Deputy Commissioner of Taxation v Jackson
[2005] VSC 120
•27 April 2005
Nyh
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 6397 of 2000
| DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA | Plaintiff |
| v | |
| PETER DOMNEY JACKSON, STEPHEN PAUL JACKSON AND JOHN McDONALD | Defendants |
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JUDGE: | BONGIORNO J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 1-4 and 7–9 JUNE 2004 | |
DATE OF JUDGMENT: | 27 April 2005 | |
CASE MAY BE CITED AS: | Commissioner of Taxation v Jackson & Ors | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 120 | |
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Taxation – Recovery of unremitted group tax – Power of Commissioner to estimate amount of tax unremitted – Collection of penalty equal to unremitted tax from directors of defaulting companies – Directors – "Acting as director" – Service of notices – Divisions 8 and 9, Part VI Income Tax Assessment Act 1936 (C'th), ss.28A, 29 Acts Interpretation Act 1901 (C'th).
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr C. Maxwell QC with Mr S. O'Meara | Australian Government Solicitor |
| For the First Defendant | Mr P. Finkelstein, Solicitor | FLA Partners |
| For the Second Defendant | No appearance | |
| For the Third Defendant | Mr C. Connor | Kliger Partners |
HIS HONOUR:
Employers in Australia have long been required to make deductions of income tax from their employees’ salaries and wages and remit those deductions, on a regular basis, to the Federal Commissioner of Taxation. The Income Tax Assessment Act 1936 (C’th) provides procedures for the enforcement of this obligation. In some cases, where the employer is a corporation, its directors are made personally liable to monetary penalties equal to the estimated amount of tax not accounted for where the corporation itself is in default.
This proceeding is a claim by the Commissioner of Taxation (acting through a Deputy Commissioner of Taxation) against three persons who are alleged to have been directors at the relevant time of a corporation which failed to meet its obligations with respect to the remittance of instalments deducted from its employees’ salaries and wages between the beginning of December 1998 and the end of June 2000. The total amount claimed is some $2.3M.
The procedure adopted by the legislature for the imposition of penalties on directors of companies which are in default of their obligations with respect to their employees’ income tax deductions involves a number of discreet steps – the due performance of each of which is a condition precedent to the effective imposition of the penalty. The legislation prescribing those steps is contained in Divisions 8 and 9 of Part VI of the Act.
Division 8 of Part VI empowers the Commissioner of Taxation to make a reasonable estimate of tax unremitted where he or she has reason to suspect that a person (including a corporation) liable to remit deductions has failed to do so.[1] Upon notice of such estimate being given to the person suspected of being in default that person becomes immediately liable to pay the amount of the estimate to the Commissioner[2] without in any way diminishing his or its original liability to account for the tax deducted[3]. Relieving provisions ensure that the revenue does not obtain a double benefit by the application of the procedure.[4]
[1]Section 222AGA.
[2]Section 222AHA(1).
[3]Section 222AHA(2).
[4]Section 222AHA(3) and (4).
The provisions of Division 9 of Part VI impose personal liability for monetary penalties on directors of companies which do not meet their obligations to remit employees’ tax deductions and which fail to pay the amount of the Commissioner’s estimate under Division 8. The purpose of the Division, as expressed in its opening section, is to require the directors of a company to ensure that the company either meets its obligations or goes promptly into voluntary administration or liquidation.[5] It can meet those obligations either by paying the amount of the estimate[6] or by entering into an agreement with the Commissioner in relation to its liability to pay the estimate[7]. Its directors have 14 days after the Commissioner sends a notice of estimate to pay to him or her the amount of that estimate.[8] Failure to comply renders each person who was a director of the company at any time during those 14 days to a penalty equal to the unpaid amount of the estimate[9].
[5]Section 222ANA(1).
[6]Section 222APB(1)(a).
[7]Section 222APB(1)(b).
[8]Section 222APB(1).
[9]Section 222APC.
The Commissioner may recover this penalty by a proceeding in a court, but before doing so he must serve a notice upon the persons sought to be made liable which sets out details of the unpaid amount of the estimate and states that at the end of 14 days that person will become liable to pay a penalty equal to the amount of the estimate still unpaid. This notice may be given at any time after the Commissioner has sent notice of his estimate to the company.[10]
[10]Section 222APE.
A director of a company sued by the Commissioner for the recovery of a penalty may defend that proceeding by proving that because of illness or for some other good reason he or she did not take part in the management of the company when he or she was a director and the directors were under the obligation imposed upon them to pay the amount of the Commissioner’s estimate, enter into an agreement concerning the estimate or cause the company to go into administration or liquidation.[11] Finally, it is also a good defence if a director proves that he or she took all reasonable steps to have the company meet its obligations or there were no such steps which could have been taken.[12]
[11]Section 222API(2).
[12]Section 222API(3).
The Commissioner’s Claim
In this case a Deputy Commissioner of Taxation (on behalf of the Commissioner) has sued Peter Domney Jackson and John McDonald, alleging that they were directors of a company, the Sands Print Group Limited, which failed to remit amounts of tax which it had deducted from its employees’ salaries between 1 December 1998 and 27 June 2000. The company having defaulted in its obligations to remit those deductions, the Commissioner of Taxation sent notices of estimates he had made of the unremitted amounts of tax to the company on 5 July 2000. Thus, in accordance with the scheme described above, the company became liable pursuant to s.222AHA of the Act to pay those estimates which totalled $2,360,482.13.
In an amended statement of claim filed on 13 October 2002 the Deputy Commissioner alleged that on 14 July 2000 notices were served on persons alleged to be directors of the company in accordance with s.222APE of the Act. It was also alleged that those persons did not cause any of the events referred to in s.222APB to occur, thus making them liable, by virtue of s.222APC, to pay to the Commissioner a penalty equal to the amount of the estimates, namely $2,360,482.12, together with interest pursuant to the Supreme Court Act 1986.
Although the plaintiff had originally brought this proceeding also against one Stephen Jackson as well as Peter Jackson and John McDonald, Stephen Jackson was made bankrupt before trial and no judgment was sought by the plaintiff against him.
A Representation Problem
At the trial the defendants were represented. Mr McDonald was represented by Mr C Connor of counsel and Mr Jackson by his solicitor, Mr P Finkelstein. Mr Finkelstein appeared for Mr Jackson notwithstanding that it was foreshadowed by Mr Connor that he would be called as a witness for the defendant McDonald. Before the trial commenced Mr Finkelstein informed the Court that if he did not appear for Mr Jackson, which he was prepared to do pro bono, Mr Jackson would be unrepresented due to impecuniosity. As the plaintiff’s counsel, Mr C Maxwell QC, accepted this situation and did not raise any objection to Mr Finkelstein’s appearance for Jackson in the circumstances, I permitted him to appear as advocate and to give evidence. Notwithstanding the unsatisfactory situation which was thus created I considered that it was preferable for Jackson to be represented than to appear in person. The situation was unusual and should not be taken to have been approved by the Court merely because it was permitted in this case.
