Woodhams v Dep Com of Taxation of Cth of Australia

[1998] HCATrans 172

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Melbourne  No M110 of 1997

B e t w e e n -

BRUCE DRUMMOND WOODHAMS

Applicant

and

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA

Respondent

Application for special leave to appeal

GAUDRON J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON TUESDAY, 19 MAY 1998, AT 9.55 AM

Copyright in the High Court of Australia

MR F.G.A. BEAUMONT, QC:   If the Court pleases, I appear with my learned friends, MR E.J. POWER and MR F.E. FARROW, on behalf of the appellant. (instructed by Woodhams O’Keeffe & Co)

MR C.M. MAXWELL:   May it please the Court, I appear for the respondent. (instructed by the Australian Government Solicitor)

GAUDRON J:   Yes, Mr Beaumont.

MR BEAUMONT:   Your Honours, this matter involves Division 9 of the Income Tax Act and really it boils down to a very simple question as to whether or not what is imposed is a tax or penalty under those sections.  This is something that is quite clearly, in our submission, in the present circumstances, a tax.  It should be noted that ‑ ‑ ‑

GUMMOW J:   Undoubtedly it is a law with respect to taxation.

MR BEAUMONT:   Yes.

GUMMOW J:   So your point is a section 55 point, is it not?

MR BEAUMONT:   Yes, your Honour.  It really does have to boil down to whether or not this is a tax or a penalty as such; if it is a tax, then quite simply it would be more ‑ ‑ ‑

GUMMOW J:   A law imposing a tax, does it not have to be?

MR BEAUMONT:   Yes, your Honour.  If I may move on to the position whereas the Full Court in this State in deciding that it was not a law imposing taxation, but rather a penalty, basically relied on two decisions:  the first was the Collector of Customs(NSW) v Southern Shipping Co Ltd (1962) 107 CLR 279. I have had made a summary of the facts in that case and I understand that the Court has been given a copy of those separately.

GAUDRON J:   Thank you, yes, we have those.

MR BEAUMONT:   The actual facts are in paragraph 1.  That was a case where the subject goods were tobacco, they were taken to the wharf, they were held to be still in the care and control of the shipping company in a store on the wharf, they were stolen by persons unknown, they were never recovered.  And it was held by the High Court in that case that the shipper still had them in his care and control and was liable to pay duty and, on the basis of that, it was a penalty and the Full Court in Victoria on the basis of that said this was exactly the same.  What they failed to appreciate is, if you had further facts, for example, in Southern Shipping, and that is that the person who took the goods from the wharf where they had been left did not actually remove them from the wharf itself, but secreted them in another place, meaning to collect them later, but he never returned to collect the goods, if the Collector of Customs served a claim upon the shipping company, the shipping company then paid the amount, after payment was made, the goods, still in the same state, were found in their hiding place and were returned by the finder to the owner of the goods, the goods would have still been in the relevant matters under the Excise Act and if the tobacco company then proposed to sell the goods to a retailer, as replacement goods, because others had already been shipped to Hobart; in such a situation the question which then would arise is whether, pursuant to section 59, the tobacco company was under an obligation to pay excise duty in respect of those goods, where the shipping company had already paid the amount of the excise.

GAUDRON J:   Now that does not bear on the facts of your case though, does it?

MR BEAUMONT:   It does, because what it shows, and the reason I say this is because it shows that in those circumstances the court would have found, we say by reason of section 60(4), that there were two separate obligations to pay:  one on the shipping company and one on the owner of the goods who became the owner when they were re-found, and those two separate obligations are the same sort of situation as here.

GUMMOW J:   What is wrong with the analysis at page 24 of the application book under the heading “onclusion” starting at line 17?

MR BEAUMONT:   The analysis of Mr Justice Kitto and Mr Justice Owen ‑ ‑ ‑

GUMMOW J:   No no, page 24 of the application book in this case, under the heading “Conclusion”.

MR BEAUMONT:   Well, we say that that is based upon a wrong analysis of the Southern Shipping Case because, if one reads that case it is quite clear that the decisions that Mr Justice Kitto and Mr Justice Owen are diametrically opposed to that of Chief Justice Dixon with whom Mr Justice Windeyer and the Court has failed to appreciate that they have not, and in those circumstances there is not one primary obligation to pay the tax in those circumstances under the Southern Shipping Case, which they relied upon to reach that conclusion.

GUMMOW J:   But what about this case?  We have got to construe this case?

MR BEAUMONT:   In this case it is quite clear, we say, that the position is that the liability of the directors is clearly substitutional, it is not collateral.

GAUDRON J:   No, it is not; I do not think it is quite clear at all that it is substitutional.  The directors have a liability to ensure that things are done.  If they are not done then there is a penalty.  I would have thought it was really quite simple.

MR BEAUMONT:   With the greatest respect, your Honours, if I could take you to page 11 of the application book, section 222ANA which is set out there, makes it quite clear in subsection (3)-.-.-

GUMMOW J:   What about subsections (1) and (2)?

MR BEAUMONT:   Well, if I could go to subsection (3) to start with, your Honour.

GUMMOW J:   All right.

