COMMISSIONER OF TAXATION v BROOK SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL SHELLER, POWELL and COLE JJA 8 September 1994, 2 February 1995 [1995] NSWCA 87 Sheller JA INTRODUCTION Ihave had the benefit of reading in draft the judgment of Cole JA. His Honour has set out the facts and the terms of s221P(1) of the Income Tax Assessment Act 1936. The amendments to the section by the Insolvency (Tax Priorities) Legislation Amendment Act 1993 do not apply in this case. On 10 January 1991, pursuant to a deed of charge dated 12 June 1990, the respondent, Mr Brook, was re-appointed receiver of all of the undertaking and assets of Hanibridge Pty Ltd with all the powers which might be conferred upon a receiver appointed under the charge. These included power to take possession of, collect and get in the whole or any part of the mortgaged premises, to sell all or any part of the mortgaged premises and to apply all moneys received under or by virtue of the deed of charge "(a) in payment of all costs charges and expenses incurred in or incidental to the exercise or performance or attempted exercise or performance of any of the powers or authorities hereby conferred or otherwise in relation to these presents; (b) in payment of such other properly incurred outgoings in connection with the receivership or the enforcement of the security as such receiver or the mortgagee shall think fit to pay; (c) in payment to the receiver of his fixed remuneration (not exceeding any amount or commission of five per cent of the gross amount of all moneys received by him); and (d) in payment to the mortgagee of the moneys hereby secured and the surplus (if any) shall belong to the mortgagor but such surplus shall not carry interest and the receiver or the mortgagee shall be at liberty to pay the same to the credit of an account in the name of the mortgagor concerned in the books of any bank carrying on business within the Commonwealth of Australia and shall thereupon be under no further liability in respect thereof." On 27 December 1990 Mr Brook had been appointed receiver of part of the mortgaged property but had ceased to act as such receiver on 10 January 1991. On 17 January 1991 a provisional liquidator of the company was appointed. On 29 January 1991 Mr Brook resigned as receiver and on 11 February 1991 the company was wound up. Hanibridge was indebted to the Commonwealth in the sum of $86,187.37 for tax instalment deductions not remitted for the months of June 1990 to January 1991 both inclusive. Mr Brook had paid into Court this sum which apparently was proceeds of his realisation as receiver of the company's assets. In reliance upon s221P(1) the appellant sought an order by cross claim in proceedings commenced by the company and a director that the sum paid into Court be paid out to him. In dismissing the cross claim Bryson J held that "control" in s221P(1) referred to control which was actually exercised in fact over the relevant property and that the bare conferral of a right to control property on a receiver pursuant 2 UNREPORTED JUDGMENTS to the deed of charge was not, in the absence of some other facts, enough. On the facts his Honour did not find that control of the company's property passed to Mr Brook. "CONTROL" "Control" may indicate an act of domination in the sense that a person driving a car has control of it or the power of domination in the sense that a person who possesses property has control of its disposition. Control may be combined with a legal right to control or may be no more than physical control. The expression "control of his property" as used in s221P(1) seems to me to be directed to the power of domination by legal right. The extent and degree of control of the employer's property may vary. It may extend to all or some of the employer's assets. It may be limited in degree, for example, to realising those assets and retaining the proceeds. During the course of argument we were referred to a number of cases. In Commissioner of Taxation v Barnes (1975) 133 CLR 483 at 490-492 the majority of the High Court considered first what the word "property" in s221P(1) denoted, a question left open by the diversity of opinions expressed in Commissioner of Taxation v Card (1963) 109 CLR 177. Was the employer company's "property" limited to its interest therein, the equity of redemption, or did it extend to the whole of the assets and undertaking of the company? At 491 their Honours held that the company's property which passed under the control of the defendant upon his appointment by the mortgagee as receiver under the deed comprised "the whole of the assets and undertaking of the company, control of which could pass to [the defendant] as receiver under the terms of the deed." Their Honours went on to say: "It is an important qualification that the 'property' is limited to that in respect of which control could pass to the defendant. If independently of this security there had been a mortgage or other security over certain assets of the company, control of those assets could not pass to the receiver. He would have control only of the equitable interest of the company in those assets." In referring to the property of the company as that "which passed under the control of the defendant upon his appointment by the mortgagee as receiver under the deed" their Honours used "control" in the sense of the power of domination by legal right. At 492, in considering the case of a floating charge over the assets and undertaking of a company, their Honours said: "The charge does not extend beyond the equity of redemption in assets separately mortgaged or charged; but, subject to that qualification, it extends to the whole of the assets and undertaking and it is with that qualification the control of the assets and undertaking which passes to a receiver when he is appointed under the charge." Of the meaning of control in the section, their Honours said: "The control which is referred to is that control which enables the receiver to reduce the assets and undertaking of a company into a fund out of which a particular debt or in some cases all the debts of the company, secured and unsecured, are able to be paid if the fund so far extends. But we note again that control cannot extend to particular assets which are