Deputy Commissioner of Taxation v Zammitt - [2014] NSWCA 104

Court of Appeal

Supreme Court

New South Wales

Medium Neutral Citation: Deputy Commissioner of Taxation v Zammitt [2014] NSWCA 104
Hearing dates: 10 February 2014
Decision date: 04 April 2014
Before: Bathurst CJ at [1];
Beazley P at [2];
Gleeson JA at [3];
Bergin CJ in Eq at [4];
Tobias AJA at [5]
Decision:
1. Appeal allowed.
2. Set aside the orders made by his Honour Judge Peter Taylor SC on 31 August 2012.
3. Judgment for the appellant in the sum of $365,066.49.
4. Remit to his Honour Judge Peter Taylor SC for determination the question of interest on the judgment sum as well as the costs of the proceedings at first instance.
5. Each party to pay its and his own costs of the appeal.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Catchwords: TAXATION - income tax - director penalty notice - repeal of Division 9 of Part VI of the Income Tax Assessment Act 1936 (Cth) -effect of transitional provisions in Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) - whether Acts Interpretation Act 1901 (Cth) operated to preserve the Commissioner's right to recover the penalty - effect of Schedule 7 of the Tax Laws Amendment (2011 Measures No 7) Act 2011 (Cth) - whether fresh director penalty notice required to be served
Legislation Cited: Acts Interpretation Act 1901 (Cth)
Income Tax Assessment Act 1936 (Cth)
Income Tax Assessment Act 1997 (Cth)
Tax Laws Amendment (2011 Measures No. 7) Act 2011 (Cth)
Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth)
Taxation Administration Act 1953 (Cth)
Cases Cited: Certain Lloyd's Underwriters v Cross [2012] HCA 56; 248 CLR 378
Deputy Commissioner of Taxation v Meredith [2007] NSWCA 354; (2007) 245 ALR 150
Deputy Commissioner of Taxation v Woodhams [2000] HCA 10; (2000) 199 CLR 370
Deputy Commissioner of Taxation v Zammitt [2012] NSWDC 135; (2012) 15 DCLR (NSW) 104
Farah Construction Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89
Minister for Immigration and Multicultural Affairs v Nystrom [2006] HCA 50; (2006) 228 CLR 566
Rail Corporation New South Wales v Brown [2012] NSWCA 296; (2012) 82 NSWLR 318
Reardon v Deputy Commissioner of Taxation [2013] HCATrans 130
Reardon v Deputy Commissioner of Taxation [2013] QCA 46; (2013) 275 FLR 9
Soong v Deputy Commissioner of Taxation [2011] NSWCA 26; (2011) 80 NSWLR 226
Category: Principal judgment
Parties: Deputy Commissioner of Taxation (Appellant)
Kevin Emmanuel Zammitt (Respondent)
Representation: R Derrington QC / D Jay (Appellant)
M Speakman SC / P Rodionoff (Respondent)
Solicitors:
Australian Government Solicitor (Appellant)
Bongiorno Lawyers (Respondent)

File Number(s): 2012/299263
Publication restriction: None
Decision under appeal

Jurisdiction:

9101

Citation:

Deputy Commissioner of Taxation v Zammitt [2012] NSWDC 135

Date of Decision:

2012-08-31 00:00:00

Before:

P Taylor SC DCJ

File Number(s):

2010/100600

Judgment

BATHURST CJ: I agree with Tobias AJA.

BEAZLEY P: I agree with Tobias AJA.

GLEESON JA: I agree with Tobias AJA.

BERGIN CJ in EQ: I agree with Tobias AJA.

TOBIAS AJA: The Deputy Commissioner of Taxation (the Commissioner) appeals from a decision of his Honour Judge Peter Taylor SC of the District Court dismissing proceedings instituted by her to recover a penalty from the respondent, a director of Work Care Medical Pty Limited (now OKD Pty Limited) (the Company) in the amount of $365,066.49 (the penalty sum) being unremitted tax deductions made by the Company from the salary and wages of its employees over a 23 month period ending on 31 May 2009: Deputy Commissioner of Taxation v Zammitt [2012] NSWDC 135; (2012) 15 DCLR (NSW) 104.

Essentially two issues arise on the appeal. The first is whether, as held by the primary judge, the Commissioner was required to give the respondent a 21 day notice pursuant to the provisions of Division 269 of the Taxation Administration Act 1953 (Cth) (the 1953 Act) before she could recover the penalty sum from him. The second, which arises by way of a Notice of Contention filed on behalf of the respondent, is whether a 14 day notice which was given by the Commissioner to the respondent pursuant to the provisions of former Division 9 of Part VI of the Income Tax Assessment Act 1936 (Cth) (the 1936 Act), and which was conceded by the Commissioner to have been invalid, had been validated by the provisions of Schedule 7 of the Tax Laws Amendment (2011) Measures No.7) Act 2011 (Cth) (the 2011 Act). The primary judge held that the notice was so validated. The respondent challenges that finding.

The Relevant Statutory Provisions

Prior to its repeal on 1 July 2010, Part VI of the 1936 Act was entitled "Collection and recovery of tax". Division 9 of that Part was headed "Penalties for directors of non-remitting companies". Subdivisions A and B of Division 9 included the following provisions relevant to this appeal.

Section 222ANA(1)-(2) relevantly provided that Division 9 imposed a duty on the directors of a company to either cause it to meet its obligations under Division 8 of the 1936 Act or under Subdivision 16-B in Schedule 1 to the 1953 Act or to go promptly into voluntary administration or liquidation pursuant to the Corporations Act 2001 (Cth). That duty was enforceable by way of penalties that were recoverable by the Commissioner if she gave written notice to the director concerned.

Accordingly, s 222AOB(1) required directors of a company from time to time on or after a certain date to cause the company to either: comply with its obligations in relation to deductions and amounts withheld; make an agreement with the Commissioner in relation to its liability under a remittance provision in respect of such deductions and amounts; or appoint an administrator of the company under the Corporations Act or begin to be wound up within the meaning of that Act.

Section 222AOC was the penalty provision, which provided that if s 222AOB was not complied with on or before the relevant date, each person who was a director of the company at any time during the relevant period (as the respondent was) became 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 or amounts withheld.

However, as noted at [8] above, before the Commissioner could recover that penalty she was required by s 222AOE to give the director a 14 day written notice, referred to as a director penalty notice (DPN). Section 222AOE provided as follows:

Commissioner must give 14 days' notice before recovering penalty

The Commissioner is not entitled to recover from a person a penalty payable under this Subdivision until the end of 14 days after the Commissioner gives to the person a notice that:

(a) sets out details of the unpaid amount of the liability referred to in subsection 222AOC(1), (1A) or (2) (whichever relates to the penalty); and

(b) states that the person is liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount, but that the penalty will be remitted if, at the end of 14 days after the notice is given:

(i) the liability has been discharged; or

(ii) an agreement relating to the liability is in force under section 222ALA; or

(iii) the company is under administration within the meaning of the Corporations Act 2001; or

(iv) the company is being wound up.

In Deputy Commissioner of Taxation v Woodhams [2000] HCA 10; (2000) 199 CLR 370 at [36] the High Court identified two purposes of a s 222AOE notice. The first was to inform the recipient of the unpaid amount of a company's liability and of the recipient's liability to a penalty in the same amount. The second was to inform the recipient of the alternative courses available which would result in remission of the penalty.

Section 222AOF(1) provided, relevantly, that the Commissioner may give a person a notice under s 222AOE by sending it by post to an address that appeared from certain documents (defined in s 222AOF(2)) held by the Australian Securities and Investments Commission (ASIC). A note to s 222AOF(1) drew attention to ss 28A and 29 of the ActsInterpretation Act 1901 (Cth) (the AI Act) as being relevant to the giving of a notice under s 222AOE. Sections 28A and 29 of the AI Act relate to the service of documents and the meaning of service by post, respectively.

Section 222AOG provided for the remission of a penalty if, inter alia, s 222AOB was complied with. Section 222AOG was, relevantly, in the following terms:

Remission of penalty if section 222AOB, 222AOBAA or 222AOBA complied with before notice period ends

If:

(a) a penalty is payable by a person under this Subdivision; and

(b) Section 222AOB... is complied with at a time when the Commissioner has not yet given the person a notice under section 222AOE, or within 14 days after the Commissioner gives the person such a notice;

the penalty is remitted because of this section.

