Deputy Commissioner of Taxation v Chen

Judgment 1The plaintiff by statement of claim filed on 22 February 2011 claims the sum of $214,926.08 from the defendant, a director of Briter Construction Pty Ltd (ACN 093 231 200), following the issuing of a director penalty notice ("DPN") served pursuant to the Income Tax Assessment Act 1936 (Cth) ("the Act"). 2The DPN lists 33 periods of withholding on a monthly basis, over the time frame 1 May 2002 to 28 February 2005. Each of these individual claims adds up to $218,469. These were sums which Briter Construction Pty Ltd withheld from employees' income tax to be remitted to the Australian Taxation Office, but failed to do so. By way of offset, allowance has been made for $3,542.92 comprising either payments by the defendant or credits allocated by the Deputy Commissioner of Taxation in partial satisfaction of the debt. Consequently, the total unpaid liabilities sought by the plaintiff is $214,926.08. 3By reason of the provisions of s 222AOC of the Act, the defendant, as a director of a company, becomes liable automatically to a penalty each to the amount unpaid by the company where a DPN has been served. By letter dated 30 March 2006, the Deputy Commissioner of Taxation gave the defendant notice of his liability as to a penalty and set out the three ways listed in s 222AOE(b) in which the penalty might be remitted. The company was put into liquidation, but this was some time after the 14-day period provided for in the Act. 4The defence filed in these proceedings raises the following issues: (1)A denial that the money was withheld on behalf of its employees (paragraph 3). This was not pursued at the hearing; (2)A denial that the company failed to comply with s 222AOB of the Act. This was not pursued at the trial. (3)A denial that the defendant received the DPN dated 30 March 2006, as the notice was not sent to the defendant's place of living at that time (paragraph 9(a)); (4)A claim that the DPN is "defective, misleading and deceptive and hence is invalid" (paragraph 9(b)); (5)A claim that the plaintiff has admitted the DPN is "declared invalid" and it is therefore "not effective against the defendant". 5I note that none of the statutory defences available to the defendant under s 222AOJ of the Act has been pleaded or relied upon. 6The circumstances in which the penalty amount arose not being in dispute, I shall now consider the two main basis upon which the amount sought from the plaintiff is challenged. Was the DPN properly served? 7The defendant contends that the DPN dated 30 March 2006 was never received by him at accordingly claims that the notice has not been properly served in accordance with the requirements of s 222AOF of the Act. 8Section 222AOF interacts with ss 28A and 29 of the Acts Interpretation Act 1901 (Cth) and s 205B of the Corporations Act 2001 (Cth) as follows. 9Section 205B of the Corporations Act 2001 (Cth) requires a company and its directors to provide certain information. Section 205B provides as follows: " Notice of name and address of directors and secretaries to ASIC New directors or secretaries (1) A company must lodge with ASIC a notice of the personal details of a director or secretary within 28 days after they are appointed. The notice must be in the prescribed form. Note 1: If a person becomes a director under subsection 120(1) there is no appointment and no notice is required under this subsection. Note 2: If a person who was appointed as an alternate director becomes a director under the terms of their appointment as an alternate director, there is no appointment as a director and no notice is required under this subsection. New alternate directors (2) A company must lodge with ASIC a notice of: (a) the personal details of a person who is appointed as an alternate director; and (b) the terms of their appointment (including terms about when the alternate director is to act as a director); within 28 days after their appointment as an alternate director. The notice must be in the prescribed form. Personal details (3) The personal details of a director, alternate director, or secretary are: (a) their given and family names; and (b) all of their former given and family names; and (c) their date and place of birth; and (d) their address. Note: For address see section 205D. Changes in details (4) The company must lodge with ASIC notice of any change in the personal details of a director, alternate director or secretary within 28 days after the change. The notice must be in the prescribed form. Notice required if person stops being a director or secretary (5) If a person stops being a director, alternate director or secretary of the company, the company must lodge with ASIC notice of the fact within 28 days. The notice must be in the prescribed form. (6) Subsection (5) does not apply if: (a) the person was an alternate director who stopped being a director in accordance with the terms of their appointment as an alternate director; or (b) the person gives ASIC a written notice of the person's retirement or resignation as a director, alternate director or secretary of the company in accordance with section 205A. Note: A defendant bears an evidential burden in relation to the matter in subsection (6), see subsection 13.3(3) of the Criminal Code . (7) An offence based on subsection (1), (2), (4) or (5) is an offence of strict liability. Note: For strict liability , see section 6.1 of the Criminal Code ." 