Deputy Commissioner of Taxation v Healy - [2014] WADC 35

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: DEPUTY COMMISSIONER OF TAXATION -v- HEALY [2014] WADC 35

CORAM: WAGER DCJ

HEARD: 10 MARCH 2014

DELIVERED : 21 MARCH 2014

FILE NO/S: CIV 7 of 2007

BETWEEN: DEPUTY COMMISSIONER OF TAXATION
Plaintiff
AND
JAMES GERARD MICHAEL HEALY
Defendant

Catchwords:

Appeal from registrar's order dismissing application to set aside default judgment - Time of delivering in the ordinary course of post - Inordinate delay

Legislation:

Acts Interpretation Act 1901 (Cth)
Corporations Act 2011 (Cth)
Evidence Act 1995 (Cth)
Income Tax Assessment Act 1936 (Cth)
District Court Rules 2005

Result:

Appeal dismissed

Representation:

Counsel:

Plaintiff: Mr A J Musikanth
Defendant: Ms C H Thompson

Solicitors:

Plaintiff: Australian Government Solicitor
Defendant: Norton & Smailes

Case(s) referred to in judgment(s):

Deputy Commissioner of Taxation v Trio Site Services Pty Ltd [2007] FCA 776
Evans v Bartlam [1937] AC 473
Fancourt v Mercantile Credit Ltd [1983] HCA 25; (1983) 154 CLR 87
Gusdote Pty Ltd v Ashley (2011) 193 FCR 227; [2011] FCA 250
Scope Data Systems Pty Ltd v Goman as Representative of the Partnership BDO Nelson Parkhill [2007] NSWSC 278; (2007) 70 NSWLR 176
Soong v Deputy Commissioner of Taxation [2011] NSWCA 265; (2011) 80 NSWLR 226

WAGER DCJ: Mr Healy appeals the decision of Deputy Registrar Harman made on 16 October 2013 dismissing the application to set aside default judgment entered against him by the Deputy Commissioner of Taxation (DCT) (the Commissioner). The judgment was entered on 21 March 2007 in default of Mr Healy's filing an appearance. The judgment ordered that Mr Healy pay the DCT $164,731.96 and $732.70 costs.
Mr Healy submits the default judgment should be set aside because he has an arguable defence to the DCT's claim. He asserts that as director of a company that was the subject of a director penalty notice (DPN) he had appointed an administrator prior to the end of the relevant 14‑day period thereby remitting the penalty under s 222AOG Income Tax Assessment Act 1936 (Cth) (ITAA36). The DCT argues the administrator was not appointed prior to the end of the relevant 14-day period. The DCT submits there is no arguable defence to the claim nor is there a reasonable explanation for the significant delay of five years and eight months in making the application to set aside the default judgment.
The District Court Rules 2005 provide that a party dissatisfied with the decision of a registrar may appeal to a judge. The appeal is by way of a new hearing of the matter that was before the registrar. The party bringing the appeal bears the onus of proving he has a prima facie defence: Evans v Bartlam [1937] AC 473, 480. This appeal was filed within time. The relevant default judgment was regularly entered.
There are four matters to be considered in respect of this application to set aside default judgment:
1.Is there an arguable defence on the merits?
2.Is there a reasonable explanation as to why judgment was allowed to go by default?
3.Has there been delay in applying to set aside the default judgment and, if so, is there a reasonable explanation for the delay?
4.Has any delay caused prejudice to the DCT?

