Deputy Commissioner of Taxation v Hickey - [2009] WADC 15

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: DEPUTY COMMISSIONER OF TAXATION -v- HICKEY & ANOR [2009] WADC 15

CORAM: REGISTRAR KINGSLEY

HEARD: 12 DECEMBER 2008

DELIVERED : 30 JANUARY 2009

FILE NO/S: CIV 117 of 2008

BETWEEN: DEPUTY COMMISSIONER OF TAXATION
Plaintiff
AND
PETER ROBIN HICKEY
First Defendant
KATHERINE MAY BURNETT
Second Defendant

Catchwords:

Practice - Order 14 Rules of the Supreme Court 1971 - Turns on own facts

Legislation:

Corporations Act 2001
Taxation Administration Act 1953

Result:

Judgment entered

Representation:

Counsel:

Plaintiff:     Ms C Thompson
First Defendant              :     In person
Second Defendant         :     No appearance

Solicitors:

Plaintiff:     Deputy Commissioner of Taxation
First Defendant              :     Not applicable
Second Defendant         :     Not applicable

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

Canty v Deputy Commissioner of Taxation [2005] NSWCA 84
Commissioner for Corporate Affairs v Bracht [1989] VR 821
Deputy Commissioner of Taxation v Coco [2003] QSC 119
Deputy Commissioner of Taxation v George [2002] NSWCA 336
Deputy Commissioner of Taxation v Paola and Anor [2006] NSWSC 193
Deputy Commissioner of Taxation v Saunig [2002] NSWCA 390

REGISTRAR KINGSLEY: The proceedings were commenced by writ in January 2008. In May 2008 an appearance was entered by the first defendant and there being no appearance by the second defendant and default judgment was obtained in March 2008 against her. The application for summary judgment was filed in August 2008.
The first issue is the question of leave to file the application for summary judgment out of time.
In her affidavit sworn 21 August 2008, Betty‑Jane Logue ("Logue's first affidavit") deposes that from May 2008 the plaintiff was in discussions with the first defendant and the first defendant's solicitors Tan & Tan Lawyers in an attempt to resolve the matter out of court. In June 2008 a defence was filed and served on the plaintiff.
I accept the plaintiff's counsel's submission that the delay by the plaintiff in applying for summary judgment arose because of the plaintiff's attempt to afford the first defendant the opportunity to resolve the matter out of court. No prejudice has been caused to the first defendant by the delay in filing the application for summary judgment. Leave is given to bring the application.

Moss Media Ltd

The first defendant was a director of Moss Media from 15 November 2005. Moss Media was at all material times an employer who was liable to withhold amounts from payment made to employees pursuant to Div 12 of Sch 1 of the Taxation Administration Act1953 ("TAA 1953"). Between December 2004 to July 2006 the company notified the Commissioner of Taxation ("Commissioner") through the lodgement of business activity statements ("BAS") that the sum of $277,979 had been withheld (actual amount withheld).
During that period Moss Media was required to pay the actual amounts withheld to the Commissioner by the 21^st day after the end of the month in which the amounts withheld were made. After taking into account various credits made between 2004 and 2006, Logue deposes that the total actual amount withheld was $242,503.94.
Logue further deposes that Moss Media was an employer liable to withhold amounts from the wages of its employees for the purposes of Div 12 of Sch 1 of TAA 1953. Pursuant to s 222 AGA of the Income Tax Assessment Act1936 ("ITAA 1936") the Commissioner made estimates of the unpaid amounts of Moss Media liabilities in respect of amounts withheld by Moss Media during the period August 2006 to January 2007 and March 2007 to April 2007 (withholding estimates). The total amount of the withholding estimates in respect of each period of withholding was $132,955.
Logue deposes that a written Notice of Estimate of Liability payable was delivered to the company. Within seven days of issuance of the notice the Company could give the Commissioner a statutory declaration substantiating the actual unpaid amounts or stating that Moss Media did not withhold any amounts. Logue deposes that Moss Media did not give to the Commissioner a statutory declaration within seven days of sending the notice of estimate or any time thereafter.
In relation to the actual amounts withheld, the first defendant, as director of Moss Media was obliged to cause the company to do at least one of the things referred to in par (a) to (d) inclusive of subs 22 AOB(1) of ITAA 1936. In relation to the estimated withholding the first defendant as director was obliged to cause the company to do at least one of the things referred to in par (a) to (d) inclusive of subs 22 APB(1) of ITAA 1936.
In both cases the obligations on the first defendant was to:
(a)pay to the Commissioner the actual amount withheld or estimated amount withheld;
(b)make an agreement with the Commissioner in relation to the Company's liability to pay the amounts withheld;
(c)appoint an administrator of Moss Media; and
(d)begin to be wound up with the meaning of the Corporations Act 2001.
As the company failed to comply with its obligations, this failure is sanctioned by penalties imposed on directors personally. This penalty operates in parallel with the existing liability owed by the company so that any reduction of one liability reduces the parallel liability to the same extent. To that end, two Director Penalty Notices were sent to the first defendant, one for the actual and one for the estimates pursuant to s 222 AOF and s 222 APE of the ITAA 1936, stating the details of the unpaid liability and stating that the penalties may be remitted if, within 14 days after the notice is given, the first defendant as director:
(a)discharges the company's liability;
(b)enters into an agreement under s 222 ALA of ITAA 1936;
(c)causes an administrator to be appointed; and
(d)causes the company to be wound up.
Ms Logue deposes that the first defendant has not complied with the director's penalty notice.

