Deputy Commissioner of Taxation v De Simone

[2019] VSC 346

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMON LAW DIVISION

S CI  2014 04447

DEPUTY COMMISSIONER OF TAXATION	Plaintiff
– v –
GIUSEPPE GIOVANNI ANTONIO DE SIMONE	Defendant

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JUDGE:	Mukhtar AsJ
WHERE HELD:	Melbourne
DATE OF HEARING:	26 April, 10 June, 16 December 2016, 10 May 2017
DATE OF JUDGMENT:	27 May 2019
CASE MAY BE CITED AS:	Deputy Commissioner of Taxation v De Simone
MEDIUM NEUTRAL CITATION:	[2019] VSC 346

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TAXATION ― Income Tax ― Group Tax ― Failure by company to remit employees’ withheld Pay-As-You-Go income tax ― Imposition of penalty on director ― Application for summary judgment for payment ― Onus on director to show that grounds for remission of penalty by Commissioner existed ― Nature of penalty ― Whether penalty provisions were an imposition of tax or an acquisition of property under the Commonwealth Constitution ― Applicability of the Charter of Human Rights ― Availability of estoppel by representation against the Commissioner ― Means of proof that company did not remit ― Allocation of payments received by Commissioner on statutory Running Balance Account ― Challenge to admissibility and integrity of Running Balance Account ― Challenge to conduct of operative tax officers ― Defences untenable or having no real prospects of success ― Summary judgment granted

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S Linden	Australian Government Solicitor
The Defendant appeared in person

HIS HONOUR:

1. The Deputy Commissioner of Taxation has applied for summary judgment against the defendant for payment of a director’s penalty for the Pay-As-You-Go income tax (‘PAYG tax’) that was withheld by two companies of which he was a director.  The two companies are De Simone Consulting Pty Ltd and Compumark Pty Ltd.  By law, a director must cause the company to remit the withheld tax to the Commissioner of Taxation, or, cause the company to take one of some other statutory steps.  If there is non-compliance with that law, the director is liable to pay to the Commissioner the unpaid amount of the company’s liability as a penalty.  The claim is for the loss of tax revenue.  It is a debt due to the Commonwealth. 

1. The writ was filed on 26 August 2014 with a statement of claim.  For the liability referable to De Simone Consulting (identified there as ‘Claim A’), the director’s penalty claim was stated to be $582,830.27.  As at 9 May 2017 that claim came to be adjusted for payments or credits made after the commencement of this proceeding to give an unpaid balance of $538,481.81.  The director’s penalty claim referable to Compumark (identified there as ‘Claim B’) was stated to be $11,355. 

1. By way of introduction, something needs to be said about the nature of this penalty claim.  It is not a tax recovery claim, and the penalty is not based on an imposition or an assessment of tax for a company director.  Rather, the statutory scheme is to be understood in the following way.[1]  Income tax is payable by an individual on income derived.  A company that employs that individual is bound under the Taxation Administration Act 1953 (‘the TAA 1953’) to deduct and then withhold the pay-as-you-go tax that is payable on the gross wages and salaries or commissions or bonuses or allowances derived by the individual.  By law, the directors of the company must then cause the company to take at least one of four steps: (i) remit the withheld PAYG tax to the Deputy Commissioner; (ii) make an agreement with the Deputy Commissioner for payment; or (iii) move promptly into voluntary administration or (iv) into liquidation.  If none of those steps occur, then each person who was a director at the time of the withholding of the PAYG tax is liable to pay, as a debt due to the Commonwealth, a penalty equal to the unpaid amount of the company’s liability to remit the amounts withheld.[2]  Under the legislation, the liability of the company and a director are ‘parallel liabilities’; that is, parallel not only as between themselves but parallel to the company’s own liability.[3] 

   [1]Adopting the analysis in Woodhams v DCT [1994] 4 VR 309, 317.

   [2]See s 222AOC of the Income Tax Assessment Act 1936.

   [3]See s 222AOH of the Income Tax Assessment Act 1936.

1. So understood, the company that withholds the PAYG tax is really the tax collector. Legally, that gives the distinction between laws ‘imposing taxation’ (being the language of s 55 of the Commonwealth Constitution) and laws ‘with respect to taxation’ (the language of s 51(ii) of the Constitution) that impose pecuniary and other obligations cast as a penalty and which are for the protection of the revenue or which provide the legal machinery by which the obligation declared by the imposition of tax is effectuated.[4]  It is a penalty on a director for breach of an obligation to cause the withholding company to remit the withheld tax to the Deputy Commissioner. 

   [4]See Permanent Trustee Australia Ltd v Cmmr of State Revenue (Victoria) (2004) 220 CLR 388, [47].

1. The Deputy Commissioner is not entitled to recover a penalty until the expiration of time under a statutory written penalty notice ―  known as a Director’s Penalty Notice (‘DPN’) ― is served on the director. If a legal proceeding is commenced, the TAA 1953 gives the Deputy Commissioner the advantage of evidentiary provisions facilitating the proof of the debt claim. A statement or averment about a matter in the statement of claim is prima facie evidence of the fact of the matter.[5]  A certificate signed by the Deputy Commissioner stating that the requisite notice was served on the director and stating that the amount specified in the certificate is a debt due and payable by the person liable is prima facie evidence of those matters.[6] 

   [5]See s 255-45 of Schedule 1 of the TAA 1953.

   [6]See s 255-50 of Schedule 1 of the TAA 1953.

1. The writ in this proceeding was filed in August 2014.  If an application for summary judgment is to be made, it is usually done by a plaintiff after the filing of a defence and an appraisal of its apparent merits and prospects of success.  In this case, the defendant served, but did not file, a defence in December 2014.[7]  In February 2015, the Australian Government Solicitor (’the AGS’) told the defendant, with an explanation, that it regarded the served defence as not disclosing a defence; that its contents were irrelevant, embarrassing and hopeless; and that an that application would be made to strike out the defence and seek summary judgment.[8]  That was an invitation to serve an amended defence.  By July 2015, discussions had occurred between the defendant and the ATO concerning disputes in various proceedings involving his or his company’s tax affairs, but without resolution.[9]  Come December 2015 the defendant had not produced an amended defence.  A letter dated 10 December 2015 from the AGS said this:[10]

3.This is an open letter, so we will do no more than also note that there were without prejudice discussion between the parties in August 2015, followed by further communication to you from the Australian Taxation Office, but this has not resolved this proceeding.  The purpose of this letter is to give you notice that the Deputy Commissioner desires to continue these proceedings and will do so by filing an application for summary judgment. It is proposed that this application will be filed and served upon you on or after 18 January 2016, without further notice. 

4.We are instructed that our client is willing to continue to explore the resolution of this proceeding or your other disputes with the Australian Taxation Office, however any such discussions will need to proceed concurrently with this proceeding. 

[7]See exhibit MC-1 to the affidavit of Michelle Clark sworn 18 January 2016 (‘the first Clark affidavit’).

[8]Ibid, exhibit MC-11.

[9]Ibid, exhibit MC-12.

[10]Ibid.

1. The summons for summary judgment was filed in January 2016.  The defendant has conducted the opposition to this application as a litigant in person.  With unopposed adjournments at his request, the hearing of the application took four separate days extending over a year.[11]  This was a most trying application.  Apart from the duration, there was a dispersion of arguments in resistance to the application, all of which required responsiveness. 

   [11]The hearings occurred on 26 April, 10 June, 16 December 2016 and 10 May 2017. 

1. Under s 61 of the Civil Procedure Act a plaintiff in a civil proceeding may apply for summary judgment on the ground that the defendant’s defence, or part of it, has no real prospect of success.  The Court of Appeal in Lysaght[12] has construed the test under the Civil Procedure Act for summary judgment in a proceeding on the ground that the defence has ‘no real prospect of success’ as meaning whether the respondent to the application has a real as opposed to a ‘fanciful’ chance of success.  That could be viewed as less stringent than the pre-existing judicial test of having to show that a defence was hopeless.  But the statutory language is said to preserve the pre-existing necessity for the Court to exercise the power of summary dismissal with caution, and in clear cases where the Court could be satisfied there was no real question to be tried.

   [12]Lysaght Building Solutions Pty Ltdv Blanalko Pty Ltd [2013] VSCA 158. See also Kennedy v Campaspe [2014] VSCA 47.

1. It is meaningful I think to adopt what was said by the High Court in Agar v Hyde[13] that what the Court looks for in making a judgment in these applications is a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.  In making that judgment, much depends on the extent and clarity of the facts (assuming no questions of credibility) and the amenability of readily applying the law to those facts.  To that end and despite the burden, the Court may allow ― as I have had to in this case ― extensive argument and assessment of the evidence and a consideration of the applicable law.

   [13](2000) 201 CLR 553, 575-6.

1. The commencement point in exposing the facts of this application is a statutory declaration made by the defendant on 12 August 2008.[14]  He made that declaration expressly as a director of De Simone Consulting.[15]  It is a declaration of the amounts withheld, on a monthly basis, by that company for PAYG tax from July 2005 to June 2008.  He declared that in the period from March 2007 to June 2008 there were 14 months in which the company withheld PAYG tax for a total of $590,817.  That is the rigid and undisputed fact for the purposes of this application concerning De Simone Consulting.  From that declaration, the relevant PAYG tax withheld by company can be presented this way:[16]

   [14]See exhibit MC-3 to the first Clark affidavit. 

   [15]He was appointed a director on 11 March 1982 and continues to hold that office.

   [16]See para 10 of the first Clark affidavit. 

Month of withholding	Due date	Amount withheld
Liability 1	March 2007	30 Apr 2007	$33,363.00
Liability 2	April 2007	22 May 2007	$33,748.00
Liability 3	May 2007	21 June 2007	$32,309.00
Liability 4	June 2007	30 Jul 2007	$81,248.00
Liability 5	August 2007	21 Sept 2007	$38,460.00
Liability 6	September 2007	29 Oct 2007	$35,099.00
Liability 7	October 2007	21 Nov 2007	$64,565.00
Liability 8	November 2007	21 Dec 2007	$37,088.00
Liability 9	December 2007	28 Feb 2008	$64,565.00
Liability 10	February 2008	25 Mar 2008	$33,013.00
Liability 11	March 2008	12 May 2008	$34,286.00
Liability 12	April 2008	21 May 2008	$31,712.00
Liability 13	May 2008	23 Jun 2008	$31,975.00
Liability 14	June 2008	11 Aug 2008	$68,899.00
Total	$590,817.00

1. The other company of which the defendant was director, Compumark Pty Ltd, was registered on 17 July 1985.  It was deregistered on 4 April 2014.  The defendant was appointed director on 28 August 1985, and ceased to be a director on the company’s deregistration.  In the period from January 2009 to September 2010, Compumark withheld PAYG tax of a total amount of $12,698.  That is also the rigid and undisputed fact.  The tax withheld by Compumark, on a quarterly basis, can be presented this way:

Description	Period of withholding	Due date	Amount withheld
Liability 1	1 Jan 2009 to 31 Mar 2009	12 May 2009	$1,494.00
Liability 2	1 Apr 2009 to 30 Jun 2009	11 Aug 2009	$2,205.00
Liability 3	1 Jul 2009 to 30 Sep 2009	11 Nov 2009	$2,201.00
Liability 4	1 Oct 2009 to 31 Dec 2009	02 Mar 2010	$2,074.00
Liability 5	1 Jan 2010 to 31 Mar 2010	12 May 2010	$1,950.00
Subtotal	$9,924.00
Liability 6	1 Apr 2010 to 30 Jun 2010	11 Aug 2010	$1,636.00
Liability 7	1 Jul 2010 to 30 Sep 2010	11 Nov 2010	$1,138.00
Subtotal	$2,774.00
Total	$12,698.00

1. Those are the threshold facts and figures for the two companies.

1. The Deputy Commissioner’s application for summary judgment is made according to the averments in the statement of claim and four affidavits within which there is exhibited a statutory certificate for the defendant’s indebtedness in the amount of $11,355 for the liability of Compumark as at 18 January 2016,[17] and a certificate for the defendant’s indebtedness for the liability of De Simone Consulting in the amount of $538,481.81 as at 9 May 2017.[18]  Those figures are less than appear in the total figures of the amounts actually withheld as shown in the above Tables.  That is because some adjustments have been made by the Deputy Commissioner after the accrual of liability for payments made or credits given before, and after, the commencement of this proceeding.[19] 

   [17]Ibid, exhibit MC-8.

