High Court of Australia Judgment Summary Notes

Howard v Commissioner of Taxation of the Commonwealth of Australia [2014] HCA 21

On 11 June 2014 the High Court unanimously dismissed an appeal from a decision of the Full Court of the Federal Court of Australia, holding that the appellant, Stephen Howard, was liable to income tax on equitable compensation received in satisfaction of a judgment.

Mr Howard was a director of Disctronics Ltd ("Disctronics").  In his income tax assessment for the 2005 income year, he did not include, as part of his assessable income, his share of an award of equitable compensation received in satisfaction of a judgment in proceedings in the Supreme Court of Victoria. Those proceedings concerned a joint venture, of which Mr Howard was a member, involving the purchase, lease and on-sale of a golf course.  Whilst the joint venture was on foot, Mr Howard and two other directors of Disctronics, who were also members of the joint venture, endeavoured to have Disctronics become the purchaser of the golf course, although two other members of the joint venture did not agree.  Subsequently, the two other members of the joint venture diverted to their own use the business opportunity pursued by the joint venture and, in so doing, were found to have breached fiduciary duties they owed to Mr Howard and the other members of the joint venture.

The Commissioner of Taxation ("the Commissioner") assessed Mr Howard to income tax on the basis that his share of the equitable compensation was part of his assessable income for the relevant year.  Mr Howard disputed the assessment, claiming that he received the amount of equitable compensation as constructive trustee for Disctronics and that it was, therefore, incorrectly included in his assessable income.  He argued that from the time the directors decided to try to involve Disctronics as the purchaser, his fiduciary obligations to Disctronics as a director meant that he could not retain that gain for himself to the exclusion of Disctronics.

Mr Howard appealed to the Federal Court in the exercise of its original jurisdiction against the Commissioner’s decision.  The primary judge held that Mr Howard had received the compensation as constructive trustee for Disctronics and that it was, therefore, incorrectly included as part of his assessable income.  That holding was reversed on appeal to the Full Court, which held that there could be no conflict of interest in the way contended for by Mr Howard, and no breach of his fiduciary duty to Disctronics.  The Full Court also rejected Mr Howard’s additional claim that by a litigation agreement between Disctronics and its directors, entered into at about the time the Supreme Court proceedings were instituted, he had assigned the right to receive the amount of equitable compensation to Disctronics, such that the income was not derived by him beneficially.  By grant of special leave, Mr Howard appealed to the High Court.

Dismissing the appeal, the High Court held that Mr Howard did not receive the amount of equitable compensation as constructive trustee for Disctronics because, at the time Mr Howard obtained or became entitled to that amount, there was no actual conflict, and no real possibility of conflict, between his personal interests and his duties as a director of Disctronics. As to the litigation agreement, the Court held that as it provided for the assignment of Mr Howard’s future income, rather than his underlying rights to receive those sums, the proceeds of the action were income in his hands.  The sum received was correctly included in his assessable income.

Do Young (aka Jason) Lee v The Queen; Seong Won Lee v The Queen [2014] HCA 20

On 21 May 2014, the High Court unanimously allowed two appeals from a decision of the Court of Criminal Appeal of the Supreme Court of New South Wales, which had upheld the convictions of the appellants on various drug and firearms offences on the basis that there had not been a miscarriage of justice within the meaning of s 6(1) of the Criminal Appeal Act 1912 (NSW).

The appellants (a father and son) had been the subject of an investigation by the New South Wales Crime Commission ("the Commission").  As part of that investigation and pursuant to powers given by the New South Wales Crime Commission Act 1985 (NSW) ("the NSWCC Act"), the appellants were summoned by the Commission to give evidence before it.  Section 13(9) of the NSWCC Act required the Commission to make a direction prohibiting the publication of evidence given before it where publication might prejudice the fair trial of a person who may be charged with an offence.  The appellant in the first matter, Jason Lee, gave evidence on two occasions.  He was subsequently charged with various drug and firearms offences.  The appellant in the second matter, Seong Won Lee, gave evidence on one occasion.  At that time, he had been charged with firearms offences and a charge relating to a drug offence was imminent.  The transcripts of the appellants’ evidence given before the Commission were unlawfully published to members of the New South Wales Police Force and to officers of the Director of Public Prosecutions before the appellants’ joint trial.  On 16 March 2011, the appellants were convicted of various drug and firearms offences.