History

Factually there is very little dispute. Mr Healy had been a director of the company World Class Service Pty Ltd (WCS) since 2002. At the relevant time s 222AOC ITAA36 was part of div 9 of pt VI to the ITAA36. Division 9 dealt with 'penalties for directors of non‑remitting companies'. Section 222AOB ITAA36 imposed certain obligations on directors of corporations including obligations to cause the relevant company to comply with remittance obligations under the taxation legislation. If s 222AOB was not complied with directors of the relevant company became liable to pay a penalty to the Commissioner equal to the unpaid amount of the company's liability under the remittance provision: s 222AOC(1) ITAA36.
The Commissioner was not entitled to recover the penalty from a person until 14-days after the Commissioner gave the person a notice in accordance with that section. The DPN was the required notice. The penalty was remitted if certain steps, including the appointment to the relevant company of an administrator pursuant to pt 5.33A Corporations Act 2001 (Cth), were taken within the notice period: s 222AOG ITAA36.
On 23 August 2006 the DCT posted a DPN to Mr Healy in respect of PAYG withholding amounts that WCS had failed to pay to the Commissioner together with a notice of director's liability to pay a penalty to the Commissioner. The covering letter, addressed to Mr Healy, refers to the enclosed notice and relevantly states:
You automatically became liable to the penalty when the company failed to pay the amount(s) set out in the enclosed notice by the due date(s).
We will commence action for the recovery of the penalty without further warning unless, at the end of 14 days from the date the enclosed notice is given to you:
…
(c)The company is under administration within the meaning of the Corporations Act 2001; or
…
The penalty will be remitted if any one of these options is adopted within 14 days from the date the enclosed notice is given to you.
You should keep in mind that you will continue to be liable to a penalty if any one of the options has not been adopted at the end of 14 days after you are given the enclosed notice (that is, any agreement would need to be executed by both the company and the Commissioner before the expiration of the 14 days).
Mr Healy claims he did not receive the DPN until 1 September 2006 following contact with a representative of the ATO who then sent Mr Healy an identical copy of the DPN and notice of director's liability to pay a penalty to the Commissioner by facsimile.
Mr Lean was appointed as the administrator for WCS on 12 September 2006. The company was under administration within the meaning of the Corporations Act 2001 from that date.
However, the DCT did not consider Mr Healy had complied with the DPN. The DCT proceeded personally against Mr Healy and issued a writ of summons in respect to the sum itemised as PAYG withholding amounts consistent with the DPN. Mr Healy was served with the writ of summons on 9 January 2007. The time to enter an appearance expired on 19 January 2007.
Following entry of default judgment on 21 March 2007, the DCT caused a bankruptcy notice to issue and to be served on Mr Healy and issued a petition for a sequestration order. The sequestration order was made against Mr Healy's estate on 19 November 2007.
Mr Healy was discharged from bankruptcy on 8 December 2010. On 22 October 2011 he paid the balance of the judgment debt that was due and payable having paid part of the judgment debt earlier.
Although Mr Healy made an FOI application to the ATO on 29 September 2011, (that Mr Healy contends, is relevant to this appeal), the FOI request was not responded to until 31 May 2012. Mr Healy applied to set aside default judgment six months later.

Is there an arguable defence on the merits?