separately secured, but only to the equity of redemption in such assets." In order to explain the degree of the control necessary to satisfy the requirements of s221P(1), Drummond J, in Australian Securities Commission v Macleod (1994) 120 ALR 351 at 356, emphasised the words "out of which a particular debt or in some cases all the debts of the company secured and unsecured, are able to be paid" in the passage in the majority judgment and said: URJ COMMISSIONER OF TAXATION v BROOK (Sheller JA) 3 "The power to realise the whole of the employer's property is necessary, but not, without more, sufficient to constitute control for the purposes of s221P. The words emphasised from the passage from Barnes indicate a further requirement which must be satisfied before the trustee will have sufficient dominion over all of the employer's property to amount to such control: as well as having power to realise the whole of the employer's property in his hands, the trustee must also have an authority to deal with the proceeds of such a realisation that permits him to disburse all of those proceeds (if that be necessary) to pay at least one of the debts of the employer. It is authority in the trustee to pay at least one of the employer's debts from the proceeds of realisation of the entirety of the employer's property (if it should in the circumstances of the particular case, be necessary to turn the whole of the employer's property into cash to do that) that turns actual control by the trustee of the entirety of the employer's property, in the sense of power to prevent others dealing with that property, into 'control' within s221P." See also Commissioner of Taxation v Prescribing Biochemists Pty Ltd (Controller Appointed) (Receivers and Managers Appointed) (Subject to Deed of Company Arrangement) (unreported) 6 October 1994, Sackville J at 18-20 and 24. In my opinion the suggestion that control of the company's property had not passed to Mr Brook upon his appointment as receiver is inconsistent with the majority judgment in Barnes. In the words of Mahoney JA in James v Deputy Federal Commissioner of Taxation (1988) 88 ATC 4812 at 4819 the powers detailed in the deed of charge allowed the receiver to do things which together constituted control in the relevant sense. His Honour said: "And at that time, there was no one else who, in respect of that property, was able to determine that the property be dealt with in a manner contrary to the manner which Mr James might determine." There was no evidence in the present case that any other person controlled any part of the company's property. A number of other cases were cited in argument. In Deputy Commissioner of Taxation v AGC (Advances) Ltd (1984) 1 NSWLR 29 a company had charged its book debts with the payment of moneys owing by it to AGC. The company was wound up and a liquidator appointed. A fortnight later AGC appointed receivers under the deed of charge. Before the appointment of the receivers the liquidator had collected some book debts. The Deputy Commissioner claimed that control of the company's property had passed to the liquidator. The Deputy Commissioner failed at first instance and his appeal was dismissed. Hutley JA referred to Smith v Deputy Commissioner of Taxation (1978) 38 FLR 347; (1979) WAR 123, a decision of Brinsden J who, his Honour said, appeared to have held that control within the meaning of the section was de facto control and that a similar view as to the nature of control was taken by Nettlefold J in Re LG Holloway Transport Pty Ltd (1983) 7 ACLR 690. Hutley JA said that the facts in the case were not consistent with the liquidator having control after 12 August 1982, the date upon which the receivers were appointed. "He had the book debts, which he had collected after 12 August 1982, under his control, but only pending the decision of the Court as to their proper destination. This is not the de facto control with which the section is concerned." By this his Honour meant, I think, that, assuming that the criterion was "de facto control", the liquidator did not have such control. Mahoney JA was of opinion that the control of the employer company's property within s221P passed to the liquidator either at the date of his appointment or subsequently upon his reducing the debts into his physical control 4 UNREPORTED JUDGMENTS (33). His Honour did not regard it as necessary to consider whether control was used to mean "right to control or the actual physical control". However at 38 his Honour concluded that the interest of the mortgagee under the specific charge was not property to which the liquidator might have recourse for payment of the Commissioner's claim and hence on the principle established by Card's case the liquidator was not liable. At 40 Priestley JA dealt with the submission on behalf of the Deputy Commissioner that the "control" spoken of in s221P(1) included the control which the liquidator in fact exercised over the book debts by himself collecting and receiving them from the company's debtors and then placing them to the credit of an account in his own name. Reliance was placed upon what had been said in Barnes' case and the judgment of Brinsden J in Smith's case. Priestley JA concluded that the passages from Barnes' case relied upon did not support the submission. At 41-42 his Honour analysed the decision in Smith's case. In that case a bank had taken a charge over the company's undertakings and all its property, assets and rights. The company went into liquidation and the charge crystallized no later than the time of the winding up order. The company was indebted to the Commonwealth for an amount representing under remittance of tax instalment deductions. The bank did not appoint receivers and permitted the liquidators to realise the assets of the company. The liquidators applied to the Court for a determination of the priority of the Commissioner and the bank to the funds in the liquidators' hands. The bank contended that the only property, control of which passed to the liquidators, was the company's equity of redemption in the assets charged to the bank. Brinsden J held that the liquidators had obtained control of the whole of the assets of the company and found against the bank on that basis. In Deputy Commissioner of Taxation