did not depend on an assessment being made: ITAA 1997, s 5-5; Administration Act Sch 1, ss 250-5, 250-10, 255-1, 255-5. Like the correlative obligation to pay income tax, the entitlement to a tax offset arose at the conclusion of the income tax year: cf Binetter v Federal Commissioner of Taxation (2016) 249 FCR 534; [2016] FCAFC 163 at [148]-[150]; FCT v H at [39]; 2. Spitfire's statutory entitlement to receive the tax offset refunds gave it an action in debt under the principle in Shepherd v Hills (1855) 11 Ex Ch 55 at 67; 156 ER 743 at 747, which was applied in Pape v Federal Commissioner of Taxation (2009) 238 CLR 1; [2009] HCA 23 at [38], [140], [452]. That was a chose in action and therefore personal property: Loxton v Moir (1914) 18 CLR 360 at 379; [1914] HCA 89 (Rich J); 3. the chose in action was a right against the Commonwealth rather than against the Commissioner: Travis' case at 311, 324; 4. it matters not (if it be the case) that Spitfire could not recover its debt until after the making of an assessment. A chose in action can exist even if there is no debt presently recoverable by action: Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 26; [1963] HCA 21 (Windeyer J). Thus, rights to recover excess provisional or group tax paid exist as choses in action before any assessment is made: Re Mondin; Re Evans; and 5. Spitfire's entitlement arose independently of s 8AAZLF of the Administration Act. Part IIB, in which s 8AAZLF appears, presupposes the independent existence of obligations under taxation laws: Administration Act, ss 8AAZC, 8AAZD, 8AAZL, 8AAZLA. Further, it concerns the obligations of the Commissioner, not the Commonwealth.

Matters not in issue

1. Some matters which are not in issue should be noted. One is that the Commonwealth did not contend that the R&D Refunds were future property at the end of the 2019 and 2020 income years. The other is that there is no challenge on appeal to his Honour's approach that a "monetary obligation" is "an existing legal obligation on another party to pay an identifiable monetary sum to the company on an ascertainable date", consistent with the Australian authorities referred to by his Honour at J[51]-[56], drawing upon the New Zealand decision in Strategic at [83]: see Forge 1 at [250], [260]; and RCR Tomlinson at [77]-[78].

Reasoning

1. It is convenient to address the competing arguments by reference to principle and the statutory provisions, and then consider the authorities to which the parties' referred by way of analogy. It should be said immediately that there is no authority directly in point, and the assistance to be obtained from authorities concerning tax refunds in other contexts is limited.
2. A chose in action is a personal right of property which can only be claimed or enforced by action, as distinct from taking physical possession. A mere expectancy is the possibility of a future right: Belgravia Nominees Pty Ltd v Lowe Pty Ltd [2015] WASCA 143 at [6]; see also Heydon JD, Leeming MJ, Turner PG, Meagher, Meagher, Gummow & Lehane's Equity Doctrines & Remedies (5th ed, 2015, Lexis Nexis Butterworths) at 6-005, 6-190, 6-200. In Loxton v Moir at 379; [1914] HCA 89, Rich J said of a "chose in action": The phrase "chose in action" is used in different senses, but its primary sense is that of a right enforceable by action. It may also be used to describe the right of action itself, when considered as part of the property of the person entitled to sue. A right to sue for a sum of money is a chose in action, and it is a proprietary right.
3. The parties used the phrase "chose in action" in its primary sense of a right enforceable by action. Importantly, on the Commonwealth's argument the relevant chose in action in respect of the R&D Refunds was against the Commonwealth, not the Commissioner: Travis' case at 311 (Williams J), 324 (Fullagar J), 305 (Dixon CJ agreeing with both).
4. The operation of the ITAA 1997 with respect to refundable tax offsets has been described at [50]f above. The priority rules in the table in s 63-10(1) for applying a tax offset against the basic income tax liability, identify "[w]hat happens to any excess", being any excess of the tax offset over the basic income tax liability. Relevantly, item 40 in the table in s 63-10(1) deals with a tax offset that is subject to the refundable tax offset rules in Div 67, which includes refundable tax offsets for R&D as referred to in s 67-30.
5. The meaning of the words in item 40 in the table ("You can get a refund of the remaining amount") must be determined in context which includes the ordinary taxing provisions for taxpayers in ITAA 1997; specifically, s 4-10, which provides that income tax, payable by a company taxpayer in any income year, is worked out by reference to the company's taxable income (s 4-10(2)), according to the formula in s 4-10(3) and s 5-5 which specifies when income tax is due and payable.
6. The context also includes the obligation imposed on the Commissioner by s 8AAZLF in Part IIB of the Administration Act, to refund any "credit" amount to the entity which is not allocated or applied under Div 3. However, as the Commonwealth submitted, there is a distinction in Part IIB of the Administration Act between primary payment obligations of the Commissioner and the taxpayer, and the secondary obligations with respect to the surplus or deficit of an RBA: Federal Commissioner of Taxation v Travelex Ltd (2021) 271 CLR 605; [2021] HCA 8 at [30]. The effect of s 8AAZLF(1)(b) in Part IIB is that it imposes an obligation on the Commissioner in relation to a "credit" under a taxation law, whether or not the Commissioner establishes an RBA under Div 3. For the Commissioner's obligation in s 8AAZLF to be engaged, it is necessary to identify an amount which the Commissioner must pay to a taxpayer under a taxation law.
7. It might be said that the words "you can get" imply there is power in someone else, such as the Commissioner, to decide whether to refund the excess of the tax offset over the basic income tax liability. However, the difficulty in reading these words this way is that when the definition of "tax offset refund" (see [65] above) is read into the obligation of a full self-assessment taxpayer under ITAA 1936, s 161AA(ba), the combination of the taxpayer's obligation to specify in its return the total of its "tax offsets refunds" for the year of income and the deemed assessment arising upon lodgement of such a return under ITAA 1936, s 166A is inconsistent with there being a power in someone else, such as the Commissioner, to decide whether to refund any excess of the tax offset over the basic income tax liability.
8. The Commonwealth says that the right to a tax offset refund exists at the conclusion of the relevant year of income because it is at that point that the taxpayer is capable of knowing both its basic income tax liability and the tax offsets which it is entitled to subtract from that liability. I do not agree. The fact that an entitlement to a tax offset refund is capable of calculation at the end of the income year is not determinative of whether the taxpayer has a chose in action against the Commonwealth refund at that date.
9. The Commonwealth also says, by reference to obiter statements in Travis' case at 311 (Williams J) and 324 (Fullagar J), that the taxpayer has an action against the Commonwealth to recover a tax offset refund. Alternatively, the Commonwealth relies upon the rule in Shepherd v Hills at 747, which was applied in Pape at [38], [140], [452] where Parke B said: There is no doubt that wherever an act of parliament creates a duty or obligation to pay money, an action will lie for its recovery, unless the act contains some provision to the contrary.
10. Whilst these arguments have some common features, it is appropriate to address them separately.