The Issues
There was no issue between the parties that the company had made tax instalment deductions from its employees’ salaries, that it had failed to remit the amount of those deductions to the Commissioner, that the Commissioner had made estimates of the company’s liability and had given notice of those estimates to it. It was also not in issue that the company thus had a liability to pay the amount of those estimates and that it had not done any of the things set out in s.222APB of the Act.
The defendant Jackson did not contest that the Commissioner had given him a director’s penalty notice pursuant to s.222APE of the Act. However he did contest that he was a director of the company in the 14 day period immediately after 5 July 2000 and further asserted that he was entitled to rely on the statutory defences created by s.222API(2) and (3).
The defendant McDonald contested that he was ever given a director’s penalty notice pursuant to s.222APE of the Act. He contested that he was a director of the company during the relevant 14 day period and also sought to rely upon the statutory defence created by s.222API(3) of the Act.
Were the Defendants “Directors” at the Relevant Times?
Peter Domney Jackson, the first defendant, was a New Zealand born printer who migrated to Australia and took up his trade in Geelong. He worked in the printing industry there for many years until, in 1970, he founded Sands Print Group Limited as the successor to a business known as Peter Jackson Graphics which he had also founded. Sands Print Group Limited also traded under the name Henry Thacker Printing, a name which Mr Jackson acquired in 1982 when a very old-established Geelong printer, Henry Thacker Pty Ltd, failed. Mr Jackson said in his evidence that Henry Thacker was the second oldest printing company in Australia.
In the period with which this litigation is concerned Sands Print Group Limited had printing operations in a number of locations with its principal place of business at Breakwater, a suburb of Geelong. It engaged in general printing operations and had a long-standing association with the Ford Motor Company for which it produced various types of printed material including owners’ manuals for new Ford cars.
There is no doubt that at least until 16 May 2000 each of the defendants proceeded against was a director of Sands Print Group Limited. The issue for determination here, however, is whether they or either of them resigned as a director on or about that date and if they or either of them did whether they conducted themselves subsequently so as to be deemed to have been directors at the time relevant for the attachment of liability to them pursuant to Division 9 of Part VI of the Act.
As at July 2000 a director for the purposes of Division 9, Part VI of the Act meant:
“… someone who is a director of the company for the purposes of the Corporations Law …”[13]
[13]Section 222ANB(1) incorporating the definition in s.222AFB(1)(a).
The relevant definition in the Corporations Law was as follows:-
“’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;
(ii)the directors of a 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 of the company or body.”[14]
[14]This definition was inserted into s.9 of the Corporations Law by Act No. 156 of 1999 which came into operation on 13 March 2000.
The application of this definition first requires an examination of the evidence to determine whether the defendants or either of them were still formally directors during the 14 day period following 5 July 2000 when the Act imposed obligations on the directors of the company to perform certain acts in relation to it or become liable to the penalties for which the plaintiff is now suing. If they had ceased to be directors by resignation, as they maintain, it will then be necessary to examine what functions they were actually performing in relation to the company at the relevant time (if any) to determine whether they would nevertheless be deemed by the Act to be directors and thus liable to the penalty sued for.
The Resignation Issue: Peter Jackson
Peter Jackson’s evidence was that he had been planning for his retirement for some time before 16 May 2000 by which date, he said, he was no longer involved in the management of the company. He was 70 years of age. He said he looked after only one customer: the Ford Motor Company, a company with which he had had a good working relationship for some 40 years. It was Sands’ biggest account. He said he did not wish to continue working but wanted to pursue other interests.
It is Mr Jackson’s case that he resigned as a director of Sands Print Group Limited at a meeting held on 16 May 2000. Although in his outline of evidence dated 30 October 2003 Mr Jackson gave no details of this meeting, in an affidavit which he swore on 22 October 2001, and upon which he relied at trial, he described his intention to quit the printing business and referred to restructuring plans for the company which he said were then under discussion between his son Stephen and John McDonald, the third defendant. He said it was planned that Stephen would continue as the sole director of the company and that McDonald would take on other duties in another company. Although he emphasised more than once the role played by his son Stephen in the operation of the business, the overall effect of his evidence was that he regarded it as his business as he had founded it and worked hard in it for many years.
Mr Jackson described the meeting which he said was held on 16 May 2000 at the company’s office at 2 Roy Street – a location in the City of Geelong a few kilometres from the company’s factory at Breakwater. He said the meeting was convened urgently to enable John McDonald to be present as he was leaving the next day to go to a printing exhibition in Germany. The purpose of the meeting was to implement various structural re-arrangements for Sands Print Group Limited and other companies in the group. He said that, as he recalled it, the restructure would involve Sands Print Group Limited ceasing operations from 30 June that year.
Mr Jackson said that the meeting was attended by his son Stephen, John McDonald and one Eduard Nyhoff, a solicitor he described as a family friend, who had been assisting his son Stephen Jackson in the administrative arrangements needed to implement the structural changes which were to take place. He said that although it was a relatively informal meeting of which no minutes were kept he had a clear recollection of events because it was a significant occasion for him. It commenced about 9 o’clock or 9.30 and went for about an hour and a half or two hours. Mr Jackson said that he recalled that there were two typewritten letters of resignation prepared before the meeting; one relating to him and one relating to John McDonald. He says he recalls signing his own resignation and believed that McDonald signed his letter as well.
Peter Jackson’s evidence generally was marked by an obvious desire to convey the impression that by May 2000 he had all but ceased to play any active part in the operation of Sands Print Group Limited. He took every possible opportunity to reinforce the impression he was attempting to create and, even when confronted with admitted facts which suggested the opposite, persisted in asserting that he was really not involved in the company at all after that time. There were documents produced which demonstrated that he was very much engaged in the company’s operations after 16 May; probably as much as he was before. Whilst it is unnecessary to make any positive finding that Mr Jackson deliberately gave false evidence on this question I am satisfied that he overstated his case to a significant degree and appeared to lack the capacity for objective recall of events to which he was a witness, and in which he was sometimes a participant, in and around the middle of the year 2000. His demeanour generally was of a party desperately trying to extricate himself from the dire financial predicament created by this litigation. As far as the alleged meeting of 16 May is concerned Mr Jackson became more uncertain as he was cross-examined as to its details and what transpired between those who were said to be there.
There are a number of difficulties presented by Mr Jackson’s evidence concerning a meeting on 16 May. First, John McDonald gave evidence that he never attended any such meeting on 16 May. He left for the German printing exhibition that day and in order to do so left Geelong for Tullamarine early that morning. Further, he said that he signed his letter of resignation at his home before leaving for the airport, not at a meeting. No original or copy of either Jackson or McDonald’s letters of resignation have ever been found, no evidence was given by anyone who said he or she typed them and no secondary evidence was given by anyone as to their contents. Mr Finkelstein for Mr Jackson submitted that it is hardly surprising that the documents were not found, as administration of Sands Print Group Limited was followed by receivership and then liquidation. This may explain their non-production at the trial but it does not explain a total absence of evidence as to their creation. No record (minutes or otherwise) of any meeting on 16 May 2000 has been produced. Finally, neither Stephen Jackson nor Eduard Nyhoff were called as witnesses on the trial nor was any explanation proffered for their non-appearance.
