Harpas v Commissioner of Taxation

[2001] NSWSC 1064

CITATION:	Harpas v Commissioner of Taxation [2001] NSWSC 1064
CURRENT JURISDICTION:	Common Law Division
FILE NUMBER(S):	SC 13349/01
HEARING DATE(S):	20 November 2001
JUDGMENT DATE:	21 November 2001
PARTIES :	Demetri Harpas - Plaintiff Commissioner of Taxation - Defendant
JUDGMENT OF:	Dunford J

COUNSEL :	T Duggan - Plaintiff P Rodionoff - Defendant
SOLICITORS:	Cunich Business Lawyers - Plaintiff Australian Government Solicitor - Defendant
CATCHWORDS:	TAXES & DUTIES - Income tax & related legislation - remission of group tax deductions - company's failure to remit - liability of directors - notice before recovery - form of notice
LEGISLATION CITED:	Income Tax Assessment Act 1936, ss 220AAM, 221C, 222ANA, 222AOB, 222AOC, 222AOE.
CASES CITED:	Deputy Commissioner of Taxation v Woodhams [2000] HCA 10, 199 CLR 370 Deputy Commissioner of Taxation v Gruber (1998) 43 NSWLR 271 Kleinwort Benson Australia Ltd v Crowl (1998) 165 CLR 71 Wingadee Shire Council v Willis (1910) 11 CLR 123 Revlon Manufacturing Limited v Commissioner of Taxation (1995-1996) 63 FCR 535
DECISION:	Summons dismissed with costs.

DUNFORD J

Wednesday, 21 NOVEMBER 2001

13349/01 - DEMETRI HARPAS v COMMISSIONER OF TAXATION

JUDGMENT

1 HIS HONOUR: In these proceedings the plaintiff seeks an order setting aside a notice issued by the defendant pursuant to s 222AOE of the Income Tax Assessment Act 1936 (“the Act”) and/or a declaration that the notice is invalid and of no effect.

2 The plaintiff was, at all material times, a director of Technology Trade Services Pty Limited, now in liquidation (the company). The company was obliged to deduct amounts from payments of employees' salary or wages each week and to remit such deductions to the Commissioner no later than the seventh day after the end of the month: ss 221C(1) and 220AAM(1).

3 In proceedings in the District Court at Newcastle the Deputy Commissioner has alleged that during the period 1 November 1998 to 31 May 1999 the company deducted amounts from employees' wages totalling $223,032.41, but that the total of payments remitted to the Commissioner during the same period amounted to only $23,037.55, by reason of which there remains an amount outstanding of $199,994.86.

4 These proceedings are being defended on various grounds and the amount outstanding is not admitted.

5 Division 9 of the Act imposes obligations and penalties on directors who fail to comply with those obligations. The objects and outline of Div 9 are set out in s 222ANA, which provides that the purpose is to ensure that a company either meets its obligations in respect of what is commonly known as group tax or goes promptly into voluntary administration under Pt 5.3A of the Corporations Law or into liquidation; and imposes a duty on the directors to cause the company to do so. Such duty is enforced by penalties, but a penalty can only be recovered if the Commissioner gives written notice to the person concerned, and such penalty is automatically remitted if the company meets its obligations or goes into voluntary administration or liquidation within fourteen days after the notice is given.

6 Pursuant to s 222AOB(1) the plaintiff, as a director of the company, had an obligation to cause the company to either remit the relevant amounts to the Commissioner, make an agreement with the Commissioner in relation to the company's liability, appoint an administrator of the company or begin to wind up the company. The company did not do any of those things and, as a consequence, did not comply with s 222AOB.

7 As a result of that section not having been complied with the plaintiff as a director at the relevant date became liable pursuant to s 222AOC to pay the outstanding amount to the Commissioner by way of penalty, but the Commissioner was not entitled to recover such outstanding amount until the requirements of s 222AOE had taken effect. That section is as follows:

"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 s 222AOC; 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 s 222ALA; or
(iii) the company is under administration within the meaning of the Corporations Law; or
(iv) the company is being wound-up."

8 The notice which is the subject of these proceedings was given under cover of a letter dated 11 December 1999 and the Deputy Commissioner subsequently commenced the proceedings in the District Court already referred to. No point has been taken that this Court lacks jurisdiction to determine the validity of the notice, or that it should decline to exercise jurisdiction on discretionary grounds because of the pending District Court proceedings.

9 A copy of the notice is annexed to the Summons and is in the following form: under a reference to the Act there is a heading,

" Notice of director’s liability to pay a penalty to the Commissioner of Taxation"
and under that a further heading,
"Tax instalment deductions",
whilst at the top right hand side is a reference to s 222AOE. After the plaintiff's name and address appears a passage as follows:
"In exercise of the powers and functions conferred on me as a Deputy Commissioner of Taxation by a delegation from the Commissioner of Taxation under the provisions of the Taxation Administration Act 1953, I give you notice under section 222AOE of the Income Tax Assessment Act 1936 (“the Act”) that you, as a director of the company, are liable to pay the Commissioner by way of penalty an amount equal to the unpaid amount of each liability of TECHNOLOGY TRADE SERVICES PTY LTD. ACN 071 803 659, under section 220AAM of the Act in respect of deductions made by the company for the purposes of Division 2 of Part VI of the Act, details of which are set out in the following table:-"

10 There follows details of the deductions alleged to have been made, the due dates for payments to the Commissioner of those amounts, the amount of the deductions and the unpaid amount of the company's liability month by month from November 1998 to May 1999. Then on a new line appears

"Total amount you will become liable to pay by way of penalty $199,994.86."
The notice then goes on to state that the penalty will be remitted if at the end of fourteen days the matters set out in s 222AOE(b), which are specified, are satisfied. The notice is dated and signed.