The appellants appealed their convictions on the basis that there had been a miscarriage of justice, by reason of the prosecution’s possession and possible use of the appellants’ evidence given before the Commission.  The Court of Criminal Appeal dismissed the appeals.  By grant of special leave, the appellants appealed to the High Court.

The High Court held that the purpose of s 13(9) of the NSWCC Act was to protect the fair trial of a person who may be charged with offences.  That purpose supports the fundamental principle of the common law referred to in X7 v Australian Crime Commission (2013) 248 CLR 92; [2013] HCA 29, that the prosecution is to prove the guilt of an accused person.  That purpose was not met in the present case, with the consequence that the appellants’ trial differed in a fundamental respect from that which our criminal justice system seeks to provide and amounted to a miscarriage of justice within the meaning of s 6(1) of the Criminal Appeal Act.  The High Court quashed the appellants’ convictions and ordered that a new trial be had.

Sidhu v Van Dyke [2014] HCA 19

On 16 May 2014, the High Court unanimously dismissed an appeal from the Court of Appeal of the Supreme Court of New South Wales, which had held that Mr Sidhu was precluded from departing from his assurances that he would transfer certain real property to Ms Van Dyke.

In 1996, Ms Van Dyke and her then husband moved into a house known as Oaks Cottage, which was located on a block of land known as the Homestead Block owned by Mr Sidhu and his wife.  Towards the end of 1997, Mr Sidhu and Ms Van Dyke commenced a relationship, during which Mr Sidhu gave assurances to Ms Van Dyke to the effect that he would subdivide the land and transfer Oaks Cottage to her once the site had been subdivided.  Ms Van Dyke continued in her relationship with Mr Sidhu, performed unpaid work on the Homestead Block and Oaks Cottage and did not pursue gainful employment elsewhere.  She also did not seek a property settlement from her husband when they divorced in 1998.  In 2006, the relationship between Mr Sidhu and Ms Van Dyke came to an end and Mr Sidhu refused to transfer the property on which the Oaks Cottage sat ("the Oaks property") to Ms Van Dyke.

Ms Van Dyke commenced proceedings in the Supreme Court of New South Wales, claiming that Mr Sidhu was estopped from departing from his assurances on the basis that she had acted in reliance on those representations to her detriment.  The Supreme Court dismissed her claim on the basis that the trial judge was not satisfied that Ms Van Dyke had acted to her detriment in reliance on Mr Sidhu’s assurances.

The Court of Appeal allowed Ms Van Dyke’s appeal, holding that, where inducement by the promise may be inferred from Ms Van Dyke’s conduct, there was a presumption that Ms Van Dyke acted to her detriment in reliance on Mr Sidhu’s representations.  The Court found that Mr Sidhu had failed to rebut that presumption.  The Court concluded that Mr Sidhu was precluded from departing from his assurances, and ordered Mr Sidhu to pay Ms Van Dyke equitable compensation in an amount to be assessed by reference to the market value of the Oaks property.  By grant of special leave, Mr Sidhu appealed to the High Court.

The High Court unanimously dismissed Mr Sidhu’s appeal.  The Court held that the Court of Appeal erred in proceeding upon a presumption that Ms Van Dyke had acted to her detriment in reliance on Mr Sidhu’s representations.  Ms Van Dyke bore the onus of proof in relation to detrimental reliance.  Nevertheless, the Court concluded that Ms Van Dyke’s evidence at trial established that she had acted to her detriment in reliance on Mr Sidhu’s representations.  On that basis, Ms Van Dyke was entitled to equitable compensation in an amount to be assessed by reference to the value of the Oaks property.

ADCO Constructions Pty Ltd v Goudappel & Anor [2014] HCA 18

Also on 16 May 2014, the High Court unanimously allowed an appeal from a decision of the Court of Appeal of the Supreme Court of New South Wales.  The High Court held that a regulation was validly made under a power to make savings and transitional regulations having the effect of amending the Workers Compensation Act 1987 (NSW) ("the WCA") and that the regulation extinguished Ronald Goudappel’s entitlement to permanent impairment compensation under the WCA.

