Deputy Commissioner of Taxation v O'Donoghue
[2022] WASC 153
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: DEPUTY COMMISSIONER OF TAXATION -v- O'DONOGHUE [2022] WASC 153
CORAM: ARCHER J
HEARD: 2-3 SEPTEMBER & 12 OCTOBER 2021 & 24 MARCH 2022
DELIVERED : 12 MAY 2022
FILE NO/S: CIV 1606 of 2020
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
Plaintiff
AND
KENNETH O'DONOGHUE
Defendant
ILIJA JACOBS
Additional Party
Catchwords:
Alleged partnership - Facilitative provisions - Whether dissolution due to business becoming unlawful - Whether dissolution due to inferred agreement - RBA deficit debt - Judgment against other alleged partner - Whether judgment transformed the RBA deficit debt into a 'secondary tax debt'
Legislation:
Private Security Act 1995 (NT), s 13
Taxation Administration Act 1953 (Cth), s 8AAZA, s 8AAZJ, Schedule 1 s 350‑10, s 350-20, s 444-30
A New Tax System (Australian Business Number) Act 1997 (Cth), s 27(1)
Result:
Judgment for the plaintiff
Category: B
Representation:
Counsel:
| Plaintiff | : | CH Thompson SC |
| Defendant | : | MGS Crowley |
| Additional Party | : | No appearance |
Solicitors:
| Plaintiff | : | Australian Taxation Office - Legal Services Branch |
| Defendant | : | Equitas Lawyers |
| Additional Party | : | Not applicable |
Case(s) referred to in decision(s):
Australian Leisure and Hospitality Group Pty Ltd v Commissioner of Police [2020] WASCA 157; (2020) 56 WAR 102
Brady v Thornton [1947] HCA 29; (1947) 75 CLR 140
Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778
Brooker v Friend & Brooker & Anor [2006] NSWCA 385
Browne v Director General, Department of Water and Environmental Regulation [2020] WASCA 16
Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502
Chief Executive Officer of Customs v El Hajje [2005] HCA 35; (2005) 224 CLR 159
Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49; (2003) 216 CLR 161
Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180
Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1
Council of the New South Wales Bar Association v EFA (a pseudonym) [2021] NSWCA 339
Deputy Commissioner of Taxation v McGuire & Anor [2013] NSWSC 184; (2013) 275 FLR 153
Dogan v R [2020] NSWCCA 151
Duke Group v Pilmer [1999] SASC 97; (1999) 73 SASR 64
Ellis v Wallsend District Hospital (1989) 17 NSWLR 553
Epic Energy (Pilbara Pipeline) Pty Ltd v Commissioner of State Revenue [2011] WASCA 228; (2011) 43 WAR 186
Ex parte Fitzgerald; Re Gordon (1945) 45 SR (NSW) 182
Fazio v Fazio [2012] WASCA 72
Federal Commission of Taxation v Travelex Limited [2021] HCA 8
Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29
Hudgell Yeates Co v Watson [1978] QB 451
H'Var Steel Services v Deputy Commissioner of Taxation [2005] WASCA 71; (2005) 59 ATR 5
Jolley v Federal Commissioner of Taxation (1989) 86 ALR 297
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Kelly v Wilson [2012] WASC 146
Krakouer v R [1998] HCA 43; (1998) 194 CLR 202
Moore v The Commonwealth (1951) 82 CLR 547
Old Kiama Wharf v Deputy Commissioner of Taxation [2005] NSWSC 929; (2005) 60 ATR 267
Robert Coldstream Partnership v Federal Commissioner of Taxation (1943) 68 CLR 391
Rowlands v Hamilton [1971] 1 All ER 1089; [1971] 1 WLR 647
Ryder v Frohlich [2004] NSWCA 472
The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239
Table of Contents
Overview
The issues
Legal framework
Partnerships
Licensing of security providers
Statutory construction
Tax legislation
The facilitative legislative provisions
Running balance accounts
Partnerships
The evidence
Averments in the pleading
ABN documents
The ABN Register
The ABN application form
Taxation documents
The RBA statement and certificate
Lodged documents
Documents from the tax agent
Documents said to be relevant to dissolution
The bank account authority cards and other bank records
Bank statements
The Facebook messages
The licensing evidence
The testamentary evidence of Mr O'Donoghue
Mr O'Donoghue's evidence about the documents
Discussion of Mr O'Donoghue's evidence
Short chronology
Analysis of issues
Issue 1: Were the defendant and Mr Jacobs in a partnership?
Defendant's submissions
The plaintiff's submissions
The Partnership Act considerations
The averments
The ABN Register
Summary and conclusion
Issue 2: Was the partnership dissolved?
10 February 2009 (lapse of personal licence)
31 July/1 August 2009 (lapse of firm licence)
December 2010 (conversation in 2013)
Some time in 2011 (unpleaded)
January 2012 (when the defendant went to Alice Springs)
May 2012 (when defendant left the NT)
Issue 3: Is the RBA deficit debt now a 'secondary tax debt'?
Issue 4: What is owed by the defendant?
Conclusion
ARCHER J:
Overview
The plaintiff, the Deputy Commissioner of Taxation, brought this action to recover a debt she says is owed by the defendant, Mr O'Donoghue.
The plaintiff alleges that the defendant and the third party, Ilija Jacobs, were in partnership, carrying on the business of providing security services in the Northern Territory. The alleged partnership obtained an Australian Business Number (ABN) and was registered for GST.[1] The Commissioner of Taxation allocated the PAYG[2] and GST liabilities of the alleged partnership to a running balance account (RBA). The 'general interest charge' (GIC) that became payable on the RBA was added to the RBA. [3] The plaintiff seeks to recover from the defendant the amount recorded in the RBA as being owed by the alleged partnership.
[1] Goods and services tax.
[2] Goods and services tax.
[3] Goods and services tax.
The action was commenced in the District Court of Western Australia by way of Writ of Summons filed 11 February 2019. The defendant was granted leave to issue a third-party notice to Mr Jacobs on 29 April 2020. The matter was remitted to this court the same day, and admitted into my CMC List on 5 August 2020.
The plaintiff also commenced proceedings against Mr Jacobs in relation to the alleged partnership debt. The action against Mr Jacobs was brought in the District Court of South Australia. The action was settled by consent, with judgment entered for the Deputy Commissioner.[4]
[4] Amended Substituted Defence filed 27 August 2021 (Defence) [9.2].
The defendant denies the existence of a partnership between himself and Mr Jacobs.[5] The defendant admits there was a business which provided security services and admits working as a security guard in that business. However, he submits that his work was as an employee and he was not a partner in the business.
[5] Defence [2.2]. See also ts 264. The alleged partnership was registered in the Northern Territory, so the relevant statute is the Partnership Act 1997 (NT). However, each jurisdiction in Australia has very similar legislation.
Alternatively, the defendant submits that, if there was a partnership, it was dissolved by:
1.10 February 2009, when the defendant's security officer's licence lapsed;[6]
2.31 July 2009, when the business's security firm licence lapsed;[7]
3.31 December 2010, when the defendant and Mr Jacobs abandoned the business by mutual agreement;[8]
4.About January 2012, when the defendant left Darwin to take up full-time employment in Alice Springs;[9] or
5.May 2012, when the defendant left the Northern Territory permanently to reside in Western Australia.[10]
[6] Defence [2.3.1].
[7] Defence [2.3.1A].
[8] Defence [2.3.2].
[9] Defence [2.3.3].
[10] Defence [2.3.4].
The plaintiff disputes that the partnership was dissolved by any of the first three events and does not concede that it was dissolved by either of the last two.[11]
[11] The plaintiff's reply filed 23 April 2021 joined issue with each of these allegations pleaded in the Defence, but the plaintiff's written submissions were more nuanced - see the plaintiff's Closing Submissions filed 17 September 2021 (Plaintiff's Closing Submissions) [30] - [32].
The defendant further asserts that the legal effect of the Deputy Commissioner obtaining judgment against Mr Jacobs was that the 'RBA deficit debt' became a 'secondary tax debt' within the meaning of section 8AAZA of the Taxation Administration Act 1953 (Cth) (TAA). The defendant submitted that this meant there was no longer an 'RBA deficit debt'.
The plaintiff says that the judgment did not have that effect.
Mr Jacobs has not filed an appearance nor taken any part in these proceedings despite being served with a third-party notice.[12]
[12] Affidavit of Service by Grant Eric Jonsson sworn 27 July 2020.
The issues
The following issues arise:[13]
1.Was there a partnership between the defendant and Mr Jacobs? It is common ground that somebody or something was carrying on the security business. The issue is whether it was Mr Jacobs and the defendant in a partnership carrying on the business (the plaintiff's case) or Mr Jacobs alone (the defendant's case).
2.If there was a partnership between the defendant and Mr Jacobs, was it dissolved by any of the events relied upon by the defendant?
3.Does the judgment entered for the Deputy Commissioner mean that the RBA deficit debt is now a 'secondary tax debt' within the meaning of s 8AAZA of the TAA?
4.Having regard to the answers to the previous three issues, what, if anything, does the defendant owe to the plaintiff?
[13] The defendant abandoned the pleading in [9.1] - [9.4] of the Defence – see Defendant's Outline filed 20 August 2021 (Defendant's Opening Submissions) [60] and ts 37 (24 August 2021).
Before turning to the issues, I will discuss the legal framework and the evidence adduced in this case.
Legal framework
Partnerships
In addition to common law principles, each Australian jurisdiction has a statute dealing with partnerships. The statutes are similar. The alleged partnership in this case was registered in the Northern Territory, so the relevant statute is the Partnership Act 1997 (NT).
A partnership is the relation between persons carrying on a business in common with a view of profit.[14] In other words, the elements necessary to establish a partnership are:
1.a business is being carried on;
2.the business is being carried on in common; and
3.the business is being carried on with a view to a profit.
[14] Section 5 of the Partnership Act.
A partnership relation springs from agreement, which may be express or implied. The agreement may be inferred from the circumstances proved in evidence.[15]
[15] Fazio v Fazio [2012] WASCA 72 [53] (Murphy JA, with whom Newnes JA agreed).
Where it is alleged that an informal (oral or inferred) partnership agreement was made, the conduct of the parties, including conduct after the alleged date of agreement, may be considered for the purpose of inferring whether a binding agreement had been reached, and, if so, its subject matter and the identification of its necessary terms.[16]
[16] Fazio [193] (Murphy JA, with whom Newnes JA agreed). See also Pullin JA [10], [13].
Whether a partnership exists is a mixed question of law and fact.[17]
[17] Jolleyv Federal Commissioner of Taxation (1989) 86 ALR 297, 299.
Section 6 of the Partnership Act sets out a number of matters to which regard must be had in determining whether a partnership exists. It relevantly provides:
6Determining existence of partnership other than incorporated limited partnership
(1)In determining whether a partnership (other than an incorporated limited partnership) exists regard is to be had to the following rules:
(a)joint tenancy, tenancy in common, joint property, common property, or part ownership, does not of itself create a partnership as to anything held or owned, whether the tenants or owners do or do not share any profits made by the use of any thing held or owned;
(b)the sharing of gross returns does not of itself create a partnership, whether the persons sharing the returns have or have not a joint or common right or interest in any property from which, or from the use of which, the returns are derived;
(c)the receipt by a person of a share of the profits of a business is prima facie evidence that the person is a partner in the business, but the receipt of a share of the profits of a business or of a payment contingent on or varying with the profits of a business does not of itself make the person a partner in the business, and in particular:
…
(ii)a contract for the remuneration of an employee or agent of a person engaged in a business by a share of the profits of the business does not of itself make the employee or agent a partner in the business or liable as a partner;
…
Counsel for the defendant initially submitted that a necessary criterion of a partnership was an intention to share the expenses and the net profits.[18] On being directed to some authorities, counsel conceded this was not a necessary criterion.[19] Partnerships have been found to exist in cases where one party was paid a fixed salary irrespective of the venture's profitability while the other took the entirety of any profits.
[18] ts 264 - 266.
[19] ts 287 - 288.
In Lindley & Banks on Partnership (20th ed, 2017), it was said:[20]
[T]he division of profits must … be regarded as no more than a common incident of the partnership relation, rather than a precondition to its existence. Thus, whilst the absence of this characteristic should, in any given case, never in itself be fatal, its presence may point strongly towards the existence of a partnership.
