| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : DEPUTY COMMISSIONER OF TAXATION -v- ROGET [No 2] [2014] WADC 25 CORAM : DAVIS DCJ HEARD : 2 DECEMBER 2013 DELIVERED : 27 FEBRUARY 2014 FILE NO/S : CIV 2052 of 2010 BETWEEN : DEPUTY COMMISSIONER OF TAXATION Plaintiff
AND
ROBERT RAYMOND ROGET
Defendant
Catchwords: Practice and procedure - Appeal from registrar - Defendant's appeal from summary judgment granted to the plaintiff - Liability of director for unpaid tax liabilities pursuant to s 222AOD of the Income Tax Assessment Act 1936 (Cth) - Estoppel - Defences in s 222AOJ of the Income Tax Assessment Act 1936 - Turns on own facts Legislation: Corporations Act 2001 (Cth), s 436A, s 461
Income Tax Assessment Act 1936 (Cth), s 222AOB, s 222AOD, s 222AOJ Result: Appeal allowed in part
Representation: Counsel:
Plaintiff : Ms C H Thompson
Defendant : In person
Solicitors:
Plaintiff : Deputy Commissioner of Taxation
Defendant : Not applicable
Case(s) referred to in judgment(s):
AGC (Investments) Ltd v Federal Commissioner of Taxation (1991) 21 ATR 1379
Ansearch Ltd v Wavtech Pty Ltd [2006] WASC 184
Bellinz Pty Ltd v Federal Commissioner of Taxation [1998] FCA 615; (1998) 84 FCR 154
Canty v Deputy Commissioner of Taxation [2005] NSWCA 84
Deputy Commissioner of Taxation v Roget [2012] WADC 129
Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722; (2002) 43 ACSR 387
Eng Mee Yong v Letchumanan [1980] AC 331
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Federal Commissioner of Taxation v Australia & New Zealand Savings Bank Ltd [1994] HCA 58; (1994) 181 CLR 466
Federal Commissioner of Taxation v Winters (1997) 97 ATC 4967; (1997) 37 ATR 209
Fitzgerald v Deputy Federal Commissioner of Taxation (1995) 14 SR (WA) 356; (1995) 68 ATR 770
Lathwell v Stabil Pty Ltd (in liq) [2001] WASCA 295
Legione v Hateley (1983) 152 CLR 406
Miller v Deputy Commissioner of Taxation (1997) 26 ACSR 533; (1998) 98 ATC 4059
Morgan v Pallister [2004] WASC 188
Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109
Re Scobie; Ex parte Deputy Commissioner of Taxation (1995) 59 FCR 177; (1995) 95 ATC 4525
Reardon v Deputy Commissioner of Taxation [2013] QCA 46; (2013) 275 FLR 9
Swanzone Pty Ltd (in liq) v Prosperity Development (Aust) Pty Ltd [2005] WASC 7
Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507
Thompson v Palmer (1933) 49 CLR 507
Tipperary Developments Pty Ltd v The State of Western Australia [2009] WASCA 126; (2009) 38 WAR 488
Tobin v Dodd [2004] WASCA 288
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Webster v Lampard (1993) 177 CLR 598
Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2012] WASCA 157
Westwind Air Charter Pty Ltd v Hawker De Havilland Ltd (1990) 3 WAR 71
1 DAVIS DCJ: In 2010 the plaintiff commenced proceedings against the defendant as a former director of Mad Monk Pty Ltd (Mad Monk) for recovery of Mad Monk's unpaid tax liabilities (being unremitted PAYG withheld from the salaries or wages of its employees) in the sum of $99,565.95. The action against the defendant was brought pursuant to s 222AOB and s 222AOD of the Income Tax Assessment Act 1936 (the ITAA).
2 In October 2010 the plaintiff brought an application for summary judgment pursuant to O 14 of the Rules of the Supreme Court 1971 (RSC). The defendant brought his own summary judgment application pursuant to O 16 RSC. 3 The two summary judgment applications were heard by Registrar Kingsley, who dismissed the defendant's application for summary judgment and allowed the plaintiff's application for summary judgment. Reasons for the decision of the registrar were published in Deputy Commissioner of Taxation v Roget [2012] WADC 129. 4 The defendant appeals from the decision of Registrar Kingsley, seeking orders that the plaintiff's application for summary judgment be dismissed, and the defendant's application for summary judgment be allowed. 5 Pursuant to District Court Rules 2005 O 15(6) this appeal takes place as a new hearing of the summary judgment applications. I am to determine it on both the evidence before the registrar and also further affidavits which the defendant was given leave to file and serve before the hearing of this appeal. 6 While the defendant was represented at the hearing of the summary judgment before the registrar, in this appeal he was self-represented. I have taken this into account and determined, after reading his affidavits and submissions and hearing his oral argument, the substance of the issues and arguments he has raised and whether there is any merit to them: Tobin v Dodd [2004] WASCA 288 [13] - [18].
Principles on a summary judgment application 7 It is well established that the power to order summary judgment should be exercised with great care and should never be exercised unless it is clear there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99. 8 Where a plaintiff has satisfied all the requirements of O 14 to give him prima facie the right to an order in the terms asked the burden shifts to the defendant to satisfy the court why judgment should not be given against him: Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd [1976] WAR 109, 110; Westwind Air Charter Pty Ltd v Hawker De Havilland Ltd (1990) 3 WAR 71, 74. This is an evidentiary burden; the overall legal burden of persuasion remains on the plaintiff: Morgan v Pallister [2004] WASC 188 [4]. 9 The defendant must show by affidavit or otherwise that there is some triable issue either of fact or law, and that he has an arguable defence or a defence on the merits: Moscow Narodny Bank Ltd v Mosbert Finance (Aust) Pty Ltd (110 - 111). 10 The application is to be determined on the basis that the defendant's version of the facts, assuming that it is not inherently incredible, would ultimately be accepted at the trial of the action: Webster v Lampard (1993) 177 CLR 598, 608. 11 The Court is not bound to accept uncritically as raising a dispute of fact calling for further investigation every statement in an affidavit, however equivocal, lacking in precision or inconsistent with contemporary documents or other statements by the deponent: Eng Mee Yong v Letchumanan[1980] AC 331, 341; Lathwell v Stabil Pty Ltd (in liq) [2001] WASCA 295 [27] (Wheeler J); Swanzone Pty Ltd (in liq) v Prosperity Development (Aust) Pty Ltd [2005] WASC 7 [20] (Newnes M). 12 However, if, after argument, there remains a real uncertainty about the plaintiff's right to judgment without further investigation of the facts, summary judgment must be refused: Ansearch Ltd v Wavtech Pty Ltd [2006] WASC 184 [28] (Newnes M). 13 While the court may determine a difficult question of law on a summary judgment application, usually it is appropriate to leave the determination of such a question for trial: Theseus Exploration NL v Foyster [1972] HCA 41; (1972) 126 CLR 507, 514 - 515; SMEC Australia Pty Ltd v Valentine Falls Estate Pty Ltd [20].
