Deputy Commissioner of Taxation v Clark - [2003] NSWCA 91

No judgment structure available for this case.

Reported Decision:
(2003) 45 ACSR 332
57 NSWLR 113
(2003) 21 ACLC 1063

Court of Appeal

CITATION: DEPUTY COMMISSIONER OF TAXATION v CLARK [2003] NSWCA 91

HEARING DATE(S): 3 March 2003

JUDGMENT DATE:
1 May 2003

JUDGMENT OF: Spigelman CJ at 1; Handley JA at 171; Hodgson JA at 172

DECISION: Appeal allowed with costs.

CATCHWORDS: CORPORATIONS - insolvent trading - where husband and wife sole directors of company - where defence to claim for indemnity if "good reason" exists for non-participation in management of company - where wife accepted appointment as director at husband's request - what constitutes "good reason" for non-participation in management - directors' duties - standard of care and skill required of directors - irreducible expectation of participation in management - whether relevant to "good reason" defence - Corporations Act 2001 (Cth) s 588FGB - STATUTORY INTERPRETATION - ejusdem generis rule - whether relevant to "good reason" defence - whether denotation of "good reason" altered due to abolition of requirement of two directors - Corporations Act 2001 (Cth) s 588FGB

LEGISLATION CITED: Close Corporations Act 1989 (Cth) ss 64, 110
Company Law Review Act 1998 (Cth)
Companies Code 1981 ss 229, 556
Corporate Law Reform Act 1992 (Cth)
Corporations Act 2001 (Cth) ss 128, 129, 180, 198A, 588FF, 588FGA, 588FGB, 588G, 588H, 588M, 588R, 588T, 588V, 588W, 588X, 1383, 1399
Corporations Law ss 223, 232, 301, 592
Income Tax Assessment Act 1936 (Cth) ss 221P, 221YHJ, 222ALA, 222ANA, 222AOB, 222AOI, 222AOJ, 222API, 222AQD
First Corporate Law Simplification Act 1995 (Cth)
Insolvency Act 1986 (UK) s 214
Insolvency (Tax Priorities) Legislation Amendment Act 1993 (Cth)

CASES CITED: 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371
Australian Securities Commission v Gallagher (1994) 11 WAR 105
Australian Securities and Investments Commission v Rich (2003) 44 ACSR 341
AWA Limited v Daniels (1992) 7 ACSR 759
Baker v Campbell (1983) 153 CLR 52
Biala Pty Ltd v Mallina Holdings Limited (No 4) (1994) 13 WAR 11
Byrne v Baker [1964] VR 443
CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384
Cody v J H Nelson Pty Ltd (1947) 74 CLR 629
Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115
Corporate Affairs Commission of New South Wales v Yuill (1991) 172 CLR 319
Council of the Shire of Lake Macquarie v Aberdare County Council (1969) 123 CLR 327
Daniels v Anderson (1995) 37 NSWLR 438
Daniels Corp International Pty Ltd v Australian Competition and Consumer Commission (2003) 77 ALJR 40
Dempster v Mallina Holdings Limited (1994) 13 WAR 124
DPP v Williams (1998) 104 A Crim R 65
Francis v United Jersey Bank 432 A 2d 814 (NJ 1981)
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
Group Four Industries Pty Ltd v Brosnan (1992) 59 SASR 22
Hore v Albury Radio Taxis Co-operative Society Limited [2002] NSWSC 1130
Imperial Chemical Industries of Australia and New Zealand Limited v Commissioner of Taxation (1972) 46 ALJR 35
K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309
Lake Macquarie Shire Council v Ades [1977] 1 NSWLR 126
Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1,304
Mattinson v Multiplow Incubators Pty Ltd (1977) 1 NSWLR 368
Metal Manufactures Limited v Lewis (1986) 11 ACLR 122
Metal Manufacturers Limited v Lewis (1988) 13 NSWLR 315
Morley v Statewide Tobacco Services [1993] 1 VR 451
O'Reilly v State Bank of Victoria Commissioners (1983) 153 CLR 1
Permanent Building Society (in Liq) v Wheeler (1994) 11 WAR 187
Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355
Quazi v Quazi [1980] AC 744
R v Gee [2003] HCA 12
R v Regos and Morgan (1947) 74 CLR 613
R v Secretary of State for Health; ex parte Quintavalle [2003] UKHL 13
R v Young (1999) 46 NSWLR 681
Re City Equitable Fire Insurance Co Limited [1925] Ch 407
Rema Industries & Services Pty Ltd v Coad (1992) 7 ACSR 251
Statewide Tobacco Services v Morley [1993] 1 VR 423
Szelagowicz v Stocker (1994) 35 ALD 16
Tourprint International Pty Ltd (in Liq) v Bott (1999) 32 ACSR 201
Powell v Deputy Commissioner of Taxation (District Court of Queensland, 12 December 1995, unreported)
Wilson v Commissioner of Stamp Duties (1988) 13 NSWLR 77

PARTIES :
Deputy Commissioner of Taxation (Appellant)
Carole Ellyn Clark (Respondent)

FILE NUMBER(S): CA 40767/01

COUNSEL: Mr M Aldridge SC / Mr P Rodionoff (Appellant)
Mr T Alexis (Respondent)

SOLICITORS: Australian Government Solicitor (Appellant)
S J Von Muenster (Respondent)

LOWER COURTJURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): ED 3501/00

LOWER COURT
JUDICIAL OFFICER : Palmer J

CA 40767/01
ED 3501/00

SPIGELMAN CJ
HANDLEY JA
HODGSON JA
Thursday 1 May 2003

DEPUTY COMMISSIONER OF TAXATION v Carole Ellyn CLARK

FACTS
Carole Ellyn Clark (nee Martin) (the Respondent) was a director of Southern Cross Interiors between 23 August 1995 and 3 June 1997. Her husband was the other director of the company. The company was wound up on 27 October 1997. The company’s liquidator obtained an order against the Deputy Commissioner of Taxation (the Deputy Commissioner) for the recovery of $208,737.44 paid by way of group tax and under the prescribed payments scheme. The payments were held to be an unfair preference. The Respondent’s husband was ordered to indemnify the Appellant for the amount, but the Respondent succeeded in establishing the defence pursuant to s588FGB(5) of the Corporations Act 2001 (Cth). The Deputy Commissioner appealed against the judgment given by Palmer J in favour of the Respondent. The issue before the Court was whether the respondent had good reason not to take part in the management of the company at the times of the payments.

HELD
(per Spigelman CJ, Handley and Hodgson JJA agreeing)

A.
Section 588FGB adopted s588H as a model. [20]

B.
The determination of what may be good reason for not participating in the management of a company is illuminated by the requirements of standards of care and skill by directors. The symbiotic interaction between legislative change and judicial decisions relating to directors’ participation in the management of the corporation also informs the interpretation of the defence in s588FGB(5). Legislative development and case law indicate that the expectation that directors will participate in management has intensified over time. [52], [92], [113]

Metal Manufactures Limited v Lewis (1986) 11 ACLR 122, Metal Manufacturers Limited v Lewis (1988) 13 NSWLR 315, Morley v Statewide Tobacco Services [1993] 1 VR 451, Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115, Group Four Industries Pty Ltd v Brosnan (1992) 59 SASR 22 considered.

C.
One aspect of the directors’ duty of care and diligence is a core, irreducible requirement of participation in the management of the company. Such a requirement is one of the factors underlying the scheme for insolvent trading of which s588FGB is a part. Such participation is a basal structural feature of Australian corporations law. [93], [97], [108], [109], [110], [116]

AWA Limited v Daniels (1992) 7 ACSR 759, Daniels v Anderson (1995) 37 NSWLR 438 applied. Australian Securities Commission v Gallagher (1994) 11 WAR 105, Biala Pty Ltd v Mallina Holdings Limited (No 4) (1994) 13 WAR 11, Dempster v Mallina Holdings Limited (1994) 13 WAR 124 discussed.

D.
A total failure to participate, for whatever reason, should not be regarded as a “good reason” within s588FGB(5). The express reference to “illness” in s588FGB(5) does not assist. The ejusdem generis rule is not applicable unless two different species are identified, because it is not then possible to determine a relevant genus for the purpose of reading down general words which follow. Nor is it appropriate to interpret the general words so broadly as to invoke other areas of the law in which a person may be excused from the legal consequences of his or her acts. The words “good reason” must be read down in accordance with the scope and purpose of the Corporations Act . [114], [121], [124], [126], [127], [133], [134], [137]

Cody v J H Nelson Pty Ltd (1947) 74 CLR 629, Quazi v Quazi [1980] AC 744 applied. Lake Macquarie Shire Council v Ades [1977] 1 NSWLR 126, DPP v Williams (1998) 104 A Crim R 65 , Mattinson v Multiplow Incubators Pty Ltd (1977) 1 NSWLR 368; Garcia v National Australia Bank Ltd (1998) 194 CLR 395 referred to.

E.
Subsequent statutory amendments did not alter the position. [142], [164], [166]

Council of the Shire of Lake Macquarie v Aberdare County Council (1969) 123 CLR 327, Imperial Chemical Industries of Australia and New Zealand Limited v Commissioner of Taxation (1972) 46 ALJR 35, R v Secretary of State for Health; ex parte Quintavalle [2003] UKHL 13, R v Gee [2003] HCA 12, Szelagowicz v Stocker (1994) 35 ALD 16, Hore v Albury Radio Taxis Co-operative Society Limited [2002] NSWSC 1130 referred to. Observations of Brennan J in Corporate Affairs Commission of New South Wales v Yuill (1991) 172 CLR 319 not followed.