Travis' case

1. Travis' case concerned the refund of deductions on account of tax for earnings in the period subsequent to making of a sequestration order. At issue was whether the tax refund was after-acquired property of the bankrupt which vested in the trustee in bankruptcy or represented earnings to which the bankrupt was entitled in the absence of an order of the Court under the provisions of the Bankruptcy Act 1924 (Cth).
2. Williams J referred to the statutory duty imposed on the Commissioner to refund any tax overpaid at 309: Section 221H(2)(b) [of the Income Tax and Social Services Contribution Assessment Act 1936-1953] contains the special provision providing for a refund where the total sum collected by instalments from an employee in receipt of salary or wages exceeds the amount of tax he is liable to pay. The refund becomes payable when the tax payable by the employee in respect of the year of income has been assessed. It should therefore be repaid to the employee when he receives his notice of assessment.
3. His Honour said of that duty at 310: It is not a duty which confers on taxpayers a right to bring an action against the commissioner personally. If it created an ordinary chose in action, it could be assigned, the assignee could give the commissioner notice of the assignment and the commissioner would become subject to all the incidents of law and equity relating to choses in action which are assignable.
4. His Honour continued at 311-312: The duty imposed on the commissioner to make a refund by the sections already referred to is a duty to do so on behalf of the Commonwealth. An action to recover such moneys could presumably be brought against the Commonwealth. The Act requires the commissioner to make the refunds. But it requires him to do so on behalf of the Crown. If the Commonwealth refused to make the necessary funds available for the purpose the commis­sioner would be under no personal liability to refund. There is no section in the Act corresponding to s. 209 enabling the commissioner or a deputy commissioner to be sued for a refund in his official name. The duty imposed upon the commissioner to refund by s. 221H (2) is of this character. The amount of the refund could not be recovered in an action brought by the salary or wage earner against the commissioner personally or in his official capacity. … The obligation to make the refund is simply one of a number of statutory duties imposed upon the commissioner by s. 221H(2). It is of the same quality as the other obligations contained in the sub-section. The commissioner is under a public duty to salary and wage earners to perform all of them, and to make and issue an assessment showing the state of account between him and them so that they will know whether they are entitled to a refund or not and be placed in a position to claim it. These are duties which could be enforced by mandamus. … If public funds are made available to the commissioner to enable him to fulfil his duty to make a refund he could presumably be ordered to make it by mandamus. But if the Commonwealth pursued the completely unlikely course of refusing to make such funds available the commissioner could not be ordered to repay the excess personally and the only course open to the taxpayer would appear to be to sue the Commonwealth. (Citations omitted; emphasis added.)
5. Fullagar J also found that the refund was "earnings" of the bankrupt. His Honour described the refund at 324 as "nothing really analogous to an ordinary 'debt' but simply a statutory direction to an officer of the Commonwealth to cause a payment to be made out of consolidated revenue to a specified person". Fullagar J said that it was not necessary to determine whether an action "might" lie against the Commonwealth in respect of these matters (at 324).
6. The obiter statements of Williams J and Fullagar J in Travis' case do not assist the Commonwealth's argument that Spitfire had a chose in action against the Commonwealth at the end of the relevant income years, 2019 and 2020.
7. First, the language of "you can get" a refund in ITAA 1997, s 63-10(1) does not speak of obligation or duty imposed on the Commissioner.
8. Second, even if these words were capable of being read as imposing an obligation or duty on the Commissioner to pay a refund it does not follow that the taxpayer has a chose in action against the Commonwealth at the end of the income year.
9. As Smithers J observed in Re Mondin at 435, insofar as Williams J in Travis' case said (at 311) that an action to recover the excess over tax liability (which is revealed in a relevant assessment) might be brought against the Commonwealth, it would seem that Williams J considered that no such action could be brought by the taxpayer before the submission of his or her tax return for the relevant year(s), or possibly before the issue of an assessment in respect thereof.

Shepherd v Hills

1. The Commonwealth says that like the correlative obligation to pay income tax which arises at the end of the financial year (ITAA 1997, s 4-10(1)), the entitlement to a tax offset refund also arises at the end of the income year. This entitlement is said to be a "right" which arises independently of when any tax return is lodged or assessed. Relying on the rule in Shepherd v Hills, it is said that the taxpayer has a chose in action against the Commonwealth at the end of the income year to recover the refund because the Commissioner's duty or obligation to pay a refund at the end of the income year is implicit in the taxpayer's correlative obligation to pay income tax: ITAA 1997, s 5-5.
2. The premise of this argument is flawed. The position is more nuanced than suggested by the Commonwealth's argument. It can be accepted that the taxpayer's obligation to pay income tax in the future that comes into existence at the end of the income year. This obligation has been described as an "inchoate" liability, distinguishing it from the right of action by the Commissioner against the taxpayer to recover income tax once an assessment is issued.
3. As Mason J said in Clyne v Deputy Commissioner of Taxation (1981) 150 CLR 1 at 16, (Aickin and Wilson JJ agreeing at 23, Brennan J agreeing at 24), income tax is "due" in the relevant sense of "owing" by the taxpayer to the Commissioner when it is assessed and notice of assessment is issued or deemed to have been issued.
4. Subsequent authority accords with the view in Clyne's case. In FCT v H at [39], in a passage cited with approval in the joint judgment in Commissioner of Taxation v Carter [2022] HCA 10; (2022) 399 ALR 521 at [27], Downes, Edmonds and Greenwood JJ said of the distinction in Clyne's case: It is common ground in this proceeding that unless and until an assessment is made and notice is served of that assessment, income tax is not due, and nor is it payable before the date fixed by s 204 of the ITAA 36: Clyne, per Mason J at 16 (with whom Aickin and Wilson JJ agreed), Brennan J also agreeing on this issue at 24. Nor does it appear to be in dispute that unless and until an assessment is made and notice is served of that assessment, the Commissioner has no legal right to recover an amount of income tax. On the other hand, the correctness of these statements is no impediment to a conclusion that prior to the making of the assessment and service of notice of that assessment, the taxpayer had an obligation to pay income tax in the future, and that obligation came into existence on 30 June of the year of income in respect of which the income was derived. [Emphasis added]
5. Similarly, in Binetter at [148]-[149], Siopis, Perram and Davies JJ said of the taxpayer's "inchoate liability" to tax before an assessment is issued: … The only time a debt becomes due is, therefore, on the issue of a notice of assessment and it becomes payable (and, given s 204, apparently due for a second time) at the date specified in the notice for payment. The existence of this inchoate liability has been accepted by the Full Court of this Court before. In Taylor v Commissioner of Taxation (1987) 16 FCR 212, the question was whether unassessed tax was a 'liability' within the meaning of s 82 of the Bankruptcy Act 1966 (Cth). Woodward and Northrop JJ surveyed Mendonca and Clyne and concluded (at 218): In the light of these expressions of opinion, it is necessary to consider whether the provisions of s 82 of the Bankruptcy Act apply where an assessment has not been issued and served at the time of the bankruptcy. It should be emphasised that this question arises from the application of an Act other than the Income Tax Act: cf what Mason J said in Clyne's case (supra). On a literal application, the liability imposed by s 17 of the Income Tax Act would seem to be a liability within s 82 of the Bankruptcy Act. In the absence of an assessment, the tax is not due, in the sense of owing, and is certainly not payable. It is a liability contingent on an assessment being issued and served. If an assessment is issued and served before the discharge of the bankrupt, does the bankrupt become subject to that liability "by reason of an obligation incurred before the date of the bankruptcy"? [Emphasis added]
6. And in Federal Commissioner of Taxation v Offshore Oil NL (1980) 32 ALR 193, speaking in the context of objections to an amended assessment, Deane J referred at 200 to the "inchoate liability" at any stage of the process of assessment represented by components of assessable income being regarded on the credit side of the account and components of various deductions being regarded on the debit side of the account. His Honour then observed that: … an item in the ascertainment of the components of assessable income when the relevant liability is the inchoate liability represented by the derivation of assessable income or the exclusion of, or the decrease in, a deduction in the assessment of taxable income where the relevant liability is the inchoate liability represented by attributability of taxable income.
7. Contrary to the Commonwealth's submission, the rule in Shepherd v Hills has no application. Accepting that the taxpayer has an obligation to pay income tax in the future which comes into existence at the end of the income year, it does not follow that it is implicit in the tax legislation, such as ITAA 1997, s 63-10(1) or s 4-10, that the Commissioner has an obligation or duty at the end of an income year to pay a tax offset refund to the taxpayer.
8. It should be concluded that a taxpayer is not entitled to enforce payment of a tax offset refund against the Commonwealth at the end of the relevant income year. It is next necessary to consider whether this conclusion is affected by any of the cases to which the parties drew attention by analogy.