The factual background 14 The following facts are largely taken from the defendant's affidavit evidence, the main affidavit being sworn by the defendant on 25 March 2013 and two further affidavits sworn by other deponents, Joshua John Wellisch sworn 5 February 2013 and Roderick Neil Constable sworn 22 March 2013. These affidavits are annexed to the defendant's affidavit, rather than separately filed, however, no issue is taken with this. The defendant's affidavit of 25 March 2013 is a mixture of fact and submission or argument. In this section of my reasons I have, as best as I can, separated evidence from submissions (and I will deal with the submissions later when addressing the arguments). 15 Where I have referred to the defendant's affidavit and annexure numbers, this is a reference to the defendant's affidavit of 25 March 2013, unless I have stated otherwise. 16 The defendant was a director of Mad Monk from 19 October 2009 to 9 November 2009, a total period of only 21 days. The circumstances of the defendant's appointment and following events, according to the information on the affidavit evidence, are as follows. 17 Mad Monk was a wholly owned subsidiary of Oz Brewing Limited (Oz Brewing), a listed company. The principle asset of Mad Monk was a brewery restaurant in Fremantle. 18 Mr Trevor Pugh was a director of Oz Brewing and the sole director of Mad Monk. The defendant was a major shareholder of Oz Brewing. 19 In August 2008 Mr Pugh arranged the sale of 49% of Mad Monk shares to Emem Management Pty Ltd (Emem). Julian Heppekausen was a major shareholder and director of Emem. (This has been advised by the defendant, not on affidavit, however the correspondence annexed to his affidavit seems to confirm this). Oz Brewing retained 51% of Mad Monk shares. 20 On 18 August 2008 Oz Brewing entered into a Heads of Agreement with Emem (Annexure RRR 2, which has sometimes been referred to as the management agreement). By this agreement, Emem was to have absolute control of the day to day management of Mad Monk (and its brewery restaurant, including the hiring of staff, appointing accountants, banking and debtor and creditor control) and was granted an option to acquire the remaining shares held by Oz Brewing. Emem was to retain all profits and losses and it was agreed that 'Oz [Oz Brewing] will have no input whatsoever in respect of the running of the business and/or management'. 21 Shortly after this agreement with Emem, the defendant had discussions with other shareholders of Oz Brewing about putting Oz Brewing into administration. Mr Pugh was resistant to this approach but it was then agreed that the defendant be appointed to the board of Oz Brewing and that Oz Brewing then be placed in administration. 22 The defendant was appointed to the board of Oz Brewing on 15 September 2008 and on 17 September 2008 Oz Brewing was placed into administration. The administrator was Mr Kevin Judge of Judge Constable, chartered accountants. 23 On 8 December 2008 a Deed of Company Arrangement (DOCA) for Oz Brewing was executed and Mr Judge became the Deed Administrator. 24 Under the DOCA, Oz Brewing was required to effect certain conditions precedent, including obtaining a release of the guarantees given by Oz Brewing to the lessor of premises occupied and operated by Mad Monk, and to Westpac Banking Corporation Limited for financial facilities provided to Mad Monk. 25 The Deed Administrator encountered difficulties with these conditions because of the control which Emem had over Mad Monk. According to the affidavit of Mr Constable, employed as a senior insolvency manager with Judge Constable, 'Emem was resisting the requests and requirements of the Deed Administrator to exercise control over Mad Monk in a way that would extinguish the guarantees given by Oz Brewing and fulfil the pre-conditions of the DOCA as Emem were seeking to exercise its rights to secure the 100% ownership of Mad Monk'. 26 On 15 August 2009 Mr Pugh appointed Mrs Cindy Heppekausen, a representative of Emem (and Julian Heppekausen's wife), as a director of Mad Monk. On the following day Mr Pugh resigned as a director of Mad Monk, leaving Mrs Heppekausen as its sole director. 27 Mrs Heppekausen was not a resident of Australia, but a resident of the United States of America. This created problems with the Corporations Act 2001 (Cth) which required at least one director to be an Australian resident. It also created problems regarding Mad Monk's liquor licence. The nominee was required to be in day to day management of the licensed premises. As Mrs Heppekausen would return to the USA from time to time, this resulted in a breach of licence conditions. 28 The defendant has deposed that in around September 2009 at a meeting with Mr Constable, the defendant was advised that the Deed Administrator was still unable to arrange to view the accounts of Mad Monk. Time was running out under the DOCA for Oz Brewing to achieve certain things including an audit, which of course required an audit of Mad Monk, given Oz Brewing's 51% shareholding. 29 The Deed Administrator attempted to have two directors appointed to Mad Monk. A first meeting of shareholders was called and the appointment of directors was opposed by Emem and Mrs Heppekausen. At a second meeting of shareholders of Mad Monk held on 19 October 2009, the defendant was appointed a director of Mad Monk. 30 According to the affidavit of Mr Constable (par 10), the defendant had previously been approved as a person competent to act as a nominee of licensed premises. The Deed Administrator was keen to have the defendant appointed as a director to act as the nominee under the liquor licence. 31 Before his appointment, the defendant met with Mr Pugh and made inquiries about the financial position of Mad Monk. The defendant has sworn (par 9 of his affidavit of 25 March 2013) that he asked Mr Pugh if there were any outstanding creditors or tax liabilities of Mad Monk and whether it was able to meet its liabilities as and when they fell due. Mr Pugh replied in the negative, so the defendant asked 'what about any creditor's accounts in the bottom drawer?'. Mr Pugh advised there were none. 32 Following this appointment, the Deed Administrator wrote to Mrs Heppekausen by email on 19 October 2009 (Annexure RRR5). That email made it clear to Mrs Heppekausen that as part of the required audit of Oz Brewing (which the email stated was required by the Australian Stock Exchange) it would also be necessary to perform some audit work on the accounts of Mad Monk. The email also advised that the defendant and another company, Trident Capital Pty Ltd, were underwriting the costs of having that accounting work performed, and that the DOCA needed to be completed successfully by 15 December 2009. 