Clyne and Another v. Deputy Federal Commissioner of Taxation and Another.

Judges: Gibbs CJ
Mason J
Aickin J
Wilson J

Brennan J

Court:
High Court

Judgment date: Judgment handed down 7 August 1981.

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Brennan J.

Section 218(1)(a) of the Income Tax Assessment Act 1936 (Cth.) authorises the Commissioner by notice in writing to require ``any person by whom any money is due or accruing or may become due to a taxpayer'' to pay the money or so much of it as para. (i) and (ii) mention ``to the Commissioner, either forthwith upon the money becoming due... or at or within a time specified in the notice (not being a time before the money becomes due...)''. ``Due'' in the phrases cited clearly means ``due and payable'', so that a requirement to pay money to the Commissioner does not have to be met before the time when the money would have been payable in any event.

Paragraphs (i) and (ii) quantify the amount or amounts to be paid by reference to ``the amount due by the taxpayer in respect of any tax''. ``Amount due'' in this phrase does not mean ``amount payable'', but the amount which the taxpayer is legally liable to pay though the date for payment has not arrived. I have had the benefit of reading what my brother Mason has written, and I agree with his Honour's reasons for holding that income tax is due in the relevant sense when it is assessed and notice of assessment is served.

The section enables the Commissioner to recover the amount of tax due out of money due and payable to the taxpayer by the person to whom the notice is given (whom I shall call the third person). The power of the Commissioner to require the third person to pay money in accordance with a notice is complemented by subsec. (2). That subsection creates an offence of non-compliance and prescribes a penalty, but the duty upon the third person to comply with the notice does not stem solely from the provision of a criminal sanction for non-compliance. Indeed, I do not think that that subsection applies to some of those whom subsec. (6) brings within the ambit of sec. 218. Subsection (6) defines ``person'' to include the Commonwealth or a State or any public authority (corporate or unincorporate), and there is ``the strongest presumption against attaching to a statutory provision a meaning which would amount to an attempt to impose upon the Crown a liability of a criminal nature'' (
Cain v. Doyle per Dixon J. (1946) 72 C.L.R. 409 at p. 424 ).

A duty to comply arises by implication. The power conferred upon the Commissioner by subsec. (1) is to ``require'' by notice in writing the payment of money, and an obligation to pay the money specified in the notice must be implied unless the requirement is a mere brutum fulmen which a third party not subject to the risk of prosecution under subsec. (2) is at liberty to disregard. However the duty may be thought to arise, the third person is obliged upon receipt of a notice given under the section to comply with it, and the Commissioner is entitled to insist upon compliance; and there is no reason why the Commissioner's right, reciprocal to the third party's obligation, should not be enforced by proceedings other than prosecution under subsec. (2).

If the Commissioner's rights were infringed only by conduct which constitutes an offence under subsec. (2), it might be argued that the section does not confer upon him any rights other than those which arise when the time for payment, ascertained in accordance with subsec. (1) and the terms of the notice, arrives. On this approach, if the taxpayer, after the giving of the notice but before the time for compliance arrives, were to assign to another his interest in the money to which a notice relates - as occurred in the present case - the notice would be ineffectual, for the money would not be due and payable to the taxpayer when the time

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ATC 4442

for compliance arrives. But the Commissioner's rights with respect to the money specified in the notice are not defined, in my view, by subsec. (2). Rather those rights are to be found by implication in subsec. (1).

The appellants submit, however, that the taxpayer is at liberty to dispose of his interest in the money to which a notice relates despite the requirement expressed in the notice.

The appellants' submission was pressed in argument with the support of some observations made by Jenkinson J. in
Sicree and Watt v. D.F.C. of T. 80 ATC 4302 . His Honour there considered the operation of sec. 38 of the Sales Tax Assessment Act (No. 1) 1930 (Cth.), a provision similar to sec. 218 but not identical with it, upon money subject to a floating charge created before the notice was given. His Honour (at p. 4306) expressed the view that service of a 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.''

This approach construes sec. 218(1)(a) as imposing an obligation no wider than that imposed by subsec. (2), namely, to pay to the Commissioner the money due to the taxpayer when the time for compliance with the notice arrives, and it necessarily predicates of the statutory obligation that it arises only when the time for payment to the Commissioner arrives. Again, if this approach be right, an assignment by the taxpayer before the money becomes due and payable to him avoids the effect of the requirement in the notice, for the taxpayer ceases to be entitled to payment before the statutory obligation arises.

