Deputy Commissioner of Taxation v Ciccarello - [2013] SADC 30

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
DEPUTY COMMISSIONER OF TAXATION v CICCARELLO AND ORS
[2013] SADC 30
Judgment of His Honour Judge Barrett
13 March 2013
TAXES AND DUTIES - INCOME TAX AND RELATED LEGISLATION - GENERAL MATTERS
Appeal from a Master’s decision upholding the validity of a Director’s Penalty Notice which contains errors. The Master applied a Queensland Court of Appeal decision.
Held: Appeal dismissed. The Master was correct to follow the Queensland Court of Appeal decision.
Income Tax Assessment Act 1936 (Cth) , referred to.
Deputy Commissioner of Taxation v Falzon (2008) 74 ATR 76; Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370; Cal No 14 Pty Ltd v Motor Accident Board (2009) 239 CLR 390; Deputy Commissioner of Taxation v Gruber (1998) 41 NSWLR 271; Deputy Commissioner of Taxation v Chen [2011] NSWCD 22, considered.

DEPUTY COMMISSIONER OF TAXATION v CICCARELLO AND ORS
[2013] SADC 30

This is an appeal from a Master’s decision made on 8 October 2012. The Master found valid and enforceable a Director’s Penalty Notice (“DPN”) issued against the appellant by the respondent under the Income Tax Assessment Act 1936 (Cth) (“the Act”). The learned Master found the DPN was valid and enforceable, notwithstanding two errors appearing in it. The learned Master regarded as determinative of the issue before him a decision of the Queensland Court of Appeal in Deputy Commission of Taxation v Falzon (2008) 74 ATR 76, [2008] QCA 327. The learned Master found that case indistinguishable from the case before him and therefore binding on him. The appellants submit that Falzon was wrongly decided and it was not binding on the Master.
Background
The Act provides that the Deputy Commissioner of Taxation may recover as penalties from company directors sums equivalent to monies which their companies have failed to withhold from employees wages, such as group tax and PAYE tax. The Act requires the department to serve on the directors DPNs setting out the sums which it claims from them. Section 222AOE of the Act describes the purposes of the DPNs. The section does not prescribe the details which must be included in the notices. In Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 at [33] the High Court observed that it is the legislative purpose of the section which determines the nature and extent of the information which should be set out in a notice. The court went on in [36] to identify the two purposes. They are, first, to inform the recipient of the company’s liability to pay the tax remittance and the corresponding liability of the director to pay the same amount. The second purpose is to inform the recipient of alternative courses open to avoid liability to pay.
The case of Woodhams turned on the sufficiency of the relevant notice, not as here, the consequences, if any, of any errors appearing in the notice. The ratio of Woodhams is that a notice is sufficient notwithstanding that it does not contain details of the due dates for the payment of the remittances.
This case concerns the consequences, if any, of two errors appearing in the notice. The notice sets out six items of liability in three columns. Each item across the columns contains a withholding period, the sum withheld, and the sum unpaid. The sums owing were not added up. There was no total of the six amounts unpaid at the bottom of the unpaid column.
There were two errors on the notice. The first item was one which it was agreed the Tax Department did not pursue. The last item was a wrong figure. These errors are what is described as “horizontal” errors. They are errors appearing on the horizontal plane or line. There is another type of error which did not occur in this case but which it is necessary to identify to understand the arguments put forward. That is a “vertical” error. A vertical error is one which occurs when the items in the unpaid column are wrongly added up. As I have said there was no vertical error in this case. The sums in the unpaid column had not been added up.
Falzon decided that a DPN which contained one or more horizontal errors was not misleading. The notice fulfilled its statutory purpose notwithstanding the errors. It was valid[1] and enforceable as to the correctly stated amounts payable[2]. In other words, the erroneous figures were severable from the correct ones. Falzon was a decision of the Queensland Court of Appeal. The learned Master followed Falzon.
[1] [74].
[2] [75].
This court must follow the interpretation of Commonwealth legislation by an intermediate appellate court in another jurisdiction unless convinced that that court’s decision is plainly wrong.
