Deputy Commissioner of Taxation v Dick - [2007] NSWCA 190

NEW SOUTH WALES COURT OF APPEAL

CITATION: DEPUTY COMMISSIONER OF TAXATION v DICK [2007] NSWCA 190

FILE NUMBER(S):
40614/06
40656/06

HEARING DATE(S): 28 June 2007

JUDGMENT DATE: 3 August 2007

PARTIES:
DEPUTY COMMISSIONER OF TAXATION (Appellant/ Cross-opponent)
George Dow Taylor DICK (Respondent/ Cross-claimant)

JUDGMENT OF: Spigelman CJ Santow JA Basten JA

LOWER COURT JURISDICTION: District Court

LOWER COURT FILE NUMBER(S): DC 128/04

LOWER COURT JUDICIAL OFFICER: Peter Johnstone DCJ

LOWER COURT DATE OF DECISION: 6 September 2006, 14 September 2006 (the latter as to costs)

COUNSEL:
S GAGELER SC/ R QUINN (Appellant/ Cross-opponent)
D P ROBINSON SC/ A BOURIS (Respondent/ Cross-claimant)

SOLICITORS:
Australian Government Solicitor (Appellant/ Cross-opponent)
Baker & McKenzie Solicitors (Respondent/ Cross-claimant)

CATCHWORDS:
CORPORATIONS – Corporations Act 2001 (Cth) s1318 – availability of power to relieve director of liability to penalty under s222AOC of Income Tax Assessment Act 1936 (Cth) – legislative history considered – possible relevance of s1317S noted.
STATUTORY CONSTRUCTION - reconciling provisions in two Acts of same legislature – maxim generalia specialibus non derogant considered.
TAXATION – Corporations – Availability of relief under s1318 of the Corporations Act 2001 (Cth) to a director liable under s222AOC of the Income Tax Assessment Act 1936 (Cth) ("ITAA") for a penalty in relation to tax moneys withheld from employees under PAYG and not remitted to the Tax Commissioner – whether relief under s1318 only applicable in the case of a default or breach of duty arising under the Corporations Act – whether Part VI, Divisions 8 and 9 of the ITAA constitute an exhaustive or exclusive legislative scheme or code covering the field – whether the mandate of Part VI, Divisions 8 and 9 is inconsistent with the dispensing power under s1318 of the Corporations Act.
WORDS AND PHRASES – “default”, “breach of duty”.

LEGISLATION CITED:
Bankruptcy Act 1966 (Cth)
Betting & Gaming Duties Act 1972 (UK)
Companies Act 1907 (UK) s32
Companies Act 1929 (UK) s152, s372
Companies Act 1948 (UK) s448
Companies Act 2006 (UK)
Companies Act 1958 (Vic)
Companies Act 1961 (NSW) s292(1)(a)
Corporations Law ss588G, 588H, 588M, 588R, 588T, 588W and 588X, s588FGA, s1317JA
Corporate Law Reform Act 1992 (Cth)
Companies Code 1981 (Cth) s535, s556
Corporations Act 2001 (Cth) s556(1)(a), s1317JA, s1317S, s1318
Judiciary Act 1903 (Cth) s 64
Income Tax Assessment Act 1936 (Cth) Pt 6 Divs 8 and 9; s221P, s221YHJ, s222ANA, s222AOB, s222AOC, s222AOE, s222AOG, s222AOJ
Insolvency (Tax Priorities) Legislation Amendment Act 1993 (Cth)
Taxation Administration Act 1953 (Cth) s255-5(1)
Uniform Companies Act 1961 s161, s365

CASES CITED:
Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1
Australian Capital Television Pty Ltd v The Commonwealth (1992) 177 CLR 106
Australian Securities & Investments Commission v Vines (2005) 65 NSWLR 281, (2006) 56 ACSR 528
Chung v R [2007] NSWCCA 231
City Equitable Fire Insurance Co Ltd, In re [1925] Ch 407
Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115
Customs & Excise Commissioners v Hedon Alpha Limited [1981] QB 818
Daniels v Anderson (1995) 37 NSWLR 438
Dao v Australian Postal Commission (1987) 162 CLR 317
David Grant & Co Pty Ltd (Receiver appointed) v Westpac Banking Corporation (1995) 184 CLR 265
Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113
Deputy Commissioner of Taxation v George (2002) 55 NSWLR 511; 2002 ATC 4930
Deputy Commissioner of Taxation v Keck [2006] NSWSC 677, (2006) 63 ATR 310
Deputy Commissioner of Taxation v Moorebank Pty Ltd (1988) 165 CLR 55
Deputy Commissioner of Taxation (Cth) v Woodhams (2000) 199 CLR 370
Edwards v Attorney General (2004) 60 NSWLR 667
Evans v Stevens (1791) 4 TR 224; 100 ER 986
Ferdinands v Commissioner for Public Employment (2006) 225 CLR 130
Goodwin v Phillips (1908) 7 CLR 1
John v Federal Commissioner of Taxation (1989) 166 CLR 417
Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 32 ACSR 430
Lawson v Mitchell [1975] VR 579
Lend Lease Real Estate Investments Limited v GPT Re Limited [2006] NSWCA 207
Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672
Letang v Cooper [1965] 1 QB 232
National Roads & Motorists’ Association v Whitlam [2007] NSWCA 81
Northern Territory v GPAO (1999) 196 CLR 553
Plaintiff S157/2002 v The Commonwealth (2003) 211 CLR 476
Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meat and Live-Stock Corporation (No. 2) (1980) 29 ALR 333
Saraswati v R (1991) 172 CLR 1
Southern Star Group Pty Ltd v Byron (1995) 13 ACLC 1622
Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290
State Government Insurance Office (Qld) v Crittenden (1966) 117 CLR 412
Switz Pty Limited v Glowbind Pty Ltd (2000) 48 NSWLR 661

DECISION:
(1) Appeal allowed.
(2) The order of Johnston DCJ on 6 September 2006 entering verdict for the defendant be set aside.
(3) Judgment be entered for the appellant in the sum of $141,259.19.
(4) The respondent to pay the costs below.
(5) There be no order for costs in relation to the appeal.
(6) Leave to cross-appeal disallowed and the claimant to pay the opponent’s costs in the cross-appeal.

JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COURT OF APPEAL

CA 40614/06
CA 40656/06
DC 128/04
SPIGELMAN CJ
SANTOW JA
BASTEN JA
3 AUGUST 2007

DEPUTY COMMISSIONER OF TAXATION v George Dow Taylor DICK

Judgment

SPIGELMAN CJ: I have had the benefit of reading the judgment of Santow JA in draft. His Honour sets out the background facts, the relevant legislative provisions and identifies the issues before the Court.
Section 1318 of the Corporations Act 2001 empowers the Court to make orders relieving a person from liability with respect to actual or prospective claims made in civil proceedings in respect of “negligence, default, breach of trust or breach of duty”. In the present case the relevant words are either “default” or “breach of duty”.
His Honour Johnstone DCJ, found that each of these two elements was satisfied by the relevant provisions of Divs 8 and 9 of the Income Tax Assessment Act 1936 (“ITAA”), which provisions are set out in full by Santow JA.
The ITAA Regime
The first directly operative provision, relevant for the determination of the issue before the Court, is s222AOB of the ITAA which imposes an obligation on all persons who are directors of a company at a time when, relevantly, a PAYG deduction was made by the company. Each director “must cause the company to do at least one of the following” namely:

comply with its obligations in relation to deductions;
make an agreement with the Commissioner under the ITAA;
appoint an administrator; or
take steps to wind the company up.

The second relevant step in the statutory scheme under the ITAA is the liability imposed by s222AOC. That section applies if s222AOB is “not complied with”. This is a reference to the statutory obligation imposed upon the directors of the company, rather than a reference to the original obligation of the company itself. By force of s222AOC each director “is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company’s liability”.
Provision is then made for the Commissioner to give a director notice before proceedings to recover a penalty (s222AOE). Furthermore, the penalty imposed by force of s222AOC is itself remitted by force of s222AOG if s222AOB “is complied with” within 14 days after the Commissioner gives the person such a notice.
Section 222AOJ provides for certain defences in any proceedings to recover a penalty payable. The penalty is recoverable as a debt due to the Commonwealth pursuant to s255-5(1) of the Taxation Administration Act 1953 (Cth).
The formulation in s222AOB(1), that a director “must cause the company” to do one of four things, can fall within the natural and ordinary meaning of the word “duty” for purposes of a formulation such as “breach of duty”. Furthermore, the failure to do something which a person “must cause” to occur may constitute a “default” in that word’s ordinary meaning, as confirmed by the formulation “not complied with”, found in each of s222AOC(1) and s222AOG.
The issue in the present appeal, in my opinion, falls to be determined on the basis of whether or not the words found in s1318 are intended to apply to obligations imposed by statute other than by the Corporations Act itself.
Interpreting s1318
Although words such as “breach of duty” and “default” are capable of extending, respectively, to a breach of statutory duty and to a contravention of a statutory provision, there are textual and contextual reasons for concluding that that was not the intention behind the use of these particular words in s1318.
The words appear interspersed in a context which extends to “civil proceedings … for negligence, default, breach of trust or breach of duty”. Words such as “negligence” and “breach of trust” would not extend, in their natural and ordinary meanings to statutory obligations. Each clearly refers to obligations under the general law. In my opinion, the other words should be similarly so confined, save with respect to many, if not all, of the obligations imposed by the Corporations Act itself.
The relevant principle of statutory interpretation is noscitur a sociis, which has been imaginatively translated by Lord McMillan as “words of a feather flock together”. As his Lordship went on to explain the principle: “The meaning of a word is to be judged by the company it keeps”. (Lord McMillan Law & Other Things Cambridge Uni P, Cambridge (1937) p166.)
This general principle of the law of interpretation has a number of specific sub-principles, including the ejusdem generis rule. The relevant sub-principle for present purposes is the maxim propounded by Lord Bacon: copulatio verborum indicat acceptationem in eodem sensu – the linking of words indicates that they should be understood in the same sense. As Lord Kenyon CJ once put it, where a word “stands with” other words it “must mean something analogous to them”. (Evans v Stevens (1791) 4 TR 224; 100 ER 986 at 987. See also W J Byrne (ed) Broomes Legal Maxims (9th ed) Sweet & Maxwell London (1924) pp373-374.) This principle was recently applied by this Court in Lend Lease Real Estate Investments Limited v G P T Re Limited [2006] NSWCA 207 at 30-31 and see National Roads & Motorists’ Association v Whitlam [2007] NSWCA 81 at [63].
As I pointed out in Lend Lease v GPT supra at [31], Lord Diplock warned in Letang v Cooper [1965] 1 QB 232 at 247:
“The maxim noscitur a sociis is always a treacherous one unless you know the societas to which the socii belong.”
In s1318 of the Corporations Act, the range of words chosen are interrelated, overlapping expressions intended to cover a wide field within the context of civil proceedings. The relevant words are “breach of duty” and “default”. In my opinion the words used do not suggest that the field should extend to duties imposed by statutes or contraventions of statutory provisions which impose obligations on directors and the other persons to whom s1318 extends. However, it is a short step, long since taken, to accept that s1318 does apply to civil proceedings with respect to duties imposed by, or contraventions of, the Corporations Act itself, particularly as many of the statutory duties reflect the general law.
If s1318 were to extend to statutory obligations, it would apply to a broad range of conduct, which has no relationship to corporations law, by persons acting in any of the following capacities:

any conduct of an executive officer or employee (s1318(5)(a));
any conduct of a receiver of property of the corporation (s1318(5)(b));
any conduct of a trustee or other person administering an “arrangement” between the corporation and another person (s1318(5)(e));
any conduct of an “expert” with respect to a matter “relating to a corporation” about which civil proceedings may arise.

The possibility of impact upon a wide range of other statutes, which have statutory objects quite distinct from the Corporations Act or the general law relating to corporations, suggests that it is unlikely Parliament intended any such wide ranging application. It is, for example, common for occupational health and safety legislation or consumer protection legislation to impose obligations upon directors and management.
Nothing in the scope and purpose of the legislation, nor in the text to be interpreted, suggests a legislative intention to qualify every statute which imposes obligations upon company directors etc. as such, either extant at the various times in which s1318 and its predecessors have been enacted and re-enacted or for any future statutory provision. This would include, since 2001, an intention by the Commonwealth Parliament to override any future State legislation imposing obligations upon directors etc., irrespective of the scope and purpose of such subsequent State legislation. I am unable to detect any such wide-ranging intention for s1318. Indeed ss5E, 5F, 5G and 185 of the Corporations Act create a detailed regime to preserve State laws and the common law. (See Chung v Regina [2007] NSWCCA 231 at [18]-[24] and [29]-[30].)
Mr D Robinson SC, who appeared for the Respondent, submitted that, if s1318 did not extend to all statutory obligations, it should be interpreted as extending to statutory obligations which serve a corporate law purpose. As shown by s222ANA, reflected in the third and fourth options in s222AOB and s222AOE, part of the purpose of Div 9 of the ITAA was to ensure that if deducted amounts were not paid, the company should be “promptly … dealt with under the insolvency laws”. (Deputy Commissioner of Taxation (Cth) v Woodhams (2000) 199 CLR 370 at [34].)
In my opinion, this submission should be rejected. Divisions 8 and 9 are one part of a set of interrelated provisions which could be said to simultaneously serve both revenue and corporations law purposes. However, s1318 was directed, and directed only, to corporations law purposes, both statutory and under the general law.
In any event, in my opinion, the prompt winding up of a defaulting company for purposes of the ITAA regime only serves a revenue purpose, not a corporations law purpose. The relevant tax obligation is owed by the salary or wage earner, from whose regular income deductions have to be made by the company. Collection of tax by the company at source involves administrative convenience for the Commissioner and brings forward the receipt of revenue in time. The Commissioner has a real interest in ensuring that a defaulting company be placed in the hands of controllers who will undoubtedly perform these functions.
This conclusion is reinforced by the fact that the new regime adopted in 1992 replaced provisions giving the Commissioner priority in a winding-up which were found, not in the Corporations Law, but in s221P and s221YHJ of the ITAA.
This interpretation of s1318 is, in my opinion, strongly supported by the history of legislation with respect to corporations, dating back to the mid 19th century Companies Acts in England.
Throughout that period, and particularly in the period since about the 1970s, when Australian legislation has been under constant review, the area of corporations law has been treated as quite distinct from other fields of statutory intervention. The framers of the respective waves of reform of corporations law have not had regard to other legislation. Indeed, they have acted to disentangle corporations law from the few fields in which, in the past, it has adopted laws of general application, such as the Bankruptcy Act 1966 (Cth).
For about a century and a half, changes to corporations law have had a self-referential quality. Many principles of the general law relating to corporations have been reinforced and modified by statute. I can detect no intention to impinge indirectly on other statutes passed at different times for non-corporations law purposes.
History of s1318
This interpretation of s1318 also receives support from the history of its predecessor sections. The history of the original provisions is set out in the joint judgment of Young CJ and Newton J in Lawson v Mitchell [1975] VR 579 at 585-592. The history is brought up-to-date by Austin J in Australian Securities & Investments Commission v Vines (2005) 65 NSWLR 281 at [10]-[18]. See also the observations of Young CJ in Eq in Edwards v Attorney General (NSW) (2004) 60 NSWLR 667 at [25]-[27].
Section 1318 can be traced back to the Report of the Company Law Amendment Committee of 1906, which made two recommendations to the effect that the Court should be empowered to relieve a director from (1) breach of any duty imposed by the Companies Acts and (2) in any action for “negligence or breach of trust”.
It is notable that the English Companies Act 1907 adopted only the second of the two recommendations of the Report, i.e. the Court was empowered only to relieve from liability for negligence or breach of trust, but not empowered to relieve from liability for breach of any duty imposed by the Companies Act. It may once have been arguable that, by reason of this history, the succeeding sections did not extend to contraventions of the Companies Act. That application has been well established and affirmed by re-enactment in subsequent legislation. (See e.g. Lawson v Mitchell supra at 594-595, 599.)
With respect to the application of s1318 to contraventions of the Corporations Act itself, it is pertinent to note a significant difference between the Australian legislative history in corporations law and that of England. Commencing with the Companies Act of Victoria in 1958, some aspects of the general law duties of company directors, both tortious and fiduciary obligations, were incorporated as statutory provisions. This kind of provision has been developed and modified in a number of respects in subsequent Australian corporations legislation. It has not been a feature of the English company law legislative history, until the Companies Act 2006 (UK). There has not been, and in my opinion could not be, any suggestion that the power to grant exemptions under the various provisions re-enacted in the form now found in s1318, would not apply to statutory obligations under the Corporations Act itself.
The references to “breach of duty” and to “default” were added in England by the Companies Act 1929. This precise form was subsequently adopted in Australian legislation and can be traced, as Austin J does in Vines supra at [18], in a direct line from State legislation, through uniform national legislation, through State-based adoption of Commonwealth legislation, to the present regime of Commonwealth legislation. Nothing in the developments since 1929 suggests any intention to substantially alter the scope of the power that was created by the English Companies Act of 1929, as subsequently adopted in Australia.
Until the decision of Johnson DCJ in this case I am unaware of, and the Court has not been referred to, any case, in Australia or England which has applied the power to the breach of a statutory obligation imposed by legislation other than a corporations law. Obviously its applicability to general law duties has never been in question. I will discuss below one authority relied on by the Appellant.
The 1929 amendments were based on the Report of the Company Law Amendment Committee 1925-1926, known as the Greene Committee after its Chairman. That Report at [46] drew attention to In re City Equitable Fire Insurance Co Ltd [1925] Ch 407, which concerned the common form of article that exempted directors from liability, save in the case of “wilful neglect or default”. It also referred to the occurrence of articles which went further and exempted directors from liability in all cases other than those involving actual dishonesty.

