Deputy Commissioner of Taxation v Caudle;; Commonwealth of Australia v Caudle
[2017] ACTSC 216
•10 August 2017
SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY
Case Title: | Deputy Commissioner of Taxation v Caudle; Commonwealth of Australia v Caudle & Anor |
Citation: | [2017] ACTSC 216 |
Hearing Date(s): | 17, 18 July 2017 |
DecisionDate: | 10 August 2017 |
Before: | McWilliam AsJ |
Decision: | 1. In proceedings SC 156 of 2016, enter judgment for the plaintiff in the amount of $1,184,082.63 plus interest pursuant to r 1619 of the Court Procedures Rules 2006 (ACT) in the sum of $87,691.81. 2. In proceedings SC 195 of 2016, enter judgment for the plaintiff in the amount of $2,394,959.39 plus interest pursuant to r 1619 of the Court Procedures Rules 2006 (ACT) in the sum of $169,106.10. 3. The first defendant is to pay the plaintiff’s costs of each proceeding as agreed or assessed. 4. The second defendant is to pay the plaintiff’s costs of proceedings SC 195 of 2016 as agreed or assessed insofar as those costs were incurred by the plaintiff in the period prior to 17 July 2017. |
Catchwords: | Income tax (Cth) – Collection – Tax payable by employees collected by employer company – Where company failed to remit deducted tax – Director’s liability for penalties upon failure to comply – Whether penalty notices served – Where company entered into agreement to pay outstanding tax liability – Where director and his wife separately guaranteed company’s debts –Guarantee called upon following company’s default. |
Legislation Cited: | Acts Interpretation Act 1901 (Cth) s 29 Corporations Act 2001 (Cth) ss 436A, 436B, 436C, 1318 Property Law Act 1969 (WA) s 9 Taxation Administration Act 1953 (Cth) ss 8AAZG, 8AAZI, 8AAZLA, 14ZZM, 14ZZR, Schedule 1 sub-div 16-B, Schedule 1 ss 12-35, 255-1, 255-5, 255-45, 255-50, 269-15, 269-20 269-25, 269-35, 269-40, 269-50, 350-10 Court Procedure Rules 2006 (ACT) r 1619, Schedule 2 |
Cases Cited: | Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Commissioner of Taxation v Futuris Corp Ltd [2008] HCA 32; 237 CLR 146 Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; 237 CLR 473 Deputy Commissioner of Taxation v McArdle [2003] QCA 282; [2004] 2 Qd 495 Deputy Commissioner of Taxation v Tannous [2016] NSWSC 1654 Deputy Federal Commissioner of Taxation v Woodhams [2000] HCA 10; 199 CLR 370 Fitzgerald v Masters (1956) 95 CLR 420 Moore v Jack Brabham Holdings Pty Ltd (1986) 7 NSWLR 470 Power v Deputy Commissioner of Taxation [2013] NSWCA 428; 284 FLR 42 Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153 Robertson v Deputy Commissioner of Taxation [2010] NSWCA 58; 239 FLR 29 Ross Forsyth v Deputy Commissioner of Taxation [2004] NSWCA 474; 62 NSWLR 132 Ruby v Marsh (1975) 132 CLR 642 The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 Trustees Executors & Agency Co Ltd v Peters (1960) 102 CLR 537 |
Parties: | Deputy Commissioner of Taxation (Plaintiff SC 156 of 2016) Commonwealth of Australia as represented by the Commissioner of Taxation (Plaintiff SC 195 of 2016) Andrew Donald Caudle (Defendant SC 156 of 2016; first Defendant SC 195 of 2016) Sharon Caudle (Decond Defendant SC 195 of 2016) |
Representation: | Counsel Mr C Peadon (Plaintiff SC 156 of 2016 and SC 195 of 2016) |
| Solicitors McInnes Wilson (Plaintiff SC 156 of 2016 and SC 195 of 2016) Self-represented (Defendant SC 156 of 2016, First Defendant SC 195 of 2016) | |
File Numbers: | SC 156 of 2016; SC 195 of 2016 |
McWilliam AsJ:
Background
1. Before the Court are two proceedings arising out of debts incurred by a company, namely Digital (Digest) Data Design Pty Limited ACN 060 937 171 (Company) that had an administrator appointed on 20 May 2015 and is presently in the process of being wound up.
2. For simplicity, all references to the plaintiff encompass both the Deputy Commissioner of Taxation (the plaintiff in proceedings SC 156 of 2016) and the Commonwealth of Australia, as represented by the Commissioner of Taxation (the plaintiff in proceedings SC 195 of 2016).
3. The defendant in proceedings SC 156 of 2016 (commenced on 21 April 2016), Mr Andrew Caudle (defendant), is a former director of the Company. Those proceedings concern the recovery of penalties from him, following the issue of Director Penalty Notices (DPN)s pursuant to s 269-25 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (Act).
4. By way of broad overview, the judgment amount sought by the plaintiff totals $1,184,494.68 and arises from the issuing of four DPNs to the defendant under a delegation of the Commissioner on 12 July 2013 (DPN 1), 13 November 2013 (DPN 2), 13 January 2014 (DPN 3), and 13 March 2014 (DPN 4), (collectively, the Notices). The amount equates to Pay As You Go (PAYG) withholding liabilities covering a period from 1 July 2012 to 31 January 2014 inclusive.
5. A Defence was filed by the defendant on 10 June 2016 contending that the relief claimed by the plaintiff should be recalculated for various reasons, including over-reporting of income tax withholding amounts, prior payment of amounts in a certain period, incorrect allocation of amounts, prior lodgement of objections in relation to superannuation guarantee and agreements entered into between the Australian Taxation Office (ATO) and the defendant.
6. Proceedings SC 195 of 2016 were commenced on 12 May 2016. The plaintiff seeks remedies associated with the asserted breach of a Deed of Guarantee and Indemnity entered into by the defendant and his wife, Mrs Sharon Caudle (second defendant) on 6 August 2014 (Deed), which formed part of Exhibit 2 in the proceedings.
7. The Defence and Counter Claim filed in those proceedings on 4 August 2016 (Defence) raises various complaints which are dealt with in more detail below. In summary, there appear to be three main causes of complaint:
(a)The circumstances leading to the creation of the Deed, and in particular an audit conducted by the plaintiff.
(b)The uncertainty of certain terms of the Deed.
(c)The implementation of the Deed.
8. As a result of any or all of these matters, the defendant contends the Deed is either void or rendered unenforceable.
9. The two proceedings were heard together with evidence in one proceeding being evidence in the other.
10. Mr Peadon of counsel appeared on behalf of the plaintiff. The defendant appeared on his own behalf. The second defendant did not appear, although the Court file indicates that from 22 September 2016, the second defendant was also acting in person and was thus on notice of the existence of the proceedings insofar as they related to her. At the outset of the proceedings the defendant informed the Court that he lived with his wife, that she was aware of these proceedings, and that she had chosen not to participate. I directed the defendant to confirm overnight that the second defendant knew the proceedings were presently being heard in this Court and further, that she knew notwithstanding her failure to attend, orders could be made in her absence against her interest. The defendant indicated to the Court the following day that although he did not have anything in writing from the second defendant (as had been requested by the Court), he had complied with the substance of this direction.