33 After his appointment as director, the defendant took steps to try and determine the financial position of Mad Monk. Some details are set out in the affidavits. Despite numerous requests of both Mrs Heppekausen and Mr Jason Giles of Giles Accounting, the accountants for Emem, formal financial statements were not provided, nor were any details of Mad Monk's outstanding debts. 34 Mr Wellisch in his affidavit has advised that in October 2009, on instructions from the defendant, he made several telephone calls to Mr Jason Giles to make an appointment to discuss the current financial position of Mad Monk. Mr Giles advised that he needed the permission of Mrs Heppekausen. Mr Wellisch made several attempts to contact her, leaving messages. It was not until towards the end of October 2009 that an appointment could be made for the defendant and Mr Wellisch to attend at Mr Giles' office. 35 The defendant in his affidavit has placed the meeting with Mr Giles and Mr Wellisch as occurring on 29 October 2009. Before that meeting, on 27 October 2009, the defendant received an email from Mrs Heppekausen advising of cash flow issues and that Mad Monk was unable to meet its next payment due to the landlord. 36 The defendant has deposed, and this is confirmed by Mr Wellisch in his affidavit, that at the 29 October meeting with Mr Giles the defendant specifically asked whether Mad Monk was in a position to pay its accounts as and when they fell due. Mr Giles' response was 'yes, with the exception of the landlord'. Mr Giles advised that he was unable to finalise the accounts of Mad Monk as all records were held by Mrs Heppekausen in the USA and he was still waiting for them to be forwarded to him. Mr Giles further advised that once he had received the books from Mrs Heppekausen he would be in a position to complete a set of accounts, hopefully by early November. 37 The defendant has deposed that in early November he called Mrs Heppekausen many times and also tried to contact her husband, without success. On 6 November 2009 the defendant and Mr Wellisch attended the Mad Monk restaurant in Fremantle and spoke to the manager there to see if they could view the trading figures, but they were told to contact Mrs Heppekausen. 38 On 8 November 2009 the defendant has deposed that he again telephoned Mr Giles to inquire about the progress of the Mad Monk accounts and was told that he was still awaiting information from Mrs Heppekausen. 39 Mr Wellisch has deposed that he made several further calls to Mr Giles endeavouring to get the accounts, but as of 9 November 2009 the accounts had not yet been received. 40 According to the affidavit of Mr Constable (par 17) despite his attempts, without the support of Mrs Heppekausen, the defendant was unable to pass a directors' resolution to effect the appointment of an administrator over Mad Monk. 41 Frustrated with the lack of accounting information, and after a meeting at Judge Constable with Mr Wellisch on 8 November 2009, the defendant resigned as a director on 9 November 2009. 42 Mr Wellisch also remembers at a meeting with the administrator of Oz Brewing in early November 2009 being frustrated with the lack of accounting information for Mad Monk. Mr Wellisch has deposed in his affidavit that it was he who recommended that the defendant resign as a director. 43 On Monday 16 November 2009 the defendant sent an email to Mrs Heppekausen (Annexure RRR10) in which he told her that as sole director of Mad Monk (since the defendant's resignation) it was up to her to deal with the landlord and negotiate a deal with all parties involved to ensure the continuation of the business. If she was not capable or willing to do this the defendant stated 'it would be my recommendation to the administrator that OZB (Oz Brewing) calls on its debts due from Mad Monk and forces the business into liquidation. Alternatively, to recommend the appointment of an administrator'. 44 In response to this email (also part of Annexure RRR10) Mrs Heppekausen replied that Mr Giles had promised the financial accounts on Friday, but he had to attend to his father in hospital and was out of town, and she had now been assured that they would have the accounts no later than Thursday (i.e. Thursday 19 November 2009). 45 Unknown to the defendant, before his appointment as a director, Mad Monk had incurred PAYG tax liabilities which had not been paid to the Commissioner between 1 December 2008 to 31 August 2009. By 21 September 2009 the total outstanding was $101,138 and it was still outstanding during the period when the defendant was a director. 46 On 18 November 2009 the plaintiff issued a Directors' Penalty Notice (DPN) to the defendant, pursuant to s 222AOE of the ITAA (Annexure AT-4 to affidavit of Ann Tombs, sworn 10 October 2010 in support of the plaintiff's summary judgment application). The DPN was signed by Diane Norton. In a covering letter from the plaintiff, the defendant was advised, relevantly, as follows: Please find enclosed a notice of your liability to pay a penalty equal to the amount(s) of certain specified PAYG withholding liabilities that Mad Monk Pty Ltd, ACN 119 504 817, (the company), that you are or were a director of at relevant times, failed to pay to the Commissioner. You automatically became liable to the penalty at the end of 14 days after becoming a director. We will commence action for the recovery of the penalty without further warning unless, at the end of 14 days from the date the enclosed notice is given to you: (a) the company's liability has been discharged; or (b) an agreement relating to such liability is in force under section 222ALA of the Income Tax Assessment Act 1936; or (c) the company is under administration within the meaning of the Corporations Act 2001; or (d) the company is being wound up. The penalty will be remitted if any one of these options is adopted within 14 days from the date the enclosed notice is given to you; that is, 14 days from the issue date of this letter. You should keep in mind that you will continue to be liable to a penalty if any one of the options has not been adopted at the end of 14days after the date of this letter (that is, any agreement would need to be executed by both the company and the Commissioner before the expiration of the 14 days). You are entitled to be indemnified by the company, or to obtain a contribution from anyone else from whom the Commission is entitled to recover, for any payment you make by way of penalty. A company's liability and the penalties for directors are parallel liabilities. When an amount is paid to discharge one of the liabilities, each of the other liabilities is discharged by the same amount. … 47 The company search of Mad Monk obtained by the plaintiff (Annexure AT-6 to the affidavit of Ann Tombs) before issuing the DPN, showed that the defendant was a present director and had not resigned. 