Brown v Commissioner of Taxation

12. Liability to penalty for new directors is provided for in section 269-20(3) of Schedule 1 to the TAA 1953, which provides: 269-20(3) You are also liable to pay to the Commissioner a penalty if: (a) After the due day, you became a director of the company and began to be under an obligation under section 269-15; and (b) 30 days later, you are still under that obligation. 13. The 30 day period in section 269-20(3) applies to all of a Company's outstanding PAYGW liabilities, and all unpaid SGC liabilities from 1 April 2012. 14. On 24 August 2018, Michael James Brown authorised an employee of the Company to discuss the Company's obligations with the ATO, and make a request for a payment arrangement. 15. It is unclear from the facts provided what steps Michael James Brown himself actually took to have the PAYGW and SGC liabilities paid, particularly between the date of his appointment and at least until 24 August 2018. 16. In light of the above, I decided that Michael James Brown has not satisfied the Commissioner of Taxation of the Commonwealth of Australia that he is not liable to a penalty under Division 269 of Schedule 1 to the TAA 1953 because: a. Michael James Brown took all reasonable steps, or there were no reasonable steps he could have taken to ensure the following happened: i. cause the Company to comply with its obligations; ii. cause an administrator of The Company to be appointed under section 436A, 4368 or 436C of the CA 2001; or iii. cause the Company to begin to be wound up within the meaning of the CA 2001. (Footnotes omitted).

Consideration 51 Mr Frenkel's written submissions are critical of the decision for many reasons. However, in oral argument two matters stood out. 52 First, there is no mention of the Applicant's letter of 27 February 2019 as falling within the materials upon which the decision was based. 53 It will be recalled that that letter not only conveyed further information. It also again specifically drew the Commissioner's attention to the Applicant's submission that in determining what are considered reasonable steps for the purposes of s 269-35(2), the Commissioner must have regard to when and for how long the relevant person was a director and all other relevant circumstances. That submission reflected the terms of s 269-35(3), which had been specifically referred to earlier in the paragraph. 54 The second matter that stood out is that the decision maker does not make any mention of s 269-35(3); notwithstanding her purporting to set out the terms of the defence at paragraph [9] of the statement of reasons. 55 In oral submissions Mr Kaskani submitted that, although it is not mentioned, it may be inferred that the decision maker had taken s 269-35(3) into account. He submits that when the decision maker referred in her findings at paragraph [5(a)] to the dates on which the Applicant had commenced as a director and had ceased to be a director, she had impliedly fulfilled her duty to engage with his case that he had been appointed as a director at a time when the company already had large withholdings of PAYG owed to the Commissioner; that he was a director for only a short period and so on. Also implicit within that reference to the dates of the Applicant's directorship was a rejection of the relevance of those circumstances to the Commissioner's determination of what should be considered to have been "reasonable steps" on the facts of the Applicant's case. 56 I reject that submission. 57 The way that a decision-maker sets out his or her findings of fact may reveal that he or she has misconceived his or her statutory function. As Gleeson CJ, McHugh, Gummow and Hayne JJ held in Minister for Immigration and Multicultural Affairs v Yusuf [2001] HCA 30; 206 CLR 323 (Yusuf) at [69] (applied by the Full Court of the Federal Court of Australia in Soliman v University of Technology, Sydney [2012] FCAFC 146; 207 FCR 277 (Marshall, North and Flick JJ) at [54]): The Tribunal's identification of what it considered to be the material questions of fact may demonstrate that it took into account some irrelevant consideration or did not take into account some relevant consideration … (Emphasis in original). 58 The same principle applies where a decision maker supplies reasons requested pursuant to the ADJR Act. An omission in the reasons so supplied may reveal that the decision maker has made a reviewable error of law: Yusuf at [10]. Scrutiny of this kind enables the courts to supervise the work of tribunals and other decision makers, and ensure that they act according to law. As Rares J observed in Minister for Immigration and Citizenship v SZLSP [2010] FCAFC 108; 187 FCR 362 at [86]: Hence, the importance the courts have placed on the absence from the written statement… of some matter that would have demonstrated that the decision was made according to law or not affected by jurisdictional error. A written statement ensures transparency in the tribunal's exercise of a power conferred on it by the Parliament. This transparency is essential … to enable the Court to exercise the judicial power of the Commonwealth in reviewing whether the decision was made according to law or affected by a jurisdictional error. 