   [18]Exhibit RB-1 to the affidavit of R Bhandari affirmed 9 May 2017.

   [19]That is discernible from para 8 and 20 of the statement of claim and deposed to in the first Clark affidavit at para 14 and 24;  the affidavit of M Clark sworn 26 April 2016 (‘the third Clark affidavit’) at para 6; and the affidavit of R Bhandri affirmed on 9 May 2017 at para 5.

1. To ensure the claim is validly made and actionable, it is necessary to first expose the applicable statutory regime, formerly under the Income Tax Assessment Act 1936 (‘the ITAA 1936’) and subsequently under the TAA 1953. This cannot be abbreviated.

The statutory regime and some antecedent facts

1. Division 12 of Schedule 1 to the TAA 1953 provides that ‘An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).[20] Under the former law, section 222AOB of the Income Tax Assessment Act 1936 (‘the ITAA 1936’) required a director to cause a company to pay the withheld PAYG tax to the Commissioner or to take certain other steps.  The section provided (with my underlining):

   [20]Section 12-35.

(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 its obligations in relation to deductions (if any) and amounts withheld (if any) 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 (if any) and amounts withheld (if any);

(c)appoint an administrator of the company under section 436A of the Corporations Act 2001;

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

(1A)     For the purposes of paragraph (1)(a), the obligations are:

(a)…

(b)to comply with Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953 in relation to each amount that the company has withheld (if any):

(i)for the purposes of Division 12 of that Schedule; and

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

(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 of the Corporations Act 2001; or

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

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. 

1. The reference to ‘an agreement with the Commissioner under section 222ALA’ is relevant. That section empowers, but does not oblige, the Deputy Commissioner to make a written agreement with a person under which the person is to pay specified amounts on specified days to discharge a specified liability under a remittance provision, and to make default provisions for non-compliance.

1. Where a company fails to meet its obligations under s 222AOB, the director’s liability for a penalty was imposed under section 222AOC. That provided (with my underlining):

(1)If section 222AOB is not complied with on or before the due date, each person who was a director of the company at any time during the period beginning on the first deduction day and ending on the due date is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company’s liability under a remittance provision in respect of deductions or amounts withheld:

(a)that the company has deducted for the purposes of Division 1AAA, 3B or 4 of this Act, or withheld for the purposes of Division 12 in Schedule 1 to the Taxation Administration Act 1953 (as the case requires); and

(b)whose due date is the same as the due date.

1. As a precondition to bringing a recovery action for a penalty, the Commissioner must first serve a statutory notice on the director. Section 222AOE of the former law provided:

The Commissioner is not entitled to recover from a person a penalty payable under this Subdivision until the end of 14 days after the Commissioner gives to the person a notice that:

(a)sets out details of the unpaid amount of the liability referred to in subsection 222AOC(1), (1A) or (2) (whichever relates to the penalty); and

(b)states that the person is liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount, but that the penalty will be remitted if, at the end of 14 days after the notice is given:

(i)the liability has been discharged; or

(ii)an agreement relating to the liability is in force under section 222ALA; or

(iii)the company is under administration within the meaning of the Corporations Act 2001; or

(iv)      the company is being wound up.  

1. There were provisions for the mode of service of the penalty notice. Section 222AOF of the former law provided:

(1)If it appears from ASIC documents that a person is, or has been within the last 7 days, a director of the company, the Commissioner may give the person a notice under section 222AOE by leaving it at, or sending it by post to, an address that appears from such documents to be, or to have been within the last 7 days the person’s place of residence or business.

1. On 3 March 2009, the Deputy Commissioner sent to the defendant by post a director’s penalty notice for PAYG withholding amounts concerning De Simone Consulting.[21] According to judicial statutory interpretation at the time, such notice was ‘given’ legally under section 222AOF when it was posted to the defendant, not when it was received: see Deputy Commissioner of Taxation v Meredith.[22] The notice as posted told the defendant that he as director was liable to pay, by way of penalty, the unpaid amount of the PAYG tax as withheld by the company for the 14 withholding periods that I have already tabulated. The notice told him the penalty would be remitted by the Deputy Commissioner (remitted in the sense of not exacted) if, within 14 days, the company’s liability for the unpaid amount was discharged or any of the steps under s 22AOE of the ITAA 1936 were taken.

   [21]Exhibits MC-5 and MC-6 to the first Clark affidavit.

   [22](2009) 245 ALR 150 (Ct App).

1. The claim avers, and the supporting affidavits verify, that none of the four possible statutory steps for a remission of the penalty were taken.  The 14 day notice expired on 17 March 2009.  Well after the expiration, an administrator was appointed to De Simone Consulting on 11 September 2009.  The administration ceased on 17 November 2009.[23]  

   [23]There were subsequent periods of Administration under a Deed of Company Arrangement: 12 April 2013 to 10 December 2013 and 17 November 2009 to 8 February 2013.  See exhibit MC-2 to the first Clark affidavit.

1. On 12 November 2009 the Deputy Commissioner commenced an earlier proceeding (‘the earlier proceeding’) in this Court against the defendant and his brother Serafino Francesco De Simone as co-directors of De Simone Consulting for payment of a director’s penalty.[24]  The claim was for payment of penalties referable to the same fourteen withholding periods and for the same base amount of $590,817 as in the present case, but it was reduced to $583,059 for post liability payments and credits as at that time.  The writ did not include a penalty claim concerning Compumark.

   [24]Writ no S CI 2009 10082.

1. A legislative change then occurred. With effect from 1 July 2010, the director’s penalty provisions in Part VI of the ITAA 1936 were repealed by the Tax Laws Amendment (Transfer of Provisions Act) 2010. Under that amending Act, the pre 1 July 2010 director’s penalties under the ITAA 1936 became transferred to, and payable under, Division 269 of Schedule 1 to the TAA 1953. Under the ‘new’ law, penalties under the former law that remained unpaid as at 1 July 2010 became payable under machinery provisions in the TAA 1953.[25] 

   [25]Item 65 of Schedule 1 to the Tax Laws Amendment (Transfer of Provisions Act) 2010.

1. That brings me to a collateral legal situation that emerged.  As I have said, the amending transfer of laws legislation came into effect on 1 July 2010.  That occurred after the service of the penalty notice on the defendant and the accrual of liability for a director’s penalty.  On 25 February 2011 the Court of Appeal decision in Meredith (which held in 2007 that service of a director’s penalty notice occurred on the act of sending it) was overruled by a five member bench of the New South Wales Court of Appeal in Soong v Deputy Commissioner of Taxation.[26]  Applying the Acts Interpretation Act 1901, the Court in Soong held that a penalty notice under s 222AOF of the ITAA 1936 was served when it was delivered to the recipient and not when it was posted by the sender. An application by the Commissioner to the High Court of Australia for special leave to appeal the decision in Soong was refused on 12 August 2011. 

   [26](2011) 278 ALR 538.

1. I return to the earlier proceeding because it is relevant to the schema of the defendant’s opposition to summary judgment.  In that earlier proceeding, the Deputy Commissioner had filed likewise an application for summary judgment for payment of a director’s penalty.  Apprehensions arose whether the decision in Soong affected the legal validity of the penalty notice on which enforcement of any penalty was predicated.  For that reason, the Deputy Commissioner abstained from proceeding with that summary judgment application in the earlier proceeding because, as the directors and the Court were told, the Commonwealth was proposing to make amending legislation to restore retrospectively the view of the law in Meredith[27] so as to ensure the ongoing validity of director’s penalty notices, including the notice already served on the defendant and his brother in relation to De Simone Consulting.  For that reason, the Deputy Commissioner sought leave of the Court in the earlier proceeding to discontinue the case, with a reservation of the right to file fresh proceedings after the commencement of amending legislation, based on the same facts and cause of action.  Under the Court’s procedural rules, a discontinuance is not a defence to a subsequent proceeding for the same cause of action unless the Court otherwise provides by any order when giving leave to discontinue.[28] 

   [27]Decided on 10 December 2007.

   [28]Chapter I, rule 25.06.

1. On 28 October 2011 the Court in the earlier proceeding gave the Deputy Commissioner unconditional leave to discontinue.   In doing so, the Court refused an application by the De Simone brothers that the discontinuance be granted only on the condition that the Deputy Commissioner be precluded from issuing a fresh director’s penalty proceeding against them after any amending legislation.  Thus, at law, the Deputy Commissioner was free to sue again after the passage of the proposed amending legislation.

1. On 29 November 2011, the Tax Laws Amendment (2011 Measures No 7) Act 2011 was passed.Schedule 7 to the Act provided —

(1)This item applies if the Commissioner gave (or purported to give) a notice under former section 222AOE on or after 10 December 2007 by sending it by pre-paid post in accordance with section 28A of the Acts Interpretation Act 1901.

(2)For the purpose of former section 222AOE, treat the notice as having been given at the time the Commissioner sent it by pre-paid post in accordance with section 28A of the Acts Interpretation Act 1901.

1. The Queensland Court of Appeal in Reardon & Anor v Deputy Commissioner of Taxation[29] and the New South Wales Court of Appeal in Deputy Commissioner of Taxation v Zammitt[30] held that the amending Act operated to validate a penalty notice issued under (the former) section 222AOE of the ITAA 1936. Those cases also held that, before commencing proceedings to recover a director’s penalty, the Deputy Commissioner was not required to issue a new notice under the TAA 1953 if a notice had already been issued under the former s 222AOE of the ITAA 1936.

   [29]See (2013) 92 ATR 494 at [65], [100].

   [30][2014] NSWCA 104; (2014) 284 FLR 212.

1. What is the outcome of all this? The director penalty notice concerning De Simone Consulting that had already been issued and served by the Commissioner on the defendant was valid and was given on 3 March 2009. The defendant had 14 days to cause the company to take any one of the four statutory steps. If the company did not do so, then he was liable as director to pay a penalty equivalent to the amount withheld. A penalty that remained unpaid as at 1 July 2010 under the former law in the ITAA 1936 became payable under the machinery provisions of the new law in the TAA 1953.

1. For completeness then, the relevant provisions within Division 269 of Schedule 1 of the TAA 1953 effective from 1 July 2010 are as follows.

1. Section 269-15 provides:

Directors’ obligations

(1)The directors (within the meaning of the Corporations Act 2001 of the company (from time to time) on or after the initial day must cause the company to comply with its obligation.

(2)The directors of the company (from time to time) continue to be under their obligation until:

(a)the company complies with its obligation; or

(b)an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001; or

(c)the company begins to be wound up (within the meaning of that Act).

1. Section 269-20 provides:

Penalty for director on or before due day

(1)       You are liable to pay to the Commissioner a penalty if:

(a)at the end of the due day, the directors of the company are still under an obligation under section 269-15; and

(b)you were under that obligation at or before that time (because you were a director).

Note:   Paragraph (1)(b) applies even if you stopped being a director before the end of the due day: see subsection 269-15(2).

(2)       The penalty is due and payable at the end of the due day.

Note: The Commissioner must not commence proceedings to recover the penalty until the end of 21 days after the Commissioner gives you notice of the penalty under section 269-25.

