case_text: The Commissioner submits that for the purposes of identifying the appropriate basis of accounting, the authorities show or suggest that a holding company is classified as a trading company. He cites Carapark Holdings Ltd v Commissioner of Taxation [1967] HCA 5 ; (1966) 115 CLR 653 ( Carapark ) at 663 664; Esquire Nominees Limited v Federal Commissioner of Taxation [1972] HCA 32 ; (1973) 129 CLR 177 ( Esquire Nominees ) at 212 per Barwick CJ, 221 per Menzies J; Brookton Co-operative Society Limited v Commissioner of Taxation [1981] HCA 28 ; (1981) 147 CLR 441 ( Brookton ) at 469 per Aickin J; and Broken Hill Pty Co Ltd v Federal Commissioner of Taxation (1999) 99 ATC 5193 ( BHP v FCT ) at [48] per Kenny J. 131 In Carapark [1967] HCA 5 ; 115 CLR 653, the taxpayer was a holding company which had a contract of insurance providing for payment to it of a lump sum in the event of death by air accident of its employee or the employee of an associated or subsidiary company. An employee of a subsidiary was killed when an aeroplane in which he was travelling in the course of his employment crashed. The proceeds of the policy were paid to the taxpayer company. The Commissioner contended that the amount was received as "income" in the ordinary sense of the word. It will be noted that there was no question that the amount was received, the issue being as to its proper characterisation. 132 The High Court held that the amount was in the nature of income because it was intended to provide against loss of dividend income the taxpayer might suffer in consequence of the death or disablement of employees of its subsidiaries. In their joint judgment, Kitto, Taylor and Owen JJ said (at 663 664) that the insurance monies must be considered as having been gained in the course of the parent company's business, using "business" in "the broad sense which makes it relevant to the tax problem, that is to say as meaning the continuous course of conduct which the appellant was following for the derivation of income". 133 It is common ground that the dividend of $49 million was "income" and I accept that ABB Zurich was carrying on business. I do not see, however, how these circumstances or the decision in Carapark determine the criterion by virtue of which, and therefore the time at which, ABB Zurich derives income consisting of dividends declared by its subsidiaries. Neither Carapark nor any other authority of which I am aware equates any form of "carrying on of business" at all with the trading or manufacturing activity that has been referred to as exceptional in the cases.


case_outcome: cited

case_text: In Charter Reinsurance Co Ltd v Fagan [1997] AC 313 Lord Mustill described the word "paid" as a "slippery" word (at 384). In the present case, it is not in dispute that the debtor, ABB Australia, paid the amount of its indebtedness on 21 June 1996: the question is whether the payment it then made to BAL was also payment to ABB Zurich. 164 Essential to the notion of payment is the agreement of a creditor to accept something as payment. If a creditor directs the debtor to pay to a third party to whom the creditor has an obligation and the debtor does so, the payment to the third party is payment to the creditor because the creditor has consented to treat it as such. Take the ordinary case of the application of s 44(1) of the Act to the declaration of a final dividend payable immediately. Could it be seriously suggested that it was not paid to the shareholder because it was paid to a third party at the direction of the shareholder? It would have been paid to the shareholder even absent the inclusory definition of "paid" in s 6(1). 165 Even a payment into a creditor's bank account is a payment to a third party, namely, the bank. The payment is made on the basis that the amount will be credited to the creditor's account with the bank, and we have no difficulty in saying that the debtor has "paid" the creditor.


case_outcome: discussed

case_text: The Commissioner relies on the following special characteristics of dividends: (a) that the division of a company's profits among its shareholders by the declaration of a dividend is "an effectuation or realisation of the rights obtained by the acquisition of the share" (citing Chief Commissioner of State Revenue (NSW) v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3 ; (2005) 221 CLR 496 per Gleeson CJ and Callinan J at [25] [26], quoting from the judgment of Dixon J in Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) [1948] HCA 28 ; (1948) 77 CLR 143 at 153); (b) that in the winding up of a company, debts owed by the company to its members in their capacity as members, including debts arising from the declaration of a dividend, are postponed until all debts owed to, or claims made by, persons other than as members of the company have been satisfied: Corporations Act 2001 (Cth) s 563A (in 1996 the comparable provision was s 563A of the Corporations Law , which was in identical terms); (c) on an assignment of a debt created by the declaration of a dividend, the debt remains subject to the "equity" of the ordinary creditors proving in priority (the Commissioner cites Re Harry Simpson & Company Pty Ltd and Companies Act 1936 [1964-5] NSWR 603 ( Simpson )).


case_text: In Commissioner of Taxation v Citibank Ltd (1993) 44 FCR 434, Hill J, with whom Jenkinson and Einfeld JJ agreed, cautioned against a too ready reliance on business and accounting practice relating to preparation of the company's profit and loss account required in accordance with s 269(1) of the Companies (New South Wales) Code (at 443 446). His Honour stated (at 445 446): With respect to his Honour, who presumably must be taken as having decided otherwise, I do not think that the accounting evidence in the present case establishes that the amount derived each year by applying the financial or actuarial method represents income in ordinary concepts. What that evidence establishes is that the outcome of the finance or actuarial method is an appropriate figure to be used in the preparation of the profit and loss account of the respondent for the year in accordance with the Companies (New South Wales) Code : s 269(1). If the relevant issue were the determination of the profit of the respondents, or whether that profit was to be seen as on revenue account, the evidence would clearly be most cogent. But it must be remembered that the role of the accounting standards is in the determination of profit so as to ensure that financial statements, required to be prepared by statute, give a true and fair view and not the determination of "income", notwithstanding that those two concepts may, as will be seen, sometimes overlap. Thus Professor Walker [an expert witness] states that he has been asked to advise as to the correct method of accounting in relation to the leases in question. But his affidavit and subsequent explanation makes it clear that he has answered that question by reference to the companies law for the purposes of which the relevant standards have been prepared and with which of course each of the respondents was obliged to comply. Mr Westworth's affidavit [regarding accounting practices] makes clear that he too has addressed himself to that issue, not relevant in the present proceedings. All that may be said is that if there be no impediment in the Act to bringing into account, in a case such as the present, a net profit figure as gross income, then that profit figure will need to be calculated in accordance with the accounting standards. The real issue for decision is rather a question of construction of the Act, namely, whether in a case such as the present, the scheme of the Act precludes treating as gross income the net profit calculated in accordance with the financial or actuarial method. Hill J noted earlier, however, that accounting evidence was often relevant and often highly significant in resolving issues under the Act. He gave as an example the issue whether a cash receipts or accruals basis of accounting will give "a true reflex of the income derived by a taxpayer" (at 443, citing Carden's Case [1938] HCA 69 ; 63 CLR 108 his Honour also cited Arthur Murray [1965] HCA 58 ; 114 CLR 314).


case_title: Commissioner of Taxation (Commonwealth) v Sun Alliance Investments Pty Ltd (in liq) [2005] HCA 70 ; (2005) 225 CLR 488

case_text: In Commissioner of Taxation (Commonwealth) v Sun Alliance Investments Pty Limited (in liq) [2005] HCA 70 ; (2005) 225 CLR 488, the High Court in a joint judgment, drew attention to the fact that the meaning of the word "derived" in a particular provision could not be ascertained without at least some reference to the thing said to be derived (in that case, the profits of the company) (at [42]). In particular their Honours cautioned against conflating the concept of derivation of income with derivation of profits. Their Honours referred to the fact that for the most part the notion of "income" directs attention to "receipts" by a taxpayer. Their Honours further referred to the late Professor RW Parsons's work, Income Taxation in Australia (The Law Book Company, 1985) in which the learned author stated (at [2.10]): "For the most part, the law expresses an ordinary usage notion of derivation of a receipt". I do not think that their Honours or the late learned author were intending to exclude the possibility that business and accounting practice might demonstrate, in the case of the particular category of income, that it is derived at a time other than upon receipt. Arthur Murray [1965] HCA 58 ; 114 CLR 314 stands against the existence of any such universal rule.


case_text: The applicants submit that the giving of the direction by ABB Zurich and the subsequent payment of the dividend to BAL occurred at a time when ABB Zurich was a bare trustee of the legal right to receive the dividend, both as a matter of Australian law (they refer to Commissioner of Taxation v Everett [1980] HCA 6 ; (1980) 143 CLR 440 at 450) and as a matter of English law (the proper law of the contracts to assign) as explained in the evidence of Lord Millett. They submit that a taxpayer derives as income only amounts to which it is beneficially entitled (citing Countess of Bective v Federal Commissioner of Taxation [1932] HCA 22 ; (1932) 47 CLR 417 at 423; Shepherd v Commissioner of Taxation [1965] HCA 70 ; (1965) 113 CLR 385 at 397; Zobory v Commissioner of Taxation (1995) 64 FCR 86 at 89; Service v Commissioner of Taxation [2000] FCA 188 ; (2000) 97 FCR 265 at [73] ; and Reiter v Commissioner of Taxation [2001] FCA 1068 ; (2001) 113 FCR 492 at [23] [24]). Finally, they submit that s 128A(3) (set out [14] above) was enacted "to maintain a corresponding principle in relation to withholding tax for dividends or interest paid to non-resident beneficiaries", citing the Explanatory Memorandum to the Income Tax Assessment Bill (No 4) 1967 , p 25.