The Report said:
“[46] To attempt by statute to define the duties of directors would be a hopeless task and the proper course in our view is to prohibit articles and contracts directed to relieving directors and other officers of the company from their liability under the general law for negligence and breach of duty or breach of trust.”
The Report went on to note the difficulties that may be occasioned for directors by this proposal and, accordingly, recommended that the court, in exercising its power to grant relief, should have regard to certain matters which may justify the conduct of directors. Further, the Committee recommended that the then existing section of the Act, which empowered the court to relieve directors from “liability for negligence or breach of trust”, should be amended by reference to certain relevant considerations.
As quoted above, par [46] of the Report made reference to “breach of duty” as well as the pre-existing formulation, “negligence or breach of trust”. Nothing in this Report, however, refers to the “default” element which was in fact introduced in the 1929 legislation. In my opinion, the origin of the word “default” lies in the common form of exempting article which referred to “neglect or default”. It was never intended to encompass statutory obligations.
The legislative history, up to and including s161 of the Uniform Companies Act 1961, is set out in the joint judgment in Lawson v Mitchell supra at 585-592. That case was primarily directed to the issue whether, contrary to certain English decisions, the power to relieve from liability extended to criminal proceedings. The Court’s rejection of that proposition was affirmed by successive sections, leading down to s1318, which were expressly limited to civil proceedings.
Lawson v Mitchell contains a careful analysis of the case law in England and its treatment by the Greene Committee. The Court found at 588-590 that the wider terms of the 1929 Act were expressly related to the enactment of the provision which invalidated any Article of Association that exempted a director, manager, officer or auditor of a company from liability. The section of the Act which carried into effect that recommendation was the section that introduced for the first time the broader range of language.
Section 152 of the 1929 English Companies Act, also adopted in Australia, was relevantly in the following terms:
“Any provision, whether contained in the Articles of a company or in any contract with a company or otherwise, for exempting any director … from, or indemnifying him against, any liability which by virtue of any rule of law would otherwise attach to him in respect of any negligence, default, breach of duty, or breach of trust of which he may be guilty in relation to the company shall be void.” [Emphasis added]
As the Full Court concluded at 589 with reference to the English provisions, including s372 which was equivalent to s1318:
“The wide words in s372(1) ‘negligence, default, breach or duty, or breach of trust” in fact simply reproduced the same set of words in s152.”
It is pertinent to recall that the words “breach of duty” and “default” find their origins in legislation directed at overturning provisions in Articles of Association, which provided a contractual exemption from general law duties, save in the case of “wilful neglect or default” or “actual dishonesty”.
The word “default”, which first appeared in the 1929 legislation, originates in contractual provisions expressly confined to liability to the company at general law for “wilful default”. Furthermore, the extended formulation “negligence, default, breach of trust or breach of duty”, did not stem from a desire to add references to “breach of duty” and “default” to the longstanding words, which obviously overlapped with the new words, namely “negligence” and “breach of trust”. Rather, those words found their origin in the new provision of 1929 prohibiting articles or contracts which limit the liability of directors. This context was directed to the enforcement by the company of duties owed to it. It was not concerned with statutory obligations.
Section 1318 and its predecessors in Australian legislation clearly derive from the English model. Nevertheless, although the words are the same, English authority is now unlikely to be of use in interpreting the section. The process of divergence probably began in 1958 when the Victorian Companies Act for the first time enacted common law duties as statutory obligations, provisions which became universal throughout Australia with the Uniform Companies Acts of 1961. In any event, the divergence became clear in 1975 when the Full Court of the Supreme Court of Victoria in Lawson v Mitchell refused to follow English authorities which held that the English equivalent of s1318 permitted a Court to relieve from liability for criminal prosecutions. This became part of statutory provision by the express restriction to civil proceedings, originally enacted as s535 of the Companies Code 1981.
The divergence became even more pronounced upon the creation in 1992 of a quite distinct civil penalty regime. This regime required the legislature to attend to a range of issues concerning the extent to which the civil penalty regime would be assimilated to the statutory treatment of civil liability, or to make special provision to take into account the higher level of seriousness attendant upon a finding of a contravention of a civil penalty provision.
In this new regime a provision in virtually identical terms to s1318 was introduced as s1317JA of the Corporations Law 1991 and is now found as s1317S of the Corporations Act 2001. Plainly, with respect to the power to impose pecuniary penalties, and probably also with respect to the power to make a disqualification order, Parliament proceeded on the basis that the interpretation of s1318 either required a clear extension of the reference to “civil proceedings” in s1318 itself or a new parallel provision. Parliament chose the latter course. In so doing Parliament proceeded on the assumption that s1318 would not, of its own force, apply to proceedings for a penalty even if, by statute, any such “penalty” was recoverable by civil proceedings.
No doubt this choice was made, in part, as a matter of convenience in order to have all of the civil penalty provisions together in Pt 9.4B of the Act. The separate provision, now found in s1317S, which operates in parallel with s1318, may reflect the objective of establishing a regime involving a clear pyramid of enforcement containing a hierarchy of sanctions, increasing in seriousness from civil liability to civil penalty liability to criminal liability. The legislation was based on this regulatory philosophy as expounded by the Senate Standing Committee on Legal and Constitutional Affairs Report, Company Directors Duties: Report on the Social and Fiduciary Duties and Obligations of Company Directors 1989 (called the “Cooney Committee Report”).(See generally Helen Bird, “The Problematic Nature of Civil Penalties in the Corporations Law” (1996) 14 Companies & Securities Law Journal 405; Vicky Comino, “The enforcement record of ASIC since the introduction of the civil penalty regime” (2007) 20 Australian Journal of Corporations Law 183 esp at 185-191.)
Nevertheless, the fact that separate provision was made for civil penalties under the Corporations Act does suggest that s1318 should not be understood to extend to other statutory regimes for civil penalties, such as Divs 8 and 9 of the ITAA. However, as the possibility that s1317S and s1318 are mutually exclusive has not been argued, I do not decide the issue of interpretation on this alternative basis.
Case Law
Mr S Gageler SC, who appeared for the Appellant, relied in this Court on a case to which Johnstone DCJ’s attention was not drawn at first instance, namely Customs & Excise Commissioners v Hedon Alpha Limited [1981] QB 818.
In that case the director of an off-course bookmaker sought to rely on the then English equivalent of s1318, namely s448 of the Companies Act 1948 (the equivalent of s1318), in defence to an action by the revenue authority pursuant to a statutory provision which made directors liable for duty payable by a corporate bookmaker. The relevant statutory provision under the Betting & Gaming Duties Act 1972 (UK) imposed a joint and several liability to pay betting duty on both a corporate bookmaker and any director of a corporate bookmaker.
In that case the company was insolvent. The director contended that what had occurred was a “default” within the meaning of s448 of the Companies Act 1948. The Court rejected the director’s contention for two reasons. First, as Stephenson LJ held, s448 was “inapplicable to any claim by third parties to enforce any liability except a director’s liability to his company or his director’s duties under the Companies Act” (p824D-E). This aspect of the judgment has been rejected in Australia. (See Daniels v Anderson (1995) 37 NSWLR 438 at 524-525; Edwards v Attorney General supra at [137]-[141].)
Furthermore, in Hedon Alpha the judgments proceeded on the basis that s448 of the Act would extend to criminal or penal proceedings brought under the Companies Act. (See e.g. at 823D-E, 826B and 828B.) As I have noted above, this is contrary to Australian authority, i.e. Lawson v Mitchell supra, decided before the matter was put beyond doubt by statutory amendment.
The Appellant relied on the alternative basis upon which some members of the Court proceeded in Hedon Alpha. Stephenson LJ said at 824G-H:
“… If s448 could apply to claims by third parties the Commissioner’s claim is not a proceedings for default, since s2(2) gives a right to recover a debt against a director who is not in breach of any duty except a duty to pay on demand which you would not owe had it not been placed on him by the Act of 1972. If there was any default it was the company’s … He was required by the Act of 1972 to answer for it and the Commissioner’s action against him was not a proceeding in respect of default even if their action against the company was.” (to 825A)