By appointing the administrator to WCS on 12 September 2006 Mr Healy contends he acted within the 14-day time period because he either was not given notice until 29 August 2006 or alternatively, he was given notice by facsimile on 1 September 2006. Mr Healy argues the penalty has been remitted under s 222AOG ITAA36.
The DCT submits that in the ordinary course of post, even allowing for an additional day, and taking into account that 23 August 2006 was a Wednesday (and therefore a time period incorporating three working days and two non‑working days being Saturday and Sunday) the evidence shows the DPN was given on 28 August 2006. The date the administrator was appointed was 12 September 2006. That is 15 days after 28 August 2006 and therefore 15 days after the notice was given. Given the appointment of the administrator was not within the 14‑day period, Mr Healy became personally liable. He does not have an arguable defence on the merits.
The parties agree that, given the relevant time period of August and September 2006, the commencement of the 14-day period runs from the date of delivery of the DPN: Soong v Deputy Commissioner of Taxation [2011] NSWCA 265; (2011) 80 NSWLR 226.
Although Mr Healy deposes that he did not receive the DPN by post, s 222AOF(1) ITAA36 applied. It provided:
If it appears from ASIC documents that a person is, or has been within the last seven days, a director of the company, the Commissioner may give the person a notice under s 222AOE by leaving it at, or sending it by post to, an address that appears from such documents to be, or to have been within the last seven days, the person's place of residence or business address.
The responsible officer at the ATO, Mr Wimmer, obtained ASIC MASCOT extracts in relation to WCS that gave Mr Healy's address as 82 Limetree Circuit, Mindarie, WA, 6030 and sent the DPN to that address by prepaid post: affidavit of Mr Wimmer affirmed 8 March 2013 [8] – [11], affidavit of Mr J G M Healy sworn 5 November 2012, attachment JH‑4.
Given the ITAA36 was a Commonwealth Act, s 29 ActsInterpretation Act 1901 (Cth) (AI Act) applied to service. It provided (and still provides):
(1)Where an Act authorises or requires any document to be served by post, whether the expression 'served' or the expression 'give' or 'send' or any other expression is used, then unless the contrary intention appears, the service shall be deemed to be effected by properly addressing, prepaying and posting the document as a letter and, unless the contrary is proved, to have been effected at the time at which the letter would be delivered in the ordinary course of post.
(2)This section does not affect the operation of s 160 of the Evidence Act 1995.
Section 29(1) contains two aspects of service; the conduct limb and the timing limb: Deputy Commissioner of Taxation v Trio Site Services Pty Ltd [2007] FCA 776 [26] – [30]. The conduct limb states: 'the service shall be deemed to be effected by properly addressing prepaying and posting the document as a letter'.
The evidence of the responsible officer at the ATO, Mr Wimmer, confirms this occurred.
The timing limb states: (service is) 'to have been effected at the time at which the letter would be delivered in the ordinary course of post'. This is the main issue to be considered.
Mr Healy submits given the reference to s 160 Evidence Act 1995 (Cth) in s 29(2) AI Act, the timing must be considered in the context of s 160 Evidence Act. However, the DCT argues the limb stands alone. If evidence of the ordinary course of post is accepted there is no reason to consider s 160 Evidence Act (Cth).
Section 160 Evidence Act (Cth) relevantly provides:
Postal articles
(1)It is presumed (unless evidence sufficient to raise doubt about the presumption is adduced) that a postal article sent by prepaid post addressed to a person at a specified address in Australia or in an external territory was received at that address on the fourth working day after having been posted.
…
(3)In this section: working day means a day that is not:
(a)a Saturday or a Sunday; or
(b)a public holiday or a bank holiday in the place to which the postal article was addressed.
Section 160 Evidence Act (Cth) must be considered in light of s 182 and s 5 Evidence Act (Cth). Section 182 relevantly states:
(4A)Section 160 applies in relation to postal articles sent by a Commonwealth agency as if that section applied to the extent provided for in section 5.
Section 5 states:
The provisions of this Act referred to in the Table apply to all proceedings in an Australian Court.
The table refers to s 182. The tabled subject matter includes postal articles sent by Commonwealth agencies and certain Commonwealth documents.
The interaction between s 160 Evidence Act (Cth) and s 29 AI Act was considered in Scope Data Systems Pty Ltd v Gomanas Representative of the Partnership BDO Nelson Parkhill [2007] NSWSC 278; (2007) 70 NSWLR 176.
Although Scope Data Systems Pty Ltd related to the date of service of a judgment of a State court thereby excluding the Evidence Act (Cth) from consideration pursuant to s 79 Judiciary Act (Cth), White J considered the interaction between s 29 AI Act and s 160 Evidence Act (NSW) that is identical in its terms to s 160 Evidence Act (Cth). In Scope Data Systems Pty Ltd no evidence was given as to the delivery of the relevant item, nor of the ordinary course of post. White J noted specifically that no evidence was led from an employee of Australia Post as to when the document was posted in the relevant central business district (Sydney) in the ordinary course of post to determine delivery at the destination (Manly Post Office). Although accepting the evidence of the Australia Post timetable for delivery of mail, White J concluded that this did not establish when mail could be expected to be delivered in the ordinary course of post. His Honour said [21]:
There was no evidence as to how frequently, if at all, the timetable was complied with. In absence of such evidence, a timetable for the delivery of mail might be a statement of aspiration, as much as an indicator of the likely out time by which mail is delivered. Regulation 6 of the Australian Postal Corporation (Performance Standards) Regulations 1998 (Cth) specifies that performance standard for Australia Post that 94% of letters lodged with Australia Post for delivery within the metropolitan area of the capital city of lodgement be delivered the next business day. However there was no evidence as to whether this performance standard was met. The evidence did not establish when, according to the ordinary course of post, the letter posted on 25 September 2006 would be delivered to the post office box at Manly.
