Dep Com of Tax v Woodhams

[1999] HCATrans 126

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M2 of 1999

B e t w e e n -

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Applicant

and

BRUCE DRUMMOND WOODHAMS

Respondent

Application for special leave to appeal

McHUGH J
KIRBY J
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 14 MAY 1999, AT 10.15 AM

Copyright in the High Court of Australia

MR G.A.A. NETTLE, QC:   May it please the Court, I appear with my learned friends, MR C.M. MAXWELL, QC and MS M.M. GORDON, for the Commissioner who, in this case, is the applicant.  (instructed by the Australian Government Solicitor)

MR P.G. PRIEST, QC:   If the Court pleases, I appear with my learned friend, MR E.J.H. POWER, for the respondent.  (instructed by Woodhams O’Keefe & Co)

McHUGH J:   Yes, Mr Nettle.

MR NETTLE:   If the Court please.  This is an application for leave to appeal from a decision of the Court of Appeal of Victoria concerning what, at first, might appear to be a fairly arid question of the degree of detail which is required to be given by the Commissioner in a notice which is served under section 222AOE for the purpose of imposing a penalty upon directors for failure to ensure compliance with the requirement of the company to remit amounts of deductions.

McHUGH J:   It does not excite me as a special leave case, Mr Nettle.

MR NETTLE:   Your Honour will forgive for saying I thought that might, at the first, at least, be the case but if your Honour persists for a moment, can I say that there are really two things which may warrant the grant of leave.  The first is the vulgar question of money.  It really does affect a lot in - - -

KIRBY J:   $300 million.

MR NETTLE:   $300 million.  In a sense – perhaps not theoretically but practically, that is irreversible because a notice cannot now be served - - -

McHUGH J:   Yes, we need not hear you any further.

MR NETTLE:   If your Honour pleases.

McHUGH J:   Yes, Mr Priest.

MR PRIEST:   There is no question of law of public importance involved here, if the Court pleases.

KIRBY J:   There is an opaque word “detail” and there is $300 million that turns on it.

MR PRIEST:   That is a rather bald assertion that is made in two lines of the summary of argument by our friends.  They provide no evidence.  They give no particulars of it.  We say about that, your Honours, that since Gruber’s Case, the form of the notice has changed.  Your Honours will not see that in the papers but that is something that I am sure my friends will concede.  They have changed the form of the notice that is used.  More to the point, we fail to see and, we submit, the Court would fail to see why it is, if there is any doubt about the validity of the 40,000 notices, why further notices which are valid cannot now be served.

It might lead to some administrative inconvenience for the Commissioner but that is all and, with respect, there is no material upon which the Court could be satisfied that there is $300 million which will be floating around in the ethereal mist and irrecoverable.

CALLINAN J:   I must say, myself, I think it would be preferable if special leave facts were made the subject of admissible clear evidence and there seems to have been a practice, so far as I can see, that has grown up of assertion from the Bar table.  I think the criteria, if people seek to rely upon them, should be made the subject of an affidavit which can perhaps, if necessary, even be tested.  But, unfortunately, there seems to have been a practice that has grown up of statements being made and their having been accepted,  For my own part, I must say, in view of that practice, which I think is unfortunate, if Mr Nettle gave us an assurance that this was, in fact, the position, on this occasion, I would be minded, for myself, to accept it.  But, for myself, I would like to make it clear that the practice is a bad one and it ought to be changed.

MR PRIEST:   Yes.  Well, we find it an assertion which is almost impossible to deal with because it leaves us in the position of simply challenging it without any material upon which to challenge it.

CALLINAN J:   Well, it does, and I wonder whether the proper approach – and, again, I am speaking only for myself – is for this matter to be made the subject of proper proof.

KIRBY J:   I would align myself with what Justice Callinan said, but it can really not be doubted that turning on this decision would be a lot of notices and the word “detail” has been given a meaning which is pretty strict and the question is, is that what was the intention of the Act and if it is not, then, obviously – leave aside $300 million – it is going to affect a lot of other cases.  That is the matter that is relevant to me; not the money but the number of cases.