[20] Lindley & Banks on Partnership (20th ed, 2017) [2.13].
Various other matters have been held to be indicative of a partnership, without being conclusive.[21] For example, participation in management is an indicator of a partnership, but is not essential to the existence of a partnership.[22]
[21] For a general discussion, see Lindley & Banks on Partnership (20th ed, 2017) [2.14] - [2.16].
[22] Lindley & Banks on Partnership (20th ed, 2017) [2.16]. For an example of a case where one partner was not involved in the management at all, see Robert Coldstream Partnership v Federal Commissioner of Taxation (1943) 68 CLR 391.
If the parties referred to themselves as partners, that would not prove they were partners. Similarly, if they said they were not partners, that would not prove they were not.[23]
[23] Brooker v Friend & Brooker & Anor [2006] NSWCA 385[141] (McColl JA). See also Duke Group v Pilmer [1999] SASC 97; (1999) 73 SASR 64 [912], [928] - [930], Jolley, 307 and Construction, Forestry, Maritime, Mining and Energy Union v Personnel Contracting Pty Ltd [2022] HCA 1 [66].
The mutual rights and duties of partners may be varied by consent of all the partners. The consent may be express or inferred from a course of dealings.[24]
[24] Section 23 of the Partnership Act.
Section 28 of the Partnership Act relevantly provides:
28Rules about interests and duties of partners
(1)The interest of a partner in partnership property and a partner's rights and duties in relation to the partnership are to be determined, subject to an express or implied agreement between the partners, by the following rules:
(a)all partners are entitled to share equally in the capital and profits of the business and must contribute equally towards the losses, whether of capital or otherwise, sustained by the firm;
(b)the firm must indemnify a partner in respect of payments made and personal liabilities incurred by the partner:
(i)in the ordinary and proper conduct of the business of the firm; or
(ii)in or about anything necessarily done for the preservation of the business or property of the firm;
…
(e)a partner may take part in the management of the partnership business;
(f)a partner is not entitled to remuneration for acting in the partnership business;
…
(h)a difference arising as to an ordinary matter connected with the partnership business may be decided by a majority of the partners but no change may be made in the nature of the partnership business without the consent of all existing partners;
A partnership may be dissolved in a number of ways.[25] Relevantly to this case, by s 38 of the Partnership Act, a partnership is dissolved on an event happening that makes it unlawful for the business of the firm to be carried on or for the members of the firm to carry it on in partnership. In addition, a partnership may be dissolved by mutual agreement. Such an agreement may be inferred.[26]
Licensing of security providers
[25] See Fazio [59] - [73].
[26] See Fazio [62], [68] - [75]. See also Ryder v Frohlich [2004] NSWCA 472 [135] ‑ [152] and Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29 [208] - [213].
If there was a partnership between the defendant and Mr Jacobs, issue 2 requires me to determine if the partnership was dissolved. The defendant submits that the partnership was dissolved on a number of alternative bases, including because two events occurred which he alleges made it unlawful for the partnership to carry on the business of providing security services. These events were the lapsing of the defendant's security officer's licence and the lapsing of the business's security firm licence. The defendant submits that, if there was a partnership, it was unlawful for the partnership to carry on the business of providing security services when the defendant became unlicensed and also when the business became unlicensed. The plaintiff disputes this.
Although I will discuss these submissions later, I will here set out the legislative licensing scheme.
The Private Security Act 1995 (NT), as it was in the period 8 March 2007 and 24 November 2011, contained the following relevant provisions.
3Definitions
In this Act, unless the contrary intention appears:
appropriate licence for carrying out the functions of a security provider is:
(a)if carrying out the functions of a crowd controller - a crowd controller's provisional licence or a crowd controller's licence;
(b)if carrying out the functions of a security officer - a security officer's licence or a security officer's provisional licence;
(c)if carrying out the functions of a security firm - a security firm's licence; or
(d)if carrying out the functions of a member of a class of persons declared in a notice under section 8 to be a category of security providers - the relevant category of licence declared in that notice, including a provisional licence in relation to that category of licence.
…
security firm has the meaning given by section 7.
security officer has the meaning given by section 6.
security provider has the meaning given by section 4.
4Security providers
(1)In this Act, a security provider means:
(a) a crowd controller;
(b) a security officer;
(c) a security firm; or
(d)a person or partnership carrying out the functions of a member of a class of persons declared in a notice under section 8 to be a category of security providers.
(2)A person employed by a security provider is not a security provider if the person's duties are wholly secretarial or clerical.
5Crowd controllers
In this Act, a crowd controller is a person who, in respect of licensed premises within the meaning of the Liquor Act, a place of entertainment, a place to which the public has access or a public or private event or function, as part of his or her duties, performs the function of:
(a)controlling or monitoring the behaviour of persons;
(b)screening persons seeking entry; or
(c)removing persons because of their behaviour,
or any other prescribed function.
6Security officers
In this Act, a security officer is a person who, for reward, patrols or guards another person's property.
7Security firms
In this Act, a security firm is a person who, or partnership that, engages in the business of supplying, for reward, the services of:
(a)crowd controllers or security officers; or
(b)where this section is specified in a notice under section 8 to apply to members of a class of persons declared in that notice to be a category of security providers – members of that class of persons, to other persons.
…
13Requirement to be licensed
(1)A person shall not:
(a)carry out the functions of a security provider; or
(b)advertise, or in any way hold out, that the person carries out or is willing to carry out, the functions of a security provider,
unless the person holds the appropriate licence.
Penalty:In the case of a natural person - 100 penalty units.
In the case of a body corporate - 500 penalty units.
(1A)An offence against subsection (1) is a regulatory offence.
(2)A person shall not, directly or indirectly, engage another person to carry out the functions of a security provider unless the other person holds the appropriate licence.
Penalty: In the case of a natural person - 100 penalty units.
In the case of a body corporate - 500 penalty units.
(2A)An offence against subsection (2) is a regulatory offence.
(3)A person is not entitled to a reward for carrying out the functions of a security provider unless the person holds the appropriate licence.
(4)Subsection (3) has effect notwithstanding an arrangement to the contrary.
…
15Entitlement to licences – natural persons
(1)This section applies if an application is made for the grant of a licence to a natural person.
(3)Subject to subsection (8), a person is entitled to be granted a provisional licence if:
(a)the Minister has approved a code of practice under section 48, and competency standards and training under section 53, in relation to that category of licence; and
(b)the licensing authority is satisfied that the person is an appropriate person to hold the licence.
(4)Subject to subsection (8), a person is entitled to be granted a crowd controller's licence, a security officer's licence, or a category of licence (other than a provisional licence) declared under section 8, if:
(a)the Minister has approved a code of practice under section 48, and competency standards and training under section 53, in relation to that category of licence;
(b)the licensing authority is satisfied that the person has successfully completed the course in training approved under section 53 in relation to that category of licence; and
(c)the licensing authority is satisfied that the person is an appropriate person to hold the licence.
(5)In deciding whether a person is an appropriate person to hold a licence, the licensing authority is limited to considering the matters specified in subsections (6) and (7).
(6)In deciding whether a person is an appropriate person to hold a licence, the licensing authority may consider the following matters as indicating that the person may not be an appropriate person:
(a)that in dealings in which the person has been involved, the person has:
(i) shown dishonesty or lack of integrity; or
(ii) used harassing tactics;
(b)that the person habitually consorts with reputed criminals;
(c)that the person has taken advantage, as a debtor, of the laws of bankruptcy;
(d)that the person is suffering from an illness that makes them unfit to work in the security industry;
(e)that the person has been found guilty of an offence;
(f)information provided by a person or body responsible for the issue of licences under an Act of the Territory, the Commonwealth or a State or another Territory of the Commonwealth;
(g)evidence given in a court of the Territory, the Commonwealth or a State or another Territory of the Commonwealth or a commission of inquiry.
(7)A person is not an appropriate person to hold a licence if the person, within 10 years of applying for a licence, has been convicted of:
(a)a disqualifying offence in relation to such a licence; or
(b)an offence that would be a disqualifying offence in relation to such a licence if committed in the Territory.
(8)The licensing authority may, in its absolute discretion, refuse to grant a licence to an applicant if the licensing authority has grounds for believing that the applicant is likely to be of bad character, having regard to the public interest in ensuring that persons of bad character are not employed as security providers, and the licensing authority shall give reasons for its decision.
…
17Entitlement to licences - corporations or firms
(1)In this section officer of a corporation means:
(a)a director, secretary or executive officer of the corporation; or
(b)a person who can control or substantially influence the conduct of the corporation's affairs including, for example, a person on whose directions, advice or instructions the corporation's directors usually act.
(2)This section applies if a corporation or partnership applies for a security firm licence.
(3)The applicant is entitled to the licence if the licensing authority is satisfied that:
(a)each person who is an officer of the corporation, or partner in the partnership, is an appropriate person to be an officer or partner if the corporation or partnership were granted the licence; and
(b)if the applicant is a corporation – the corporation has not been convicted of a disqualifying offence.
(4)The conditions of the licence shall specify which of the functions of a crowd controller or security officer may be supplied under the licence.
(5)Sections 15(5) to (9) (inclusive) and 16 apply to a decision about whether a person specified in subsection (3)(a) is an appropriate person, as if the person were the applicant for the licence.
Statutory construction
Resolving the dispute between the parties as to the licencing requirements of individuals and security firms will require construction of the Private Security Act, and s 13 in particular.
The general principles to be applied in statutory construction were recently summarised by Buss P in Australian Leisure and Hospitality Group Pty Ltd v Commissioner of Police (citations omitted):[27]
The focus of statutory construction is upon the text of the provisions having regard to their context and purpose.
The statutory text is the surest guide to Parliament's intention. A decision as to the meaning of the text requires consideration of the context, in its widest sense, including the general purpose and policy of the provision.
The context includes the existing state of the law, the history of the legislative scheme and the mischief to which the statute is directed.
However, legislative history and extrinsic materials cannot displace the meaning of statutory text. Further, the examination of legislative history and extrinsic materials is not an end in itself.
The purpose of legislation must be derived from the statutory text and not from any assumption about the desired or desirable reach or operation of the relevant provisions. The intended reach of a legislative provision is to be discerned from the words of the provision and not by making an a priori assumption about its purpose.
…
Section 18 of the Interpretation Act provides that, in the interpretation of a provision of a written law (including all Acts for the time being in force), a construction that would promote the purpose or object underlying the written law (whether that purpose or object is expressly stated in the written law or not) shall be preferred to a construction that would not promote that purpose or object. The requirement in s 18 that one construction be preferred to another can apply only where two constructions are otherwise open. If the ordinary meaning conveyed by the text of a provision is to be modified by reference to the purposes or objects underlying the written law, the modification must be able to be identified precisely as that which is necessary to give effect to those purposes or objects and it must be consistent with the text otherwise adopted by the draftsperson. Section 18 requires a court to construe a written law, and not rewrite it by reference to its purposes or objects.
[27] Australian Leisure and Hospitality Group Pty Ltd v Commissioner of Police [2020] WASCA 157; (2020) 56 WAR 102 [151] - [161] (Buss P). Quinlan CJ and Vaughan JA agreed with the recitation of principles in these paragraphs - see [3].
As the Private Security Act is a Northern Territory act, the relevant interpretation act is the Interpretation Act 1978 (NT). Section 62A of that Act is materially identical to s 18 of the Western Australian Interpretation Act.
Section 13 of the Private Security Act is a penal provision. In Krakouer v R,[28] McHugh J said:[29]
[62]A court should not disregard clear words and interpret a legislative provision so as to extend the scope of criminal liability even if it thinks that, by inadvertence, the legislature has failed to deal with a matter. That is so even if the court thinks that the legislature would probably have dealt with the matter if it had been drawn to the legislature's attention. Jordan CJ put the relevant principle succinctly in delivering the judgment of the Full Court of the New South Wales Supreme Court in Ex parte Fitzgerald; Re Gordon:[30]
'If conduct of a particular kind stands outside the language of a penal section, the fact that a Court takes the view that it is through inadvertence of the Legislature that it has not been included does not authorise it to assume to remedy the omission by giving the penal provision a wider scope than its language admits.'