case_outcome: followed

case_text: The authorities cited by the applicants are St Lucia Usines and Estates Company Limited v Colonial Treasurer of St Lucia [1924] AC 508 ( St Lucia ) at 512; Commissioner of Taxes (SA) v The Executor Trustee and Agency Company of South Australia Limited [1938] HCA 69 ; (1938) 63 CLR 108 ( Carden's Case ) at 155; Permanent Trustee Co v Federal Commissioner of Taxation (1940) 6 ATD 5 ( Prior's Case ) at 13; South Australia v Commonwealth [1992] HCA 7 ; (1992) 174 CLR 235 at 253; and Bowaters Sales Co Ltd v Commissioners of Inland Revenue (1958) 38 TC 593 ( Bowaters ) at 597 599. As well, the applicants refer to the Commissioner's Public Ruling TR 98/1 at [19], in which the Commissioner has said that as a general rule, the receipts method is appropriate to determine income derived from investments, although there are exceptions, such as in the case of interest from a business of money lending carried on by the taxpayer. 68 Like the applicants, the Commissioner relies on the seminal judgment of Dixon J in Carden's Case [1938] HCA 69 ; 63 CLR 108. The Commissioner refers to his Honour's statements to the effect that the tendency of judicial decision has been to place increasing reliance upon the conceptions of business and the principles and practices of commercial accountancy (at 153), and that unless some definite direction is discoverable in the statute, the choice of the method of ascertaining "the true income" must depend upon the method's "actual appropriateness" (at 154). 103 I turn next to the judgment of Dixon J in Carden's Case [1938] HCA 69 ; 63 CLR 108 a seminal judgment on the question of the appropriateness of the receipts or accrual method of tax accounting for income derived. 104 The case concerned the income of a medical practitioner subsequently deceased. The issue arose under the Taxation Act 1927 1935 (SA). A question before the Court was whether the earnings or accruals method of identifying the deceased's fees income was appropriate. 105 Dixon J, with whom Rich and McTiernan JJ agreed (Latham CJ dissenting), held that the receipts basis of accounting (on which Dr Carden had furnished returns) had been the appropriate method in relation to the complete years of income during Dr Carden's lifetime (the earnings basis was held appropriate for the broken period from 1 July 1935 to his death on 15 November 1935). Accordingly, Dr Carden had not been required to return as income fees earned during those years but not paid during them, which were outstanding as "book debts" at the end of those years. 106 The following propositions are to be found in the judgment of Dixon J: (1) The question which of rival methods of accounting should be employed in identifying taxable income falls for the courts to determine according to legal principles, but it is a mistake to search only the legislative text for an answer, because such notions as income, profits and gains are conceptions of the world of affairs, and particularly of business, covering an infinite variety of activities, for which no single formula can be devised (at 151 152). (2) "... in nearly every department of enterprise and employment the course of affairs and the practice of business have developed methods of estimating or computing in terms of money the result over an interval of time produced by the operations of business, by the work of the individual, or by the use of capital. The practice of these methods of computation and the general recognition of the principles upon which they proceed are responsible in a great measure for the conceptions of income, profit and gain and, therefore, may be said to enter into the determination or definition of the subject which the legislature has undertaken to tax. The courts have always regarded the ascertainment of income as governed by the principles recognized or followed in business and commerce, unless the legislature has itself made some specific provision affecting a particular matter or question" (at 152). (3) "The tendency of judicial decision has been to place increasing reliance upon the conceptions of business and the principles and practices of commercial accountancy ... But the process by which the principles and practices evolved in business or general affairs are drawn upon for the solution of questions presented to courts of law almost inevitably leads to a development in the law itself. For, under our system of precedent, a decision adopting or resorting to any given accounting principle or application of principle is almost bound to settle for the future the rule to be observed and the rule thus comes to look very like a proposition of law" (at 153 154). (4) "Unless in the statute itself some definite direction is discoverable, ... the admissibility of the method which in fact has been pursued must depend upon its actual appropriateness ... [t]he inquiry should be whether in the circumstances of the case it is calculated to give a substantially correct reflex of the taxpayer's true income. We are so accustomed to commercial accounts of manufacturing or trading operations, where the object is to show the gain upon a comparison of the respective positions at the beginning and end of a period of production or trading, that it is easy to forget the reasons which underlie the application of such a method of accounting to the purpose of ascertaining taxable income. Although the field of profit-making which it covers in practice is probably much greater than any other among the manifold forms of income or revenue, it is a system of accounting which does not represent the primary or basal position from which an investigation of income for taxation purposes begins. Speaking generally, in the assessment of income the object is to discover what gains have during the period of account come home to the taxpayer in a realized or immediately realizable form" (at 154 155). (5) The expressions "derived" and "arising or accruing" ordinarily signify receipt, but not in relation to debts due to a trading company, in which case debts due but not paid must be included as income. With regard to non-trading income there must be something "coming in", that is to say, "for income tax purposes receivability without receipt is nothing" (at 155 quoting from Sir Houldsworth Shaw & Baker, Law of Income Tax p111). (6) "The reasons which underlie the practice of estimating for taxation purposes the income from trade or manufacture by means of a commercial profit and loss account consist in the impracticability of computing income in any other way and in the adoption for fiscal purposes of recognized commercial principles. The computation of profits from manufacture and trading has always proceeded upon the principle that profit may be contained in stock-in-trade and 'outstandings'" (at 155). (7) "... a tax upon the profits or income of such a business [a manufacturing or trading business] must be understood as a tax upon the profits or income computed according to the system, because, according to common understanding and commercial principles, that is the method of determining the profits" (at 156). (8) The word "derived" is the equivalent of "arising or accruing" ( Harding v Federal Commissioner of Taxation [1917] HCA 13 ; (1917) 23 CLR 119 at 133), and none of these three words, nor the words "income", "profit" or "gain" in the statute, throw any light on the question of which basis of accounting is appropriate to reflect income in the circumstances of a particular case (at 157). (9) "Where there is nothing analogous to a stock of vendible articles to be acquired or produced and carried by the taxpayer, where outstandings on the expenditure side do not correspond to, and are not naturally connected with, the outstandings on the earnings side, and where there is no fund of circulating capital from which income or profit must be detached for actual enjoyment, but where, on the contrary, the receipts represent in substance a reward for professional skill and personal work to which the expenditure on the other side of the account contributes only in a subsidiary or minor degree, then I think according to ordinary conceptions the receipts basis forms a fair and appropriate foundation for estimating professional income. But this is subject to one qualification. There must be continuity in the practice of the profession" (at 157 158). 107 The factual circumstances of Carden's Case [1938] HCA 69 ; 63 CLR 108 are also far removed from those of the present case. Dixon J's reasons suggest, however, three things. First, we should expect to be able to identify the meaning and timing of the derivation of dividend income, not necessarily simply by exploring the text of the Act, such as the term "income" or the term "derived", but by reference to relevant business and accounting practice. Second, trading and manufacturing companies have particular features that make an accrual or earnings basis appropriate for them, that are not features of a group holding company such as ABB Zurich, namely, a depletion in a stock of vendible articles on one side of the ledger that would be apt to give a misleading picture as to the company's gain or loss over a period if the corresponding earnings (book debts) arising from the depletion during that period were not shown as income on the other side of the ledger. Third, generally speaking, in order to see whether income has been derived, we should ask whether the income has come home to the taxpayer in a realised or immediately realisable form. 108 Carden's Case [1938] HCA 69 ; 63 CLR 108 suggests that in the absence of features taking the case out of the ordinary or evidence of business and accounting practice pointing to a different result, I should treat the present dividend as income derived if and when it came home to ABB Zurich in a realised or immediately realisable form. 109 Prior's Case 6 ATD 5 was concerned with the application of s 19 of the Income Tax Assessment Act 1922 33 to a capitalisation by a Deed of Dissolution of Partnership dated 13 August 1932, and therefore within the financial year ended 30 June 1933, of an amount of ₤2,097 that represented a balance of interest outstanding by one former partner to the other. The sum of ₤2,097 was included in a sum of ₤8,388 that was agreed to represent the total amount owing by the former partner to the other. As part of the agreement on dissolution, the amount of ₤8,388 was secured by a charge "on property already heavily mortgaged and quite incapable of producing a surplus out of which the amount representing interest could be paid" (at 13). 110 The interest was not paid but was carried to a capital account, and in that sense capitalised. Section 19 of the Income Tax Assessment Act 1922 1933 was all but identical to s 19 of the Act (set out at [9] above the words "or money" did not appear in the earlier version). Rich J, with whom Starke and McTiernan JJ agreed, considered that the facts showed that the taxpayer got nothing except a new obligation to pay in exchange for the existing obligation to pay, which made him "no nearer getting his money or of transferring it into anything of any value" (at 12). Rather colourfully, his Honour said: "[a]ll that happened in this case was to change a forlorn hope of interest into a still more forlorn hope of capital" (ibid). Rich J thought that in order to see whether income is being derived, "one must look to realities", adding that while usually payment of interest by cheque involves receipt of income, "payment by a valueless cheque does not" (at 13). Like Dixon J in Carden's Case [1938] HCA 69 ; 63 CLR 108, his Honour also quoted from Sir Houldsworth Shaw & Baker, Law of Income Tax , p111: "for income tax purposes receivability without receipt is nothing". 111 Prior's Case 6 ATD 5 stands for the proposition that s 19 is not engaged where there is no increase in the taxpayer's resources. There was such an increase in the resources of ABB Zurich upon declaration of the dividend. It was certain that the dividend would be paid; it was ABB Zurich's decision to fix a future date for payment; and immediately after declaration of the dividend ABB Zurich was able to sell the right to be paid it. Prior's Case is therefore of little relevance to the present case. 112 Arthur Murray (NSW) Pty Ltd v Commissioner of Taxation [1965] HCA 58 ; (1965) 114 CLR 314 ( Arthur Murray ) was, in a sense, the converse of Carden's Case [1938] HCA 69 ; 63 CLR 108. The taxpayer company received fees for dancing lessons yet to be given. It placed the fees in a suspense account until the lessons were given, when it transferred them to its revenue account. The High Court held that the fees were not assessable income at the time of receipt. 113 In their joint judgment, Barwick CJ, Kitto and Taylor JJ said that Dixon J's reference in Carden's Case [1938] HCA 69 ; 63 CLR 108 to monies having "come home" to the taxpayer, was a reference, not simply to receipt, but to the reaching of a situation in which monies received might properly be counted as gains completely made, so that there was neither legal nor business unsoundness in regarding them, without qualification, as income derived. Their Honours stated (at 318): The ultimate inquiry in either kind of case, of course, must be whether that which has taken place, be it the earning or the receipt, is enough by itself to satisfy the general understanding among practical business people of what constitutes a derivation of income. A conclusion as to what that understanding is may be assisted by considering standard accountancy methods, for they have been evolved in the business community for the very purpose of reflecting received opinions as to the sound view to take of particular kinds of items. ... A judicial decision as to whether an amount received but not yet earned or an amount earned but not yet received is income must depend basically upon the judicial understanding of the meaning which the word conveys to those whose concern it is to observe the distinctions it implies. What ultimately matters is the concept; book-keeping methods are but evidence of the concept. Their Honours noted that it was agreed that according to established accountancy and commercial principles, in the case of a business selling goods or supplying services, amounts received in advance of the goods being delivered or the services supplied are not regarded as income until the goods are delivered or the services supplied. 114 Their Honours recognised that where statute lays down a test for the inclusion of particular kinds of receipts in assessable income, commercial and accounting practice cannot be substituted for the test, but said there was no such test in the case before the Court, the only relevant word being "income", which was to be understood according to "the vocabulary of business affairs" (at 320). 115 Subsection (1) of s 128B does not, in my view, lay down a test of the kind contemplated by their Honours. The subsection invokes the notion of "income ... derived", and I am required to have regard to general commercial and accounting practice, if evidence of it is put before the Court, as to when income consisting of a dividend declared in the circumstances of the present case is regarded as having "come home" to the parent company. 116 In South Australia v Commonwealth [1992] HCA 7 ; (1992) 174 CLR 235, Dixon J's judgment in Carden's Case was again referred to by the High Court. In a joint judgment, Mason CJ, Deane, Toohey and Gaudron JJ said (at 252) that in accordance with Dixon J's statement in Carden's Case [1938] HCA 69 ; 63 CLR 108 at 152 (see [106] (1), (2) above), "the courts have placed reliance upon the conceptions of business and the principles and practices of commercial accountancy in order to arrive at an assessment of income, the object being 'to discover what gains have during the period of account come home to the taxpayer in a realised or immediately realizable form'" (their Honours were quoting from Dixon J in Carden's Case [1938] HCA 69 ; 63 CLR 108 at 155). 146 In Commissioner of Taxation v Citibank Ltd (1993) 44 FCR 434, Hill J, with whom Jenkinson and Einfeld JJ agreed, cautioned against a too ready reliance on business and accounting practice relating to preparation of the company's profit and loss account required in accordance with s 269(1) of the Companies (New South Wales) Code (at 443 446). His Honour stated (at 445 446): With respect to his Honour, who presumably must be taken as having decided otherwise, I do not think that the accounting evidence in the present case establishes that the amount derived each year by applying the financial or actuarial method represents income in ordinary concepts. What that evidence establishes is that the outcome of the finance or actuarial method is an appropriate figure to be used in the preparation of the profit and loss account of the respondent for the year in accordance with the Companies (New South Wales) Code : s 269(1). If the relevant issue were the determination of the profit of the respondents, or whether that profit was to be seen as on revenue account, the evidence would clearly be most cogent. But it must be remembered that the role of the accounting standards is in the determination of profit so as to ensure that financial statements, required to be prepared by statute, give a true and fair view and not the determination of "income", notwithstanding that those two concepts may, as will be seen, sometimes overlap. Thus Professor Walker [an expert witness] states that he has been asked to advise as to the correct method of accounting in relation to the leases in question. But his affidavit and subsequent explanation makes it clear that he has answered that question by reference to the companies law for the purposes of which the relevant standards have been prepared and with which of course each of the respondents was obliged to comply. Mr Westworth's affidavit [regarding accounting practices] makes clear that he too has addressed himself to that issue, not relevant in the present proceedings. All that may be said is that if there be no impediment in the Act to bringing into account, in a case such as the present, a net profit figure as gross income, then that profit figure will need to be calculated in accordance with the accounting standards. The real issue for decision is rather a question of construction of the Act, namely, whether in a case such as the present, the scheme of the Act precludes treating as gross income the net profit calculated in accordance with the financial or actuarial method. Hill J noted earlier, however, that accounting evidence was often relevant and often highly significant in resolving issues under the Act. He gave as an example the issue whether a cash receipts or accruals basis of accounting will give "a true reflex of the income derived by a taxpayer" (at 443, citing Carden's Case [1938] HCA 69 ; 63 CLR 108 his Honour also cited Arthur Murray [1965] HCA 58 ; 114 CLR 314).