59 In Yusuf, the plurality held (at [69]) that where a decision maker has a duty to give reasons a reviewing court is entitled to infer "that any matter not mentioned …was not considered … to be material". It is well established that a party seeking, on judicial review of a such a decision, to contend that a decision maker's stated reasons should be augmented by one or more unstated findings faces a difficult task: see Spruill v Minister for Immigration and Citizenship [2012] FCA 1401 per Robertson J at [18] and Tauariki v Minister for Immigration and Citizenship [2012] FCA 1408 per Cowdroy J at [43]-[44]. 60 That is not to construe what the High Court said in Yusuf as elevating, to a fixed rule of law, the proposition that a reviewing court must always conclude that any matter not mentioned by a decision maker was not considered to be material. The way a decision is expressed, read fairly and in context, will sometimes show that a decision maker has made a particular finding: despite there being no mention of it in his or her reasons. 61 Mr Kaskani is correct that the relevant decision is entitled to be read fairly, in the context in which it appears, and not parsed cynically to expose error. However, I am unpersuaded that the decision, even beneficially read, permits the construction for which he contends. In my view, the reasons provided reveal nothing as would suggest that the decision maker identified the provisions of s 269-35(3) as a potentially relevant component of the statutory defence. Nor is there anything to suggest that the decision maker gave attention to applying the information supplied to her on behalf of the Applicant to the defence provided for in s 269-35(2) having regard to that statutory text. 62 In my opinion, the Applicant has established reviewable error in the relevant decision involving either an error of law (ADJR Act s 5(1)(f)) or a failure to take a relevant consideration into account in the exercise of the decision maker's power (ADJR Act s 5(2)(b)). 63 In reaching that conclusion, I reject Mr Kaskani's responsive oral submission: ….our reading of the provision is one that subsection (3) is only enlivened when one has regard to what is contained in subsection (2). So if we work backwards, we start with subsection (4A) where the applicant is given an opportunity to provide information in order to substantiate his or her defence under subsection (2). And the provision specifically says: The Commissioner must be satisfied of the matters mentioned in subsection (1) or (2) of this section, on the basis of that information. …. Subsection (2) is, the all reasonable steps. So one says, "Okay, the information that the applicant must provide must deal with all reasonable steps for the entire period, or that there were on reasonable steps that could have been taken for that entire period," and they are matters that the courts have made clear. And your Honour's point is but before you do that, (3) also says in determining what are reasonable steps for the purposes of subsection (2), have regard to when and for how long around directorship and management, and all other relevant circumstances. I say that in - I read it out in that way, or I address it in that way, your Honour, because we don't see (3) as limiting the decisions or the way in which the decisions approach the obligations on the taxpayer to deal with information that addresses all relevant steps, all reasonable steps for the entire period. 64 I reject that submission because the text of s 269-35(3) makes it plain that that provision has operation "in determining" what are reasonable steps for the purposes of s 269-35(2). It has no further operation after that has been determined.

The futility contention 65 Section 16(1) of the ADJR Act relevantly provides: Powers of the Federal Court and the Federal Circuit Court in respect of applications for order of review (1) On an application for an order of review in respect of a decision, the Federal Court or the Federal Circuit Court may, in its discretion, make all or any of the following orders: (a) an order quashing or setting aside the decision, or a part of the decision, with effect from the date of the order or from such earlier or later date as the court specifies; (b) an order referring the matter to which the decision relates to the person who made the decision for further consideration, subject to such directions as the court thinks fit; (c) an order declaring the rights of the parties in respect of any matter to which the decision relates; (d) an order directing any of the parties to do, or to refrain from doing, any act or thing the doing, or the refraining from the doing, of which the court considers necessary to do justice between the parties. 66 For the Commissioner, Mr Kaskani correctly observes that remedies under the ADJR Act are not as of right. They are discretionary. One reason for which a remedy may be refused is futility.