In his capacity as the solicitor for Sands Print Group Limited (although at one point in his evidence he said he was not the company solicitor) on 1 August 2000 Mr Finkelstein lodged a Form 304 - Notification of Change to Officeholders with the Australian Securities and Investments Commission with respect to the resignations of McDonald and Jackson. The notification gives the date from which the resignation of each of those directors was effective as being 1 July 2000. It was signed by Stephen Jackson and dated 30 June 2000. Mr Finkelstein gave no evidence of ever having seen letters of resignation signed either by Peter Jackson or John McDonald and said that he did not know of those resignations until told by Stephen Jackson in a meeting on 27 June.
Had the question of whether Peter Jackson had resigned as a director of Sands Print Group Ltd before 5 July 2000 rested solely upon an acceptance of his evidence I would not have found in his favour on this question. However, there is other evidence which leads me to the conclusion that the plaintiff has not established that either Peter Jackson or John McDonald were still formally directors of the company on the relevant dates. That evidence will be examined after that relating to John McDonald's resignation.
The Resignation Issue: John McDonald
John McDonald, the third defendant, said in his evidence that some time before 16 May 2000 Stephen Jackson had told him that he wanted him to resign as a director of Sands Print Group Limited and become a director of Sands Print Group (Victoria) Pty Ltd. This was to be part of a restructure of the business operated by the company. He said he had a conversation with Stephen Jackson at the Roy Street office of Sands on 15 May in which Jackson said that as he (McDonald) was leaving the next morning to go to Germany he would bring documentation to his home early that morning for signature. McDonald said, as had Peter Jackson, that Stephen Jackson effectively ran the company's business as a “one man band”. Why this documentation was so urgent that it required signing before McDonald’s overseas trip was never explained. His firm itinerary had him returning to Australia on 3 June and returning to work on 5 June.
Mr McDonald said that on 16 May Stephen Jackson came to his home shortly before 9.00 am, bringing with him a typed letter of resignation and other documents. He said he signed it and the other documents on an ironing board which his wife was using in last minute preparation for the trip to Germany upon which she was also going. Mr McDonald stressed the haste with which the letter was signed and returned to Jackson. He said he never received a copy of the letter and never saw the signed original again. Despite inquiries being made, including inquiries by his own solicitor at his request, the letter of resignation has never been found. Mr McDonald said that he did not draw the letter of resignation. He said he believed “… it was with the documents that Ed Nyhoff has (sic) prepared and I – my assumption was he also prepared the letter – although I cannot say that that’s what occurred”.
Mr McDonald’s wife gave evidence that she was present when he signed his letter of resignation as a director of Sands Print Group Limited. However, she neither read the document herself nor did she appear to have noticed that her husband signed not one but a number of documents that morning. She was not concerned with the signing of documents herself but was, on her evidence, preoccupied with last minute packing and preparations for their departure. In the circumstances, the highest Mrs McDonald’s evidence goes is that she believed her husband signed a resignation because he told her Stephen Jackson was coming to their home for that purpose and she saw him sign a document. However she did not believe that this meant there would be any real change in her husband’s position. In the circumstances Mrs McDonald’s evidence could not be relied upon as constituting cogent evidence of the third defendant having signed a letter of resignation on the morning of 16 May 2000.
As with Peter Jackson no copy of McDonald’s letter of resignation has ever been produced. No-one was called who drafted or typed the letter and neither Nyhoff nor Stephen Jackson gave evidence. Finally, Mr Finkelstein gave no evidence of ever having seen McDonald’s resignation. No explanation was ever given as to why the ASIC Form 304[15] notifying the regulator of the resignations of Peter Jackson and John McDonald was not lodged until 1 August although it was dated 30 June.
[15]In fact Mr Finkelstein’s attempt to lodge this form with ASIC failed because ASIC was of the view that if Peter Jackson and John McDonald ceased to be directors, Sands Print Group Ltd would have had only one director, Stephen Jackson. This would not be permitted by the Corporations Law as it was a public company. The form was returned by ASIC to Mr Finkelstein.
As with Peter Jackson, had the issue of John McDonald's resignation to be resolved by reference solely to his evidence I would not have determined this issue favourably to him. This is particularly so in his case because of two significant credit issues to be dealt with later in relation to whether he received director's penalty notices as the plaintiff alleges and as to his description of himself as Managing Director of Sands Print Group Ltd for a considerable period after the end of June 2000. However, at this point other evidence as to his and Peter Jackson's resignations must be considered.
A Meeting on 28 June 2000?
Two documents were produced on this trial which referred to a meeting of shareholders of Sands Print Group Limited on 28 June 2000. The first was a letter written by Mr Finkelstein to Stephen Jackson and dated 30 June 2000. It refers to a consultation (inferentially with Stephen Jackson) on 27 June and a meeting of Sands Print Group Limited to be held the next day. It referred to four enclosed documents: minutes of a meeting to be signed by Stephen Jackson, Form 205 – Notice of a Resolution converting Sands Print Group Limited to a single director company, a new constitution for Sands Print Group Limited and Form 304 – Notification of Change of Office Bearers.
The minutes of the meeting referred to which, as produced, are accepted as bearing Stephen Jackson’s signature, record a meeting of shareholders of Sands Print Group Limited on 28 June 2000 at which a resolution of acceptance of the resignations of Peter Domney Jackson and John McDonald was passed. But the document also records Peter Jackson and John McDonald as having been present at the meeting when Peter Jackson swore in his evidence that he was “one hundred per cent positive” he attended no such meeting and Mr McDonald was not then, and had never been, a shareholder of Sands Print Group Limited.
There was no evidence that any notice of this meeting had been given to the shareholders of Sands Print Group Limited which, an ASIC record shows (at least as at 11 July 2000) were Russell Hibbert, Peter Domney Jackson, Julie Anne Soutar, Tynworth Pty Ltd, Stephen Paul Jackson and Maxine Heather Webb. Whether Peter Jackson was present or not, the meeting as recorded in the minutes referred to lacked a quorum.
Mr McDonald referred to this meeting in his evidence and said that he was there and that possibly Nyhoff was also there. He said he did not know it was a shareholders’ meeting but thought that it was “an opportunity to confirm whatever was required to confirm the resignations”.
Apart from acknowledging having written the letter and having prepared the enclosures to it Mr Finkelstein made no further reference to this meeting in his evidence in chief. In cross-examination he acknowledged preparing the minutes of the meeting on the instructions of Stephen Jackson given in advance of the meeting but also maintained that he did not know who was going to be there. He knew that Peter Jackson was a shareholder but believed that John McDonald was not. He gave no adequate explanation as to why McDonald’s name appeared as having been at the meeting and conceded that he would, if asked, have provided whatever documentation Stephen Jackson wanted. He described himself as a “glorified pen pusher”. The inference he sought to have drawn from this evidence was that everything he did was as a result of a direction from Stephen Jackson.