case_text: In Commissioner of Taxation (NSW) v Stevenson [1937] HCA 72 ; (1937) 59 CLR 80 ( Stevenson ), Evatt J stated in relation to s 11(b) of the Income Tax (Management) Act 1928 (NSW), which referred to "dividends ... credited, paid, or distributed to the member or shareholder", that the words "credited", "paid" and "distributed" were concerned with the manner in which a shareholder "receives the benefit of the dividend" (at 108). 170 I acknowledge that Jolly [1933] HCA 63 ; 50 CLR 131 and Stevenson [1937] HCA 72 ; 59 CLR 80 concerned more than simply the word "paid", and that Jolly involved the discharge of indebtedness of the shareholder to the company. I suggest, however, that the general tenor of the passages quoted is that "payment" can take such form of satisfaction of the dividend debt as the shareholder may have agreed to accept, whether that agreement is contained in the company's articles of association or is external to them.


case_title: Cotton v Heyl [1930] 1 Ch 510

case_text: The following summary account of general principles is in accord with his Lordship's affidavit. (1) The English legislation that made a "debt or other legal thing in action" assignable in law was s 25(6) of the Supreme Court of Judicature Act 1873 (UK) and the provision is now found in s 136(1) of the Law of Property Act 1925 (UK). (2) Although the common law did not recognise assignments of legal choses in action, equitable assignments of them were recognised. Lord Millett states that "[e]quitable assignments of legal choses in action are of great antiquity". I note that in his recent scholarly work, The Assignment of Contractual Rights (Hart Publishing, 2006), Dr Tolhurst states (at [2.16]): By the beginning of the eighteenth century, it was settled that equity would recognise the assignment of a legal chose in action and viewed the common law's position as "absurd" [ Master v Miller (1791) 4 TR 320 at 340 (100 ER 1042 at 1053) per Buller J]. (3) The statutory provision did not impair the efficacy of equitable assignments, and neither the equitable assignment nor notice of it to the debtor (if notice of it was given) was required to be expressed in any particular manner, and might be written or oral in form, so long as the intention to assign and (if notice of it was given) the intention to give notice of an assignment were plain: William Brandt's Sons & Co v Dunlop Rubber Company Limited [1905] AC 454 at 462 per Lord Macnaghten. (4) Notice to the debtor was not a requirement of a valid equitable assignment, as it is in the case of a valid legal assignment under the statutory provision: Gorringe v Irwell India Rubber and Gutta Percha Works (1866) 34 Ch D 128; Ward and Pemberton v Duncombe [1893] AC 369 at 392. As between assignor and assignee, an equitable assignment is complete and binding from the time when it is made or when the assignor has agreed, for valuable consideration, to make it. (5) The debtor's state of mind is irrelevant. However, the debtor's liability will be discharged if it pays the assignor before receiving notice of the assignment. In such a case, the assignor will hold the amount paid to it upon trust for the assignee. (6) Notice to the debtor need not be in any particular form and may be given by any party. Lord Millett states: "The question is whether the debtor has notice of the assignment or has been put on enquiry whether there has been an assignment. If he goes ahead without enquiry and pays the assignor, he is at risk of having to pay twice." (7) Because a debt cannot be sold in a ready market elsewhere, a contract to assign a debt is, subject to impediments that may exist, specifically enforceable in equity. Accordingly, an equitable assignment need not purport to be an actual present assignment, and may take the form of a contract, for valuable consideration, to assign: see Cotton v Heyl [1930] 1 Ch 510 at 520 521; In Re Warren; ex parte Wheeler v The Trustee in Bankruptcy [1938] Ch 725 at 734 6; and see Tolhurst, op cit at [7.16]. (8) Whether or not it is correct to say that the assignor holds the legal chose in action on trust for the assignee before the promised consideration is paid, once the promised consideration is paid, it does. It will then hold the benefit of the obligor's undertaking upon a constructive trust for the assignee, even if specific performance of the contract to assign between assignor and assignee could not have been obtained by the assignee previously. As Lord Millett summarises the position, "[t]he trust ceases to be defeasible or contingent; the vendor becomes a fiduciary; and the purchaser has all the remedies of a beneficiary under an ordinary trust", citing Rose v Watson (1864) 10 HLCas 672 (11 ER 1187) esp per Lord Cranworth at 683 4 (ER 1192), and see also Lake v Bayliss [1974] 2 All ER 1114.


case_title: Countess of Bective v Commissioner of Taxation [1932] HCA 22 ; (1932) 47 CLR 417


case_text: The dividend was declared before ss 254U and 254V were introduced into the predecessor to the Corporations Act 2001 (Cth), the Corporations Law , by the Company Law Review Act 1998 (Cth) (No 61 of 1998) with effect on and from 1 July 1998. Therefore I need not discuss the purpose and effect of those provisions. See the discussion of them in Bluebottle UK Ltd v Deputy Commissioner of Taxation [2006] NSWSC 706 ; (2006) 233 ALR 747 at [14] [45] and, on appeal, Deputy Commissioner of Taxation v Bluebottle UK Ltd [2006] ATC 4803 at [35] [53] per Santow JA, [105] [112] per Basten JA. (Special leave to appeal to the High Court was granted on 25 May 2007.)