…

Amount of penalty

(5)The amount of a penalty under this section is equal to the unpaid amount of the company’s liability under its obligation.

Note 1: See section 269-40 for the effect on your penalty of the company discharging its obligation, or of another director paying his or her penalty.

Note 2:           See section 269-45 for your rights of indemnity and contribution.

1. As for the machinery provisions, Part 4-15 of Schedule 1 of the TAA 1953 contains general rules regarding recovery of ‘tax-related liabilities’. The penalties claimed in this proceeding are ‘tax-related liabilities’.[31]  An amount of a ‘tax‑related liability’ is a debt due to the Commonwealth and payable to the Commissioner and may be recovered in a court of competent jurisdiction by a Deputy Commissioner of Taxation suing in his or her official name.[32]

   [31]See Schedule 1 to the TAA 1953. See Item 139 of the table in s 250-10(1) and s 255-1(1).

   [32]See s 255-5 of Schedule 1 to the TAA 1953.

1. Section 255-45 of Schedule 1 to the TAA 1953 provides where relevant:

(1)A certificate:

(a)stating one or more of the matters covered by subsection (2) or (3); and

(b)signed by the Commissioner, a *Second Commissioner or a *Deputy Commissioner;

is prima facie evidence of the matter or matters in a proceeding to recover an amount of a *tax-related liability.

(2)A certificate may state:

(a)that a person named in the certificate has a *tax‑related liability; or

…

(c)that notice of an assessment, or any other notice required to be served on a person in respect of an amount of a tax‑related liability, was, or is taken to have been, served on the person under a *taxation law; or

(d)that the particulars of a notice covered by paragraph (c) are as stated in the certificate; or

(e)that a sum specified in the certificate is, as at the date specified in the certificate, a debt due and payable by a person to the Commonwealth. 

1. Section 255-50 of Schedule 1 to the TAA provides (with my underlining):

(1)In a proceeding to recover an amount of a *tax-related liability, a statement or averment about a matter in the plaintiff’s complaint, claim or declaration is prima facie evidence of the matter.

(2)This section applies even if the matter is a mixed question of law and fact.  However, the statement or averment is prima facie evidence of the fact only.

(3)This section applies even if evidence is given in support or rebuttal of the matter or of any other matter.

(4)Any evidence given in support or rebuttal of the matter stated or averred must be considered on its merits.  This section does not increase or diminish the credibility or probative value of the evidence.

(5)This section does not lessen or affect any onus of proof otherwise falling on a defendant.

1. This brings me to Compumark.  On 31 August 2011 (truly in the era of the new legislation) the Deputy Commissioner sent to the defendant a director’s 21 day penalty notice for the PAYG withholding tax liabilities of Compumark.[33] As shown in the earlier table for Compumark by reference to the timing of the due date, some of the liability for the director’s penalty under that notice occurred originally under the former ITAA 1936; and some occurred under the new law in the TAA 1936. Nothing turns on that. The defendant was a director of Compumark from 28 August 1985 to 4 April 2014 after which date the company was deregistered.[34] 

   [33]Exhibit MC-10 to the first Clark affidavit.

   [34]Ibid, exhibit MC-7.

1. Pausing here, I can now state the following proven or prima facie facts as averred: 

(a)       both companies withheld PAYG tax: it was $590,817 in the case of De Simone Consulting and $12,698 in the case of Compumark; 

(b)      the defendant was at all material times a director of both companies that were legally obliged to remit the withheld tax to the Deputy Commissioner;

(c)       he was served with a 14-day director’s penalty notice on 3 March 2009 concerning De Simone Consulting;

(d)      he was served with a 21 day director’s penalty notice concerning Compumark on 31 August 2011;

(e)       there is no doubting the proper service and validity of the statutory penalty notices on which the Deputy Commissioner relies, so this enforcement proceeding was validly commenced; 

(f)       the Deputy Commissioner avers with the force of the statutory prima facie evidentiary provisions, and, it is also sworn by an involved officer of the ATO that both companies did not remit the amounts withheld, none of the four events under the notice were fulfilled in order to obtain a remission of the penalty from the Deputy Commissioner;

(g)      the defendant is therefore liable to pay a penalty for the amount of the unremitted PAYG which, after reductions, came to $538,481.81 and $11,355; and

(h) certificates are produced under section 255-45 of Schedule 1 to the TAA 1953 signed by the Deputy Commissioner stipulating the amount due and payable.[35]

[35]For De Simone Consulting see exhibit MC-4 to the first Clark affidavit (for $558,707.44 at 18 January 2016); exhibit MC-16 to the third Clark affidavit (for $565,696.19 at 26 April 2016); exhibit RB-1 to the affidavit of Richika Bhandari affirmed 9 May 2017 (for $538,481.81 at 9 May 2017).  For Compumark see: exhibit MC-8 to the first Clark affidavit (for $11,355 as at 18 January 2016).

1. On that evidence, there has been a loss of revenue to the Commonwealth and the Deputy Commissioner’s basis for establishing statutory liability and seeking summary judgment is prima facie made out. The onus shifts to the defendant to show, by evidence, a defence on the merits according to which there a real question to be tried, or, persuade the Court under s 64 of the Civil Procedure Act that even if there is no real prospect of success, there is some other reason why it is in the interests of justice that the matter be allowed to proceed to trial and not summarily. 

1. The defendant has relied on four documents in opposition to the application. The first of those was the defence served 10 December 2014 to which I have already referred in passing. That document raises a farrago of asserted defences, including challenges to the validity of the director’s penalty provisions under the Constitution, and invoking the Victorian Charter of Human Rights.  Although the notice of defence is not evidence, I am bound to consider it especially as it says ― without any particularisation ― that De Simone Consulting ‘made payments to the Commissioner in the sums in excess of $590,817 from 1 July 2006 to the present which sums ought have extinguished the liability’.[36]  The other documents are: an affidavit in opposition sworn on 25 April 2016;[37] ‘Submission in Opposition’ dated 16 December 2016; and ‘Submissions in Response’ dated 9 May 2017.  Those documents are diffusive but, as I comprehend them, are saying that payments were made to the Deputy Commissioner over time on behalf of De Simone Consulting which have not been properly allocated to satisfying the company’s liability for the withheld PAYG tax that is the subject of the claim here concerning De Simone Consulting.[38]  None of this concerned the smaller claim against Compumark which was deregistered in April 2014. 

   [36]See para 7 of the Defence.

   [37]That exhibits an affidavit sworn by him on 4 October 2010 in the earlier proceeding.

   [38]See affidavit in opposition, para 9 and 21.

1. On 10 June 2016 (the second adjourned day of hearing), I isolated without objection the application for summary judgment referable to the liability of Compumark.  I granted the application in the sum of $11,355.  That figure was not in dispute.  I ought now restate the reasons for that decision.

Re: Compumark  

1. The defendant did not challenge the service or validity of the DPN served on him as director of Compumark.  He contended that the penalty ought to have been remitted by the Deputy Commissioner on an argument that proceeded as follows. 

1. The DPN to the defendant concerning the withholding liabilities of Compumark was issued on 31 August 2011.[39] That notice stated in accordance with the TAA 1953 that the penalty would be remitted if at the end of 21 days of service (as one of the four possible steps) ‘the company is being wound up’. According to an ASIC company search, from 27 September 2010 to 4 June 2012 the status of the company was ‘Strike-Off Action In Progress’.[40] The strike off action was initiated by ASIC under s 601AB of the Corporations Act which causes deregistration for a company’s failure to lodge statutory returns.  The company search also shows that a liquidator was appointed by the Court on 5 June 2012.  That appointment ceased the following day when joint liquidators were appointed.  They ceased their appointment on 22 January 2014. 

   [39]See exhibit MC-10 to the first Clark affidavit.

   [40]Ibid, exhibit MC-7.

1. Thus, as a matter of timing, the DPN was issued within the period in which the strike-off action was in progress.  Mr De Simone submitted that the process of a company being struck off the register of companies was tantamount to a company being wound up because, he said, the end result was the same.  He submitted that in a winding up of a company in liquidation, the final step is the deregistration of a company; and the statutory expression ‘being wound up’ is generic and means not only being wound up under a liquidation, but includes being prospectively wound up by the process of deregistration after being struck off.  He also submitted that Compumark had ceased trading, and that in effect was the same thing as being ‘wound up’.  All of these submissions were, he said, supported because the use of the expression ‘the company is being wound up’ in the DPN did not say ‘winding up’ with any reference to the Corporations Act. 

1. I rejected that argument. On ordinary legal acceptation, a company that has been deregistered for non-compliance with statutory lodgement requirements, or a company that has ceased trading, is not a company that has been ‘wound up’. The defendant’s submission also ignores the words of the governing statute. The source of a director’s obligation to cause a company to comply with its obligation to remit the withheld tax is under s 269-15(2) which states (with my underlining):

(2)The directors of the company (from time to time) continue to be under their obligation until:

(a)The company complies with its obligation; or

(b)An administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001 (Cth); or

(c)The company begins to be wound up (within the meaning of that Act).

1. Section 269-25 of the TAA 1953 states the requirements of the DPN. That says, where relevant, the notice must: ‘(c) explain the main circumstances in which the penalty will be remitted.’ The penalty notice said the penalty will be remitted if, amongst other things, ‘(c) the company is being wound up’.[41]  True it is, the notice does not add the words ‘within the meaning of the Corporations Act’. But section 269-15 of the TAA, which is substantive and prevails as the source of the director’s obligation, explicitly says ‘begins to be wound up within the meaning of the Corporations Act’. The Corporations Act states that the word ‘begin’ means ‘in relation to a winding up, has the meaning given by Division 1A of Part 5.6’.  That leads to s 513A which states that the winding up is taken to have begun or commenced in various situations referable to a winding up order or external administration, none of which could possibly support the argument that a company’s winding up begins or commences when it is deregistered or ceases trading.

   [41]Ibid, exhibit MC-10.

1. Accordingly, on 10 June 2016, I made an order that there be summary judgment for $11,355, that being referable to the part of the claim covering the defendant’s liability  concerning his directorship of Compumark.  That left the case concerning the director’s liability for the withholding liabilities of De Simone Consulting Pty Ltd.  On the same day, I made the following orders:

6.        By 1 July 2016, the plaintiff shall file and serve a written submission to the Court stating concisely the findings of fact which it will submit the Court ought to make concerning the transactions on the Running Balance Account.

7.… the defendant shall also by 20 July 2016 file and serve a written submission not exceeding five pages which concisely identifies the grounds on which he seeks to defend the remaining claim and must state whether he intends to contend for the Constitutional invalidity of any Commonwealth legislation affecting the claim, and any basis for a claim of alleged malicious or improper conduct by the plaintiff. 

8.If the defendant seeks to contend that any Commonwealth legislation is invalid he must serve any notices to the Attorneys-General by 20 July 2016.  

1. The Deputy Commissioner filed on 1 July 2016 detailed and factual written submissions specifically concerning the Running Balance Account inviting the Court to make findings that the liability was not discharged, as asserted by the defendant. Mr De Simone did not file any notice of a Constitutional matter under s 78B of the Judiciary Act. He eventually filed written submissions in December 2016 and May 2017 but to my mind they did not engage with the Deputy Commissioner’s detailed submissions on the financial facts or accounting, but were mainly directed to impugning the integrity of the ATO and the Running Balance Account itself. 

1. In the way this application was conducted by the defendant, before the Court can get to seeing if there is a triable issue whether the withheld PAYG tax was, as the defendant asserts in his defence, remitted by De Simone Consulting by ‘payments which ought have discharged the liability’, I am bound to consider the logically anterior defences raised by Mr De Simone which have him contending in various ways that the Deputy Commissioner is precluded legally from bringing this claim against him in the first place.  The starting point is the defence as served.  

