Clyne and Another v. Deputy Federal Commissioner of Taxation and Another.
Members: Gibbs CJMason J
Aickin J
Wilson J
Brennan J
Tribunal:
High Court
Mason J.
The facts of this appeal are sufficiently stated in the judgment of McLelland J. On 9 July 1979 a notice of assessment of income tax was served on the first appellant in respect of the year of income ended 30 June 1979. The tax (excluding provisional tax) assessed was $118,436.31 and the health insurance levy was $50. The notice specified 8 August 1979 as the date on which the tax was due and payable.
On 10 July 1979 two notices by the Deputy Commissioner of Taxation issued under sec. 218 of the Income Tax Assessment Act 1936, as amended, were served on the second respondent (``the Bank'') at its Kings Cross branch. The notices were in identical terms with the exception that one notice referred to the first appellant as ``Peter Clyne'' and the other as ``Peter Leopold Clyne''.
Each notice required the Bank, ``being a person by whom any money is due or accruing or may become due'' to the first appellant ``a taxpayer by whom the amount of $118,486.31 is due in respect of tax to pay to me so much of that money as is sufficient to pay the said amount of $118,486.31 due by the taxpayer or the whole of the money if it is equal to or less than that amount and if the money is now due by you to'' the first appellant ``the payment to me is required to be made forthwith, but if the money becomes due by you to'' the first appellant ``in the future, the payment to me is required to be made within seven days of the money so becoming due by you''.
At the time the first appellant had three interest bearing deposits with the Bank, the respective amounts and maturity dates being:
$10,000 -- 21 September 1979.
$25,000 -- 9 April 1980.
$35,000 -- 20 April 1980.
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On 4 September 1979 the first appellant by deed assigned these deposits to the second appellant as security for future advances to be made by the second appellant ``as the parties may from time to time mutually agree''. On the same day notice of the assignment was given to the Bank.
On 13 September 1979 the second appellant made an advance of $10,000 to the first appellant as contemplated in the deed of 4 September 1979.
The second appellant commenced proceedings in the Supreme Court of New South Wales against the respondents, seeking the following declarations:
1. That on 4 September 1979 she became entitled to the benefit of the right title and interest of the appellant in the three interest bearing deposits; and
2. That she is entitled to payment by the Bank of the amounts of the three interest bearing deposits together with interest on the due dates for payment.
She based her claim for relief on two grounds:
- 1. That sec. 218 does not authorise the giving of a notice prior to the date on which the relevant tax falls due for payment and that, accordingly, the notices in the present case were not effective under sec. 218; and
- 2. That a notice under sec. 218 cannot impose an obligation upon a debtor to pay to the Commissioner the amount of a debt unless when the debt falls due for payment the debtor's obligation would otherwise be to pay it to the taxpayer, and that, accordingly, so long as the second appellant remains the creditor of the Bank by virtue of assignment the notices in the present case cannot effectively require payment to the Commissioner.
Section 218(1) provides:
``The Commissioner may at any time, or from time to time, by notice in writing (a copy of which shall be forwarded to the taxpayer at his last place of address known to the Commissioner), require -
- (a) any person by whom any money is due or accruing or may become due to a taxpayer.
- (b) any person who holds or may subsequently hold money for or on account of a taxpayer;
- (c) any person who holds or may subsequently hold money on account of some other person for payment to a taxpayer; or
- (d) any person having authority from some other person to pay money to a taxpayer,
to pay to the Commissioner, either forthwith upon the money becoming due or being held, or at or within a time specified in the notice (not being a time before the money becomes due or is held) -
- (i) so much of the money as is sufficient to pay the amount due by the taxpayer in respect of any tax and of any fines and costs imposed upon him under this Act, or the whole of the money when it is equal to or less than that amount; or
- (ii) such amount as is specified in the notice out of each of any payments which the person so notified becomes liable from time to time to make to the taxpayer, until the amount due by the taxpayer in respect of any tax and of any fines and costs imposed upon him under this Act is satisfied,
and may at any time, or from time to time, amend or revoke any such notice, or extend the time for making any payment in pursuance of the notice.''