The DCT, in the present case, has filed evidence of the time at which the DPN would have been delivered in the ordinary course of post to Mr Healy's address at 82 Limetree Circuit, Mindarie. Mr Wimmer deposes that the DPN was properly posted at 9.30 am on 23 August 2006 when it was posted in an Australia Post mailbox in Belconnen, ACT, 2617: affidavit of Mr Wimmer, affirmed 8 March 2013, and attachment DPW‑1.
Ms Kovacevic, in her affidavit sworn 14 March 2013, attaches CK3, a letter from Ms Varalla, corporate lawyer, Australia Post, dated 19 February 2013 and CK6, Australia Post annual report 2006/2007. Page 15 of the annual report sets out conclusions from statistics in relation to delivery performance and community service for the year relevant to Mr Healy's receipt of the DPN, 2006/2007. The accuracy of the statistics referred to in the annual report has not been challenged. The report states:
One of the obligations that we must meet is 94 per cent on‑time delivery of non‑bulk letters. In 2006/07, we again exceed that target, delivering 96.3% of domestic letters on time or early (compared with 95.6% the previous year). Nearly all the remaining 3.7% of letters were delivered the following day.
The annual report notes performance above the minimum standard set by the Australian Postal Corporation (Performance Standards) Regulations 1998 (Cth). Regulation 6(2):
Australia Post must deliver at least 94% of all reserved services letters lodged with Australia Post:
(a)to the indicated address or, if Australia Post knows that the indicated address is not the appropriate address, to the appropriate address; and
(b)within the delivery time mentioned for the address in the following Table.
The relevant Table refers to letters for delivery interstate (consistent with a delivery from the ACT to WA) within a capital city metropolitan area if lodged in capital city metropolitan area of another State having a delivery time of two business days after the day of posting.
Although Mr Healy does not challenge a delivery rate of over 96.3% by the second working day counsel argues the annual report refers to around 21 million items of mail being processed every day. A figure of 3.7% of non‑delivered letters is still a relatively sizeable number of items of mail each day. The annual report notes, however, that by the third business day over 99% of items were delivered. This is still one day less than the four days referred to by Mr Healy and relevant to s 160 Evidence Act. I accept that a very high percentage, over 99% of items were delivered within three working days in 2006/2007.
I also accept that unlike the evidence led in Scope Data Systems Pty Ltd, evidence of the Australia Post annual report statistics 2006/2007 provide a true indication of the likely time by which mail was delivered in 2006.
Mr Healy submits that s 29 AI Act must be considered in light of s 160 Evidence Act (Cth) that states by way of presumption that the DPN was given (or delivered) at Mr Healy's address on the fourth working day after having been posted being 29 August 2006.
White J in Scope Data Systems Pty Ltd considered s 29 AI Act and s 160 Evidence Act (Cth). His Honour said [38]:
In my view, the position is as follows. If the evidence establishes the time at which the article is delivered to the postal address, then that is the time at which service is taken to be effected. If the evidence does not establish the time at which delivery was effected, then, unless the contrary is proved, delivery is deemed to have been effected in the ordinary course of post. What that is is a question of fact to be proved by evidence. In the absence of evidence on the topic, and in the absence of any presumption, there will be no proof that the article was delivered at a particular time. If it is established that the article was not delivered in the ordinary course of post, but the evidence does not establish when it was delivered, then again there will be no evidence as to the time of delivery. In either case, s 160 of the Evidence Act (Cth) (applicable to federal courts), or s 160 of the Evidence Act (NSW) (applicable to New South Wales courts), affords a presumption as to when the article is to be taken to have been delivered. The presumption may assist in proving when delivery was made in the ordinary course of post. If the evidence shows that the article was not delivered in the ordinary course of post, the presumption may assist in proof of when the document was delivered.
And further said [41]:
In Howship Holdings Pty Ltd v Leslie, Young J said that s160 of the Evidence Act (NSW) was inconsistent with s 109Y of the Corporations Law because a different standard applied to the evidence needed to rebut the presumptions created by each section. However, that does not create any inconsistency. Although the provisions apply in the same area, namely, determining when an article is taken to have been delivered by post, they have a complementary sphere of operation. If the time of delivery is proved as a matter fact, or if the expected time of delivery in the ordinary course of post is proved as a matter of fact, then there is no scope for the operation of the presumption in s 160. If not, the presumption in s 160 applies, unless there is sufficient evidence to cast doubt upon that presumption.
Counsel for Mr Healy also refers to Gusdote Pty Ltd v Ashley (2011) 193 FCR 227; [2011] FCA 250. The plurality in Gusdote Pty Ltd said [54] – [55]:
Unless the contrary is proved, the time at which a letter posted in accordance with the provisions of s 29 of the Acts Interpretation Act is deemed to have been received by and thus served upon the recipient is the time at which the letter would be delivered in the ordinary course of post. For the purposes of s 29 of the Acts Interpretation Act, the contrary may be proved by evidence which establishes precisely when the item was delivered to the appropriate address. In any given case, 'the ordinary course of post' is a question of fact. It may be proved, for example, by calling appropriate and relevant evidence from Australia Post.
Section 160 of the Evidence Act assists in the proof of the fact 'the ordinary course of post' by raising a presumption which will operate unless evidence is adduced which is sufficient to raise doubt about the presumption. The statutory presumption provided for by s 160(1) of the Evidence Act, in effect, gives context and meaning the expression 'ordinary course of post' so long as evidence is not adduced which raises doubt about the appropriateness of the presumption being applied in the particular case. In the absence of evidence sufficient to raise doubt about the presumption referred to in s 160 of the Evidence Act, the Evidence Act presumption will be engaged with the consequence that, for the purposes of s 29 of the Acts Interpretation Act, the letter will be deemed to have been delivered in the ordinary course of post on the fourth working day after it was posted.