The Minute of 8 August 2000
Also produced in the course of this trial was a purported minute of a meeting of directors of Sands Print Group Ltd which is recorded as having occurred at Mr Finkelstein's office on 8 August 2000. It shows both Peter Jackson and John McDonald as directors and as having been present with Stephen Jackson. Two resolutions were passed: the first that the meeting was of the view that Sands Print Group Ltd was insolvent or likely to become so, and the second that the company be placed into administration pursuant to the provisions of the Corporations Law. Gregory John Shilton was appointed administrator. The minute purports to have been signed by Stephen Jackson as Chairman.
Although Mr Finkelstein in his evidence said that a meeting “of sorts” took place at his office on the relevant date, neither Peter Jackson nor John McDonald were present. His version of the event was that although he drew up the purported minute he did so prior to the meeting taking place in anticipation of both Peter Jackson and John McDonald being present and because, as ASIC had by then rejected his attempt to register a change in the directors of Sands Print Group Ltd by deleting Peter Jackson and John McDonald from the board, he permitted their names to be included in the minute as directors notwithstanding his “private” view that neither of them were, at that date, directors and had not been since 1 July. Subsequently, Mr Finkelstein described having been at a meeting at the ANZ Bank in which the minute was relied upon by Stephen Jackson and Shilton to demonstrate that the company had been placed into administration, thereby gaining the limited support of the bank for its ongoing operations. Mr Finkelstein said that he was not present when Stephen Jackson and Gregory Shilton met. He was in another part of the office. As far as the meeting at the bank was concerned, he said he carefully distanced himself from any reliance on the minute although he conceded that he sat by and permitted Jackson and Shilton to put forward the minute as being genuine. He justified his position in doing so by referring to his “private” view that ASIC was legally incorrect in refusing to register Peter Jackson and John McDonald's resignations so that in fact, at the time the meeting took place, Stephen Jackson was the only director and, as such, could pass the resolutions which were recorded in the minute. He said that he was of the view that although, as he now knows, a public company must have three directors, ASIC should have registered Peter Jackson's and John McDonald's resignations even if, by resigning, they had caused the company to be in breach of the Corporations Law.
The distinctions made by Mr Finkelstein in his evidence in respect of this document were indeed fine. However, his position as far as Peter Jackson's and John McDonald's resignations are concerned is, of course, consistent with the letter which he wrote to Stephen Jackson on 30 June 2000 to which reference has already been made. It is not necessary, for present purposes, to decide whether ASIC ought or ought not to have registered the resignations of Peter Jackson and John McDonald. The question which is relevant to this part of this case is whether, whatever steps they and Stephen Jackson (and perhaps others) took to effect their resignation as directors those steps were effective to bring about that result.
Conclusion as to Resignations
The Articles of Association of Sands Print Group Ltd provided that a director may resign by notice in writing to the company.[16] Mr Finkelstein argued that notwithstanding this provision a director of a company may also resign without doing so in writing provided there was a common intention shared by him and the company that his resignation take effect.
[16]Article 12.7(e)
Mr Finkelstein referred to Aero Marine Consulting Pty Ltd v Young, an unreported decision of Goldberg J in the Federal Court[17]. In that case there was no evidence that a director who had purportedly resigned had signed a written resignation as required by the Articles of Association of the company. However, Goldberg J held that it was apparent from a sequence of events which he found had occurred that it was the common intention of the company and the director that he would cease to be a director from a certain date. His Honour referred to Latchford Premier Cinema v Ennion[18] and, in particular, to the judgment of Windeyer J in Marks v The Commonwealth[19]. He also referred to a decision of Hayne J, when he was a member of this Court, Knight v Bulic[20].
[17][2003] FCA 1016
[18][1931] 2 Ch 409
[19](1964) 111 CLR 549
[20](1994) 13 ACSR 553
Even if there is considerable doubt as to whether either of them signed letters of resignation on 16 May it seems that, as at the end of June 2000, there was a common understanding between Peter Jackson, John McDonald and Stephen Jackson that a restructure of the company's business would take place, which restructure involved, among other things, Peter Jackson and John McDonald ceasing to be directors of Sands Print Group Ltd. Whatever validity the so-called shareholders' meeting of 28 June 2000 had as a meeting, if it occurred, the purported minute of that meeting, prepared by Mr Finkelstein and signed by Stephen Jackson records an acceptance by him at least of the fact that Peter Jackson and John McDonald would be taken to have resigned with effect from 1 July 2000. The Form 304, which Mr Finkelstein unsuccessfully attempted to file with ASIC on 1 August, also records the same acceptance by Stephen Jackson.
The plaintiff alleges in this case that the defendants held the office of director in Sands Print Group Ltd during the 14 day period immediately following 5 July 2000. He relies on ASIC records and invites rejection of the defendants' evidence that they had resigned their offices before that time. Having regard to the documents to which I have referred, the evidence of John McDonald that he attended a meeting on 28 June, which I accept and the obvious willingness of Peter Jackson to accept the restructure of the company’s business I am satisfied that there was a common intention shared by Peter Jackson, John McDonald and the company that they should no longer be directors after 1 July 2000. Accordingly I reject the plaintiff's submission that the defendants were still formally holding office as directors in Sands Print Group Ltd as at 5 July 2000 or on any of the 14 days thereafter.
Were the Defendants Putative Directors?
If the defendants did cease to be directors of Sands Print Group Ltd in a formal sense after 1 July 2002 which meant that they were not directors validly appointed within the meaning of the Corporations Law on any of the 14 days immediately succeeding 5 July, it is necessary to examine whether they, or either of them, acted in the position of directors during that period so as to render them liable as directors in any case to the Commissioner for the penalty he now sues for.
The law as to Putative Directors
Counsel for all parties to this proceeding agreed that the question as to whether a person “acts in the position of a director” is to be assessed by reference to the criteria set out in the judgment of Madgwick J in Deputy Commissioner of Taxation v Austin[21]. In that case, which concerned an earlier but not materially different definition of director, His Honour expressed the view that whether a person acts in the position of a director will often be a matter of degree and requires the consideration of the duties he performed in the context of the operations and circumstances of the particular company. He considered as relevant factors:
·Whether the person performed top level management functions;
·Whether the person acted as the company in matters of great importance;
·Whether the person was reasonably perceived by outsiders who dealt with the company; and
·The extent to which the person has the practical direction of the company.
[21](1998) 28 ACSR 565.
Madgwick J’s analysis was accepted by the New South Wales Court of Appeal in Natcomp Technology Australia Pty Ltd v Graiche[22].
[22][2001] NSWCA 120.
Peter Jackson
Although there were discussions in the middle of the year 2000 and even agreement between relevant parties about restructuring the business conducted by Sands Print Group Ltd and transferring its various parts to other corporate entities such restructure never, in fact, occurred. Sands Print Group Ltd was still conducting its printing business up until the commencement of its ultimate collapse early in August 2000. As Peter Jackson understood the restructure it was envisaged that a new company, Sands Print Group (Victoria) Pty Ltd would take over the Victorian part of Sands Print Group Ltd's manufacturing operations whilst Sands Print Group (Western Australia) Pty Ltd would run those operations in Western Australia. However, he also thought that Sands Print Group Ltd would just go on as usual as an umbrella company for the others. He said that although he wanted to retire and gave a number of reasons for this desire to do so he said that a number of problems arose at or about the time he was going to retire which he had to clean up. He described them as “loose ends”. He mentioned a letter from the Australian Tax Office and problems in the Western Australian operation as examples. There were, he said, “a lot of things” in the period June, July and August 2000 which he believed needed his attention.