Defences

The first defendant raised three defences to the application:
1.illness;
2.arrangements have been made with the Commissioner for payment; and
3.the first defendant did all that he reasonably could to ensure compliance.
In relation to the defence of illness the first defendant deposes that for the period between 27 January 2007 and 8 November 2007, because of illness, he did not take part in the management of the company. The first defendant deposes that he underwent surgery in March 2007 and was in a state of recovery from 28 March 2007 to 8 November 2007.
However, in relation to the second head of his defences, at par 15 of his affidavit the first defendant deposes that on or about June 2007 he caused Moss Media to enter into an agreement to pay the amounts withheld. The first defendant annexes copies of facsimiles to Logue in August 2007 and September 2007. In a file note at p 109 of Logue's first affidavit there are notes of a telephone conversation with the first defendant on 26 June 2007. In that, the first defendant is alleged to have said that he was working diligently on bringing lodgements up to date, but that the external accountant said that this was not going to be possible by the end of June and the first defendant sought an extension to mid‑July 2007.
Section 222 AOJ ITAA in respect of actual debts and s 222 API ITAA in respect of the estimates, provides that it is a defence if 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 they were a director. In Deputy Commissioner of Taxation v George [2002] NSWCA 336 Gzell J at par 27 states that the defence under s 222 AOB(1) ITAA:
"… was not enlivened if merely because on one or more discrete occasions during the entire period the director had good reason not to participate in the management of the company. The requirement was that a director did not take part in management at any time. That requirement was not satisfied if there was participation on one or more occasions."
The evidence in Logue's first affidavit from May 2007 to August 2008 shows that the first defendant was participating in the management of Moss Media. In Commissioner for Corporate Affairs v Bracht [1989] VR 821 the court said that:
"The concept of 'management' comprehends activities which involved policy and decision making, related to the business affairs of the corporation, affecting the corporation as a whole or substantial part of the corporation, to the extent that consequences of the formation of those policies or the making of those decisions may have some significant bearing on the financial standing of the corporation or the conduct of its affairs."
There was no doubt having regard to the nature of the negotiations with the plaintiff, that the first defendant was participating in decision making which may have some significant bearing on the financial standing of Moss Media. Accordingly, I find that the first defendant was involved in the management of Moss Media for the entire period under question and that the defence of illness is not made out.
The first defendant deposes that in June 2007 he caused Moss Media to enter into agreements with the Commissioner to pay the amounts withheld pursuant to s 222 ALA ITAA 1936.
The Commissioner does not dispute entering into an agreement in September 2006. However, the plaintiff's counsel submits that Moss Media defaulted on the arrangements in that the company failed to make a payment of $10,000 due on 31 December 2006. Further, the plaintiff's counsel submits that the September 2006 agreement was not an agreement under s 222 ALA ITAA. In Deputy Commissioner of Taxation v Paola and Anor [2006] NSWSC 193 the tax payers, following issue of director's penalty notices, argued that they had entered into an arrangement under s 222 ALA for payment of the amount set out in the payment arrangement letter. Patten A‑J stated that an agreement under s 222 ALA needs to specify the liabilities which compliance with it would discharge. Compliance was not satisfied by the mere listing of payments to be made, which in total represented the sum of all liabilities of the company to the Commissioner at the time.
In this case the September 2006 arrangement did not identify nor specify the liabilities which were to be discharged by the stipulated payment and accordingly in my opinion the September 2006 arrangement was not an agreement pursuant to s 222 ALA ITAA.
There was no evidence before me to indicate that there is any agreement between the first defendant and the Commissioner in August 2007.
Thirdly the first defendant has stated he has taken all reasonable steps to ensure compliance by the director of Moss Media. S222 AOJ (3) ITAA provides a defence where a director takes all reasonable steps to ensure compliance. The test is objective (Deputy Commissioner of Taxation v Saunig [2002] NSWCA 390) and the burden of proof falls on the first defendant. The defence under s222 AOJ (3) applies to the entire period during which the director's obligations apply, meaning that a reasonable step may be taken early in the period, and so provides a defence until it is reasonable for another step to be taken (Deputy Commissioner of Taxation v Coco [2003] QSC 119).
If reasonable steps taken in relation to one of the courses open to the first defendant fails, the first defendant had the obligation to take reasonable steps to ensure compliance another way. The taking of all reasonable steps is directed to ensuring a specific outcome is brought about, namely compliance with one or more of the obligations imposed on the director (see Canty v Deputy Commissioner of Taxation [2005] NSWCA 84).
The first defendant has not shown by way of evidence that all reasonable steps had been taken by him and accordingly I find this head of defence has not been made out.
During the course of submissions the first defendant stated that there are three BAS, in relation to the amounts withheld, which have not been submitted to the Commissioner and the liquidator is declining to submit those BAS. In November 2008 the first defendant lodged a revised BAS with the Commissioner. I am informed from the bar table that the BAS are filed electronically with no human intervention. That human intervention comes later. In this case the BAS were lodged without the liquidator's consent or approval, and the Commissioner becoming aware of that position has cancelled, or not processed, the BAS. As the lodgement of the BAS, on behalf of the company, is an act in the hands of the liquidator I find this does not afford a defence to the first defendant.
The first defendant did seek adjournment of the proceedings to seek legal advice. However, having regard to the written submissions of the first defendant, and the clarity of the oral submissions made by the first defendant I determined that there was no need for an adjournment for the plaintiff to seek further legal advice.
By way of a tidying up exercise the plaintiff sought leave, and leave was granted, to effect amendments to the statement of claim.
Having regard to these reasons I find that the first defendant has not raised any arguable defence to the plaintiff's application pursuant to O 14. Accordingly, I make orders in terms of the plaintiff's minute of proposed orders dated 12 December 2008.