Deputy Commissioner of Taxation for the Commonwealth of Australia v Gianoli - [2003] WADC 272

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA -v- GIANOLI & ANOR [2003] WADC 272

CORAM: DEPUTY REGISTRAR HEWITT

HEARD: 24 NOVEMBER 2003

DELIVERED : 8 DECEMBER 2003

FILE NO/S: CIV 1388 of 2003

BETWEEN: DEPUTY COMMISSIONER OF TAXATION FOR THE COMMONWEALTH OF AUSTRALIA
Plaintiff
AND
RAYMOND PETER GIANOLI
First Defendant
RUSSEL GORDON GIANOLI
Second Defendant

Catchwords:

Practice - Western Australia - Application to set aside judgment

Legislation:

Income Tax Assessment Act 1936, ss 222AOC, 222AOE, 222ALA and 222AOJ(3)(a)

Taxation Administration Act 1953, s 8AAZLE

Result:

Judgment set aside

Representation:

Counsel:

Plaintiff:     Mr J O'Donnell
First Defendant             :     Mr K Mony De Kerloy
Second Defendant         :     Mr K Mony De Kerloy

Solicitors:

Plaintiff:     Australian Taxation Office
First Defendant             :     Mony De Kerloy
Second Defendant         :     Mony De Kerloy

Case(s) referred to in judgment(s):

Deputy Commissioner of Taxation v Coco [2003] QSC 119

Case(s) also cited:

Iso Lidodw' Aliphumeleti Pty Ltd (in Liq) v Commissioner of Taxation (2002) 42 ACSR 561
Palmer v Prince [1980] WAR 61
Parker v Transfield Pty Ltd [2000] WASCA 382
RT Company Proprietary Limited v Minister of State for the Interior (1957) 98 CLR 168
Scobie v Deputy Commissioner of Taxation (1995) 59 FCR 177
Sharples v Northern Territory (1988) 91 FLR 11