10An important word in s 205B is the word "personal". Section 205B(3)(d) refers to the address of a director as being part of the director's personal details. Section 205D(1) provides: "(1) A person's address for the purposes of a notice or application under subsection 5H(2), 117(2), 205B(1), (2) or (4) or 601BC(2) must be their usual residential address unless they are entitled to have an alternative address substituted for their usual residential address under subsection (2)." 11Section 205B imposes an obligation on both the company and on the defendant. The defendant's personal obligation was to ensure the company lodged not only his residential address but any notice of change in personal details when he changed that residential address. 12The defendant never gave his residential address to ASIC. The address he gave at all relevant times from 2000 up until the present day was the address occupied by the company for the period up until March 2005. The defendant's explanation for this, in cross-examination, was that he had had a number of items stolen from his mailbox. 13The defendant told the court that after the company had moved, and the new company address was notified to the ASIC, he had also forwarded to ASIC the relevant information concerning his new address. He did not have a copy of this letter and said this was because firstly this was a very small office with very few documents, and secondly that there had been quite a few thefts. 14The obligation of a director to provide a personal address to the ASIC is a serious matter. Not only must that address be up to date, but it has to be the residential address. By this means, if there are any disputes or other difficulties arising from company difficulties, organisations such as the Australian Taxation Office can be sure of a certain address to which to send notices in accordance with the provisions of the Act. 15I do not accept the evidence of the defendant that he did in fact send a notice of change of address to the ASIC. It is inconsistent with his claim of concern about items being stolen from his home mail address. 16I am satisfied that the defendant failed to comply with s 205B and as a result it is his own fault that the ASIC records are out of date. 17However, whether the defendant sent a notice of change of residential address to the ASIC or not, a DPN sent to an address found in the ASIC records will satisfy the requirements for service: Robertson v Deputy Commissioner of Taxation [2010] NSWCA 58 at [10], [43] and [49]. Notice is still validly served even if it is sent to such an address whether it is received or not: Deputy Commissioner of Taxation v Gruber [1998] 43 NSWLR 271 at 277. The risk of loss in the postal system rest with the recipient of the letter: Deputy Commissioner of Taxation v Meredith [2007] NSWCA 354 at [76]. 18By reason of s 29 of the Acts Interpretation Act 1901 (Cth), service is deemed to be effected by properly addressing, prepaying and posting the DPN and unless the contrary is proved, the document is deemed to be served: Soong v Deputy Commissioner of Taxation [2011] NSWCA 26 at [52]. I accept the submissions of the plaintiff that by forwarding the DPN to the MASCOT address, service has been effected. This means that service was effected about four business days after the document was posted by Ms Welch on 30 March 2006, namely Wednesday 5 April 2006. Is the DPN misleading by reason of inclusion of two incorrect amounts, and thus invalid? 19A DPN is invalid if it is misleading. The question of whether a DPN is capable of being misleading is a objective one: Deputy Commissioner of Taxation v Gruber at 276. 20The facts in Deputy Commissioner of Taxation v Gruber were as follows. The appellant were served with two DPNs, the terms of which were in substantial contradiction to each other. There were also substantial errors of addition and the amount claimed by way of penalty ($582,662.81) was in fact about $130,000 in excess of what should have been claimed (namely $453,487.08). In addition, although the point was not taken before me by reason of subsequent decisions to the contrary, the court took into account the notice did not specify the "due dates" on which the total sum claimed was payable. 21In holding that the notice was invalid, Stein JA at 276 said: "It seems to me that to any recipient the amount of the liability for the penalty is the most important aspect of the notice. It needs to be correct. It was not. Rather it was some $130,000 in excess of what it should have been had the "total" been accurate." 