Arcidiacono v Commissioner for Act Revenue; Canberra Cleaners Pty Ltd v Commissioner for Act Revenue (No 2)
[2018] ACTCA 69
•21 December 2018
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
COURT OF APPEAL
Case Title: | Arcidiacono v Commissioner for ACT Revenue; Canberra Cleaners Pty Ltd v Commissioner for ACT Revenue (No 2) |
Citation: | [2018] ACTCA 69 |
Hearing Date: | 7 November 2018 |
DecisionDate: | 21 December 2018 |
Before: | Burns, Mossop and Charlesworth JJ |
Decision: | See [94] – [95] |
Catchwords: | ADMINISTRATIVE LAW – review of decision to issue garnishee notices and director compliance notices for the enforcement of payroll tax liabilities – collateral challenge to validity of assessment of liability – whether assessment affected by conscious maladministration – primary judge declining review and withholding relief in the exercise of discretion – whether discretion miscarried TAXES AND DUTIES – enforcement of payroll tax liability – garnishee notices issued to all known creditors of taxpayer group – whether garnishee notices had effect of rendering corporate entities in the group insolvent – whether decision to issue garnishee notices was legally unreasonable TAXES AND DUTIES – enforcement of payroll tax liability – compliance notices issued to directors of corporate entities in taxpayer group – whether notice issued for improper purpose of frustrating pending legal proceedings – whether decision to issue the notice was legally unreasonable |
Legislation Cited: | Administrative Decisions (Judicial Review) Act 1977 (Cth) s 5 Bankruptcy Act 1966 (Cth) Taxation Administration Act 1999 (ACT) ss 4, 16, 54, 56B, 100, 104, 105, 107A, 108A, 109, 134, Pts 7, 10 |
Cases Cited: | Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223 Canberra Cleaners Pty Ltd v Commissioner for ACT Revenue (No 3) [2017] ACTSC 340 Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355 |
Parties: | Sue Price as executor of the will of Phillip Arcidiacono (First Appellant in ACTCA 41 of 2018) Sue Price (Second Appellant in ACTCA 41 of 2018) Jocelyn Katavic (Fourth Appellant in ACTCA 41 of 2018) Canberra Cleaners Pty Ltd ACN 142575095 (First Appellant in ACTCA 42 of 2018) Sue Price as executor of the will of Phillip Arcidiacono trading as Rose Cleaning Service (Second Appellant in ACTCA 42 of 2018) Commissioner for ACT Revenue (Respondent in ACTCA 41 and 42 of 2018) |
Representation: | Counsel D McGovern SC with A Russoniello (Second and Fourth Appellants in ACTCA 41 of 2018 and First Appellant in ACTCA 42 of 2018) P Walker SC with WDB Buckland (Respondent) |
| Solicitors McEvoy Legal (Second and Fourth Appellants in ACTCA 41 of 2018 and First Appellant in ACTCA 42 of 2018) ACT Government Solicitor (Respondent) | |
File Numbers: | ACTCA 41 of 2018 ACTCA 42 of 2018 |
Decision under appeal: | Court/Tribunal: ACT Supreme Court Before: McWilliam AsJ Date of Decision: 3 August 2018 Case Title: Canberra Cleaners Pty Ltd v Commissioner for ACT Revenue Citation: [2018] ACTSC 208 |
THE COURT
Introduction
These two appeals concern the joint and several payroll tax liabilities of a group of entities operating a cleaning business in the Australian Capital Territory (the Group). The appeals are from orders made in two proceedings heard concurrently before the primary judge.
Action SC 424 of 2017 concerned a decision of the Commissioner for ACT Revenue (the Commissioner) to issue garnishee notices to all of the known creditors of the Group pursuant to s 54 of the Taxation Administration Act 1999 (ACT) (the TAA) in relation to the liability.
Action SC 466 of 2017 concerned a decision of the Commissioner to issue directors’ compliance notices pursuant to s 56B of the TAA to directors and past directors of certain corporate entities within the Group in relation to the same liability.
The liability specified in the directors’ compliance notices and the garnishee notices is that calculated in an assessment of the Group’s payroll and penalty tax for seven financial years commencing on 1 July 2009 and ending on 30 June 2016 (the Assessment).
The plaintiffs in each action sought review under the Administrative Decisions (Judicial Review) Act 1989 (ACT) (ADJR Act) of the respective decisions under s 54 and s 56B of the TAA. They also sought to collaterally challenge the validity of the Assessment upon which the notices were based.
The primary judge made orders setting aside four of the garnishee notices, but otherwise dismissed the applications for review: Canberra Cleaners Pty Ltd v Commissioner for ACT Revenue [2018] ACTSC 208.
The two notices of appeal are expressed in relevantly identical terms. In each notice there are three grounds articulated at [5(a)], [5(b)] and [5(c)]. The grounds in [5(a)] and [5(c)] allege appealable error by the primary judge in rejecting grounds for review concerning the decisions of the Commissioner to issue the garnishee notices and the directors’ compliance notices respectively.
The ground in [5(b)] concerns the validity of the Assessment. It is convenient to deal with that ground first.
The Assessment
Asserted invalidity
The asserted bases for invalidity of the Assessment may be summarised as follows:
(a)By letters dated 29 November 2016, 9 August 2017 and 4 September 2017, the Commissioner issued letters to entities within the Group.
(b)Each letter was styled as a “notice of assessment”.
(c)Each letter gave, or purported to give, notice of the Commissioner’s assessment of the Group’s payroll tax and penalty tax in respect of the seven financial years beginning on 1 July 2009 and ending on 30 June 2016.
(d)In respect of each period, the payroll tax liability was said to have been assessed pursuant to the Payroll Tax Act 2011 (ACT) (the 2011 PTA).
(e)The 2011 PTA did not apply to the assessment of payroll tax in the financial years ending 30 June 2010 and 30 June 2011. Assessment of payroll tax in those financial years was provided for by the Payroll Tax Act 1987 (ACT) (the 1987 PTA).
(f)At the time of making the Assessment the Commissioner no longer had the power under the TAA to make an assessment of the Group’s liability for payroll tax under the 1987 PTA.
10. The appellants argued that the Assessment was affected by jurisdictional error and invalid because it was not authorised by the TAA. It followed, the appellants argued, that the Commissioner’s decisions to issue the garnishee notices and directors’ compliance notices were not authorised by the TAA or, alternatively, involved an error of law: see, respectively, s 5(1)(d) and s 5(1)(f) of the ADJR Act.
Reasons of the primary judge
The appellants are correct to say that the letters received by entities in the Group contained a statement to the effect that assessments of payroll tax for the financial years ending 30 June 2010 and 30 June 2011 had been made pursuant to the 2011 PTA.
12. The primary judge nonetheless declined to determine the merits of the appellants’ argument, for two reasons.
13. First, the primary judge referred to s 134(1) of the TAA. It provides:
(1)Production of a notice of assessment, or of a document signed by the commissioner purporting to be a copy of a notice of assessment, is conclusive evidence –
(a)of the due making of the assessment; and
(b)that the amount and all particulars of the assessment are correct, except in an objection or appeal proceeding where it is prima facie evidence only.