11. The detail of these reasons is with a view, in particular, to assisting the understanding of an unrepresented defendant and a party who did not attend the hearing.
Evidence
12. The plaintiff relied on the following affidavits (without objection):
(a)Affidavit of Fiona Hill affirmed 25 August 2016;
(b)Affidavit of Deborah Angel sworn 7 September 2016;
(c)Affidavit of Leanne Joy sworn 7 September 2016;
(d)Affidavit of Melita Mitchelson affirmed 8 September 2016;
(e)Affidavit of Glen Saxby affirmed 8 September 2016;
(f)Affidavit of Deborah Quigley sworn 8 September 2016;
(g)Affidavit of Leann Shields sworn 28 September 2016;
(h)Affidavit of Lorrine Christian sworn 6 October 2016;
(i)Affidavit of John Matthew Hill sworn 11 November 2016; and
(j)Affidavits of Venus Lakshman including one affirmed 11 November 2016, one affirmed 12 July 2017 and one affirmed 14 July 2017.
13. Ms Hill is the officer employed in the ATO with the current care and conduct of the matter concerning the issue of the DPNs. Her evidence was directed towards establishing the records held by the ATO and the evidentiary basis for the amounts claimed under the DPNs issued.
14. Ms Lakshman is the officer employed in the ATO with the current care and conduct of the matter concerning the breach of Deed. Her evidence established the amount said to be presently owing under the Deed ($2,532,583.88) and sets out the payments made since the Deed was executed. Her evidence also included Exhibit 3 in these proceedings, being a copy of a statement prepared by the ATO dated 11 November 2016; a document to which the parties extensively referred during the hearing. Such document is described as a Running Balance Account, or an RBA statement (see s 8AAZG of the Act).
15. Ms Angel, Ms Joy, Ms Mitchelson, Mr Saxby and Ms Quigley were all employed in the ATO at times relevant to the issuing of the Notices and depose to matters concerning the chain of service, including printing, affixing the required postage and depositing the Notices in an Australia Post red post box.
16. Ms Shields and Ms Christian were, in 2013, employees of Australia Post and their evidence is also directed towards the question of service, and in particular, establishing that the usual mailroom clearing processes were followed on 12 July 2013 and 13 November 2013 when DPN 1 and DPN 2 were issued.
17. Mr Hill is the solicitor on the record for the plaintiff. Given that certain relief as to possession of the defendant’s residential house was not pressed in these proceedings, the relevance of Mr Hill’s evidence is limited to placing before the Court the Deed giving rise to proceedings SC 195 of 2016 and the demands for payment made by the plaintiff to both the Company and the defendants.
18. The defendant relied on another affidavit of Mr Hill sworn 11 November 2016 and correspondence from the plaintiff’s office dated 19 September 2014 which returned a bank cheque for $125.00 and 13 March 2015, which concerned an audit that had taken place and noted that the activity statements had been revised to correct shortfalls in PAYG withholding amounts reported.
19. In the course of making submissions, the defendant also made a number of statements from the bar table which appeared to be in the nature of primary evidence as to further facts. As I have mentioned, the defendant was self-represented, and it appeared that the facts he provided were not likely to be matters that required proper testing through cross-examination. Therefore, for the purpose of resolving the genuine issues in dispute before me, I have taken the statements of the defendant into account to the extent that they traversed matters outside the factual evidence properly before the Court, but only to the extent of giving context to each of the proceedings.
Proceedings SC 156 of 2016
20. The plaintiff’s case is that the Company failed to meet its obligations to remit withholding tax to the Commissioner of Taxation (Commissioner) over approximately one and a half years.
21. As a director of the Company, the defendant was under an obligation to ensure that the Company paid the withheld tax by specified due dates, and as a result of that not being done, became personally liable to pay those amounts by way of a penalty.
22. Accordingly, the plaintiff claims that such unpaid amounts as stated in the Notices became tax-related liabilities within the meaning of s 255-1 of Schedule 1 to the Act (Schedule 1), and a debt due to the Commonwealth, payable to the Commissioner and recoverable through these proceedings, pursuant to s 255-5 of Schedule 1.
23. The defendant’s case was first that he was not served with three of the Notices, namely DPN 2, DPN 3, and DPN 4. There was no issue that he received DPN 1. While that issue did not appear to be expressly raised in the Defence, the plaintiff led evidence directed to proving service under the Act and accordingly, there was no prejudice to the plaintiff in the Court dealing with the issue.
24. The other issues raised by the defendant may all be characterised as arguments that the DPNs were defective for the following reasons:
(a)Incorrect amounts specified on the Notices, either because of over-reporting of income tax withholding amounts in the Business Activity Statements (BAS) lodged by the Company, or payment of amounts in a certain period and incorrect allocation of those amounts;
(b)The lodgement of objections in relation to superannuation guarantee entitlements; and
(c)The fact of an agreement entered into with the plaintiff (being the Deed the subject of proceedings SC 195 of 2016).
25. For reasons set out below, I have found that on the affidavit evidence before the Court, all four Notices were properly served in accordance with the provisions of the Act.
26. Further, the content of the Notices complied with the requirements of the Act, and the defendant has not substantiated claims that some of the amounts in the Notices were incorrect or otherwise not payable. Accordingly, the plaintiff is entitled to recover the amount of $1,184,494.68.
Relevant legislative provisions
27. The applicable provisions of the Act were recently set out in Deputy Commissioner of Taxation v Tannous [2016] NSWSC 1654 (Tannous) per Hall J at [9]. A useful summary of the scheme is also found in Power v Deputy Commissioner of Taxation [2013] NSWCA 428; 284 FLR 42 at [14]–[18], with Emmett JA (with whom Ward JA agreed) refering at [14] to the object of ensuring that a company either meets its tax obligations or promptly goes into voluntary administration or liquidation, with the legislative scheme seeking to achieve that object by imposing personal liability on directors of companies that do not either meet their obligations or forthwith go into administration or liquidation.
28. The starting point is that an entity must withhold an amount from the salary or wages it pays to an individual as an employee: s 12-35 of Schedule 1. The time when amounts withheld must be paid to the Commissioner varies depending on whether the entity is a large, medium or small withholder as defined: see Subdivision 16-B of Schedule 1. It is unnecessary to refer further to those provisions, because in these proceedings it is not disputed that such amounts as are found to be liabilities were not paid by the Company, either on time or at all.
29. Division 269 of Schedule 1 is headed ‘Penalties for directors of non-complying companies’. It includes Subdivision 269-B entitled ‘Obligations and penalties’. Within that Subdivision is s 269 which imposes continuing obligations upon directors of companies. The section is (relevantly) in the following terms:
269-15 Directors’ obligations
Directors’ obligations
(1) The directors (within the meaning of the Corporations Act 2001) of the company ... on or after the initial day must cause the company to comply with its obligation.
