Deputy Commissioner of Taxation v Eric Weitzman

IN THE COUNTY COURT OF VICTORIA

AT MELBOURNE

CIVIL DIVISION

Revised
Not Restricted

COMMERCIAL LIST

GENERAL CASES DIVISION

Case No. CI-12-02577

DEPUTY COMMISSIONER OF TAXATION	Plaintiff
v
ERIC WEITZMAN	Defendant
v
VENN MILNER & CO PTY LTD (ACN 066 680 100)	Third Party

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JUDGE:	HER HONOUR JUDGE KENNEDY
WHERE HELD:	Melbourne
DATE OF HEARING:	10 and 11 September 2014
DATE OF JUDGMENT:	17 September 2014
CASE MAY BE CITED AS:	Deputy Commissioner of Taxation v Eric Weitzman
MEDIUM NEUTRAL CITATION:	[2014] VCC 1556

REASONS FOR JUDGMENT

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Catchwords: Taxation – director penalty notice- whether the defendant was a “director” of the company on the day the company became liable to pay estimates of withheld amounts- whether the defendant was appointed and/or was acting in the position of a director on that day- Taxation Administration Act 1953 (Cth) ss 269-15 and 269-20, Corporations Act 2001 s 9.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr S. Linden	Australian Government Solicitor
For the First Defendant	Mr J. Evans	Jim McCarthy Lawyers
For the Third Party	Mr J. Davis	Tresscox Lawyers

HER HONOUR:

The plaintiff’s claim is for recovery of penalties payable by the defendant as director of LANBW1 Pty Ltd in respect of amounts withheld by that company under Division 12 of Schedule 1 to the Taxation Administration Act1953 (Cth) (TAA) in respect of both the current balance (Claim A) and estimated liabilities (Claim B).
The defendant has also issued proceedings against the third party for damages.
The third party proceedings were resolved immediately prior to the commencement of the trial such that orders were made by consent to dismiss this proceeding with no order as to costs.
The parties also agreed that orders should be made by consent that the defendant pay the amount of $262,606.90 together with interest of $65,504.28 in respect of Claim A.
Finally, Counsel helpfully agreed that the only issue remaining for determination in relation to Claim B is whether, on 30 January 2012, the defendant was a director of LANBW1 Pty Ltd within the meaning of section 9 of the Corporations Act 2001.

Witnesses

The plaintiff adduced an affidavit of Santana Theofilopoulos, sworn on 4 September 2014 which was tendered into evidence without objection and with no cross examination.
The defendant called three witnesses: Mr Eric Weitzman (the defendant), Mr Trevor Rosenthal (Partner at Batten Sacks Harvey Bruce Lawyers) and Mr Harold Weitzman (retired, who had a “financial role” at LANBW1 Pty Ltd and was the father of the defendant).
The defendant gave unsatisfactory evidence about the signing of the deed of settlement and prevaricated as to whether he really signed it. On his own account, he had also given inaccurate evidence in a Supreme Court affidavit which will be referred to below.
The defendant also presented as someone who was prepared to take actions without independent consideration of whether they were appropriate. For example, his evidence was that Harold Weitzman and Jack Krispin (a former director) had told him that he needed to sign the deed of settlement. He also said that he did not read the affidavit but that it was read to him while he was “out on the road.”
This does not mean that every aspect of the defendant’s testimony is to be rejected. In particular, I have been prepared to accept parts of that evidence where it has been corroborated by other evidence in the case.
The solicitor, Mr Rosenthal, gave detailed oral evidence and was also cross examined. His evidence was unsatisfactory insofar as there was little explanation as to why he took instructions from two non-directors of the company, Harold Weitzman and Jack Krispin, in circumstances where they had no apparent authority. Thus his evidence was simply that he knew that this was the Weitzmans’ business and they were involved in the business.
A solicitor should satisfy himself that he takes instructions from a person with appropriate authority. However, this failure notwithstanding, the evidence of Mr Rosenthal was otherwise generally cohesive, and consistent with objective evidence. Significantly, his evidence that instructions were given by Harold Weitzman and Jack Krispin (and not the defendant) was generally credible and consistent.
The evidence of the defendant’s father, Harold Weitzman, was of limited utility and his memory was also less than perfect. Nevertheless, that evidence was generally consistent with the evidence of Mr Rosenthal to the effect that instructions on behalf of the company were given by both himself and Jack Krispin.