Paragraph 1 of the defence

1. This part of the defence re-heats the earlier proceeding.  It states:

The Defendant refers to an adopts each and every one of his pleadings made in Proceeding S CI 2009 10082 and relies on those pleadings and says further that this Proceeding is substantially in the same form as Proceeding S CI 2009 10082 and ought be struck out as a breach of the Plaintiff’s model litigant obligations, as it is oppressive and an abuse of process and the Plaintiff ought be restrained by operation of s 75(v) of the Federal Constitution from continuing this Proceeding.

1. It is correct to say that this proceeding is in substantially the same form as the earlier proceeding, even though it does not include the defendant’s brother as co‑defendant, and adds a director’s penalty claim concerning Compumark.  But that does not therefore make this proceeding oppressive and an abuse of process.  The earlier proceeding was discontinued in circumstances I have already explained.  The discontinuance of a proceeding is no bar to a subsequent proceeding for the same cause of action unless the court order giving leave to discontinue otherwise directs.[42]  In this case, the Court that granted leave did so having expressly refused the defendants’ application for leave to be given on condition that the Deputy Commissioner could not proceeding with a subsequent application for the same cause of action. 

   [42]See rule 25.06 of Chapter 1 of the Rules of Court.

1. Broadly speaking, the expressions ‘abuse of process’ and ‘oppressive’ are used to signify the considerations which justify the exercise of a Court’s power to stay a proceeding that is productive of some injustice to a defendant.  The power is exercised for example where the Court’s processes have been invoked for an illegitimate or collateral purpose; or used in a way to be unjustifiably  oppressive to a party; or used in a way that brings the administration of justice into disrepute.[43] 

   [43]See generally Williams, Civil Procedure Victoria, Volume 1 [23.01.47].   For the relationship with estoppel see Tomlinson v Ramsay Food Processing (2015) 256 CLR 507, [23] – [26].

1. The act of bringing this proceeding after discontinuing the earlier proceeding before it had advanced beyond the filing of an application for summary judgment, cannot of itself be regarded as oppressive and vexatious, particularly as there is a procedural right to do so despite the discontinuance.  I perceive this defence to really flow back to the order giving unconditional leave to discontinue the earlier proceeding.  A proposed discontinuance can constitute an abuse of process if it could be shown, at the time, that the discontinuance would be productive of an injustice or was being sought for an illegitimate or collateral purpose.  The defendant seems to be saying implicitly that the discontinuance was unjust or an abuse of process because it was done for the purpose of overcoming the supervening legal effect of Soong on the validity of the claim against him and his brother as had been already commenced. 

1. To my mind, it is to the contrary.  The discontinuance was the responsible thing to do, rather than proceed with an enforcement action which became unsustainable not on its merits but because of a defect in service of a pre action notice brought about by the supervening Court decision in Soong.  The Parliament changed the law presumably not to oppress but to protect the revenue.  The Deputy Commissioner became entitled to reinstitute the claim on the pre-existing same factual basis that the company had not remitted the withholding tax.  In my view this defence is untenable.

1. Likewise, I think it fanciful to say that the reinstitution of the proceeding, after legislative changes, was a breach by the Australian Taxation Office of its obligations as a model litigant. The model litigant obligations arise under the Legal Services Directions made under s 55ZF of the Judiciary Act 1903.  As is well known, those directions provide that the Commonwealth and its agencies must act honestly and fairly in handling claims and litigation brought by or against the Commonwealth or an agency.  That means, for example, acting honestly and fairly in handling claims; paying legitimate claims without litigation; endeavouring to avoid, prevent and limit the scope of legal proceedings; keeping the costs of litigation to a minimum; not take advantage of a claimant who lacks the resources to litigate a legitimate claim; and not rely on technical defences.  The underlying principle or philosophy is that a government agency has no legitimate private interest of the kind which often arises in civil litigation and acts only in the public interest as identified in the regulatory regime.[44] 

   [44]Morely and Others v Australian Securities and Investments Commission [2010] NSWCA 331.

1. I think it is untenable for the defendant to contend that the decision to reinstitute proceedings after the change of legislation breached some obligation of fairness by a model litigant — not that such a breach is actionable anyway so as to constitute a defence.  The ATO in this case has done no more than, it would say, carry out the public interest of protecting the revenue as identified in the regulatory regime by recommencing proceedings to pursue the recovery of PAYG tax that was withheld by a company and not remitted to the Deputy Commissioner.

1. The defence referrable to s 75(v) of the Constitution is misguided. That section gives the High Court of Australia original jurisdiction in all matters ‘in which a writ of Mandamus or prohibition or an injunction is sought against an officer of the Commonwealth’. That is a jurisdictional provision concerning constitutional writs. It does not afford a defence to the defendant.

Paragraph 7 of the defence

1. This paragraph states:

The Defendant says that to the extent there is or was any liability under subsection 16-70(1) of Schedule 1 to the TAA 1953 (which is denied), the company made payments to the Commissioner in the sums in excess of $590,817.00 from 1 July 2006 to the present which sums ought to have discharged the liability and further and/or in the alternative pursuant to the Corporations Law having entered into a Deed of Company Arrangement is deemed to have satisfied and discharge the whole of the debt due to the Commissioner.

1. If the defendant as director is contending that the company made payments to the Commissioner in satisfaction of the amount of PAYG tax withheld, then the onus is on the defendant to do more than simply assert that, but go some way into demonstrating that the payments were made for that designated purpose and the Commissioner was obliged to so apply them , and demonstrating they were not.  Ultimately, this was the question which led the Deputy Commissioner to adduce a substantial amount of material to show what payments were received, over what period of time, and how and what way they were allocated to the tax liabilities of the company.  That was done to show that unattributed payments made on behalf of De Simone Consulting to the ATO were applied to other earlier PAYG withholding tax liabilities, and other tax liabilities of the company to which the company was accountable to the Deputy Commissioner.  I shall return ultimately to this question. 

1. The second element of this defence concerning the effect of deed of company arrangement is untenable.  When a deed of company arrangement is made under the Corporations Act, it has the effect of releasing a company from its debts. That would include a debt to the Commonwealth for the withheld PAYG tax. But, this defence overlooks the statutory outcome under s 222AOH of the ITAA 1936[45] that a release of the company does not extinguish the parallel liability of its directors.  In Eaton v Deputy Commissioner of Taxation,[46] the Court of Appeal explained the operation of parallel liability in this way:

Section 222AOH of the Income Tax Assessment Act (Cth) creates parallel liabilities which operate so that the liability imposed upon the defendant by way of penalty is parallel to the liability of the Company to remit amounts of tax which it has withheld. This does not mean that the Deputy Commissioner of Taxation can recover the same amount from each of the Company and its directors cumulatively. What it does mean is that the Deputy Commissioner of Taxation can choose to recover from each of them up to the full amount of the unremitted withholding tax.

[45]That is now s 269‑40 of Schedule 1 to the TAA 1953.

[46][2006] NSWCA 203, [25], per Santow JA with whom other members of the Court agreed.

1. In Eaton, the question was whether the deed of company arrangement in that case, which extinguished the company’s debt, also extinguished the parallel liability of the directors.  The argument for extinguishment was that a release of the company from a debt under a deed of company arrangement means there is no longer an amount which is an ‘unpaid amount’ of ‘the company’s liability’ as that liability has been released or extinguished by the deed of company arrangement.  The Court held that:[47]

The fundamental difficulty with that contention is that s 222AOC(1) is predicated upon the amount of the ‘the unpaid amount of the company’s liability’ upon ‘the due date’, not some later date. The definition of ‘the due date’ is to be found in s 222AOA. It refers to ‘the earliest day’ on which the company had the relevant liability to make a relevant deduction or withhold relevant amounts. Thus it follows that the deed of company arrangement coming into effect later can have no bearing so far as s 222AOC is concerned.

[47]Ibid, at [34].

1. The Court in Eaton also rejected the contention that under s 222AOH(2), where ‘an amount is paid or applied towards discharging one of the parallel liabilities’, that necessarily discharged each director’s parallel penalty liability in the equivalent amount. But, the Court held, that the expression ‘paid or applied’ in s 222AOH(2)(a) must necessarily refer to a payment or application of money to the Commissioner, otherwise it could hardly go towards ‘discharging’ one of the parallel liabilities, being a parallel liability to the Commissioner in each case.

1. In order for a reduction of a director’s parallel penalty to occur, there must be evidence that under the deed of company arrangement, there was an amount payable to the Commissioner under that deed.  If there was such evidence, then to that extent there would be a reduction of each director’s parallel penalty liability in the same amount as was paid.  But in this case, there is no such evidence. 

1. This part of the defence is untenable.

Paragraph 8 of the defence

1. This states −

The Defendant denies that section 222AOC of the ITAA 1936 is within the legislative power of the Commonwealth or alternatively if it were within the legislative power of the Commonwealth, there is no amount due under that section by virtue of the Commissioner being obliged to remit the whole of the amount either because of agreement to do so (as set out in paragraph 14 hereunder) or because it would be unjust not to do so as a miscarriage of the administrative discretion.

1. As I explained in the opening to this judgment by reference to Woodhams v Deputy Commissioner of Taxation,[48] the imposition of a director’s penalty where a company fails to remit amounts withheld, is not an imposition of tax on the director. The tax is imposed on the PAYG taxpaying employee of the company, and the company is the tax collector, with a concomitant obligation by its directors to cause the company to remit the withheld amounts to the Commissioner, failing which the directors are penalised. Section 222AOC is therefore a tax ‘with respect to taxation’ within the head of power in s 51(ii) of the Constitution. The provisions by which pecuniary and other obligations such as a penalty are imposed are there to provide the legal machinery by which the obligation declared by the imposition of taxation was effectuated.

   [48](1998) 4 VR 309, 318-322. An application for special leave to appeal to the High Court was refused: Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370, 372.

1. As there was no real or substantial Constitutional point, there was no duty on the Court under s 78B of the Judiciary Act to stay the application and direct the requisite notices to be given to the Attorney General for the Commonwealth and for each of the States and Territories.[49] 

   [49]See ACCC v CG Berbatis Holdings Pty Ltd (1999) FCR 292, [13]–[15].

1. Accordingly, this part of the defence is untenable.  The balance of paragraph 8 of the defence refers to  paragraph 14 of the defence, to be dealt with in turn.

Paragraph 12 of the defence

1. This paragraph states:

This proceeding is an attempt to wrongfully misappropriate property from the Defendant other than in accordance with law in breach of section 20 of the Charter of Human Rights and Responsibilities Act 2006 and the provisions of section 51(xxxi) of the Federation Constitution (sic) and as such ought be declared unlawful and a permanent injunction staying the proceeding given.

1. The reference to s 20 of the Charter of Human Rights and Responsibilities Act 2006 is seriously misguided.  That section states the human right that ‘a person must not be deprived of his or her property other than in accordance with the law’.  But the Charter has no application to this proceeding which involves the application and enforcement of Commonwealth, not Victorian law.  The statutory provisions with which the Charter is concerned is confined to acts, subordinate instruments, or a provision of an act or a subordinate instrument of Victoria.  In any case, there is manifestly no basis for a claim that the penalty has been imposed, or is being sought to be imposed in this proceeding, otherwise than in accordance with the law. 

1. Section 51(xxxi) of the Constitution empowers the Parliament to make laws with respect to ‘the acquisition of property on just terms from any State or person for any purpose in respect of which the Parliament has power to make laws’. The High Court of Australia in The Queen v Smithers; Ex Parte McMillan[50] held that the imposition of a penalty for breach of statutory obligation lies outside the ambit of s 51(xxxi) because a penalty does not involve an acquisition of property:

It has never been considered that a civil action for penalties involves an acquisition of property by the Commonwealth, let alone an acquisition of property otherwise then on just terms.  Just as the imposition of a penalty or fine by way of punishment for a criminal offence involves no acquisition of property, so also would the imposition of a civil liability for pecuniary penalties …

[50](1982) 152 CLR 447.

