Deputy Commissioner for Taxation v Berry [2018] WADC 37
[2018] WADC 37
•14 MARCH 2018
DEPUTY COMMISSIONER FOR TAXATION -v- BERRY [2017] WADC 37 [2018] WADC 37
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2018] WADC 37 | |
| Case No: | CIV:1304/2017 | 22 FEBRUARY 2018 | |
| Coram: | DEPUTY REGISTRAR KUBACZ | 14/03/18 | |
| PERTH | |||
| 13 | Judgment Part: | 1 of 1 | |
| Result: | Leave to bring application out of time granted Summary judgment granted | ||
| PDF Version |
| Parties: | DEPUTY COMMISSIONER FOR TAXATION WAYNE KENNETH BERRY LISA RACHELLE BERRY |
Catchwords: | Practice and procedure Summary judgment Directors duties to withhold PAYG amounts Turns on its own facts |
Legislation: | Rules of the Supreme Court 1971 (WA) Taxation Administration Act 1953 (Cth) |
Case References: | Ansearch Ltd v Wavtech Pty Ltd [2006] WASC 184 Canty v Deputy Commissioner of Taxation [2005] NSWCA 84; (2005) 63 NSWLR 152 Deputy Commissioner of Taxation v Birt [2015] QDC 179 Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; [2003] NSWCA 91 Deputy Commissioner of Taxation v George [2002] NSWCA 336; (2002) 55 NSWLR 511 Deputy Commissioner of Taxation v Heaton (1997) 35 ATR 450 Deputy Commissioner of Taxation v Holton [2016] VCC 516 Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722 Fancourt v Mercantile Credit Ltd (1983) 154 CLR 87 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Jacka Nominees Pty Ltd (in liq) v Edwards Karwacki Smith & Co Pty Ltd (Unreported, WASC, Library No 920512, 12 October 1992) Miller v Deputy Commissioner of Taxation [1997] NSWCA 205; (1997) 98 ATC 4059 Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109 Roche v Deputy Commissioner of Taxation [2015] WASCA 196 Smith v Town & Country Bank (Unreported, WASC, Library No 970716, 18 December 1997) Westpac Banking Corp v Anderson [2017] WASC 106 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Plaintiff
AND
WAYNE KENNETH BERRY
Defendant
- Plaintiff
AND
LISA RACHELLE BERRY
Defendant
Catchwords:
Practice and procedure - Summary judgment - Directors duties to withhold PAYG amounts - Turns on its own fact
Legislation:
Rules of the Supreme Court 1971 (WA)
Taxation Administration Act 1953 (Cth)
Result:
Leave to bring application out of time granted
Summary judgment granted
Representation:
CIV 1304 of 2017
Counsel:
Plaintiff : Ms T Jonker
Defendant : Mr T J Langdon
Solicitors:
Plaintiff : Deputy Commissioner of Taxation
Defendant : HWL Ebsworth Lawyers
CIV 1299 of 2017
Counsel:
Plaintiff : Ms T Jonker
Defendant : Mr T J Langdon
Solicitors:
Plaintiff : Deputy Commissioner of Taxation
Defendant : HWL Ebsworth Lawyers
Case(s) referred to in judgment(s):
Ansearch Ltd v Wavtech Pty Ltd [2006] WASC 184
Canty v Deputy Commissioner of Taxation [2005] NSWCA 84; (2005) 63 NSWLR 152
Deputy Commissioner of Taxation v Birt [2015] QDC 179
Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; [2003] NSWCA 91
Deputy Commissioner of Taxation v George [2002] NSWCA 336; (2002) 55 NSWLR 511
Deputy Commissioner of Taxation v Heaton (1997) 35 ATR 450
Deputy Commissioner of Taxation v Holton [2016] VCC 516
Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722
Fancourt v Mercantile Credit Ltd (1983) 154 CLR 87
General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
Jacka Nominees Pty Ltd (in liq) v Edwards Karwacki Smith & Co Pty Ltd (Unreported, WASC, Library No 920512, 12 October 1992)
Miller v Deputy Commissioner of Taxation [1997] NSWCA 205; (1997) 98 ATC 4059
Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109
Roche v Deputy Commissioner of Taxation [2015] WASCA 196
Smith v Town & Country Bank (Unreported, WASC, Library No 970716, 18 December 1997)
Westpac Banking Corp v Anderson [2017] WASC 106
1 DEPUTY REGISTRAR KUBACZ: The plaintiff's application for summary judgment pursuant to O 14 of the Rules of the Supreme Court 1971 (WA) (RSC) came before me for hearing on 22 February 2017. There are two separate applications in two separate matters, CIV 1299 of 2017 and CIV 1304 of 2017, which arise out of the same circumstances. The plaintiff in each action are husband and wife and the applications relate to the taxation obligations of their company, Just Concrete Constructions Pty Ltd (JCC), of which both were directors.