48 The defendant received the DPN on 19 November 2009. According to the defendant's affidavit evidence he then contacted Ms Norton and spoke to her on either 19 or 20 November 2009. The defendant has consistently deposed in his sworn affidavits (19 November 2010 which was before the registrar, and 25 March 2013) as to the substance of the communications that he had with her. In his affidavit of 25 March 2013 his evidence is as follows (pars 38 - 41 and pars 43 - 45): 38. During my telephone conversation with Ms Norton, I said words to the effect; 39. Ms Norton said to me words to the effect that; 'The ATO will not be pursuing payment if we can verify your resignation and the matter will be closed'. 40. On or about 19 November 2009, Ms Norton telephoned me and said words to the effect that; 'I cannot find your official resignation on the ASIC database. If you provide me proof of a valid resignation then this matter can be finalised'. 41. On or about 19 or 20 November 2009 and after my telephone conversation with Ms Norton, I sent to Ms Norton a facsimile containing: … 43. After sending the Written Resignation and the ASIC Letter to Ms Norton by facsimile, I telephoned Ms Norton to confirm whether she had received it. Ms Norton said to me words to the effect: 'Yes I have received your resignation and it appears to be in order'. 44. As a consequence of the above, I considered that I had satisfied the Plaintiff's requirements under the ATO letter of the 18/11/09 Director Penalty Notice through agreement with Ms Norton and would not be required to pay the Penalties. 45. As a consequence of the Plaintiff's representation that I would not have to pay the Penalties, I did not and because I was not a director of MAD MONK, I verily believed that I could not cause MAD MONK to: 49 After receiving the DPN, the defendant became aware that a creditor's statutory demand had been issued by the plaintiff to Mad Monk. That statutory demand (Annexure RRR 11) was issued on 18 November 2009 and demanded payment of a total sum of $384,582.97 (this includes debts other than the PAYG liability). 50 On 26 November 2009 Mr Constable on behalf of the Deed Administrator wrote an email to Mrs Heppekausen cc'd to the defendant. Mr Constable referred to the statutory demand (described in that email as a 'winding up notice') and stated that 'we are gravely concerned as to the current financial state of Mad Monk' (Annexure RRR 18A). 51 On 1 December 2009 the defendant received an email from Judge Constable, attaching an email of the same date from Mrs Heppekausen to Judge Constable (Annexure RRR18B). In that email Mrs Heppekausen advised: Jason and I have been dealing with the ATO in regards to the windup notice for Mad Monk and Director Penalties issued to both Trevor [Pugh] and Bob [the defendant]. Please be advised that we have been able to secure Mad Monk a 4 week extension in order for the shareholders to reach an agreement. Within this 4 week time period Mad Monk must meet some requirements to ensure this extension stays active. These requirements are: 1. Continue to pay our excise amounts on time (Mad Monk does and will continue to do this). 2. Lodge and pay its November BAS on time. 3. Pay a weekly payment towards the old debt. Regarding the financials, Jason should have these completed today. Once I have seen them I will forward on to all shareholders … 52 Mr Constable in his affidavit (par 20 and 21), has deposed to the fact that the Deed Administrator of Oz Brewing recommended to Emem on numerous occasions that an Administrator be appointed to Mad Monk. Unfortunately there are no details of when those recommendations were made, but it appears from the chronology of the affidavit of Mr Constable that this occurred before being advised on 13 December 2009 that Mrs Heppekausen had resigned as a director of Mad Monk. 53 The financial accounts of Mad Monk were not provided to the Deed Administrator until 9 December 2009. There was an issue as to some of the entries in the accounts and whether, in fact, the liabilities incurred were Emem's, given that it was operating the business. The Deed Administrator wrote about this, and his concerns, to Julian Heppekausen of Emem by email dated 28 January 2010 (Annexure RRR 25). 54 Mr Constable has also deposed (Mr Constable's affidavit pars 22 - 25) that following Mrs Heppekausen's resignation Mad Monk had no valid director and was also in breach of its liquor licence. The Deed Administrator sought legal advice about the appointment of a provisional liquidator and, subsequently, attempts were made by the Deed Administrator to effect a members' voluntary winding up by convening a meeting of members. Neither of these occurred, however, due to lack of funds to secure payment of the provisional liquidator's fees. 55 Other email correspondence has been produced by the defendant showing that in early 2010 Judge Constable was writing to Mrs Heppekausen's husband, Julian Heppekausen, concerning the appointment of a provisional liquidator to Mad Monk. There is also evidence in subsequent emails (Annexure RRR20) that subsequently the defendant offered to put up $10,000 of the funds sought for the provisional liquidator's fees. 56 In the meantime the defendant did not hear from the plaintiff until receiving a letter dated 30 April 2010 (Annexure RRR14). In that letter notice was given that unless payment of the amount owing under the DPN (which at that time stood at $160,825.12), was made by 17 May 2010, proceedings would issue. This letter stated in particular: According to ASIC records upon which the ATO relies you were in office for 21 days and therefore liable for the amounts outstanding. Please note that resignation from the office of director does not fall into the options in Section 222AOB(1). The DPN issued on the 18 November 2009 remains valid. 57 The defendant responded by letter dated 11 May 2010 (Annexure RRR15) in which he stated: Further to your notice for legal action I would point out the following; 1. I resigned prior to the issue of notice on the 18th November 2009; 2. I rang your office and advised I had resigned and was informed that ASIC did not have my letter of resignation registered. You requested I forward you the notices of resignation which I did. The matter was indicated as closed if resignation was valid. 58 The plaintiff then responded to the defendant by letter dated 26 May 2010 referring to s 222AOD of the Act dealing with the penalty for 'new directors' and referring to the case of Fitzgerald v Deputy Federal Commissioner of Taxation(1995) 14 SR (WA) 356; (1995) 68 ATR 770 (which I discuss further, below). The plaintiff also advised that as a result of payment from other sources the defendant's outstanding liability had reduced from $160,825.12 to $99,565.95. 59 The defendant wrote back to the plaintiff by letter dated 3 June 2010 in which, among other things, he pointed out differences between his situation and that of the director in Fitzgerald. 60 The plaintiff commenced these proceedings by writ filed on 8 July 2010. 61 Mad Monk was finally wound up in October 2010 on the petition of the Australian Taxation Office.
