Banovec v Deputy Commissioner of Taxation

Fancourt v Mercantile Credits Ltd [1983] HCA 25, 154 CLR 87 CASES CITED: Timmins v Moreland Street Property Co. Ltd [1958] Ch 110 CA FCT v Gruber (1998) 43 NSWLR 271 FCT v Meredith (2008) 245 ALR 150

PARTIES: Oliver Klaus Banovec - Appellant Deputy Commissioner of Taxation - Respondent

COUNSEL: M Luitingh - Appellant P Rodionoff - Respondent

SOLICITORS: In person - Appellant Australian Government Solicitor - Respondent

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40205 OF 2008

TOBIAS JA MACFARLAN JA HANDLEY AJA

23 June 2009 OLIVER KLAUS BANOVEC v DEPUTY COMMISSIONER OF TAXATION CATCHWORDS

TAXATION- company failed to remit amounts deducted for tax - liability of director - no question of principle.

The appellant, who at the relevant times, was a director of a company which failed to remit moneys it deducted for tax from the earnings of its contractors, as required by the Taxation Administration Act, was sued for penalties imposed on him as a director by ss 222AOB and following of the Income Tax Assessment Act. The trial judge gave judgment for the Deputy Commissioner for $115,087. The defendant appealed, challenging the judge's findings that a notice under s 222AOE which had been "given" to him was posted on 6 July 2005, and that the notice was formally valid. Held: Dismissing the appeal (1) the Judge's finding that the notice had been posted could not be disturbed. The evidence of the officer on this issue had not been challenged, and the factual arguments raised on the appeal had not been put to her in cross-examination; (2) the notice, when read with the covering letter which it incorporated by reference, complied with s 222AOE. ORDERS

Appeal dismissed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40205 OF 2008

