Deputy Commissioner of Taxation v Ziccardi

[2023] WASC 58

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CHAMBERS

CITATION:   DEPUTY COMMISSIONER OF TAXATION -v- ZICCARDI [2023] WASC 58

CORAM:   MASTER SANDERSON

HEARD:   15 DECEMBER 2022

DELIVERED          :   3 MARCH 2023

PUBLISHED           :   3 MARCH 2023

FILE NO/S:   CIV 2473 of 2019

BETWEEN:   DEPUTY COMMISSIONER OF TAXATION

Plaintiff

AND

DINO ZICCARDI

Defendant

Catchwords:

Practice and procedure - Application for summary judgment - Turns on own facts

Legislation:

Superannuation Guarantee (Administration) Act 1992 (Cth)
Superannuation Guarantee Charge Act 1992 (Cth)
Taxation Administration Act 1953 (Cth)

Result:

Application dismissed

Representation:

Counsel:

Plaintiff	:	C Slater & J Yan
Defendant	:	JE Scovell & C James

Solicitors:

Plaintiff	:	Australian Government Solicitor
Defendant	:	Edwards Mac Scovell Legal

Cases referred to in decision:

Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857

Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473

Deputy Commissioner of Taxation v Lafferty [2017] WASC 257

MASTER SANDERSON:

1. This is the plaintiff's application for summary judgment.  The application was filed on 14 October 2020 and for reasons not presently relevant has taken some time to reach a hearing.  The amount sought by the plaintiff is now $319,398.41 together with interest in an amount of $88,557.41.  This total amount is a considerable reduction on the original claim which was for more than $1.7 million.

2. The application was brought out of time and the plaintiff requires an extension.  The relevant principles in considering whether an extension of time ought be granted was set out by Tottle J in Deputy Commissioner of Taxation v Lafferty [2017] WASC 257 [40] ‑ [42]. Without going through in detail the matters to be considered in the exercise of the discretion, I can say I am satisfied that the extension ought be granted. The delay has been explained by the plaintiff and the interests of justice require this application be heard and determined.

3. In the claim itself, the plaintiff alleges the defendant was indebted to the Commonwealth of Australia for director penalties under s 269‑20 of sch 1 to the Taxation Administration Act 1953 (Cth) (TAA). Numerous affidavits have been filed both in support of and in opposition to the application. Drawing on these affidavits, the relevant facts can be summarised as follows.

4. The superannuation guarantee charge (SGC) can be described as a pecuniary penalty imposed by the Superannuation Guarantee Charge Act 1992 (Cth) (SGCA) on an employer who does not pay superannuation to its employees as required by superannuation law. In effect, the employer incurs a charge to the Commonwealth equal to the sum of superannuation which it did not pay. The law converts an otherwise private financial obligation owed by employers to employees into one that, through the taxation system, becomes collectable by the Commonwealth. The SGC is distinct from other tax payer obligations such as PAYG and GST, in that the ATO does not in the first instance collect the underlying debt. Rather, superannuation is paid to employee superannuation funds in the first instance. If this liability is not paid, the ATO can levy SGC upon the employer by making an estimate of the liability and then issuing a notice of assessment for the estimated sum. The money when collected then is passed to entitled employees.

5. In recent years, the superannuation system has evolved so that through 'single‑touch payroll', the ATO is informed in real time as to when employers pay their employees superannuation.  This system became compulsory on 1 July 2019.  Prior to that date, employers were subject to a manual reporting system.  The obligation to report (by filing what is known as an SGC statement) only arose if the superannuation was paid late or not at all.

6. It is the defendant's position that there may be cases where an employer has in fact discharged its obligation to pay superannuation to employees, but by reason of either incompleteness of data or failure of the employer to lodge SGC statements, the ATO makes an assumption that the employer has paid nothing and makes an assessment on that basis.  As a result, the assessment does not address the proper amount of the SGC payable by the employer.  The defendant says this is such a case.

7. Division 269-20 of the TAA provides that a director is personally liable to pay the Deputy Commissioner of Taxation a penalty if at the relevant 'due day' the company was liable to pay the Commissioner SGC in accordance with the Superannuation Guarantee (Administration) Act 1992 (Cth) (SGAA) and the director was in fact a director on that 'due day'. Such a director continues to be under such an obligation until relevantly the company complies with its obligation to pay SGC, an administrator is appointed to the company or the company begins to be wound up. The express object of div 269 of the TAA is to ensure that a company either complies with its superannuation obligations under the SGAA or goes promptly into external administration.

8. Section 269-35 of the TAA provides a director with a statutory defence. If the director can establish that: (a) they took all reasonable steps to cause the company to comply with its obligation and/or appointed an external administrator to the company; (b) there were no reasonable steps that could have been taken to ensure that the steps referred to above happened; and/or (c) the penalty resulted from the company treating the SGAA as applying to a matter in a particular way that was reasonably arguable the company took reasonable care in connection with applying the SGAA to the matter.

9. It is the defendant's position he arguably has a defence under the provisions of the TAA. In my view, the defendant has made good that argument. It is therefore inappropriate for me to undertake a detailed examination of the relevant facts. But in broad terms, I have reached that conclusion for the following reasons.