ORDERS

CA 40767/01
ED 3501/00

SPIGELMAN CJ
HANDLEY JA
HODGSON JA

Thursday 1 May 2003

DEPUTY COMMISSIONER OF TAXATION v Carole Ellyn CLARK

Judgment

1 SPIGELMAN CJ: This is an appeal from part of a judgment of Palmer J. (Reported (2001) 53 NSWLR 213). Pursuant to a statutory right of indemnity, the Deputy Commissioner of Taxation sought declarations that each of two directors of a company, who were husband and wife, were liable to indemnify the Appellant for the repayment of monies, which the Commissioner was obliged to make to the liquidator of the company, Southern Cross Interiors Pty Limited (in liquidation) (“SCI”).

2 Palmer J made the declaration in the case of the husband, Robert Paul Clark. He refused to make the declaration in the case of the wife, Carole Ellyn Clark (nee Martin), (“the Respondent”). The only issue before the Court is the obligation, if any, of the Respondent, to be subject to the same obligation to indemnify the Appellant as has been declared to be the case for her husband.

3 Before Palmer J, the Appellant unsuccessfully sought to defend the proceedings brought by the liquidator for the repayment of the amounts paid by SCI to the Appellant by way of group tax and under the prescribed payments scheme. There is no appeal from this aspect of his Honour’s judgment. The amount in issue was the sum of $208,737.44 which had been paid by SCI to the Australian Taxation Office between 22 May 1997 and 19 August 1997. Pursuant to the legislative scheme to which I will refer below, these payments were found to be an unfair preference and Palmer J, accordingly, gave judgment for the liquidator against the Deputy Commissioner of Taxation for their repayment. The Deputy Commissioner sought indemnity against that judgment from the Respondent and her husband.

4 This appeal concerns the proper construction, and application to the facts of the case, of a defence available to a director in proceedings against the director for indemnity. The defence is in s588FGB(5) of the Corporations Act 2001 (Cth) which, pursuant to s1383 and s1399 of that Act, applies to these proceedings, notwithstanding the fact that the proceedings concerned events during the time that the former Corporations Law was operative. The defence is in the following terms:

“588FGB(5) It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at the payment time.”

5 No question of illness arose in the present case. The case turns on whether the Respondent “did not take part in the management” of SCI “for some other good reason” at the times of the payments.

Background Facts

6 His Honour made a number of findings of fact. Save in one respect, there is no challenge to those findings.

7 The Respondent was a director of SCI from 23 August 1995 to 3 June 1997. On 30 September 1997, an administrator was appointed to SCI and on 27 October 1997, the company was wound up.

8 Mr Clark was a carpenter. In 1994, he and three friends started a business doing small fit-out jobs. SCI was incorporated as the vehicle for this venture on 3 November 1994. For reasons which Palmer J noted were not explained in the evidence, Mr Clark was not an initial director of the company. He became a director on 1 May 1996. Mrs Clark, however, became a director on 23 August 1995, i.e. some months prior to her husband becoming a director. That was a day upon which one of the two then directors resigned. However, Mr Clark was appointed director when the remaining original director, impliedly the third co-venturer, resigned.

9 On the evidence of both Mr and Mrs Clark, she became a director when one of the directors resigned. He believed that the company required two directors, so he asked his wife to become a director. Implicit in this process is the assumption that he was already a director and would otherwise have been the sole director. The formal documentation does not suggest that this was the actual sequence of events. Nothing seems to have turned on this at trial. Nor has it become an issue in the appeal. There is no challenge on this appeal to the finding of primary fact by Palmer J that Mr Clark asked the Respondent to become the second director because it was a legal requirement that a company have two directors.

10 Mrs Clark has never been a director of any other company. Nor did she have any business experience. Her time was taken up as a housewife and mother. She said that when requested to become a director, she thought she had to accept as a wife. She agreed that, from time to time, she signed company documents, but that they were not explained to her and signature occurred in situations in which:

“I would usually have a frying pan in one hand and be signing with the other.”

11 His Honour made the following findings at [94]-[96]:

“I am satisfied on the evidence that in accepting appointment as a director of SCI Mrs Clark acted at her husband’s request, relying entirely on his implied assurance that her appointment was a formality because the company needed two directors. She thought that that was what she had to do as Mr Clark’s wife and she was happy to comply with his request.

I am satisfied that Mrs Clark left the management of SCI entirely to Mr Clark and that she did so, again, because she believed that as Mr Clark’s wife that was what she should do. She did not know what was involved in becoming a director of the company but believed that her husband did know. I infer that Mrs Clark trusted Mr Clark to the extent that she believed that, in asking her to become a director in name only, he would not deliberately place her at risk in any way without telling her.

I am satisfied that Mr Clark did not ask his wife to become a director for any reason other than that he thought it was a necessary formality that SCI have two directors. He did not withhold information as to the affairs of the company from his wife for any sinister purpose but, rather, out of consideration for her and because he thought that it was his role to accept the responsibility of providing for his family without burdening his wife with his business worries. In short, I am entirely satisfied that, in acting as they did, both Mr and Mrs Clark honestly believed that there was nothing improper or untoward in Mrs Clark taking no part at all in the management of SCI.”

12 At the end of his judgment, his Honour returned to the factual issues, before holding that the Respondent had established good reason for not participating in management, and said at [137]:

“I hold that Mrs Clark accepted appointment as a director of SCI with no understanding at all of the duties and responsibilities which that office entailed. That lack of understanding was not due to any fault on her part. Her husband failed to explain to her anything of the responsibilities which directorship involved and did not suggest that she seek advice or further information. She accepted the appointment at his request because of the trust and confidence which she had in him, believing, at his suggestion, that the appointment was only a formal requirement. She did not participate in the management of the company because she did not believe that she was required to do so. That belief was induced by her husband’s statements at the time he requested her to become a director and by his subsequent conduct in not discussing the company’s affairs with her. She acted upon that belief because of the trust and confidence she placed in her husband and because she thought that he was knowledgeable in such matters. Nothing was brought to her attention during her directorship which should have put her upon enquiry as to SCI’s financial position or as to her responsibilities as a director.”

The Legislative Scheme

13 Section 588FGB(5) of the Corporations Act 2001 (Cth), which falls to be construed in the present proceedings, was inserted into the Corporations Law 1991, by the Insolvency (Tax Priorities) Legislation Amendment Act 1993 (Cth) (“the Tax Priorities Act”). The subsection creates a defence to an action for indemnity in identical terms to two other defence provisions which already existed in the Corporations Law at the time that s588FGB(5) was inserted. It is clear that these provisions were the model for s588FGB(5).

14 The defences under s588FGB arise when there has been a court order under s588FF. That section empowers the court to order a person to pay amounts to a company in liquidation where a “voidable transaction” as defined in the Act has occurred. It is sufficient, for present purposes, to note that the payment by the company of group tax and of amounts under the prescribed payments scheme is capable of being, and was found in the present case to be, a voidable transaction.

15 Section 588FF orders can be made against any person. The Tax Priorities Act created a special regime in a case where the Commissioner of Taxation has been subject to an order under s588FF. Section 588FGA establishes an obligation upon directors to indemnify the Commissioner, subject to the defences in s588FGB.

588FGA Directors to indemnify Commissioner of Taxation if certain payments set aside

Income Tax Assessment Act 1936

(a) section 221F (except subsection 221F(12)), section 221G (except subsection 221G(4A)) or section 221P;

(b) subsection 221YHDC(2);

(c) subsection 221YHZD(1) or (1A);

(d) subsection 221YN(1);

(2) Each person who was a director of the company when the payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order.

(3) An amount payable to the Commissioner under subsection (2):

(a) is a debt due to the Commonwealth and payable to the Commissioner; and

(b) may be recovered in a court of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name.

(4) The Court may, in the proceedings in which it made the order against the Commissioner, order a person to pay to the Commissioner an amount payable by the person under subsection (2).

(5) A person who pays an amount under subsection (2) has the same rights:

(a) whether by way of indemnity, subrogation, contribution or otherwise; and

(b) against the company or anyone else;

as if the payment had been made under a guarantee:

(c) of the liability referred to in subsection (1); and

(d) under which the person and every other person who was a director of the company as mentioned in subsection (2) were jointly and severally liable as guarantors.

588FGB Defences in proceedings under section 588FGA

(1) This section has effect for the purposes of:

(a) proceedings to recover from a person an amount payable under subsection 588FGA(2); and

(b) proceedings under subsection 588FGA(5) against a person of the kind referred to in paragraph 588FGA(5)(d).

the payment time.

(3) It is a defence if it is proved that, at the payment time, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it made the payment.

(4) Without limiting the generality of subsection (3), it is a defence if it is proved that, at the payment time, the person:

(a) had reasonable rounds to believe, and did believe:

(“the other person”)

(ii) that the other person was fulfilling that responsibility; and

(b) expected, on the basis of information provided to the first-mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it made the payment.

(5) It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at the payment time.

(6) It is a defence if it is proved that:

(a) the person took all reasonable steps to prevent the company from making the payment; or

(b) there were no such steps the person could have taken.

(7) In determining whether a defence under subsection (6) has been proved, the matters to which regard is to be had include, but are not limited to:

(a) any action the person took with a view to appointing an administrator of the company; and

(b) when that action was taken; and

(c) the results of that action.”

16 Section 588FGB sets out defences which are in virtually identical terms to the defences contained in s588H and s588X of the Corporations Act, which sections existed in the Corporations Law before the Tax Priorities Act. These sections established defences to, respectively, contravention of the duty imposed upon directors by s588G to prevent insolvent trading and proceedings by a liquidator under s588W to recover from a holding company loss or damage when a subsidiary has been permitted to trade while insolvent.

17 The only difference is in the reasonable steps defence which in both s588H(5) and s588X(5) states:

“It is a defence if it is proved that the person [s 588X: “the corporation”] took all reasonable steps to prevent the company from incurring the debt.”

18 Section 588FGB(6) goes further when it provides:

“It is a defence if it is proved that:

(a) the person took all reasonable steps to prevent the company from making the payment; or

(b) there were no such steps the person could have taken.”