In 2010 the Commonwealth Parliament passed the Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) (the 2010 Act). Its purpose, according to its Explanatory Memorandum was, amongst other things, to rewrite the provisions of Division 9 of Part VI on the 1936 Act and insert the rewritten provisions into the 1953 Act. The Explanatory Memorandum noted that the rewritten provisions generally made no policy changes but included drafting changes needed to conform to the legislative approach used in the Income Tax Assessment Act 1997 (Cth) to simplify expression and to remove any ambiguity.

With respect to the rewritten version of Division 9, which was to commence on 1 July 2010, the Explanatory Memorandum stated the following:

2.105 The rewrite applies to obligations arising both before and after 1 July 2010 subject to a number of transitional rules. For example, the Commissioner can issue a notice of a penalty that arose in relation to an unfulfilled obligation under the current law as if the new law had always applied. This approach will ensure a smooth transition between the old law and new law. [Schedule 1, item 64]

Transitional rules

2.106 No penalties are imposed under the new law if a penalty was payable under the old law at anytime before 1 July 2010. This will prevent a taxpayer being subject to multiple penalties in relation to a breach of a single obligation. [Schedule 1, item 65]

2.107 Penalties that remain unpaid as at 1 July 2010 under the old law are taken to have been payable under the new law for the purposes of the machinery provisions. This will ensure a smooth transition between the old and new law. [Schedule 1, item 65]

The references to Schedule 1, items 64 and 65 are references to items 64 and 65 of the transitional provisions of the 2010 Act (the Transitional Provisions), which imported penalties payable under Part VI of the 1936 Act into Division 269, Schedule 1 of the 1953 Act.

The proper construction of the Transitional Provisions is critical to the resolution of the first issue I have identified as requiring determination on the appeal. I therefore set them out so far as is presently relevant:

Division 5 - Directors' obligations

64 Application - Division 269 in Schedule 1 to the Taxation Administration Act 1953

Subject to item 65, Division 269 in Schedule 1 to the Taxation Administration Act 1953, as added by this Schedule, applies in relation to an amount payable by a company to the Commissioner before, on or after the commencement time.

65 Transitional - Penalties

No doubling-up of penalties

(1) Subsection 269-20(1) in Schedule 1 to the Taxation Administration Act 1953, as added by this Schedule, does not apply if the due day referred to in that subsection occurs before the commencement time.

(2) ...

New provisions apply to existing penalties

(3) Subitem (4) applies in relation to a penalty that, just before the commencement time, was payable under Division 9 of Part VI of the Income Tax Assessment Act 1936.

(4) Division 269 in Schedule 1 to the Taxation Administration Act 1953 (other than section 269-20) has effect, from the commencement time, as if the penalty were payable under Subdivision 269-B in that Schedule.

The "commencement time" referred to in the Transitional Provisions was 1July 2010.

The rewritten version of Division 9 was incorporated into Division 269 of the 1953 Act. Section 269-15(1) imposes upon directors of a company the obligation to cause the company to comply with its obligations, relevantly, to remit to the Commissioner the amount of taxes withheld.

Section 269-20 is the rewritten penalty provision equivalent to the former s 222AOC and, relevantly, is in the following terms:

Penalty for director on or before due day

(1) You are liable to pay to the Commissioner a penalty if:

(a) at the end of the due day, the directors of the company are still under an obligation under section 269-15; and

(b) you were under that obligation at or before that time (because you were a director).

(2) The penalty is due and payable at the end of the due day.

Penalty for new director

(3) ...

(4) ...

Amount of Penalty

(5) The amount of a penalty under this section is equal to the unpaid amount of the company's liability under its obligation.

The rewritten notice provision, to be contrasted with the former s 222AOE, is s 269-25 of which the following subsections are presently relevant:

Commissioner must give notice of penalty

(1) The Commissioner must not commence proceedings to recover from you a penalty payable under this Subdivision until the end of 21 days after the Commissioner gives you a written notice under this section. [Emphasis added.]

Content of Notice

(2) The notice must:

(a) set out what the Commissioner thinks is the unpaid amount of the company's liability under its obligation; and

(b) state that you are liable to pay to the Commissioner, by way of penalty, an amount equal to that unpaid amount because of an obligation you have or had under this Division; and

(c) explain the main circumstances in which the penalty will be remitted.

(3) ...

When notice is given

(4) Despite section 29 of the Acts Interpretation Act 1901, a notice under subsection (1) is taken to be given at the time the Commissioner leaves or posts it.

The rewritten remittal provision, equivalent to the former s 222AOG, is s 269-30 which relevantly provides as follows:

Remission of penalty before end of notice period

(1) A penalty of yours under this Division is remitted if the directors of the company stop being under the relevant obligation under section 269-15:

(a) before the Commissioner gives you notice of the penalty under section 269-25; or

(b) within 21 days after the Commissioner gives you notice of the penalty under that section.

The form of the notice posted to the respondent

On 27 November 2009 an officer of the Australia Taxation Office prepared a DPN (the Notice) and covering letter, addressed the envelope from an address of the respondent that she obtained from ASIC records, placed the Notice and the letter in an envelope, which she sealed and to which she fixed a postage stamp and then posted the envelope in an Australia Post box in Moonee Ponds, Victoria.

The letter referred to the enclosed notice and stated:

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 s 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 14 days 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).

[Emphasis in original.]

The Notice contained details of the amount owing and relevantly stated as follows:

The penalty in respect of each unpaid amount of the company's liability as detailed in the above table will be remitted if, at the end of 14 days after the date on this notice: -

(a) the company's liability in respect of that unpaid amount has been discharged; or

(b) an agreement relating to the liability is in force under s 222ALA of the ITAA 1936; or

(c) the company is under administration within the meaning of the Corporations Act 2001; or

(d) the company is being wound up. [Emphasis in original]

Both the letter and the Notice were dated 27 November 2009, which was also the date upon which each was posted.

The respondent did not comply with the DPN. The Company went into administration on 13 August 2010.

The issue of when the Notice was "given"

As at 27 November 2009, being the date of the Notice, the relevant law as to the date upon which a DPN was "given" for the purpose of s 222AOE had been determined by this Court in Deputy Commissioner of Taxation v Meredith [2007] NSWCA 354; (2007) 245 ALR 150. In that case the majority decided, in a judgment published on 10 December 2007, that a DPN which was proved to have been posted but found not to have been received or delivered, was nevertheless "given" for the purposes of s 222AOE of the 1936 Act on the date it was posted.

The effect of Meredith therefore, was that the Notice was given and thus the 14 day period commenced to run, when it was posted rather than when it was received. On this assumption, the Commissioner would become entitled to recover the penalty sum from the respondent on the expiration of 14 days from 27 November 2009.

Changes to the law as to when a DPN is "given"

The Commissioner commenced proceedings in the District Court to recover the penalty sum on 9 March 2010. She filed an Amended Statement of Claim on 14 September 2010. The proceedings came on for hearing before the primary judge on 3 May 2012.

In the meantime, on 25 February 2011 the decision in Meredith was overruled by a five judge bench of this Court in Soong v Deputy Commissioner of Taxation [2011] NSWCA 26; (2011) 80 NSWLR 226. The Court unanimously held that a DPN was "given" under s 222AOF for the purposes of s 222AOE when it was delivered rather than, as held in Meredith, when it was posted. Special leave to appeal to the High Court from the decision in Soong was refused on 12 August 2011. Accordingly, the Notice was conceded by the Commissioner to be invalid because it was misleading as to the date by which remittal of penalties could be achieved.

The validation attempt

In response to the decision in Soong, on 29 November 2011 the Commonwealth Parliament enacted the Tax Laws Amendment (2011 Measures No. 7) Act 2011 (Cth) (the 2011 Act) which inserted Schedule 7 into the 1953 Act in the following terms:

Schedule 7 - Penalty notice validation

1 Validation of notices

(1) This item applies if the Commissioner gave (or purported to give) a notice under former section 222AOE on or after 10 December 2007 by sending it by pre-paid post in accordance with section 28A of the Acts Interpretation Act 1901.

(2) For the purpose of former section 222AOE, treat the notice as having been given at the time the Commissioner sent it by pre-paid post in accordance with section 28A of the Acts Interpretation Act 1901.

(3) This item applies despite section 29 of the Acts Interpretation Act 1901.

(4) This item does not affect rights or liabilities arising between parties to proceedings heard and finally determined by a court on or before the commencement of this item, to the extent that those rights or liabilities arose from, or were affected by, a notice referred to in subitem (1).

(5) In this item:

former section 222AOE means former section 222AOE of the Income Tax Assessment Act 1936 (as that section was in force before the commencement of Schedule 1 to the Tax Laws Amendment (Transfer of Provisions) Act 2010).

The relevance of the date 10 December 2007 in item 1(1) is that that was the date of the decision of this Court in Meredith: see [27] above.