2 The plaintiff's applications were supported by affidavits of Mark Simpson affirmed 27 October 2017 and David Scalzi sworn 3 and 16 November 2017.
3 In opposition, an affidavit of Lisa Rachelle Berry was filed in action CIV 1304 of 2017 only. There were no affidavits filed on behalf of the defendant in CIV 1299 of 2017 and no written submissions were filed on behalf of the defendant in either action.
Delay
4 Order 14 r 1 of the RSC provides that a plaintiff to an action may within 21 days after an appearance or at any later time by leave of the court, apply for summary judgment on the grounds that the defendant has no defence to the claim.
5 The defendant in both actions entered appearances on 19 May 2017 and filed defences on 6 June 2017. The plaintiff however did not make its application for summary judgment until 3 November 2017, some six months outside the time limit imposed by the RSC. Given this, the plaintiff now requires the leave of the court in which to bring the application.
6 There are no set guidelines as to when leave to apply for summary judgment outside the time limits will be granted and the burden is upon the applicant to show the delay is justifiable in all the circumstances: Jacka Nominees Pty Ltd (in liq) v Edwards Karwacki Smith & Co Pty Ltd (Unreported, WASC, Library No 920512, 12 October 1992); Smith v Town & Country Bank (Unreported, WASC, Library No 970716, 18 December 1997); Westpac Banking Corp v Anderson [2017] WASC 106 [38].
7 Whilst prejudice to the defendant is a consideration, there must be some particular prejudice resulting from the plaintiff's delay: Deputy Commissioner of Taxation v Heaton(1997) 35 ATR 450, 453.
8 In support of its application for an extension of time the plaintiff relies on the affidavit of David Scalzi sworn on 3 November 2017 where he deposes at par 9 that in the period between 30 June 2017 and 4 October 2017, the plaintiff's records showed that he actively attempted to resolve the matter by engaging in settlement discussions with the solicitors for the defendant.
9 Paragraph 4 of Mr Scalzi's affidavit sworn 16 November 2017 further outlines the attempted discussion that were had with the defendants' solicitors including on 4 October 2017 (par 4(f)).
10 In its submissions the plaintiff states that there has been no prejudice to either defendant and that the delay was due to attempts to resolve the dispute through conferral.
11 The defendants' solicitors, in oral submissions outlined that no attempt was made by the plaintiff to contact the defendants between August 2017 to November 2017 and that during this time the matter became inactive. It was further submitted that the fact that the plaintiff disregarded the court timetabling and rules was a basis for leave not to be granted.
12 There was no affidavit evidence brought by either defendant which sought to prove that there was no communication between August 2017 to November 2017, nor that there was any prejudice to the defendants by reason of the delay. In fact in oral submissions, the defendants' solicitor conceded that there was no prejudice to the defendants by reason of the delay.
13 It is within the court's discretion after considering all of the circumstances of the matter whether and extension of time should be granted: Jacka Nominees Pty Ltd v Edwards Karwacki Smith & Co Pty Ltd. In these circumstances, given the lack of evidence on the part of the defendants and given there appears to be no prejudice to the defendants by reason of the delay, I am of the opinion that leave be granted for the plaintiff to bring the application out of time in each action.
Legal principles
14 The principles upon which an application for summary judgment pursuant to O 14 RSC are well settled. The power to order summary judgment should be exercised with great care, and should not be exercised unless it is clear that there is no real question to be tried. In all cases where there remains uncertainty as to a parties right to judgment, then summary judgment must be refused: Fancourt v Mercantile Credit Ltd (1983) 154 CLR 87; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125; Ansearch Ltd v Wavtech Pty Ltd [2006] WASC 184.
15 The defendant must show by affidavit or otherwise that there is some triable issue either of fact or law, and that he has an arguable defence or a defence on the merits: Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109, 110 - 111.