Other cases

1. No assistance is to be gained from the cases to which the Commonwealth referred as analogous.
2. Pape involved an application of the rule in Shepherd v Hills to a "bespoke" tax bonus scheme under ss 5 and 7 of the Tax Bonus for Working Australians Act (No 2) 2009 (Cth). In oral argument, the Commonwealth acknowledged that the present case is not comparable to Pape and there was no analogy to the facts in Pape.
3. Re Mondin (provisional tax) and Re Evans (group tax) both involved a taxpayer's rights to a refund of overpaid tax which for the purpose of the Bankruptcy Act 1966 (Cth) was held to be property which existed before any assessment was issued.
4. The essential reasoning of Smithers J in Re Mondin, by reference to Travis' case, was that the Commissioner's duty to make a refund was enforceable by mandamus but the entitlement to a refund of provisional tax was not enforceable against the Commissioner until an assessment was made (at 433). His Honour said that from the moment of payment of provisional tax there exists a legal relationship between the Commonwealth and the taxpayer created by the statute pursuant to which, subject to the provisions of the ITAA 1936, s 221YE, an amount which is in excess of the amount required for the purpose expressed in s 221YB(1) shall be refunded (at 435-436). His Honour referred to the "stated purpose of the payment" of provisional tax, and observed that "[t]here is an obligation in the Commonwealth to hold the amount paid, upon fulfilment of the purpose, to the use of the taxpayer" (at 436).
5. Re Evans takes the matter no further. It involved whether a right to obtain a refund of group tax deductions in respect of income earned prior to bankruptcy was property which existed at the date of bankruptcy, and therefore is a right which vested in the trustee. Spender J followed and applied the decision in Re Mondin on the basis that there is no distinction in principle between payments made by way of provisional tax and deductions paid by way of group deductions (at 560-561).
6. The Commonwealth says that there is no reason why the position should be different with respect to refundable tax offsets, given that the entitlement to receive a tax offset is an integer in the calculation of the liability to pay tax; that is, the two are inextricably linked. It is said that the essential reasoning in both cases is that the right to a refund was measurable, and its payment could have been obtained by the taxpayer, simply by lodging a return: Re Mondin at 433-434; Re Evans at 562. Reliance was placed on the statement by Smithers J in Re Mondin at 436, in a passage quoted by Spender J in Re Evans at 562: An obligation to pay a sum of money in the future, measurable according to the operation of law in relation to such events as may occur before the time for payment, is a chose in action. Such a situation is to be distinguished from one in which there is merely a possibility or expectation: see Norman v Commissioner of Taxation (Cth) (1963) 109 CLR 9.
7. Re Mondin and Re Evans are distinguishable. Both depended on the application of the reasoning in Travis' case to the pre-existing legal relationship that existed between the Commonwealth and the taxpayer arising as a result of the payment of provisional tax (Re Mondin) or group tax (Re Evans). In each case, the legislation imposed an obligation or duty on the Commissioner to pay back monies to the taxpayer. In explaining the nature of the Commissioner's obligation or duty to pay a refund in Re Mondin, Smithers J used the language of restitution. There is no such relationship in the present case. The entitlement of Spitfire to a tax offset refund is not connected to the previous payment of tax by Spitfire, and the ITAA 1997 does not impose an obligation or duty on the Commissioner to pay a tax offset refund.
8. Nor does Amerind assist the Commissioner. The taxpayer in that case was owed money by the Commissioner as a result of overpayments of tax before the appointment date of the receivers. (The nature of those payments is not identified in the judgment on appeal or below.) The Victorian Court of Appeal held that the tax refunds reflected an entitlement that the company in receivership had prior to the appointment date and therefore tax refunds issued post-appointment were circulating assets for the purpose of s 433(3) of the Corporations Act: at [414]-[415]. The Commonwealth says that the approach in Amerind supports treating the R&D Refunds as a right existing before the appointment date because the entitlement to the refund depends entirely on events which occurred before that date.
9. That submission cannot be accepted given the very brief reasons in Amerind at [414]-[415] do not permit an analogy to be drawn for the character of the R&D Refunds. Amerind is also distinguishable because its premise, that the company was owed money by the Commissioner at the appointment date, is not applicable to the R&D Refunds in this case.
10. Finally, the Commonwealth says that at a broader conceptual level there is no difficulty with the proposition that a taxpayer may have a present right, in the nature of a legal chose in action, to obtain a tax offset refund before the making of an assessment enables it to receive that refund. It is said that it matters not that the right to sue is not presently enforceable before the appointment date, referring to the well-known statement by Windeyer J in Norman v Commissioner of Taxation at 26 that: A legal right to be paid money at a future date is … a present chose in action, at all events when it depends upon an existing contract on the repudiation of which an action could be brought for anticipatory breach.
11. Norman is distinguishable. The entitlement in Norman to be paid money in the future depended on an existing contract as the source of the entitlement to sue, whereas for the R&D Refunds, there was no legal entitlement to sue (or recover any monies) at the appointment date. That depended on an assessment being issued and no assessment existed at the appointment date.
12. Turning to the first of the cases relied upon by Resilient by analogy, 4 Doonan Street involved an application in 2012 by a company in liquidation to amend its income tax return for the 2011 year. The Commissioner acceded to the application and issued an amended assessment on 14 May 2013. In issue was the treatment of debits and credits in the RBA established by the Commissioner pursuant to Pt IIB of the Administration Act and the application of those provisions during the winding up of the company.
13. The Court (Gleeson and Leeming JJA, and Sackville AJA) held at [75] that prior to the Commissioner issuing the amended notice of assessment, the company had no entitlement to claim payment of the sum identified in its amended return for the relevant tax year, and that after the amended notice of assessment was issued, the company would have had administrative law remedies available to it to enforce its entitlement to payment, referring to Travis' case and Health Insurance Commission v Peverill at 242-243 (Brennan J). The Commonwealth correctly submits that the passage in 4 Doonan Street at [75] was directed to the issue of the remedies against the Commissioner. It did not address whether the taxpayer may have had an action against the Commonwealth.
14. The Court rejected the taxpayer's submission that the amount of the RBA of an entity on a particular day was the property of the company; the Court reasoned that the amount ultimately recoverable from the Commissioner depended on any subsequent debits made by the Commissioner under Pt IIB: at [76]. That was the context in which the Court observed that the taxpayer's argument could be resolved "relatively simply": at [74]. 4 Doonan Street is not determinative of the present case.
15. Langdon is distinguishable. As the primary judge correctly observed at J[33], the circumstances giving rise to the refund in that case are materially different to the present case. Langdon involved a different legislative provision (ITAA 1936, s 170) that applied to the tax treatment of long-term contracts, which permits the Commissioner to issue an amended assessment in changed circumstances. The tax refund was received by the receivers of Forge Group after the Commissioner had amended earlier assessments in circumstances where long-term contracts were terminated by other parties after the appointment of the administrators.