Critical to the second appellant's first ground for relief is the meaning of the expression ``the amount due by the taxpayer'' in para. (i) of subsec. (1). Does ``due'' mean ``due'' in the sense of ``owing'' or does it mean ``due and payable''? McLelland J. held that it meant ``due and payable'' with the result that he did not proceed to an examination of the second ground for relief. He made a declaration in favour of the second appellant.
The Court of Appeal came to a different conclusion and allowed the appeal. The members of the Court were unanimous in thinking that ``the amount due by the taxpayer'' meant ``due'' not ``due and payable''. They further held that the
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consequence of the giving of a valid notice under sec. 218 was that it could not be defeated by an assignment of the taxpayer of his right to the moneys, the subject of the notice, before the moneys became due and payable to the taxpayer.It is common ground between the parties that
Isaacs
J. was right in
Mack
v.
Commr. of Stamp Duties (N.S.W.)
(1920) 28 C.L.R. 373
at p. 382
when he said:
```Due' is sometimes used in the sense of `payable'; that, however, is where the context requires it. But, as Mellish L.J. said with reference to the phrase `debts due', in
Ex parte Kemp; In re Fastnedge ( L.R. 9 Ch. 383 at p. 387) , ` prima facie, and if there be nothing in the context to give them a different construction, they would include all sums certain which any person is legally liable to pay, whether such sums had become actually payable or not.'''
It is also common ground that the word ``due'' in sec. 218(1)(a) in the expression ``by whom any money is due or accruing or may become due'' means ``due and payable''. This is because a debt ``accruing'' signifies a debt which is due but not immediately payable
-
see the garnishee cases
Webb
v.
Stenton
(1883) 11 Q.B.D. 518
and
Bagley
v.
Winsome and National Provincial Bank Ltd.
(1952) 2 Q.B. 236
at p. 240
-
and it cannot be that the Commissioner can by notice require a debtor of a taxpayer to pay the money which he owes to the taxpayer before the debt, as between the debtor and the taxpayer, has become payable. It is evident that para. (a) describes a descending order of liabilities.
The appellants then argue that once this is established to be the meaning of ``due'' in para. (a) it should be accorded the same meaning in para. (i) on the footing that there is a presumption that in a statute the same word is always used with the same meaning, especially when it is used more than once in the same section. However, it is now settled that presumption readily yields to the context and, as
Gibbs
J. noted in
McGraw-Hinds (Aust.) Pty. Ltd.
v.
Smith
(1979) 53 A.L.J.R. 423
at p. 425
: ``It is well recognized that a word may be used in two different senses in the same section of the one Act.'' There are statements to the effect that the presumption has little force in Income Tax Acts
-
see
Martin
v.
Lowry
(1926) 1 K.B. 550
at p. 561
;
Littlewoods Mail Order Stores Ltd.
v.
I.R. Commrs.
(1963) A.C. 135
at p. 150
. As these statements appear to be based on the fact that Income Tax Acts deal with a wide variety of topics, they have little value when we are examining the possibility that a word is used in different senses in one section of such an Act.
There are, however, other considerations which indicate that the meaning of ``due'' in para. (a) should not be automatically assigned to the word in para. (i). The meaning which the word has in the first paragraph is very much the product of the special context in which it is there found. There is no similar context in para. (i). Paragraph (a) is referring to the liability on the part of the addressee of the notice to the taxpayer whereas para. (i) refers to the liability of the taxpayer in respect of tax to the Commissioner.
Then we find that the expression ``due and payable'' is used in other sections in Pt. VI, see sec. 204, 205, 206, 207 and 208. This in itself suggests that the word ``due'' when used in isolation bears its prima facie meaning unless there is a constraining context.
A circumstance which lends some support to this the opposite view is the consequence discussed later in this judgment, that if ``due'' does not mean ``due and payable'' then the Commissioner by giving a sec. 218 notice can require payment of a debt owing to the taxpayer which, but for the notice, would not become payable to him by reason of the supervening rights of a secured creditor, e.g. the crystallisation of a floating charge before the debt becomes payable. However, I do not regard this consequence as sufficiently strong to outweigh other factors indicating that ``due'' in para. (i) bears its prima facie meaning.