[63]Still less should a court ignore the clear words of a provision so as to give it a meaning that would or might make it easier to convict an accused if the intention of the legislature is at best a matter of contestable opinion …
[28] Krakouer v R [1998] HCA 43; (1998) 194 CLR 202.
[29] Krakouer [62] - [63].
[30] Ex parte Fitzgerald; Re Gordon (1945) 45 SR (NSW) 182, 186. See also Rowlands v Hamilton [1971] 1 All ER 1089; [1971] 1 WLR 647, 650 (Lord Reid), 655 (Viscount Dilhorne).
Section 13 contains a number of defined terms. In Browne v Director General, Department of Water and Environmental Regulation,[31] the Court said:
When interpreting statutory provisions which contain a defined term the proper course is to read the words of the definition into the substantive enactment and then construe the substantive enactment in its context and bearing in mind its purpose.
Tax legislation
The facilitative legislative provisions
[31] Browne v Director General, Department of Water and Environmental Regulation [2020] WASCA 16 [118].
There are a number of legislative provisions that facilitate proof of the plaintiff's claim.
By s 350-10(3A) of Schedule 1 to the TAA, a document provided to the Commissioner under a taxation law and that purports to be made or signed by or on behalf of an entity is prima facie evidence that the document was made by the entity or with the authority of the entity.
A 'taxation law' relevantly includes an Act of which the Commissioner has the general administration.[32] An 'entity' is defined to include a partnership.[33]
[32] Section 2 of the Taxation Administration Act 1953 (Cth) (TAA) and s 995-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 97).
[33] See s 8AAZA of the TAA, s 184-1 of the A New Tax System (Goods and Services Tax) Act 1999 (Cth) (GST Act) (and the dictionary definition in that Act, which refers to s 995-1 of the ITAA 97), s 960-100 and s 995-1 of the ITAA 97, and s 41 of the A New Tax System (Australian Business Number) Act 1997 (Cth) (ABN Act) which defines 'entity' by reference to s 184-1 of the GST Act and 'you' as applying to entities generally unless its application is expressly limited.
There are also other facilitative provisions that only apply to specific documents. I will detail these when discussing the documents to which they apply.
Running balance accounts
Issue 3 raises the effect of the judgment against Mr Jacobs on the alleged partnership's RBA deficit debt. Although I will discuss this issue later, I will here set out the legislative licensing scheme. I gratefully acknowledge that what follows was drawn from the plaintiff's helpful summary.[34]
[34] The plaintiff's Submissions for Trial filed 10 August 2021 (Plaintiff's Opening Submissions) [9] - [18].
Part IIB of the TAA, comprising ss 8AAZA to 8AAZN, is headed 'Running balance accounts, application of payments and credits, and related matters'.
Under s 8AAZC(1), the Commissioner may establish one or more systems of accounts for primary tax debts. Each such account is known as a running balance account (or RBA).[35]
[35] Section 8AAZC(2) of the TAA.
An RBA may be established for any entity.[36] As noted earlier, an 'entity' is defined to include a partnership.[37]
[36] Section 8AAZC(3) of the TAA.
[37] Section 8AAZA of the TAA.
The Commissioner may establish an RBA on any basis that he determines, including for different types of primary tax debts.[38]
[38] Sections 8AAZC(4) and (4A) of the TAA.
A 'primary tax debt' is defined in s 8AAZA to include 'any amount due to the Commonwealth directly under a taxation law … including any such amount that is not yet payable'. Both PAYG withholding amounts and GST are primary tax debts.[39]
[39] See s 12-35 and s 16-70 of schedule 1 to the TAA, s 9-40 of the GST Act (and the definitions of 'entity' and 'partnership' in s 184-1 and s 195-1 of the GST Act and s 995-1 of the ITAA 97), and s 960-100 and s 995-1 of the ITAA 97.
The Commissioner may allocate a primary tax debt to an RBA that has been established for that type of tax debt.[40] For the purposes of section 8AAZD, a primary tax debt does not include GIC or an RBA deficit debt.[41]
[40] Section 8AAZD(1) of the TAA.
[41] Section 8AAZD(2) of the TAA.
Further, the Commissioner may allocate primary tax debts among RBAs.[42]
[42] Section 8AAZD(1A) of the TAA.
An 'RBA deficit debt', in relation to an RBA of an entity, means a balance in favour of the Commissioner based on:[43]
(a)primary tax debts that have been allocated to the RBA and that are currently payable; and
(b)payments made in respect of current or anticipated primary tax debts of the entity, and credits to which the entity is entitled under a taxation law, that have been allocated to the RBA.
[43] Section of the 8AAZA of the TAA.
If there is an RBA deficit debt at the end of a day:
(a)the GIC is payable on that RBA deficit debt and is added to the balance of the RBA;[44] and
(b)the debtor is liable to pay the Commonwealth the amount of the RBA deficit debt, which is due and payable at the end of that day.[45]
[44] Section 8AAZF of the TAA.
[45] Section 8AAZH of the TAA.
Once an RBA has been established, the Commissioner has a choice as to whether he proceeds to separately claim each underlying primary tax debt allocated to the RBA, or to claim by reference to the RBA.[46]
[46] Old Kiama Wharf v Deputy Commissioner of Taxation [2005] NSWSC 929; (2005) 60 ATR 267 [32].
In H'Var Steel Services v Deputy Commissioner of Taxation,[47] Wheeler JA, with whom Roberts-Smith and Pullin JJA agreed, said:[48]
[T]he RBA is designed as a way of facilitating the collection of a variety of different types of taxes which owe their existence to a variety of other pieces of tax legislation.
Partnerships
[47] H'Var Steel Services v Deputy Commissioner of Taxation [2005] WASCA 71; (2005) 59 ATR 5 [17].
[48] On the same basis, the Court held that the RBA is not a law imposing taxation: see H'Var Steel Services [18], [22] and [23].
Section 444-30 of Schedule 1 to the TAA provides:
(1)Obligations that are imposed under this Schedule or an indirect tax law on a partnership are imposed on each partner, but may be discharged by any of the partners.
(2)The partners are jointly and severally liable to pay any amount that is payable under this Schedule or an indirect tax law by the partnership.
'Obligations that are imposed under [Schedule 1 of the TAA]' include PAYG withholding liabilities.[49]
[49] See previous section.
'[I]ndirect tax law' includes GST.[50]
[50] Section 995-1 of the ITAA 97.
Section 444-30 overrides any other arrangement entered into between partners as it imposes liability directly on the individual partners.[51]
[51] Deputy Commissioner of Taxation v McGuire & Anor [2013] NSWSC 184; (2013) 275 FLR 153 [37], [41].
In addition, s 265-45(1) of Schedule 1 to the TAA provides that '[i]f 2 or more persons are jointly liable to pay an amount of a tax‑related liability, they are each liable for the whole of the amount'.
The evidence
Averments in the pleading
By s 350-20 of Schedule 1 to the TAA, an averment in a statement of claim as to a matter of fact, or mixed fact and law, is prima facie evidence of the fact. The section expressly provides that this does not affect the credibility or probative value of evidence given in support or rebuttal of the matter stated or averred.
The effect of the provision is that, in the absence of evidence to the contrary, the court may, but need not, be satisfied on the balance of probabilities as to the matters averred. Nevertheless, regardless of whether there is any evidence to the contrary, the court must still consider whether, on the whole of the evidence, the plaintiff has proved the matters averred on the balance of probabilities.[52]
[52] See, in relation to an analogous provision in the Excise Act 1901 (Cth), Chief Executive Officer of Customs v Labrador Liquor Wholesale Pty Ltd [2003] HCA 49; (2003) 216 CLR 161 [142] - [144] (Hayne J, with whom Gleeson CJ, McHugh J and, on this point, Gummow J agreed) and Chief Executive Officer of Customs v El Hajje [2005] HCA 35; (2005) 224 CLR 159 [26] - [40]. See also Waite v Hennah [2021] WASCA 69; (2021) 96 MVR 58 [87], a recent decision of the Court of Appeal in relation to a prima facie proof provision in the Road Traffic (Administration) Act 2008 (WA).
At the start of the Further Amended Statement of Claim (Statement of Claim),[53] the plaintiff states that she 'pleads her cause of action, and avers and states pursuant to s 255-50 of Schedule 1 of the [TAA], as follows'.
[53] Filed 31 August 2021, pursuant to leave.
Much of what is pleaded is not in dispute. The primary averment that is in dispute is in paragraph 2 of the Statement of Claim.
Paragraph 2 avers that:
The defendant was a partner of the "I JACOBS & K.B. O'DONOGHUE" trading as "ILIJA JACOBS KENNY O'DONOGHUE" or "MONSTAR SECURITY" partnership ABN 27497223852 ("the Partnership") from 4 October 2007 to 25 November 2013.
The defendant asserts that, because the plaintiff does not now contend that the partnership remained on foot up to 25 November 2013, none of paragraph 2 is effective as an averment. That is, the defendant contends that the paragraph cannot be broken down into the individual facts averred. Therefore, says the defendant, if one averred fact in paragraph 2 is wrong, the entire paragraph is of no probative value.[54]
[54] ts 281 - 282. The defendant withdrew a concession made earlier at ts 114. The further submissions filed by the defendant (with leave) on 22 October 2021 to support this contention did not support it.
I do not accept this. The plain words of s 350-20 of Schedule 1 to the TAA do not require it to be construed in that way. Such a construction would also be inconsistent with its purpose. Section 350‑20 is intended to facilitate proof of matters of fact.
That said, whether or not a partnership existed is a mixed question of law and fact. Section 350-20 is limited to providing evidence of matters of fact. I therefore consider that an averment in the Statement of Claim that there was a partnership is not prima facie proof that there was.
In my view, the averment in paragraph 2 of the Statement of Claim is prima facie evidence that:
1.there was an entity (in a sense broad enough to include a partnership or a single individual) which traded as 'ILIJA JACOBS KENNY O'DONOGHUE' or 'MONSTAR SECURITY';
2.the entity had the ABN number 27497223852; and
3.it traded from 4 October 2007 to 25 November 2013.
In these reasons, I will refer to the business being carried on by the entity as the 'Monstar business'.
The Statement of Claim further relevantly avers that:[55]
1.the partnership's ABN was active from 4 October 2007 to 23 April 2013;
2.the partnership was registered on the Australian Business Register for Goods and Services Tax from 4 October 2007 to 30 September 2013; and
3.the partnership, using the ABN, lodged via its tax agent, Ms Toy of Integral Consulting, its last Business Activity Statement (BAS) on 10 October 2013 for the quarter ending 30 September 2013. The due date for lodgement and payment of this BAS was 25 November 2013.
[55] Statement of Claim [2] particulars (b), (c) and (d).
In my view, these averments are prima facie evidence of these three things, once the word 'entity' is substituted for 'partnership'.
ABN documents
The ABN Register
The plaintiff tendered an extract from the ABN Register.[56] By s 27(1) of the A New Tax System (Australian Business Number) Act 1997 (Cth) (ABN Act), the ABN Register is admissible in proceedings as prima facie evidence of the matters registered in it.
[56] Exhibit 93.
Unlike s 350-20 of Schedule 1 to the TAA, this facilitative provision is not limited to matters of fact. Neither party suggested that it nevertheless should be construed as being so limited. It appears that, conceptually, an averment may be of a matter of law.[57]
[57] See Cross on Evidence (13th ed, 2021) [7105], citing Brady v Thornton [1947] HCA 29; (1947) 75 CLR 140, 146 (Starke J). Neither party contended otherwise – see ts 324-325.
The following matters are registered on the ABN Register:
1.'I JACOBS & K.B. O'DONOGHUE' was a partnership with the ABN 27497223852;
2.It was a partnership during the period 4 October 2007 to 23 April 2013;
3.The partnership was registered for GST from 4 October 2007 to 30 September 2013;
4.Its trading names were 'ILIJA JACOBS KENNY O'DONOGHUE' and 'MONSTAR SECURITY'; and
5.Mr Jacobs and the defendant were the 'associates' in relation to the partnership. (As I will explain in the next section, I am satisfied that 'associates' on the ABN Register were, in relation to partnerships, the partners of that partnership).