On 17 April 2010, Mr Goudappel, an employee of ADCO Constructions Pty Ltd ("ADCO"), was injured at work and became entitled under the WCA to receive compensation from ADCO.  He made a claim for compensation on 19 April 2010 ("the initial claim").  He was later assessed as having a six percent permanent impairment with respect to the injuries he sustained.  On 20 June 2012, he made a specific claim for permanent impairment compensation.

ADCO’s workers compensation insurer declined liability for permanent impairment compensation, on the basis that amendments to the WCA, introduced by the Workers Compensation Legislation Amendment Act 2012 (NSW) ("the Amendment Act"), applied to Mr Goudappel’s claim.  The amendments limited the entitlement to permanent impairment compensation to workers who had suffered injury resulting in permanent impairment exceeding ten percent.  If applicable to Mr Goudappel’s claim, the amendments would have had the effect that he had no entitlement to permanent impairment compensation.  However, the Amendment Act’s savings and transitional provisions protected the entitlements of workers who had claimed permanent impairment compensation before 19 June 2012 from the disentitling effect of the amendments.  It was accepted in the High Court that Mr Goudappel’s initial claim covered any entitlement to permanent impairment compensation.  Notwithstanding that, ADCO argued that the protection conferred by the Amendment Act’s savings and transitional provisions was displaced by a transitional regulation made pursuant to those provisions.  The transitional regulation was said to extend the disentitling operation of the amendments to claims for compensation made before 19 June 2012, except for claims which "specifically sought" permanent impairment compensation. 

The Court of Appeal held that the transitional regulation did not apply to extinguish Mr Goudappel’s entitlement to permanent impairment compensation.  By special leave, ADCO appealed to the High Court.

Allowing the appeal, the High Court held that the transitional regulation was valid and applied to extinguish Mr Goudappel’s entitlement to permanent impairment compensation.  Mr Goudappel’s initial claim was not a claim which "specifically sought" permanent impairment compensation.  The regulation could not be interpreted so as to avoid its application to his entitlement.

Macarthurcook Fund Management Limited & Anor v TFML Limited [2014] HCA 17

On 14 May 2014, the High Court unanimously allowed an appeal from a decision of the Court of Appeal of the Supreme Court of New South Wales.  The High Court held that redemption of certain interests in a managed investment scheme did not constitute a withdrawal from that scheme within the meaning of Part 5C.6 of the Corporations Act 2001 (Cth) ("the Act").

RFML Ltd ("RFML") (subsequently replaced by the respondent, TFML Ltd) was the responsible entity of an unlisted unit trust ("the Trust") which was a registered scheme.  The constitution of the Trust complemented s 601KA(3)(b) of the Act by providing that a unitholder had no right to withdraw when the Trust was not liquid, unless there was a withdrawal offer currently open for acceptance by unitholders.  The trustee was given power to suspend withdrawals if it was not in the best interests of unitholders for withdrawals to be made.  

In October 2006 and December 2007, RFML sought to raise funds by an open-ended public offer of ordinary units in the Trust.  Through a series of facility agreements, the first appellant, MacarthurCook Fund Management Ltd ("MacarthurCook") underwrote the public offer by subscribing for units in the Trust.  One of the terms of the facility agreements was that "[s]ubject to compliance with any requirements under the Corporations Act and the Constitution, during the Subscription Period, Subscription Units held by MacarthurCook must be redeemed by [RFML] for their Issue Price".  On 29 September 2008, RFML gave notice that it had suspended all "withdrawals" from the Trust until further notice.  MacarthurCook instituted proceedings in the Supreme Court of New South Wales on the basis of RFML’s failure to redeem Subscription Units in accordance with the relevant term of their issue.

The Court of Appeal held that RFML’s redemption would have constituted a withdrawal within the meaning of Pt 5C.6 of the Act.  However, as RFML had not complied with the requirements prescribed by the Act, and because the relevant term of issue of the Subscription Units expressed RFML’s obligation to redeem to be subject to compliance with the Act, RFML was not in breach.  By special leave, MacarthurCook appealed to the High Court.