(2) The directors of the company ... continue to be under their obligation until:
(a) the company complies with its obligation; or
(b) an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001; or
(c) the company begins to be wound up (within the meaning of that Act).
Instalment arrangements
(3) The Commissioner must not commence, ... proceedings to enforce an obligation, or to recover a penalty, of a director under this Division if an *arrangement that covers the company’s obligation is in force under section 255-15 (Commissioner’s power to permit payments by instalments).
Note 1: The arrangement may also cover other obligations of the company.
Note 2: Subsection (3) does not prevent the Commissioner from giving a director a notice about a penalty under section 269-25.
30. Section 269-20 of Schedule 1 creates a liability for directors to pay a penalty. It is in the following terms:
269-20 Penalty
Penalty for director on or before due day
(1) You are liable to pay to the Commissioner a penalty if:
(a) at the end of the due day, the directors of the company are still under an obligation under section 269-15; and
(b) you were under that obligation at or before that time (because you were a director).
...
(2) The penalty is due and payable at the end of the due day.
Note: The Commissioner must not commence proceedings to recover the penalty until the end of 21 days after the Commissioner gives you notice of the penalty under section 269-25.
...
Amount of penalty
(5) The amount of a penalty under this section is equal to the unpaid amount of the company’s liability under its obligation.
31. The Commissioner is required to give notice to a director prior to being able to commence proceedings, as follows:
269-25 Notice
Commissioner must give notice of penalty
(1) The Commissioner must not commence proceedings to recover from you a penalty payable under this Subdivision until the end of 21 days after the Commissioner gives you a written notice under this section.
Content of notice
(2) The notice must:
(a) set out what the Commissioner thinks is the unpaid amount of the company’s liability under its obligation; and
(b) state that you are liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount because of an obligation you have or had under this Division; and
(c)explain the main circumstances in which the penalty will be remitted.
(3) To avoid doubt, a single notice may relate to 2 or more penalties, but must comply with subsection (2) in relation to each of them.
When notice is given
(4) Despite section 29 of the Acts Interpretation Act 1901, a notice under subsection (1) is taken to be given at the time the Commissioner leaves or posts it.
Note 1: Section 28A of the Acts Interpretation Act 1901 may be relevant to giving a notice under subsection (1).
Note 2: Section 269-50 of this Act is also relevant to giving a notice under subsection (1).
32. For completeness, s 29 of the Acts Interpretation Act 1901 (Cth) is in the following terms:
29Meaning of service by post
(1)Where an Act authorizes or requires any document to be served by post, whether the expression “serve” or the expression “give” or “send” or any other expression is used, then the service shall be deemed to be effected by properly addressing, prepaying and posting the document as a letter and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post.
33. Section 269-50 of Schedule 1 (referred to in Note 2 under s 269-25 above) provides:
269-50 How notice may be given
The Commissioner may give you a notice under section 269-25 by leaving it at, or posting it to, an address that appears, from information held by *ASIC, to be, or to have been within the last 7 days, your place of residence or *business.
34. There are statutory defences to the penalty provisions set out above. Importantly, the defendant does not rely on any of them in these proceedings. However, as they were expressly canvassed with the defendant in the course of the proceedings, so as to determine whether any available statutory defence was raised, the relevant parts are as follows:
269-35 Defences
All reasonable steps
(2) You are not liable to a penalty under this Division if:
(a) you 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 section 436A, 436B or 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.
(3) ...
(3A) ...
When you can rely on this section
(4) For the purposes of:
(a) proceedings in a court to recover from you a penalty payable under this Division; or
(b) proceedings in a court against you in relation to a right referred to in paragraph 269-45(2)(b) (directors jointly and severally liable as guarantors);
subsection (1) or (2) of this section does not apply unless you prove the matters mentioned in that subsection.
(4A) ...
(5)Section 1318 of the Corporations Act 2001 does not apply to an obligation or liability of a director under this Division.
35. The reference to s 1318 of the Corporations Act 2001 (Cth) is a reference to the power given to the Court to relieve a person (including a director) from liability on such terms as the Court thinks fit, where the Court is satisfied that the person has acted honestly and in the circumstances ought fairly to be excused for negligence, default or breach. However, because of s 269-35(5) of Schedule 1, it is not open to the Court to apply s 1318 of the Corporations Act 2001 to relieve the Defendant from the obligations set out in Division 269.
36. It is also necessary to refer to the ‘Evidence’ provisions of Schedule 1, and in particular ss 255-45, 255-50 and 350-10 which deal with the evidentiary effect of official tax documents. Relevantly, the sections are in the following terms:
255-45 Evidentiary certificate
(1) A certificate:
(a) stating one or more of the matters covered by subsection (2) or (3); and
(b) signed by the Commissioner, a *Second Commissioner or a *Deputy Commissioner;
is prima facie evidence of the matter or matters in a proceeding to recover an amount of a *tax-related liability.
(2) A certificate may state:
(a)that a person named in the certificate has a *tax-related liability; or
(b) that an *assessment relating to a tax-related liability has been made, or is taken to have been made, under a *taxation law; or
(c)that notice of an assessment, or any other notice required to be served on a person in respect of an amount of a tax-related liability, was, or is taken to have been, served on the person under a *taxation law; or
(d)that the particulars of a notice covered by paragraph (c) are as stated in the certificate; or
(e) that a sum specified in the certificate is, as at the date specified in the certificate, a debt due and payable by a person to the Commonwealth.
(3) ...
255-50 Certain statements or averments
(1)In a proceeding to recover an amount of a *tax-related liability, a statement or averment about a matter in the plaintiff’s complaint, claim or declaration is prima facie evidence of the matter.
(2) This section applies even if the matter is a mixed question of law and fact. However, the statement or averment is prima facie evidence of the fact only.
(3) This section applies even if evidence is given in support or rebuttal of the matter or of any other matter.
(4) Any evidence given in support or rebuttal of the matter stated or averred must be considered on its merits. This section does not increase or diminish the credibility or probative value of the evidence.
(5) This section does not lessen or affect any onus of proof otherwise falling on a defendant.
350-10 Evidence
Conclusive evidence
...
Prima facie evidence
(3) The production of a certificate that:
(a) is signed by the Commissioner, a *Second Commissioner, a *Deputy Commissioner or a delegate of the Commissioner; and
(b)states that, from the time specified in the certificate, an amount was payable under a *taxation law (whether to or by the Commissioner);
is prima facie evidence that:
(c)the amount is payable from that time; and
(d)the particulars stated in the certificate are correct.
(3A) A document that is provided to the Commissioner under a *taxation law, and that purports to be made or signed by or on behalf of an entity, is prima facie evidence that the document was made by the entity or with the authority of the entity.
Signed copies are evidence
(4) The production of a document that:
(a) appears to be a copy of, or extract from, any document (the original document) made or given by or to an entity for the purposes of a *taxation law; and
(b)is signed by the Commissioner, ... a *Deputy Commissioner or a delegate of the Commissioner;
is evidence of the matters set out in the document to the same extent as the original document would have been evidence of those matters.