During the hearing, the defendant accepted that there was therefore prima facie evidence of these five matters.[58]
The ABN application form
[58] See ts 117.
The plaintiff tendered an ABN application form.[59]
[59] Exhibit 11.
It will be recalled that, by s 350-10(3A) of Schedule 1 to the TAA, a document provided to the Commissioner under a taxation law that purports to be made or signed by or on behalf of an entity is prima facie evidence that the document was made by the entity or with the authority of the entity. An application for an ABN registration is a document provided to the Commissioner under a taxation law. However, the defendant submits that the ABN registration application does not 'purport to be signed by or on behalf of' the partnership.[60]
[60] Defendant's Opening Submissions [23] and ts 133 - 134. During the hearing, the defendant acknowledged that his assumption that the relevant ''entity'' was Monstar was erroneous (as the ''entity'' was the alleged partnership) – ts 133.
The first question on the ABN registration application form was the 'type of entity'. Options included 'Family partnership', 'Other partnership', 'Limited partnership', various types of companies and various types of trusts. On the ABN registration application form, 'Other partnership' was selected. The entity's name was said to be 'Ilija Jacobs' and 'Kenny O'Donoghue'. Its trading name was said to be 'Monstar Security'.
The ABN registration application was signed by Mr Jacobs at the end of the form, in section M on the final page. Section M is titled 'Declaration'. It was completed in this way (phone number redacted):
I note that, in this section, Mr Jacobs referred to himself as a director. There is no sensible reason for this. The defendant suggests that it shows that Mr Jacobs did not know what he was trying to achieve.[61] I do not accept this. Having regard to the document as a whole, Mr Jacobs was plainly seeking to obtain an ABN for a partnership between himself and the defendant.
[61] ts 66.
The defendant further submitted that Mr Jacobs did not state that the document had been authorised by the alleged partnership, as he had not ticked the 'box' to the left of the signature under the words 'I declare that' which said 'I am authorised by the entity to complete this application on its behalf'.[62]
[62] ts 132 - 133.
I do not accept this. The matters listed to the left of the signature next to the small squares are plainly not options to be selected, but are each required to be declared. The document's instructions are set out in bullet points using squares of the same size. The last bullet point of the instructions shows a notably larger square to demonstrate where an applicant is required to tick.[63] Further, throughout the document, the larger squares are used to set out options to be selected and the smaller squares are used as bullet points.[64] In combination, it is much more likely that the small squares next to the signature panel should be, and will be, seen as bullet points rather than boxes to be ticked.
[63] Exhibit 11, page 345.
[64] See exhibit 11, pages 345, 348, 350 - 355.
In my view, having regard to the document as a whole, it purports to have been signed on behalf of the alleged partnership. Accordingly, I am satisfied that s 350-10(3A) of Schedule 1 to the TAA is engaged. It follows that there is prima facie evidence that the ABN registration application was made by the alleged partnership or with its authority.
The ABN registration application states that Mr Jacobs and the defendant are the partners of the partnership.[65]
[65] Exhibit 11, page 354.
I further note that the ABN registration application asks '[w]ho are the individuals associated with the entity?' Under the question, the form advises, among other things, that 'partnerships must provide all partners'.[66] In answer to that question, the defendant and Mr Jacobs are listed, and each is identified as a partner. I would infer from this that the 'associates' registered on the ABN Register are those who have been listed in this section of the application. The defendant agreed that this could be inferred.[67]
Taxation documents
The RBA statement and certificate
[66] Exhibit 11, page 354.
[67] ts 67 - 68.
By s 8AAZJ(1) of the TAA, an RBA statement is prima facie evidence that an RBA was duly kept, and that the amounts and particulars of the statement are correct.
Again, in the absence of evidence to the contrary, the Court may, but need not, be satisfied on the balance of probabilities as to those matters. Again, the Court must still consider whether, on the whole of the evidence, the plaintiff has proved the matters averred on the balance of probabilities.[68] That said, the defendant did not dispute the quantum of the alleged debt.[69]
[68] See the cases cited earlier in relation to the provision in the Excise Act which was analogous to s 350-20 of Schedule 1 to the TAA (in providing that averments in a claim were prima facie evidence of the matters averred).
[69] ts 82.
The plaintiff tendered an RBA statement showing an RBA deficit debt in the sum of $514,904.91 was owed by 'I Jacobs & KB O'Donoghue' as at the date of the statement.[70]
[70] Exhibit 97. See also the certificate in exhibit 96.
Accordingly, there is prima facie evidence of this.
Lodged documents
The partnership tax returns and BAS
The plaintiff tendered the six tax returns that had been lodged for the alleged partnership[71] and the 24 BAS submitted under the alleged partnership's ABN.[72] Each of these documents was provided to the Commissioner under a taxation law. Each purports to have been made on behalf of the alleged partnership. Accordingly, there is prima facie evidence that they were made by the alleged partnership or with its authority.[73]
[71] Exhibits 25 - 26, 38, 50, and 78 - 79.
[72] Exhibits 16 - 18, 28 - 31, 34 - 37, 51 - 58, 63 - 65 and 72 - 73.
[73] Section 350-10(3A) of Schedule 1 to the TAA.
The partnership tax returns include a section headed 'Statement of Distribution'. In each return, that section records who received a 'share of income [n]on-primary production' and in what amount.
The first four partnership tax returns recorded that the defendant and Mr Jacobs had received equal distributions (apart from a difference of $1 in the 2011 tax return, which was likely due to rounding).
1.The 2008 tax return records that both the defendant and Mr Jacobs received $26,735. It was filed on 9 July 2010.[74]
2.The 2009 tax return records that both the defendant and Mr Jacobs received $62,981. It was filed on 30 June 2010.[75]
3.The 2010 tax return records that both the defendant and Mr Jacobs received $39,932. It was filed on 16 June 2011.[76]
4.The 2011 tax return records that the defendant received $36,879 and Mr Jacobs received $36,878. It was filed on 24 March 2013.[77]
[74] Exhibit 26.
[75] Exhibit 25.
[76] Exhibit 38 pages 592 - 593.
[77] Exhibit 50 pages 740 - 741.
In the 2012 and 2013 partnership tax returns, only Mr Jacobs was recorded as receiving a distribution. Both of these were filed on 17 December 2014.[78]
[78] Exhibit 78 page 830 and exhibit 79 page 837.
The 2008, 2009 and 2010 tax returns recorded a Ms Warham as the tax agent. It was suggested that she worked for H&R Block in Darwin.[79] The 2011, 2012 and 2013 returns recorded Ms Toy as the tax agent.
[79] ts 55. There was no direct evidence of this, but it was said to be the plaintiff's understanding and the defendant did not say otherwise. It is consistent with Ms Toy's email of November 2019.
Mr Jacobs was recorded as the contact person in the 2008, 2011, 2012 and 2013 partnership tax returns, while Mr O'Donoghue was named as the contact in the 2009 and 2010 returns.
The BAS documents showed that there were periods in which PAYG tax was withheld and periods when it was not. The plaintiff makes two submissions about this.
First, the plaintiff notes that the withholding of PAYG tax shows that the business paid people as employees. The plaintiff points out that the people paid as employees did not include the defendant, because other records show that the defendant was not paid as an employee.[80]
[80] ts 255 - 256. The other records that show this are discussed in the next section.
Second, the plaintiff submits that it should be inferred that, during the periods in which no PAYG tax is recorded as having been withheld, either no one was doing paid work or the only people doing paid work were one or both of the alleged partners.[81] I agree that this inference should be drawn.
The defendant's personal tax returns and payment summaries
[81] ts 77.
The plaintiff tendered six of the defendant's personal tax returns, for the years ending 30 June 2008, 2009, 2010, 2011, 2012 and 2013.[82] Each document was provided to the Commissioner under a taxation law. Each purports to have been made on behalf of the defendant. Accordingly, there is prima facie evidence that they were made by the defendant or with his authority.[83]
[82] Exhibits 19, 24, 39, 49, 46 and 68.
[83] Section 350-10(3A) of Schedule 1 to the TAA.
The first four declared the amounts that were recorded in the partnership tax returns as distributions to the defendant. The amounts were declared in the section titled 'Supplement Income' as being 'Non PP Distribution from partnerships, less foreign income'.
The 2008 personal tax return
The 2008 tax return was filed on 23 February 2009, 17 months before the 2008 partnership tax return was filed.[84]
[84] See exhibits 19 and 26.
The 2008 tax return does not record the name of any tax agent.[85] The plaintiff submitted that, from this, it could be inferred that the defendant filed this tax return without the assistance of an agent.[86] The defendant did not address this in his evidence or in submissions.
[85] Exhibit 19 page 394.
[86] ts 57 - 58.
Neither party mentioned the fact that the tax return recorded an entry of $150 for the item 'Cost of managing your tax affairs'.[87] As I will later explain, after reserving my decision, it was necessary to list a further hearing date to give the parties the opportunity to be heard on a construction issue. Given that, I also gave the parties an opportunity to be heard on this $150 entry at the further hearing date.
[87] Exhibit 19 page 391.
It was common ground between the parties that the $150 entry did not prove that the defendant had used a tax agent. The defendant did not dispute that the money could have been paid to a bookkeeper for assistance or for an accounting program.[88] The defendant submitted, however, that the latter was unlikely as he was not the sort of person who would use sophisticated accounting software.[89] I accept this.
[88] See ts 343 (read with ts 326).
[89] ts 343.
The defendant accepted that the fact that the tax return did not record the name of an agent tended to support a conclusion that it was not filed by a tax agent. He submitted, however, that it was not conclusive of that.[90] I accept this too.
[90] ts 343.
The defendant submitted that I should not infer that the return was not filed by an agent, making assertions as to evidence he had given. However, when pressed, the defendant was unable to identify such evidence.[91]
[91] ts 344 - 345.
I note that the defendant did not give evidence that he had never filed his own taxes. He did not give evidence that he had always used a tax agent.
Further, as will be seen, the defendant's personal tax returns for subsequent years recorded that they were filed by tax agents. His 2009 and 2010 personal tax returns recorded Ms Warham as the tax agent. The later personal tax returns recorded Ms Toy as the tax agent. As will be seen, in his evidence, the defendant was not asked any questions about how his personal tax returns were filed prior to Ms Toy taking over as his tax agent. He was asked if he recognised Ms Warham's name, and he said he did not.[92] However, if, as was suggested, Ms Warham worked in a large tax accountant service, it is entirely possible that he would not know the name of the person doing his tax return.
[92] ts 174.
Having regard to all of the evidence, I consider it is likely that the defendant filed the 2008 tax return without the assistance of a tax agent. He may well have been assisted by a bookkeeper who was not a registered tax agent.
Further, even if he was assisted by a tax agent, I consider that it is unlikely that it was Ms Warham. First, it was filed 16 months before Ms Warham is recorded as the tax agent in any document filed on behalf of the defendant or the alleged partnership.[93] Second, Ms Warham consistently recorded herself as the agent in each of the other tax returns filed by an agent other than Ms Toy for the alleged partnership and for the defendant.
[93] The first document filed on behalf of the defendant to record her as the tax agent was his 2009 return, filed on 30 June 2010. The first filed on behalf of the alleged partnership was the 2008 partnership tax return, filed on 9 July 2010.
The defendant's 2008 personal tax return declared income from entities unrelated to the Monstar business and to Mr Jacobs. I invited the parties to comment on whether this supported an inference that information in that return came from the defendant and not from Mr Jacobs or a tax agent acting for the Monstar business.
The defendant submitted that I should not draw that inference. The defendant identified possible alternative sources of the information. These were, however, unsupported by the evidence.[94] In particular, the defendant's 2008 personal tax return was filed 17 months before Ms Warham filed the 2008 partnership return.[95]
[94] See ts 345 - 346.
[95] The first document filed on behalf of the defendant to record Ms Warham as the tax agent was his 2009 return, filed on 30 June 2010. The first filed on behalf of the alleged partnership was the 2008 partnership tax return, filed on 9 July 2010.
There is no evidence that anyone other than the defendant was aware of his income from entities unrelated to the Monstar business. In particular, there is no evidence that Mr Jacobs was aware of it. Further, while a tax agent may be able to access information from the tax office, it is unlikely that the defendant's 2008 personal tax return was filed by an agent (and less likely still that it was Ms Warham).