The application
16 The claim arises from unpaid director penalties under div 269 of sch 1 of the Taxation Administration Act 1953 (Cth) (TAA) arising from unpaid 'pay as you go withholding tax' (PAYGW) amounts owed by JCC to the Commissioner of Taxation (Commissioner).
17 The plaintiff claims that its right of recovery arises from the failure of JCC to meet its obligations to the Commissioner to remit PAYGW for seven periods between 1 February 2012 to 21 September 2012 and through the defendants' directorship of JCC throughout that period.
18 The legislative matrix of the TAA which provides the basis of the claim is complex and is summarised as follows:
1. Division 269 of sch 1 imposes a duty on directors to ensure a company meets its obligations regarding PAYGW or proceed to place the company into administration or liquidation.
2. The failure to comply with this division imposes penalties on directors personally.
3. Divisions 12 and 16 of sch 1 require an entity to withhold an amount from payments made to employees or office holders and to remit those payments to the Commissioner (s 16-70(1) of sch 1).
4. Section 16-150 of sch 1 requires an entity to notify the Commissioner of amounts withheld pursuant to s 16-70(1) of sch 1 on or before the due date.
5. Section 269-15(1) provides that the directors of the company from time to time, after the initial day on which the obligation arises, must cause the company to comply with its obligations under subdivision 16-B to pay amounts withheld to the Commissioner.
6. Section 269-15(2) provides that, if s 269-15(1) is not complied with on or before the due date, the directors of the company from time to time after the due date, continue to be under the obligation, until:
(i) the company complies with its obligation; or
(ii) an administrator is appointed to the company; or
(iii) the company begins to be wound up.
7. If a company fails to remit PAYGW, each director of the company becomes liable to pay to the Commissioner a penalty of an amount equal to the unremitted PAYGW amounts: s 269-20 of sch 1.
8. A director's penalty will be remitted if the director stops being under the relevant obligation under s 269-15 within 21 days of being given notice of the penalty: s 269-30(1).
9. If a company fails to comply with the notification requirement in s 16-150 within three months after the due date, appointing an administrator or winding up the company does not affect the director's penalty: s 269-30(2). The only way for the director's penalty to be remitted in these circumstances is by compliance by the company with its obligation to remit the PAYGW to the Commissioner.
19 The evidence before me is contained in the affidavit of Mark Simpson affirmed 27 October 2017. This is unchallenged by the defendants. The evidence is that JCC was incorporated on 11 September 2006 and the defendants in each matter were directors from the date of incorporation until 24 July 2013 (annexure MS3).
20 In the seven periods from 1 February 2012 to 21 September 2012, JCC failed to remit PAYGW to the Commissioner (pars 7 to 10) and in the fifth period from 1 June 2012 to 30 June 2012, JCC failed to comply with its obligation to report an amount withheld to the Commissioner and failed to remit PAYGW to the Commissioner (par 9 and annexure MS2).
21 As a result of the failure of JCC to pay the PAYGW and pursuant to the legislative matrix, each defendant, as a director of JCC became liable to pay to the Commissioner a penalty of an amount equal to the unremitted amounts.
22 Two penalty notices were issued to each defendant on 28 May 2013 (affidavit of Mark Simpson affirmed 27 October 2017 pars 20 to 27, 28 to 35 and annexures MS4 and MS7).
23 The penalty notices were ignored and 21 days following, the Commissioner was entitled to commence recovery proceedings which he did on 18 June 2013.
24 The plaintiff submits that by reason of s 255-45 of sch 1 to the TAA, an evidentiary certificate is prima facie evidence that the amount is a debt due and payable by the defendant to the Commonwealth of Australia (Commonwealth). The certificate is annexed as MS-8 to the affidavit of Mark Simpson affirmed 27 October 2017 which certifies that as at 27 October 2017, the sum of $148,247.21 was due and payable by each the defendant to the Commonwealth. This is indeed prima facie evidence of the amount owing to the Commonwealth.
25 I am therefore satisfied that the plaintiff has satisfied the requirements of RSC O 14 which gives him the prima facie right to judgment.
Defence
26 As outlined above, the defendants must now show by affidavit or otherwise that there is an arguable defence or a defence on the merits.
27 Pursuant to s 269-35 of the TAA, there are two defences open to the each defendant. First, 'the illness defence'. The second, the 'all reasonable steps' defence.
28 Section 269-35(1) of the TAA provides that a director is not liable for a penalty under the div 269, if because of illness it would have been unreasonable to expect the director to take part, or the director did not take part in the management of the company at the relevant time.