Conclusion

1. The challenge to the primary judge's conclusions on the PPSA personal property and monetary obligation issues should be upheld. At the end of the relevant income years, 2019 and 2020, Spitfire did not have a chose in action against the Commissioner (or the Commonwealth) for the tax offset refunds. It follows that the appeal should be allowed on grounds 1 and 2.
2. Although the above reasoning is dispositive of these grounds, it is appropriate to address the related issue raised by the definition of an "account" in PPSA, s 10. That is, assuming the R&D Refunds are a "monetary obligation" at the appointment date, whether the R&D Refunds "arise from" providing services "in the ordinary course of a business of providing services of that kind".

Assuming the R&D Refunds were an account, did the account (ie monetary obligation) "arises from" providing services

1. Assuming that the R&D Refunds were a "monetary obligation" at the appointment date, Resilient says that the R&D Refunds did not arise from Spitfire providing services in the sense of "in the ordinary course of a business of providing services of that kind" (financial platform services). It says that any entitlement to the R&D Refunds arises by reason of Spitfire incurring expenses or holding depreciating assets and, to the extent Spitfire was undertaking research and development activities, it was relevantly a consumer of goods and services (for which it became entitled to claim a "tax offset refund" in respect of the notional deduction for R&D expenditure) not a provider of goods and services.
2. The Commonwealth says that Resilient's submission takes an unnecessarily narrow approach to the meaning of an "account" in PPSA, s 340(5)(a). It is also said that the submission is inconsistent with appellate authority, referring to Forge 2 and Amerind.

Reasoning

1. Both PPSA, s 340(5)(a) and the definition of an account in PPSA, s 10 require a causal connection between the account (ie monetary obligation) and the "provision of services" in the requisite sense of "the ordinary course of a business of providing services of that kind".
2. In the context of the causal connection required where a claim must "arise from" a matter, it has been said that it will satisfy such requirement if a claim originates in, springs from or has its foundation, in that matter: Quintano v BW Rose Pty Ltd [2008] NSWSC 793 at [7] (Brereton J); cf Walton v National Employers' Mutual General Insurance Association Ltd [1973] 2 NSWLR 73 at 84 (Bowen JA). Here, the matter from which the account must arise is services provided by Spitfire in the ordinary course of a business of providing services of that kind.
3. The phrase "ordinary course of business" has been considered in a variety of contexts: see the discussion in Burns v McFarlane (1940) 64 CLR 108 at 125, in relation to the "ordinary course of business" element of the defence to a claim for recovery of a preferential payment under the former s 95 of the Bankruptcy Act 1924 (Cth) (see now s 122(2) of the Bankruptcy Act). Rich, Dixon and McTiernan JJ noted at 125 that possibly the application of the expression in bankruptcy is not so wide as is in relation to floating charges; cf the discussion in relation to floating charges in Reynolds Bros (Motors) Pty Ltd v Esanda Ltd (1983) 8 ACLR 422 at 428 (Mahoney JA), 431 (Priestley JA).
4. In Reynolds Bros, Priestley JA said at 431 that: The course of the business will begin with the first transaction in an intended course of business … and continue until the last transaction. Transactions will undoubtedly be in the ordinary course of business if, within its course, they are made for the purpose of carrying on the business or to achieve ends not disparate from those of the business activity (citations omitted).
5. Of course, care must be adopted in seeking to find an analogy with the phrase "ordinary course of business" in other contexts. Here, the words "arise from" do not require the account (ie monetary obligation) to arise in the ordinary course of business; it is the services provided by Spitfire which must be provided in the ordinary course of a business of providing services of that kind, and the account must arise from the provision of services answering that description.
6. This directs attention to the evidence of the services provided by Spitfire, and whether the R&D Refunds arise from the provision of services in the ordinary course of a business of providing services of that kind.