Background

LANBW1 was incorporated in October 2009.
On 13 October 2009 the defendant and Jack Krispin were appointed as directors of LANBW1 Pty Ltd. The defendant was the sales and marketing director who mostly dealt with customers.
Harold Weitzman was an undischarged bankrupt during 2011 and 2012. He agreed he had no actual authority to act on behalf of the company during that time. However, he claimed to have a “financial role” in the company, including handling the books and ensuring invoices were charged.
Jack Krispin was a former director as was Juliet Weitzman (the defendant’s step mother).
The business of LANBW1 was to manufacture bathroom ware and wholesale bathroom ware to retail outlets throughout Australia.
On 27 September 2011 Jack Krispin ceased to be a director of LANBW1.
In October 2011 the business and all the assets of LANBW1 were sold to another company, Lanark Developments Pty Ltd, at which time LANBW1 ceased trading.
The defendant claimed he did nothing more for LANBW1 from that time because there were no duties to perform. On 24 November 2011 the defendant also ceased to be a director of LANBW1 Pty Ltd. This meant that there was therefore no formal director of the company recorded after this time in 2011.
On 14 December 2011 proceedings were commenced in the Supreme Court of New South Wales by Nuplex Industries (Aust) Pty Ltd to wind-up LANBW1 Pty Ltd.
At some stage in late December Batten Sacks Harvey Bruce (BSHB) was retained to negotiate in relation to these proceedings which evidence will be referred to in more detail below.
On 13 January 2012 BSHB made an offer in relation to the Nuplex proceeding (although this is not in evidence).
By correspondence dated 17 January from Peter Winters & Co (for Nuplex) that offer was rejected.
By correspondence of 24 January BSHB wrote that it had “obtained instructions from our client” as to what it was prepared to settle the matter for.
Meanwhile, pursuant to section 268-10 of Schedule 1 to the TAA, the plaintiff, as delegate of the Commissioner, made estimates of the amounts withheld by the company under Division 12 of Schedule 1 to the TAA during the period 1 March 2011 to 30 November 2011 totalling $324,990 (the estimates).
On 30 January 2012 the plaintiff gave a notice of estimated liabilities to LANBW1 Pty Ltd pursuant to s265-15 of Schedule 1 to the TAA.
Post 30 January
By correspondence of 31 January Peter Winters forwarded a draft deed of settlement to BSHB.
By email also of 31 January at 11.58 addressed to Harold Weitzman, Jack Krispin and Eric Weitzman commencing “Good morning Harold” BSHB requested that the Deed be signed urgently; indicating that “a director of LANBW1” should initial each page.
By correspondence of 31 January 2012 BSJB then enclosed a Deed “executed by our client.” The enclosed deed was dated 31 January and was executed by the defendant.
On 31 January 2012 the plaintiff also issued a Notice of Director’s Liability To Pay a Penalty pursuant to s269-25 of Schedule 1 to the TAA in respect of the estimates.
By email of 2 February, Mr Rosenthal wrote to Eric Weitzman, Harold Weitzman and Jack Krispin commencing: “hello Eric. I refer to our discussion earlier today.” It then included the following: “if the company is to be placed into administration/liquidation it will be necessary to appoint you as a director and we need to have sufficient time to meet to make decisions and to attend to all these aspects….” . The evidence of Mr Rosenthal was that he had discussed with the defendant that if the company was to be placed into administration or liquidation then Eric Weitzman would need to be appointed a director to give effect to that.
By correspondence of 3 February Peter Winters raised an issue as to whether the correct directors had executed the deed.
By email of 3 February to Harold Weitzman, Jack Krispin and Eric Weitzman, BSHB attached the correspondence from Peter Winters stating “as previously discussed I confirm that you would have your accountant attend to the necessary to appoint Eric as a director (and secretary) for the purposes of executing the deed …”
By email of 6 February Mr Rosenthal attached a letter from the solicitors representing Nuplex attaching a copy of the deed executed by Nuplex stating “I await the deed executed by Eric- in this regard please refer to my email 3 February 2012 and in particular regarding the appointment of Eric as a director of the company.”
A meeting subsequently took place on 6 February 2012 between Mr Rosenthal and Harold Weitzman, Eric Weitzman and Jack Krispin and a person named “Wally.” The notes record “Eric- appointed director ASAP-Gordana @TWF from 30/1” Gordana was apparently an employee of TWF partners, chartered accountants.
By email from Gordana Ferguson of TWF Chartered Accountants of 8 February 2012 she attached various documents in relation to the appointment of Eric Weitzman as a director of LANBW1. These included “change to company details” with a date of appointment given of 30 January 2012 ; “memorandum of resolutions of the sole director of the company” ;and a “consent to act as director dated 30 January 2012.”
These documents were duly lodged with ASIC having been signed by Eric Weitzman on 8 February 2012.
At some subsequent stage, the company made application for leave to be granted retrospectively allowing members of LANBW1 to resolve that it be wound up voluntarily. On 5 March the defendant swore an affidavit in support of this application. That affidavit contained a statement that the defendant was “reappointed as a director on 30 January 2012” and also the following paragraph:
“Although I was not a director of LANBW1 (in fact it had no directors at this time), I engaged Batten Sacks Harvey Bruce Lawyers to seek to reach an agreement with Nuplex which would enable its claim to be satisfied. I am informed by Trevor Rosenthal and believe that he put an offer to Nuplex (via its lawyers, Peter Winters & Co.), on 24 January 2012, and an agreement to this effect was reached in principle on 25 January 2012, subject to formal documentation.”
The evidence of Mr Rosenthal was that the affidavit was prepared in circumstances of urgency. It was not prepared by him although he did read it and witness it. He said that with the benefit of hindsight the affidavit should have said that “Batten Sacks Harvey Bruce was engaged to seek to reach an agreement….”.
Associate Justice Efthim dismissed the company’s application on 14 March 2012.

