Deputy Commissioner of Taxation v McWhirter - [2019] WADC 5

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION:   PERTH
CITATION:   DEPUTY COMMISSIONER OF TAXATION -v- MCWHIRTER [2019] WADC 5
CORAM:   REGISTRAR KINGSLEY
HEARD:   13 NOVEMBER 2018
DELIVERED          :   30 JANUARY 2019
FILE NO/S:   CIV 2711 of 2016
BETWEEN:   DEPUTY COMMISSIONER OF TAXATION
Plaintiff

AND

NEILL MCWHIRTER
Defendant

Catchwords:

Practice - Order 14 - Recovery of tax related liabilities - Whether Limitation Act 2005 applies

Legislation:

Income Tax assessment Act 1936
Limitation Act 2005
Rules of the Supreme Court 1971
Taxation Administration Act 1953

Result:

Judgment for the plaintiff

Representation:

Counsel:

Plaintiff	:	Mr C Slater
Defendant	:	Mr J W Fickling

Solicitors:

Plaintiff	:	Minter Ellison
Defendant	:	Hayes Legal

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

Abion Ore Pty Ltd v Jones [2018] WASC 286
Deputy Commissioner of Taxation v Dick (2007) NSWCA 190
Deputy Commissioner of Taxation v Moorebank Pty Ltd 1988 HCA 29
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Muc v Deputy Commissioner of Taxation (2008) 73 NSWLR 378

REGISTRAR KINGSLEY:

The plaintiff's application is for summary judgment pursuant to O 14 Rules of the Supreme Court 1971.
The writ of summons with a statement of claim indorsed was issued in July 2016. A defence was filed in December 2016. The action has had a somewhat fraught history in that two form 2 notices of default have issued and, there have been a number of consent orders extending the time for the entry for trial.
The application for summary judgment was filed on 1 March 2018 and is supported by the affidavits of:
•James Foster affirmed 27 February 2018
•Neil Drysdale sworn 15 February 2018
•Kenis Lin Fung Chu sworn 1 March 2018
•Kenis Lin Fung Chu sworn 7 March 2018
•James Foster affirmed 30 July 2018
•Esther Heather affirmed 20 August 2018
•Kenis Lin Fung Chu sworn 11 September 2018
•James Foster affirmed 12 November 2018
•Kenis Lin Fung Chu sworn 12 November 2018
The defendant opposes the application and has filed the affidavits of Neil McWhirter sworn 31 May 2018 and Paul Constantine Costi sworn 31 May 2018.
The authorities on summary judgment are well known. Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 continues to be the authority showing the onus on the applicant for summary judgment is set at a high threshold, and the great caution a court needs to exhibit before depriving a party of their right to trial.
McWhirter Drilling Solutions Pty Ltd was an incorporated company under the Corporations Act 2001 and the defendant was, at the relevant times, a director of the company. The company was required to withhold amounts for the purposes of div 12 in sch 1 to the Taxation Administration Act 1953 (the TAA).
The plaintiff pleads that for the period 1 September 2007 to 31 December 2007 the company withheld $158,206 and contrary to s 222AOB of the Income Tax Assessment Act 1936 (ITAA) failed to:
•Comply with subdivision 16-B sch 1 ITAA;
•Make an agreement with the Commissioner under s 222ALA ITAA;
•Appoint or suffer the appointment of an administrator of the company under s 436A, s 436B or s 436C of the Corporations Act (year); or
•Begin to be wound up within the meaning of the Corporations Act.
The unpaid amounts of the company's liability were reduced to $157,604.14 by virtue of payments received by the Commissioner.
Pursuant to s 222AOC ITAA the defendant became liable to pay to the Commissioner a penalty in respect of each amount withheld - the director penalty liabilities. Each penalty became due and payable at the end of the due date of the relevant amount withheld and the amount of each penalty was, pursuant to s 222AOC ITAA, equivalent to the unpaid amount of the relevant amount withheld. The plaintiff goes on to plead that the unpaid amount of each penalty is a tax related liability within the meaning of s 255-1 in sch 1 to the TAA and a debt due to the Commonwealth and payable to the Commissioner pursuant to s 255-5 sch 1 to the TAA.
On 7 May 2008 a Directors Penalty Notice (DPN) was prepared and delivered to the defendant (Drysdale affidavit, par 13). The defendant denied receiving the notice. A search of the Commissioner's records did not find the DPN. The Commissioner then sought to prove the DPN by secondary evidence. The issue fell away when, in the process of complying with a request under the Freedom of Information Act by the defendant, the Commissioner located the DPN.
The plaintiff's O 14 application is opposed on two basis:
1.That there is a triable issue as to whether the plaintiff is statute barred under the Limitation Act2005 from recovering the DPN debt dating 7 May 2018.
2.That because of the time lapsed the court should refuse summary judgment.
The defendant's principal argument is that the current proceedings are not a proceeding for the recovery of a tax but the recovery of a penalty. As it is the recovery of a penalty the Limitation Act 2005 applies imposing a time bar of six years (s 13).
The defendant submits that div 269 TAA is a regime. Unlike other provisions within the Taxation legislation, div 269 does not provide alternative means for contesting a claim. The only method to contest a claim by a taxpayer under div 269 is to wait for the Commissioner to commence proceedings, and then file a defence. Thus, as div 269 TAA is self-contained, including its own requirement that proceedings be commenced to recover the purported penalty, the Limitation Act 2005 applies.
Relying on Deputy Commissioner of Taxation v Moorebank Pty Ltd 1988 HCA 29 the plaintiff submits the general scheme of the TAA is inconsistent with the operation of the Limitation Act.
The defendant submits that Moorebank concerns income tax and additional tax. The DPN is a penalty not a tax, and therefore the field has not been covered. This submission references the court's statement at page 64:
In particular, where a Commonwealth legislative scheme is complete upon its face, s 64 will not operate to insert into it some provision of State law for whose operation the Commonwealth provisions can, when properly understood, be seen to have left no room. Accordingly the question arises whether the relevant provisions of the Assessment Act have effectively covered the field and left no room for the director or indirect intrusion of provision of the State Limitation Act to limit the time in which an action can be brought on behalf of the Commissioner of Taxation for unpaid tax or additional tax.
In further support the defendant submits the provisions under the TAA have their own carefully structured time restrictions upon the power of the Commissioner to issue an amended assessment. Therefore it is not consistent with the general scheme for a limitation provision to bar an action or extinguish the underlying right in circumstances where the Commissioner remains free to issue an amended assessment in respect of the whole or part of the income (Moorebank (6, 7 and 68).
However, the defendant submits, div 269 is not self-contained. It is a penalty provisional requiring the Commissioner to commence proceedings. As there are self-contained defences the defendant submits it is a natural consequence the operation of the Limitation Act is not excluded.
The plaintiff relies on Muc v Deputy Commissioner of Taxation (2008) 73 NSWLR 378 where the court stated (389):
I therefore conclude that the generic collection and recovery rules introduced in 2000 (by amendments to the Taxation Administration Act) apply to a claim like the present and that they are relevantly indistinguishable from the regime discussed in Deputy Commissioner of Taxation v Moorebank. The regime effectively covers the field and is incompatible with the intrusion of (the State Limitation Act).
In response the defendant submits the key difference in Muc is that Muc is concerned with withholding PAYG amounts by the tax payer. These are clear liabilities and for which there is no need for a regime to contest liability. The defendant submits that Muc can be distinguished in that the penalties were capable of remission by the Commissioner (s 221N(2)) and persons dissatisfied with the Commissioner's decision in that regard could object in the manner set out in Pt IV of the ITAA.
This, the defendant submits, is the point of distinction: in Muc there is a process of disputation such that the penalties were capable of remission and persons dissatisfied with a Commissioner's decision could object. With the s 222AOC DPN the plaintiff is subject to the requirement of commencing proceedings and once proceedings are commenced the defendant may avail themselves of the defences in s 269-35. There is no way to contest the s 269-35 defences until proceedings are brought.
The plaintiff submits, citing Deputy Commissioner of Taxation v Dick (2007) NSWCA 190, the provisions of the TAA directed to the specific subject matter of the recovery and release or extensions of time for director's penalties would be interpreted as repugnant to the provisions of other legislation which appear to contradict those specified subject matter provisions.
The defendant notes that there was no limitation claim in Dick's case and that the Limitation Acts were only discussed in passing. The defendant however does point to the comments of Basten JA who said:
A State Limitation Act would operate, if at all, by virtue of s 64 of the Judiciary Act 1903 (CTH) and s 64 although it is another commonwealth law, has a different kind of operation to the Corporations Act. ASCIC operates across federal jurisdiction generally to fill what might otherwise had been gaps in the commonwealth law: see Dao v Australian Postal Commission (1987) HCA 13. The defendant submits that the Limitation Act fills the gap to ensure that recovery is brought in a timely manner and that the defendant's ability to evoke the s 269-35 defences does not evaporate with the passage of time. The principle argument of the defendant is that this proceeding is not the recovery of tax but the recovery of a penalty. The defendant argues that division 169 is a regime but is not a self-contained scheme.