11 The ground on which it is claimed that the notice is invalid is that the line I have quoted relating to the total amount refers to a future liability whereas it is claimed at the time the notice was sent the plaintiff was already liable to the Commissioner, a present liability.

12 The provisions of s 222AOE and the notice required thereunder were considered by the High Court in Deputy Commissioner of Taxation v. Woodhams [2000] HCA 10, 199 CLR 370. The Court in a joint judgment, in overruling an earlier decision of the New South Wales Court of Appeal on this point: Deputy Commissioner of Taxation v. Gruber (1998) 43 NSWLR 271, held that it was not necessary to set out the due dates on which the amounts should have been remitted. At para [33] the Court pointed out that it is the legislative purpose to be served by the giving of the notice which determines the nature and extent of the information necessary to satisfy its requirements and at para [36] went on:

"The first purpose of the notice is to inform the recipient of the unpaid amount of the company's liability under the remittance provisions, and of the recipient's liability to a penalty in the same amount. The second purpose, consistently with s 222ANA, is to inform the recipient of the alternative courses available, as set out in s 222AOE(b), which will result in remission of the penalty, the object being to encourage the recipient to take such steps as are necessary to bring about the result that one or other of those courses is followed."

13 The Court also referred to Kleinwort Benson Australia Ltd v. Crowl (1998) 165 CLR 71 at 79, where it had been said that a bankruptcy notice is a nullity if it fails to meet a requirement made essential by the legislation or if it could reasonably mislead a debtor as to what was necessary to comply with it.

14 In the present case, the notice satisfied the purposes of the section as defined by the High Court, in that it informed the recipient of the unpaid amount of the company's liability under the remittance provisions and of the recipient's liability to a penalty in the same amount. It also informed the recipient of the alternative courses available under s 222AOE(b) which would result in the remission of the penalty.

15 In saying that it informed the recipient of his liability to a penalty in the amount specified, I draw attention in particular to the heading, "Notice of director’s liability to pay a penalty ..." and to the words in the fourth line under the recipient's address, "… you, as a director of the company, are liable to pay the Commissioner by way of penalty ...". (my italics)

16 Not only was the legislative purpose satisfied but, having regard to the first requirement of a notice referred to in Kleinwort Benson, it did not fail to meet a requirement made essential by the legislation in that it contained all the matters specified by the section; but it was submitted that it could reasonably mislead in that the line under the table referred to a future liability whereas the Act imposed a present liability.

17 It is true that the Act imposed a present liability on the plaintiff as the director as from the due date (s 222AOC), but such liability was one which could not be enforced until at least fourteen days after the giving of the notice, and then only if none of the alternatives in s 222AOE(b) had been satisfied, but although in a technical legal sense the plaintiff was already liable to pay the amount, as such liability could not be enforced until the notice had been given and run its course, the amount was in a practical and colloquial sense an amount which he would become liable to pay in the future, namely at the expiration of the fourteen days referred to.

18 In these circumstances I fail to see how the plaintiff could possibly have been misled. The earlier part of the notice told him that he was liable, the component amounts and the total payable were set out, together with the relevant dates and also the circumstances in which the penalty would be remitted. Counsel was unable to point to any course of action which the plaintiff could have taken or refrained from taking if the words in question had been replaced by the words "Total amount you are liable to pay by way of penalty …".

19 In coming to this conclusion I have not had regard to the covering letter, as the relevance in this context of the covering letter appears to have been left open by the Court in the Woodhams case: see para [43], but if the letter is relevant, that can only strengthen the Commissioner's position as the letter clearly talks of an existing and not a future liability.

20 Finally, I refer to two other revenue cases in different but similar contexts. In Wingadee Shire Council v. Willis (1910) 11 CLR 123, a rate notice under the relevant Local Government Act served on 28 September stated that at the expiration of thirty days from service the rates would be payable, and added, "The day on which such rates will be due and payable will be therefore 28 October". A submission was made that the notice was invalid because the rates were not payable until 29 October. All four Justices in separate judgments upheld the validity of the notice; in particular, Isaacs J at 144 said, "The mistake was evident and could safely be ignored and corrected by the recipient."

21 More recently, in Revlon Manufacturing Limited v. Commissioner of Taxation (1995-1996) 63 FCR 535 it was held that a notice of assessment for sales tax was valid notwithstanding that it contained an incorrect reference to the relevant section, Beaumont J at 555 being of the view that the error was "of such a formal character and of such limited dimensions that it could safely be ignored under the falsa demonstratio principle". In my view, similar considerations apply here.

22 For these reasons, I am satisfied that the notice given in the present case was a valid and effective notice in accordance with s 222AOE, and the Summons is dismissed with costs.

oOo

Last Modified: 12/03/2001