The first issue: the proper construction of the Transitional Provisions

The primary judge's reasons

The primary argument upon which the present appeal turns and in respect of which the respondent was successful before the primary judge relates to the proper construction of the Transitional Provisions. At [117] of his reasons his Honour expressed the view that although s 269-20 of the new Division 269 (which imposes penalties on directors) is expressly made inapplicable by sub-item 65(4), that is not the case with s 269-25 (the new notice provision). The Transitional Provisions thus make ss 269-25 and 269-30 applicable to the present case. His Honour concluded at [119]-[121] that accordingly, s 269-25 (1) precluded recovery by the Commissioner of the penalty sum as a new 21 day notice was not given.

The primary judge's reasoning to this conclusion was encapsulated in [126] of his reasons where he said:

Schedule 1 of the Transitional Provisions does not focus on recoverability or remission but on whether the debt is "payable". Sub-item 65(4), according to sub-item 65(3), applies in relation to a penalty that was "payable". And sub-item 65(4) makes the penalty "payable" under the new Division 269 provisions. This repeated reference to "payable", and the express reference in item 65 (repeated four times) excluding the operation of section 269-20, but not sections 269-15, 269-25 or 269-30, persuade me that the proper interpretation of the Transitional Provisions is that sections 269-15, 269-25 and 269-30 of the [1953 Act] apply to Mr Zammitt's penalty.

His Honour then noted the Commissioner's reliance upon s 8(c) of the AI Act which provided, relevantly, that in the absence of a contrary intention, the repeal of an Act in whole or in part shall not affect any right acquired or accrued under the Act repealed. Having decided that Schedule 7 operated to affect rights under the repealed Division 9, the primary judge considered (at [132]) that those rights affected or created by Schedule 7 were preserved by s 8(c) in the absence of a contrary intention because of the retrospectivity of Schedule 7, notwithstanding that the rights were created after the repeal of Division 9.

However, although his Honour accepted that the effect of Schedule 7 was that the right of the Commissioner to recover the penalty sum from the respondent had crystallised, nevertheless in his view the plain words of sub-item 65(4) manifested an intention contrary to that outcome - the intended effect was that the collection and recovery of penalties arising under former Division 9 was to be governed by ss 269-15, 269-25 and 269-30.

Accordingly, the primary judge concluded (at [134]) that the heading to Schedule 1, the express words of item 64 and sub-items 65(3) and (4), when combined with the express exclusion of s 269-20 in sub-item 65(1), (2), (4) and (6), and the absence in all these provisions of any indication of a distinction between penalties which were or were not recoverable as at 1 July 2010, thus displaced the presumption in s 8(c) of the AI Act.

His Honour was unable to construe the words in items 64 and 65 so that they applied ss 269-15, 269-25 and 269-30 to those penalties which were not the subject of a s 222AOE notice given before 1 July 2010, and did not apply to penalties that were the subject of a (valid or invalid) s 222AOE notice that was given before that date. It followed that the penalty sum could not be recovered by the Commissioner from the respondent without compliance with s 269-25. He thus dismissed the proceedings with costs.

The Commissioner's submissions on the proper construction of the Transitional Provisions

The Commissioner's submissions recognised, as did those of the respondent, that the relevant provisions in the former Division 9 distinguished between the liability of a director to pay a penalty and the entitlement of the Commissioner to recover that penalty. Section 222AOC describes penalties as "payable" when the due date for payment of the withheld tax passes. Section 222AOE expressly assumes the existence of penalties that are "payable" and defines when they are to become "recoverable".

The Commissioner submitted that, properly construed, sub-items 65(3) and (4) provided that the new regime applied only to penalties that were payable but in respect of which no right to recover had accrued as at 1 July 2010. The reference in sub-item 65(3) to a penalty payable "just before" 1 July 2010 related to a penalty payable by a director but which was not recoverable by the Commissioner. Accordingly, the clear legislative intent of the provision, when read in the context of the Explanatory Memorandum, was that neither sub-items 65(3) or (4) had any application to those penalties in respect of which the right to recover had accrued to the Commissioner prior to 1 July 2010.

The starting point for that argument was that the Commissioner's accrued right to recover a penalty was preserved by s 8(c) of the AI Act notwithstanding the repeal of Division 9, subject to a contrary intention. Section 8(b) would equally apply to protect any act carried out before the repeal of Division 9 including the institution of proceedings (assuming that there was an existing accrued right to recover underpinning those proceedings, as in the present case, there was).

The Commissioner accepted that items 64 and 65 did not expressly exclude the application of the provisions of Division 269 from operating in respect of penalties recoverable before 1 July 2010, with the exception of the express exclusion of s 269-20. However, notwithstanding that items 64 and 65 are expressed in sufficiently general terms so as to potentially apply Division 269 and, in particular s 269-25, to such cases, it was submitted that it did not follow that the Transitional Provisions expressly affected the recovery of penalties before that date in all cases irrespective of whether or not the Commissioner's right to recover had accrued. It followed that there was an open question as to whether there was any implicit intention in the Transitional Provisions to disturb the Commissioner's accrued rights to recover certain penalties so as to displace the presumption in s 8(c) of the AI Act.

The Commissioner submitted that there were a number of considerations that pointed conclusively against any such intention:

(a) There were four circumstances with which the Transitional Provisions had to deal in respect of the former Division 9 of the 1936 Act at the time the amendments to the 1953 Act took effect on 1 July 2010:

(1) a penalty was payable under s 222AOC (strictly, a director was liable to pay the Commissioner an amount by way of a penalty) because a company had not complied with its obligations under a remittance provision in respect of deductions or amounts withheld by the due date, but the Commissioner was unaware of that circumstance and no 14 day DPN had been given under s 222AOE;

(2) the Commissioner was aware that a penalty was payable by a director under s 222AOC and had given a DPN pursuant to s 222AOE, but the 14 day notice period had not expired prior to 1 July 2010;

(3) the Commissioner had given a DPN pursuant to s 222AOE and the 14 day period had expired but no proceedings for recovery of the penalty had been commenced prior to 1 July 2010;

(4) the Commissioner had given a DPN pursuant to s 222AOE, the 14 day notice period had expired and the Commissioner had commenced proceedings for recovery of the penalty prior to 1 July 2010.

On the Commissioner's construction argument, the new regime enacted by the 2010 Act (Division 269 of the 1953 Act) applies to (1) and (2), but not (3) and (4) above, because in the latter two circumstances the Commissioner had an accrued right to recover the penalty. On the respondent's construction argument, the new regime applies to each of the above four circumstances.

(b) The consequence of the respondent's construction is that, notwithstanding that the Commissioner's right to recover had crystallised prior to 1 July 2010, and notwithstanding s 8(c) of the AI Act, the Commissioner's right is set at nought thereby requiring her to commence the recovery process afresh in accordance with the provisions of Division 269. This could occur in circumstances where the Commissioner had instituted proceedings for recovery, the matter had been heard and the judge had reserved judgment all before 1 July 2010. If the judge delivered judgment in favour of the Commissioner on 30 June 2010 the Commissioner's right of recovery would be preserved. If he or she delivered judgment in favour of the Commissioner on 2 July 2010, on the respondent's construction, that judgment would be nugatory and liable to be set aside with the potential costs consequences that that would involve. There is no identifiable legislative purpose to be furthered in requiring the repetition of the relevant opportunities and processes already completed. Parliament could not have intended that every proceeding properly commenced under Division 9 of the 1936 Act before 1 July 2010 should be undone. The Commissioner submitted that that could not have been the intention of the legislature in enacting the Transitional Provisions, which were intended to provide a smooth transition from the old to the new provisions.

(c) The preservation of a right of recovery which has accrued to the Commissioner before 1 July 2010 still leaves work for sub-item 65(4) to do where a directors liability to pay the penalty has crystallised as at 1 July 2010 but examples (1) and (2) referred to in paragraph (a) above existed. The simple fact is that s 269-25 has no work to do where the relevant director has already had notice of the penalty prior to 1 July 2010 but has failed to comply with one of the four alternatives identified in the notice with the result that the right to recover has accrued to the Commissioner before that date.

(d) The fact that sub-item 65(4) did not expressly exempt cases where the right of recovery had accrued does not preclude the Commissioner's construction and was at best an ambiguous indicator. The existence of the presumption in s 8(c) of the AI Act may itself provide the explanation of why no express exemption was considered necessary by the legislature.

