Deputy Commissioner of Taxation v Pejkovic

[2000] NSWSC 1176

Reported Decision: 2000 ATC 4825
[2000] 46 ATR 207

New South Wales

Supreme Court

CITATION:	Deputy Commissioner of Taxation v Pejkovic [2000] NSWSC 1176
FILE NUMBER(S):	SC 12043/99
HEARING DATE(S):	30/10/00, 09/11/00; 12/12/00
JUDGMENT DATE:	14 December 2000
PARTIES :	Deputy Commissioner of Taxation v Steve Pejkovic
JUDGMENT OF:	Whealy J at 1

LOWER COURT JURISDICTION :	Supreme Court
LOWER COURT FILE NUMBER(S) :
LOWER COURT JUDICIAL OFFICER :	Master Harrison

COUNSEL :	D. Morris (Solicitor) - Plaintiff/Respondent J. T. Johnson - Defendant/Appellant
SOLICITORS:	Australian Government Solicitor - Plaintiff/Respondent Heaney Richardson & Nemes - Defendant/Appellant
LEGISLATION CITED:	Taxation Administration Act Supreme Court Act Income Tax Assessment Act 1936
CASES CITED:	Air Services Australia v Zarb (NSWSC unreported, 26 August 1998 Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62 General Steel Industries Inc v The Commissioner for Railways (1964) 112 CLR 125 Webster & Anor v Lampard (1993) 177 CLR 598 Re Scobie & Anor; Ex parte Deputy Commissioner of Taxation (1995) 59 FLR 177 at 184-185 Simpson & Ors v Deputy Federal Commissioner of Taxation (1996) 132 FLR 459 at 463-464 DCT v Woodhams (2000) 169 ALR 503 at 507
DECISION:	Appeal dismissed. Appellant to pay the respondent's costs. The Exhibits are to remain with the file.

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

WHEALY J

THURSDAY 14 December 2000

12043/99 - DEPUTY COMMISSIONER OF TAXATION v Steve
PEJKOVIC

JUDGMENT 1    HIS HONOUR: On 30 October 2000 I commenced hearing an appeal from a decision of Master Harrison made on 4 September 2000. On the latter date, the Master had struck out a defence that had been filed to a default statement of claim made on behalf of the Deputy Commissioner of Taxation (“the respondent”). The present appellant was the defendant in those proceedings. The Master found that the respondent was entitled to summary judgment and directed the Registrar to enter a summary judgment upon the filing of an affidavit of debt. The appellant was ordered to pay the respondent’s costs. On 11 October 2000, judgment (taking effect from 4 September 2000) was entered for the respondent in the sum of $1,868,498.19 plus costs. 2    On 15 September 2000 the appellant filed an appeal from the Master to the Court constituted by a judge. I commenced the hearing of the appeal on 30 October 2000. 3    As a matter of convenience, the parties asked me to deal with grounds 3 and 5 of that appeal as preliminary matters. On 30 October 2000 I determined those grounds adversely to the appellant. I adjourned the proceedings to 9 November 2000 and directed that any further evidence sought to be relied upon by the appellant in relation to the appeal, together with written submissions, should be supplied by 4 pm on 6 November. I extended the existing stay until further order of the court with liberty to apply on three days notice. I noted the undertakings in para 9 of the appellant’s affidavit of 11 October 2000. On 9 November 2000 I gave the appellant leave to file in court his affidavit of 6 November 2000 and gave further directions for the filing of written submissions and other consequential matters. I stood the further hearing of the appeal over to 12 December 2000. On that day I heard further oral submissions from the parties both in relation to the appellant’s tender of the affidavit of the appellant on 6 November 2000 and the substance of the remaining grounds of appeal. At the conclusion of the hearing, I reserved my decision until today.