The applicable law 62 The following is a summary of the provisions of the ITAA as they stood at the relevant time, as well as the authorities which have dealt with these provisions. 63 Under the ITAA a taxpayer is required to withhold an amount (commonly referred to as PAYG) from payments made to employees or office holders. The taxpayer must remit the amounts withheld to the Commissioner of Taxation (Commissioner) by the end of the 21st day of the month after the end of the month in which the amounts were withheld (the due date). 64 Section 222AOB imposes a duty on directors to ensure that a company meets its obligations in respect of PAYG withholding liabilities or promptly goes into administration or liquidation. Section 222AOB(1) provides that the directors of the company from time to time on or after the first deduction day, must cause the company to do at least one of the following on or before the due date: (a) pay the amount withheld; (b) make an agreement with the Commissioner under s 222ALA; (c) 'appoint an administrator under section 436A of the Corporations Act 2001' (Cth); or (d) 'begin to be wound up within the meaning of that Act'. 65 If s 222AOB is not complied with, s 222AOC(1) provides that each director 'is liable to pay to the commissioner, by way of penalty, an amount equal to the unpaid amount of the company’s liability'. 66 There is a liability not only upon the directors of the company at the time when the company's PAYG withholding liability is incurred, but also on those who are subsequently appointed directors - what is described as 'new directors'. Section 222AOD provides: 222AOD Penalty for new directors (1) If: (a) After the due date, a person becomes, or again becomes, a director of the company at a time when section 222AOB has not yet been complied with; and (b) At the end of 14 days after the person becomes a director, that section has still not been complied with; The person is liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid amount of the liability referred to in subsection 222AOC(1). 67 By s 222AOE the Commissioner must give a director notice before proceedings to recover a penalty. Until 30 June 2010 the period of notice was 14 days. By an amendment effective from 1 July 2010 the notice period was extended to 21 days. 68 Section 222AOJ sets out the defences which are available to a director in recovery proceedings by the Commissioner. Subsection 222AOJ(3) provides that: (3) It is also a defence if it is proved that: 69 'Reasonable' is defined in s 222AOJ(4) to mean reasonable having regard to both when, and for how long, the person was a director and took part in the management of the company and 'all other relevant circumstances'. 70 The test of reasonableness is an objective one: Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722; (2002) 43 ACSR 387 [25]. 71 The defence requires demonstration, in respect of all of the options in s 222AOB(1), that all reasonable steps had been taken or that there were no steps that the director could have taken: Miller v Deputy Commissioner of Taxation (1997) 26 ACSR 533, 538; (1998) 98 ATC 4059 and Canty v Deputy Commissioner of Taxation [2005] NSWCA 84 [33] (Handley JA; Beazley JA agreeing). 72 The defences under s 222AOJ(3)(a) and (b) were explained in Canty[38] - [40]: The defences under par (a) and par (b) are cumulative not mutually
exclusive. A defendant may establish that there was nothing that could
reasonably be done to achieve payment. He or she may also establish that there was no point in attempting to negotiate an agreement with the Commissioner. In such a case the defence under par (b) would succeed pro tanto leaving the defence under par (a) to address the remaining options. In other cases the defence under par (b) may succeed in relation to all
options, so that the defence under par (a) need not be considered. If the only feasible options are the appointment of an administrator or a liquidator a person under the duty, acting reasonably, may decide to seek a winding up. If so, he or she will not be acting unreasonably by doing nothing to secure the appointment of an administrator at that stage. The converse will also be true. Thus a person under the duty, who acted reasonably in choosing one of the
possible events and took all reasonable steps to bring it about would, to that extent, make out the par (a) defence although no attempt was made at that stage to achieve compliance in any other way. A person who acted reasonably in choosing between the alternatives but failed to take all reasonable steps to bring about the selected event would fail, as would a person who acted unreasonably in choosing the option to be pursued. 73 The conduct of the director must be judged not only by reference to what he knew but also by reference to what he ought to have known: Canty[57]; Saunig [28]. 74 In the case of a director who was a director at the time when the tax liability was incurred by the company, it is necessary to consider whether the defences are established for the whole of the period between the due date and the expiry of the notice: Canty [42], [45]. The length of the action period will, however, also be a relevant consideration: Canty. 75 The situation in the case of a 'new director' under s 222AOD was considered inFitzgerald. In that case, the appellant was a director for a similar period as the defendant in this case, only 17 days, and at a time after amounts for unremitted prescribed payment deductions were due and payable by the company. The Commissioner served a notice of penalty on the director pursuant to s 222AOE and subsequently obtained summary judgment for payment of the penalty. On appeal the director argued that he was no longer a director of the company at the time the notice was sent to him. He also argued that he had a defence pursuant to s 222AOJ as he did not take part in the management of the company, was not aware of the tax debt until he ceased being a director and he was not in a position to take reasonable steps to ensure payment. 76 It was held in Fitzgerald that, even though it seemed harsh, the legislation clearly provided that the liability of a new director under s 222AOD arose after the expiration of 14 days after the director's appointment. The fact that the appellant was not aware of the existence of the tax debt did not suggest that there were no reasonable steps that could have been taken to ensure compliance with the relevant provisions. French DJC explained (14 SR (WA) 359; 68 ATR 773): Although it is clear that the appellant was not aware of the company's failure to comply with the provisions of s 222AQOB there is nothing in the affidavit material before me that would suggest that he may have a defence to the respondent's claim. Although he was only a director for a period of 17 days there is nothing to suggest that he did not take part in the management of the company. Although he was not aware of the company's financial position or the moneys due to the respondent this is not sufficient to provide a defence. The provisions providing for penalties for directors pursuant to Div 9 have been in force since July 1993 so that it is the responsibility of a new director at or prior to taking up his appointment to make inquiries of the relevant officers of the company as to whether there were any moneys owing by the company to the respondent. If there was evidence to suggest that upon such inquiry a director was not given correct information then it may be that he would be able to establish a defence to the respondent's claim for penalty. However there is nothing in the affidavit material before me that suggests that this has occurred in this case.
