Adams Bidco Pty Ltd v Chief Commissioner of State Revenue

Supreme Court of NSW|2019-07-03|Before: Ward CJ

Judgment

HER HONOUR: On 12 June 2019, I handed down reasons for judgment in these proceedings (Adams Bidco Pty Ltd v Chief Commissioner of State Revenue [2019] NSWSC 702) (the June 2019 judgment).
The plaintiff (Adams Bidco Pty Ltd) had applied for a review of the whole of an assessment notified to it by the defendant (the Chief Commissioner of State Revenue (NSW)) (the Chief Commissioner) by a Duties Notice of Assessment dated 16 September 2016 (the Assessment). The Assessment related to landholder duty in respect of the acquisition by the plaintiff on 27 June 2013 (the Relevant Date) of all the issued shares in Ingham Enterprises Pty Ltd (Ingham) (the Acquisition).
As I explained in the June 2019 judgment, the issue as to liability for landholder duty (which turned on whether the primary producer concession applied) had been determined by the Court of Appeal (see Chief Commissioner of State Revenue v Adams Bidco Pty Ltd [2019] NSWCA 34) and all that was left to me to determine were issues as to penalty tax and interest (as well as the costs of the first instance decision the subject of the proceedings in the Court of Appeal).
As to those issues, for the reasons that I set out in the June 2019 judgment, I concluded (at [166]) that: reasonable care to comply with the taxation law as at the date of the tax default had not been established (Issue 2); the entitlement to a reduction in penalty tax pursuant to s 28(1) of the Taxation Administration Act 1996 (NSW) (Administration Act) had been enlivened (Issue 3), such reduction to be of the full (pre-remission) 25% penalty - i.e., 80% of the 25% penalty tax otherwise payable; and that in light of that reduction no further remission of penalty was warranted; nor was any further remission of penalty tax (Issue 4) or interest (Issue 5) warranted; and that the question of costs (Issue 6), together with costs of the remittal hearing itself, should be determined either on the basis of agreed short minutes of orders or on the basis of brief written submissions, preferably on the papers, following the publication of my judgment. I indicated that I would permit the parties to address orally (if they wished) any further submissions they might wish to make having regard to the conclusions I had reached in relation to Issue 3.

Plaintiff's submissions as to Issue 3

The plaintiff notes that, pursuant to the Assessment, the Chief Commissioner assessed the plaintiff to penalty of $1,091,648.41, comprised of: 1. 25% penalty on the primary duty (i.e. 25% x $7,976,073.60 = $1,994,018.40), 2. less a remission of penalty under s 33 of the Administration Act, equal to the whole of the (25%) penalty payable on the amount of $3,609,479.94 paid on 30 September 2014 (i.e. 25% x $3,609,479.94 = $902,369.99).
The plaintiff argues that the effect of [139] of the June 2019 judgment is that s 28(1) applies and that this has the result that the penalty prior to any remission under s 33 is reduced by 80%. Accordingly, the plaintiff says that this means that the penalty payable prior to any remission is: (100% - 80%) x 25% x $7,976,073.60 = $398,803.68.
The plaintiff submits that, while clearly there should be no further remission of penalty (as per my reasons at [147]), the approach taken by the Chief Commissioner in providing an existing partial remission at the time of the assessment is appropriate and should not be disturbed. In other words, the plaintiff argues that, in accordance with the Chief Commissioner's assessment, the remission of the penalty referable to the amount paid on 30 September 2014 (i.e., $3,609,479.94) should be preserved. The plaintiff has calculated that this would result in an adjustment to the remission already granted under s 33 of the Administration Act of: 20% x 25% x $3,609,479.94 = $180,474.00; and that, if this remission were applied, the total penalty payable would be $218,329.68.
The plaintiff argues that preservation of the existing partial remission is appropriate for the following reasons.
First, the plaintiff says that the Chief Commissioner did not submit in either his Appeal Statement dated 24 August 2017 (the Appeal Statement) or his submissions on the hearing before me that the existing partial remission should be disallowed, or was wrong in principle but, rather, accepted that it should remain.
Second, it is said that the existing partial remission reflects the payment of 50% of the estimated duty on 30 September 2014, and followed the Chief Commissioner's consideration of the plaintiff's submissions made by letter dated 14 June 2016 which set out several matters relevant to the exercise of the discretion to remit the penalty, including: the history of the dealings between the parties following the request for a private ruling and various public statements made by the Chief Commissioner as to matters he would take into account in determining the penalty to be imposed, including that: "[a]lthough the legislation provides for it, no penalty tax will be imposed where a voluntary disclosure is made in writing before the commencement of an investigation, unless there is intentional disregard of the law" (reference being made to the Office of State Revenue's website and a webpage on 'Interest and penalty tax' (last updated 7 June 2019) as referred to in a letter dated 14 June 2016 from PricewaterhouseCoopers (PwC) to the Chief Commissioner).
It is submitted that the matters referred to in relation to the history of the dealings between the parties (see 7 of the plaintiff's submissions) are relevant to remission because they go to the plaintiff's culpability and the plaintiff's actions and co-operation in identifying the correct liability. It is said that they were matters within the knowledge of the Chief Commissioner at the time he made the decision to allow a partial remission of the penalty (noting that the Chief Commissioner did so after taking legal advice from Senior Counsel).
It is submitted that, had an issue been raised by the Chief Commissioner in his Appeal Statement as to whether the existing partial remission should be preserved, the plaintiff would have considered whether to adduce further evidence as to the history of the dealings between the parties (s 7 of the plaintiff's submissions) so that they were properly before the Court; and that it would be inappropriate "at this late stage" for the Chief Commissioner to be permitted to rely on what is in substance a new argument, with evidentiary issues different from those raised by the Appeal Statements filed by the parties.