This view did not commend itself to the primary judge who understandably placed great weight on sec. 204. This section makes income tax assessed -
``... due and payable... on the date specified in the notice as the date on which the tax is due and payable, not being less than thirty days after the service
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of the notice, or, if no date is so specified, on the thirtieth day after the service of the notice.''
His Honour thought the natural inference to be drawn from the provision was that the tax assessed became due and became payable at one and the same time, that before the date fixed by the section the tax was neither due nor payable. This accords with what
Williams
J. said in
Gordon Edgell
&
Sons Pty. Ltd.
v.
F.C. of T.
(1949) 9 A.T.D. 43
at p. 46
that: ``The effect of ss. 204 and 208 is to make the debt become due at the same time as it is payable.''
However the correct view in my opinion is that income tax is due when it is assessed and notice is served of that assessment and that the tax does not become payable before the date fixed by sec. 204.
Dixon
C.J.,
McTiernan, Williams, Webb
and
Fullagar
JJ. in
George
v.
F.C. of T.
(1952) 86 C.L.R. 183
at p. 207
said that ``tax is only due after it is `assessed' (see, for example, s. 204)''. I recognise that on other occasions members of this Court have said that ``tax is a debt due and owing, although not payable, notwithstanding that no assessment has been made'', in the words of
Gibbs
J. in
Re Mendonca
;
Ex parte Commissioner of Taxation
(1969) 15 F.L.R. 256
at p. 259
. This approach can be traced back to the majority decision of this Court in
Commr. of Stamps (W.A.)
v.
West Australian Trustee Executor
&
Agency Co. Ltd. (Mortimer Kelly's case)
(1925) 36 C.L.R. 98
, especially at pp. 105, 116 and 118
. I think that the decision is to be explained on the footing that it was held that a debt for income tax not assessed until after the deceased's death was a ``debt due by the deceased'' for the purposes of Acts imposing death and probate duties. The decision was so explained by
Taylor
J. (dissenting) in
D.F.C. of T.
v.
Brown
(1958) 100 C.L.R. 32
at pp. 63-64
and this explanation derives support from the judgments of
Higgins
and
Starke
JJ., if not from the judgment of the third member of the majority,
Knox
C.J., in
Mortimer Kelly's case.
Section 206, which enables the Commissioner to grant an extension of time for payment or to permit payment to be made by instalments and provides that the tax shall be due and payable accordingly, is more easily accommodated to the view that tax is due no later than the time when the notice of assessment is served on the taxpayer than to the appellant's interpretation which makes tax due when it becomes payable.
For all these reasons I consider that ``due'' in para. (i) of sec. 218 means ``due'' in its primary sense, not ``due and payable''.
The effect of the assignment of the term deposits by the first appellant to the second appellant hinges on the nature of the obligation imposed by sec. 218 on the Bank. The curious feature of the section is that it does not in terms create any obligation on the recipient of the notice to comply with the requirement expressed by the Commissioner's notice. But subsec. (2) makes it an offence to fail to comply with a notice under the section. It is evident that subsec. (1), when it says that the Commissioner may require a person to pay money to him, is giving statutory backing to that requirement so as to impose an obligation on the recipient to pay money that falls within the statutory description. The section only imposes an obligation to pay in accordance with its terms. Mr. Handley Q.C. for the Commissioner concedes that it does not purport to create a charge over, or interest in, the moneys in favour of the Commissioner. It may be doubted whether this concession is rightly made. On this question see for example
Stapleton
v.
F.T.S. O'Donnell Griffin
&
Co. (Q.) Pty. Ltd.
(1961) 108 C.L.R. 106
at pp. 113, 117
.
Mr. Bainton Q.C. for the appellants relies on the statement by
Jenkinson
J. in
Sicree and
Watt
v.
D.F.C. of T.