The Nature of the Respondent’s Claim

4    On 20 August 1999 the respondent filed a default statement of claim which named the appellant as defendant. The claim was for a total amount of $1,868,498.19. The nature of the claim is set out in the brief summary contained in Master Harrison’s decision: -

“The statement of claim seeks amounts from the defendant as penalties in relation to non-payment of group tax and prescribed payments. The statement of claim filed 20 August 1999 alleges that the company owed monthly payments of employees group tax from 1 November 1997 to 1 January 1999. Subsequently, payments have been made up to January 1998. (paras 3-7 S/C). It is alleged that the defendant did not cause and the company did not do before the due dates (being the 7th day of the following month) any of the things set out in s 222AOB(1) or (2) of the Income Tax Assessment Act 1936 (ITAA 36) and that the defendant is liable by force of s 222AOC of ITAA 36 to pay the Commissioner of Taxation by way of penalty in the sum of $1,784,535.19. Two penalty notices were issued on 14 April 1999 and their validity is not disputed.
The plaintiff also alleges that the company should have made deductions known as prescribed payments (payment of tax by contractors) for the period 1 July 1997 until 31 October 1997. Both the group tax and prescribed payments fell due on the seventh of the subsequent month. For example the July 1997 payment of prescribed payments fell due on 7 August 1997 (paras 18-21). Similarly, it pleads that the defendant was obliged to cause the company to do one of the things set out in s 222AOB(1) of ITTA 36 and it did not cause the company to do so, and the company did not do, before the respective dates any of the things set out in s 222AOB(1) and (2) of the ITAA 36 (paras 25-26 S/C). A penalty notice was forwarded to the defendant on 16 December 1997. It is not disputed. The plaintiff seeks the sum of $84,044 as a payment for penalty for the company’s non-payment of prescribed payments.”

5    On 1 October 1999 the appellant filed a defence to the default statement of claim. This included the following defence in para 15: -

“15. In further answer to the whole of the Statement of Claim, the defendant says, and it is the fact that, the Defendant took reasonable steps to ensure compliance, or alternatively, that (if such steps were not reasonable) no such steps could be taken within the meaning of Section 222AOJ(3) of ITAA36.
PARTICULARS
The Defendant sought and obtained from Civil & Civic, a division of Lend Lease Projects Pty Limited:
(a) A promise to pay all outstanding invoices and to pay $2,000,000.00 to the Company so as to enable it to meet any outstanding deductions owing by the Company.
(b) A promise that Civil & Civic would ensure payments to the Company to enable it to meet any outstanding deductions owing by the Company.
(c) Civil & Civic was at all material times in a financial position such that it could, had it performed its promise, pay the outstanding deductions.
(d) It was reasonable in the circumstances for the Defendant to rely on the promises and/or representations of Civil & Civic.”

6    On 1 October 1999, the appellant filed a cross/claim against Lend Lease Projects Pty Limited. (It appears that Civil & Civic was a division of the cross/defendant). This cross/claim was amended on 16 December 1999. Subsequently in May 2000 the cross/defendant itself instituted a cross/claim against the present appellant alleging misrepresentation, fraud and negligence. Civil & Civic deny the substance of the appellant’s defence as pleaded in para 15 above.

An Application is made for Summary Judgment

7    By motion dated 13 April 2000, the respondent moved the court for orders that the defence filed by the appellant be struck out and that judgment be entered for the respondent. This motion was dealt with by the Master on 28 August 2000 and a decision was given on 4 September 2000. In a carefully reasoned judgment, the Master first examined the law in relation to the entry of summary judgment. The relevant principles had been conveniently set out in the decision of Rolfe AJA in Air Services Australia v Zarb (NSWSC unreported, 26 August 1998). His Honour referred to Dey v Victorian Railway Commissioners (1948-49) 78 CLR 62; General Steel Industries Inc v The Commissioner for Railways (1964) 112 CLR 125 and Webster & Anor v Lampard (1993) 177 CLR 598. His Honour, noting that the power to order summary judgment must be exercised with “exceptional caution” said this: -

“The demanding nature of the test is in no way lessened in circumstances where there are the potential for difficult factual and legal issues to arise. Rather, as the decision in Webster made clear, it is heightened: see also Wickstead & Ors v Browne (1992) 30 NSWLR 1 and Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241.”