For these reasons, I consider it likely that the defendant provided the information in at least his 2008 return. Significantly, in addition to declaring the income from entities unrelated to the Monstar business, the 2008 return declared the receipt of $26,735 in distributions.
Subsequent tax returns
The defendant's 2009 and 2010 tax returns record Ms Warham as the tax agent.[96] The 2009 return was filed on 30 June 2010, the same day as the 2009 partnership return was filed. The 2010 return was filed on 20 June 2011, five days after the 2010 partnership return was filed.
[96] Exhibit 24 page 419, exhibit 39 page 604.
The defendant's personal tax returns for subsequent years recorded Ms Toy as the tax agent.
The 2011 tax return was filed on 24 March 2013, the same day as the 2011 partnership return was filed.[97]
[97] Exhibit 49 page 722.
The 2012 tax return was filed on 18 March 2013, almost two years before the partnership tax return was filed.[98]
[98] Exhibit 46.
The 2013 tax return was filed on 12 July 2013, about 18 months before the partnership tax return was filed.[99]
[99] Exhibit 68.
The defendant accepts that his personal tax returns were made with his authority.[100] The defendant accepts that it would ordinarily be inferred that he authorised the contents of his personal returns and, therefore, that the statements made in the returns should be attributable to him.[101] However, the defendant submits that he was not aware of the contents of the personal returns and did not authorise the tax agent to make the specific statements as to partnership income.[102] I accept that the defendant probably did not immerse himself in the detail of his tax returns. However, as will be seen, his evidence was that he discussed his tax returns with his tax agent Ms Toy, that she sent them to him for his approval, and that he authorised her to lodge them.
[100] Defendant's Opening Submissions [31].
[101] Defendant's Opening Submissions [32].
[102] See the Defendant's Closing Submissions filed 20 September 2021 (Defendant's Closing Submissions) [23] - [24] and ts 283.
The plaintiff also notes that the defendant's personal return for 2008 was filed 17 months before the 2008 partnership return was filed.[103]
[103] ts 236. See exhibits 19 and 26.
In my view, the defendant's personal tax returns should be treated as admissions by the defendant of two things. First, that he received the distributions of partnership income recorded in his personal tax returns.[104] Second, that he did not believe that he was an employee in those periods in which he did not disclose employment income.[105]
[104] And see Broadway Plaza Investments Pty Ltd v Broadway Plaza Pty Ltd Combined Projects (Arncliffe) Pty Ltd [2020] NSWSC 1778 [1813].
[105] ts 257.
The plaintiff also tendered, by consent, a schedule summarising the information in the payment summaries that had been given to Mr O'Donoghue in the relevant years.[106] According to the payment summaries, the defendant:
1.earned income as an employee of various entities from 2003 to 19 November 2007; and
2.from and after 7 March 2011, again earned income as an employee of various entities, in each financial year to date.
[106] Exhibit 98. The defendant conceded he had not received any payment summaries that were not shown on the schedule - see ts 124.
None of the entities from which he received a payment summary were connected to the alleged partnership's business.
The defendant did not receive a payment summary in relation to any income received in the period from 20 November 2007 to 6 March 2011.
The defendant accepts that it may be inferred from this evidence that he was not an employee in the period from 20 November 2007 to 6 March 2011.[107]
Documents from the tax agent
[107] ts 124.
It was common ground that Ms Toy acted as the tax agent for the entity carrying on the Monstar business from December 2012. The defendant did not admit that she had acted as his agent from that date.[108] The documentary evidence indicates that she was acting as his agent by at least March 2013.
[108] See the defendant's Reply to the Plaintiff's Chronology of Relevant Events filed 20 August 2021 (Reply to the Plaintiff's Chronology) [10].
In her capacity as an agent, Ms Toy lodged the alleged partnership's 2011, 2012 and 2013 tax returns and Mr O'Donoghue's personal tax returns for the same years.
The parties tendered, by consent, file notes and statements made by Ms Toy.[109]
[109] In an affidavit filed 11 August 2021, Clarissa Yu Jia Quek explained the efforts that had been made to obtain further answers from Ms Toy, and said that Ms Toy had ceased to respond.
In a file note dated 1 March 2013 (2013 File Note), Ms Toy wrote:[110]
Spoke to both Ilija [Mr Jacobs] and Kenny [Mr O'Donoghue] today, they both agreed that Kenny wasn't involved with the partnership after 31 December 2010, therefore only half of the 2011 financial year. I will do tax returns on this basis.
[110] Exhibit 44.
On 19 March 2013, Ms Toy sent a letter to the defendant, after she had prepared his 2011 tax return and the alleged partnership's 2011 tax return.[111] In the letter, Ms Toy told Mr O'Donoghue that she was enclosing copies of those two returns, as well as financial statements for the partnership for that same financial year. She then wrote:
Would you please examine the Income Tax Returns thoroughly and if you agree with the information disclosed, sign both copies where indicated. Please retain the client copies in a safe place for a period of five years.
Please forward the office copies to us as soon as possible for lodgement. …
We estimate your tax payable to be $3,556.65. There is no tax payable for the partnership.
[111] Exhibits 48 and 90. And see ts 87 - 91.
The same day, Ms Toy sent the defendant a letter enclosing copies of BAS statements for the alleged partnership. She wrote (original emphasis):[112]
We enclose two copies of your Business Activity Statements for the period 1 July 2010 to 31 December 2010.
Would you please examine the Business Activity Statements thoroughly and if you agree with the information disclosed, sign each copies where indicated. Please retain the client copies in a safe place.
Please forward the office copies to us as soon as possible for electronic lodgement. …
Please forward payment in the amount of $50,720 to the Australian Taxation Office as soon as possible.
[112] Exhibit 47.
In November 2019, Ms Toy engaged in an email exchange with the defendant's solicitors (2019 Email).[113] In the email, Ms Toy set out the questions she had been asked, and relevantly answered them as follows (emphasis added):
[113] Exhibit 90.
4.Were you aware of the business being carried on by the 'partnership'; I took over the role of Tax Agent in December 2012. I dealt with [Mr Jacobs] for any enquiries into running of the business.
5.Did you ever have any discussions with either [Mr Jacobs] or [the defendant] concerning the business activities of the 'partnership'; I did not speak to [the defendant] much in the early stages, I dealt with [Mr Jacobs].
…
7.Did [the defendant] ever give you any instructions in the capacity as a partner of the 'partnership' where he clearly indicated he was giving you a 'partnership' instruction. No, [Mr Jacobs] seemed to run the business and give me instructions as required.
[The defendant's] tax refunds applied to partnership tax debt
2014$7,876.71
2015 $3,729.51
2016 $11.65
2017$4,257.04
2018$2,456.64
Total$18,331.55
I have put together a timeline of events from what I can see on file:
DateDescription
20/12/12Took over role of tax Agent from H&R Block.
24/03/13Lodged 2011 tax return for partnership.
12/01/14Cancelled GST and PAYG Withholding registration for the partnership
17/02/14Lodged 2012 and 2013 tax returns for partnership (2013 was the last return lodged as the partnership did not operate after April 2013).
Note that the attached letter was issued to [the defendant] when I lodged his 2011 tax return. He received a copy of the partnership financial statement and tax return. He signed the personal and partnership return and sent it back to me.
For the 2012 and 2013 years, the partnership did make a profit but the profit was not split as per 2011 - [Mr Jacobs] declared 100% of the profit in his return.
It appears[114] that the 'attached letter' to which Ms Toy referred in the second last paragraph of the extract above was the letter dated 19 March 2013 that she sent to the defendant enclosing copies of his 2011 personal tax return and the 2011 partnership tax return, asking him to sign them and send them back to her.
[114] This appears to follow from the contents. See also ts 87 - 88. The defendant did not seek to dispute this.
On 15 February 2020, after receiving a subpoena, Ms Toy wrote to the District Court[115] outlining her involvement with the alleged partnership.[116] She wrote:[117]
After dealing with [Mr Jacobs] for a few months after taking over the role as Tax Agent/Accountant [in December 2012] it became evident that '[the defendant] was not involved in the partnership and we therefore advised [Mr Jacobs] that he can no longer operate the partnership bank account and he cannot continue to run the business using the partnership ABN and structure[.]
[115] The proceedings were originally commenced in the District Court.
[116] Exhibit 91.
[117] Exhibit 91 page 919.
During the hearing, I queried with the parties the admissibility and probative force of Ms Toy's statements about the defendant's involvement, or lack thereof. The parties confirmed that neither party sought that Ms Toy be called as a witness, so the documents were admissible under s 79C of the Evidence Act 1906 (WA).[118]
[118] See ts 93 - 94.
Section 79C relevantly provides:
79C. Documentary evidence, admissibility of
(1)Subject to subsection (2), in any proceedings where direct oral evidence of a fact or opinion would be admissible, any statement in a document and tending to establish the fact or opinion shall, on production of the document, be admissible as evidence of that fact or opinion if the statement -
(a) was made by a qualified person; ...
(2)Where a statement referred to in subsection (1) is made by a qualified person …, that person must be called as a witness unless -
…
(e)no party to the proceedings who would have the right to cross‑examine him requires him to be called as a witness; …
…
(3)This section makes a statement admissible notwithstanding -
(a) the rules against hearsay; or
…
(d)that the statement is in such a form that it would not be admissible if given as oral evidence,
but does not make admissible a statement which is otherwise inadmissible.
…
(5)For the purposes of this section a court may -
(a)for the purpose of deciding whether or not a statement is admissible as evidence, draw any reasonable inference from the form of contents of the document in which the statement is contained, or from any other circumstances;
…
(6)For the purposes of this section a court may, in its discretion, reject a statement notwithstanding that the requirements of this section are satisfied with respect thereto, if the court is of the opinion that the probative value of the statement is outweighed by the consideration that its admission or the determination of its admissibility -
(a) may necessitate undue consumption of time; or
(b)may create undue prejudice, confuse the issues, or in proceedings with a jury mislead the jury.
The parties accepted that the evidence from Ms Toy's documents went no higher than reflecting what Ms Toy had observed from the time she took over in late 2012.[119] In short, she dealt primarily with Mr Jacobs. From her observations, the only involvement of the defendant in the alleged partnership was that he signed the 2011 partnership return (along with his personal tax return for 2011) and sent it back to her.
[119] ts 93 - 94. See also ts 259 and 283 - 284.
I also queried with the defendant the admissibility and probative force of Ms Toy's 2013 File Note. It will be recalled that the defendant contended that, if I found there to have been a partnership, it was abandoned by mutual agreement by December 2010.[120] The only evidence in support of this alleged agreement was the 2013 File Note in which she had recorded that the defendant and Mr Jacobs 'agreed that Kenny [O'Donoghue] wasn't involved with the partnership after 31 December 2010'.[121]
[120] Defendant's Opening Submissions [53] - [54].
[121] Exhibit 44.
I will assume that parties can, by consent, tender into evidence material that would otherwise be inadmissible.[122] However, the weight of the evidence is another matter. In my view, Ms Toy's statement that, in 2013, the defendant and Mr Jacobs told her that they 'agreed' that the defendant was not involved in the partnership after 31 December 2010 is of no probative value. During the hearing, counsel for the defendant conceded this.[123]
[122] As to which, see Cross on Evidence (13th ed, 2021) [1650] - [1665], [1680] and Dogan v R [2020] NSWCCA 151 [97] - [99].
[123] ts 286.
Later, I discuss Mr O'Donoghue's evidence. As will be seen, Mr O'Donoghue said he had never authorised anybody to lodge a partnership tax return.[124] This evidence was inconsistent with Ms Toy's 2019 Email, in which Ms Toy wrote that Mr O'Donoghue had signed the 2011 personal and partnership returns and sent them back to her.[125] As will be seen in the discussion of Mr O'Donoghue's evidence, Mr O'Donoghue was asked about the letter from Ms Toy which enclosed those tax returns, but was not asked if he had sent them back to her and was not asked about her statement that he had. In submissions, neither party averted to Ms Toy's statement that he had signed them and sent them back. Accordingly, this was another matter on which I gave the parties an opportunity to be heard at the further hearing date.
[124] See under the heading 'The testamentary evidence of Mr O'Donoghue'.