The defendant's summary judgment application 77 In support of his summary judgment application before the registrar, the defendant argued that following the amendment to s 222AOE which came into operation on 1 July 2010 the plaintiff was required to give him 21 days notice, and thus issue a fresh DPN, before commencing proceedings. 78 In this appeal the defendant did not pursue this argument. 79 The defendant's decision not to pursue this argument was a correct one. The amendment to s 222AOE does not affect the plaintiff's right of recovery which had already accrued by 18 December 2009, before the amendment: Reardon v Deputy Commissioner of Taxation [2013] QCA 46; (2013) 275 FLR 9, [59] (Holmes JA), [65] - [66] (McMurdo J) and [100] (McMeekin J). 80 That part of the defendant's appeal from the registrar's decision in relation to the defendant's summary judgment application must be dismissed.
The plaintiff's summary judgment application 81 Based on the submissions contained in the defendant's affidavit of 25 March 2013, including 'Reasons for the Appeal of Summary Judgment by Robert Roget to be Upheld and A Trial Ordered' on page 15 (which I shall refer to as the defendant's submissions), and the defendant's further written and oral submissions, I understand the main grounds upon which the defendant opposes the plaintiff's summary judgment application to be that: (a) The defendant was not a director at the relevant time when Mad Monk incurred the tax liability, or at the time of the issue of the DPN; (b) Arising from the conversations the defendant has deposed that he had with Ms Norton, the plaintiff is estopped from pursuing the defendant pursuant to the DPN and ought to have issued a fresh notice pursuant to s 222AOE before commencing proceedings; and (c) The defendant took all responsible steps to comply with s 222AOB(1), or there were no reasonable steps that he could have taken. 82 In the defendant's submissions (par 4c) the defendant has questioned whether the action of the plaintiff in issuing a statutory demand against Mad Monk and the DPN against the defendant on the same day constitutes some form of abuse of power. It does not. 83 The defendant has raised issues (defendant's submission par 4d) concerning the reduction in the amount of Mad Monk's outstanding PAYG liability as set out in the DPN and the amount claimed in the writ. The reduction of the amount owed was due to payments received by the plaintiff from other sources, as explained to the defendant in a letter dated 26 May 2010. No possible defence arises from this.
The argument that the defendant was not a director at the relevant time 84 The fact that the defendant was not a director at the relevant time when the tax liability of Mad Monk was incurred, or at the time of the issue of the DPN, cannot succeed. The provisions of s 222AOD specifically impose liability on a director who is appointed after the tax liability is incurred, provided that 14 days after becoming a director the tax liability is still outstanding: see also Fitzgerald.
The estoppel argument 85 Estoppel of the kind the defendant has raised here is what I would describe as promissory estoppel or estoppel by representation. 86 Promissory estoppel requires a clear and unambiguous representation: Legione v Hateley (1983) 152 CLR 406, 436 - 437; Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2012] WASCA 157 [1744]; [1749] - [1767]. 87 The essential elements of a promissory estoppel also include that the defendant must have been induced by the plaintiff to adopt a particular assumption or expectation on which the defendant relied upon and acted to his detriment: Waltons Stores (Interstate) Ltd v Maher(1988) 164 CLR 387, 428 - 429; Thompson v Palmer (1933) 49 CLR 507, 547. 88 The reliance on the representation by the defendant must also be reasonable: Waltons Stores (406); Tipperary Developments Pty Ltd v The State of Western Australia [2009] WASCA 126; (2009) 38 WAR 488 [136] (McLure JA). 89 As a general principle, estoppel will not prevent the exercise of a statutory obligation.This general principle has been applied in tax cases. It has been held that the Commissioner cannot be estopped from issuing assessments of income tax in accordance with law: Federal Commissioner of Taxation v Australia & New Zealand Savings Bank Ltd[1994] HCA 58; (1994) 181 CLR 466, 479; Bellinz Pty Ltd v Federal Commissioner of Taxation [1998] FCA 615; (1998) 84 FCR 154, 229; AGC (Investments) Ltd v Federal Commissioner of Taxation (1991) 21 ATR 1379. 90 However, it has been held that a taxpayer may raise an estoppel on a limited basis in relation to the alleged conduct of the Commissioner after the issue of a DPN. 91 In Federal Commissioner of Taxation v Winters (1997) 97 ATC 4967; (1997) 37 ATR 209, two directors successfully resisted summary judgment against them for a penalty amount by arguing that, during negotiations with the ATO after receiving the DPN, they had been given reason to believe that time for compliance with the DPN would be extended. They argued that they had thereby been induced not to appoint an administrator within the 14-day period of the notice and that the Commissioner should be prevented from taking advantage of that failure. In giving leave to the directors to defend, Moynihan J took the view that, depending of course on the resolution of factual issues in their favour, the defendants were capable of making out the elements founding an estoppel. Moynihan J referred to the general principle that estoppel will not prevent the exercise of a statutory obligation, noting: It may be accepted as a matter of general principle that estoppel will not prevent the exercise of a statutory obligation; see Polatat 339 in the joint judgment of Davies and Branson JJ where an extensive examination of the authorities is undertaken. It is, however by no means clear that the principle extends to the circumstances here so as to prevent the defendants from raising the limited estoppel on which they rely. 92 In this case, based on the defendant's evidence, the initial statement of Ms Norton, that 'the ATO will not be pursuing payment if we can verify your resignation and the matter will be closed', followed by the second statement after receiving a copy of the defendant's resignation that 'I have received your resignation and it appears to be in order', arguably constitutes a statement that the ATO would not pursue the defendant further. If the defendant's evidence is accepted at trial, this is arguably capable of constituting a representation amounting to an estoppel. 93 Counsel for the plaintiff made submissions that when Ms Norton asked the defendant to provide proof of a 'valid resignation' (as set out in par 40 of the defendant's affidavit), this had to mean a resignation within the 14-day period set out in s 222AOD. In the circumstances of the discussion as set out in the defendant's affidavit and given the evidence that at this point the plaintiff was not aware that the defendant had in fact resigned, I am not satisfied that I should apply the construction of the words 'valid resignation' argued on the plaintiff's behalf. 94 The defendant has sworn to the effect that he did not believe that he had to do anything after his discussions with Ms Norton and thought the matter had resolved. 95 Counsel for the plaintiff made submissions that: 96 These matters may raise a question about whether the defendant was, in fact, induced by the representation and relied upon it, and whether it was reasonable for him to rely upon it. Against that, I need to weigh the contemporaneous events and documents. After the last discussion he had with Ms Norton in November 2009, the defendant did not hear again from the plaintiff until the letter of 30 April 2010. He responded by his letter of 11 May 2010 in which, among other things he specifically mentioned the 'matter was indicated as closed if resignation was valid'. 97 While there may be doubt about the defendant's inducement by and reliance upon the representation, on the information before me I am not able to say that the defendant's case is inherently incredible, or that it is clear that there is no real question to be tried. In my view there remains a real uncertainty about the plaintiff's right to judgment without further investigation of the facts. 98 The defence of estoppel raised by the defendant is a matter which I consider should proceed to trial.