80 ATC 4302
at p. 4306
:
``The obligation to make the payment does not arise until money becomes `due' to a taxpayer or is `held' for or on account of a taxpayer, or on account of some other person for payment to a taxpayer... In my opinion service of the notice... does not impose on a debtor whose debt is not at the time of service due and payable any immediate obligation, nor attach to the debt any immediate right or interest in favour of the Commissioner or of the Crown in right of the Commonwealth.''
Jenkinson J. was there dealing with sec. 38 of the Sales Tax Assessment Act (No. 1) (Cth.) 1930, as amended. This section is in all material respects similar to sec. 218. His Honour held that service of sec. 38 notices
ATC 4438
did not operate to give the Commissioner a prior claim to moneys owing to the taxpayer company which were the subject of a floating charge which crystallised on the appointment of receivers. It was decided that the appointment of the receivers perfected an assignment of the moneys giving them the character of moneys due and payable not to the taxpayer but to the secured creditor of the taxpayer. The charge was given before the Commissioner served his sec. 38 notices and the receivers were appointed before payment was made by the taxpayer's creditors to the Commissioner.His Honour saw ``no reason to imply, a grant to the Commissioner or to the Crown'' of ``any interest in, or right over a debt or a fund'' mentioned in sec. 38(1) (at p. 4307). Later, after noting that the expression ```upon the money becoming due or being held' merely fixes the time at which the obligation to pay arises'', he observed that it was not to be supposed in the absence of express provision:
``... that the section imposes an obligation to make a payment other than one measured by the payer's obligation to make payment to the taxpayer and by the taxpayer's obligation under the Act, or that the section imposes an obligation to make a payment at a time when, in consequence of the occurrence of a supervening event, money is no longer due to the taxpayer...''
(at p. 4308).
His Honour concluded his discussion on the construction of the section by saying that the obligation to pay ``the money'' is to be ascertained at the time of payment and that is achieved by construing the expression where it last occurs in subsec. (1) ``as meaning an amount equal to the amount then due and payable by the person served with notice to the taxpayer''. Acknowledging that the risk of evasion would be diminished if the contrary interpretation were accepted, his Honour thought that the gross disturbance of the relationship between creditor and debtor was a reason for rejecting that construction when it rested on a process of implication.
The members of the Court of Appeal dealt with this question more summarily. They thought that the rights of the Commissioner were to be ascertained at the time of the giving of the sec. 218 notice and they attached much weight to the prospect of evasion of the Commissioner's requirement if the construction favoured by the taxpayer were to prevail. This comment suggests that the object of the provision was to prevent a taxpayer from making away with his assets so as to defeat the Commissioner. Although it may be stating the case too highly to say that this was the object of the section, I think that the effect of the service of a sec. 218 notice is to prevent a taxpayer from thereafter assigning a debt, the subject of the notice, so as to defeat the Commissioner's right to payment in accordance with the section. In this respect I do not agree with the comments made by Jenkinson J. and I regard the effect of the notice as similar to that of a garnishee order. Indeed, the similarity between sec. 218 and the provisions for garnishee orders in Rules of Court is quite striking.
This effect may be seen as the end result of the principle that an assignee of a chose in action takes it subject to all the equities that the debtor or fund-holder has against the assignor, as at the time of the notice of the assignment, and subject also to all the infirmities and defects in title of the assignor. The assignment by the first appellant to the second appellant was an assignment under sec. 12 of the Conveyancing Act 1919 (N.S.W.) as amended. The assignment, though expressed to be ``As and by way of security'', was of the ``investments and all moneys held for'' the first appellant by the Bank at its Kings Cross branch -
``... and all receipts and documents relating to such moneys and investments and all interest accruing upon such moneys and investments and all his the assignor's right title and interest in and to the said moneys and investments and interest accruing thereon at law or in equity TO AND UNTO THE ASSIGNEE for the assignee's own and separate use and benefit absolutely.''
(Clause 4 of the deed.)