14. Her Honour said (at [89]):
… Challenges to the garnishee notices and the issue of directors’ compliance notices are not appeal proceedings of the assessments themselves and thus, the assessments are conclusive evidence in these proceedings. A collateral challenge in the context of these proceedings is not available to the plaintiffs.
15. Second, the primary judge noted that the taxpayers in respect of whom the Assessment was made had commenced appeal proceedings in the ACT Civil and Administrative Tribunal (the Tribunal). As at the date of her Honour’s judgment, the appeal to the Tribunal had not been heard or determined. The primary judge said (at [91]):
… In circumstances where the statute has expressly provided an alternative remedy as the ordinary and regular recourse for an aggrieved person, such as full merits review, the effect of the authorities is that the Court has a discretion to decline to grant a remedy by way of judicial review: Commissioner for Taxation v Futuris Group [2008] HCA 32; 237 CLR 146 (Futuris) at [10] per Gummow, Hayne, Heydon and Crennan JJ and [156] per Kirby J.
16. The primary judge went on to say that although the Tribunal did not have the power to declare the Assessment invalid, the power of the Tribunal extended to making decisions about the applicable law. The primary judge said that if the Tribunal was to find that the Commissioner had applied the incorrect statute when making the Assessment in respect of the 2010 and 2011 financial years, the Commissioner would be required to give effect to the Tribunal’s finding. The primary judge concluded (at [98]):
Thus, while the plaintiffs are entitled to bring judicial review proceedings in this Court, the legislature has provided for a different path to be followed, and I consider it to be an alternative and adequate remedy. The Court should decline to exercise discretion to review the decision, following Futuris at [48] and [156].
17. It is plain that the two bases upon which the primary judge declined to determine the challenge to the validity of the Assessment were independent of each other. In other words, the discretion to decline to judicially review the Assessment was not affected by her Honour’s earlier conclusion that s 134 of the TAA precluded a collateral challenge to the Assessment in either action.
The ground of appeal
18. The ground in [5(b)] of the notice of appeal is expressed as follows:
(b) The primary judge erred:
(i)At paragraph [89] of the primary judgment in finding that a collateral challenge to the assessments was not available to the appellants in the context of these proceedings; and
(ii)At paragraph [98] of the primary judgment in finding that the respondents directors had an alternative and adequate remedy in proceedings before the Tribunal and therefore declining to review the assessments, in particular in the case of the respondent directors and ex-directors who were not a party to any such proceedings before the Tribunal,
and ought instead to have held that the assessments were invalid for purporting to apply the Payroll Tax Act 2011 (ACT) to the 2009-2010 and 2010-1011 years, when the applicable legislation was the Payroll Tax Act 1987 (ACT), which was no longer in force;
19. The Court heard argument going to three questions. The first was whether the primary judge was correct to characterise s 134 of the TAA as precluding a collateral challenge to an assessment undertaken or purportedly undertaken under the TAA in the ADJR Act proceedings. The second was whether the exercise of the discretion of the primary judge to decline to judicially review the Assessment miscarried such as to attract the principles in House v The King (1936) 55 CLR 499. The third question concerned the merits of the contention that the Commissioner had no power under the TAA to make the Assessment, whether in whole, or at least to the extent that it was an assessment for the financial years ending 30 June 2010 and 30 June 2011, being periods to which the 2011 PTA did not apply.
Consideration
Section 134 of the TAA gives evidentiary effect to s 16. It provides:
Validity of assessment
The validity of an assessment is not affected only because a provision of a tax law has not been complied with.
21. This provision is cast in terms that are materially equivalent to s 175 of the Income Tax Assessment Act 1936 (Cth) (the ITAA Cth). In FederalCommissioner of Taxation v Futuris Corporation Ltd [2008] HCA 32; 237 CLR 146, the majority (Gummow, Hayne, Heydon and Crennan JJ) identified (at [25]) the “limits beyond which s 175 does not reach”. The section, their Honours said, operates “only where there has been what answers the statutory description of an ‘assessment’” (at [25]) and so does not affect an assessment that is tentative or provisional. Their Honours continued:
Further, conscious maladministration of the assessment process may be said also not to produce an ‘assessment’ to which s 175 applies.
22. The appellants submitted that the Assessment falls within this principle such that s 16 of the TAA did not operate to protect it from review by way of a collateral challenge in the proceedings before the primary judge. The asserted foundation for the allegation of conscious maladministration was that the 2011 PTA did not apply in respect of the 2010 and 2011 financial years and that the Commissioner should be “taken to know the law” in that regard.
23. The argument that the process for making the Assessment was affected by conscious maladministration was not established on the evidence before the primary judge. The appellants neither pleaded nor particularised that the Commissioner or his delegates undertook any assessment by reference to facts or circumstance they knew to be untrue. The appellants (as plaintiffs) neither cross-examined, nor sought to cross-examine, the Commissioner or his delegate as to the decision-making process. Moreover, the appellants cannot succeed on an allegation of conscious maladministration or lack of bona fides by reference to abstract notions of what the Commissioner might be “taken to know”. As the majority said in Futuris (at [60]):
Allegations that statutory powers have been exercised corruptly or with deliberate disregard to the scope of those powers are not lightly to be made or upheld. Remarks by Hill, Dowsett and Hely JJ in Kordan Pty Ltd v Federal Commissioner of Taxation are in point. Their Honours said:
‘The allegation that the Commissioner, or those exercising his powers by delegation, acted other than in good faith in assessing a taxpayer to income tax is a serious allegation and not one lightly to be made. It is, thus, not particularly surprising that applications directed at setting aside assessments on the basis of absence of good faith have generally been unsuccessful. Indeed one would hope that this was and would continue to be the case. As Hill J said in San Remo Macaroni Co Pty Ltd v Federal Commissioner of Taxation it would be a rare case where a taxpayer will succeed in showing that an assessment has in the relevant sense been made in bad faith and should for that reason be set aside.’
(footnotes omitted)
24. In Denlay v Federal Commissioner of Taxation [2011] FCAFC 63; 193 FCR 412, the Full Court of the Federal Court, having referred to the above passage in Futuris, said:
76Those observations highlight that their Honours were concerned, in their reference to conscious maladministration, with bad faith in the exercise of the decision-making power under challenge and the need for proof of an allegation of bad faith against the Commissioner or his officers. Their Honours were concerned with actual bad faith, not with some form of ‘constructive’ bad faith established by unwitting involvement in an offence.
77The passages from the decision of the majority in Futuris set out above are concerned with the state of mind of the officers of the Commissioner involved in the making of the assessment. They emphasise the importance of fidelity on the part of those officers to the purposes of the legislation. If Mr Kieber had merely told the Commissioner’s officers of the contents of the documents he had taken from LGT, or had brought the documents into Australia himself and handed them over to the Commissioner’s officers here, the taxpayers would have no argument. It is difficult to discern a rational basis for distinguishing these hypothetical examples from the present case in terms of the vice of ‘conscious maladministration’ which is apt to vitiate an assessment.
78The observations of the majority in Futuris do not support the proposition that any breach of the law by officers of the Commissioner in the course of processes anterior to, or even in the course of, making an assessment, suffices to establish conscious maladministration which is apt to vitiate the assessment. Conscious maladministration, as explained in Futuris, involves actual bad faith on the part of the Commissioner or his officers. The findings of the primary judge to which we have referred at [49] and [50] of these reasons negative bad faith on the part of the Commissioner’s officers.
