McNamara v Ciccarello; Hodgson v Ciccarello
[2010] SASC 207
•9 July 2010
SUPREME COURT OF SOUTH AUSTRALIA
(Appeals to a Single Judge: Civil)
MCNAMARA v CICCARELLO & ORS; HODGSON & ORS v CICCARELLO & ORS
[2010] SASC 207
Judgment of The Honourable Justice Duggan
9 July 2010
PROCEDURE - SUPREME COURT PROCEDURE - SOUTH AUSTRALIA - PROCEDURE UNDER RULES OF COURT - PARTIES - JOINDER OF PARTIES
Appeals against decision of District Court Judge to uphold ruling of Magistrate granting leave to join the appellants in District Court action – whether relief related to or connected with original subject matter and substantially the same as that claimed by plaintiff in District Court action – whether any question or issue substantially the same as the main proceedings should be determined as between the defendant to District Court action and the appellants – whether permission to issue a third party notice should be granted.
HELD: Appeal dismissed – relief sought in original proceedings not substantially the same as relief sought against appellants – however an issue substantially the same in each set of proceedings is the nature of the legal and accounting advice received – this advice will feature prominently in both proceedings – appropriate that there be one trial – appeals dismissed.
Income Tax Assessment Act 1936 (Cth) S 222AOE, s 222AOB(1), s 222ANA, s 222AOC, s 222AOJ, s 222AOJ(4); District Court Rules 1992 (SA) r 37, referred to.
In re Burford [1932] 2 Ch 122; Imagecolor (SA) (In Liq) & Sheahan v Curtis & Ors [2000] SASC 316, applied.
MCNAMARA v CICCARELLO & ORS; HODGSON & ORS v CICCARELLO & ORS
[2010] SASC 207Appeals to a Single Judge
DUGGAN J: These two appeals are against the decision of a District Court Judge to uphold the ruling of a Master which allowed the first respondent permission to join the appellants as third parties in a District Court action. The appeals were heard together.
The appellants are Stephen McNamara (“McNamara”), a solicitor, Benjamin Hodgson (“Hodgson”), an accountant, and PhilHodge Business Services Pty Ltd, an accounting company of which Hodgson is the principal. The first respondent to each appeal is Andrew Ciccarello (“the first respondent”). The first respondent is the defendant in the main proceedings and sought joinder of the appellants. The Deputy Commissioner of Taxation (“the DCT”) is the second respondent and the plaintiff in the main proceedings. The DCT has indicated to this Court that she takes no position on the issue of joinder.
The circumstances of the District Court action are that the first respondent was at one time a director of two companies. These companies failed to meet their obligations to pay to the Commissioner of Taxation “Pay As You Go” (“PAYG”) deductions. The DCT issued Director Penalty Notices (“DPNs”) pursuant to s 222AOE of the Income Tax Assessment Act 1936 (Cth) (“the ITAA”) in relation to the alleged failure to remit the PAYG deductions. It is alleged that the first respondent failed to comply with the DPNs and the order sought is that the first respondent pay an amount of $459,511 by way of penalties.
The first respondent has filed a defence to the statement of claim in which he challenges the validity of the DPNs. He also claims that he has a defence to the recovery of the penalties under s 222AOJ(3)(a) of the ITAA as he took all reasonable steps to ensure that the directors complied with the requirements of s 222AOB(1). The basis of this defence is that the first respondent engaged the appellants to provide legal and accounting advice to him in his dealings with the Australian Taxation Office (“the ATO”) and that they failed in their duty to provide him with proper advice in connection with the ATO’s claims against him.
According to the defence, the first respondent relied upon representations made by the appellants to the effect that they were dealing with the ATO’s claims against the two companies and himself, and that they would act diligently in these dealings. The defence asserts that, in breach of their fiduciary, contractual, statutory and tortious duties to the first respondent, the appellants failed to notify him of his liabilities and obligations under the ITAA.
The same claims are made in the statement of claim which the first respondent wishes to file in the third party actions against the appellants. The alleged failure of the appellants to provide proper advice is relied upon to support actions claiming misleading and deceptive conduct, breach of duty of care, unconscionable conduct, and breach of fiduciary duty. The particulars of loss and damage which the first respondent wishes to claim against the appellants include a claim for the full amount of any penalties which are found to be payable by the first respondent to the ATO.
Part VI Division 9 of the ITAA provides for the imposition of penalties on directors of companies which fail to remit to the ATO deductions made on account of PAYG withholding tax. Section 222ANA states that the purpose of the Division is to ensure that a company either meets its obligations in relation to the PAYG system or goes promptly into voluntary administration or into liquidation.
Section 222AOB imposes duties on directors of a company to meet these requirements. Penalties can be imposed for breaches of these duties. Section 222AOC relevantly states:
(1)If section 222AOB is not complied with on or before the due date, each person who was a director of the company at any time during the period beginning on the first deduction day and ending on the due date is 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:
(a) that the company has deducted for the purposes of Division 1AAA, 3B or 4 of this Act, or withheld for the purposes of Division 12 in Schedule 1 to the Taxation Administration Act 1953 (as the case requires); and
(b) whose due date is the same as the due date.
Section 222AOE provides for a DPN to be served on a director. It states:
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.
Defences for directors are provided for in s 222AOJ. One of the defences is established upon proof that “the person took all reasonable steps to ensure that the directors complied with” the obligations set out in various sections, which include s 222AOB. Section 222AOJ(4) states that:
(4)In subsection (3):
reasonable means reasonable having regard to:
(a)when, and for how long, the person was a director and took part in the management of the company; and
(b)all other relevant circumstances.