19 Accordingly, s588FGB(6)(b) contemplates a situation in which a director could not have taken any steps to prevent the company making a payment. There was no suggestion in the submissions that this was a material difference.

20 In order to understand the significance of the pre-existing provisions for the construction of s588FGB(5), I do not find it necessary to further refer to the scheme of Div 5, i.e. s588V-s588X. It is plain that the Tax Priorities Act used these provisions as a model. The sections providing defences in that Act were intended to be interpreted and applied in the same way.

21 Sections 588G and 588H provide:

588G Director’s duty to prevent insolvent trading by company

(1) This section applies if:

(a) a person is a director of a company at the time when the company incurs a debt; and

(b) the company is insolvent at that time, or becomes insolvent by incurring that debt, or by incurring at that time debts including that debt; and

(c) at that time, there are reasonable grounds for suspecting that the company is insolvent, or would so become insolvent, as the case may be; and

(d) that time is at or after the commencement of this Part.

(1A) For the purposes of this section, a company that buys back shares incurs a debt (even if the consideration is not a sum certain in money). The debt is incurred at the time when the buy-back agreement is entered into.

(2) By failing to prevent the company from incurring the debt, the person contravenes this section if:

(a) the person is aware at that time that there are such grounds for so suspecting; or

(b) a reasonable person in a like position in a company in the company’s circumstances would be so aware.

(3) This section is a civil penalty provision as defined by section 1317DA, so Part 9.4B provides for civil and criminal consequences of contravening it, or of being involved in a contravention of it.

(4) The provisions of Division 4 of this Part are additional to, and do not derogate from, Part 9.4B as it applies in relation to a contravention of this section.

588H Defences

(1) This section has effect for the purposes of proceedings for a contravention of section 588G in relation to the incurring of a debt (including proceedings under section 588M in relation to the incurring of the debt).

(2) It is a defence if it is proved that, at the time when the debt was incurred, the person had reasonable grounds to expect, and did expect, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

(3) Without limiting the generality of subsection (2), it is a defence if it is proved that, at the time when the debt was incurred, the person:

(a) had reasonable grounds to believe, and did believe:

(“the other person”)

(ii) that the other person was fulfilling that responsibility; and

(b) expected, on the basis of information provided to the first-mentioned person by the other person, that the company was solvent at that time and would remain solvent even if it incurred that debt and any other debts that it incurred at that time.

(4) If the person was a director of the company at the time when the debt was incurred, it is a defence if it is proved that, because of illness or for some other good reason, he or she did not take part at that time in the management of the company.

(5) It is a defence if it is proved that the person took all reasonable steps to prevent the company from incurring the debt.

(6) In determining whether a defence under subsection (5) has been proved, the matters to which regard is to be had include, but are not limited to:

(a) any action the person took with a view to appointing an administrator of the company; and

(b) when that action was taken; and

(c) the results of that action.”

22 Where a director has contravened s588G(2) and an unsecured creditor has suffered loss or damage, that loss or damage may be recovered from the director by the company (s588M(2)) or by the creditor (s588M(3), s588R, s588T).

23 Sections 588G, 588H, 588M, 588R, 588T, 588W and 588X were part of the new Pt 5.7B of the Corporations Law inserted by the Corporate Law Reform Act 1992 (Cth) with effect from 23 June 1993. The amendments made by the Tax Priorities Act, including s588FGA and s588FGB of the Corporations Law, took effect from 1 July 1993.

24 The Corporate Law Reform Act 1992 enacted major revisions of the scheme of the Corporations Law in relation to corporate insolvency. These reforms were based on recommendations by the Australian Law Reform Commission in its report on the General Insolvency Inquiry, which is known as the Harmer Report. There are two relevant documents: the Australian Law Reform Commission Discussion Paper No 32, General Insolvency Inquiry, Canberra, August 1987, (the “Harmer Discussion Paper”); and the Australian Law Reform Commission Report No 45, General Insolvency Inquiry, Canberra, 1988 (the “Harmer Report”).

25 The Harmer Report recommended the abolition of the priorities accorded to the Commissioner of Taxation over all other unsecured creditors with respect to certain amounts deducted or withheld (Harmer Report pars [733]-[741]). In the present proceedings the amount which the Deputy Commissioner of Taxation had to repay to the liquidator of SCI encompassed both group tax payments and payments under the prescribed payments scheme. Until 30 June 1993 the Commissioner had priority over all other unsecured creditors with respect to unremitted deductions for these two kinds of payments, under s221P and s221YHJ of the Income Tax Assessment Act 1936 (Cth).

26 At the time of the Harmer Report in 1988, these and two other such provisions, were the only debts due to the Crown in right of the Commonwealth which were still accorded priority. The priority under each of these sections arose when the property of the company had become vested in, or passed under the control of, a trustee. A liquidator and a receiver and manager were included within the definition of a trustee, but not a provisional liquidator. But for the abolition of the priority with future effect in 1993, a question would have arisen as to the applicability of the priority to the scheme of voluntary administration of insolvent companies, introduced as Pt 5.3A of the Corporations Law, which was one of the significant reforms arising from the Harmer Report.

27 The amendments of the Income Tax Assessment Act 1936 which effected the loss of priority of the Commissioner as and from 1 July 1993, were contained in the Tax Priorities Act. Other provisions of that Act were designed to have the effect of protecting the revenue in some manner offsetting the loss of priority. One set of provisions to this effect are the sections under consideration in the present case.

28 Furthermore, a new Div 9 was inserted into the Income Tax Assessment Act which encompasses, inter alia, a company’s obligations to remit group tax and deductions under the prescribed payments scheme. The relevant provisions of the Income Tax Assessment Act as inserted by the Tax Priorities Act are as follows:

“s222ANA(1) The purpose of this Division is to ensure that a company either meets its obligations under Division 2, 3A, 3B, 4 or 8, or goes promptly into voluntary administration under Part 5.3A of the Corporations Law or into liquidation.

(2) The Division imposes a duty on the directors to cause the company to do so. The duty is enforced by penalties. However, a penalty can be recovered only if the Commissioner gives written notice to the person concerned. The penalty is automatically remitted if the company meets its obligations, or goes into voluntary administration or liquidation, within 14 days after the notice is given.

(3) A penalty recovered under this Division is applied towards meeting the company’s obligations under the relevant Division. Conversely, amounts paid by the company reduce the amount of a penalty.

(4) Sections 221R, 221YHN, 221YHZJ and 221YR provide for the recovery of amounts payable under this Division.”

“222AOB(1) The persons who are directors of the company from time to time on or after the first deduction day must cause the company to do at least one of the following on or before the due date:

(a) comply with Division 2, 3A, 3B or 4, as the case may be, in relation to each deduction:

(i) that the company has made for the purposes of that Division; and

(ii) whose due date is the same as the due date;

(b) make an agreement with the Commissioner under section 222ALA in relation to the company’s liability under a remittance provision in respect of such deductions;

(c) appoint an administrator of the company under section 436A of the Corporations Law;

(d) begin to be wound up within the meaning of that Law.

(2) This section is complied with when:

(a) the company complies as mentioned in paragraph (1)(a); or

(b) the company makes an agreement as mentioned in paragraph (1)(b); or

(c) an administrator of the company is appointed under section 436A, 436B or 436C o the Corporations Law; or

(d) the company begins to be wound up within the meaning of that Law;

whichever first happens, even if the directors did not cause the event to happen.

(3) If this section is not complied with on or before the due date, the persons who are directors of the company from time to time after the due date continue to be under the obligation imposed by subsection (1) until this section is complied with.”

“s222AOI A person who pays an amount under section 222AOC or 222AOD has the same rights:

(a) whether by way of indemnity, subrogation, contribution or otherwise; and

(b) against the company or anyone else;

as if the payment had been made under a guarantee:

(c) of the liability referred to in section 222AOC; and

(d) under which the person, and every other person who has paid, or from whom the Commissioner is entitled to recover, a penalty under this Subdivision, were jointly and severally liable as guarantors.”

“222AOJ(1) This section has effect for the purposes of:

(a) proceedings to recover from a person a penalty payable under this Subdivision; or

(b) proceedings under section 222AOI against a person of the kind referred to in paragraph 222AOI(d).

(2) It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at any time when:

(a) the person was a director; and

(b) the directors were under the obligation to comply with subsection 222AOB(1).

(3) It is also a defence if it is proved that:

(a) the person took all reasonable steps to ensure that the directors complied with subsection 222AOB(1); or

(b) There were no such steps that the person could have taken.

(4) In subsection (3):

‘reasonable’

(a) when, and or how long, the person was a director and took part in the management of the company; and

(b) all other relevant circumstances.”

29 Section 222AOJ(2) adopts the same formulation as falls to be construed in the present case in s588FGB(5) of the Corporations Act. An agreement with the Commissioner, referred to in s222AOB(1)(b), is an agreement under s222ALA to make payment by means of specified amounts to discharge a person’s liabilities, including the liability to pay certain estimates of tax. Defences similar to those found in s222AOJ, including subs (2) of that section, are repeated in identical terms with respect to other mechanisms for recovery and the imposition of penalties incorporated into the Income Tax Assessment Act by the 1993 amendments. These provisions include s222API and s222AQD. It is not necessary to set out these sections.

The Judgment of Palmer J

30 Palmer J referred to the progressive tightening of the legislative provisions for insolvent trading which enabled orders of payment to be made against officers of a corporation.

31 His Honour considered the relevant case law, which primarily concerned s556 of the 1981 Companies Code. He referred particularly to two of these authorities as the likely origin of the express inclusion of the defence of “illness or other good reason”: 3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371 per Foster J and Metal Manufactures Limited v Lewis (1986) 11 ACLR 122 per Hodgson J.