To similar effect was the reasoning of Ackner LJ at 825G-H.
Hedon Alpha is a decision of dubious authority in Australia. In any event, the legislation under consideration in that case was quite different to that presently under consideration. The relevant provision only referred to the mechanisms by which the duty could be “recoverable”. That is to say, the section there under consideration was the equivalent of s225-5 of the Taxation Administration Act 1953 (Cth). There was nothing in the legislation under consideration in Hedon Alpha equivalent to the express duty imposed upon directors to “cause the company to” act in the way that s228AOB does. (See also Commonwealth Bank of Australia v Friedrich (1991) 5 ACSR 115 at 192-193; Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290 at 369-371 and c/f Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 32 ACSR 430 at [144]-[156].) Hedon Alpha does not assist the Appellant.
Conclusion
There is no authority which would prevent this Court adopting the interpretation I have set out above. In my opinion, s1318 has no application to any obligation imposed by statute upon a company director, employee, etc. as such, other than obligations imposed by the Corporations Act 2001.
Since writing the above, I have read the judgment of Basten JA in draft. If I were wrong in my interpretation of s1318 then I would agree, for the reasons his Honour gives, that s1318 has no application to a director’s liability under s222AOC of the ITAA.
I agree with the orders proposed by Santow JA.
SANTOW JA:
INTRODUCTION
There are two principal issues in this appeal:
(a)does the Court’s power to grant relief under s1318 of the Corporations Act 2001 (“the Act”) extend to granting relief to a director rendered liable for penalty in relation to tax moneys withheld from employees (PAYG) and not remitted to the Tax Commissioner under the provisions of Divisions 8 and 9 of the Income Tax Assessment Act 1936 (“ITAA”), and if so
(b)should that relief have been extended in the circumstances of this case?
The Deputy Commissioner of Taxation challenges the primary judge Johnstone DCJ’s conclusion in favour of the respondent, Mr Dick, on both these questions. If that challenge succeeds on the first question, which is essentially a question of construction, the second question concerning the exercise of discretion does not need to be answered.
Section 1318 of the Act is in the following terms:
“Part 9.5—Powers of Courts
1318 Power to grant relief
(1)      If, in any civil proceeding against a person to whom this section applies for negligence, default, breach of trust or breach of duty in a capacity as such a person, it appears to the court before which the proceedings are taken that the person is or may be liable in respect of the negligence, default or breach but that the person has acted honestly and that, having regard to all the circumstances of the case, including those connected with the person’s appointment, the person ought fairly to be excused for the negligence, default or breach, the court may relieve the person either wholly or partly from liability on such terms as the court thinks fit.
(2)      Where a person to whom this section applies has reason to apprehend that any claim will or might be made against the person in respect of any negligence, default, breach of trust or breach of duty in a capacity as such a person, the person may apply to the Court for relief, and the Court has the same power to relieve the person as it would have had under subsection (1) if it had been a court before which proceedings against the person for negligence, default, breach of trust or breach of duty had been brought.
(3)      ………
(4)      This section applies to a person who is:
(a)an officer or employee of a corporation; or
(b)an auditor of a corporation, whether or not the person is an officer or employee of the corporation; or
(c)an expert in relation to a matter:
(i)relating to a corporation; and
(ii)in relation to which the civil proceeding has been taken or the claim will or might arise; or
(d)a receiver, receiver and manager, liquidator or other person appointed or directed by the Court to carry out any duty under this Act in relation to a corporation.”
Section 1318 of the Act needs to be read alongside the relevant provisions of Divisions 8 and 9 of Part VI ITAA. The latter were passed on 1 July 1993. Following passing by the Commonwealth of the Corporations Act in 2001 pursuant to referred power, both the latter and the ITAA constituted legislation passed by the same legislature, namely the Commonwealth. However, earlier progenitors of s1318 were the product of State legislation originating from the United Kingdom and which predated the relevant provisions of the ITAA.
An accurate description of how Divisions 8 and 9 of the ITAA operate, taken from the respondent’s written submissions, is as follows:
“Division 9 of Pt VI of the Income Tax Assessment Act 1936 (“the ITAA”) imposes a duty on the directors of a company to ensure that the company either meets its obligation under Div 16 of Taxation Administration Act 1953 (Cth) (“the TAA”) to remit each deduction made under Div 12 of the TAA by the due date or takes other specified remedial action; s222AOB ITAA. Non-compliance with the duty results in each director of the company being automatically ‘liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company’s liability’; s22AOC(1),
However, the Commissioner is not entitled to recover that penalty without giving written notice to the director setting out ‘details of the unpaid amount of the liability' and the options available; s222AOE. The penalty is then automatically remitted if the company meets its obligations or takes the other remedial action within 14 days after the notice is given; s222AOG.
The TAA makes an amount of penalty imposed by Div 9 of Pt VI of the ITAA a debt due to the Commonwealth payable to the Commissioner; s255-5(1) of Sch 1 TAA and provides that the amount may be recovered at the suit of a Deputy Commissioner in ‘a court of competent jurisdiction’; s255-5(2) of Sch 1 TAA
The background to these legislative amendments bringing in this scheme is described in Deputy Commissioner of Taxation v George (2002) 55 NSWLR 511; 2002 ATC 4930 where Gzell J (with whom Handley JA and Giles JA agreed) observed:
“Section 221P gave the Commissioner priority in bankruptcy and in a winding up for PAYE deductions which had not been remitted to him or used to buy tax stamps. Division 9 was introduced as a substitute for that priority by the Insolvency (Tax Priorities) Legislation Amendment Bill 1993. In introducing the bill to the Parliament, the then Minister for the Arts and Administrative Services, Senator McMullan said in his second reading speech (Senate Weekly Hansard No 3, 1993 p880):
"The Bill will also make company directors liable for deductions made by their company and not remitted to the Commissioner. Currently, directors can be convicted in relation to their company's non payment of amounts deducted and can be ordered by a court to pay reparation equal to the deductions not remitted. This new measure will achieve this result more efficiently.
Consistent with the theme of the recent amendments to the Corporations Law, this measure will ensure solvency problems are confronted earlier and the escalation of debts will be prevented..."
… An early sign of problems in a company is its living on the false reserves of non-remitted PAYG withholdings.”
That policy is also expressed in s222 ANA(1) of Division 9, namely “to ensure that a company meets its obligations … or goes promptly into voluntary administration … or into liquidation.”
The appellant advances the following submissions in support of its contention that s1318 is incapable of application to afford relief from liability arising under Divisions 8 and 9 of ITAA:
(a)The proceedings giving rise to the liability of the respondent Mr Dick under the ITAA were not proceedings “for” a default or a breach of duty as required by s1318 of the Act. Rather they were civil proceedings to recover or enforce a statutory liability to pay a penalty that had earlier arisen by force of Divisions 8 and 9 ITAA, without necessity for civil proceedings to bring that liability about. A corollary of that argument is that there was neither default nor breach of duty, as required by s1318.
(b)Until this occasion, s1318 has never been applied “outside the context of the Corporations Act 2001” (appellant’s written submissions para 19). Even if there were a default or breach of duty it arises under the ITAA and outside the corporations law context. It was not enough that the duty it imposes be required of directors collectively of a company to cause that company either to remit unpaid tax withheld or go into administration or liquidation, being a duty sanctioned by individual penalty on each director, subject to ITAA defences.
(c)Divisions 8 and 9 of Pt VI of the ITAA:
(i)constitute an exhaustive and specific legislative regime coming into operation on 1 July 1993 consequent upon the abandonment of the priority for group tax which the Commissioner had enjoyed under s221P and so was not intended to be intruded upon by the later general provisions of s1318 of the Corporations Act 2001;
(ii)accepting that the specific provisions of Divisions 8 and 9 ITAA predate the general provisions of the current s1318 of the Corporations Act 2001 (though based on earlier legislation), that later general enactment is not to be treated as impliedly repealing those earlier specific legislative provisions of the ITAA; rather these specific provisions of the ITAA invoke the maxim generalia specialibus non derogant, so as not to be deprived of effect;
(iii)that result is reinforced by repugnancy or implied contradiction between the specific provisions of Divisions 8 and 9 ITAA and the general dispensing power of s1318.