By cl. 6 the first appellant irrevocably authorised and directed the Bank to pay the investments upon their respective maturity date or upon such earlier date as the Bank may agree and all interest thereon to the assignee or in accordance with the assignee's
ATC 4439
directions. The effect of the deed was to give the second appellant the right as against the Bank to the proceeds of the term deposits and to the payment of interest in the meantime. Because the second appellant acquired the right title and interest of the assignor by way of security only, in the event that the loans were repaid she would come under an obligation to refund to the first appellant the proceeds of the term deposits.Nonetheless, within the context of sec. 12 the assignment was ``absolute''. An ``absolute assignment'' in the section signifies one which is unconditional. Consequently it has been held to embrace an assignment notwithstanding that the document effecting the assignment provides or implies the need for a re-assignment or re-conveyance on the happening of a future event, e.g. the repayment of a loan for which the assignment is being held as a security
-
see W.R. Warren
Choses in Action
(1899) pp. 163-167;
Burlinson
v.
Hall
(1884) 12 Q.B.D. 347
;
Tancred
v.
Delagoa Bay and East Africa Railway Co.
(1889) 23 Q.B.D. 239
at pp. 242-243
;
Durham Brothers
v.
Robertson
(1898) 1 Q.B. 765
at p. 772
. In
Durham, Chitty
L.J. said that an unconditional assignment of a debt by way of mortgage to secure repayment of a loan would be an absolute assignment within the statutory provision notwithstanding that it is subject to an equity of redemption.
The rule that an assignment is subject to equities has been described as a paramount rule (
Redman
v.
Permanent Trustee Co. of N.S.W. Ltd.
(1916) 22 C.L.R. 84
at p. 92
). The effect of the rule is that an assignee of a non-negotiable chose in action acquires no greater right than was possessed by his assignor and simply stands in the shoes of the latter. The assignee cannot expect to be in a better position than his assignor was prior to notice of the assignment.
The word ``equities'' is not used in its technical sense as meaning an equitable interest or something in the nature of an equitable interest. It is a general expression calculated to comprehend defences which would have been available to the debtror in an action brought against him by the assignor as well as set-off and counter-claims. The assignee takes subject to any defence or set-off available to the debtor at the time when notice of assignment is given, unless the right of set-off is excluded by the contract between the assignor and the debtor
-
see
Phoenix Assurance Co. (Ltd.)
v.
Earl's Court (Ltd.)
(1913) 30 T.L.R. 50
at p. 51
;
Halsbury
4th ed., vol. 6, para. 64.
In
Re Harry Simpson
&
Co. Pty. Ltd. and Companies Act 1936
(1964-65) N.S.W.R. 603
Jacobs
J. held that where the chose in action assigned was a debt due by a company to a shareholder for dividends declared but not paid, it was nevertheless affected by sec. 200(1)(g) of the
Companies Act
1936 (N.S.W.) as amended, which in a liquidation postponed to the claims of ordinary creditors sums due to a member of a company in his capacity as member. To the argument that by reason of the assignment the debt was no longer owing to the member but to the assignee who was not a member,
Jacobs
J. returned the answer that sec. 200(1)(g) gave rise to an equity against the assignor to which the assignment was subject. His Honour said (at p. 605):
``... the word `equities' has to be given a wide meaning and it has been said that the assignee can be in no better position than the assignor was, prior to the assignment.''
The decision of
Stirling
J. in
Christie
v.
Taunton Delmard Lane
&
Co.
(1893) 2 Ch. 175
is an illuminating illustration of the application of the principle; it shows how it should be applied so as to provide a solution to the problem which arises in the present case. In March 1890 T, a debenture holder, deposited debentures with a bank to secure an overdraft. The debentures were payable on 31 December 1890 or in the event of winding up. T also held shares in the company which issued the debentures. On 3 November a call was made on T's shares, payable on 20 November. On 6 November the bank gave notice to the company of the assignment to it. On 12 November the bank commenced a debenture-holder's action against the company, and on 19 November the company went into liquidation. Further calls were made on T. The question was whether the liquidator could set-off against the bank's claims on the debentures the amount due from T on (1) the call made on 3 November, and (2) the later calls.