Chief Commissioner's submissions as to Issue 3

The Chief Commissioner (subject to reserving his rights in relation to any appeal against the findings as to the applicability of s 28(1) of the Administration Act) submits that there should be no alteration to the proposed orders in relation to Issue 3 (as set out at [141] of the June 2019 judgment).
The Chief Commissioner notes that the partial remission that was allowed by him in the Assessment (i.e., allowing for the part payment made in the year after the tax default) was effected pursuant to s 33 and not s 27 of the Administration Act (referring to the Assessment Paper at [170] - see Annexure B to the affidavit sworn 24 August 2017 of Betty Sarkissian) which section provides that "the Chief Commissioner may, in such circumstances as the Chief Commissioner considers appropriate, remit penalty tax by any amount".
It is submitted that any further remission of the type proposed by the plaintiff would similarly need to be effected pursuant to the general discretion to remit in s 33 (as distinct from the remission proposed to be ordered at [141] which is effected under s 28(1) and which was applied to the 25% penalty tax "determined [by the Court] under s 27"); and, if so, then unlike the position with respect to "reasonable care" under s 27(3)(a) (which is to be determined as at the time of the tax default - in this case failing to pay the duty on 27 September 2013) (see [109]-[111] of the June 2019 judgment), the conduct of the plaintiff in its entirety (both before and after the tax default) is relevant to the extent of remission (if any).
The Chief Commissioner says that adoption of the plaintiff's contentions as set out in its latest submissions would result in total penalty tax of only $218,329.68, as compared to the total pre-remission penalty tax on the primary duty of $1,994,018.40, which would equate to a reduction in penalty tax under s 33 in the amount of $1,775,688.77, or 89% of the total pre-remission liability (resulting in an effective rate of penalty tax of only 2.7% calculated as $218,329.68 divided by the primary duty of $7,976,073.60), as compared to a reduction of 80% under s 28(1) as I had contemplated (at [141] of the June 2019 judgment).
It is submitted that in all the circumstances of this case, and in particular having regard to the conduct of the plaintiff after February 2013 in taking a conscious decision not to pay more than 50% of the duty as assessed by PwC and in making a calculated decision as to the cost benefit of each course of action in the full knowledge that there was a real risk that tax was payable, a penalty tax remission of 89% is not warranted (see [147] of the June 2019 judgment).
The Chief Commissioner contends that (as set out at [140] of the June 2019 judgment), the operation of s 28(1) (in the manner set out at [141]) means that the reasoning that provided the basis for the Chief Commissioner's existing remission under s 33 no longer has force "once the penalty tax is to be reduced by 80% (i.e., to only 20% of the 25% penalty tax otherwise applicable)". The Chief Commissioner says that the remission to be ordered under s 28(1) is a "true alternative" to the remission that was granted by the Chief Commissioner (and made pursuant to a different provision to that which was granted by the Chief Commissioner) and that there should not be a further reduction of penalty tax below 80% of the 25% otherwise payable under s 27. It is submitted that this accords with the finding in relation to the plaintiff's existing claim under s 33 in the proceedings themselves (i.e., that no further remission was warranted - see at [147]).
Insofar as the plaintiff complains that, had these issues been raised before the hearing, the plaintiff would have considered whether to adduce further evidence as to the matters referred in its submissions at [7], the Chief Commissioner says that those matters were adequately traversed in the evidence before the Court, and that, in any event, those matters do not bear on the conduct of the plaintiff in pursuing the strategy of deliberate non-payment (referring to the June 2019 judgment at [147]).