8 With these principles clearly in mind, the Master then turned to consider the matters which were raised in the appeal before her. There was evidence of the facts on which the default statement of claim was based. There was evidence given on the respondent’s behalf that the defendant had no defence to the claim. The court was invited to give summary judgment for the respondent in relation to the whole of the claim. The appellant on the other hand had submitted there was evidence which was capable of providing a defence to the claim particularly having regard to the statutory defences provided by s 222AOJ. Secondly, it was submitted by the appellant that, although the quantification of the amounts claimed were not disputed, the date upon which the payment fell due had not been proved by evidence. 9 In relation to the second matter, the Master had little difficulty in concluding that the combined operations of s 222(f)(5) and s 220AM(1) of ITTA 36 resulted in payments of group tax falling due on the 7th day of each month following the day on which tax has (or should have been) “deducted” for the purpose of making provision for group tax and prescribed payments. The Master also referred to s 8ZL of the Taxation Administration Act which provides that a statement or averment contained in a claim is prima facie evidence of the matter so stated or averred. The Master found that this aspect of the appellant’s defence was not “an arguable defence”. I turn now to the first and principal matter argued before the Master

Part VI - Division 9 - Sub-division B of the Income Tax Assessment Act 1936

10    In order to understand the principal grounds relied on this appeal it is necessary to refer in a little detail to this part of the Income Tax Legislation. The relevant sections are set out in full in Master Harrison’s judgment. The purpose of Division 9 in stated in s 222ANA: -

“Object and outline
(1) The purpose of this Division is to ensure that a company either meets its obligations under Division 1AAA, 3B, 4 or 8, or goes promptly into voluntary administration under Part 5.3A of the Corporations Law, or into liquidation.
(2) The Division imposes a duty on the directors to cause the company to do so. The duty is enforced by penalties. However, a penalty can be recovered only if the Commissioner gives written notice to the person concerned. The penalty is automatically remitted if the company meets its obligations, or goes into voluntary administration or liquidation, within 14 days after the notice is given.
(3) A penalty recovered under this Division is applied towards meeting the company’s obligations under the relevant Division. Conversely, amounts paid by the company reduce the amount of a penalty.
(4) Sections 220AAZA, 221YHZJ and 221YR provide for the recovery of amounts payable under this Division.”

11 The reference to obligations under Division 1 AAA, 3B 4 or 8 is an obligation to pay the amount due. 12 Division 9 consists of three operative Sub-divisions, each of which may have the effect of making directors liable, in different circumstances, for the liability of their company to remit deductions of tax to the Commissioner. Sub-division B (which is the matter of principal concern in the present appeal) makes directors liable for the actual amount of deductions of tax which a company is liable to send to the Commissioner unless the company is placed under administration, begins to be wound up, or enters into an agreement to pay the liability to the Commissioner under s 222ALA prior to the “due date” for payment. Before the Commissioner can recover that penalty from a director, however, the Commissioner must give to the director a notice under s 222AOE stating that the director is liable to pay a penalty equal to the unpaid amount of the company’s liability but that the penalty will be remitted if, within 14 days after the notice is given; · the company pays the liability for unremitted deductions of tax; or · the company makes a written agreement with the Commissioner under s 222ALA to pay the liability; or · an administrator is appointed under ss 436A, 436B or 436C of the Corporations Law; or · the company begins to be wound up. 13 If a director fails to comply with the notice under s 222AOE, proceedings may be commenced to recover the unpaid amount of the tax “deducted” by the company which was the subject of the notification in the s 222AOE notice. A director who pays a penalty under Sub-division B may, by virtue of s 222AOI acquire rights to recover part or all of the amount from the company and/or fellow directors. 14 Section 222AOA(2) and (3) establish the concepts of “the first deduction day” and “the due date”. These concepts determine the time frame in which directors must take one of the requisite steps to avoid “triggering” the application of Division 9. The “first deduction day” in relation to a particular “due date” is the earliest day on which tax has been “deducted”. The “due date” is the date the company is required to send tax which has been “deducted” to the Commissioner. The obligations cast upon the directors of a company pursuant to s 222AOB are obligations to cause the company to do at least one of the four stipulated matters from time to time on or after the first deduction day but, at the latest, by “the due date”. The directors of the company from time to time after the due date remain under the obligation imposed by sub-section 1 of this section until the section is complied with. 15 The section which creates the penalty for directors in office is s 222AOC. This provides that if s 222AOB is not complied with on or before the due date, each person who was a director of the company at any time during the period beginning on the first deduction day and ending on the due date is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company’s liability under a remittance provision in respect of deductions (a) that the company has made for the purposes of Divisions 2, 3A, 3B or 4 as the case may be; and (b) whose due date is the same as the due date. 16 Section 222AOE prescribes the procedure with which the Commissioner must comply before a penalty which has been imposed under s 222OAC may be recovered. The section requires that the Commissioner must give 14 days notice before recovering the penalty. The penalty may be remitted if, at the end of 14 days after the notice is given; · the unpaid liability in question has been discharged; or · an agreement is in force under s 222ALA to discharge the liability; or · the company is under administration; or · the company is being wound up. 17 Where the Commissioner seeks to recover from a director a penalty payable under the Sub-division s 222AOJ sets out the defences which may be raised to such an action. I shall set out this section in full:

“Defences
(1) This section has effect for the purposes of:
(a) proceedings to recover from a person a penalty payable under this Subdivision; or
(b) proceedings under section 222AOI against a person of the kind referred to in paragraph 222AOI(d).
(2) It is a defence if it is proved that, because of illness or for some other good reason, the person did not take part in the management of the company at any time when:
(a) the person was a director; and
(b) the directors were under the obligation to comply with subsection 222AOB(1).
(3) It is also a defence if it is proved that:
(a) the person took all reasonable steps to ensure that the directors complied with subsection 222AOB(1); or
(b) there were no such steps that the person could have taken.
(4) In subsection (3):
“reasonable” means reasonable having regard to:
(a) when, and for how long, the person was a director and took part in the management of the company; and
(b) all other relevant circumstances”.

18    The principal matter argued before Master Harrison arose out of certain facts which were not in dispute. It appears that the respondent had served the appellant with a penalty notice in relation to “prescribed payments” on 16 December 1997. Two penalty notices in relation to group tax were served on 14 April 1999. On 30 April 1999 the appellant had a telephone conversation with an officer of the tax department, Mr Bartlett. During this conversation, the appellant said “we are meeting with Civil & Civic today to sort this out. We should be right by Monday or Tuesday depending on what arrangements we make with Civil & Civic”. Mr Bartlett replied “Let me know how you get on next week.” 19    It was common ground that the company did not pay the amounts due within the 14 day period following the service of each of the three penalty notices. The company did not enter into an agreement relating to the liability under s 222ALA; nor did it during the 14 day period in each case appoint an administrator of the company or begin to cause the company to be wound up. According to the Master, the only step the appellant took occurred on the fourteenth day after service of the notice. This step was to enter into negotiations on behalf of the company with Civil & Civic to seek that Civil & Civic pay the money due under the penalty notices. The Master also noted that there may have been other conversations not included in the appellant’s affidavit and it was said that these conversations might have demonstrated that the appellant either took reasonable steps or that there were no such steps he could have taken. If such conversations did actually take place, the Master said, the defendant had the opportunity to put them into evidence but had elected not to do so. Accordingly, the Master confined herself essentially to the step I have described. 20    As to the actions taken by the appellant on or about 30 April 1999 and shortly thereafter, the Master was of the opinion that these could not possibly have raised a defence. The Master referred to a Federal Court decision of Cooper J in Re Scobie & Anor; Ex parte Deputy Commissioner of Taxation (1995) 59 FCR 177 at 184-185 and a decision of the Supreme Court of South Australia (Duggan J) in Simpson & Ors v Deputy Federal Commissioner of Taxation (1996) 132 FLR 459 at 463-464. These decisions were concerned with the time when the “reasonable steps” referred to in s 222AOJ(3) might be taken to ensure compliance with the obligation cast upon directors by s 222AOB(1). Consistently with this decision, the Master was of the view that the defence allowed for in s 222AOJ could not be constituted by “reasonable steps” taken after “the due date”. The appellant’s actions taken at the end of April 1999 were well after the nineteen “due dates” specified in the Statement of Claim. 21 There was a minor refinement on this position argued before Master Harrison, namely an argument that since the obligation cast on directors is an ongoing one (s 222AOB(3)) then as a matter of construction, there should be a modification of the words “on or before the due date”, where appearing in sub-s 1 of the same section, to allow the “reasonable steps” defence to relate to actions taken after the “due date”. Not surprisingly, Master Harrison rejected this argument as “unsustainable”. The Master said that such an argument was clearly contrary to Simpson and Scobie; and, I infer from the language she used, that she took the view that it was contrary to the scheme of the Act as a whole. 22 As a consequence of all the matters I have set out the Master formed the view that the appellant did not have an arguable defence. She said: -

“The defence is hopeless, unsustainable and should be struck out. The plaintiff is entitled to summary judgment.”