Relevant legislation

The Commissioner gave the company written notice of the estimates on 30 January, 2012. If the defendant was a director of the company at the end of this date within the meaning of the Corporations Act 2001, he therefore became liable to a penalty by force of s269-20 of the TAA.

Section 9 of the Corporations Act contained the following definition:
"director" of a company or other body means:
(a) a person who:
(i) is appointed to the position of a director; or
(ii) is appointed to the position of an alternate director and is acting in that capacity;
regardless of the name that is given to their position; and
(b) unless the contrary intention appears, a person who is not validly appointed as a director if:
(i) they act in the position of a director; or
(ii) the directors of the company or body are accustomed to act in accordance with the person's instructions or wishes.
Subparagraph (b)(ii) does not apply merely because the directors act on advice given by the person in the proper performance of functions attaching to the person's professional capacity, or the person's business relationship with the directors or the company or body.
There were two issues: whether the defendant was “appointed” as a director on 30 January 2012 and whether, if no, the defendant was “acting in the position of a director” on 30 January 2012 within part (b)(i) of the above definition.
Whether the defendant was a director of LANBW1 Pty Ltd within the meaning of section 9 of the Corporations Act 2001 on 30 January 2012
Whether defendant “appointed” as a director on 30 January 2012 ?
Pursuant to s1274B(2) of the Corporations Act the ASIC extract is prima facie evidence that the defendant was appointed a director of the company on 30 January 2012.
This evidence may however be rebutted.
In the present case, the evidence showed that the entry into the ASIC records occurred by reason of the lodgement of the Form 484 Change to Company Details which only occurred on 8 February 2012.
The only other documents signed (also on 8 February) were a consent to act as director as well as a “Memorandum of Resolutions of the Sole Director of the Company.” Contrary to a suggestion of the plaintiff, there was nothing to suggest that the defendant was appointed by some other means prior to 30 January 2012.[1] In fact Ms Theofilopoulos annexes the electronic form of the Form 484 “sourced from ASIC” which gives a date signed of 8 February. She also annexes a copy of the Memorandum of Resolutions of the Sole Director of the Company.
[1] Outline of Plaintiff’s Closing Submissions, paragraph 3.
The Memorandum of Resolutions document simply stated that “It was resolved that, having consented to act as a director of the company, the following be appointed: Weitzman, Eric.” It then purported to be “signed by all the director(s) of the company” , namely, by Eric Weitzman alone on 8 February 2012.
The Memorandum therefore contained a resolution wherein a non-director unilaterally purported to appoint himself as a director.
There was no evidence that the company had a constitution which meant that the company’s internal management was governed by provisions of the Act applying as replaceable rules.
Pursuant to replaceable rule s201G a company may appoint a person as director by resolution passed in general meeting. However, no general meeting took place; rather the “appointment” occurred by reason of a resolution by the non-director himself.
The plaintiff then cited replaceable rule s201H which provided that directors of a company may appoint a person as a director and even suggested that the defendant had not “excluded the possibility that Jack Krispin was a director and appointed the defendant.” [2]
[2] Outline of Plaintiff’s Closing Submissions, paragraph 4.
I do not accept that s201H would apply to cover de facto directors. However, even if it did, any suggestion that some secret appointment occurred by Jack Krispin was speculation only without any foundation. Instead, the evidence establishes that the defendant purported to appoint himself. The Memorandum does not purport to effect an appointment by other directors of the company pursuant to rule 201H.
No other replaceable rule was identified as applicable. More particularly, s201F was not applicable given there was more than one shareholder identified in the company search.
It follows that the purported appointment of the defendant by himself was invalid and of no effect.