The further contention of the appellant is that if s1318 were to apply, the primary judge erred in exercising that discretion to dispense in favour of the respondent.
SALIENT FACTS
These are essentially undisputed in their outline below.
The respondent was a director of the Northern Spirit Football Club 2000 Pty Ltd (“the Company”) between 19 January 2001 and 14 March 2003. Further uncontroversial details as to the respondent’s working history, in particular in relation to his involvement with football in Australia, may be found at paragraphs 27-50 of the appellant’s written submissions, as are further details as to the background of the Company at paragraphs 41-51.
During the period 1 June 2002 to 31 March 2003, the Company failed to remit to the Commissioner of Taxation by the relevant due dates, monthly PAYG income tax deducted from the salaries and wages of its employees.
As a director of the Company during that period, the respondent possessed a duty pursuant to s222AOB(1) of the Income Tax Assessment Act 1936 (Cth) (ITAA) to ensure that the Company either remitted the PAYG amounts or took other steps under s222AOB(1) ITAA to remediate the situation.
The respondent failed to act under s222AOB(1), and as a result the appellant took the steps below to procure from the respondent a penalty amount of $141,295.19, being equal to the PAYG amounts withheld by the Company during his period as director.
The respondent denied liability below, first arguing unsuccessfully that he was entitled to the defence under s222AOJ(2) ITAA, namely that for a good reason he had not participated in the management of the Company over the relevant period.
However, the respondent successfully argued below in the alternative that he ought fairly to be excused from any default under the ITAA. The primary judge concluded that the Court had a discretion to grant relief to the respondent under s1318 Corporations Act 2001 (Cth), and that it should be exercised in the respondent’s favour. Both determinations are challenged on appeal.
Before commencing the recovery proceedings, the Commissioner gave to the respondent three separate notices covering PAYG deductions made but not remitted by the Company during the following periods:

Date of DPN	Period of Deduction	Total Amount on DPN
23 November 2002	June, August, September 2002	$108,838.63
23 January 2003	October, November 2002	$103,024.00
8 July 2003	December 2002, January, February, March 2003	$146,793.00