The Appeal to this Court

23    On 30 October I held that there was no substance in grounds 3 and 5 of the appeal. Those grounds were, in essence, that the Master had erred in treating the application before her as an application for summary judgment. I held that the application before the Master was in fact an application to both strike out the defence and to enter summary judgment. I held further that the Master was entitled to treat the matter in the way she did and to make the orders that she did. 24    The remaining grounds of appeal are as follows:

“ Grounds
1. The Master erred in holding that it was not arguable that a defence under s 222OAJ(3) of the Income Tax Assessment Act 1936 (“the Act”) could be established if it were proved that the defendant took all reasonable steps to ensure that the directors of SJP Formwork (NSW) Pty Ltd (“the company”) to cause (sic) the company to take any of the steps set out in 222OAB of the Act on or after the “due date”.
2. The Master erred in holding that there were steps that the defendant could reasonably have taken before the “due date” to ensure that the directors of the company caused the company to take any of the steps set out in s 222OAB of the Act.
4. The Master erred in holding that the plaintiff had demonstrated non payment of the sum claimed by the “due dates”.

Submissions on behalf of the appellant

25 The written outline of submissions on behalf of the appellant is dated 8 November 2000. First, the appellant made application pursuant to s 75A of the Supreme Court Act for leave to adduce further evidence to that which was before the Master upon the hearing of the motion, the subject of the judgment under appeal. The written submissions endeavoured to explain that the further evidence (which is the material contained in the affidavit of the appellant sworn 6 November 2000) was not led at the original hearing because it was considered that the motion before the Master was one seeking relief under Part 15 Rule 26 rather than a summary judgment application under Part 13 Rule 2. During the further hearing of the appeal on 12 December, for the reasons then given, I allowed the tender of the affidavit. 26    Secondly, the written outline raised two arguments in relation to the operation of the Income Tax Assessment Act 1936 and in particular the defence raised by the defendant in para 15 of the defence dated 30 September 1999. The two arguments are expressed in the following form: -

“(a) whether this relates to the 14 day period between the service of the section 222AOE notice; or
(b) whether this relates to the respective time when the tax payer company was required to remit pay as you earn deductions made from wages of employees.”

(my underlining)

27    It is my understanding that the word “this”, where it appears in the written outline, is a reference to the time frame for the occurrence of the factual matters which may be relied upon as a defence under s 222AOJ(3): That is, the time frame when it is to be ascertained whether all reasonable steps had been taken to ensure that the directors complied with sub-s 222AOB(1); and the time frame when it is to be ascertained that there were no such steps the directors could have taken. The submission is that the defence may arise in relation to steps taken after service of the s 222AOE notice but before its expiry; or alternatively, in relation to steps taken during the period of time between, in each case, the “first deduction day” and the “due date”. This latter period comes to an end on the day when the company was required to remit deductions from employees’ wages. 28    The argument relating to the first period of time mentioned in para (a) in the written outline is the argument, as I understand it, rejected by Master Harrison. The second period of time is the time when, consistently with the decisions in the Master’s decision (and the decisions in Simpson (supra) and Scobie (supra)) the question of “reasonable steps” taken may legitimately be examined. No argument was placed before the Master as to the reasonableness of the steps taken by the appellant during this time because no evidence in relation to the appellant’s activities during that period was tendered before the Master. In this regard, it was submitted that the additional material in the affidavit of he appellant sworn 6 November 2000 showed that during the relevant period of time the appellant took all reasonable steps to ensure that the directors complied with sub-s 222AOB(1); or there were no such steps that the appellant could have taken. On this additional basis, it is submitted the appeal should be allowed. 29    I note that it is common ground between the parties that during the relevant period of time, the appellant was the sole director and secretary of the company.

Additional Evidence of the Appellant

30    A summary of the material in Mr Pejkovic’s affidavit of 6 November 2000 is as follows: -

1. During the period November 1997 to April 1999 SJP Formwork (NSW) Pty Ltd (“SJP”) had a number of contracts with different developers. For Civil & Civic, the contracts related to projects at Darling Park, Castle Hill Stages 1 and 2 and Pyrmont; for Multiplex, there were projects at Sydney Park (Alexandria) and Surry Hills; there was a project at Hurstville known as Twin Towers; and a project for Austress at Chatswood known as Chelsea Apartments.
2. During the same period SJP was pursuing an outstanding claim against Baulderstone in relation to a project completed at the cnr of Bridge and George Streets, Sydney. This claim exceeded $600,000.00. The appellant says he was confident of recovering at least this amount.
3. There was also a complication arising from a dispute with MMI Insurance Company in relation to Workcover. This dispute related to the level of premiums charged to SJP.