Mr Brohier for the first appellant sought to argue that it would also be permissible to depart from an otherwise binding decision if the case before the court was an exceptional case. In support of that argument he relied on Cal No 14 Pty Ltd v Motor Accident Board (2009) 239 CLR 390 at paragraphs 49-51. However, as Dr Bleby SC submitted, that argument is based on a misunderstanding of what the High Court meant. Where in paragraph 49 the court referred to “exceptional circumstances”, it was referring to an aspect of the facts of an earlier High Court case. It was not referring to a criterion upon which a court might depart from an otherwise binding authority. I must say that it appears to me that the last headnote to the report on page 391 would seem to have made the same misunderstanding.
Mr Brohier acknowledged that the decision in Falzon was an obstacle to his client’s success on appeal. He submitted that there were four steppingstones around that obstacle which I should follow to find that the learned Master was not bound by Falzon.
The first step is that if there is an error in the DPN which is misleading then the notice is invalid. Mr Brohier submitted that that contention is unquestionable. In fact, that proposition is the subject of the discussion which follows. The second step is that there is an error in the notice in this case. That is so. In fact there are two errors. It does not matter for present purposes how the errors have come about. As I have mentioned earlier the first item in the notice was one which the Deputy Commissioner of Taxation was not pursuing and the last item was simply a wrong figure.
The third and fourth steppingstone suggested by Mr Brohier involve the proposition that the learned Master erred insofar as he failed to see an error in Falzon and he mistakenly followed Falzon. The submission is that the reasoning in Falzon is contrary to the decision of the New South Wales Court of Appeal in Deputy Commissioner of Taxation v Gruber (1998) 41 NSWLR 271 and the High Court case of Woodhams.
I turn first to Gruber and the submissions relating to it. In Gruber the relevant notice contained three alleged errors. One alleged error was that the notice failed to specify the date on which the group tax fell due.
Mr Brohier acknowledges that in Woodhams, the High Court held that such an error, or insufficiency, does invalidate a notice. The other two errors were horizontal and vertical errors, that is, there were individual items in the notice which were wrong (horizontal errors) and the total of the individual items was wrong (vertical error). Stein JA, with whom the other members of the court agreed, said that the amount of the liability for the penalty was the most important part of the notice. He said that the amount had to be correct. As the amount was not correct, a statutory purpose of the notice had not been fulfilled. The error was liable to mislead the recipient. His Honour held that the judge at first instance had been correct in finding that the notice was invalid.[3]
[3] Page 276.
Mr Brohier submitted that the High Court in Woodhams approved Gruber. He said that while the ratio of Woodhams was that the Act did not require DPNs to set out the due dates for the remittance of amounts that had been deducted by a company, the High Court approved the reasoning in Gruber obiter.
Mr Brohier cited the passage in the High Court’s judgement in which he submitted the court expressed such approval. At [30] the High Court said:
It is to be noted that, in Gruber, the point now under consideration [the due date point] was only one of a number of points in issue, and was dealt with quite briefly in the judgments. The section 22AOE notices that were served in Gruber contained a number of substantial errors, including miscalculation of the sums demanded. The errors were held to be such as to render the notices misleading. The failure of the notices to specify the due dates was also relied upon ...
The High Court then referred to the failure of the notices in Gruber to specify the due dates. The court dealt with the question of whether that failure amounted to a failure of the notice to fulfil its statutory purpose. Ultimately the court overruled Gruber insofar as that decision required the notices to set out the due dates.
The High Court did not overrule Gruber insofar as it may be taken to have found that the horizontal and vertical errors contributed to the tendency of the notices to mislead and hence, to their invalidity. However the passage in [30] in the High Court’s judgment is the passage upon which Mr Brohier relies for his submission that the High Court approved obiter the reasoning in Gruber regarding errors in the notice.
Mr Brohier criticised the learned Master’s interpretation of the High Court’s meaning in Woodhams. The learned Master said that Mr Brohier’s submission that the High Court approved Gruber read too much into the remarks of the High Court.[4]
[4] See [92] and [96].