22This is what led the Queensland Court of Appeal in Deputy Commissioner of Taxation v Falzon [2008] QCA 327 at [67] to note that the overstatement of the "total" was the principle reason for the court's conclusion that the notice was invalid. 23In Deputy Commissioner of Taxation v Gruber , the court held that the errors could not be "blue pencilled" out without affecting the sense, nature and substance of the document which remained. In my view, as the Queensland Court of Appeal points out in Deputy Commissioner of Taxation v Falzon , this was because of the significantly wrong total amount as well as the confusion caused by the transposing of items owing for certain months. Since these errors caused the individual sums the subject of individual DPNs to become intermingled, the whole of the DPN was infected with error. 24That is not the case here. Two of the entries in the DPN of 30 March 2006, namely the sum of $4,724 for the period 1 June to 30 June 2002 (the third item in the list) and the sum of $871, namely the amount for the period 1 March to 31 March 2005 (the last item in the list) are not the subject of any claim. 25The form of the document makes it clear that each of these items is a separate claim. As Fraser JA explains in Deputy Commissioner of Taxation v Falzon at [72], each amount represents a separate liability and the fact that they are merged in a document formed a composite is merely a matter of convenience. Fraser JA went on to note that if the Deputy Commissioner of Taxation had issued a series of separate notices, then an error in one could not affect the validity in the others: "[72] DPN2 made it perfectly clear that each amount tabulated in it represented a separate liability of the company. Those amounts were included in a composite form only as a matter of convenience. The respondent might equally have issued a series of separate notices and served them upon the director at the same time. The applicant disavowed a contention that in such a case an error in any one such notice would invalidate the other notices. I do not see that the position is any different merely because, as a matter of convenience, what are in substance and effect a series of separate notices are combined in one composite notice that makes it clear that each liability asserted in it is separate and distinct from each other asserted liability." 26His Honour went on to note at [74]-[75]: "[74] I conclude that the notice DPN2 fulfilled the statutory purposes and was not misleading in relation to those liabilities asserted in it that were relevant to the respondent's claim, despite the error or errors in other liabilities asserted in it. [75] That being so, my opinion is that upon the proper construction of s 222AOE of ITAA the misstatement or misstatements of asserted unpaid liabilities of the company in this form of director's penalty notice did not invalidate that notice so far as it concerned the other, correctly stated unpaid liabilities of the company." 27The New South Wales Court of Appeal in Forsyth v Deputy Commissioner of Taxation [2004] NSWCA 474 similarly noted at [56]: "[56] It was first submitted that these two notices were "tainted" by the invalidity of DPN1. Even if I had found that DPN1 was in some manner invalid I can see no reason why the invalidity should infect DPN2 and 3. This is not a case, as occurred in Gruber, in which there were two notices each of which showed a different amount owing with respect to the same liability. The absence of linkage is emphasised by the fact that the sole basis on which it was submitted that DPN1 was invalid was by reason of the fact that it did not contain the information set out in DPN2. It is difficult to see how, if the Court had found that DPN1 were invalid, that that could in some way infect DPN2." 28A similar point was made in Deputy Commissioner of Taxation v Gruber at 274: " Can there be a composite document? While there is no express authorisation in the Act for a document to encompass a number of months of unremitted group tax we were informed that it is the common practice. This is hardly surprising. It would be inconvenient to have to give multiple notices, one in respect of each month of separate liability under s 222 AOC . In this case fourteen notices would have been necessary (July 1993- November 1994). For my part I do not see why a notice may not be a composite document provided that the notice separately includes the amount of each obligation and informs the recipient that it is a notice in respect of each obligation. However, having given a single composite notice it seems to me to be only reasonable that the Commissioner bear any consequences which follow." 29This brings me to the question of whether the DPN served in this case can be said to be misleading by reason of the inclusion of notices for two items which are invalidly claimed. 