Dick v Deputy Commissioner of Taxation

[2008] HCATrans 84

[2008] HCATrans 084

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S425 of 2007

B e t w e e n -

GEORGE DOW TAYLOR DICK

Applicant

and

DEPUTY COMMISSIONER OF TAXATION

Respondent

Application for special leave to appeal

GLEESON CJ
GUMMOW J
CRENNAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 8 FEBRUARY 2008, AT 11.20 AM

Copyright in the High Court of Australia

MR D.P. ROBINSON, SC:   If your Honours please, I appear with MR A. BOURIS for the applicant.  (instructed by Baker & McKenzie)

MR S.J. GAGELER, SC:   If the Court pleases, I appear with MR R.S. QUINN and MR D.F.C. THOMAS for the respondent.  (instructed by Australian Government Solicitor)

GLEESON CJ:   Yes, Mr Robinson.

MR ROBINSON: Your Honours, the sole question in this application is whether section 1318 of the Corporations Act is capable of applying to a liability incurred under Divisions 8 and 9 of what I will the Tax Act.  Both parties approached the matter in accordance with the general presumption derived from Saraswati and then went on to construe both statutory provisions. The finding in the Court of Appeal was that the two statutes were implicitly inconsistent although Justice Spigelman’s primary holding was that section 1318 had no application to any liability imposed by any other statute than the Corporations Law. 

Your Honour, the applicant’s argument is that the Court of Appeal erred in not sufficiently distinguishing between the purpose of each statute and treating, in effect, the discretion in section 1318 as an additional and inconsistent defence in the Tax Act. Your Honours, the Tax Act imposes a liability on a director by reason of the operation of the statute itself. No question of discretion is involved and liability follows from the breach of duty, whereas section 13 on the other hand starts from the position that a liability has already been imposed and then relieves the person in question from that liability by a discretionary judgment of the court made upon very different criteria than the facts that gave rise to that liability.

Your Honours will no doubt be familiar with the general scheme of the Tax Act.  There is firstly a duty cast upon directors jointly to cause the company to pay the tax or to take one of the other alternatives leading to a form of liquidation.  Then there are two specified defences.  They are for illness or some other good reason the director did not take part in a management or the director took all reasonable steps to ensure that directors complied with a relevant obligation or there were no such steps a person could have taken. 

The last part of the statutory imposition of duty is that there is then the necessity for a 14 days notice to be given by the Commissioner before he can commence to enforce the liability which has already fallen due.  If, in that 14‑day period, the director is able to cause the company to comply, then that penalty is remitted.  That is, as it were, a final opportunity for the director.

Now, your Honour, there are a number of matters which establish that the Tax Act is an exhaustive code for the imposition of that liability.  It is clear that the Tax Act sets out a self-contained regime for the enforcement of the PAYG withholding obligations.  It is also clear that the regime was inserted in 1993 as a complete scheme.  It is also true that that new scheme abolished the previous statutory priority given by section 221P and replaced it with the scheme now contained.  It is also true that that regime contains within its own provisions two defences. 

The conclusion that the applicant draws from this is not that the discretion would otherwise be outed by reason of these matters, but that the scheme as a whole is only concerned with the imposition of liability and that on a subsequent occasion a court itself can consider on discretionary grounds whether that liability can be relieved from.

Your Honour, in the Tax Act itself there is an object set out at 222ANA.  That is reproduced in the material at appeal book 53.  Also, the Minister’s second reading speech is set out in the materials at appeal book 46.  Neither of those matters necessarily would exclude the operation of a discretionary decision by a court at a subsequent time.

GUMMOW J:   All of this is on the assumption that Chief Justice Spigelman is wrong, is it not, what you are putting to us now?

MR ROBINSON:   Yes.

GUMMOW J:   If Chief Justice Spigelman is correct, a lot of what you are saying falls away, does it not?

MR ROBINSON:   Yes.  If the Chief Justice is correct then this cannot ever apply to any other Act than the Corporations Act, but the other two judges were not so confined.