25. The appellants then submitted that the legal error said to affect the Assessment was such that the Commissioner had acted outside of the powers conferred by the TAA and so “stepped outside his jurisdiction”. The decision underlying the Assessment was, the appellants submitted, affected by jurisdictional error and so invalid and of no legal effect: Kirk v Industrial Court (NSW) [2010] HCA 1; 239 CLR 531.
26. In Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; 194 CLR 355, McHugh, Gummow Kirby and JJ said (at [91]):
An act done in breach of a condition regulating the exercise of a statutory power is not necessarily invalid and of no effect. Whether it is depends upon whether there can be discerned a legislative purpose to invalidate any act that fails to comply with the condition. The existence of the purpose is ascertained by reference to the language of the statute, its subject matter and objects, and the consequences for the parties in holding void every act done in breach of the condition. …
27. Section s 16 of the TAA evinces an intention that an act done in breach of a tax law is not vitiated by that circumstance alone. It is to be construed subject to the exceptional circumstances identified in Futuris and Denlay, namely an interim assessment and an assessment affected by conscious administration neither of which were fulfilled in this case. The effect of s 16 of the TAA is otherwise to preserve the validity of decisions made in violation of its terms or the terms of another tax law (including the 2011 PTA and, for that matter, the 1987 PTA).
28. For the Commissioner it was submitted that the appellants were wrong in their assertion that the Assessments were not authorised by the TAA in respect of the two financial years in question. The Commissioner’s case turns upon the construction of transitional provisions affecting the repeal of the 1987 PTA and the enactment of the 2011 PTA, and their interrelation with the provisions of the TAA: see Legislation Act 2001 (ACT), s 84.
29. In our view, the proper disposition of this appeal does not require resolution of the questions of construction raised in the Commissioner’s submissions nor does it require consideration to be given to the outer limits of s 16 of the TAA. The critical issue to be determined is whether the primary judge committed jurisdictional error by declining to entertain the appellant’s argument as to invalidity.
30. For the reasons that follow, we have concluded that this appeal should not be allowed, even if the primary judge erred in concluding that s 134 in conjunction with s 16 of the TAA precluded a collateral challenge to the validity of the Assessment. In short, it has not been shown that the primary judge erred in declining, as a matter of discretion, to review the Assessment for error of the kind alleged, nor have the appellants shown that there is a proper basis for this Court to exercise its own discretion to review the Assessment for invalidity in the exercise of its dispositive powers on the appeal.
31. The appellants submit that the discretion of the primary judge miscarried because of a failure to recognise that:
· the Tribunal had no jurisdiction to declare the Assessment invalid,
· the directors in receipt of directors’ compliance notices had no standing to invoke the Tribunal’s jurisdiction to review the Assessment; and
· the assessed liability for payroll tax would remain enforceable notwithstanding the pending appeal before the Tribunal.
32. The primary judge did not conclude that the Tribunal had jurisdiction to make a binding declaration to the effect that an administrative decision is invalid. Rather, the primary judge determined that there existed an alternative statutory procedure by which the existence and extent of the Group’s payroll tax liability may be contested. That procedure is established by Pt 10 of the TAA, titled “Objections and reviews”. In their application to the present case, the provisions of Pt 10 provided for any one of the taxpayers within the Group to lodge a written objection with the Commissioner if dissatisfied with an assessment: s 100(1)(a). When an objection is lodged, the Commissioner must consider it, and either disallow it or allow it, in whole or in part: s 104. A determination by the Commissioner of an objection is a “reviewable decision” for the purposes of Div 10.2 of Pt 10 of the TAA: s 107A. Section 108A provides that a taxpayer in relation to whom a reviewable decision is made may apply to the Tribunal for review of the decision. There can be no doubt that the decision in the nature of an assessment of a tax liability may be reviewed by the Tribunal for error of the very kind alleged before the primary judge, namely, that the Group’s payroll tax liability is not to be assessed under the 2011 PTA. It would also be available to argue (rightly or wrongly) that the 1987 PTA no longer applied such that there was no power under the TAA to make an assessment of the Group’s liability for the 2010 and 2011 financial years. In the event of a decision favourable to the taxpayer (and absent any further appeal), the Commissioner would be obliged to take action necessary to give effect to the Tribunal’s decision: s 109. In the event that the Tribunal did not accept the taxpayers’ arguments, the taxpayers would enjoy a right of appeal to the Supreme Court from the Tribunal’s decision.
33. That state of affairs formed a sufficient foundation for the exercise of the discretion to refuse to entertain any collateral challenge to the Assessment in the context of the ADJR Act proceedings, irrespective of whether the Assessment was indeed invalid.
34. The point is best illustrated by a brief examination of the procedural history in the case of Futuris. The taxpayer in that case commenced on appeal to the Federal Court against the disallowance of its objection to an assessment said to be the product of deliberate double counting. A right of appeal was provided for by Pt IVC of the Taxation Administration Act 1953 (Cth). The same taxpayer commenced an application for judicial review in the Federal Court invoking s 39B of the Judiciary Act 1903 (Cth) seeking orders quashing the assessment on the basis that it was affected by conscious maladministration. Justice Finn held that relief under s 39B of the Judiciary Act should be withheld as a matter of discretion, there being another remedy provided for by Pt IVC. On appeal, the Full Court of the Federal Court identified jurisdictional error affecting the assessment and so granted declaratory relief.
35. The High Court set aside the Full Court’s orders. The majority concluded that any errors affecting the assessment in that case “occurred within, not beyond, the exercise of the powers of assessment given by the [statute] … and would be for consideration in the Pt IVC proceedings” (at [45]). The Court said:
47… principles of jurisdictional error control the constitutional writs but do not attend the remedy of injunction including that provided in s 75(v) (and thus in s 39B of the Judiciary Act). The same is true of the other equitable remedy, the declaratory order. Nevertheless, the equitable remedies, which are available at the suit of a party with a sufficient interest, operate to declare invalidity and to restrain the implementation of invalid exercises of power. Where s 175 of the Act operates there will be no affectation of the validity of any assessment.
48In the present litigation, in addition to an order quashing the second amended assessment, Futuris sought (and obtained in the Full Court) a declaration of its invalidity. Section 21 of the Federal Court of Australia Act 1976 (Cth) empowered the Federal Court to make a declaratory order but only ‘in relation to a matter in which it has original jurisdiction’, here that conferred by s 39B of the Judiciary Act with respect to the constitutional writs. Hence the need to underpin the relief by a finding of jurisdictional error. But, independently of that consideration, and as Gaudron J explained in Enfield City Corporation v Development Assessment Commission, the usual discretionary considerations attending the grant of equitable remedies apply to injunctions and declarations in public law cases. In the present case, it should be emphasised that the pendency of a proceeding by Futuris under Pt IVC should have led the Full Court to refuse declaratory relief in any event.
(footnotes omitted, emphasis added)
36. Here, the availability (and fact of) proceedings before the Tribunal properly led the primary judge to refuse discretionary relief in respect of the validity of the Assessment. The circumstance that the Assessment remained enforceable notwithstanding the pending appeal was not to the point. The discretion did not miscarry.