Discussion

The TAA distinguishes civil penalties which are detailed in sub‑division 290-B and penalties in the context of the DPN. Sub‑section 290 TAA sets out the recovery process for a civil penalty.
Whilst a DPN penalty is treated differently sub-division 250-10 provides a summary of defined tax related liabilities. Under the heading Tax Related Liabilities ITAA, item 139 captures a penalty under sub‑division 269-B the particular provision being 269-20 in sch 1. For the purposes of sch 1 the DPN is a tax related liability.
Tax related liability is defined as a pecuniary liability to the Commonwealth arising under a taxation law (subsection 255-1(1) sch 1). Taxation law is defined in the ITAA as an Act of which the Commissioner has the general administration or legislative instruments made under such an Act or the Tax Agents Services Act 2009 or regulations made under that Act.
The Limitation Act can only operate by virtue of s 64 Judiciary Act1903 (Cth) to fill what might otherwise be gaps in Commonwealth law, and only if, and to the extent that, there be no directly applicable and inconsistent (in the relevant sense) Commonwealth law already regulating those circumstances': Dao v Australian Postal Commission (1987) 162 CLR 317, 332.
The moneys sought to be claimed by the plaintiff are a tax related liability. Not all tax related liabilities require an assessment (s 250‑5 TAA). In this case the tax related liability is enforced by the Commissioner issuing proceedings, and then available to the defendant is a regime of defences. That regime for recovery, in my opinion, covers the field.
Consistently with Moorebank in my opinion the intrusion of the Limitation Act would undermine that scheme for the recovery of tax.
I find therefore the plaintiff is not subject to the Limitation Act and this action is not statute barred.

Delay

The defendant submits the delay in bringing the action is grounds in itself for refusing leave to bring the summary judgment application. The defendant rightly points out that the debt is almost 10 years old, and that there is no evidence justifying the delay.
There is some evidence in Chu's affidavit of 1 March 2018 the plaintiff affording the defendant the opportunity to resolve the matter out of time. Whilst the plaintiff's counsel submits that the policy of summary judgment applications being brought early in the stage of proceedings is to ensure not too much expense has been occurred, the defendant notes in this particular matter there has been a number of affidavits and significant expense on the part of the defendant to oppose the application.
It is a matter of individual evaluation of each case as to whether or not a court grants an extension of time to bring a summary judgment application. There must be an explanation for the delay, the actual merits of the potential application weigh heavily in the context of whether leave will be granted or not, and case management principles in avoiding unnecessary waste of a court's resources are a factor: Abion Ore Pty Ltd v Jones [2018] WASC 286 [19], [25 - 26].
By any measure there has been significant delay - the last date to bring an application for summary judgment was 13 December 2016. Chu, in his affidavit sworn 1 March 2018 deposes that 'the plaintiff and the defendant have been in negotiations from 8 December 2016 to 22 February 2018 in an attempt to resolve the matter. That statement is supported by the consent orders dated 18 April 2017 and 12 July 2017 to extend the entry for trial milestone. The reason given in each case is that the parties were in discussions to try and resolve the matter.
I have already found that the Commissioner's recovery action is not statute barred. Other than delay no other defences have been raised.
Finally, it would be an unnecessary waste of the court's resources and imposing avoidable costs on litigants to continue proceedings where there is no real defence. That situation should be avoided by whatever processes are fairly open.
In my opinion the issue of delay should not be an impediment to judgment. Leave is given to bring the application.

Conclusion

For these reasons the plaintiff has made out its case pursuant to O 14 and judgment will be entered for the plaintiff against the defendant.
I will hear counsel on the form of orders and costs.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
AC
Court Officer
23 JANUARY 2019