(e) The exclusion of s 269-20 from the operation of sub-item 65(4) indicates that it was intended that liabilities created under the former regime remain intact without the need to repeat the steps that gave rise to them under the new regime. Far from suggesting an intention to destroy accrued rights, the express exclusion of s 269-20 (for the purpose of avoiding the imposition of the same penalty twice) evinces a purpose entirely consistent with the application of the presumption in s 8(b) or (c) of the AI Act to the accrued rights of the Commissioner to recover the relevant penalties. By contrast, the construction adopted by the primary judge would not further that purpose and should therefore be rejected.

The Commissioner's argument was accepted by the Queensland Court of Appeal (Holmes JA, Phillip McMurdo and McMeekin JJ) in Reardon v Deputy Commissioner of Taxation [2013] QCA 46; (2013) 275 FLR 9 in which judgment was delivered on 15 March 2013 dealing with the same legislation and factual scenario as in the present case although in that case, unlike the present, the Commissioner had not commenced recovery proceedings before 1 July 2010. But the issue was the same, namely, whether the Commissioner was required to issue a new notice under s 269-25(1) as was held to be the case by the primary judge. The Queensland Court of Appeal held that she was not, declining to follow his Honour's decision in the present case. I note in passing that an application for special leave to appeal from the Court of Appeal's decision in Reardon was refused by the High Court (Bell and Keane JJ) on 6 June 2013: Reardon v Deputy Commissioner of Taxation [2013] HCATrans 130.

Unsurprisingly, the Commissioner relied upon the reasoning, relevantly, of Phillip McMurdo and McMeekin JJ in support of her construction of the Transitional Provisions. Their Honours held that the Transitional Provisions should not be construed as affecting any right of the Commissioner to recover a penalty where that right had accrued prior to 1 July 2010. Accordingly, each declined to follow the judgment of the primary judge in the present case and held that the Commissioner could recover a penalty from the relevant appellants in that case without first giving to each a notice pursuant to s 269-25.

At [58] of his reasons Phillip McMurdo J referred to the conclusion of the primary judge that the effect of the Transitional Provisions and, in particular, sub-items 65(3) and (4), was that s 269-25 applied to any case in which there was a liability to a penalty as at 1 July 2010. His Honour then continued at [59]:

In my view the 2010 Act did not have the effect which it was given in Zammitt. In particular, the 2010 Act did not require a further penalty notice to be given where a penalty was not only payable but also recoverable, that is to say where a valid notice had been given under the previous s 222AOE and there had been no remission of the penalty under the previous s 222AOG. In such cases, there was a "right...acquired...under [the repealed] Act" (namely a right to recover the penalty) within what was then s 8(c) of the Acts Interpretation Act. Therefore the repeal of the relevant provisions from the 1936 Act was not to affect such a right unless the contrary intention appeared in the 2010 Act. In Zammitt, it was held that the contrary intention clearly appeared. I respectfully disagree.

His Honour's reference to the 2010 Act was a reference to the result produced by the Transitional Provisions.

At [60] his Honour noted that the text of the Transitional Provisions did not distinguish between penalties payable and recoverable and those payable but not yet recoverable. However, consideration of whether the text of these provisions was sufficient to displace the operation of s 8(c) of the AI Act must also have regard to the possible effects of that interpretation.

One of those possible effects was explained by his Honour at [62] in the following terms:

[T]here would be the impact upon proceedings which had been commenced by 1 July 2010 in relation to then recoverable penalties. Were they intended to be invalidated, requiring the plaintiffs to give notices under s 269-25 before commencing fresh proceedings to recover the penalties? It is to be noted that s 269-25(1) precludes the commencement of proceedings to recover a penalty until after the end of 21 days from a written notice under that section. [Emphasis added.] This language does not indicate an intention to affect proceedings which had been duly commenced before 1 July 2010.

At [64] his Honour noted that there was no indication in the Explanatory Memorandum for the 2010 Act (which I have extracted at [16] above) of an intention to put paid to the immediate recoverability of penalties for which valid DPNs had been given and in respect of which the time for remission had passed. Nor in his Honour's view was such an intention expressed in the Transitional Provisions. The generality of their references to a "penalty...payable" had to be construed according to s 8(c) of the AI Act rather than that generality of language being sufficient to show an intention to displace the operation of that provision.

His Honour then continued (at [65]):

With that understanding of the scope of the 2010 Act, the 2011 enactment [Schedule 7] must be considered. It requires notices such as those in the present cases to be treated as having been given at the time they were posted, for the purpose of former s 222AOE. The present notices are to be treated as having been given at the time of the commencement of the 14 day period specified within them and therefore validly given. Consequently, these penalties are to be treated as not only payable but recoverable by 1 July 2010, so that no notice under the 2010 Act was required.

At [89] of his reasons McMeekin J agreed with the reasoning of Phillip McMurdo J and added comments of his own. His Honour acknowledged (at [90]) the force of the reasoning of the primary judge in the present case with particular reference to the evident deliberate inclusion of the 21 day notice provisions set out in s 269-25 in that part of Division 269 which is to apply to a penalty that, just before 1 July 2010, was payable under Division 9 of Part VI of the 1936 Act.

However, his Honour observed (at [91]) that such an interpretation suffers from the difficulty that, if it is right, there was no point to enacting Schedule 7. Thus he asked rhetorically:

Why bother to validate notices, in the sense Holmes JA explains at [19], when the end result was that the notices needed to be reissued regardless?

And continued:

If the wording of the legislation is so defective in its evident purpose that effect cannot be given to it then so be it. But it is not an attractive proposition and is one that both statute (s 15AA of the Acts Interpretation Act)...and authority... enjoin that I should be reluctant to reach unless there seemed no other course open.

At [94] his Honour noted that the argument that found favour with the primary judge in the present case relied to a significant extent on the failure of the legislature to draw any distinction in item 65 of the Transitional Provisions "between those notices [sic, penalties] that were payable and those that were both payable and recoverable". If the application of sub-item 65(4) was restricted to those directors where the liability to pay the penalty had accrued because the withheld tax had not been paid, but where the entitlement of the Commissioner to recover the penalty had not yet accrued, then much of the difficulty disappears. The 21 day notice provision introduced by Division 269 would then only apply to those cases where the due date for payment by the company had passed and the Commissioner had not yet acquired any right to recover either because no penalty notice had been issued or the notice period was yet to expire.

His Honour then noted (at [95]) that s 222AOC describes penalties as "payable" when the due date for payment of the withheld tax passes whereas s 222AOE expressly assumes the existence of penalties that are "payable" and defines when they are to become recoverable. It does not offend any canon of construction, his Honour observed, to assume that the legislature was conscious of the concepts enshrined in the existing legislation and assumed their continued understanding in the amending legislation.

Accordingly, at [98] his Honour considered that it would be a remarkable intention to attribute to the legislature that all those penalties recoverable prior to 1 July 2010 were no longer to be recoverable without the notice procedure being gone through again. His Honour then summarised his conclusion in the following terms (at [100]):

In summary, in passing the 2010 Act the legislature can be taken to have assumed either that the Commissioner had an accrued right to recover the penalties had the necessary penalty notices been issued and the period expired without remission or had no right at all. In the former case there was no intention expressed in the 2010 Act to affect those accrued rights. And in those circumstances s 8(c) of the Acts Interpretation Act 1901 (Cth) ensured that the repeal of the 1936 Act provisions did not affect those accrued rights.

As an alternative argument, the Commissioner submitted that the Transitional Provisions were impliedly repealed by Schedule 7 of the 2011 Act. It was acknowledged that the doctrine of implied repeal requires that actual contrariety be clearly apparent and that the later of the two provisions be not capable of sensible operation if the earlier provision still stands: Minister for Immigration and Multicultural Affairs v Nystrom [2006] HCA 50; (2006) 228 CLR 566 at [48] per Gummow and Hayne JJ. This submission assumed Schedule 7 should be construed as confirming a right of recovery based on a 14 day notice posted prior to that date (notwithstanding the decision in Soong), and not construed as requiring that penalties recoverable before 1 July 2010 be based on a 21 day DPN issued pursuant to s 269-25. It was therefore submitted that there were compelling reasons for reaching the conclusion that Schedule 7 had impliedly repealed the Transitional Provisions insofar as the Transitional Provisions would have otherwise applied to penalties recoverable before 1 July 2010, in particular given the legislature's intention to preserve the integrity of the taxation laws compliance framework by ensuring that DPNs given prior to 1 July 2010 remained valid.

In support of the foregoing submission reliance was placed upon the reasons of Holmes JA in Reardon where at [35] her Honour said:

To the extent that the transitional provisions apply to penalties recoverable before 1 July 2010 and thus preclude recovery before the giving of a 21 day notice, they are inconsistent with Schedule 7, the intent of which is to confirm a right of recovery (previously cast into doubt by Soong) after the giving of a 14 day notice under s 222AOE. That inconsistency can only be resolved by regarding the transitional provisions as repealed or modified to the extent that they purport to apply in the latter case.