[125] Exhibit 90.
On the further hearing date, the plaintiff submitted that this evidence supported Mr O'Donoghue's own evidence that he had authorised Ms Toy to file tax returns on his behalf.[126] Mr O'Donoghue's evidence as to this was, however, in relation to his own personal tax returns.[127] The defendant submitted that the evidence was of little weight. His ultimate submission was that, while the evidence showed this was Ms Toy's belief, it is highly unlikely she could have actually remembered that at the time that she recorded that belief.[128]
[126] ts 327 - 328.
[127] See ts 195.
[128] ts 346-348.
In my view, the evidence is of some weight, and does support the plaintiff's case. The letter Ms Toy sent to the defendant enclosing the two 2011 tax returns was in evidence. It was dated 19 March 2013. The evidence shows that both the 2011 partnership return and Mr O'Donoghue's 2011 personal tax return were filed on 24 March 2013. That both returns were filed five days after Ms Toy asked Mr O'Donoghue to sign and send back both returns supports Ms Toy's recollection. I accept that she may be mistaken about the manner in which he approved the returns (as it is possible he simply texted his approval). However, I consider that the date on which they were filed supports her recollection that he approved them.
Documents said to be relevant to dissolution
The plaintiff tendered in evidence a number of documents which were ultimately relied upon only on the basis that, if I found there to have been a partnership, the documents were relevant to whether it had been dissolved. I will discuss these when dealing with the defendant's submission that, if there was a partnership, it was dissolved.[129]
The bank account authority cards and other bank records
[129] See the subheading 'January 2012 (when the defendant went to Alice Springs)' under the heading 'Issue 2: Was the partnership dissolved?'
The plaintiff adduced two bank account authority cards for Monstar Security.[130] Each listed the defendant and Mr Jacobs as the 'Authorising Parties/Signatories'. The first was signed by Mr Jacobs and a bank officer on 15 August 2007 and by the defendant on 7 September 2007. The second was signed by Mr Jacobs, the defendant, and a bank officer on 27 November 2007.
[130] Exhibits 10 and 13.
The defendant gave evidence about the first, saying he did not understand what he was signing. He did not remember signing the second.[131]
[131] ts 163. This is discussed in more detail under the heading 'The testamentary evidence of Mr O'Donoghue'.
The defendant points to the bank statements which show that Mr Jacobs made almost daily cash withdrawals from Monstar's account from 2012. Many of the withdrawals were for expenses that seem far more likely to have been personal expenses.[132] The defendant submits this shows that Mr Jacobs treated the account as his own, and the account was not a joint account for the use of the alleged partnership. The plaintiff submits that the withdrawals may have been Mr Jacobs' drawings.[133]
[132] Exhibit 9. The withdrawals included payments to supermarkets and the casino.
[133] ts 256.
There are three possibilities. First, the account was Mr Jacobs' own personal bank account. Second, the account was the account for the alleged partnership, but Mr Jacobs used it as if it was his own account in breach of his fiduciary duties. Third, the account was the account for the alleged partnership, and Mr Jacobs' withdrawals represented his drawings. Given the objective evidence (in particular the authority cards), I would infer that the bank account was the account of the alleged partnership. Given the frequency and nature of the withdrawals made by Mr Jacobs, I would infer that he was using funds from the account to pay personal expenses. I would not lightly infer that he was doing this in breach of his fiduciary duties, and not by way of drawing on his share of the profits. It is, however, unnecessary to choose between the second and third possibilities.
The defendant also points out that the defendant's personal bank account statements show that no payments were made directly from the Monstar accounts to the defendant's account. He submits this shows he did not share the net profits with Mr Jacobs.[134] I do not accept this. The defendant's own evidence was that he was paid by cash.[135]
Bank statements
[134] Defendant's Opening Submissions [39].
[135] ts 168.
The bank statements of Monstar Security's account[136] and the defendant's personal accounts[137] were tendered in evidence.
[136] Exhibit 9.
[137] Exhibits 8 and 27.
The defendant's submissions annexed schedules showing a general correlation between money being withdrawn from Monstar's account and cash deposits into the defendant's account. The schedules did not go beyond November 2010.[138]
[138] See the schedules to the Defendant's Closing Submissions.
In their submissions, neither party mentioned any entries in Monstar's bank statements beyond November 2010, with one exception. The exception was the defendant's reference to a withdrawal of $2,992 on 7 January 2011 with the description 'Kenneth O'Donoghue'.[139]
[139] See the Defendant's Opening Submissions [55].
The defendant produced an aide memoire summarising deposits into his bank accounts.[140] However, these appeared to include deposits of wages from companies unrelated to the Monstar business.[141]
The Facebook messages
[140] Titled 'Deputy Commissioner for Taxation v O'Donoghue (CIV 1606 of 2020) - Defendant's aide‑memoire #1'.
[141] See, for example, the entries in August 2011 in exhibit 27 page 487 (3 August 2011), page 488 (17 August 2011), page 489 (31 August 2011).
In 2014, the defendant and Mr Jacobs exchanged a series of Facebook messages. What appeared to be screenshots of these messages had been reproduced in the trial bundle of documents. In evidence-in-chief, the defendant confirmed that he sent the messages in the blue boxes and Mr Jacobs sent those in the white boxes. He was not asked anything more about them in evidence-in-chief.[142]
[142] ts 181.
In cross-examination, the defendant was asked when he had last spoken to Mr Jacobs. He said this was when they had exchanged the [Facebook] messages.[143]
[143] ts 202.
The defendant initially sought to tender the entire series. The plaintiff consented to the first page of messages going into evidence, but objected to the balance on the grounds of relevance. The plaintiff said it was not in dispute that the defendant had asked Mr Jacobs 'to fix things up'.[144] The defendant agreed they were of limited relevance, and decided not to tender any of the messages. The plaintiff then pressed for the first page to be tendered, submitting that it showed, according to the defendant's answer in cross examination, the date on which the defendant had last spoken to Mr Jacobs. The defendant did not object to this and did not then seek to tender the balance.[145]
[144] ts 212 - 214.
[145] ts 213 - 214.
The date of the message that was tendered was 28 August 2014. In it, the defendant wrote:[146]
Bud the last ring I wanted was 2 send u a message like this the ATO have taken 7.5k out of my tax I'm not asking u anymore I'm telling u if u do not tell the ATO that I em no longer apart of monstar and that we have agreed on you taking full owner ship of the company and it's debts I'll take legal action against u which will cost u shit loads u have a choice here do the right thing or u will no what it's like 2 fork out shit loads of money on legal fees which him sure u don't have Id appreciate it if u contacted me 2 talk about the current situation before it leads 2 legal action [mobile phone number redacted]
[146] Exhibit 74.
This message appeared to record an admission by the defendant that he had previously been in business with Mr Jacobs (but was no longer). Nevertheless, the plaintiff did not refer to the message in submissions.
The licensing evidence
The evidence showed that, apart from a one-month period, Mr O'Donoghue had a personal security licence at all relevant times. He was unlicensed between 11 February 2009 and 10 March 2009. During this period, he did not deposit any cash into his bank account.[147]
[147] Exhibit 8 pages 108 - 111.
The evidence also showed that the alleged partnership, operating as Monstar Security, had a security firm licence. It appears that Mr Jacobs had obtained a licence for security work on 31 July 2007, but the licence was 'changed to partnership on 7/09/07 to add Kenneth O'Donoghue'.[148] The alleged partnership was licensed from 7 September 2007 to 2013, apart from a period in 2009. The period in which the alleged partnership was unlicensed was from 1 August 2009 to 5 October 2009. During this period, the business continued to receive large deposits of cash into its bank account.[149]
The testamentary evidence of Mr O'Donoghue
[148] Exhibit 95, cited by the defendant in his Reply to the Plaintiff's Chronology [19(d)]. See also exhibit 22.
[149] Exhibit 9 pages 246 - 250.
Mr O'Donoghue, now 40 years old, is from a small community northwest of Alice Springs. He said that he had limited schooling and that he left school when he was 15.
Mr O'Donoghue gave evidence as to his limited literacy. I formed the impression that he was keen to emphasise his limitations. I will say more about this later.
Reading the words of those definitions into s 13(1)(a),[282] it relevantly becomes that 'a person shall not carry out the functions of a security firm unless the person holds a security firm licence'.
[282] See under the heading 'Statutory construction'.
A 'security firm' is defined to mean a person who, or partnership that, engages in the business of supplying, for reward, the services of crowd controllers or security officers. The 'functions' of a security firm are therefore to supply, for reward, the services of crowd controllers or security officers.
When this definition is added, s 13(1)(a) relevantly becomes that 'a person shall not engage in the business of supplying, for reward, the services of crowd controllers or security officers unless the person holds a security firm licence.'[283]
[283] An alternative construction would be that 'a person shall not supply, for reward, the services of crowd controllers or security officers unless the person holds a security firm licence', but neither party contended that choosing this construction would make a difference to the issue.
Similarly, s 13(1)(b) relevantly becomes that 'a person shall not advertise, or in any way hold out, that the person engages, or is willing to engage, in the business of supplying, for reward, the services of crowd controllers or security officers unless the person holds a security firm licence'.[284]
[284] Again, an alternative construction would be that 'a person shall not advertise, or in any way hold out, that the person supplies, or is willing to supply, for reward, the services of crowd controllers or security officers unless the person holds a security firm licence'. Again, neither party contended it would make a difference to the issue.
I accept that, as the plaintiff points out, s 13 does not expressly state that 'person' includes a partner in a partnership. I accept that the Private Security Act more broadly does not expressly provide that individual partners hold security firm licences, or that individual partners are liable. Nevertheless, I consider that the words are broad enough to permit a construction in which 'person' includes a partner in a partnership operating a security firm.
I next turn to consider the legislative intent.
The legislative intent
There are a number of reasons why I consider that the legislature intended to require, by s 13, that a security business be licensed regardless of whether it was carried on by a person, partnership or a corporation.
First, if a security firm operated by a partnership did not require a licence, the partnership would still be entitled to obtain a licence, by s 17. The plaintiff was unable to identify any reason why partners would go to the trouble and expense of obtaining a licence for their business if they did not need to.[285] Perhaps the partners might consider it useful for promotional purposes, but it is difficult to identify any tangible benefit. The words in s 17 which permit a partnership to obtain a licence would have little or no practical operation if s 13 is construed such that a security firm operated by a partnership does not require a licence.
[285] See ts 239.
Second, it is unlikely that the legislature intended to exclude businesses being operated by partners from the requirement to be licensed. Why would the legislature permit two people acting in partnership to do something that an individual or company could not?
Third, if 'person' in s 13 did not include a partner or a partnership, this construction would mean that other offence-creating provisions of the Act[286] would not, by parity of reasoning, apply to security firms operated by partnerships. Again, this seems unlikely to have been intended.
Conclusion
[286] See, for example, s 19(3), s 21(3) and s 22.
In my view, 'person' in s 13 can include a partner for the following reasons.
The Private Security Act permits a partnership to apply for a security firm licence, as distinct from the partners themselves.[287] However, a partnership is not a separate legal entity. For this reason, I consider that, despite the fact that the partnership is said to be the applicant (and presumably the licensee), each (and all) of the partners can be described as holding the security firm licence.
[287] See s 17 and, in particular, s 17(5).
If that is right, s 13 applies to partners. A partnership is the relation between persons carrying on a business in common with a view of profit. Where a security firm business is being operated in a partnership, each partner would be a person who 'engages in the business of supplying, for reward, the services of crowd controllers or security officers'.[288] Unless the partner held a security firm licence, he or she would be in breach of s 13.
[288] See the definition of 'security firms' in s 7. The same result follows if the alternative construction is adopted - each partner would be a person who 'supplies, for reward, the services of crowd controllers or security officers'.
The only arguable anomaly arising from this construction is that each partner would be liable to the penalty applicable to an individual. Therefore, the total liability in relation to an unlicensed security firm would be different to the liability of a company operating an unlicensed security firm, unless there were exactly five partners. Further, if an individual natural person not operating a partnership can hold a security firm licence (as to which it is unnecessary to express a view), the total liability of partners operating an unlicensed security firm would be greater than the liability of the individual. However, I do not consider this to be a sufficient reason to reject this construction in view of the obvious legislative intent that security firms must be licensed.