v AGC (Advances) Limited the Deputy Commissioner contended that Brinsden J held that "control" of the company's property had passed to the liquidators on the basis that the bank stood by and let the liquidators obtain control of the company's assets when the bank could have prevented this. At 41-42 Priestley JA said: "In my opinion that that was not the way in which Brinsden J reached his conclusion. The passage in question begins with his saying that the liquidators had obtained control of the assets of the company by reason of their being appointed liquidators. Later in the passage he discusses other courses that may have been open to the bank but I do not think that he at any stage indicates that, in his view, the liquidators obtained control of the assets of the company otherwise than as the immediate legal consequence of their appointment. If I am correct in my understanding of his Honour's course of reasoning, it is of no assistance to the Deputy Commissioner's argument in the present case and there is no need to enter into the question, touched upon in the course of submissions before this Court, whether the whole of Brinsden J's reasoning should be accepted as correct. My conclusion therefore is that the Deputy Commissioner's submission that in the present case the liquidator obtained 'control' in the relevant sense of the complete legal and equitable interest in the company's book debts cannot be sustained." I respectfully agree with Priestley JA's analysis of the reasoning of Brinsden J. Neither Smith's case nor Deputy Commissioner of Taxation vy AGC (Advances) Ltd is authority for the proposition that the word "control" in s221P(1) means de facto control. URJ COMMISSIONER OF TAXATION v BROOK (Sheller JA) 5 Re LG Holloway Transport Pty Ltd concerned the appointment of a receiver and manager of the company's book debts. In an attempt to hold the receiver liable under s221P(1), in a case where it might have been said that control of the whole of the company's property had been demonstrably shown not to have passed to the receiver, the Commissioner argued that the section did not require that the charge be executed over each and every item of property to enable it to come into operation or alternatively that as a matter of commercial reality the whole of the property passed under the control of the receiver and manager. Nettlefold J concluded, it seems to me entirely correctly, that the receiver took control of part only of the company's property. In accordance with authority, s221P(1) did not apply. Russell v AGC (Advances) Ltd (1988) VR 97 concerned a debenture charge over the assets of a company which, at the time receivers and managers were appointed and the company was wound up, had assets both in Queensland and Victoria. The charge was registered only in Victoria. As Marks J said at 103 it was clear that since their appointment the Victorian assets had come under the control of the receivers and managers. On the other hand the contention that the Queensland assets had come under their control was untenable. His Honour rejected a contention that the control of the Queensland assets passed to the receivers and managers because they "could have controlled them" and therefore should be regarded as having done so. In this context his Honour said at 104: "In any event, I am persuaded that control within s221P means de facto control, or at least control to a greater extent than any achieved by the applicants..... While it may be that a thoroughly definitive meaning of 'control' has not yet emerged, it is clear that in no sense have the applicants exercised control over the Queensland assets. I find as a fact they have not exercised any. In my view, the presence or otherwise of 'control' is ordinarily a question of fact. Its meaning in s221P is not technical but refers to what is actual or 'de facto'." His Honour referred to Deputy Commissioner of Taxation v AGC (Advances) Limited and Deputy Commissioner of Taxation v Horsborough (1983) 2 VR 591 at 596; (1984) VR 773 at 783. I do not think his Honour was meaning to say any more than that s221P speaks of the control of property which "has passed" to a trustee rather than the control of property which might have passed to a trustee. In that case the power of domination had not passed to the receivers and managers. By contrast Murphy J in Oldfield v Tilley (1988) VR 77 at 82 treated the words "control of his property has passed to a trustee" as connoting the right to obtain and deal with the property "even though not perhaps as the legal owner." His Honour did not think that a liquidator or receiver appointed over all the property of a company could by inactivity apropos specific assets avoid coming within the terms of s221P and argue that he never had passed to him "control of the property" of the employer. As I have said I regard Barnes' case as authority for the view that control of the employer's property passes to the trustee within the meaning of s221P(1) when the trustee acquires, on appointment under a deed of charge, power of domination over the employer's property, enabling the trustee to reduce the assets and undertaking of the employer into a fund out of which a particular debt or in some cases all the debts of the employer, secured and unsecured, are able to be paid if the fund so far extends. 6 UNREPORTED JUDGMENTS The remaining point goes to Bryson J's conclusion that on the evidence before him he could not know what the receiver's situation was in the brief period between 10 January 1991 when he was re-appointed as receiver of all the undertaking and assets of the company and 24 January 1991 when he ceased to act as receiver. Accordingly his Honour said he could not find that control of the company's property had passed to Mr Brook. However his Honour had held that control meant control "which is actually exercised in fact over the relevant property, being the whole of the employer's property." In my opinion, with respect, this is not what must be demonstrated. The appointment of the receiver and the powers conferred upon him by the deed indicate that control of the company's property within the meaning of s221P(1) had passed to him. There is nothing to suggest that this was less than what appears on the face of the documents