Deputy Commissioner of Taxation v MOUSTAKA - [2011] WADC 213

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CHAMBERS

LOCATION: PERTH

CITATION: DEPUTY COMMISSIONER OF TAXATION -v- MOUSTAKA [2011] WADC 213

CORAM: DEPUTY REGISTRAR HEWITT

HEARD: 23 NOVEMBER 2011

DELIVERED : 8 DECEMBER 2011

FILE NO/S: CIV 764 of 2011

BETWEEN: DEPUTY COMMISSIONER OF TAXATION
Plaintiff
AND
DAVID ROSS MOUSTAKA
Defendant

Catchwords:

Practice and procedure - Application to set aside default judgment - Turns on its own facts

Legislation:

Corporations Act 2001
Income Tax Assessment Act 1936
Tax Laws Amendment (Transfer of Revisions Act) Act 2010

Result:

Application dismissed

Representation:

Counsel:

Plaintiff: Mr L A Tsaknis
Defendant: Mr M A Robson

Solicitors:

Plaintiff: Deputy Commissioner of Taxation
Defendant: Wilson & Atkinson

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

Palmer v Prince (1980) WAR 61

DEPUTY REGISTRAR HEWITT: This matter commenced by way of a writ which was filed on 9 March 2011 and proceeded to a judgment in default of appearance on 24 May 2011. Subsequently the judgment creditor issued bankruptcy proceedings and that appears to have stimulated the defendant to apply to set aside the default judgment by way of a chamber summons dated 25 July 2011.
The judgment which is sought to be set aside is a regular judgment and in those circumstances it is necessary for the applicant to give a satisfactory explanation of his failure to enter an appearance as required by the rules of court and secondly depose to facts which disclose a defence on the merits: Palmer v Prince (1980) WAR 61.
To satisfy the first of the necessary criteria the defendant has deposed in an affidavit which was sworn on 25 July 2011 as follows:
I failed to act upon the receipt of the writ of summons dated 9 March 2011 as I was expecting to be advised of a time, date and location of a court hearing which I could attend and seek leave to set aside the director's penalties imposed upon me by the ATO.
The wording on the writ of summons is as follows:
We command you, that within 16 days of the service of this writ on you exclusive of the day of such service, you cause an appearance to be entered for you in our District Court in an action at the suit of the above named plaintiff; and take notice that in default of your doing so, the plaintiff may proceed therein and judgment may be given in your absence.
Whilst a party reading that portion of the writ might have some concerns about what was meant by an appearance, nonetheless in my view the thrust of the wording is clear. The defendant is required to do something, and in default of him doing something, the plaintiff may proceed and judgment may be given in his absence. Either the defendant did not read the words on the writ, or having read them, failed to comprehend the ordinary English meaning of the words, or alternatively, he was cavalier and disregarded the writ. In any event, his explanation in my view is extremely weak and should not be accepted unless there is a clear defence on the merits demonstrated by the balance of the materials which are put before me.
In order to analyse the proposed defence I shall first explain a little of the case. The plaintiff is the Deputy Commissioner of Taxation and proceeds against the defendant as a director of a company called Tambrey Ops Pty Ltd which withheld PAYG taxation payments from the wages of employees but failed to remit those deductions to the deputy commissioner as required under the provisions of the Income Tax Assessment Act 1936. By virtue of the operation of the Income Tax Assessment Act 1936 and the Tax Laws Amendment (Transfer of Revisions Act) Act 2010 the defendant, as a director of the relevant company, became liable to the deputy commissioner for a penalty in equal amount to that owed by the company.
Section 269‑35 provides certain defences which are available to a director in relation to proceedings of the kind which have been undertaken in this action. The first ground is based upon the proposition that by reason of illness or other good reason, it would have been unreasonable to expect the director to take part in and the director did not take part in the management of the company at the relevant time when the breaches occurred. That is not raised as a defence in the present matter. What is raised as a defence is that the director took what are described as all reasonable steps which are set out in s 269‑35 (3) and (4) which are in the following terms:
(3)It is a defence in the proceedings if it is proved that:
(a)you took all reasonable steps to ensure that the directors complied with their relevant obligations under section 269‑15; or
(b)there were no such steps that you could have taken.
(4)In determining what are reasonable steps for the purposes of subsection (3), have regard to:
(a)when, and for how long, you were a director and took part in the management of the company; and
(b)all other relevant circumstances.
In the present instance, the applicant deposes to the fact that the board of the company of which he was a director in effect passed over management of the business operations of the company to a company which was controlled by the other director of Tambrey Ops Pty Ltd, namely one Hamish Ewen Sprague. There is nothing whatever in the affidavits which have been filed by the applicant to indicate that he ever took the slightest interest in whether or not the company was complying with its tax obligation. The issue was simply not mentioned. It seems to me therefore that not only did this applicant fail to take all reasonable steps, he failed to take any steps whatever and therefore I am unable to see how he can avail himself of the section by way of a defence.
The scheme of the act requires the deputy commissioner to give a notice to the director at least 21 days before commencing proceedings which in effect advises the director of his liability and provides information as to the manner in which that liability may be remitted.
After receipt of the notice, the two relevant courses which were available to the defendant were to either commence to wind up the company or alternatively appoint an administrator under the Corporations Act.
It is said by the applicant that he was unable to appoint an administrator because his co‑director, Mr Sprague, was not available to assist him in that process which is not able to be performed without the acquiescence of the board.
That however does not deal with the issue of placing the company into liquidation which is a matter which can be undertaken by an individual director. Although not articulated in the affidavits, I take it from the submissions from the bar table that it is alleged on behalf of the applicant that he was unable to wind up the company because the company was solvent. That is a rather surprising proposition given the fact that it owed the Taxation Department something in the vicinity of $270,000.
The defendant advances the proposition that the company was solvent and therefore unable to be wound up because of certain negotiations that were taking place with other companies which might be to the benefit of Tambrey Ops Pty Ltd. I specifically refer to the propositions which are set out in par 14 and following in the affidavit sworn by the applicant on 16 September 2011.
In essence, the applicant states that his co‑director was actively seeking to obtain a loan for $210 million from a company in Bahrain on behalf of a group called Northwest Motel Group. He says, although he does not specify how this arrangement was to be put in place, that Tambrey Ops Pty Ltd was to be given access to part of the loan sufficient for it to pay its future obligations on the loan amount being advanced. The applicant says he thought that his co‑director would not allow the company to go into administration or liquidation because of some impact upon these loan arrangements.
I characterise this evidence as being some hope of a gratuity to be received from a company connected to the co‑director which may or may not have materialised. Certainly there is nothing in the way of any binding entitlement to receive anything whatever and how on the basis of such a situation a director could possibly allege that the company was solvent and therefore unable to be wound up escapes me. A more likely scenario is that the applicant hoped that the monies would become available, something that could not happen if the company was placed in liquidation.
Whether my speculation is correct or not is irrelevant. The fact is that the company had not paid its taxation obligations for something approaching 18 months which had accumulated to a total in the vicinity of $270,000. I am unable to see how anybody viewing a company in that state could possibly consider it to be solvent. The definition of solvency as I understand it is the ability to pay ones debts as and when they fall due. Certainly this company was not in that position.
As I have already indicated, in my view the plaintiff's explanation for his failure to file an appearance is thin to the point of transparency. Likewise, his attempt to avail himself of one of the statutory defences amounts to no more than saying that he passed responsibility for the running of the business of the company to others. Again I am unable to see how that could possibly amount to taking all reasonable steps which is the requirement of the legislation.
Finally, I do not accept that there was an impediment to the applicant commencing the process of liquidation of the company and he failed to implement any steps in that direction.
Viewed in broad context, this application has failed on every ground and should be dismissed.