This conclusion was confined in Reardon to the reasons of Holmes JA and thus did not form the basis of the decision of Phillip McMurdo and McMeekin JJ.

The respondent's submissions on the proper construction of the Transitional Provisions

The respondent submitted that there was no textual basis in the Transitional Provisions to support the Commissioner's argument. Rather, the text of those provisions made it clear that Division 269 was to be applied to the respondent's penalty for the following reasons:

(a) Item 64 clearly states that subject to item 65, Division 269 applies in relation to an amount payable by a company to the Commissioner before, on or after 1 July 2010. Sub-item 65(4) applies in relation to a penalty that, just before 1 July 2010, was payable under Division 9. The penalty owed by the respondent was such a penalty. Hence the respondent's penalty is governed by Division 269.

(b) Sub-item 65(4) provides that, with the exception of the imposition of a penalty pursuant to s 269-20, the balance of Division 269 has effect from 1 July 2010 as if the penalty were payable under the new provisions. Accordingly, for all purposes other than the imposition of the penalty, the new provisions are to apply.

(c) By virtue of s 13(2) of the AI Act, the subheading immediately before sub-item 65(3) (which states "New provisions apply to existing penalties") is part of the 2010 Act and supports the application of the new provisions to the respondent's penalty.

(d) The cumulative effect of the foregoing is that the text of the Transitional Provisions requires all directors' penalties existing as at 1 July 2010 to be dealt with under Division 269.

(e) Furthermore, the matters referred to indicate a strong contrary intention within the meaning of s 8 of the AI Act indicating that Division 269 was to apply to all aspects of the director obligation regime from 1 July 2010 (except for the actual imposition of the penalty).

The respondent then dealt with the judgments in Reardon. He submitted that the approach of Phillip McMurdo J would lead to a great deal of ambiguity as to what provisions were and were not affected by the plain text of sub-items 65(3) and (4) where those provisions did not differentiate between penalties depending on whether or not a DPN had, or had purported to have, been given. Reference was made to the defences available to a director sued by the Commissioner or by fellow directors seeking contribution to their penalty. There were some differences between the defence provisions under s 222AOJ of the former Division 9 and those under the new s 269-35. Phillip McMurdo J's approach to the statutory interpretation issue would lead to ambiguity as to which defence provisions would be applicable.

I would interpose that I do not accept this last submission. If, as his Honour held, and as the Commissioner submitted, sub-item 65(3) has no application to proceedings by the Commissioner to recover a penalty where the right to recover that penalty has crystallised prior to 1 July 2010, then in my view the effect of s 8(c) of the AI Act would permit the director against whom proceedings are brought to rely on the defences provided by s 222AOJ upon the basis that the defendant director had acquired the right to those defences under the repealed Division 9.

Further submissions were advanced by the respondent criticising the approach of Phillip McMurdo J upon the basis that the text of sub-item 65(3) was clear and contained no ambiguity so that the consequences of the construction of that provision contended for by his Honour should not detract from the clear meaning of the text.

With respect to the reasons of McMeekin J, it was submitted that his Honour's finding that "payable" in the Transitional Provisions should be limited to penalties that were payable but not recoverable because time to comply with a DPN had not yet expired, had no textual basis in the Transitional Provisions.

Finally, reference was made to the reasons of Holmes JA who acknowledged (at [33]), after considering arguments for and against the Transitional Provisions requiring a new notice to be served, that such "an attempt to discern an intent in the transition provisions [would seem] at odds with their plain effect...". It was submitted that her Honour was acknowledging that the plain meaning of those provisions led to the effect contended for by the respondent.

Again I interpose that I do not accept this last submission. Certainly, Holmes JA was reluctant to adopt the construction of the Transitional Provisions contended for by the Commissioner. On the other hand it is apparent that her Honour did not consider that the terms of those provisions were so unambiguous that she could with confidence adopt the construction now contended for by the respondent. For that reason, she took a different course, albeit leading to the same conclusion as that of her colleagues, namely, that the Transitional Provisions did not require the Commissioner to comply with the 21 day notice provisions of s 269-25 in respect of directors in the position of the respondent.

The Commissioner's submissions should be accepted

It will be apparent from the foregoing that the respondent's submissions are very much dependant upon the proposition that the text of sub-items 65(3) and (4) is so clear and unambiguous, notwithstanding their generality, that no other construction is open other than that those provisions apply to any penalty payable by a director as at 1 July 2010, irrespective of whether as at that date the Commissioner's entitlement to recover that penalty has crystallised into an accrued right.

In my view, concentration on the text and only the text of those provisions results in too narrow an approach to their proper construction. The text must be placed in context and, in particular, considered against the policy of the legislature in seeking to substitute the new for the old without any substantive or policy, as distinct from linguistic, changes.

One of the most recent, if not the most recent, statements in the High Court of the relevant principles of statutory construction was articulated by French CJ and Hayne J in Certain Lloyd's Underwriters v Cross [2012] HCA 56; 248 CLR 378 at [23]-[25] where their Honours made the following observations (omitting citations and footnote references):

Some basic principles

[23] It is as well to begin consideration of this issue by re-stating some basic principles. It is convenient to do that by reference to the reasons of the plurality in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue:

This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the text itself. Historical considerations and extrinsic materials cannot be relied on to displace the clear meaning of the text. The language which has actually been employed in the text of legislation is the surest guide to legislative intention. The meaning of the text may require consideration of the context, which includes the general purpose and policy of a provision, in particular the mischief it is seeking to remedy.

[24] The context and purpose of a provision are important to its proper construction because, as the plurality said in Project Blue Sky Inc v Australian Broadcasting Authority, "[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute". [Emphasis added.] That is, statutory construction requires deciding what is the legal meaning of the relevant provision "by reference to the language of the instrument viewed as a whole", and "the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meaning than the logic with which it is constructed".

[25] Determination of the purpose of a statute or of particular provisions in a statute may be based upon an express statement of purpose in the statute itself, inference from its text and structure and, where appropriate, reference to extrinsic materials. The purpose of a statute resides in its text and structure. Determination of a statutory purpose neither permits nor requires some search for what those who promoted or passed the legislation may have had in mind when it was enacted. It is important in this respect, as in others, to recognise that to speak of legislative "intention" is to use a metaphor. Use of that metaphor must not mislead. "[T]he duty of a court is to give the words of a statutory provision the meaning that the legislature is taken to have intended them to have". [Emphasis added.] And as the plurality went on to say in Project Blue Sky:

Ordinarily, that meaning (the legal meaning) will correspond with the grammatical meaning of the provision. But not always. The context of the words, the consequences of a literal or grammatical construction, the purpose of the statute or the canons of construction may require the words of a legislative provision to be read in a way that does not correspond with the literal or grammatical meaning.

To similar effect, the majority in Lacey v Attorney-General (Qld) said:

Ascertainment of legislative intention is asserted as a statement of compliance with the rules of construction, common law and statutory, which have been applied to reach the preferred results and which are known to parliamentary drafters and the courts. [Footnote omitted.]

The search for legal meaning involves application of the processes of statutory construction. The identification of statutory purpose and legislative intention is the product of those processes, not the discovery of some subjective purpose or intention.

See also at [68]-[70] per Crennan and Bell JJ; and at [88]-[89] per Kiefel J.

Consistently with the foregoing statements of principle and as was recently observed by Bathurst CJ, with whom Beazley and Basten JA agreed, in Rail Corporation New South Wales v Brown [2012] NSWCA 296; (2012) 82 NSWLR 318 at [39], the process of construction commences with the construction of the ordinary and grammatical meaning of the words in question, having regard to their context and legislative purpose.

It is axiomatic that care should be taken in considering the purpose of a statute divorced from the words of the statute itself. Bearing that caveat in mind, the present case is one where the proper construction of the Transitional Provisions requires, in my view, that the text of sub-items 65(3) and (4), be considered in the context of the whole of so much of the 2010 Act as comprises Division 269 as well as the Transitional Provisions. Both are part of the same statute. Furthermore, the purpose of the Transitional Provisions in a statute which is said in the Explanatory Memorandum to be substituting new for old by way of a rewrite generally without any change in policy so as to ensure a smooth transition between the old and new law, must also be kept in mind.