namely control over the whole of the undertaking and assets of the company. CONCLUSION I agree with the orders proposed by Cole JA. Powell JA Although s221P of the Income Tax Assessment Act 1936 was amended, with effect from 1 June 1993, by s7 of the Insolvency (Tax Priorities) Legislation Amendment Act 1993 so as, in substance, not to apply to deductions made as from the end of the taxation year 1992-1993 from the salary of wages paid to an employee, the fact that the liability cast upon a trustee by s221P(1), and the priority in favour of the Commissioner of Taxation, in respect of deductions made prior to the end of the tax year 1992-1993 (see DFC of T v Dollymore Pty Ltd (1993) 93 ATC 5212; FC of T v B and G Plant Hire Pty Ltd and Ors (1994) 94 ATC 4692) continue should guarantee that the courts, for some time yet, will still be concerned to deal with various questions as to the meaning, and the operation, in particular cases, of the provisions of s221P. If any support for this view be thought necessary, it is readily to be found in the various cases involving s221P which have found their way into the law reports since the appeal in this matter was argued (FC of T v B and G Plant Hire Pty Ltd and Ors (supra); FC of T v Prescribing Biochemists Pty Ltd (1994) 94 ATC 4702; FC of T v All Suburbs Car Repairs Pty Ltd and Anor (1994) 94 ATC 4712; Chant v DFC of T (1994) 94 ATC 4733; Re Leslie: Ex parte DFC of T (1994) 94 ATC 4749; Gagic v DFC of T (1994) 94 ATC 4760). However, while those cases are concerned with such questions as whether an administrator of an insolvent company (FC of T v B and G Plant Hire Pty Ltd and Ors (supra); FC of T v Prescribing Biochemists Pty Ltd (supra)), or an agent for a mortgagee (Chant v DFC of T (supra); Gagic v DFC of T (supra)), was a "trustee" for the purposes of s221P, or whether what had passed under the control of the relevant "trustee" constituted the whole of an insolvent employer's property (FC of T v B and G Plant Hire Pty Ltd and Ors (supra); FC of T v All Suburbs Car Repairs Pty Ltd and Anor (supra); Re Leslie; Ex parte DFC of T (supra)), the primary question for determination in this appeal is whether, by virtue of a Deed of Appointment of Receiver which, relevantly provided: "... the Mortgagee... does hereby... appoint the Receiver to be Receiver of the property of the Mortgagor set out in the Schedule hereto with all the powers which may be conferred upon a receiver... appointed under the Charge... Schedule All and singular its undertakings and assets whatsoever and wheresoever both present and future including the goodwill of its business and its uncalled and called but unpaid capital (including premiums) for the time being on its shares. URJ COMMISSIONER OF TAXATION v BROOK (Powell JA) 7 control of the relevant mortgagor's property passed to the relevant receiver, thereby rendering the receiver liable - to the extent to which the property under his control permitted him to do so - to pay to the Commissioner the amount of the deductions which had been made by the mortgagor but which had not been remitted to the Commissioner. For my own part, I would have thought that what appears to be the continuing debate as to whether the "control" contemplated by s221P is de jure control or de facto control ought to have been foreclosed by the decision of the High Court in Federal Commissioner of Taxation v Barnes ((1975) 133 CLR 483) where, in the course of the joint judgment of Barwick CJ, Mason and Jacobs JJ the following appears ((supra) at 492): "The control which is referred to is that control which enables the receiver to reduce the assets and undertaking of a company into a fund out of which a particular debt or in some cases all of the debts of the company, secured and unsecured, are able to be paid if the fund so far extends. Control does not necessarily signify authority in the receiver to pay all debts out of the funds in his hands. Control is directed to possession and realisation of the company's property and, in determining whether control of the property of the company passed to the receiver, it is not relevant to inquire whether, independently of s221P, the receiver has the authority to make the payment which s221P requires. Nevertheless, s221P creates the obligation and requires that that obligation be carried out even though thereby the Commissioner receives payment in priority over secured creditors including the mortgagee who appointed the receiver. " This passage, so it seems to me, makes it clear that the "control" which is relevant for the purposes of s221P is the legal power to take possession of, and to realise, the assets of the relevant employer in the course of, and for the purposes of, an administration of those assets, be the administration a receivership, or a winding-up, or a scheme of arrangement (James v DFC of T (1988) 88 ATC 4862) or other like form of administration. It should be noted, however, that a provisional liquidator does not have such "control", since his primary function is to preserve the status quo (Re Carapark Industries Pty Ltd (1967) 86 WN (Ptl) 165; Re Obie Pty Ltd (1983) 84 ATC 4067 Supreme Court of Queensland (Thomas J); sub nom DFC of T v AGC (Advances) Ltd and Ors (1984) 84 ATC 4776 Supreme Court of Queensland (FC)) nor, so it seems (FC of T v Prescribing Biochemists Pty Ltd (supra); but cp FC of T v B and G Plant Hire Pty Ltd (supra)), does an administrator appointed pursuant to the provisions of s436A of the Corporation Law have the necessary control". If this be, as I believe it to be, the correct view of what constitutes "control" for the purposes of s221P, then it follows that, while the ultimate decision of Marks J in Russell v AGC Advances ([1988] VR 97) upon which much stress was laid, during the course of argument, by counsel for the respondent, was correct - since, because of non registration in Queensland of the relevant debenture charge, the receivers were not able to take possession of, or to realise in Queensland, assets of the relevant company - His Honour's view that "'control' within s221P means de facto control" ought not to be accepted. 