31    Partly in response to this last problem, arrangements were made between SJP and Civil & Civic in relation to its entitlement pursuant to the Darling Park project. Advance payments were made. On the other hand, additional deductions were made and retained by Civil & Civic to ensure that there was no overpayment at the end of the project. 32    The appellant complained about unfulfilled promises and contractual arrangements which were not met as between SJP and Civil & Civic. He says that there were ongoing attempts to make Civil & Civic adhere to the arrangements in relation to the Darling Park project. Ultimately, this difference was resolved on 30 April 1999 when it was agreed that Civil & Civic would pay SJP an additional amount of $462,000.00 in respect of the “remeasurement” relating to that project. This agreement was made on the basis that SJP would forego its claim for an extra entitlement of approximately $1.8 million in relation to delay claims. In return for this concession, the appellant says he reached agreement with officers of Civil & Civic whereby Civil & Civic was to assist SJP to meet its obligations to the Australian Tax Office for group tax. 33    He also described attempts to finance the premiums assessment problem with Workcover through an organisation known as Hunter Premium. He says that, if these attempts had been successful, there would have been less deductions made by Civil & Civic from progress payments. This may also have assisted SJP in meetings its commitments to the respondent. 34    Finally, the appellant says he did not take steps to arrange for SJP to be wound up or to appoint an administrator to it during the period 1997 to 1999 because he believed at all times that SJP would ultimately be able to pay the group tax outstanding from a combination of: -

(a) The Baulderstone claim being settled;
(b) SJP succeeding in overturning the assessment of premiums imposed by Workcover; and
(c) SJP coming to an arrangement with Civil & Civic as to payments due to SJP with respect to Darling Park in particular, but also Castle Hill Stages 1 and 2, and Pyrmont.

35    I note from the pleadings filed between the appellant and Civil & Civic the dates of the various sub-contracts are 30 April 1997 (Darling Park); 9 December 1998 (Pyrmont); and 2 and 3 March 1999 respectively for the two Stages of the Castle Towers project. For completeness, I should mention that the pleadings contain an allegation that the appellant falsely swore a declaration dated 12 February 1999 which he provided to Civil & Civic. The nature of the alleged falsity is that the appellant did not disclose in the declaration tax liabilities of $1.984 million. Civil & Civic’s pleadings also deny the existence of the agreement referred to by the appellant at the end of para 9 of his affidavit sworn 6 November 2000.

Has a Triable Issue been raised?

36    The appellant’s first argument was the one rejected by Master Harrison. In my opinion, no error of principle has been established in relation to the Master’s careful and thorough examination of the text of the legislation and the authorities which bore on it. The factual material before the Master showed, at best, that some steps were taken by the appellant. These, all occurred, however, well after the nineteen “due dates” specified in the Statement of Claim and were not capable, for that reason, of founding a defence in terms of s 222 AOJ(3). 37    The second argument recognises, as an alternative to the first, that the reasonable steps which a director may rely on to found the relevant defence must occur (and can only occur) in the period between the “first deduction day” and the “due date”. The question which arises in relation to whether a triable issue has been shown for the purposes of this appeal, is whether the appellant’s actions as described in his affidavit of 6 November 2000 are capable of raising a defence under s 222 AOJ(3). This, in turn, requires that the nature of the defence created by the section be understood and stated with precision. 38    The first matter is to examine the activities which are said to constitute “reasonable steps” in the light of the obligations imposed on directors by s 222 AOB(1). The nature of the obligations was described in the following manner by the High Court in DCT v Woodhams (2000) 169 ALR 503 at 507 para 15: -

“Section 222 AOB obliges the persons who are directors of the company from time to time on or after the first deduction day (which is the earliest day on which the company made a deduction that has the due date) to cause the company, on or before the due date, either to comply with Div 2 in relation to each deduction (that is, pay the amount) or to make an agreement with the Commissioner concerning the liability or to appoint an administrator under the Corporations Law or to begin to be wound up. In the event of failure to comply with s 222AOB on or before the due date, each person who was a director of the company at any time during the period beginning on the first deduction day and ending on the due date is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the company’s liability under a remittance provision in respect of deductions made for the purpose of Div 2, whose due date is the same as the due date (s 222 AOC).”