MR BEAUMONT:

A penalty recovered under this Division is applied towards meeting the company’s obligations under the relevant Division.  Conversely, amounts paid by the company reduce the amount of the -

director’s obligations.  So they are substitutional; they cannot be collateral in those circumstances.  If one liability reduces the other liability ‑ ‑ ‑

GAUDRON J:   Duties can exist side by side, the extent of the varying, depending upon what the other does, as in the case of a guarantee.  There are separate duties, separate liabilities, but the measure of the liability will vary.

MR BEAUMONT:   But the difficulty you have here is that the way in which in subsection (2), I have got no problem with dealing with subsection (2), although it says, “he duty is enforced by penalties”, that does not mean that it is necessarily correct that it is a penalty, and when it says:

a penalty can be recovered only if the Commissioner gives written notice -

and -

The penalty is automatically remitted if the company meets its obligations -

that shows once again that it is substitutional, because you cannot remit something unless somebody else has done something else.

Now, what you have really got to look at here is that, in fact, the tax which is imposed, or the obligation, if we can put it this way, is imposed not because of something that the directors have or have not done, because the obligation which is imposed is imposed directly by section 222AOB, because ‑ ‑ ‑

GUMMOW J:   Well they are obliged to cause the company to do certain things.

MR BEAUMONT:   Prior to the due date passing, there is no obligation on the directors.  When the due date passes -- and what must be appreciated, your Honours, is that this applies every month; it does not apply just when a notice is ultimately served, it applies every month - so when the due date passes, under that section there is an obligation then imposed on the directors.  That is when the obligation is imposed, so it is not for non‑payment of a pre-existing debt or anything like that.  All section 222AOE does is to give an entitlement to recover rather than impose an obligation, so the penalty that is imposed under these sections does not relate to the breach of any antecedent obligation.  The penalty does not relate to the breach of any antecedent obligation, because the obligation arises simultaneously on the due date.  So, in those circumstances, it can only be, if it is not a grabbing of property or a fee for services or anything like that, it can only be a tax.

GAUDRON J:   Or a penalty.

MR BEAUMONT:   No, it cannot be a penalty, because the definition ‑ ‑ ‑

GAUDRON J:   There is nothing wrong with liabilities arising simultaneously.

MR BEAUMONT:   But a penalty can only be by definition incurred for the breach of an antecedent obligation.  You cannot put a penalty on somebody for something that has not happened, by its very nature, and that is exactly what section 222AOB does and it is imposed irrespective of any loss.  Now a penalty is only imposed - and that is quite clear from all authorities we would say - if there is a breach irrespective of loss.  In this instance, quite clearly, your Honours, the obligation is imposed because there is a loss to the Commonwealth, and that loss is because ‑ ‑ ‑

GAUDRON J:   An obligation is imposed to ensure that the company meets its obligations.

MR BEAUMONT:   No, your Honour, with respect, it is not; the obligation is that once the company has not met its obligation, that obligation is imposed.  It is not imposed before the company fails to meet its obligation.  See, that obligation only arises after the company has defaulted.

GUMMOW J:   What is wrong with the analysis at page 24 of the application book.  It says at about line 24:

and the other, at a further remove, upon the directors of the company (to cause the company to honour its obligations -

What is wrong with that?

MR BEAUMONT:   Because that is not what it does at all, your Honour; that is exactly what it does not do.  What it does - I see it is not an auxiliary obligation imposed upon the company and it does not force the directors that caused the company to honour its obligations, because if the company has got no money it cannot cause the directors to force the company to honour its obligations.  How can it?  How can it procure that if the company does not have any money?  What it does, in fact, is to say, because the Commissioner is out of pocket at the end of the day, because of the normal way in which these matters operate - and your Honours are appraised, no doubt of the fact that, for example, that once a worker puts in his group certificate he gets a credit for it, whether or not the company sends the money.  That is why the Commissioner is out of pocket.

Now, therefore the liability which arises on the director in this instance is only a liability to pay if the Commissioner suffers a loss of revenue because of the company’s failure to remit the group tax.  Not because of anything that the director has done wrong.  He has got no antecedent obligation.  You see, your Honours, before you can have a penalty you have got to have an antecedent obligation on the director, which has not been complied with.  If you have not got that, then you cannot have a penalty, it has got to be something else.  It has got to be a tax, in this instance.

GUMMOW J:   Why do the two constitute a logic and complete universe?

MR BEAUMONT:   They do not comprise the whole universe, I accept that, your Honour, but it is quite clear that they are mutually exclusive of each other, a tax and a penalty, to start with.  It is quite clear it is not a compulsory acquisition of property; it is quite clear it is not a fee for service.  The only other thing it can be, in those circumstances, where the government imposes it on people, is a tax.  It is in the same nature as a recoupment tax under the T(UCT) legislation which was considered by this Court in MacCormick.  In fact it is on all fours with that recoupment tax.  There is just no difference between this and the MacCormick‑type tax, when one properly, with respect, analyses what this section does, because most people, with respect, your Honours, proceed from the basis that it is section 222AOE which constitutes the penalty.  It is not.  It is the original section, that is section ‑ ‑ ‑

GUMMOW J:   How can anyone think that by reading section 222AOE?