37. Section 8AAZI(1) of the Act is also relevant in the context of Exhibit 3 in these proceedings. It provides:
(1) The production of an RBA statement:
(a) is prima facie evidence that the RBA was duly kept; and
(b) is prima facie evidence that the amounts and particulars in the statement are correct.
38. The final part of the Act that is relevant to the issues discussed below is the freedom given to the Commissioner as to how to allocate payments to the RBA. Section 8AAZLA provides:
(1) The Commissioner may, in the manner he or she determines, allocate the amount to an RBA of the entity...
(2) The Commissioner must then also apply the amount against the following kinds of debts (if there are any):
(a) Tax debts that have been allocated to that RBA;
(b) General interest charge on such tax debts.
...
Service of DPN 2, DPN 3, DPN 4
39. Service of a notice pursuant to s 269-50 of Schedule 1, is effected by the act of posting a notice to such address of a director as is found in the Australian Securities Investment Commission’s (ASIC) records: Robertson v Deputy Commissioner of Taxation [2010] NSWCA 58; 239 FLR 29 at [10].
40. The affidavits of Ms Hill, Ms Mitchelson, and Ms Quigley (whose evidence was unchallenged) contain the relevant ASIC database searches establishing the defendant’s address in Symonston as at 13 November 2013 when DPN 2 was issued (and continuing).
41. That same address is stated on each of DPN 2, DPN 3 and DPN 4, with those documents also contained in the affidavit of Ms Hill.
42. The combined evidence of Ms Angel, Ms Joy, Ms Mitchelson, Mr Saxby and Ms Quigley establishes a chain of postage that includes the printing of DPN 2, DPN 3 and DPN 4, the placing of those original documents in envelopes correctly addressed to the defendant on the day stated on those documents, and with those envelopes also affixed with the requisite postage.
43. I am further satisfied on the evidence before the Court that such documents were each taken from the locked mailbox located at the ATO in Townsville, Queensland on the date stated on the document and posted in the Australia Post red mail box located in Sturt St, Townsville, Queensland.
44. It transpired during the hearing that the defendant’s concern was not with the sending of the Notices, but his failure to personally receive them in sufficient time to act and avoid the consequent liability.
45. He confirmed that his accountant had sent the Notices to him at a later date, presumably a period outside the 21 days when he could have attended to putting the Company into administration with a view to avoiding the penalty.
46. The defendant also confirmed that someone employed by the Company at the relevant time had received the Notices; they simply were not passed on to him in a timely fashion.
47. I suspect the defendant may have confused a notice sent to the Company regarding its failure to pay the tax reported as withheld, as opposed to DPNs sent directly to the defendant as director, at his residential address. Nevertheless, accepting for the moment that the defendant did not personally receive such significant correspondence in a timely fashion due to oversight or neglect of others, the provisions of the legislation are clearly directed to the act of leaving or posting the document, rather than its actual receipt: see Tannous per Hall J at [93], [102]. In that decision, it seems that at [102], Hall J meant to state that s 269-25(4) of the Act is a deeming provision (rather than stating the opposite). That is how I take his Honour’s reasons, in light of the context of that paragraph and his Honour’s later reference to the notice being deemed to have been ‘given’ at [111] of the judgment.
48. Accordingly, given the deeming provision, proof of actual receipt is unnecessary. However, I also accept the unchallenged evidence of the plaintiff that there were no service disruptions to Australia Post on the respective dates DPN 2, DPN 3 and DPN 4 were posted.
49. Finally on the question of service, by virtue of these proceedings, since April 2016 the defendant must have been aware of the existence of the Notices and the asserted failure to comply with them, yet the amounts owing under the Notices remain unpaid.
50. For these reasons, I find that service of DPN 2, DPN 3 and DPN 4 was carried out in accordance with the provisions of the Act.
Complaints as to the Notices being defective
51. The validity of a notice must be determined as at the time it was given: Deputy Commissioner of Taxation v McArdle [2003] QCA 282; [2004] 2 Qd R 495 (McArdle) at [15].
52. The Notices are in relevantly the same terms. The Notices include:
(a)The unpaid amount of the Company’s liability, referable to specified withholding periods (the Notices collectively covering each month over the period 1 July 2012 – 31 January 2014, save for September 2013);
(b)The basis for the defendant becoming liable to pay the Commissioner by way of penalty an amount equal to the unpaid amount of each liability of the Company, namely a failure to discharge an obligation under s 269-15 of the Act; and
(c)That the penalty will be remitted if the Company’s liability was discharged or if the Company was either being wound up or was otherwise under administration within 21 days from the date stipulated on the particular notice.
53. The content of each of the Notices complies with the requirements of s 269-25(2) of Schedule 1, and accordingly the Notices are valid.
54. As to the evidence establishing liability, each of the Notices is prima facie evidence that the amount is owing (s 350-10(4) of Schedule 1). It is uncontroversial that none of the alternatives warranting remittal as stated in the Notices occurred within 21 days of any of the Notices being issued.
55. Further proof of the underlying liability to pay the amount claimed can be seen from a review of the BAS lodged by the Company, which formed part of Exhibit 1, where each of the amounts specified in each of the Notices matches the amount of tax withheld that was reported by the Company for the relevant financial quarter.
56. The RBA statement which records the BAS amounts is also prima facie evidence that the amounts and the particulars in the RBA statement are correct (s 8AAZI(1) of the Act).
57. If there were any doubt about it, Exhibit 1 contains a certificate issued by the plaintiff on 25 August 2016 under s 255-45 of Schedule 1 referring to the issue of the Notices and stating:
The sum of $1,184,494.68 is at 25 August 2016 a debt due and payable by Andrew Donald Caudle to the Commonwealth of Australia in respect of the tax related liability referred to in this certificate.
58. That certificate is also prima facie evidence of the liability, which places the factual onus upon the defendant to disprove the accuracy of the amounts and particulars in the certificate: Moore v Jack Brabham Holdings Pty Ltd (1986) 7 NSWLR 470 per Hunt J at 484.
59. Turning then to consider the defendant’s arguments as to why he is not liable to pay the amount claimed by the plaintiff (either in its entirety or at all), it was said that the actual amounts were ‘over-reported’ in the BAS lodged by the Company over the relevant periods ([6(a)] of the Defence).
60. The defendant developed this point orally. It seems that what he was really putting to the Court was that at least some of the employees had received an income in excess of that to which he believed they were legally entitled.
61. Assuming for the moment that is the case, it is understandable that the defendant may well be aggrieved to discover such a state of affairs. However, that does not affect the validity of the Notices. A valid penalty notice is merely a statutory precursor to recovery, as opposed to itself creating or altering the liability to pay a penalty: Deputy Federal Commissioner of Taxation v Woodhams [2000] HCA 10; 199 CLR 370 at [19]; Ross Forsyth v Deputy Commissioner of Taxation [2004] NSWCA 474; 62 NSWLR 132 at [47]; Power v Deputy Commissioner of Taxation [2013] NSWCA 428; 284 FLR 42 at [33]–[35].
