Howard v Commissioner of Taxation

Michael Crawford, ‘Question: When Does a Litigant Want to be a Fiduciary? Answer: When It Involves Tax Law: Howard v Commissioner of Taxation‘ (23 June 2014).

The High Court has unanimously dismissed an appeal against the decision of the Full Federal Court in Howard v Commissioner of Taxation, which involved three appeals to the Federal Court relating to the appellant’s 2005 and 2006 taxable income. Howard received a share of an award of equitable compensation made by the Victorian Supreme Court relating to Distronics Ltd, a company of which Howard was a director. That earlier dispute related to a joint venture entered into by Howard and other directors of Distronics, in which Distronics was to be the purchaser of a golf course. The FCAFC rejected Howard’s argument that he received the compensation award as a trustee of Distronics, and held that the award was assessable income in his hands.

The Court held that Howard did not receive the equitable compensation as a constructive trustee because at the time of the award there was no actual or real possibility of conflict between his interests and his duties owed as a director of Distronics Ltd (at [37]–[38], [96]). Although the company was to be the ultimate purchaser, it was never intended to be a member of the venture, and no duty prevented Howard from taking the profits on his own account (at [4]). The Court also rejected Howard’s claim that the litigation agreement between Distronics and its directors meant that the award was not assessable income in his hands, as it assigned the rights under any award the VSC might make to Distronics Ltd. On Hayne and Crennan JJ’s reading, the better construction was that it assigned the proceeds of the action, rather than the rights to those sums (at [104]). The Court also rejected Howard’s argument that his share of legal costs in the VSC proceedings should be off-set from his assessable income: Distronics had ultimately borne those costs. Gageler J agreed with Hayne and Crennan JJ on the litigation agreement issue, and with French CJ and Keane J on deduction of legal costs, and stated his own reasons for why Howard held the equitable compensation award on his own account.

High Court Judgment [2014] HCA 21  11 June 2014
Result Appeal dismissed
High Court Documents Howard v CT
Full Court Hearing [2014] HCATrans 42  12 March 2014
Special Leave Hearing [2013] HCATrans 269 8 November 2013
Appeal from FCAFC [2012] FCAFC 149 26 October 2012
Trial Judgment, FCA
[2011] FCA 1421 14 December 2011
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About Martin Clark

Martin Clark is a PhD Candidate and Judge Dame Rosalyn Higgins Scholar at the London School of Economics and Political Science and Research Fellow at Melbourne Law School. He holds honours degrees in law, history and philosophy from the University of Melbourne, and an MPhil in Law from MLS. While at MLS, he worked as a researcher for several senior faculty members, was a 2012 Editor of the Melbourne Journal of International Law, tutor at MLS and various colleges, a Jessie Legatt Scholar, and attended the Center for Transnational Legal Studies Program.