37. As to the complaint that the primary judge failed to consider the lack of standing of the recipients of directors’ compliance notices to lodge an objection or commence an appeal proceeding in the Tribunal, the reasons of the primary judge suggest that no express consideration was given to the question. However, if there be appealable error constituted of a failure to consider any such argument raised in the proceedings below, this Court would not grant relief on the appeal on that basis.
38. When the appeal in relation to the directors’ compliance notices was first commenced there were six named appellants. The third, fifth and sixth appellants have since discontinued their appeals. The first appellant, Mr Philip Arcidiacono died after the appeal was commenced and before the hearing. The second appellant, Ms Sue Price, is Mr Arcidiacono’s widow. There is evidence before this Court that Ms Price has recently caused taxpayers in the Group to abandon the proceedings before the Tribunal. It is plain that Ms Price was, in her capacity as director, able to cause a tax paying entity within the Group to raise before the Tribunal arguments to the same effect raised before the primary judge (namely that the Assessment was not authorised by the TAA) and so contest the Groups’ liability to payroll tax. In the proceedings before the Tribunal, s 134 of the TAA would have no application in accordance with its terms. Success before the Tribunal would have rendered the directors’ compliance notice served upon Ms Price unenforceable because, as has already been observed, the Commissioner would be obliged to take steps to put any final decision of the Tribunal into effect, including by amending any assessment affected by the Tribunal’s decision. For practical purposes Ms Price’s rights and liabilities as a recipient of a compliance notice would accordingly be determined in the outcome.
39. The appellants cannot otherwise show appealable error on the part of the primary judge by demonstrating that the Assessment is affected by jurisdictional error and so is invalid. That is the very question the primary judge declined to answer, as a matter of discretion. As has been observed from the outset, that determination was made independently of any earlier conclusion as to whether s 134 of the TAA shielded the Assessment from review in a forensic sense. The reasons of the primary judge disclose an acute awareness that the Assessment remained enforceable notwithstanding the taxpayers’ invocation of the objection and appeal procedures under Pt 10 of the TAA.
40. If, contrary to these findings, there is appealable error affecting this or any other aspect of the decision of the primary judge, this Court would, as a matter of its own discretion, decline to grant the declaratory relief sought.
41. The Tribunal clearly had the power to review an assessment that was not authorised by the TAA or that was otherwise legally ineffective: Collector of Customs (NSW) v Brian Lawlor Automotive Pty Ltd (1979) 2 ALD 1 (Bowen CJ at 6-7). It is not to the point that any conclusion by the Tribunal as to the validity or invalidity of an assessment is not legally binding (as to which see Kennedy v Administrative Appeals Tribunal [2008] FCAFC 124; 168 FCR 566). To the extent that the subject matter of the proceedings before the primary judge concerned the Group’s liability to payroll tax, the same subject matter was contestable in proceedings before the Tribunal and then upon any subsequent appeal. There existed, as the primary judge correctly held, an alternative and adequate procedure to resolve the controversy concerning the garnishee and compliance notices.
42. The taxpayers’ abandonment of the Tribunal proceedings does not move this Court to arrive at any different conclusion.
The garnishee notices
43. The ground in [5(a)] of each notice of appeal is expressed as follows:
(a)At paragraph [61] of the primary judgment, the primary judge erred by failing to find that the exercise of power to issue the garnishee notices was so unreasonable that no reasonable person could have so exercised the power and instead finding that it was not unreasonable having regard to the object, scope and purpose of the Act, in circumstances where, to the knowledge of the Commissioner, the notices garnisheed 100% of the appellant’s gross income, garnisheed an amount far exceeding their historical income and the manner of the garnisheeing of the appellant’s debtors would force the appellants into insolvent trading and, in the case of the first and third appellants, seized the entirety of their gross income and did not allow for the payment of operating expenses.
Principles
This ground of appeal asserts a failure by the primary judge to set aside the decisions to issue the garnishee notices on the ground specified in s 5(1)(e) (“improper exercise of a power”) and s 5(2)(g) of the ADJR Act. The latter provision provides:
(2)The reference in subsection (1)(e) to an improper exercise of a power includes a reference to—
…
(g)an exercise of a power that is so unreasonable that no reasonable person could have so exercised the power; …
45. This provision is expressed in identical terms to s 5(2)(g) of the Administrative Decisions (Judicial Review) Act 1977 (Cth). The words of the provision appear to reflect the test for so-called Wednesbury unreasonableness espoused by Lord Greene MR in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223. Subsequent to the enactment of s 5(2)(g) of the ADJR Act, the content of the standard for legal unreasonableness at common law has been explained in cases such as Minister for Immigration and Citizenship v Li [2013] HCA 18; 249 CLR 332 and Minister for Immigration and Border Protection v Stretton [2016] FCAFC 11; 237 FCR 1. Whether the ground of review expressed in s 5(1)(e) and s 5(2)(g) of the ADJR Act is narrower in its scope than the concept explained in the more recent cases is open to question. As Hayne, Kiefel and Bell JJ said in Li (at [68]):
Lord Greene MR’s oft-quoted formulation of unreasonableness in Wednesbury has been criticised for ‘circularity and vagueness’, as have subsequent attempts to clarify it. However, as has been noted, Wednesbury is not the starting point for the standard of reasonableness, nor should it be considered the end point. The legal standard of unreasonableness should not be considered as limited to what is in effect an irrational, if not bizarre, decision – which is to say one that is so unreasonable that no reasonable person could have arrived at it – nor should Lord Greene MR be taken to have limited unreasonableness in this way in his judgment in Wednesbury. This aspect of his Lordship’s judgment may more sensibly be taken to recognise that an inference of unreasonableness may in some cases be objectively drawn even where a particular error in reasoning cannot be identified. …
(footnotes omitted)
46. To similar effect, Gageler J said:
105… Review by a court of the reasonableness of a decision made by another repository of power ‘is concerned mostly with the existence of justification, transparency and intelligibility within the decision-making process’ but also with ‘whether the decision falls within a range of possible, acceptable outcomes which are defensible in respect of the facts and law’.
106The label ‘Wednesbury unreasonableness’ indicates ‘the special standard of unreasonableness which has become the criterion for judicial review of administrative discretion’. Expression of the Wednesbury unreasonableness standard in terms of an action or decision that no reasonable repository of power could have taken ‘attempts, albeit imperfectly, to convey the point that judges should not lightly interfere with official decisions on this ground’.
(footnotes omitted)
47. In Stretton, Allsop CJ said (at [2]):
The proper elucidation and explanation of the concepts of jurisdictional error and legal unreasonableness does not depend on definitional formulae or on one verbal description rather than another. Both concepts concern the lawful exercise of power. For that reason alone, any attempt to be comprehensive or exhaustive in defining when a decision will be sufficiently defective as to be legally unreasonable and display jurisdictional error is likely to be productive of complexity and confusion. One aspect of any such attempt can be seen in the over-categorisation of more general concepts and over-emphasis on the particular language of judicial expression of principle. Thus, it is unhelpful to approach the task by seeking to draw categorised differences between words and phrases such as arbitrary, capricious, illogical, irrational, unjust, and lacking evident or intelligent justification, as if each contained a definable body of meaning separate from the other.