1. In doing so, the Court in Smithers quoted with approval the statement of Gibbs J in Trade Practices Commission v Tooth and Co Ltd:[51]

It appears to me that there are cases in which s 51 authorises the compulsory divesting of property in circumstances in which no question of just terms could sensibly arise – for example, it would be absurd to say that the legislature could make provision for the exaction of a fine, or for the imposition of a forfeiture of property used in the commission of a crime, only on just terms. 

[51](1979) 142 CLR 397, 408.

1. This defence is untenable.

Paragraph 13 of the defence

1. This paragraph states (with my underlining):

13.Further, on 3 March 2009, the Commissioner wrote to the Defendant agreeing to remit the penalties if the Defendant or the company complied with one of four options.  Before the expiration of 14 days, the Commissioner agreed to extend the time for compliance until further advised by placing the process on hold while the Commissioner investigated the claims of the company that the running balance account was incorrect and certain penalties and interest had been imposed incorrectly, improperly, invalidly and/or in bad faith and certain amounts had been wrongfully taken from the running balance account within credit to meet other obligations of the company rather than the obligation for which the amounts had been remitted.  At no stage prior to the company being placed in administration on 10 September 2009 did the Commissioner advise that the hold was being removed, thereby triggering the obligation of the Commissioner to remit the whole of the penalty if any. 

1. The statement ‘on 3 March 2009, the Commissioner wrote to the defendant’ is the defendant’s modified way of saying, as is the fact, that by letter dated 3 March 2009 the Deputy Commissioner enclosed a 14 day notice of director’s liability to pay penalty under s 222AOE of the ITAA 1936.[52]  That letter, as well as the statutory notice, told him that the penalty would be remitted by the Commissioner if any one of the four statutory steps were taken within 14 days.  Nowhere in the defence is there any particularisation of an alleged agreement made by the Commissioner, before the expiration of 14 days, to extend the time for compliance and to place the process on hold.  Nor would such an alleged agreement be intra vires unless the legislation empowered the Deputy Commissioner to extend the statutory time limit as a matter of discretion.  But there is no such discretion given.   

   [52]See exhibit MC-6 of the first Clark affidavit. 

1. Furthermore, there is no evidence in support of any asserted agreement by the Deputy Commissioner to ‘hold’ the statutory process.  In his affidavit in opposition sworn on 25 April 2016, the defendant states (with my underlining):

33.When Serafino received his DPN on 5 March 2009 but I did not receive mine, we discussed whether to place DSC into administration.  DSC was requiring ongoing funds and I was making payments directly from my bank line of credit to creditors including the ATO to allow it to continue trading and remain solvent.  A previous garnishee notice addressed to DSC from the ATO had not been actioned but we did not want any personal liability.  Serafino determined that he would contact the ATO to see if a resolution could be reached which he did on 11 March 2009, eight days after the DPN had been sent to him.  He sought to speak to Karen Lynam [i.e., the person who signed the letter and director’s penalty notice to the defendant] but was told that she was on leave and that the time for compliance would be extended until her return and no action would be taken on the DPN.  On her return, she agreed that the matter would not be proceeded with while discussions were held to resolve the debt and reconcile the amounts claimed to be due as the running balance account was in a mess.

34.She said the matter would be referred to Melbourne office for discussion face-to-face for them to report back to her.  Serafino and I had a meeting in or about May 2009.  The ATO agreed to do certain things and provide certain information about some of the entries on the running balance account.  This information was not provided within the time frame we were promised so Serafino followed it up with a Tyrone Smit from the ATO.  He agreed the matter should be dealt with in Melbourne and the DPN’s were on hold pending resolution.  

35.Had the ATO not agreed in March 2009 to extend the time for compliance on the DPN’s, we would have immediately placed the company into administration.  We relied on the ATO’s representations completely as we believed them to be attempting to act in good faith and any delay was due to the complexity of the matters to be resolved.  I believe the ATO is estopped from relying on the DPN.

1. Thus, the defence seeks to make a case of estoppel by representation against the Commissioner; that is an estoppel to in effect ‘suspend’ the operation or passage of the 14 day Director’s Penalty Notice.  Until when does this estoppel endure?  As I understand the logical extremities of the argument, the defendant says until a resolution of the complexities of the matter in good faith. 

1. The defendant placed reliance for his estoppel argument on a decision of Moynihan J of the Supreme Court of Queensland in FCT v Winters.[53]  That too was an application for summary judgment against directors of a company that was a group employer required to remit withheld PAYG tax to the Commissioner within a specified time.  The directors in Winters resisted summary judgment by arguing that the Commissioner was estopped from relying on the expiration of the 14 day penalty notice.  In that case, the notice was received on 2 April 1996.  Before then, there had been discussions between the directors and an officer of the ATO.  After receiving the notice, a meeting was sought and obtained with an ATO officer.  This meeting occurred on 12 April; that is, before the expiration of the DPN on 16 April.  There was a dispute about the conversation at that meeting.  The ATO official denied discussing the penalty notices at the meeting, but said he agreed there would be a postponement of the recovery action to allow the company’s accountant to look at options for an arrangement with the Deputy Commissioner.  The directors alleged that at that meeting they were led to believe an arrangement could be made with the company and they had a ‘legitimate expectation’ that the time for compliance with the penalty notice would be extended.  The directors alleged that the ATO official told him it would be in the best interests of the company to keep trading and had they not been told that, the directors would have appointed an administrator without delay.  Instead, they postponed the appointment of an administrator in the hope an agreement could be reached.  The company did not submit a proposal for a payment schedule as contemplated at the meeting.  No agreement was reached.  That was the basis for an estoppel put  in Winters: the directors were induced by a representation of the ATO officer about the prospects of a payment schedule so as to not appoint an administrator during the 14 day period.  

   [53](1997) 37 ATR 209.

1. Moynihan J accepted as a general principle that ‘estoppel will not prevent the exercise of a statutory obligation’ yet his Honour nevertheless refused to order summary judgment stating:[54]

In my view, depending of course on the resolution of factual issues in their favour, the defendants are capable of making out the elements founding an estoppel of the kind for which they contend.  …

It may be accepted as a matter of general principle that estoppel will not prevent the exercise of a statutory obligation.  [citations omitted]  It is however by no means clear that the principle extends to the circumstances here so as to prevent the defendants from raising the limited estoppel on which they rely.  Assuming all else in the defendants’ favour they simply seek to preclude the plaintiff from relying on the consequences of their failure to take steps to avoid the effect of the penalty notices within 14 days of their receipt; that is in the light of an administrator being effectively appointed on 17 June. 

[54]Ibid, 212.

1. It is convenient but not impressive for the defendant in this case to instil Winters and assert the presence of an available estoppel in the face of  a statute.  That case is very much confined to its peculiar facts, as estoppels are.  Courts apply the doctrine as called for to prevent unconscionable conduct in particular circumstances.  The species of estoppel here is estoppel by representation. The underlying principle is frequently taken from this statement of Dixon J in Thompson v Palmer[55] (omitting citations):

The object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to would operate to that other’s detriment.  Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party.  He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct … ; or because the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party’s adopting and acting upon the faith of assumption;  or because he directly made representations upon which the other party founded the assumption.  But, in each case he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted. 

[55](1933) 49 CLR 507, 547.

1. Although this formulation speaks of assumptions, and later estoppel cases speak of expectations, the principle remains that any representation on which an estoppel is said to exist must be clear and unambiguous, and is not to be taken by argument or inference.[56]  Further, the principles of estoppel have evolved largely in the context of private law and not legal relations arising from legislation. Depending on the nature and construction of the enactment, and the purpose of the relevant provision, an estoppel cannot be used to render a statutory provision nugatory.  In the legislative context, and depending on the nature and construction of the enactment, the connection between estoppel and the doctrine of ultra vires means that the statute is supreme, and depending on a construction of the relevant statute and its purpose, it is generally not possible to hold a public officeholder to a representation that exceeds the powers or defeats the duties given under the statute. [57]

   [56]See Legione v Hateley (1983) 152 CLR 406, 435. See also Waltons Stores (Interstate) Ltd  v Maher (1988) 164 CLR 387.

   [57]Bellinz v Commissioner of Taxation (1998) 84 FCR 154, 164. For an instructive discussion on estoppel in administrative law, see Gummow J in Minister for Immigration and Ethnic Affairs v Kurtovic (1990) 21 FCR 193, 207ff.

1. In this case s 222AOE prescribes that the Commissioner is not entitled to bring penalty proceedings until the end of 14 days after giving a director’s a notice of the unpaid amount and notice that the director will be liable to pay a penalty unless any one or more of the four statutory steps are taken. That section is a precondition to action. There is no statutory or operational discretion in the face of the statute to extend the 14 day time limit. The Commissioner is the person charged to administer that law, and bound to do so in accordance the statute. In that situation, an argument that there is nevertheless room for the operation of any doctrine of estoppel has no real prospects of success. I think what is left to the Commissioner is an unstated discretion to forbear or defer commencing legal proceedings after the statutory expiration of the statutory notice, possibly to allow discussions with the liable party and an agreement for payment over time or some other concession.

1. Apart from that legal matter, I think the estoppel argument flounders at the threshold anyway as the defendant’s evidence does not show a clear and unambiguous representation for something as significant as adherence to a particular statutory process with time limits.  The evidence of a putative representation that the notice would be put on hold is, I think, of little to no weight.  It is hearsay upon hearsay.  It is non-specific.  It is inadequate for the defendant to asseverate that ‘the ATO agreed’, without the defendant giving proper and precise attribution on such a significant matter.[58]  The only evidence which is put forward to sustain the asserted estoppel is a conversation by telephone with an unnamed person that the time for compliance of the notice would be extended until the return of an ATO officer.  Elsewhere, there is no identification of the person through whom it is said an estoppel should be visited on the Deputy Commissioner.  There was said to be a meeting in May 2009, but by then the 14 day period had expired.  It is said that one Tyrone Smit from the ATO ‘agreed the matter should be dealt with in Melbourne and the DPNs were on hold pending resolution.’  But, the DPNs had already expired.  No estoppel can run on a mistaken or constructed assumption by a defendant.

   [58]See the discussion of reception of hearsay evidence in interlocutory application by Derham AsJ in Australian Gift and Homeware Association Ltd v Melbourne Convention and Exhibition Trust [2014] VSC 481.

1. I think the facts could lend themselves to a construction that, as a matter of operational discretion, the ATO would hold off commencing legal proceedings on the expired penalty notice until the return of the responsible ATO officer, with whom the defendant wanted an opportunity to discuss his tax affairs.  And that is consistent with the defendant’s own evidence. In August 2013, the defendant lodged a complaint with the ATO about the decision to sue saying that ‘This is a matter where the complex arguments are best expounded over a white board in a meeting room with honest and open discussions’.[59]  His complaint referred to ‘the agreement by the ATO to meet in relation to this dispute prior to the instigation of any legal action’  (my underlining).  There was no reference in the combative correspondence to a representation by the ATO that the statutory compliance period of DPNs would be put on hold.  Rather, his complaint asks ‘We ask you to confirm that following agreement to meet with the parties that the threat of legal action has been put on hold and that no writs will be issued’(my underlining).  There is no evidence of such a confirmation being provided.  The evidence is that he had requested the meetings but asked they not be with those at the Strategic Debt Recovery Area (who have sworn the supporting affidavits in this application) but be with ‘appropriately independent persons’.[60]  It appears that matters did not advance because Mr De Simone took exception to the position of the ATO who questioned whether there truly was a dispute and required him to identify matters for discussion, and provide a proposal with supporting documentation.

