Kupang Resources v International Litigation Partners [2015] WASCA 89

The tax office was owed tax by the lender and sent the borrower a section 260-5 notice requiring the borrower to pay the instalments owing to the lender to the ATO instead.

A 260-5 notice is essentially a garnishee notices. They are served on parties who owe a taxpayer money or will owe it in the future. The notice requires the parties served to pay the ATO the amount when it becomes due. A 260-5 notice creates a statutory ‘security’ over the money when it is served.

The deed of loan had a clause:

The Secured Money will immediately become payable without the need for any demand or notice if the Grantor fails to pay any amount that is due and payable by it under a Transaction Document when it is due.

Upon default the borrower claimed that its failure was the failure to pay the Commissioner under the ATO notices an amount due and payable by it not a failure to pay ‘under’ a “Transaction Document” and therefore the appointment of a receiver was invalid.

The court held that the failure to pay the Commissioner was a failure under a “Transaction Document” because:

The Commissioner’s right to receive payment depended upon and was derived from the borrower’s obligation to pay under the Transaction Documents. The Commissioner’s right to receive payment did not displace the source of the borrower’s obligation to pay. The Event of Default was not conditioned by reference to the person to whom the relevant amount was or had become payable.

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