case_outcome: distinguished

case_text: The Commissioner submits that for the purposes of identifying the appropriate basis of accounting, the authorities show or suggest that a holding company is classified as a trading company. He cites Carapark Holdings Ltd v Commissioner of Taxation [1967] HCA 5 ; (1966) 115 CLR 653 ( Carapark ) at 663 664; Esquire Nominees Limited v Federal Commissioner of Taxation [1972] HCA 32 ; (1973) 129 CLR 177 ( Esquire Nominees ) at 212 per Barwick CJ, 221 per Menzies J; Brookton Co-operative Society Limited v Commissioner of Taxation [1981] HCA 28 ; (1981) 147 CLR 441 ( Brookton ) at 469 per Aickin J; and Broken Hill Pty Co Ltd v Federal Commissioner of Taxation (1999) 99 ATC 5193 ( BHP v FCT ) at [48] per Kenny J. 134 The Commissioner relies on a statement in Esquire Nominees [1972] HCA 32 ; 129 CLR 177 by Barwick CJ (at 212) that a company may make profits without trading in goods or commodities, or, for that matter, in securities, and that it may do so simply through its investment portfolio, indeed, through investment in a single subsidiary. 135 Esquire Nominees [1972] HCA 32 ; 129 CLR 177 concerned an issue over the location of the source from which income was derived. The taxpayer company, Esquire Nominees Ltd, was incorporated in Norfolk Island, as was Mitchell Credits Ltd. Each had its registered office and central management and control in Norfolk Island. In the year ended 30 June 1969, Esquire Nominees Ltd received a dividend from Mitchell Credits Ltd. Mitchell Credits Ltd derived the funds for the payment of the dividend from a dividend which it received from Pharmaceutical Investments Ltd, which was also incorporated in Norfolk Island. That company paid the dividend to Mitchell Credits Ltd from funds constituted by a dividend it received from an Australian company, whose income came from dividends paid to it by another Australian company carrying on business in Australia. 136 Barwick CJ (at 212) said that the place where a company makes its investment income is the place where it has its central management and control, whereas the place where a trading or manufacturing company makes its income is the place where its trading or manufacturing activities are carried on. 137 The High Court held that Esquire Nominees Ltd was a resident of Norfolk Island and that the source of the dividend, the fund out of which Mitchell Credits Ltd declared it, was within Norfolk Island. 139 The Commissioner also refers to a passage in the judgment of Aickin J in Brookton [1981] HCA 28 ; 147 CLR 441. His Honour stated (at 469) that in the case of a company that had no activity other than the receipt of dividends from shares that it had purchased, it would ordinarily be regarded as carrying on a business, even if it did not actively manage its portfolio of investments, whereas an individual in the same circumstances would not necessarily be regarded as carrying on such a business. Aickin J cited Esquire Nominees [1972] HCA 32 ; 129 CLR 177 at 212 per Barwick CJ and 221 per Menzies J. Again, the statement is relevant only to the question whether ABB Zurich carried on a business. I accept that it did. 140 Finally, the Commissioner relies on BHP v FCT 99 ATC 5193, in which Kenny J said (at [48]) that the taxpayer company carried on businesses which included holding shares in, and managing, its subsidiaries. Her Honour stated, citing Esquire Nominees [1972] HCA 32 ; 129 CLR 177 and Brookton [1981] HCA 28 ; 147 CLR 441, that the holding of shares in subsidiaries can of itself constitute the carrying of a business for the purposes of s 51(1) of the Act.


case_title: Gorringe v Irwell India Rubber and Gutta Percha Works (1866) 34 Ch D 128


case_text: The following propositions are to be found in the judgment of Dixon J: (1) The question which of rival methods of accounting should be employed in identifying taxable income falls for the courts to determine according to legal principles, but it is a mistake to search only the legislative text for an answer, because such notions as income, profits and gains are conceptions of the world of affairs, and particularly of business, covering an infinite variety of activities, for which no single formula can be devised (at 151 152). (2) "... in nearly every department of enterprise and employment the course of affairs and the practice of business have developed methods of estimating or computing in terms of money the result over an interval of time produced by the operations of business, by the work of the individual, or by the use of capital. The practice of these methods of computation and the general recognition of the principles upon which they proceed are responsible in a great measure for the conceptions of income, profit and gain and, therefore, may be said to enter into the determination or definition of the subject which the legislature has undertaken to tax. The courts have always regarded the ascertainment of income as governed by the principles recognized or followed in business and commerce, unless the legislature has itself made some specific provision affecting a particular matter or question" (at 152). (3) "The tendency of judicial decision has been to place increasing reliance upon the conceptions of business and the principles and practices of commercial accountancy ... But the process by which the principles and practices evolved in business or general affairs are drawn upon for the solution of questions presented to courts of law almost inevitably leads to a development in the law itself. For, under our system of precedent, a decision adopting or resorting to any given accounting principle or application of principle is almost bound to settle for the future the rule to be observed and the rule thus comes to look very like a proposition of law" (at 153 154). (4) "Unless in the statute itself some definite direction is discoverable, ... the admissibility of the method which in fact has been pursued must depend upon its actual appropriateness ... [t]he inquiry should be whether in the circumstances of the case it is calculated to give a substantially correct reflex of the taxpayer's true income. We are so accustomed to commercial accounts of manufacturing or trading operations, where the object is to show the gain upon a comparison of the respective positions at the beginning and end of a period of production or trading, that it is easy to forget the reasons which underlie the application of such a method of accounting to the purpose of ascertaining taxable income. Although the field of profit-making which it covers in practice is probably much greater than any other among the manifold forms of income or revenue, it is a system of accounting which does not represent the primary or basal position from which an investigation of income for taxation purposes begins. Speaking generally, in the assessment of income the object is to discover what gains have during the period of account come home to the taxpayer in a realized or immediately realizable form" (at 154 155). (5) The expressions "derived" and "arising or accruing" ordinarily signify receipt, but not in relation to debts due to a trading company, in which case debts due but not paid must be included as income. With regard to non-trading income there must be something "coming in", that is to say, "for income tax purposes receivability without receipt is nothing" (at 155 quoting from Sir Houldsworth Shaw & Baker, Law of Income Tax p111). (6) "The reasons which underlie the practice of estimating for taxation purposes the income from trade or manufacture by means of a commercial profit and loss account consist in the impracticability of computing income in any other way and in the adoption for fiscal purposes of recognized commercial principles. The computation of profits from manufacture and trading has always proceeded upon the principle that profit may be contained in stock-in-trade and 'outstandings'" (at 155). (7) "... a tax upon the profits or income of such a business [a manufacturing or trading business] must be understood as a tax upon the profits or income computed according to the system, because, according to common understanding and commercial principles, that is the method of determining the profits" (at 156). (8) The word "derived" is the equivalent of "arising or accruing" ( Harding v Federal Commissioner of Taxation [1917] HCA 13 ; (1917) 23 CLR 119 at 133), and none of these three words, nor the words "income", "profit" or "gain" in the statute, throw any light on the question of which basis of accounting is appropriate to reflect income in the circumstances of a particular case (at 157). (9) "Where there is nothing analogous to a stock of vendible articles to be acquired or produced and carried by the taxpayer, where outstandings on the expenditure side do not correspond to, and are not naturally connected with, the outstandings on the earnings side, and where there is no fund of circulating capital from which income or profit must be detached for actual enjoyment, but where, on the contrary, the receipts represent in substance a reward for professional skill and personal work to which the expenditure on the other side of the account contributes only in a subsidiary or minor degree, then I think according to ordinary conceptions the receipts basis forms a fair and appropriate foundation for estimating professional income. But this is subject to one qualification. There must be continuity in the practice of the profession" (at 157 158). 128 Bowaters 38 TC 593 is said to be against the Commissioner's contention in the present case. I note that I do not see any relevant distinction between the concepts "arising" in ss 19 and 20(1) of the Finance Act 1937 (UK) and "derived" in the Australian s 128B(1): see Harding v Federal Commissioner of Taxation [1917] HCA 13 ; 23 CLR 119 at 133 noted at [106] above.


case_text: With reference to the eighth proposition, I note that the idea that the legal chose in action is held on trust after the consideration is paid in full is well accepted in the case law; see for example, the Australian cases Palette Shoes Pty Ltd v Krohn [1937] HCA 37 ; (1937) 58 CLR 1 at 26 27 and McIntyre v Gye (1994) 51 FCR 472 at 480 481, and the cases referred to in Meagher RP, Heydon JD and Leeming MJ, Meagher Gummow and Lehane's Equity Doctrines and Remedies (4 th ed, Butterworths, 2002) at [6-050]. The operative principle is that equity regards as done that which ought to be done, the assignor's conscience being bound to that end: Holroyd v Marshall (1862) 10 HLCas 191 (11 ER 999); Tailby v Official Receiver (1888) 13 App Cas 523. There is, however, criticism of descriptions of the purchaser's equitable interest between contract and payment of the purchase money as that of a beneficiary under a trust; see for example Heydon JD and Loughlan PL, Cases and Materials on Equity and Trusts (6 th ed, Butterworths, 2002) at [6.7], [6.16] [6.18]. Dr Tolhurst goes further and suggests (op cit, [4.07]) an "assignment analysis" according to which, even in the former class of case (where the consideration for the assignment has been paid), a trust of the legal chose is unnecessary except as a remedial device granted by the court. In such a case, however, the case law is all one way in favour of a constructive trust arising as a matter of substantive law. In any event, his Lordship's evidence to that effect was not challenged.


case_text: Prior to the introduction of those provisions, there was a well established distinction between final and interim dividends. A declaration of a final dividend by the shareholders gave rise to an immediate debt owed by the company to the shareholders, whereas a resolution by the directors to pay an interim dividend did not do so: Potel v Inland Revenue Commissioners [1971] 2 All ER 504 at 511 512; Industrial Equity Limited v Blackburn [1977] HCA 59 ; (1977) 137 CLR 567 at 572; Marra Developments Ltd v BW Rofe Pty Ltd [1977] 2 NSWLR 616 at 625; Brookton Co-operative Society Limited v Commissioner of Taxation [1981] HCA 28 ; (1981) 147 CLR 441 at 455. Thus, a declaration of a final dividend could not be revoked and the company's indebtedness to its shareholders eliminated, if profits ceased to be available to fund the dividend between the time of the declaration and the time fixed for payment. A decision of the directors to pay an interim dividend, on the other hand, could always be revoked down to the time fixed for payment.


case_text: In Jolly v Federal Commissioner of Taxation [1933] HCA 63 ; (1934) 50 CLR 131 ( Jolly ), Dixon J summarised the effect of two earlier High Court decisions on the description of income in s 14(b) of the Income Tax Assessment Act 1915-1921 (Cth), to include "dividends, interest, profits or bonus credited or paid to any member, shareholder, or debentureholder of a company which derives income from a source in Australia" (the two earlier cases were Webb v Federal Commissioner of Taxation [1922] HCA 27 ; (1922) 30 CLR 450 and James v Federal Commissioner of Taxation [1924] HCA 34 ; (1924) 34 CLR 404). His Honour stated that whatever else the provision might include, it extended to "all profits that a company allocated as such to all or some class of its members severally, and, under lawful authority appropriates in discharge of claims to which they are individually liable" (at 142). 170 I acknowledge that Jolly [1933] HCA 63 ; 50 CLR 131 and Stevenson [1937] HCA 72 ; 59 CLR 80 concerned more than simply the word "paid", and that Jolly involved the discharge of indebtedness of the shareholder to the company. I suggest, however, that the general tenor of the passages quoted is that "payment" can take such form of satisfaction of the dividend debt as the shareholder may have agreed to accept, whether that agreement is contained in the company's articles of association or is external to them.