Even if Mr Weitzman’s resolution was valid, there would also be an issue as to whether the execution of the documents on 8 February could really take effect so as to alter the actual state of affairs on 30 January (as was attempted to be done).
Although a ratification of an action might be possible, the form of the documentation in this case was effectively to seek to say that the director had been appointed at a time that he had not. The purported appointment would therefore appear to be ineffective to effect an appointment as at 30 January on this additional basis, although, in the light of my finding, above, it is unnecessary to consider this further.
I am therefore satisfied that, although the ASIC extract is prima facie evidence of the defendant’s appointment as at 30 January, that the evidence before the court rebuts this evidence and establishes that he was not so appointed.
Whether the defendant “acting in the position of a director” as at 30 January 2012?
The principles that govern this issue have been helpfully set out in the Federal Court decision of Grimaldi v Chameleon Mining NL(No 2)[3] :
(i) A person may be a director even without any purported appointment of that person to that position at any time.
(ii) The formula, “acts in the position of a director”, which mirrors the language of Mason J in Drysdale at 242 contemplates that in some degree at least the person concerned, though not appointed a director, has been “doing the work of a director” in that company: cf In re Western Counties Steam Bakeries and Milling Co [1897] 1 Ch 617 at 630. Or to put the matter more fully, the person concerned, though not a director de jure, has been acting in a role (or roles) within the company and performing functions one would reasonably expect to have been performed by a director of that company given its circumstances.
(iii) The roles and functions so performed will vary with the commercial context, operations and governance structure
(iv) There is no reason why the relationship of a person with a company may not evolve over time into that of de facto director. It also may be the case that the person only performs the role and functions that constitute him or her a director for a limited period of time: see Austin.
(v) Whether a person has acted in the position of a director is a question of substance and not simply of how that person has been denominated in, or by, the company …
(vi) …
(vii) It has commonly been said in both Australian and English cases (though it has been disputed by Madgwick J in Austin, at 569) that to be a de facto director one must be shown to have assumed or performed functions which only a de jure director or board can properly perform…..Or put shortly, was the work done, work for a director of that company? In a given company, this may involve an alleged director in the day-to-day management and business affairs of that company and may require his or her doing many things for reasons of need, expediency or whatever, but which hardly could be said to be things that only a de jure director can properly do: see eg Mistmorn, 183. In another corporate setting, the work done may be simply selective and strategic action. In the end what is being asked for is the making of a value judgment about the proper characterisation of what in its context the person in question had been doing….
Plaintiff’s submissions
[3] [2012] FCAFC 6; (2012) 200 FCR 296 at [63]-[75]
In its Reply, the plaintiff relied on the following material matters in supporting its allegation that the defendant was a de facto director as at 30 January:
·The defendant engaged Batten Sacks Harvey Bruce Lawyers (on or before 24 January 2012) to seek to reach an agreement with a creditor of the company (Nuplex) that had made an application to the Supreme Court of New South Wales that the company be wound up in insolvency.
·The defendant reached an agreement on behalf of the company with Nuplex to settle the proceeding on or about 25 January 2012.
·The defendant executed a deed of settlement as a director of the company with Nuplex on or about 31 January 2012.
In oral submissions the plaintiff further placed emphasis on various matters including:
· The defendant’s admission that he had agreed with his father to be reappointed as a director of the company no later than 30 January 2012;
· That having regard to all the evidence, particularly the forwarding of the deed to the defendant on 31 January, the court should infer that the defendant was “involved in the decision-making of the company in relation to the Nuplex proceeding”.
Evidence