GUMMOW J:   I realise that.  I am not confined either.

MR ROBINSON:   Your Honour, another aspect of the consideration of the policy under the Tax Act is what is said to be the evil of the unremitted deductions being used to prop up insolvent regimes.  Again, that seems no reason why a discretion could not be entertained.  That discretion would take into account explicitly the policy matters that formulate the tax regime.  The actual discretion, your Honour, is one where a judge is asked to form an opinion to this effect, ought fairly to be excused.  That is a broad evaluative judgment which ‑ ‑ ‑

GUMMOW J:   If Chief Justice Spigelman is wrong, you would have to face the situation that there are a lot of other statutes out there which impose all sorts of duties on directors with their own regulatory regime about it.  You would have to hook all of them to 1318, would you?

MR ROBINSON:   You would have to consider them each one at a time.  Chief Justice Spigelman was particularly concerned about the occupation, safety health laws which are State‑based law.

GUMMOW J:   A lot of federal laws as well.

MR ROBINSON:   Yes, that is right, but each would be dealt on a case to case basis. 

GUMMOW J:   What about the Trade Practices Act?

MR ROBINSON:   Again, that would require an analysis of the Trade Practices Act, a detailed analysis.

GUMMOW J:   I think it would cause a bit of a shock down at the Commissioner.

MR ROBINSON:   But if you just look at the words, the words are apt and wide enough to deal with the situation provided the person is sued into requisite capacity.  It comprehends that a person who is a servant of a corporation or is in some way involved with a corporation will be exposed to liabilities and this is a broad remedial statute which would allow their conduct to be examined in all the circumstances and relieve them of the liability.

GUMMOW J:   The question is of what liability?

MR ROBINSON:   In this case it is a liability described as a penalty equal in mathematical terms to the tax not remitted.

CRENNAN J:   Defence under the Tax Act allows some good reason to be ventilated in that context, does it not?  In other words, it is not confined to ‑ ‑ ‑

MR ROBINSON:   No, some good reason did not take part in the management of the corporation is the actual defence.

CRENNAN J:   Yes, I see what you mean.

MR ROBINSON:   There are a number of cases where husband and wife are the directors and the wife just does not take much part in it, and that has held to be that is not a good reason.  What is interesting about the defences are they are defences on different grounds and the exercise of the discretion.  That is the important matter, in our submissions.

The other matter to note by way of contrast to the Moorebank Case is that there is no power reposed in the Commissioner to remit this penalty.  In the Moorebank Case, which is the subject of Justice Basten’s judgment, it was demonstrated how a discretion in the Commissioner may be in conflict with other matters such as the State limitations law. Here, there is no such apparent discretionary power in the Commissioner which would be circumscribed if there was jurisdiction in section 1318 to permit the liability to be released. Your Honour, the different criteria set out in the written submissions, I would not repeat them.

The next point is that the construction of the defences have shown that the director to take all reasonable steps is one where it is necessary for the director to prove that he or she took all steps which were reasonable having regard to the circumstances of which the defendant acting reasonably knew or ought to have known.  Cases such as Saunig demonstrate that harsh results, or apparently harsh results, may seem to flow from the application of the statute.  That is a reason for having a broad discretionary jurisdiction exercised on different criteria to ameliorate the harshness ‑ ‑ ‑

GUMMOW J:   Say that again.  What is that a reason?

MR ROBINSON:   If the statute is correctly described as harsh in its results, it would be a reason why a broad jurisdiction ‑ ‑ ‑

GUMMOW J:   It may be an implementation of legislative policy to be harsh in light of the public interest that requires harshness.

MR ROBINSON:   That is correct at that level, your Honour.  There is a different set of criteria are then applied. 

GUMMOW J:   Namely, the safeguarding of the revenue.

MR ROBINSON:   Again it is the safeguarding of the revenue, but to obtain a favourable exercise of discretion under 1318, that public policy can be taken into account.