Although in the outline of evidence upon which his evidence in chief was based Mr Jackson said that after he resigned on 16 May 2000 he was no longer involved in the management of the company, that he took no part in any of the normal management responsibilities and that he attended no meeting of the Board of Directors, his evidence generally on the issue of his involvement in the company after the date upon which he said he resigned was sparse. There was no evidence before the Court as to whether any directors' meetings were held during the relevant period. His outline of evidence referred to his grooming one Phil King to take over his responsibilities with the Ford Motor Company account. King was not called as a witness. Overall, Mr Jackson's evidence in this regard lacked precision and, in cross-examination, he displayed a marked tendency to obfuscation.
Although it appears likely that if the restructure of the printing business had occurred as intended by Stephen Jackson and (probably) Eduard Nyhoff and agreed to by the others, Peter Jackson would have been involved, at least as a director, only in the continuing Victorian operation conducted by the Victorian company, as it never occurred I am satisfied he continued the role he had always had in Sands Print Group Ltd at least until it went into receivership on about 11 August 2000.
In cross-examination Mr Jackson conceded that he continued to be involved in the day to day management of Sands Print Group Ltd. He said that he attended the factory “pretty well every day” and accepted an ongoing sense of responsibility for what happened to the business. He said he “couldn't retire”. He could not just “go out and leave”. He said that the period from June to August 2000 was a “pretty critical time” for the company and he did not want “to be a passenger”. In his evidence Mr Jackson repeatedly referred to the employees of Sands Print Group Ltd as “my employees” or “my staff”. He expressed particular concern about the actions of the receiver who took possession of Sands Print Group Ltd’s business on 11 August 2000. This concern was particularly in respect of occupational health and safety issues which he said were created by the receivers locking the gates of the factory. He described this as being locked out of his own business. He said he had a business to run which the receivers' officers interfered with. I conclude that despite his evidence Peter Jackson’s position with Sands Print Group Ltd did not change after 16 May until the company went into receivership in August 2000. I am satisfied that the work he did, the responsibility he undertook and the role he played generally in the company did not change.
Mr Jackson gave evidence that he monitored the financial position of the company in June, July and August 2000 by asking questions of the Administration Manager, Julie Soutar. He was particularly concerned about the fact that it was the end of the financial year, about his employees’ superannuation, the company’s overdraft and “our creditors”. He regarded these questions as “obvious questions to ask of your administrators”.
After 16 May 2000 (the date upon which he maintained he resigned), Mr Jackson continued to sign cheques for significant amounts on the company account although he claimed to do so, not as a director but as merely a cheque signatory. In the first part of July 2000 cheques for large amounts payable to Sands Print Management were drawn on the company account, although not all were signed by him. He said that if he had known that such large amounts of cash were going out of the company at that time he would certainly have raised questions about it.
Although in his evidence-in-chief Peter Jackson made no mention of his having received a director’s penalty notice in respect of the penalty the subject of this proceeding, there was no issue about this in the trial and in cross-examination he acknowledged receiving it. He said that he asked Stephen Jackson, Julie Soutar and John McDonald to tell him what was going on. He said he wanted to know how it had happened that he had received such a notice. He said that he knew that there were things that had to be done quickly to protect his position in respect of the notice. However this explanation was somewhat more extensive than and somewhat at odds with that which he proffered in an answer to an interrogatory relied upon by the plaintiff. In that answer he contented himself with saying that he had given the director’s penalty notice to his son for him to handle because he was no longer a director of the company. He believed that the ATO had made a mistake.
I am satisfied that Peter Jackson continued to act in the position of a director of Sands Print Group Ltd on 5 July 2000 and for the whole of the subsequent 14 day period. He ceased to do so only on about 11 August when the business went into receivership.
John McDonald
The most significant aspect of Mr McDonald’s conduct after he said he resigned as a director of Sands Print Group Ltd in May 2000 which bears upon the issue of whether he acted as a director after such purported resignation was his persistent use of the title “Managing Director” on correspondence, legal documents and business cards bearing the company’s name. He did this until at least early August 2000 and, apart from one or two instances, never described himself as anything else.
Between April 2000 and August 2000 Mr McDonald dealt with a Mr Michael Brooks of the National Australia Bank concerning the financing of a Western Australian entity involved in the group and the satisfaction of a debt owed by Sands Print Group Ltd to Coventry Group Ltd. Both before and after the date upon which he said he resigned (16 May 2000) Mr McDonald’s correspondence with Mr Brooks was on company letterhead and was signed by him over his name and the words “Managing Director”. An outline of Mr Brooks’ evidence was tendered without his being required for cross-examination. In it he described the business dealings he had with Sands Print Group Ltd and with Mr McDonald in particular. He said that he was aware that John McDonald was the Managing Director of Sands Print Group because that was the capacity in which he signed faxes and letters. He produced a number of these dated both before and after 16 May 2000. They were all on Sands Print Group Ltd letterhead and signed by McDonald as “Managing Director”.
Similar evidence was tendered in respect of a Mr Mears, a business broker, and Mr John Colli, the Company Secretary of the Coventry Group Ltd. This evidence which was also not contested, and that of Mr Brooks, establishes that Mr McDonald, at all relevant times, held himself out to them as being the Managing Director of Sands Print Group Ltd and that those who dealt with him reasonably believed that that was the case.
The matters dealt with in the correspondence between Mr Brooks and Mr McDonald included McDonald informing Brooks of matters going to the structure of Sands Print Group Ltd, its share capital, its cash flow, its relationship to Tynworth Pty Ltd, the value of its assets, its liabilities and its relationship to other companies in the group.
Mr McDonald’s dealings with Mr Colli involved the provision of financial information concerning the Sands Print Group. Mr Colli's evidence was that at all relevant times he believed Mr McDonald was the Managing Director of Sands Print Group Ltd and that at no time did Mr McDonald ever contradict that belief. A similar situation applied with respect to Mr Mears.
Mr McDonald’s explanation for his signing documents as Managing Director of Sands Print Group Ltd after he resigned as a director was that as he was often away from his office he would sign blank sheets of paper in the position he expected his signature to be required and his secretary would type his letters such that his signature appeared in the correct place when the letter was completed. As she continued to use the same template for Mr McDonald’s letters after 16 May 2000 as she had used before that date she continued, mistakenly, to describe him as Managing Director of Sands Print Group Ltd. He also said that he continued to use Sands Print Group Ltd letterhead because no other letterhead had been printed. In fact, Sands Print Group Ltd was, at all relevant times, still operating the printing business. Sands Print Group (Victoria) Pty Ltd never took it over whatever might have been the intention in respect of its proposed business restructure.