8 UNREPORTED JUDGMENTS Given the terms of the relevant Deed of Appointment of Receiver in the present case, and given that the powers of a receiver provided for by the relevant debenture charge included power: " (a) to take possession of collect and get in the whole or any part of the mortgaged premises. (c) to sell or concur in selling (whether such receiver shall or shall not have taken possession as aforesaid) all or any of the mortgaged premises. (m) to do all such other acts and things in relation to mortgaged premises without limitation as such receiver shall think expedient in the interests of the mortgagee. I conclude that the correct view of what happened in the present case is that, upon the execution of Deed of Appointment of Receiver, "control" of the whole of the employer's property passed to the receiver, it following that the appeal should be upheld, and that there should be made in favour of the Commissioner the Declaration and Order sought in Prayers | and 2 of the Cross-Claim. The Second Respondent should pay the Appellant's costs of the appeal but, if qualified, should have a certificate under the Suitors Fund Act 1951. Cole JA This appeal raises the question of the meaning of "control" where used in s221P(1) Income Tax Assessment Act 1936 which provides: "Where an employer makes a deduction for the purposes of this Division, or purporting to be for those purposes, from the salary or wages paid to an employee and refuses or fails to deal with the amount so deducted in the manner required by this Division, or to affix tax stamps of a face value equal to the amount of the deduction as required by this Division, as the case may be, he shall be liable, and where his property has become vested in, or where the control of his property has passed to, a trustee, that trustee shall be liable, to pay that amount to the Commissioner." BACKGROUND TO THIS LITIGATION The Commissioner of Taxation has appealed against Bryson J's decision dismissing a cross-claim which the Commissioner had brought against Peter Brook, sometime receiver of Hanibridge Pty Ltd (In liquidation), ("Hanibridge"), Sonja Catherine Francis Toomey and Gary Edward Toomey, being the first, second, fourth and fifth cross-defendants respectively. The cross claim initially joined Mr John Moyle as a third cross-defendant but he was dismissed from the proceedings. The fourth and fifth cross-defendants, Mr and Mrs Toomey, took no part in the proceedings before Bryson J or this Court although it was established by evidence that they were aware of the proceedings. As did Mr Brook, they submitted to such order as the Court might make except as to costs. The party opposing the Commissioner's appeal was thus Hanibridge. The cross-claim before Bryson J sought two substantive orders namely: "1, A declaration that the first cross-defendant (the receiver) is or at relevant times was a trustee for the purposes of s6(1) and s221P of the Income Tax Assessment Act 1936. 2. An order that the sum of $86,187.37 paid into Court pursuant to orders of Registrar Berecry made on 23 September 1991 by the first cross-defendant be paid to the first cross-claimant." URJ COMMISSIONER OF TAXATION v BROOK (Cole JA) 9 It was not in issue before Bryson J or this Court that Mr Brook, as receiver, was a trustee within the meaning of s6(1) or s221P of the Income Tax Assessment Act. The question in issue was whether O.2 should be made. It is necessary to recite the circumstances leading to this litigation. On | June 1989 Hanibridge was registered as a group employer under the Income Tax Assessment Act. It was accordingly permitted and required to make deductions from the salary or wages paid to its employees and thereafter to remit such deductions to the Commissioner in the manner required by Pt6 Division 2 of the Act. $86,187.37 was so deducted by Hanibridge but was not remitted to the Commissioner. On 12 June 1990 Hanibridge executed a charge over all of its assets in favour of Sonja Catherine Francis Toomey. The charge recited that: "The mortgagor at the request of John Moyle and in support of a loan due and owing from John Moyle to the mortgagee in the sum of $251,855 has requested the mortgagee to extend certain credit advances or accommodation to the mortgagor and the mortgagee may from time to time hereinafter at the request of the mortgagor extend or furnish to the mortgagor credit advances or accommodation". By that charge Hanibridge charged "all and singular its undertaking and all its assets whatsoever and wheresoever both present and future". By CLS of the deed of charge, the floating charge "automatically crystallised" and operated as a fixed charge in respect of "all such or such part of the mortgaged premises as may be specified by notice in writing given by the mortgagee to the mortgagor". Pursuant to CL8(1), upon default the mortgagee was empowered to appoint a receiver upon whom was conferred the powers: "(a) To take possession of collect and get in the whole or any part of the mortgaged premises;" (g) to make any arrangement or compromise in relation to the mortgaged premises which such receiver shall think expedient in the interest of the mortgagee; (n) to do all such other acts and things in relation to the mortgaged premises without limitation as such receiver shall think expedient in the interests of the mortgagee." Default occurred. On 27 December 1990 the mortgagee, Mrs Toomey, appointed Mr Brook receiver of part only of the mortgaged property, being moneys in bank or financial accounts, or held in cash and debtors. On 10 January 1991 Mr Brook ceased to act as such receiver. On the same date he was re-appointed as receiver in respect of the property described as: "All and singular its undertaking and all its assets whatsoever and wheresoever both present and future including the good will of its business, and its uncalled and called but unpaid capital (including premiums) for the time being on its shares." On 17 January 1991 Mr MC Donnelly was appointed provisional liquidator of Hanibridge. On 24 January 1991 Mr Brook ceased to act as receiver. Prior to that time he had received from the company's assets at least $86,187.37, the sum claimed in these proceedings. On 11 February 1991 Mr Donnelly was appointed official liquidator of Hanibridge. 