CRENNAN J:   But would not the same arguments be raised in each of the two contexts; that is to say, the argument of the taxpayer was that he had a good reason not to being part in the management, pushed aside by others, as I understood it.  It is the same argument again under 1318, is it not?

MR ROBINSON:   No, he lost that, but some of the facts would be common.

CRENNAN J:   That is what I am saying; the whole thrust of the argument is the same.

MR ROBINSON:   Whatever the facts in the defences would be relevantly looked at in the exercise of the discretion but they are different criteria.

CRENNAN J:   It is having two bites of the cherry.

MR ROBINSON:   With respect, not.  There is a harsh statutory regime and then there is a dispensation power but based on different criteria.  Obviously what the person did at the time they were under the duty to remit the tax would be taken into account in the exercise of the discretion; it was.  At trial Mr Dick was successful in obtaining dispensation from the judge who considered the facts in relation to the penalty and obviously exercised his discretion in relation to the additional facts. 

Your Honours, again in the written submissions the appellant draws attention to the construction of what it says is a beneficial law, that is, section 1318, and sets out what are probably called the usual authorities in relation to the construction of that section ‑ ‑ ‑

GLEESON CJ:   Who, on your argument, exercises this dispensing power; any judicial officer before whom a prosecution comes?

MR ROBINSON: Assuming prosecution means prosecuting the action, not a crime, yes. It is a small C court. If you look at section 1318(1) court is in the lowercase and in section 1813(2) it is court in the upper case with a capital C which is the Federal, Family and Supreme Courts.

GLEESON CJ:   Does that mean the consequence of this is that every time a federal Act, for example, imposes a liability to a penalty, recovery of money, whatever, on an officer of the corporation and says you can proceed in the Magistrates Court or the District Court or whatever, appended to it or hanging over it always is this dispensing power?

MR ROBINSON:   Yes.  Whether there was jurisdiction or not, which was subject here, is dependent on whether the two Acts impliedly are inconsistent, which is the finding against me.  The simple proposition that ‑ ‑ ‑

GUMMOW J:   That gives 1318 a roving and ambulatory operation, does it not, through the Commonwealth statute book?

MR ROBINSON:   It does, but remember it has always been a State Act.

GUMMOW J:   That has been done with the Judiciary Act but as a very special effort, I think.

MR ROBINSON:   If you just consider the words and, indeed, the decision of the Court of Appeal was to only not allow it to apply, leaving Justice Spigelman’s judgment aside, because the Acts were inconsistent and impliedly so.

GLEESON CJ:   What about the Customs Act, prosecutions for customs offences, does it, as it were, apply there?

MR ROBINSON:   Again, we are talking civil because it only applies in civil proceedings.

GLEESON CJ:   Yes.  Customs prosecutions are civil.....they begin with a statement of claim and so forth. 

MR ROBINSON:   I should say I think the High Court has described them as quasi-criminal because they have.....proceed by civil process ‑ ‑ ‑

GLEESON CJ:   It depends on whether it is a civil penalty.

MR ROBINSON:   Yes. 

GLEESON CJ:   Civil penalties are becoming much more popular in recent years, presumably partly because they do not want to impose the stigma of criminality on misconduct.  I mean, this is an issue which is in public debate at the moment in relation to cartels.

GUMMOW J:   Or in federal law entail a jury.

MR ROBINSON:   I would rather just take myself away from the Customs Act because of the peculiarities of the regime there, but if we are just talking about civil proceedings, yes, that is right.  The words are wide enough at least according to two out of three judges.  The proposition that I confront is the inconsistency.

GLEESON CJ:   The proposition you confront in this case is the inconsistency with this particular Act.

MR ROBINSON:   Yes, and the submission is at its very broadest terms is there is a tight, harsh, self-contained regime for imposing a penalty on a director; stage one.  Once the imposing of the penalty has occurred, there is a broad discretionary ground on which a court can give relief.  It does not

exonerate the breach.  It relieves from the liability.  What is put against me is that the terms of the federal Act, the Tax Act, exclude the discretion.  On the face of the words, they do not and when you look at any discretion reposed in the Commissioner that is not at odds with the discretion reposed in the court. 