   [59]See exhibit GDS-4.

   [60]See attachment to exhibit GDS-4.

1. If by the defendant’s extrapolation of those facts the estoppel was to hold off from starting legal action until discussions occurred to find a resolution, the fact is that the Commissioner did not commence penalty proceedings until years later and brought this application after discussions had failed and not before giving the defendant a chance to serve an amended defence.  The essential element of estoppel is unconscionable conduct on the part of a promisor.  There has on the evidence been no such conduct by the Deputy Commissioner or officers of the ATO in the observance of the applicable law.

1. In my view, a defence of estoppel is untenable.  Part of what follows concerning paragraph 16 of the defence serves to support that conclusion. 

Paragraph 14 of the defence

1. This paragraph alleges:

14.Further and/or in the alternative, the decision of the Commissioner to stay collection action against the company while he investigated the claims of the company was in effect an agreement under section 222ALA of the ITAA 1936 and acted to discharge any penalty imposed on the Defendant.

1. This defence is untenable for the same reasons as affect the estoppel defence. There is no evidence of a ‘decision’ by the Commissioner to stay collection action against the company pending investigations. In any case, it is extravagant I think to contend that there was ‘in effect’ an agreement under s 222ALA of the ITAA 1936. That section states:

(1)The Commissioner may make with a person a written agreement under which the person is to pay specified amounts, on specified days, for the purpose of discharging one or more specified liabilities of the person each of which is:

(a)a liability under a remittance provision; or

(b)a liability to pay an estimate. 

(2)An agreement may contain other provisions. 

…

(4)The amounts specified in an agreement are due and payable on the specified days.

1. There are other sub-sections of s 222ALA all of which show that an agreement under this section takes on the form of an agreement in writing that stipulates specified amounts on specified days to meet an accrued liability. It is impossible to say that the state of affairs on which the defendant relies is capable of constituting such an agreement or is ‘in effect’ an agreement. The defendant sought but failed to pursue the prospect of an agreement. There is no documented agreement containing provisions for the discharge of a liability which specifies special conditions about the dates and amounts of payments due.

1. In my view, this defence is untenable.

Paragraph 16 of the defence

1. This paragraph states:

The Defendant denies that the Plaintiff can aver pursuant to section 255-50 of Schedule 1 of the TAA 1953 as such averments are done in bad faith due to being made maliciously and improperly and to punish the Defendant for disputing an income tax liability also imposed in bad faith and to take resources and time away from the Defendant. Accordingly, such alleged averments are not permitted under the legislation and therefore the Plaintiff is to be held to her proof in all respects in relation to the claim.

1. The defendant is entitled to put the plaintiff to proof.  Otherwise this part of the defence is untenable.  It is insufficient for the defendant to assert that the averments, as allowed by statute, are to be disregarded because he thinks he is being ‘punished’, whatever that means.  It is apparent from the defendant’s affidavit that he disapproves personally of the ATO officer responsible for this matter in the Strategic Debt Recovery Area.  He has seen fit to disparage her in his materials as being ‘unreasonable and supercilious’, acting with ‘pique and sheer inhumanity’; is ‘manipulating’ data; and is ‘motivated by bias and improper conduct’.  This traducement appears to be referrable to the eventual decision to file a writ in this proceeding after discussions did not occur or resolve the disputations. 

1. There is no basis for the defendant to allege, against individuals in the ATO, bad faith in the discharge of public office and conduct of litigation, based as it obviously is on personal antipathy.  The proceeding was brought as a result of the expiry of a DPN and not before the passage of much time.   This is a case about payment and allocation of money.  The insinuation seems to be that the allocation of money by the ATO was influenced by male fides towards him or some form of conscious maladministration.  Beyond mere assertion or remonstration, there is no evidentiary basis to argue such a case.

1. In my view there is nothing in the whole of the defence which is tenable, or which has any prospects of success. 

1. I turn now to the defendant’s additional grounds of defence as stated in his affidavit in opposition sworn 25 April 2016.

The affidavit in opposition

1. In his affidavit in opposition, the defendant states:

10.From mid-2005 to the date DSC was placed in administration on 11 September 2009, I was not responsible for the management of DSC as I had appointed a General Manager to run the business while I concentrated on the investment made in relation to the Seachange Retirement Village project.  This was taking up all my spare time as the project seemed to have some serious issues with determining the application of money raised in trust and the partnership shares applicable to each partner.  During this period, a number of Supreme Court and VCAT matters were being conducted where I was acting either for the plaintiffs or the defendants.  These were complex and protracted commercial disputes that required my full attention.  One of the matters included an application for summary judgment which I successfully resisted in the Court of Appeal in June 2009. 

…

20.From July 2005, I entrusted others to prepare the information for lodging the BIS and IAS returns for DSC and I had no effective management of the business apart from receiving the occasional report. 

1. On the basis of that evidence his submissions state:

14.One of the defences is that a director was not involved in the management of the company that withheld PAYG amounts.  Usually a director is deemed to be involved in the management of the company at law but this provision in the legislation deals with the actual involvement rather than deemed involvement.  I have claimed, and this has not been contradicted, that I was not involved in the management of DSC. 

1. The legislation to which the defendant is referring is s 269-35 of the TAA 1953 which states, where relevant:

(2)It is a defence in the proceedings if it is proved that, because of illness or for some other good reason, it would have been unreasonable to expect you to take part, and you did not take part, in the management of the company at any time when:

(a)you were a director of the company; and

(b)the directors were under the relevant obligations under s 269‑15.

1. To be available, this defence would have to be applicable to the relevant liability period, which in this case was from 1 March 2007 (the commencement date of the first withholding period) to 10 September 2009 (when an administrator was appointed to De Simone Consulting). 

1. The evidence on which the defendant relies to establish this defence does not substantiate that he ‘did not take part in the management of the company’.  He asserts he was not responsible for the management of De Simone Consulting as he had appointed a general manager to run the business.  But, appointing a general manager does not therefore mean that a director ceases to take part in the management of the company as an office holder.  There are constant duties to be fulfilled by him as director.  As he is not relying upon as illness as disabling him from taking part in the management of the company, he must establish ‘some other good reason’ that he did not take part in the management of the company.  His evidence goes no higher to saying he was busy doing other things at the time.  But it does not rise to saying he did not take part in the management and directorship.  He does not show there was a ‘good reason’ that he could not take part in the management for the purposes of the subject matter of these proceedings, which by nature involve a penalty on a company director. 

1. Moreover, other parts of his affidavit contradict the availability of this defence. In paragraph 33 of his affidavit he states that ‘When Serafino [his brother] received his DPN on 5 March 2009 but I do not receive mine, we discussed whether to place DSC into administration’. Likewise, in paragraph 34, he states that he and his brother met with the ATO in May 2009 for a meeting concerning the penalty notice. It was at this meeting that he asserts the ATO agreed to extend time for compliance with the director penalty notice. Otherwise, he said he would have immediately placed the company into administration. Then in paragraph 36, he states that he took action to appoint an administrator to the company, as recommended to him by his accountant when the ATO issued a statutory demand on the company based on a conclusive notice of assessment which would be beyond challenge unless under a proceeding under Part IVC of the TAA 1953.

1. Thus, not only is the defendant’s evidence about ‘illness or some other good reason’ inadequate and does not go beyond mere assertion, his own evidence contradicts the availability of such a defence.  It is clear enough he was in truth actively involved in corporate affairs and considering the exercise of a director’s function on substantial corporate matters such as placing the company into administration and dealing with a statutory demand as well as engaging in meetings with the ATO concerning the withholding tax liabilities of the company. 

1. In my view, there is no evidence of illness and no good reason to show it would have been unreasonable to expect the defendant to take part, and that he did not take part in the management of the company.  In my view, taking this statutory defence has no real prospects of success.

The remaining issues

1. The rest of the defendant’s affidavit in opposition and his written submissions concern what I think is the real issue in this application, that is, the question of whether the defendant did cause the company to take the first of the statutory steps under s 222AOB (now s 269–15 of Schedule 1 of the TAA 1953) to comply with its obligation to remit the withheld PAYG tax to the Deputy Commissioner.  Was the tax that was collected and withheld by the company paid over to the Commissioner or was it not?  To my mind, there was much time and energy spent in propounding all the defences that I have already rejected as having no prospects of success or as being untenable, and lesser attention to what might be thought to be, by nature at least, a straightforward exercise of the defendant meeting the Deputy Commissioner’s case that the company or he as director have not paid any of the 14 amounts of tax that had been withheld.

1. Although, the Deputy Commissioner was entitled to contend that the defendant had the onus of showing that payment has occurred (or that there was a question to be tried whether payment had been made) nevertheless the Deputy Commissioner adduced a substantial body of evidence from the responsible ATO officer to show that although lump sum payments of money were paid by the company for tax liabilities and debts of the company, the company’s liabilities for withheld PAYG tax for the fourteen withholding periods in question remained undischarged, and as a result, the director’s penalty followed inexorably and ought be determined summarily. 

1. The commencement point, again, is the defendant’s statutory declaration dated 12 August 2008 which he made as director of De Simone Consulting.[61] Paragraph 2 of the declaration acknowledged the amounts withheld, as tabulated. Paragraph 3 stated ‘That, in relation to the amounts withheld, any amounts which were paid or applied for the purpose of complying with subsection 16-70 in that Schedule [i.e., Schedule 1 to the TAA 1953] are set out in Column 3 of the table’. Exhibited to the declaration was a ‘PAYG Reconciliation Table’. That Table identified nine payments from 8 August 2005 to 11 August 2008 for a total of $1 million. The payments were all large round figures not referable to any particular withholding. That information can be extracted and reproduced in this way:

   [61]See exhibit MC- 3 to the first Clark affidavit.

_____________	Effective Date	Processed Date	Amount
Payment 1	08/08/2005	09/08/2005	$100,000.00
Payment 2	01/11/2005	02/11/2005	$100,000.00
Payment 3	22/09/2006	23/09/2006	$150,000.00
Payment 4	31/10/2006	01/11/2006	$100,000.00
Payment 5	14/12/2006	15/12/2006	$175,000.00
Payment 6	25/06/2007	26/06/2007	$95,000.00
Payment 7	28/06/2007	29/06/2007	$100,000.00
Payment 8	28/07/2008	29/07/2008	$100,000.00
Payment 9	11/08/2008	12/08/2008	$80,000.00
Total	$1,000,000.00

1. In the defendant’s affidavit in opposition, he states this in paragraph 9:

There [i.e., in the Statutory Declaration] I set out the money I paid on behalf of De Simone Consulting Pty Ltd (“DSC”) to the ATO and the purpose for which it was paid.  The reason why columns 3 and 4 refer to “Amounts Paid or Applied” is to allow for credits on a running balance account to be used to cover PAYG withholding amounts that are subsequently raised by the self-assessment process.   I provided a complete table of all amounts withheld and when I paid from my own funds the amounts set out in columns 3 and 4 which I explicitly told the ATO in correspondence with each payment were for the purposes of PAYG tax withholding.  The difference in the evidence can only be tested by discovery, calculations and particulars, examination and cross-examination under oath.  Whether the money ought be applied as I instructed or as someone in the tax office apparently did (in contravention of the instructions issued by the Commissioner) is not a matter for summary judgment. 

1. What comes to matter in this case is the defendant’s reference in that passage to a running balance account.  That is the evidentiary foundation of the Deputy Commissioner’s application for summary judgment. 

1. A Running Balance Account (‘RBA’) is a creation of the TAA 1953.[62]  The Commissioner is empowered to establish one or more systems of accounts for primary tax debts of an entity.  A primary tax debt is defined to mean ‘any amount due to the Commonwealth directly under a taxation law including an amount that is not yet payable’.  That is a wide definition and includes the obligation to deduct and withhold and remit PAYG tax.

