Bluebottle UK Ltd v Deputy Commissioner of Taxation

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ,Gummow,Kirby,Hayne,Crennan JJ.
• Judgment Date: 05 December 2007
• Neutral Citation: [2007] HCA 54,2007-1205 HCA A
• Court: High Court
• Docket Number: S302/2007
• Date: 05 December 2007

[2007] HCA 54

HIGH COURT OF AUSTRALIA

Gleeson CJ, Gummow, Kirby, Hayne and Crennan JJ

S302/2007

Bluebottle UK Limited & Ors

Appellants

and

Deputy Commissioner of Taxation & Anor

Respondents

Representation

D F Jackson QC with A J Sullivan QC, S H Steward and S A Goodman for the appellants (instructed by Clayton Utz Lawyers)

A Robertson SC with S W Gibb SC and J H Momsen for the first respondent (instructed by Australian Government Solicitor)

Submitting appearance for the second respondent

Corporations Act 2001 (Cth), ss 140(1), 254T, 254U, 254V.

Company Law Review Act 1998 (Cth).

Income Tax Assessment Act 1936 (Cth), ss 218, 255, 256, 257.

Property Law Act 1974 (Q), s 199.

Bluebottle UK Limited v Deputy Commissioner of Taxation

Taxes and duties — Income tax and related legislation — Collection and recovery of tax — Collection of tax due and payable by a non-resident from a third party — Two non-resident shareholders in Virgin Blue Holdings Limited (‘Virgin Blue’) allegedly derived income or profits or gains of a capital nature from a source in Australia — Directors of Virgin Blue declared a dividend due for payment on 15 December 2005 to those who were shareholders on a specified record date of 28 November 2005 — After the record date but before the date for payment of the dividend, the Deputy Commissioner of Taxation (‘the Commissioner’) issued notices to Virgin Blue pursuant to s 255 of the Income Tax Assessment Act 1936 (Cth) (‘the Act’) purporting to require Virgin Blue to retain an amount from the dividend owed to each shareholder to meet the shareholder's tax liability — The following day, which was before the date for payment of the dividend, the shareholders agreed to assign their rights to the dividend to a third party and informed Virgin Blue of that agreement — The following day, which was still before the date for payment of the dividend, the Commissioner issued tax assessment notices to the shareholders and further notices to Virgin Blue pursuant to s 255 of the Act — Whether Virgin Blue was required to retain the dividend to pay the shareholders' tax liability.

Taxes and duties — Income tax and related legislation — Whether s 255 of the Act required the Commissioner to assess a non-resident's tax liability before the Commissioner could require a third party to pay the tax due and payable by that non-resident — Relevance of relationship between s 218 and s 255 of the Act.

Corporations — Share capital — Shares — Dividends — Assignment of rights to receive a dividend — Whether a shareholder could assign its rights to receive a dividend to a third party — Whether a corporation was bound to recognise a shareholder's assignment of its rights to receive a dividend to a third party — Relevance of statutory contract under s 140(1) of the Corporations Act 2001 (Cth) — Time at which Virgin Blue incurred a ‘debt’ to its shareholders in respect of the dividend — Relevance of distinction between declaring a dividend and determining that a dividend is payable — Relevance of ‘record date’.

Equity — Assignments in equity — Whether the shareholders' agreement to assign the rights to the dividend purported to effect an equitable assignment or a statutory assignment pursuant to s 199 of the Property Law Act 1974 (Q).

Words and phrases — ‘declare’, ‘debt’, ‘determine’, ‘due’, ‘due and payable’, ‘final dividend’, ‘interim dividend’, ‘record date’.

ORDER

Appeal dismissed with costs.

1 Gleeson CJ, Gummow, Kirby, Hayne and Crennan JJ. The second respondent, Virgin Blue Holdings Limited (‘Virgin Blue’), is a listed public company, limited by shares. Its constitution provides that the replaceable rules contained in the Corporations Act 2001 (Cth) (‘the Corporations Act’) do not apply to the company. Its constitution gives the directors power ‘from time to time [to] determine that a Dividend is payable’.

2 On 11 November 2005, the directors of Virgin Blue resolved that, subject to receiving an unqualified audit report, the directors ‘declared’ a final, fully franked dividend of 25 cents per ordinary share. The directors fixed the ‘record date for the dividend’ as 28 November 2005 ‘with payment being made on 15 December 2005’. On the record date of 28 November 2005, the second appellant (Cricket SA — ‘Cricket’) held 23.00 per cent of the issued capital of Virgin Blue 1; the third appellant (Virgin Holdings SA — ‘Holdings’) held 2.08 per cent; the fourth appellant (Barfair Limited — ‘Barfair’) held 0.48 per cent. The dividend attributable to the shareholdings of Cricket and Holdings was about $65 million.