The services provided by Spitfire in the ordinary course of business

1. The statement of facts (par [4]) describes, at a relatively high level, the nature of the services provided by Spitfire as "wealth management and share analysis technology platforms". Mr Johnston explained in his affidavit that the "financial platform services" provided by Spitfire were developed by Spitfire Asset Management utilising "Merlin" software, a wealth management platform.
2. What those financial platform services entailed and to whom such services were provided is given more content in Spitfire's financial statements for the year ended 30 June 2018. Spitfires' principal activities were described in those financial statements as: … a premier provider of financial platform services to the wealth management and private banking industry. Spitfire's proprietary system enable wealth managers to service client assets in an automated and highly skilled manner encompassing client onboarding, transacting and reporting for any asset class. The Company's platform can be white-labelled to meet its clients branding requirements or it can provided customers with its "Spitfire" branded platform. Our business is facilitated through B2B channels and provides customers with the advantage of automating their middle and back office requirements, which in turn allows them to scale their business.
3. The nature of the R&D projects and activities which the Spitfire group relevantly engaged in during the 2019 and 2020 tax years is described in its R&D Tax Incentive applications as "project support" for (1) the design and development of an automated asset and investment management platform (Merlin) for "wealth management, family offices and institutions", and (2) the design and development of a multi-currency multi-asset portfolio modelling and rebalancing engine: see [18] above.
4. During the income years 2019 and 2020, Spitfire incurred expenditure on "R&D activities" to which ITAA 1997, s 355-210 (conditions for R&D activities) applied. It is necessary to keep in mind that the term "R&D activities" is defined in s 355-20 as "core R&D activities" or "supporting R&D activities", which expressions are in turn defined in ss 355-25 and 355-30. The definition of "core R&D activities" refers to experimental activities whose outcome cannot be known or determined in advance, and that are conducted for the purpose of generating new knowledge (including new knowledge in the form of new or improved materials, products, devices, processes or services): s 355-25(1).
5. The definition of "supporting R&D activities" refers to activities directly related to core R&D activities: s 355-30(1). If an activity is of a type referred to in s 355-25(2) (being exclusions from core R&D activities) or produces goods or services or is directly related to producing goods or services, the activity is a "supporting R&D activity" only if it is undertaken for the dominant purpose of supporting core R&D activities.
6. The Research and Development Tax Incentive schedules attached to Spitfire's 2019 and 2020 tax returns contained the following information in relation to the "R&D expenditure" in respect of which a notional deduction was claimed: 1. for 2019 the schedule recorded total allocated notional R&D deductions of $2,692,827 for "R&D expenditure" comprised four categories: contract expenditure ($47,605), salary expenditure ($2,079,068), other expenditure ($495,003), and expenditure paid to associates ($71,196). The refundable R&D tax offset claimed in the 2019 tax year was $1,171,399.32; and 2. for 2020 the schedule recorded total allocated notional R&D deductions of $2,213,804 for "R&D expenditure" for in four categories: contract expenditure ($66,002), salary expenditure ($1,727,163), other expenditure $283,764), and expenditure paid to associates ($136,875). The refundable R&D tax offset claimed in the 2020 tax year was $963,004.74.
7. His Honour considered that the R&D activities of the Spitfire group were for the ultimate benefit of its customers who used Spitfire's products and services, and that this was a sufficient connection between the "account" (ie monetary obligation) and the provision of services in the ordinary course of a business of providing services of that kind (financial platform services): at J[62].
8. Resilient correctly identifies the difficulty with his Honour's approach. It overlooks that any entitlement to receive the R&D Refunds arose from "undertaking research activities" (at J[62]), being the first step in his Honour's analysis, and not by reason of the provision of services to customers (financial platform services). The provision of services to customers in the form of financial platform services was a separate step. His Honour erred in construing the causal connection in s 340(5)(a) such that the incurring of R&D expenditure enables the provision of services, rather than whether the R&D Refund arises from the provision of services in the requisite sense.
9. The entitlement to a tax offset in respect of R&D expenditure arises from the Spitfire group incurring deductible expenses or becoming entitled to claim a deduction in respect of depreciating assets, rather than providing financial platform services to Spitfire's customers. The entitlement to receive the R&D Refunds does not arise in the ordinary course of providing services of that kind (financial platform services). Even if it be accepted that the R&D activities were for the ultimate benefit of Spitfires' customers who used its financial platform services, the entitlement to receive R&D Refunds does not arise in the ordinary course of a business of providing such services (financial platform services).
10. The Commonwealth says that his Honour's conclusion (at J[63]), that R&D Refunds arose from research and development activities undertaken by the Spitfire group for the ultimate benefit of external customers of the group who used its products and services, was informed by the point that Spitfire's business was in innovative software products. It is said that the corollary of this is that Spitfire would invest resources in researching and developing improvements to its products and the relevant causal nexus exists between the monetary obligation and the provision of the services.
11. As Resilient correctly submitted, the difficulty with this argument is that the services giving rise to the account identified by the Commonwealth are not the same as those relied upon by his Honour. His Honour took the approach that the relevant services were "the provision of research and development services that were conducted by the subsidiaries that undertook research within the Spitfire group for the benefit of all companies within the Spitfire group … and the ultimate benefit of external customers of the Spitfire group who used its products and services": at J[63]. On this approach, the research and development activities were the relevant services, and they were provided by some Spitfire group companies to (or for the benefit of) other Spitfire group companies. By contrast, the Commonwealth's argument involves the proposition that, where Spitfire was claiming deductions because it was undertaking research activities in order to provide services to its customers, the relevant causal nexus exists. The relevant services, according to the Commonwealth's argument, are ones provided by some Spitfire group companies to customers, and the provision of those services is said to be enabled or advanced by the research activities.
12. This argument ignored the significance of the definitions of core R&D activities and supporting R&D activities referred to at [136]-[137] above. It is an error to equate R&D activities in the form of experimental activities whose outcome cannot be known or determined in advance, and that are conducted for the purpose of generating new knowledge, with the provision of services in the ordinary course of a business of providing services intra-group in the form of paying wages and expense of staff engaged in R&D activities. Similarly, it is an error to equate such R&D activities with the provision of services in the ordinary course of a business of providing services of that kind (financial platform services).
13. Even if it be accepted that research activities were undertaken and that, ultimately, the purpose of those activities was to advance, at some point in the future, the provision of services to customers, that does not satisfy the statutory test in PPSA, s 340(5)(a). No monetary obligation in the form of the R&D Refunds arises from the provision of such services.

Other cases

1. The Commonwealth relied on Forge 2 and Amerind, which are said to support its approach by analogy. Neither decision supports the Commonwealth's argument.
2. Forge 2 is distinguishable. It involved a claim by the receivers of Forge that the proceeds of a wrongful call by Hammersley on performance guarantees provided by Forge in connection with construction work undertaken by Forge was an account as defined by PPSA, s 10. In finding that Hammersley's obligation to repay the money was an "account", the Western Australian Court of Appeal rejected an argument that the maintenance of bank guarantees to which Forge gave Hammersley rights of recourse under construction contract was not in the ordinary course of providing services of that kind (building services), explaining at [198]. It is an obligation to pay an amount of money, being the proceeds of the wrongful call. Further, the obligation arises from the maintenance of bank guarantees to which Forge gave Hamersley rights of recourse under GC 4.2. The maintenance of the guarantees for recourse by Hamersley was an aspect of providing building services in the ordinary course of providing services of that kind (building services). Alternatively, the maintenance of the guarantees for recourse by Hamersley was itself a service provided by Forge in the ordinary course of a business of providing services of that kind (the securing of the performance of building work). Further or alternatively, the granting by Forge of the right to Hamersley to have recourse to the guarantees pursuant to GC 4.2 was the granting of a right in the ordinary course of a business of granting rights of that kind (the granting of rights to secure the performance of building work). Forge's contention that the 'Securities Claims' are not 'accounts' because Forge's business from which it earned income 'was construction work and engineering work' and not 'income [derived] from the provision of bank securities', cannot be accepted.
3. The Commonwealth says that just as Forge had to provide bank guarantees in the course of doing construction work, so Spitfire had to pay tax (and was entitled to tax offset refunds) as a result of conducting business and earning income in the ordinary course. The suggested analogy is inapt.
4. There was a sufficient causal connection in Forge 2 between the account (the proceeds of the wrongful call on bank guarantees) and the provision of building services by Forge for reasons which included that the maintenance of the guarantees for recourse by Hamersley was an aspect of providing building services in the ordinary course of providing services of that kind (building services). By contrast, the R&D Refunds were not an aspect of providing the financial platform services in the ordinary course of providing services of that kind (financial platform services).
5. Amerind is also distinguishable. First, while the nature of the tax refund is not disclosed in the reasons in Amerind, the Commonwealth did not suggest that it involved a tax offset for R&D expenditure. Second, insofar as the reasoning in Amerind at [415] described the tax refunds as arising from "providing services in the ordinary course of business", it did not identify the relevant services nor address how the tax refunds were said to arise from the provision of services "in the ordinary course of providing services of that (unidentified) kind".
6. No assistance can be derived from Amerind for the present case. It says nothing of the causal connection between the tax refund in that case and the provision of services in the ordinary course of providing services of that kind, which services are unidentified in the judgment.

Conclusion

1. On the assumption that at the appointment date, the R&D Refunds were an "monetary obligation" for the purpose of the definition of "account" in PPSA, s 10 the primary judge erred in finding that the R&D Refunds answered the description of an account that arises from the provision of services "in the ordinary course of providing services of that kind".