DEPUTY REGISTRAR HEWITT: In this action the plaintiff entered a judgment in default of defence on the 27 August 2003 and the defendant now applies by chamber summons filed 12 September 2003 to set aside that judgment.
The first argument advanced by the defendants in support of their application is the proposition that the judgment is irregular and therefore may be set aside as of right.
The plaintiff's cause of action is against the defendants as directors of a company for a penalty payable pursuant to s 222AOC of the Income Tax Assessment Act 1936.
It is common ground that the defendants were the directors of a company called Clarabelle Pty Ltd and that company was required to, and failed to, remit certain amounts of GST and PAYG taxation to the plaintiff. Pursuant to s 222AOC the directors may be become liable to pay the amount and pursuant to s 222AOE the plaintiff is required to serve a notice on the directors as a pre-condition to the recovery.
The defendant/applicant's argue that the service of the notice is a formal requirement in the plaintiff's pleading. It is common ground that there has been no pleading as to the giving of the notice as a consequence of which the defendant's argue that the judgment based upon the statement of claim which has been filed is irregular and should be set aside.
In my view that point is not well made and I refer to O 20 r 8(4)of the Rules of the Supreme Court 1971 which is in the following terms:
"A statement that a thing has been done or that an event has occurred, being a thing or a event that doing or occurrence of which, as the case may be, constitutes a condition precedent necessary for a case of party is to be implied in his pleading."
I therefore take the view that the provisions upon which the defendant relies in its submission constitute a condition precedent to the right of the commissioner to bring the action and applying the rule it is not necessary to plead the giving of the notice.
Having disposed of the argument that the judgment is irregular it is now necessary for the applicant/defendants to firstly explain the reason that they did not file a defence within the time required by the rules and secondly to demonstrate that they have a defence on the merits.
The first proposition was not canvassed at all in the argument before me and no point was taken by the respondent in regard to it.
The reason for the delay appears to have been caused by the difficulties encountered by the defendants in locating certain relevant documents and the failure of the plaintiff to give notice of its intention to enter a judgment notwithstanding the fact that solicitors were on the record for the defendants. In the circumstances I regard the explanation on that score to be satisfactory. I now turn to the question of a defence on the merits.
Although it is not established on the evidence exactly when the notices were served on the defendants the notices themselves are in evidence and it clear that they were served shortly after the dates which they bare. A director served with such a notice may avoid liability if within 14 days after the service of the notice:
(a)The liability has been discharged
(b) An agreement relating to the liability is enforce under s 222ALA or
(c)The company is under administration within the meaning of the Corporations Act or
(d)The company has been wound up
Of those four the only one which is relevant for the purposes of this occasion, and that which is relied upon by the defendants, is that an agreement was brought into effect under s 222ALA of the Income Tax Assessment Act 1936. That provision is in the following terms:
"The commissioner may make with a person a written agreement under which the person is to pay specified amounts, on specified days, for the purpose of discharging one or more of the specified liabilities of the person, each of which is:
(a) Liability under a remittance provision; or
(b) A liability to pay an estimate"
The provisions following allow various other elements to be included within such an agreement but the kernel of the agreement must be as I have just described it.
The transaction which is relied upon to create such an agreement is a letter from the company Clarabelle Pty Ltd to the plaintiff dated 30 October 2002 which appears at p 94 of the annexure to the affidavit of Mr D W C Wong sworn on 13 October 2003. The relevant proposal is as follows:
"Therefore I would ask that you put the statutory demand on hold until Mid January 2003. Between now and then we will continue to make weekly payments of not less that $10,000 ensuring the total amount paid in the month is equivalent to the monthly Bas.
This should see no rise in the current debt level and requires an 8 to 10 week delay in the current action you are proposing.
My Proposal in brief:
1.   Lodge each Bas by due date.
2.   Pay our current Bas, September to December, monthly prior to the 28^th of each month.
3.   No increase in debt in that period, September to December.
4.   Put Statutory demand on hold until mid January.
5.   Approach bank with July to December 2002, trading for        refinance to cover outstanding debt."
Your response to the above would be appreciated as soon as possible."
Subsequently various sums of money were remitted by the company to the plaintiff which appeared to correspond with the payments which had been promised.
I am unable to accept that the propositions which are contained in the letter are capable of being an agreement under the provisions of s 222ALA. The letter does no more than give an undertaking to meet current tax obligation and contains nothing that I can see which could be construed as more than a request for further time to allow the company to approach its bank with a better prospect of success and in the meantime a promise to meet ongoing tax obligations. Therefore insofar as the application is based upon those propositions it fails.
The next matter which has been advanced by the defendants arises under s 222AOJ of the Act which provides certain defences to directors in the position of these defendants. It is specifically alleged that there is an arguable case that the defendants have a defence under s 222AOJ(3)(a) which is in the following terms:
"It is also a defence if it is proved that:
(a)The persons took all reasonable steps to ensure that the directors complied with subsection 222AOB(1), 222AOBAA(1) or 222AOBA(1); or
(b)There were no such steps that the person could have taken."
The case of Deputy Commissioner of Taxation v Coco [2003] QSC 119, which is an unreported decision delivered by that Court on the 14 May 2003, is relied upon.
In my view the case has no application to the present circumstances. In that case the Court held that a director who appointed another to conduct the affairs of the company had an arguable defence that he had taken all reasonable steps to ensure compliance with the Act. In the present case the reason the tax was not remitted to the plaintiff had nothing to do with any steps or otherwise which were taken by the defendants. The company was in financial difficulty and the money was simply not available to pay the tax debt. There is no suggestion that the failure to comply with the Act was due to any decision or otherwise by the directors which the present defendants were powerless to influence.
The final matter of defence upon which these defendants rely in support of their application rests with the manner in which the plaintiff has appropriated various sums paid by the company in respect of its taxation debts prior to its liquidation.
It is clear that had the Deputy Commissioner appropriated moneys received against the oldest of the debts then the moneys due to be paid by these defendants under the terms of the notices with which they have been served would have either been extinguished or very significantly reduced. It is also clear the remittances following October 2002 contained a direction that the moneys were to be applied against what was described as past PAYE.
It is said that on behalf of the plaintiff that since the PAYE system had ceased to exist at the date the moneys were received the direction was without substance. On that score in my view it clear what the intention of the direction was, and the wish of the paying party to have the moneys allocated to existing debts rather than satisfaction of new debts is obvious. The question then becomes whether the Deputy Commissioner had the power to appropriate the moneys in the manner in which he chose. I consider that there is no doubt that he did have that power and on that score I rely on the provisions of s 8AAZLE of the Taxation Administration Act 1953 Act which is in the following terms:
"In doing anything under this division, the Commissioner is not required to take account of any instructions of any entity."
None the less the process of appropriation of payments against certain debts to the exclusion of others requires a decision making process by a person vested with appropriate authority. It is not at all clear to me who made the decisions in this case. The various materials which have been produced to me which show the manner in which moneys have been applied are all computer generated printouts which date from about 15 September 2003. It is notable in a letter 7 August 2002 that the plaintiff stated:
"We advise that as the November 2001 Activity Statement was not paid in full by 21 January 2002, the date your December 2001 Business Activity Statement (BAS) was due, these payments were applied to the oldest unpaid tax debts included on your activity statement account.
This is in accordance with the Commissioner's policy on allocations of payment (chapter 7b, ATO Receivables Policy) which you can access from our internet site at >
A copy of what appears to be policy document referred to appears an exhibit to the affidavit of DWC Wong sworn 11 November 2003, but I find that a difficult document to understand in particular in its reference to a running balance account and allocations between that account and various other tax debts.
At the end of the day I am left with the proposition that the manner of appropriation of the payments which were made by the company in respect of outstanding tax debts is an absolutely critically matter to determine whether or not these defendants owe the money which is claimed from by the plaintiff.
It is not clear to me who decided to make the appropriations, which were to be made, what authority that person had to make those decisions, when those decisions were made, and whether those decisions were recorded in any way.
In those circumstances it appears to me that it as a matter of fairness these defendants should have an opportunity to fully inform themselves on these matters to determine if in truth the debt which is notified on the notices which they received from the plaintiff should be regarded as satisfied by the payments made by the company subsequent to the issue and service of the notices.
This is not a matter where these defendants have established a clear-cut defence. What they have succeeded in showing, in my opinion, is there is sufficient doubt attendant upon the plaintiff's right to a judgment to justify setting aside that judgement and allowing the defendants the opportunity to thoroughly investigate the situation by accessing materials which are in the peculiar knowledge and control of the plaintiff.
Accordingly the judgment will be set aside and I shall extend the time within which the defendants may file their defence.
Since I regard all the defences those by the defendants save the one upon which I base this decision as unsustainable I take the view that it would be appropriate for me to make orders limiting the defence which is raised by the defendants to that issue and that issue alone.