case_title: Lake v Bayliss [1974] 2 All ER 1114


case_title: Marra Developments Ltd v BW Rofe Pty Ltd [1977] 2 NSWLR 616


case_title: McIntyre v Gye (1994) 51 FCR 472


case_text: The third, and further alternative way in which the Commissioner put his case, is that under the statutory régime, ABB Zurich could not, without assigning the underlying shares, effect an assignment of the debt that would avoid derivation by it of the "dividend". This third submission depends largely, though not entirely, on Norman v Federal Commissioner of Taxation [1963] HCA 21 ; (1963) 109 CLR 9 ( Norman ). 36 I will elaborate on the parties' submissions below. 37 In their outline of opening, the applicants set out the following facts which, although elaborated upon by the Commissioner as noted below, were not in issue between the parties: Parties [ABB Australia] (formerly called Asea Brown Boveri Pty Limited) ... is a company: (a) incorporated pursuant to the laws of New South Wales; (b) the issued capital of which during the period from (at least) 1 May 1996 to 30 June 1996 comprised 53,072,944 ordinary shares of A$1.50 each and 42,827,055 ordinary shares of A$1.00 each, all of which were registered in the name of the Second Applicant (as beneficial owner) except for 1 ordinary share of $1.00 which was registered in the name of Patelhold Patentverwertungs und Elektro Holding AG on bare trust for the Second Applicant (as beneficial owner); (b) which is, and was at all material times, a resident of Australia for the purposes of [the 1936 Act]. [ABB Zurich] is a company: (a) incorporated pursuant to the laws of Switzerland; (b) which is, and was at all material times, a non-resident of Australia for the purposes of the 1936 Act. [BZW] is a company: (a) incorporated pursuant to the laws of England and Wales; (b) which was at all material times a non-resident of Australia for the purposes of the 1936 Act. [BAL] is a company: (a) incorporated pursuant to the laws of New South Wales; (b) which was at all material times a resident of Australia for the purposes of the 1936 Act. Declaration of the Dividend On 22 May 1996, the directors of ABB Australia resolved that the declaration and payment of a final dividend of A$49,000,000 for the year ended 31 December 1995 payable on 21 June 1996 to the registered shareholders of the company as at 30 May 1996 be recommended to the shareholders at an annual general meeting. On 30 May 1996, in accordance with Article 82 of the Articles of Association of ABB Australia, the members of the company resolved at an annual general meeting that a final dividend of A$49,000,000 be paid to members holding shares in the company as at 30 May 1996 and that the dividend be payable on 21 June 1996 (the " Dividend "). Assignment of the right to the Dividend On 3 June 1996 in Zurich, Switzerland: (a) ABB Zurich made an offer in writing to BZW (the " First Offer ") to assign to BZW absolutely all of ABB Zurich's right to receive the Dividend on the terms set out in the First Offer; and (b) the First Offer was accepted by Mr Althans, as attorney for BZW, orally in accordance with its terms. The First Offer, which was expressed to be governed by English law, included terms to the following effect: (a) the consideration payable by BZW to ABB Zurich for the assignment was a sum payable in Australian dollars calculated in accordance with the formula set out in Appendix 1 to the First Offer (the " Price "), which was ultimately determined to be A$48,816,995; (b) the Price was payable to ABB Zurich by wire transfer no later than 5 June 1996; (c) following acceptance of the offer, ABB Zurich would give a direction to ABB Australia to pay the Dividend to such bank account as shall be designated by BZW or a "Permitted Assign"; (d) ABB Zurich agreed that BZW may without the consent of ABB Zurich, assign to a Permitted Assign the benefit of all or any of ABB Zurich's obligations under the First Offer and/or any benefit arising under or out of the First Offer. BZW did not give notice to ABB Australia of the assignment of ABB Zurich's right to receive the Dividend. On 4 June 1996, in Zurich, Switzerland: (a) BZW made an offer in writing to BAL (the " Second Offer ") to assign to BAL all of BZW's right to receive the Dividend and the benefits of the First Offer; (b) the Second Offer was accepted by Mr B Gill, as attorney for BAL, orally in accordance with its terms. The Second Offer, which is also expressed to be governed by English law, provided that the consideration payable by BAL to BZW for the assignment was the amount of A$48,826,480. On 5 June 1996: (a) BAL paid the consideration for the assignment under the Second Offer (being the amount of A$48,826,480) to BZW; (b) BZW paid the Price (being the amount of A$48,816,995) to ABB Zurich; (c) BAL gave to ABB Zurich written notice of the assignment under the Second Offer and a written request that ABB Zurich instruct ABB Australia to pay the amount of A$49,000,000 in respect of the Dividend to an identified bank account of BAL at the National Australia Bank in Sydney "for value 21 June 1996". On 6 June 1996, ABB Zurich gave to ABB Australia a written direction which provided relevantly as follows: "You are irrevocably directed to pay the debt of AUD 49,000,000 due and owing by you to ABB Asea Brown Boveri Ltd, Zurich, Switzerland, to Barclays Australia Limited, 22 nd Floor, 255 George Street, GPO Box 4675, Sydney NSW 2001, Australia. The payment must be made for value 21 June 1996 to the following account [there followed particulars of an agreement at the National Australia Bank in Sydney]. Payment of the Dividend On 20 June 1996, ABB Australia, by special resolution passed at a duly convened meeting of its members, amended its Articles of Association by the addition of a new Article 82(3) as follows: "Members may at any time by way of a written notice direct the Company to pay the amount of any dividend declared pursuant to Article 82(1) to a party nominated in that Notice. The company shall on receipt of any such Notice pay the dividend in accordance with the terms of the Notice." On 21 June 1996, ABB Australia paid the amount of $49,000,000 to BAL in accordance with the direction referred to ... above. On or about 30 June 1996, the payment of the Dividend was recorded in the accounts of ABB Australia by the following journal entry: Dr Retained Earnings Dividend Paid $49,000,000 Cr Monies on deposit ABB $49,000,000. Apart from the accounting entry referred to in the previous paragraph, no other originating entry (being a debit or credit entry) was made in the books of ABB Australia in respect of the debt arising on the declaration of the Dividend or its payment. Dispute with the Respondent On 16 December 2003 the Respondent sent a letter to ABB Australia which stated that ABB Australia was obliged pursuant to s.221YL(1) of the 1936 Act to make a deduction from the Dividend when it was paid on 21 June 1996 which was not made, and required ABB Australia to pay to him pursuant to s.221YQ(1) of the 1936 Act an amount of $15,540,581.40 comprising unpaid withholding tax of $7,350,000, unpaid additional tax by way of penalty of $3,082,367.90 and unpaid general interest charge of $5,108,213.50. Also on 16 December 2003, the Respondent sent a letter to ABB Zurich which stated that ABB Zurich was liable to pay withholding tax, pursuant to s.128B and s.128C of the 1936 Act, in respect of the Dividend, and required ABB Zurich to pay to him the amount of $15,540,581.40 comprising unpaid withholding tax of $7,350,000, unpaid additional tax by way of penalty of $3,082,367.90 and unpaid general interest charge of $5,108,213.50. 189 The Commissioner relies, first, on Norman [1963] HCA 21 ; 109 CLR 9 at 16 per Dixon CJ. 190 In Norman , by deed dated 21 December 1956 a taxpayer purported to assign to his wife by way of gift, relevantly, all the interest, dividends and other income arising from two estates in which the taxpayer had a beneficial interest. Subsequently, company shares representing the taxpayer's interest in the estates were transferred to him and he was registered as the shareholder in respect of them. In the year of income ended 30 June 1958, after the shares had been transferred to the taxpayer, dividends were declared on them. The companies posted to the taxpayer cheques for the dividends drawn in his favour. He endorsed them when necessary and had them paid into his wife's bank account a practice of which his wife was aware. The companies had no notice of the deed. 191 The amounts of the dividends were returned as income of the taxpayer's wife, but the Commissioner contended that they should have been returned as income of the taxpayer. 192 In the passage (at 16) cited, Dixon CJ stated: So far as the dividend is concerned, I think the structure of s 44 of the Income Tax and Social Services Contribution Assessment Act 1936-1958 makes it impossible that future undeclared dividends should be assigned by the shareholder so as to exclude him from liability to include the dividends when declared in his assessable income. Section 44 and the sections which follow are framed to deal specially with the case of members of companies who are entitled to dividends. The whole question of tax upon the profits of companies is dealt with specially in the Act, including the scheme relating to rebates. It would become impossible if a shareholder could without transferring his shares assign a future undeclared dividend so as to exclude the operation of the provisions. Menzies J (with whom Owen J agreed) made generally similar comments in relation to the policy underlying s 44(1). Menzies J stated (at 23): I am disposed to think that s 44(1) of the Income Tax and Social Services Contribution Assessment Act requires that when the taxpayer received the dividends paid to him by the companies in which he was a shareholder, as he did, that those dividends should form part of his assessable income. Of course, had he been a trustee of the shares the provisions of Div 6 of the Act would have applied. 193 The Commissioner submits that the comments made by Dixon CJ and Menzies J in Norman have greater force in relation to the circumstances of the present case because the dividend was declared prior to the equitable assignments, whereas in Norman the deed of assignment preceded the declaration of the dividend. 194 There are several differences between the facts of Norman and those of the present case. In Norman : • the equitable assignment was by way of gift whereas ABB Zurich contracted to sell for valuable consideration; • the equitable assignment was of prospective or hoped for future dividends, whereas in the present case the equitable assignments were of an existing debt arising from a declaration of dividend that had already occurred; • the terms of the declaration of dividends did not provide for a postponement of payment, whereas the terms of the declaration of the dividend in the present case provided for a deferral of payment from 30 May 1996 to 21 June 1996; • the companies drew the cheques for dividends already due and payable in favour of the taxpayer and posted them to him, and he endorsed them where required and paid them into his wife's bank account, whereas ABB Australia paid the amount of the dividend to BAL. The statement by Dixon CJ refers in terms only to assignment of "a future undeclared dividend". The statement by Menzies J refers to the fact that the dividends were paid to the shareholder. 195 The facts in Norman which their Honours must be taken to have had in mind were extreme: the companies, having no notice of the earlier purported gift, drew the dividend cheques in favour of a shareholder and posted them to him. In substance, it was he who effected payment to his wife. 197 The applicants submit that s 44 of the Act cannot determine the capacity of a taxpayer to assign income (while Norman [1963] HCA 21 ; 109 CLR 9 concerned s 44, the Commissioner's submission expressly stated that it proceeded on the basis that s 128B and s 44(1) "are to be construed consistently"). 198 The applicants further submit: The "special characteristics" relied on by the Respondent do not subject the rights in respect of debts arising on the declaration of dividends, or in respect of the future property being the expected dividends, to any different consequences in the case of an assignment. The assignee, of course, takes subject to any disabilities on the subject matter of the assignment flowing from the relationship between the assignor and the company, but this does not preclude assignment nor its tax consequences. It is not to the point that the "source" of the dividend is "an effectuation or realisation of the rights obtained by the acquisition of the share;" the same could be said in respect of interest and principal, rents and land or royalty and intellectual property. 199 It is not in dispute that the declaration of the dividend gave rise to a debt. I do not understand that there is any dispute that s 12 of the Conveyancing Act 1919 (NSW) or the equivalent United Kingdom provision, s 136 of the Law of Property Act 1925 (UK), made the debt assignable at law "subject to equities having priority over the assignee". The assignment in the present case was not under the statute, but it is useful to note that if it had been, there would, in my opinion, have been no "equity" in favour of the Commissioner in respect of withholding tax for three reasons. First, I do not think that the liability of a non-resident to pay withholding tax is an "equity" for present purposes. Second, ABB Zurich was not liable to pay withholding tax prior to the assignment, and so the assignment could not take effect "subject to" that supposed equity. Third, the "subject to equities" qualification relates to the position of the assignee (BAL in the present case) not that of the assignor (ABB Zurich in the present case).