32 Referring to s588H(4), his Honour said at [111]-[114]:

Kemish

Lewis

[112] Under s.588H(2) a director must now prove a positive, namely, that he or she had an actual and reasonable expectation of solvency. Non-participation in management at the relevant time would normally make such a defence impossible. The defence under subsection (4) is, therefore, a special defence which stands independently of those afforded by subsections (2) and (3). One must be careful not to treat a defence under subsection (4) as merely a sub-species of the defences under subsections (2) and (3).

Opera House Investments Pty Ltd v. Devon Buildings Pty Ltd

Friedrich

Corporations Act

Kemish

Friedrich

Corporations Act

33 His Honour noted that the only case which dealt with s588H(4) was the decision of Austin J in Tourprint International Pty Ltd (in Liq) v Bott (1999) 32 ACSR 201. Palmer J agreed with the result in Tourprint, but expressed some qualification as to the reasoning adopted by Austin J. Palmer J set out pars [74] and [75] of Austin J’s judgment in Tourprint as follows:

Report of the General Insolvency Inquiry

[75] In my opinion Mr Bott’s submission is contrary to the policy underlying the subsection as disclosed by the Harmer Committee. In para 312 the Harmer Committee expressed the view that a director should not be excused where, though acting reasonably, he has not shown the “necessary commitment to an involvement with the management of a company in financial difficulties”. Mr Bott clearly did not show a proper degree of commitment to involvement in the financial management of the company, for he was never involved in financial management at all. He ought to have realised that by not having any such involvement, he was not properly discharging his responsibilities as a director. He ought to have taken steps from the outset, and at least by mid-1993, to ensure that he had a proper degree of involvement as a director in the management of the company. He ought, in short, to have confronted Mr Moore and insisted upon proper involvement in the company’s affairs. He cannot now treat Mr Moore’s deceptive conduct as a good reason for not taking part in management when he did not assert his rights as a director from the outset and with vigour.”

34 Palmer J made the following observations in this regard at [119]-[123]:

necessary commitment to an involvement with the management of a company in financial difficulties”.

Corporations Act

…”

35 In Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1,304 at [70] Young CJ in Eq commented on this passage in Palmer J’s judgment:

Tourprint

36 I return to Palmer J’s judgment:

other unavoidable cause

other reasonable cause

other sufficient cause

Lewis

true reason

for good reason

Corporations Act

[123] In my opinion, in evaluating a defence under subsection (4) it is proper to start with the assumption that a person who accepts appointment as a company director has a sufficient understanding of the responsibilities which that office carries with it to know what is required of him or her in order to discharge those responsibilities as the law requires. That assumption is justified in a society which is generally literate, educated to secondary school standard, exposed to commercial transactions at varying levels ranging from the purchase of a car or home to running a small business, and in which the professional assistance of accountants and solicitors is readily available. But that assumption is by no means an irrebuttable presumption. Many examples can readily be given in which the assumption would not be valid: recent immigrants from non-English speaking countries who are themselves not English speaking; those with limited education and little, if any, exposure to a commercial environment, such as indigenous people in remote areas; those with intellectual disabilities, to name but a few.”

37 His Honour went on to refer to common law and equitable principles which relieved persons from their legal obligations: duress, non est factum, undue influence, deceit, misleading and deceptive conduct and unconscionable conduct. His Honour then said at [126]-[127]:

“[126] In my opinion, any reason which the law holds sufficient, according to accepted legal principle, to excuse a person from the legal consequences of his or her acts or omissions is a “good reason” for the purposes of a defence under CA s.588H(4) and s.588FGB(5).

Yerkey v. Jones

Garcia v. National Australia Bank Ltd

38 His Honour outlined the facts in Garcia and quoted from the majority judgment at p403 in that case. His Honour then said at [129]-[130]:

“[129] The law recognises that the relationship of trust and confidence between married people may lead one of them to undertake responsibilities or liabilities which would not have been undertaken but for the relationship. That reality of human experience, when it produces financial liability for the unsuspecting or incautious spouse, has recently acquired the provocative tag of “sexually transmitted debt”.

Equality Before the Law; Women’s Equality

The key feature of sexually transmitted debt is the relationship of dependence and the emotional ties that dominate the transaction. These are often found, for example, in wife/husband, parent/child and de facto relationships. The dependent party in the relationship accepts responsibility for the other party’s debt primarily because of that relationship. If the other party becomes unable or unwilling, for example, through bankruptcy or divorce, to meet the debt, the dependent party is liable for the debt. In that way the debt is ‘transmitted’ to the dependent party. A useful generic definition of sexually transmitted debt is

the transfer of responsibility for a debt incurred by a party to his/her partner in circumstances in which the fact of the relationship, as distinct from an appreciation of the reality of the responsibility for the debt, is the predominant factor in the partner accepting liability

39 His Honour referred to the literature on “sexually transmitted debt” and concluded at [134]-[135]:

Garcia

[135] On the other hand, if a woman, inexperienced in business and completely unaware of the responsibilities of company directorship, is told by her husband, whom she trusts and believes to be honest and to be knowledgeable in such matters, that some formality requires her to be appointed as a director to a family company and that management of the company may be left entirely to him, then, in my view, she has a “good reason” for not participating in management for such time as she genuinely remains in ignorance of her duties.”

Appellant’s Submissions on Fact

40 There is one respect in which the Appellant questions his Honour’s findings of fact. Mr M. Aldridge SC, who appeared for the Appellant, directed attention to his Honour’s finding at par [95] quoted above where his Honour said:

“… I infer that Mrs Clark trusted Mr Clark to the extent that she believed that, in asking her to become a director in name only, he would not deliberately place her at risk in any way without telling her.”

41 Mr Aldridge SC took the Court to the evidence of both Mr and Mrs Clark and submitted that there was no direct evidence of any such representation on the part of Mr Clark to his wife.

42 Mr Aldridge also drew attention to his Honour’s statement at par [137] that:

“… She did not participate in the management of the company because she did not believe that she was required to do so.”

43 Mr Aldridge submitted that the evidence did not indicate any positive statement from Mr Clark inducing his wife not to do anything.

44 In both these respects, Mr Aldridge submitted that there was no proper basis for any finding, if that is what his Honour made, of a positive representation on the part of Mr Clark. He submitted that neither Mr Clark nor Mrs Clark turned their minds to the question of her obligations. Mrs Clark chose not to become involved in the management of the company.

45 I have set out above his Honour’s reasons for decision. These turn on the proper construction of the section and its application to the facts as found by his Honour. I do not find that his Honour’s decision turned in any way on an assumption that Mrs Clark had been induced by a representation on the part of her husband that she not involve herself in the management of the company. Although some of his Honour’s language is consistent with the existence of a representation of some character, I do not believe his Honour made any such finding. In my opinion, his Honour’s references of this character were not of significance in the conclusion to which he came.

Submissions on s588FGB(5)

46 The Appellant’s primary submissions concerned the scope given to the words “other good reason” in both s588H(4) and 588FGB(5). Mr Aldridge relied on the analysis by Austin J in Tourprint, supra. He also relied on the case law on insolvent trading with respect to the defence relating to reasonable grounds to expect solvency, to the effect that a director was not entitled to hide behind ignorance of the company’s affairs which is of his or her own making, including a failure to make reasonable inquiries.

47 Mr Aldridge directed particular attention to the use of the word “illness” in the relevant subsection and identified the relevant scope and purpose in terms of other matters similar to illness. What was required, he submitted, was “something beyond the control of the director – something unavoidable”. On this basis, merely failing to take part in the management of the company, or choosing not to take part in the management, would not be sufficient.

48 With respect to the trial judge’s reference to Garcia v National Australia Bank, Mr Aldridge submitted that it was a case of unconscionable conduct and there was nothing of that character here. The Deputy Commissioner of Taxation was simply seeking to act upon a statutory right to an indemnity.

49 Mr Aldridge also relied on the decision and reasoning of Judge Morley QC in Powell v Deputy Commissioner of Taxation (District Court of Queensland, 12 December 1995, unreported), a decision on the similar formulation in s222AOJ(2) of the Income Tax Assessment Act.

50 Mr T Alexis, who appeared for the Respondent, adopted the reasoning of Palmer J. He emphasised that the relevant subsection does not involve a test of reasonableness, in contrast with s588FGB(3) and (4) and that it stands independently of those provisions. He submitted that the Appellant’s reliance on the insolvent trading cases, with respect to the parallel provisions in s588H(2) and (3) was misplaced.

51 Mr Alexis submitted that the legislature used the general words “for good reason” without limitation, in order to facilitate a defence appropriate to cover the wide range of circumstances that may cause a director not to be in a position to influence management at a particular time. The use of the word “illness” did not suggest that the balance of the section applies only to matters that are unavoidable. The broad words “good reason” should not be read down by reference to the express identification of illness as a good reason.

Statutory Background

52 The scope and purpose of the section to be interpreted in the present proceedings can only be understood in the light of prior legislation as applied in the case law. For over two decades there has been a symbiotic interaction between legislative change and judicial decision. This interaction has both clarified and intensified the expectation that directors will participate in the management of the corporation.

53 This expectation is reflected in s198A of the Corporations Act which provides:

“198A(1) The business of a company is to be managed by or under the direction of the directors.”

54 This section was inserted (originally as s226A) as one of the Replaceable Rules by the Company Law Review Act 1998 (Cth). However, a provision in relevantly identical terms was always contained in the Table A system that preceded the Replaceable Rules. (See e.g. Uniform Companies Act 1961, Schedule 4, Table A, clause 73, Companies Code 1981, clause 66; Corporations Law Schedule 1 – Table A, clause 66.) These provisions were subject to modification by Articles of Association. Nevertheless, it has been a basal operating assumption of Australian corporations law for many decades that, subject only to express provision to the contrary, directors will participate in the management of the company. That expectation was tested in both insolvent trading cases and director’s negligence cases.