MR BEAUMONT:   Well, because that is the way in which it has sort of been looked at, your Honours.

GUMMOW J:   By people with myopia.

MR BEAUMONT:   I did not say the Court, your Honour; I said a lot of people think that.

GUMMOW J:   Yes, all right.

MR BEAUMONT:   Now, the position is quite clearly, your Honours, that ‑ and it is not even section 222AOC, which is referred to by the court.  See, the court at page 24, in its judgment, at line 17, says that it is:

section 222AOC imposes a penalty on the directors.

That is not correct.

GAUDRON J:   Well, it is; that is what section 222 AOC says it does.

MR BEAUMONT:   Well, you see ‑ ‑ ‑

GAUDRON J:   It says:

If section 222AOB is not complied with -

then the directors are liable to pay it -

by way of penalty.

That imposes the penalty.

MR BEAUMONT:   Yes, but you see, it is imposed by subsections (1) and (3), with respect, of the previous section, section 222AOB.

GAUDRON J:   That imposes obligations.

MR BEAUMONT:   Yes.

GAUDRON J:   And it does not impose the penalty.

MR BEAUMONT:   But that is why it is not a penalty, because there is no breach of that obligation, that is the whole point of the matter, because you have to have a breach of an obligation before you can have a penalty.  One should never ask a court rhetorically, but one does get forced to ask, what is the obligation that has been breached by the directors - - -

GAUDRON J:   To ensure the company remits, or if it does not remit that steps are taken, et cetera, as in accordance with section 222AOB.

MR BEAUMONT:   Yes, but you see, your Honour, that obligation does not arise until after the due date has already passed.

GAUDRON J:   No, well you keep saying that, but that is a misreading of the section, Mr Beaumont.  The penalty does not arise, but the obligation is a continuing one which is there at all times.

MR BEAUMONT:   That, with respect, cannot be right, your Honour, because otherwise you would have an obligation to put the company into liquidation at all times.  You would have an obligation at all times to put the company under administration; they are all grouped in together.  Your Honours, this is a matter - I do not think there would be any difficulty with public interest, would there, because there are some 11,000‑odd directors and a lot of money involved as to whether this a matter of public interest on that point.

GAUDRON J:   Yes, well your time is up anyway.

MR BEAUMONT:   Thank you, your Honour.

GAUDRON J:   Yes, Mr Maxwell.

MR MAXWELL:   May it please the Court. 

GUMMOW J:   Mr Beaumont says that this statutory system is no different from the system in MacCormick. 

MR  MAXWELL:   With respect, your Honours, it is altogether different; MacCormick is, of course, one of those decisions in which the criterion, the defining characteristic of a penalty was enunciated, that is, an impost in respect of the breach of an antecedent obligation, and the majority judgment in MacCormick said, this is a separate and distinct tax on the vendors and the promoters of these schemes; it is a tax in respect of a transaction being the disposal of the company resulting in the loss of company tax.  But, in concluding the reasoning that it was a tax and not excluded by one of the negative categories, their Honours said, and there is no breach of an antecedent obligation, which was just so.  There was a primary pecuniary obligation on the promoters and the vendors to pay an amount of recoupment tax.  True it was, that if the company tax was paid, the recoupment tax was thereby extinguished, as her Honour said, and provisions of that kind are quite common.

This is, with respect, a quintessential penalty; this is a provision section 222AOB, as her Honour said, which imposes obligations and it is only when and if a breach occurs of that obligation, that is to say, AOB is not complied with, that the penalty arises, and my learned friend, as your Honour the presiding Judge pointed out, misreads AOB in putting repeatedly to your Honours that there is no antecedent obligation.  It is quite plain, it is respectfully submitted, on the face of AOB, that it is a duty which arises on and from the first deduction day in each month, for a company which is a monthly remitter, in respect of deductions which must be remitted by the seventh day of the next month.  Your Honours will see in the first two lines of AOB:

The persons who are directors of the company from time to time on or after the first deduction day must cause the company to do at least one of the following on or before the due date:

And the first deduction day is defined in section 222AOA(2) as being:

The earliest day on which the company made for the purposes of -

the relevant -

Division a deduction that has that due date -

So that it is an obligation which arises month by month, as your Honour said, and in respect of each monthly set of deductions, those directors in

office have the obligation imposed by AOB which must be discharged on or before the due date.  If it is not, and ‑ ‑ ‑

GUMMOW J:   It is an obligation to do one of a number of things.

MR MAXWELL:   That is so, your Honour, yes.

GUMMOW J:   One of which may be liquidation.

MR MAXWELL:   One of which may be.

GAUDRON J:   Thank you, Mr Maxwell.  We do not need to hear from you further.

The Court is of the view that there is no reason to doubt the correctness of the decision of the Court of Appeal of the Supreme Court of Victoria in this matter.  Accordingly, the application for special leave to appeal is refused.

MR MAXWELL:   I seek the costs, if your Honour please.

GAUDRON J:   Yes.  It is refused with costs.

AT 10.20 AM THE MATTER WAS CONCLUDED