29 Section 269-35(2) of the TAA provides that a director is not liable for a penalty under the division if they took all reasonable steps to ensure that either the director caused the company to comply with its obligations, they caused an administrator to be appointed under the Corporations Act 2001, or caused the company to be begin to be wound up.
CIV 1304 of 2017 – Lisa Rachelle Berry
30 The defendant in CIV 1304 of 2017, filed a defence on 16 June 2017, seeking to rely on both defences under s 269-35. In support of this the defendant filed an affidavit of Lisa Rachelle Berry affirmed 5 February 2018.
31 In relation to the illness defence, Ms Berry deposes that from around October 2011 she suffered from physical and psychological symptoms including severe exhaustion and depression (pars 4 to 6). She further deposes that although she was aware of the financial situation of JCC, because of her health problems she was not able to leave the house or do anything on behalf of the company (pars 7 to 9). Instead she relied on her accountant and tax agent, Ms Debbie King to take care of JCC's tax affairs (par 10). Ms Berry relies on these statements to prove that she has a defence pursuant to s 269-35(1) TAA.
32 There are no medical records or other annexures to the affidavit to confirm or prove Ms Berry's medical diagnosis or extent and nature of her illness.
33 In written submissions, the plaintiff outlined that the relevant period commenced on 1 February 2012, being the commencement of the period for which PAYGW should have, but was not, remitted to 18 June 2013, being the 21st day after service of the penalty notices (Relevant Period).
34 The plaintiff submits that there are three requirements for the defence under s 269-35(1) to be effective:
1. The defendant must not have participated in the management of the company at any time she was under the relevant obligations in s 269-15(1): Deputy Commissioner of Taxation v George [2002] NSWCA 336; (2002) 55 NSWLR 511 [21] - [26]; Deputy Commissioner of Taxation v Birt [2015] QDC 179 [50];
2. The non-participation must have been due to illness (or some other good reason).
3. The illness must have been such that it was unreasonable to expect the defendant to participate in the management of the company during the Relevant Period.
35 In both oral and written submissions, the plaintiff argued that Ms Berry's evidence showed that she did participate in the management of JCC by attempting to discuss the receipt of the penalty notices in May 2013 with Ms King and obtained information that Ms King was not ensuring that JCC complied with its obligations to the Commissioner (affidavit of Lisa Rachelle Berry affirmed on 5 February 2018 at par 11).
36 In oral response, Ms Berry's solicitors submitted that during the relevant period she did not take part in the management of JCC as the penalty notices were issued to her in her personal capacity and not as a director of the company. She was therefore managing her own affairs but not that of the company.
37 I find it difficult to believe the defendant's submission given that she was aware of the financial situation of JCC and she was aware that director penalties were issued to her and Wayne Berry by the Australian Taxation Office in relation to the PAYG withholding amounts for JCC. It is clear from par 10 of Ms Berry's affidavit that Ms King was employed to 'take care of the company's tax affairs', not Ms Berry's personal tax affairs. I therefore accept the submissions of the plaintiff, which are supported by Ms Berry's evidence that she did participate in the management of JCC during the relevant period and therefore the defence pursuant to s 269-35(1) TAA cannot be sustained.
38 Even, if I were to find that Ms Berry did not participate in the management of JCC, I cannot see how she fulfils the remaining two limbs of s 269-35(1) TAA. There is no evidence, apart from a statement from Ms Berry, that the reason for her non participation was due to illness or 'some other good reason' or that the illness was such that it was unreasonable to expect her to participate in the management of JCC during the relevant period.
39 Ms Berry has not provided any medical evidence to show that any non-participation in JCC was due to either exhaustion and/or depression caused by menopause. Whilst I understand that Ms Berry's symptoms may be quite debilitating, without medical evidence to prove she was indeed suffering from an illness during the relevant time, I fail to see how I can possibly find that any non-participate in JCC was due to an illness. Therefore she must fail on this ground.
40 It appears to me that if Ms Berry did not participate in the management of JCC it was due to the fact that she simply relied on Ms King to 'take care of the company's tax affairs' (affidavit of Lisa Rachelle Berry affirmed on 5 February 2018 par 10). The question then is whether this constitutes 'another good reason' for the purposes of s 269-35(1) TAA.