The identity of the employer: the primary judge's reasons

1. His Honour determined the issue of the identity of the employer by reference to the "substance and totality of the relationship" between the parties: at J[66]. His Honour considered himself bound by the decisions of this Court in Pitcher v Langford (1991) 23 NSWLR 142 at 161 and Shaw v Bindaree Beef Pty Ltd [2007] NSWCA 125, where the "totality of the relationship" had been considered in determining the identity of the employer: at J[76], [78].
2. His Honour rejected Resilient's contention that a narrower approach is required that does not permit inquiry beyond the written employment contract (other than in cases of sham or contractual variation), relying upon three recent High Court decisions: Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1; (2022) 398 ALR 404 at [40]-[48] (Kiefel CJ, Keane and Edelman JJ), [172]-[173] (Gordon J); ZG Operations Australia Pty Ltd v Jamsek [2022] HCA 2; (2022) 398 ALR 603 at [8] (Kiefel CJ, Keane and Edelman JJ), [109] (Gordon and Steward JJ); and WorkPac Pty Ltd v Rossato (2021) 271 CLR 456; [2021] HCA 23 at [57] (Kiefel CJ, Keane, Gordon, Edelman, Steward and Gleeson JJ).
3. In distinguishing the High Court decisions, his Honour accepted Resilient's submission that there is a real distinction between the three High Court decisions and the "true employer" cases: at J[74]. His Honour found that the three High Court decisions are concerned with ascertaining the "character" or "characterisation" of the parties' relationship (Rossato at [62], [63]; Personnel Contracting at [59], [174]; ZG Operations at [8]) and dealt with whether an employee was engaged on a casual or permanent basis (Rossato), or whether a worker was an employee or an independent contractor (Personnel Contracting and ZG Operations); by contrast, the "true employer" cases are directed to ascertaining the identity of the party by whom a putative employee is engaged, referring to Gothard v Davey [2010] FCA 1163; (2010) 80 ACSR 56 at [52]; Bindaree Beef at [59]. His Honour concluded that the decisions in Pitcher v Langford and Bindaree Beef had not been expressly or impliedly overruled by the three High Court decisions: at J[76].
4. Turning to the facts, his Honour found that the terms of the employment contracts were consistent with the employees being retained for the benefit of the Spitfire group generally (of which Spitfire was the parent) rather than Aspirio alone, referring to the following obligations in Mr Markey's employment contract (by way of example) at J[81]: … the obligation to "use your best endeavours to promote the Group's reputation" (cl 5(b)(v), Ex KEB-1, 373); the obligation to "refrain from acting in conflict with the Group's interests" (cl 5(b)(vi)); the obligation to "protect the Group's Confidential Information and Intellectual Property" (cl 5(b)(viii)), with "Confidential Information" defined by reference to the information of the "Group" in cl 1.1; the obligation to take all reasonable steps to "maintain the Group's Property in good working order" and "ensure the security of and protect the Group's Property" (cl 12(a)); and an entitlement to participate in the "Group's Employee Share Option Plan" (cl 9(a)). and concluded that, so far as Aspirio was the employer, it can fairly be characterised as, in substance, an agent for Spitfire as an undisclosed principal. His Honour also noted (at J[81]) that the proposition that Aspirio acted as agent for Spitfire or other companies within the group in entering employment relationships also finds some support in Recital A of the Deed of Forgiveness dated 30 June 2019, which is set out at [19] above.
5. His Honour then addressed the factors which supported the inference of agency (at J[82]-[89]), before concluding that Spitfire was the "true employer" of the identified employees at J[90]. Given the findings that I have reached above, it seems to me that Spitfire Corporation rather than Aspirio was the true employer of the relevant employees, at least for the purposes of Pt 5.6 Div 6 of the Corporations Act. The three recent decisions of the High Court do not require a different result, and, unless I was bound by appellate authority to do so, I would not adopt an approach that would facilitate the defeat of the provisions protecting employee entitlements in Pt 5.6 Div 6 of the Corporations Act by treating employment contracts (including with assetless companies) as conclusive, unless they are varied or a sham in the strict sense, of the true employer for the purposes of those provisions.

The approach to the identity of the employer

1. Resilient says that the primary judge erred in considering the substance and totality of the relationship in determining who was the employer of certain-named employees. It is said that Pitcher v Langford and Bindaree Beef, the authorities on which his Honour relied, are inconsistent with or were overruled by the High Court's decisions in Personnel Contracting, Workpak and ZG Operations.
2. In Personnel Contracting and ZG Operations it was held that where there is a written agreement, the legal rights and obligations established by the written agreement should be decisive of the character of the relationship. In Rossato it was said (at [57]) that "[a] court can determine the character of a legal relationship between the parties only by reference to the legal rights and obligations which constitute that relationship".
3. The Commonwealth says that the suggested inconsistency with the three High Court cases is not relevant in this case because the identity of the employer can be (and was) determined by reference to principles of agency. As explained below, it should be concluded that there is no error in the finding of agency. That is a sufficient basis to dispose of the suggested inconsistency between his Honour's reliance upon the "true employer" cases and the three High Court cases.
4. The Commonwealth also says that the so-called "true employer" cases deal with a different topic to that in the High Court cases, being the identity of the party by whom a putative employee is engaged. That should be accepted. The "true employer" cases are not limited to the statutory context of Pitcher v Langford and Bindaree Beef, but include contracts of employment more generally: see, for example, Golden Plains Fodder Australia Pty Ltd v Millard (2007) 99 SASR 461; [2007] SASC 391 at [33]; Sturesteps v McGrath [2010] NSWSC 169 at [14]-[19]; Re DH International Pty Ltd (in liq) [2017] NSWSC 870; (2017) 121 ACSR 585 at [79]; Gothard at [52]-[64]; Re Branded Media Holdings Pty Limited (in liquidation) [2020] NSWSC 557 at [31].
5. If it was necessary to decide this question, I would agree that his Honour was correct in distinguishing the three High Court decisions (at J[74]) on the basis that there is a real distinction between the High Court decisions and the "true employer" cases. The former are concerned with ascertaining the "character" or "characterisation" of the parties' relationship (Rossato at [62], [63]; Personnel Contracting at [59], [174]; ZG Operations at [8]) and dealt with whether an employee was engaged on a casual or permanent basis (Rossato), or whether a worker was an employee or an independent contractor (Personnel Contracting and ZG Operations). By contrast, the "true employer" cases are concerned with ascertaining the identity of the party by whom a putative employee is engaged: see, for example, Gothard v Davey at [52]; Bindaree Beef at [59].
6. Nor should it be accepted, as Resilient submits, that Pitcher v Langford and Bindaree Beef were expressly or impliedly overruled the three High Court cases. Those cases were not considered by the three High Court cases. Insofar as Pitcher v Langford was cited in a footnote by Gageler and Gleeson JJ in Personnel Contracting at [135], fn 218, that does not assist Resilient's argument. Read in context, the footnote does not cast doubt on Pitcher v Langford. Nor were Pitcher v Langford and Bindaree Beef impliedly overruled by the High Court cases. As indicated, the "true employer" cases concerning the identity of the employer were not in issue in Personnel Contracting, Rossato or ZG Operations.
7. It is not to the point, as Resilient submits, that because the judgments of Priestley JA (at 154-155) and Handley JA (at 160-161) in Pitcher v Langford referred to R v Foster; Ex parte Commonwealth Life (Amalgamated Assurances) Ltd (1952) 85 CLR 138 at 151 and 155; [1952] HCA 10, and the High Court said in Personnel Contracting that the relevant passages in Foster are concerned with variation of contract and do not support a court departing from the terms of the written contract in construing the relationship between the parties (at [49]-[52], [179]), that this is to be taken as impliedly overruling the reasoning in Pitcher v Langford. The reasoning in Pitcher v Langford was not limited to the citation of passages from Foster alone. Priestley JA, in dissent, found at 154-155 that the conduct of the parties was not pursuant to their written agreement, "but upon the basis of the arrangements in force upon earlier shearings", being a reference to the nature of the worker's employment as a shearer. That analysis was consistent with an estoppel; it seems his Honour had in mind a conventional estoppel. Handley JA spoke at 160-162 of whether the parties had ignored or abandoned their written contract. Neither the principles of estoppel nor abandonment of contract were in issue in the three High Court cases.
8. The contention that his Honour erred in considering the "substance and totality of the relationship" when determining who was the employer of the relevant employees should be rejected.