3 The Deputy Commissioner of Taxation (‘the Commissioner’), the first respondent in this Court, alleges that Cricket and Holdings each became liable to pay income tax on the capital gain made on disposal of shares each held in Virgin Blue. Those disposals were said to have occurred in the one case on or about 30 June 2003, and in the other on or about 4 November and 8 December 2003. This litigation concerns attempts made by the Commissioner to intercept Virgin Blue's payment of the dividend that the directors resolved was to be paid on 15 December 2005, and have the amounts attributable to the shares held by Cricket and Holdings applied in satisfaction of the tax liabilities of Cricket and Holdings.

4 Cricket and Holdings contend that on 13 December 2005 each made a valid and effective deed of assignment assigning its rights in respect of the dividend to the first appellant (Bluebottle UK Limited — ‘Bluebottle’), and that Bluebottle gave Virgin Blue an irrevocable direction to pay the sums in question to Barfair. On 15 December 2005, Bluebottle, Cricket, Holdings and Barfair commenced a proceeding in the Supreme Court of New South Wales seeking

declarations (in effect) that the various transactions described were effective and that certain notices issued by the Commissioner had ‘no force or effect in relation to’ the dividend.

5 At first instance, Gzell J made declarations of the kind sought by the plaintiffs 2. The Commissioner's appeal to the Court of Appeal was allowed 3. That Court (Mason P, Santow and Basten JJA) set aside the principal orders of the primary judge and ordered Virgin Blue to pay the Commissioner the dividends that had been declared. By special leave, Bluebottle, Cricket, Holdings and Barfair appeal to this Court. Virgin Blue has filed a submitting appearance.

The order of events

6 It is necessary to describe in more detail the events that occurred after the directors' resolution of 11 November 2005 and after the record date of 28 November 2005 fixed by that resolution. The order of the events is important.

7 First, on 12 December 2005, the Commissioner gave Virgin Blue two notices, each described as ‘Notice Pursuant to Section 255 of the Income Tax Assessment Act 1936’. Each notice recited that, in the one case Cricket, in the other, Holdings, ‘is a non-resident who derives income, or profits or gains of a capital nature, from a source in Australia or who is a shareholder in a company deriving income, or profits or gains of a capital nature from a source in Australia’. The notice went on to say that a number of companies (of which Virgin Blue was one):

‘shall, when required by the Commissioner, pay the tax due and payable by the Taxpayer [Cricket in the one case; Holdings in the other] and are, accordingly, authorised and required pursuant to section 255 of the Income Tax Assessment Act 1936 … to retain [a specified amount] being the amount of tax that is due or will become due by the Taxpayer, from the amount the Companies have receipt, control or disposal of belonging to the Taxpayer’.

It will be convenient to call these notices ‘the Commissioner's first notices’.

8 Subsequent events reveal that the amount specified in each of the Commissioner's first notices was more than the sum of the amount the Commissioner stated, in position papers sent to Cricket and Holdings, to be the amount of tax due from each, together with the amount of general interest charge calculated to 15 December 2005. The Commissioner's first notices required Virgin Blue to retain $72,518,346.06 in respect of Cricket and $20,839,554.45 in respect of Holdings. The later position papers alleged that Cricket was liable to tax of $61,680,494.10 and general interest charge to 15 December 2005 of $2,761,119.76 (a total of $64,441,613.86) and that Holdings was liable to tax of $17,722,873.80 and general interest charge to 15 December 2005 of $2,761,119.76 4 (a total of $20,483,993.56).

9 Second, on 13 December 2005, after receipt of the Commissioner's first notices, Cricket and Holdings each made a deed of assignment with Bluebottle. On the same day, a supplementary deed was made by Cricket and Bluebottle amending the deed of assignment, and an associated loan agreement, but nothing was said to turn on the terms of this supplementary deed. It may be put aside from further consideration. Clause 2.1(a) of each deed of assignment provided that the assignor (Cricket or Holdings) ‘transfers and assigns to [Bluebottle] in equity all Rights of the Assignor which are capable of assignment’. The term ‘Rights’ was defined in the deed as ‘all right, title and interest to receive the Dividend which the Assignor has, or will have upon them coming into existence, against Virgin Blue’. Clause 2.1(b) of each deed provided that:

‘On the date fixed for payment of the Dividend, the Assignor transfers and assigns to [Bluebottle] absolutely all Rights of the Assignor both legal and beneficial which have not otherwise been transferred and assigned under clause 2.1(a).’

Clause 2.1(c) of each deed provided that the consideration for the transfers and assignments in pars (a) and (b) of cl 2.1 was a sum being the equivalent in Swiss francs of the Dividend and that this amount was to remain outstanding on the terms of...