The example given of evidence that may prove the ordinary course of post 'as a question of fact' is consistent with the evidence filed relevant to Australia Post. The unchallenged evidence from Australia Post annexed to the affidavit of Ms Kovacevic sworn 14 March 2013 is evidence that is appropriate and relevant. There is no reason why the Australia Post evidence should not be accepted. The presumption referred to in s 160 Evidence Act (Cth) does not arise because the evidence does not raise doubt. I accept the DCT's evidence is consistent with the time of delivery in the ordinary course of post being a maximum of three working days after 23 August 2006. The date the notice was given is 28 August 2006. The date by which an administrator had to be appointed to WCS for the penalty against Mr Healy to be remitted was 14‑days being 11 September 2006. The date of 12 September 2006 is 15 days after the DPN notice was given. Mr Lean's appointment as administrator was one day too late.
Counsel for Mr Healy further submits that a defence is raised because a copy of the DPN was sent to Mr Healy by facsimile on 1 September 2006 and accordingly the date the notice was given should be taken to be 1 September 2006.
The alleged fact of non‑receipt of the DPN until 1 September 2006 does not change the date of delivery established. Proof of non‑receipt is not proof of non‑delivery: Fancourt v Mercantile Credit Ltd [1983] HCA 25; (1983) 154 CLR 87, 96 – 97.
In order to prove non‑delivery it is necessary to establish more than a positive fact of mere non‑receipt by proving, for example, that Australia Post had returned the DPN as unclaimed: Deputy Commissioner of Taxation v Contract Synergies Administration Pty Ltd [2011] FCA 743; (2011) 292 ALR 713 [9] – [11].
The documents sent by facsimile to Mr Healy on 1 September 2006 were identical to the documents given by post on 28 August 2006. The giving of the DPN occurred prior to Mr Healy receiving copies of the same documents by facsimile on 1 September 2006. Mr Healy does not have an arguable defence on the merits.