10. The plaintiff's claim arises in relation to a company known as Diverse Tank Engineering Pty Ltd (DTE).  The assessments relate to a period between 2013 and 2017.  The defendant was a director of DTE from its inception in December 2000.  DTE (and associated companies) were in the business of design, manufacture and installation of fuel tank storage systems.  The defendant maintains he was an inexperienced but interested and involved director.  At the outset of the company's existence, the directors engaged an external accountant to manage the company's financial affairs.  These accountants remained engaged until the end of the life of the companies in 2018.  Their involvement was not limited to matters of taxation, but a wide range of financial tasks including the training of account staff, operational strategy and monthly financial reporting.

11. In early October 2017, the company's then secured creditor, the National Australia Bank (NAB), contacted the directors of DTE to discuss the impending effluxion of various business loan facilities which were in place and which were due to mature in early 2018.  At that stage, there had been no default by DTE in relation to the NAB facilities.  At a meeting between the defendant, DTE's accountant and the NAB, the bank expressed concern about the leverage position of DTE and related companies.  The bank requested an external accountancy firm be engaged to conduct an independent business review of the corporate group.  At this meeting, specific mention was made of the superannuation obligations.  The bank wanted to be sure that DTE was up‑to‑date with all of these obligations.

12. After this meeting, the defendant says that he asked his accountants to conduct an audit of all outstanding superannuation obligations, not just for DTE but for related entities. He took steps to sell personal and company assets to ensure sufficient cash was available to pay any outstanding liabilities. To satisfy the NAB he also engaged an external consultancy to prepare a report. As a consequence of all of these steps, the defendant says that as at 21 November 2017, he believed not only that all superannuation obligations of DTE had been met but further he had no reason to think otherwise. This is the basis on which he says he has a statutory defence under the TAA.

13. In my view, there is sufficient evidence advanced by the defendant to make his position arguable.  It will be necessary to establish in some detail just what steps the defendant took to ensure all superannuation liabilities had been met.  That is a matter for trial.  As the evidence stands at the moment, I could not be satisfied the defendant has no defence to the action.  I am satisfied that there is a serious question to be tried.

14. During the course of argument, two matters were raised by counsel for the defendant which require comment. As I understand the submissions, they were directed at establishing there was 'some other reason' why summary judgment ought not be granted. First, it was submitted that the plaintiff had made no reasonable enquiries to ensure the amount claimed against the defendant was what in fact was owing. Rather the plaintiff had relied on an evidentiary certificate under s 350‑10(3) in sch 1 to the TAA. That was a perfectly proper course for the plaintiff to follow. In Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd (2008) 237 CLR 473, the High Court discussed in detail the operation of the 'conclusive evidence' provision of the TAA. The court accepted the regime had been the subject of criticism and the operation of the provisions may in some circumstances be harsh. That is a matter for the parliament as was noted by Mason ACJ in Clyne v Deputy Commissioner of Taxation (1982) 56 ALJR 857, 858 ‑ 859. Given the provisions exist in the legislation, not only is it appropriate for the plaintiff to rely upon those provisions, it may well be argued that the Deputy Commissioner would be failing in her duty if she did not do so. Furthermore, as counsel for the plaintiff noted, it is often the case (and the plaintiff alleged it was the case here) that relevant information was in possession of the tax payer and the plaintiff had no alternative but to make an assessment based on limited material. Be that as it may, as the decision in Broadbeach makes plain, the use of the evidentiary certificate cannot provide some other reason for refusing an order for summary judgment.

15. The second matter raised by counsel was a breach by the ATO of its 'model litigant' obligations.  Without going into detail, the government instrumentalities undertake to operate as model litigants so as not to take advantage of their opponents and conduct themselves in a manner which is above reproach.  In this case, the defendant made a complaint that the ATO did not meet that standard.  The ATO investigated the complaint and on 7 December 2021 wrote to the defendant's solicitors acknowledging standards had been breached and apologising for what had occurred.  For present purposes, the details are unimportant.  The submission put on behalf of the defendant was to the effect that the breach of the model litigant guidelines provided some other reason for refusing summary judgment.

16. That submission should be rejected.  It is not unreasonable to expect a government instrumentality when pursuing a claim against a party should act in a proper and appropriate fashion.  If they do not do so, then it is appropriate for an apology to be issued and for steps to be taken to rectify the position.  But such an apology cannot, at least in this case, provide a ground for refusing summary judgment.  That is to say, a breach of model litigant guidelines does not in itself provide a defence to a claim.  Really the apology does nothing more than show the ATO takes its obligations as a model litigant seriously and is prepared to acknowledge mistakes when they are made and put the situation to rights.  It is perhaps a pity such an approach is not adopted by non‑government parties who are in dispute.

17. The application for summary judgment will be dismissed.  The costs of the application should be reserved for further consideration.  Counsel for the defendant indicated if the application was refused he wished to make submissions with respect to costs.  Those submissions should be lodged within seven days with the ATO to respond seven days thereafter.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

MM

Associate

3 MARCH 2023