Ms Kerryn Elliott was Mr McDonald’s personal assistant. In an outline of evidence from her tendered on Mr McDonald’s behalf she said that she was aware that he was resigning as a director of Sands Print Group Ltd as part of the restructure of the company in mid 2000 and that she believed that he would remain as a director of a new company set up to conduct the Victorian based part of the business which had previously been conducted by Sands Print Group Ltd. She said that on numerous occasions she would type correspondence for Mr McDonald using a template which described him as Managing Director of Sands Print Group Ltd. She did this in the way McDonald described when it was expected that he might be out of the office or she was preparing multiple copies of correspondence.
In cross-examination Ms Elliott said that she might have undertaken this activity on behalf of Mr McDonald on about 10 occasions. Her description of the way in which she achieved the positioning of Mr McDonald’s signature in relation to the letter she had typed suggested that it was a somewhat cumbersome procedure. Whilst I am prepared to accept Ms Elliott’s evidence that she carried out this procedure about 10 times in all when Mr McDonald's unavailability made the effort worthwhile, I am not prepared to accept that every letter written by Mr McDonald over the relevant period was produced in this way or that he never signed letters which already bore his name and his description as Managing Director of Sands Print Group Ltd. I regard Mr McDonald’s persistence in maintaining the opposite as disingenuous. I accept the submission of the plaintiff that his refusal to accept responsibility for having signed his name as Managing Director of Sands Print Group Ltd in respect of many of the letters produced in which he is so described raises a serious credit issue so far as his evidence generally is concerned. Mr McDonald continued to describe himself as Managing Director of Sands Print Group Ltd because the restructure which involved his resignation never progressed to the point where a new company actually commenced to operate the printing business. The company’s business continued in July 2000 as it had in June 2000. The only change appears to have related to invoicing which was to be done through a new corporate entity from 1 July 2000. Mr McDonald maintained the position he had prior to the end of June into the new financial year and, significantly, during the 14 days which are relevant to this proceeding.
The plaintiff relied upon a large number of documents which, he submitted, demonstrated Mr McDonald’s involvement in the business of Sands Print Group Ltd at a high level both before and after the date upon which he says he resigned. Some of those documents and the inferences which may be drawn from them may be briefly described as follows:-
·A fax dated 7 June 2000 on Sands Print Group Ltd letterhead signed by John McDonald to Bill Stanton of “CPI”. The inference from this fax is that Sands Print Group Ltd was heavily indebted to CPI and McDonald was proposing a payment schedule whereby a debt of $292,811.38 would be discharged in seven instalments between 7 June and 5 July 2000. The letter demonstrates that Mr McDonald was involved in serious financial issues affecting Sands Print Group Ltd as at 7 June 2000.
·Fax and letter dated 8 June 2000 from Mr McDonald to Phil Ransom, Partner, HLB Mann Judd. This letter related to a restructuring of Sands Print Group Ltd finance facilities with the St George Bank Group. The letter describes Mr McDonald as Managing Director and seeks Mr Ransom’s co-operation in assisting Sands Print Group Ltd’s application to the bank. The fax is signed by Mr McDonald although the letter is not. These documents also demonstrate that Mr McDonald was involved, as at 8 June 2000, with financial matters concerning Sands Print Group Ltd at a high level.
·Letter addressed to Scottish Pacific Business Finance Pty Ltd dated 19 June 2000 under the seal of Sands Print Group Ltd (incorrectly described in the execution clause as Sands Print Group Pty Ltd) signed by John McDonald as a director. This document provided an indemnity to Scottish Pacific Business Finance Pty Ltd in respect of legal costs, stamp duty etc. which might be incurred in relation to a proposed factoring agreement to be entered into between it and Sands Print Group Ltd. It demonstrates that Mr McDonald was still holding himself out as a director of Sands Print Group Ltd as at 19 June 2000 and executing documents in that capacity which required the seal of the company.
·Letter dated 19 June 2000 from Sands Print Group Ltd to Michael Hall, Director, Capital-West Finance Pty Ltd of Western Australia. This letter is signed by Mr McDonald. He is described as Managing Director of Sands Print Group Ltd. It relates to financial dealings between Sands Print Group Ltd and a company called Coventry involving a $4 million debt owed by Sands. It sought confirmation from Mr Hall of a $2 million facility from the National Australia Bank to Sands Print Group Ltd for submission to the board of Coventry within a few days. Mr McDonald was acting as Managing Director of Sands Print Group Ltd on the date on which it bears in respect of matters which would ordinarily be expected to be the concern of someone in that position.
·Affidavit sworn 23 June 2000 in a proceeding brought by Sands Print Group Ltd against Moniton Pty Ltd in this Court. The affidavit, which is sworn by Mr McDonald, describes him both as Managing Director and General Manager of Sands Print Group Ltd. Mr McDonald was holding himself out as Managing Director of Sands Print Group Ltd on 23 June 2000.
·Circular letter to customers of Sands Print Group Ltd dated 3 July 2000 signed by Mr McDonald as Managing Director. This letter advised customers that, because of the introduction of GST, all invoicing after 1 July 2000 would be through a company called Sands E-Commerce Pty Ltd. Mr McDonald referred to the change as a “minor change in our company structure”. On 3 July 2000 Mr McDonald was holding himself out as Managing Director of Sands Print Group Ltd.
·Circular to employees of Sands Print Group Ltd dated 3 July 2000. This circular conveyed similar information to the immediately preceding circular to the employees of the company. It is signed by Mr McDonald as Managing Director.
·Handwritten fax dated 4 July 2000 to Quinton Evans, Hunter Premium Funding. This fax is signed by Mr McDonald who describes himself, in his own handwriting, as Managing Director of Sands Print Group Ltd. It permits the inference that as at the date it bears Mr McDonald was still holding himself out as Managing Director of Sands Print Group Ltd.
·Letter dated 5 July 2000 from HLB Mann Judd to Mr McDonald. This letter concerns outstanding fees to HLB Mann Judd, accountants. This letter concerned outstanding fees payable by Sands Print Group Ltd (incorrectly described as Sands Print Group Pty Ltd) and followed unsuccessful approaches made by HLB Mann Judd to Stephen Jackson and Scott Varker of Sands. Mr McDonald was seen by the company’s accountants as holding a position superior to that of Stephen Jackson and Scott Varker and engaged in financial activities of Sands Print Group Ltd at a high level.
·Affidavit sworn 11 July 2000 in a proceeding in this Court in which GE Capital Australia was suing Sands Print Group Ltd and Tynworth Pty Ltd. This affidavit, sworn by Mr McDonald, describes him as Managing Director of Sands Print Group Ltd and as the authorised officer of that company to swear, file and serve an affidavit deposing as to the precise whereabouts of parts and components of certain equipment the subject of hire purchase agreements to which Sands Print Group Ltd was a party. Mr McDonald’s explanation for his being described as “Managing Director” in the document was that he thought he should be so described because he had held that position at a time relevant to matters referred to in the affidavit. I do not accept this explanation.