55 Section 556 of the Companies Code and ss592(1) and (2) of the Corporations Law, applied to debts incurred prior to the commencement of Pt 5.7B on 23 June 1993. They were as follows:

“556/592(1) If -

(a) a company incurs a debt, whether within or outside the State;

(b) immediately before the time when the debt is incurred –

(i) there are reasonable grounds to expect that the company will not be able to pay all its debts as and when they become due; or

(ii) there are reasonable grounds to expect that, if the company incurs the debt, it will not be able to pay all its debts as and when they become due; and

(c) the company is, at the time when the debt is incurred, or becomes at a later time, a company to which this section applies,

any person who was a director of the company, or took part in the management of the company, at the time when the debt was incurred is guilty of an offence and the company and that person or, if there are 2 or more such persons, those persons are jointly and severally liable for the payment of the debt.

556/592(2) In any proceedings against a person under sub-section (1), it is a defence if the defendant proves [s592: “if it is proved”] –

(a) that the debt was incurred without his [s592: “the person’s”] express or implied authority or consent;

(b) that at the time when the debt was incurred, he [s592: “the person”] did not have reasonable cause to expect –

(i) that the company would not be able to pay all its debts as and when they became due; or

(ii) that, if the company incurred that debt, it would not be able to pay all its debts as and when they became due.”

56 Sections 588G and 588H of the Corporations Law replaced s592 of that Law. There were a number of changes. Of particular significance is that the defence found in s556/592(2)(a) has been deleted and has no equivalent in s588H. Section 556/592(2)(a) was the only basis on which sleeping directors, notably spouse directors, had successfully been able to defend proceedings under s556/592.

57 In Metal Manufacturers v Lewis, supra and, on appeal, (1988) 13 NSWLR 315, a spouse director had relied upon both s556(2)(a) and s556(2)(b). The director succeeded on the former but failed on the latter.

58 At first instance, Hodgson J held, at 134, that the husband simply “assumed authority to act as the company”. The conduct of the wife director was characterised as “acquiescence”. This was not, his Honour held, “authority or consent” for the particular debt. His Honour’s reasoning, at 133-135, which it is unnecessary to set out, gave the defence broad scope in the case of a sleeping director.

59 On appeal to this Court, the appeal was dismissed by Mahoney and McHugh JJA, Kirby P dissenting. The submissions put in this Court appear to have been quite narrow. It was submitted that the consent of Mrs Lewis to the appointment of her husband as managing director and/or allowing him to conduct himself as the occupant of that office, constituted the requisite authority or consent for purposes of s556(2)(a).

60 The reasoning of Mahoney JA, at 325, turned on the proposition that the authority of a managing director arose from the office, not from any “authority or consent” of the other directors. Accordingly, the defence in s556(2)(a) could be established. McHugh JA gave the defence an even wider potential scope when he concluded, at 328, that the issue had to be determined on the basis of whether there was “authority or consent” to the debt in question, not “to the incurring of debts generally”.

61 Kirby P dissented. In view of subsequent developments, it is pertinent to note his Honour’s reasons. His Honour said at 318-319:

cadre

62 Kirby P went on to reject the reasoning of Hodgson J for concluding that Mr Lewis did not have the “implied authority or consent” of Mrs Lewis. His Honour said at 321:

company’s

It might be said that, given the true nature of the relationship between the respondent and her husband, her reaction was entirely understandable. Perhaps it was. But it was not a reaction which the Code permitted her to take. And if the consequence is that a creditor can attack assets which have been acquired or placed in her name, the answer comes back that this is so because Parliament has so provided. People should not become (relevantly) directors of companies, if they wish to avoid exposing themselves and their assets to the liabilities now imposed by s 556. If they are directors, they should exercise the reasonable care and diligence which the Code now requires of them. They cannot surround themselves with a shield of immunity from the operation of s 556, by the simple expedient of washing their hands of the company’s affairs and leaving it to a co-director to attend to those affairs and to incur the debts with third parties which it is the very purpose of s 556 to control.”

63 His Honour further concluded at 322:

“But it seems scarcely credible that Parliament would have intended the blanket operation of this defence, to the frustration of the obvious scheme of the section and the achievement of its purposes, by the simple expedient of a director surrendering all of his or her powers to a co-director or managing director. This would involve the possibility of completely frustrating the operation of the Act in every case by the simple device of donning the blinkers of indifference to, and assuming the bridle of neglect of, the interest in the company’s affairs.”

64 The majority decision in Metal Manufacturers v Lewis was not well received by the corporate law community. Professor Robert Baxt and Ms Viva Goldman wrote:

An Annual Survey of Australian Law

1988

Company Directors’ Duties: Report on the Social and Fiduciary Duties and Obligations of Company Directors by the Senate Standing Committee on Legal and Constitutional Affairs

65 Similarly, in the fifth edition of his book, Principles of Company Law, Butterworths, published in 1990, Professor H A J Ford said, referring to Metal Manufactures Limited v Lewis at [410]:

“The reported cases on section 556 show that if the legislature wants to narrow down the privilege of limited liability, it must spell out its purpose in very clear terms.”

66 A note in the Australian Law Journal described the judgment as “much criticised” (1991) 65 ALJ 738. Others approved the dissenting reasoning of Kirby P ((1989) 63 ALJ 502 at 504; (1991) 65 ALJ 300 at 300-301; A.S. Sievers “Farewell to the Sleeping Director – The Modern Judicial and Legislative Approach to Directors’ Duties of Care, Skill and Diligence” (1993) 21 Australian Business Law Review 111 at 127-128.) One author concluded:

ALJ

67 The subsequent case law suggested that the Lewis majority would not generally be followed. Lewis was often distinguished. It was never overruled, however, differences between the majority judgments were highlighted. The reasoning of subsequent judgments reflected the approach of Kirby P who was increasingly cited with approval. (See e.g. Daniels v Anderson (1995) 37 NSWLR 438 at 498 per Clarke and Sheller JJA.)

68 In Statewide Tobacco Services v Morley [1993] 1 VR 423, and on appeal Morley v Statewide Tobacco Services [1993] 1 VR 451, a woman director had taken no part in the activities of the company which was managed first by her husband and, after his death, by her son.

69 Ormiston J adopted an approach which was similar to that of Kirby P in Lewis. His Honour traced the history of the legislation and its predecessors and noted at 429:

Companies Code.

While there may not have been any significant change in directors’ general duties as laid down in s. 229 of the Code, as compared with those imposed by s. 124 of the Uniform Companies Act, there can be little doubt that a more rigorous approach should now be taken by the courts in the light of the scope of remedies thereunder and of other legislative changes.”

“… it is thus apparent that, in enacting the present section, the legislature has deliberately sought to impose a heavier burden on directors and other officers of companies which happen to become insolvent. In my opinion, it is part of a consistent legislative pattern over recent years, whereby the duties and obligations of directors and company officers have been increased and made more onerous.”

70 On appeal, the joint judgment of the Full Court (Crockett, Southwell and Hedigan JJ) quoted extensively from the judgment of Ormiston J and agreed with it. Like Ormiston J at 425, the Full Court at 458-459 rejected the reasoning of McHugh JA in Lewis that there had to be authority for a particular debt.

71 Morley was applied in the case of another sleeping director by Tadgell J in Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115. His Honour’s reasoning, like that of Ormiston J and the Full Court in Morley, is consistent with the dissenting judgment of Kirby P in Lewis.

72 The next spouse director case was the decision of the Full Court of the Supreme Court of South Australia in Group Four Industries Pty Ltd v Brosnan (1992) 59 SASR 22. That court followed the approach of the Victorian Full Court in Morley rather than the New South Wales Court of Appeal in Lewis. Matheson J expressly agreed with the general approach to construing s556 of Kirby P in Lewis. His Honour and Olsson J distinguished the judgment of the majority on the facts. Olsson J expressly rejected the reasoning of McHugh JA in Lewis that authority or consent had to relate to the particular debt.

73 The divergence in reasoning in Lewis, Morley and Brosnan had not been resolved prior to the repeal of s592(2)(a). Nevertheless, the preponderance of authority was against the adoption of a technical approach to the defences in s592(2). The repeal of the paragraph made it unnecessary to resolve the divergence in approach.

74 As Palmer J noted, the express reference to illness in s588H(4) was derived from references in Kemish per Foster J and Lewis per Hodgson J. However, these references occurred in the context of considering the defences under s556/592(1)(b) to establish that a director did not have “reasonable cause to expect” that the company would not be able to pay its debts. On each occasion, Foster J in Kemish, at 377, and Hodgson J in Lewis, at 129, added to illness, absence (overseas per Foster J) as a basis for establishing the absence of reasonable cause. Hodgson J, however, went further when he said, at 129, that “complete ignorance of his duties as a director of the company and his complete neglect of such duties” could not be the basis of the requisite lack of ‘reasonable cause to expect’.

75 During this period active negotiations were being conducted between the Commonwealth Government and the States, with widespread consultation to replace the existing cooperative scheme, reflected in the respective Companies Codes, with national companies legislation in the form that eventually came into force as the Corporations Law. As shown by the identity of s592 of the Law, as originally enacted, and s556 of the Code, amendment to directors’ liability for insolvent trading was not brought into effect as part of this process.

76 In parallel with general consideration of national legislation, the Australian Law Reform Commission was conducting an inquiry pursuant to a broad reference relating to insolvency, which the Commission had received in 1983. Pursuant to this reference the Harmer Discussion Paper was published in August 1987. The following relevant observations appear in that Discussion Paper:

“[196] … [T]he history of the development of company law has demonstrated a need for a provision which turns the minds of directors to their responsibilities in incurring debts in more general circumstances. Such provisions, represented in the current companies legislation by s 556 and 557, have had varying degrees of success.”