62. There is an allegation in the Defence that the over-reporting was reported to the plaintiff on 5 June 2013. No amended BAS appears to have been filed, although following the audit, there does appear to have been some revision to the activity statements, with a shortfall of $1,684.00 found in the month of January 2014, a month included in DPN 4: see Exhibit B. That audit finding is inconsistent with a general submission of over-reporting.
63. Critically however, there is insufficient documentary evidence to support a contention that the employees of the Company were not paid the income reported by the Company in the BAS that are before the Court. That being the case, the Company was obliged to withhold the applicable tax payable on those amounts. Its failure to do so entitled the plaintiff to look to the sole director for payment, pursuant to the Act.
64. The Court must consider liability by reference to the assessed amount. It is difficult to see how the director could complain about an error in over-reporting when the assessed amount was based on what the Company itself had asserted to be its liability: see McArdle at [16]–[17]. Whether a different amount should have been reported is not a matter the Court can cure in these proceedings, nor is it one which is relevant to the recovery proceedings now before the Court.
65. The defendant’s second argument on substantive liability, as developed before the Court (and encapsulated in [6(b)] and [6(c)] of the Defence) concerns the following specific amounts (the first three being included in DPN 1, and the remaining amount included in DPN 2):
Particular withholding period
Amount withheld
Unpaid amount of company’s liability
1 July 2012 to 31 July 2012
$95,500
$88,426
1 October 2012 to 31 October 2012
$69,174
$69,174
1 March 2013 to 31 March 2013
$60,386
$60,386
1 June 2013 to 30 June 2013
$62,063
$62,063
66. The defendant submitted to the Court that these amounts were incorrect for reasons discussed below.
67. Had the defendant established that any of these specific amounts were incorrect, it is doubtful that the Court would be in any position to exercise discretion to grant relief, having regard to the failure to follow the detailed regime provided for in Part IVC of the Act for the making of objections and their disposition by the Commissioner, for review by the Administrative Appeals Tribunal (AAT) and for ‘appeals’ to the Federal Court, and noting that neither the AAT nor the Federal Court have the power to vary assessments on review: Commissioner of Taxation v Futuris Corp Ltd [2008] HCA 32; 237 CLR 146 at [6]-[7].
68. However, having regard to the evidence discussed above, the defendant has not demonstrated that any of the specific amounts were affected by error.
69. As to the first amount specified for the period July 2012, the defendant submitted that the RBA statement had recorded two amounts for that same period, the first being the $95,500.00 figure stated on DPN 1 and the second being a figure of $89,439.00, which the defendant said indicated double-counting for that month.
70. On closer examination of the RBA statement, it became clear that the first amount was indeed the amount withheld on behalf of the employees of the Company, but the second amount was an amount payable by the Company for income tax on its own behalf in the same period. Accordingly, there was no double-counting.
71. The other amounts set out above were said to be incorrect due to misallocation of payments made, as a result of which the defendant contended those amounts ought to have been significantly reduced. However, the complete answer to that complaint is s 8AAZLA of the Act (set out above), which allows the Commissioner broad discretion as to allocation of payments made in ‘the manner he or she determines’. The consequence of that section is that the allocation by the Commissioner of payments made to the running balance, rather than to debts on a chronological basis, does not amount to an error.
72. The defendant’s next submission is that an objection was lodged in relation to superannuation guarantee entitlements ([6(d)] of the Defence). That does not defeat the liability established, for two reasons. The first is that tax may be recovered notwithstanding a pending review or appeal (ss 14ZZM and 14ZZR of the Act). Harsh though the operation of the provision may be, those sections implement a long-standing legislative policy to protect the interests of the revenue: Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; 237 CLR 473 at [44].
73. The second, and independent, reason is that from a review of the BAS in evidence, it does not appear that the liability for the tax claimed relates to superannuation guarantee entitlements (that liability arises in the second proceedings concerning the Deed). As a consequence, any objection concerning such entitlements could not affect the liability the plaintiff now claims in these proceedings.
74. Finally, the defendant contends that he entered into the Deed, which obliged the plaintiff to forbear from taking recovery proceedings ([6(e)] of the Defence). A more detailed consideration of the Deed and its effects is set out in the second set of proceedings below. It will be sufficient to note for the purpose of considering the defendant’s argument here that by the Deed, the plaintiff did agree to forbear from taking recovery action relevantly as follows:
C. The Commissioner has agreed to forebear from taking steps to recover the Taxation Debt in a court of competent jurisdiction, in accordance with the terms set out in this Deed.
...
6.1 The Commissioner agrees, ... to refrain from utilising any enforcement powers under a Taxation Law in respect of the Taxation Debt.
75. As seen below, Taxation Debt is defined and included, but was not limited to, the amount the subject of these proceedings. However, the express terms of the Deed also permitted recovery in the event of non-payment under the Deed:
6.5 The Commissioner will be entitled to exercise his recovery powers in respect of the Taxation Debt, ... as from and after non-compliance with the payments set out in clause 5.1(b) ...
76. Clause 5.1(b) of the Deed provided a regime for the payment of the Taxation Debt in instalments. While there was partial compliance, the defendant does not dispute that the Company defaulted under the arrangement set out in clause 6.5.
77. In light of those circumstances, it is plain that those parts of the Deed operate to permit recovery of director’s penalties in these proceedings.
Proceedings SC 195 of 2016
78. The second proceedings are slightly different, in that the liability of the defendants is said to arise from breach of the Deed.
79. The essential scheme under the Deed was that the defendants personally guaranteed not just debts owing by the Company at the time the Deed was executed, namely 6 August 2014, but future taxation liabilities that might be incurred by the Company.
80. Payments by the Company in specified amounts over a number of months were to be made in instalments (clause 5.1 of the Deed). If the Company did not comply with its instalment obligations, the plaintiff was entitled to call upon the defendants under the guarantee.
81. The guarantee was intended to be secured by a registered second mortgage over two properties jointly owned by the defendants. Although the defendants duly executed the mortgage documents, the evidence before the Court was to the effect that on 28 August 2014 (that is, after the Deed was executed), the first ranking mortgagee, Westpac Banking Corporation (Westpac) refused to consent to the registration of the second mortgage on the title of either of the properties. That is where the question of appropriate security was left.
82. The amount initially claimed by the plaintiff pursuant to the breach of Deed is $2,395,371.44, which includes the amount claimed in proceedings SC 156 of 2016. As at the date of the hearing, the amount claimed is slightly less, namely $2,394,959.39.
83. At first it may seem that this second proceedings has an element of double-counting, as the entry of judgment for the plaintiff in each of the proceedings would give rise to two judgments in respect of the same underlying unpaid tax liability of the Company. However, subdivision 269-C of Schedule 1 prevents that result in the following manner:
269-40 Effect of director paying penalty or company discharging liability
Liabilities
(1) This section applies to the following liabilities:
(a) the liability of the company under its obligation referred to in section 269-10;
(b)the liability of each director... to pay a penalty under this Division in relation to the liability of the company referred to in paragraph (a);
(c) a liability under a judgment, to the extent that it is based on a liability referred to in paragraph (a) or (b).