48. What is clear is that there is a distinction between the concept of “legal unreasonableness” as explained in the cases, and “unreasonableness” as the word is understood in its ordinary usage. It is that distinction which marks the boundary between permissible and impermissible interference with administrative action by a court vested with powers on judicial review. The concept of legal unreasonableness does not provide an opportunity for a court on judicial review to interfere on the merits so as to remake an administrative decision according to its own view as to what is “reasonable” (in the ordinary sense) and what is not: Stretton at [8]. To conclude that a decision is affected by legal unreasonableness is to conclude that the decision-maker has failed to observe an inviolable restraint on the exercise of power. In the case of a statutory power, an implied restraint arises because Parliament is to be taken to intend that the power be exercised reasonably, having particular regard to the terms, purpose and object of the statute: Minister for Immigration and Border Protection v SZVFW [2018] HCA 30 at [59] (Gageler J) and [135] (Edelman J); Stretton at [9] - [11].
49. The primary judge discussed and applied the concept of legal unreasonableness as explained by the High Court in Li: [44] – [45]. That approach would appear to be correct, either because the examples of an improper exercise of power given in s 5(2) of the ADJR Act are not exhaustive, or because the particular instance of unreasonabless given in s 5(2)(g) is to be interpreted in accordance with developed common law principles of legal unreasonableness as they are now to be understood and applied. Strictly speaking, it is unnecessary to determine the outer limits of the ground of review prescribed in s 5(1)(e) and s 5(2)(g) of the ADJR Act. If there be a difference between the statutory test for unreasonableness and the common law test as explain in Li, the outcome of this appeal does not turn it.
Reasons of the primary judge
50. The reasons of the primary judge reflect the circumstance that the appellants framed their application for review on a number of grounds. Among other things, the appellants alleged that the likely ruinous financial impact on the Group was a mandatory relevant consideration (in the sense explained by Mason J in Minister for Aboriginal Affairs v Peko-WallsendLtd (1989) 162 CLR 24 at 39). The primary judge dealt with that ground of review and the unreasonableness ground of review together, concluding first that the likely financial impact was not a mandatory consideration in the exercise of the power conferred by s 54 of the TAA. The judge then turned to extract and consider the following passage from the judgment in Edelsten v Wilcox [1988] FCA 294; 83 ALR 99 in which Burchett J, expressed views contrary to her own in relation to the Commonwealth tax administration regime and its application to an individual taxpayer (at [53]):
…It is clear from the Act, the authorities, and the policy guidelines which the Commissioner himself has issued, that the collection of tax in cases where appeal procedures have been properly invoked and genuine questions are outstanding is, in general, the subject of discretions, which must take account of that situation, and of the effect upon the individual taxpayer of the contemplated recovery. The legislature cannot have intended that s.218 should confer a more despotic power, not subject to the same discretionary considerations. …
An extraordinary power has been conferred on the Commissioner, and it must carry with it a special obligation. He is not given this power so that he may bring to the collection of the Commonwealth’s revenues the rapacity of a Verres who takes what he can, but because wide discretions, fairly exercised, have been found necessary. There must be advertence to the quality of fairness, which is applicable to the analogous procedure for the attachment of debts by garnishee order. …
Section 218 was not intended to become an instrument of oppression, to be utilised for a collateral purpose of extorting money from other sources, such as friends or relatives, by making it impossible for the taxpayer to continue to earn his living by the ordinary conduct of his business or profession. Nor was such a facility for the collection of tax intended as a means for the infliction of punishment upon a taxpayer who in the past had adopted, or was presently persisting in, legal and permissible means for the limitation of his liability to tax. If the means employed exceed what is truly permissible, well known provisions of the Act may be attracted, but that does not entail the consequence that sec. 218 may be employed, not to collect tax from the source which attracts its operation, but to penalise the taxpayer’s conduct, or to abolish his business.
Nor, as I have already pointed out, can the power properly be used to obtain payment, not of the tax payable by the taxpayer in question, but of tax payable by other persons. …
(emphasis of the primary judge)
51. The primary judge declined to follow the judgment in Edelsten, including for the reason that subsequent authorities (discussed below) properly represented the state of the law, then concluded:
60.I therefore find that considerations that payment under the garnishee notices would cause financial hardship, would wholly abolish the plaintiffs’ businesses, or would force them into insolvent trading, are not matters the decision-maker was bound to take into account under the Act. The statute may operate harshly, but that is the outcome the legislature has seen fit to enact and it is the principle I must apply to this case.
61.For this reason, the failure to consider those matters was not a legal error. Nor was the garnishing of 100% of the plaintiffs’ income unreasonable, having regard to the object, scope and purpose of the Act, being to collect tax and to prioritise the revenue.
52. There is no appeal from that part of the judgment in which her Honour rejected the contention that the asserted financial impacts of the garnishee notices were a mandatory relevant consideration that the Commissioner had failed to take into account. That is hardly surprising, given that the Commissioner made express reference in his decision record to the likely financial impact, including the prospects of liquidation of corporate entities within the Group as a consequence of the decision to issue garnishee notices to all of the Group’s known creditors.
53. The ground of appeal before this Court impugns only that part of the reasoning in which her Honour concluded that the decisions were not legally unreasonable.
Consideration
54. The asserted ruinous impact asserted by the taxpayers in this case is said to result from the Commissioner’s decision to issue garnishee notices to all of the Group’s “known creditors”. For the Commissioner it was submitted that the financial affairs of the Group remained opaque such that Commissioner could not know the sources of the Group’s revenue. That is consistent with written reasons given by the Commissioner for various decisions affecting the Group.
55. Nonetheless, the finding of the primary judge that the notices in fact garnished “100% of the plaintiff’s income” was not challenged by the Commissioner on appeal. It is appropriate that this Court proceed on the assumption that the garnishee notices actually had the effect apparently assumed by the primary judge.
56. The purpose of the TAA is to provide for the administration and enforcement of other tax laws: s 4, TAA. Part 7 of the TAA is titled “Collection of tax”. It confers wide discretionary powers on the Commissioner, all of which are directed toward the enforcement of tax liabilities so as to bring in tax revenue. Section 54 provides that the Commissioner may require certain persons instead of the taxpayer to pay tax that is payable but remains unpaid. Among the defined persons are persons to whom any money is due or accruing or may become due to the taxpayer.
57. Section 54(4) provides:
If the money due to the taxpayer is payable in instalments, the commissioner may specify in the notice an amount to be paid by the debtor to the commissioner out of each instalment.
58. The Commissioner submitted that s 54(4) has no application, there being no evidence to make good the appellant’s assertion that the garnishee notices were issued to creditors who paid entities in the Group by way of instalments. That submission should be accepted.
59. It may also be accepted that the Commissioner had the discretion to issue garnishee notices to some creditors but not others, so leaving some revenue available for the continued operation of the Group’s business.
60. It was then submitted that except in the case of money payable by a creditor to a taxpayer in instalments, the Commissioner has no discretion to garnish a sum less than the full amount owing by the creditor to the taxpayer. That submission, too, should be accepted.