case_title: Palette Shoes Pty Ltd v Krohn [1937] HCA 37 ; (1937) 58 CLR 1


case_text: The authorities cited by the applicants are St Lucia Usines and Estates Company Limited v Colonial Treasurer of St Lucia [1924] AC 508 ( St Lucia ) at 512; Commissioner of Taxes (SA) v The Executor Trustee and Agency Company of South Australia Limited [1938] HCA 69 ; (1938) 63 CLR 108 ( Carden's Case ) at 155; Permanent Trustee Co v Federal Commissioner of Taxation (1940) 6 ATD 5 ( Prior's Case ) at 13; South Australia v Commonwealth [1992] HCA 7 ; (1992) 174 CLR 235 at 253; and Bowaters Sales Co Ltd v Commissioners of Inland Revenue (1958) 38 TC 593 ( Bowaters ) at 597 599. As well, the applicants refer to the Commissioner's Public Ruling TR 98/1 at [19], in which the Commissioner has said that as a general rule, the receipts method is appropriate to determine income derived from investments, although there are exceptions, such as in the case of interest from a business of money lending carried on by the taxpayer.


case_title: Potel v Inland Revenue Commissioners [1971] 2 All ER 504


case_text: The Commissioner relies on the following special characteristics of dividends: (a) that the division of a company's profits among its shareholders by the declaration of a dividend is "an effectuation or realisation of the rights obtained by the acquisition of the share" (citing Chief Commissioner of State Revenue (NSW) v Dick Smith Electronics Holdings Pty Ltd [2005] HCA 3 ; (2005) 221 CLR 496 per Gleeson CJ and Callinan J at [25] [26], quoting from the judgment of Dixon J in Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) [1948] HCA 28 ; (1948) 77 CLR 143 at 153); (b) that in the winding up of a company, debts owed by the company to its members in their capacity as members, including debts arising from the declaration of a dividend, are postponed until all debts owed to, or claims made by, persons other than as members of the company have been satisfied: Corporations Act 2001 (Cth) s 563A (in 1996 the comparable provision was s 563A of the Corporations Law , which was in identical terms); (c) on an assignment of a debt created by the declaration of a dividend, the debt remains subject to the "equity" of the ordinary creditors proving in priority (the Commissioner cites Re Harry Simpson & Company Pty Ltd and Companies Act 1936 [1964-5] NSWR 603 ( Simpson )). 200 The Commissioner's present submission draws attention to certain special features of a dividend debt, and Simpson [1964-65] NSWR 603 exemplifies them. In that case, a company was indebted to shareholders who were trustees of twelve trusts for ₤34,471.18s.1d on account of dividends that had been declared. The debt was recorded in the company's books. The trustees notified the company that in accordance with the trusts, a person had elected to become the beneficiary of each trust fund. Accordingly, the company transferred the amount of its indebtedness to the trustees into an account in the name of the beneficiary. 201 Upon liquidation of the company, the beneficiary sought to prove for the debt of ₤34,471.18s.1d. The liquidator rejected the proof on the basis that s 200(1)(g) of the Companies Act 1936 (NSW) applied. The effect of that provision was that on a winding up a debt owed by the company to a person in the person's capacity as a member of the company, such as by way of dividend, was, relevantly, deemed not to be a debt payable to that member (cf the postponement now provided for in s 563A of the Corporations Act 2001 (Cth) referred to at [196] above). 202 The beneficiary submitted (1) that the sum owed to her was not by way of dividend, and (2) that she was not a member but an assignee from a member.


case_title: Reiter v Commissioner of Taxation [2001] FCA 1068 ; (2001) 113 FCR 492


case_title: Service v Commissioner of Taxation [2000] FCA 188 ; (2000) 97 FCR 265


case_title: Shepherd v Commissioner of Taxation [1965] HCA 70 ; (1965) 113 CLR 385


case_text: The authorities cited by the applicants are St Lucia Usines and Estates Company Limited v Colonial Treasurer of St Lucia [1924] AC 508 ( St Lucia ) at 512; Commissioner of Taxes (SA) v The Executor Trustee and Agency Company of South Australia Limited [1938] HCA 69 ; (1938) 63 CLR 108 ( Carden's Case ) at 155; Permanent Trustee Co v Federal Commissioner of Taxation (1940) 6 ATD 5 ( Prior's Case ) at 13; South Australia v Commonwealth [1992] HCA 7 ; (1992) 174 CLR 235 at 253; and Bowaters Sales Co Ltd v Commissioners of Inland Revenue (1958) 38 TC 593 ( Bowaters ) at 597 599. As well, the applicants refer to the Commissioner's Public Ruling TR 98/1 at [19], in which the Commissioner has said that as a general rule, the receipts method is appropriate to determine income derived from investments, although there are exceptions, such as in the case of interest from a business of money lending carried on by the taxpayer. 116 In South Australia v Commonwealth [1992] HCA 7 ; (1992) 174 CLR 235, Dixon J's judgment in Carden's Case was again referred to by the High Court. In a joint judgment, Mason CJ, Deane, Toohey and Gaudron JJ said (at 252) that in accordance with Dixon J's statement in Carden's Case [1938] HCA 69 ; 63 CLR 108 at 152 (see [106] (1), (2) above), "the courts have placed reliance upon the conceptions of business and the principles and practices of commercial accountancy in order to arrive at an assessment of income, the object being 'to discover what gains have during the period of account come home to the taxpayer in a realised or immediately realizable form'" (their Honours were quoting from Dixon J in Carden's Case [1938] HCA 69 ; 63 CLR 108 at 155).


case_text: The authorities cited by the applicants are St Lucia Usines and Estates Company Limited v Colonial Treasurer of St Lucia [1924] AC 508 ( St Lucia ) at 512; Commissioner of Taxes (SA) v The Executor Trustee and Agency Company of South Australia Limited [1938] HCA 69 ; (1938) 63 CLR 108 ( Carden's Case ) at 155; Permanent Trustee Co v Federal Commissioner of Taxation (1940) 6 ATD 5 ( Prior's Case ) at 13; South Australia v Commonwealth [1992] HCA 7 ; (1992) 174 CLR 235 at 253; and Bowaters Sales Co Ltd v Commissioners of Inland Revenue (1958) 38 TC 593 ( Bowaters ) at 597 599. As well, the applicants refer to the Commissioner's Public Ruling TR 98/1 at [19], in which the Commissioner has said that as a general rule, the receipts method is appropriate to determine income derived from investments, although there are exceptions, such as in the case of interest from a business of money lending carried on by the taxpayer. 100 St Lucia [1924] AC 508 concerned the question whether interest on unpaid purchase money, payable but not paid, was "income arising or accruing" to the creditor for the purposes of the Income Tax Ordinance 1910 of St Lucia. After selling its estates and business in St Lucia, the taxpayer company did not reside or carry on business there, but was owed part of the purchase price at interest. Twelve months' interest fell due on 30 November 1921 but was not paid. Whether the company was liable to pay income tax in respect of the year 1921 on that interest depended on whether that interest was "income arising or accruing" to the company derived from a source in the colony. 101 The Privy Council rejected the Colonial Treasurer's contention that the interest accrued to the company in 1921. Their Lordships stated (at 512 513): The words "income arising or accruing" are not equivalent to the words "Debts arising or accruing". To give them that meaning is to ignore the word "income". The words mean "money arising or accruing by way of income". There must be a coming in to satisfy the word "income". This is a sense which is assisted or confirmed by the word "received" in the proviso at the end of s 4, subs 1. If the taxpayer be the holder of stock of a foreign Government carrying say 5 per cent interest, and the Government is that of a defaulting State which does not pay the interest, the taxpayer has neither received nor has there accrued to him any income in respect of that stock. A debt has accrued to him but income has not. It does not follow that income is confined to that which the taxpayer actually receives. Where income tax is deducted at the source the taxpayer never receives the sum deducted but it accrues to him. It is said, and truly, that a commercial company, in preparing its balance sheet and profit and loss account, does not confine itself to its actual receipts does not prepare a mere cash account but values its book debts and its stock in trade and so on and calculates its profits accordingly. From the practice of commerce and of accountants and from the necessity of the case this is so. But this is far from establishing that income arises or accrues from ... an investment which fails to pay the interest due. I do not think it necessary to refer further to s 4(1)'s reference to "received" that is mentioned in this passage. 102 The sale that gave rise to the liability to pay the interest appears to have been a one off, indeed a final, sale of the company's estates in St Lucia. The facts are therefore far removed from those of the present case in which ABB Australia was one of 1,000 wholly owned subsidiaries of ABB Zurich, and the latter company, in its role as shareholder, declared the dividend and framed the terms of payment. On the other hand, the passage does distinguish between money falling due and payable (in the present case, the amount of the dividend had not fallen due and payable as at 30 May 1996) and money coming in.