Discharging one liability discharged other liabilities
(2) If an amount is paid or applied at a particular time towards discharging one of the liabilities, each of the other liabilities in existence at that time is discharged to the extent of the same amount.
(3) ...
(4)...
84. Accordingly, orders may be entered in separate proceedings, but encapsulating the same amount as that claimed in proceedings SC 156 of 2016.
The Deed
85. The relevant clauses of the Deed are as follows:
1.1 Definitions
Enforcement Date means 7 August 2014.
Obligor means each of the Guarantor and the Taxpayer.
Securities means the registered mortgage detailed in Item 1 of Schedule 1, ranking as a second-registered mortgage, and any Substitute Security, from time to time.
Tax-Related Liability has the meaning of that term as described in Subdivision 255-A in Schedule 1 to the TAA 1953 and the SGAA 1992.
Taxation Debt means
(a)the amount of $2,532,583.88 which is comprised of Tax-Related Liability and applicable GIC due and payable by the Taxpayer as at 1 August 2014; and
(b)the amount of any additional GIC which accrues on or after 1 August 2014 on the Tax-Related Liability and applicable GIC which were due and payable by the Taxpayer as at 1 August 2014.
86. It is convenient to interpolate that in Ms Lakshman’s affidavit affirmed 11 November 2016 (at [10]), she deposes to the fact that since the Taxation Debt stipulated in the Deed, payments made in the amount of $124,898.12 have been made, and a credit of $12,314.32 was given. When those amounts are deducted from the $2,532,583.88 figure specified in the Deed, that results in the amount claimed in the Statement of Claim, being $2,395,371.44. Ms Lakshman’s affidavit affirmed 12 July 2017 (at [10]) deposes to the further credit transfer of $412.05 made on 22 June 2017, which as stated above, reduced the total ultimately claimed to $2,394,959.39.
87. Further relevant definitions set out in the Deed are:
Taxation Liabilities includes:
(a) the Taxation Debt or any part of the taxation debt remaining payable and subject to clause 6.4, further accruing GIC on the Taxation Debt or part of the Taxation Debt;
(b)any future Tax-Related Liability that becomes payable by the Taxpayer; and
(c)any Tax-Related Liability arising in connection with the Taxation Debt or any future Tax-Related Liability.
Taxpayer means Digital (Digest) Data Design Pty Limited (ACN 060937171)
Transactions Documents means:
(a)this Deed;
(b)each Security;
(c)any other document which the parties agree is a Transaction Document; and
(d)any document required to give effect to the provisions of this deed or the securities.
88. Other clauses relevant to the resolution of the issues in dispute are as follows:
2. Acknowledgement of Taxation Debt
The Taxpayer and the Guarantor acknowledge that:
(a) The Taxpayer is liable to pay the balance of the Taxation Debt.
...
3.1 Guarantee and Indemnity
(a) the Guarantor hereby irrevocably and unconditionally:
(i) agrees to assume liability for, and guarantees to the Commissioner payment of, the full amount of the Taxation Debt and any GIC to which the Taxpayer is, or becomes, liable to pay pursuant to [the Act] in respect of the Taxation Debt ...
3.3 Reinstatement
If any payment to, or any discharge given by, the Commissioner (whether in respect of the obligations of the Taxpayer or any security for those obligations or otherwise) is avoided or reduced for any reason (including, without limitation, as a result of insolvency ...):
(a) the liability of the Guarantor shall continue as if the payment, discharge, avoidance or reduction had not occurred; and
(b) the Commissioner shall be entitled to recover the value or amount of that security or payment from the Guarantor, as if the payment, discharge, avoidance or reduction had not occurred.
3.4 Waiver of Defences
The obligations of the Guarantor will not be affected by an act, omission, matter or thing which, but for this clause, would reduce, release or prejudice any of its obligations under this clause ... including:
...
(d) the ...variation, compromise...release of, or refusal or neglect to perfect, execute, ...any rights against, or security over assets of, any Obligor or ...non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security; ...
(f)any amendment (however fundamental) or replacement of a Transaction Document or any other document or security;
(g) any unenforceability, ...of any obligation of any person under any Transaction Document or any other document or security;
...
(j) this document or any other Transaction Document not being executed by or binding against any other Obligor or any other party.
...
89. Having regard to the arguments raised by the defendant, the following clauses are also relevant:
5.1 The Taxpayer agrees:
(a) To pay the legal costs associated with this Deed and the preparation and registration of the Securities;
...
8. Substitution of Securities
(a)The Guarantor may, at any time while any part of the Taxation Debt... remains outstanding under this deed, approach the Commissioner for substitution of the Securities.
(b) The decision to accept any Substitute Security is at the absolute discretion of the Commissioner, and this Deed confers no right upon the Guarantor to demand that the Commissioner accept any Substitute Security.
...
90. For reasons unknown, by clause 14.5 of the Deed, the governing law is that of Western Australia, although by clause 14.6 the parties irrevocably agreed to submit to the non-exclusive jurisdiction of the Courts of the Australian Capital Territory with respect to any proceedings which may be brought relating to the Deed.
Consideration of the plaintiff’s case
91. Although initially the plaintiff had sought possession of a property owned by the defendants, the proceedings before this Court were confined to the action to recover monies owing by way of liquidated demand.
92. The plaintiff relied on the executed Deed in evidence and its terms (relevantly set out above), as well as the affidavit of Mr Hill sworn 11 November 2016 (the exhibit to which became Exhibit 2), to contend that:
(a)The defendants had guaranteed ongoing taxation liabilities of the Company;
(b)The Company had failed to pay its taxation liabilities to the value of $2,395,371.44;
(c)On 4 May 2016 the plaintiff had demanded repayment of $2,395,371.44 pursuant to the guarantee stated in the Deed; and
(d) In breach of the Deed the defendants had failed to pay the said sum.
93. The terms of the Deed are clear as to establishing that the defendants guaranteed the Taxation Debt, which included ongoing taxation liabilities of the Company.
94. I expressed some initial reservation at the hearing about the unlimited nature of the guarantee and the provision of personal security, including by the second defendant, a person who was not a director of the Company and therefore not otherwise liable to pay a penalty under the Act. That concern dissipated when it became clear that the debt pursued by the plaintiff in these proceedings was limited to a figure that was known to the defendants at the time they executed the guarantee, and at a time when they were legally represented. There was no suggestion of duress in these proceedings.
95. As set out above, the definition of Taxation Debt starts by referring to a specific amount $2,532,583.88, so that the defendants were clearly alive to the fact that they were guaranteeing at least that amount when executing the Deed. The plaintiff claims only that figure, minus the amounts subsequently paid, as Ms Lakshman deposes.
96. The failure of the Company to pay the instalments in accordance with the Deed is generally not disputed ([17] of the Defence), although this is of course subject to the arguments raised by the defendant orally before the Court and discussed below.