TOBIAS JA MACFARLAN JA HANDLEY AJA

23 June 2009 OLIVER KLAUS BANOVEC v DEPUTY COMMISSIONER OF TAXATION JUDGMENT 1 TOBIAS JA: I agree with Handley AJA. 2 MACFARLAN JA: I agree with Handley AJA. 3 HANDLEY AJA: The appellant, a former director of Staff Services A Pty Ltd (the company) which went into voluntary administration on 14 November 2005, has appealed from the judgment of O'Toole DCJ of 11 April 2008 in favour of the Deputy Commissioner for $122,758.97 inclusive of interest. The Deputy Commissioner sued the appellant to recover penalties imposed on him, as a director of the company, for its failure to remit the sums it withheld from the earnings of its contractors as required by Divs 12 and 16 of Pt 2-1 of Sch 1 of the Taxation Administration Act 1953 as amended. 4 The company's payments to its contractors for the relevant months of December 2004, and February, March, April, and May 2005, the withholding of amounts totalling $115,087 during those months, and its failure to remit them to the Deputy Commissioner prior to 6 July 2005 were not in dispute. The Judge found that the necessary notice under s 222AOE of the Income Tax Assessment Act (the Act) (the notice) was given to the appellant that day. 5 The appellant's counsel, Mr Luitingh, (who did not appear below) raised two preliminary issues. The first was a challenge to the judge's finding that Ms King, an employee of the Taxation Department, gave the appellant the notice by posting it by pre-paid post addressed to him at his place of residence as then recorded by ASIC. The second was his challenge to the formal validity of that notice for failure to comply with the requirements of that section. 6 The appellant's further submissions based on estoppel, and an alleged agreement under s 222ALA of the Act can only be maintained if the appellant succeeds on either or both of the preliminary issues because the events relied on occurred outside the 14 day period specified in s 222AOE from the giving of the notice. 7 Section 222AOB(1) imposes duties on directors to cause their company to comply with its obligations to remit to the Commissioner amounts it was required by the Act to deduct before making relevant payments and to do so on or before the due date for such remittances, or to take one or other of the steps identified in the subsection. Subsection (3) imposes a continuing obligation on the directors to ensure that the amounts are in fact remitted. Section 222AOC makes each director in office at a relevant time liable to pay to the Commissioner, by way of penalty, an amount equal to the unpaid liability of the company referred to in s 222AOB(1). 8 Section 222AOE(1) provides that the Commissioner is not entitled to recover a penalty imposed on a person under s 222AOB (or s 222AOC which is not presently relevant) "until the end of 14 days after the Commissioner gives to the person a notice" in accordance with that section. 9 Ms King, an officer of the Taxation Department, gave affidavit evidence (Blue 38-40, 38-9) that such a notice was given to the appellant by posting it in Wollongong by pre-paid post on 6 July 2005. The appellant gave evidence that he did not receive the notice, and he was not cross-examined. The notice was addressed to him at a unit in North Sydney shown as his address in the company's records at ASIC. 10 However on or about 1 July the appellant moved to a new address a kilometre or so away, and did not advise ASIC until 7 July (Blue 52). Section 222AOF(1) provides: "If it appears from ASIC documents that a person is, or has been within the last 7 days, a director of the company, the Commissioner may give the person a notice under section 222AOE by … sending it by post to, an address that appears from such documents to be, or to have been within the last 7 days, the person's place of residence …" 11 There is no dispute, subject to one matter, that the appellant had been "given" the documents relied on by the Deputy Commissioner as the notice. The only question was whether the trial judge was entitled to find, that Ms King posted the documents on 6 July. This Court held in FCT v Meredith [2007] NSWCA 354, 245 ALR 150 that a notice under s 222AOE posted to a person in accordance with s 222AOF(1) is "given" to that person on the day it is posted. The fact that the appellant may not receive the notice, perhaps because he had moved, is immaterial: Fancourt v Mercantile Credits Ltd [1983] HCA 25, 154 CLR 87; FCT v Gruber (1998) 43 NSWLR 271. 12 The Trial Judge found: para [78] that at 15:55 on 6 July 2005 the Deputy Commissioner gave the appellant the notice under s 222AOE referred to in Ms King's evidence. 13 The trial began on 29 August 2007, and Ms King was called as the plaintiff's second witness. After some short evidence in chief in which she corrected some errors in her affidavits and in some of the annexures she was cross-examined by counsel for the defendant for about an hour and a half before the case was adjourned. 14 The trial resumed on 15 October when Ms King was not available because, having suffered a nervous breakdown following her cross-examination, she refused to return to the witness box. A procedural tug-of-war followed. The defendant applied to have the evidence of Ms King struck out, and for other relief, and the plaintiff sought to proceed with the trial. The further hearing was adjourned to 3 December. During the adjournment Ms King was examined by Mr Harris, a psychologist, whose affidavit and report dated 14 November 2007 was tendered at the resumed hearing (Black 106). 15 After further argument the trial and various notices of motion by the parties were adjourned to 11 February 2008 when Mr Harris was cross-examined. On 12 February counsel for the defendant filed an amended notice of motion seeking orders compelling Ms King to attend for cross-examination or alternatively for her evidence to be struck out. After the lunch adjournment the amended notice of motion was withdrawn and another notice of motion was filed seeking an order that Ms King be subpoenaed to give evidence. 