Is there a reasonable explanation as to why the judgment was allowed to go by default?

I accept, consistent with Mr Healy's affidavit sworn 5 November 2012, that in about March 2006 Mr Healy and his wife separated and this had a significant impact on the businesses they ran together. I also accept that from 24 April 2006 Mr Healy received psychiatric assistance for depression and attention deficit hyperactivity disorder that was treated by medication: [25] – [37], [50] ‑ [52] and JH – 11, JH – 12.
Mr Healy did not enter an appearance within 10 days of receiving the writ of summons on 9 January 2007 nor on any later date. It was his understanding that the writ was addressed to him personally in relation to the unpaid PAYG withholding liabilities of WCS. He believed however that he was not personally liable for the debt because he had appointed Mr Lean as the administrator of WCS on 12 September 2006 and he understood he was not required to do anything with the writ because Mr Lean was settling the debt owed by WCS to the ATO. He believed once the debt was settled, the ATO would withdraw the writ as a matter of course: affidavit of Mr J G M Healy sworn 3 February 2014 [9].
I accept Mr Healy's understanding may have been marred by his health problems up to the time he received the writ and possibly for a short period thereafter.

Has there been delay in applying to set aside the default judgment and, if so, is there a reasonable explanation for the delay?

Mr Healy does not provide any further medical evidence. Dr Patterson, psychiatrist, states in his letter dated 21 June 2006, that Mr Healy was receiving medication for diagnosed ADHD and depression. Both conditions improved somewhat with treatment in 2006. There is no evidence of either health problem after June 2006.
Mr Healy states he asked his brother Patrick Healy what he should do with a bankruptcy notice and creditor's petition and his brother advised him to seek legal advice from a taxation lawyer as the matters related to dealings with the ATO. His brother engaged Wilson & Atkinson lawyers to provide Mr Healy with legal advice in relation to the bankruptcy notice and the creditor's position: affidavit of Mr J G M Healy sworn 3 February 2014.
Mr Patrick Healy does not refer to being formally appointed to act on his brother's behalf: affidavit of Mr P Healy sworn 3 February 2014. Given Mr Healy had lawyers acting on his behalf from mid‑2007, it is very unusual that he did not receive any advice at all in relation to the matters the subject of the default judgment.
Although Mr Healy did not have status to set aside the default judgment while bankrupt, there is no evidence that he applied or attempted to make any application that would have enabled him to have brought an application. In a letter from Mr Healy to Senator Wong dated 30 September 2010 MVP2 annexed to the affidavit of Mr M V Prusek, sworn 13 March 2013, Mr Healy said:
The company was placed in administration on 12 September 2006. The (intended) Administrator had informed me that I would be 'just in time'. After allowing time for service, September 12th was one day later than the prescribed time allowed and made me personally liable for company debts.
Counsel for Mr Healy submits the letter is evidence of Mr Healy simply setting out the history of his proceedings and he is not referring to his understanding or acceptance of the default judgment.
I do not accept this. Mr Healy does not raise any issue in the seven page letter relevant to his intention to apply to set aside default judgment. The letter is evidence consistent with Mr Healy's belief in 2010 that there were no grounds to set aside the default judgment. The delay prior to and after 2010 is inordinate being in total a period of five years and eight months.

Has the delay caused prejudice to the DCT?

I accept the DCT would suffer less prejudice than a smaller entity placed in a position of being required to pay back a significant sum of money after a period of many years. However if the default judgment was set aside the DCT would be required to call evidence at trial in respect of the usual course of post in 2006. After seven years it is likely to be difficult to locate witnesses involved in the postal delivery service in August and September 2006 who would have clear recollections of procedures, dates and processes. The difficulty faced by prospective witnesses would prejudice the DCT.

Findings

There is no credible defence on the merits and the delay is inordinate. The appeal is dismissed.