case_title: Tailby v Official Receiver (1888) 13 App Cas 523


case_title: Ward and Pemberton v Duncombe [1893] AC 369


case_title: William Brandt's Sons & Co v Dunlop Rubber Company Limited [1905] AC 454


case_title: Zobory v Commissioner of Taxation (1995) 64 FCR 86


case_text: It is important when considering the extent of the Tribunal's obligations under s 43 to have regard to the words of the section. The primary obligation imposed on the Tribunal by the section is to 'give reasons ... for its decision'. They must include but are not limited to its findings on material questions of fact and reference to the evidence on which those findings are based. It must be possible '... to discern from the reasons given the actual reasoning process adopted ...' Comcare Australia v Mathieson (2004) 79 ALD 518 at [61] per Weinberg J.


case_text: The grounds of appeal, as set out in the notice, are as follows: '4.1 The Tribunal erred in law in that, by failing to include in its reasons its findings on material questions of fact, a reference to the evidence or other material on which those findings were based, and the reasons for: 4.1.1 its decision that Mr Homewood would be destitute within six months (paragraph 55); 4.1.2 the basis on which the Tribunal reconciled that decision with the finding (paragraph 54) that Mr Homewood had available assets that would realise between $48,000 and $58,000 [sic] ; and 4.1.3 the Tribunal's decision that the appropriate part of the compensation payment received by Mr Homewood that should be treated as not having been made was the part that would lead to the preclusion period ending on 1 July 2006 instead of 18 October 2022 (paragraph 56) the Tribunal failed to provide reasons for its decision, in contravention of the requirements of s 43(2) and (2B) of the AAT Act.' 14 The Tribunal commenced its reasons by noting the agreement by the parties that the date of the accident, 3 February 1993, the amount of the compensation payment, $1,250,000, and the calculation of the preclusion period, 3 February 1993 to 18 October 2022, were not in dispute. It then said (at [4]): 'The issue in contention was whether special circumstances existed that would make it appropriate to treat the compensation payment either in whole or part as not having been made.' 15 The Tribunal reviewed Mr Homewood's evidence. It dealt with that evidence largely by setting out his responses to various documentary exhibits put to him. The exhibits were not always identified with clarity. 38 The present case is not about a failure on the part of the Tribunal to include in its reasons the findings on material questions of fact which it has made. Nor is it a complaint that the Tribunal has failed to refer to the evidence on which those findings were based. Many of the reported cases involve claims of that kind of failure see Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30 ; (2001) 206 CLR 323 at 331-332 (Gleeson J), 338 (Gaudron J), 346 (McHugh, Gummow and Hayne JJ) cf 367 (Kirby J).


case_text: As Sheppard J said in Brackenreg v Comcare Australia (1995) 56 FCR 335 (at 349): 'Although the obligations to state the findings of fact and the evidence upon which those findings were based are related to the obligation to give reasons, they are independent and separate obligations.' That statement neatly identifies what might be called the tripartite nature of the obligation under s 43. It is an obligation: (i) to give reasons; (ii) to include in its reasons its findings on material questions of fact; (iii) to include in its reasons reference to the evidence or other material on which those findings are based. Brackenreg was a case in which the Tribunal was found not to have discharged its duty to refer to the evidence on which its findings of fact were made at 352. In Dixon v Repatriation Commission (1999) 29 AAR 235, Wilcox J said of s 43 that it required (at [14]) '... findings, on the substantial issues raised by the case, in terms sufficiently explicit to enable the parties to understand why the decision went the way it did... The question always is whether the decision maker has revealed his or her findings and conclusions.' See also Hawkins v Comcare [2001] FCA 726 ; (2001) 115 FCR 127 at 142 per von Doussa J.


case_title: Dixon v Repatriation Commission (1999) 29 AAR 235


case_text: The Tribunal's obligation is to give its reasons for its decision in the sense explained earlier. In so doing it is not required to express itself with the precision that might be required of a court of law. As Morling and Wilcox JJ said in Times Consultants Pty Ltd v Collector of Customs (Qld) (1987) 76 ALR 313 (at 328): 'The tribunal is an administrative body and, whilst errors of law made by it are susceptible to correction by this court, its decisions should not be too closely scrutinised for the purpose of searching for errors of law in what may be imprecise language.' In my opinion, the Tribunal made a finding of fact that within six months Mr Homewood would be destitute (absent the disability support pension). It had regard to his asset position in coming to that conclusion. The complaint that it has not adequately disclosed its reasons for so concluding amounts to little more than a complaint about its findings of fact. 46 The Secretary accepted, by reference to [44] of the Tribunal's reasons, that the amount available for Mr Homewood's support could arguably be fixed at a lower range of between $20,000 and $30,000. That is not a reading of the Tribunal's reasons which is particularly generous to Mr Homewood. It is to be noted that the assets giving rise to those figures are comprised of 'coin collections and other collectibles', '20 boxes of items' 'DVDs ...; a motor vehicle worth less than $5,000'. 47 Having regard to the nature of the assets to which the Tribunal adverted in its reasons, its finding that Mr Homewood would be destitute within six months was open to it. That finding formed a base, in principle, for the exercise of the discretion under s 1184K(1) of the Act. The way in which it approached the exercise of that discretion was adequately explained by reference to its finding of fact. While it may be argued that a more elaborate and principled approach by reference to the rules governing the fixing of preclusion periods under the Act would have been preferable, that is not the basis upon which the Tribunal's decision is attacked in this case. It is attacked only on the basis that it has failed to give adequate reasons. In my opinion that challenge is not made out and the application should be dismissed. 48 For the preceding reasons the application is dismissed. The applicant will be required to pay the respondent's costs. I certify that the preceding forty eight (48) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice French. Associate: Dated: 21 June 2006 Counsel for the Applicant: Mr PJ Hanks QC Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Mr GT Stubbs Solicitor for the Respondent: Dwyer Durack Date of Hearing: 9 June 2006 Date of Judgment: 21 June 2006 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2006/779.html


case_text: The reasons why a failure to complain may have relevance or may assist in resolution of an issue were stated by Einstein J in Biscayne Partners Pty Ltd v Valance Corp Pty Ltd [2003] NSWSC 874 at [150] . What underlies his Honour's explanation is that a failure to complain may point to a finding of absence of any real ground for complaint or reliance where a plaintiff would be expected to have spoken. But the principle assumes that the person had knowledge of the alleged misrepresentation at the relevant time. That is to say, how can a failure to complain about that which the party was unaware have any real probative value? 13 Whether the failure to complain goes to credit or to an issue in the proceeding will depend on the facts and circumstances of each case. In the present proceedings it may be that the proposed cross-examination goes in some way to the issue of reliance as shown in the authorities relied upon by the respondents. However, in light of the material which the respondents wish to explore as set out in the draft list of proposed topics of cross-examination, I am inclined to the view that the cross-examination will go in some significant respects to Mr Seward's credit. 14 To the extent that the proposed cross-examination will go to credit I am not satisfied that it would have substantial probative value. Moreover, I am not persuaded that a sufficient evidentiary basis has been established on the present motion to warrant reopening cross-examination. In particular, it appears from evidence adduced in the proceedings that in the period from 2001-2002 BWC was suffering increasing financial difficulties but it is not established on this motion that Mr Seward was at that time aware, as the applicants contend, that Quadrant had allowed Mr Blom to present projections to the applicants without revealing that Blom's earlier (and less optimistic) projections had failed. 15 Insofar as the respondents call in aid the "most walks of life" ordinary human nature test referred to by Einstein J in Biscayne , the material referred to in the respondents' affidavits on the motion seems to me to be insufficient to justify the exercise of my discretion. I do not consider that the topics listed in the draft list illustrate with a sufficient degree of confidence that the evidence would have sufficient evidentiary value to justify me in exercising my discretion in this matter.


case_title: Brown v Petranker (1991) 22 NSWLR 717

case_text: The principles stated in Brown v Petranker (1991) 22 NSWLR 717 at 728-9 by Clarke JA (with whom Handley JA and Waddell AJA agreed) applied to an application by a party to recall a witness to give further evidence in chief. Nevertheless, in my opinion the overriding principle stated by Clarke JA seems to be the appropriate test. That is, the exercise of the court's discretion is dependent upon whether the interests of justice require leave to be granted or refused. Inquiry includes an examination of any prejudice to the other party; see also R v Gassy (No 3) (2005) 93 SASR 454 at [318]. 8 The principles stated by Jeffrey J in Henning v Lynch [1974] 2 NSWLR 254 at 259, to which Clarke JA referred with approval in Brown v Petranker, also dealt with reopening to tender additional evidence. In my view the test of "accident, mistake or want of foresight" to which Jeffrey J referred is only a guiding factor. The overriding consideration is the interests of justice.


case_text: The respondents rely upon a number of authorities for the proposition that a failure to complain prior to the commencement of proceedings may be a significant factor from which the court can draw an inference that the party did not rely on any such representation. Thus, it is submitted by the respondents that the proposed cross-examination goes to an issue in the cause rather than to credit; see Dukemaster Pty Ltd v Bluehive Pty Ltd [2002] FCAFC 377 at [58] ; see also Cordelia Holdings Pty Ltd v Newkey Investments Pty Ltd [2004] FCAFC 48 at [71] - [77] .


case_title: Dukemaster Pty Ltd v Bluehive Pty Ltd [2002] FCAFC 377


case_outcome: referred to

case_text: It is true, as the High Court said in Fox v Percy [2003] HCA 22 ; (2003) 214 CLR 118 at [31] , that a factual finding should, so far as possible, turn on the basis of "contemporary materials, objectively established facts and the apparent logic of events". Nevertheless, I do not see that a sufficient basis has been established to allow the issue of failure to complain to be explored in the manner proposed; nor do I consider that the observations of the High Court in MWJ v The Queen [2005] HCA 74 ; (2005) 222 ALR 436 at [39] - [40] on the application of the rule in Browne v Dunn assist in the resolution of this motion.


case_title: Henning v Lynch [1974] 2 NSWLR 254

case_text: The principles stated by Jeffrey J in Henning v Lynch [1974] 2 NSWLR 254 at 259, to which Clarke JA referred with approval in Brown v Petranker, also dealt with reopening to tender additional evidence. In my view the test of "accident, mistake or want of foresight" to which Jeffrey J referred is only a guiding factor. The overriding consideration is the interests of justice.