10 UNREPORTED JUDGMENTS On 23 September 1991 Registrar Berecry ordered Mr Brook to pay the sum of $86,187.37 into court. The circumstances in which this occurred are not entirely clear. It appears that prior to that time Hanibridge and Mr Moyle had commenced proceedings against Mr and Mrs Toomey and Mr Brook seeking certain orders declaring the deed of charge given by Hanibridge on 12 June 1990 in favour of Mrs Toomey void. They also sought orders that the appointment of Mr Brook as receiver was void and declarations that there was no indebtedness by Mr Moyle to Mrs Toomey in the sum of $251,855, as the deed recited. The receiver had, by that time, notice of the claim of the Commissioner for the sum of $86,137.37 for deducted but unremitted income tax payments. He had at least that sum in funds available to him. There apparently was dispute between Hanibridge and the Commissioner regarding that sum and, in consequence, so it seems, the Commissioner was joined as a fourth defendant in the proceedings brought by the company and Mr Moyle. That resulted in a cross-claim by the Commissioner seeking the orders set out above. Having no interest in the matter, the receiver, Mr Brook, in effect inter-pleaded paying the sum into Court. The claim between the plaintiffs and defendants did not proceed. On the Commissioner's cross-claim Mr Brook took no part in the proceedings and Mr Moyle was dismissed from them. Mr and Mrs Toomey also took no part in those proceedings, perhaps because Mrs Toomey had been paid such indebtedness as was due to her. The dispute was thus between the Commissioner and the liquidator of Hanibridge as to whether the Commissioner had an entitlement to the sum paid into Court by the receiver. Before this Court the question was raised regarding whether, if the Commissioner failed, and the moneys were directed to be paid to the liquidator of Hanibridge, as both parties had assumed, the liquidator would nonetheless be liable to account for those moneys to the Commissioner. Had that been the situation, the appeal would have been pointless. The Court was informed of an agreed position between the liquidator of Hanibridge and the Commissioner that in the event of the Commissioner's appeal failing, it was agreed that the moneys in Court should be paid out to the liquidator to be applied by him pursuant to the provisions of s221P of the Act. That arrangement was accepted by both parties to mean that after payment of liquidator's costs and expenses permitted as a priority by s221P(3), any sum remaining from the $86,187.37 would be paid to the Commissioner. The Commissioner contended, however, that the appeal should be upheld thus entitling him to that full sum. THE TRIAL JUDGE'S DECISION Bryson J held that, as the Commissioner was seeking a declaration and order, he bore the onus of proof of establishing satisfaction of the requirements of s221P. He was thus required, in accordance with established authority, to show that control of the whole of the company's property had passed to the receiver before s221P operated to require the receiver to pay to the Commissioner the amount of the deductions assuming, as was obviously the case, that the receiver had funds sufficient to meet that amount!. Bryson J held that the Commissioner had not discharge that onus because the paucity of evidence tendered did not establish whether the company had any property apart from the money paid into court. Absent evidence regarding the totality of property of the company, his 1. Federal Commissioner of Taxation v Barnes (1955) 133 CLR 483; Deputy Commissioner of Taxation v AGC (Advances) Ltd (1984) 1 NSWLR 29; Deputy Commissioner of Taxation v Chant and Ors (1991) 103 ALR 387. URJ COMMISSIONER OF TAXATION v BROOK (Cole JA) 11 Honour was not satisfied that it had been shown that control of all of the company's property had passed to the receiver. That finding involved a determination by his Honour as to the meaning of the expression "control of his property" when used in s221P(1). His Honour held, consistent with the view of Marks J in Russell and Anor v AGC (Advances Ltd2 that: "T see these words as not technical but as referring to what is actual, what exists as matter of fact. In my opinion the bare conferral of a right to control property on a receiver pursuant to the Deed of Charge is not necessarily enough; that is say, in the absence of some other facts, it is not enough. It may be that the receiver is entirely unopposed and can do as much or as little with the property as he chooses to exert himself to do; of such a receiver it would be readily found, I would think, that the control of all the property had passed to him. On the other hand it may be that a receiver has good legal rights conferred under the documents but was at all times forcibly resisted in respect of all the property or substantial parts of it by directors, or by other creditors who irrespective of their rights kept the property out of his hands, hidden or locked in a warehouse; whatever his rights were, it would not be a correct finding of fact to say of a receiver in those circumstances that control of the property had passed to him. On the evidence before me I cannot know what Mr Brook's situation was in the brief period between his being fully empowered by his second appointment and his resignation late in January. On the facts before me I do not find that control of the company's property passed to Mr Brook. Accordingly, the cross-claim fails." THE OPERATION OF s221P It is now well established that for the section to apply the property which must be vested in, or the control of which must pass to a trustee must be the whole of the property of the company3. "His property" means "the whole of his property". However, as is made clear in Barnes and Chant4, the property being addressed is only that property which "could" become vested or in respect of which control could pass. As was said in Barness: "In our opinion, the property of the company which passed under the control of the defendant UPON his appointment by the mortgagee as receiver under the deed was the whole of the assets and undertaking of the company, control of which COULD pass to him as receiver under the terms of the deed. It is an important qualification that the 'property" is limited to that in respect of which control COULD pass to the defendant. If independent of this security there has been a mortgage or other security over certain assets of the company, control of those assets could not pass to the receiver. He would have control only of the equitable interest in the company in those assets.'