61. Even if the latter submission were to be rejected, the appellants could not show that the Commissioner’s decision to garnish all of the appellant’s revenue is affected by legal unreasonableness. For the purposes of what follows, it may be assumed that the Commissioner had the discretion to garnish only part of amounts owing from each creditor, and / or to issue garnishee notices to some but not all of the Group’s creditors and so garnish less than 100% of the Group’s operating revenue.
62. As has been said, the scope of the implied restraint of reasonableness does not permit this Court to substitute its own view as to what is “reasonable”. Specifically, in its application to the power conferred by s 54 of the TAA, the concept of legal unreasonableness does not give licence to a court on judicial review to assess what might or might not be a reasonable financial imposition upon a taxpayer. Nor does it permit the Court to set aside a decision on the basis that the impact of the Commissioner’s decision is extremely harsh or financially ruinous. As has been said, whether or not the decision is legally reasonable is to be discerned from the scope, purpose and object of the TAA.
63. The appellant’s submission proceeded from the premise that the decision to issue the garnishee notices was legally unreasonable because it had the effect of rendering the corporate entities in the Group unable to pay their debts as and when they fell due and so cause them to become insolvent for the purposes of the Corporations Act 2001 (Cth).
64. This submission must be rejected for three reasons.
65. First, the asserted consequence of insolvency has not been shown to necessarily follow from the garnishment of 100% of the Group’s operating revenue. The evidence before the primary judge is to the effect that the true structure and financial affairs of the Group including its realisable assets remain opaque, to the Commissioner.
66. Second, it cannot be overlooked that the Group’s payroll tax liability was itself a significant debt that was immediately due and payable jointly and severally by each member of the Group, whether or not the garnishee notices were issued for its enforcement. Any corporate appellant unable to immediately pay that debt was insolvent irrespective of any decision by the Commissioner to issue the garnishee notices and so was not entitled to participate in the operation of the business in any event.
67. Third, and relatedly, the payroll tax liability was a debt that may permissibly be the subject of a statutory demand, the non-payment of which may result in the winding up of one or more of the taxpayers’ in the Group, notwithstanding that the Assessment was subject to undetermined objection and appeal procedures. In Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857 at 858 – 859, Mason ACJ held that the “charter” of the Deputy Commissioner of Taxation to institute recovery proceedings in respect of a tax liability was to be found in s 201 of the ITAA Cth. It provided that “the fact that an appeal or reference is pending shall not in the meantime interfere with or affect the assessment the subject of the appeal or reference; and income tax may be recovered on the assessment as if no appeal or reference was pending”. Section 201 was to the same effect as s 105 of the TAA now in force in the Australian Capital Territory.
68. Mason CJ continued at 859:
It is a provision which has been stringently criticised. However, it appears to be impervious to criticism for Parliament has not seen fit to amend it.
The policy underlying provisions such as s 201 of the ITAA Cth was considered by the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; 237 CLR 473, an authority to which the primary judge referred. That case concerned the construction and application of the statutory demand regime to disputed tax liabilities assessed under the Taxation Administration Act 1953 (Cth). After referring to Clyne, Gummow A-CJ, Heydon, Crennan and Kiefel JJ said:
44But harsh though the operation of these provisions may be, they implement a long-standing legislative policy to protect the interests of the revenue. In Deputy Commissioner of Taxation v Niblett, Asprey J struck out pleas of non-liability to a recovery action instituted by the Deputy Commissioner in the Supreme Court of New South Wales while objections were pending under what was then s 185 of the Assessment Act. His Honour observed:
‘It may be thought to be a hardship that a taxpayer should have to pay the tax assessed when an objection to the assessment has not been decided upon but there are obvious financial considerations of high policy that must be weighed in the balance against cases of individual hardship with which the Commissioner through the appropriate use of his powers under [the Assessment Act] can cope … Where the meaning of the words of a statute is clear ‘it is not open to the Court to narrow or whittle down the operation of the Act by seeming considerations of hardship or of business convenience or the like’ – Attorney-General v Carlton Bank.”
45Thereafter, Bowen CJ in Eq, when dealing with resistance by the taxpayer to the making of a winding up order, said in Deputy Federal Commissioner of Taxation v Roma Industries Pty Ltd:
‘The next question which arises is whether the amount claimed by the Commissioner should be treated as a disputed claim, and an order be refused on this ground. In one sense, of course, the Commissioner’s claim is disputed, because appeals to the Board of Review have been lodged. However, the provisions of s 201 of [the Assessment Act] require me to treat the debt as in effect undisputed. Such a statutory provision may in some cases lead to hardship on a taxpayer, particularly where he has paid the amount of tax assessed and later wins his appeal, whereupon the money is repaid to him without interest. This led Higgins J in Hickman v Federal Commissioner of Taxation to describe it as ‘unjust and even baneful’, but it remains in the [Assessment Act]. It must be appreciated that from the point of view of the revenue it is a protection against that class of taxpayer who might withhold payment and use the money as the sinews of war to conduct appeals against the Commissioner and who, being finally unsuccessful, was found to be unable to meet his tax liability, having spent his money on the litigation.”
(original emphasis, footnotes omitted)
70. In our view the TAA is to be interpreted and applied so as to give effect to the same policy underlying the Commonwealth tax administration regime as identified in Broadbeach. The provisions in Pt 7 for the collection of tax are not to be interpreted as being subject to considerations of hardship and business convenience. The decision to issue the garnishee notices was not legally unreasonable when assessed against the scope and purpose of the TAA and the known facts.
71. The judgment in Edelsten is explained by the circumstance that a person in respect of whom a sequestration order is made is entitled under the Bankruptcy Act 1966 (Cth) to retain a prescribed amount of income and assets to derive a modest livelihood, even during the period of the person’s bankruptcy. A corporation can have no such expectation. The corporate taxpayer has no entitlement to derive income from trade in circumstances of insolvency particularly where the insolvency arises by virtue of the inability to pay a tax liability when it falls due.
Finally in relation to this ground of appeal, Counsel for the Commissioner pointed to the written reasons for issuing the directors’ compliance notices pursuant to s 56B of the TAA, discussed at [79] – [85] below. The facts found by the Commissioner in connection with that decision are not subject to challenge, nor did the appellants contend that the Court should not have regard to those reasons in determining the present ground of appeal. On the facts known to the Commissioner, the Commissioner was entitled to give the prospect of financial hardship little or no weight and to proceed on the basis that the appellants would continue to avoid their obligations under the tax law.
73. In light of the known facts, it has not been shown that the discretion of the Commissioner was exercised arbitrarily or capriciously. The primary judge was correct to conclude that the decision was made in accordance with the regime established by the TAA and was clearly directed to the achievement of its purpose. There is no appealable error.
The directors’ compliance notices
74. The decision to issue the directors’ compliance notices was made on 16 December 2017. At that time, the taxpayers’ application for judicial review of the decision to issue the garnishee notices (SC 424 of 2017) was on foot. On 14 November 2017, the primary judge made an order to the effect that “the operation of” six of the garnishee notices was “suspended” until the final determination of the application for review of the decisions to issue them. That order had been made on the urgent application of the taxpayer parties under s 16(1)(a) of the ADJR Act: Canberra Cleaners Pty Ltd v Commissioner for ACT Revenue (No 3) [2017] ACTSC 340.