77 The Paper also said:

“[200] Despite the 1981 legislation, the Commission considers that there is a need for further reform of the director liability provisions. The responsibility of a director with regard to insolvent trading has not, thus far, been expressed in the form of a positive duty owed to the company to prevent the company from engaging in that form of activity. Former and existing legislation has centred upon the incurring of a particular debt or debts and subjecting a director to a notion of joint responsibility for the debt or debts. This produces a series of singular and particular examinations of each instance of the incurring of a debt. However, the real abuse comes from permitting the company to engage in insolvent trading particularly after a point where, on an objectively considered basis, the company is unable to pay all its debts.”

78 The Commission proposed a restructuring of s556 with particular emphasis on creating a situation in which all creditors share equally in the sums recovered. The Commission identified certain defences to proceedings for recovery against directors. There was no reference to the defence in s556(2)(a), i.e. incurring a debt without a director’s express or implied authority or consent. Nothing was said as to why this particular defence should not exist. It was just not included in the draft legislation. The way in which the duty to prevent the company from engaging in insolvent trading was framed, in substance, overturned the reasoning of the majority in Lewis, particularly the reasoning of McHugh JA. The new approach removed reference to the incurring of a particular debt and directed attention to directors’ responsibility for the overall management of a company.

79 The Paper recommended the continuation of a defence that a director had reasonable grounds to expect that the company would be able to pay its debts. The discussion paper stated at [211] that this defence:

“… exonerates a director if that director has taken a proper and responsible role in the management of the company.”

80 The Paper identified two situations in which a person would be taken to have established reasonable grounds to expect the company would have been able to pay its debts. The first situation was where a competent and reliable person was charged with responsibility for seeing that a company did not engage in insolvent trading. This was the provision that eventually became s588H(3), albeit differently expressed. The second situation was what became s588H(4). This was expressed by the Commission in the Harmer Discussion Paper in the following way at [211]:

“Section D9 provides two specific situations in which a person will be taken to have established reasonable grounds to expect that the company would have been able to pay its debts as required by sD8(1)(a):

…

The second situation is where the director did not participate in the management of the company at the relevant time due to illness or other unavoidable cause. It is not appropriate for a provision designed to establish a proper standard of conduct by directors to impose liability on a director who is not in a position to influence the management of the financial affairs of the company at the relevant time.”

81 The link between “illness or other unavoidable cause” and the defence relating to a director’s belief in the company’s solvency, can be traced to the consideration of this matter in this very way by Foster J in Kemish and Hodgson J in Lewis.

82 In its final report (the Harmer Report), the Commission reiterated its observations that sections such as s556 “have had varying degrees of success” (at [276]). It also reiterated its identification of the deficiencies in the 1981 provisions in much the same terms as in the Discussion Paper. The Commission referred to the submissions it had received with respect to the proposal during the course of consultation after the Discussion Paper, including commentary on the proposed defences. With respect to some of the submissions the Commission noted:

[T]he Commission intends that a rigorous standard be applied to directors

Directors should be responsible for ensuring that the solvency of their company be monitored on a continuing basis

83 With respect to the particular defence now under consideration the Commission said:

Non-participation in management

84 Unlike the draft Bill published with the Harmer Discussion Paper, the draft Bill annexed to the Harmer Report did not link the “by reason of illness or other sufficient cause” test to the “had reasonable grounds to expect the company would have been able to pay its debts” defence. The two defences are clearly stated as alternatives in D7(1)(a) and (c). Why this test should become a freestanding defence was not explained. As eventually enacted s588H(3) is linked to s588H(2), but s588H(4) is not.

85 Nothing in the Harmer Discussion Paper or the Harmer Report suggests that the authors focused expressly on the issue of the sleeping director. However, in the specific case of the spouse director the Commission did refer to the parallel decision process, then underway, for what became the Close Corporations Act 1989 (Cth). This Act was never brought into force.

86 The proposals under consideration in that decision-making process would have established a special regime for small businesses. This would have encompassed virtually all corporations with spouse directors. Corporations which chose to be regulated under that legislation, then at the Bill stage, would have afforded even readier access to directors who were members than that proposed by the Harmer Report (cf Harmer Report [281] and Close Corporations Act 1989 esp s110).

87 One of the grounds for which it was proposed that there should be unlimited liability of members of a small corporation was “undue delay in bringing the corporation’s activities to an end”. (See Companies and Securities Law Review Committee Report to the Ministerial Council on Forms of Legal Organisation for Small Business Enterprises, September 1985 at [141]-[142].)

88 The Harmer Report was criticised for failing to create sufficient incentives for directors to place the company in some form of insolvency administration when it became clear that insolvency was likely. See Abe Herzberg, “The Metal Manufacturers Case and The Australian Law Reform Commission’s Insolvent Trading Recommendations” (1989) 7 Company and Securities Law Journal 177 at 185. This was contrasted with the English equivalent of s556, i.e. s214(2) of the Insolvency Act 1986 (UK) which made directors personally liable if prior to the commencement of the company’s liquidation, they knew or ought to have concluded that there was no reasonable prospect of avoiding liquidation.

89 Whether the incentives were sufficient need not be considered. The concern with what the Companies and Securities Law Review Committee called “undue delay in bringing the corporation’s activities to an end” was one of the purposes of the major reforms proposed by the Harmer Report.

90 There is discernible, in the provisions of what became Pt 5.3A and Part 5.7B of the Law, on the recommendation of the Harmer Report, a policy to ensure that steps are taken expeditiously to prevent a company continuing to incur debts when in financial difficulties. Section 588G is directed to this purpose. The Harmer Report said at [53]:

early and orderly steps

early positive action

91 Although not expressed in the legislation, the purpose of Div 9 of the Income Assessment Act 1936 identified in s222ANA quoted above – to ensure that a company either meets is obligations or goes into voluntary administration or into liquidation “promptly” – is also discernible as one of the purposes of Pt 5.3A and Pt 5.7B of the Corporations Law as enacted by the Corporate Law Reform Act 1992.

92 These major reforms in the legislative scheme for corporate insolvency were under consideration at the same time as expectations of skill and diligence of directors were increasing. The duties of directors were clarified and expanded, both statutory and common law duties, in a process influenced to a substantial degree by the adverse effects of corporate insolvency.

93 Until a decade or two ago, the standard of skill and the standard of care of directors were each to be determined by what could reasonably be expected from a person with the knowledge and experience of the director concerned (Re City Equitable Fire Insurance Co Limited [1925] Ch 407 at 428-429; Byrne v Baker [1964] VR 443 at 450-451). Over a period of time that standard of care and skill came to be regarded as too low. By 1992 it had become clear that directors were expected to be proactive. This was reflected in both amendment of the statutory duty and in the parallel development of the common law duty.

131 On the other hand, I am of the opinion that the construction adopted by Palmer J is too wide.

132 What can be regarded as “good reason” in one statute will not necessarily be acceptable as “good reason” in another statute. The context provides the relevant limitation. For this reason I do not agree with Palmer J that the words in s588H and s588FGB(5) are “as wide as they could be in order that the court may determine each case on its own particular facts”.

133 The words must be read down in accordance with the scope and purpose of the legislation in which they appear. For the reasons I have set out above, the Corporations Act context, both historical and textual, indicates that non-participation per se is impermissible. Accordingly, in my opinion, reasons which cause a director never to participate in management are not capable of constituting “good reason” for not participating at a particular point of time.

134 Furthermore, I do not agree with Palmer J that reasons which may excuse a person from the legal consequences of his or her acts in such disparate fields as duress, non est factum, undue influence, deceit, misleading and deceptive conduct and unconscionable conduct, will constitute “good reason” for purposes of the defences in s588H(4) and s588FGB(5). The focus is much narrower than that applicable in many of these disparate areas of the law and differs from each of them.

135 Palmer J placed particular emphasis on unconscionable conduct, drawing on the High Court’s decision in Garcia v National Australia Bank Ltd (1998) 194 CLR 395. However, the doctrine applied in that case depends on the knowledge and conscience of both the person seeking to avoid the obligation and that of the person to whom the obligation is owed. In Garcia the bank was taken to have understood that the surety wife may have reposed trust and confidence in the husband and, therefore had not been fully informed (at 409).

136 There may be cases in which, because of particular or imputed knowledge of creditors, a court will, in its discretion, refuse relief under s588M, s588R or s588T on grounds such as those which give rise to a finding of unconscionability. (It is more difficult to envisage the exercise of such a discretion under s588FGA.) It is quite a different thing to act on the basis that a corporate creditor, notably the Deputy Commissioner of Taxation, should be taken to have knowledge about the internal affairs of the company at the time a debt was incurred or the payment made. Indeed the Corporations Act (see s128 and s129, particularly s129(4)), provides that a person dealing with the company may assume that a director has properly performed his or her duties. One of the purposes served by the insolvent trading scheme is to ensure that the critical role of credit in commercial life can proceed without the additional costs of inquiry about such matters.

137 In my opinion, as at the times that the Corporate Law Reform Act and the Tax Priorities Act were passed, the facts and matters relied upon by the Respondent would not have been regarded as “a good reason” for failing to participate in the management of the company. Total abdication of the duties of a director in reliance on the conduct of a spouse, is not consistent with the duties imposed upon directors by the statute and by case law as each had developed until then.

138 That, however, is not the end of the analysis. The Parliament chose to use words of such generality that subsequent developments in the law of corporations, and in particular subsequent statutory amendments, could well change the position in relevant respects. Prior to 1997, when the payments in issue in the present proceedings were made, and the non-participation in management by the Respondent falls to be assessed, there was a relevant statutory change.

139 Statutes may be interpreted on the basis that the connotation of the language remains the same whereas its denotation may differ over time. This approach is of particular significance for constitutional interpretation, but it is not limited to that area.

140 So the word “gas” was interpreted to include the supply of liquefied petroleum gas, whereas only coal gas would have been in the contemplation of the Parliament at the time the legislation was adopted (originally in the Local Government Act 1906). (See Council of the Shire of Lake Macquarie v Aberdare County Council (1969) 123 CLR 327 esp at 331.) Similarly “mining operations” was extended to encompass a novel technological procedure for bringing subterranean pockets of brine to the surface to produce salt, which procedure was not in use at the time the Income Tax Assessment Act 1936 was enacted. (See Imperial Chemical Industries of Australia and New Zealand Limited v Commissioner of Taxation (1972) 46 ALJR 35 esp at 43.) The most recent such authority, as at the time of writing, is R v Secretary of State for Health; ex parte Quintavalle [2003] UKHL 13.