   [62]Part IIB Division 2 and Division 3 of the TAA 1953. See esp. s 8AAZC.

1. The RBA is ‘running’ in the sense of being an aggregation of an entity’s primary tax debts that are currently payable, and which have been allocated by the Deputy Commissioner to that RBA.  On the other side of the ledger, the RBA takes account of any payment received by the Deputy Commissioner in respect of a current or anticipated tax debt of an entity, and any credit to which an entity is entitled under a taxation law.  If an RBA has a balance in favour of the Commissioner,  it brings into existence an ‘RBA deficit debt’.  A general interest charge is payable by the tax debtor on that deficit debt and the balance is altered in the Commissioner’s favour by the amount of the interest charge.[63]  If there is an RBA deficit debt at the end of a day, the tax debtor is liable to pay the Commonwealth the amount of the debt, and it due and payable at the end of that day.[64]  The Court is told, as one would expect, that production of a RBA statement is available on request by the taxpayer. 

   [63]Ibid, s 8AAZF.

   [64]Ibid, s 8AAZH.

1. Part IIB Division 3 of the TAA 1953 ‘sets out how the Commissioner must treat … a payment the Commissioner receives in respect of a current or anticipated tax debt or tax debts of an entity’.[65] Section 8AAZLE is very important. It provides that ‘In doing anything under this Division, the Commissioner is not required to take account of any instruction of any entity’.[66]  But when a payment is received, the Commissioner is bound to allocate the payment by one of two statutory methods, but not both.[67]  The first method allows the Commissioner, ‘in the manner he or she determines’ to first of all allocate the received amount to an RBA of the entity.  The Commissioner must then apply the amount to tax debts of the entity that have been allocated to the RBA and general interest charge on such debt.  A tax debt means a ‘primary tax debt’ or ‘secondary tax debt ‘ as defined.  That captures withheld PAYG tax.  The second statutory method of allocation allows the Deputy Commissioner, ‘in the manner he or she determines’ to apply the received or credited amount to be applied to a ‘non-RBA tax debt’, that is, a tax debt other than a RBA deficit debt.

   [65]Ibid, s 8AAZL.

   [66]For example, see DCT v Johnston [2006] QSC 61; 62 ATR 643.

   [67]See s 8AAZL(2) and s 8AAZLA and s 8AAZLB of the TAA 1953.

1. An RBA is something more than an accounting document.  It becomes is a legal source of a liability for a debt.  The tax debtor can be sued according to it.  To that end, the Commissioner has the advantage that production of the RBA is prima facie evidence that the RBA was duly kept and that the amounts and particulars in the statement are correct.[68]  In this case, the RBA on which the Deputy Commissioner relies is the RBA for the entity De Simone Consulting, from whose liability the defendant’s liability for penalty derives.  It is not an RBA for Mr De Simone.

   [68]Ibid, s 8AAZI.

1. In his affidavit, the defendant says ‘I explicitly told the ATO in correspondence with each payment were for the purposes of PAYG tax withholding.’  No correspondence from the defendant is exhibited.  He also refers to the application of payments made on behalf of De Simone Consulting ‘as I instructed or as someone in the tax office apparently did (in contravention of the instructions issued by the Commissioner)’.  There is no evidence of the defendant’s instructions to the tax office.  His mention of ‘instructions issued by the Commissioner’ is a reference to ‘Practice Law Statement Administration PS LA 2011/20’ as published by the ATO.[69]  I need not refer it copiously.  The stated purpose of the Practice Statement is to outline the payment and credit allocation policy to be applied to taxpayer accounts.  It says it is ‘an internal ATO document, and is an instruction to ATO staff’.  It also says ‘Taxpayers can rely on this practice statement to provide them with protection from interest and penalties’.  The reference there to penalties means obviously tax penalties, not director’s penalties  The statement goes on to explain that taxpayers will not have to pay a penalty if the statement turns out to be incorrect and taxpayers underpay their tax as a result.  Nor, the statement says, will they have to pay interest on an underpayment if there was reasonable reliance on the practice statement in good faith.  The statement  directed to staff says this about allocations:

This practice statement outlines the way you should allocate payments and available credits to debts owed by tax payers.  It outlines the discretion available to the Commissioner to disregard tax payers’ instructions regarding their preferred allocation or amounts of specific debts, and how this is applied in: our general policy for payment and credit allocation, and the specific rules for some types of payments, credits and situations. 

[69]Defendant’s exhibit GDS-001.  It is stated to be updated as at 16 November 2015.

1. I shall state the substance of the other relevant parts of the practice statement. It says that as a general rule about an allocation decision, the ATO staff are bound to apply the policy in the practice statement ‘but you must also consider the particulars facts of the case at hand and make a judgment in good faith and without bias and without considering irrelevant considerations’. It refers to the common law position that a person who owes two debts to the same person is entitled to nominate that a payment applies to one debt rather than another, and if the debtor does not indicate a specific debt at the time of payment the creditor is entitled to make that decision. The general policy is stated to be that payments representing the full amount of a taxpayer’s obligations are usually applied to the taxpayer’s accounts in accordance with the taxpayer’s directions, for example by using a payment reference number. It says the ATO staff do not have to follow any instruction given by the taxpayer and use the discretion in s 8AAZLE of the TAA 1953 and allocate a payment differently. Unless there is a valid reason not to do so, if no direction is received, then the policy for allocating a payment is that all payments are to be allocated to the earliest (oldest) debts within an account. If payments are allocated differently to a taxpayer’s direction, then the taxpayer is to be advised as soon as possible.

1. The Practice Statement is not law.  It is an instruction on decision making.  It is  not actionable.  It does not derogate from statutory discretion.  Its possible application here depends on establishing that an instruction was given to the ATO by the defendant on behalf of the entity.  But nothing in writing is produced to show the ‘explicit’ instruction.  And it would need to be an instruction about the application of a payment to meet any of the 14 liabilities in question in this case. 

1. From my own examination of the materials, the only written indicia of a non-specific connection between payments made and amounts withheld is paragraph 3 of the statutory declaration which refers to the exhibited reconciliation table and the ‘Amounts Paid or Applied’ in column 3.  I will come to this deadly point for the Deputy Commissioner later, but it can be immediately seen from the exhibit to that statutory declaration that five of the payments (for a total of $625,000) are referable to withholding periods before the first of the 14 periods in this case. [70] 

   [70]See column ‘Period Number’ and row 1 (for $100,000); row 2 (for $100,000); row 23 (for $150,000); row 24 (for $100,000); and row 27 (for $175,000).

1. Assuming without any evidence that the defendant gave some sort of instruction (sed quaere for what relevant period), the defendant says the ATO was bound as a matter of practice to tell him if an allocation was made contrary or different to his instruction, and the ATO did not.  What is the consequence? The defendant contends the ATO’s non-disclosure means there is a reversion to the common law position and his initial instruction (whatever that was) must now prevail, after the event.  Even on its assumption, this argument is untenable.  The Commissioner is entitled at law to disregard any instruction and make an allocation of any payment on the RBA of the entity according to statutory method. 

1. In the events that have occurred, the Practice Statement is academic, certainly not actionable.  Accepting the fact that there were nine payments, what matters is how those nine payments came to be applied by the Commissioner on the RBA of De Simone Consulting. 

The allocations

1. An affidavit of Michelle Clarke sworn on 19 May 2016 produces to the Court an RBA for the tax debts due by De Simone Consulting, dated 28 April 2016.[71]  This has the quality of prima facie evidence. 

   [71]See exhibit MC-17 to the affidavit of Michelle Clark sworn 19 May 2019 (‘the fourth Clark affidavit’).

1. The first thing to be said is that the RBA records, as a credit, each of the nine payments made on behalf of De Simone Consulting.  The RBA shows that payments 1 to 5 for a total of $625,000 were credited as received (or ‘processed’) between 9 August 2005 and 15 August 2006.[72]  As I have already previewed, it is crucial to see that those five payments were all made and processed before the very first of the 14 PAYG withholding liabilities of De Simone Consulting that were due in April 2007.[73]  A table in paragraph 12 of Michelle Clarke’s affidavit sworn 19 May 2016 shows how each of those first five payments were allocated on the RBA.  Reference to the RBA itself shows the following. 

   [72]Ibid, exhibit MC-17, p 14 and p 17 recorded as ‘Payment Received’.

   [73]Ibid.  See also the exhibit to the Statutory Declaration, in particular, the ‘Amounts Paid or Applied‘ for Period number 1, 2, 23, 24, 27 which add up to $625,000.

1. Payments 1 to 5 for a total of $625,000  were credited and absorbed into the RBA, which was mainly in deficit.  On payment, those payments were allocated by the ATO to meet pre-existing ‘pay as you go tax withheld’ and general interest charges.  It is just not possible for the defendant to say that those five payments were made on behalf of the company to meet any of the fourteen liabilities at issue in this case.  Those payments were made apparently to meet earlier liabilities, and that is how they were applied.

1. I conclude on the prima facie evidence supported by the defendant’s evidence, the allocation of the first 5 payments on the RBA occurred in accordance with statutory method; consistent with his statutory declaration; and faithful to the Practice Statement for payment of older liabilities first.  I can see nothing untoward in the allocation, or anything else making it unjust not to have an investigation by pre-trial and trial process.  The defendant did not really put up an analytical argument on the allocation but sought to impugn the integrity of the RBA on other grounds, as I shall come to later.  I conclude the allocation of the first five payments totalling $625,000 can be put to one side as affording no grounds for a defence of satisfaction of any of the 14 liabilities.  That leaves payments 6 to 9 for a total of $375,000.[74] 

   [74]See the exhibit to the Statutory Declaration: Period Number 6 (for $95,000),Number 7 (for $100,00) Number 8 (for 100,000); and Number 9 (for $80,000)

1. The RBA also shows that prior to payment 6, there was a RBA deficit of $145,531.97.[75]  That means by the time of payment 6, payments 1 to 5 had already been absorbed completely by the tax debts of the company on the RBA.  Thus, it is not possible for the defendant to complain that any remainder of payments 1 to 5 not already allocated should have been applied to any of the PAYG liabilities that are the subject of this proceeding so as to reduce pro tanto his penalty liability.

   [75]Ibid, p 19.

1. The table in paragraph 12 of Michelle Clarke’s fourth affidavit shows how payment 6, 7, 8 and 9 (for a total of $375,000) were allocated.  The RBA shows that from payments 6 to 9, a total of $240,347 was allocated to the following liabilities which had been debited on the RBA prior to payment 9 on 12 August 2008:[76]

   [76]Ibid, exhibit MC-17, p 26.

(a)       estimated or self-assessed PAYG withholding liabilities for July and August 2005;[77]

(b)      PAYG withholding liabilities from March to November 2006;[78]

(c)       estimated or self-assessed PAYG withholding liabilities for February 2007.[79]

[77]July and August 2005 estimates of $22,832 each giving a total of $45,664.

[78]March to September 2006 estimates of $15,757 each giving a total of $110,299.

[79]February 2007 self-assessed amount of $24,357:  exhibit MC-17, p 22.

1. To that extent, the defendant cannot complain that those payments were not allocated according to statutory method or complain they were not allocated to meet PAYG liabilities of the company.   Deducting that allocated amount of $240,347 from the total amount of $375,000 for payments 6 to 9 left $134,653 to be allocated elsewhere in the RBA.  The evidence is that the residue of $134,653 was applied to tax debts of the company according.  The evidence from the RBA was that the payment was applied on the RBA towards these liabilities:[80]

   [80]See the last four payments in the Table at paragraph 12 of the fourth Clark affidavit.