75. Section 56B of the TAA provides:
56B Liability of directors and former directors for amounts of tax
(1) This section applies if a corporation does not pay an assessment amount.
(2)The commissioner may give a written notice about the assessment amount (a compliance notice) to 1 or more of the following:
(a) a director of the corporation;
(b)a person who was a director of the corporation when the corporation first became liable to pay the assessment amount, or any part of the assessment amount, or at any time afterwards (a former director).
Note For how documents may be served, see the Legislation Act, pt 19.5.
(3) The compliance notice must state—
(a) the assessment amount; and
(b)a period (of at least 21 days after the day the notice is given to the director or former director) within which the notice must be complied with; and
(c)that the director or former director will be liable to pay the assessment amount if the amount is not paid, or the assessment is not withdrawn, within the stated period.
(4)If the assessment amount is not paid, or the assessment is not withdrawn, within the period stated in the compliance notice, the director or former director is jointly and severally liable with the corporation to pay the assessment amount.
(5)For this section, an assessment is taken to be withdrawn if—
(a)the commissioner makes an arrangement with the corporation for the payment of the assessment amount; or
(b)an administrator of the corporation is appointed under the Corporations Act, part 5.3A; or
(c)the corporation begins to be wound up within the meaning of the Corporations Act.
(6)A person does not cease to be liable to pay an assessment amount because the person ceases to be a director of the corporation.
(7)A former director of a corporation is not liable for any tax for which the corporation first became liable after the director ceased to be a director of the corporation, other than interest on an assessment amount for which the former director is liable.
76. As can be seen, the effect of the directors’ compliance notices was to present each director with (relevantly) three options. The first option was to pay the assessed amount within the time prescribed in the notice: s 56B(3). The second option was to cause the relevant corporate taxpayer to make an arrangement with the Commissioner for the payment of the assessed amount. The third option was to appoint an administrator to the relevant corporate taxpayer or otherwise cause the taxpayer to be wound up under the Corporations Act.
77. Before the primary judge, the appellants submitted that the decision to issue the directors’ compliance notices was made for an improper purpose, involved a failure to take into account relevant considerations and was otherwise legally unreasonable because it was calculated to frustrate the taxpayers’ application under the ADJR Act in which the Assessment was subject to collateral challenge. All three grounds of review were founded on an assertion that the true purpose of the decision to issue the directors’ compliance notices was to frustrate the taxpayer parties in their attempts to seek relief in relation to the garnishee notices.
78. The primary judge found that the enforcement powers conferred upon the Commissioner were independent alternatives for the collection of tax, such that the Commissioner may attempt to collect tax from the taxpayer, from its directors or, by garnishment from its debtors simultaneously: Canberra Cleaners at [109] – [110]. The judge continued:
111.As to whether the conduct was unreasonable in the circumstances of this case, the fact that there were legal proceedings in train between the same parties but involving different decisions does not of itself make it unreasonable for the Commissioner to pursue different persons for the same debt.
112.There is nothing in the object, scope or purpose of the Act that impliedly limits the Commissioner to pursuing one method of collection at a time when proceedings in relation to another method are on foot. On the contrary, s 105 of the Act allows the Commissioner to pursue recovery regardless of whether the underlying assessment is being challenged.
113.The stay was granted to remedy any prejudice either the plaintiffs or the Directors may have suffered as a result of the timing of the Commissioner’s decisions. That was the appropriate order to take account of the circumstances between these related parties. The Commissioner’s conduct does not sound in any finding that would vitiate the issuing of the compliance notices.
79. Before this Court, the same issues are agitated in [5(c)] of each notice of appeal. It reads:
(c)At paragraph [113] of the primary judgment, the primary judge erred in failing to find that the issue of the director compliance notices immediately after the Court had made orders suspending the operation of the garnishee notices in proceedings SC 424 of 2017, in circumstances where the stay on the operation of the garnishee notices was expressly to preserve the ability of the plaintiffs in proceedings SC 424 of 2017 to pursue judicial review and absent any stay, the purpose and effect of issuing the director compliance notices was to force the Directors to commence winding up the companies, thus subverting the stay obtained in the earlier proceedings, was a decision so unreasonable that no reasonable decision-maker could have made it; and also failing to decide whether the decision maker took into account an irrelevant consideration (namely, subverting the stay obtained in the earlier proceedings); failed to take into account a relevant consideration (namely, the Court’s purpose in granting the stay); or had an improper purpose (namely, subverting the stay obtained in the earlier proceedings).
80. The primary judge did not err in the manner alleged.
81. The Commissioner gave written reasons for issuing the directors’ compliance notices on 16 December 2017. They require careful consideration.
82. The reasons set out the multiple and interrelated factors taken into account by the Commissioner. The reasons state that in attempted negotiations for the payment of the liability, a representative of the directors, Ms Price and Mr Arcidiacono, has stated that there was no money to pay the liability, and that they “would be better off winding up the business and retiring rather than finding a means to pay the liability”. Subsequent to the negotiations and the issuing of the garnishee notices, the Commissioner found:
the Taxpayers withdrew $740,015 (combined total from business, personal and superannuation bank accounts) and deposited the funds to account linked to a company associated with Susan Price’s daughter, Ms Jocelyn Katavic. The account is held by Antalija Developments No 4 Pty Ltd of which Mr Dennis Katavic, Ms Jocelyn Katavic’s husband, is the sole director and shareholder
83. The Commissioner went on to say that he had had regard to the following matters:
· The outstanding tax liabilities are due and payable.
· The Taxpayers have failed to voluntarily pay any money in respect of the outstanding liabilities.
· The payroll tax investigation report dated 26 November 2016 and the determination under section 42 of the Payroll Tax Act that the effect of the Taxpayers’ arrangements was to avoid the imposition, assessment and payment of ACT payroll tax;
· The Notice of Assessment imposed on Phillip Arcidiacono trading as Rose Cleaning Service penalty tax of 90 per cent, the highest level of penalty tax legislatively permitted, due to a lack of cooperation, including hindering and obstructing authorised officers and intentional disregard of tax law;
· The Notice of Assessment issued to Phillip Arcidiacono trading as Rose Cleaning Service noted the Taxpayers operate a business model/organisation structure designed to reduce or avoid the imposition and assessment of payroll tax;
· The Taxpayers had made misleading statements to the Commissioner;
· The objection to the assessment was partially allowed in that the decision maker was satisfied that Pala Management Services Pty Ltd should not be grouped with the Taxpayers as its Director and shareholder was a different Philip Arcidiacono. Although partially allowed in this respect, the objection decision did not alter the quantum of the tax liabilities owed. No application had been made to ACAT to review the objection decision.
· On 10 February 2017, during a meeting to discuss payment of the outstanding liability, the Taxpayers representative advised there was no money to pay the tax liability and that the Taxpayers would be better off winding up the businesses and retiring.
· After being notified of garnishee notices in February, the Taxpayers transferred company funds to a bank account of which some Directors of the Taxpayers are beneficiaries. As far as I’m aware, these funds have not been returned to the Taxpayers.