On receipt of these penalty notices the respondent did not cause the Company to take any of the steps set out in the notice, that is to cause the Company to comply with s222AOB.
The appellant then commenced recovery proceedings in the District Court of New South Wales and proceeded on an Amended Statement of Liquidated Claim filed 22 July 2005 for a total amount of unpaid directors penalties of $146,793.
On 6 September 2006 the primary judge entered a verdict for the respondent.
DISPOSITION
Background
Interpretation of s1318 of the Act must start with its legislative history described usefully by Austin J in Australian Securities and Investments Commission v Vines (2006) 56 ACSR 528 at [10] and following.
What is salient is that in the United Kingdom, dating back from s32 of the English Companies Act 1907, later adopted in the Australian States, there is a consistent theme that the court should have power to relieve, in order that penal provisions or quasi penal provisions should not operate unfairly or harshly. Relief so extended does not strictly speaking exonerate the person in question by removing the breach; rather it operates as a dispensing power excusing the contravenor. “Exonerate” used in this s1318 context has therefore the sense of taking a burden from a person who has committed a breach. It does not mean that the breach is deemed never to have occurred. Rather the person concerned seeks to satisfy the court that “having regard to all the circumstances of the case” he or she “ought fairly to be excused” so as to receive dispensation.
The English Companies Act of 1907 was replaced by the substantially revised UK Companies Act 1929 following recommendations of the Company Law Amendment Committee chaired by Mr Wilfred Greene KC. The revised dispensing provisions, though similar, were extended in three material respects:
(i)the words “default” and “breach of duty” were added to “negligence” and “breach of trust”;
(ii)the section which had been originally applicable only to directors, was extended to officers, managers and auditors; and
(iii)the reference to “all the circumstances of the case” was expressed to include circumstances connected with the person’s appointment.
With those extensions a similar provision was adopted by the Australian States, remaining in that form until 1982. It appeared as s365 of the Uniform Companies Act of 1961. In 1982, that legislation was replaced by the national co-operative companies and securities scheme. It remained State legislation though adopting a Commonwealth enactment. By that legislation, s365 was replaced by s535.
The only material changes brought about by s535 in 1982 were:
(a)to extend the dispensing power to employees though still limited to civil proceedings, and
(b)to remove the requirement to act “reasonably”.
As Austin J explains in Vines, there have been no relevant changes of substance to that provision since 1982.
The current dispensing power is contained in s1318. It is located since 2001 within Pt 9.5 of the Corporations Act with a number of other powers of courts, under what is now Commonwealth legislation passed pursuant to a referral of power by the States. As the appellant submitted, in order for s1318 to apply to a director a number of conditions must be satisfied:
(a)civil proceedings must have been commenced against a person who is a director “for negligence, default, breach of trust, or breach of duty” such being “in the capacity of such a person”, but note s1318(2) where anticipated proceedings suffice;
(b)it must appear to the Court that the person is or may be liable in respect of the negligence, default, breach of trust or breach of duty;
(c)the person has acted honestly; and
(d)having regard to all the circumstances of the case, including those connected to the appointment, the person ought fairly be excused for the negligence, default or breach of trust or duty.
Significantly as I explain later, where a person to whom s1318 applies has reason to apprehend that any such claim even “might be made”, that person may apply under s1318(2) for anticipatory relief. The court has the same power to relieve as if an actual claim had been brought.
From 2001 both Part VI of the ITAA and the current corporations legislation were the product of the one legislature, namely the Commonwealth. As Gaudron J said in Saraswati v R (1991) 172 CLR 1 at 17, cited with approval in Ferdinands v Commissioner for Public Employment (2006) 225 CLR 130 at [48] by Gummow and Hayne JJ, the general presumption is that there is no contradiction between two enactments of the one legislature. Gaudron J put the rule of construction this way:
“It is a basic rule of construction that, in the absence of express words, an earlier statutory provision is not repealed, altered or derogated from by a later provision unless an intention to that effect is necessarily to be implied. There must be very strong grounds to support that implication, for there is a general presumption that the legislature intended that both provisions should operate and that, to the extent that they would otherwise overlap, one should be read as subject to the other.”
That presumption is rebuttable in construing the two sets of provisions. The joint judgment of Gummow and Hayne JJ in Ferdinands (supra) emphasises, “no conclusion can be reached about whether a later statutory provision contradicts an earlier without first construing both provisions” (at [47]). Ferdinands recognised that there may be revealed either an explicit or implicit contradiction whereby the later Act may implicitly repeal or modify the earlier. The question is whether that was so here, or whether, as the respondent contends, the general presumption applies.
It was the Insolvency (Tax Priorities) Legislation Amendment Act 1993 (Cth) (“the Tax Priorities Act”) which introduced the amendments to the ITAA which gave rise to Division 9. Division 9 replaced s221P of the ITAA. Under the replaced s221P(2) and (3) priority was given to group tax withheld over all but the costs and expenses of winding up where these, under companies legislation (originally s292(1)(a) of Companies Act 1961 and now s556(1)(a) of the Corporations Act) were payable in priority to all other debts in winding up; see McPherson, “The Law of Company Liquidation” (The Law Book Company, 1999) 4th ed at 604-5. From 1993, the Commissioner lost priority for tax on winding up but gained the benefit of the accelerated collection scheme of Division 9. That legislative history is described more fully by Spigelman CJ in Deputy Commissioner of Taxation v Clark (2003) 57 NSWLR 113 at 118-122. That amending legislation was accompanied by amendments made to the then Corporations Law by the Corporate Law Reform Act 1992 (Cth) with effect from 23 June 1993 though these were in relation to insolvent trading.
By application of that legislation under the co-operative scheme, new provisions were added. These dealt, inter alia, with the director’s duty to prevent insolvent trading by a company. Specific provision was made to accommodate the special regime applicable to the Commissioner of Taxation, as introduced by the Tax Priorities Act. It is to be found in s588FGA of the Corporations Law as from 1 July 1993. Section 588FGA was intended to operate alongside the provisions dealing with the director’s duty to prevent insolvent trading contained in the new ss588G, 588H, 588M, 588R, 588T, 588W and 588X within new Pt 5.7B of the Corporations Law. These provisions took effect from 23 June 1993.
These reforms were based on recommendations by the Australian Law Reform Commission in the General Insolvency Inquiry, known as the Harmer Report after its author. The Harmer Report recommended abolition of the priorities accorded to the Commissioner of Taxation over all other unsecured creditors with respect to certain amounts deducted or withheld (Harmer Report [733] – [741]).
The essential character of the new Division 9 of the ITAA was thus accommodated to the Corporations Law regime though not embodied in the Corporations Act itself. Its connection with corporate matters is to be found encapsulated in the object of s222ANA earlier quoted and in the outline of Divisions 8 and 9 found in that introductory section.
222ANA Object and outline
(1)The purpose of this Division is to ensure that a company either meets its obligations under Division 8 of this Act, or under Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953, or goes promptly into voluntary administration under Part 5.3A of the Corporations Act 2001 or into liquidation.
(2)The Division imposes a duty on the directors to cause the company to do so. The duty is enforced by penalties. However, a penalty can be recovered only if the Commissioner gives written notice to the person concerned. The penalty is automatically remitted if the company meets its obligations, or goes into voluntary administration or liquidation, within 14 days after the notice is given.
(3)A penalty recovered under this Division is applied towards meeting the company’s obligations under the relevant Division. Conversely, amounts paid by the company reduce the amount of a penalty.
(4)Part 4-15 in Schedule 1 to the Taxation Administration Act 1953 provides for the recovery of amounts payable under this Division.”
Civil Proceedings “for” Default or Breach?
Against that background I turn now to the first contention of the appellant. It is that though the proceedings against Mr Dick under the ITAA could be characterised as civil proceedings, they were essentially proceedings, not “for” a default or breach of duty as required by s1318 but to enforce a statutorily imposed liability. That penalty arises automatically under the terms of Division 9 as a consequence of default. No proceedings are required to establish that a default occurred, as distinct from proceedings to recover a penalty in consequence. That default is the directors’ failing to cause the company to do one of the four things specified in s222AOB ITAA. The Commissioner must then give the requisite 14 days notice to exact a penalty against any individual director. If that state of affairs still continues at the expiration of the notice (s222AOE) liability to penalty is imposed on each director without any legal proceeding. Civil proceedings are required to enforce that statutory penalty. There are specified defences, none equivalent to s1318, which that individual director may invoke under s222AOJ, as I explain below
Proceedings for enforcement and recovery are brought by the Commissioner against the respondent as an individual director. They are described as “proceedings to recover from a person a penalty payable under this Subdivision”. Section 222AOJ sets out the only defences that can then be raised under the ITAA in these terms:
222AOJ Defences
(1)This section has effect for the purposes of:
(a)      proceedings to recover from a person a penalty payable under this Subdivision; or
(b)      proceedings under section 222AOI against a person of the kind referred to in paragraph 222AOI(d).
(2)It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at any time when:
(a)      the person was a director; and
(b)      the directors were under the obligation to comply with subsection 222AOB(1) or 222AOBAA(1).
(3)It is also a defence if it is proved that:
(a)      the person took all reasonable steps to ensure that the directors complied with subsection 222AOB(1), 222AOBAA(1) or 222AOBA(1) (whichever is relevant); or
(b)      there were no such steps that the person could have taken.
(4)In subsection (3):
reasonable means reasonable having regard to:
(a)      when, and for how long, the person was a director and took part in the management of the company; and
(b)      all other relevant circumstances.”
I would conclude that such enforcement proceedings under Division 9 ITAA are not precluded from being “for” a breach or default, as required by s1318(1), notwithstanding that they are not needed to establish the default occurred. I consider “for” is used in the broader sense as equivalent to “in respect of”, taking its meaning from its statutory context. Thus in the parallel subsection (2) of s1318 the phrase “in respect of” is used equivalently to “for” in the preceding subsection (1). That interchangeable use of “for” and “in respect of” make it plausible to attribute the wider denotation of the phrase “in respect of” to both s1318(1) and (2). In other contexts, it has been said that the phrase “in respect of” has a wider ambit than the term “for” (Unsworth v Commissioner for Railways (1958) 101 CLR 73 at 87 per Fullagar J). But in statutory contexts like this the two expressions have been held to be essentially co-extensive (State Government Insurance Office (Qld) v Crittenden (1966) 117 CLR 412 at 414-417 per Taylor J).
Conclusion
I do not consider that use of the word “for” in s1318, before the expression “civil proceedings”, by that fact alone renders s1318 incapable of application to default by a director under Division 9 of the ITAA. That leaves open the possibility that there may be other reasons for that result.
Do the Penalty Provisions fall outside s1318 because there is a requirement that only defaults within the context of the Corporations Act are within its ambit and these provisions were not?
The next submission of the appellant is that the default or breach of duty, even if so characterised, was not within the ambit of s1318, being outside the context of the Corporations Act 2001 or otherwise lacking the requisite corporate character. The appellant relies on UK and Australian authority as limiting the application of s1318 and equivalent provisions to failure in the discharge of obligations having such a corporate character. I appreciate there is a degree of artificiality in separating this issue from the last one, namely whether the tax provisions in question constitute a separate regime, of a character in contradiction, express or implied, to the dispensing power of s1318. Nonetheless it is useful to start with the threshold question of whether s1318 is precluded from applying at all, given that the statutory provisions arise under legislation outside the Corporations Act. If answered in the affirmative, it operates as a threshold barrier to any application of s1318 whether or not the tax provisions operate as a self-contained regime. The Chief Justice, whose judgment I have had the advantage of reading, concludes that threshold question in favour of the appellant, basing that conclusion primarily on the legislative history of s1318 and its UK progenitors. In what follows, I explain my own reasons for answering the threshold question differently, though I acknowledge the cogency of the reasons marshalled by the Chief Justice to the contrary.
Section 588G and cognate provisions read with s588FGA are incorporated now in the Corporations Act. They deal, inter alia, with the director’s obligation to indemnify the Commissioner of Taxation in relation to what is described as “a voidable transaction”. The appellant submitted that even location of such a provision in the Corporations Act would not mean that failure in that obligation was amenable to the dispensing power in s1318, if it lacked the necessary corporate character. Essentially the appellant’s submission is that proceedings to recover a penalty under Divisions 8 and 9 of the ITAA lack the requisite corporate character required of a default or breach for s1318 to be capable of application in that context.
One difficulty with this submission is that it begs the question as to what degree of connection with corporate matters is required for a default or breach to come within the ambit of s1318. What is the discrimen? One may readily conclude that proceedings taken, for example, under occupational health and safety legislation against directors of a corporation would fall outside the dispensing scope of s1318 of the Corporations Act. However, the connection between the subject matter of corporations law and the penalty recovery proceedings under the ITAA here is a closer one, as evinced by s222ANA of Division 9 ITAA quoted above.
The connection starts with the removal of the Commissioner’s priority for tax. Substituted were the two sets of provisions, one contained in Pt 5.7B of the Corporations Law and the other Divisions 8 and 9 contained in the ITAA.
Speaking generally, the first set of provisions require directors to indemnify the Commissioner, subject to certain defences, if payments to the Commissioner are set aside as voidable transactions having been made in the course of “insolvent trading”.
A related though distinct set of provisions was introduced by s222ANA of the ITAA. These concern tax deducted from employees and the consequent duty imposed on directors to cause the corporation to take certain steps. Thus directors of a company failing to cause the company to remit PAYG moneys to the Commissioner or failing to cause the company to make a payment agreement to pay specified amounts, must cause the company to appoint an administrator or begin to be wound up (s222AOB). These are all matters which arise in a corporations law context. Indeed they reach into a core area concerned with corporations, namely their liquidation or administration. Though these matters are directed to discharging fiscal obligations they:
(a)are imposed on directors as such;
(b)replace the Tax Commissioner’s historical priority for tax; and
(c)substitute a scheme for accelerated collection of PAYG amounts, which, though it is found in income tax legislation, has a direct connection with the liquidation or administration of companies.
These are powerful considerations for attributing a sufficient connection with the subject matter of corporations and directors’ duties in a corporations law context. This would rebut any argument that s1318 were incapable of application by reason only of Divisions 8 and 9 having insufficient connection with corporations and corporate matters.