From October 2011, the company was not trading. Instead, the only activity the company was engaged in was to defend two claims, the Nuplex claim being the more significant. It is therefore important to examine the evidence in some detail as to what, if anything, the defendant did in relation to these two matters.
Mr Rosenthal
The evidence of Mr Rosenthal was that Jack Krispin asked him to represent him in relation to a summons to attend for oral examination in circumstances where the creditor had obtained a judgment against LANBW1. He also asked him to “deal with the matter on behalf of LANBW1.” That matter commenced in the beginning of November and ran for a month or so. Mr Rosenthal took instructions from Jack Krispin initially in November and thereafter he obtained instructions from Jack Krispin and Harold Weitzman.
There was no suggestion of any involvement of the defendant in this first matter.
In relation to the Nuplex claim, the evidence of Mr Rosenthal was that he was provided with documents regarding a winding up application issued by Nuplex. He became aware of this in the middle of December 2011 and was receiving instructions from Harold Weitzman and Jack Krispin. The first time he received instructions from the defendant was on 6 February 2011 but up until then he had not been instructing him; even then he claimed he just received an email from the defendant asking him a question so he wasn’t really instructing him as such. He further said that as at 31 January he had had no dealings with Eric Weitzman. He also confirmed that at the time he sent the executed deed of settlement by correspondence of 31 January he had had “no dealings with Eric Weitzman on this particular matter with Nuplex.”
Eric Weitzman
The evidence of Eric Weitzman was that he did not do anything for LANBW1 after it ceased trading and that, as at 31 January, he had not given BSHB any instructions in relation to the Nuplex proceeding. He also claimed that he never really dealt with Mr Rosenthal at all as he was a salesman for Lanark at the time.
The defendant further said that he had not signed any other documents by which he agreed to act as a director between November 2011 and February 2012. Further that he was not appointed as a director until 8 February and did not give instructions that he had been appointed on 30 January.
The first time he was aware of Nuplex was when he was told by Harold Weitzman or Jack Krispin that he needed to “sign” the deed . However, he accepted that he had agreed with his father to be reappointed as a director prior to execution of the deed on 31 January.
Harold Weitzman
The evidence of Harold Weitzman was that he became aware of a winding up proceeding having commenced by Nuplex against LANBW1 in December 2011. That he went with Jack Krispin to see Mr Rosenthal to handle the matter with Eric Weitzman having “nothing” to do with it. Further, that he continued to give instructions into 2012.
His evidence was that the deed contained his handwriting (the date and name of Eric Weitzman) but that the signature was that of the defendant. He recalled that he had to get the document settled before a certain date and that he filled it in so it could be signed.
The only discussion he remembered with Eric Weitzman was that they had to get the document signed so they could settle the matter with Nuplex. He worked on instructions from Jack Krispin, who was the managing director of Lanark who he was working for at the time. According to those instructions, Eric Weitzman was to be the one to sign documents.
Resolution
As mentioned already, the evidence of Mr Rosenthal as to receipt of instructions was generally credible and consistent.
Such evidence was also generally consistent with the objective evidence save for the affidavit. The plaintiff also put emphasis on the sending of the email of 31 January to all 3 men.
In terms of the email, this is primarily addressed to Harold Weitzman given the opening words are “Good morning Harold.” In any event, it does not demonstrate that, contrary to the evidence of 3 witnesses, it was really the defendant giving instructions.[4] Such a proposition was never put to Mr Rosenthal. Indeed he was not even asked exactly why the defendant was included as an addressee. It may be that the defendant was so included given it appears that by this stage he had agreed to be reappointed as a director. In any event, it is speculative at best and does not generally undermine the evidence of Mr Rosenthal.
[4] cf Outline of Plaintiff’s Closing Submissions, paragraph 14.