· Directors of the Taxpayers have admitted in affidavits, that in response to recovery action by the Commissioner, they used a bank account for a self-managed superannuation fund, of which they are beneficiaries, to operate and pay expenses of the various businesses.
· Having read affidavits sworn by some of the Directors and filed in proceedings S424/2017, it appears the companies could be trading while insolvent. I note the following paragraphs of various Directors affidavits: …
84. The Commissioner then referred to multiple occasions in which directors of the taxpayers had sworn or affirmed affidavits bearing on the question of solvency. The list of considerations continues:
· Phillip Arcidiacono signed an affidavit noting the use of alternative bank accounts to subvert garnishee notices issued by the ATO, and ‘get around’ recovery mechanisms for tax liabilities.
· The Taxpayers have retrospectively amended asset holding companies appearing to dilute the potential assets available to the Commissioner to recover the debt.
· There is a high degree of uncertainty as to the accuracy and reliability of the records of the Taxpayers and their financial position (investigation financial statements against de-grouping financial statements and forensic accountants report).
· Ms Price, a Director of some of the Taxpayers, appears to be living a lifestyle of substantial financial means. (Callaghan 6 November 2017 affidavit – for example, expenditure of approximately $12,000 at Cerrone Jewellers, $4,500 and $7,000 at Louis Vuitton).
· Since November 2016, when the first payroll tax assessment was issued, Directors of the Taxpayers, including Ms Price and Mr Arcidiacono, have sold significant assets, including 2 properties valued at approximately $1.7 million.
· Ms Price and Mr Arcidiacono have a property currently on the market for $1.495 million.
· From 30 June 2017 to 7 July 2017, Rose Cleaning Asset Services Pty Ltd transferred $100,000.00 to directors of other Taxpayers, including Ms Price and Mr Olsen who are subject of a Directors Compliance Notice.
· The Commissioner entered into a receiver arrangement with some of the Taxpayers, which ran for approximately 6 months, and resulted in no funds being paid against the outstanding tax liabilities.
· Delays during the proceedings and/or a potential ACAT review pose a real risk to the Commissioner’s ability to collect the revenue from the Taxpayers (particularly given their advice regarding winding up, their actions regarding shareholding/directorships, movement of funds, liquidation of assets, loss revenue, trading losses, potential the Taxpayers are trading while insolvent, dilution and sale of assets of the directors of the Taxpayers).
· The Directors of the Taxpayers have mechanisms to withdraw the notices before they become liable personally liable to [pay] the debt. To discharge the personal liability from the Directors Compliance Notices, the Taxpayers can pay the outstanding liability in full, enter a time payment arrangement or place the Taxpayers into administration/liquidation. Section 56D of the Taxation Administration Act provides that a Director can be indemnified by a corporation if the Director pays the assessed total.
· The Directors Compliance Notice secures other pathways for the Commissioner to recover the outstanding tax liabilities. Ms Katavic has interests in multiple properties and Mr Farmer owns a property.
· There are ongoing proceedings between the Taxpayers and the Commissioner in the ACT Supreme Court, and if the Taxpayers are placed in administration/liquidation, these proceedings could be vacated, and the Taxpayers may not be able to pursue their appeal rights against the assessments.
· The potential for hardship and bankruptcy should the Directors become personally liable to the tax liabilities owing.
· Interest continues to accrue on the outstanding payroll tax and penalty tax.
· If the Taxpayers are successful in any appeal/review proceeding, the Commissioner will refund any monies collected with market interest.
85. The Commissioner’s decision to issue the directors’ compliance notice was expressly stated to have been based on all of the above factors. There is no challenge to this aspect of the Commissioner’s reasons.
Relevant considerations
86. It is not necessary to decide whether the “subversion” of the review proceedings in relation to the garnishee notices was a mandatory relevant consideration. Even if the consideration were to be characterised in that way, the Commissioner gave express consideration to the possibility that the proceeding then on foot before the primary judge may be “vacated” and the possibility that the taxpayers may not be able to pursue their appeal rights against the Assessment if the directors’ compliance notices were issued. That consideration, the Commissioner held, was outweighed by other factors favouring the issue of the notices.
Improper purpose and unreasonableness
87. The contentions based on improper purpose and unreasonableness may be shortly dealt with together. Each was based on a contention that the Commissioner’s true purpose for issuing the directors’ compliance notices was to subvert and frustrate the proceedings then pending before the primary judge.
88. For the sake of argument it may be accepted that the issuing of the directors’ compliance notices did indeed place the directors in the position of choosing to assume liability for the debt or placing the companies into administration so potentially bringing an end to the pending proceedings. However, the mere possibility (or even probability) of that consequence is not determinative of the Commissioner’s motivating purpose. The decision for issuing the directors’ compliance notice was, as we have identified, based on a multiplicity of factors, none of which were foreign to the reach of the statute.
89. The regime established by the TAA expressly permits the enforcement of liabilities that remain the subject of objection and appeal. There is nothing in the TAA preventing the invocation of an enforcement mechanism at a time when judicial proceedings in relation to an alternative enforcement mechanism is on foot. The Commissioner weighed the countervailing considerations, again in a manner which is entirely consistent with the terms and objectives of the TAA.
90. Whether the decision was affected by legal unreasonableness must be assessed in accordance with the principles stated earlier in these reasons. It has not been shown that the decision was motivated by a purpose foreign to the TAA or that the decision was made without a proper evidentiary foundation, or that the reasoning of the Commissioner was otherwise affected by illogicality. The decision to issue the directors’ compliance notice has an evident and intelligible foundation, particularly having regard to the Commissioner’s unchallenged findings concerning the evasive conduct of the taxpayer appellants and those individuals who controlled them, the apparently parlous financial state of the taxpayer and the properly identified risk that assets would be wrongfully dissipated, so putting them out of the Commissioner’s reach.
ORDERS
91. For the reasons given, both appeals must be dismissed. Costs should follow the event.
92. In the event that the appeal in relation to the directors' compliance notices was dismissed, the appellants sought an extension of the interlocutory orders made by the primary judge that stayed the operation of the notices pending determination of the appeal proceedings. That extension was sought to permit the appellants a further opportunity to take the steps contemplated by s 56B(5) of the TAA. In the absence of such an order, the interim orders made by the primary judge would terminate upon the dismissal of the appeal. The possibility of a further extension of the interlocutory orders was only raised at the conclusion of the argument on the appeal. The legal basis for, and consequences of, the extension of the interlocutory orders was not established. No proper evidentiary basis was laid for the further extension of the orders.
93. It is not appropriate to make any orders which would extend the time for compliance with the notices. Assuming without deciding that there was power to do so, whilst it might have been appropriate to make interim orders to protect the directors' position pending determination of the validity of the notices, having regard to the Commissioner's findings that formed the basis for the issue of the notices and the dismissal of the appeal, it is not appropriate to further extend the interim orders in a manner that would permit the taking of steps to avoid the imposition of the liability.
94. In ACTCA 41 of 2018, the Court makes the following order:
1. The appeal is dismissed with costs.
95. In ACTCA 42 of 2018, the Court makes the following order:
1. The appeal is dismissed with costs.
| I certify that the preceding ninety-five [95] numbered paragraphs are a true copy of the Reasons for Judgment of the Court. Associate: Date: 21 December 2018 |
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