Defence of reasonable steps 99 The defendant is relying upon both pars (a) and (b) under s 222AOJ(3). He must therefore establish that he took all reasonable steps or there were no reasonable steps he could have taken to exercise each of the options in s 222AOB throughout the whole period, commencing with his appointment as a director of Mad Monk on 19 October 2009. 100 The defendant has argued that he is in a different position from that of the director in Fitzgerald. The defendant has relied upon the passage I have already set out in Fitzgerald, emphasising the following words which appear in bold: … The provisions providing for penalties for directors pursuant to Div 9 have been in force since July 1993 so that it is the responsibility of a new director at or prior to taking up his appointment to make inquiries of the relevant officers of the company as to whether there were any moneys owing by the company to the respondent. If there was evidence to suggest that upon such inquiry a director was not given correct information then it may be that he would be able to establish a defence to the respondent's claim for penalty. However there is nothing in the affidavit material before me that suggests that this has occurred in this case. 101 The defendant submitted that he was not given correct information either before or after he became a director of Mad Monk and he was, in fact, misled. He has argued that while he was a director the situation was complicated by the powers of management which Emem had over Mad Monk. The defendant has also argued (affidavit page 16) that following his resignation as a director he made 'every possible lawful effort' to assist Oz Brewing's Deed Administrator with the appointment of an administrator or liquidator to Mad Monk, relying in particular on his correspondence with Mrs Heppekausen on 16 November 2009 (Annexure RRR 10) and the Administrator's correspondence with her on 26 November 2009 (Annexure RRR 18A). 102 On behalf of the plaintiff it was submitted that there were no reasonable steps taken by the defendant. All the defendant appeared to do while he was a director was to inquire after the accounts. It was submitted that he could have used provisions of the Corporations Act to obtain access to the books or financial accounts of the company (although the defendant has argued that this submission fails to take into account the evidence that the financial records were in the USA). It was also submitted that the defendant should have sought legal advice as to his options, particularly after receiving the DPN, but did not do so. 103 In relation to the period following his resignation, it was submitted that all the defendant did was to write the email to Mrs Heppekausen of 16 November 2009. 104 As to the period following the service of the DPN, the submissions made by counsel for the plaintiff were that the evidence from the defendant demonstrates that he did not actually direct his mind to any of the four options set out in s 222AOB. This is particularly so given the defendant's affidavit evidence that he did not believe that he had to do anything after his discussions with Ms Norton and thought the matter had resolved. Accordingly it was submitted that the defendant did not take all reasonable steps in relation to each of the options in s 222AOB after the issue of the DPN. 105 However, the submissions made on behalf of the plaintiff, even if I were to accept them, do not resolve the matter. There is a reliance by the defendant also on par (b) of s 222AOJ(3). I need to bear in mind the passage from Canty[38] - [40]. A defendant may establish that there was nothing that could reasonably be done in relation to one or more of the four options. If the defence under par (b) succeeds in relation to all options, the defence under par (a) need not be considered. 106 Remembering that the test is objective, the particular circumstances of this defendant must be taken into account. These circumstances include: (a) the relationship between Oz Brewing, Emem and Mad Monk, including the management and control which Emem had over Mad Monk; (b) those surrounding the defendant's appointment as a director; (c) the limited time he was a director; (d) the evidence he has given to the effect that he was misled as to the true extent of Mad Monk's liabilities (with nothing said about a tax liability in his inquiries with Mr Pugh before the defendant's appointment as a director, nor at the time of his subsequent inquiries with Mr Giles); (e) the evidence as to the difficulties which both the defendant and the Deed Administrator of Oz Brewing experienced in obtaining the financial records of Mad Monk; (f) the evidence concerning the reasons for the defendant's resignation as a director of Mad Monk; (g) the evidence that he was liaising with Oz Brewing's Deed Administrator regarding the appointment of an administrator over Mad Monk; and (h) that the DPN was issued by the plaintiff only 9 days after his resignation as a director of Mad Monk. 107 The defendant's circumstances are arguably distinguishable from the situation of the directors in other cases, including Fitzgerald and Saunig. 108 Applying Canty, it will be necessary in this case to look at what options were feasible and open to a person in the defendant's position, acting reasonably. 109 In my view it is arguable that in the particular circumstances of the defendant in this case, there was nothing that could reasonably have been done by the defendant to achieve payment by Mad Monk of its outstanding tax liabilities (the first option in s 222AOB(1)), or to negotiate an agreement with the Commissioner (the second option in s 222AOB(1)). This is particularly so for the period after his resignation as a director (as to which, see Saunig[31] and [32]), and following the service of the DPN, given the statutory demand issued by the plaintiff to Mad Monk and then the information received by the defendant on 1 December 2009 that Mad Monk had entered into negotiations with the plaintiff and achieved an extension of time within which to comply with the plaintiff's statutory demand. 110 In relation to the remaining options in s 222AOB(1), those of administration or winding up, the defendant has argued that based on legal advice he had obtained it was not possible for him to take steps either to have an administrator appointed to Mad Monk or to wind the company up. In the defendant's submissions set out in his affidavit (pars 4a and 4b), he has argued that Mrs Heppekausen was not willing or able to call a board meeting or willing to place the company in administration, and in any event the defendant has questioned whether he or even the administrator of Oz Brewing could have effected an administration or liquidation due to the management agreement in place between Oz Brewing and Emem. He has questioned whether a director once resigned can place the company in administration if he is not a creditor, and he has stated that he was not a creditor. 