The District Court Rules 1992 (SA) apply to the present case. Under these rules the issue of third party notices is regulated by r 37 which, insofar as it is relevant, provides:
37.01(1) A defendant within the earlier of 14 days of filing the defence or 14 days of the last day according to the Rules for the filing of a defence may without leave issue a third party notice in Form 13 against any person who is not then a party to the action claiming:
(a) an entitlement to contribution or indemnity;
(b) relief related to or connected with the original subject matter of the action and substantially the same as some relief or remedy claimed by the plaintiff; or
(c) the determination of any question or issue relating to or connected with the original subject matter which is substantially the same as some question or issue arising between the plaintiff and the defendant and which should also be properly determined as between the defendant and the third party.
(2)By leave of the Court a defendant who has filed a notice of address for service may issue a third party notice under subrule (1) above at a time other than that laid down in subrule (1), but subject to such terms and conditions as the Court may impose either at the time of granting such leave or subsequently.
Rule 37.01(1)(a) has no application to these proceedings. There is no claim for contribution or indemnity. The question arises, however, whether the circumstances come within r 37.01(b) or (c).
In In re Burford,[1] Lord Hanworth M.R. commented on R.S.C. Order XVIA r12 sub-r 1, the English equivalent of r 37.01. His Lordship referred to the fact that, for a long time, the third party procedure applied only to cases of contribution and indemnity but said that recently this had been extended to cases where: [2]
“…there was a claim which arose out of the same subject-matter and where to deny that right would be to put the party to the inconvenience of proving over again the same facts for the purpose of getting the remedy to which he was entitled.”
Lord Hanworth went on to consider the wording of the rule:[3]
“When I come, therefore, to consider the meaning of clauses (b) and (c) of [the equivalent of r 37.01], I think it is plain that the words “substantially the same” which appear in both those clauses relate to the facts which have to be examined for the purpose of ascertaining what is the relief or remedy to which the parties are entitled. “Substantially” must have been put in in order to embrace within the rule something which was not exactly a repetition of the relief or remedy asked for. I think, therefore, that where the same facts have to be conned over in order to ascertain the liability and to give some relief to one or other of the parties, in such a case the rule now provides that it is unnecessary to have separate actions and separate proceedings, but that a third party notice may be served.”
[1] [1932] 2 Ch 122.
[2] [1932] 2 Ch 122 at 137.
[3] [1932] 2 Ch 122 at 138.
I have difficulty in concluding that subrule (1)(b) applies to the present case. This subrule requires a comparison to be made of the nature of the relief sought in each case. The relief sought by the ATO is the payment of a penalty which is imposed because of failure to abide by the statutory requirements. The penalty is assessed by reference to the unpaid amount of tax.
The relief sought against the appellants consists of damages for breach of duty and misleading and deceptive conduct. I do not think it assists to say that the amount of the penalty equates with the quantum of damages sought. In my view the two remedies are not “substantially the same” within the meaning of subrule (1)(b).
It remains, however, to consider the applicability of subrule (1)(c). Here the focus is on “any question or issue”. The question or issue in the main proceedings must be “substantially the same as” some question or issue in the third party proceedings. Applying the liberal interpretation given to these words by Lord Hanworth, it is, in my view, possible to identify in the present case an issue in each set of proceedings which brings the matter within subrule (1)(c).
In the main proceedings the first respondent asserts that he took all reasonable steps to ensure that there was compliance with the ITAA by employing a solicitor and an accountant to advise him about what was required in his dealings with the ATO.
In the proposed third party proceedings the first respondent seeks to argue that if he is found liable to pay the penalties, this liability arose as a consequence of the inadequate advice of his solicitor and accountant, the appellants McNamara and Hodgson.
In each set of proceedings the first respondent puts in issue the nature of the legal and accounting advice which he received. This is an issue which is substantially the same in each case. It is also an issue which is likely to feature prominently in each set of proceedings making it appropriate that there be one trial.
There is a further question. Rule 37.01(2) provides that permission of the Court is required to issue a third party notice at a time other than that laid down in subrule (1).
Matters relevant to the exercise of the discretion to grant permission under subrule (2) were discussed by Doyle CJ in Imagecolor (SA) (In Liq) & Sheahan v Curtis & Ors.[4] They were identified as the explanation for the delay, the impact of the third party proceedings on the orderly conduct of the proceedings between the plaintiff and the defendant, the risk of inconsistent findings if the two sets of proceedings are heard separately and the question of overall efficiency.
[4] [2000] SASC 316.
The main proceedings commenced on 30 November 2004. The application to issue the third party notice against the appellants was not filed until 26 September 2008. Mr McNamara acted for the first respondent in relation to the main proceedings up to 18 August 2008. By 26 August 2008 he had other solicitors acting for him. The time delay between new solicitors commencing to act for the first respondent and the filing of the application was reasonable in the circumstances. Obviously the first respondent was not given advice to join Mr McNamara and Mr Hodgson as third parties while Mr McNamara was still acting for the first respondent.
There is some risk of inconsistent findings being made if separate trials take place. It also seems clear that if separate trials take place some of the witnesses will have to give evidence twice. In my view it would be in the interests of efficiency for there to be one trial.
I am of the opinion that these considerations weigh in favour of exercising the discretion so as to permit the issue of the third party notices.
The appeals will be dismissed.
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