141 Nevertheless, the court will need to be satisfied that the word or words was or were intended to be used in a generic sense in the relevant statute. The words “motion picture films” were found not to have been employed in such a generic sense, and accordingly did not extend to a video cassette, for purposes of the stamp duty legislation. (See Wilson v Commissioner of Stamp Duties (1988) 13 NSWLR 77 esp at 78-79 and 86.)

142 Where, as here, Parliament has chosen a formulation which is of indeterminate scope and of a high level of generality, a court should interpret the provision on the basis that the intention of the original enactment was that the particular application of the provision may vary over time. The context, however, remains one of the law of corporations. In particular it will be changes in the principles establishing duties of directors, specifically duties arising in a context of insolvent trading, that determine whether there has been any relevant change in the context which justifies a conclusion that conduct which may not have constituted a “good reason” in 1992, should now be regarded as a “good reason”.

143 In different contexts this appears to me to have been the approach taken by the High Court in R v Gee [2003] HCA 12 at [13], [24], [114] and [203]; by the full Federal Court in Szelagowicz v Stocker (1994) 35 ALD 16 esp at 21 and in this Court by Campbell J in Hore v Albury Radio Taxis Co-operative Society Limited [2002] NSWSC 1130 esp at [40].

144 I should note one contrary view. In Corporate Affairs Commission of New South Wales v Yuill (1991) 172 CLR 319 the Court had to determine whether or not legal professional privilege constituted a “reasonable excuse”, pursuant to s296(2) of the Companies Code, for refusing or failing to comply with an inspector’s requirement that an officer produce books to appear for examination and answer the questions. When the Code came into force on 1 July 1982 legal professional privilege was limited to judicial proceedings, in accordance with O’Reilly v State Bank of Victoria Commissioners (1983) 153 CLR 1. Shortly afterwards the law was changed by the High Court judgment in Baker v Campbell (1983) 153 CLR 52.

145 Brennan J construed the Companies Code in the light of the law as it stood when the Code came into force, i.e. before Baker v Campbell. His Honour said that this involved “an application of the rule contemporanea expositio est optima et fortissima in lege – the best and surest mode of construing an instrument is to read it in the sense which would have been applied when it was drawn up” (at 322-323). He accordingly held that the phrase “without reasonable excuse” would not extend to the excuse of legal professional privilege. Dawson and Toohey JJ came to the same conclusion, but their Honours did not rely on the contemporanea expositio approach in doing so (see at 330-331).

146 Considerable doubt has now been cast on the result in Yuill. (See Daniels Corp International Pty Ltd v Australian Competition and Consumer Commission (2003) 77 ALJR 40 at [11], [35], [58], [90]-[92] and esp at [71].)

147 The present case concerns different words in subsequent corporations legislation. Nevertheless, the generality of the words is of a similar order and the context is cognate.

148 I would not adopt the approach of Brennan J. In my opinion, the terminology of “other good reason” is to be understood on the basis of the alternative “always speaking” approach to statutory interpretation. (See e.g. D C Pearce and R S Geddes, Statutory Interpretation in Australia, 5th ed, 2002 at [4.7]-[4.8]; F A Bennion Statutory Interpretation, 4th ed, 2002 at 762, 764-765.)

149 The relevant statutory change since 1992 concerns the necessity to have a second director which, on Palmer J’s findings, was the only reason why the Respondent was a director of SCI at all.

150 Statute has long provided that all corporations had to have a minimum number of two members and two directors. This requirement has often been regarded as inappropriate for small business enterprises.

151 In 1985 when the Companies and Securities Law Review Committee reported on reforms with respect to what was then referred to as close corporations, the Committee recommended that single member corporations be permitted. In its Report to the Ministerial Council on Forms of Legal Organisation for Small Business Enterprises, September 1985, the Committee said:

“[32] … The committee has reached the view that to deny the protection of incorporation to a sole trader may result either in an unreasonable discrimination against that individual or require, for the purpose of obtaining the benefits of close incorporation status, the forced inclusion of some other person who may have no knowledge, expertise or real interest in the business. To require a minimum of two members may perpetuate the artificiality that currently surrounds many small proprietary companies where the second shareholding is only a formality and that shareholder merely holds shares on trust for the real owner and controller.”

152 This approach was adopted in the Close Corporations Act which permitted corporations to operate with members, without the traditional provision for separation of functions between shareholders and directors. That Act did not require a minimum number of members, indeed it expressly contemplated the existence of a sole member. (See s64.) As noted above, the Act, although, passed was never proclaimed. The issue of permitting companies to operate with a single member nevertheless remained. It re-emerged in the context of the complete review of the Corporations Law with a view to its simplification. The First Corporate Law Simplification Bill 1994 was the product of this review.

153 This Bill proposed major amendments to the law with respect to proprietary companies, including the abolition of the distinction between exempt and other proprietary companies. The Bill was referred to the Parliamentary Joint Committee on Corporations and Securities which produced a Report on the First Corporate Law Simplification Bill 1994, Commonwealth of Australia, 2 March 1995. The Report said:

“1.35 The Bill reduces the minimum number of members and directors of a proprietary company from two to one. This proposed change overcomes the problems with directors who are, in reality, ‘silent directors’, who are recruited by the active director to fulfil the current technical requirements of the law, but who have no effective involvement in company management.

1.36 These people are more often than not spouses, relatives or friends of the active director who, despite their role as silent directors, are still subject to the same liabilities and responsibilities of all company directors. As silent directors are frequently the spouse or partner of the active director, debt that silent directors become liable for upon a company’s failure is often referred to as ‘sexually transmitted debt’.”

154 The Committee noted the prior history of the Close Corporations Act 1989 and the Parliament Joint Committee’s own previous Report on the Close Corporations Bill, which supported the continuation of a minimum of two members for small private corporations. (See par [2.55].) Nevertheless, the Committee resolved to support the proposal to reduce the number of members and therefore of directors. (See par [2.62].)

155 The consultation process associated with the corporate law simplification programme including, with respect to the particular provisions now under consideration, prior consideration in the context of the Close Corporations Act, culminated in the First Corporate Law Simplification Act 1995 (Cth). The amendments effected by that Act were in force at the time of the payments to the Deputy Commissioner of Taxation, which is the relevant time at which the issue of “good reason” needs to be determined in the present case.

156 The 1995 Act removed numerous regulatory burdens, particularly upon small businesses. With respect to the abolition of the requirement for a minimum number of directors and members, the Attorney General said in his Second Reading Speech:

“I should highlight the importance of the provisions in the bill which will enable sole traders to incorporate without the need to involve a second shareholder or director in the business. This amendment will alleviate a number of problems which have a particular impact on women who are involved in business. Reports over recent years suggest that women are heavily involved in small business and, in fact, are setting up their own businesses at a much faster rate than men. The current requirement for a minimum of two directors and shareholders for a company has presented significant practical difficulties for many women.

First, businesswomen may find it difficult to find another person willing to act as a director of their companies. They may be unwilling to have their husbands or partners as directors or shareholders out of a desire to retain a degree of independence within the family unit.

Secondly, the minimum number requirement often leads to women becoming directors of companies controlled by their spouse in which they do not play any meaningful role. This can expose these women to the legal liabilities of a company director, without them having any influence over the operation of the company. As recent cases have shown, people acting as directors without being involved in the company’s affairs can be responsible for the company’s debts upon insolvency. The outcome is similar to the problem which results from ‘sexually transmitted debt’ when a person acts as guarantor for the debts of their spouse. The bill will address these problems, and help women to establish themselves in business on their own terms.”

157 The meaning of the words “good reason”, in the context of an explanation for a director not participating in the management of a company, falls to be considered at a time when, contrary to the prior history of corporations legislation in Australia, the necessity for two members and directors had been abolished and that abolition had been occasioned to a substantial degree by what was regarded as an element of unfairness in making spouse directors responsible for the company’s debt on insolvency.

158 This is the kind of legislative change which is capable of altering the denotation of general words, such as those under consideration in the present case. That is particularly so where the prior consideration of the abolition of the requirement for a minimum number of members and directors had highlighted the frequency with which that requirement had led to the adoption of corporate structures in which a second director performed no useful function of any character.

159 Where, as is the case with the insolvent trading provisions, the objective of corporate regulation is in part to ensure positive action on the part of persons (relevantly taking steps to put a company into liquidation or administration as early as possible), such a purpose is unlikely to be served by imposing the obligations upon directors who, as a practical matter, would never take the requisite action. Declarations that persons should not become company directors unless they are prepared to assume the obligations and duties of such an office may prove of no practical import.

160 The preparatory materials for the FirstCorporate Law Simplification Act and the Attorney’s Second Reading Speech both drew on the concept of ‘sexually transmitted debt’ by way of an analogy. Palmer J in his judgment in the present proceedings refers to some of the literature on this matter.

161 There is often an acute dilemma when deciding whether the principled application of the law requires formal equality or gender neutral treatment, on the one hand, or recognition that the position of women in particular relationships requires separate treatment on the other. The issues that arise are as old as Aristotle, who identified injustice as treating equals unequally or treating unequals equally. The difficulty is to identify the circumstances in which persons are relevantly equal or unequal.

162 Some emphasise that gender neutral rules ignore the actual experience of many women who assume subordinate roles in both the public and private spheres. Others emphasise the possibility that permitting women to rely upon stereotypes embodied in special rules as a defence to legal liability will have adverse consequences on the ability of women to participate equally in commercial life. These contrasting views are, for example, set out in the Report of the Australian Law Reform Commission, Equality Before the Law: Women’s Equality, Report No 69, Part II, Commonwealth of Australia, 1994, cf pars [3.9] and [3.12]; Kristie Dunn, “’Yakking Giants’: Equality Discourse in the High Court” (2000) 24 Melbourne University Law Review 427 at 440-441.