97. The terms of the Deed and the affidavit evidence of Ms Lakshman are sufficient to establish the amount owing under the Deed. However, there is further evidence supporting the amount claimed. On 11 November 2016, a certificate was issued under s 350-10(3) of Schedule 1 stating as follows:
1. As at 11 November 2016, the amount of $327,873.96 was payable to the plaintiff by [the] Company under the Superannuation Guarantee (Administration) Act 1992.
2. As at 11 November 2016, the amount of $2,067,497.48 was payable to the plaintiff by the Company in relation to a RBA deficit debt under section 8AAXZH of the Taxation Administration Act 1953.
98. When those two amounts in the certificate are added together, they also total the figure claimed by the plaintiff in the Statement of Claim. In accordance with s 350-10(3) of Schedule 1 set out above, that evidence is prima facie evidence of the correct amount owing and strengthens the conclusion that the defendants by their personal guarantee were indebted to the plaintiff in the amount of $2,395,371.44 as at 11 November 2016.
Consideration of the defendant’s arguments
99. The Defendant’s case as ultimately put before the Court, (a summary of which was expressly confirmed with him during the hearing), was as follows:
(a)The Deed was not enforceable because it did not achieve the fundamental purpose of what the parties intended, in that as it transpired, the first ranking mortgagee refused permission to register the mortgage, and there was no substitution of securities: see also [36] of the Defence, and Exhibit C.
(b)The taxation liabilities were disputed: [39] of the Defence. The defendant says that in particular, with regard to the ‘Taxation Debt’, the sum of money was not owed by the Company at the time, and there was no basis for such calculations.
(c)The words of the guarantee and indemnity in clause 3.1 of the Deed were so uncertain as to render the Deed void: [37] and [40.1] of the Defence.
(d)The plaintiff breached the Deed first by refusing to accept payment pursuant to clause 5.1(a) of the Deed, so that the defendants were excused from further compliance with the Deed (this argument was first made orally at the hearing, without objection by, or prejudice to, the plaintiff).
100. Before dealing with those arguments in turn, it should be noted that the Defence contains a number of other complaints. I will deal with them briefly for completeness. The first related to the execution of the Deed. The assertion was that the Deed was not executed by the Defendants as having been delivered: [35] of the Defence. However, the Deed is governed by the law of Western Australia, with the applicable provision being s 9 of the Property Law Act 1969:
Formalities of deed
1. Every deed, whether or not affecting property –
(a)Shall be signed by the party to be bound thereby; and
(b)Shall be attested by at least one witness not being a party to the deed ...
2. It is not necessary to seal any deed except in the case of a deed executed by a corporation under its common of official seal.
3. Formal delivery and indenting are not necessary in any case.
4. Every instrument expressed or purporting to be ... a deed or an agreement under seal or ... and which is executed as required by this section has the same effect as a deed duly executed in accordance with the law in force immediately prior to the coming into operation of this Act.
101. The Defendant confirmed that the signature on the execution page was his and that he had initialled and dated every page of the Deed on 4 August 2016. The execution page to the Deed also records the signature of a witness who was not a party to the Deed. Accordingly, that complaint was without substance.
102. Paragraph 41 of the Defence made a number of complaints about an audit that the plaintiff had conducted (and there was reference to an audit in Exhibit B), which the defendant said was beyond power and which caused the Company loss, so that it would be a lack of good faith or unconscionable to enforce the guarantees.
103. Before the Court, the Defendant indicated that he would not press any complaint about the asserted wrongful conduct of the plaintiff in relation to the audit, or any challenge to the power of the plaintiff to conduct an audit. To the extent that any of the remaining complaints made in paragraph 41 were maintained, I consider there was insufficient evidence before this Court to substantiate them.
104. Other paragraphs of the Defence ([10], and [42]–[44]) address issues relating to the orders for possession initially sought. As that relief is no longer pressed, it is unnecessary to deal with those allegations.
Fundamental purpose of the Deed not enforceable
105. The argument, as one having legal consequences excusing performance, was difficult to understand. I have taken it to be an argument that the registration of the second mortgage was fundamental, in that the failure to achieve registration created a situation so radically different from that contemplated by the parties at the time when the contract was made that the contract may be said to have been frustrated: see for example, Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 345, 363-4, 380, 383 and 392.
106. Alternatively, the argument might have been characterised as registration of the second mortgage being an implied contingent condition, or even an essential term, the non-fulfilment or breach of which brought about an elective right of termination: see for example, Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153. I put to one side the lack of any evidence as to such a right being exercised.
107. However, how the legal argument is characterised ultimately does not matter, because for reasons that follow, I reject the founding block of the argument that the registration of the second mortgage was either fundamental to performance of the Deed or a contingent condition, or in any way a material requirement in the Deed.
108. That finding makes it unnecessary to decide the consequences that might have followed for non-fulfilment or breach.
109. In considering the argument, I accept the defendant’s submission that clause 8 of the Deed, which permitted a substitute security at the Guarantor’s request was not enlivened, because he did not request the substitution. However, the fact that registration was not achieved, and no other security was substituted, does not have the consequence for which the defendant contends, because of the express words in other clauses in the Deed.
110. First, each ‘security’ and any document required to give effect to the provision of the securities are included as part of the definition of ‘Transaction Documents’.
111. That brings into consideration paragraphs (d), (f), (g), and (j) in clause 3.4 of the Deed, which have been set out above. Each paragraph individually and cumulatively has either express applicability or implied intent to defeat the defendant’s argument that the registration of the second ranking mortgage was a fundamental or essential requirement, the frustration or failure of which (by the conduct of Westpac as a third party), relieved either the Company or the Guarantors from compliance with their obligations.
112. In addition to the terms of those individual paragraphs, such a construction of the Deed would be contrary to the express opening words to clause 3.4 of the Deed:
The obligations of the Guarantor under this clause will not be affected by an act, ...which, but for this clause, would ...release ...its obligations...
113. It seems that the reference to the Guarantor’s obligations ‘under this clause’ is, properly construed, a reference to the obligations under the entirety of clause 3 (given that the obligations are set out in clause 3.1 of the Deed). Nevertheless, the intention of those words is clear: an event set out in clause 3.4, such as the failure to perfect, or failure to observe the formal requirements for a second mortgage by way of registration, does not affect the obligations of the Guarantor.
114. On the proper construction of the deed, the substantial benefit to the plaintiff was not the registration of a second-ranking mortgage by way of security. The substantial benefit of the Deed was the promised payment of the Taxation Debt by the Company, and in the event of default, by the Guarantor, one of whom is the defendant. Indeed, the payment by the Guarantor is described as a ‘principal obligation’ in clause 3.10 of the Deed.
115. Further, although the plaintiff did not achieve a registered mortgage, the un-registered mortgage nevertheless takes effect as an equitable interest in the land, and a caveat no. 1934669 recording that interest was in evidence before Court.
116. The Deed clearly envisaged that the parties might encounter difficulties with the formalities of executing documents such as those necessary to register the mortgages securing the properties owned by the defendants. In such circumstances, clause 3.4 of the Deed operates to ensure that the obligations of the Guarantor continued.
117. Accordingly, because of the express words to the contrary, the argument that the defendant’s obligations under the Deed ceased upon a failure to achieve registration of the second mortgage cannot be sustained.