Determination as to Issue 3

As the Chief Commissioner points out, the partial remission he had made of the penalty tax was a remission under s 33 of the Administration Act; whereas, I concluded that s 28(1) of the Administration Act applied (which operated on the pre-remission penalty tax imposed) and that no further remission was warranted.
If it applies, s 28(1) of the Administration Act provides for a reduction by 80% of "[t]he amount of penalty tax determined under section 27". Section 27 ('Amount of penalty tax') of the Administration Act provides, relevantly, that the amount of penalty tax payable in respect of a tax default is 25% of the amount of tax unpaid (subject to the Division).
Thus, the 80% reduction is of the s 27(1) amount (the 25% penalty tax) not of the (lesser) penalty tax that may in fact be imposed by the Chief Commissioner by operation of the discretion under s 33 of the Administration Act. I accept the Chief Commissioner's submission that any further reduction of the penalty tax beyond the 80% reduction would involve an application of the general discretion to remit in s 33 of the Administration Act.
I concluded in the 2019 June judgment that no further remission under s 33 would be warranted having regard to the matters referred to at [147]. I remain of that view.
Certainly, procedural fairness requires that a party should be given an opportunity to present his, her or its case (see Monica Perez v NSW Land and Housing Corporation [2015] NSWCATCD 50, Levingston J (at [23])). In Italiano v Carbone [2005] NSWCA 177, Basten JA stated that "[a]n opportunity foregone, but reasonably available, does not demonstrate a breach of procedural fairness" (at [88]): To demonstrate [a breach of] procedural fairness it is usually necessary to show that a claimant "lost an opportunity to put any information or argument to the decision-maker, or otherwise suffered any detriment", as explained by Gleeson CJ in Re Minister for Immigration, Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1 at [36].
In Re Minister for Immigration, Multicultural and Indigenous Affairs; Ex parte Lam (2003) 214 CLR 1; [2003] HCA 6 at [37], Gleeson CJ gives as an example of detriment where "the statement of intention has been relied upon and, acting on the faith of it, a person has refrained from putting material before a decision-maker".
I am of the view that the Chief Commissioner's Appeal Statement did not operate to deny the plaintiff the opportunity to adduce further evidence as to the history of the dealings between the parties in relation to the existing partial remission.
Insofar as the plaintiff complains that this issue was not raised in the Chief Commissioner's Appeal Statement or submissions (and that had the plaintiff appreciated that a question as to whether the existing partial remission should be preserved it would have considered whether to adduce further evidence as to the history of the dealings between the parties), it should be noted that the Chief Commissioner's position was that no deduction under s 28(1) was applicable. In that context, the Chief Commissioner's position was that the s 33 remission that had been granted was a generous one; and that nothing further was warranted.
Further, the plaintiff does not identify what further evidence it contemplates would have been adduced had it appreciated that the result of its submissions as to s 28(1) might give rise to a situation where the 80% reduction of the pre-remission penalty would be the only deduction (and I find it difficult to see what further evidence would be likely to have assisted the plaintiff on this point). The plaintiff was given the opportunity (after the June 2019 judgment) to make submissions as to that outcome and the matters emphasised by it were as to the plaintiff's culpability and the plaintiff's actions and co-operation in identifying the correct liability. Those were matters to which I had regard already in determining the issue as to reasonable care. I accept the Chief Commissioner's submission that the outcome for which the plaintiff contends (of what would amount to an overall 89% deduction of the total pre-remission liability) does not adequately reflect the conduct of the taxpayer in making (as I have already found it did) a calculated decision as to the cost benefit to it of not paying more than the amount it did in February 2013.
Where a denial of procedural fairness has occurred, a second reopened hearing can be provided to "cure" the denial of procedural fairness. Whilst the complaint was raised by the plaintiff in its submissions, no formal application was made to reopen the proceedings.
I am not persuaded that the procedural complaint is established and I remain of the view that no further remission is warranted.

Appropriate final orders

As to the final orders, the plaintiff submits that the appeal should be allowed in part and that the determination of the precise quantum of interest should be remitted to the Commissioner in accordance with the Court's reasons, noting that the amount of interest will depend on the resolution of Issue 3 and that the question of interest on penalty tax on and after 8 October 2016 is not before the Court. It is submitted that the Chief Commissioner's calculation of interest on penalty tax appears incorrectly to treat leap years as ordinary calendar years and interest as being payable from the beginning of the last day for payment, rather than the end (cf s 21(1) of the Administration Act ). It is submitted that once the Court determines the amount of penalty, the Commissioner should be able to determine the precise amount of interest.
While the Chief Commissioner had prepared a different form of orders (and remained of the view that they were acceptable), in light of the fact that the parties have been unable to agree the position with respect to interest on penalty tax, the Chief Commissioner does not now oppose a final order to the effect that the Court allows the appeal in part and remits the determination of the precise quantum of interest back to the Commissioner in accordance with the Court's reasons.
I will so order.

Costs

In relation to costs, the plaintiff accepts that it should pay the Chief Commissioner's costs of the proceedings up to and including the first hearing before Pembroke J. The plaintiff submits that it would be appropriate for each party to bear its own costs in relation to the second hearing, reflecting the plaintiff's partial success in the second hearing.
The Chief Commissioner agrees; and I will so order.

Orders

In light of the above reasons, I order as follows. 1. The plaintiff's appeal is allowed in part. 2. Pursuant to s 101(1)(d) of the Taxation Administration Act 1996 (NSW), remit the matter to the defendant for determination in accordance with the Court's reasons. 3. Order the plaintiff to pay the defendant's costs of the proceedings incurred to the date of the hearing (on 21 May 2018) as agreed or assessed. 4. Order each party to pay its own costs of the proceedings from 22 May 2018 to the date of these orders.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 July 2019

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