MR PRIEST:   If I am reading what the Court is saying correctly, the only thing that presently will attract the Court to the idea that there ought to be a grant of special leave is the mere fact that there is $300 million, so it is asserted, which is outstanding. 

KIRBY J:   It is the fact that it has ramifications for lots of other cases.

MR PRIEST:   Well, it does not, your Honour, in my submission.

KIRBY J:   You say it does not. 

MR PRIEST:   It does not.  At best, what we are dealing with here - - -

KIRBY J:   But the approach to the section is going, obviously, to affect a lot of cases because they are going to take a view that it has to be very, very detailed.  “Detail” means very detailed.

MR PRIEST:   No, it is not, with respect.  It is not going to affect a lot of cases, with respect, because the Commissioner has changed his notice and my friends, I am sure, will concede that that is the case.  At best, we are dealing with a handful of sections which raise no general principle of statutory interpretation, no general principle of tax or revenue law and which are confined, very much, to this particular piece of legislation.  Indeed, the fact that Mr Justice Callaway and the other members of the Court of Appeal were able to distinguish succeeding sections which were similar in terms demonstrates that the particular point sought to be agitated here is really confined only to these half-a-dozen sections.  Because this case raises no question of public importance apart from perhaps the matter of lucre, it is for that reason, in our submission, special leave ought to be refused.

The best case that the applicant can make, in our submission, is not that the decision in Gruber’s Case and in the Court of Appeal below were clearly wrong, at best, it can only be said that there may be some room for argument about it.  That, of itself, in our submission, should be a further reason why the Court ought to refuse special leave.  There is simply, in our submission, insufficient reason to doubt the correctness of the decision in Gruber’s Case.  If the Court pleases.

McHUGH J:   Thank you.  Yes, Mr Nettle.

MR NETTLE:   If the Court pleases.

KIRBY J:   I think the point Justice Callinan raised is a fair point.  If the Commissioner comes along here and just says, “Well, look, there’s

$300 million.”, there is a risk that the Court, without proper evidence and without a real chance to a respondent to challenge it, the cards are stacked.

CALLINAN J:   Why was not an affidavit filed, Mr Nettle, setting out the exact position?

MR NETTLE:   I do not know the answer to that, your Honour.  What I would say in response, if I may, is that given the attitude which has been taken towards it lack, we would ask that there be a grant of leave subject to the filing of an affidavit verifying the fact that because companies, the subject of notices, have gone into liquidation, it is no longer possible to serve notices upon them to recover the amount of the unpaid amounts under section 222AOE.  That is what makes the position irreversible.

KIRBY J:   That would be a number.  It is not everybody’s notice.  It is going to be a number of notices.  But you were stopped.  Speaking for myself, I think you should go back and try to put to one side the amount of tax that turns on this and just concentrate on whether the case is a special leave case, on its own merits.  That is my own view and I think, maybe, the view of the Court.

MR NETTLE:   If your Honour pleases.  The question of principle is one which is not confined to notices under section 222AOE or APE or even under the Income Tax Assessment Act.  The question of principle is what, as a matter of law, is to be regarded as essential in a notice for which legislation provides.  The touchstone from all of the authorities to which we have made reference in the argument is essentiality.  Essentiality really involves three considerations.  First, achieving the statutory purpose of the notice.  The second is providing a notice which does not mislead the recipient.  The third is providing a notice which does not subvert the statutory purpose by giving inadequate opportunity to respond.

Putting aside for the moment the myriad of authorities from which those principles can be drawn and which have been restated time and again, but perhaps most clearly by this Court in Kleinwort Benson v Crowl 165 CLR 71 at 79 to 80. One looks to this legislation and, in particular, to section 222AOE and asks the question, “What is the legislative purpose of the notice for which it provides?” The legislative purpose for the notice for which it provides is suddenly clear. It is to require of directors of a company that have failed to remit deductions either to do one of four things which are provided for in paragraph (b) or, alternatively, to pay a penalty equal to the amount of the unpaid deductions. So, therefore, what is required in order to achieve the statutory purpose consistently with that large body of authority is, first, sufficient and no more information than is essential to convey to the recipient what it is that has given rise to the notice and, in this case, under the terms of the legislation that means amount of unpaid liability – and these notices gave it – and, secondly, to give notice to the recipient as to the options available to him or to her in order to comply with the obligation which the legislation has imposed.