Incorrect Taxation Debt
118. The defendants signed the Deed which defines the Taxation Debt as set out above. The amount claimed in these proceedings is directly referable to the specific amount forming part of that definition.
119. As set out above, under clause 2(a) of the Deed, the defendant acknowledged that the Company was liable to pay the balance of the Taxation Debt. It is not now open to the defendant to dispute the underlying liabilities referable to that amount in circumstances where he signed a document (the Deed) where he expressly accepted the liability to pay the amount stipulated both on behalf of the Company, and personally in the event of the Company’s default.
120. Whatever underlying dispute there was as to the liabilities constituting the amount of $2,532,583.88 was resolved by the Deed. To the extent that the defendant complains about other tax related liabilities being disputed, those amounts are not the subject of any relief claimed in these proceedings and it is therefore unnecessary to consider those arguments.
The Deed is not void for uncertainty
121. This complaint centres around the definition of Taxation Liabilities set out above, and the fact that the definition includes not only present but any future Tax-Related Liability of the Company (as defined by reference to the Act and related taxation legislation).
122. I accept the submission of the plaintiff that those words are not uncertain. Rather, the words reflect an intention to include future amounts owing to the plaintiff, which may be worked out at the relevant time.
123. This does not render the contract void, because although the future amount is an unknown, there exist satisfactory criteria to work out those future amounts, being the prescriptive provisions of the Act (and related taxation legislation). The definition is thus capable of resolution by construction: The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 436-437.
124. In the event that I am wrong, and with a view to upholding the contract (see Trustees Executors & Agency Co Ltd v Peters (1960) 102 CLR 537), I consider that paragraphs (b) and (c) of the definition of Taxation Liabilities can be readily severed so as to save the balance of the term: Fitzgerald v Masters (1956) 95 CLR 420; Trustee Executors & Agency Co Ltd v Peters (1960) 102 CLR 537.
125. In any event, any ambiguity arising from a reference to future liabilities has no bearing on the facts of this case, as the plaintiff has limited the claim to the Taxation Debt that existed at the time the Deed was signed.
Asserted breach of obligations under clause 5.1(a) of the Deed
126. Under clause 5.1(a), one of the Taxpayer’s obligations was to pay the legal and registration costs of the mortgage.
127. The Company complied with that obligation. The defendant established (through Exhibit C) that an amount of $125.00 was payable for registration fees, that he attempted to pay that amount, and that the cheque was returned by the plaintiff’s office on 19 September 2014 due to Westpac’s refusal to permit registration of the second mortgage on the title of the two properties.
128. The defendant contends that the refusal to accept the payment was a breach of clause 5.1(a) and that relieves the defendants from their obligations.
129. However, on the proper construction of the Deed, the obligation to pay an amount by way of registration fee under clause 5.1(a) could only arise if the fee were payable. The second-ranking mortgage not being registered, the fee did not become payable under the clause. That explains why the plaintiff returned the cheque.
130. Such conduct does not constitute a breach of clause 5.1(a). Rather, in my view, it was a consequence of the clause not being enlivened.
Conclusion
131. The evidence in proceedings SC 156 of 2016 establishes that the defendant has a tax-related liability in the sum of $1,184,082.63.
132. The evidence in proceedings SC 195 of 2016 establishes that the defendants are liable to pay the amount claimed under the Deed, being $2,394,959.39.
133. The plaintiff having been successful, an order for costs is sought against the defendant in relation to each proceedings, and against the second defendant up to the date of the hearing, when it became clear that she was not participating in the hearing. While costs are in the discretion of the court, I see no reason to depart from the usual basis for the order, being that costs follow the event. I accept the plaintiff’s proposed limitation with respect to second defendant as being reasonable.
134. As to interest, the award of interest up to judgment is also discretionary. Given that such interest is properly categorised as part of the damages to be assessed, a successful plaintiff will be entitled to receive an award of interest unless good cause is shown to the contrary: Ruby v Marsh (1975) 132 CLR 642 at 644. The calculations of interest have been proposed by the plaintiff. I have accepted those rates as being in accordance with Schedule 2 to the Court Procedures Rules 2006 without investigating the detail of the calculations.
Orders
135. Accordingly, and with a notation for the avoidance of doubt as to the incorporation of the debt established in proceedings SC 156 of 2016 in the debt established in the subsequent proceedings SC 195 of 2016, I make the following orders:
Proceedings SC 156 of 2016
136. Judgment be entered for the plaintiff against the defendant in the amount of $1,184,082.63.
137. The defendant is to pay interest on the amount claimed by the plaintiff calculated as follows:
(a)In the period from 21 April 2016 to 30 June 2016 interest in the amount of $13,810.25 calculated at the rate of 6% per annum on the amount of $1,184,082.63 for 71 days;
(b)In the period from 1 July 2016 to 31 December 2016 interest in the amount of $34,298.68 calculated at the rate of 5.75% per annum on the amount of $1,184,082.63 for 184 days;
(c)In the period from 1 January 2017 to 30 June 2017 interest in the amount of $32,272.53 calculated at the rate of 5.5% per annum on the amount of $1,184,082.63 for 181 days;
(d)In the period of 1 July 2017 to 10 August 2017 interest in the amount of $7,310.35 calculated at the rate of 5.5% per annum on the amount of $1,184,082.63 for 41 days.
(e)The defendant is to pay the plaintiff’s costs as agreed or assessed.
Proceedings SC 195 of 2016
138. Judgment be entered for the plaintiff against the first defendant and the second defendant in the amount of $2,394,959.39.
139. The first defendant and the second Defendant are to pay interest on the amount claimed by the plaintiff calculated as follows:
(a)In the period from 12 May 2016 to 30 June 2016 interest in the amount of $19,671.12 calculated at the rate of 6% per annum on the amount of $2,394,959.39 for 50 days;
(b)In the period from 1 July 2016 to 31 December 2016 interest in the amount of $69,373.50 calculated at the rate of 5.75% per annum on the amount of $2,394,959.39 for 184 days;
(c)In the period from 1 January 2017 to 30 June 2017 interest in the amount of $65,275.35 calculated at the rate of 5.5% per annum on the amount of $2,394,959.39 for 181 days;
(d)In the period from 1 July 2017 to 10 August 2017 interest in the amount of $14,786.13 calculated at the rate of 5.5% per annum on the amount of $2,394,959.39 for 41 days.
(e)The first defendant is to pay the plaintiff’s costs of the proceeding as agreed or assessed.
(f)The second defendant is to pay the plaintiff’s costs of the proceeding as agreed or assessed insofar as those costs were incurred by the plaintiff in the period prior to 17 July 2017.
140. The Court notes that judgment was entered against the first defendant in proceedings SC 156 of 2016 and the consequent operation of Subdivision 269-C of Schedule 1 of the Taxation Administration Act 1953 (Cth).
| I certify that the preceding one hundred and forty [140] numbered paragraphs are a true copy of the Reasons for Judgment of her Honour Associate Justice McWilliam Associate: Date: |
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