In my view, although s 13 is a penal provision, this construction does not require s 13 to be read more broadly than its words permit. Further, this construction is supported by the context of the Act and its purpose. For these reasons, I would construe s 13 as applying to partners.
Does 'person' in s 13 include a partnership?
This conclusion makes it unnecessary to consider whether 'person' in s 13 includes a partnership. Nevertheless, I will briefly deal with it.
Generally, a definition that is framed inclusively expands the meaning beyond its ordinary meaning, so as to add the meanings identified to the ordinary meaning. However, if it appears from the context that Parliament intended to confine the ordinary meaning of the word to the meaning conveyed in the definition, it will be taken to be exhaustive.[289]
[289] Epic Energy (Pilbara Pipeline) Pty Ltd v Commissioner of State Revenue [2011] WASCA 228; (2011) 43 WAR 186 [139] - [141]. See also Council of the New South Wales Bar Association v EFA (a pseudonym) [2021] NSWCA 339 [115].
It will be recalled that s 17 of the Interpretation Act defines 'person' as including 'a body politic and a body corporate'. In the further hearing, the plaintiff submitted that, by s 17 of the Interpretation Act, 'person' included its ordinary meaning, plus 'a body politic and a body corporate'.[290] The plaintiff also pointed out that the Private Security Act uses the phrase ' a person who, or partnership that'.[291]
[290] ts 316.
[291] See s 7.
I accept the plaintiff's submission that 'person' in s 13 does not include a partnership.
First, the definition in s 17 of the Interpretation Act defines 'person' as including 'a body politic and a body corporate as well as an individual'. The definition does not mention a partnership.
Second, s 13 distinguishes between a 'natural person' and a 'body corporate' in setting the maximum penalty. If the section was intended to apply to partnerships, one would have expected the section to expressly provide a maximum penalty for a partnership (with provision for the partners' liability for that penalty) or for the partners of a partnership as individuals.
Third, s 13 is a penal provision. I do not consider that the plain words of s 13 permit a construction that would extend 'person' to partnerships.
Before leaving this point, I will explain why I do not accept the defendant's submissions on this issue.
The defendant submitted that s 13 did not impose a penalty on partnerships as it was not possible to impose a penalty on a partnership.[292] This submission was not developed and is incorrect.[293] In any event, it would have been a simple matter to express s 13 in such a way as to make it plain that it would be unlawful for a partnership to carry out the functions of a security provider without a licence. The Act could have provided that, where a partnership carries out the functions of a security provider without a security firm licence, an offence is taken to have been committed by each of the partners (with provision for defences thought appropriate[294]).
Conclusion
[292] ts 281.
[293] See Lindley & Banks on Partnership (20th ed, 2017) [14-02].
[294] See, for example, s 94V of the Income Tax Assessment Act 1936 (Cth) and s 98A of the Privacy Act 1988 (Cth). For a slightly different approach, see s 761F(1) of the Corporations Act 2001 (Cth).
Having regard to the plain words of s 13 and its context (including that it is a penal provision) and purpose, I consider that 'person' in s 13 can include a partner, and that it is unlawful for a partner to operate a security business without a security firm licence.
The Monstar business was unlicensed between 1 August 2009 and 5 October 2009. During this period, the business continued to receive large deposits of cash into its bank account.[295]
[295] Exhibit 9 pages 246 - 250.
The plaintiff submitted that this evidence was insufficient to support an inference that the business was providing security services during the unlicensed period. The plaintiff noted that most of the payments appeared to be from Batchelor Institute, that there was no regularity in the payments, and there was no evidence of the business's terms of trade.[296]
[296] ts 311 - 312.
The plaintiff properly conceded, however, that it may not have been within Mr O'Donoghue's power to produce evidence on this issue.[297]
[297] ts 315.
Although the evidence is limited, I would infer, from the bank records, that the business continued to provide services throughout the period in which it was unlicensed. Accordingly, when Monstar's licence ceased to hold a valid licence on 1 August 2009, the partnership dissolved.
The plaintiff submitted that, if the partnership dissolved on 1 August 2009 when the business became unlicensed, a new partnership arose on the same terms when the licence was renewed. The plaintiff said that this was to be inferred by the conduct of the parties. This conduct included the filing of the tax returns, the maintenance of the ABN, and the provision of services.[298]
[298] ts 324.
The defendant submitted that the plaintiff did not plead this by way of reply. The defendant did not dispute, however, that the plaintiff had run her case on this basis and did not contend he was unable to deal with the point.[299] Ultimately, the defendant's submission was that this point had not been pleaded.[300]
[299] ts 332 (read with ts 323).
[300] See ts 332 - 334 and ts 352.
I would not reject the plaintiff's submission simply because it was not pleaded in reply.[301] It would obviously have been better if it had been. However, the defendant was not taken by surprise and suffered no prejudice due to the failure to plead it. The defendant conceded it was not something on which any evidence could have been adduced.[302] In addition, it was not the plaintiff's primary case. It would arise only if I was to find against her on both the construction issue and as to whether the business was providing security services during the period in which it was unlicensed.
[301] See Commissioner of Taxation v Normandy Finance and Investments Asia Pty Ltd [2016] FCAFC 180 [143] (Jagot and Davies JJ).
[302] ts 356 - 357.
I am satisfied that a new partnership arose on the same terms when the licence was renewed. There was no evidence of any change in the way in which the business was conducted. On the contrary, the evidence showed that the partnership continued to file tax returns, the partners continued to declare distributions in their tax returns, the ABN was maintained, and the business continued to provide security services.
December 2010 (conversation in 2013)
The defendant next submitted that the partnership between himself and Mr Jacobs was mutually abandoned by agreement in December 2010.
This submission was based on Ms Toy's file note dated 1 March 2013[303] which said:[304]
Spoke to both [Mr Jacobs] and [the defendant] today, they both agreed that [the defendant] wasn't involved with the partnership after 31 December 2010, therefore only half of the 2011 financial year. I will do tax returns on this basis.
[303] See the Defendant's Opening Submissions [53] - [54].
[304] Exhibit 44.
As indicated earlier, the statement is of no probative value.
The defendant did not give evidence of such a conversation in 2013 or of such an agreement.[305]
[305] He was not asked about it at all in his evidence-in-chief. In cross-examination, he was asked if he remembered a conversation with Mr Jacobs in 2010 about the business and he said he did not - see ts 202. After some exchanges, he was not re-examined - see ts 203 - 204.
I am not satisfied that the partnership was mutually abandoned by agreement in December 2010.
Some time in 2011 (unpleaded)
The next date upon which the defendant pleaded that the partnership was dissolved was 'about January 2012', in that he had gone to work in Alice Springs.[306] However, an earlier date arose on the documentary evidence. The plaintiff (properly) did not contend that the failure to plead this should be fatal, in light of the way the case was run and the state of the evidence.[307]
[306] See Defence [2.3.3].
[307] ts 355.
The earlier date arose from the tax returns. As noted earlier,[308] the 2012 tax returns of the partnership and the defendant personally do not record any distributions being paid to the defendant after 1 July 2011. Having regard to this evidence, I have inferred that he did not receive money from the Monstar business after 1 July 2011.
Discussion of documents said to be relevant to dissolution
[308] See under the heading 'No payments after he stopped working in the Monstar Security business'.
In the summary of the evidence, I noted that the plaintiff tendered in evidence a number of documents said to be relevant to whether the partnership was dissolved and, if so, when it was dissolved.
The first of these was an ATO file note of a phone call Mr O'Donoghue allegedly made on 4 January 2012. In the summary of the evidence, I set out the defendant's evidence in relation to that document. I said I would discuss the plaintiff's submissions in relation to that document and Mr O'Donoghue's evidence about the other documents relied upon by the plaintiff when dealing with the defendant's submission that, if there was a partnership, it was dissolved. What follows is that discussion.
File note of the defendant's statement - January 2012
As set out earlier, the file note of the call read, relevantly:
I asked him was he still involved in the partnership security. He advised that he ceased having anything to do with this business in February 2010. I informed him that the current debt on the partnership stood at approximately 113K. If he has not severed himself from the partnership then he is still joint and severable [sic] liable for this debt. He should seek legal advice in relation to this debt.
Mr O'Donoghue agreed in cross-examination that this was what he had been told and that the conversation rang a bell.[309]
[309] ts 187 - 188.
Mr O'Donoghue was asked if, after this conversation, he had obtained legal advice about getting severed from the partnership. He said 'No, because I was told that I would be removed from that. I was removed from that partnership earlier.'[310] The plaintiff did not appear to challenge this evidence.[311]
[310] ts 189.
[311] And see ts 233 - 234.
When asked how the file note was relevant, the plaintiff initially submitted that the defendant's failure to take action after this phone call proved that he believed he was in a partnership.[312]
[312] ts 234.
During the hearing, the parties made submissions as to the probative force of the subjective beliefs of persons alleged to be in a partnership as to whether they were in a partnership.[313] The parties' submissions on this issue were somewhat fluid.[314] However, it was ultimately common ground that unexpressed subjective beliefs were not probative of whether the relationship was as believed.[315]
[313] As to which, see Brooker [141] and Jolley, 307. See also Lindley & Banks on Partnership (20th ed, 2017) [5-04].
[314] See, for example, ts 100 - 104, 234.
[315] See the Plaintiff's Closing Submissions [4] and ts 234 - 235.
Conceding this, the plaintiff next submitted that this was not an unexpressed belief - the defendant had accepted he was a partner in his conversation with the ATO officer. The plaintiff did not contend that this was probative of whether there was in fact a partnership. Rather, the plaintiff contended it was probative of whether the partnership remained on foot as at 4 January 2012.[316]
[316] ts 233 - 236. See also ts 258.
I do not accept this. I agree that the defendant's statement recorded in the file note could be seen as an implicit admission by the defendant that he had been in a partnership. However, I do not agree it can be interpreted as a statement that he was still in a partnership. On the contrary, I consider he was attempting to convey to the ATO officer that he was no longer in the partnership.
Accordingly, I do not consider that this file note is probative of the partnership still being on foot as at 4 January 2012.
Notice of tax debt - March 2013
The plaintiff next relied upon the defendant's failure to do anything in response[317] to a notice sent by the ATO on 23 March 2013 advising him of the alleged partnership debt.[318] The effect of the defendant's evidence was that he may not have read the notice but, if he did, he would not have understood it, so would not have known what action to take.[319]
[317] ts 193 - 196.
[318] Exhibit 60.758 and exhibit 60.766-770.
[319] ts 193 - 195, 197 - 198.
Again, the plaintiff submitted that, if I found there to have been a partnership, the defendant's failure to respond to this notice tended to support a conclusion that it had not been dissolved.[320]
[320] ts 100 - 103 and ts 258.
The defendant's evidence on this document was implausible. Nevertheless, even if I was to reject it, his failure to respond to this notice shows, at most, that the defendant believed that the partnership had not been terminated by March 2013. His belief is not probative as to whether or not it had been terminated by that date.
File note of Mr Jacobs - April 2013
The plaintiff next sought to rely upon a file note of a conversation between Mr Jacobs and a person from the Northern Territory department which dealt with security licences.[321] The file note recorded that Mr Jacobs had said, on 16 April 2013, that he was no longer in partnership with Mr O'Donoghue.
[321] MFI 62.
The defendant did not object to this on the basis that Mr Jacobs was not a witness in the trial. Rather, the defendant objected on the grounds of relevance, saying that it was purely Mr Jacobs' subjective view.[322]
[322] ts 107.
The plaintiff said the file note showed that, if I found there to have been a partnership, it had not ended before April 2013.[323]
[323] ts 105 - 108. See also ts 258.
I marked the document for identification and said I would rule on its admissibility when giving judgment.
I do not accept that the file note is probative of the alleged fact. At best, it showed that, on 16 April 2013, Mr Jacobs believed he had been in partnership with the defendant at some undefined time in the past. It is common ground that he believed this. I will not admit the file note into evidence.
Payments made in reduction of partnership debt
The plaintiff next relied upon the defendant's failure to do anything in response to the Commissioner's allocation of payments from Mr O'Donoghue's income tax returns in reduction of the alleged partnership debt.[324]
[324] ts 73 - 74.