McHUGH J:   Your argument is that the omission of the due date has nothing to do with - - -

MR NETTLE:   Precisely.

KIRBY J:   And provided by the Act.

MR NETTLE:   Clearly.  I mean, if you look at the first page of the application book at the notice and the legislation to see that it is absolutely nothing to do with anything apart from a justification for getting out of a liability.

Now, your Honour Justice Kirby, to take that to the wider plane, if it be accepted that this decision of the Court of Appeal of New South Wales is correct, which the Court of Appeal in Victoria had to follow despite all its reluctance to do so, it means that there is suddenly thrown into the body of jurisprudence about the adequacy of statutory notices an element which is confusing and against the stream of authority which requires no more for essentiality than the satisfaction of those three criteria.  It throws doubt to some extent at least.

McHUGH J:   It may possibly have some consequences in the law of bankruptcy.

MR NETTLE:   And in corporations law especially, and the notices under those sections are myriad.  Suddenly, you have got a new decision here which apparently has the implicit approval of the High Court if the Court refuses the grant of leave.  Albeit that is not the jurisprudence.

McHUGH J:   I think our jurisprudence is you do not read anything into the refusal of a grant of special leave.

MR NETTLE:   De facto ….. in as a reality in the way in which appeal courts approach matters in this country, your Honour, and if the Court does refuse it, then despite the law being the contrary, it forms a platform for argument that something more than what has hitherto been recognised as essential, is now essential.  That is a tendency which should be eschewed if at all possibly.

KIRBY J:   But there is a tendency of the law to support a greater particularisation of charges, of contentions, allegations and so on.

MR NETTLE:   Certainly, but only for the purpose of making absolutely clear that the recipient knows what the matter is about in order that he or she may comply.  What the law is not interested in is loading up notices without officially required additions in order to make the subject difficult and compliance almost impossible, given the extreme degree of regulation which applies in tax, corporation law and bankruptcy.  It is a matter of the first importance to confine it to essential elements. 

McHUGH J:   If leave were granted, would you submit to a condition that you pay the costs of the appeal in any event and do not disturb the costs order in the court below?

MR NETTLE:   Arrangements have been made to meet the costs of the respondent both upon the application and upon appeal in the event that leave be granted.  The answer to your Honour’s question would be, yes, if that be a condition imposed.

McHUGH J:   Yes, thank you.

MR NETTLE:   If the Court pleases.

McHUGH J:   Mr Priest, anything you want to say in reply?

MR PRIEST:   Yes, if I may, your Honours.  The body of jurisprudence, as it has been described, really arises under different statutory regimes.  What my friends have ignored is the fact that it is this particular bundle of sections that needs to be construed, unaffected by decisions that have been given in relation, for example, to bankruptcy law. 

Now, my friend specifically mentioned Kleinwort’s Case.  That is a very good example of a different statutory regime.  In Kleinwort’s Case the Bankruptcy Act was the subject of decision.

McHUGH J:   But Kleinwort itself shows interrelation between various statutes because was not one of the authorities relied in Kleinwort, James v Federal Commissioner of Taxation?

MR PRIEST:   Yes.  But, your Honour, the thing that affected the decision in Kleinwort was section 306 of the Bankruptcy Act which has no equivalent in the Income Tax Assessment Act.

McHUGH J:   I know, but there are various areas of the law where despite difference in the detail of statutory provisions, nevertheless the Court approaches those provisions by reference to general principles…..in terms of limitation statutes and so - - -

MR PRIEST:   Always as against the particular statutory regime in the given case.  In Kleinwort’s Case section 306 of the Bankruptcy Act provided that proceedings under that Act were not invalidated by a formal defect or irregularity unless certain other conditions were also satisfied.  So that very much what was the subject of focus in Kleinwort’s Case was whether or not there was a formal defect or irregularity.