No inconsistency and incoherence in the law

1. One further matter should be mentioned. It is said that the approach contended for by the Commonwealth leads to inconsistency and incoherence in the law. The spectre of incoherence is misplaced. There is no inconsistency between the application of orthodox contractual principles in determining the character of the parties' relationship the subject of a written agreement and the application of the principles of agency to determine the parties to a contract.
2. The doctrine of undisclosed principal is well established. Brief reference to some basic principles is necessary.
3. In Keighey, Maxstead & Co v Durant [1901] AC 240 at 261, Lord Lindley said: The explanation of the doctrine that an undisclosed principal can sue and be sued on a contract made in the name of another person with his authority is, that the contract is in truth, although not in form, that of the undisclosed principal himself.
4. Lord Lloyd noted in Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199 at 207 that the development of the law with respect to undisclosed principals may seem anomalous, since it ran counter to fundamental principles of privity of contract, nevertheless, it was justified on grounds of commercial convenience. See also Mooney v Williams (1905) 3 CLR 1 at 8 (Griffith CJ); Teheran-Europe Co Ltd v ST Belton (Tractors) Ltd [1968] 2 QB 545 at 552 (Lord Denning); and Maynegrain Pty Ltd v Compafina Bank [1982] 2 NSWLR 141 at 150-151 (Hope JA).
5. No reliance is placed by Resilient on either of the exceptions to the doctrine of undisclosed principal. Those exceptions are that (a) the express or implied terms of a contract provide that the actual parties are the real and only principals, and (b) that the contract must not be of such a kind that the personality of the contracting parties is material; for example, a contract to paint a portrait: Winstonu Pty Ltd v Piston [2001] FCA 541 at [30] (Gyles J, Beaument ACJ and Stone J agreeing). See also Siu Yin Kwan at 207; Hardinge v Schidor [2002] NSWCA 277 at [34] (Powell JA, Mason P agreeing); Filatona Trading Ltd v Navigator Equities Ltd [2020] EWCA Civ 109 at [44]-[46].
6. One limitation on the operation of the doctrine of undisclosed principal was stated by Hope JA in Maynegrain at 150: This position of the undisclosed principal arises only where the agent was in truth his agent at the time of the transaction; a person claiming as principal cannot purport to ratify as the act of his agent a transaction entered into without his authority by one who purports at the time to be a principal, and does not disclose that he is an agent: Keighley, Maxsted & Co v Durant [1901] AC 240.
7. To the extent that Resilient contends that Aspirio was not the agent of Spitfire at the time of entering into the relevant contracts of employment, this issue is next addressed below.

The totality of the relationship

1. Resilient says that on a "multifactorial analysis", the features of an employment relationship point predominantly to Aspirio being the relevant employer. It is said his Honour's reasoning contained error because it took certain facts and then drew an inference which could not rationally be drawn.
2. Addressing the factors to which Resilient drew attention, the first three - that Aspirio was recorded as the employer on the employment contracts, issued payslips, and reported "pay as you go" withholding tax to the ATO - reflect the business model adopted by Spitfire of having Aspirio as the "employer of record". Documents of this kind, whilst relevant, are not determinative of who is the employer.
3. The fourth factor - that Aspirio paid workers compensation insurance and was identified as the employer for the purposes of that insurance - takes it no further. Moreover, as the Commonwealth correctly submits, the only documentary evidence of such payments is of one occasion on which Aspirio paid an insurance premium in the amount of $1,377.15 on 23 March 2018 and the monies which enabled it to make that payment were advanced to it by Spitfire on 24 January 2018 by way of intercompany transfer of $15,000.
4. The fifth factor - that the payment of the employee obligations by Spitfire were recorded on the intercompany loan balance owing from Aspirio to Spitfire - must be assessed in the broader context of the financial arrangements between Spitfire and Aspirio. As his Honour found at J[88], Spitfire and other group companies did not transfer funds to Aspirio to allow it to pay employees; Spitfire in fact paid those employees from its own funds, and then recorded that payment as giving rise to an intercompany liability owed to it by Aspirio which did not have the capacity to discharge it. Further, Spitfire had the necessary assets to pay, and did pay, employees throughout the relevant period. Aspirio did not, and that is a significant matter, notwithstanding that Spitfire received funding from other entities in the Group, which Aspirio did not.
5. The sixth factor - that Aspirio was the employer of staff who worked within the Spitfire group for an "intelligible business purpose", in the form of greater administrative efficiencies - misses the point. As Buchanan J explained in Fair Work Ombudsman v Ramsey Food Processing Pty Ltd (2011) 198 FCR 174; [2011] FCA 1176 at [78], where it is not "possible to identify a rational explanation for the arrangement [which] explanation must be satisfactorily related to an intelligible business objective": … doctrines of agency, at least, may operate to defeat a bare claim of independence and isolated liability, supported only by a bare reference to separate incorporation.
6. It was observed in both Ramsey Food Processing at [78] and Re Branded Media at [26], that there is unlikely to be an intelligible business objective where the separate employing company in a group is completely reliant on the company to which it supplies labour; does not charge for the labour which it supplies; and is at all times incapable of meeting its obligations to employees. In this case, his Honour found at J[85] that there was no "intelligible business objective" consistent with the "financial and administrative organisation of the business" in Aspirio being the employer of the relevant employees. No error has been demonstrated in this finding.
7. Turning to the factors which the Commonwealth says provide a sound foundation for his Honour's conclusion, it is not in dispute that the evidence included the following matters: (1) Aspirio did not carry out any business activities, other than as a formal employer of record. It did not have any external clients or customers; (2) Aspirio did not have substantial assets or a revenue stream sufficient to meet its liabilities to the employees, it incurred a loss for each of the relevant financial years and was incapable of meeting the employees' entitlements at all relevant times; (3) Spitfire paid the employees directly, and although this was initially accounted for as an intercompany loan from Spitfire to Aspirio, the loan was forgiven by a deed of forgiveness. Aspirio did not ever repay the debt to Spitfire, and it would not have had the assets or the revenue to meet that liability were it ever called on to do so; (4) the employees undertook work for various companies in the Spitfire group, each of which conducted separate business activities; and (5) there was no evidence of a contractual arrangement between Aspirio and Spitfire, such as a management services agreement, that would allow Aspirio to receive payment for the services it undertook in making its employees available for the benefit of the Spitfire group.
8. Resilient responds that an inference of agency could not rationally be drawn from this evidence because his Honour failed to give primacy to the written contracts of employment. That ignored the fact that his Honour did consider the terms of the written contracts between Aspirio and the relevant employees, and there is no challenge to the finding that the contractual terms identified by way of example at [156] above (at J[81]) are consistent with the employees being retained for the benefit of the Spitfire group generally (of which Spitfire was the parent) rather than Aspirio alone: at J[81].
9. Resilient says that it does not follow from the contractual terms identified by his Honour that Aspirio was acting as agent for an undisclosed principal. But the reasons for the finding of agency did not stop there. His Honour also relied upon the evidence of Mr Johnson for Aspirio being named as employer, the recital in the deed of forgiveness, the financial arrangements between Spitfire and Aspirio, and the absence of an "intelligible business objective" consistent with the "financial and administrative organisation of the business" in Aspirio being the employer of the relevant employees.
10. It is said that none of these matters are an indicium of agency, they are just indicia of the way the Spitfire group was structured and there is no rational inference of agency. The difficulty with this submission is that Mr Johnson's evidence of the business model, together with the evidence of the financial arrangements, supports rather than undermines his Honour's finding of agency.
11. It is said that the fact that another company was funding Aspirio to pay the employees is insufficient to give rise to a reasonable inference of agency. But that misunderstands the significance of the evidence of the financial arrangements. As his Honour said at J[85], that there was no formal structure by which Aspirio was paid by any other company in the group for making its "employees" available was consistent with Aspirio acting merely as an agent for payment on behalf of Spitfire, and not as an independent employer.
12. It is said that there is no rational basis for drawing an inference of agency from the evidence of financial arrangements made after the employment contracts were entered. But the reasonable inference is that the financial arrangements were in place from the time Aspirio first nominally entered contracts of employment with employees within the Spitfire group. That inference is to be drawn from the fact that (a) Aspirio never had a business or assets or revenue from which to pay employees if it was ever called upon to pay them; (b) there was no labour hire arrangement between Aspirio and Spitfire; and (c) all employee payments were made directly by Spitfire itself. Further, to the extent that book entries recorded a parent loan to Aspirio, that such loan was ultimately forgiven in June 2019 is consistent with the mutual intention of Spitfire and Aspirio that Aspirio was the undisclosed agent of Spitfire.
13. There was no error in his Honour's finding that in entering employment contracts with employees within the Spitfire group, Aspirio was acting as the agent for an undisclosed principal, Spitfire.