Provision of information 67 Mr Kaskani submits that having regard to the observations of the decision maker at paragraph [15] and the absence of any information submitted on the Applicant's behalf to explain what action he took prior to 24 August 2019 to have the company's PAYG and SGC liabilities met, it would be futile to remit the decision to the Commissioner. 68 Mr Kaskani submits that the reasoning of the New South Wales Court of Appeal in Canty v Deputy Commissioner of Taxation [2005] NSWCA 84; 63 NSWLR 152 (Canty) per Handley JA at [45]-[46] (Beazley and Santow JJA concurring) applies so that the defence advanced must be rejected in that circumstance. The paragraphs to which Mr Kaskani referred the Court were as follows: 45. Under s 222AOJ(3) it is a defence if the defendant proves that he or she "took all reasonable steps to ensure that the directors complied with" the obligation, or that "there were no such steps that the person could have taken" (emphasis added). The natural meaning is that the combined defences must cover the whole of the period between the breach of the obligation on the due date and the expiry of the notice. 46. Proof that nothing could have been done at various times during this period would not establish that nothing could have been done at other times. Proof that the person took all reasonable steps at various times would not establish that he or she took all reasonable steps. 69 Mr Kaskani submits: There are no facts here in relation to the period from 31 May to 24 August and I apprehend, well, other than the fact that he was a director, obviously, during that period. And let's say, your Honour, for argument's sake, that it's Mr Brown's case that he did not take part in any management of the company. That he was completely sidelined, and he did nothing and he relied on accountants and bookkeepers and he relied on other professionals to do the work. Then of course subsection (3) would be highly relevant because that would be something that when he presents the information that he does in respect of the entire period, the decision-maker is directed to, "Well, you need to look at the extent to which he took part in management or failed to take part in management." Perversely, not taking part in management assists him, rather than understanding all of his obligations. The difficulty we have here - - - 70 However, that submission proceeded on the premise that I have rejected above at [63]-[64]. I am satisfied that, where relevant, s 269-35(3) operates at the threshold when a decision maker is determining what are to be understood as "reasonable steps". 71 The important qualification I express in the above is "where relevant". In Canty, s 269-35(3) (or more precisely its predecessor provision as similarly expressed) was not relevant. In that case, the appeal turned on whether the provisions of then Subdiv B of Div 9 of Pt VI of the Income Tax Assessment Act 1936 (Cth) applied to a former director after his resignation. It was held that it did. No point is taken in that regard in these proceedings. 72 In the facts that applied in Canty, the equivalent of s 269-35(3) was not relevant. 73 That s 269-35(3) went unmentioned in Canty is unsurprising, because the former director in that case had been one of two directors of the company from 1996 until his resignation on 31 August 1999 (see Canty at [2]-[3]). No issue of his only having assumed that role recently was relevant. Handley JA's observations as set out above and as to what objectively the former director ought to have known about the company's liabilities are to be understood in light of the Court's finding that the former director had actual knowledge of the company's financial difficulties, its arrears and past defaults (see Canty at [58]). 74 For those reasons I reject the proposition that Canty can be applied as if it determines the outcome where s 269-35(3) is (not implausibly) called in aid to determine what "reasonable steps" are required of a director who has held office for only a short period, in circumstances where that question is specifically relevant. 75 In compliance with leave granted, after oral submissions the Commissioner also drew the Court's attention to the decision in Roche v Deputy Commissioner of Taxation [2015] WASCA 196 (Roche) in which the Western Australia Court of Appeal dismissed an appeal from a decision of the Master that summary judgment be entered in the Commissioner's favour on the basis that the appellant had no arguable defence to the Commissioner's claim. The Court of Appeal - Buss, Newnes and Murphy JJA - applied Canty. However, the facts in Roche similarly did not plausibly engage with the potential application of s 269-35(3). I am accordingly satisfied that that case is, for the same reason, equally distinguishable. 76 In addition, I note that the premise for the defence advanced by the former director in Canty was entirely different to the circumstances of the present case. The premise advanced in Canty was as follows: Defence of reasonable steps 31. The appellant's defence under s 222AOJ(3) (see at 155 [10] supra) as pleaded was that he had taken all reasonable steps to ensure that the directors had complied with s 222AOB(1), or there were no such steps that could have been taken. The trial judge held that the defence failed because there was no evidence that the appellant had taken any steps to cause the company to comply with s 222AOB(1)(b) by making an agreement with the Commissioner under s 222ALA. This is factually correct but the appellant argued that it was legally incorrect. (Emphasis added). 77 By contrast, in the Applicant's instance it is not contentious that on becoming aware of his company's indebtedness to the Commissioner he had voluntarily ensured that the Commissioner was provided with all relevant company records. He then had arranged for the company on 24 August 2018 to offer to make an agreement with the Commissioner for payment by instalments. He had subsequently authorised the company to make an initial payment of $10,000 in earnest of that proposal. The Commissioner's decision to reject that proposal was not communicated to the company until 10 September 2018: over a fortnight later, and nine days after the Applicant had resigned as a director. 78 Mr Kaskani accepts that the period over which the Applicant was required to explain his conduct to make good a defence with respect to the first DPN was from the date on which he became liable, to 17 September 2018. 79 In Canty, Handley JA reasoned: 37. The defence under par (a) is that the person "took all reasonable steps to ensure that the directors complied with subsection 222AOB(1)". Compliance would be achieved if any one of those events were to occur. Thus if payment was made there is no need for an agreement, an administrator, or a liquidator. If payment was being pursued the other courses would for the time being be unnecessary and counterproductive. If payment is out of the question or cannot be achieved the person bound must address the other steps. If winding up then becomes the preferred option there will be no need for the time being to seek the appointment of an administrator. 38. The defences under par (a) and par (b) are cumulative not mutually exclusive. A defendant may establish that there was nothing that could reasonably be done to achieve payment. He or she may also establish that there was no point in attempting to negotiate an agreement with the Commissioner. In such a case the defence under par (b) would succeed pro tanto leaving the defence under par (a) to address the remaining options. 39. In other cases the defence under par (b) may succeed in relation to all options, so that the defence under par (a) need not be considered. If the only feasible options are the appointment of an administrator or a liquidator a person under the duty, acting reasonably, may decide to seek a winding up. If so, he or she will not be acting unreasonably by doing nothing to secure the appointment of an administrator at that stage. The converse will also be true. 80 Although it is not necessary to decide the point in these proceedings, what his Honour appears to be suggesting in those paragraphs is that where an instalment proposal remains in prospect, no other step (administration or winding up) is reasonably required (see also Canty at [41]). 81 It is not necessary to decide that issue because it is not open to this Court to substitute the decision of the New South Wales Court of Appeal in Canty for the text of the statute, where the facts of that case are relevantly distinguishable. 82 Mr Kaskani accepts that this Court should not refuse relief on the ground of futility unless it is established to be inevitable that on remittal relief would be refused. If a decision has been established to be legally flawed and a different outcome sought on remittal is arguably legally open, the merits are exclusively a question for the Commissioner. That is as I find the position to be in the present circumstances.