The High Court held that a member does not withdraw from a scheme merely by reason of a responsible entity performing an obligation (or exercising a power compulsorily) to redeem the interest of the member.  The Court held that the withdrawal by a member that is regulated by Pt 5C.6 of the Act involves some act of volition on the part of the member.  It followed that RFML had breached its obligation to redeem the Subscription Units as s 601KA(3)(b) had no application in this case.

Michael Alan Gillard v The Queen [2014] HCA 16

On 14 May 2014, the High Court unanimously allowed Michael Alan Gillard’s appeal against his convictions for four sexual offences.  

Mr Gillard was tried before the Supreme Court of the Australian Capital Territory on a number of sexual offences against DD.  He was convicted of three offences that occurred before DD turned 16 years old.  The appeal to the High Court was confined to separate convictions for:  three offences of sexual intercourse with DD, without DD’s consent, contrary to s 54(1) of the Crimes Act 1900 (ACT) ("the Act"); and one offence of committing an act of indecency in the presence of DD’s sister, JL, without JL’s consent, contrary to s 60(1) of the Act.  These offences were alleged to have occurred when DD was aged 17 and 18 years and when JL was aged 16 years.

The offences were said to arise during school holidays on occasions when DD and JL were staying at Mr Gillard’s home.  Mr Gillard, who was a friend of DD’s and JL’s father, acknowledged that it was his understanding that DD and JL had been entrusted to his care during these visits.  Under s 67(1)(h) of the Act, a complainant’s consent to sexual intercourse, or the commission of an act of indecency, is negated if the consent is caused by the abuse by a person of a position of authority over, or other trust in relation to, the complainant.  One way in which the prosecution case was put at Mr Gillard’s trial was that DD’s and JL’s consent had been caused by Mr Gillard’s abuse of his position of authority.

The mental element of the offences provided by ss 54(1) and 60(1) is either knowledge that the complainant is not consenting to sexual intercourse or the commission of the act of indecency, or recklessness as to consent.  Section 67(3) relevantly provides that where an accused person knows that consent to sexual intercourse, or to an act of indecency, has been caused by his or her abuse of authority over the complainant, he or she is deemed to know that the complainant is not consenting.  The jury at Mr Gillard’s trial were directed that the prosecution could establish the mental element of liability for the ss 54(1) and 60(1) offences by proof either of knowledge or recklessness.  

Mr Gillard appealed to the Court of Appeal of the Supreme Court of the Australian Capital Territory.  He argued that at a trial in which the prosecution relies on the accused’s abuse of his or her position of authority as negating the complainant’s consent, it is necessary to establish that the accused knew that the abuse of authority was the cause of the consent and that recklessness as to consent is not sufficient.  The Court of Appeal rejected the argument holding that the mental element of liability for the offences includes recklessness as to consent.

By special leave, Mr Gillard appealed to the High Court.  The High Court held that recklessness as to consent is a state of mind of indifference as to whether the complainant is consenting.  The Court distinguished this state of mind from that of an accused who is heedless of the risk that he or she may be abusing a position of authority over the complainant or the risk that such abuse of authority may have caused the complainant to consent.  The directions given to the jury at Mr Gillard’s trial wrongly conveyed that it was open to convict Mr Gillard if the jury was satisfied that he was reckless in either of these respects.  The Court held this was a material misdirection affecting each of the counts that were the subject of the appeal and directed a new trial be had of those counts.

James Henry Stewart in his Capacity as Liquidator of Newtronics Pty Ltd (In Liquidation) & Anor v Atco Controls Pty Ltd (In Liquidation) [2014] HCA 15

On 7 May 2014, the High Court unanimously held that the first appellant, a liquidator, was entitled to an equitable lien over a fund constituted by a settlement sum with respect to costs and expenses incurred in litigation against the respondent, a secured creditor, and receivers appointed by the respondent.