Third issue: costs

1. Given the different outcome on appeal, ground 4 does not arise since the costs discretion below must be re-exercised.
2. It is common ground between the liquidators and Resilient that if Resilient succeeds on appeal, as it has, then the costs order against Resilient should be set aside, and the appropriate order is that there be no order as to costs below as between Resilient and the liquidators.
3. Otherwise, order 3 of 12 May 2022 relating the to the plaintiffs' costs below should remain undisturbed.

Costs on appeal

1. Although the draft notice of appeal sought an order that the liquidators pay Resilient's costs of the appeal, this was an error. In oral argument, Resilient confirmed that it sought a costs order against the Commonwealth.
2. In opposing any costs order against it, the Commonwealth submitted that the appeal should be seen as a continuum of the liquidators' application for directions, and that its role on the appeal, like that of Resilient, was that of the proper contradictor in respect of the money held by the liquidators. It is said that it is inappropriate to order costs against the unsuccessful contradictor on appeal.
3. The force of this submission is greatly diminished by the fact that having been joined as a respondent in this Court, the Commonwealth took an active role in opposing the appeal and sought to advance its own interests in relation to the subject matter of the appeal.
4. Alternatively, the Commonwealth says that if Resilient has success on some grounds but not others there should be some apportionment of costs. The essential question is whether, given the mixed outcome on the appeal, some other order should be made than the default position that costs follow the event: Uniform Civil Procedure Rules 2005 (UCPR), r 42.1. The relevant principles are summarised in Bostik Australia Pty Ltd v Liddiard (No 2) [2009] NSWCA 304 at [38] (Beazley, Ipp and Basten JJA).
5. It is appropriate to apportion costs as between the different issues since the circulating assets issue and the employer issue involved separable and discrete issues. As a matter of impression, it can be expected that Resilient would have incurred more costs on the circulating assets issue which was of greater more legal complexity than the employer issue and assumed the major significance on the appeal in terms of its treatment in the parties' submissions and focus of oral address. Adopting the broad brush approach that is appropriate in a case like this, in my view, the Commonwealth should pay 70 per cent of Resilient's costs in this Court.
6. The liquidators sought an order that their costs be paid out of the fund. Such an order is appropriate: Australian Securities and Investment Commission v GDK Financial Solutions Pty Ltd (in liq) (No 4) [2008] FCA 858; (2008) 169 FCR 497 at [8]-[10] (Finkelstein J).
7. The liquidators also sought an order that whichever of Resilient or the Commonwealth was unsuccessful on the appeal should pay the liquidators' costs of the appeal. Given that the liquidators' appearance on the appeal was necessary to seek to uphold the costs order obtained against Resilient, and the liquidators otherwise took a neutral role on the substantive issues, it is appropriate that the liquidators' costs should be paid by the Commonwealth as the losing party in what was essentially adversarial litigation between creditors claiming priority to a fund held by the liquidators.

Conclusion and Orders

1. The appeal in relation to the circulating assets issue has succeeded, and otherwise failed on the employer issue. Resilient is entitled to the R&D Refunds received by Spitfire, subject to any equitable lien of the liquidators. The directions to the liquidators in order 1 made on 12 May 2022 should be set aside and, in lieu, directions should be given to the liquidators in accordance with the conclusion on the circulating assets issue.
2. I propose the following orders: 1. Grant leave to appeal. 2. Direct the appellant to file a notice of appeal in the form contained in the White Book within 7 days. 3. Appeal allowed on grounds 1 and 2 and otherwise is dismissed. 4. Set aside order 1 and order 3 made on 12 May 2022, and in lieu, give directions to the first plaintiffs as liquidators of the second and third plaintiffs in accordance with (5) below and make the costs order in accordance with (6) below. 5. Pursuant to s 90-15 of the Insolvency Practice Schedule (Corporations) (IPS), being Sch 2 to the Corporations Act 2001 (Cth) (Act), the first plaintiffs as liquidators of the second plaintiff, Spitfire Corporation Limited (in liq) (Spitfire), are justified in: 1. treating the amount received by Spitfire by way of research and development tax incentive refunds in the total amount of $1,989,849.09 while Spitfire was in liquidation (R&D Refunds) as not subject to a circulating security interest for the purposes of s 561 of the Act; and 2. subject to any equitable lien of the first respondents, paying the R&D Refunds to the Resilient Investment Group Pty Ltd (Resilient). 1. There be no order as to costs as between Resilient and the plaintiffs in the proceedings below, and otherwise the plaintiffs' costs of the proceeding be costs in the liquidation of the second plaintiff. 2. The fourth respondent to pay 70 per cent of the appellant's costs in this Court. 3. The first respondents' costs in this Court be paid out of the fund, being the proceeds of the R&D Refunds received by the first respondents. 4. The fourth respondent to pay the first, second and third respondents' costs in this Court.
3. WHITE JA: I have had the advantage of reading in draft the reasons for judgment of Gleeson JA.
4. I incline to the view that prior to the date of its administration Spitfire had a contingent asset which should be characterised as property, and the Commonwealth was under a monetary obligation, albeit a contingent obligation, to pay a tax refund; the contingency being that Spitfire lodge its tax returns claiming the tax refunds. It is unnecessary to express a concluded view on that question. Even if that be so, for the reasons Gleeson JA has given, that monetary obligation did not arise from Spitfire's providing services in the ordinary course of a business of providing services of that kind within the meaning of s 340(5) of the PPSA.
5. I also agree with the reasons of Gleeson JA on the remaining issues in the appeal and with the orders his Honour proposes.
6. BRERETON JA: I have had the considerable benefit of reading in draft the judgment to be delivered by Gleeson JA. I agree with the orders his Honour proposes, for the reasons his Honour gives.

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