111 In response to this, counsel for the plaintiff conceded that the appointment of an administrator would be difficult (ts 53). That is a concession properly made, in my view, for the reasons discussed in Saunig[32]. An administrator could not be appointed without the resolution of the board, requiring a majority of directors: see s 436A of the Corporations Act. 112 Counsel for the plaintiff submitted, however, that the winding up of the company was an option, even after the defendant's resignation. While he was not a director or creditor, it was submitted that after service of the DPN the defendant was a contingent or prospective creditor of Mad Monk. As a contingent or prospective creditor he could have filed a petition to wind up the company on the just and equitable ground: s 461(1)(k) of the Corporations Act. 113 The basis upon which it was argued that the defendant was a contingent or prospective creditor was pursuant to s 222AOI of the ITAA, which gives a director a right of indemnity from the company. The section provides: Section 222AOI. Director's rights of indemnity and contribution A person who pays an amount under section 222AOC or 222AOD has the same rights: (a) whether by way of indemnity, subrogation, contribution or otherwise; and (b) against the company of anyone else; as if the payment had been made under a guarantee: (c) of the liabilities referred to in section 222AOC; and (d) under which the person, and every other person who has paid, or from whom the Commissioner is entitled to recover, a penalty under this Subdivision, were jointly and severally liable as guarantors. 114 Although the plain words of s 222AOI provide that the right of indemnity only applies upon payment, counsel for the plaintiff argued that the defendant was still a contingent or prospective creditor without having to actually make payment. 115 It was also submitted on behalf of the plaintiff that there was no evidence that the defendant obtained legal advice after receiving the DPN, something which it was submitted he ought to have done. Reliance was placed on the statement made in Saunig[36] that had legal advice been sought at an earlier stage by the director in that case (who, incidentally, had been a director for 17 months (as opposed to days) and was a director at the time of the issue of the DPN), it might have led to winding up proceedings being taken. 116 In my view, there are a number of difficulties with the plaintiff's submissions, the first of which is that according to the affidavit of the defendant sworn 22 November 2013, both before and after he became a director of Mad Monk until it was finally liquidated he: … sought directions from Rod Constable, Kevin Judge [the Administrators of Oz Brewing] and though them Michael Ferguson of Minter Ellison regarding gaining the accounts of Mad Monk, the appointment of an administrator/liquidator of Mad Monk and my roll [sic] in achieving these outcomes. I was present at several meetings and relied on their legal advice. 117 The defendant has annexed what is said to be a 'typed opinion' (Annexure RRR 35) although it appears to be an excerpt from an opinion; it is not dated and the author is not disclosed. The defendant has maintained, however, that he did obtain legal advice. 118 The second difficulty is that there was a very short time period between the defendant's appointment as a director and the time for compliance with the DPN. The total time between his appointment as a director on 19 October 2009 and when the notice period under the DPN expired, 4 December 2009, is 46 days. 119 There is evidence that the defendant was not given correct information when he made inquiries into the true financial position of Mad Monk both before and while he was a director. There is evidence that, after his resignation as a director when information about the true financial position of Mad Monk was not forthcoming, the Deed Administrator of Oz Brewing was involved in dealing with and pursuing Mrs Heppekausen and Emem, and the true financial position of Mad Monk was not known until after 4 December 2009. In light of this I consider that there is a real triable issue as to whether during the relevant time the option of winding up could reasonably have been pursued. 120 A further difficulty is that to 'begin to be wound up within the meaning of that Act' in s 222AOB(1)(d) requires more than the filing of an application to wind up. It has been held that a company 'begins to be wound up' within the meaning of the Corporations Act when a court makes an order for the winding up of the company, not when the application for the winding up order is made: Re Scobie; Ex parte Deputy Commissioner of Taxation (1995) 59 FCR 177, 185; (1995) 95 ATC 4525, Miller ((1997)26 ACSR 533, 527 (Mason P)). In other words, the company must go into liquidation: see also the discussion regarding s 222ANA in Saunig [34]. 121 There was, of course, only 14 days given to the defendant to take steps to wind up the company after service of the DPN. There is at least an arguable defence, assuming that it was possible for the defendant to wind up Mad Monk on the just and equitable ground as submitted by the plaintiff, that an order could not have been obtained having regard to the time needed to prepare, file and serve and then hear the winding up application: Miller. In this regard I note that s 459P(2) of the Corporations Act provides that a winding up application may only be made by a contingent or prospective creditor with the leave of the court, and s 462(4) provides that the court must not hear an application to wind up made by a contingent or prospective creditor unless and until security for costs has been given as the court thinks reasonable, and a prima facie case for winding up the company has been established. 122 The availability of the option of winding up of the company involves further investigation of the facts and the law, as to: (a) whether winding up was, objectively, a feasible option at any time between the defendant's appointment on 19 October 2009 and when the notice period under the DPN expired; (b) whether, after the service of the DPN, the defendant was a contingent or prospective creditor of Mad Monk, and thus could have caused the company to begin to be wound up; and (c) whether it was actually possible within the available time in either (a) or (b), to obtain an order for the winding up of the company. 123 These issues and the feasibility of the other options in s 222AOB are issues which need to be fully ventilated and argued at trial, with appropriate evidence led, and they are not matters which I can resolve on a summary judgment application. 124 There is in my view a real question to be tried in relation to the defence under s 222AOJ(3). 125 It follows that there is a real uncertainty about the plaintiff's right to judgment, and the plaintiff's summary judgment application must be refused.
Conclusions 126 That part of the defendant's appeal dealing with the decision of the registrar dismissing the defendant's summary judgment application must be dismissed. 127 That part of the defendant's appeal from the decision of the registrar allowing the plaintiff's summary judgment application will be allowed. 128 I will hear from the parties as to the terms of the orders which should be made, including the costs of the two summary judgment applications and of this appeal.
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