In light of the foregoing principles the following factors need to be taken into account. First, it must be assumed that the legislature was aware of the four scenarios referred to at [42(a)] above. Secondly, and in particular, it must have been aware that on the basis of the decision of this Court in Meredith, the right of recovery of a penalty by the Commissioner may have crystallised prior to 1 July 2010 upon the expiry of 14 days from the date of posting of the relevant DPN where the recipient of the notice has failed to take one or other of the four steps referred to in s 222AOE(b). Thirdly, in reliance on that failure the Commissioner may have commenced recovery proceedings which may have reached an advanced stage by 30 June 2010. Fourthly, the legislature must have been aware of the effect of s 8(c) of the AI Act.

In the foregoing circumstances one asks, given the desire for a smooth transition between the old and new law and where the right of the Commissioner to recover a penalty has accrued before 1 July 2010, why the legislature would consider it necessary for the Commissioner to, in effect, re-establish her right of recovery by the giving of a new notice under s 269-25 thus setting at nought the processes which had preceded that date? What in the text of the Transitional Provisions mandates such a result? Is such a consequence plain and unambiguous upon a consideration of the text alone? In my view the answer to the last question is in the negative.

As the Commissioner submits, when read in context the provisions of sub-items 65(3) and (4) do not indicate a legislative intention to destroy rights and obligations already accrued under the repealed Division 9. The following factors lead, in my view, to that conclusion:

(a) Item 64 of the Transitional Provisions provides that Division 269 applies to an amount payable by a company to the Commissioner before, on or after 1 July 2010. Item 64, therefore, draws a distinction between an amount payable by a company and a penalty payable by a director. They are two different liabilities. There is also a distinction between a penalty payable by a director which is dependant upon a failure by the company to, amongst other things, pay, and a right to recover the penalty which is dependant on the giving of a DPN and the director's non-compliance with the notice at the expiry of the notice period.

(b) Division 269 applies where a penalty is payable by a director under the former Division 9 immediately prior to 1 July 2010: sub-item 65(3).

(c) Where a penalty becomes payable after 1 July 2010, Division 269 applies to it. In such a case the penalty is only payable if the provisions of s 269-20 apply, and the penalty is only recoverable by the Commissioner if s 269-25 is complied with.

(d) Where the Commissioner's right to recover a penalty payable under the former Division 9 accrued under that Division prior to 1 July 2010, s 8(c) of the AI Act permits that right to be enforced as if Division 9 had not been repealed, absent a contrary intention.

(e) Transitional provisions usually are enacted to preserve existing rights rather than to destroy them; to preserve existing causes of action, not to extinguish them.

(f) There is nothing in sub-items 65(3) and (4) which manifests a legislative purpose to extinguish a right or cause of action of the Commissioner to recover a penalty acquired by her before 1 July 2010; a fortiori, where proceedings have been instituted and have reached an advanced stage by 1 July 2010. Why should such proceedings then become ineffective and, as suggested in argument, retrospectively non-justiciable, particularly in the context of a legislative intention not to effect a change in policy?

(g) Although the text of sub-item 65(3) concentrates on the concept of payability by the director rather than the recoverability of the penalty by the Commissioner, no reason exists to construe that provision so that it applies the whole of Division 269 (other than s 269-20) and, in particular, s 269-25, to a penalty which is not only payable by a director under Division 9 but also the subject of a right of recovery which has accrued prior to 1 July 2010.

(h) Sub-item 65(3) speaks only of a penalty "payable" under Division 9 just before 1 July 2010. The primary judge's conclusion would have more force if the sub-item referred to a penalty which was "payable, whether or not recoverable".

(i) The process of recovery of penalties payable would not be smooth and involve a potential waste of time and resources if the Commissioner had to comply with s 269-25 notwithstanding that she had an accrued right of recovery prior to 1 July 2010.

(j) Accordingly, sub-item 65(3) should be construed as applying only to a penalty that, just before 1 July 2010, was payable but not recoverable. Such a construction is consistent with the legislative purpose of doing no more than rewriting the penalty provisions so as to provide a smooth transition from Division 9 of the 1936 Act to Division 269 of the 1953 Act.

(k) It follows that no contrary intention which has the effect of negating s 8(c) of the AI Act is manifested by sub-item 65(3) and (4) of the Transitional Provisions.

The fact that sub-item 65(4) provides that Division 269 (other than s 269-20) has effect from 1 July 2010 as if the penalty were payable under the new regime does not, in my view, mandate a construction of that provision to the effect that the Commissioner cannot recover a penalty that is both payable and recoverable prior to 1 July 2010 unless and until she has given a new DPN to the relevant director that complies with s 269-25.

The foregoing analysis finds clear support in the judgments of Phillip McMurdo and McMeekin JJ in Reardon and I see no reason to depart from their Honours' reasoning and conclusion. For the reasons advanced by the Commissioner and reflected in the reasons of Phillip McMurdo and McMeekin JJ in Reardon, the legislative objective of the relevant provision of the 2010 Act, when read in conjunction with the Transitional Provisions and Explanatory Memorandum, reveals that the intention of the legislature in enacting sub-items 65(3) and (4) was not to disturb existing accrued rights.

Accordingly, it follows in my view that the primary judge was in error in finding that before the Commissioner could recover the penalty sum from the respondent, she was required to serve upon him a new notice that conformed with s 269-25 of Division 269.

In the circumstances it is unnecessary to consider and determine the Commissioner's alternative ground of appeal seeking to uphold the approach of Holmes JA in Reardon whereby her Honour held that Schedule 7 of the 2011 Act impliedly repealed the Transitional Provisions.

The second issue: the respondent's Notice of Contention

The primary judge's decision with respect to the effect of Schedule 7 of the 2011 Act

Although the Commissioner's submissions as to the construction of the Transitional Provisions have been accepted, it remains necessary to determine the question raised in the respondent's Notice of Contention, namely, whether the Notice sent to the respondent (rendered misleading as to when compliance was required to result in a remission of the penalty after the decision in Soong) was validated by Schedule 7 of the 2011 Act. This is because if the respondent's submissions on the Notice of Contention are to be accepted, then the Commissioner would not have accrued the right to recover referred to above, and would be required to issue a fresh DPN, albeit for a different reason.

The primary judge noted (at [30]) that it was common ground that the Notice served on the respondent was misleading in that it specified the wrong date for the remission of penalties. It stated that the penalty would be remitted if "at the end of 14 days after the date on this notice" one or other of four necessary steps had been taken. Section 222AOE(b) required a DPN to state that the penalty would be remitted if, "at the end of 14 days after the notice is given", one or other of the four steps was taken.

The problem was that it was uncertain as to when as a matter of law the 14 day period commenced: the date of the Notice or some later date. An issue therefore arose as to whether item 1(1) of Schedule 7 applied to the Notice to remedy that defect.

The primary judge held that the words in parenthesis in sub-item 1(1) "(or purported to give)" operated to remedy an invalid "giving" (that is, the invalid service of the Notice), but did not remedy any defect in its contents. In other words, it cured the defect in the "giving" of the Notice by treating it as being given at the time it was posted but went no further. Accordingly, his Honour held (at [44]) that the defect in the Notice was not remedied by the parenthetical words in sub-item 1(1).

However, at [45] his Honour considered that on the proper interpretation of sub-item 1(2), a notice was to be treated as having been "given" on the date it was posted so that it could no longer be misleading and the defect in the content of the Notice was cured as the 14 days would run from the date of posting (albeit that that was the same as the date of the Notice itself). Although Schedule 7, according to the primary judge, was directed at the service (or giving) of a DPN, it indirectly cured the defect in its content, for it correctly stated that the respondent had 14 days from the date of the Notice to comply with s 222AOB in order to obtain a remission of the penalty.

The respondent nevertheless submitted to the primary judge, and repeated to this Court, that the opening words of sub-item 1(2), "For the purpose of former s 222AOE", were only relevant to the giving of a DPN pursuant to s 222AOE and left unaffected the provisions of 222AOG. If Schedule 7 has no application to that section, then the date of delivery as per Soong becomes the relevant date for determining whether the penalty is remitted. In these circumstances the Notice would remain misleading. In other words, the issue which arose was whether Schedule 7 should be construed as contemplating that a DPN is valid if it states that the penalty will be remitted if the necessary steps are taken within 14 days of the date of its posting notwithstanding that s 222AOG, in conjunction with Soong, effectively states that the penalty will be remitted if the necessary steps are taken within 14 days of the date of its delivery. As the DPN would thus specify a shorter period for compliance than the period allowed by s 222AOG, such an interpretation of Schedule 7, so it was submitted, would still result in the Notice being misleading and invalid.