(a)        $11,384.30 to the company’s legal action account;[81]

[81]Ibid, exhibit MC-17 at p 19. 

(b)        $14,209.51 to the company’s income tax account;[82]

(c)        General Interest Charges totalling $111,995.51;[83] and

(d)       Shortfall penalty for the period ended 30 June 2007 in the amount of $303,050.00.[84] 

[82]Ibid. 

[83]Ibid, pp 19-21. 

[84]Ibid, p 20. 

1. On the evidence, the Deputy Commissioner also submitted the timing and processing of the payments and the liabilities meant that the liabilities were unmet.  It was explained in this way:[85]

Moreover, Payments 1 to 8, totalling $920,000.00, were made and processed before any of the Liabilities had been processed (i.e. debited on the RBA).  The first of the Liabilities to be processed were debited on 6 August 2008, being Liabilities 2, 3, 5, 7, 8, 10, 12 and 13.[86]  Immediately prior to those Liabilities being debited, the RBA had a debit balance of $1,092,565.81. 

The remaining Liabilities (1, 4, 6, 9, 11 and 14) were all debited on the RBA after Payment 9 was processed on 12 August 2008.  Liabilities 6 and 9 were processed on 1 September 2008,[87] Liabilities 1, 4 and 14 were processed on 1 October 2008[88] and Liability 11 was processed on 3 October 2008.[89] 

Before Payment 9, in the amount of $80,000.00, was processed the RBA had a debit balance of $1,450,306.81.[90]  Included in the debit balance were the PAYGW liabilities for October and November 2006 and February 2007 totalling $84,384.00, all of which were due before any of the Liabilities were due.[91]

[85]See ‘Plaintiff’s Submission Concerning Running Balance Account’ dated 1 July 2016.

[86]Exhibit MC-17 to the fourth Clark affidavit at pp 22-23. 

[87]Ibid, at p 24. 

[88]Ibid, at pp 27-28. 

[89]Ibid, at p 28.

[90]Ibid, at p 23.

[91]Ibid, at pp 22-23. 

1. The defendant did not truly engage with the Deputy Commissioner’s evidence about the allocations of any of the nine payments on the RBA or the timing or the amounts.  His challenge to the RBA was threefold, on a macro level. 

1. First, he contended that the nine payments were not made by the company, or by him on behalf of the company.  He said the payments were made by him on his own behalf, in his personal capacity, from his own money, and were payments made to extinguish his personal liability for any penalty as a director of De Simone Consulting.  He contended that the Commissioner was not entitled to take ‘his money’ and apply or allocate it to the tax liabilities on the RBA of De Simone Consulting.  He acknowledged the primary liability to remit the withholding tax rested with the company and that the director’s parallel liability arose when the primary liability was not met.  Nevertheless, he contended they were  separate liabilities.  He contended that if he paid out his parallel liability first, that extinguished his liability as director first.  He said that the Deputy Commissioner could not take his money and apply it to the liability of the company.  The endplay was this:  as the money was paid by him for his liability, it then extinguishes the same debt for the company’s liability; and it follows that the Commissioner’s discretion to allocate payments on the RBA does not even come into play. 

1. This was an ingenious argument.  But it is unsustainable.  There was no evidence whatsoever from the defendant, beyond mere assertion, that these payments were made by specially and design by him and accepted by the Commissioner for the special purpose of payment of his prospective or contingent liabilities as director, even though the primary statutory obligation under the statute is for the director to cause the company to pay and even though, as I have shown, the first five payments were made before the relevant liabilities even arose.   

1. There are instances in the defendant’s his own evidence which contradict any characterisation that the payments were not made by him on behalf of the company.  First, the defence as served on the Commissioner states in paragraph 7 (with my underlining) ‘the company made payments to the Commissioner in the sums in excess of $590,817.00 from 1 July 2006 to the present which sums ought have discharged the liability’.  Secondly, paragraph 9 of his affidavit in opposition refers to his statutory declaration and its exhibit and says (with my underlining):

There I set out the money I paid on behalf of De Simone Consulting Pty Ltd ... to the ATO and the purpose for which it was paid.  The reason why columns 3 and 4 refer to “Amounts Paid or Applied” is to allow for credits on a running balance account to be used to cover PAYG withholding payments that are subsequently raised by the self-assessment process’. 

1. Thirdly, in paragraph 3 of his statutory declaration he states as director (with my underlining) ‘That, in relation to the amounts withheld, any amounts which were paid for the purpose of complying with subsection 16-70(1) in that Schedule are set out in Column 3 of the Table.’  That column shows each of the nine payments that are being put forward by the company as the entity that is bound to pay the Commissioner.  The defendant’s statutory declaration, a solemn document, does not have him saying that the payments were made by him in a personal capacity.  It is a PAYG reconciliation statement for the company.

1. All that evidence completely contradicts his argument.  Moreover, the argument looks to invert the statutory process by having a director ostensibly and voluntarily paying a penalty before any statutory penalty notice with a view to relieving the company from remitting the withheld tax.  I think this argument is untenable. 

1. The second ground of challenging the RBA was to attempt to impeach its integrity and admissibility, saying that a pre-trial process and a trial process was needed to conduct a proper scrutiny of all the figures, the accounting, the allocations, and the decision making on the RBA by operatives at the ATO. He contended that the Court could not be satisfied that there were allocations made on the RBA according to the evidence of the Deputy Commissioner. He contended that the treatment of payments and the allocation of payments to the RBA was expressed throughout the TAA 1953 as a power of ‘the Commissioner’. He conceded that the Deputy Commissioner of Taxation is a delegate of the Commissioner and, for example, had the power to sue. But he contended that there was no evidence that as the Commissioner’s delegate, the allocations that were done in this case were done by the Deputy Commissioner. He says there is no evidence of who did the allocations here because the affidavits in support of the application for summary judgment were expressed in the passive voice to say that allocations ‘were allocated’. He submitted there was no evidence identifying who ― that is, which human being at the ATO ― did the allocation. If the allocation was done by an officer of the ATO, he said there was no evidence that the power of allocation was attributable to an instrument of delegation of power from the Commissioner to that officer.

1. The upshot of this argument, as I understood it, was that the Court should disregard all the evidence adduced about the allocation of the payments on the RBA and see the matter as therefore reverting to the evidence that there were nine payments made to meet the PAYG liability which, as Mr De Simone put it, was not the company’s liability but was his liability.  It was also part of his thematic contention that a trial was necessary to enable him to a cross examine of all those who were, personally, the operatives on the RBA making decisions on allocations.  

1. This argument is untenable. The Court cannot disregard the evidence. The RBA is admissible as prima facie evidence under the TAA 1953. The use of the passive voice is unavoidable when describing the contents of a business record, which is admissible under 69 of the Evidence Act 2008.[92]  The evidence is also receivable under rule 22.04 of the procedural rules governing summary judgment applications. 

   [92]The term ‘business’ is defined in clause 1 of Part 2 of the Dictionary of the Evidence Act as including ‘(b) an activity engaged in or carried on by the Crown in any of its capacities‘ and ‘(d) an activity engaged in or carried on by a person holding office or exercising power under or because of the Commonwealth Constitution, an Australian law or a law of a foreign country being an activity engaged in or carried on in the performance of the functions of the office or in the exercise of the power (other than in a private capacity)’. The Commissioner of Taxation holds office under s 4 of the TAA 1953 and under various taxation laws.

1. The third and related attack was on the integrity of the RBA.  This was overtly based on his unfavourable view of the ATO officer Ms Michelle Clark who swore the principal affidavits in support of this application and exhibited the RBA.  Adding to his complaint that her affidavit described the allocations on the RBA using the passive voice, he contended the Court ought not rely on her affidavits because she did not depose that she made proper and diligent enquiries of the persons who made the allocations to determine and assess the basis on which they purported to make them.  He asserts that ‘due to my experience of Ms Clarke’s previous actions’ he does not believe she made any such enquires and believes she has no personal knowledge of the information she has sworn to ‘nor does she have a knowledge of all of the relevant systems and information maintained by the ATO’.  He contends that the documents produced by her were produced by a combination of data extraction and manipulation, a process which he says is prone to error without exceedingly meticulous care and thorough checking by a separate person.  He says he could reconcile the materials with the payments he made towards the withholding tax or any of the returns lodged, and that attempts by him to obtain provide information by the ATO were not properly responded to leading him to form the opinion that she was acting improperly towards him in breach of her duties. 

1. In my view, it is not competent to oppose summary judgment by simply asserting a personal lack of confidence in the deponent of the supporting affidavits and making a general attack based upon his own views about the integrity of the accounting.  In the face of provisions giving prima facie force to the documents on which the Deputy Commissioner relies on in this case, a defendant must put forward and demonstrate some basis for the Court to conclude that there are other facts to show that the prima facie evidence should not be accepted or at least is questionable to the extent that only the rigours of trial can show whether the evidence should be accepted.  No such evidence has been adduced by the defendant.  The most the defendant could do was disparage ATO officials say was that he could not tell from the Deputy Commissioner’s evidence if any of the supposed payments towards the obligation to pay the PAYG tax withheld by De Simone Consulting had been made, and that was a question to be investigated meticulously at trial. 

1. I shall disregard the defendant’s disparagement of the character and competency and evidence of ATO staff.  It was unwarranted, unkind, and did the defendant no credit. It is insufficient to assert that the deponent lacked any personal knowledge of information based on nothing more than the defendant’s prejudice. The RBA has the statutory force of being prima facie evidence and it is incumbent on the defendant to put forward facts, not beliefs or commentary, to demonstrate that the prima facie evidence is unreliable or insufficient.  I see no reason to not receive the RBA into evidence.  In various tax proceedings there are provisions enabling the Courts to receive evidence by means that are advantageous to the Commissioner.  Despite the perceived asperity, such provisions are accepted as being necessary for the protection of the Revenue. 

1. The defendant has put the Deputy Commissioner to proof of this claim.  In my view, the Deputy Commissioner has proved the claim.  The defendant has been given every opportunity to show a defence on the merits.  I think the defences raised are untenable have no real prospects of success for the reasons I have given.  The defendant has no basis for challenging or seeking a trial on the application of the first five payments for $625,000 because those payments were made before any of the 14 liabilities were incurred, and were applied to older PAYG liabilities.  For the sixth to ninth payments for a total of $375,000 the Deputy Commissioner has justified the allocation of that amount and the defendant has shown no basis for challenging that allocation according to statutory method to tax debts.  The proven fact remains that the company of which Mr De Simone was a director deducted tax from the wages and salaries of employees, withheld that money, and has not remitted it to the Commissioner.

1. Putting aside the preclusionary defences, the defendant’s apparent object is to seek a trial for something resembling a meticulous taking of accounts in Court, based not on an apparent unreliability of the RBA in evidence, but a disobliging view of the ATO in its administration of the account. That is not a reason for the Court to exercise its residual discretion under s 64 of the Civil Procedure Act to allow the matter proceed to trial even if the defence has no real prospects of success.  That residual discretion is there for what are called witness actions that depend on the calibre or demeanour of witnesses or competitions of credibility, or in cases where a better elicitation of facts and exposure of the applicable law is required.  Those conditions do not exist here.  This is a type of tax recovery claim in debt.  It is dependent on some undisputed threshold facts concerning the 14 liabilities, undisputed facts about the nine payments, objective facts about allocations of payments and tax debts, and the operation of a statutory regime.  For all those reasons, the application for summary judgment shall be granted. 

1. I shall allow the parties a little time to assimilate this judgement.  I would ask the Deputy Commissioner to file with my Associate 31 May next  (by e-mail if preferred for convenience) a brief written submission on the final orders sought on the application, and ask Mr De Simone to file a responding brief  submission by 6 June next.  Unless the submissions raise matters requiring further spoken submissions, I shall make final orders on the papers.

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