39    The second matter is to understand that the “reasonable steps” contemplated by s 222 AOJ(3) are steps to ensure that the directors complied with s 222 AOB(1) (my underlining). Section 222 AOB(2) deals with the nature of the compliance required. It provides that s 222 AOB(1) is complied with when:

“(a) The company complies as mentioned in paragraph (1)(a); or
(b) The company makes an agreement as mentioned in paragraph (1)(b); or
(c) An administrator of the company is appointed under s 436A, 436B or 436C of the Corporations Law; or
(d) The company begins to be wound up within the meaning of that law whichever first happens, even if the directors did not cause the event to happen.”

40 It is not necessary in the present case to consider the manner in which a possible defence might arise in the situation where an individual director is faced with difficulties arising out of the construction of the Board, for example, where a director is out voted by other directors. 41 The present situation is that the appellant was the only director at all relevant times. The financial situation of the company, as he has described it in his affidavit of 6 November 2000, was the critical factor which resulted in the company’s failure to comply as required by s 222 OAB(2). This non-compliance, in turn, resulted in the appellant’s failure to fulfil his obligations as a director, and thereby occasioned the liability for the penalty created by s 222 AOC. The appellant took no steps before the “due date” in relation to any of the periods which became the subject of the various penalty notices to ensure the company either paid the monies due or entered into an agreement contemplated by s 222 AOB(1)(b). He took no steps before any of those “due dates” to ensure the company appointed an administrator under the Corporations Law. He took no steps to ensure compliance with the obligations to bring about the commencement of the winding up of the company. 42 In my opinion, the appellant’s belief, assuming it to have been honestly held, that the company would be able “ultimately” to pay the outstanding Group Tax afforded no defence whatsoever within the meaning of s 222 AOJ(3); nor did the actions of the plaintiff throughout the period July 1997 to April 1999 afford any possible defence. There is no need to analyse these actions in any detail because none of them individually or collectively, were capable of constituting “reasonable steps” within the meaning of the sub-section. 43 I shall demonstrate the situation by reference to one example. The company had made a deduction as an employer for the month of March 1998. The “due date” for this deduction was 7 April 1998. Accepting, for the sake of argument, that as at April 1998, the appellant was hopeful that either the settlement of the Baulderstone claim or increased payments from Civil & Civic in relation to the Darling Park project would fund the payment of the deduction, the fact is no payment was made by the due date. In my view it was not sufficient for the appellant to say in effect “I’ve done my best. Regrettably, I couldn’t obtain the funds in time”. For the defence to arise, the defendant was obliged to try to enter an agreement with the respondent; if that failed, to take steps to appoint an administrator or bring about the commencement of the winding up. The fact is he did none of these things. There is no possibility, in those circumstances, of an available defence arising in the case of the March deduction. 44 The purpose of the legislation is clear. The 1993 amendments to the Act introduced a scheme whereby the imposition of penalties upon directors of corporate employers was designed to ensure that corporate employers carried out their obligation to collect and remit tax. (DCT v Woodhams at 504 para 5; 506 at paras 13, 14, 15). The statutory penalty imposed upon the present appellant arose out of his failure, by the requisite dates, to bring about a situation where one of the four situations mandated by s 222 OAB(1) had been achieved. None of the steps outlined in his affidavit were capable of ensuring compliance by the company with the achievement of any of those possible outcomes. 45    The steps taken did not address any of those outcomes at all. Additionally, they did not address them within the statutory time frame conceded for the purpose of the appellant’s alternative submission. The arguments advanced on behalf of the appellant would, if accepted, negate the clear purpose and object of Div 9. 46    For those reasons, I have come to the conclusion that the appellant’s alternative argument must fail. The consequence is that I agree with Master Harrison that the appellant’s case is “hopeless”. The defence had to be struck out. The Master was correct in ordering the entry of summary judgment. The appeal must fail. 47    I make the following orders:

1. Appeal dismissed.

2. Appellant to pay the respondent’s costs.

3. The Exhibits are to remain with the file.

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Last Modified: 12/19/2000