Stirling J. held that although the claim on the calls was entirely independent of the
ATC 4440
claim on the debentures, with the consequence that a set-off could not be upheld in accordance with the principle inGovernment of Newfoundland v. Newfoundland Railway Co. (1888) 13 App. Cas. 199 , the company was entitled to a set-off in respect of the call made on 3 November, but not in respect of the later calls. The basis of the decision in respect of the earlier call was that it was made before notice of the assignment was received. It created a ``debt which accrued due on 3 November (the date of the call), but did not actually become payable until 20 November'' (p. 183). His Lordship distinguished
Watson v. Mid Wales Railway Co. (1867) L.R. 2 C.P. 593 , and
Wilson v. Gabriel (1683) 4 B. & S. 243 ; 122 E.R. 450 . In Watson no debt had accrued due at the date of the notice of assignment; in Wilson the debt was due and payable at the date of the notice. (O.R. Marshall, in The Assignment of Choses in Action (1950) p. 191, doubts the validity of the distinction made in respect of Watson, noting that the rent there was constantly accruing due though not payable until a fixed day and suggesting that a set-off of part of the rent might have been allowable. This is not a point of present concern.)
Stirling J. observed that if the company had been sued by the bank it would be -
``... entitled to be placed in the same position as it occupied relatively to Taunton on the 6th of November, 1890, on which day Taunton was indebted to the company for calls payable on the 20th of November, while the company was indebted to Taunton on the debentures, which did not become payable until a later date''
(p. 183).
He concluded that if no winding up had intervened and had T or the bank in T's name sued on the debentures the debt accruing due on 3 November could have been set-off.
The present case is indistinguishable. It is of no consequence whether one regards the Bank's obligation to pay under sec. 218 as creating a defence or a right of set-off by reason of the deemed authority of the taxpayer for which sec. 218(4) makes provision. The assignee by virtue of the assignment takes subject to the right of the Bank to set off the moneys payable to the Commissioner under sec. 218 which accrued due before the notice of assignment, although they were not payable until the term deposits matured.
Had there been no assignment the Bank would have been able to resist a claim for a payment of the term deposits by the first appellant before they became payable on two grounds, (a) that the debts were not then payable; and (b) that the giving of the sec. 218 notice imposed an obligation on the Bank to pay at maturity to the Commissioner with an implied obligation not to make any inconsistent payment in the meantime.
Here the suggested answer to the application of this rule is that the moneys, the subject of the notice, were not at maturity moneys then due and payable to the first appellant (the taxpayer) and that the statutory obligation attaches only to moneys which satisfy the general description. I do not agree. The section relates to moneys owing to the taxpayer when the notice is given, it imposes an obligation to pay forthwith moneys which are then payable; it imposes an obligation to pay moneys which become payable at a future time when that time arrives. It does not explicitly prescribe as a condition preliminary to the creation of the obligation to pay that the moneys owing to the taxpayer at the date of the notice shall continue to be owing to him when they become payable. It merely requires the recipient to pay to the Commissioner when they become payable moneys owing to the taxpayer at the date of the notice. The obligation attaches to the recipient on service of the notice, though it cannot be performed until a future date. The effect of imposing the obligation is to make it unlawful for the recipient to pay the moneys to anyone but the Commissioner after service of the notice. Although this might otherwise expose the debtor to liability of the suit of the taxpayer the debtor is protected by sec. 218(4) which provides that the payment is deemed to be made with the authority of the taxpayer and indemnifies the debtor.
There will be cases when a party other than the taxpayer by virtue of an antecedent security asserts in priority to the Commissioner rights to moneys not payable when the notice is served where the security is perfected after service of the notice and
ATC 4441
before the debt becomes payable. Sicree was such a case. Whether the decision can be supported, as Mr. Handley Q.C. suggests, on grounds other than those stated by Jenkinson J. is a question which need not be answered now, though I admit to some difficulty in perceiving how this can be so conformably with what I have already said.I would dismiss the appeal.
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