That said, as a matter of broad statutory interpretation, it must be recognised that earlier decisions on s1318 and its UK counterpart gave s1318 a narrow scope. Thus the meaning of “default” or “breach of duty” was limited to a failure to conduct oneself properly as a director in discharge of obligations pursuant to the corporations law. In Customs and Excise Commissioners v Hedon Alpha Ltd [1981] 1 QB 818 the issue concerned whether a director could invoke the dispensing power for failure in relation to his company paying betting duty under the Betting and Gaming Duties Act 1972 (UK). While the case is authority for the unavailability of the dispensing power in relation to actions brought by third parties, that is no longer to be regarded as a limitation in relation to s1318. What is significant about the decision is that it affirmed that the only breaches of duty within the dispensing power were breaches of a director’s personal duties in his capacity as a director; Stephenson LJ at 823-4. Similarly Griffiths LJ at 827-8 limited the dispensing power to the discharge of a director’s obligations pursuant to the Companies Act.
Subsequently in Australia in Commonwealth Bank of Australia v Friedrich & Ors (1991) 5 ACSR 115 Tadgell J declined to apply s1318 to the statutory duty on a director to prevent insolvent trading by that director’s company, contained in the predecessor of s588G. This was on the basis that proceedings for insolvent trading were not proceedings for “negligence, default, breach of duty or breach of trust” as required by s1318. That interpretation was followed in Standard Chartered Bank of Australia Ltd v Antico (1995) 38 NSWLR 290 and Southern Star Group Pty Ltd v Byron (1995) 13 ACLC 1622.
In Antico Hodgson J (as he then was) was not satisfied that Tadgell J was wrong in his view that s556 simply imposed a liability for debt on directors and participants in management in certain circumstances spelt out in s556(1) and which did not involve default or breach of duty. Nor, Hodgson J concluded, was Tadgell J incorrect to regard s556(2) in its then form as simply specifying circumstances in which a defendant can escape liability, again without reference to questions of default or breach of duty.
More recently, it has been held that s1318 does apply to s588G in imposing a duty on a director to prevent insolvent trading by that director’s company; Kenna & Brown Pty Ltd (in liq) v Kenna (1999) 32 ACSR 430. Bergin J drew a distinction between the new regime applicable to debts incurred after 23 June 1993 whereby, under s588G, the offence was for a director to “fail to prevent” a company from incurring a debt in the prescribed circumstances. In contrast, Tadgell J had been dealing with a claim under the predecessor s556 of the Companies Code. Tadgell J was not able to find liability under its then wording arising either from the doing of acts or (at the least) from failing to do something specifically required by the law. As Tadgell J said at [1007]:
“... it remains necessary to discern the imposition by s556(1) of a liability to the plaintiff for a default or breach of duty by the defendant. I have difficulty in seeing that s556 imposes by its terms a liability for an act or omission in contravention of the Code or for the breach of any duty imposed by the Code or otherwise.
… The liability under s556(1) does not arise on account of .. the performance of some act forbidden, or the omission of some act required, by s556(1) or indeed any other provision of the Code. The only prerequisite to the defendant's liability under s556(1) over which he has any necessary control is simply that he was a director or took part in the management of the company. This cannot by itself involved him in any default or breach of duty.”
I do not consider that the UK authority of Hedon Alpha and the Australian authorities following it (Antico and Friedrich (supra)), nor the legislative history, preclude s1318 applying to defaults or breaches of the kind here in question, namely arising under Divisions 8 and 9 of the ITAA. This kind of default and the sanctions attaching to it sufficiently partake of a corporate character. This is by imposing personal duties on directors of a company culminating in each director, qua director, having a personal obligation on pain of penalty to put the company into administration or liquidation if the directors have not caused that company to meet its tax obligations under PAYG.
The Commissioner’s priority for employee group tax, later to be replaced by Divisions 8 and 9, was conferred by ITAA s221P. Section 221P, and its predecessors going back to 1944, were always to be found in the Income Tax Act, not the corporations legislation. However, s221P nonetheless had a close interaction with corporations legislation, as illustrated by s221P(3) of the pre-1993 regime. The latter permitted prior payment of the costs and expenses of winding up, but only where these were, as corporations legislation provided, payable in priority to all other debts in a winding up.
Turning to the legislative history of s1318, it does not foreclose the possibility that breaches or defaults under other Commonwealth legislation imposing duties on directors (or officers) in that capacity may be within the scope of s1318’s dispensation, but depending on the terms of that legislation and whether compatible with such a result. UK law today rejects the traditional dichotomy between matters corporate concerned exclusively with profit, as compared to matters social or community that may affect that profit viewed in the longer term. This is reflected in the Companies Act 2006 (UK) s172(1). In the United Kingdom directors’ duties are for the first time enacted in terms requiring directors to have regard, inter alia, to “the interests of the company’s employees” and to “the impact of the company’s operations on the community and the environment”; see the valuable article “Companies Act 2006 (UK): A new approach to directors’ duties” by Rt Hon Lady Justice Arden DBE, (2007) 81 ALJ 162, writing extra-judicially.
Australia, it is true has not travelled that route. Nonetheless the notion of the company as an “ongoing commercial entity” engaged longer-term with its employees and the community and concerned with shareholders not only present but future, has long been an inherent part of our company law. That allows directors likewise to take a longer-term view of profit. They are justified in doing so in order to preserve the stability of the profit-making enterprise. This in turn requires that directors recognise and respect wider statutory obligations particularly where their disregard may impact adversely on the corporation including in that sense the longer-term. The corporate obligation here, which arises in the wider community context is not only to pay its taxes to which it is properly liable but also to pass on the PAYG taxes required to be collected from employees. There is potential adverse impact on the corporation in directors’ failure to cause the corporation to do so, because directors may then be required to wind up the company or place it in administration, unless the other permitted steps are taken.
Divisions 8 and 9 thus reflect the wider statutory obligation to collect and account for corporate employee taxes, making this a core responsibility of the corporate board’s oversight. This is by imposing stringent obligations on directors qua directors to cause their company to pass on employees’ PAYG tax on pain of personal penalty. In so doing, tax legislation reaches into core corporate areas of liquidation and the related status of administration. Thus neglect of that statutory obligation can put the corporation at risk of its demise. These PAYG obligations of directors are no less obligations of a director qua director in both an individual and collective board sense and no less capable of giving rise to default or breach of duty than other corporate statutory obligations. They arise directly under the ITAA and indirectly in avoiding endangering the company by their breach. A breach of the tax obligation is capable of giving rise to a parallel breach of the core duty of care and diligence if directors expose their company carelessly to liquidation or administration by reason of their permitting neglect of the company’s PAYG obligations.
What this illustrates is that there is a danger of error in identifying duties centrally concerned with corporations, based on the narrow view of whether or not they are imposed by the corporations statute itself. The expansive constitutional interpretation of the Commonwealth’s corporations power to support the validity of legislation directed at constitutional corporations favours a wider view than this. That history shows that matters centrally concerned with corporations will often be found in allied legislation. That comports with the trend begun in Australia and now more recently adopted in the United Kingdom not only to codify directors’ duties comprehensively in corporations statutes, but to create further potentially connected statutory duties on directors in allied legislation. While not all of these examples sufficiently partake of a corporate character such as occupational health and safety, some are clearly capable of doing so. Accordingly to base the test for application of s1318 on whether the statutory obligation is in the Corporations Act itself is at odds with that contemporary reality.
Summing Up
As a threshold matter, it is not a distortion of language to construe “default” or “breach of duty” as capable in a dispensing power of accommodating the statutory obligation in relation to PAYG. This is always provided there is no contradiction, express or implied, between two statutory regimes, there being otherwise a rebuttable presumption of mutual accommodation between legislation emanating from the same legislature. Thus the PAYG obligation is imposed on a director qua director and reaches into the core corporate law concerns of liquidation and its related status of administration. Moreover, such statutory provisions as Divisions 8 and 9 could have been found, or at the least cross-referenced, within traditional corporations legislation, as I have illustrated with the previous s221P(3). Such a nexus between corporations law and tax is much closer than for example any connection with occupational health and safety. The latter emanates from another legislature, namely the State, and unlike Divisions 8 and 9 it applies to any employer, incorporated or not. However as I conclude in dealing with the remaining ground of challenge, there is in my judgment such contrariety between the two regimes, that the general presumption of mutual accommodation is rebutted in this case. I agree with the observations of Basten JA in that context.
Divisions 8 and 9 of the ITAA – to be construed as an exhaustive regime?
The appellant’s submissions can be reduced to two propositions:
(a)that Divisions 8 and 9 of the ITAA, properly construed, constitute an exhaustive legislative regime or code covering the field leaving no scope within the context of such a scheme or code to invoke s1318 as a dispensing provision found outside the ITAA in the Corporations Act 2001; and
(b)there is conflict or contradiction between the provisions of an Act (Divisions 8 and 9 of the ITAA) which in specific terms imposes liability on a director and a general provision of a later Act (s1318 of the Corporations Act 2001) which, if applicable, would allow relief from the liability so imposed.
The appellant invokes the maxim generalia specialibus non derogant.
It is to beg the question simply to assume:
(a)that Divisions 8 and 9 of the ITAA constitute a code and then;
(b)to derive from that characterisation and the maxim earlier quoted the conclusion that as a code it is necessarily exhaustive.
The starting point is rather to engage in a process of statutory construction in order to ascertain:
(a)whether Divisions 8 and 9 of the ITAA constitute a code, and if so;
(b)whether that code accommodates or excludes the application of the dispensing power in s1318 of the Corporations Act.
In Ferdinands, there were, as here, two enactments of the same legislature. That gave rise to a general presumption to which I have earlier referred:
“… in the absence of express words, an earlier statutory provision is not repealed, altered or derogated from by a later provision unless an intention to that effect is necessarily to be implied. There must be very strong grounds to support that implication, for there is a general presumption that the legislature intended that both provisions should operate and that, to the extent that they would otherwise overlap, one should be read as subject to the other.”
per Gaudron J in Saraswati v the Queen at 17.
That presumption of mutual accommodation is however rebuttable if the process of statutory construction reveals express or implied contradiction between the two enactments.
Thus Gummow and Hayne JJ in Ferdinands start with the proposition that:
“no conclusion can be reached about whether a later statutory provision contradicts an earlier without first construing both provisions. If, upon their true construction, there is an ‘explicit or implicit contradiction’ between the two, the later Act impliedly repeals the earlier”; at [47].
Gleeson CJ in Ferdinands posed the enquiry similarly. It was whether there was such contrariety in the two legislative schemes that, by necessary implication, the later excluded the operation of the earlier, characterising the enquiry as one of statutory interpretation. There was, as here, no express statement that the two statutory enactments should both apply or that the second statutory enactment should apply to the exclusion of the first. That process of statutory construction in Ferdinands revealed implicit contradiction between the two sets of provisions so rebutting the general presumption of mutual accommodation.
Section 1318 of the Corporations Act 2001 was enacted later in time than Division 8 and 9 of the ITAA. The fact that similar predecessor provisions of s1318 predated Divisions 8 and 9 may weaken the general presumption insofar as it derives from that later order of events. I shall proceed on that basis nonetheless. I conclude that even if the presumption prima facie applied, it is rebutted.
As in Ferdinands, I consider that the difficulty in reconciling the two sets of legislative provisions is determinative of the construction question. Their contrariety displaces that the general presumption of mutual accommodation. This construction is reinforced by what I shall call for convenience “the Anthony Hordern principle”. It was enunciated by Gavan Duffy CJ and Dixon J in these terms in Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7:
“when the Legislature explicitly gives a power by a particular provision which prescribes the mode in which it should be exercised and the conditions and restrictions which must be observed, it excludes the operation of general expressions in the same instrument which might otherwise have been relied upon for the same power.”
While the Anthony Hordern principle refers to the two sets of provisions as being “in the same instrument”, I draw on the principle by analogy to determine whether two enactments of the same legislature are capable of mutual accommodation, or whether the general presumption to that effect is rebutted.
The Anthony Hordern principle has been frequently applied in subsequent cases; for example in John v Federal Commissioner of Taxation (1989) 166 CLR 417 at 434; Saraswati v R at 23-24; Leon Fink Holdings Pty Ltd v Australian Film Commission (1979) 141 CLR 672 at 678; David Grant & Co Pty Ltd (Receiver appointed) v Westpac Banking Corporation (1995) 184 CLR 265 at 276; Australian Capital Television Pty Ltd v The Commonwealth (1992) 177 CLR 106 at 213 and Switz Pty Limited v Glowbind Pty Ltd (2000) 48 NSWLR 661 at 677. It is reflected more generally in the maxim generalia specialibus non derogant.
Here the particular provisions of Divisions 8 and 9 of the ITAA:
(a)give an express power to the Commissioner to impose a penalty on a director;
(b)prescribe the mode in which that power should be exercised; and
(c)prescribe the conditions and restrictions which must be observed.
By so doing, this necessarily excludes the operation of general expressions in the Corporations Act. This is reinforced by the difficulties in their reconciliation, so giving rise to an implied contradiction between the two sets of provisions. (I use the word “set” at this point to avoid begging the question of their being an exhaustive code.)
Difficulties in reconciling these two sets of legislative provisions start with the fact that different considerations inform the exercise of the dispensing or relief power in s1318 as compared to the defences under s222AOJ of the ITAA.
Under s1318, relief is granted not by way of a defence but by way of a favourable exercise of the court’s discretion. That dispensation can only be invoked where the director concerned has acted honestly and where, having regard to all the circumstances of the case, that director ought fairly to be excused. This is a discretion much more at large than the very specific defences circumscribed by s222AOJ. The effectiveness of those penalty provisions under the ITAA would be entirely subverted if the person concerned, though unable to prove that he or she “took all reasonable steps to ensure that the directors complied with the relevant statutory provisions”, could yet seek and obtain relief under s1318.
There are other difficulties in reconciliation. Section 1318(2), were it available to a director subject to the tax regime, would enable that director to apply to the court for relief in advance of any proceedings for enforcement of that penalty. There is no equivalent in Divisions 8 and 9. Moreover s1318(1) itself operates not only where liability has been found, but where, unlike the tax regime, the person merely “may be liable”. Again there is no equivalent in Divisions 8 and 9.
One can thus see how such a capacity to invoke s1318(2) would subvert the intended stringency of Divisions 8 and 9 of the ITAA. That stringency is to ensure that the Commissioner, having lost his former statutory priority for tax, can still take effective action to make sure that PAYG deductions from the company’s employees salary and wages are remitted.
Invoking the Anthony Hordern principle, there is no doubt that the statutory defences which have been provided in s222AOJ are specific in the criteria which must be met. They depend essentially upon illness, good reason for not taking part in the management of the company, or the reasonableness and extent of steps taken to ensure the directors complied with the earlier obligations under s222AOB. The statutory defences under s222AOJ are moreover confined to a particular time period. That time period is from the due date of the deduction until the expiry of 14 days after the director penalty notice is received. A director must make out the defence in respect of this period (i.e. while under an obligation to comply with s222AOB) or be irrevocably fixed with a penalty. Section 1318 has no such equivalent.
The statutory defences in s222AOJ thus differ substantially from the generality of s1318. There all that is required is, that it “appears to the court … that the person has acted honestly and that having regard to all the circumstances of the case … the person ought fairly to be excused … on such terms as the court thinks fit’. If the legislature had intended that a general provision such as s1318 could overtake the need to make out the specific statutory defences within Division 9 it could have readily so provided.