30In Deputy Commissioner of Taxation v Woodhams (2000) 199 CLR 370 at [24], the High Court set out the text of the s 222AOE notice. Counsel for the plaintiff in his helpful submissions points out that the form of the DPN in Deputy Commissioner of Taxation v Woodhams is virtually identical (except that the amount to be paid by way of penalty has not been included, which is in favour of the plaintiff in these proceedings). The form of the DPN was not found to be misleading in Deputy Commissioner of Taxation v Woodhams . The High Court noted at [30] that whereas the notices served in Deputy Commissioner of Taxation v Gruber "contained a number of substantial errors, including miscalculations of the sums demanded" and noted that the decision in Deputy Commissioner of Taxation v Gruber , insofar as it held that a notice was required to set out the due date of amounts to be remitted was erroneous and should be overruled. The High Court went on to explain at [41]: "[41] It was argued that the notices, and the letter, in asserting in a peremptory and summary fashion the recipient's liability to a penalty, incorrectly represented the true position. The existence of liability of the kind asserted depended upon a number of facts and circumstances which, at least in theory, might have been open to question or dispute. (In fact, they were not disputed in the subsequent recovery action.) This argument proceeds upon a false premise as to the purpose of the statutory notices. They were not intended to explain the legal basis of the asserted liability. They were notices before action; not pleadings. They were designed to serve a specific purpose, explained above." 31Service of a DPN gives raise to three potential courses of action, as set out in s 222AOE(b), which will result in remission of the penalty ( Deputy Commissioner of Taxation v Woodhams at [38]). As the High Court pointed out, this is the purpose of the notice, and the fact that there was a question or dispute which was to be resolved in the defendant's favour in relation to one or more of these sums does not invalidate the DPNs' for other sums, whether those DPNs are served separately to, or on the same document as, the sums for which a claim is made where it transpires there is in fact no liability. Was the DPN dated 18 March 2010 a factor in rendering the DPN dated 30 March 2006 invalid? 32A second DPN was issued on 18 March 2010. 33This notice was served under a cover which stated: "The second document, which accompanies this letter, is a composite of Notices issued pursuant to s 222AOE of the Act and replaces the notices within the first document which have been declared invalid". 34What this means is that two of the notices issued on 30 March 2006 have been deemed to be invalid. The letter goes on to explain that these are the notices for 1 June to 30 June 2002 and 1 March to 31 March 2005. There is no concession that the notices for the other 33 periods are invalid, and this appears to be conceded on behalf of the defendant in the course of proceedings. 35What the defendant sought to argue was that the issuing of the second notice dated 18 March 2010, which was invalid by reason of the fact that the company had gone into liquidation, in some way retrospectively invalidated the otherwise valid notices for the 33 claims where there was no concession as to invalidity. 36No argument was put to me that by reason of waiver, estoppel or delay, the issuing of a second (and invalid) DPN in some way invalidated the first. It was, however, argued in reliance upon Deputy Commissioner of Taxation v Gruber , that the issuing of a second DPN was misleading. 37I do not accept this argument. The contents of the 2010 DPN were identical to the 2006 DPN; the sole difference was that the two amounts which it had been agreed were invalid were all that was claimed. Applying the objective test as set out in Deputy Commissioner of Taxation v Gruber at 276, the contents of the second DPN were not misleading. 38I am satisfied that the Deputy Commissioner of Taxation did not concede that the DPN was invalid as a whole, nor is it the case that the issuing of a second notice invalidates the 33 items in the first notice. 39There being no plea of any of the statutory defences as set out in s 222AOJ, the defendant has failed to establish the grounds set out in his defence. I formally note the evidentiary certificate for the amount claimed, which certifies the amount of the debt in accordance with s 255-45 of the Taxation Administration Act 1953 (Cth). 40During the hearing the plaintiff told me that there was no claim for interest. When I listed the matter to hand down judgment on 29 March 2011, the plaintiff had changed its position, so I have included this in the liberty to apply and added this extra paragraph of the judgment. I have also deleted a sentence from paragraph 32 which erroneously described the second DPN.