The second appellant, Newtronics Pty Ltd ("Newtronics"), is a wholly owned subsidiary of the respondent, Atco Controls Pty Ltd ("Atco").  For many years, Atco provided Newtronics with financial support and ultimately took a fixed and floating charge over Newtronics’ assets.  In January 2002, Atco appointed receivers to Newtronics.  The receivers sold the business of Newtronics to another subsidiary of Atco and credited book entries against the debt owed to Atco by Newtronics.  In February 2002, Newtronics was wound up and the first appellant was appointed liquidator.  The liquidator brought an action on behalf of Newtronics against Atco and the receivers.  The liquidator’s costs and expenses reasonably incurred in pursuing the action were paid by Seeley International Pty Ltd, Newtronics’ largest unsecured creditor, under an indemnity agreement.  Newtronics was successful at trial against Atco, but not against the receivers.  Prior to an appeal being heard, the receivers paid Newtronics a settlement sum.  Atco proceeded with its appeal and was successful.  It subsequently demanded payment of the settlement sum pursuant to its charge.  The liquidator refused, on the basis that he was entitled to an equitable lien over the sum.

Atco brought proceedings in the Supreme Court of Victoria, by way of an appeal under s 1321 of the Corporations Act 2001 (Cth) from the liquidator’s decision not to pay it the settlement sum.  The Court ordered that the sum be paid to Atco.  On an appeal by way of a new hearing, the Court found for the liquidator and Newtronics.  The Court of Appeal in turn allowed Atco’s appeal.  By grant of special leave, the liquidator and Newtronics appealed to the High Court.

The High Court unanimously allowed the appeal. The Court held that there was no basis for excepting the case from the application of the principle that a secured creditor may not have the benefit of a fund created by a liquidator without the liquidator’s costs and expenses of creating that fund first being met.  The fund constituted by the settlement sum was created by the efforts of the liquidator, who was acting with propriety and in the course of his duties.  In those circumstances, the liquidator was entitled to an equitable lien over the settlement sum in priority to Atco’s charge.

Australian Financial Services and Leasing Pty Limited v Hills Industries Limited & Anor [2014] HCA 14

On 7 May 2014, the High Court unanimously held that the first and second respondents would not be required to repay monies that had been mistakenly transferred to them by the appellant as a result of a fraud committed by a third party, because each respondent had established a defence that they had changed their position on the faith of the receipt of the payments.

The appellant, Australian Financial Services and Leasing Pty Ltd ("AFSL"), provided businesses with finance to purchase commercial equipment.  The respondents, Hills Industries Ltd ("Hills") and Bosch Security Systems Pty Ltd ("Bosch"), were manufacturers and suppliers of such equipment.  Hills and Bosch were both owed debts by various companies in a corporate group (referred to collectively as "TCP").  A director and shareholder of TCP created false invoices suggesting that TCP had purchased equipment from each of Hills and Bosch.  On the basis of these invoices, AFSL agreed to purchase the equipment and lease it back to TCP.  AFSL paid the amounts of the false invoices to Hills and Bosch.  AFSL later discovered the fraud and sought repayment from Hills and Bosch.  Hills and Bosch resisted AFSL’s claim on the basis of their change of position.  In particular, both companies relied upon the application of AFSL’s payments to the discharge of TCP’s debts, and the circumstances that they had ceased pursuing the recovery of the debts and continued to trade with TCP.  It was not in dispute that Hills and Bosch had both acted on the faith of the receipt of AFSL’s payments.

In the Supreme Court of New South Wales, the primary judge rejected Hills’ defence of change of position, but held that the defence had been made out in relation to Bosch.  AFSL and Hills both appealed to the Court of Appeal, which held that each of Hills and Bosch was entitled to rely on a defence of change of position in response to AFSL’s claim for repayment.  By grant of special leave, AFSL appealed to the High Court.

The High Court unanimously dismissed AFSL’s appeal.  A majority of the Court held that the relevant enquiry was whether retention of the monies by Hills and Bosch would be inequitable in all the circumstances.  The Court rejected the approach argued by AFSL, which focused on the extent to which Hills and Bosch had been "disenriched" subsequent to the receipt.  The principle of disenrichment, like that of unjust enrichment, is inconsistent with the law of restitution as it has developed in Australia.  The Court concluded that, in the circumstances of this case, the disadvantages which would enure to Hills and Bosch if they were required to repay AFSL are such that it would be inequitable to require them to do so.