16 The substituted notice of motion was withdrawn on 13 February after the plaintiff withdrew the second affidavit of Ms King. Counsel for the defendant told the Court that the withdrawal of this affidavit (which dealt with matters other than postage of the notice) "has removed the utility of the defendant asking for the relief that it sought in the notice of motion" (Black 215). The plaintiff then closed her case, and the defendant went into evidence. 17 Ms King's evidence about the posting of the notice on 6 July was not challenged during her cross-examination on 28 August. Mr Luitingh, counsel for the appellant, nevertheless submitted that her failure to return to the witness box for further cross-examination had deprived the appellant of the opportunity to challenge her evidence about the posting of the notice, and the trial judge erred in accepting that evidence. 18 He drew attention to various errors in the dates in the statutory demand on the company dated 6 July 2005 and Ms King's accompanying affidavit which purported to be sworn on 5 July (Blue 13-14, 16-17). He also drew attention to what he submitted were material discrepancies between the documents annexed to her affidavit of 22 January 2007 (Blue 38-9, 48-9) relating to her activities on 6 July 2005, culminating in the posting of the notice and other entries made by her in the Commissioner's computer files relating to the company and the appellant made on 27 July and 22 August 2005 (Blue 25, 135). 19 This material, counsel submitted, provided a useful basis for the further cross-examination of Ms King, which may have cast sufficient doubt on her evidence about the posting of the notice to entitle the appellant to a finding that posting on 6 July 2005 had not been established. 20 There are a number of difficulties with this submission. The cross examination on 29 August 2007 did not include any challenge to her evidence about posting the notice, and there is no evidence from the appellant's former counsel that he intended to ask such questions on 15th October had she returned to the witness box. 21 During the procedural tug-of-war on 11, 12 and 13 February 2008 counsel for the appellant made statements which indicated that he did not intend, in any further cross-examination, to challenge Ms King's evidence about posting the notice. On 11 February he said (Black 168) that her absence had "deprived" the defendant "of the opportunity of completing [his] case on the estoppel and … on the agreements." However on 12 February (Black 197J-K) he declined to outline the prejudice the defendant would suffer from the absence of Ms King. 22 On 13 February he said (Black 215 K-L) that the withdrawal of Ms King's second affidavit "has removed the utility of the defendant asking for the relief … sought in the notice of motion" which would have required Ms King to attend for further cross-examination. 23 The following exchange occurred during the defendant's final address on 14 February (Black 276-7): Counsel: "… now what I wish to suggest about the act of posting the letter on 6 July, if it is to be believed, is that one can infer that - I withdraw that. I don't wish to make terribly much your Honour of the credibility of the truth of the statement she posted the letter on 6 July, that's not a plank in my case … Her Honour: Well do I infer that she posted it on 6 July, that's what she says, that's what the documents say which, whenever there were written were written probably about the time that the postage occurred. … Counsel: Yes … Her Honour: There is no evidence for example that the letter and its enclosures were returned to the sender or something like that or that unit 605/88 Berry Street North Sydney was the site of building rubble and a demolished building … The kind of things for which one would infer that it was never delivered Counsel: … now it may have been delivered there, there is no dispute, we are not in a position to say one way or another, because we weren't living there." 24 The relevant evidence of Ms King is supported by the surrounding circumstances. A computer entry (Ex A) dated 5 July (blue 1) read with her evidence (Black 7) established that on that day she reviewed the relevant file. Then at 10:41 she conducted an electronic search of the company's ASIC file to ascertain its registered office and the appellant's residential address (Blue 45). 25 She then prepared a statutory demand directed to the company requiring payment of its outstanding tax liabilities, dated 6 July (Blue 13-4), swore an affidavit verifying the demand dated 5 July (Blue 16-7) and prepared (Blue 38-9) notices under s 222AOE directed to the appellant and his co-director, with covering letters, (Blue 49) also dated 5 July. Ms King said in cross-examination that she prepared these documents on 5 July (Black 29-30). She did not give evidence of posting the 21 day statutory demand with her verifying affidavit, but on 27 July, the company's solicitor telephoned Ms King about the notice and the company's tax liabilities (Blue 25). The appellant did not identify in his evidence when the statutory demand was received at the company's registered office. 26 Given the circumstances, including the statements made by the defendant's counsel the challenges to the judge's finding that postage occurred on 6 July must fail. 27 The other preliminary submission for the appellant was that the notice was invalid because it did not refer to s 222AOC which imposed the substantive liability, because it was ambiguous, and because it would not make it clear to the intended recipient that he was personally liable. The notice, when read with the covering letter, removes any ambiguity, and the two documents together contain the required information. 28 The letter (Blue 41) refers in at least two places to the enclosed notice and incorporates it so as to form a single composite document for legal purposes. The principle that one document may incorporate another by reference is long established: Timmins v Moreland Street Property Co. Ltd [1958] Ch 110 CA. The letter also makes it clear that the appellant was personally liable for the penalty because he was a director "at relevant times", and that the liability was imposed by s 222AOC. 29 The appeal fails and must be dismissed with costs.

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