The primary judge rejected this argument on a number of grounds. At [89] he found that such an interpretation would not reflect the purpose manifested in the heading to Schedule 7 and the heading to item 1, which were part of the enactment by virtue of s 13(2)(d) of the AI Act. Nor did it reflect the intention manifest in the Explanatory Memorandum and the Second Reading Speech to which regard could be had pursuant to s 15AB of that Act given the ambiguity in item 1(2) in particular. On the respondent's interpretation no DPN would be "validated" - the only effect would be to permit earlier recovery.

At [85] his Honour considered the possibility that there was no need for sub-item 1(2) to refer to s 222AOG because once that item applied to s 222AOE, it would inevitably have an effect (referred to in submissions in this Court as the feeder effect) upon s 222AOG, which was dependent for its operation on a DPN having been given under s 222AOE. However, at [86] he considered that it was not possible to read sub-item 1(2) as affecting s 222AOG without ignoring the opening words of that sub-item: "For the purpose of former section 222AOE...". His Honour thus observed:

It is one thing to treat a section 222AOE notice as having been given at a particular time, but it is quite another to apply that particular time for the purpose of section 222AOG, when the item expressly provides that it is (only) for the purpose of section 222AOE.

Recognising the inherent ambiguity in sub-item 1(2), his Honour (at [91]) noted that he was directed by s 15AA of the AI Act to prefer the interpretation which would best achieve the purpose or object of the relevant statute. Accordingly, he adopted a construction which treated the reference to the time the Commissioner sent the Notice in accordance with s 28A of the AI Act as a reference to the date the Notice was delivered to the postal service. He thus applied sub-item 1(2) to all of the purposes of s 222AOE in accordance with its terms and s 23 of the AI Act which, relevantly, provides that words in the singular (in the present case "purpose") includes the plural (in the present case "purposes").

At [92] his Honour stated that he had not applied item 1(2) to s 222AOG notwithstanding that the effect of the non-application was to preserve the entitlement to a remission of penalty for those directors who, like the appellant in Soong, complied with s 222AOB within the period specified in s 222AOG. Accordingly he held (at [93]) that the Notice, together with other notices based on the decision in Meredith which were invalidated by the decision in Soong, were intended to be validated by Schedule 7 and was validated on the proper construction of that provision. He thus rejected the respondent's argument to the contrary. By his Notice of Contention the respondent challenges the correctness of that finding.

The enactment of Schedule 7

As noted at [30] above, on 25 February 2011 this Court delivered its judgment in Soong which had the effect of overruling Meredith. Instead of a DPN expiring 14 days from the date of posting, it was held that it would not expire until 14 days from the time of delivery in the ordinary course of post. Chapter 7 of the Explanatory Memorandum to the 2011 Act deals in detail with the necessity to remedy the effect of Soong which rendered invalid all those notices given by the Commissioner after 10 December 2007 (being the date of decision in Meredith) which provided that they were given on the date upon which they were posted. It was said that there were 17,000 such notices. Accordingly the legislature enacted Schedule 7 which I have set out at [31] above.

The relevant paragraphs of the Explanatory Memorandum relating to Schedule 7 are as follows:

7.11 These amendments will ensure that the understanding and operation of the law at the time these director penalty notices were issued (in reliance on Meredith) is maintained. As such, the validity of these director penalty notices will not be able to be questioned merely because of the NSWCA's later construction (in Soong) of the former director penalty notice provisions.

7.13 These amendments ensure that all director penalty notices issued by the Commissioner between 10 December 2007 and 30 June 2010, inclusive, will not be invalid because of the NSWCA decision in Soong.

7.17 To achieve this, any director penalty notice issued between 10 December 2007 and 30 June 2010 (inclusive) will be treated as having been 'given' at the time the Commissioner sent it by pre-paid post. [Schedule 7, item 1]

7.18 As a consequence, these amendments also ensure that penalty remission is only available to those directors who complied with a penalty remission condition within 14 days of the director penalty notice having been sent by pre-paid post (and not within 14 days of the director penalty notice having been delivered).

The respondent's submissions

The respondent's submissions centred, in particular, upon the opening words of item 1(1), namely, that Schedule 7 applies if the Commissioner "gave (or purported to give) a notice under the former s 222AOE". They may be summarised as follows:

(a) Deputy Commissioner of Taxation v Woodhams (referred to at [12] above) requires that a DPN must actually set out what needed to be done to achieve remission of the penalty and correctly identify the time limit within which action needed to be taken for the penalty remission to be obtained. Given the opening words of item 1(1) of Schedule 7, the Commissioner did not give a notice under the former s 222AOE because, as a result of Soong, it was misleading and did not comply with the relevant requirements of the law. Accordingly, it was not a notice given under s 222AOE and consequently the Commissioner did not give or purport to give such a notice to the respondent.

(b) If the Commissioner neither gave nor purported to give a notice under s 222AOE to the respondent, then the text of Schedule 7 indicates that it does not apply to the Notice posted to the respondent. What the Commissioner did was to give a "purported notice". That is different from the Commissioner "purporting to give" a notice under s 222AOE.

(c) Furthermore, the "purpose of former s 222AOE" was not necessarily the same as the "purpose of the notice" issued under the section. The purpose of that section was to prevent the Commissioner recovering a penalty until 14 days had elapsed since giving the director a valid notice under the section. The effect of Schedule 7 was that if there were any proceedings to which the Schedule applied, the Commissioner was entitled to commence proceedings at an earlier time than she otherwise would have been able to do.

(d) This brought into play s 222AOG which relevantly provided that the penalty would be remitted if the former s 222AOB had been complied with, relevantly, within 14 days after the notice had been given. However, Schedule 7 says nothing about the former s 222AOG. The text of item 1(2) only directs that any notice to which Schedule 7 applies is to be treated as having been given at the time of posting it and then only "For the purpose of former section 222AOE" and not for the purpose of the former s 222AOG.

(e) A notice required to be served by s 222AOE that failed to fulfil the statutory requirements of s 222AOE or that could reasonably mislead a recipient as to what was necessary to be done before there could be a remission of penalty, would not be saved by item 1(2) of Schedule 7.

(f) Accordingly, it followed that even if the Notice is treated for the purposes of the former 222AOE as having been given at the time of posting, it still had the wrong information about the time available to obtain a remission of penalty under 222AOG (because of the application of Soong) and hence remained invalid.

The Commissioner's submissions

The Commissioner's submissions on this issue may be summarised as follows:

(a) The construction contended for by the respondent to the effect that Schedule 7 did not apply to his Notice would have the effect of defeating the purpose of the legislation and so should be rejected.

(b) The clear intention of the legislature was to validate by item 1 of Schedule 7 any DPNs that were affected by the decision in Soong. The heading to Schedule 7 "Penalty notice validation" and the subheading to item 1 "Validation of Notices" evinces an intention by the Parliament to cure defects in DPNs that were invalid, or may have been invalid, by reason of the construction of s 222AOE as to when the notices were "given" as determined by Soong. It could not have been the intention of the legislature to give a particular meaning to the "giving" of a DPN under s 222AOE which had the effect of negativing Soong but to then have that decision resurrected and applied to the "giving" of that notice for the purpose of s 222AOG notwithstanding that both sections refer to the "giving" of the same notice. Schedule 7 must be construed in a way that promotes its statutory purpose.

(c) The introductory words of item 1(2) upon which the respondent relies seek to resolve the change in interpretation of s 222AOE as between Meredith and Soong. Specifically, item (1) of Schedule 7 has the effect of treating any DPN sent between 10 December 2007 and 30 June 2010 as having been "given" at the time the Commissioner sent it by pre-paid post. The consequence is that courts cannot treat such notices as being misleading as to the period of time within which any of the steps referred to in s 222AOE(b)(i)-(iv) may be taken in order to qualify the director for remission of the penalty.

(d) The reliance by the respondent on the failure of Schedule 7 to refer to s 222AOG is of no significance. This is because s 222AOG is predicated, at least in part, upon the giving of a DPN under s 222AOE. Thus the terms of s 222AOE feed into s 222AOG in that the former requires a DPN to state that the recipient is liable to pay the Commissioner the relevant penalty but that it will be remitted if, "at the end of 14 days after the notice is given" one or other of the four steps referred to in s 222AOE(b) has been taken, whilst s 222AOG provides for the remission of the penalty where, relevantly, s 222AOB is complied with within 14 days after the Commissioner gives a s 222AOE notice.

(e) Accordingly, the provisions of ss 222AOE and 222AOG are relevantly linked so that one of the purposes of the former is the giving of a DPN which will provide for remission of the penalty if there is compliance with the provisions of s 222AOG. In these circumstances it was unnecessary for item 1(2) of Schedule 7 to expressly refer to that provision.