case_text: In Ishac v David Securities Pty Limited (No 5) (unreported, Young J, 24 March 1992) His Honour listed four common situations where it is appropriate to allow further cross-examination. Only the first is relevant to the present case. It is where there is a bona fide omission by cross-examining counsel to deal with the subject and the omission comes to the cross-examiner's attention shortly after the witness has left the witness box. I do not consider that his Honour was attempting to lay down an exhaustive list. Rather, he set out guiding factors for the exercise of the discretion in situations which may be thought commonly to arise.


case_outcome: considered


case_text: The principles stated in Brown v Petranker (1991) 22 NSWLR 717 at 728-9 by Clarke JA (with whom Handley JA and Waddell AJA agreed) applied to an application by a party to recall a witness to give further evidence in chief. Nevertheless, in my opinion the overriding principle stated by Clarke JA seems to be the appropriate test. That is, the exercise of the court's discretion is dependent upon whether the interests of justice require leave to be granted or refused. Inquiry includes an examination of any prejudice to the other party; see also R v Gassy (No 3) (2005) 93 SASR 454 at [318].


case_title: Searle v Keayes (1994) 126 ALR 728

case_text: As Tamberlin J said in Searle v Keayes (1994) 126 ALR 728, the trial judge has a discretion whether to permit the recall of witnesses. His Honour pointed out at 729 that "[o]ne important consideration is that litigation must be resolved and not be the subject of continuous reopening and prolongation".


case_text: As noted earlier, the applicant came to have his transitional (permanent) visa by operation of reg 4 (1) of the Transitional Provisions Regulations, which provided: Subject to regulation 5, [which is not relevant in these proceedings] if, immediately before 1 September 1994, a non-citizen was in Australia as the holder of a permanent entry permit, that entry permit continues in effect on and after 1 September 1994 as a transitional (permanent) visa that permits the holder to remain indefinitely in Australia. The explanatory statement to the Transitional Provisions Regulations stated that reg 4 was "designed to ensure that, from 1 September 1994, all visas and entry permits held immediately before that date [were] converted into one of two transitional visa classes by operation of law". The validity of reg 4(1) of the Transitional Provisions Regulations was upheld by the High Court in Minister for Immigration and Multicultural and Indigenous Affairs v Nystrom [2006] HCA 50 ; (2006) 228 CLR 566 at [23] [28]. 30 The Transitional Provisions Regulations were made pursuant to s 40 and s 42 of the 1992 Reform Act (see the discussion in Nystrom at [26]). Relevantly, s 40(5) and s 40(6), provided: (5) The regulations may provide that, from 1 September 1994, visas or permits in a specified Principal Act class and held by specified persons immediately before that date are to continue in effect as visas in a specified amended Act class. (6) The regulations may provide that, from 1 September 1994, specified persons are to be taken to have been granted visas in a specified amended Act class. Paragraph 42 of the explanatory memorandum to the 1992 Reform Bill provides an explanation as to the anticipated effect of s 40(5) and s 40(6): The clause [i.e. the relevant clause of the Migration Reform Bill 1992 which introduced proposed s 40(5) and s 40(6)] also provides that regulations may continue in force visas or entry permits of specified classes which were held immediately before the commencement of the Reform Bill provisions dealing with visas. Related to this provision, the regulations may also deem specified persons to be taken to have been granted visas in a specified class created after the commencement of the Reform Bill provisions dealing with visas. 31 The import of s 40(5) and s 40(6) appears to be that the regulations made pursuant to those provisions may differentiate between visas or permits that are deemed to "continue in effect" as at 1 September 1994, and visas that have been deemed to have been "granted" to a person as at 1 September 1994. Indeed, and in contradistinction to reg 4.01, reg 9 of the Transitional Provisions Regulations provides that the holders of particular types of visas are deemed to have been granted a transitional (permanent) visa on 1 September 1994. As reg 9 states: A non-citizen who, immediately before 1 September 1994, held an old visa of the kind known as: (a) an Authority to Return; or (b) a Return Endorsement; is taken, on 1 September 1994, to have been granted a transitional (permanent) visa permitting the holder: (c) to travel to and enter Australia within 3 years after each departure from Australia; and (d) to remain indefinitely in Australia. 32 An important element in the applicant's case was that the Minister's power to cancel under the then s 180A (now s 501) of the Principal Act was restricted to visas and entry permits that had been "granted" to persons (and not acquired by operation of law) and this manifested a deliberate choice. This proposition is said to be apparent from the temporal proximity between the enactment of the Offences and Undesirable Persons Act and the enactment of the 1992 Reform Act, which as noted earlier, created a distinction between visas that are taken to have been granted and visas that are deemed to continue in effect.


case_text: Reference was made to the decision of Finkelstein J in Hall v Minister for Immigration and Multicultural Affairs [2000] FCA 415 ; (2000) 97 FCR 387 at 394, where his Honour observed (at [29]): ... the power to cancel a visa that is conferred by s 501(2) should, in my opinion, be construed to allow the cancellation of a permit to remain in Australia, which by force of the transitional provisions continues in force as a visa. That is, because permission to remain in Australia granted before the Migration Reform Act continues in force as a visa, it may be cancelled as a visa. Any other construction would result in the absurd position that a non-citizen who constitutes a danger or threat to the Australian community by reason of his or her past criminal conduct could not be removed from Australia. To similar effect were the observations of Kiefel J in Andary v Minister for Immigration & Multicultural Affairs [2002] FCA 1380 at [7] where her Honour said that a transitional (permanent) visa 'was liable to cancellation'.


case_title: Andary v Minister for Immigration & Multicultural Affairs [2002] FCA 1380


case_text: Support for the applicant's contention can be found in the decision in Moore v Minister for Immigration and Citizenship (2007) 161 FCR 236 at 246, where a Full Court observed that the power conferred on the Minister to cancel a visa under s 501 only applies to visas that have been granted to a person. Where a visa has been granted to a person, s 501F(3) operates so that any other visa held by that person is cancelled. On this basis, where an absorbed person visa is cancelled, a transitional (permanent) visa held by that person is also cancelled. However, the Full Court indicated that this process could not operate in reverse. It will be necessary to say something more about this judgment later in these reasons. 13 The applicant also submitted that he had not "ceased to be an immigrant" prior to 2 April 1984, and hence has never held an absorbed person visa as contemplated by s 34 of the Principal Act. If so, it was submitted, the applicant is not the holder of an absorbed person visa and is the holder of only one visa, a transitional (permanent) visa, which cannot be cancelled. 14 The Minister submitted that there is no basis for treating the word "granted" in s 501(2) as limiting the cancellation power in the way submitted by the applicant. "Granted", in the context of s 501(2), encompasses any means by which a person is given or acquires a visa. The word "granted", as it appears in s 501(2), should be read as encompassing any means of giving under the law, including giving by statute as well as giving by administrative decision. Indeed, the purpose of the language in question ("granted to a person"), it was submitted, is to distinguish s 501(2), which concerns the cancellation of visas that are already in effect, from s 501(1), which concerns a refusal to grant visas on character grounds. For the purposes of s 501(2), what is significant is that the person has a visa and not the means by which that visa was acquired. 34 It is necessary to say something more about the Full Court judgment in Moore v Minister for Immigration and Citizenship. The observations of the Full Court in [42]-[45] of their reasons entail a fairly unequivocal statement that a power to cancel a visa "that has been granted" would not be exercisable in relation to a transitional (permanent) visa because that type of visa had not been "granted" or could not be taken to have been granted. However these observations do not, in my opinion, form part of the ratio of the decision. The observations were made in a passage in which the Full Court was discussing ground one in the appeal. At [39], the Full Court indicated that two questions arose in the consideration of ground one. The first was whether the appellant could be taken to have been granted an absorbed person visa (which depended on whether he had been absorbed into the Australian community). The second was if he had not obtained an absorbed person visa, had the Minister effectively cancelled his transitional (permanent) visa. At [60] the Full Court concluded that the appellant had been absorbed into the Australian community well before to April 1984. The Full Court then concluded that the appellant held an absorbed person visa which was taken to have been granted to him. In the result, it was a visa which had been "granted" and one the Minister was empowered to cancel. It does not appear to me that this chain of reasoning necessarily depended on a conclusion that the Minister had no power to cancel a visa which had not been granted. 35 Nonetheless, even though these observations do not form part of the ratio of the decision in Moore , it is necessary for me, as a single judge, to give them significant weight. However, I am firmly convinced that the power to cancel conferred by s 501 was intended to be exercisable in relation to a transitional (permanent) visa. In this case, the applicant held such a visa because he had been originally granted an entry permit. When s 180A was enacted in 1992, the applicant held an entry permit that had been granted. That permit could have been cancelled by exercise of the power conferred by s 180A. The removal of the reference to a power to cancel "a valid entry permit that had been granted" occurred at a time when, by the combined effect of legislative amendments and the promulgation of regulations, visas became the sole means of conferring a right to remain lawfully in Australia. 36 It is inconceivable, in my view, that the amendments made in 1994 to s 180A were intended to render immune from the power to cancel, an entry permit which had been transmogrified into a transitional (permanent) visa. The power conferred by what was then the renumbered s 501 was plainly intended to authorise the Minister to cancel whatever visa was held by a person who the Minister thought ought no longer be able to remain in Australia having regard to that person's character. Obviously I am not concerned here with the appropriateness of the underlying policy or the way in which the power has been exercised in this or any other case. However, I have no doubt the power is intended to be exercisable in relation to any visa and the words "that has been granted" were not intended to condition or limit the power. These words remained as the truncated residue of the formulation first appearing in s 180A, namely "a valid visa or a valid entry permit that has been granted". 37 In my opinion, the Minister had power to cancel the applicant's transitional (permanent) visa. I order that the period within which the applicant is to file his application be extended, and the application be dismissed with costs. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Moore. Associate: Dated: 6 June 2008 Counsel for the Applicant: L Karp Solicitor for the Applicant: Kah Lawyers Counsel for the Respondents: G Johnson Solicitor for the Respondents: Australian Government Solicitor Date of Hearing: 29 February 2008 Date of Final Submissions: 14 April 2008 Date of Judgment: 6 June 2008 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2008/855.html