It is for that reason that we put forward the construction of these two statutes together, that one imposes a regime on a person and the other one has power to dispense it, I might say on very difficult criteria. People have been very unsuccessful in New South Wales at least in claiming the benefit of section 1318 in the cases that ASIC has been running. A very high standard at least is required. But the thing to note about it is that it is different criteria. Honesty has got nothing to do with the imposition of the liability. There are a number of other matters which have nothing to do with it.

GLEESON CJ:   Thank you, Mr Robinson.  Yes, Mr Gageler.

MR GAGELER:   Your Honours, the proposition on which the decision of the Court of Appeal ultimately and unanimously turns is that the specific legislative regime that one finds in Division 9, Part 6 of the Income Tax Assessment Act would be undermined, derogated from, detracted from, by the existence of a supervening discretionary power on the part of the court to relieve a director from the liability that is created under that regime by section 222AOC. If that proposition, which is really a proposition of repugnancy or direct inconsistency, is correct, then, as Justice Basten pointed out at pages 76 and 77, paragraphs 152 and 153, it is unnecessary to engage in a textual analysis of section 1318.

The potentially important difference between Chief Justice Spigelman on the one hand and Justice Santow on the other as to the reach of the words simply need not be addressed in the present case. It is a simple case where, assuming section 1318 to be otherwise applicable, there is repugnancy on orthodox principles. To see that repugnancy your Honours need only glance at the provisions of Division 9 which we provided to your Honours in the bundle of authorities behind tab 1.

The scheme of the legislation is spelt out in section 222ANA at page 249.  What one sees sufficiently really spelt out in that provision is its purpose in subsection (1) which was recognised in this Court in Woodhams to be a revenue protection purpose, these provisions being inserted as a consequence of the removal of the Commissioner's absolute priority in insolvency which had previously existed. 

One then sees in subsection (2) the mechanism by which the division goes about achieving that purpose.  It says “The Division imposes a duty on

the directors to cause the company to” take the steps referred to in subsection (1).  That is the duty imposed by section 222AOB.  That duty, it says, is enforced by penalties.  That duty, it says, “is enforced by penalties”.  That is the liability created by section 222AOC.  Then it notes that, “The penalty is automatically remitted” in certain circumstances where a notice is given an action is taken within the time specified in the notice.  That is section 222AOG. 

There is an automatic remission in particular circumstances. There is no general discretionary power on the part of anyone to otherwise remit. When there is a proceeding to recover the penalty that is imposed by section 222AOC, section 222AOJ, that your Honours would see at page 258, cuts in and it would be subversive of this legislative scheme if, as in the present case, a director were to run each of the defences available under section 222AOJ and lose and then be able to claim the benefit of a relatively unqualified discretionary power on the part of the court which supervenes by virtue of section 1318.

Your Honours, in part our learned friend’s submissions proceed upon a misconception of what you need to find to find a derogation or repugnancy.  All one needs to find is a detraction from the legislative scheme.

GLEESON CJ:   Thank you, Mr Gageler.  Mr Robinson, did you want to say anything in reply?

MR ROBINSON:   Nothing in the statutory material necessarily rules out the discretion.  They can sit as a forceful code to impose a liability without being in any way derogated from.

GLEESON CJ:   Considering that the conclusion of the Court of Appeal on the issue in the case was correct, there were some differences of opinion within the Court of Appeal upon some matters relevant to that ultimate issue, but we would not grant special leave in order to resolve those differences.  As has been said, the decision was correct and for that reason special leave to appeal should be refused.  Any question of costs?

MR GAGELER:   We seek costs, your Honour.

GLEESON CJ:   Do you resist that Mr Robinson?

MR ROBINSON:   No.

GLEESON CJ:   Special leave to appeal is refused with costs.

AT 11.47 AM THE MATTER WAS CONCLUDED