Did Schedule 7 validate the Notice for the purpose of the Transitional Provisions?

In my view the Commissioner's submissions should be accepted. The respondent's construction would render the whole of Schedule 7 ineffective. Its purpose was to render DPNs issued under the former Division 9 effective for the purpose of the Transitional Provisions and, in particular, for the purpose of facilitating the recovery by the Commissioner of the penalty where the recipient had no entitlement to its remission.

The Commissioner's submissions are supported by the reasons in Reardon. Thus Holmes JA at [19] observed:

Sub-item (2), plainly enough, deems notices sent between 10 December 2007 and 1 July 2010 to have been "given" when sent by pre-paid post. What is not spelt out are the implications of giving them that status "For the purpose of former section 222AOE". But it seems to follow that the consequential effects of schedule 7.1(2) are to render the terms of those notices accurate when they spoke of compliance within 14 days of the date of the notice, hence making them valid and giving the Commissioner the right to recover penalties as of the end of 14 days after sending of any such notice. ...

Phillip McMurdo J (at [55]) agreed with Holmes JA with respect to this Schedule 7 issue as did McMeekin J at [91] where his Honour observed:

But as Holmes JA has said the interpretation [adopted by the primary judge in Zammitt with respect to the Transitional Provisions] suffers from the difficulty that, if it is right, there was no point to [Schedule 7]. Why bother to validate notices, in the sense Holmes JA explains at [19], when the end result was that the notices needed to be re-issued regardless?

Although both the primary judge at [40]-[44] of his reasons and the respondent sought to distinguish for the purposes of item 1(1) of Schedule 7 that there was a material difference between "purporting to give a notice" and "giving a purported notice", in my view it matters not whether the opening words of item 1(1) support any such distinction. The legislative purpose of item 1(1) is to identify the DPNs to which the balance of Schedule 7 is to apply. By its terms it applies the subsequent provisions of Schedule 7 to DPNs which the Commissioner has given under the former s 222AOE or which he has purported to give under that section on or after 10 December 2007 by sending them by pre-paid post in accordance with s 28A of the AI Act.

Accordingly, a penalty is only remitted pursuant to s 222AOG if, relevantly, one of the four steps referred to in s 222AOE(b) is complied with within 14 days after the Commissioner has sent a DPN by pre-paid post in accordance with s 28A of the AI Act. In that way, the Notice was validated in that the decision in Soong on any DPNs given on or after 10 December 2007 no longer applied. If Soong no longer applied to a DPN given under s 222AOE, it could not sensibly apply to the same notice referred to in s 222AOG. To suggest otherwise, as does the respondent, is to render Schedule 7 of no relevant validating effect contrary to the manifest intention of the legislature.

For the foregoing reasons in my opinion the grounds advanced in the respondent's Notice of Contention should be rejected.

Conclusion

For the reasons set out above, in my view the primary judge erred in holding that the Commissioner could only recover from the respondent the penalty sum if she served upon him a new DPN pursuant to s 269-25. In these circumstances, it is unnecessary to consider whether this Court is bound to follow the Queensland Court of Appeal decision in Reardon upon the basis that, as an intermediate court of appeal in another jurisdiction, this Court should not depart from that decision on the interpretation of Commonwealth legislation unless we are convinced that that interpretation is plainly wrong: Farah Construction Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89 at [135].

I note that the respondent submitted that the exhortation of the High Court referred to has no application to the present case as there was no ratio which could be identified as emanating from Reardon notwithstanding that Holmes JA and Phillip McMurdo J both concluded, albeit for different reasons, that the Commissioner was entitled to recover the relevant penalties notwithstanding that she had not served upon the appellants in that case new DPNs under s 269-25.

In my view it is not necessary to consider that issue or the circumstances in which this Court should not depart from decisions of other intermediate appellate courts in other jurisdictions on the interpretation of Commonwealth legislation. This is because I have come to the view, independently of the decision in Reardon, that the primary judge was in error in finding as he did. My own opinion as to the proper construction of the relevant legislation is confirmed by the reasons of Phillip McMurdo J and McMeekin J in Reardon to which I have referred and with which I agree.

It follows that the appeal should be allowed. On the basis that the appeal succeeded there were two outstanding issues, namely, the question of interest on the penalty sum and the costs of the proceedings before the District Court. The parties agreed that those issues should be remitted to the primary judge for determination, a course with which I agree. It was also agreed that if the appeal was allowed there should be no order as to its costs.

Accordingly, the orders which I propose are as follows:

(1) Appeal allowed.

(2) Set aside the orders made by his Honour Judge Peter Taylor SC on 31 August 2012.

(3) Judgment for the appellant in the sum of $365,066.49.

(4) Remit to his Honour Judge Peter Taylor SC for determination the question of interest on the judgment sum as well as the costs of the proceedings at first instance.

(5) Each party to pay its and his own costs of the appeal.

**********

Decision last updated: 04 April 2014

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Citations

Deputy Commissioner of Taxation v Zammitt [2014] NSWCA 104

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Deputy Commissioner of Taxation v De Simone [2019] VSC 346

Cases Citing This Decision

21

Deputy Commissioner of Taxation v Paul Tannous [2016] NSWSC 1654

Cases Cited

12

Statutory Material Cited

6

Deputy Commissioner of Taxation v Zammitt [2012] NSWDC 135

Deputy Commissioner of Taxation v Woodhams [2000] HCA 10

Medium Neutral Citation:	Deputy Commissioner of Taxation v Zammitt [2014] NSWCA 104
Hearing dates:	10 February 2014
Decision date:	04 April 2014
Before:	Bathurst CJ at [1]; Beazley P at [2]; Gleeson JA at [3]; Bergin CJ in Eq at [4]; Tobias AJA at [5]
Decision:	1. Appeal allowed. 2. Set aside the orders made by his Honour Judge Peter Taylor SC on 31 August 2012. 3. Judgment for the appellant in the sum of $365,066.49. 4. Remit to his Honour Judge Peter Taylor SC for determination the question of interest on the judgment sum as well as the costs of the proceedings at first instance. 5. Each party to pay its and his own costs of the appeal. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords:	TAXATION - income tax - director penalty notice - repeal of Division 9 of Part VI of the Income Tax Assessment Act 1936 (Cth) -effect of transitional provisions in Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) - whether Acts Interpretation Act 1901 (Cth) operated to preserve the Commissioner's right to recover the penalty - effect of Schedule 7 of the Tax Laws Amendment (2011 Measures No 7) Act 2011 (Cth) - whether fresh director penalty notice required to be served
Legislation Cited:	Acts Interpretation Act 1901 (Cth) Income Tax Assessment Act 1936 (Cth) Income Tax Assessment Act 1997 (Cth) Tax Laws Amendment (2011 Measures No. 7) Act 2011 (Cth) Tax Laws Amendment (Transfer of Provisions) Act 2010 (Cth) Taxation Administration Act 1953 (Cth)
Cases Cited:	Certain Lloyd's Underwriters v Cross [2012] HCA 56; 248 CLR 378 Deputy Commissioner of Taxation v Meredith [2007] NSWCA 354; (2007) 245 ALR 150 Deputy Commissioner of Taxation v Woodhams [2000] HCA 10; (2000) 199 CLR 370 Deputy Commissioner of Taxation v Zammitt [2012] NSWDC 135; (2012) 15 DCLR (NSW) 104 Farah Construction Pty Limited v Say-Dee Pty Limited [2007] HCA 22; (2007) 230 CLR 89 Minister for Immigration and Multicultural Affairs v Nystrom [2006] HCA 50; (2006) 228 CLR 566 Rail Corporation New South Wales v Brown [2012] NSWCA 296; (2012) 82 NSWLR 318 Reardon v Deputy Commissioner of Taxation [2013] HCATrans 130 Reardon v Deputy Commissioner of Taxation [2013] QCA 46; (2013) 275 FLR 9 Soong v Deputy Commissioner of Taxation [2011] NSWCA 26; (2011) 80 NSWLR 226
Category:	Principal judgment
Parties:	Deputy Commissioner of Taxation (Appellant) Kevin Emmanuel Zammitt (Respondent)
Representation:	R Derrington QC / D Jay (Appellant) M Speakman SC / P Rodionoff (Respondent) Solicitors: Australian Government Solicitor (Appellant) Bongiorno Lawyers (Respondent)
File Number(s):	2012/299263
Publication restriction:	None
Decision under appeal	Jurisdiction: 9101 Citation: Deputy Commissioner of Taxation v Zammitt [2012] NSWDC 135 Date of Decision: 2012-08-31 00:00:00 Before: P Taylor SC DCJ File Number(s): 2010/100600