In terms of the affidavit, the evidence of Mr Rosenthal was that the affidavit contained a mistake given the urgency with which the document was prepared. Although this is not impressive, I accept his explanation as an honest one.
As indicated already, the evidence of Mr Rosenthal was that his instructions came from Harold Weitzman and Jack Krispin and not the defendant. He was not generally challenged on this evidence; the challenge was more on whether these men really had authority to instruct him.
I accept the evidence of the solicitor as well as that of Harold Weitzman and the defendant insofar as their evidence is consistent with that of Mr Rosenthal.
Turning then to the matters pleaded in the Reply, I am therefore not satisfied that the defendant engaged BSHB to seek to reach an agreement on or before 24 January.
I am also not satisfied that “the defendant reached an agreement “ to settle the proceeding on or about 25 January 2012. Rather the instructions to make an offer and reach agreement came from Harold Weitzman and Jack Krispin.
I accept that the defendant did execute the deed on 31 January. However, this does not assist the plaintiff given it post - dates the crucial date of 30 January.
In terms of the further matters raised in closing submissions, the fact that the plaintiff had “agreed” to be a director does not amount to any overt act of “acting in the position of a director.”
However, the gravamen of the closing was that I should infer that, even unbeknownst to the solicitor, that the defendant was really the person “involved in the decision-making process for the company.”
The allegation was not the subject of the pleaded matters and does not properly enunciate what “acts” are said to be relied upon. Thus, although I accept that the absence of trading activity meant that the giving of instructions in relation to the Nuplex litigation was significant some unspecified “involvement” in discussions would not necessarily constitute the assumption of the role of a director.
I accept, as highlighted by the plaintiff, that the evidence established that, prior to 31 January, the defendant agreed that he would become a director and appeared to be the only person put forward. Further, that by 31 January the defendant was included in email correspondence and executed the deed acting as a director on 31 January.
However, even when regard is given to this evidence, it is insufficient to draw an inference that the defendant was “involved in the decision-making process for the company.” More particularly I am not satisfied that he was involved in “instructing on the Nuplex matter”.[5] Instead, I accept, consistent with his demeanour and presentation in court, that he was generally doing the bidding of his father and Jack Krispin in signing documents he was asked to sign.
[5] Outline of Plaintiff’s Closing Submissions, paragraph 14.
The plaintiff suggested that I should draw an adverse inference given Jack Krispin was not called. However, the allegation that the defendant was a de facto director was only made in a reply filed on the first day of the trial. I am not satisfied that any adverse inference should be drawn in such circumstances the precise nature of which was not identified in any event.[6]
[6] Jones v Dunkel (1959) 101 CLR 298.
For the above reasons, based on the evidence before the court, I am not satisfied that the defendant “acted in the position of a director” for the purposes of s9 of the Corporations Act as at 30 January 2012.
In reaching the conclusion above, it has been unnecessary to resolve a number of other potential issues concerning LANBW1. These included whether or not Jack Krispin and or Harold Weitzman acted as de facto directors of the company; further whether the company was in breach of s201A which provides that a proprietary company must have at least one director.
Such matters were not necessary to determine given the sole issue before this court was a narrow one solely concerned with whether the defendant was a director as at 30 January 2012. For reasons given above, I consider that he was not.
It follows that the plaintiff’s claim in relation to Part B fails.
Conclusion
I am not satisfied that the plaintiff is entitled to judgment in respect of Claim B.
However, as indicated already the parties agreed that the plaintiff was entitled to judgment in respect of Claim A as follows:
·The Defendant pay the Plaintiff the amount of $262,606.90 in respect of Claim A;
·The Defendant pay the Plaintiff interest on Claim A in the amount of $65,504.28;
I will however hear from the parties as to the precise form of final order including costs.

[2014] VCC 1556

17 September 2014