Now, here, there is no equivalent section.  Section 222AOE, in effect, gives the Commissioner his entitlement to recover.  It gives him his entitlement to sue as it were.  So that we would say that section and the section that it picks up, section 222AOC have to be given a very strict interpretation because of the significant effects it may have on directors.  So that when one looks at section 222AOE one sees that:

The Commissioner is not entitled to recover from a person a penalty payable –

unless certain things are done and, in particular, a notice is served that:

sets out details of the unpaid amount of the liability referred to in section 222AOC.

So that AOE picks up AOC and in so doing picks up the requirement of a due date. 

KIRBY J:   But if due date is essential, due date is provided by law and it can be discovered by simply looking up the law.  Why does it have to be specified when all that is required is details of unpaid liability?

MR PRIEST:   Well, we say it needs to be set out, your Honour, because the Act says it has to be set out by necessarily implication.  It is what founds the entitlement to recover and therefore it must be set out in the notice.  It is as simple as that.  If the Court pleases.

CALLINAN J:   Could I just ask you, before you sit down, because I am still concerned about it, what your attitude is to the assertion about the other outstanding notices that might be affected?

MR PRIEST:   Your Honour, perhaps I should say this:  I accept, of course, that my friend makes the submission conscientiously and based on instructions, but we find ourselves in an impossible situation.  We cannot mount any sensible attack upon that submission because we cannot test it.  We just do not know on what basis the assertion is made.  There is no evidence; there are no particulars.

CALLINAN J:   And I suppose you did not know, apart from what you could read in the outline of argument, what the total affect was or the number of notices or anything like - - -

MR PRIEST:   No.

KIRBY J:   Well, speaking for myself, you having raised it and made a telling point about it, I saw the significance of what you said and I just took my mind back to starting afresh and that is why we took the course that we did of calling on Mr Nettle to complete his submissions and I will just put it out of my mind, though keeping in mind that as in virtually every special leave case, the case has ramifications for a number of other cases, both current and in the future.  That is just a general proposition.

MR PRIEST:   Yes.  My red light has come on, your Honours.  I wonder if you would allow me to make - - -

McHUGH J:   I think you can ignore the red light for the moment.

MR PRIEST:   Thank you.  There was only one other suggestion I was going to respectfully make to the Court.  If the Court was troubled by the question of the $300 million and the 40,000 notices and the absence of evidence, rather than grant special leave at this stage, the Court may see some wisdom in adjourning the proceeding until an affidavit is provided.

KIRBY J:   But the logic of that is that that is the critical consideration, whereas if it has been put out of mind, except to the extent that the case is taken as one with obvious ramifications for some other cases, then it is not going to be a matter for adjourning.  We have either got to grant special leave or refuse it.

MR PRIEST:   Yes, I follow that, your Honour.  If the Court is going to put that out of its mind, then I would repeat what I have said.

KIRBY J:   This is not the first time we have had assertions of this type from the Commissioner of Taxation.  It may be that what Justice Callinan said today should be brought home to the powers that be.

MR PRIEST:   Yes.  If the Court pleases.

McHUGH J:   Yes, there will be a grant of special leave in this matter  upon the Commissioner undertaking to pay the respondent’s costs of the appeal in any event and also not to seek to disturb the cost orders in the court below. 

We would also wish to make it clear that if a party for special leave wishes to rely on facts to show the importance of consequences of the case beyond what is plain from the record, those facts must be proved by affidavit evidence.

Mr Nettle, would you give the undertaking?

MR NETTLE:   I give those undertakings, your Honour.

McHUGH J:   Yes, thank you.  That being so, there will be a grant of special leave in this case.

MR NETTLE:   May it please the Court.

AT 10.40 AM THE MATTER WAS CONCLUDED