In my view, Mr Brohier’s criticism is unfounded. The High Court was doing no more than reciting the reasoning of Gruber. It is true that if the court had meant to disapprove the reasoning in Gruber about the effect of the errors in the notices, it could have done so. It did not do so. On the other hand the issue in Woodhams was the sufficiency of notices which did not specify due dates. No question of errors in those notices arose. The fact that the High Court overruled Gruber on the due date’s point does not of itself mean that the High Court approved the reasoning in Gruber on the errors point. Like the learned Master I do not read the words of the High Court as approving the reasoning in Gruber about the effect of errors. In any event, the errors in Gruber were of two sorts – horizontal and vertical. There is in my view no reason at all to conclude that the High Court endorsed the proposition that horizontal errors alone could invalidate a notice. The learned Master was right to reject that conclusion.
I turn to the decision of the Full Court of Queensland in Falzon which considered both Gruber and Woodhams and also dealt with precisely the fact situation in this matter, that is, a notice with only horizontal errors.
The leading judgment in Falzon was delivered by Fraser JA. McMurdo P and Philippides J agreed.
The appellant in Falzon had received a DPN in which the Commissioner conceded there were two items which were “invalid”.[5] For present purposes it does not matter why they were said to be invalid. The appellant submitted that Gruber was authority for the proposition that the whole notice was rendered invalid. The court accepted that if Gruber did so decide, then it should follow Gruber unless it was convinced Gruber was plainly wrong.[6]
[5] [60].
[6] [61].
The court noted that in Gruber there were two errors – one horizontal and one vertical In Gruber there was a composite notice, that is a notice setting out a number of individual items of liability. The individual sums of unpaid tax were then added up. The notice demanded payment of the total sum of the individual items. That was not the case on the facts in Falzon. In Falzon there was only a horizontal error. The court explicitly distinguished Gruber on that very point. Fraser JA said at paragraph 67:
It is, in my respectful opinion, clear that the fact that the notice overstated the "total" by some $130,000 influenced his Honour's conclusion that the notice was invalid. It was not necessary for his Honour to decide whether or not the notice would have been invalid had that misstatement not been included. That is, in substance, the question in this case. Unlike the notice in Gruber, the "composite notices" in issue here did not demand payment of the total of the separate liabilities if one of the statutory alternatives to personal liability was not adopted. In my opinion Gruber is distinguishable for that reason.
His Honour then referred to Woodhams which, as I have indicated, focussed on the sufficiency of a DPN to fulfil its statutory purposes.
Mr Brohier submitted that a horizontal error necessarily imports a vertical error. If the recipient were to add up the individual items of unpaid tax he would come to a wrong total if one of the individual items was wrong.
However Fraser JA’s reasoning exposes the flaw in that submission. His Honour referred to authority which held that it is permissible to issue a composite notice, that is, a notice which itemises separate heads of tax liability. The Commissioner does not have to issue a separate notice for each item. The Commissioner may for convenience incorporate several items in the one notice. His Honour noted that the appellant disavowed any contention that if the Commissioner had instead chosen to issue separate notices for each item of liability, an error in one notice would invalidate all the notices. By implication his Honour suggested such a contention was untenable. His Honour held that, where a composite notice asserts separate and distinct liability for each individual item, the notice was not misleading, notwithstanding that there was an error in an individual item, ie a horizontal error.[7]
[7] [71]-[73].
At paragraph 74 his Honour held that the notice fulfilled its statutory purpose and was not misleading. The notice was valid.
In my view, there is, with respect, no basis for concluding that the decision in Falzon was wrongly decided. The case is not able to be distinguished from the present case. The facts are the same. The learned Master was right to follow it.
His Honour noted that in Deputy Commissioner of Taxation v Chen [2011] NSWDC 22, a judge of the New South Wales District Court reached a similar result.
Before me Mr Stephen McNamara made submissions on his own behalf as the Sixth Third Party. He adopted Mr Brohier’s submissions adding only that, as the notice is headed “Notice of Director’s Liability to Pay a Penalty” (emphasis added), the recipient would inevitably regard the sum of the individual items as the single penalty to be paid. There are other references in the notice to “penalty” singular. In that way any horizontal error necessarily imports a vertical error. In that way the notice is misleading. In my view, that submission fails for the reasons that Mr Brohier’s submissions fail. The items are to be read separately. I note that the notice in Falzon was headed in the same way as the notice in this case.
I dismiss the appeals.