41 It is clear from case law that the law does not absolve a director who merely relies on others to perform his or her responsibilities: Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113; [2003] NSWCA 91; Deputy Commissioner of Taxation v Holton [2016] VCC 516 [50]. Ms Berry's reliance on Ms King does not absolve her from any non-participation and does not constitute 'another good reason' for the purposes of s 269-35(1) TAA.
42 The defendant must also fail on this limb of s 269-35(1) TAA.
43 In respect to the third limb of s 269-35(1) TAA, Ms Berry has produced no evidence to support her proposition that any illness she may have been suffering from was such that it was unreasonable to expect her to participate in the management of the company during the Relevant Period.
44 Given my reasons above, I cannot find Ms Berry has any defence on its merits pursuant to s 269-35(1) TAA and she must fail in this defence.
45 The second defence open to Ms Berry under the TAA is the 'all reasonable steps' defence pursuant to s 269-35(2) of sch 1 which provides that a director is not liable to a penalty if :
(a) they took all reasonable steps to ensure that one of the following happened:
(i) the directors caused the company to comply with its obligation;
(ii) the directors caused an administrator of the company to be appointed under s 436A, s 436B or s 436C of the Corporations Act 2001;
(iii) the directors caused the company to begin to be wound up (within the meaning of that Act); or
(b) there were no reasonable steps you could have taken to ensure that any of those things happened.
46 Section 269-35(3) states that in determining what are reasonable steps for the purposes of s 269-35(2), regard must be had to:
(a) when, and for how long, you were a director and took part in the management of the company; and
(b) all other relevant circumstances.
47 In determining whether a director has taken all reasonable steps, the test is an objective one. The matter is not to be determined by the knowledge of a director who is ignorant of the law or of any fact of which they ought to know. It is not a defence to say that reasonable and competent people were employed and reliance was placed on these reasonable and competent people. A defendant must prove that he or she took all steps which were reasonable, having regard to the circumstances of which the defendant, acting reasonably knew, or ought to have known, to ensure that the directors complied with the relevant section of TAA: Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722.
48 To establish a defence under s 269-35(2), it is necessary for the defendant to deal with each of the alternatives in the section: Roche v Deputy Commissioner of Taxation [2015] WASCA 196 [34] – [35]; Canty v Deputy Commissioner of Taxation [2005] NSWCA 84; (2005) 63 NSWLR 152 [37] - [41] and Miller v Deputy Commissioner of Taxation [1997] NSWCA 205; (1997) 98 ATC 4059 [58].
49 Ms Berry has provided no evidence at all to support the proposition that in the Relevant Period she took any action at all directed at any of the matters set out in s 269-35(2).
50 A director of a company cannot limit liability for the penalty by relying on the advice of other directors or advisors. The law does not absolve a director who merely relies on others from his or her responsibilities: Deputy Commissioner of Taxation v Clark [60].
51 In assessing the evidence relating to the defence, the court should bear in mind that the defendant's conduct must be judged not only by what she actually knew, but what she ought to have known: Canty v Deputy Commissioner of Taxation[57].
52 Ms Berry pleads at par 9 of her defence and deposes at par 10 of her affidavit that she always relied upon Ms King, a tax agent and accountant to take care of JCC's tax affairs. In accordance with the authorities such a reliance does not reach the threshold for the 'reasonable steps' defence. Further, Ms Berry's ignorance as to JCC's failure to comply with its obligations is irrelevant because she ought to have and did know the financial circumstances of JCC.
53 On this basis and on the fact that there is no evidence produced by Ms Berry to this defence, I am of the opinion that Ms Berry fails to meet to requirements of the defence as set out in s 269-35(2) TAA and therefore she must fail in this defence.
CIV 1299 of 2017 – Wayne Kenneth Berry
54 The defendant in CIV 1299 of 2017 seeks to rely on the 'all reasonable steps' defence pursuant to s 269-35(2). He has not filed any affidavit material or submissions in support of his position and no substantial oral submissions were made on his behalf in relation to this defence.
55 In the absence of any evidence before me to show how he has an arguable defence pursuant to the provisions in s 269-35(2), I have little choice but to find that he has no arguable defence.
Conclusion
56 I therefore find that neither defendant in CIV 1304 of 2017 or CIV 1299 of 2017 could raise any arguable defence pursuant to the defences available to them pursuant to s 269-35(1) and s 269-35(2) of the TAA.
57 The plaintiff's application for summary judgment in both matters is therefore successful.
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