The evidence included records of payments taken from Mr O'Donoghue's income tax refunds in each year since 2014 in reduction of the alleged partnership debt.[325]
[325] Exhibits 90 and 97. See also ts 78 - 80.
These payments were allocated automatically by the Commissioner. That is, when the defendant was entitled to a refund in relation to his personal tax return, the Commissioner would credit the amount of that refund to the RBA for the partnership.
The plaintiff conceded that it was therefore not the defendant who was responsible for making the payments. Nevertheless, the plaintiff submitted that, if I found there to have been a partnership, the defendant's failure to object to the payments supported a conclusion that it had not been dissolved at the time the payments were made.[326]
[326] ts 73 - 74 and ts 258.
The effect of the defendant's evidence was that he was forced to agree to make payments in relation to the partnership debts even though he disputed he was responsible for them.[327] The plaintiff did not appear to challenge this evidence.
[327] See ts 188.
Even if I reject his evidence as to why he did not object to his tax refunds being applied in this way, the evidence shows, at most, that the defendant believed that he was responsible for the partnership debts (or some of them). This is not probative of the partnership still being on foot at the time of the payments.
Discussion and conclusion
Even if I accepted that the documents and his subsequent conduct established that the defendant had the beliefs asserted by the plaintiff, and even if I accepted that those beliefs were probative,[328] that evidence would be of very limited weight when weighed against the evidence of the 2012 tax returns that show Mr Jacobs ceased distributing a share of profits to the defendant.
[328] As to which, see Construction, Forestry, Maritime, Mining and Energy Union [66].
As noted earlier, a partnership may be dissolved by mutual agreement. Such an agreement may be inferred.
In Fazio, Murphy JA discussed cases in which a court had inferred an agreement that a partnership be dissolved. These included cases in which a partner had, in effect, departed from the business. His Honour noted that, in some of those cases, the inferred agreement was described as an 'abandonment'. His Honour noted that the word 'abandonment' may connote two different types of agreement. One involves only the mutual release of future, unperformed obligations. The other involves, in addition to the mutual release of future performance, a release of the outgoing partner's existing equitable chose in action represented by his or her interest in the partnership.[329] The difference between these two senses of 'abandonment' is not relevant here. Abandonment in either sense dissolves a partnership. The dispute in this case is not about whether the defendant retains an interest in a now dissolved partnership. The dispute is whether, if I find that there was a partnership, the partnership was dissolved.
[329] Fazio [71] - [72].
The evidence shows that the defendant began working for other entities in the months leading up to 1 July 2011. The 2012 tax returns show Mr Jacobs ceased distributing a share of profits to the defendant on or before 1 July 2011.
I would infer from this that the partnership was terminated by agreement on a date on or before 1 July 2011. There is no evidence upon which I could conclude it was one particular date or period on or before that date. As the defendant bore the burden of proving that date, I consider that I should find that the partnership was terminated on 1 July 2011.
This makes it unnecessary to consider the remaining dates on which the defendant submitted the partnership was dissolved. Nevertheless, I will briefly consider them.
January 2012 (when the defendant went to Alice Springs)
The defendant next submitted that the partnership was dissolved by about January 2012. The defendant pleads that, if there was a partnership, it was dissolved 'by about January 2012 in that the defendant left Darwin for Alice Springs to take up full-time employment with the Department of Corrections permanently or for not less than 3 months'.[330]
The defendant's submissions
[330] Defence [2.3.3].
The defendant submitted that the partnership was dissolved because, from that time on, he could not have been providing security services to the business.
The defendant submitted that, as that was his only contribution to the partnership, the partnership could not have continued once he ceased to make that contribution. On exploration of that proposition, the defendant modified his submission to be that it could be inferred that the nature of the agreement had changed at that point, and there was no longer a partnership.[331]
The plaintiff's submissions
[331] ts 144 - 145.
The plaintiff submitted that the fact that the defendant was not working for the business did not mean that the partnership was dissolved. The plaintiff says it is 'consistent with him not being actively involved in working in the enterprise of the partnership, and consistent with him not taking any draw of profit from the partnership, but no more than that'.[332]
[332] Plaintiff's Opening Submissions [49].
In her written closing submissions, the plaintiff acknowledged that it might be found that the partnership was abandoned at some time after the defendant went to Alice Springs.[333] The plaintiff conceded that the fact the defendant stopped receiving any money from the business after he went to Alice Springs was consistent with the partnership having been dissolved by that time.[334] The plaintiff also accepted that it could be inferred that Mr Jacobs accepted the end of the partnership by ceasing to distribute profits to the defendant.[335]
[333] Plaintiff's Closing Submissions [30] - [32].
[334] ts 261.
[335] ts 263.
In my view, the defendant's move to Alice Springs is more than merely consistent with the dissolution of the partnership. His contribution to the partnership was the security work he did. By going to Alice Springs, he signalled that he would no longer be doing security work for the partnership business. His move, combined with Mr Jacobs ceasing to distribute any profits to the defendant (at least at some point), is strong evidence supporting an inference that, if the partnership was still on foot at that time, the partners agreed to dissolve it.
Discussion and conclusion
The evidence shows that the defendant was in Alice Springs by 17 November 2011.
By 17 January 2012, the defendant had been unable to do any security work for the Monstar business for two months. There is no evidence that Mr Jacobs objected to this or sought to query it. There is no evidence that the defendant received any distributions from the partnership after 6 January 2012. If I had not found that the partnership was terminated by agreement on 1 July 2011, I would have found that it was terminated by 17 January 2012, being two months after the defendant went to Alice Springs.
May 2012 (when defendant left the NT)
The final alternative basis upon which the defendant submits that the partnership was dissolved is his departure from the Northern Territory permanently in 2012. By this, he means that it should be inferred that he and Mr Jacobs had agreed to end the partnership.[336]
[336] ts 150.
Had I not concluded that the partnership was dissolved before this time, I would have found in favour of the defendant on this point, for the same reasons as I expressed in relation to the previous point.
Issue 3: Is the RBA deficit debt now a 'secondary tax debt'?
The third issue is whether the entry of judgment for the Deputy Commissioner against Mr Jacobs means that the partnership RBA deficit debt is a 'secondary tax debt' within the meaning of s 8AAZA of the TAA.
It was common ground that the judgment against Mr Jacobs prevented the plaintiff from suing Mr Jacobs for the same partnership debt.[337] It was common ground that each partner is jointly and severally liable for a partnership debt.[338] Issue 3 is simply whether the effect of the judgment against Mr Jacobs converted the RBA deficit debt into a 'secondary tax debt'.
[337] Chamberlain v Deputy Commissioner of Taxation (1988) 164 CLR 502.
[338] See s 265-45 and s 444-30 of Schedule 1 TAA.
The defendant submits that, when the plaintiff obtained judgment against Mr Jacobs for the partnership RBA deficit debt, 'what was initially a "primary tax debt" became "an amount due to the Commonwealth under an order of a court made in a proceeding for recovery of a primary tax debt"'.[339]
[339] Defendant's Opening Submissions [65].
The defendant conceded that he remained liable for the underlying primary tax debts of the partnership's PAYG withholdings and the GST liabilities, and that these remained primary tax debts. He accepted that his liability had not been extinguished by the judgment against Mr Jacobs. The defendant submitted, however, that the effect of the judgment against Mr Jacobs was that the Deputy Commissioner could not recover the RBA deficit debt from him, as it was now a secondary tax debt. In short, the defendant submitted that the Deputy Commissioner had commenced proceedings in relation to the wrong debt.
Having regard to the summary of the legislative scheme set out earlier, the defendant's submissions can be summarised as follows.
1.Under the RBA scheme, only a 'primary tax debt' may be allocated to an RBA.
2.When the judgment was obtained against Mr Jacobs, the RBA deficit debt became 'an amount due to the Commonwealth under an order of a court made in a proceeding for recovery of a primary tax debt'.[340] Such a debt is a 'secondary tax debt',[341] not a 'primary tax debt'.
3.Therefore, the Deputy Commissioner could no longer recover the PAYG, GST and GIC liabilities under the RBA scheme. If the Deputy Commissioner wished to pursue the defendant, she needed to bring an action to recover those debts in their own right, not under the RBA scheme.
[340] This appears to be the effect of the defendant's submissions - see the Defendant's Opening Submissions [61] - [66] and ts 158 - 159 and 251.
[341] Section 8AAZA of the TAA.
Although this appeared to be the defendant's argument, there were times when the defendant also appeared to contend that it was the underlying primary tax debts that became secondary tax debts.[342]
[342] See ts 275.
I do not accept that the RBA deficit debt or the underlying primary tax debts became secondary tax debts once the judgment was entered.
In H'Var Steel Services,[343] the Court of Appeal was considering whether a law which permitted the Commissioner to recover an RBA deficit debt was a law that imposed taxation. Wheeler JA, with whom Roberts-Smith and Pullin JJA agreed, held that it was not. Wheeler JA endorsed[344] the observations of Kitto J in Moore v The Commonwealth[345] in which his Honour said:
Separate obligations to pay money to the Commonwealth may, no doubt, be so created that each of them is a tax, notwithstanding that a payment in respect of one is to operate as pro tanto satisfying the other, and even notwithstanding that any excess of one over the other is to be refunded. But it is not true to say that there are necessarily two taxes wherever the Parliament imposes upon a person two obligations to pay money to the Commonwealth for its general purposes otherwise than for services rendered. One obligation may be a tax while the other may be an auxiliary obligation created to facilitate collection of the tax.
[343] H'Var Steel Services [9] - [17].
[344] H'Var Steel Services [12].
[345] Moore v The Commonwealth (1951) 82 CLR 547, 581 - 582.
Wheeler JA said:[346]
There are a number of aspects of the RBA deficit debt which, in my view, lead to the conclusion that it is no more than an auxiliary obligation created to facilitate collection of the variety of taxes with which the TAA is concerned.
[346] H'Var Steel Services [13]. And see further at [9] - [17]. See also Federal Commission of Taxation v Travelex Limited [2021] HCA 8 [30].
Accordingly, an 'RBA deficit debt' is not a separate debt. Rather, it is an auxiliary obligation created to facilitate the recovery of primary tax debts. The RBA deficit debt does not suddenly become a separate debt (whether a primary or a secondary debt) when judgment is entered in relation to the amount in the RBA.
Nor did the defendant's liability to pay the underlying primary tax debts transform into a liability to pay a secondary debt. The defendant's liability to pay those debts arises directly under a taxation law (and they are therefore primary tax debts). The defendant is not liable under the judgment entered against Mr Jacobs.
Each partner was jointly and severally liable for the primary tax debts. Judgment has been entered against Mr Jacobs for those primary tax debts as reflected in the partnership RBA. The cause of action against Mr Jacobs for the partnership debts merged in the judgment. As a result of the judgment, the Commissioner could not bring fresh action against Mr Jacobs in relation to that cause of action. It is, however, the cause of action against Mr Jacobs that merged in the judgment - not the underlying primary tax debts.
The defendant remains liable for those primary tax debts. It remains open to the Commissioner to utilise the mechanism created by the RBA scheme to pursue the defendant.
Issue 4: What is owed by the defendant?
It was common ground that, if I found there to have been a partnership, but found that it had been dissolved at some point, the amount owed by the defendant would depend upon when I found it to have been dissolved. The parties proceeded on the basis that, if I made such findings, the plaintiff would file an updated certificate setting out the correct amount owed based on my findings.
The parties were provided with advance copies of these reasons to enable an update certificate to be prepared and, if necessary, discussed between the parties.
Conclusion
For the reasons I have given, I have concluded that:
1.there was a partnership;
2.the partnership was dissolved on 1 August 2009, when the firm ceased to hold a valid licence and a new partnership arose on identical terms on 6 October 2009;
3.the new partnership was dissolved on 1 July 2011;
4.the judgment against Mr Jacobs did not mean that the RBA deficit debt was a secondary tax debt; and
5.the defendant owes the plaintiff the amount of the RBA deficit debt that is payable given the previous findings.
I will receive the updated certificate once prepared, and will hear from the parties as to the appropriate orders and as to costs.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
AG
Associate to the Honourable Justice Archer
6 MAY 2022
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