The maxim generalia specialibus non derogant thus operates in a context where, if the general provision (s1318), were to apply, it would neutralize the specific provisions of Divisions 8 and 9 of the ITAA. Compare O’Connor J in Goodwin v Phillips (1908) 7 CLR 1 at 14:
“Where there is a general provision which, if applied in its entirety, would neutralize a special provision dealing with the same subject matter, the special provision must be read as a proviso to the general provision, and the general provision, in so far as it is inconsistent with the special provision, must be deemed not to apply.”
The two sets of provisions are thus clearly repugnant to one another in the sense used by Deane J in Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meat and Live-Stock Corporation (No. 2) (1980) 29 ALR 333 at 347:
“As a matter of general construction, where there is repugnancy between the general provision of a statute and provisions dealing with a particular subject matter, the latter must prevail and, to the extent of any such repugnancy, the general provisions will be inapplicable to the subject matter of the special provisions. ‘The rule is, that wherever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be taken to be operative …’ (per Romilly MR: Pretty v Solly (1859) 26 Beav 606 at 610; 54 ER 1032 at 1034). Repugnancy can be present in cases where there is no direct contradiction between the relevant legislative provisions. It is present where it appears, as a matter of construction, that special provisions were intended exhaustively to govern their particular subject matter and where general provisions, if held to be applicable to the particular subject matter, would constitute a departure from that intention by encroaching on that subject matter.” [emphasis added]
Conclusion
I consider that conflict between the specific requirements of Division 8 and 9 and the generality of s1318 preclude the one being accommodated to the other. A proper process of statutory construction reveals the former to be a code and that code to be exhaustive, leaving no room for s1318 to apply. They each operate as parallel universes with no intersection between them. Any general presumption to the contrary from the fact that the two sets of legislation emanate from the same Commonwealth legislature is displaced by the implied contradiction between the two sets of provisions.
The discretion to allow relief under s1318.
I have concluded that the court’s power to grant relief under s1318 of the Act is not capable of application to the respondent in the circumstances of the application of the penalty regime under the ITAA. It is therefore not necessary that I deal with the further question of the discretion exercised in this particular case, were it capable of being exercised at all.
Suffice it to say that while one may have sympathy for the position the respondent found himself in, this was a case where he was aware at least from August 2002 that the Company was in serious financial difficulty and not paying its debts as they fell due. The respondent was also aware from that same date that the Company had not been remitting deductions of PAYG which it had made from payments of salary and wages. Yet the respondent did not himself take any steps to address the situation or cause the Company to comply with s222AOB. Further, the respondent was on notice from the receipt of penalty notices in November 2002 and January 2003 that the Company had not been remitting its PAYG but still did not take any appropriate steps to cause the Company to comply with s222AOB(1).
In those circumstances there would be formidable difficulties in the way of any favourable exercise of discretion even were s1318 capable of application.
OVERALL CONCLUSION
I consider that the appeal should be allowed. In relation to costs, the cross-appeal on costs for which leave to appeal is required, does not relevantly arise. While the Commissioner has agreed to pay the respondent’s costs of appeal in any event, the Commissioner as the successful appellant is entitled to an order that the respondent pay the costs below.
Accordingly I propose orders as follows:
(1)Appeal allowed.
(2)The order of Johnston DCJ on 6 September 2006 entering verdict for the defendant be set aside.
(3)Judgment be entered for the appellant in the sum of $141,259.19.
(4)The respondent to pay the costs below.
(5)There be no order for costs in relation to the appeal.
(6)Leave to cross-appeal disallowed and the claimant to pay the opponent’s costs in the cross-appeal.
BASTEN JA: The short issue raised by this appeal is whether the Respondent could be relieved by the Court from his liability to pay the Commissioner, by way of penalty, an amount equal to the unpaid tax liability of a company of which he was a director, pursuant to s 222AOC(1) of the Income Tax Assessment Act 1936 (Cth) (“the Assessment Act”). The Court’s power to relieve from liability for the civil penalty was said to be found in s 1318 of the Corporations Act 2001 (Cth). In my view s 1318 of the Corporations Act had no operation in relation to such a liability and the District Court was in error in concluding otherwise.
The operation and scope of s 1318 is to be identified in the present case by reference to the concurrent operation of Part VI of the Assessment Act. That involves the interrelationship of two enactments of the same legislature and the presumption, in the absence of any express intention to the contrary, that the Parliament intended both to operate in their terms: Saraswati v The Queen (1991) 172 CLR 1 at 17; Ferdinands v Commissioner for Public Employer (2006) 225 CLR 130 at [4] (Gleeson CJ), [18] (Gummow and Hayne JJ), [109] (Kirby J) and [158] (Callinan J).
The need to reconcile potentially conflicting statutory provisions may arise in a federation as between different levels of government, or between different laws of the same legislature, or with respect to different provisions in one Act. Inconsistency between Commonwealth and State legislation is addressed by s 109 of the Constitution; similar principles apply with respect to Territory laws: see, eg, Northern Territory v GPAO (1999) 196 CLR 553 at [60] (Gleeson CJ and Gummow J). The reconciliation of provisions contained in one statute is exemplified by the treatment of privative clauses: see, eg, Plaintiff S157/2002 v The Commonwealth (2003) 211 CLR 476 at [27]-[35] (Gleeson CJ) and [60] and [77] (Gaudron, McHugh, Gummow, Kirby and Hayne JJ) and [159] (Callinan J). (Anthony Hordern & Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7 also falls into this category.) Putting to one side questions of apparent internal inconsistency, the general assumption is that provisions found in different statutes of one legislature will operate according to their terms, but, in the absence of a clear indication to the contrary, without qualifying or diminishing the effect of other statutory schemes. Given the complexity of much modern litigation, it is unrealistic to assume that the drafter gave specific attention to, and intended to modify, an existing statutory scheme having a different subject-matter to that of the provision in contemplation.
This approach will have particular relevance in relation to a dispensing power, such as s 1318, contained in legislation having potentially broad operation, such as the Corporations Act. The potential for inconsistency with both Commonwealth and State laws was appreciated. To that end, express provision was made that, absent “direct inconsistency” the corporations legislation (which included the Corporations Act and parts of the ASIC Act) was “not intended to exclude or limit the concurrent operation of any law of a State or Territory”: s 5E(1) and (4). In addition, express attention was given to possible cases of direct inconsistency, with the general purpose of withdrawing the operation of the corporations legislation, in circumstances identified in s 5G. The operations of these provisions need not be pursued in the present case, but in circumstances where s 1318 might be thought to have potential relevance to duties imposed on a director under State law, the operation of Part 1.1A of the Corporations Act, which includes ss 5D-5I, will be important. For present purposes, it is sufficient to note that s 1318 will not, merely because it is contained in a Commonwealth Act, necessarily provide a mechanism applicable in relation to a liability arising under State law.
The intended operation of s 1318 must be decided primarily by reference to its own terms and those of the provisions imposing a liability on a director, in relation to which it is sought to be applied. The Court may relieve an officer of a company from liability pursuant to the power conferred by s 1318(1), where the person has “acted honestly” and “ought fairly to be excused”. The Assessment Act, on the other hand, has its own defences, expressed in quite different terms: s 222AOJ. Section 222AOJ(2) provides a defence where a director “because of illness or for some other good reason … did not take part in the management of the company” at a relevant time. There is a separate defence for a person who “took all reasonable steps to ensure that the directors complied with” their statutory obligations or there were no such steps that the person could have taken: s 222AOJ(3).
In this area, as in considering constitutional inconsistency, it is appropriate to look at the practical operation of potentially inconsistent provisions. In a practical sense, the provisions cannot operate together. The inconsistency must be resolved by denying s 1318 operation in relation to the liability of a director under ss 222AOB and 222AOC of the Assessment Act.
To confirm this conclusion, is it appropriate to consider the operation of the relevant provisions in their broader statutory context. Thus, the interrelationship of Divisions 8 and 9 of the Assessment Act and the Corporations Act are expressly dealt with in both Acts. In the Assessment Act, that recognition may be found in s 222ANA, set out by Santow JA at [34*] above. Similarly, it is reflected in Part 5.7B of the Corporations Act, which deals with voidable transactions of a company, and allows a court, on the application of a liquidator, to undo a company transaction, where the company is being wound up: Corporations Act, ss 588FE and 588FF. The court has power, under these provisions, to order a recipient of money to repay it. Pursuant to s 588F, a relevant transaction of a company may extend to a payment to the Commissioner of Taxation. Section 588FG(3) and (4) expressly recognise that such an order may affect a receipt by the Commissioner and s 588FGA provides for certain consequences in the event of such an order, including an indemnity by the directors in favour of the Commissioner. To that extent, there is express recognition that a power conferred under the Corporations Act, in relation to the winding up of a company, could affect a payment of tax by the company.
Those provisions, however, not only have no bearing on the liability of a director to pay a penalty under the Assessment Act, but in fact impose a liability on the directors of the company to indemnify the Commissioner in relation to any loss or damage suffered as a result of such an order: s 588FGA(2) and (3). The provisions reflect an intention that, where the exercise by the Court of a power conferred under the Corporations Act may work to the detriment of the Commissioner, the Commissioner’s position is to be protected, by imposing liability on the directors. In this context, it seems unlikely that Parliament intended that s 1318 could operate so as to diminish the entitlements of the Commissioner.
One may also rely upon the legislative history in determining the proper scope of s 1318. The conclusion that s 1318 was not intended to operate in the present circumstances is supported by the history of that provision and its predecessors, as explained by Spigelman CJ. The predecessor of s 1318, in force when Part VI, Divisions 8 and 9 of the Assessment Act were enacted in 1993, was s 1318 of the Corporations Law. There was no necessary implication that that provision, then contained in State law, operated to qualify the effect of the newly enacted provisions of the Assessment Act, when they commenced.
Although the conclusion is not directly supported by authority, the characterisation of the Assessment Act, albeit in an earlier form, adopted by the High Court when addressing the operation of a Limitation Act in relation to an amount payable under the Assessment Act, gives guidance. A State Limitation Act would operate, if at all, by virtue of s 64 of the Judiciary Act 1903 (Cth), and s 64, although it is another Commonwealth law, has a different kind of operation to the Corporations Act. Thus, it operates across federal jurisdiction generally to fill what might otherwise have been gaps in Commonwealth law: see Dao v Australian Postal Commission (1987) 162 CLR 317 at 331. The section operates “only if, and to the extent that, there be no directly applicable and inconsistent (in the relevant sense) Commonwealth law already regulating those circumstances”: Dao at 332.
In considering the question of a State Limitation Act in relation to proceedings for recovery of income tax and additional tax, the Court stated in Deputy Commissioner of Taxation v MoorebankPty Ltd (1988) 165 CLR 55 at 64:
“In particular, where a Commonwealth legislative scheme is complete upon its face, s 64 will not operate to insert into it some provision of State law for whose operation the Commonwealth provisions can, when properly understood, be seen to have left no room. Accordingly, the question arises whether the relevant provisions of the Assessment Act have effectively covered the field and left no room for the direct or indirect intrusion of provisions of State Limitation Acts to limit the time in which an action can be brought on behalf of the Commissioner of Taxation for unpaid income tax or additional tax.”
This was quite a different question from that which arose in the present case, involving different principles, including the prohibition on discrimination between States or parts of States: Constitution, s 51(ii). However, after concluding that there was no necessary direct inconsistency between a provision for recovery of unpaid tax and a statute imposing a limitation period, the Court continued (p 66):
“On the other hand, when one examines the general scheme of the Assessment Act provisions providing for collection and recovery of tax, it appears to us to be clear that there is no room for the importation into them of such State Limitation Acts provisions. The provisions of the Assessment Act relevantly cover the field. Indeed, the intrusion of State Limitation Acts provisions would significantly undermine the scheme for collection and recovery of tax which is contained in the Assessment Act.”
Their Honours also noted the effect which a limitation provision might have upon the general discretion conferred on the Commissioner to grant an extension of time to a taxpayer, which might extend beyond the limitation period: s 206.
The particular constitutional problem which arose in Moorebank, of potential differential operation across the States, does not arise where the relieving power is found in another Commonwealth Act having a general operation. On the other hand, the characterisation of the Assessment Act (as it then stood) as providing a comprehensive and exclusive statement of the circumstances in which the Commissioner was entitled to recover unpaid income tax, or statutory penalties imposed under the Assessment Act, has weight in relation to the attempt to import into the scheme of the Assessment Act the broad powers of a court to relieve against liability of a director.
In Deputy Commissioner of Taxation v Keck [2006] NSWSC 677, (2006) 63 ATR 310, an issue arose as to whether directors were liable under s 222AOC(1) where the directors alleged they had not received the penalty notices which constituted a pre-condition to their liability. That defence failed. McDougall J noted that a further defence relying on s 1318 of the Corporations Act had also been pleaded, but withdrawn in the course of the hearing: at [13]. In considering the appropriate costs order, his Honour stated at [44]:
“As I have noted, the defendants pleaded a defence based on s 1318 of the Corporations Act 2001 (Cth). That appeared to me, and I must say still appears to me, to be wholly misconceived. Section 1318(1) empowers the court to relieve a person of the consequences, in civil proceedings, of ‘negligence, default, breach of trust or breach or duty’ in some circumstances. It may be doubted whether s 1318 has any application at all in the context of the ITAA 1936; in particular, so far as s 222AOE is concerned, because there is a separate defence provided by s 222AOJ which has not been pleaded.”
In my view the doubts expressed by McDougall J were soundly based and s 1318 has no relevant operation. Not only are specific defences prescribed by the Assessment Act, but no power is conferred on the Commissioner to remit any part of a penalty, liability for which arises pursuant to a relevant provision in Part VI, Div 9 of the Assessment Act. This statutory scheme is inconsistent with an intention to allow a Court to exercise a broad discretionary power to grant relief to a director in circumstances where the Assessment Act has otherwise imposed liability, subject to its own regime of defences.
In reaching this conclusion I have not sought to rely on the particular language of s 1318, other than the criteria on which the exercise of the power is conditioned. Such reliance would raise in stark terms the appropriateness of reliance on s 1318, dealing with civil proceedings, as opposed to the potential availability of s 1317S, dealing with relief from liability for contravention of a civil penalty provision, a point which as the Chief Justice notes, was not addressed by the parties.
I agree with the orders proposed by Santow JA.

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LAST UPDATED: 3 August 2007