·Circular to various employees of Sands Print Group Ltd dated 19 July 2000 from John McDonald, Managing Director. This circular conveys legal advice to various employees as to their rights with respect to inquiries being made by the Federal Police. Mr McDonald describes himself as “Managing Director, Sands Print Group” under his signature.
·Letter from Paperlinx Merchanting to Mr John McDonald, Managing Director, Sands Print Group dated 24 July 2000. This letter describes Mr McDonald as Managing Director and concerns defaults by Sands Print Group Ltd in respect of debts owed to Paperlinx. It refers to meetings which Mr McDonald attended concerning settlement of outstanding large amounts owed. In cross-examination Mr McDonald said that although he attended such meetings he left all matters of finance to Julie Soutar, the Company’s administration manager. This explanation is at odds with the letters he wrote on financial matters referred to above. It is not accepted.
·Loan agreement dated 27 July 2000 between CPI Graphics Ltd and Sands Print Group (albeit described by an incorrect ACN number) signed by John McDonald against the title “Director”.
The documents listed are not all the documents which were tendered in support of the plaintiff’s case. There were others, including cheques signed by Mr McDonald for large amounts on the account of Sands Print Group Ltd which do nothing to detract from the inferences which might reasonably be drawn from the documents referred to.
With respect to the question of his being a putative director of Sands Print Group Ltd during the relevant period, in his outline of evidence Mr McDonald said he became Managing Director of the company on 23 September 1999. He said he was responsible for the manufacturing side of the business – “work in – work out”, as he described it. He said he was involved in production and management issues, not in company restructuring. He said he thought Sands Print Group Ltd would be replaced by a series of other companies on 30 June 2000 and that it would cease operating. He said that he continued to act as a “point of contact” as general manager after 1 July 2000 as “the transition period was not smooth”. He said he took no part in the corporate management of Sands Print Group Ltd and did not act in the capacity of a director. He did not seek, in evidence in chief, to explain any of the documents to which reference has been made nor to refute any of the inferences which might be drawn from them and, in particular, from the fact that he was described in almost all of them as Managing Director of Sands Print Group Ltd. He did say that he had no involvement in the financial side of Sands Print Group Ltd and, in particular, that he never gave any reassurances to Peter Jackson concerning the financial stability of the company. The documents produced refute any suggestion that he was not involved in (the increasingly difficult) financial problems of the company.
I am satisfied that John McDonald acted in the position of a director of Sands Print Group Ltd after the date upon which he said he resigned, that he continued to so act after 1 July 2000 and, significantly, that he so acted for the whole of the period of 14 days commencing on 5 July 2000.
Witnesses who were not called
Stephen Jackson, Julie Soutar and, to a lesser extent, Eduard Nyhoff were three persons whose names were often mentioned in the evidence in this case. Indeed, Stephen Jackson was referred to over 160 times during the trial and Julie Soutar’s name was mentioned more than 50 times.
Stephen Jackson’s connection with this case is, of course, obvious. He was a defendant. He was a director of Sands Print Group Ltd at all relevant times, including during the 14 days after 5 July 2000. He was described by both his father, Peter Jackson, and John McDonald in their evidence as being the dominant person so far as Sands Print Group Ltd was concerned. Whether this assertion is literally true or not, he certainly could have provided significant evidence concerning a number of issues in this case had he been called. Not only was he central to Peter Jackson and John McDonald’s differing accounts of their resignations, he also could have corroborated their evidence as to the activities they undertook with respect to Sands Print Group Ltd during the period relevant to this case. Further, it is reasonable to infer that he would probably have been able to give evidence concerning steps which were not taken after penalty notices were served upon him and the other defendants, why they were not taken and, if he had been so requested, whether he would have co-operated in placing the company into administration so as to obviate his own liability and that of his father and John McDonald to the Commissioner. There would almost certainly have been other matters relevant to the issues in this proceeding upon which he could have spoken as well.
So far as Julie Soutar is concerned, as administration manager of the company she was attributed by both Peter Jackson and McDonald with total knowledge of the company’s financial affairs. It was to her that each of them said they looked when seeking information concerning those matters. Further, by virtue of her physical proximity to them during the period with which this case is concerned she could certainly have given evidence of their activities with respect to the company during that period.
Counsel for both defendants submitted that neither of these witnesses was “in the camp” of their clients. They argued that the plaintiff could just as easily have called them if he had wished. I disagree.
Peter Jackson gave evidence that he was in contact with his son and I infer that there was no reason why he could not have been called, under subpoena if necessary, on the trial. John McDonald said that Julie Soutar had been approached but that she had told Mr Finkelstein that she would not appear as she did not believe “… that she could give any evidence that would be beneficial to the hearing”.
Whilst the absence of Stephen Jackson and Julie Soutar from the witness box does not, of course, supply evidence which was not otherwise provided, it enables the Court, more confidently, to draw inferences adverse to the defendants and to reject their explanations on issues upon which the uncalled witnesses might reasonably have been thought to be able to speak: O’Donnell v Reichard[23]; Jones v Dunkel[24]. In the circumstances I consider that the absence of these witnesses from the witness box enables me, the more confidently, to reach the conclusions which I have reached, particularly as to the activities of Peter Jackson and John McDonald with respect to Sands Print Group Ltd in July 2000.
[23][1975] VR 916
[24](1959) 101 CLR 298.
Whilst the failure to call Eduard Nyhoff is of lesser significance it nevertheless assists a readier acceptance of the plaintiff’s case. He, as a solicitor, might reasonably have been expected to be able to speak as to the matters surrounding the restructure of Sands' business and the extent to which it actually occurred, if it had occurred at all.
Finally, I note that I have already referred to the fact that, on a minor matter, a person referred to by Peter Jackson in his evidence, Phil King was not called. On that issue, which related to Peter Jackson's involvement with the Ford Motor Co, his absence is significant.
Was McDonald served with director’s penalty notices?
The question of service of appropriate director’s penalty notices under s 222APE of the Act upon Peter Jackson was not in dispute. However John McDonald contended that he had not been served with appropriate director’s penalty notices by the Commissioner and, accordingly, the Commissioner could not maintain this action against him.
Anthony Dennis Chisholm gave evidence by affidavit that he posted two penalty notices to John McDonald by placing them, under cover of appropriate letters, in a properly stamped envelope and posting them in a letter box in Puckle Street, Moonee Ponds. The address to which he posted those notices he obtained from an ASIC document dated 11 July 2000. Thus, it would appear, service was regular and in accordance with s.222AOF of the Act, which applied to this situation by virtue of s.222APE(2). It provided for service by post to an address which appears, from ASIC documents, to be the person being served’s place of business or residence. That provision, together with ss.28A and 29 of the Acts Interpretation Act 1901 (C’th) provides a scheme for service of documents such as these penalty notices. This scheme has the effect of creating a presumption that service of such documents is effected at the time at which the letter containing them would be delivered in the ordinary course of post.[25] To rebut that presumption it is necessary for the person disputing service to prove that the documents were not delivered to the address authorised by the legislation, not merely that he did not receive them.[26]
[25]Joossee v Deputy Commissioner of Taxation [2002] VSCA 48 per Batt JA at [13].