It is convenient to consider first the manner in which the statutory obligation is finally discharged, and then to consider whether the section imposes any intermediate obligation upon the third person between the time when the notice is given and the time when the obligation is finally discharged. If the money is due and payable to the taxpayer when the notice is given, and the notice does not specify a later time for payment, the money must be paid forthwith to the Commissioner. But the third person cannot be required to pay the Commissioner before the money becomes due and payable; the notice does not accelerate the time for payment. He must pay the money to the Commissioner either when it becomes due and payable or at such later time as is specified in the notice. The obligation is finally discharged by payment at one or other of those times. The third person is deemed to have been acting ``under the authority of the taxpayer'' (subsec. (4)) in making the payment to the Commissioner. The obligation upon the third person is to make, with the deemed authority of the taxpayer, a payment to the Commissioner in satisfaction of the taxpayer's liability for tax assessed of money which would, but for the operation of the section, be due to the taxpayer.

The statute thus works an assignment of the moneys to be paid to the Commissioner as though the taxpayer had charged the moneys otherwise payable to him with payment of his tax liability. Statutory charges are no novelty, although a statute which creates a charge usually describes it as such and defines the chargee's remedies. An example of a statutory charge which created a security in favour of a chargee over moneys due by a third party to the chargee's debtor was to be found in The Contractors' and Workmen's Lien Acts 1906 to 1921 (Qld.), considered by this Court in
Stapleton v. F.T.S. O'Donnell Griffin & Co. (Q) Pty. Ltd. (1961) 108 C.L.R. 106 .

The critical question, however, is whether the taxpayer may so dispose of his interest in the money before the time when the third party's obligation is to be discharged that the Commissioner's claim to the money is defeated. When a notice is given pursuant to the section, it takes effect according to its tenor. The third person is immediately bound to comply with it, though his obligation is not to be discharged until some later time. Between the time when the notice is given and the time when the obligation is to be discharged, the third person is not at liberty to pay to the taxpayer the money falling within the terms of the notice; the third party is obliged to retain it in order to discharge the obligation to pay the money to the Commissioner in compliance with the requirement expressed in the notice.

The notice precludes the taxpayer from receiving money to the payment of which he

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ATC 4443

would otherwise be entitled or become entitled, and it requires the third person in whose hands the money is or into whose hands it comes to pay it to the Commissioner at some time, but not earlier than when it would otherwise be due and payable. The giving of the notice thus affects the rights of the taxpayer who, once the notice is given, is statutorily divested of his right to payment of the whole or a part of the money specified in the notice. Whether the money is property in existence when the notice is given or whether it is property which comes into existence thereafter, the third party is obliged to hold and dispose of it in accordance with the notice. A notice of assignment would ordinarily bind the third party to pay money in his hands or coming into his hands to an assignee (see
Tooth v. Brisbane City Council (1928) 41 C.L.R. 212 at p. 222 ) but an obligation to obey the assignor's direction cannot prevail over an earlier statutory requirement to pay the money to the Commissioner.

The taxpayer is thus unable to effect a disposition of the money so as to defeat the Commissioner's right to payment once the statutory notice is given. Accordingly, a subsequent assignment of the taxpayer's interest in the money does not create in the purported assignee a right to payment superior to the right conferred upon the Commissioner. As between the Commissioner and the assignee, the Commissioner's right to payment prevails.

The Commissioner's right to payment out of the money in the hands of the third person distinguishes him from a garnishor of a debt who obtains no proprietary interest in the debt owing to the judgment debtor, though he may obtain execution against the garnishee (
Hall & Anor. v. Richards & Anor. (1961) 108 C.L.R. 84 at p. 92 per Kitto J.). But even a garnishor is not defeated by the judgment debtor's assignment of the debt after service of the garnishee order nisi, for a judgment debtor loses the right to assign his debt free of the garnishee order once the order nisi is served (
Galbraith v. Grimshaw per Lord Loreburn L.C. (1910) A.C. 508 at p. 511 ). The taxpayer's right to assign free of the requirement in the notice is likewise lost when the notice is given.

As the first appellant assigned his interest in the moneys on fixed deposit and in the interest thereon to the second appellant subsequently to the giving of the notices, the second appellant took the assignment of those moneys subject to the Commissioner's right to payment of those moneys. The assignment neither destroyed nor impaired the Commissioner's right to be paid those moneys by the Bank.

I would dismiss the appeal with costs.

ORDER

Appeal dismissed with costs.