(emphasis added) 2. (1988) VR 97 Commissioner of Taxation v Card (1963) 109 CLR 177 at 184, 187-188, 192; Commissioner of Taxation v Barnes (1975) 133 CLR 483 at 490. Deputy Commissioner of Taxation v Chant and Ors (1991) 103 ALR 387 at 359-361. Federal Commissioner of Taxation v Barnes (1955) 133 CLR 483 at 491 Barwick CJ and Mason and Jacobs JJ » ws 12 UNREPORTED JUDGMENTS Further, it has been established in Card that a trustee has no personal responsibility beyond the extent of assets vested in him or control of which passed to him and to which he may have recourse to meet the obligation imposed by s221P®. The requirements of s221P to be satisfied before the Commissioner can recover from a trustee were usefully analysed by Mahoney JA in James v Deputy Federal Commissioner of Taxation (1988) 88 ATC 4,812. His Honour said: "In order to succeed in this proceeding, it is necessary for the Deputy Commissioner to establish four things: (1) That the deductions were made by the employer within s221P and that they were not paid to the Deputy Commissioner; (2) that the control of the property of the employer, ie the company, passed to Mr James as a trustee within s221P(1); (3) that as trustee the control of all of the property of the company, passed to him; and (4) that Mr James had property to which he might properly have recourse for the purpose of paying the amount of those deductions to the Deputy Commissioner."7 Mahoney JA's analysis is useful because it emphasises that whilst control of all property must pass to the trustee, the obligation of the trustee to make payment to the Commissioner is dependent upon accessible assets which may comprise a lesser fund. THE MEANING OF "CONTROL" IN s221P. The majority judgment in Barnes, in my opinion, makes clear that "control" where used in s221P means legal control as distinct from what has been described as "physical", "actual" or "de facto" control. Barwick CJ, Mason and Jacobs JJ said, in addition to the passage quoted above': "What is true of such an assignment is true also of a floating charge over the assets and undertaking of a company. The charge does not extend beyond the equity of redemption in assets separately mortgaged or charged; but, subject to that qualification, it extends to the whole of the assets and undertaking and it is with that qualification the control of the whole of the assets and undertaking which passes to a receiver when he is appointed under the charge. That is the purpose of his appointment. The CONTROL which is referred to is THAT CONTROL WHICH ENABLES THE RECEIVER TO REDUCE THE ASSETS AND UNDERTAKING OF A COMPANY INTO A FUND out of which a particular debt or in some cases all the debts of the company, secured and unsecured, are able to be paid, if the fund so far extends. But we note again that that control cannot extend to particular assets which are separately secured, but only to the equity of redemption in such assets."9 (emphasis added). It seems to me that in each of these passages the majority was addressing legal control. This view is also consistent with the decision of Mahoney JA in James with which Kirby P and Hope JA agreed. It is true that Mahoney JA said that it was not there necessary to attempt a formal definition of "control'"!0. However, his Honour continued: 109 CLR at 189 (1988) 2 ATC at 4,818 133 CLR 491 133 CLR 492 (1988) 2 ATC at 4,819 So wna URJ COMMISSIONER OF TAXATION v BROOK (Cole JA) 13 "The powers detailed in CL3(b) ALLOWED Mr James to do things which together constituted control in the relevant sense. And at that time, there was no one else who, in respect of that property, was able to determine that the property be dealt with in a manner contrary to the manner which Mr James' might determine".!! His Honour was there addressing lawful dealings with property. That is clear from a later passage where His Honour said: "Tf whatever be the rights of others in respect of the company's property, a trustee is given control over all of the interests which the company has in that property, then, it might be thought, the terms of s221P(1) have, in this regard, been satisfied." The opinion I have expressed is also consistent with the view of Murphy J in Oldfield v Tilley and Anor!2. His Honour there said: "The use of the words "has passed" in this context, as a correlative of the word "has been vested in" appears to me, as a matter of construction to refer to a legal entitlement to resort to the property, rather than to a de-facto state of things. Certainly, "to vest" may mean to "vest in interest" or "to vest in possession", but in the absence of a context it usually means to vest in interest... "Vested in", as that term is used in s221P of the Income Tax Assessment Act 1936 connotes, I believe, a vesting in point of interest, a transfer of the property or the passing of a proprietary interest of some sort to the "trustee". The words in s221P "control of his property has passed to a trustee" must, I should think, convey a not dissimilar meaning. They would (in a wider sense than vesting strictly) connote the right to obtain and deal with the property, even though not perhaps as the legal owner: cf Re Brown (a Lunatic) [1895] 2 Ch 666, at 670-671. I think that it is in this sense that the words are being used in s221P(1) and, in my opinion, both a liquidator on the making of a winding-up order and a duly appointed receiver on appointment by a debenture holder over all company's assets would have control of the property passed to him although the property does not vest in him. Ido not think that a liquidator, or a receiver appointed over all the property of a company, can, by inactivity apropos specific assets, avoid coming within the terms of s221P, and argue that he never had passed to him "control of the property" of the employer. It cannot be left dependent upon the vagaries of a "trustee" to determine whether control has passed, but must, I think, consonant with the purpose of the s., depend upon the legal entitlement of the "trustee" to do what the employer has failed to do." I respectfully agree. It was submitted that there was authority to the contrary. Reference was made to the decision of Hutley JA in Deputy Commissioner of Taxation v AGC (Advances) Ltd!3 where his Honour, after referring to the decision of Brinsden J in Smith v Deputy Commissioner of Taxation!4, and of Nettlefold J in Re LG Hollaway Transport Pty Ltd!5 wrote: "This is not the de-facto control with which the section is concerned."