[26]Repatriation Commission v Gordon (1990) 26 FCR 569 per Spender J at 578-579, Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 per Mason, Murphy, Wilson, Deane and Dawson JJ at 96-97 and Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR per Stein JA and Deputy Commissioner of Taxation v Taylor [1983] 2 NSWLR 139.
Mr McDonald and his wife each gave evidence that 10 Park Street, Geelong was a dual occupancy property which had two letter boxes at the front. The letter boxes were together and were undifferentiated by any sign. Mr McDonald said that mail was placed in either of the boxes and that, although, the tenant of the other property would normally pass on such mail he could not be sure that she would do so in any particular case. He said he never got the director’s penalty notices which the plaintiff alleges were served in this case.
It would be sufficient to dispose of this point to observe that even if Mr McDonald’s evidence was accepted as to his non-receipt of the documents this would not, on the authorities, mean that service had not been effected according to law. However, a document was produced on the trial of this proceeding which renders it highly likely not only that John McDonald received the relevant director’s penalty notices served upon him but that he sent them to the company’s solicitor, Peter Finkelstein, for him to take action in respect of them.
The document produced was a fax cover sheet dated 18 July 2000 which purported to be the cover sheet in respect of a 10 page fax (including the cover sheet) sent by John McDonald to Peter Finkelstein at about 11.35 am on that day. The director’s penalty notices, together with their covering letters, comprised nine pages. They were posted at Moonee Ponds on 14 July 2000, a Friday. It might be expected that they would be delivered in Geelong on Monday 17 July or perhaps Tuesday 18 July. The cover sheet is signed by Mr McDonald and includes the following message:-
“PETER
ATTACHED ARE TAXATION INSTALMENT DEDUCTION
NOTICES MAILED TO MY HOME ADDRESS.I UNDERSTAND THE NEXT STEP IS FOR ME TO
RECEIVE ACTUAL PENALTY NOTICEIS THERE ANY ACTION FOR ME PERSONALLY TO TAKE
IS THERE ANY ACTION FOR THE COMPANY TO TAKE
STEPHEN & I HAVE DISCUSSED.”
In cross-examination Mr McDonald could not identify the documents to which his note on the fax cover sheet was referring. He refused to concede that they were probably the director’s penalty notices which had been posted to him a few days earlier. Although his description of the documents which he sent with the cover sheet as it appears on that document is inaccurate, I am satisfied that the documents which followed that cover sheet in the fax to Mr Finkelstein sent by McDonald on 18 July comprised the director’s penalty notices relevant in this case. The misdescription in the cover sheet is explicable by reference to the heading on those notices. In fact the words “TAX INSTALMENT DEDUCTIONS” appear directly under the heading immediately before the name of the addressee. It was not suggested that the ATO had sent any other notices to Mr McDonald's home at that time. Further, Mr Finkelstein was unable to identify any documents sent with that fax cover sheet.
I am satisfied that not only were the director’s penalty notices in this case served according to law but that they were received by Mr McDonald. I accept the submission of the plaintiff that his refusal to accept even the possibility that this was so reflects adversely on his credit with respect to other contentious matters in this case.
Defences under s.222API of the Act
In his additional further amended defence filed 15 November 2002 the first defendant, Peter Jackson, as well as denying the plaintiff’s allegations as to his relevant involvement in Sands Print Group Ltd pleaded that he was entitled to rely on the defences provided by s.222API of the Act. Specifically he claimed that he did not take part in the management of the company at any relevant time so as to entitle him to invoke the defence referred to in s.222API(2) or, in the alternative, he took all reasonable steps to ensure that the directors complied with s.222APB(1) or there were no such steps that he could have taken.
Section 222API(2) of the Act provides a defence if a person who might otherwise be liable to a penalty proves that, because of illness or for some other good reason, he did not take part in the management of the company at any time when the directors were under an obligation to perform one of the four acts required by s.222APB(1). In the outline of his final address Mr Finkelstein made no reference to this section or to this defence. Further, there is no evidence that Peter Jackson was ever ill or that for any other good reason he did not take part in the management of Sands Print Group Ltd during the period when he and the other directors were required to perform one of the acts set out in s.222APB(1). There is no substance in this defence.
Section 222API(3) provides a defence to someone who might otherwise be liable if he took all reasonable steps to ensure that the directors of the relevant company complied with s.222APB(1) or there were no such steps that that person could have taken.
Although Mr Finkelstein asserts Mr Jackson’s reliance upon this defence in his outline of argument, no argument was in fact addressed on the question. It would seem that the only matters which Mr Jackson could rely upon would be that he says that he made inquiries of his son Stephen Jackson, of his co-defendant John McDonald and of Julie Soutar, the company’s administration manager as to the financial affairs of the company and were reassured on all occasions that they were “under good management”. These inquiries related to superannuation, the company’s overdraft and “taxation payments”. Even if this evidence was accepted at its highest it would not discharge the onus cast upon a defendant to prove that he had taken all reasonable steps to ensure that the directors complied with their obligations under s.222APB(1). However, these bland assertions by Mr Jackson that he was reassured by his co-directors and the company’s administration manager that there were no financial matters outstanding with respect to the Australian Tax Office among other possible creditors, must be seen in light of the fact that at the time these inquiries were made Sands Print Group Ltd was in serious default with respect to its group tax liability to the extent of hundreds of thousands of dollars and had other serious financial difficulties as demonstrated by a large number of the documents produced in this case. I do not accept Peter Jackson’s evidence that his conversations with his son, John McDonald and Julie Soutar, if they occurred, were as reassuring as he asserted. Even if they were they would not provide him with a defence.
The second limb of this defence would require Mr Jackson to prove that there were no steps which he could have taken to ensure that the directors of Sands Print Group Ltd discharged their obligations under s.222APB(1). No argument was put by Mr Finkelstein on this aspect of the defence. It likewise fails.
John McDonald
The only limb of s.222API(3) finally relied upon by Mr McDonald was that which would relieve him of liability if he established that there were no reasonable steps which he could have taken to ensure that the directors of Sands Print Group Ltd complied with their obligations under s.222APB(1) of the Act. The argument put by Mr Connor on this aspect of the case was that because Stephen Jackson was an autocrat, nothing Mr McDonald did or tried to do would have been effective to require the company to comply with s.222APB(1). I reject this argument. First, that Stephen Jackson had an autocratic management style does not mean that he would not, in appropriate circumstances, have yielded to reasoned argument as to his own best interests and those of his father and McDonald. Secondly, the evidence that Stephen Jackson was of the nature asserted by Mr McDonald and Peter Jackson is far from conclusive. It certainly cannot provide, in the circumstance of his not having been called, this defence to Mr McDonald. In the circumstances this defence fails.
Conclusion
The plaintiff is entitled to succeed in respect of the whole of his claim against each of the defendants. Thus he is entitled to judgment for $2,360,482.13 together with interest pursuant to the Supreme Court Act 1986. As there has been no argument as to the way in which interest should be calculated and the date from which it should be calculated I shall hear counsel on those matters if they are unable to agree on the amount of the judgment to be entered and appropriate orders as to costs.
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