163 The contrasting views are also reflected in the literature on the particular defence under consideration in the present case. See Julie Dodds Streeton, “Feminist Perspectives on the Law of Insolvency” in Aspects of Real Property and Insolvency Law (1994) Adelaide Law Review Research Paper No 6, 1 at 57-58 and cf at 16; Dr Belinda Fehlberg, “Women in ‘Family’ Companies: English and Australian Experiences” (1997) 15 Company and Securities Law Journal 348 at 350-352 and cf Julie Cassidy, “‘Sexually Transmitted Debts’: The Scope of Defences to Directors’ Liability for Insolvent Trading” (2002) 20 Company and Securities Law Journal 372 esp at 388, an article which considers Palmer J’s judgment in the present proceedings.

164 The recognition of complete abdication of responsibilities as a director as a “good reason”, for purposes of the statutory defences, carries with it the risk of reinforcing gender stereotypes and undermining the confidence with which potential creditors will deal with small companies in which women participate with their husbands. Maintaining a firm position on the duties of directors will encourage the use of single director corporate structures for small business. In my opinion, it is desirable to promote coherence between appearance and reality in corporate practice.

165 It is by no means clear what will prove to be the long term effect of the abolition of the requirement of two directors. Instinctively one would expect the number of small companies with a second sleeping director to decline. However, in the context of family companies there remain possible advantages in the form of income splitting for tax purposes or as a protection for the assets of the family, including the husband.

166 The change in the policy of the Corporations Act to permit single director companies abolished a requirement which had, as a practical matter, resulted in many small businesses having sleeping directors, often spouses. Although this change acknowledged the fact that some directors did not participate in management in the past, it does not, in my opinion, alter the basic requirement of the law that directors should participate.

167 In my opinion, there is no justification for a doctrine which would hold sleeping directors to be ‘de facto non-directors’, who should be relieved of their liabilities. Although, as a practical matter, the conduct of such directors may never meet the requisite standard of participation in management, such conduct should not be excused as a “good reason” in law.

168 Accordingly, the Respondent’s total reliance on her husband in the management of SCI is not a “good reason”, within the meaning of s588FGB(5), for her non-participation in the management of the company at the time when payments were made to the Appellant. The Respondent cannot, on that basis, resist her liability under s588FGA as a director of SCI.

169 The appeal should be allowed with costs.

170 This Court should make orders as follows:

1 Appeal allowed.

2 Order 3 in the Equity Division vacated.

3 Order 2 in the Equity Division vacated and in lieu thereof substitute a declaration that the First and Second Respondents are liable to indemnify the Defendant in respect of the judgment entered in favour of the Plaintiff.

4 Order 6 in the Equity Division vacated and in lieu thereof substitute an order that the First and Second Respondents indemnify the Defendant in relation to the costs referred to in Order 5 in the Equity Division.

Suitors Fund Act

171 HANDLEY JA: I agree with Spigelman CJ.

172 HODGSON JA: I agree with the orders proposed by Spigelman CJ, and generally with his reasons.

173 I gratefully adopt his analysis of the history of the provisions under consideration, except to the extent that his discussion of the NSW Court of Appeal’s decision in Metal Manufactures Ltd. v. Lewis (1988) 13 NSWLR 317 differs from my discussion of that case in Standard Chartered Bank Ltd. v. Antico (1995) 38 NSWLR 290 at 363-67, to which I adhere.

174 Whether a director knows it or not, he or she has a duty to exercise reasonable care and diligence in the discharge of his or her duties, with the standard of reasonableness being largely an objective one. A director’s non-participation in the management of the company will usually involve a breach of that duty, whether the director is aware of this or not; although if the non-participation is because of illness or for some other good reason, then there will not be a breach of duty if the illness or other good reason is such as to make the non-participation reasonable, on the same standard of reasonableness.

175 In my opinion, a director’s non-participation in the management of a company at a particular time will be “because of illness or for some other good reason” within s.588FGB(5) of the Corporations Act only if the illness or other good reason is of this character, that is, such as to make the non-participation reasonable (on the appropriate standard) and thus not a breach of the director’s duty to exercise reasonable care and diligence.

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Last Modified: 05/07/2003

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Deputy Commissioner of Taxation v Clark [2003] NSWCA 91

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Cited Sections

CITATION:	DEPUTY COMMISSIONER OF TAXATION v CLARK [2003] NSWCA 91
HEARING DATE(S):	3 March 2003
JUDGMENT DATE:	1 May 2003
JUDGMENT OF:	Spigelman CJ at 1; Handley JA at 171; Hodgson JA at 172
DECISION:	Appeal allowed with costs.
CATCHWORDS:	CORPORATIONS - insolvent trading - where husband and wife sole directors of company - where defence to claim for indemnity if "good reason" exists for non-participation in management of company - where wife accepted appointment as director at husband's request - what constitutes "good reason" for non-participation in management - directors' duties - standard of care and skill required of directors - irreducible expectation of participation in management - whether relevant to "good reason" defence - Corporations Act 2001 (Cth) s 588FGB - STATUTORY INTERPRETATION - ejusdem generis rule - whether relevant to "good reason" defence - whether denotation of "good reason" altered due to abolition of requirement of two directors - Corporations Act 2001 (Cth) s 588FGB
LEGISLATION CITED:	Close Corporations Act 1989 (Cth) ss 64, 110 Company Law Review Act 1998 (Cth) Companies Code 1981 ss 229, 556 Corporate Law Reform Act 1992 (Cth) Corporations Act 2001 (Cth) ss 128, 129, 180, 198A, 588FF, 588FGA, 588FGB, 588G, 588H, 588M, 588R, 588T, 588V, 588W, 588X, 1383, 1399 Corporations Law ss 223, 232, 301, 592 Income Tax Assessment Act 1936 (Cth) ss 221P, 221YHJ, 222ALA, 222ANA, 222AOB, 222AOI, 222AOJ, 222API, 222AQD First Corporate Law Simplification Act 1995 (Cth) Insolvency Act 1986 (UK) s 214 Insolvency (Tax Priorities) Legislation Amendment Act 1993 (Cth)
CASES CITED:	3M Australia Pty Ltd v Kemish (1986) 10 ACLR 371 Australian Securities Commission v Gallagher (1994) 11 WAR 105 Australian Securities and Investments Commission v Rich (2003) 44 ACSR 341 AWA Limited v Daniels (1992) 7 ACSR 759 Baker v Campbell (1983) 153 CLR 52 Biala Pty Ltd v Mallina Holdings Limited (No 4) (1994) 13 WAR 11 Byrne v Baker [1964] VR 443 CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 Cody v J H Nelson Pty Ltd (1947) 74 CLR 629 Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 Corporate Affairs Commission of New South Wales v Yuill (1991) 172 CLR 319 Council of the Shire of Lake Macquarie v Aberdare County Council (1969) 123 CLR 327 Daniels v Anderson (1995) 37 NSWLR 438 Daniels Corp International Pty Ltd v Australian Competition and Consumer Commission (2003) 77 ALJR 40 Dempster v Mallina Holdings Limited (1994) 13 WAR 124 DPP v Williams (1998) 104 A Crim R 65 Francis v United Jersey Bank 432 A 2d 814 (NJ 1981) Garcia v National Australia Bank Ltd (1998) 194 CLR 395 Group Four Industries Pty Ltd v Brosnan (1992) 59 SASR 22 Hore v Albury Radio Taxis Co-operative Society Limited [2002] NSWSC 1130 Imperial Chemical Industries of Australia and New Zealand Limited v Commissioner of Taxation (1972) 46 ALJR 35 K & S Lake City Freighters Pty Ltd v Gordon & Gotch Ltd (1985) 157 CLR 309 Lake Macquarie Shire Council v Ades [1977] 1 NSWLR 126 Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1,304 Mattinson v Multiplow Incubators Pty Ltd (1977) 1 NSWLR 368 Metal Manufactures Limited v Lewis (1986) 11 ACLR 122 Metal Manufacturers Limited v Lewis (1988) 13 NSWLR 315 Morley v Statewide Tobacco Services [1993] 1 VR 451 O'Reilly v State Bank of Victoria Commissioners (1983) 153 CLR 1 Permanent Building Society (in Liq) v Wheeler (1994) 11 WAR 187 Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 Quazi v Quazi [1980] AC 744 R v Gee [2003] HCA 12 R v Regos and Morgan (1947) 74 CLR 613 R v Secretary of State for Health; ex parte Quintavalle [2003] UKHL 13 R v Young (1999) 46 NSWLR 681 Re City Equitable Fire Insurance Co Limited [1925] Ch 407 Rema Industries & Services Pty Ltd v Coad (1992) 7 ACSR 251 Statewide Tobacco Services v Morley [1993] 1 VR 423 Szelagowicz v Stocker (1994) 35 ALD 16 Tourprint International Pty Ltd (in Liq) v Bott (1999) 32 ACSR 201 Powell v Deputy Commissioner of Taxation (District Court of Queensland, 12 December 1995, unreported) Wilson v Commissioner of Stamp Duties (1988) 13 NSWLR 77
PARTIES :	Deputy Commissioner of Taxation (Appellant) Carole Ellyn Clark (Respondent)
FILE NUMBER(S):	CA 40767/01
COUNSEL:	Mr M Aldridge SC / Mr P Rodionoff (Appellant) Mr T Alexis (Respondent)
SOLICITORS:	Australian Government Solicitor (Appellant) S J Von Muenster (Respondent)

LOWER COURTJURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	ED 3501/00
LOWER COURT JUDICIAL OFFICER :	Palmer J