Concurrent proceedings 83 Finally, I turn to the Commissioner's submission that there would be no utility in the relief sought because the issue of whether the relevant defence can be made good will be determined finally in the judicial proceedings pending in the Supreme Court of Queensland. 84 On first blush, there is much force in that submission. 85 The Applicant in the present proceedings, being the respondent in the proceedings before the Supreme Court of Queensland, has in that forum also asserted a defence based on s 269-35(2). 86 However, that is where the position bifurcates. Having regard to s 269-35(4), the defence provided for in s 269-25(2) "does not apply" unless the respondent proves the relevant matters. It will thus be open to Mr Brown in those curial proceedings to adduce such evidence as he sees fit in that regard. He will not be confined to the evidence or submissions advanced to the Commissioner as are material to these proceedings. 87 Mr Kaskani and Mr Frenkel agree that if this Court sets aside the decision under review and remits it for the Commissioner's reconsideration then no issue of inconsistency (in the legal sense) will arise. That is because the Commissioner's decision was required to be based on the information provided to him within the relevant 60 days. It will remain limited to the same information, even if remitted. By contrast, the proceedings in the Supreme Court of Queensland will potentially take into account other evidence. 88 The parties have not reached any agreement as between themselves as would avoid parallel administrative and judicial proceedings. It can be accepted to be unusual that Div 269 proceeds on the basis that the evidence or information available in each review can differ. It is nonetheless entirely possible that the Commissioner may uphold a defence applying s 269-35(4A), while a Court having regard to different evidence adduced pursuant to s 269-35(4) might come to the contrary conclusion (and vice-versa). As the parties submit, I accept that any difference in outcome would not indicate that one finding was in error. 89 In those circumstances, Mr Frenkel submits that it cannot be concluded that there will be no utility in a remission. While the curial proceedings will determine whether the defence sought to be relied upon by the Applicant in that proceeding succeeds, that determination will not affect the outcome of self-help remedies pursued or liable to be pursued by the Commissioner. 90 In that regard, Mr Frenkel points out that the Commissioner has withheld the Applicant's personal tax refund for the 2018 financial year and has applied those funds to the debt the subject of the DPNs. Mr Kaskani accepts that the way in which s 269-35(4A) is intended to operate is that if the Applicant makes good his defence on remittal, then that amount would be required to be returned to the Applicant. 91 Having regard to the parties' respective submissions, it is thus clear that the existence of parallel judicial proceedings do not deprive the relief sought of legal utility.

Orders and disposition 92 These reasons have focused on the first DPN notice. Mr Frenkel took no point that there may not have been technical compliance with the obligation to give notice of pending enforcement of the other penalties sought, such that the Applicant would have 60 days to advance any defence in respect of the sums due under those two further DPNs. He was content to proceed on the basis that the Applicant had received informal notice and had relied on the same defence in respect of those further two notices. In the circumstance that the Applicant has established that his grounds of review are made out in respect of the first notice, there is no reason why that the decision, expressed in terms of all of the three DPNs, should not be remitted for reconsideration on that basis. Mr Kaskani does not submit otherwise. I accept that to be the case. 93 I will order that the matter, as embraces all three DPNs, be remitted to the Commissioner for determination according to law. 94 Having heard the parties on the question of costs, the Respondent does not resist the proposition that costs should follow the event. I will so order. I certify that the preceding ninety-four (94) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kerr.