!6 11. (1988) 2 ATC at 4,819 12. (1988) VR 77 at 82-83 13. (1984) 1 NSWLR 29 at 30 14. (1978) 38 FLR 347; (1979) WAR 123 15. (1983) 7 ACLR 690 16. (1984) 1 NSWLR at 31 14 UNREPORTED JUDGMENTS In Smith, Brinsden J did not hold that control meant "de-facto" control. His Honour was dealing with a circumstance where the assets of a company were the subject of a charge. Before the debenture holder appointed a receiver, a liquidator was appointed. That liquidator, in fact, took possession of and dealt with the assets. The debenture holder did not appoint a receiver. In those circumstances his Honour held that the liquidator had, in fact, taken control of the assets of the company and was liable to pay funds held by him to the Commissioner in priority to the debenture holder. The crystallisation of the debenture holder's charge at the latest at the date of appointment of the liquidator did not mean that the debenture holder had control of the assets absent appointment of a receiver. With due respect, Smith is not authority for the view that control in s221P means "de-facto" control. Nor is the decision in Re LG Hollaway Transport Pty Ltd!7. Nettlefold J was there concerned with the circumstance of a debenture holder which appointed a receiver in respect of part only of the assets of the company, being book debts. His Honour held, consistently with Barnes, that s221P had no operation because control had not been taken by a trustee, being the receiver, of the whole of the assets of the company. As his Honour said: "The subsection, in the quoted portion of it, is talking about control which has passed to a trustee. It is not talking about control which might have passed to a trustee had the debenture holder acted differently. Nor is it talking about the right to exercise control which the debenture holder had but did not choose to exercise in relation to the whole of the company's property. The debenture holder might have assumed control, personally or through a receiver, of the whole of the company's property. In fact it did not do so... On the facts of this case the receiver did not take control of the company's property. He took control of part only of the company's property leaving a substantial amount of property still in the control of the company. That being so, s221P has no operation at all.'""!8 The case says nothing about whether "control" means legal or de-facto control. In Deputy Commissioner of Taxation v AGC (Advances) Ltd!9 Hutley JA is, perhaps, saying no more than that by collecting book debts after appointment of receiver who claimed entitlement to them pursuant to some arrangement whereby the funds would be separately held pending resolution of legal entitlement, there was no assertion by the liquidator of control of the funds. There is nothing in the reasons of Mahoney JA or Priestley JA in Deputy Commissioner of Taxation v AGC (Advances) Ltd to the contrary of the view that "control" means "legal control". I read the analysis by Priestley JA of Smith vy Deputy Commissioner of Taxation as being consistent with the view I have expressed. In Russell and Anor v AGC (Advances) Ltd and Ors2°. Marks J said: "In any event, I am persuaded that 'control' within s221P means de-facto control, or at least control to a greater extent than any achieved by the applicants." However, his Honour continued: While it may well be that a thoroughly definitive meaning of "control" has not emerged, it is dear that in no sense have the applicants exercised control over the Queensland assets. I find as a fact they have not exercised any. In my view, the presence or otherwise of "control" is ordinarily a question of fact. Its meaning 17. (1983) 7 ACLR 690 18. (1983) 7 ACLR 693-694 19. (1984) 1 NSWLR 29 at 30 20. (1988) VR 97 at 104 URJ COMMISSIONER OF TAXATION v BROOK (Cole JA) 15 in s221P is not technical but refers to what is actual or "de-facto"?! His Honour was dealing with a company having property in each of Victoria and Queensland, which property was subject to a charge. The charge was not registered in Queensland and was thus void against the liquidator or any creditor of the company. Thus appointment of a receiver pursuant to the charge would not have entitled the receiver to control of the Queensland assets as against the liquidator or any creditor. As Marks J said: "Although strictly speaking the charge was not void against the applicants (receivers) in the sense that legally they could have, if possible, taken the Queensland assets under their control, they did not in fact and it is doubtful whether, if they had, they could have resisted a demand of the liquidator to hand them over to him."22 As the receivers had neither legal nor de-facto control of the Queensland assets, any statement by Marks J that "control" in s221P means actual or de-facto control is obiter. I respectfully disagree with that view. In my view, "control" when used in s221P means legal control. It follows that the appeal must be upheld. The effect of the appointment of the receiver on 10 January 1991 as receiver of the whole of the assets of the company was to pass control of that property to him as receiver, and thus as a trustee within the meaning of the section. The powers conferred upon the receiver by the mortgage deed coupled with the instrument of appointment make clear that he had legal control of all of its assets. ORDERS I would propose the following orders: 1. Appeal upheld. 2. O.1 and O.2 as sought in the cross-claim. 3. The second respondent is to pay the appellant's costs of the appeal but, if qualified, is to have a certificate under the Suitors Fund Act. Counsel for the Appellant: DH Bloom QC/RM Henderson Instructed by: Australian Government Solicitor Counsel for Ist Respondent: Submitting appearance - P Mitchell (Sol) Instructed by: Dunhill Madden Butler Counsel for 2nd Respondent: C Harris Instructed by: Kalyk Nash 21. (1988) VR 104 22. (1988) VR at 99